<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GREENE COUNTY BANCORP, INC.
(Name of Small Business Issuer in Its Charter)
------------------------
<TABLE>
<S> <C> <C>
DELAWARE (TO BE APPLIED
FOR)
(State or Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification
No.)
</TABLE>
------------------------
425 MAIN & CHURCH STREETS
CATSKILL, NEW YORK 12414
(518) 943-3700
(Address and Telephone Number of Principal Executive Offices)
------------------------
425 MAIN & CHURCH STREETS
CATSKILL, NEW YORK 12414
(518) 943-3700
(Address of Principal Place of Business or Intended Principal Place of Business)
------------------------
J. BRUCE WHITTAKER
425 MAIN & CHURCH STREETS
CATSKILL, NEW YORK 12414
(518) 943-3700
(Name, Address and Telephone Number of Agent for Service)
------------------------
COPIES TO:
ERIC LUSE, ESQ.
ROBERT B. POMERENK, ESQ.
LUSE LEHMAN GORMAN POMERENK & SCHICK, P.C.
5335 WISCONSIN AVENUE, N.W.
SUITE 400
WASHINGTON, D.C. 20015
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If this form is filed to register additional shares for an offering pursuant
to Rule 462(b) 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 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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 the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box: / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT OFFERING PRICE (1) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.10 par value shares per share.... 1,266,876 $10.00 $12,668,760 $3,750
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION 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 SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
UP TO 1,266,876 SHARES OF COMMON STOCK GREENE COUNTY BANCORP, INC.
425 MAIN & CHURCH STREETS
CATSKILL, NEW YORK 12414-1300
(518) 943-3700
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- --------------------------------------------------------------------------------
Greene County Savings Bank, a New York chartered savings bank (the "Bank"),
is reorganizing from the mutual form of ownership to the mutual holding company
form of organization (the "Reorganization"). As part of the Reorganization, the
Bank will convert to stock form, change its name to "The Bank of Greene County",
and become a wholly-owned subsidiary of Greene County Bancorp, Inc., a Delaware
corporation (the "Company"). The Company will become the majority owned
subsidiary of Greene County Bancorp, MHC, a New York chartered mutual holding
company (the "Mutual Company"). Concurrent with the Reorganization, the Company
is offering for sale shares of its common stock, par value $.10 per share (the
"Common Stock") to depositors (pursuant to subscription rights), the Bank's
tax-qualified employee benefit plans including its employee stock ownership
plan, and to employees, officers and trustees of the Bank. Any unsubscribed
shares of Common Stock may be offered for sale to the public in a community
offering or syndicated community offering (the subscription and community
offerings are referred to collectively as the "Offering"). The Reorganization
and Offering are being made pursuant to the terms of a plan of reorganization
which must be approved by the depositors of the Bank and by federal and state
banking regulators. The Reorganization will not go forward if the Bank does not
receive these approvals, or if the Company does not sell at least a minimum
number of the shares of Common Stock offered.
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TERMS OF OFFERING
An independent appraiser has estimated the pro forma market value of the
Company to be between $17.9 million and $24.3 million. Based on this estimate,
the Company will issue between 1,829,370 and 2,475,030 shares of Common Stock.
The Company is selling between 814,249 and 1,101,631 shares, to depositors and
the public, and is issuing between 979,213 and 1,324,817 shares, to the Mutual
Company. The Company may increase the shares it issues in the Reorganization to
up to 2,846,285 shares and increase the shares sold in the Offering to up to
1,266,876 shares, subject to regulatory approvals. As part of the
Reorganization, up to 42,183 shares, or 1.96% of the shares issued in the
Reorganization at the mid-point of the estimated valuation range, are being
issued to a Charitable Foundation. Consequently, following completion of the
Reorganization and Offering, the Mutual Company will own 53.53% of the
outstanding Common Stock, stockholders who purchase Common Stock in the Offering
will own 44.51% of the Common Stock outstanding and the Charitable Foundation
will own 1.96% of the outstanding Common Stock. Based on these estimates, the
Company is making the following offering of shares of Common Stock.
<TABLE>
<CAPTION>
MINIMUM MIDPOINT MAXIMUM ADJUSTED MAXIMUM
<S> <C> <C> <C> <C>
- - Price per share............................... $10.00 $10.00 $10.00 $10.00
- - Number of shares.............................. 814,249 957,940 1,101,631 1,266,876
- - Reorganization expenses....................... $560,000 $560,000 $560,000 $560,000
- - Net Proceeds.................................. $7,582,490 $9,019,400 $10,456,310 $12,108,760
- - Net Proceeds per share........................ $9.31 $9.41 $9.49 $9.56
</TABLE>
PLEASE REFER TO RISK FACTORS BEGINNING ON PAGE OF THIS PROSPECTUS.
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR
GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (THE "FDIC") OR ANY
OTHER GOVERNMENT AGENCY.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), THE NEW YORK
STATE BANKING DEPARTMENT (THE "DEPARTMENT"), THE FDIC, 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.
Friedman, Billings, Ramsey & Co., Inc. will use its best efforts to assist
the Company in selling at least the minimum number of shares but does not
guarantee that this number will be sold. All funds received from subscribers
will be held in an interest bearing savings account at the Bank until the
completion or termination of the Reorganization. The Company has received
conditional approval to list the Common Stock on the Nasdaq SmallCap Market
under the symbol " ."
For information on how to subscribe, call the Stock Center at (518)
943-7515.
--------------------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
PROSPECTUS DATED NOVEMBER , 1998
<PAGE>
MAP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary and Overview...................................................... 4
Selected Financial Information............................................ 10
Risk Factors.............................................................. 12
Greene County Bancorp, Inc................................................ 17
Greene County Savings Bank................................................ 18
Market Area............................................................... 18
Regulatory Capital Compliance............................................. 19
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 21
Market for Common Stock................................................... 21
Capitalization............................................................ 22
Pro Forma Data............................................................ 23
Comparison of Valuation and Pro Forma Information Without Foundation...... 27
Participation by Management............................................... 28
The Reorganization and Offering........................................... 29
Greene County Savings Bank Statements of Income........................... 46
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 47
Business of Greene County Bancorp, Inc.................................... 59
Business of the Bank...................................................... 60
Federal and State Taxation................................................ 76
Regulation................................................................ 78
Management of Greene County Bancorp, Inc.................................. 88
Management of the Bank.................................................... 89
Restrictions on Acquisition of the Company................................ 97
Description of Capital Stock of the Company............................... 98
Transfer Agent and Registrar.............................................. 99
Legal and Tax Matters..................................................... 99
Experts................................................................... 99
Additional Information.................................................... 100
</TABLE>
------------------------
THIS DOCUMENT CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE
SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS" BEGINNING ON PAGE OF THIS PROSPECTUS.
PLEASE SEE THE GLOSSARY BEGINNING ON PAGE G-L FOR THE MEANING OF CAPITALIZED
TERMS THAT ARE USED IN THIS PROSPECTUS.
i
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE STOCK OFFERING
Q: WHAT IS THE MUTUAL COMPANY?
A: Greene County Bancorp, MHC (the "Mutual Company") is a New York-chartered
mutual corporation that is being established in connection with the mutual
holding company reorganization (the "Reorganization") of Greene County
Savings Bank (the "Bank"). The Mutual Company will be chartered under the
laws of the State of New York and will be regulated by the New York Banking
Department (the "Department") and the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"). The Mutual Company will own
53.53% of the outstanding Common Stock of Greene County Bancorp, Inc. (the
"Company"), or 1,152,015 shares at the midpoint of the valuation range
established by the independent appraisal. The remaining 46.47% of the Common
Stock of the Company will be owned by persons who purchase Common Stock in
the Offering, and The Bank of Greene County Charitable Foundation (the
"Charitable Foundation").
Q: WHO WILL BE THE MINORITY STOCKHOLDERS OF THE COMPANY?
A: All persons who purchase Common Stock in the Offering, including the employee
stock ownership plan ("ESOP") of the Bank as well as the Charitable
Foundation, will be the minority stockholders (the "Minority Stockholders")
of the Bank, and will own 46.47% of its Common Stock upon completion of the
Offering. The Mutual Company will own 53.53% of the Common Stock of the
Company, and will remain its majority stockholder as long as the Mutual
Company remains in existence.
Q: WHAT IS THE PURPOSE OF THE REORGANIZATION AND OFFERING?
A: The primary purpose of the Reorganization and Offering is to raise additional
equity capital to support the growth and expansion of the Bank. The
increased capital also will be used to expand the Bank's lending and
investment activities. The Reorganization will create a holding company and
a stock charter, which is the corporate form used by all commercial banks
and an increasing number of savings institutions. The holding company
structure will expand the investment and operating authority currently
available to the Bank. The Offering also will provide depositors with the
opportunity to become stockholders of the Company. We are also establishing
the Charitable Foundation that will be dedicated exclusively to supporting
charitable causes and community development activities in our market area.
Q: WHY IS THE BANK CONDUCTING A MINORITY STOCK OFFERING INSTEAD OF UNDERGOING A
FULL CONVERSION TO STOCK FORM?
A: At the present time, the Bank does not need all of the capital that would be
raised in a full stock conversion. A savings institution that converts to
stock form using the mutual holding company structure sells only a minority
of its shares to the public. By doing so, the converting institution raises
less than half the capital that would be raised in a full conversion.
However, with the mutual holding company structure the Bank will have the
flexibility to raise additional capital in the future. Moreover, the Bank's
Board of Directors intends to maintain the independence and community
control of the Bank. Because the Mutual Company will control a majority of
the Company's Common Stock, the Reorganization will permit the Bank to
achieve the benefits of being a stock company without the loss of control.
Q: HOW DO I ORDER THE COMMON STOCK?
A: You must complete and return the Stock Order Form and certification form
(together, the "Order Form") to the Bank, together with your payment, before
12:00 noon New York time on or before
1
<PAGE>
December , 1998. Please review the Order Form and Stock Order Form
Instructions when filling out the Order Form and before sending any payment
to the Bank.
Q: HOW MUCH STOCK MAY I ORDER?
A: The minimum order is 25 shares (or $250). The maximum order for any
individual person or persons ordering through a single account is 10,000
shares (or $100,000). In certain instances, your order may be grouped
together with orders by other persons who are associated with you (such as
your spouse, child or relatives living in your home or corporations,
partnership and trusts of which you are an officer, director or trustee), or
with whom you are acting in concert, and, in that event, the aggregate order
may not exceed 20,000 shares (or $200,000). The maximum purchase limitation
may be decreased or increased without notifying you. However, if the maximum
purchase limitation is increased, and you previously subscribed for the
maximum number of shares, you will be notified of the increase, as well as
the opportunity to subscribe for additional shares.
Q: WHO HAS SUBSCRIPTION RIGHTS AND WHAT ARE THE SUBSCRIPTION PRIORITIES?
A: Subscription orders to purchase Common Stock will be filled on a priority
basis as follows:
- First, to persons who had one or more deposit accounts with the Bank
aggregating at least $100 on June 30, 1997. (The Bank's tax-qualified
employee benefit plans, including the Bank's ESOP will have priority over
such persons if more than 1,101,631 shares are sold. Assuming that
1,266,876 (the adjusted maximum) shares of Common Stock are sold, the ESOP
may purchase 105,820 shares, all of which would be purchased in the first
priority.)
- Second, to the Bank's tax-qualified employee benefit plans, including the
Bank's ESOP (which is expected to purchase up to 8% of the Minority
Ownership Interest).
- Third, to persons who had one or more deposit accounts with the Bank
aggregating at least $100 on September 30, 1998.
- Fourth, to employees, officers and trustees of the Bank.
Q: WHAT HAPPENS IF THERE ARE NOT ENOUGH SHARES TO FILL ALL ORDERS?
A: If the Offering is oversubscribed, shares will be allocated based upon a
deposit formula set forth in the Plan of Reorganization. In recent periods a
number of stock offerings by financial institutions have been
oversubscribed. There can be no assurance that a subscriber in the Offering
will have his or her subscription filled. If insufficient shares of Common
Stock are available in the first category, the Bank will allocate shares in
such a manner that will allow Eligible Account Holders to purchase the
lesser of 100 shares or the amount subscribed for. Likewise, if insufficient
shares of Common Stock are available in the third category, the Company will
allocate shares in such a manner that will allow Supplemental Eligible
Account Holders to purchase the lesser of 100 shares or the amount of stock
subscribed for. All orders must be received by 12:00 noon, New York time on
December , 1998.
Q: WILL SHARES BE OFFERED TO ANYONE OTHER THAN PERSONS WITH SUBSCRIPTION RIGHTS?
A: If persons with subscription rights do not subscribe for all of the shares
offered, the remaining shares will be offered to certain members of the
general public in a community offering, with a preference for natural
persons residing in the Bank's community of Greene County, New York.
Q: WHAT PARTICULAR FACTORS SHOULD I CONSIDER WHEN DECIDING WHETHER OR NOT TO BUY
COMMON STOCK?
A: Before you decide to purchase Common Stock, you should read this entire
Prospectus, including the Risk Factors section on pages of this
Prospectus.
2
<PAGE>
Q: WHO CAN HELP ANSWER ANY OTHER QUESTIONS I MAY HAVE ABOUT THE OFFERING?
A: In order to make an informed investment decision, you should read this entire
Prospectus. This question and answer section highlights selected information
and may not contain all of the information that is important to you. In
addition, you may contact:
STOCK CENTER
430 MAIN STREET
CATSKILL, NEW YORK 12414-1303
P.O. BOX 546
CATSKILL, NEW YORK 12414-0546
(518) 943-7515
SELLING OR ASSIGNING YOUR SUBSCRIPTION RIGHTS IS ILLEGAL. ALL PERSONS
EXERCISING THEIR SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT THEY ARE
PURCHASING SHARES SOLELY FOR THEIR OWN ACCOUNT AND THAT THEY HAVE NO AGREEMENT
OR UNDERSTANDING REGARDING THE SALE OR TRANSFER OF SUCH SHARES. THE BANK INTENDS
TO PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES IN THE EVENT IT BECOMES AWARE
OF THE TRANSFER OF SUBSCRIPTION RIGHTS. ORDERS KNOWN TO INVOLVE THE TRANSFER OF
SUBSCRIPTION RIGHTS WILL NOT BE HONORED. IN ADDITION, PERSONS WHO VIOLATE THE
PURCHASE LIMITATIONS MAY BE SUBJECT TO SANCTIONS AND PENALTIES IMPOSED BY THE
NEW YORK BANKING DEPARTMENT AND/OR FEDERAL DEPOSIT INSURANCE CORPORATION.
3
<PAGE>
SUMMARY AND OVERVIEW
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS AND DOES
NOT CONTAIN ALL THE INFORMATION THAT YOU NEED TO KNOW BEFORE MAKING AN INFORMED
INVESTMENT DECISION. TO UNDERSTAND THE OFFERING FULLY, YOU SHOULD READ THIS
ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE FINANCIAL STATEMENTS AND THE NOTES TO
THE FINANCIAL STATEMENTS OF THE BANK. CERTAIN FINANCIAL INFORMATION CONTAINED IN
THIS PROSPECTUS HAS BEEN DERIVED FROM THE AUDITED FINANCIAL STATEMENTS OF THE
BANK.
YOU SHOULD NOTE AS YOU READ THIS PROSPECTUS THAT AT TIMES CAPITALIZED TERMS
ARE USED. THESE CAPITALIZED TERMS ARE GENERALLY DEFINED IN THE GLOSSARY THAT IS
AT THE END OF THIS PROSPECTUS. DEFINED TERMS ARE USED TO HELP YOU DIFFERENTIATE
BETWEEN THE VARIOUS COMPONENTS OF THE TRANSACTION, TO SIMPLIFY THE DISCUSSION
AND TO AVOID UNNECESSARY REPETITION BY NOT HAVING TO DEFINE OR DESCRIBE A TERM
EACH TIME IT IS USED. FOR EXAMPLE, TO AVOID CONFUSION, ALL OF THE STEPS THAT ARE
PART OF THE TRANSACTIONS DESCRIBED IN THIS PROSPECTUS ARE REFERRED TO AS THE
"REORGANIZATION," AND THE OFFER AND SALE OF 44.51% OF THE COMPANY'S COMMON STOCK
IS REFERRED TO AS THE OFFERING. REFERENCES TO THE "BANK" REFER TO GREENE COUNTY
SAVINGS BANK, WHICH IS CHANGING ITS NAME TO "THE BANK OF GREENE COUNTY"
CONCURRENTLY WITH THE REORGANIZATION AND THE OFFERING. REFERENCES TO "COMPANY"
REFER TO GREENE COUNTY BANCORP, INC., AND REFERENCES TO THE "MUTUAL COMPANY"
REFER TO GREENE COUNTY BANCORP, MHC. TO FURTHER ASSIST YOU IN READING THIS
PROSPECTUS, IN ADDITION TO INCLUDING A GLOSSARY, EACH TERM DEFINED IN THE
GLOSSARY IS ALSO DEFINED THE FIRST TIME THAT IT IS USED IN THIS PROSPECTUS.
THE COMPANY
Greene County Bancorp, Inc.
425 Main & Church Streets
Catskill, New York 12414-1317
(518) 943-3700
The Company is a Delaware corporation that was formed recently to become the
holding company of the Bank. Accordingly, the Company has no results of
operations. After the Reorganization, the Company will own all of the Bank's
common stock. Purchasers in the Offering will own 44.51% of the Company's Common
Stock, the Charitable Foundation will own 1.96% of the shares of the Company
Common Stock, and the Mutual Company will own 53.53% of the shares of the
Company Common Stock. Although these percentages may change in the future, the
Mutual Company must always own a majority of the Company's Common Stock.
THE BANK
Greene County Savings Bank
425 Main & Church Streets
Catskill, New York 12414-1317
(518) 943-3700
The Bank was organized in 1889 as The Building and Loan Association of
Catskill, a New York-chartered savings and loan association. In 1974, the Bank
converted to a New York mutual savings bank under the name Greene County Savings
Bank. In conjunction with the Reorganization and the Offering, the Bank is
changing its name to The Bank of Greene County. At June 30, 1998, the Bank had
total assets of $140.3 million, total deposits of $122.3 million, and retained
earnings of $15.7 million. The Bank is a community- and customer-oriented bank
that operates from its main office and three branch locations in Catskill, West
Coxsackie, Cairo and Greenville, New York. Historically, the Bank has emphasized
the origination of loans secured by real estate. At June 30, 1998, the Bank's
loan portfolio consisted of $64.7 million, or 79.7%, of loans secured by one- to
four-family residential mortgage loans, $9.4 million, or 11.6%, of consumer
loans, $4.5 million, or 5.6% of commercial real estate loans and $1.3 million,
or 1.7% of commercial business loans. The Bank also invests in investment
securities-- mortgage-backed securities and asset-backed securities. At June 30,
1998, investment securities totaled
4
<PAGE>
$36.3 million, mortgage-backed securities totaled $5.2 million, and asset-backed
securities totaled $6.3 million. At June 30, 1998, such investments in the
aggregate comprised 34.1% of total assets.
The following are highlights of the Bank's operating strategy:
- COMMUNITY BANKING. Since its establishment in 1889, the Bank has been
committed to meeting the financial needs of the communities in which it
operates and to providing quality service for its customers. This has
enabled the Bank to maintain a high level of core deposits, which
comprised 54.5% of total deposits at June 30, 1998 and generally represent
lower-cost funds than certificates of deposits. Additional, the Bank
intends to use the mutual holding company structure and the establishment
of the Charitable Foundation to maintain the Bank as an independent
community bank.
- EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. Historically, the Bank has
emphasized the origination of one- to four-family residential loans, which
typically are considered lower risk than other types of loans. At June 30,
1998 one- to four-family residential mortgage loans comprised 79.69% of
the loan portfolio, substantially all of which were secured by real estate
located in Greene County.
- MAINTAINING HIGH LEVELS OF LIQUID INVESTMENTS. In order to position the
Bank to be able to deploy assets profitably in a rising rate environment,
management has decided to invest a significant portion of its assets in
short term U.S. Government and agency securities and other interest
earning assets. At June 30, 1998, 26.8% of the Bank's total assets were
U.S. Government and agency securities, municipal bonds due in five years
of less, federal funds sold, and cash and due from banks.
- MAINTAINING ASSET QUALITY. The Bank's high asset quality results from its
conservative underwriting and investing standards, the diligence of its
loan personnel and the stability of the local economy. At June 30, 1998,
the Banks' ratio of nonperforming assets to total assets was 0.72%.
THE REORGANIZATION
The Reorganization involves a number of steps, including the following:
- The Bank will establish the Company and the Mutual Company, neither of
which will have any assets prior to the completion of the Reorganization.
- The Bank will convert from the mutual form of organization to the capital
stock form of organization and issue 100% of its capital stock to the
Company.
- The Company will issue between 1,829,370 and 2,475,030 shares of Common
Stock in the Reorganization: 53.53% of these shares (or between 979,213
and 1,324,817 shares) will be issued to the Mutual Company, 44.51% (or
between 814,249 and 1,101,631 shares) will be sold to depositors and the
public, and 1.96% of these shares (or between 35,908 shares and 48,582)
will be issued to a newly formed Charitable Foundation.
- Interests that depositors had in the Bank will become interests in the
Mutual Company, which will own 53.53% of the shares of Common Stock of the
Company and indirectly of the Bank.
THE MUTUAL HOLDING COMPANY STRUCTURE
The mutual holding company structure differs in significant respects from
the bank holding company structure that is used in a standard mutual-to-stock
conversion. A savings bank that converts to the stock form using the mutual
holding company structure sells only a minority of its shares and raises less
proceeds than would be raised in a standard mutual-to-stock conversion in which
100% of the shares are sold to depositors and the public. If additional capital
is needed in the future, the shares that are issued to the
5
<PAGE>
Mutual Company may be subsequently sold to depositors. See "Regulation--Holding
Company Regulation--Mutual Holding Company Regulation." In addition, because the
Mutual Company controls a majority of the Company's Common Stock, the structure
will permit the Bank to achieve the benefits of a stock company without a loss
of control that often follows a complete conversion from mutual to stock form.
In making business decisions, the Mutual Company's Board of Trustees will
consider a variety of constituencies, including the depositors and employees of
the Bank, and the communities in which the Bank operates. As the majority
stockholder of the Company, the Mutual Company is also interested in the
continued success and profitability of the Bank and the Company. Consequently,
the Mutual Company will act in a manner which furthers the general interest of
all of its constituencies, including, but not limited to, the interest of the
stockholders of the Company. The Mutual Company believes that the interests of
the stockholders of the Company, and those of the Mutual Company's other
constituencies, are in many circumstances the same, such as the increased
profitability of the Company and the Bank and continued service to the
communities in which the Bank operates.
THE STOCK OFFERING
The Company is offering for sale between 814,249 and 1,101,631 shares of its
Common Stock, for a price per share of $10.00. The Offering may be increased to
up to 1,266,876 shares, without further notice to subscribers, if the Department
approves the increase and the FDIC does not object.
STOCK PURCHASE PRIORITIES
The Common Stock is being offered for sale in the following order of
priority in a Subscription Offering:
(i) the Bank's Eligible Account Holders (holders of deposit accounts
totaling $100 or more as of June 30, 1997);
(ii) the Bank's tax-qualified employee benefit plans, including the Bank's
ESOP (which is expected to purchase up to 8% of the Minority Ownership
Interest);
(iii) the Bank's Eligible Account Holders as of September 30, 1998; and
(iv) employees, officers and trustees of the Bank.
Any shares not subscribed for will be offered to certain members of the
general public in a community offering, with preference given first to natural
persons residing in Greene County, New York. The Company has engaged Friedman,
Billings, Ramsey & Co., Inc. to assist it on a best efforts basis in selling the
Common Stock in the Offering. See pages to .
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Company's Board of Directors has set the purchase price per share of
Common Stock at $10.00, the price most commonly used in stock offerings
involving mutual-to-stock conversions of mutual savings institutions. The number
of shares of Common Stock issued in the Offering is based on the independent
valuation prepared by FinPro, Inc. ("FinPro"), an appraisal firm experienced in
appraisals of savings institutions. The independent valuation states that as of
, 1998, the estimated pro forma market value of the Company ranged
from a minimum of $17.9 million to a maximum of $24.3 million, with a midpoint
of $21.1 million. Based on this valuation and the $10.00 per share price, the
number of shares of Common Stock that the Company will issue will range from
1,829,370 to 2,475,030 shares. The Company and the Bank have decided to offer
44.51% of such shares, or between 814,249 shares and 1,101,631 shares, to
depositors and the public. In addition, the Company will issue between 35,908
shares and 48,582 shares (together with $100,000 in cash) to the Charitable
Foundation. The Board of Directors
6
<PAGE>
determined to sell 44.51% of the Common Stock to depositors and the public in
order to raise the maximum amount of proceeds while permitting the Company to
issue additional shares to the Charitable Foundation and additional shares of
Common Stock in the future pursuant to a stock award plan and stock option plan
that the Company intends to adopt after the Reorganization and Offering. The
53.53% of the shares of the Common Stock that are not sold in the Offering or
issued to the Charitable Foundation will be issued to the Mutual Company. The
establishment of the Charitable Foundation had the effect of reducing the
valuation of the Company. See "Comparison of Valuation and Pro Forma Information
without the Charitable Foundation."
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 $27.9
million. If this occurs, the maximum number of shares that can be sold to
depositors and the public can increase to up to 1,266,876 shares, and the number
of shares to be issued to the Charitable Foundation can increase to 55,869. The
Company will not notify subscribers if the maximum number of shares to be sold
increases by 15% or less. The Company will, however, notify subscribers if the
estimated valuation range and the maximum number of shares to be sold is
increased by more than 15% or if the minimum of the estimated valuation range is
decreased. THE INDEPENDENT VALUATION IS NOT A RECOMMENDATION AS TO THE
ADVISABILITY OF PURCHASING SHARES, AND YOU SHOULD NOT BUY COMMON STOCK BASED ON
THE INDEPENDENT VALUATION.
DEADLINE OF THE OFFERING
The offering to depositors will end at 12:00 noon, New York time, on
, 1998. The community offering may end on or after ,
1998, but in any event, no later than , 1998, without regulatory
approvals. If the Reorganization and Offering are not completed by ,
1998, all subscribers will be notified and will be given the opportunity to
cancel or modify their order.
BENEFITS TO MANAGEMENT FROM THE OFFERING
The Company intends to implement for the benefit of the employees,
directors/trustees and officers of the Company and the Bank, the ESOP, a stock
option plan ("Stock Option Plan") and a stock award plan ("Stock Award Plan").
These benefit plans would result in employees, officers and directors being
eligible to receive in the aggregate up to 220,041 shares of Common Stock (at
the midpoint of the Offering Range). Assuming that the Stock Option Plan and
Stock Award Plan were funded from shares purchased in the open market,
employees, directors and officers would own 22% of the outstanding Minority
Ownership Interest, inclusive of ESOP shares but exclusive of other shares such
persons may have acquired individually.
ESOP. Full-time employees of the Bank will participate in an ESOP, which is
a form of retirement plan, that will purchase shares of Common Stock. The ESOP
intends to purchase up to 8% of the Minority Ownership Interest. The estimated
cost to fund the ESOP is $680,130 at the minimum of the Offering Range and
$920,170 at the maximum of the Offering Range. A portion of the net proceeds of
the Offering will be used to fund the purchase of shares for the ESOP. For
further information, see "Executive Compensation and Related Transactions of the
Bank--Employee Stock Ownership Plan and Trust."
STOCK OPTION PLAN. The Stock Option Plan will provide for the grant of
options to purchase Common Stock equal to 10% of the Minority Ownership
Interest. The exercise price of each option will be equal to the closing price
of the Common Stock on the date the option is granted. No options will be
granted until after stockholders approve the Stock Option Plan. For further
information, see "Executive Compensation and Related Transactions of the
Bank--Stock Option Plan." The Board of Directors has not yet determined how many
options each individual officer, director or employee will receive.
7
<PAGE>
STOCK AWARD PLAN. The Stock Award Plan will provide for the award of shares
of Common Stock equal to 4% of the Minority Ownership Interest to officers,
employees and directors of the Bank, if the Stock Award Plan is implemented
within one year after the completion of the Offering. If the Stock Award Plan is
implemented later than one year after the completion of the Offering, up to 5%
of the Minority Ownership Interest may be granted, subject to stockholder
approval. Shares of Common Stock awarded under the Stock Award Plan will be at
no cost to the recipient, and in the aggregate will have a value of $340,063 at
the minimum of the Offering Range and $460,085 at the maximum of the Offering
Range, assuming a value of $10.00 per share and assuming a 4% plan. For further
information, see "Executive Compensation and Related Transactions of the
Bank--Stock Award Plan." The Board of Directors has not yet determined how many
shares of Common Stock will be awarded to officers, directors or employees of
the Bank.
The Stock Award Plan and Stock Option Plan may not be adopted until at least
six months after the completion of the Reorganization, and are subject to
shareholder approval. See pages to .
The following table presents the dollar value of the shares to be granted
pursuant to the proposed stock benefit plans and the percentage of the Company's
outstanding Common Stock which will be represented by these shares.
<TABLE>
<CAPTION>
PERCENTAGE OF
VALUE OF OUTSTANDING
SHARES GRANTED(1) COMMON STOCK(3)
----------------- -------------------
<S> <C> <C>
BENEFIT PLAN:
ESOP.......................................... $ 800,148 3.72%
Stock Option Plan............................. --(2) 4.65
Stock Award Plan.............................. 400,074 1.86
----------------- -----
$ 1,200,222 10.23%
----------------- -----
----------------- -----
</TABLE>
- ------------------------
(1) Assumes shares are granted at $10.00 per share and that shares are sold in
the Offering at the midpoint of the Offering Range.
(2) Recipients of stock options realize value only in the event of an increase
in the price of the Common Stock of the Company following the date of grant
of the stock options. Options to purchase 100,019 shares at the midpoint of
the Offering Range may be granted if the Stock Option Plan is approved by
stockholders.
(3) Assumes shares for the Stock Award Plan and Stock Option Plan are funded by
open-market repurchases, and not from authorized-but-unissued shares.
THE CHARITABLE FOUNDATION
To further its commitment to the local community, the Bank intends to
establish the Charitable Foundation as part of the Reorganization. The Company
will contribute to the Charitable Foundation 1.96% of the shares of Common Stock
issued in the Reorganization plus $100,000 in cash. The Charitable Foundation
will be dedicated exclusively to supporting charitable causes and community
development activities in the Bank's market area. Due to the issuance of
additional shares of Common Stock to the Charitable Foundation, the ownership
and voting interests of all stockholders of the Company will be diluted by
1.96%. The Company will incur an expense equal to the full amount of the
contribution to the Charitable Foundation, offset in part by a corresponding tax
benefit, during the quarter in which the contribution is made. Such expense will
reduce the Company's earnings. See "Risk Factors--The Expense and Dilutive
Effect of the Contribution of Shares and Cash to the Charitable Foundation,"
"Pro Forma Data," and "The Reorganization and Offering--Establishment of the
Charitable Foundation."
8
<PAGE>
USE OF THE PROCEEDS RAISED FROM THE SALE OF COMMON STOCK
The Company will use the proceeds from the Offering as follows. The
percentages we use are estimates:
- 50% will be used to buy all the capital stock of the Bank.
- 8% will be loaned to the ESOP to fund its purchase of Common Stock.
- 42% will be retained as a possible source of funds for the payment of
dividends to stockholders, the repurchase of Common Stock, and for other
general corporate purposes.
The proceeds to be received by the Bank will be available for general
corporate purposes, the opening of new branches, renovation of existing
facilities, branch or whole bank acquisitions, new loan originations, and the
purchase of investment and mortgage related securities.
See pages to for a fuller description of the use of proceeds.
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING COMMON STOCK
To ensure proper identification of stock purchases priorities, Eligible
Account Holders and Supplemental Eligible Account Holders must list all deposit
accounts on their Order Form, giving all names on each deposit account and the
account numbers at the applicable date. THE FAILURE TO PROVIDE ACCURATE AND
COMPLETE ACCOUNT INFORMATION ON THE ORDER FORM, INCLUDING ADDING INDIVIDUALS
WITH A LOWER, OR NO, STOCK PURCHASE PRIORITY AS SUBSCRIBERS ON AN ORDER FORM,
MAY ELIMINATE YOUR ABILITY TO PURCHASE STOCK.
Full payment by check, cash (except by mail), money order, bank draft or
withdrawal authorization (payment by wire transfer will not be accepted) must
accompany an original Order Form. THE COMPANY IS NOT OBLIGATED TO ACCEPT AN
ORDER SUBMITTED ON PHOTOCOPIED OR TELECOPIED ORDER FORMS. THE COMPANY WILL NOT
ACCEPT ORDER FORMS IF THE CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE
ORDER FORM IS NOT EXECUTED. THE COMPANY IS NOT REQUIRED TO DELIVER A PROSPECTUS
AND ORDER FORM BY ANY MEANS OTHER THAN THE U.S. POSTAL SERVICE.
See pages to for procedures for purchasing shares of common stock.
DIVIDENDS
The Company does not initially intend to pay a dividend, although it may
consider the payment of such dividend in the future. Future decisions as to the
declaration of dividends by the Company will depend upon a number of factors
including investment opportunities available to the Company or the Bank and the
Company's financial condition and results of operations. See pages and
.
MARKET FOR THE COMMON STOCK
The Company has received conditional approval to have the Common Stock
quoted on the Nasdaq SmallCap Market under the symbol " ." Friedman,
Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock, and
the Company expects that additional market makers will be identified.
IMPORTANT RISKS IN PURCHASING AND OWNING THE COMPANY'S COMMON STOCK
Before deciding to purchase Common Stock in the Offering, please carefully
read the Risk Factors section on pages to of this Prospectus, in addition to
the other sections of this Prospectus.
The shares of Common Stock offered hereby:
- Are not deposit accounts;
- Are not insured or guaranteed by the FDIC, or any other government agency;
and
- Are not guaranteed by the Company, the Mutual Company, or the Bank.
The Common Stock is subject to investment risk, including the possible loss
of principal invested.
9
<PAGE>
SELECTED FINANCIAL INFORMATION
The selected data presented below under the captions "Selected Financial
Condition Data" and "Selected Operations Data" for, and as of the end of, each
of the years in the two-year period ended June 30, 1998, are derived from the
audited financial statements of the Bank. The financial statements as of June
30, 1998 and 1997 and for each of the years in the two-year period ended June
30, 1998 are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
SELECTED FINANCIAL CONDITION DATA:
Total assets.............................................................................. $ 140,253 $ 132,506
Loans receivable, net..................................................................... 80,260 75,648
Mortgage-backed securities (all available for sale)....................................... 5,189 5,221
Investment securities (all available for sale)............................................ 36,265 37,581
Asset-backed securities (available for sale).............................................. 6,324 784
Deposits.................................................................................. 122,324 115,855
Total borrowings.......................................................................... -- --
Retained earnings-substantially restricted................................................ 15,730 14,406
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
(IN THOUSANDS)
SELECTED OPERATIONS DATA:
Total interest income..................................................................... $ 9,503 $ 9,297
Total interest expense.................................................................... 4,967 4,780
---------- ----------
Net interest income....................................................................... 4,536 4,517
Provision for loan losses................................................................. 120 125
---------- ----------
Net interest income after provision for loan losses....................................... 4,416 4,392
Total non-interest income................................................................. 436 520
Total non-interest expense................................................................ 3,149 2,773
---------- ----------
Income (loss) before taxes and extraordinary item......................................... 1,703 2,139
Income tax provision...................................................................... 553 692
---------- ----------
Net income (loss)......................................................................... $ 1,150 $ 1,447
---------- ----------
---------- ----------
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED JUNE 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
PERFORMANCE RATIOS:
Return on average assets (ratio of net income to average total assets).................. .84% 1.09%
Return on average retained earnings (ratio of net income to average equity)............. 7.63% 10.59%
Ratio of operating expense to average total assets...................................... 2.31% 2.08%
Ratio of average interest-earning assets to average interest-bearing liabilities........ 109.58% 109.16%
Net interest rate spread(1)............................................................. 3.15% 3.26%
Net interest margin(2).................................................................. 3.52% 3.61%
Efficiency ratio(3)..................................................................... 64.90% 56.45%
ASSET QUALITY RATIOS:
Non-performing assets to total assets at end of period.................................. .72% .61%
Non-performing loans to total loans at end of period.................................... 1.10% .97%
Allowance for loan losses to non-performing loans....................................... 82.17% 90.04%
Allowance for loan losses to loans receivable, net...................................... 0.91% 0.96%
CAPITAL RATIOS:
Retained earnings to total assets at end of period...................................... 11.22% 10.87%
Average retained earnings to average assets............................................. 11.05% 10.27%
OTHER DATA:
Number of full-service offices.......................................................... 4 3
</TABLE>
- ------------------------
(1) The difference between the weighted average yield on average
interest-earning assets and the weighted average cost of average
interest-bearing liabilities.
(2) Net interest income as a percentage of average interest-earning assets.
(3) The ratio of non-interest expense dividend by the sum of net interest income
and non-interest income.
11
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, YOU SHOULD CONSIDER
CAREFULLY THE FOLLOWING RISK FACTORS IN EVALUATING AN INVESTMENT IN THE COMMON
STOCK.
RECENT MARKET VOLATILITY
In recent months, stock markets in both the United States and worldwide have
been volatile. The securities of individual companies have, in many instances,
experienced significant fluctuations in price for reasons unrelated to the
specific company's financial condition, results of operations or business
prospects. In particular, the value of securities of financial institutions has
been adversely affected by weakening economics worldwide, even though local
community-based financial institutions may have no credit exposure outside the
United States. An investor should understand that, in the short-term, the value
of an investment in the Common Stock is subject to fluctuation, including loss,
due to volatility in stock markets generally.
REDUCED RETURN ON EQUITY AFTER THE REORGANIZATION
Return on equity (net income for a given period divided by average equity
during that period) is a ratio used by many investors to compare the performance
of a particular financial institution to its peers. The Bank's equity as a
percentage of assets will significantly increase as a result of the net proceeds
received in the Offering. The Bank anticipates that it will take time to
prudently reinvest the capital raised in the Offering. Consequently, the
Company's post-Reorganization return on equity is expected to be less than the
average return on equity for publicly traded savings institutions and their
holding companies. See "Selected Financial Information" for numerical
information regarding the Bank's historical return on equity and
"Capitalization" for a discussion of the Company's estimated pro forma
consolidated capitalization as a result of the Reorganization and Offering. In
addition, the expenses associated with the ESOP and the Stock Award Plan (see
"Pro Forma Data"), along with other ongoing post-Reorganization expenses, are
expected to contribute initially to reduced earnings. In the short term, the
Bank will have difficulty in improving its interest rate spread and thus the
return on equity to stockholders. Consequently, for the foreseeable future,
investors should not expect a return on equity that will meet or exceed the
average return on equity for publicly traded financial institutions, and no
assurances can be given that this goal can be attained.
POTENTIAL EFFECTS OF CHANGES IN INTEREST RATES AND THE CURRENT INTEREST RATE
ENVIRONMENT
The Bank's financial condition and results of operations are significantly
affected by changes in interest rates. The Bank's results of operations depend
substantially on its net interest income, which is the difference between the
interest income earned on interest-earning assets and the interest expense paid
on interest-bearing liabilities. Based on certain repricing assumptions, the
Bank's interest-bearing liabilities repricing or maturing within one year
exceeded its interest-earning assets with similar characteristics by $10.5
million, or 7.78% of total interest-earning assets at June 30, 1998.
Accordingly, an increase in interest rates generally would result in a decrease
in the Bank's average interest rate spread and net interest income. The Bank has
sought to reduce the exposure of its net interest income to increases in market
interest rates by investing in readily marketable, liquid U.S. government and
agency securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Market Risk--Management of Interest Rate
Risk."
Changes in interest rates also affect the value of the Bank's
interest-earning assets, and in particular the Bank's investment securities
portfolio. Generally, the value of investment, mortgage-backed securities, and
asset-backed securities portfolios fluctuates inversely with changes in interest
rates. At June 30, 1998, the Bank's investment securities portfolio,
mortgage-backed securities portfolio and asset-backed securities portfolio
totaled $36.3 million, $5.2 million, and $6.3 million, respectively, all of
which were classified as
12
<PAGE>
available for sale. Unrealized gains and losses on securities available for sale
are reported as a separate component of equity. Decreases in the fair value of
securities available for sale, therefore, could have an adverse affect on
stockholders' equity. See "Business of the Bank--Securities Investment
Activities."
The Bank is also subject to reinvestment risk relating to changes in
interest rates which can affect the average life of loans and mortgage related
securities. Decreases in interest rates can result in increased prepayments of
loans and mortgage related securities, as borrowers refinance 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
that are comparable to the rates on the maturing loans or securities.
THE EXPENSE AND DILUTIVE EFFECT OF THE CONTRIBUTION OF SHARES AND CASH TO THE
CHARITABLE FOUNDATION
The Bank intends to establish the Charitable Foundation in connection with
the Reorganization. The Company will make a contribution to the Charitable
Foundation in the form of shares of Common Stock equal to 1.96% of shares
outstanding after the completion of the Offering, or 48,582 shares at the
midpoint of the Offering Range, and $100,000 in cash. Due to the issuance of
additional shares of Common Stock to the Charitable Foundation, persons
purchasing shares in the Offering will have their ownership and voting interests
in the Company diluted by 1.96%. The contribution of Common Stock to the
Charitable Foundation will be dilutive to the interests of stockholders and the
aggregate contribution will have an adverse impact on the reported earnings of
the Company in the fiscal year in which the Charitable Foundation is established
and the contribution is made. If the Charitable Foundation had been established
and the contribution made at June 30, 1998, and assuming the sale of the Common
Stock at the midpoint of the estimated valuation range, the Bank would have
reported net income of $837,000 rather than reporting net income of $1,150,000
for the year ended June 30, 1998. In addition, the establishment and funding of
a Charitable Foundation as part of a mutual holding company reorganization and
stock offering have only recently occurred. There can be no assurance that
challenges to the Charitable Foundation from regulators or others may not arise,
the resolution of which may result in delay in the consummation of the
Reorganization and the Offering. See "The Reorganization and
Offering--Establishment of the Charitable Foundation."
MINORITY PUBLIC OWNERSHIP AND CERTAIN ANTI-TAKEOVER PROVISIONS
VOTING CONTROL OF THE MUTUAL COMPANY. Under New York law, the Bank's Plan
of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and
Stock Issuance Plan (the "Plan of Reorganization"), and the Company's governing
corporate instruments, at least 51% of the Company's voting shares must be owned
by the Mutual Company. The Mutual Company will be controlled by its board of
trustees, who will consist of persons who are members of the board of directors
of the Company and the Bank. The Mutual Company will elect all members of the
board of directors of the Company, and as a general matter, will control the
outcome of all matters presented to the stockholders of the Company for
resolution by vote, except for matters that require a vote greater than a
majority. The Mutual Company, acting through its board of trustees, will be able
to control the business and operations of the Company and the Bank and will be
able to prevent any challenge to the ownership or control of the Company by
stockholders other than the Mutual Company ("Minority Stockholders").
Accordingly, a change in control of the Company and the Bank cannot occur unless
the Mutual Company first converts to the stock form of organization. Although
New York law, applicable regulations and the Plan of Reorganization permit the
Mutual Company to convert from the mutual to the capital stock form of
organization, it is not anticipated that a conversion of the Mutual Company will
occur in the foreseeable future and there can be no assurance when, if ever,
such a conversion would occur.
PROVISIONS IN THE COMPANY'S AND THE BANK'S GOVERNING INSTRUMENTS. In
addition, certain provisions of the Company's Certificate of Incorporation and
Bylaws, particularly a provision limiting voting rights, as well as certain
federal and state regulations, assist the Company in maintaining its status as
an independent publicly owned corporation. These provisions provide for, among
other things, supermajority voting,
13
<PAGE>
staggered boards of directors, noncumulative voting for directors, limits on the
calling of special meetings of stockholders, and limits on the ability of
Minority Stockholders to vote Common Stock in excess of 10% of the issued and
outstanding shares (inclusive of shares issued to the Mutual Company). The
regulations of the New York State Banking Department (the "Department")
prohibit, except with the prior approval of the Superintendent of Banks of the
State of New York (the "Superintendent"), for a period of one year following the
date of the Reorganization, offers to acquire or the acquisition of beneficial
ownership of more than 10% of the equity securities of the Bank or the Company.
The Bank's Restated Organization Certificate also prohibits, for three years,
the acquisition, directly or indirectly, of the beneficial ownership of more
than 10% of the Bank's or the Company's equity securities.
DIVIDEND WAIVERS BY THE MUTUAL COMPANY
It has been the policy of many mutual holding companies to waive the receipt
of dividends declared by its subsidiary. In connection with its approval of the
Reorganization, however, the Federal Reserve Board is expected to impose certain
conditions on the waiver by the Mutual Company of dividends paid on the Common
Stock. In particular, it is expected that the Mutual Company will be required to
obtain prior Federal Reserve Board approval before it may waive any dividends.
As of the date hereof, management does not believe that the Federal Reserve
Board has given its approval to any waiver of dividends by any mutual holding
company that has requested its approval. The cumulative amount of waived
dividends, if any, must be maintained in a restricted capital account which
would be added to any liquidation account of the Bank, and would not be
available for distribution to Minority Stockholders. The Plan of Reorganization
also provides that if the Mutual Company converts to stock form in the future,
any waived dividends would reduce the percentage of the converted company's
shares of Common Stock issued to Minority Stockholders in connection with any
such transaction. See "Regulation--Holding Company Regulation-- Mutual Holding
Company Regulation." It is not currently intended that the Mutual Company will
waive dividends declared by the Company.
LENDING RISKS ASSOCIATED WITH CONSUMER, COMMERCIAL BUSINESS LENDING AND
COMMERCIAL REAL ESTATE
At June 30, 1998, the Bank's consumer loans totaled $9.4 million, or 11.6%
of total loans, commercial business loans totaled $1.3 million, or 1.7% of total
loans and commercial real estate loans totaled $4.5 million, or 5.6% of total
loans. Most industry experts believe that consumer, commercial business and
commercial real estate loans expose a lender to a greater risk of loss than
loans secured by one- to four-family real estate.
STRONG COMPETITION WITHIN THE BANK'S MARKET AREA
Competition in the banking and financial services industry is intense. The
Bank competes with commercial banks, savings institutions, mortgage banking
firms, credit unions, finance companies, mutual funds, insurance companies, and
brokerage and investment banking firms operating locally and elsewhere. Many of
these competitors have substantially greater resources and lending limits than
the Bank and may offer certain services that the Bank does not or cannot
provide. Trends toward the consolidation of the financial services industry, and
the removal of restrictions on interstate branching and bank powers may make it
more difficult for smaller institutions such as the Bank to compete effectively
with large national and regional banking institutions. The Bank's profitability
depends upon its continued ability to successfully compete in its market area.
INTENT TO REMAIN INDEPENDENT
The Bank operates as an independent community bank and intends to continue
to do so following the Reorganization. The Bank and the Company will be
controlled by the Mutual Company, and control of the Mutual Company may not be
sold to a third party. Accordingly, persons should not subscribe for shares of
14
<PAGE>
Common Stock with an expectation that a sale of control of the Bank or the
Company is imminent. See "Business of the Bank."
REGULATORY OVERSIGHT AND LEGISLATION
The Bank is subject to extensive regulation, supervision and examination by
the Department and by the FDIC. The Bank is also a member of the Federal Home
Loan Bank System and is subject to certain limited regulations promulgated by
the Federal Home Loan Bank of New York. As bank holding companies, the Company
and the Mutual Company also will be subject to regulation and oversight by the
Federal Reserve Board. Such regulation and supervision govern the activities in
which an institution and its holding company may engage and are intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have extensive discretion in connection with their supervisory and
enforcement activities which are intended to strengthen the financial condition
of the banking industry, including the imposition of restrictions on the
operation of an institution, the classification of assets and the adequacy of an
institution's allowance for loan losses. Any change in such regulation and
oversight whether in the form of regulatory policy, regulations, or legislation,
could have a material impact on the Bank, the Company, and the Mutual Company.
See "Regulation."
UNCERTAINTY AS TO FUTURE GROWTH OPPORTUNITIES
In an effort to fully deploy the capital raised in the Offering and to
increase loan and deposit growth, the Bank may seek to acquire other financial
institutions or branches in its market area. The Bank's ability to grow through
selective acquisitions of other financial institutions or branches of such
institutions will depend on successfully identifying, acquiring and integrating
such institutions or branches. The Company and the Bank cannot assure
prospective purchasers of Common Stock that they will be able to generate
internal growth or identify attractive acquisition candidates, make acquisitions
on favorable terms or successfully integrate any acquired institutions or
branches into the Bank. The Bank currently has no specific plans, arrangements
or understandings regarding any such expansions or acquisitions, nor has
management established criteria to identify potential candidates for
acquisition.
ABSENCE OF MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock
and, consequently, there is no established market for the Common Stock at this
time. The Company has received conditional approval to have its Common Stock
quoted on the Nasdaq SmallCap Market under the symbol " ." Freidman,
Billings, Ramsey & Co., Inc. intends to make a market in the Common Stock but is
under no obligation to do so, and the Company expects that additional market
makers will be identified. A public trading market having the desirable
characteristics of depth, liquidity and orderliness depends upon the existence
of willing buyers and sellers at any given time, the presence of which is
dependent upon the individual decisions of buyers and sellers over which neither
the Company nor any market maker has control. Accordingly, there can be no
assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, will continue, nor is there any assurance that
purchasers of the Common Stock will be able to sell their shares at or above the
purchasers price. In the event a liquid market for the Common Stock does not
develop or market makers for the Common Stock discontinue their activities, such
occurrences may have an adverse impact on liquidity of the Common Stock and the
market value of the Common Stock.
IRREVOCABILITY OF ORDERS; POTENTIAL DELAY IN COMPLETION OF OFFERINGS
Orders submitted in the Offering are irrevocable. Funds submitted in
connection with any purchase of Common Stock in the Offering will be held by the
Company until the completion or termination of the Reorganization, including any
extension of the expiration date. Because completion of the Reorganization will
be subject to an update of the independent appraisal prepared by FinPro, among
other factors, there
15
<PAGE>
may be one or more delays in the completion of the Reorganization. Subscribers
will have no access to subscription funds and/or shares of Common Stock until
the Reorganization is completed or terminated.
EXPENSES ASSOCIATED WITH THE ESOP AND STOCK AWARD PLAN
The Bank will recognize material employee compensation and benefit expenses
assuming the ESOP and the Stock Award Plan are implemented. The actual aggregate
amount of these new expenses cannot be predicted at the present time because
applicable accounting practices require that such expenses be measured based on
the fair market value of the shares of Common Stock. In the case of the ESOP,
fair market value would be measured when shares are committed to be released for
allocation to the ESOP participants; in the case of the Stock Award Plan, fair
market value would be measured at the grant date and amortized over the award's
vesting period. These expenses have been reflected in the pro forma financial
information under "Pro Forma Data" assuming the Purchase Price ($10.00 per
share) represents the fair market value for accounting purposes. Actual
expenses, however, will be based on the fair market value of the Common Stock at
future dates, which may be higher or lower than the Purchase Price. See
"Management of the Bank--Benefits--Employee Stock Ownership Plan and Trust" and
"--Benefits-- Stock Award Plan."
DILUTIVE EFFECT OF STOCK AWARD PLAN AND STOCK OPTION PLAN
If the Reorganization and Offering are completed and stockholders approve
the Stock Award Plan and Stock Option Plan, the Company intends to issue shares
of Common Stock to officers and directors of the Bank through these plans. If
the shares for these plans are issued from the Company's authorized but unissued
Common Stock, the book value and earnings per share of minority stockholders
would be diluted, and the trading price of the Company's Common Stock may be
reduced. It is expected that earnings per share would be reduced by
approximately $.02 and stockholders' equity per share would be reduced by
approximately $.20 as a result of the implementation of the Stock Award Plan.
The issuance of authorized-but-unissued shares of common stock to fund the Stock
Award Plan in an amount equal to 4% of the Minority Ownership Interest would
dilute the voting interests of existing stockholders by approximately 1.86%. The
issuance of authorized-but-unissued shares of common stock pursuant to the Stock
Option Plan in an amount equal to 10% of the Minority Ownership Interest would
dilute the voting interests of existing stockholders by approximately 4.81%. See
"Pro Forma Data" and "Executive Compensation and Related Transactions of the
Bank."
YEAR 2000 COMPLIANCE
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing generally. There is
concern that on January 1, 2000 computers will be unable to "read" the new year
and as a consequence, there may be widespread computer malfunctions. The Bank's
loan portfolio primarily consists of loans secured by real estate. Consequently,
the Bank does not believe that its lending operations are dependent on
borrowers' compliance with the year 2000 issue. However, the Bank relies on
independent third parties to provide data processing services associated with
its deposit and loan activities. Moreover, in the event the Bank's significant
suppliers do not successfully and timely achieve Year 2000 compliance, the
Bank's business or operations could be adversely affected. The Bank is in the
process of testing its computer applications and hardware to ensure that they
will be able to read the year 2000, and intends to complete testing by the end
of the first calendar quarter in 1999. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Capability of the Bank's Data
Processing to Accommodate the Year 2000."
ROLE OF THE FINANCIAL ADVISORS/BEST EFFORTS OFFERING
The Bank and the Company have engaged Freidman, Billings, Ramsey & Co., Inc.
as financial and marketing advisor, and this firm has agreed to use its best
efforts to solicit subscriptions and purchase
16
<PAGE>
orders for Common Stock in the Offering. The financial advisor has not prepared
any report or opinion constituting a recommendation or advice to the Bank or the
Company, nor has it prepared an opinion as to the fairness of the purchase price
or the terms of the Offering. Freidman, Billings, Ramsey & Co., Inc. has not
verified the accuracy or completeness of the information contained in this
Prospectus. See "The Reorganization and Offering--Plan of Distribution and
Selling Commissions."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of FinPro that, pursuant to FinPro's
valuation, subscription rights granted to Eligible Account Holders and
Supplemental Eligible Account Holders have no value. However, such valuation is
not binding on the IRS. If the subscription rights granted to Eligible Account
Holders and Supplemental Eligible Account Holders are deemed to have an
ascertainable value, receipt of such rights could result in taxable gain to
those Eligible Account Holders and Supplemental Eligible Account Holders who
receive and/or exercise the subscription rights in an amount equal to such
value. Additionally, the Bank could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Reorganization and
Offering--Tax Aspects of Reorganization".
GREENE COUNTY BANCORP, INC.
The Company was organized for the purpose of acquiring all of the capital
stock of the Bank upon completion of the Reorganization and the Offering. The
Company has applied to the Federal Reserve Board to become a bank holding
company and, upon completion of the Reorganization, will be subject to
regulation by the Federal Reserve Board. See "The Reorganization and
Offering--Description of and Reasons for the Reorganization" and
"Regulation--Holding Company Regulation." Final approval from the Federal
Reserve Board has not been received as of the date of this Prospectus. Upon
completion of the Reorganization, the Company will have no significant assets
other than the shares of the Bank's common stock and an amount equal to 50% of
the net proceeds of the Offering, including the loan to the ESOP, and will have
no significant liabilities. The Company intends to use a portion of the net
proceeds that it retains to loan to the ESOP funds to enable the ESOP to
purchase up to 8% of the Minority Ownership Interest. See "Use of Proceeds." The
management of the Company is set forth under "Management of the Company."
Initially, the Company will neither own nor lease any property, but will instead
use the premises, equipment and furniture of the Bank. At the present time, the
Company does not intend to employ any persons other than certain officers who
are currently officers of the Bank and will utilize the support staff of the
Bank from time to time. Additional employees will be hired as appropriate to the
extent the Company expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of, or mergers
with, other financial institutions and financial services related companies.
There are no current arrangements, understandings or agreements regarding any
such opportunities. However, subsequent to the Reorganization, the Company will
be in a position, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion opportunities
that may arise. The initial activities of the Company are anticipated to be
funded by the proceeds to be retained by the Company, income thereon and through
dividends from the Bank.
The Company's executive office is located at the main office of the Bank, at
425 Main & Church Streets, Catskill, New York 12414-1317. The Company's
telephone number is (518) 943-3700.
17
<PAGE>
GREENE COUNTY SAVINGS BANK
The Bank was organized in 1889 as The Building and Loan Association of
Catskill, a New York-chartered savings and loan association. In 1974, the Bank
converted to a New York mutual savings bank under the name Greene County Savings
Bank. In conjunction with the Reorganization and the Offering, the Bank is
changing its name to The Bank of Greene County. The Bank's deposits are insured
by the Bank Insurance Fund ("BIF"), as administered by the FDIC, up to the
maximum amount permitted by law. The Bank is a community-oriented financial
institution engaged primarily in the business of accepting deposits from
customers through its main office and three full service branch offices, and
using those deposits, together with funds generated from operations and
borrowings, to make one- to four-family residential and commercial real estate
loans, commercial business loans, consumer loans, and to invest and mortgage
related securities.
At June 30, 1998, the Bank had total assets of $140.3 million, total
deposits of $122.3 million and retained earnings of $15.7 million. At June 30,
1998, $70.4 million, or 86.7% of the Bank's loans were secured by real estate
and $64.7 million, or 79.7%, of the Bank's loans were secured by one- to
four-family residential real estate, $4.5 million, or 5.6%, of the Bank's loans
at June 30, 1998 were commercial real estate loans. Consumer loans totaled $9.4
million, or 11.6% of the Bank's total loans, at June 30, 1998. The Bank also
originates commercial business loans which totaled $1.3 million, or 1.7% of
total loans. The Bank's investment securities, mortgage-backed securities and
asset-backed securities portfolios totaled $36.3 million, $5.2 million and $6.3
million, respectively, at June 30, 1998.
The Bank's main office is located at 425 Main & Church Streets, Catskill,
New York 12414-1317. The Bank's telephone number is (518) 943-3700.
MARKET AREA
The Bank is a community bank that offers a variety of financial products and
services. The Bank's primary lending area is in Greene County, New York.
Likewise, most of the Bank's deposit customers reside in Greene County, New
York. The Bank's market area is characterized as rural.
18
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At June 30, 1998, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of June 30, 1998, on a historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and the
Bank received 50% of the net proceeds. For purposes of the table below, the
amount expected to be borrowed by the ESOP and the cost of the shares expected
to be acquired by the Stock Award Plan are deducted from pro forma regulatory
capital. The Federal Reserve Board has adopted capital adequacy guidelines for
bank holding companies (on a consolidated basis) substantially similar to the
FDIC capital requirements for the Bank. On a pro forma consolidated basis after
the Reorganization and Offering, the Company's pro forma stockholders' equity
will exceed these requirements. See "Regulation--Holding Company Regulation."
<TABLE>
<CAPTION>
PRO FORMA AT JUNE 30, 1998, BASED UPON THE SALE AT $10.00 PER SHARE
OF
-------------------------------------------------------------------
HISTORICAL AT 814,249 957,940 1,101,631
JUNE 30, 1998 SHARES SHARES SHARES
-------------------------- -------------------------- -------------------------- -----------
PERCENT OF PERCENT OF PERCENT OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT
----------- ------------- ----------- ------------- ----------- ------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
GAAP capital......... $ 15,730 11.22% $ 18,451 12.91% $ 18,989 13.23% $ 19,528
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
Leverage capital:
Capital level(3)... $ 15,488 11.09% $ 18,209 12.79% $ 18,747 13.11% $ 19,286
Requirement(4)..... 5,588 4.00 5,697 4.00 5,718 4.00 5,740
----------- ----- ----------- ----- ----------- ----- -----------
Excess........... $ 9,900 7.09% $ 12,512 8.79% $ 13,029 9.11% $ 13,546
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
Risk-based capital:
Tier 1 capital
level(3)(5)...... $ 15,488 20.32% $ 18,209 23.47% $ 18,747 24.08% $ 19,286
Requirement........ 3,049 4.00 3,103 4.00 3,114 4.00 3,125
----------- ----- ----------- ----- ----------- ----- -----------
Excess........... $ 12,439 16.32% $ 15,106 19.47% $ 15,633 20.08% $ 16,161
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
Total capital
level(3)(5)...... $ 16,216 21.27% $ 18,937 24.41% $ 19,475 25.01% $ 20,014
Requirement........ 6,098 8.00 6,207 8.00 6,228 8.00 6,250
----------- ----- ----------- ----- ----------- ----- -----------
Excess............. $ 10,118 13.27% $ 12,730 16.41% $ 13,247 17.01% $ 13,764
----------- ----- ----------- ----- ----------- ----- -----------
----------- ----- ----------- ----- ----------- ----- -----------
<CAPTION>
1,266,876
SHARES(1)
--------------------------
PERCENT OF PERCENT OF
ASSETS(2) AMOUNT ASSETS(2)
------------- ----------- -------------
<S> <C> <C> <C>
GAAP capital......... 13.56% $ 20,147 13.93%
----- ----------- -----
----- ----------- -----
Leverage capital:
Capital level(3)... 13.44% $ 19,905 13.81%
Requirement(4)..... 4.00 5,765 4.00
----- ----------- -----
Excess........... 9.44% $ 14,140 9.81%
----- ----------- -----
----- ----------- -----
Risk-based capital:
Tier 1 capital
level(3)(5)...... 24.69% $ 19,905 25.38%
Requirement........ 4.00 3,137 4.00
----- ----------- -----
Excess........... 20.69% $ 16,768 21.38%
----- ----------- -----
----- ----------- -----
Total capital
level(3)(5)...... 25.62% $ 20,633 26.31%
Requirement........ 8.00 6,275 8.00
----- ----------- -----
Excess............. 17.62% $ 14,358 18.31%
----- ----------- -----
----- ----------- -----
</TABLE>
- ----------------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to 15%
as a result of regulatory considerations, demand for the shares, or changes
in market conditions or general financial and economic conditions following
the commencement of the Offering.
(2) Leverage capital levels are shown as a percentage of average assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) Pro forma capital levels assume: funding by the Bank of the Stock Award Plan
to enable the plan to acquire in the open market a number of shares equal to
4% of the Minority Ownership Interest; the purchase by the ESOP of 8% of the
Minority Ownership Interest; and the capitalization of the Mutual Company by
the Bank with $1,000. See "Management of the Bank--Benefit Plans" for a
discussion of the Stock Award Plan and ESOP.
(4) The current leverage capital requirement is 3% of total adjusted assets for
banks that receive the highest supervisory rating for safety and soundness
and that are not experiencing or anticipating significant growth. The
current leverage capital ratio applicable to all other banks is 4% to 5%.
See "Regulation--Regulatory Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the average risk weighting of the Bank's risk-weighted assets as of
June 30, 1998.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed, it is presently anticipated that the
net proceeds from the sale of the Common Stock will be between $7.6 million and
$10.5 million (or $12.1 million if the Estimated Valuation Range is
19
<PAGE>
increased by 15%). See "Pro Forma Data" and "The Reorganization and
Offering--Stock Pricing and Number of Shares to Be Issued" as to the assumptions
used to arrive at such amounts. The Company will be unable to utilize any of the
net proceeds of the Offering until the consummation of the Reorganization.
The Company will contribute 50% of the net proceeds of the Offering to the
Bank, or $3.8 million to $6.1 million at the minimum and adjusted maximum of the
Estimated Valuation Range, respectively. Such portion of net proceeds received
by the Bank from the Company will be used by the Bank for general corporate
purposes, including investments in short- and medium-term investment grade debt
securities, and mortgage-related securities, and to increase the origination of
mortgage, consumer and commercial business loans. The Bank may also use such
funds to expand operations through acquisitions of other financial institutions,
branch offices or other financial services companies. To the extent that the
stock-based benefit programs which the Company intends to adopt subsequent to
the Offering are not funded with authorized but unissued shares of Common Stock,
the Company or Bank may use net proceeds from the Offering to fund the purchase
of stock to be awarded under such stock benefit programs. See "Risk
Factors--Possible Dilutive Effect of Issuance of Additional Shares" and
"Management of the Bank-- Benefit Plans--Stock Option Plan" and "--Stock Award
Plan."
The Company intends to use a portion of the net proceeds it retains to make
a loan directly to the ESOP to enable the ESOP to purchase Common Stock equal to
8% of the Minority Ownership Interest. Based upon the sale of 814,249 shares or
1,101,631 shares at the minimum and maximum of the Estimated Valuation Range,
the amount of the loan to the ESOP would be $680,130 or $920,170, respectively
(or $1.06 million if the Estimated Valuation Range is increased by 15%). See
"Management of the Bank-- Benefit Plans--Employee Stock Ownership Plan and
Trust." The remaining net proceeds retained by the Company will initially be
invested initially in U.S. government and agency securities, short- and
medium-term debt obligations, mortgage related securities and other marketable
securities.
The net proceeds retained by the Company may also be used to support the
future expansion of operations through the acquisition of financial institutions
or their assets, including those located within the Bank's market area, or
diversification into other banking related businesses. However, the Company and
the Bank have no current arrangements, understandings or agreements regarding
any such transactions. Upon completion of the Reorganization, the Company will
be a bank holding company, and will be permitted to engage only in those
activities that are permissible for bank holding companies under the Bank
Holding Company Act, as administered by the Federal Reserve Board. See
"Regulation--Holding Company Regulation" for a description of certain
regulations applicable to the Company.
Upon completion of the Reorganization, the board of directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Pursuant to New York regulations, and without the
prior approval of the Department, the Company may not repurchase any Common
Stock, in the first year after the Reorganization, and during each of the next
two following years, may not repurchase more than 5% of its shares outstanding.
In addition, the FDIC prohibits an insured savings bank which has converted from
the mutual to stock form of ownership from repurchasing its capital stock within
one year following the date of completion of its stock offering, except that
stock repurchases of no greater than 5% of a bank's outstanding capital stock
may be repurchased during this one-year period where compelling and valid
business reasons are established to the satisfaction of the FDIC. Based upon
facts and circumstances following completion of the Reorganization and subject
to applicable regulatory requirements, the board of directors may determine to
repurchase stock in the future. Such facts and circumstances may include but not
be limited to: (i) market and economic factors such as the price at which the
stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve the
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the
20
<PAGE>
Company and its stockholders. In the event the Company determines to repurchase
stock, such repurchases may be made at market prices which may be in excess of
the $10.00 per share purchase price in the Offering (the "Subscription Price").
Any stock repurchases will be subject to the determination of the Company's
board of directors that both the Company and the Bank will be capitalized in
excess of all applicable regulatory requirements after any repurchases and that
such capital will be adequate, taking into account, among other things, the
level of non-performing and other risk assets, the Company's and the Bank's
current and projected results of operations and asset/liability structure, the
economic environment, tax and other considerations.
DIVIDEND POLICY
The Company has no present plans to pay dividends on the Common Stock,
although it may consider the payment of such dividend in the future. Dividends
will be subject to determination and declaration by the Company's Board of
Directors in its discretion, after taking into account the Company's
consolidated financial condition, capital levels, general business practices and
other factors.
Under Delaware law, the Company is permitted to pay cash dividends, provided
that the amount of cash dividends paid may not exceed that amount by which the
net assets of the Company (the amount by which total assets exceed total
liabilities) exceeds its statutory capital, or if there is no such excess, the
net profits for the current and/or immediately preceding fiscal year. The
Company's source for the payment of cash dividends may in the future depend on
the receipt of cash dividends from the Bank. The Bank will not be permitted to
pay dividends on its Common Stock or repurchase shares of its Common Stock if
its stockholders' equity would be reduced below the amount required for the
liquidation account. See "The Reorganization and Offering--Liquidation Rights."
Under New York Banking Law, dividends may be declared and paid only out of the
net profits of the Bank. The approval of the Superintendent is required if the
total of all dividends declared in any calendar year will exceed net profits for
that year plus the retained net profits of the preceding two years, less any
required transfer to surplus or a fund for the retirement of any preferred
stock. In addition, no dividends may be declared, credited or paid if the effect
thereof would cause the Bank's capital to be reduced below the amount required
by the Superintendent or the FDIC. See "Regulation." Subsequent to the Offering,
the availability of the Bank's funds for the payment of dividends may be limited
by the liquidation account. See "The Reorganization and Offering--Liquidation
Rights." Dividends in excess of the Bank's current and accumulated earnings
could result in the realization by the Bank of taxable income. See "Federal and
State Taxation--Federal Taxation."
MARKET FOR COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
received conditional approval to have its Common Stock quoted on the Nasdaq
SmallCap Market under the symbol " " subject to the completion of the
Offering and compliance with certain conditions including the presence of a
minimum number of registered and active market makers, and a minimum number of
record holders. Freidman, Billings, Ramsey & Co., Inc. intends to make a market
in the Common Stock but is under no obligation to do so. The Company expects
that additional market makers will be identified. If the Company is unable, for
any reason, to list the Common Stock on the Nasdaq SmallCap Market, or to
continue to be eligible for listing, the Common Stock will be listed on the
over-the-counter market with quotations available on the OTC Bulletin Board
(assuming the shares qualify under its listing conditions).
The existence of a public trading market will depend upon the presence in
the market of both willing buyers and willing sellers at any given time. The
presence of a sufficient number of buyers and sellers at any given time is a
factor over which neither the Company nor any broker or dealer has control. The
absence of an active and liquid trading market may make it difficult to sell the
Common Stock and may have an adverse effect on the price of the Common Stock.
Purchasers should consider the potentially illiquid and long-term nature of
their investment in the Common Stock.
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 Company
after giving effect to the Offering and the Reorganization, including the
issuance of shares to the Charitable Foundation, based upon the sale of the
number of shares indicated in the table and the other assumptions set forth
under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON THE SALE
AT $10 PER SHARE
----------------------------------------------------
1,266,876
814,249 957,940 1,101,631 SHARES
BANK SHARES SHARES SHARES (ADJUSTED
HISTORICAL (MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)(1)
---------- ----------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(2)..................................... $ 122,324 $ 122,324 $ 122,324 $ 122,324 $ 122,324
Other borrowings................................ -- -- -- -- --
---------- ----------- ----------- ----------- -------------
Total deposits and other borrowed funds......... $ 122,324 $ 122,324 $ 122,324 $ 122,324 $ 122,324
---------- ----------- ----------- ----------- -------------
---------- ----------- ----------- ----------- -------------
Stockholders' equity:
Common Stock, $.10 par value, 4,000,000 shares
authorized; shares to be issued as
reflected(3)................................ $ -- $ 187 $ 220 $ 253 $ 291
Additional paid-in capital(4)................. -- 7,295 8,699 10,103 11,718
Retained earnings(5).......................... 15,488 15,487 15,487 15,487 15,487
Less:
Expenses of contribution to Charitable
Foundation.................................. -- 459 522 586 659
Plus:
Tax benefit of contribution to Charitable
Foundation(6)............................... -- 275 313 352 395
Net unrealized gain on securities available
for sale, net of taxes...................... 242 242 242 242 242
Less:
Common Stock acquired by the ESOP(7).......... -- 680 800 920 1,058
Common Stock acquired by the Stock Award
Plan(8)..................................... -- 340 400 460 529
---------- ----------- ----------- ----------- -------------
Total stockholders' equity...................... $ 15,730 $ 22,375 $ 23,657 $ 24,939 $ 26,415
---------- ----------- ----------- ----------- -------------
---------- ----------- ----------- ----------- -------------
</TABLE>
- ------------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Valuation Range of up to 15%
as a result of regulatory considerations, demand for the shares, or changes
in market or general financial and economic conditions following the
commencement of the Offering.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock, which would reduce pro forma deposits by the amount of such
withdrawals.
(3) Includes shares to be issued to depositors and the public in the Offering,
as indicated herein, and 1,015,121, 1,194,260, 1,373,399 and 1,579,408
shares to be issued to the Mutual Company and the Charitable Foundation at
the minimum, midpoint, maximum and adjusted maximum of the Estimated
Valuation Range, respectively.
(4) Reflects the sale of shares in the Offering. No effect has been given to the
issuance of additional shares of Common Stock pursuant to the Stock Option
Plan to be adopted by the Company and
22
<PAGE>
presented for approval of stockholders following the Offering. The Stock
Option Plan would provide for the grant of stock options to purchase a
number of shares of Common Stock equal to 10% of the shares of Common Stock
sold in the Offering. See "Management of the Bank--Benefit Plans."
(5) The retained earnings of the Bank will be substantially restricted after the
Offering. See "The Reorganization and Offering--Liquidation Rights." Assumes
that the Mutual Company will be capitalized by the Bank with $1,000.
(6) Represents the tax effect of the contribution to the Charitable Foundation
based on a 40% tax rate. The realization of the deferred tax benefit is
limited annually to 10% of the Company's annual taxable income, subject to
the ability of the Company to carry forward any unused portion of the
deduction for five years following the year in which the contribution is
made.
(7) Assumes that 8% of the shares sold in the Offering will be purchased by the
ESOP and that the funds used to acquire the ESOP shares will be borrowed
from the Company. The Common Stock acquired by the ESOP is reflected as a
reduction of stockholders' equity. See "Management of the Bank-- Benefit
Plans--Employee Stock Ownership Plan and Trust."
(8) Assumes that, subsequent to the Offering, an amount equal to 4% of the
Minority Ownership Interest is purchased by the Stock Award Plan through
open market purchases. In the event the Stock Award Plan is implemented more
than one year after the Reorganization an amount equal to 5% of the Minority
Ownership Interest may be implemented. The actual purchase price per share
may be more or less than $10.00. The Common Stock to be purchased by the
restricted stock plan is reflected as a reduction to stockholders' equity.
See "Risk Factors--Possible Dilutive Effect of Issuance of Additional
Shares," footnote 3 to the tables under "Pro Forma Data," and "Management of
the Bank-- Benefit Plans--Stock Award Plan."
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. However, net proceeds are currently
estimated to be between $7.5 million and $10.4 million (or up to $12.0 million)
based upon the following assumptions: (i) Friedman, Billings, Ramsey & Co., Inc.
will receive a fixed fee of $110,000; (ii) the Charitable Foundation will be
funded with a total contribution equal to 1.96% of the shares of Common Stock
issued in the Reorganization and $100,000 in cash; (iii) Reorganization
expenses, excluding the fees payable to Friedman, Billings, Ramsey & Co., Inc.,
will be approximately $450,000; and (iv) the Mutual Company will be capitalized
by the Bank with $1,000. Actual expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the year ended June 30,
1998 have been calculated as if the Common Stock had been sold at the beginning
of the period and the net proceeds had been invested at 5.41% (the one year U.S.
Treasury bill rate as of June 30, 1998). The tables do not reflect the effect of
withdrawals from deposit accounts for the purchase of Common Stock. The pro
forma after-tax yield for the Company and the Bank is assumed to be 3.25% for
the year ended June 30, 1998 (based on an assumed tax rate of 40%). Historical
and pro forma per share amounts have been calculated by dividing historical and
pro forma amounts by the indicated number of shares of Common Stock, as adjusted
to give effect to the purchase of shares by the ESOP. No effect has been given
in the pro forma stockholders' equity calculations for the assumed earnings on
the net proceeds. As discussed under "Use of Proceeds," the Company will retain
50% of the net proceeds from the Offering.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the
23
<PAGE>
difference between the stated amount of assets and liabilities of the Company.
The pro forma stockholders' equity is not intended to represent the fair market
value of the Common Stock and may be greater than amounts that would be
available for distribution to stockholders in the event of liquidation.
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1998
------------------------------------------------------------------
1,266,876
814,249 957,940 1,101,631 SHARES SOLD AT
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT $10.00 PER
$10.00 PER $10.00 PER $10.00 PER SHARE
SHARE SHARE SHARE (ADJUSTED
(MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)(7)
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds............................. $ 8,142 $ 9,579 $ 11,016 $ 12,669
Plus: Value issued to Charitable
Foundation............................. 359 422 486 559
--------------- --------------- --------------- ---------------
Pro forma market capitalization............ $ 8,501 $ 10,001 $ 11,502 $ 13,228
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Gross proceeds............................. 8,142 9,579 11,016 12,669
Less: Capital to MHC....................... 1 1 1 1
Less: Cash contribution to Charitable
Foundation............................... 100 100 100 100
Expenses.............................. 560 560 560 560
--------------- --------------- --------------- ---------------
Estimated net proceeds..................... 7,481 8,918 10,355 12,008
Less: Common Stock purchased by ESOP....... 680 800 920 1,058
Common Stock purchased by Stock Award
Plan................................ 340 400 460 529
--------------- --------------- --------------- ---------------
Estimated net proceeds, as adjusted........ $ 6,461 $ 7,718 $ 8,975 $ 10,421
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Net income(1):
Historical............................... 1,150 1,150 1,150 1,150
Pro forma income on net proceeds, as
adjusted............................... 210 251 291 338
Pro forma ESOP adjustment(2)............. 41 48 55 63
Pro forma Stock Award Plan
adjustment(3).......................... 41 48 55 63
--------------- --------------- --------------- ---------------
Pro forma net income(1).................... $ 1,278 $ 1,305 $ 1,331 $ 1,362
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Per share net income(1):
Historical............................... $ 0.65 $ 0.55 $ 0.48 $ 0.42
Pro forma income on net proceeds, as
adjusted................................. 0.12 0.12 0.12 0.12
Pro forma ESOP adjustment(2)............... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Award Plan adjustment(3)... (0.02) (0.02) (0.02) (0.02)
--------------- --------------- --------------- ---------------
Pro forma net income per share(1).......... $ 0.73 $ 0.63 $ 0.56 $ 0.50
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Number of shares used in calculating pro
forma net income per share............... 1,768,159 2,080,187 2,392,215 2,751,047
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Stockholders' equity:
Historical............................... 15,730 15,730 15,730 15,730
Estimated net proceeds................... 7,481 8,918 10,355 12,008
Plus: Value issued to Charitable
Foundation............................... 459 522 586 659
Less: After tax cost of Charitable
Foundation............................... (275) (313) (352) (395)
Less: Common Stock acquired by ESOP(2)... (680) (800) (920) (1,058)
Less: Common Stock acquired by Stock
Award Plan(3).......................... (340) (400) (460) (529)
--------------- --------------- --------------- ---------------
Pro forma stockholders' equity(3)(4)(5).... $ 22,375 $ 23,657 $ 24,939 $ 26,415
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED JUNE 30, 1998
------------------------------------------------------------------
1,266,876
814,249 957,940 1,101,631 SHARES SOLD AT
SHARES SOLD AT SHARES SOLD AT SHARES SOLD AT $10.00 PER
$10.00 PER $10.00 PER $10.00 PER SHARE
SHARE SHARE SHARE (ADJUSTED
(MINIMUM) (MIDPOINT) (MAXIMUM) MAXIMUM)(7)
--------------- --------------- --------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Stockholders' equity per share(6):
Historical............................... 8.60 7.31 6.36 5.53
Estimated net proceeds..................... 4.09 4.14 4.18 4.22
Capitalization of the Mutual Company
Plus: Shares issued to Charitable
Foundation............................. 0.25 0.24 0.24 0.23
Less: Contributions to Charitable
Foundation............................. (0.15) (0.15) (0.14) (0.14)
Plus: Tax benefit of contribution to
Charitable Foundation
Less: Common Stock acquired by ESOP(2)... (0.37) (0.37) (0.37) (0.37)
Common Stock acquired by Stock
Award Plan(3)..................... (0.19) (0.19) (0.19) (0.19)
--------------- --------------- --------------- ---------------
Pro forma stockholders' equity per
share(3)(4)(5)........................... $ 12.23 $ 10.98 $ 10.08 $ 9.28
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Number of shares used in calculating pro
forma stockholders' equity per share..... 1,829,370 2,152,200 2,475,030 2,846,285
--------------- --------------- --------------- ---------------
--------------- --------------- --------------- ---------------
Offering price to pro forma net income per
share.................................... 13.70X 15.87X 17.86X 20.00X
Offering price as a percentage of pro forma
stockholders' equity per share(6)........ 87.77% 91.07% 99.21% 107.76%
</TABLE>
- ------------------------------
(1) Does not give effect to the non-recurring expense that will be recognized in
1998 as a result of the establishment of the Charitable Foundation. The
Company will recognize an after-tax expense for the amount of the
contribution to the Charitable Foundation which is expected to be $275,000,
$313,000, $352,000 and $395,000 at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively. Assuming
the contribution to the Charitable Foundation was incurred during the year
ended June 30, 1998, pro forma net income per share would be $0.57, $0.48,
$0.41 and $0.35 at the minimum, midpoint, maximum and adjusted maximum,
respectively. Per share net income data is based on 1,768,159, 2,080,187,
2,392,215 and 2,751,047 shares outstanding, which represents shares issued
in the Reorganization, shares contributed to the Charitable Foundation and
shares to be allocated or distributed under the ESOP and Stock Award Plan
for the period presented.
(2) It is assumed that 8% of the shares sold in the Offering will be purchased
by the ESOP. The funds used to acquire such shares are assumed to have been
borrowed by the ESOP from the Company. The amount to be borrowed is
reflected as a reduction of stockholders' equity. The Bank intends to make
annual contributions to the ESOP in an amount at least equal to the
principal and interest requirement of the debt. The Bank's total annual
payment of the ESOP debt is based upon ten equal annual installments of
principal, with an assumed interest rate at 8.5%. The pro forma net income
assumes: (i) that the Bank's contribution to the ESOP is equivalent to the
debt service requirement for the year ended June 30, 1998, and was made at
the end of the period; (ii) that 6,801, 8,001, 9,202 and 10,582 shares at
the minimum, midpoint, maximum and adjusted maximum of the Estimated
Valuation Range, respectively, were committed to be released during the year
ended June 30, 1998, at an average fair value of $10.00 per share in
accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net income per share calculations. See "Management of the Bank--Benefit
Plans--Employee Stock Ownership Plan and Trust."
(3) Gives effect to the restricted stock plan expected to be adopted by the
Company following the Offering. This plan intends to acquire a number of
shares of Common Stock equal to 4% of the shares of Common Stock sold in the
Offering, or 34,006, 40,007, 46,009 and 52,910 shares of Common Stock at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively, either through open market purchases, if permissible,
or from authorized but unissued shares of Common Stock or treasury stock of
the Company, if any. Funds used by the restricted stock plan to purchase the
shares will be contributed to the plan by the Bank. In calculating the pro
forma effect of the restricted stock plan, it is assumed that the shares
were acquired by the restricted stock plan at the beginning of the period
presented in open market purchases at the Subscription Price and that 20% of
the amount contributed was an amortized expense during such period. The
issuance of authorized but unissued shares of Common Stock to the Stock
Award Plan instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 1.86% and pro forma net
income per share would be $0.72, $0.62, $0.55 and $0.49 at the minimum,
midpoint, maximum and adjusted maximum of the Estimated Valuation Range,
respectively, and pro forma stockholders' equity per share would be $12.01,
$10.79, $9.89 and $9.11 at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, respectively. There can be no
assurance that the actual purchase price of the shares
25
<PAGE>
granted under the restricted stock plan will be equal to the Subscription
Price. See "Management of the Bank--Benefit Plans-- Recognition and
Retention Plan."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Offering. Under the Stock Option Plan, an amount equal
to 10% of the Common Stock sold in the Offering, or 85,016, 100,019, 115,021
and 132,275 shares at the minimum, midpoint, maximum and adjusted maximum of
the Estimated Valuation Range, respectively, will be reserved for future
issuance upon the exercise of options to be granted under the Stock Option
Plan. The issuance of Common Stock pursuant to the exercise of options under
the Stock Option Plan will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net income per share
would be $0.69, $0.60, $0.53 and $0.47, respectively, and the pro forma
stockholders' equity per share would be $12.13, $10.95, $10.07 and $9.31,
respectively. See "Management of the Bank--Benefit Plans--Stock Option
Plan."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Offering. See "Dividend Policy," "The Reorganization
and Offering--Liquidation Rights" and "Regulation--New York Bank
Regulation."
(6) Stockholders' equity per share data is based upon 1,829,370, 2,152,200,
2,475,030 and 2,846,285 shares outstanding representing shares issued in the
Reorganization, shares purchased by the ESOP and restricted stock plan, and
shares contributed to the Charitable Foundation.
(7) 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%
as a result of regulatory considerations, demand for the shares, or changes
in market or general financial and economic conditions following the
commencement of the Offering.
26
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITHOUT FOUNDATION
In the event that the Charitable Foundation was not established as part of
the Reorganization, FinPro has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $10.0 million at the
midpoint, which is approximately $13,000 less than the pro forma aggregate
market capitalization of the Company if the Charitable Foundation is included,
and would result in an approximately $409,000 decrease in the amount of Common
Stock offered for sale in the Reorganization. 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 Company without the
Charitable Foundation. Further, assuming the midpoint of the Estimated Valuation
Range, pro forma stockholders' equity per share and pro forma net income per
share would be substantially the same at $10.94 and $10.90, respectively, and
$0.63 and $0.63, respectively, with or without the Charitable Foundation. The
pro forma price to book ratio and the pro forma price to earnings ratio are
substantially the same with and without the Charitable Foundation at the
midpoint at 91.07% and 91.74%, respectively, and 15.87X and 15.87X,
respectively. There is no assurance that in the event the Charitable Foundation
was not formed that the appraisal prepared at the time would have concluded that
the pro forma market value of the 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 that time, including, among other things, market and
economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and adjusted
maximum of the Estimated Valuation Range, assuming the Reorganization was
completed at June 30, 1998. The valuation amounts referred to in the table below
relate to the value of the shares sold to the depositors and the public,
excluding shares issued to the Mutual Company.
<TABLE>
<CAPTION>
ADJUSTED
MINIMUM MIDPOINT MAXIMUM MAXIMUM
------------------------ ------------------------ ------------------------ -----------
WITH WITHOUT WITH WITHOUT WITH WITHOUT WITH
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount............. $ 8,142 $ 8,490 $ 9,579 $ 9,988 $ 11,016 $ 11,486 $ 12,669
Pro forma market capitalization....... 8,501 8,490 10,001 9,988 11,502 11,486 13,228
Total assets.......................... 146,899 147,164 148,181 148,482 149,463 149,801 150,939
Total liabilities..................... 124,523 124,523 124,523 124,523 124,523 124,523 124,523
Pro forma stockholders' equity........ 22,375 22,640 23,657 23,958 24,939 25,277 26,415
Pro forma net income.................. 1,278 1,292 1,305 1,321 1,331 1,350 1,362
Pro forma stockholders' equity per
share............................... 12.23 12.11 10.98 10.90 10.08 10.00 9.28
Pro forma net income per share........ 0.73 0.72 0.63 0.63 0.56 0.56 0.50
PRO FORMA PRICING RATIOS:
Offering price as a percentage of pro
forma stockholders' equity per
share............................... 81.77% 82.58% 91.07% 91.74% 99.21% 100.00% 107.76%
Offering price to pro forma net income
per share(1)........................ 13.70 13.89 15.87 15.87 17.86 17.86 20.00
Pro forma market capitalization to
assets.............................. 12.45 12.71 14.52 14.82 16.56 16.89 18.86
PRO FORMA FINANCIAL RATIOS:
Return on assets...................... 0.87 0.88 0.88 0.89 0.89 0.90 0.90
Return on equity...................... 5.71 5.71 5.52 5.51 5.34 5.34 5.16
Equity to assets...................... 15.23 15.38 15.96 16.14 16.69 16.87 17.50
<CAPTION>
WITHOUT
FOUNDATION
-----------
<S> <C>
Estimated offering amount............. $ 13,209
Pro forma market capitalization....... 13,209
Total assets.......................... 151,317
Total liabilities..................... 124,523
Pro forma stockholders' equity........ 26,793
Pro forma net income.................. 1,383
Pro forma stockholders' equity per
share............................... 9.22
Pro forma net income per share........ 0.50
PRO FORMA PRICING RATIOS:
Offering price as a percentage of pro
forma stockholders' equity per
share............................... 108.46%
Offering price to pro forma net income
per share(1)........................ 20.00
Pro forma market capitalization to
assets.............................. 19.23
PRO FORMA FINANCIAL RATIOS:
Return on assets...................... 0.91
Return on equity...................... 5.16
Equity to assets...................... 17.71
</TABLE>
- ------------------------------
(1) If the contribution to the Charitable Foundation had been incurred during
the year ended June 30, 1998, pro forma net income per share would have been
$0.57, $0.48, $0.41 and $0.35, and the offering price to pro forma net
income per share would have been 17.63X, 20.97X, 24.42X, and 28.46X at the
minimum, midpoint, maximum and adjusted maximum, respectively.
27
<PAGE>
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended Common Stock
purchases by each of the trustees and executive officers of the Bank and their
associates, and by all trustees and executive officers as a group. In the event
the individual maximum purchase limitation is increased, persons subscribing for
the maximum amount may increase their purchase order. This table excludes shares
to be purchased by the ESOP, as well as any Stock Award Plan awards or Stock
Option Plan grants that may be made no earlier than six months after the
completion of the Offering. See "Management of the Bank-- Benefit
Plans--Recognition and Retention Plan" and "--Stock Option Plan." The trustees
and officers of the Bank have indicated their intention to purchase in the
Offering an aggregate of $ of Common Stock, equal to %, %,
%, and % of the number of shares to be issued in the Offering, at
the minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively.
<TABLE>
<CAPTION>
PERCENT OF
AGGREGATE NUMBER SHARES SOLD
PURCHASE OF AT
NAME POSITION PRICE(1) SHARES(1) MIDPOINT
- ----------------------------------------- -------------------------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Walter H. Ingalls........................ Chairman of the Board
J. Bruce Whittaker....................... President, Chief Executive
Officer and Director
Bruce P. Egger........................... Vice President and Secretary
Edmund L. Smith, Jr...................... Vice President and Treasurer
Daniel T. Sager.......................... Vice President--Lending
Richard J. Buck.......................... Trustee
Anthony Camera, Jr....................... Trustee
David H. Jenkins, DVM.................... Trustee
Raphael Klein............................ Trustee
Dennis R. O'Grady........................ Trustee
Paul Slutzky............................. Trustee
Martin C. Smith.......................... Trustee
----------- ----------- -------------
All trustees and executive officers
as a group (12 persons)................ $ %
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
- ------------------------
* less than .1%
(1) Includes purchases by associates.
28
<PAGE>
THE REORGANIZATION AND OFFERING
THE SUPERINTENDENT HAS APPROVED THE PLAN OF REORGANIZATION AND THE OFFERING
OF THE COMMON STOCK SUBJECT TO THE APPROVAL OF THE BANK'S DEPOSITORS AND THE
SATISFACTION OF CERTAIN CONDITIONS IMPOSED BY THE SUPERINTENDENT. HOWEVER, SUCH
APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE OFFERING OR
THE PLAN BY THE SUPERINTENDENT.
DESCRIPTION OF AND REASONS FOR THE REORGANIZATION
The Board of Trustees unanimously adopted the Plan of Reorganization and the
Superintendent has approved the Plan of Reorganization. Pursuant to the Plan of
Reorganization, the Bank will reorganize into a "two-tier" mutual holding
company structure. The two-tier structure has two levels of holding companies--a
"mid-tier" stock holding company and a "top-tier" mutual holding company. Under
the terms of the Plan of Reorganization (i) the Bank will form the Company as a
Delaware corporation; (ii) the Bank will form the Mutual Company as a New York
mutual holding company; (iii) the Bank will reorganize into a capital stock form
of organization and constructively issue its common stock to depositors who will
contribute such common stock to the Mutual Company; (iv) the Mutual Company will
contribute the common stock of the Bank to the Company; and (v) the Company will
issue shares of Common Stock to the public and the Mutual Company. The number of
shares of Common Stock sold to depositors and the public pursuant to this
Prospectus will be equal to 44.51% of the shares issued in the Offering, and the
number of shares issued to the Mutual Company will be equal to 53.53% of the
shares issued in the Offering. In addition, the Company will issue 1.96% of the
shares to be outstanding to a newly established Charitable Foundation. The
two-tier mutual holding company structure is most easily understood by
considering the following schematic:
[LOGO]
In adopting the Plan of Reorganization, the Board of Trustees determined
that the Reorganization is in the best interest of the Bank. The primary purpose
of the Reorganization is to establish a structure that will enable the Bank to
compete and expand more effectively in the financial services marketplace, and
that will enable the Bank's depositors, employees, management and trustees to
obtain an equity ownership interest in the Bank. The new structure will permit
the Company to issue capital stock, which is a source of
29
<PAGE>
capital not available to a mutual savings bank. Since the Company is not
offering all of its Common Stock for sale to depositors and the public in the
Offering (but is issuing a majority of its stock to the Mutual Company), the
Reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion. The Reorganization, however, will also offer the
Bank the opportunity to raise additional capital since the stock held by the
Mutual Company will be available for sale in the future in the event the Mutual
Company converts to the capital stock form of organization or the Company
undertakes an incremental stock offering. See "Regulation--Holding Company
Regulation--Mutual Company Regulation." The Reorganization will also give the
Company greater flexibility to structure and finance the expansion of its
operations, including the potential acquisition of other financial institutions,
and to diversify into other financial services. The holding company form of
organization is expected to provide additional flexibility to diversify the
Bank's business activities through existing or newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions, as well as
other companies. Although management has no current arrangements, understandings
or agreements regarding any such opportunities, the Company will be in a
position after the Reorganization, subject to regulatory limitations and the
Company's financial position, to take advantage of any such opportunities that
may arise. Lastly, the Reorganization will enable the Bank to better manage its
capital by offering it broader investment opportunities through the holding
company structure, and by enabling the Company to distribute capital to
stockholders in the form of dividends. Because only a minority of the Common
Stock will be offered for sale in the Offering, the Bank's current mutual form
of ownership and its ability to remain an independent bank and to provide
community-oriented financial services will be preserved through the mutual
holding company structure.
The Board of Trustees believes that these advantages outweigh the potential
disadvantages of the mutual holding company structure, which may include: (i)
the inability of stockholders other than the Mutual Company to obtain majority
ownership of the Company and the Bank, which may result in the perpetuation of
the management and board of directors of the Bank and the Company; and (ii) that
the mutual holding company structure is a relatively new form of corporate
ownership, and new regulatory policies relating to the mutual interest in the
Mutual Company that may be adopted from time-to-time may have an adverse impact
on Minority Stockholders. A majority of the voting stock of the Company will be
owned by the Mutual Company, which is a mutual institution that will be
controlled by the existing Board of Trustees of the Bank. While this structure
will better permit management to focus on the Company's and the Bank's long-term
business strategy for growth and capital redeployment without short-term
pressure from stockholders, it will also serve to perpetuate the existing
management and trustees of the Bank. The Mutual Company will be able to elect
all members of the board of directors of the Company, and will be able to
control the outcome of all matters presented to the stockholders of the Company
for resolution by vote, except for certain matters that must be approved by more
than a majority of stockholders of the Company. No assurance can be given that
the Company will not take action adverse to the interests of the Minority
Stockholders. For example, the Company could revise the dividend policy or
defeat a candidate for the board of directors of the Bank or other proposals put
forth by the Minority Stockholders.
The Reorganization does not preclude the conversion of the Mutual Company
from the mutual to stock form of organization which would be effected through a
merger of the Mutual Company into the Company or the Bank and the concurrent
sale of the shares held by the Mutual Company in a subscription offering. A
conversion of the Mutual Company from the mutual to stock form of organization
is not anticipated for the foreseeable future.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Bank as of the effective date of the
Reorganization will continue to have such rights solely with respect to the
Mutual Company so long as they continue to hold deposit accounts with the Bank.
In addition, all persons who become depositors of the Bank subsequent to the
Reorganization will have such liquidation rights with respect to the Mutual
Company. Borrowers currently do not have ownership or
30
<PAGE>
voting rights in the Bank and will not receive ownership or voting rights with
respect to the Mutual Company.
All insured deposit accounts of the Bank will continue to be federally
insured by the FDIC and the BIF up to the legal maximum limit in the same manner
as deposit accounts existing in the Bank immediately prior to the
Reorganization. Upon completion of the Reorganization, the Bank may exercise any
and all powers, rights and privileges of, and shall be subject to all
limitations applicable to, capital stock savings banks under New York law. As
long as the Mutual Company is in existence, the Mutual Company will be required
to own at least 51% of the voting stock of the Company, and the Company will own
100% of the voting stock of the Bank. The Bank and the Company may issue any
amount of non-voting stock or debt to persons other than the Mutual Company.
THE OFFERING
The Company is offering shares of Common Stock to persons other than the
Mutual Company. An offering of between 814,249 and 1,101,631 shares of the
Common Stock (subject to adjustment to up to 1,266,876) pursuant to this
Prospectus concurrently with the Reorganization. The shares of Common Stock that
will be sold in the Offering will constitute no more than 44.51% of the shares
that will be outstanding after the Offering. Following the Reorganization and
the Offering, the Company also will be authorized to issue additional Common
Stock or preferred stock to persons other than the Mutual Company, without prior
approval of the holders of the Common Stock.
The shares of Common Stock are being offered for sale at a fixed
Subscription Price of $10.00 per share in the subscription offering pursuant to
subscription rights (the "Subscription Offering") in the following order of
priority to: (i) holders of deposit accounts with a balance of $100 or more on
June 30, 1997 ("Eligible Account Holders"); (ii) the Bank's tax-qualified
employee plans, including the ESOP; (iii) depositors whose accounts in the Bank
totaled $100 or more on September 30, 1998 ("Supplemental Eligible Account
Holders"); and (iv) employees, officers and trustees of the Bank. Concurrently,
and subject to the prior rights of holders of subscription rights, any shares of
Common Stock not subscribed for in the Subscription Offering are being offered
in the Community Offering at $10.00 per share to certain members of the general
public, with a preference first given to natural persons residing in Greene
County, New York (the "Community Offering"). Subscription rights will expire if
not exercised by 12:00 noon, New York time, on , 1998 unless
extended by the Bank and the Company.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
The Plan of Reorganization and federal and state regulations require that
the aggregate purchase price of the Common Stock sold in the Offering must be
based on the appraised pro forma market value of the Common Stock, as determined
by an independent valuation (the "Independent Valuation"). The Bank has retained
FinPro to make such valuation and FinPro will receive a fee of $25,000 for its
services. The Bank and the Company have agreed to indemnify FinPro 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 FinPro's liability results from its
negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the
information contained in this Prospectus, including the Consolidated Financial
Statements. FinPro also considered the following factors, among others: the
present and projected operating results and financial condition of 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 publicly traded subsidiaries of mutual holding companies;
the aggregate size of the Offering; the impact of the Reorganization on the
Bank's stockholders' equity and earnings potential; the proposed dividend policy
of the Company; and the trading market for securities of comparable institutions
and general conditions in the market for such securities.
31
<PAGE>
The Independent Valuation states that as of , 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$18.3 million to a maximum of $24.8 million, with a midpoint of $21.5 million
(the "Estimated Valuation Range"). The board determined to offer the shares in
the Offering at the Subscription Price of $10.00 per share, the price most
commonly used in stock offerings involving mutual-to-stock conversions. Based on
the Estimated Valuation Range and the Subscription Price of $10.00 per share,
the number of shares of Common Stock that the Company will issue will range from
1,829,370 shares to 2,475,030 shares, with a midpoint of 2,152,200 shares. The
board determined to offer 44.51% of such shares, or between 814,249 shares and
1,101,631 shares with a midpoint of 957,940 shares (the "Offering Range"), to
depositors and the public pursuant to this Prospectus. In addition, up to 48,582
shares are being issued to the Charitable Foundation as part of the
Reorganization, which will result in Minority Stockholders owning 46.47% of the
shares of the Common Stock outstanding at the conclusion of the Reorganization.
The 53.53% of the shares of the Company's Common Stock that are not sold in the
Offering or contributed to the Charitable Foundation will be issued to the
Mutual Company.
The board reviewed the Independent Valuation and, in particular, considered
(i) the Bank's financial condition and results of operations for the year ended
June 30, 1998, (ii) financial comparisons of the Bank in relation to other
financial institutions primarily including other publicly traded subsidiaries of
mutual holding companies, and (iii) stock market conditions generally and in
particular for financial institutions, all of which are set forth in the
Independent Valuation. The board also reviewed the methodology and the
assumptions used by FinPro in preparing the Independent Valuation. The Estimated
Valuation Range may be amended with the approval of the Superintendent and the
FDIC (if required), if necessitated by subsequent developments in the financial
condition of the Bank or market conditions generally.
Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15%, to up to $28.5 million,
which will result in a corresponding increase in the maximum of the Offering
Range to up to 1,266,876 shares to reflect changes in market and financial
conditions, without the resolicitation of subscribers (in which event up to
55,869 shares may be issued to the Charitable Foundation). The minimum of the
Estimated Valuation Range and the minimum of the Offering Range may not be
decreased without a resolicitation of subscribers. The Subscription Price of
$10.00 per share will remain fixed. See "--Limitations upon Purchases of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings.
THE INDEPENDENT VALUATION, HOWEVER, IS NOT INTENDED, AND MUST NOT BE
CONSTRUED, AS A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING
SHARES. FINPRO DID NOT INDEPENDENTLY VERIFY THE FINANCIAL STATEMENTS AND OTHER
INFORMATION PROVIDED BY THE BANK, NOR DID FINPRO VALUE INDEPENDENTLY THE ASSETS
OR LIABILITIES OF THE BANK. THE INDEPENDENT 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
SHARES IN THE OFFERING WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT
OR ABOVE THE SUBSCRIPTION PRICE.
The Independent Valuation will be updated at the time of the completion of
the Offering. If the update to the Independent Valuation at the conclusion of
the Offering results in an increase in the maximum of the Estimated Valuation
Range to more than $28.5 million and a corresponding increase in the Offering
Range to more than 1,266,876 shares, or a decrease in the minimum of the
Estimated Valuation Range to less than $18.3 million and a corresponding
decrease in the Offering Range to fewer than 814,249 shares, then the Company,
after consulting with the Superintendent and the FDIC, may terminate the Plan of
Reorganization and return all funds promptly, with interest on payments made by
check, certified or teller's check, bank draft or money order, extend or hold a
new Subscription Offering, Community Offering, or both, establish a new Offering
Range, commence a resolicitation of subscribers or take such other actions as
permitted by the Superintendent and the FDIC in order to complete the
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Reorganization and the Offering. 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 further extended by the
Superintendent and the FDIC for periods of up to 90 days not to extend beyond 24
months following the special meeting of depositors, or , .
An increase in the Independent Valuation and the number of shares to be
issued in the Offering would decrease both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders equity on a per share basis
while increasing pro forma earnings and stockholder's equity on an aggregate
basis. A decrease in the Independent Valuation and the number of shares to be
issued in the Offering would increase both a subscriber's ownership interest and
the Company's pro forma earnings and stockholder's equity on a per share basis
while decreasing pro forma net income and stockholder's equity on an aggregate
basis. For a presentation of the effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro and the detailed memorandum of the
appraiser setting forth the method and assumptions for such appraisal are
available for inspection at each office of the Bank and the other locations
specified under "Additional Information."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, FinPro confirms to the Bank and the Superintendent that, to the
best of its knowledge, nothing of a material nature has occurred that, taking
into account all relevant factors, would cause FinPro to conclude that the
Independent Valuation is incompatible with its estimate of the pro forma market
value of the Common Stock of the Company at the conclusion of the Offering. Any
change that would result in an aggregate purchase price that is below the
minimum or above the maximum of the Estimated Valuation Range would be subject
to Superintendent's approval. If such confirmation is not received, the Bank may
extend the Offering, reopen or commence a new offering, establish a new
Estimated Valuation Range and commence a resolicitation of all purchasers with
the approval of the Superintendent or take such other actions as permitted by
the Superintendent in order to complete the Offering.
PURCHASE PRIORITIES AND METHOD OF OFFERING SHARES
The Bank shall have the right, in its sole discretion, to determine whether
prospective purchasers are "residents," "associates," or "acting in concert" as
defined by the Plan of Reorganization and in interpreting any and all other
provisions of the Plan of Reorganization. All such determinations are in the
sole discretion of the Bank, and may be based on whatever evidence the Bank
chooses to use in making any such determination.
Subject to the preceding paragraph and the limitations set forth in the
"--Limitations Upon Purchases of Common Stock" section, the priorities for the
purchase of shares are as follows:
PRIORITY 1: ELIGIBLE ACCOUNT HOLDERS. Each Eligible Account Holder shall be
given the opportunity to purchase up to 10,000 shares, or $100,000, of Common
Stock; PROVIDED that the Company may, in its sole discretion and without further
notice to or solicitation of subscribers or other prospective purchasers,
increase such maximum purchase limitation to up to 5% of the maximum number of
shares issued in the Offering, subject to the overall purchase limitation set
forth in the section herein titled "Limitations upon Purchases of Common Stock."
If there are insufficient shares available to satisfy all subscriptions of
Eligible Account Holders, shares will be allocated to Eligible Account Holders
so as to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated pro rata to remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the same proportion that each subscriber's
aggregate deposit account balances as of the Eligibility Record Date
("Qualifying Deposits") bears to the total amount of Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unfilled.
Subscription rights to purchase
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Common Stock received by executive officers and trustees of the Bank, including
associates of executive officers and trustees, based on their increased deposits
in the Bank in the one year preceding the Eligibility Record Date, shall be
subordinated to the subscription rights of other Eligible Account Holders. To
ensure proper allocation of stock, each Eligible Account Holder must list on
their subscription order form all deposit accounts in which they had an
ownership interest as of the Eligibility Record Date.
PRIORITY 2: TAX-QUALIFIED EMPLOYEE PLANS. The Tax-Qualified Employee Plans
shall be given the opportunity to purchase in the aggregate up to 10% of the
Common Stock issued in the Offering. The ESOP intends to purchase up to 8% of
the Minority Ownership Interest. In the event of an oversubscription in the
Offering, subscriptions for shares by the Tax-Qualified Employee Plans may be
satisfied, in whole or in part, through open market purchases by the
Tax-Qualified Employee Plans subsequent to the closing of the Offering. If the
final valuation exceeds the maximum of the Estimated Valuation Range, up to 10%
of Common Stock issued in the Offering may be sold to the Tax Qualified Employee
Plans notwithstanding any oversubscription by Eligible Account Holders, subject
to FDIC approval, if necessary.
PRIORITY 3: SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS. To the extent there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall have the opportunity to purchase up to 10,000 shares, or
$100,000, of Common Stock; PROVIDED that the Company may, in its sole discretion
and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to up to 5% of
the maximum number of shares issued in the Offering, subject to the overall
purchase limitations set forth in the section herein titled "Limitations Upon
Purchases of Common Stock." In the event Supplemental Eligible Account Holders
subscribe for a number of shares which, when added to the shares subscribed for
by Eligible Account Holders and the Tax-Qualified Employee Plans, exceed
available shares, the shares of Common Stock will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of shares sufficient
to make their total allocation equal to the lesser of 100 shares or the number
of shares subscribed for. Thereafter, unallocated shares will be allocated to
each subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the same proportion that such subscriber's aggregate deposit account
balances as of the Supplemental Eligibility Record Date ("Supplemental
Qualifying Deposits") bear to the total amount of Supplemental Qualifying
Deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled.
PRIORITY 4: EMPLOYEES, OFFICERS AND TRUSTEES. Employees, officers and
trustees of the Bank will receive, without cost to them, nontransferable
subscription rights to subscribe for up to 10,000 shares or $100,000 of the
Common Stock; PROVIDED, that the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such purchase limitation to 5% of the maximum number of
shares issued in the Offering, subject to the overall purchase limitations set
forth in the section herein titled "Limitations upon Purchases of Stock." If
sufficient shares are not available in this priority, shares will be allocated
among trustees, officers and employees on a pro rata basis based on the size of
each person's order.
COMMUNITY OFFERING
Any shares of Common Stock not subscribed for in the Subscription Offering
will be offered for sale in a Community Offering. This will involve an offering
of all unsubscribed shares directly to the general public. The Community
Offering, if any, shall be for a period of not more than 45 days unless extended
by the Company and the Bank, and will commence concurrently with, during or
promptly after the Subscription Offering. The Common Stock will be offered and
sold in the Community Offering, in accordance with FDIC and Department
regulations, so as to achieve the widest distribution of the Common Stock. No
person, by himself or herself, or with an associate or group of persons acting
in concert, may subscribe for or purchase more than 10,000 shares of Common
Stock offered in the Community Offering. Further, the
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Company may limit total subscriptions so as to assure that the number of shares
available for the public offering may be up to a specified percentage of the
number of shares of Common Stock. Finally, the Company may reserve shares
offered in the Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community Offering,
shares will be allocated (to the extent shares remain available) first to
natural persons residing in Greene County, New York (the "Community").
The terms "residence," "reside," "resided" or "residing" as used herein with
respect to any person shall mean any person who occupied a dwelling within the
Bank's Community, has an intent to remain within the Community for a period of
time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is something other than merely transitory in
nature. The Bank may use deposit or loan records or such other evidence provided
to it to make a determination as to whether a person is a resident. In all
cases, however, such a determination shall be in the sole discretion of the
Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.
SYNDICATED COMMUNITY OFFERING
Any shares of Common Stock not sold in the Subscription Offering or in the
Community Offering, if any, may be offered for sale to the general public by a
selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures as may be determined by the Bank and the
Company in a manner that is intended to achieve the widest distribution of the
Common Stock, subject to the rights of the Company to accept or reject in whole
or in part any order in the Syndicated Community Offering. It is expected that
the Syndicated Community Offering, if any, will begin as soon as practicable
after termination of the Subscription Offering and the Community Offering, if
any. The Syndicated Community Offering shall be completed within 45 days after
the termination of the Subscription Offering, unless such period is extended as
provided herein.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the boards of
directors of the Company and the Bank will seek to make other arrangements for
the sale of the remaining shares. Such other arrangements will be subject to the
approval of the Department and the FDIC and to compliance with applicable state
and federal securities laws.
RESTRICTIONS ON SALE OF STOCK BY TRUSTEES AND OFFICERS
All shares of the Common Stock purchased by trustees and officers of the
Bank in the Offering will be subject to the restriction that such shares may not
be sold or otherwise disposed of for value for a period of one year following
the date of purchase, except for any disposition of such shares (i) following
the death of the original purchaser or (ii) by reason of an exchange of
securities in connection with a merger or acquisition approved by the applicable
regulatory authorities. Sales of shares of the Common Stock by the Company's
directors and officers will also be subject to certain insider trading and other
transfer restrictions under the federal securities laws. See
"Regulation--Federal Securities Laws."
Each certificate for restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Company's transfer agent to the effect that
any transfer within such time period of any certificate or record ownership of
such shares other than as provided above is a violation of the restriction. Any
shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.
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RESTRICTIONS ON AGREEMENTS OR UNDERSTANDINGS REGARDING TRANSFER OF COMMON STOCK
TO BE PURCHASED IN THE OFFERING
Prior to the completion of the Offering, no depositor or borrower may
transfer or enter into an agreement or understanding to transfer the legal or
beneficial ownership of the shares of Common Stock to be purchased by such
person in the Offering. Each depositor and borrower who submits an order form
will be required to certify that the purchase of Common Stock by such person is
solely for the purchaser's own account and there is no agreement or
understanding regarding the sale or transfer of such shares. The Bank intends to
pursue any and all legal and equitable remedies in the event it becomes aware of
any such agreement or understanding, and will not honor orders reasonably
believed by the Bank to involve such an agreement or understanding.
PROCEDURE FOR PURCHASING SHARES OF COMMON STOCK
To ensure that each purchaser receives a Prospectus at least 48 hours before
the Expiration Date, Prospectuses may not be mailed any later than five days
prior to such date or be hand delivered any later than two days prior to such
date. Order forms may only be distributed with a Prospectus.
EXPIRATION DATE. The Offering will terminate at 12:00 noon, New York time
on December , 1998, unless extended by the Bank for up to an additional 45
days or, if approved by the Superintendent, for an additional period after such
45-day extension (as so extended, the "Expiration Date"). The Bank is not
required to give purchasers notice of any extension unless the Expiration Date
is later than , 1998, in which event purchasers will be given the
right to increase, decrease, confirm, or rescind their orders. If the minimum
number of shares sold in the Offering (814,249 shares) is not sold by the
Expiration Date, the Bank may terminate the Offering and promptly refund all
orders for Common Stock. A reduction in the number of shares below the minimum
of the Estimated Valuation Range will not require the approval of depositors or
an amendment to the Independent Valuation. If the number of shares is reduced
below the minimum of the Estimated Valuation Range, purchasers will be given an
opportunity to increase, decrease, or rescind their orders.
USE OF ORDER FORMS. In order to purchase the Common Stock, each purchaser
must complete an order form except for certain persons purchasing in the
Syndicated Community Offering as more fully described below. Any person
receiving an order form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
Order Form, together with full payment for the shares purchased. The order form
must be received prior to 12:00 noon, New York time on December , 1998. ONCE
TENDERED, AN ORDER FORM CANNOT BE MODIFIED OR REVOKED WITHOUT THE CONSENT OF THE
BANK. Each person ordering shares is required to represent that they are
purchasing such shares for their own account. The interpretation by the Bank of
the terms and conditions of the Plan and of the acceptability of the order forms
will be final. The Bank is not required to accept copies of order forms.
PAYMENT FOR SHARES. Payment for all shares will be required to accompany
all completed order forms for the purchase to be valid. Payment for shares may
be made by (i) check or money order, or (ii) authorization of withdrawal from a
deposit account maintained with the Bank. Third party checks may not be accepted
as payment for a subscriber's order. Appropriate means by which such withdrawals
may be authorized are provided in the order forms. Once such a withdrawal amount
has been authorized, a hold will be placed on such funds, making them
unavailable to the depositor until the Offering has been completed or
terminated. In the case of payments authorized to be made through withdrawal
from deposit accounts, all funds authorized for withdrawal will continue to earn
interest at the contract rate until the Offering is completed or terminated.
Interest penalties for early withdrawal applicable to certificate of deposit
accounts will not apply to withdrawals authorized for the purchase of shares;
however, if a withdrawal results in a certificate of deposit account with a
balance less than the applicable minimum balance requirement, the certificate of
deposit shall be canceled at the time of withdrawal without penalty,
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and the remaining balance will earn interest at the Bank's passbook rate
subsequent to the withdrawal. Payments made by check or money order will be
placed in a segregated escrow account and will be paid interest at the Bank's
passbook rate of % (calculated using the simple interest method), from the
date payment is received until the Offering is completed or terminated. Such
interest will be paid by check, on all funds held, including funds accepted as
payment for shares of Common Stock, promptly following completion or termination
of the Offering. An executed order form, once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank, unless the
Offering is not completed by , 1998, in which event purchasers may
be given the opportunity to increase, decrease, confirm or rescind their orders
for a specified period of time.
Depending on market conditions, the Common Stock may be offered for sale to
the general public on a best efforts basis in a Syndicated Community Offering by
a selling group of broker-dealers to be managed by Friedman, Billings, Ramsey
Co., Inc. In its discretion, Friedman, Billings, Ramsey & Co., Inc. will
instruct selected broker-dealers as to the number of shares to be allocated to
each selected broker-dealer. Only upon allocation of shares to selected
broker-dealers may they take orders from their customers. Investors who desire
to purchase shares in the Community Offering directly through a selected
broker-dealer, which may include Friedman, Billings, Ramsey & Co., Inc., will be
advised that the members of the selling group are required either (a) upon
receipt of an executed order form or direction to execute an order form on
behalf of an investor, to forward the appropriate purchase price to the Bank for
deposit in a segregated account on or before twelve noon, prevailing time, of
the business day next following such receipt or execution; or (b) upon receipt
of confirmation by such member of the selling group of an investor's interest in
purchasing shares, and following a mailing of an acknowledgment by such member
to such investor on the business day next following receipt of confirmation, to
debit the account of such investor on the fifth business day next following
receipt of confirmation and to forward the appropriate purchase price to the
Bank for deposit in the segregated account on or before twelve noon, prevailing
time, of the business day next following such debiting. Payment for any shares
purchased pursuant to alternative (a) above must be made by check in full
payment of the purchase price. Payment for shares purchased pursuant to
alternative (b) above may be made by wire transfer to the Bank.
A depositor interested in using his or her IRA funds to purchase Common
Stock must do so through a self-directed IRA. Since the Bank does not offer such
accounts, it will allow a depositor to make a trustee-to-trustee transfer of the
IRA funds to a trustee offering a self-directed IRA program with the agreement
that such funds will be used to purchase the Common Stock in the Offering. There
will be no early withdrawal or IRS penalties for such transfers. The new trustee
would hold the Common Stock in a self-directed account in the same manner as the
Bank now holds the depositor's IRA funds. An annual administrative fee may be
payable to the new trustee. Depositors interested in using funds in a Bank IRA
to purchase Common Stock should contact the Stock Center as soon as possible so
that the necessary forms may be forwarded for execution prior to the Expiration
Date.
If the ESOP purchases shares of the Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering.
DELIVERY OF STOCK CERTIFICATES. Certificates representing Common Stock
issued in the Offering will be mailed by the Bank to the persons entitled
thereto at the registered address noted on the order form, as soon as
practicable following consummation of the Offering. Any certificates returned as
undeliverable will be held by the Bank until claimed by persons legally entitled
thereto or otherwise disposed of in accordance with applicable law. Until
certificates for the Common Stock are available and delivered to purchasers,
purchasers may not be able to sell the shares of stock which they ordered.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
To assist in the marketing of the Common Stock, the Bank has retained
Friedman, Billings, Ramsey & Co., Inc., a broker-dealer registered with the
National Association of Securities Dealers, Inc. ("NASD").
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Friedman, Billings, Ramsey & Co., Inc. will assist the Bank in the Offering as
follows: (i) in training and educating the Bank's employees regarding the
mechanics and regulatory requirements of the Offering; (ii) in conducting
informational meetings for employees, customers and the general public; (iii) in
coordinating the selling efforts in the Bank's local communities; and (iv) in
soliciting orders for Common Stock. For these services, Friedman, Billings,
Ramsey & Co., Inc. will receive a fixed fee of $110,000. If there is a
Syndicated Community Offering, the fixed fee will be a negotiated percentage of
the value of the Common Stock sold by Friedman, Billings, Ramsey & Co., Inc. and
other NASD member firms under selected broker-dealer agreements.
The Bank also will reimburse Friedman, Billings, Ramsey & Co., Inc. for its
reasonable out-of-pocket expenses associated with its marketing effort, up to a
maximum of $40,000 (including legal fees and expenses). The Bank has made an
advance payment of $12,500 to Friedman, Billings, Ramsey & Co., Inc. If the Plan
of Reorganization is terminated by the Bank, if the Offering is not completed by
, 1999, or if Friedman, Billings, Ramsey & Co., Inc. terminates its
agreement with the Bank in accordance with the provisions of the agreement,
Friedman, Billings, Ramsey & Co., Inc. will only receive reimbursement of its
reasonable out-of-pocket expenses. The Bank will indemnify Friedman, Billings,
Ramsey & Co., Inc. against liabilities and expenses (including legal fees)
incurred in connection with certain claims or litigation arising out of or based
upon untrue statements or omissions contained in the offering material for the
Common Stock, including liabilities under the Securities Act of 1933.
Trustees and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or registered representatives. The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
so as to permit officers, trustees, and employees to participate in the sale of
the Common Stock. No officer, trustee, or employee of the Bank will be
compensated for his participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
A Stock Center will be established at a location adjacent to the Bank's main
office. Employees will inform prospective purchasers to direct their questions
to the Stock Center and will provide such persons with the telephone number of
the Center.
LIMITATIONS UPON PURCHASES OF COMMON STOCK
The following additional limitations have been imposed upon purchases of
shares of Common Stock. Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan of
Reorganization.
A. The aggregate amount of outstanding Common Stock of the Company owned or
controlled by persons other than Mutual Company at the close of the Offering
shall not exceed 49% of the Company's total outstanding Common Stock.
B. No person or group of persons acting in concert, together with their
associates, may purchase more than 20,000 shares, or $200,000, of Common Stock
in the Offering, except that: (i) the Company may, in its sole discretion and
without further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of the number
of shares sold in the Offering; (ii) Tax-Qualified Employee Plans may purchase
up to 10% of the shares sold in the Offering; and (iii) for purposes of this
paragraph shares to be held by any Tax-Qualified Employee Plan and attributable
to a person shall not be aggregated with other shares purchased directly by or
otherwise attributable to such person.
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C. The aggregate amount of Common Stock acquired in the Offering by all
management persons and their associates, exclusive of any stock acquired by such
persons in the secondary market, shall not exceed 32% of the outstanding shares
of Common Stock of the Company held by persons other than the Mutual Company at
the close of the Offering. In calculating the number of shares held by
management persons and their associates under this paragraph or under the
provisions of paragraph C below, shares held by any Tax-Qualified Employee
Benefit Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank that are
attributable to such persons shall not be counted.
D. Notwithstanding any other provision of the Plan of Reorganization, no
person shall be entitled to purchase any Common Stock to the extent such
purchase would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of Securities
Dealers, Inc., particularly those regarding free riding and withholding. The
Company and/or its agents may ask for an acceptable legal opinion from any
purchaser as to the legality of such purchase and may refuse to honor any
purchase order if such opinion is not timely furnished.
E. The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose representations the
Board of Directors believes to be false or who it otherwise believes, either
alone or acting in concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of the Plan of
Reorganization.
F. The Company will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to subscribe
for Common Stock pursuant to the Plan of Reorganization reside. However, the
Company and the Bank are not required to offer Common Stock to any person who
resides in a foreign country.
ESTABLISHMENT OF THE CHARITABLE FOUNDATION
GENERAL. In furtherance of the Bank's commitment to the communities that it
serves, the Bank intends to establish a Charitable Foundation in connection with
the Reorganization. The Plan of Reorganization provides that the Bank and the
Company may establish the Charitable Foundation, which will be incorporated
under Delaware law as a non-stock corporation and will be funded with cash and
shares of Common Stock contributed by the Company. The Bank will contribute to
the Charitable Foundation 1.96% of the shares of Common Stock to be issued in
the Reorganization or 35,908, 42,245, 48,582 and 55,869 shares at the minimum,
midpoint, maximum and adjusted maximum of the Offering range and $100,000 in
cash. The contribution of Common Stock to the Charitable Foundation will be
dilutive to the interests of stockholders and will have an adverse impact on the
reported earnings of the Company in the year in which the Charitable Foundation
is established.
PURPOSE OF THE CHARITABLE FOUNDATION. The purpose of the Charitable
Foundation is to provide funding to support charitable causes and community
development activities. Historically, the Bank has emphasized community lending
and development activities within the communities that it services, and the
Charitable Foundation is being formed as a complement to the Bank's existing
community activities. Management believes the establishment of a Charitable
Foundation is consistent with the Bank's commitment to community service.
Funding of the Charitable Foundation with Common Stock of the Company also may
be a means of enabling the communities served by the Bank to share in the growth
and success of the Company. The Charitable Foundation will also enable the
Company and the Bank to develop a unified charitable donation strategy and will
centralize the responsibility for administration and allocation of corporate
charitable funds. Charitable foundations have been formed by other financial
institutions for this purpose, among others. The contribution to the Charitable
Foundation will not take the place of the Bank's traditional community lending
activities.
STRUCTURE OF THE CHARITABLE FOUNDATION. The Charitable Foundation will be
incorporated under Delaware law as a non-stock corporation. Pursuant to the
Charitable Foundation's Bylaws, the Charitable Foundation's initial board of
directors will consist of persons who are existing directors and officers of the
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Company. Subsequent to the Reorganization, other individuals may be appointed to
the Board. The members of the Charitable Foundation, who are comprised of its
board members, will elect the directors at the annual meeting of the Charitable
Foundation from those nominated by the nominating committee. Only persons
serving as directors of the Charitable Foundation qualify as members of the
Charitable Foundation, with voting authority. Directors will be divided into
three classes with each class appointed for three-year terms. The certificate of
incorporation of the Charitable Foundation provides that the corporation is
organized exclusively for charitable purposes, including community development,
as set forth in Section 501(c)(3) of the Internal Revenue Code of 1986 (the
"Code"). The Charitable Foundation's certificate of incorporation further
provides that no part of the net earnings of the Charitable Foundation will
inure to the benefit of, or be distributable to, its directors, officers or
members.
The authority for the affairs of the Charitable Foundation will be vested in
its board of directors which will be responsible for establishing the policies
of the Charitable Foundation with respect to grants or donations consistent with
the purpose for which the Charitable Foundation was established. Although no
formal policy governing Charitable Foundation grants exists at this time, the
Charitable Foundation's board of directors will adopt such a policy upon
establishment of the Charitable Foundation. As directors of a nonprofit
corporation, directors of the Charitable Foundation will at all times be bound
by their fiduciary duty to advance the Charitable Foundation's charitable goals,
to protect the assets of the Charitable Foundation and to act in a manner
consistent with the charitable purpose for which the Charitable Foundation is
established. The directors of the Charitable Foundation also will be responsible
for directing the activities and managing the assets of the Charitable
Foundation. However, as a condition to receiving the non-objection of the
Reorganization, the Charitable Foundation has been required to commit to the
FDIC and the Department that all shares of Common Stock held by the Charitable
Foundation will be voted in the same ratio as all other shares of the Company's
Common Stock (other than shares held by the Mutual Company) on all proposals
considered by stockholders of the Company; provided, however, that, consistent
with such condition, the FDIC and the Department would waive this voting
restriction under certain circumstances (and subject to certain additional
conditions) if compliance with the voting restriction would: (i) cause a
violation of the law of the State of Delaware; (ii) cause the Charitable
Foundation to lose its tax-exempt status, or cause the Internal Revenue Service
(the "IRS") to deny the Charitable Foundation's request for a determination that
it is an exempt organization or otherwise have a material and adverse tax
consequence on the Charitable Foundation; or (iii) cause the Charitable
Foundation to be subject to an excise tax under Section 4941 of the Code. In
order for the FDIC and the Department to waive such voting restriction, the
Company's or the Charitable Foundation's legal counsel would be required to
render an opinion satisfactory to the FDIC and the Department that compliance
with the voting requirement would have the effect described in clauses (i), (ii)
or (iii) above. Under those circumstances, the FDIC and the Department would
grant waivers of the voting restriction upon submission of such legal opinion(s)
by the Company or the Charitable Foundation that are satisfactory to the FDIC
and the Department. In the event that the FDIC and the Department were to waive
the voting requirement, the directors would direct the voting of the Common
Stock held by the Charitable Foundation.
The Charitable Foundation's place of business will be located at the Bank's
administrative offices and initially the Charitable Foundation is expected to
have no employees but will utilize the members of the staff of the Company or
the Bank. The board of directors of the Charitable Foundation will appoint such
officers as may be necessary to manage the operation of the Charitable
Foundation. In this regard, it is expected that the Bank will be required to
provide 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
Charitable Foundation.
Under Section 501(c)(3) of the Code, the Charitable Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of
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<PAGE>
Common Stock that may be sold by the Charitable Foundation in any one year shall
not exceed 5% of the average market value of the assets held by the Charitable
Foundation, except where the board of directors of the Charitable Foundation
determines that the failure to sell an amount of Common Stock greater than such
amount would result in a longer-term reduction of the value of the Charitable
Foundation's assets and as such would jeopardize the Charitable Foundation's
capacity to carry out its charitable purposes. Upon completion of the
Reorganization and the contribution of shares to the Charitable Foundation, the
Company would have 1,829,370, 2,152,200 and 2,475,030 shares issued and
outstanding at the minimum, midpoint and maximum of the Estimated Valuation
Range. Because the Company will have an increased number of shares outstanding,
the voting and ownership interests of stockholders in the Company's Common Stock
would be diluted by 1.96%, as compared to their interests in the Company if the
Charitable Foundation was not established. For additional discussion of the
dilutive effect, see "Pro Forma Data."
IMPACT ON EARNINGS. The contribution of cash and Common Stock to the
Charitable Foundation will have an adverse impact on the Company's and the
Bank's earnings in the year in which the contribution is made. The Company will
recognize the full expense in the amount of the contribution of cash and Common
Stock to the Charitable Foundation in the quarter in which it occurs, which is
expected to be the quarter ending December 31, 1998. The aggregate amount of the
contribution will range from $459,080 to $585,820, based on the minimum and
maximum of the Estimated Valuation Range, respectively (or up to $658,690 at the
adjusted maximum of the Estimated Valuation Range). The number of shares to be
contributed to the Charitable Foundation will range from 35,908 to 48,582, and
the amount of cash to be contributed will be fixed at $100,000. The contribution
expense will be partially offset by the tax benefit related to the expense. The
Company and the Bank have been advised by their independent tax advisors that
the contribution to the Charitable Foundation will be tax deductible, subject to
an annual limitation based on 10% of the Company's annual taxable income.
Assuming an aggregate contribution of $585,820 (based on the maximum of the
Estimated Valuation Range), the Company estimates a net tax effected expense of
$351,600 (based upon a 40% tax rate). Management cannot predict earnings for the
fiscal year ending June 30, 1999, but expects that the establishment and funding
of the Charitable Foundation will have an adverse impact on the Company's
earnings for the year. In addition to the contribution to the Charitable
Foundation, the Bank or the Mutual Company may continue making grants and
contributions to the community that would not be permitted for the Charitable
Foundation.
TAX CONSIDERATIONS. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private Charitable Foundation. The Charitable
Foundation will submit a request to the IRS to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent tax advisors that the Charitable Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such opinion
does not consider the impact of the condition to be agreed to by the Charitable
Foundation that Common Stock issued to the Charitable Foundation be voted in the
same ratio as all other shares of the Company's Common Stock (other than shares
held by the Mutual Company) on all proposals considered by stockholders of the
Company. Consistent with this condition, in the event that the Company or the
Charitable Foundation receives an opinion of their legal counsel that compliance
with the voting restriction would have the effect of causing the Charitable
Foundation to lose its tax-exempt status, or otherwise have a material and
adverse tax consequence on the Charitable Foundation or subject the Charitable
Foundation to an excise tax under Section 4941 of the Code, the FDIC and the
Superintendent shall waive such voting restriction upon submission of a legal
opinion by the Company or the Charitable Foundation that is satisfactory to
them. The independent tax advisors' opinion further provides that there is
substantial authority for the position that the Company's contribution of its
own stock to the Charitable Foundation would not constitute an act of
self-dealing, and that the Company would be entitled to a deduction in the
amount of the fair market value of the stock at the time of the contribution
less the nominal par value that the Charitable Foundation is required to pay to
the Company for such stock, subject to an annual limitation based on 10% of the
Company's annual taxable income. The Company, however, would be able
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<PAGE>
to carry forward any unused portion of the deduction for five years following
the contribution. Assuming the sale of Common Stock at the adjusted maximum of
the Estimated Valuation Range, the Company estimates that all of the deduction
should be deductible over the six-year period. Although the Company and the Bank
have received an opinion of their independent tax advisors that the Company will
be entitled to the deduction for the charitable contribution, there can be no
assurances that the IRS will recognize the Charitable Foundation as a Section
501(c)(3) exempt organization or that the deduction will be permitted. In such
event, the Company's tax benefit related to the Charitable Foundation would have
to be fully expensed, resulting in a further reduction in earnings in the year
in which the IRS makes such a determination.
As a private Charitable Foundation, earnings and gains, if any, from the
sale of Common Stock or other assets are generally exempt from federal and state
corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private Charitable Foundation will generally
be subject to a federal excise tax of 2.0%. The Charitable Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Charitable Foundation's fiscal year to maintain its
tax-exempt status. The Charitable Foundation will be required to publish a
notice that the annual information return will be available for public
inspection for a period of 180 days after the date of such public notice. The
information return for a private Charitable 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
Charitable Foundation's managers and a concise statement of the purpose of each
grant. The Charitable 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.
COMPARISON OF VALUATION AND OTHER FACTORS ASSUMING THE CHARITABLE FOUNDATION
IS NOT ESTABLISHED AS PART OF THE REORGANIZATION. The establishment of the
Charitable Foundation was taken into account by FinPro in determining the
estimated pro forma market value of the Common Stock of the Company. The
aggregate price of the shares of Common Stock being offered in the Offering is
based upon the independent appraisal conducted by FinPro of the estimated pro
forma market value of the Common Stock of the Company. The pro forma aggregate
price of the Common Stock being offered for sale in the Reorganization is
currently estimated to be between $8.1 million and $11.0 million, with a
midpoint of $9.6 million. The pro forma price to book ratio and the pro forma
price to earnings ratio, at and for the year ended June 30, 1998, are 91.41% and
15.87x, respectively, at the midpoint of the Estimated Valuation Range. In the
event that the Reorganization did not include the Charitable Foundation, FinPro
has estimated that the estimated pro forma market value of the Common Stock
being offered for sale in the Offering would be $10.0 million at the midpoint
based on a pro forma price to book ratio and a pro forma price to earnings ratio
of 91.74% and 15.87x, respectively. The amount of Common Stock being offered for
sale in the Offering at the midpoint of the Estimated Valuation Range is 42,245
less than the estimated amount of Common Stock that would be sold in the
Offering without the Charitable Foundation based on the estimate provided by
FinPro. Accordingly, certain account holders of the Bank who subscribe to
purchase Common Stock in the Subscription Offering would receive fewer shares
depending on the size of a depositor's stock order and the amount of his or her
qualifying deposits in the Bank and the overall level of subscriptions. See
"Comparison of Valuation and Pro Forma Information Without Charitable
Foundation." This estimate by FinPro was prepared solely for purposes of
providing subscribers with information with which to make an informed decision
on the Reorganization.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the Charitable Foundation will not have a
significant effect on the Company or the Bank's capital position. The Bank's
regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the
Reorganization. The Bank's leverage and risk-based capital ratios at June 30,
1998 were 11.09% and 20.32%, respectively. Assuming the sale of shares at the
midpoint of the Estimated Valuation Range, the Bank's pro forma leverage and
risk-based capital ratios at June 30, 1998 would be 13.11% and 24.08%,
respectively. On a consolidated basis, the
42
<PAGE>
Company's pro forma stockholders' equity would be $23.7 million, or
approximately 16.0% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Offering Range. Pro forma stockholders' equity per
share and pro forma net income per share would be $10.98 and $0.63,
respectively. If the Charitable Foundation was not being established in the
Reorganization, based on the FinPro estimate, the Company's pro forma
stockholders' equity would be approximately $24.0 million, or approximately
16.1% of pro forma consolidated assets at the midpoint of the Estimated
Valuation Range, and pro forma stockholder's equity per share and pro forma net
income per share would be substantially similar with or without the Charitable
Foundation. See "Comparison of Valuation and Pro Forma Information without
Charitable Foundation."
REGULATORY CONDITIONS IMPOSED ON THE CHARITABLE FOUNDATION. Establishment
of the Charitable Foundation is subject to certain conditions agreed to by the
Charitable Foundation in writing as a condition to receiving the FDIC's
non-objection to and Superintendent's approval of the Reorganization, including
the following: (i) the Charitable Foundation will be subject to examination by
the FDIC and the Department; (ii) the Charitable Foundation must comply with
supervisory directives imposed by the FDIC and the Department; (iii) the
Charitable Foundation will operate in accordance with written policies adopted
by the board of directors, including a conflict of interest policy; and (iv) any
shares of Common Stock held by the Charitable Foundation must be voted in the
same ratio as all other outstanding shares of Common Stock (other than shares
held by the Mutual Company) on all proposals considered by stockholders of the
Company; provided, however, that, consistent with the condition, the FDIC and
the Department would waive this voting restriction under certain circumstances
(and subject to additional conditions) if compliance with the voting restriction
would: (a) cause a violation of the law of the State of Delaware; (b) would
cause the Charitable Foundation to lose its tax-exempt status or otherwise have
a material and adverse tax consequence on the Charitable Foundation; or (c)
would cause the Charitable Foundation to be subject to an excise tax under
Section 4941 of the Code. In order to obtain a waiver, the Charitable
Foundation's legal counsel would be required to render an opinion satisfactory
to the FDIC and the Department. There can be no assurances that a legal opinion
addressing these issues could be rendered, or if rendered, that the FDIC and the
Department would grant unconditional waivers of the voting restriction. In no
event would the voting restriction survive the sale of shares of the Common
Stock held by the Charitable Foundation.
POTENTIAL CHALLENGES. The establishment and funding of a Charitable
Foundation as part of a conversion of a mutual savings institution to stock form
has only recently occurred. As such, the Charitable Foundation, and the
Superintendent's approval of the Reorganization and the FDIC's nonobjection to
the Reorganization, may be subject to potential challenges notwithstanding that
the board of directors of the Company and the board of trustees of the Bank have
considered the various factors involved in the establishment of the Charitable
Foundation in reaching their determination to establish the Charitable
Foundation as part of the Reorganization. If challenges were to be instituted
seeking to prevent the Bank from establishing the Charitable Foundation in
connection with the Reorganization, no assurances could be made that the
resolution of such challenges would not result in a delay in the consummation of
the Reorganization or that any objecting persons would not be ultimately
successful in obtaining such removal or other relief against the Company or the
Bank. Additionally, if the Company and the Bank are forced to eliminate the
Charitable Foundation, the Company may be required to resolicit subscribers in
the Offering.
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its present
mutual form, each depositor would have a claim to receive his or her pro rata
share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor may have
a claim to receive a pro rata share of the remaining assets in the same
proportion as the value of such depositor's deposit accounts to the total value
of all deposit accounts in the Bank at the time of liquidation, subject to the
right of the State of New York
43
<PAGE>
to garnish such assets. After the Reorganization, each depositor, in the event
of a complete liquidation, would have a claim as a creditor of the Bank.
However, except as described below, this claim would be solely in the amount of
the balance in the deposit account plus accrued interest. A depositor would not
have an interest in the value or assets of the Bank above that amount.
The Plan of Reorganization provides for the establishment, upon the
completion of the Reorganization, of a special "liquidation account" 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 Reorganization. Each Eligible Account Holder and Supplemental Eligible
Account Holder, who continues to maintain a deposit account at the Bank, would,
on a complete liquidation of the Bank, have a claim to an interest in the
liquidation account after payment of all creditors but prior to any payment to
the stockholders 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, with a balance of $100 or more held in the
Bank on June 30, 1997 and September 30, 1998, respectively ("Deposit Account").
Each Eligible Account Holder and Supplemental Eligible Account Holder will have
a claim to 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 June 30, 1997 and September 30, 1998, respectively, bore to
the balance of all Deposit Accounts in the Bank on such date.
If, however, on the last day of any fiscal year of the Bank commencing after
the Eligibility Record Date or Supplemental Eligibility Record Date, as the case
may be, the deposit balance in any Deposit Account of an Eligible Account Holder
or Supplemental Eligible Account Holder is less than either (i) the amount of
qualifying deposits of such Eligible Account Holder or Supplemental Eligible
Account Holder on the Eligibility Record Date or Supplemental Eligibility Record
Date, as the case may be, or (ii) the deposit balance in such Deposit Account at
the close of business on the last day of any previous fiscal year of the Bank
commencing after the Eligibility Record Date or the Supplemental Eligibility
Record Date, then such Eligible Account Holder's or Supplemental Eligible
Account Holder's account balance would be reduced in an amount equal to the
reduction in such deposit balance, and such account balance 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 deposit
balances of any Eligible Account Holder or Supplemental Eligible Account Holder.
Any assets remaining after the above liquidation rights of Eligible Account
Holders and Subsequent Eligible Account Holders are satisfied would be
distributed to the stockholders of the Bank.
Neither the Bank nor the Company shall be required to set aside funds for
the purpose of establishing the liquidation account, and the creation and
maintenance of the account will not operate to restrict the use or application
of any of the net worth accounts of the Bank, except that neither the Bank nor
the Company shall declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect would cause its net worth to be reduced below the
amount required for the liquidation account.
FEDERAL AND STATE TAX CONSEQUENCES OF THE REORGANIZATION
The Bank intends to proceed with the Reorganization on the basis of an
opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the
Reorganization. The opinion is based, among other things, on certain factual
representations made by the Bank, including the representation that the exercise
price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With respect to the subscription rights, the
Bank has received an opinion of FinPro which, based on certain assumptions,
concludes that the subscription rights to be received by Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members do not have any
economic value at the time of distribution or the time the subscription rights
are exercised, whether or not a Community Offering takes place, and Luse Lehman
Gorman Pomerenk & Schick, P.C.'s
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<PAGE>
opinion is given in reliance thereon. The opinion of Luse Lehman Gorman Pomerenk
& Schick, P.C., provides substantially as follows:
1. The change in form from a mutual savings bank ("Mutual Bank") to a stock
savings bank (the "Stock Bank") will qualify as a reorganization under Section
368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the "Code"), and
no gain or loss will be recognized by the Bank in either its mutual form or
stock form by reason of the Reorganization.
2. No gain or loss will be recognized by the Mutual Bank upon the transfer
of the Mutual Bank's assets to the Stock Bank solely in exchange for shares of
Stock Bank stock and the assumption by the Stock Bank of the liabilities of the
Mutual Bank.
3. No gain or loss will be recognized by Stock Bank upon the receipt of the
assets of the Mutual Bank in exchange for shares of Stock Bank common stock.
4. Stock Bank's holding period in the assets received from the Mutual Bank
will include the period during which such assets were held by the Mutual Bank.
5. Stock Bank's basis in the assets of the Mutual Bank will be the same as
the basis of such assets in the hands of the Mutual Bank immediately prior to
the Reorganization.
6. The Stock Bank will succeed to and take into account the Mutual Bank
earnings and profits or deficit in earnings and profits, as of the date of the
Reorganization.
7. The Stock Bank depositors will recognize no gain or loss solely by
reason of the Reorganization.
8. The Mutual Company and Minority Stockholders will recognize no gain or
loss upon the transfer of Stock Bank stock and cash, respectively, to the
Company in exchange for Common Stock.
9. The Company will recognize no gain or loss upon its receipt of Stock
Bank stock and cash from the Mutual Company and Minority Stockholders,
respectively, in exchange for Common Stock.
10. The basis of the Common Stock to Minority Stockholders will be the
Subscription Price and a shareholder's holding period for Common Stock acquired
through the exercise of subscription rights will begin on the date the rights
are exercised.
The opinion of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a letter
ruling issued by the Internal Revenue Service (the "IRS"), is not binding on the
IRS and the conclusions expressed therein may be challenged at a future date.
The IRS has issued favorable rulings for transactions substantially similar to
the proposed Reorganization, but any such ruling may not be cited as precedent
by any taxpayer other than the taxpayer to whom the ruling is addressed. The
Bank does not plan to apply for a letter ruling concerning the Reorganization.
The Bank has also received an opinion from Pricewaterhouse Coopers, LLP,
that the New York State franchise tax on banking corporations and New York State
personal income tax consequences of the proposed transaction are consistent with
the federal income tax consequences.
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<PAGE>
GREENE COUNTY SAVINGS BANK
STATEMENTS OF INCOME
The following Statements of Income of the Bank for each of the years in the
two-year period ended June 30, 1998 have been audited by PricewaterhouseCoopers,
LLP, independent certified public accountants, whose report thereon appears
elsewhere in this Prospectus. These statements should be read in conjunction
with the Financial Statements and Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans................................................................... $ 6,367,282 $ 6,175,215
Interest and dividends on investments:
U.S. Treasury..................................................................... 985,130 962,932
U.S. Government agencies.......................................................... 850,073 687,250
State and political subdivisions.................................................. 341,222 362,490
Corporation debt securities....................................................... 405,225 456,676
Mortgage-backed securities........................................................ 110,488 69,863
Other securities.................................................................. 17,724 23,441
Federal funds sold.................................................................. 393,310 536,826
Other interest income............................................................... 26,902 22,815
------------ ------------
Total interest income............................................................. 9,503,356 9,297,316
------------ ------------
INTEREST EXPENSE:
Interest on deposits................................................................ 4,967,487 4,779,678
Net interest income............................................................... 4,535,869 4,517,638
------------ ------------
Less: provision for loan losses....................................................... 120,000 125,000
------------ ------------
Net interest income after provision for loan losses................................... 4,415,869 4,392,638
NONINTEREST INCOME:
Service charges on deposit accounts................................................. 251,188 230,442
Other operating income.............................................................. 185,479 289,968
------------ ------------
Total other income................................................................ 436,667 520,410
------------ ------------
NONINTEREST EXPENSE:
Salaries and employee benefits...................................................... 1,571,650 1,491,651
Occupancy expense, net.............................................................. 208,381 157,190
Equipment and furniture expense..................................................... 185,476 163,845
Other............................................................................... 1,183,752 960,563
------------ ------------
Total other expenses.............................................................. 3,149,259 2,773,249
------------ ------------
Income before provision for taxes................................................. 1,703,277 2,139,799
PROVISION FOR INCOME TAXES
Current............................................................................. 565,609 720,287
Deferred............................................................................ (12,248) (28,625)
------------ ------------
Total provision for income taxes.................................................. 553,361 691,662
------------ ------------
Net income........................................................................ $ 1,149,916 $ 1,448,137
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements contained elsewhere herein.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has been formed for the purpose of issuing the Common Stock and
owning all of the capital stock of the Bank issued in the Reorganization.
Consequently, the Company has no operating history. All information in this
section should be read in conjunction with the financial statements and notes
thereto included in this Prospectus.
The Bank's principal business has historically consisted of offering savings
and other deposits to the general public and using the funds from such deposits
to make loans secured by residential real estate, as well as commercial real
estate, consumer and commercial business loans. The Bank also invests a
significant portion of its assets in investment securities and mortgage-backed
securities, both of which are classified as available for sale. The Bank's net
income depends primarily upon its net interest income, which is the difference
between interest income earned on interest-earning assets, such as loans and
investments, and the interest expense paid on deposits. The Bank's net income is
also affected to a lesser degree by noninterest income, such as banking service
charges and fees. The Bank's net income is also affected by, among other things,
provisions for loan losses and noninterest expenses. The Bank's principal
operating expenses, aside from interest expense, consist of salaries and
employee benefits, occupancy and equipment, data-processing expense, deposit
insurance costs and other expenses such as professional fees and insurance
premiums. The Bank's net income also is affected significantly by general
economic and competitive conditions, particularly changes in market interest
rates, government legislation and policies affecting fiscal affairs, housing and
financial institutions, monetary policies of the Federal Reserve System, and the
actions of bank regulatory authorities. Management intends to initially invest
the net proceeds from the Offering in interest-earning assets and believes that
the Company and the Bank will derive additional interest income from such
sources.
The Bank's equity position (as well as its regulatory capital) will
significantly increase as a result of the net proceeds received in the Offering,
and management anticipates that it will take time to prudently deploy such
capital. Although earnings are expected to increase as a result of the
investment of the net proceeds, until the Bank has leveraged the capital in the
Offering by increasing its interest-earning assets (and its interest-bearing
liabilities) and thereby reducing its equity as a percentage of assets, its
return on average equity is expected to be below historical levels and the
industry average. Moreover, the Company's earnings will be adversely affected in
the fiscal year in which the funding of the Charitable Foundation occurs.
OPERATING STRATEGY
In guiding the Bank's operations, management has implemented various
strategies designed to maintain and improve profitability consistent with safety
and soundness. These strategies include: (i) operating a community bank that
provides quality service by monitoring the needs of its customers and offering
customers personalized service; (ii) emphasizing one- to four-family residential
real estate lending; (iii) maintaining high levels of liquidity; and (iv)
maintaining asset quality. It is anticipated, subject to market conditions, that
the strategies presently in place will be continued following completion of the
Reorganization.
COMMUNITY BANKING. The Bank was established in 1889 and has been operating
continuously since that time. Throughout its history, the Bank has been
committed to meeting the financial needs of the communities in which it operates
and is dedicated to providing quality service to its customers. This has enabled
the Bank to maintain a high level of core deposits, which comprised 54.5% of
total deposits at June 30, 1998, and generally represent, lower-cost funds then
certificate accounts. Management believes that the Bank can be more effective
than many of its competitors in serving its customers because of its ability to
promptly and effectively provide senior management responses to customer needs
and inquiries.
47
<PAGE>
The Bank's ability to provide these services is enhanced by the stability of
senior management which has an average tenure with the Bank of over 20 years and
banking experience averaging 25 years. In addition, the Bank intends to use the
mutual holding company structure to maintain its position as an independent
community bank, and to establish the Charitable Foundation as a means of
furthering the Bank's commitment to the communities in which it conducts
business.
EMPHASIS ON RESIDENTIAL REAL ESTATE LENDING. Historically, the Bank has
emphasized the origination and retention in portfolio of fixed-rate one- to
four-family residential loans within Greene County. As of June 30, 1998, 85.5%
of the loan portfolio consisted of one- to four-family residential mortgage
loans and home equity loans, 92.5% of the loan portfolio consisted of loans
secured by real estate, substantially all of which was located in Greene County.
During the year ended June 30, 1998, the Bank originated $15.8 million of one-
to four-family mortgage loans, 95.3% of which were originated with fixed rates.
At June 30, 1998, 71.1% of the Bank's one- to four-family residential real
estate loans were fixed rate.
MAINTAINING HIGH LEVELS OF LIQUID INVESTMENTS. To position the Bank to
redeploy assets profitability in a rising interest rate environment, management
has determined to invest a significant portion of its assets in short-term
liquid investments. The Bank maintains a significant portion of its assets in
short-term U.S. Government and agency securities and other interest earning
assets (including federal funds sold, corporate debt securities and municipal
bonds issued by political subdivisions of New York State). At June 30, 1998,
U.S. Government and agency securities and municipal bonds due in five years or
less totalled $25.9 million, and federal funds sold and cash and due from banks
totalled $8.3 million, or, collectively, 24.4% of the Bank's total assets. See
"Risk Factors--Potential Impact of Changes in Interest Rates and the Current
Interest Rate Environment," "--Management of Market Risk--Interest Rate Risk"
and "Business of the Bank--Investment Activities."
MAINTAINING ASSET QUALITY. The Bank's high asset quality is a result of its
conservative underwriting standards, the diligence of its loan collection
personnel and the stability of the local economy. The Bank also invests in
investment securities, consisting primarily of U.S. Government securities,
federal agency obligations and mortgage-backed securities issued by Freddie Mac
and Fannie Mae and, to a lesser extent, private issuers. The Bank also purchases
other investment securities, such as municipal bonds and corporate debt
securities, which are generally rated A or higher by at least one nationally
recognized rating agency or receive a rating of A of higher as a result of a
guarantee by insurance companies. At June 30, 1998, the Bank's ratio of
nonperforming assets to total assets was 0.72%. At June 30, 1998, the Bank's
ratio of allowance of loan losses to non-performing loans was 82.17%.
MANAGEMENT OF INTEREST RATE RISK
While the Bank's loan portfolio, consisting primarily of mortgage loans
secured by residential real property located in its market area, is subject to
risks associated with the local economy, the Bank's most significant form of
market risk is interest rate risk because the Bank's assets and liabilities are
sensitive to changes in interest rates. The Bank's assets consist primarily of
residential mortgage loans which have longer maturities than the Bank's
liabilities which consist primarily of deposits. The Bank does not engage in any
hedging transactions, such as interest rate swaps and caps. The Bank's interest
rate risk management program focuses primarily on evaluating and managing the
composition of the Bank's assets and liabilities in the context of various
interest rate scenarios. Factors beyond management's control, such as market
interest rates and competition, also have an impact on interest income and
interest expense.
A principal part of the Bank's business strategy is to manage interest rate
risk and to minimize the Bank's exposure to changes in market interest rates. In
recent years, the Bank has followed the following strategies to manage interest
rate risk: (i) investing in short-term U.S. Government securities and federal
agency obligations; (ii) maintaining a high level of liquid interest earning
assets such as short-term federal funds sold; (iii) maintaining a high
concentration of less interest-rate sensitive and lower-costing "core deposits";
(iv) originating consumer installment loans that have up to 5 year terms but
that have
48
<PAGE>
significantly shorter average lives due to early prepayments; and (v) where
possible, matching the funding requirements for fixed rate residential mortgages
with lower-costing core deposit accounts. By investing in short-term, liquid
securities and originating consumer installment loans with shorter-average
durations, the Bank believes it is better positioned to react to increases in
market interest rates. However, investments in shorter-term securities generally
bear lower yields than longer-term investments. Thus, these strategies may
result in lower levels of interest income than would be obtained by investing in
longer-term fixed-rate loans. See "Business of the Bank--Investment Activities."
GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is deemed to be interest rate sensitive within a specific time
period if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of
interest-earning assets maturing or repricing within a specific time period and
the amount of interest bearing-liabilities maturing or repricing within that
same time period. At June 30, 1998, the Bank's cumulative one-year gap position,
the difference between the amount of interest-earning assets maturing or
repricing within one year and interest-bearing liabilities maturing or repricing
within one year, was a negative 7.78%. A gap is considered positive when the
amount of interest rate sensitive assets exceeds the amount of interest rate
sensitive liabilities. A gap is considered negative when the amount of interest
rate sensitive liabilities exceeds the amount of interest rate sensitive assets.
Accordingly, during a period of rising interest rates, an institution with a
negative gap position generally would not be in as favorable a position,
compared to an institution with a positive gap, to invest in higher yielding
assets. The resulting yield on the institution's assets generally would increase
at a slower rate than the increase in its cost of interest-bearing liabilities.
Conversely, during a period of falling interest rates, an institution with a
negative gap would tend to experience a repricing of its assets at a slower rate
than its interest-bearing liabilities which, consequently, would generally
result in its net interest income growing at a faster rate than an institution
with a positive gap position.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1998, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time periods shown (the "GAP Table"). Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at June 30,
1998, on the basis of contractual maturities, anticipated prepayments and
scheduled rate adjustments within a three month period and subsequent selected
time intervals. The loan amounts in the table reflect principal balances
expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated prepayments of adjustable-rate and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate loans.
The annual prepayment rate for real estate-related assets are based on the
particulars of coupon maturity of the real estate-related assets. See "Business
of the Bank--Lending Activities," "--Investment Activities" and "--Sources of
Funds."
49
<PAGE>
<TABLE>
<CAPTION>
AMOUNTS MATURING OR REPRICING AT JUNE 30, 1998
-----------------------------------------------------------------------------------------------
UP TO 90 3 MONTHS TO 6 MONTHS TO 1 TO 2 2 TO 3 3 TO 5 OVER 5
DAYS 6 MONTHS 1 YEAR YEARS YEARS YEARS YEARS TOTAL
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:(1)
Loans receivable(2)......... $ 7,105 $ 8,092 $ 14,138 $ 7,577 $ 6,588 $ 11,170 $26,317 $ 80,988
Investment securities....... 5,009 2,636 5,228 9,508 8,212 11,469 5,716 47,778
Federal funds sold.......... 5,796 -- -- -- -- -- -- 5,796
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
Total interest-earning
assets.................. $ 17,910 $10,728 $ 19,366 $ 17,085 $ 14,800 $ 22,639 $32,034 $134,562
Interest-bearing liabilities:
Savings deposits............ $ 1,671 $ 1,671 $ 3,341 $ 6,682 $ 6,682 $ 13,365 -- $ 33,412
NOW deposits................ 309 309 619 1,237 1,237 2,474 -- 6,186
MMDA accounts 2,129 2,129 2,907 3,111 3,111 6,222 -- 19,609
Certificate accounts........ 11,764 10,429 20,857 7,033 3,619 1,900 -- 55,602
Borrowings.................. -- -- -- -- -- -- -- --
Escrow deposits............. 84 84 169 337 337 675 -- 1,687
-------- ----------- ----------- ---------- ---------- ---------- ------- --------
Total interest-bearing
liabilities............. $ 15,957 $14,622 $ 27,893 $ 18,400 $ 14,987 $ 24,638 $ -- $116,497
Interest sensitivity gap...... 1,953 (3,894) (8,527) (1,315) (187) (1,999) 32,034
Cumulative interest
sensitivity gap............. 1,953 (1,941) (10,468) (11,783) (11,970) (13,969) 18,065
Cumulative interest
sensitivity gap as a
percentage of total
assets...................... 1.39% (1.38)% (7.46)% (8.40)% (8.53)% (9.96)% 12.88%
Cumulative interest
sensitivity gap as a
percentage of total
interest-earning assets..... 1.45% (1.44)% (7.78)% (8.76)% (8.90)% (10.38)% 13.43%
Cumulative interest-earning
assets as a percentage of
cumulative interest-bearing
liabilities................. 112.24% 93.65% 82.10% 84.67% 86.97% 88.01% 115.51%
</TABLE>
- ------------------------
(1) Interest-earning assets are included in the period in which the balances are
expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments and contractual maturities.
(2) Calculated net of deferred loan fees, loan discounts and loans in process.
50
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
GAP Table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets such as adjustable-rate loans, have features
which restrict changes in interest rates both on a short-term basis and over the
life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
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 also depends on the relative amounts of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
AVERAGE BALANCE SHEET. The following tables set forth certain information
relating to the Bank at June 30, 1998 and for the years ended June 30, 1998 and
1997. For the periods indicated, the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, is expressed both in
dollars and rates. No tax equivalent adjustments were made. All average balances
are average monthly balances. Non-accruing loans have been excluded from the
yield calculations in this table.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-----------------------------
ACTUAL BALANCE YIELD/RATE
-------------- -------------
<S> <C> <C>
Interest-earning assets:
Loans receivable, net(1)............................................................ $ 80,260 7.93%
Investment securities............................................................... 47,078 5.80
Federal funds....................................................................... 5,796 5.75
FHLB stock.......................................................................... 700 --
-------------- ---
Total interest-earning assets(1).................................................. $ 133,834 7.10%
-------------- ---
-------------- ---
Interest-bearing liabilities:
Savings deposits.................................................................... $ 52,560 3.45%
Demand and NOW deposits............................................................. 14,162 1.31
Certificate accounts................................................................ 55,602 5.23
Borrowings.......................................................................... -- --
-------------- ---
Total interest-bearing liabilities................................................ $ 122,324 4.06%
-------------- ---
-------------- ---
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------
1998 1997
----------------------------------------- -----------------------------------------
AVERAGE AVERAGE
OUTSTANDING INTEREST OUTSTANDING INTEREST
BALANCE EARNED/PAID YIELD/RATE BALANCE EARNED/PAID YIELD/RATE
----------- ------------- ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net(1)......... 77,873 6,367 8.18% 74,477 6,175 8.29%
Investment securities(2)......... 44,280 2,743 6.19 41,166 2,585 6.28
Federal funds.................... 6,713 392 5.85 9,569 537 5.61
FHLB stock....................... 58 -- -- -- -- --
----------- ----- --- ----------- ----- ---
Total interest-earning
assets....................... 128,924 9,502 7.37% 125,212 9,297 7.43%
----------- ----- --- ----------- ----- ---
----------- ----- --- ----------- ----- ---
Interest-bearing liabilities:
Savings deposits................. 51,791 1,812 3.50% 53,860 1,886 3.50%
Demand and NOW deposits.......... 12,472 186 1.50 11,260 152 1.35
Certificate accounts............. 53,389 2,970 5.56 49,589 2,742 5.53
Borrowings....................... -- -- -- -- -- --
----------- ----- --- ----------- ----- ---
Total interest-bearing
liabilities.................. 117,652 4,968 4.22% 114,709 4,780 4.17%
----------- ----- --- ----------- ----- ---
----------- ----- --- ----------- ----- ---
Net interest income................ 4,534 4,517
----- -----
----- -----
Net interest rate spread........... 3.15% 3.26%
Net earning assets................. 11,272 10,503
Net yield on average
interest-earning assets.......... 3.52% 3.61%
Average interest-earning assets to
average interest-bearing
liabilities...................... 109.58% 109.16%
</TABLE>
- ------------------------
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
loss reserves.
(2) Includes mortgage-backed securities and asset-backed securities.
52
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------------------------------------
1998 VS. 1997 1997 VS. 1996
INCREASE/ (DECREASE) INCREASE/ (DECREASE)
DUE TO TOTAL DUE TO
---------------------- INCREASE/ ------------------------
VOLUME RATE (DECREASE) VOLUME RATE
----------- --------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net.............................. $ 391 $ (199) $ 192 $ 140 $ 9
Investment securities(1)........................... 28 (9) (20) 184 125
Equity securities.................................. (5) (1) (6) 16 (1)
----- --------- ----- ----- -----
Total interest-earning assets.................... 415 (209) 206 340 133
Interest-bearing liabilities:
Savings deposits................................... (43) (31) (74) 168 --
Demand and NOW deposits............................ 196 (162) 34 (3) 141
Certificate accounts............................... 201 27 228 38 3
----- --------- ----- ----- -----
Total interest-bearing liabilities............... 354 (166) 188 203 144
----- --------- ----- ----- -----
Net interest income.................................. $ 61 $ (43) $ 18 $ 137 $ (11)
----- --------- ----- ----- -----
----- --------- ----- ----- -----
<CAPTION>
TOTAL
INCREASE/
(DECREASE)
-------------
<S> <C>
Interest-earning assets:
Loans receivable, net.............................. $ 149
Investment securities(1)........................... 309
Equity securities.................................. 15
-----
Total interest-earning assets.................... 473
Interest-bearing liabilities:
Savings deposits................................... 168
Demand and NOW deposits............................ 138
Certificate accounts............................... 41
-----
Total interest-bearing liabilities............... 347
-----
Net interest income.................................. $ 126
-----
-----
</TABLE>
- ------------------------
(1) Includes mortgage-backed securities and asset-backed securities.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND JUNE 30, 1997
ASSETS. Total assets increased to $140.3 million at June 30, 1998 from
$132.5 million at June 30, 1997, an increase of $7.8 million, or 5.9%. This
growth in total assets reflected an increase in loans receivable, net, which
increased by 6.2% to $80.3 million at June 30, 1998 from $75.6 million at June
30, 1997, as well as an increase in investment securities of $4.8 million, or
11.1%, to $47.8 million at June 30, 1998 from $43.0 million at June 30, 1997.
The increase in total assets also reflected an increase in premises and
equipment of $900,000, to $2.6 million at June 30, 1998 from $1.7 million at
June 30, 1997 due to the completion and opening of the Bank's new branch office
in Greenville, New York in December 1997. The growth in total assets was funded
by deposits, which increased by $6.4 million, or 5.5%, to $122.3 million at June
30, 1998 from $115.9 million at June 30, 1997.
Net loans receivable increased to $80.3 million at June 30, 1998 from $75.6
million at June 30, 1997. In the year ended June 30, 1998, one- to four-family
residential mortgage loans increased by $3.7 million, or 6.1%, home equity loans
increased $674,000, or 16.6%, consumer loans increased $414,000, or 11.0% and
commercial business loans increased $304,000, or 29.5%. The increases in loans
in these categories more than offset a decrease of $822,000, or 15.4%, in
commercial real estate loans, and reflected the economic strength and loan
demand in the Bank's primary lending area as well as consumer demand for the
Bank's fixed-rate mortgage loan products in the current low market interest rate
environment.
The Bank's investment securities portfolio increased by $4.8 million, or
11.2%, to $47.8 million at June 30, 1998 from $43.0 million at June 30, 1997.
The Bank joined the FHLB in 1998. At June 30, 1998, the Bank held $700,000 of
FHLB stock.
53
<PAGE>
LIABILITIES. Total deposits increased by $6.4 million, or 5.5%, to $122.3
million at June 30, 1998 from $115.9 million at June 30, 1997. The growth in
deposits reflected in part deposit inflows resulting from the expansion of the
Bank's branch network with the opening of a new branch office in Greenville in
December 1997. The Bank's certificate accounts increased to $55.6 million at
June 30, 1998 from $51.2 million at June 30, 1997, while noncertificate accounts
increased to $66.7 million at June 30, 1998 from $64.7 million at June 30, 1997.
The increase in certificates of deposit was attributable primarily to the
Greenville branch opening as well as the migration of some funds from savings
and other demand accounts to higher-yielding certificate accounts in the lower
interest rate environment. While the Bank has access to borrowings, at June 30,
1998, there were no borrowings outstanding.
RETAINED EARNINGS. Total retained earnings increased by $1.3 million, or
9.0%, to $15.7 million at June 30, 1998 from $14.4 million at June 30, 1997. The
increase in total retained earnings resulted from after tax net income of $1.1
million in the year ended June 30, 1998 as well as an increase of $174,000 in
net unrealized gain on securities available for sale. As market interest rates
decreased in the year ended June 30, 1998, the market value of the Bank's
securities was positively affected.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998 AND JUNE 30,
1997
GENERAL. The earnings of the Bank depend primarily on its level of net
interest income, which is the difference between interest earned on the Bank's
interest-earning assets, consisting primarily of residential and commercial real
estate loans, consumer loans and securities available for sale, and the interest
paid on interest-bearing liabilities, consisting primarily of deposits. Net
interest income is a function of the Bank's interest rate spread, which is the
difference between the average yield earned on interest-earning assets and the
average rate paid on interest-bearing liabilities, as well as a function of the
average balance of interest-earning assets as compared to interest-bearing
liabilities. The Bank's earnings also are affected by its fees and service
charges and gains on sale of loans and securities, as well as its level of
operating and other expenses, including salaries and employee benefits,
occupancy and equipment costs, data processing expense, marketing and
advertising costs, and federal deposit insurance premiums.
Net income for the year ended June 30, 1998 was $1.1 million, a decrease of
$298,000, or 20.6%, from net income of $1.4 million for the year ended June 30,
1997. The decrease in net income was due primarily to a decrease of $85,000, or
16.3%, in noninterest income and an increase of $376,000, or 13.6%, in
noninterest expense. These items were partially offset by a decrease of $138,000
in tax expense for the year ended June 30, 1998.
INTEREST INCOME. Interest income increased by $206,000, or 2.2%, to $9.5
million for the year ended June 30, 1998 from $9.3 million for the year ended
June 30, 1997. The increase was primarily due to a $192,000, or 3.1%, increase
in interest income paid on loans and a $158,000, or 6.1%, increase in interest
and dividends on investments for the year ended June 30, 1998 as compared to the
year ended June 30, 1997. The increase in interest from loans was attributable
to a $3.4 million, or 4.6%, increase in the average balance of loans receivable,
partially offset by a 11 basis point decrease in the average yield on loans
receivable to 8.18% for the year ended June 30, 1998 from 8.29% for the year
ended June 30, 1997. The continued origination and portfolio growth of the
Bank's one- to four-family residential mortgage loans was responsible for the
substantial majority of the increase in loans receivable, reflecting growth in
the Bank's primary market area as well as demand for the Bank's fixed-rate one-
to four-family real estate loan product in the current low market interest rate
environment. The increase in interest and dividends from investments was due to
a $3.1 million, or 8.0%, increase in the average balance of investment
securities to $44.3 million for the year ended June 30, 1998 as compared to
$41.2 million for the year ended June 30, 1997. This increase more than offset a
9 basis point decrease in the average yield on investment securities to 6.19%
from 6.28%. The increase in the average balance of investment securities
reflected the temporary deployment of liquidity pending investment in
higher-yielding mortgage loans, as well as management's desire to take advantage
of the shorter weighted average lives of U.S. Treasury securities
54
<PAGE>
and the relatively high yield available from such securities as compared to
longer maturity securities given the relatively flat yield curve that prevailed
during the period.
INTEREST EXPENSE. Interest expense increased by $188,000, or 3.9%, to $5.0
million for the year ended June 30, 1998 from $4.8 million for the year ended
June 30, 1997. The increase was due to a $2.9 million, or 2.6%, increase in the
average balance of interest-bearing liabilities as well as a 5 basis point
increase in the average rate paid on such liabilities for the year ended June
30, 1998 as compared to the year ended June 30, 1997. In particular, the
increase in interest expense resulted from an increase in interest expense on
certificate accounts, which rose to $3.0 million for the year ended June 30,
1998 as compared to $2.7 million for the year ended June 30, 1997. This increase
was due to an increase of $3.8 million, or 7.7%, in the average balance of such
certificate accounts to $53.4 million for the year ended June 30, 1998 from
$49.6 million for the year ended June 30, 1997. The increase in the average
balance of such certificate accounts reflected the Bank's new branch opening in
Greenville, New York in December 1997. The increase in interest expense
attributable to certificate accounts was partially offset by a $74,000, or 3.9%,
decrease in interest expense on savings deposits, reflecting a $2.1 million, or
3.8%, decrease in the average balance of savings deposits for the year ended
June 30, 1998 as compared to the year ended June 30, 1997. The average cost of
such deposits remained unchanged at 3.50%.
PROVISION FOR LOAN LOSSES. The Bank establishes provisions for loan losses,
which are charged to operations, in order to maintain the allowance for loan
losses at a level which is deemed appropriate to absorb future charge-offs and
loans deemed uncollectible. In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, collateral values, current and anticipated economic conditions
volume and type of lending activities and the levels of non-performing and other
classified loans. 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.
The Bank's provision for loan losses decreased to $120,000 for the year
ended June 30, 1998 from $125,000 for the year ended June 30, 1997. The higher
provision for the year ended June 30, 1997 was due, in part, to exposure
associated with loans made by the Bank to Bennett Funding Company, an equipment
lease finance company, which subsequently declared bankruptcy. At June 30, 1998,
the $104,000 remaining balance of Bennett Funding Company lease receivables had
been fully reserved.
NONINTEREST INCOME. Noninterest income consists primarily of fee income for
bank services and gains on the sale of loans and securities. Noninterest income
decreased by $85,000, or 16.3%, for the year ended June 30, 1998 as from the
year ended June 30, 1997. The decrease was due primarily to a decrease in other
operating income to $185,000 for the year ended June 30, 1998 from $290,000 for
the year ended June 30, 1997. The decrease in these items was partially offset
by an increase of $21,000, or 9.1%, in services charges on deposit accounts
reflecting the increased average balances of such deposit accounts for the year
ended June 30, 1998 as compared to the year ended June 30, 1997.
NONINTEREST EXPENSE. Noninterest expense increased by $376,000, or 13.6%,
to $3.1 million for the year ended June 30, 1998 compared to $2.8 million for
the year ended June 30, 1997. The increase was due to an $80,000, or 5.4%,
increase in salaries and employee benefits, an increase of $51,000, or 32.5%, in
net occupancy expense and an increase of $22,000, or 13.2%, in equipment and
furniture expense. Each of these increases was attributable in part to the
Bank's opening of a new full service office in Greenville, New York in December
1997, which necessitated the hiring of an additional five full time equivalent
employees, as well as depreciation of building, furniture and equipment of the
new branch office. The increase in net occupancy expense also reflects expenses
related to the Bank's continued upgrading of its technology, communications and
information systems. In addition, other noninterest expense increased by
$223,000, or 23.2%, for the year ended June 30, 1998, reflecting a $25,000, or
30.5%, increase in advertising expenses, a $25,000, or 33.3%, increase in office
supply expenses, a $15,000, or 62.5%, increase
55
<PAGE>
in mortgage recording fees, and a $36,000, or 12.2%, increase in servicing
costs, relating in part to the Bank's larger total loan portfolio.
INCOME TAXES. Income tax expense was $553,361 for the year ended June 30,
1998 compared to $691,662 for the year ended June 30, 1997. The effective tax
rate increased to 32.5% for the year ended June 30, 1998 from 32.3% for the year
ended June 30, 1997 reflecting, in part, a reduction in non-taxable interest on
municipal securities in the year ended June 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from principal
and interest payments on loans, mortgage-related and debt securities, with two
lines of credit available as needed. While maturities and scheduled amortization
of loans and securities are predictable sources of funds, deposit outflows,
mortgage prepayments, and borrowings are greatly influenced by general interest
rates, economic conditions and competition.
The Bank's primary investing activities are the origination of residential
one- to four-family and commercial real estate loans, other consumer and
commercial business loans, and the purchase of mortgage-related and debt
securities. During the years ended June 30, 1998 and 1997, the Bank's loan
originations totaled $25.0 million, and $20.7 million, respectively. Purchases
of mortgage-backed securities and debt securities totaled $16.7 million, and
$10.9 million for the years ended June 30, 1998 and 1997, respectively. These
activities were funded primarily by deposit growth and principal payments on
loans, mortgage-backed securities and debt and equity securities. Loan sales did
not provide an additional source of liquidity during the years ended June 30,
1998 and 1997 as the Bank generally originates loans for retention in its
portfolio.
The Bank experienced a net increase in total deposits of $6.5 million, and
$1.7 million for the years ended June 30, 1998 and 1997, respectively. Deposit
flows are affected by the level of interest rates, the interest rates and
products offered by local competitors, and other factors.
The Bank monitors its liquidity position on a daily basis. Excess short-term
liquidity is usually invested in overnight federal funds sold. In the event the
Bank requires funds beyond its ability to generate them internally, additional
sources of funds are available through the use of short-term FHLB advances and
two credit facilities made available to the Bank by other financial
institutions. There have been no borrowings outstanding during any of the
periods presented.
Loan commitments totaled $2.4 million at June 30, 1998 and were comprised of
$309,000 in commitments to originate adjustable rate loans and $2.1 million in
commitments to originate fixed rate loans. The Bank anticipates that it will
have sufficient funds available to meet current loan commitments. Certificates
of deposit which are scheduled to mature in one year or less from June 30, 1998
totaled $43.1 million. Based upon the Bank's experience and its current pricing
strategy, management believes that a significant portion of such deposits will
remain with the Bank.
At June 30, 1998, the Bank exceeded all of its regulatory capital
requirements. See "Regulatory Capital Compliance" and "Regulation--Regulatory
Capital Requirements."
The Bank's most liquid assets are cash and interest-bearing demand accounts.
The levels of these assets are dependent on the Bank's operating, financing,
lending and investing activities during any given period. At June 30, 1998, cash
and interest-bearing demand account totaled $2.5 million, or 1.8% of total
assets. Also at June 30, 1998, U.S. Government and agency securities and
municipal bonds due in less than one year totalled $7.7 million, or 5.5% of
total assets, and the Bank's portfolio of such securities due in less than five
years totalled $25.6 million, or 18.3% of total assets.
56
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
FASB STATEMENT ON EARNINGS PER SHARE. In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128. The Statement establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. This Statement simplifies the prior
accounting standards for computing earnings per share, as set forth in
Accounting Principles Board ("APB") Opinion No. 15. SFAS No. 128 replaces the
presentation of primary earnings per share ("EPS") with basic EPS and requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures. Basic EPS excludes dilution
and is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock (such as stock options) 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 will apply to the
Bank's earnings per share disclosures which will be made from the date of
completion of the Reorganization and Offering.
FASB STATEMENT ON ACCOUNTING FOR STOCK-BASED COMPENSATION. In October 1995,
the FASB issued SFAS No. 123 which addresses accounting for stock-based
compensation arrangements such as the Stock Option Plan and Stock Award Plan
which are expected to be implemented subsequent to the Reorganization. SFAS No.
123 defines a "fair-value-based method" of accounting whereby compensation cost
is measured at the grant date of a stock-based compensation award based on the
fair value of the award; such compensation cost is recognized as expense over
the service (vesting) period. The FASB has encouraged all entities to adopt the
fair-value-based method; however, SFAS No. 123 allows entities to continue the
use of the "intrinsic-value-based method" prescribed by APB Opinion No. 25.
Under the intrinsic-value-based method, compensation cost is measured based on
the award's intrinsic value, or the excess (if any) of the market price of the
stock at the grant date over the exercise price, i.e., the amount (if any) that
the employee must pay to acquire the stock. However, most stock option grants
have no intrinsic value at the grant date and, as such, no compensation cost is
recognized under APB Opinion No. 25. Entities electing to continue to apply APB
Opinion No. 25 must make certain pro forma disclosures of net income and
earnings per share, as if the fair-value-based method had been applied to awards
granted in fiscal years beginning after December 15, 1994. The Bank expects to
adopt the "intrinsic-value-based method" as prescribed by APB Opinion No. 25.
Accordingly, no compensation expense will be recognized for the Stock Option
Plan since the exercise price of the options will equal the market price of the
underlying stock at the grant date. The grant date fair value of shares awarded
under the Recognition Plan will be recognized as expense on a straight-line
basis over the vesting period. See "Pro Forma Data."
FASB STATEMENT ON TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125 which
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. SFAS No.
125 applies to transactions such as loan shares of loans with servicing
retained, securitizations, repurchase agreements, securities lending, loan
participations and in-substance defeasances of debt. SFAS No. 125 distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. Under the financial-components approach, after a transfer of
financial assets, an entity recognizes all financial and servicing assets it
controls and liabilities it has incurred and derecognizes financial assets it no
longer controls and liabilities that have been extinguished. If a transfer does
not meet the criteria for a sale, the transaction is accounted for as a secured
borrowing with a pledge of collateral. SFAS No. 125 applies prospectively to
transactions occurring after January 1, 1997, although the effective date of
certain provisions was January 1, 1998. SFAS No. 125 has not had, and is not
expected to have, a material impact on the Bank's financial statements.
FASB STATEMENTS ON REPORTING COMPREHENSIVE INCOME. In June 1997, the FASB
issued SFAS No. 130, "Reporting Comprehensive Income," which establishes
standards for the reporting and display of comprehensive income (and its
components) in financial statements. The standard does not, however, specify
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<PAGE>
when to recognize or how to measure items that make up comprehensive income.
Comprehensive income represents net income and certain amounts reported directly
in equity, such as the net unrealized gain of loss on available-for-sale
securities. While SFAS No. 130 does not require a specific reporting format it
does require that an enterprise display in the financial statements an amount
representing total comprehensive income for the period. SFAS No. 130 is
effective for fiscal years beginning after December 15, 1997 and accordingly,
will be adopted by the Bank in the fiscal year beginning July 1, 1998.
Management does not anticipate that the adoption of this standard will
significantly affect the Bank's financial reporting.
FASB STATEMENT ON SEGMENT DISCLOSURES AND RELATED INFORMATION. In June
1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which changes the way public companies report
information about segments of their business and requires them to report
selected segment information in their quarterly reports issued to shareholders.
Among other things, SFAS No. 131 requires public companies to report (i) certain
financial and descriptive information about its reportable operating segments
(as defined), and (ii) certain enterprise-wide financial information about
products and services, geographic areas and major customers. The required
segment financial disclosures include a measure of profit or loss, certain
specific revenue and expense items, and total assets. SFAS No. 131 is effective
for reporting by public companies in fiscal years beginning after December 15,
1997 and, accordingly, would be adopted by the Bank upon completion of the
Reorganization and Offering. SFAS No. 131 is not expected to have a significant
impact on the Bank's financial reporting.
FASB STATEMENT ON EMPLOYER DISCLOSURES ABOUT PENSIONS AND OTHER
POSTRETIREMENT BENEFITS. In February 1998, the FASB issued SFAS No. 132 which
standardizes the disclosure requirements for pensions and other postretirement
benefits; requires additional information on changes in the benefit obligations
and fair values of plan assets; and eliminates certain present disclosure
requirements. SFAS No. 132 does not change the recognition or measurement
requirements for postretirement benefits. SFAS No. 132 is effective for fiscal
years beginning after December 15, 1997 and, accordingly, will be adopted by the
Bank in the fiscal year beginning July 1, 1998. Management does not anticipate
that this standard will significantly affect the Bank's financial reporting.
FASB STATEMENT ON DERIVATIVES AND HEDGING ACTIVITIES. In June 1998, the
FASB issued SFAS No. 133 which establishes accounting and reporting standards
for derivative instruments and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial condition at fair value. If certain conditions are met, a
derivative may be specifically designated as a fair value hedge, a cash flow
hedge, or a foreign currency hedge. A specific accounting treatment applies to
each type of hedge. Entities may reclassify securities from the held-to-maturity
category to the available-for-sale category at the time of adopting SFAS No.
133. The Bank has not yet determined whether it will reclassify securities
between categories. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999 and, accordingly, will be adopted by the
Bank in the fiscal year beginning on July 1, 1999. The Bank has not engaged in
derivatives and hedging activities covered by the new standard, and does not
expect to begin such activities. Accordingly, SFAS No. 133 is not expected to
have a material impact on the Bank's consolidated financial statements.
CAPABILITY OF THE BANK'S DATA PROCESSING TO ACCOMMODATE THE YEAR 2000
Like many financial institutions, the Bank relies upon computers for the
daily conduct of its business and for data processing. There is concern that on
January 1, 2000 computers will be unable to "read" the new year and as a
consequence, there may be widespread computer malfunctions. The Bank uses an
outside data processing servicer. Management has developed a formal written plan
to resolve any concern about the year 2000 issue and the Bank is in the process
of testing its computer applications and hardware to ensure that they will be
able to read the year 2000. Based on the current timetable, testing is expected
to be completed by the end of the first calendar quarter in 1999. The Bank has
contacted each of its data processing vendors to ensure that they will be able
to provide service in light of the year 2000 issue. Such vendors have
represented to management that they are addressing the year 2000 issue and they
expect to
58
<PAGE>
be able to provide the services for which the Bank has contracted. Management
will continue to monitor this issue and report to the Board of Trustees on a
quarterly basis until full compliance is obtained from all vendors. Costs
related to the year 2000 issue will be expensed as they are incurred, except for
the costs, if any, for new hardware and software that is purchased, which will
be capitalized. Management has budgeted $110,000 for updating its hardware and
software systems to ensure compliance. Other than this budgeted expenditure,
management does not expect additional material costs to be incurred in
connection with the year 2000 issue.
The costs of the project are based on management's best estimates, which
were derived using numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes and similar uncertainties. In
addition, there can be no guarantee that the systems of other companies on which
the Bank's systems rely will be timely converted, or that a failure to convert
by another company, or a conversion that is incompatible with the Bank's
systems, would not have a material adverse effect on the Bank.
BUSINESS OF GREENE COUNTY BANCORP, INC.
GENERAL
In July 1998, the Board of Trustees of the Bank adopted the Plan of
Reorganization. Under the Plan of Reorganization, the Bank organized the
Company. The Bank will be a wholly-owned subsidiary of the Company, the majority
of whose shares will be held by the Mutual Company. See "Greene County Bancorp,
Inc." and "Regulation--Holding Company Regulation."
The Company is currently not an operating company. Following the
Reorganization, in addition to directing, planning and coordinating the business
activities of the Bank, the Company will initially invest net proceeds it
retains primarily in short and medium-term debt securities and marketable equity
securities. The Company also intends to fund the loan to the ESOP to enable the
ESOP to purchase 8% of the Minority Ownership Interest. In the future, the
Company may acquire or organize other operating subsidiaries, including other
financial institutions and financial services companies. See "Use of Proceeds."
Presently, there are no agreements or understandings for an expansion of the
Company's operations. Initially, the Company will neither own nor lease any
property from any third party, but will instead use the premises, equipment and
furniture of the Bank. At the present time, the Company does not intend to
employ any persons other than certain officers of the Bank, who will not be
separately provided cash compensation by the Company. The Company may utilize
support staff of the Bank from time to time, if needed. Additional employees
will be hired as appropriate to the extent the Company expands its business in
the future.
59
<PAGE>
BUSINESS OF THE BANK
GENERAL
The Bank's principal business consists of attracting retail deposits from
the general public in the areas surrounding its branches and investing those
deposits, together with funds generated from operations and borrowings,
primarily in one- to four-family residential mortgage loans, commercial real
estate loans, and home equity loans, consumer loans and commercial business
loans. In addition, the Bank invests a significant portion of its assets in
investment securities and mortgage-backed securities. The Bank's revenues are
derived principally from the interest on its mortgage, consumer and commercial
loans and securities, loan origination and servicing fees and service charges
and fees collected on its deposit accounts. The Bank's primary sources of funds
are deposits, and principal and interest payments on loans and investment and
mortgage-backed securities. In recent years the Bank has not had any borrowings.
MARKET AREA
The Bank has been, and intends to continue to be, a community-oriented bank
offering a variety of financial services to meet the needs of the communities it
serves. The Bank currently operates four full service banking offices in Greene
County, New York. The Bank's primary deposit gathering area is currently
concentrated around the areas within Greene County where its full service
banking offices are located, namely the towns of Catskill, Greenville, Cairo and
Coxsackie. The Bank's primary lending area also has historically been
concentrated in Greene County, New York.
As of the 1990 census, the County population was 44,700 persons. As of the
1990 census, Greene County had the fourth largest percentage of population
growth in New York state in the ten year period ended in 1990. Greene County is
primarily rural and the major industry consists of tourism associated with the
several ski facilities and festivals located in the Catskill mountains. The
County has no concentrations of manufacturing industry. Greene County is
contiguous to the Albany-Schenectady-Troy metropolitan statistical area. The
close proximity of Greene County to the city of Albany has made it a "bedroom"
community for persons working in the Albany capital area. Greene County and the
Coxsackie Correctional Facilities are the largest employers in the county. Other
large employers include the Hunter Mountain and Ski Windham resort areas, the
Catskill, Cairo-Durham, Greenville and Coxsackie-Athens Central School Districts
and Stiefel Labs, Inc.
LENDING ACTIVITIES
GENERAL. The principal lending activity of the Bank is the origination, for
retention in its portfolio, of fixed-rate and adjustable-rate mortgage loans
collateralized by one- to four-family residential real estate located within its
primary market area. To a lesser extent, the Bank also originates commercial
real estate loans, home equity loans, consumer loans and commercial business
loans.
In an effort to manage the interest rate risk associated with its
predominantly fixed-rate loan portfolio, the Bank maintains high levels of
liquidity, and, where possible, matches the funding of fixed-rate residential
mortgages with lower-costing core savings accounts. In addition, in originating
residential fixed-rate loans, the Bank has been successful in marketing and
originating such loans with 15 year terms. Currently, the substantial majority
of residential fixed-rate loans are being originated with 15 years terms.
Finally, the Bank has attempted to market to its customers shorter term maturity
features, such as fixed-rate residential mortgage loans with "bi-weekly"
mortgage payments, where the borrower makes the equivalent of an extra monthly
payment per year by paying half the monthly mortgage payment every two weeks.
The accelerated principal amortization schedules of these loans have helped
ameliorate the interest rate risk that is inherent in a community based bank's
residential lending portfolio. The accelerated repayment schedule results in
significant savings to the borrower and allows for a more rapid increase in home
equity.
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LOAN PORTFOLIO COMPOSITION. Set forth below is selected information
concerning the composition of the Bank's loan portfolio in dollar amounts and in
percentages (before deductions for deferred fees and costs, unearned discounts
and allowances for losses) as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family................................................... $ 64,705 79.69% $ 61,008 79.66%
Commercial............................................................ 4,521 5.57 5,343 6.98
Construction and land................................................. 798 .98 497 .65
Multi-family........................................................ 388 .48 388 .51
--------- --------- --------- ---------
Total real estate loans............................................. 70,412 86.72 67,236 87.80
--------- --------- --------- ---------
CONSUMER LOANS:
Installment(1)........................................................ 4,172 5.14 3,758 4.90
Home equity........................................................... 4,727 5.82 4,053 5.29
Passbook.............................................................. 544 .67 507 .66
--------- --------- --------- ---------
Total consumer loans................................................ 9,443 11.63 8,318 10.85
Commercial Business Loans............................................... 1,336 1.65 1,032 1.35
--------- --------- --------- ---------
Total consumer and commercial business loans.......................... 10,779 13.28 9,350 12.20
--------- --------- --------- ---------
Total gross loans..................................................... 81,191 100.00% 76,586 100.00%
--------- --------- --------- ---------
--------- ---------
LESS:
Deferred fees and discounts........................................... (203) (216)
Allowance for losses.................................................. (728) (723)
--------- ---------
Total loans receivable, net......................................... $ 80,260 $ 75,647
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Includes direct automobile loans (on both new and used automobiles) and
personal loans.
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<PAGE>
The following table shows the composition of the Bank's loan portfolios by
fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------
1998 1997
-------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
FIXED-RATE LOANS:
Real Estate Loans:
One- to four-family................................................. $ 46,028 56.69% $ 36,581 47.78%
Commercial.......................................................... 1,436 1.77 1,744 2.28
Construction and land............................................... 760 .94 497 .64
Multi-family........................................................ 157 .19 135 .18
--------- --------- --------- ---------
Total real estate loans........................................... 48,381 59.59 38,957 50.88
--------- --------- --------- ---------
CONSUMER LOANS:
Installment(1)...................................................... 4,172 5.14 3,758 4.91
Home equity......................................................... 4,727 5.82 4,053 5.29
Passbook............................................................ 544 .67 507 .66
Commercial Business Loans............................................. 1,336 1.65 1,032 1.35
--------- --------- --------- ---------
Total fixed-rate loans.............................................. 59,160 72.87 48,307 63.09
--------- --------- --------- ---------
ADJUSTABLE-RATE LOANS:
Real estate loans:
One- to four-family................................................. 18,677 23.00 24,429 31.90
Multi-family........................................................ 231 .28 251 .31
Commercial real estate.............................................. 3,085 3.80 3,599 4.70
Construction and land............................................... 38 .05 -- --
--------- --------- --------- ---------
Total adjustable rate loans......................................... 22,031 27.13 28,279 36.91
--------- --------- --------- ---------
Total loans....................................................... 81,191 100.00% 76,586 100.00%
--------- --------- --------- ---------
--------- ---------
LESS:
Deferred fees and discounts........................................... (203) (216)
Allowance for loan losses............................................. (728) (723)
--------- ---------
Total loans receivable, net......................................... $ 80,260 $ 75,647
--------- ---------
--------- ---------
</TABLE>
- ------------------------
(1) Includes direct automobile loans (on both new and used automobiles) and
personal loans.
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. The Bank's primary lending activity
is the origination, for retention in the Bank's portfolio, of one- to
four-family residential mortgage loans secured by property located in the Bank's
primary lending area. Generally, one- to four-family residential mortgage loans
are made in amounts up to 80% of the lesser of the appraised value or purchase
price of the property. However, the Bank will originate one- to four-family
residential mortgage loans with loan-to-value ratios of up to 95%, with private
mortgage insurance required (except for qualifying first-time home buyers, for
whom the Bank will originate loans with 90% loan-to-value ratios without private
mortgage insurance). Generally, residential mortgage loans are originated for
terms of up to 25 years, though in recent years the Bank has been successful in
marketing and originating the substantial majority of such loans with 15 year
terms. One- to four-family fixed rate loans are offered with both a monthly and
bi-weekly payment feature. The Bank generally requires fire and casualty
insurance, the establishment of a mortgage escrow account for the payment of
real estate taxes, hazard and flood insurance, as well as title insurance on all
properties securing real estate loans made by the Bank.
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<PAGE>
The Bank currently offers one- to four-family residential mortgage loans
with fixed and adjustable interest rates. Originations of fixed-rate loans
versus adjustable-rate loans are monitored on an ongoing basis and are affected
significantly by the level of market interest rates, customer preference, the
Bank's interest rate gap position, and loan products offered by the Bank's
competitors. Particularly, in a relatively low interest rate environment,
borrowers may prefer fixed-rate loans to adjustable-rate loans. Single family
residential real estate loans often remain outstanding for significantly shorter
periods than their contractual terms because borrowers may refinance or prepay
loans at their option. The average length of time that the Bank's single family
residential mortgage loans remain outstanding varies significantly depending
upon trends in market interest rates and other factors.
The Bank's adjustable-rate mortgage ("ARM") loans currently provide for
maximum rate adjustments of 150 basis points per year and 600 basis points over
the term of the loan. The Bank offers ARM loans with initial interest rates that
are below market, referred to as "teaser rates." However, in underwriting such
loans, borrowers are qualified at the full index rate. The Bank's ARM loans
adjust every year. After origination, the interest rate on such ARM loans is
reset based upon a contractual spread or margin above the average yield on
one-year United States Treasury securities, adjusted to a constant maturity (the
"U.S. Treasury Constant Maturity Index"), as published weekly by the Federal
Reserve Board.
ARM loans decrease the risk associated with changes in market interest rates
by periodically repricing, but involve other risks because as interest rates
increase, the underlying payments by the borrower increase, thus increasing the
potential for default by the borrower. At the same time, the marketability of
the underlying collateral may be adversely affected by higher interest rates.
Upward adjustment of the contractual interest rate is also limited by the
maximum periodic and lifetime interest rate adjustment permitted by the terms of
the ARM loans, and, therefore, is potentially limited in effectiveness during
periods of rapidly rising interest rates. At June 30, 1998, 23.0% of the Bank's
loan portfolio consisted of one- to four-family residential loans with
adjustable interest rates.
The Bank originates construction/permanent loans to homeowners for the
purpose of construction of primary and secondary residences. The Bank issues a
commitment and has one closing which encompasses both the construction phase and
permanent financing. The construction phase is a maximum term of six months and
the interest charged is the rate as stated in the commitment, with loan-to-value
ratios of up to 80% (or up to 95% with private mortgage insurance), of the
completed project. The Bank generally does not originate loans secured by raw
land.
Construction lending generally involves a greater degree of risk than other
one- to four-family mortgage lending. The repayment of the construction loan is,
to a great degree, dependent upon the successful and timely completion of the
construction of the subject property. Construction delays may further impair the
borrower's ability to repay the loan.
The Bank's residential mortgage loan originations are generally obtained
from the Bank's loan representatives operating in its branch offices through
their contacts with existing or past loan customers, depositors of the Bank,
referrals from attorneys and accountants who refer loan applications from the
general public, and local realtors.
All one- to four-family residential mortgage loans originated by the Bank
include "due-on-sale" clauses, which give the Bank the right to declare a loan
immediately due and payable in the event that, among other things, the borrower
sells or otherwise disposes of the real property subject to the mortgage and the
loan is not repaid.
At June 30, 1998, $64.7 million, or 79.7% of the Bank's loan portfolio,
consisted of one- to four-family residential mortgage loans. Approximately
$666,000 of such loans (representing 16 loans) were included in nonperforming
loans as of that date. See "Delinquencies and Classified Assets-Loans Past Due--
Nonperforming Assets."
63
<PAGE>
COMMERCIAL REAL ESTATE AND MULTIFAMILY LOANS. At June 30, 1998, $4.5
million, or 5.6%, of the total loan portfolio consisted of commercial real
estate loans. Commercial real estate loans are secured by office buildings,
mixed-use properties and other commercial properties. The Bank originates fixed-
and adjustable-rate commercial mortgage loans with maximum terms of up to 20
years. The maximum loan-to-value ratio of commercial real estate loans is
generally 75%. At June 30, 1998, the largest commercial mortgage loan had a
principal balance of $445,000 and was secured by a medical arts building.
In underwriting commercial real estate loans, the Bank reviews the expected
net operating income generated by the real estate to ensure that it is generally
at least 110% of the amount of the monthly debt service; the age and condition
of the collateral; the financial resources and income level of the borrower; and
the borrower's business experience. The Bank's policy is to require personal
guarantees from all commercial real estate borrowers.
Loans secured by commercial real estate generally are larger than one- to
four-family residential loans and involve a greater degree of risk. Commercial
mortgage loans often involve large loan balances to single borrowers or groups
of related borrowers. Payments on these loans depend to a large degree on the
results of operations and management of the properties or underlying businesses,
and may be affected to a greater extent by adverse conditions in the real estate
market or the economy in general. Accordingly, the nature of commercial real
estate loans makes them more difficult for Bank management to monitor and
evaluate.
The Bank originates a limited number of multi-family loans, which totalled
$338,000, or 0.48% of the Bank's total loans at June 30, 1998. Multi-family
loans are generally secured by apartment buildings and condominiums located in
the Bank's primary market area. The Bank's underwriting practices and the risks
associated with multi-family loans do not differ substantially from that of
commercial real estate loans.
CONSUMER LOANS. The Bank's consumer loans consist of direct loans on new
and used automobiles, personal loans (either secured or unsecured), home equity
loans, and other consumer loans (consisting of passbook loans, unsecured home
improvement loans and recreational vehicle loans). At June 30, 1998, consumer
loans totaled $9.4 million, or 11.6% of the total loan portfolio. Consumer loans
(other than home equity loans) are originated at fixed rates with terms to
maturity of one to five years.
Consumer loans generally have shorter terms and higher interest rates than
one- to four-family mortgage loans. In addition, consumer loans expand the
products and services offered by the Bank to better meet the financial services
needs of its customers. Consumer loans generally involve greater credit risk
than residential mortgage loans because of the difference in the underlying
collateral. Repossessed collateral for a defaulted consumer loan may not provide
an adequate source of repayment of the outstanding loan balance because of the
greater likelihood of damage to loss of or depreciation in the underlying
collateral. The remaining deficiency often does not warrant further substantial
collection efforts against the borrower beyond obtaining a deficiency judgment.
In addition, consumer loan collections depend on the borrower's personal
financial stability. Furthermore, the application of various federal and state
laws, including federal and state bankruptcy and insolvency laws, may limit the
amount that can be recovered on such loans.
The Bank's underwriting procedures for consumer loans include an assessment
of the applicant's credit history and the ability to meet existing and proposed
debt obligations. Although the applicant's creditworthiness is the primary
consideration, the underwriting process also includes a comparison of the value
of the security, to the proposed loan amount. The Bank underwrites its consumer
loans internally, which the Bank believes limits its exposure to credit risks
associated with loans underwritten or purchased from brokers and other external
sources.
The Bank offers fixed-rate home equity loans that are secured by the
borrower's residence. Home equity loans are generally underwritten with terms
not to exceed 15 years and under the same criteria that the Bank uses to
underwrite one- to four-family fixed rate loans. Home equity loans may be
underwritten with terms not to exceed 15 years and with a loan to value ratio of
80% when combined with the principal balance of the existing mortgage loan. The
maximum amount of a home equity loan may not exceed
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<PAGE>
$50,000 unless approved by the Board of Trustees. The Bank appraises the
property securing the loan at the time of the loan application (but not
thereafter) in order to determine the value of the property securing the home
equity loans. At June 30, 1998, the outstanding balance of home equity loans
totaled $4.7 million, or 5.8% of the Bank's loan portfolio.
COMMERCIAL BUSINESS LOANS. The Bank also originates commercial business
loans up to 10 years at fixed rates. The Bank attributes growth in this
portfolio to its ability to offer borrowers senior management attention as well
as timely and local decision-making on commercial loan applications. The
decision to grant a commercial business loan depends primarily on the
creditworthiness and cash flow of the borrower (and any guarantors) and
secondarily on the value of and ability to liquidate the collateral which
consists of receivables, inventory and equipment. The Bank generally requires
annual financial statements and tax returns from its commercial business
borrowers and personal guarantees from the commercial business borrowers. The
Bank also generally requires an appraisal of any real estate that secures the
loan. At June 30, 1998, the Bank had $1.3 million of commercial business loans
which represented 1.7% of the total loan portfolio. On such date, the average
balance of the Bank's commercial business loans was approximately $25,000. The
largest commercial business lending relationship had a balance of $255,000 and
represented a loan to a local fire protection district secured by a fire truck.
At June 30, 1998, the Bank's commercial loan portfolio included seven loans
secured by fire trucks.
Commercial business lending generally involves greater risk than residential
mortgage lending and involves risks that are different from those associated
with residential and commercial real estate lending. Real estate lending is
generally considered to be collateral based, with loan amounts based on
predetermined loan to collateral values and liquidation of the underlying real
estate collateral is viewed as the primary source of repayment in the event of
borrower default. Although commercial business loans may be collateralized by
equipment or other business assets, the liquidation of collateral in the event
of a borrower default is often an insufficient source of repayment because
equipment and other business assets may be obsolete or of limited use, among
other things. Accordingly, the repayment of a commercial business loan depends
primarily on the creditworthiness of the borrower (and any guarantors), while
liquidation of collateral is a secondary and often insufficient source of
repayment.
LOAN MATURITY SCHEDULE. The following table sets forth certain information
as of June 30, 1998, regarding the amount of loans maturing or repricing in the
Bank's portfolio. Adjustable-rate loans are included in the period in which
interest rates are next scheduled to adjust rather than the period in which they
contractually mature, and fixed-rate loans are included in the period in which
the final contractual repayment is due.
The following table illustrates the future maturities of such loans at June
30, 1998.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
WITHIN THROUGH THROUGH THROUGH THROUGH BEYOND
1 YEAR 3 YEARS 5 YEARS 10 YEARS 20 YEARS 20 YEARS TOTAL
--------- ----------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
REAL ESTATE LOANS:
One- to four-family................... $ 18,706 $ 278 $ 651 $ 8,375 $ 28,473 $ 8,222 $ 64,705
Home equity........................... 40 345 1,173 1,921 1,248 -- 4,727
Multi-family.......................... 231 -- -- 128 29 -- 388
Commercial............................ 3,359 49 82 444 587 -- 4,521
Construction and land loans........... -- -- -- -- 358 440 798
--------- ----------- ----------- --------- --------- --------- ---------
Total real estate loans............. $ 22,336 $ 672 $ 1,906 $ 10,868 $ 30,695 $ 8,662 $ 75,139
--------- ----------- ----------- --------- --------- --------- ---------
--------- ----------- ----------- --------- --------- --------- ---------
Consumer loans........................ 802 2,022 1,765 83 44 -- 4,716
Commercial business loans............. 143 210 439 544 -- -- 1,336
--------- ----------- ----------- --------- --------- --------- ---------
Total loan portfolio.................... $ 23,281 $ 2,904 $ 4,110 $ 11,495 $ 30,739 $ 8,662 $ 81,191
--------- ----------- ----------- --------- --------- --------- ---------
--------- ----------- ----------- --------- --------- --------- ---------
</TABLE>
The total amount of the above loans due after June 30, 1999 which have
predetermined interest rates is $57,910, while the total amount of loans due
after such dates which have adjustable interest rates is $0.
65
<PAGE>
The following table sets forth the loan origination and repayment activities
of the Bank for the periods indicated. The Bank did not purchase or sell any
loans during the periods presented.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
--------------------
1998 1997
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Originations by Type:
ADJUSTABLE RATE:
One- to four-family....................................................................... $ 742 $ 1,856
Commercial real estate.................................................................... 45 --
--------- ---------
Total adjustable rate................................................................. 787 1,856
--------- ---------
FIXED RATE:
One- to four-family....................................................................... 15,030 9,535
Commercial real estate.................................................................... 150 586
Construction and land..................................................................... 2,930 2,605
Home equity............................................................................... 2,064 1,996
Installment............................................................................... 3,194 3,785
Commercial business....................................................................... 350 568
Passbook.................................................................................. 492 373
--------- ---------
Total fixed-rate...................................................................... 24,210 19,448
--------- ---------
Total loans originated................................................................ $ 24,997 $ 21,304
--------- ---------
Repayments:
One- to four-family....................................................................... 12,075 9,268
Commercial real estate.................................................................... 1,017 5
Construction and land..................................................................... 2,629 3,101
Home equity............................................................................... 1,390 1,670
Installment............................................................................... 2,780 3,208
Commercial business....................................................................... 46 362
Passbook.................................................................................. 455 506
--------- ---------
Total principal repayments.............................................................. 20,392 18,120
--------- ---------
Net increase (decrease)................................................................... $ 4,605 $ 3,184
--------- ---------
--------- ---------
</TABLE>
LOAN APPROVAL PROCEDURES AND AUTHORITY. The Board of Trustees establishes
the lending policies and loan approval limits of the Bank. Loan officers
generally have the authority to originate mortgage loans, consumer loans and
commercial business loans up to amounts established for each lending officer.
All residential loans over $200,000, however, must be approved by the Executive
Committee or the full Board of Trustees.
The Board annually approves independent appraisers used by the Bank. For
larger loans, the Bank may require an environmental site assessment to be
performed by an independent professional for all non-residential mortgage loans.
It is the Bank policy to require hazard insurance on all mortgage loans.
LOAN ORIGINATION FEES AND OTHER INCOME. In addition to interest earned on
loans, the Bank receives loan origination fees. Such fees and costs vary with
the volume and type of loans and commitments made and purchased, principal
repayments, and competitive conditions in the mortgage markets, which in turn
respond to the demand and availability of money.
In addition to loan origination fees, the Bank also receives other income
that consists primarily of deposit transaction account service charges and late
charges. The Bank also collects fees for originating savings bank life insurance
on an agency basis and for referring student loan borrowers to Sallie Mae.
66
<PAGE>
Finally, the Bank installs, maintains and services merchant bankcard equipment
for local retailers and is paid a percentage of the transactions processed by
such equipment.
LOANS-TO-ONE BORROWER. Savings banks are subject to the same loans-to-one
borrower limits as those applicable to national banks, which under current
regulations restrict loans to one borrower to an amount equal to 15% of
unimpaired net worth on an unsecured basis, and an additional amount equal to
10% of unimpaired net worth if the loan is secured by readily marketable
collateral (generally, financial instruments and bullion, but not real estate).
The Bank's policy provides that loans to one borrower (or related borrowers)
should not exceed 10% of the Bank's capital and reserves.
At June 30, 1998, the largest aggregate amount loaned by the Bank to one
borrower consisted of $507,000, which consisted of a commercial real estate loan
of $444,650 and a commercial business loan of $62,356. The loans comprising the
lending relationship were performing in accordance with their terms.
DELINQUENCIES AND CLASSIFIED ASSETS
COLLECTION PROCEDURES. A computer generated late notice is sent and a 2%
late charge is assessed when a payment is 15 days late. A second notice will be
incorporated in the next month's billing notice, approximately 21 days after the
first due payment. Accounts thirty days or more past due will be reviewed by the
collection manager and receive individual attention as required, including
collection letters and telephone calls. Accounts that have a history of
consistent late or delinquent payments will be monitored closely by the
collection manager to avoid further deterioration. Accounts two or more payments
past due are reported to the Board of Trustees for consideration of foreclosure
action. With respect to consumer loans, a late notice is sent and a late charge
is assessed after 10 days (or, in the case of home equity loans, 15 days) after
payment is due. A second notice is sent after 15 days (in the case of home
equity loans, 25 days) thereafter. Loans 30 days or more past due are reviewed
by the collection manager for individual attention, including collection letters
and telephone calls. Accounts three or more payments past due are reported to
the Board of Trustees and are subject to legal action and repossession of
collateral.
LOANS PAST DUE AND NON-PERFORMING ASSETS. Loans are reviewed on a regular
basis. Management determines that a loan is impaired when it is probable that at
least a portion of the loan will not be collected due to an irreversible
deterioration in the financial condition of the borrower or the value of the
underlying collateral. When a loan is determined to be impaired, the measurement
of the loan is based on present value of estimated future cash flows, except
that all collateral-dependent loans are measured for impairment on the fair
value of the collateral. Management places loans on nonaccrual status once the
loans have become over 90 days delinquent. Nonaccrual is defined as a loan in
which collectibility is questionable and therefore interest on the loan will no
longer be recognized on an accrual basis. Instead, such interest is recognized
on a cash basis until such time as the borrower has brought the loan to
nondelinquent status. At June 30, 1998, the Bank had non-performing loans of
$884,000, and a ratio of non-performing loans to total loans of 1.10%.
Real estate acquired as a result of foreclosure or by deed in lieu of
foreclosure is classified as REO until such time as it is sold. When real estate
is acquired through foreclosure or by deed in lieu of foreclosure, it is
recorded at its fair value, less estimated costs of disposal. If the value of
the property is less than the loan, less any related specific loan loss
provisions, the difference is charged against the allowance for loan losses. Any
subsequent write-down of REO is charged against earnings. At June 30, 1998, the
Bank's REO totalled $124,000, and its ratio of non-preforming assets to total
assets was 0.72%.
The following table sets forth delinquencies in the Bank's loan portfolio at
June 30, 1998. When a loan is delinquent 90 days or more, the Bank fully
reverses all accrued interest thereon and ceases to accrue
67
<PAGE>
interest thereafter. For all the dates indicated, the Bank did not have any
material restructured loans within the meaning of SFAS 114.
<TABLE>
<CAPTION>
TOTAL
DELINQUENT
60-89 DAYS 90 DAYS AND OVER LOANS
--------------------------------------- --------------------------------------- -------------
PERCENT PERCENT
OF LOAN OF LOAN
NUMBER AMOUNT CATEGORY NUMBER AMOUNT CATEGORY NUMBER
------------- ----------- ----------- ------------- ----------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family........... 8 $ 387 75.88% 16 $ 666 75.34% 24
Multi-family.................. 1 123 24.12 -- -- -- 1
Commercial.................... -- -- -- 2 91 10.29 2
Construction and land loans... -- -- -- -- -- -- --
Consumer........................ -- -- -- 4 20 2.27 4
Commercial business............. -- -- -- 3 107 12.10 3
-- -- --
----- ----- ----- -----
Total..................... 9 $ 510 100% 25 $ 884 100% 34
-- -- --
-- -- --
----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
PERCENT
OF LOAN
AMOUNT CATEGORY
----------- -----------
<S> <C> <C>
Real Estate:
One- to four-family........... $ 1,053 75.54%
Multi-family.................. 123 8.82
Commercial.................... 91 6.53
Construction and land loans... -- --
Consumer........................ 20 1.43
Commercial business............. 107 7.68
----------- -----
Total..................... $ 1,394 100%
----------- -----
----------- -----
</TABLE>
NONACCRUAL LOANS AND NONPERFORMING ASSETS. The following table sets forth
information regarding nonaccrual loans and other non-performing assets. The Bank
had no accruing loans delinquent more than 90 days at June 30, 1998 or 1997.
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1998 1997
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Nonaccruing loans:
One- to four-family....................................................................... $ 666 $ 293
Commercial real estate.................................................................... 91 296
Consumer.................................................................................. 20 5
Commercial business....................................................................... 107 139
--------- ---------
Total................................................................................... 884 733
--------- ---------
Foreclosed assets:
One- to four-family....................................................................... -- 32
Multi-family.............................................................................. -- 38
Nonfarm, nonresidential properties........................................................ 124 --
--------- ---------
Total................................................................................... $ 124 $ 70
--------- ---------
--------- ---------
Total non-performing assets............................................................... 1,008 803
Total as a percentage of total assets..................................................... .72% .61%
</TABLE>
During the year ended June 30, 1998, gross interest income of $40,000 would
have been recorded on nonaccruing loans under their original terms, if the loans
had been current throughout the period. No interest income was recorded on
nonaccruing loans or on accruing loans more than 90 days delinquent during the
year ended June 30, 1998.
CLASSIFICATION OF ASSETS. Consistent with regulatory guidelines, the Bank
provides for the classification of loans and other assets considered to be of
lesser quality. Such ratings coincide with the "Substandard", "Doubtful" and
"Loss" classifications used by federal regulators in their examination of
financial institutions. Generally, an asset is considered Substandard if it is
inadequately protected by the current net worth and paying capacity of the
obligors and/or the collateral pledged. Substandard assets include those
characterized by the distinct possibility that the insured financial institution
will sustain some loss if the deficiencies are not corrected. Assets classified
as Doubtful have all the weaknesses inherent in assets classified Substandard
with the added characteristic that the weaknesses present make collection or
68
<PAGE>
liquidation in full, on the basis of currently existing facts, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific loss reserve and/or charge-off is not warranted.
Assets which do not currently expose the insured financial institution to
sufficient risk to warrant classification in one of the aforementioned
categories but otherwise possess weaknesses are designated "Special Mention."
When the Bank classifies problem assets as either Substandard or Doubtful,
it establishes general valuation allowances or "loss reserves" in an amount
deemed prudent by management. General allowances represent loss allowances that
have been established to recognize the inherent risk associated with lending
activities, but which, unlike specific allowances, have not been allocated to
particular problem assets. When the Bank classifies problem assets as "Loss," it
is required either to establish a specific allowance for losses equal to 100% of
the amount of assets so classified, or to charge-off such amount. The Bank's
determination as to the classification of its assets and the amount of its
valuation allowance is subject to review by its regulatory agencies, which can
order the establishment of additional general or specific loss allowances. The
Bank reviews its portfolio monthly to determine whether any assets require
classification in accordance with applicable regulations.
On the basis of management's review of its assets, at June 30, 1998, the
Bank had classified a total of $113,000 of loans as follows:
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-----------------
(IN THOUSANDS)
<S> <C>
Special mention.......................................... $ --
Substandard.............................................. 113
Doubtful assets.......................................... --
Loss assets.............................................. --
-----
Total.................................................. $ 113
-----
-----
General loss allowance................................... $ 511
-----
-----
Specific loss allowance.................................. $ 104
-----
-----
Charge-offs.............................................. $ 126
-----
-----
</TABLE>
ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the risk
inherent in the loan portfolio, the composition of the loan portfolio, specific
impaired loans and current economic conditions. Such evaluation, which includes
a review of all loans on which full collectibility may not be reasonably
assured, considers among other matters, the estimated net realizable value or
the fair value of the underlying collateral, economic conditions, historical
loan loss experience and other factors that warrant recognition in providing for
an adequate loan loss allowance. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses and valuation of REO. Such agencies may require the
Bank to recognize additions to the allowance based on their judgment about
information available to them at the time of their examination. The allowance
for loan losses is increased by a provision for loan losses (which results in a
charge to noninterest expense) and is reduced by net charge-offs. The Bank's
provision for loan losses is described in "Management's Discussion and Analysis
of Financial Condition and Results of Operations." At June 30, 1998, the total
allowance was $728,000, which amounted to 0.91% of total loans and 82.17% of
nonperforming loans. Management will continue to monitor and modify the level of
the allowance for loan losses in order to maintain it at a level which
management considers adequate to provide for potential loan losses. For the
years ended June 30, 1998 and 1997, the Bank had charge-offs of $126,000 and
$11,000, respectively, against this allowance.
69
<PAGE>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES. The following table sets forth
the analysis of the allowance for loan losses for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------
1998 1997
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Balance at beginning of period.................................................................. $ 723 $ 597
----- -----
Charge-offs:
One- to four-family........................................................................... 18 --
Commercial real estate........................................................................ 70 --
Consumer...................................................................................... 28 11
Commercial business........................................................................... 10 --
----- -----
126 11
----- -----
Recoveries:
One- to four-family........................................................................... -- 12
Consumer...................................................................................... 11 --
----- -----
11 12
----- -----
Net charge-offs................................................................................. 115 (1)
Additions charged to operations................................................................. 120 125
----- -----
Balance at end of period........................................................................ $ 728 $ 723
----- -----
----- -----
Ratio of net charge-offs during the period to average loans outstanding during the period....... .15% .001%
----- -----
----- -----
Ratio of net charge-offs during the period to average non-performing assets..................... 12.74% .15%
----- -----
----- -----
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES. The following table sets forth the
allocation of the allowance for loan losses by loan category for the periods
indicated. The allowance is allocated to each loan category based on historical
loss experience and economic conditions. The unallocated portions of the
allowance represent general reserves for unused lines of credit and inherent
risk associated with increased volume in lending transactions.
<TABLE>
<CAPTION>
JUNE 30,
--------------------------------------------------------------------------
1998 1997
----------------------------------- -------------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
LOAN IN EACH LOAN IN EACH
AMOUNT OF AMOUNTS CATEGORY AMOUNT OF AMOUNTS CATEGORY
LOAN LOSS BY TO TOTAL LOAN LOSS BY TO TOTAL
ALLOWANCE CATEGORY LOANS ALLOWANCES CATEGORY LOANS
----------- --------- ----------- ------------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family............................ $ 318 $ 64,705 79.7% $ 293 $ 60,981 79.6%
Multi-family................................... 1 388 .5 1 195 .3
Commercial real estate......................... 78 4,521 5.6 88 5,343 7.0
Construction and land.......................... 2 798 1.0 1 497 .6
Consumer....................................... 59 4,064 5.0 52 3,619 4.7
Commercial business............................ 62 1,336 1.6 45 1,032 1.3
Home equity loans.............................. 14 4,727 5.8 12 4,053 5.3
Passbook loans................................. 5 544 .7 5 507 .7
Specific....................................... 104 108 .1 205 359 .5
Unallocated.................................... 85 21
----- --------- ----------- ----- --------- -----------
Total........................................ $ 728 $ 81,191 100.00% $ 723 $ 76,586 100.00%
----- --------- ----------- ----- --------- -----------
----- --------- ----------- ----- --------- -----------
</TABLE>
70
<PAGE>
SECURITIES INVESTMENT ACTIVITIES
Given the Bank's substantial portfolio of fixed-rate residential mortgage
loans, the Bank maintains high balances of liquid investments for the purpose of
reducing interest rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Management of Interest Rate
Risk". The securities investment policy is established by the Board of Trustees.
This policy dictates that investment decisions will be made based on the safety
of the investment, liquidity requirements, potential returns, cash flow targets,
and desired risk parameters. In pursuing these objectives, management considers
the ability of an investment to provide earnings consistent with factors of
quality, maturity, marketability and risk diversification.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, federal funds sold, municipal bonds, corporate
debt obligations and mutual funds. The two mutual funds in which the Bank
invests have portfolios comprised primarily of adjustable-rate mortgage-backed
securities and were purchased by the Bank to provide interest earning liquid
funds and an adjustable interest rate. In addition, the Bank's policy permits
investments in mortgage-backed securities, including securities issued and
guaranteed by Fannie Mae, Freddie Mac, GNMA and collateralized mortgage
obligations ("CMOs"). The Bank's current securities investment strategy utilizes
a risk management approach of diversified investing between three categories:
short-, intermediate- and long-term. The emphasis of this approach is to
increase overall investment securities yields while managing interest rate risk.
The Bank will only invest in securities rated A or higher by at least one
nationally recognized rating agency (or securities attaining such rating as a
result of guarantees by insurance companies), with the exception of occasional
investments in smaller non-rated local bonds. The Bank does not engage in any
hedging transactions, such as interest rate swaps or caps.
At June 30, 1998, the Bank had $47.8 million in investment securities, or
34.1% of total assets. SFAS No. 115 requires the Bank to designate its
securities as held to maturity, available for sale or trading, depending on the
Bank's ability and intent regarding its investments. As of June 30, 1998, the
entire investment securities portfolio was classified as available for sale. At
June 30, 1998, the Bank's mortgage-backed securities portfolio totaled $5.2
million, or 3.7% of total assets and the Bank's asset-backed securities
portfolio totalled $6.3 million, or 4.5% of total assets.
BOOK VALUE OF INVESTMENT SECURITIES. The following table sets forth certain
information regarding the investment securities and other interest earning
assets as of the dates indicated.
<TABLE>
<CAPTION>
JUNE 30,
------------------------------------------
1998 1997
-------------------- --------------------
BOOK % OF BOOK % OF
VALUE TOTAL VALUE TOTAL
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. government securities........................................ $ 12,969 27.4% $ 18,532 43.2%
Federal agency obligations........................................ 8,569 18.1 7,145 16.7
Corporate debt securities......................................... 3,736 7.8 3,079 7.3
Municipal bonds................................................... 7,390 15.6 6,312 14.7
Equity securities................................................. 81 .2 100 .2
Mortgage-backed securities........................................ 5,196 11.0 5,221 12.2
Asset-backed securities........................................... 6,305 13.2 784 1.8
Mutual funds...................................................... 2,353 5.0 1,644 3.8
Other............................................................. 75 .2 75 .1
Subtotal........................................................ 46,674 98.5% 42,892 100.00%
FHLB stock.......................................................... 700 1.5 -- --
--------- --------- --------- ---------
Total investment securities and FHLB stock........................ $ 47,374 100.00% $ 42,892 100.00%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
71
<PAGE>
INVESTMENT PORTFOLIO MATURITIES. The following table sets forth the
scheduled maturities, book value, market value and weighted average yields for
the Bank's investment portfolio at June 30, 1998.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
----------------------------------------------------------------------
LESS THAN 1 TO 5 5 TO 10 OVER TOTAL
1 YEAR YEAR YEARS 10 YEARS SECURITIES
BOOK BOOK BOOK BOOK BOOK MARKET
VALUE VALUE VALUE VALUE VALUE VALUE
----------- --------- --------- ----------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities...................... $ 5,731 $ 6,643 $ 595 $ -- $ 12,969 $ 13,190
Federal agency obligations...................... 1,001 7,568 -- -- 8,569 8,620
Mortgage-backed securities...................... 270 3,452 343 1,131 5,196 5,189
Asset-backed securities......................... -- 1,203 2,083 3,019 6,305 6,324
Corporate debt securities....................... 100 2,400 1,236 -- 3,736 3,799
Municipal bonds................................. 955 3,679 2,756 -- 7,390 7,479
Equity securities............................... 81 -- -- -- 81 81
Mutual funds.................................... 2,353 -- -- -- 2,353 2,321
FHLB stock...................................... 700 -- -- -- 700 700
Other........................................... 75 -- -- -- 75 75
----------- --------- --------- ----------- ----------- ---------
Total securities................................ $ 11,266 $ 24,945 $ 7,013 $ 4,150 $ 47,374 $ 47,778
----------- --------- --------- ----------- ----------- ---------
----------- --------- --------- ----------- ----------- ---------
Weighted average yield.......................... 6.36% 6.23% 5.65% 6.25% 6.12% --
----------- --------- --------- ----------- ----------- ---------
----------- --------- --------- ----------- ----------- ---------
</TABLE>
MORTGAGE-BACKED SECURITIES. The Bank purchases mortgage-backed securities
in order to: (i) generate positive interest rate spreads with minimal
administrative expense; (ii) lower the Bank's credit risk as a result of the
guarantees provided by Freddie Mac, Fannie Mae, and GNMA; and (iii) increase
liquidity. At June 30, 1998, mortgage-backed securities (including CMOs) totaled
$5.2 million or 3.7% of total assets, all of which were classified as available
for sale. At June 30, 1998, all of the mortgage-backed securities were fixed
rate. The mortgage-backed securities portfolio had coupon rates ranging from
5.25% to 7.15%, a weighted average yield of 6.13% and a weighted average life
(including pre-payment assumptions) of 1.85 years at June 30, 1998. The
estimated market value of the Bank's mortgage-backed securities at June 30, 1998
was $5.2 million which was $25,000 greater than the book value.
Mortgage-backed securities are created by the pooling of mortgages and the
issuance of a security with an interest rate that is less than the interest rate
on the underlying mortgages. Mortgage-backed securities typically represent a
participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including Fannie Mae,
Freddie Mac and GNMA) pool and resell the participation interests in the form of
securities to investors, such as the Bank, and guarantee the payment of
principal and interest to these investors. Mortgage-backed securities generally
yield less than the loans that underlie such securities because of the cost of
payment guarantees and credit enhancements. In addition, mortgage-backed
securities are usually more liquid than individual mortgage loans and may be
used to collateralize certain liabilities and obligations of the Bank.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated over the life of the security, which may require
adjustments to the amortization of any premium or accretion of any discount
relating to such instruments thereby altering the net yield on such securities.
There is also reinvestment risk associated with the cash flows from such
securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. Management reviews prepayment estimates periodically
to ensure that prepayment assumptions are reasonable considering the underlying
collateral for the securities at issue and current interest rates and to
determine the yield and estimated maturity of the Bank's mortgage-backed
securities portfolio. Of the Bank's $5.2 million mortgage-backed securities
portfolio at June 30, 1998, $3.7 million with a weighted average yield of 6.20%
72
<PAGE>
had contractual maturities within five years, $343,000 with a weighted average
yield of 5.25% had contractual maturities of five to ten years and the remaining
$1.1 million with a weighted average yield of 6.20% had contractual maturities
more than 10 years. However, the actual maturity of a security may be less than
its stated maturity due to prepayments of the underlying mortgages. Prepayments
that are faster than anticipated may shorten the life of the security and may
result in a loss of any premiums paid and thereby reduce the net yield on such
securities. Although prepayments of underlying mortgages depend on many factors,
the difference between the interest rates on the underlying mortgages and the
prevailing mortgage interest rates generally is the most significant determinant
of the rate of prepayments. During periods of declining mortgage interest rates,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Bank may be
subject to reinvestment risk because, to the extent that the Bank's securities
prepay faster than anticipated, the Bank may not be able to reinvest the
proceeds of such repayments and prepayments at a comparable rate of return.
Conversely, in a rising interest rate environment prepayments may decline,
thereby extending the estimated life of the security and depriving the Bank of
the ability to reinvest cash flows at the increased rates of interest.
At June 30, 1998, the Bank's portfolio of asset-backed securities totalled
$6.3 million, or 4.5% of total assets, all of which were classified as available
for sale. At June 30, 1998, all of the asset-backed securities were fixed rate.
The portfolio had coupon rates ranging form 5.25% to 7.00%, a weighted average
yield of 6.37% and a weighted average life (including pre-payment assumptions)
of 1.75 years at June 30, 1998. The estimated market value of the Bank's
asset-backed securities portfolio at June 30, 1998 was $6.3 million, which was
$19,000 greater than the book value at such date.
Asset-backed securities are a type of debt security collateralized by
various loans and assets including: automobile loans, equipment leases, credit
card receivables, home equity and improvement loans, manufactured housing,
student loans and other consumer loans. In the case of the Bank, its
asset-backed securities are collateralized by automobile loans and
second-mortgage loans. Issuance of asset-backed securities begins with creation
of a special purpose bankruptcy-remote trust to hold collateral on behalf of
investors and to administer the distribution of cash flows. The business of a
bankruptcy-remote asset-backed securities trust is restricted to the purchase of
loans and issuance of debt collateralized by those loans. Because consumer loans
are amortizing, alternate principal cash flow structures can be created and
tranched in a very similar manner as CMOs. There are several typical structures
available to investors in the asset-backed securities market. They are excess
spread, senior/subordinated, reserve funds and surety bond guaranteed. Excess
spread is the first line of protection for most asset-backed securities and is
the difference between interest cash flow from the underlying loans and the
combined investor coupon, servicing fee, charge-offs and trust costs.
Senior/subordinated structures are internal credit support designating one
portion of the transaction as junior to the remaining portion. Obligations to
the senior class are honored prior to junior class obligations in the event of a
cash flow shortfall from the collateral. A reserve fund is, in effect, part of
the subordinated piece retained, in a declining balance, by the trust so that a
portion of the junior class may be rated investment grade. Surety bond or
guarantee structures are guarantees by third party AAA-rated monoline insurance
companies. Insurers generally guarantee (or wrap) the principal and interest
payments of 100% of a transaction, not just the subordinated class. Asset-backed
securitizations provide the Bank with a broad selection of fixed-income
alternatives, most with higher credit ratings and less downgrade risk than
corporate bonds and more stable cash flows than mortgage related securities.
Prepayments and structure risk of asset-backed securities are less of a concern
than CMO securities due to the shorter maturities of the underlying collateral
promoting greater stability of payments.
Of the Bank's $6.3 million portfolio of asset-backed securities at June 30,
1998, $1.2 million with a weighted average yield of 5.70% had contractual
maturities within 5 years, $2.1 million with a weighted average yield of 6.20%
had contractual maturities of 5 to 10 years, and the remaining $3.7 million with
a weighted average yield of 6.72% had contractual maturities of more than 10
years.
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<PAGE>
SOURCES OF FUNDS
GENERAL. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of securities, and proceeds from maturing securities and
cash flows from operations are the primary sources of the Bank's funds for use
in lending, investing and for other general purposes.
DEPOSITS. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, non-interest bearing checking accounts and money market accounts, and
certificates of deposit. The Bank offers certificates of deposit with balances
in excess of $100,000 but does not pay preferential rates on such certificates.
The Bank also offers IRAs.
At June 30, 1998, deposits totaled $122.3 million. At June 30, 1998, the
Bank had a total of $55.6 million in certificates of deposit, of which $43.1
million had maturities of one year or less. Although the Bank has a significant
portion of its deposits in shorter term certificates of deposit, management
monitors activity on these accounts and, based on historical experience and the
Bank's current pricing strategy, believes it will retain a large portion of such
accounts upon maturity.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. Deposits are obtained predominantly from the areas in which the
Bank's branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. The Bank
uses traditional means of advertising its deposit products, including radio,
television, and print media and it generally does not solicit deposits from
outside its market area. While certificates of deposit in excess of $100,000 are
accepted by the Bank, they are not subject to preferential rates. The Bank does
not actively solicit such deposits as they are more difficult to retain than
core deposits. Historically, the Bank has not used brokers to obtain deposits.
The following table sets forth the deposit activities of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
JUNE 30,
----------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Opening balance....................................................... $ 115,855 $ 114,187
Deposits.............................................................. 228,799 200,355
Withdrawals........................................................... 227,002 203,188
Interest credited..................................................... 4,672 4,501
Ending balance........................................................ 122,324 115,855
Net increase (decrease)............................................... 6,469 1,668
Percent increase (decrease)........................................... 5.58% 1.47%
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit by time remaining until maturity as of June 30, 1998.
<TABLE>
<CAPTION>
OVER
3 MONTHS 4 TO 12 OVER
OR LESS MONTHS 12 MONTHS TOTAL
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Certificates of deposit less than $100,000............................. 10,828 27,014 11,088 48,930
Certificates of deposit of $100,000 or more............................ 936 4,272 1,464 6,672
----------- --------- ----------- ---------
Total certificates of deposit.......................................... 11,764 31,286 12,552 55,602
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
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<PAGE>
The following tables set forth information, by various rate categories,
regarding the balance of deposits by types of deposit for the periods indicated.
<TABLE>
<CAPTION>
JUNE 30,
----------------------------------------------
1998 1997
---------------------- ----------------------
AMOUNT PERCENT AMOUNT PERCENT
---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Transactions and Savings Deposits:
Demand Accounts................................................ $ 7,514 6.14% $ 6,345 5.48%
Savings Accounts............................................... 33,412 27.31 32,480 28.04
NOW Accounts................................................... 6,187 5.06 5,341 4.61
Money Market Accounts.......................................... 19,609 16.03 20,439 17.64
---------- ---------- ---------- ----------
Total Non-Certificates........................................... 66,722 54.54 64,605 55.77
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Certificates:
0.00-3.99%..................................................... 612 .50 490 .42
4.00-5.99%..................................................... 46,733 38.20 41,974 36.23
6.00-7.99%..................................................... 8,257 6.76 8,786 7.58
8.00% and over................................................. -- -- -- --
---------- ---------- ---------- ----------
Total Certificates............................................... 55,602 45.46 51,250 44.23
---------- ---------- ---------- ----------
Total Deposits................................................... $ 122,324 100.00% $ 115,855 100.00%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The following table sets forth the amount and remaining maturities of the
Bank's certificates of deposit accounts at June 30, 1998.
<TABLE>
<CAPTION>
0.00- 4.00- 6.00 OR PERCENT
3.99% 5.99% GREATER TOTAL OF TOTAL
----------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Certificate accounts maturing in quarter ending:
30-Sep-98..................................................... $ 612 $ 11,152 $ -- $ 11,764 $ 21.16%
31-Dec-98..................................................... -- 11,518 463 11,981 21.55
31-Mar-99..................................................... -- 9,055 1,944 10,999 19.78
30-Jun-99..................................................... -- 7,101 1,204 8,305 14.94
30-Sep-99..................................................... -- 2,074 395 2,469 4.44
2,398
31-Dec-99..................................................... -- 2,169 229 4.31
31-Mar-00..................................................... -- 1,137 408 1,545 2.78
30-Jun-00..................................................... -- 781 367 1,148 2.06
30-Sep-00..................................................... -- 716 152 868 1.56
31-Dec-00..................................................... -- 685 397 1,082 1.95
31-Mar-01..................................................... -- 104 498 602 1.08
30-Jun-01..................................................... -- 224 316 540 .97
Thereafter.................................................... -- 17 1,884 1,901 3.42
----- --------- --------- --------- ---------
Total......................................................... $ 612 $ 46,733 $ 8,257 $ 55,602 100%
----- --------- --------- --------- ---------
----- --------- --------- --------- ---------
Percent of total.............................................. 1.00% 84.1% 14.9%
</TABLE>
BORROWED FUNDS. In the event that the Bank requires funds beyond its
ability to generate them in internally, additional sources of funds are
available through the use of short-term FHLB advances and two credit facilities
made available to the Bank by other financial institutions. At June 30, 1998,
the Bank had no borrowed funds.
75
<PAGE>
PROPERTIES
The Bank currently conducts its business through four full service banking
offices. The following table sets forth the Bank's offices as of June 30, 1998.
The Bank's current facilities are considered by management to be adequate for
the needs of the Bank in the foreseeable future.
<TABLE>
<CAPTION>
ORIGINAL YEAR DATE OF LEASE
LOCATION LEASED OR OWNED LEASED OR ACQUIRED EXPIRATION
- ----------------------------------------- ---------------- --------------------- --------------- NET BOOK VALUE
OF PROPERTY OR
LEASEHOLD
IMPROVEMENTS AT
JUNE 30, 1998
-------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Main Office: (1)
Main & Church Streets Owned 1963 -- 209
Catskill, New York 12414
Full Service Branches:
Route 385 Owned 1974 -- 87
West Coxsackie, NY 12051
Main Street
Cairo, NY 12413 Owned 1988 -- 261
Route 32
Greenville, NY 12083 Owned 1997 -- 973
Operations Dept.:
429 Main Street Leased 1990 May 31, 2000 --
Catskill, NY 12414
</TABLE>
- ------------------------
(1) Includes adjacent parking lot.
LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business which, in the
aggregate, involve amounts which are believed by management to be immaterial to
the financial condition or operations of the Bank.
PERSONNEL
As of June 30, 1998, the Bank had 53 full-time employees and three part-time
employees. The employees are not represented by a collective bargaining unit and
the Bank considers its relationship with its employees to be good. See
"Management of the Bank--Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
GENERAL. The Mutual Company, the Company and the Bank will be subject to
federal income taxation in the same general manner as other corporations, with
some exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to the Bank.
METHOD OF ACCOUNTING. For federal income tax purposes, the Bank currently
reports its income and expenses on the accrual method of accounting and uses a
tax year ending December 31 for filing its consolidated federal income tax
returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995.
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<PAGE>
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, was approximately
$379,000.
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.
At June 30, 1998, the Bank's total federal pre-1988 reserve was
approximately $379,000. This reserve reflects the cumulative effects of federal
tax deductions by the Bank for which no Federal income tax provision has been
made.
MINIMUM TAX. The Code imposes an alternative minimum tax ("AMT") at a rate
of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
NET OPERATING LOSS CARRYOVERS. A financial institution may carry back net
operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after August 5, 1997. At June 30, 1998, the Bank had no
net operating loss carryforwards for federal income tax purposes.
CORPORATE DIVIDENDS-RECEIVED DEDUCTION. The Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. Following completion of the Reorganization and
Offering, it is expected that the Mutual Company will own less than 80% of the
outstanding Common Stock of the Company. As such, the Mutual Company will not be
permitted to file a consolidated federal income tax return with the Company and
the Bank. 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 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 TAXATION
NEW YORK STATE TAXATION. The Company and the Bank will report income on a
combined calendar year basis to New York State. 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. Alternative
entire net income is equal to entire net income without certain modifications.
DELAWARE STATE TAXATION. As a Delaware holding company not earning income
in Delaware, the Company is exempt from Delaware corporate income tax but is
required to file an annual report with and pay an annual franchise tax to the
State of Delaware.
77
<PAGE>
REGULATION
GENERAL
The Bank is a New York-chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC through the BIF. The
Bank is subject to extensive regulation by the Department, as its chartering
agency; and by the FDIC, as its deposit insurer. The Bank is required to file
reports with, and is periodically examined by, the FDIC and the Superintendent
concerning its activities and financial condition and must obtain regulatory
approvals prior to entering into certain transactions, including, but not
limited to, mergers with or acquisitions of other banking institutions. The Bank
is a member of the FHLB of New York and is subject to certain regulations by the
Federal Home Loan Bank System. Both the Company and the Mutual Company, as bank
holding companies, will be subject to regulation by the Federal Reserve Board
and will be required to file reports with the Federal Reserve Board. Any change
in such regulations, whether by the Department, the FDIC, or the Federal Reserve
Board could have a material adverse impact on the Bank, the Company, or the
Mutual Company.
Certain of the regulatory requirements applicable to the Bank, the Company
and the Mutual Company are referred to below or elsewhere herein.
NEW YORK BANK REGULATION
The exercise by an FDIC-insured savings bank of the lending and investment
powers under the New York State Banking Law is limited by FDIC regulations and
other federal law and regulations. In particular, the applicable provisions of
New York State Banking Law and regulations governing the investment authority
and activities of an FDIC insured state-chartered savings bank have been
substantially limited by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant thereto.
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. Under these laws and
regulations, savings banks, including the Bank, may invest in real estate
mortgages, consumer and commercial loans, certain types of debt securities,
including certain corporate debt securities and obligations of federal, state
and local governments and agencies, certain types of corporate equity securities
and certain other assets. Under the statutory authority for investing in equity
securities, a savings bank may invest up to 7.5% of its assets in corporate
stock, with an overall limit of 5% of its assets invested in common stock.
Investment in the stock of a single corporation is limited to the lesser of 2%
of the outstanding stock of such corporation or 1% of the savings bank's assets,
except as set forth below. Such equity securities must meet certain earnings
ratios and other tests of financial performance. A savings bank's lending powers
are not subject to percentage of assets limitations, although there are limits
applicable to single borrowers. A savings bank may also, pursuant to the
"leeway" power, make investments not otherwise permitted under the New York
State Banking Law. This power permits investments in otherwise impermissible
investments of up to 1% of assets in any single investment, subject to certain
restrictions and to an aggregate limit for all such investments of up to 5% of
assets. Additionally, in lieu of investing in such securities in accordance with
and reliance upon the specific investment authority set forth in the New York
State Banking Law, savings banks are authorized to elect to invest under a
"prudent person" standard in a wider range of investment 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. The Bank has not elected to conduct its investment
activities under the "prudent person" standard. A savings bank may also exercise
trust powers upon approval of the Department.
New York State chartered savings banks may also invest in subsidiaries under
their service corporation investment authority. A savings bank may use this
power to invest in corporations that engage in various
78
<PAGE>
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.
Furthermore, New York banking regulations impose requirements on loans which a
bank may make to its executive officers and directors and to certain
corporations or partnerships in which such persons have equity interests. These
requirements include, but are not limited to, requirements that (i) certain
loans must be approved in advance by a majority of the entire board of trustees
and the interested party must abstain from participating directly or indirectly
in the voting on such loan, (ii) the loan must be on terms that are not more
favorable than those offered to unaffiliated third parties, and (iii) the loan
must not involve more than a normal risk of repayment or present other
unfavorable features.
Under the New York State Banking Law, the Superintendent may issue an order
to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Superintendent to
discontinue such practices, such director, trustee or officer may be removed
from office after notice and an opportunity to be heard. The Bank does not know
of any past or current practice, condition or violation that might lead to any
proceeding by the Superintendent or the Department against the Bank or any of
its trustees or officers.
INSURANCE OF ACCOUNTS AND REGULATION BY THE FDIC
The Bank is a member of the BIF, which is administered by the FDIC. Deposits
are insured up to applicable limits by the FDIC and such insurance is backed by
the full faith and credit of the U.S. Government. As insurer, the FDIC imposes
deposit insurance premiums and is authorized to conduct examinations of and to
require reporting by FDIC-insured institutions. It also may prohibit any
FDIC-insured institution from engaging in any activity the FDIC determines by
regulation or order to pose a serious risk to the FDIC. The FDIC also has the
authority to initiate enforcement actions against savings banks, after giving
the Superintendent an opportunity to take such action, and may terminate the
deposit insurance if it determines that the institution has engaged or is
engaging in unsafe or unsound practices, or is in an unsafe or unsound
condition.
In late 1995, the FDIC approved a final rule regarding deposit insurance
premiums which, effective with respect to the semi-annual premium assessment
beginning January 1, 1996, reduced deposit insurance premiums for BIF member
institutions to zero basis points (subject to an annual minimum of $2,000) for
institutions in the lowest risk category.
As a result of legislation passed in 1996, relating to the recapitalization
of the Savings Association Insurance Fund ("SAIF"), from 1997 through 1999,
FDIC-insured institutions will pay an insurance premium of approximately 1.3
basis points of their BIF-assessable deposits. Based upon assessable deposits at
June 30, 1998, the Bank would expect to pay $3,600 in insurance premiums per
quarter during 1998.
REGULATORY CAPITAL REQUIREMENTS
The FDIC has adopted risk-based capital guidelines to which the Bank is
subject. The guidelines establish a systematic analytical framework that makes
regulatory capital requirements more sensitive to differences in risk profiles
among banking organizations. The Bank is required to maintain certain levels of
regulatory capital in relation to regulatory risk-weighted assets. The ratio of
such regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's "risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
79
<PAGE>
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum Tier
I leverage ratio (Tier I capital to adjusted total assets as specified in the
regulations). These regulations provide for a minimum Tier I leverage ratio of
3% for banks that meet certain specified criteria, including that they have the
highest examination rating and are not experiencing or anticipating significant
growth. All other banks are required to maintain a Tier I leverage ratio of 3%
plus an additional cushion of at least 100 to 200 basis points. The FDIC may,
however, set higher leverage and risk-based capital requirements on individual
institutions when particular circumstances warrant. Savings banks experiencing
or anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
STANDARDS FOR SAFETY AND SOUNDNESS
The federal banking agencies have adopted a final regulation and Interagency
Guidelines Prescribing Standards for Safety and Soundness ("Guidelines") to
implement the safety and soundness standards required under federal law. The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The standards set forth in the Guidelines
address internal controls and information systems; internal audit system; credit
underwriting; loan documentation; interest rate risk exposure; asset growth; and
compensation, fees and benefits. The agencies also adopted additions to the
Guidelines which require institutions to examine asset quality and earnings
standards. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by federal law. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
LIMITATIONS ON DIVIDENDS AND OTHER CAPITAL DISTRIBUTIONS
The FDIC has the authority to use its enforcement powers to prohibit a
savings bank from paying dividends if, in its opinion, the payment of dividends
would constitute an unsafe or unsound practice. Federal law also prohibits the
payment of dividends by a bank that will result in the bank failing to meet its
applicable capital requirements on a pro forma basis. New York law also
restricts the Bank from declaring a dividend which would reduce its capital
below (i) the amount required to be maintained by state and federal law and
regulations, or (ii) the amount of the Bank's liquidation account established in
connection with the Reorganization.
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<PAGE>
PROMPT CORRECTIVE ACTION
The federal banking agencies have promulgated regulations to implement the
system of prompt corrective action required by federal law. Under the
regulations, a bank shall be deemed to be (i) "well capitalized" if it has total
risk-based capital 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 any written capital order or directive; (ii) "adequately capitalized"
if it has a total risk-based capital ratio of 8.0% or more, a Tier I risk-based
capital ratio of 4.0% or more and a Tier I leverage capital ratio of 4.0% or
more (3.0% under certain circumstances) and does not meet the definition of
"well capitalized"; (iii) "undercapitalized" if it has a total risk-based
capital ratio that is less than 8.0%, a Tier I risk-based capital ratio that is
less than 4.0% or a Tier I leverage capital ratio that is less than 4.0% (3.0%
under certain circumstances); (iv) "significantly undercapitalized" if it has a
total risk-based capital ratio that is less than 6.0%, a Tier I risk-based
capital ratio that is less than 3.0% or a Tier I leverage capital ratio that is
less than 3.0%; and (v) "critically undercapitalized" if it has a ratio of
tangible equity to total assets that is equal to or less than 2.0%. Federal law
and regulations also specify circumstances under which a federal banking agency
may reclassify a well capitalized institution as adequately capitalized and may
require an adequately capitalized institution to comply with supervisory actions
as if it were in the next lower category (except that the FDIC may not
reclassify a significantly undercapitalized institution as critically
undercapitalized).
Based on the foregoing, the Bank is currently classified as a "well
capitalized" savings institution.
ACTIVITIES AND INVESTMENTS OF INSURED STATE-CHARTERED BANKS
Federal law generally limits the activities and equity investments of
FDIC-insured, state-chartered banks to those that are permissible for national
banks, notwithstanding state laws. 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 the 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.
Federal law and FDIC regulations permit certain exceptions to the foregoing
limitation. For example, certain state-chartered banks, such as the Bank, may
continue to invest in common or preferred stock listed on a National Securities
Exchange or the National Market System of NASDAQ, and in the shares of an
investment company registered under the Investment Company Act of 1940, as
amended. As of June 30, 1998, the Bank had no securities pursuant to this
exception.
TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent
holding company are affiliates of the savings bank. Generally, Section 23A
limits the extent to which the savings bank or its subsidiaries may engage in
"covered transactions" with any one affiliate to an amount equal to 10% of such
savings bank's capital stock and surplus, and contains an aggregate limit on all
such transactions with all affiliates to an amount equal to 20% of such capital
stock and surplus. The term "covered transaction" includes the making of
81
<PAGE>
loans or other extensions of credit to an affiliate; the purchase of assets from
an affiliate, the purchase of, or an investment in, the securities of an
affiliate; the acceptance of securities of an affiliate as collateral for a loan
or extension of credit to any person; or issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and stockholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal stockholders must generally be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
HOLDING COMPANY REGULATION
FEDERAL BANK HOLDING COMPANY REGULATION. Upon consummation of the
Reorganization, the Company, as the sole shareholder of the Bank, and the Mutual
Company, as indirect controlling shareholder of the Bank, will become bank
holding companies. Bank holding companies are subject to comprehensive
regulation and regular examinations by the Federal Reserve Board under the Bank
Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the
Federal Reserve Board. The Federal Reserve Board also has extensive enforcement
authority over bank holding companies, including, among other things, the
ability to assess civil money penalties, to issue cease and desist or removal
orders and to require that a holding company divest subsidiaries (including its
bank subsidiaries). In general, enforcement actions may be initiated for
violations of law and regulations and unsafe or unsound practices.
After consummation of the Reorganization and Offering, the Company will be
subject to capital adequacy guidelines for bank holding companies (on a
consolidated basis) which are substantially similar to those of the FDIC for the
Bank. On a pro forma consolidated basis after the Reorganization and Offering,
the Company's pro forma stockholders' equity will exceed these requirements.
Under Federal Reserve Board policy, a bank holding company must serve as a
source of strength for its subsidiary bank. Under this policy the Federal
Reserve Board may require, and has required in the past, a holding company to
contribute additional capital to an undercapitalized subsidiary bank.
Under the BHCA, a bank holding company must obtain Federal Reserve Board
approval before: (i) acquiring, directly or indirectly, ownership or control of
any voting shares of another bank or bank holding company if, after such
acquisition, it would own or control more than 5% of such shares (unless it
already owns or controls the majority of such shares); (ii) acquiring all or
substantially all of the assets of another bank or bank holding company; or
(iii) merging or consolidating with another bank holding company.
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The BHCA also prohibits a bank holding company, with certain exceptions,
from acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or bank holding company, or
from engaging directly or indirectly in activities other than those of banking,
managing or controlling banks, or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain non-bank activities
which, by statute or by Federal Reserve Board regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The list of activities permitted by the Federal Reserve
Board includes, among other things, operating a savings association, mortgage
company, finance company, credit card company or factoring company; performing
certain data processing operations; providing certain investment and financial
advice; underwriting and acting as an insurance agent for certain types of
credit-related insurance; leasing property on a full-payout, non-operating
basis; selling money orders, travelers' checks and United States Savings Bonds;
real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities
brokerage services for customers.
INTERSTATE BANKING AND BRANCHING. Federal law allows the Federal Reserve
Board to approve an application of an adequately capitalized and adequately
managed bank holding company to acquire control of, or acquire all or
substantially all of the assets of, a bank located in a state other than such
holding company's home state, without regard to whether the transaction is
prohibited by the laws of any state. The Federal Reserve Board may not approve
the acquisition of the bank that has not been in existence for the minimum time
period (not exceeding five years) specified by the statutory law of the host
state. The Federal Reserve Board is prohibited from approving an application if
the applicant (and its depository institution affiliates) controls or would
control more than 10% of the insured deposits in the United States or 30% or
more of the deposits in the target bank's home state or in any state in which
the target bank maintains a branch. Individual states continue to have authority
to limit the percentage of total insured deposits in the state which may be held
or controlled by a bank or bank holding company to the extent such limitation
does not discriminate against out-of-state banks or bank holding companies.
Individual states may also waive the 30% state-wide concentration limit referred
to above.
Additionally, beginning on June 1, 1997, the federal banking agencies were
authorized to approve interstate merger transactions without regard to whether
such transaction is prohibited by the law of any state, unless the home state of
one of the banks "opted out" by adopting a law which applies equally to all
out-of-state banks and expressly prohibits merger transactions involving
out-of-state banks. Interstate acquisitions of branches are permitted only if
the law of the state in which the branch is located permits such acquisitions.
In response to Riegle-Neal, the State of New York enacted laws allowing
interstate mergers and branching on a reciprocal basis.
Federal law authorizes the FDIC to approve interstate branching de novo by
national and state banks, respectively, only in states which specifically allow
for such branching. The appropriate federal banking agencies are required to
prescribe regulations which prohibit any out-of-state bank from using the
interstate branching authority primarily for the purpose of deposit production.
The FDIC and Federal Reserve Board have adopted such regulations. These
regulations include guidelines to ensure that interstate branches operated by an
out-of-state bank in a host state are reasonably helping to meet the credit
needs of the communities which they serve. Should the FDIC determination that a
bank interstate branch is not reasonably helping to meet the credit needs of the
communities serviced by an interstate branch, the FDIC is authorized to close
the interstate branch or not permit the bank to open a new branch in the state
in which the bank previously opened an interstate branch.
DIVIDENDS. The Federal Reserve Board has issued a policy statement on the
payment of cash dividends by bank holding companies, which expresses the Federal
Reserve Board's view that a bank holding company should pay cash dividends only
to the extent that the holding company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the holding company's capital needs, asset quality and
overall financial condition. The Federal
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Reserve Board also indicated that it would be inappropriate for a company
experiencing serious financial problems to borrow funds to pay dividends.
Furthermore, under the prompt corrective action regulations adopted by the
Federal Reserve Board, the Federal Reserve Board may prohibit a bank holding
company from paying any dividends if the holding company's bank subsidiary is
classified as "undercapitalized."
Bank holding companies are required to give the Federal Reserve Board prior
written notice of any purchase or redemption of its outstanding equity
securities if the gross consideration for the purchase or redemption, when
combined with the net consideration paid for all such purchases or redemptions
during the preceding 12 months, is equal to 10% or more of their consolidated
net worth. The Federal Reserve Board may disapprove such a purchase or
redemption if it determines that the proposal would constitute an unsafe or
unsound practice or would violate any law, regulation, Federal Reserve Board
order, or any condition imposed by, or written agreement with, the Federal
Reserve Board. This notification requirement does not apply to any company that
meets the well-capitalized standard for commercial banks, has a safety and
soundness examination rating of at least a "2" and is not subject to any
unresolved supervisory issues.
NEW YORK STATE BANK HOLDING COMPANY REGULATION. In addition to the federal
bank holding company regulations, a bank holding company organized or doing
business in New York State also may be subject to regulation under the New York
State Banking Law. The term "bank holding company," for the purposes of the New
York State Banking Law, is defined generally to include any person, company or
trust that directly or indirectly either controls the election of a majority of
the directors or owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the Company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions. In general, a bank holding company
controlling, directly or indirectly, only one banking institution will not be
deemed to be a bank holding company for the purposes of the New York State
Banking Law. Under New York State Banking Law, the prior approval of the Banking
Department is required before: (1) any action is taken that causes any company
to become a bank holding company; (2) any action is taken that causes any
banking institution to become or be merged or consolidated with a subsidiary of
a bank holding company; (3) any bank holding company acquires direct or indirect
ownership or control of more than 5% of the voting stock of a banking
institution; (4) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (5) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Additionally, certain restrictions apply to New York State
bank holding companies regarding the acquisition of banking institutions which
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York State bank holding companies are
subject to limitations regarding their affiliation with securities underwriting
or brokerage firms and other bank holding companies and limitations regarding
loans obtained from its subsidiaries. Although the Company will not be a bank
holding company for purposes of New York State law upon the Effective Date of
the Reorganization, any future acquisition of ownership, control, or the power
to vote 10% or more of the voting stock of another bank or bank holding company
would cause it to become such.
MUTUAL HOLDING COMPANY REGULATION. Under New York law, the Mutual Company
may exercise all powers and privileges of a New York chartered mutual savings
bank, except for the power of accepting deposits. As a bank holding company, the
Mutual Company is also authorized to exercise all powers and engage in all
activities permitted to a bank holding company under the BHCA.
DIVIDEND WAIVERS BY THE MUTUAL HOLDING COMPANY. It has been the policy of
many mutual holding companies to waive the receipt of dividends declared by any
savings institution subsidiary. In connection with its approval of the
Reorganization, however, it is expected that the Federal Reserve Board will
impose certain conditions on the waiver by the Mutual Company of dividends paid
on the Common Stock. In particular, the Mutual Company is expected to be
required to obtain prior Federal Reserve Board approval before it may waive any
dividends. As of the date hereof, management does not believe that the Federal
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Reserve Board has given its approval to any waiver of dividends by any mutual
holding company that has requested its approval.
The terms of the Federal Reserve Board approval of the Reorganization are
also expected to require that the amount of any waived dividends will not be
available for payment to Minority Stockholders and be excluded from capital for
purposes of calculating dividends payable to Minority Stockholders. Moreover,
the cumulative amount of waived dividends must be maintained in a restricted
capital account which would be added to any liquidation account of the Bank, and
would not be available for distribution to Minority Stockholders. The restricted
capital account and liquidation account amounts would not be reflected in the
Bank's financial statements or the notes thereto, but would be considered as a
notational or memorandum account of the Bank, and would be maintained in
accordance with the rules, regulations and policy of the Office of Thrift
Supervision except that such rules would be administered by the Federal Reserve
Board, and any other rules and regulations adopted by the Federal Reserve Board.
The Plan of Reorganization also provides that if the Mutual Company converts to
stock form in the future, any waived dividends would reduce the percentage of
the converted company's shares of Common Stock issued to Minority Stockholders
in connection with any such transaction. See "Conversion of the Mutual Company
to Stock Form."
Management does not believe that the Mutual Company will initially waive
dividends declared by the Company. If the Mutual Company decides that it is in
its best interest to waive a particular dividend to be paid by the Company, and
the Federal Reserve Board approves such waiver, then the Company would pay such
dividend only to Minority Stockholders, and the amount of the dividend waived by
the Mutual Company would be treated in the manner described above. The Mutual
Company's decision as to whether or not to waive a particular dividend, if such
waiver is approved by the Federal Reserve Board, will depend on a number of
factors, including the Mutual Company's capital needs, the investment
alternatives available to the Mutual Company as compared to those available to
the Company, and regulatory approvals. There can be no assurance (i) that after
the Reorganization the Mutual Company will waive dividends paid by the Company,
(ii) that the Federal Reserve Board will approve any dividend waivers by the
Mutual Company or (iii) of the terms that may be imposed by the Federal Reserve
Board on any dividend waiver.
CONVERSION OF THE MUTUAL COMPANY TO STOCK FORM. New York law, regulations
of the Department and the Plan of Reorganization permit the Mutual Company to
convert from the mutual to the capital stock form of organization (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will occur, and the board of trustees has no current intention or plan to
undertake a Conversion Transaction. In a Conversion Transaction, the Mutual
Company would merge with and into the Bank or the Company, with the Bank or the
Company as the resulting entity, and certain depositors of the Bank would
receive the right to subscribe for additional shares of the resulting entity. In
a Conversion Transaction, each share of Common Stock outstanding immediately
prior to the completion of the Conversion Transaction held by persons other than
the Mutual Company would be automatically converted into and become the right to
receive a number of shares of Common Stock of the resulting entity determined
pursuant to an exchange ratio that ensures that after the Conversion
Transaction, subject to the Dividend Waiver Adjustment described below and any
adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be outstanding shares of the resulting entity issued to
Minority Stockholders in exchange for their Common Stock would be equal to the
percentage of the outstanding shares of Common Stock held by Minority
Stockholders immediately prior to the Conversion Transaction. The total number
of shares held by Minority Stockholders after the Conversion Transaction would
also be affected by any purchases by such persons in the offering that would be
conducted as part of the Conversion Transaction.
The Dividend Waiver Adjustment would adjust the percentage of the to-be
outstanding shares of the resulting entity issued in exchange for minority
shares to reflect (i) the aggregate amount of dividends waived by the Mutual
Company and (ii) assets other than Common Stock held by the Mutual Company.
Pursuant to the Dividend Waiver Adjustment, the percentage of the to-be
outstanding shares of the
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resulting entity issued to Minority Stockholders in exchange for their minority
shares (the "Adjusted Minority Ownership Percentage") is equal to the percentage
of the outstanding shares of Common Stock held by Minority Stockholders
multiplied by the Dividend Waiver Fraction. The Dividend Waiver Fraction is
equal to the product of (a) a fraction, of which the numerator is equal to the
Company's stockholders' equity at the time of the Conversion Transaction less
the aggregate amount of dividends waived by the Mutual Company and the
denominator is equal to the Company's stockholders' equity at the time of the
Conversion Transaction, and (b) a fraction, of which the numerator is equal to
the appraised pro forma market value of the resulting entity minus the value of
the Mutual Company's assets other than Common Stock and the denominator is equal
to the pro forma market value of the resulting entity.
FEDERAL SECURITIES LAW
The Common Stock of the Company to be issued in the Offering will be
registered with the SEC under the Exchange Act. the Company will be subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
The Company Common Stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Company may not be resold
without registration or unless sold in accordance with certain resale
restrictions. If the Company meets specified current public information
requirements, each affiliate of the Company is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board requires all depository institutions to maintain
noninterest-bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At June 30,
1998, the Bank was in compliance with these reserve requirements.
COMMUNITY REINVESTMENT ACT
Under the Community Reinvestment Act, as amended (the "CRA"), as implemented
by FDIC regulations, a savings bank has a continuing and affirmative obligation,
consistent with its safe and sound operation, to help meet the credit needs of
its entire community, including low and moderate income neighborhoods. The CRA
does not establish specific lending requirements or programs for financial
institutions nor does it limit an institution's discretion to develop the types
of products and services that it believes are best suited to its particular
community, consistent with the CRA. The CRA requires the FDIC, in connection
with its examination of a savings institution, to assess the institution's
record of meeting the credit needs of its community and to take such record into
account in its evaluation of certain applications by such institution. The CRA
requires the FDIC to provide a written evaluation of an institution's CRA
performance utilizing a four-tiered descriptive rating system. The Bank's latest
CRA rating was "outstanding."
NEW YORK STATE REGULATION. The Bank is also subject to provisions of the
New York State Banking Law which impose continuing and affirmative obligations
upon banking institutions organized in New York State to serve the credit needs
of its local community ("NYCRA") which are substantially similar to those
imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA
report and copies of all federal CRA reports with the Banking Department. The
NYCRA requires the Banking 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
Superintendent to consider a bank's NYCRA rating when reviewing a bank's
application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application.
The Bank's NYCRA rating as of its latest examination was "outstanding."
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FEDERAL HOME LOAN BANK SYSTEM
The Bank is a member of the FHLB of New York, which is one of 12 regional
FHLBs, that administers the home financing credit function of savings
institutions. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (I.E., advances) in accordance with policies and procedures established
by the board of directors of the FHLB. These policies and procedures are subject
to the regulation and oversight of the Federal Housing Finance Board. All
advances from the FHLB are required to be fully secured by sufficient collateral
as determined by the FHLB. In addition, all long-term advances are required to
provide funds for residential home financing.
As a member, the Bank is required to purchase and maintain stock in the FHLB
of New York. At June 30, 1998, the Bank had $700,000 of FHLB stock. The dividend
yield from FHLB stock was 7.45% at June 30, 1998. No assurance can be given that
such dividends will continue in the future at such levels.
Under federal law, the FHLBs are required to provide funds for the
resolution of troubled savings institutions and to contribute to low and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
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MANAGEMENT OF GREENE COUNTY BANCORP, INC.
DIRECTORS OF THE COMPANY
The Board of Directors of the Company consists of nine members, each of whom
is currently serving as a trustee of the Bank. Directors of the Company will
serve three-year staggered terms so that approximately one-third of the
directors will be elected at each annual meeting of stockholders. The class of
directors whose term of office expires at the first annual meeting of
stockholders following completion of the Reorganization consists of directors
Whittaker, O'Grady and Smith. The class of directors whose term expires at the
second annual meeting of stockholders following completion of the Reorganization
consists of directors Buck, Klein and Camera. The class of directors whose term
of office expires at the third annual meeting of stockholders following the
completion of the Reorganization consists of directors Ingalls, Slutzky and
Jenkins. The biographical information regarding these individuals is set forth
under "Management of the Bank--Biographical Information."
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company and hold the
offices set forth below opposite their names. The biographical information for
each executive officer is set forth under "Management of the Bank--Biographical
Information."
<TABLE>
<CAPTION>
NAME AGE* POSITION
- ---------------------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
J. Bruce Whittaker.................................. 55 President and Chief Executive Officer
Bruce P. Egger...................................... 49 Vice President and Secretary
Edmund L. Smith, Jr................................. 55 Vice President and Treasurer
Daniel T. Sager..................................... 44 Vice President
</TABLE>
- ------------------------
* As of June 30, 1998
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected or until death, resignation,
retirement or removal by the board.
Since the formation of the Company, none of the executive officers has
received remuneration from the Company. It is not anticipated that the executive
officers of the Company will initially receive any remuneration in his or her
capacity as an executive officer. For information concerning compensation of
executive officers of the Bank, see "Management of the Bank."
INDEMNIFICATION AND LIMITATION OF LIABILITY
The Certificate of Incorporation of the Company provides that a director or
officer of the Company shall be indemnified by the Company to the fullest extent
authorized by the Delaware General Corporation Law ("DGCL") against all
expenses, liability and loss reasonably incurred or suffered by such person in
connection with his or her activities as a director or officer or as a director
or officer of another company, if the director or officer held such position at
the request of the 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
Company and, with respect to any criminal action or proceeding, either had
reasonable cause to believe such conduct was lawful or did not have reasonable
cause to believe his or her conduct was unlawful.
In addition, the Certificate of Incorporation and Delaware law also provide
that the Company may maintain insurance, at its expense, to protect itself and
any director, officer, employee or agent of the Company or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Company has the power to indemnify such
person against such expense, liability or loss under the DGCL. The Company
intends to obtain such insurance.
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The Certificate of Incorporation also provides that directors of the Company
shall not be personally liable to the Company or its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law (which relates to unlawful dividends or stock
purchases or redemptions), or (iv) for any transaction from which the director
derived an improper personal benefit.
MANAGEMENT OF THE BANK
DIRECTORS OF THE BANK
Upon completion of the Reorganization, the initial directors of the Bank
will consist of those persons who currently serve on the Board of Trustees of
the Bank. The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year. Directors of the Bank will be elected by the Company as sole
stockholder of the Bank. The proposed directors of the Bank are as follows:
<TABLE>
<CAPTION>
DIRECTOR AGE* OCCUPATION DIRECTOR SINCE TERM EXPIRES
- ------------------------------ ----- --------------------------------------------- --------------- ---------------
<S> <C> <C> <C> <C>
Walter H. Ingalls............. 67 Retired Lumber Company President 1966 2001
J. Bruce Whittaker............ 55 President and Chief Executive Officer, Greene 1987 1999
County Savings Bank
Richard J. Buck............... 73 Retired Partner, Insurance Agency 1970 2000
Raphael Klein................. 71 Retired Movie Theater Owner 1986 2000
Paul Slutzky.................. 50 General Manager--Construction Company 1992 2001
Anthony Camera, Jr............ 72 Retired President and Chief Executive 1986 2000
Officer, Mutual Insurance Company
David H. Jenkins, DVM......... 44 Veterinarian/Owner--Catskill Animal Hospital 1996 2001
Dennis R. O'Grady............. 58 Pharmacist/Co-Owner--Mikhitarian Pharmacy 1981 1999
Martin C. Smith............... 53 Employee--Main Bros. Oil Co., Inc. 1993 1999
</TABLE>
- ------------------------
* As of June 30, 1998
EXECUTIVE OFFICERS OF THE BANK
The following table sets forth certain information (as of June 30, 1998)
regarding the executive officers of the Bank, all of whom currently serve in
their indicated position as executive officers of the Bank.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- --- ----------------------------------------------------
<S> <C> <C>
J. Bruce Whittaker.................................. 55 President and Chief Executive Officer
Bruce P. Egger...................................... 49 Vice President and Secretary
Edmund L. Smith, Jr................................. 55 Vice President and Treasurer
Daniel T. Sager..................................... 44 Vice President--Lending
</TABLE>
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The executive officers of the Bank will be elected annually and will hold
office until the next annual meeting of the board of directors of the Bank held
immediately after the annual meeting of stockholders of the Bank, and until
their successors are elected and qualified, or until death, resignation,
retirement or removal by the board of directors.
BIOGRAPHICAL INFORMATION
TRUSTEES/DIRECTORS OF THE BANK
J. BRUCE WHITTAKER is President and Chief Executive Officer of the Bank, and
has served in that position since 1987. Mr. Whittaker has been affiliated with
the Bank in various capacities since 1972. Mr. Whittaker was appointed to the
Board of Trustees in 1987.
WALTER H. INGALLS is the Chairman of the Board. Mr. Ingalls is retired.
Prior to his retirement, Mr. Ingalls was the President of the GNH Lumber Co., a
lumber company located in Norton Hill, New York.
RICHARD J. BUCK is retired. Prior to his retirement he was a partner with
Grossman Agency, a general insurance agency in Catskill, New York
RAPHAEL KLEIN is retired. Prior to his retirement he was the co-owner of
Klein Theaters, a movie theater chain in Hudson, New York.
PAUL SLUTZKY is the General Manager of I. & O. A. Slutzky Constr. Co., a
construction company located in Hunter, New York.
ANTHONY CAMERA, JR. is retired. Prior to his retirement, he was President of
Commercial Mutual Insurance Co., an insurance company in Catskill, New York.
DAVID H. JENKINS, DVM is a veterinarian and the owner of Catskill Animal
Hospital, Catskill, New York.
DENNIS R. O'GRADY is a pharmacist and the co-owner of Mikhitarian Pharmacy
located in Catskill, New York.
MARTIN C. SMITH is currently employed by Main Bros. Oil Co., Inc., and is
the former owner of R.E. Smith Fuel Company, which was purchased by Main Bros.
Oil Co., Inc., located in Albany, New York.
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT DIRECTORS
BRUCE P. EGGER has served as Vice President and Secretary of the Bank since
1987 and has been affiliated with the Bank in various capacities since 1977.
Prior to that time, Mr. Egger worked in the retail trade.
EDMUND L. SMITH, JR., has served as Vice President and Treasurer of the Bank
since 1988 and has been affiliated with the Bank in various capacities since
1975. Prior to that time, Mr. Smith was the bursar of Columbia-Greene Community
College.
DANIEL T. SAGER has served as Vice President--Lending of the Bank since 1995
and has been affiliated with the Bank in various capacities since 1987. Prior to
that time, Mr. Sager was employed as branch manager for a commercial bank.
MEETINGS AND COMMITTEES OF THE BANK'S BOARD
The Board of Trustees of the Bank meets monthly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law. During the year ended June 30, 1998, the board held 13 meetings. No trustee
attended fewer than 75% in the aggregate of the total number of meetings of the
board or board committees on which such trustee served during 1997. The Board of
Trustees of the Bank has the following standing committees: Audit Committee,
Personnel Committee, Appraisal and Loan Committee, Re-Inspection Committee and
Executive Committee.
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BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY AFTER THE REORGANIZATION
Following the Reorganization, the board of directors of the Company is
expected to meet monthly, or more often as may be necessary. The board of
directors initially is expected to have a standing executive committee and an
audit committee. The board of directors may, by resolution, designate one or
more additional committees.
The executive committee initially will consist of the following six
directors of the Company: Messrs. Buck, Ingalls, Klein, Slutzky, Whittaker and
Smith. The executive committee is expected to meet as necessary when the board
is not in session to exercise general control and supervision in all matters
pertaining to the interests of the Company, subject at all times to the
direction of the board of directors. The executive committee may also serve as
the nominating committee for the purpose of identifying, evaluating and
recommending potential candidates for election to the board.
The audit committee initially will consist of the following four directors
of the Company: Messrs. Ingalls, Camera, Jenkins and O'Grady. The audit
committee is expected to meet at least quarterly to examine and approve the
audit report prepared by the independent auditors of the Bank, to review and
recommend the independent auditors to be engaged by the Company, to review the
internal audit function and internal accounting controls of the Company, and to
review and approve audit policies.
COMPENSATION OF TRUSTEES AND DIRECTORS
Directors of the Bank will receive an annual retainer of $6,000 and a fee of
$500 per meeting for attendance at Board and Committee meetings. Directors of
the Bank and the Company who are also employees of the Bank and the Company are
not eligible to receive Board fees. Initially, no separate compensation will be
paid to directors for service on the Board of Directors or Board committees of
the Company.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth for the year
ended June 30, 1998, certain information as to the total remuneration paid by
the Bank to the Chief Executive Officer of the Bank. No other executive officer
of the Bank during the year ended June 30, 1998 received total annual
compensation in excess of $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS
ANNUAL COMPENSATION(1) ------------------------ PAYOUTS
---------------------------------------- RESTRICTED OPTIONS/ ---------
OTHER ANNUAL STOCK SARS LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION(2) AWARDS(3) (#)(4) PAYOUTS COMPENSATION(5)
- -------------------------------- ---------- --------- ----------------- ----------- ----------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. Bruce Whittaker.............. $ 120,000 $ 2,300 -- -- -- -- $ 3,600
President and Chief Executive
Officer
</TABLE>
- ------------------------
(1) In accordance with the rules on executive officer and director compensation
disclosure adopted by the SEC, Summary Compensation information is excluded
for the years ended June 30, 1997 and 1996, as the Bank was not a public
company during such periods.
(2) The Bank also provides each qualifying employee, including Mr. Whittaker,
life insurance equal to twice the employee's salary. The aggregate value of
this benefit to Mr. Whittaker did not exceed the lesser of $50,000 or 10% of
the total annual salary and bonus reported for such officer.
(3) Does not include awards pursuant to the Stock Award Plan, as such awards
were not earned, vested or granted in 1998. For a discussion of the terms of
the Stock Award Plan which are intended to be adopted by the Company, see
"--Benefit Plans--Recognition and Retention Plan."
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(4) No stock options or SARs were earned or granted in 1998. For a discussion of
the Stock Option Plan which is intended to be adopted by the Company, see
"--Benefit Plans--Stock Option Plan."
(5) Consists of the Bank's contribution to the Bank's 401(k) Plan on behalf of
Mr. Whittaker.
REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to regulations of the Department applicable to the Reorganization,
the Bank must obtain the opinion of an independent compensation consultant as to
whether or not the total compensation for the executive officers and
trustees/directors of the Bank, viewed as a whole and on an individual basis, is
reasonable and proper in comparison to the compensation provided to executive
officers and directors of similar publicly-traded financial institutions. The
Bank has obtained an opinion from William M. Mercer, Incorporated, Rochester,
New York, which indicates that, based upon published professional survey data of
similarly situated publicly-traded financial institutions operating in the
relevant markets as of with respect to the total cash compensation
(base salary and annual incentive) for executive officers and total compensation
for trustees of the Bank, such compensation, viewed as a whole and on an
individual basis, is reasonable and proper in comparison to the compensation
provided to similarly situated publicly-traded financial institutions, and that,
with respect to the amount of shares of Common Stock expected to be reserved
under the ESOP, the Stock Award Plan and Stock Option Plan as a whole, such
amounts reserved for granting are reasonable in comparison to similar
publicly-traded financial institutions.
COMPENSATION OF OFFICERS AND DIRECTORS THROUGH BENEFIT PLANS. The Bank's
current tax-qualified employee pension benefit plans consist of a defined
benefit pension plan and a defined contribution plan with a salary deferral
feature under 401(k) of the Internal Revenue Code. As a result of the
Reorganization, the Company and the Bank will be able to compensate employees
with stock-based compensation pursuant to the ESOP, the Recognition and
Retention Plan and the Stock Option Plan described below.
EMPLOYMENT AGREEMENT. The Bank intends to enter into an employment
agreement with its President and Chief Executive Officer, J. Bruce Whittaker.
The agreement will have a term of 36 months. On each anniversary date, the
agreement may be extended for an additional twelve months, so that the remaining
term shall be 36 months. If the agreement is not renewed, the agreement will
expire 36 months following the anniversary date. Under the agreement, the
current Base Salary for Mr. Whittaker (as defined in the agreement) is $125,000.
The Base Salary may be increased but not decreased. In addition to the Base
Salary, the agreement provides for, among other things, participation in
retirement plans and other employee and fringe benefits applicable to executive
personnel. In addition to the above, the Bank will provide Mr. Whittaker and his
dependents with continuing health care coverage upon Mr. Whittaker's retirement
or other termination of employment after attainment of age 55 with 25 years of
service, in substantially the same amount as provided to Mr. Whittaker and his
dependents prior to the termination of his employment. Such coverage, which
shall survive the termination or expiration of the agreement, shall cease upon
Mr. Whittaker's attainment of age 65. The agreement provides for termination by
the Bank for cause at any time. In the event the Bank terminates the executive's
employment for reasons other than disability, retirement, or for cause, or in
the event of the executive's resignation from the Bank (such resignation to
occur within the period or periods set forth in the employment agreement) upon
(i) failure to re-elect the executive to his current offices, (ii) a material
change in the executive's functions, duties or responsibilities, or relocation
of his principal place of employment by more than 30 miles, (iii) liquidation or
dissolution of the Bank or the Company, (iv) a breach of the agreement by the
Bank, or (v) following a change in control of the Bank or the Company, the
executive, or in the event of death, his beneficiary, would be entitled to
severance pay in an amount equal to three times the highest Base Salary and the
highest bonus paid during any of the last three years. Mr. Whittaker would
receive an aggregate of $375,000 pursuant to his employment agreement upon a
change in control of the Bank or the Company, based upon his current level of
compensation. The Bank would also continue the executive's life, dental and
disability coverage for 36 months from the date of termination, and would
continue his health
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coverage until Mr. Whittaker attains age 65 (as discussed above). In the event
the payments to the executive would include an "excess parachute payment" as
defined by Code Section 280G (relating to payments made in connection with a
change in control), the payments would be reduced in order to avoid having an
excess parachute payment.
Under the agreement, the executive's employment may be terminated upon his
retirement in accordance with any retirement policy established on behalf of the
executive and with his consent. Upon the executive's retirement, he will be
entitled to all benefits available to him under any retirement or other benefit
plan maintained by the Bank. In the event of the executive's disability for a
period of six months, the Bank may terminate the agreement provided that the
Bank will be obligated to pay him his Base Salary for the remaining term of the
agreement or one year, whichever is longer, reduced by any benefits paid to the
executive pursuant to any disability insurance policy or similar arrangement
maintained by the Bank. In the event of the executive's death, the Bank will pay
his Base Salary to his named beneficiaries for one year following his death, and
will also continue medical, dental, and other benefits to his family for one
year. The employment agreement provides that, following his termination of
employment, the executive will not compete with the Bank for a period of one
year.
DEFINED CONTRIBUTION PLAN. Effective September 1, 1995, the Bank adopted
the Financial Institutions Thrift Plan (the "Prior Plan"). In connection with
the Reorganization, effective October 1, 1998, the Bank withdrew from the Prior
Plan and adopted the Greene County Savings Bank Employees' Savings & Profit
Sharing Plan and Trust (the "Plan") in order to permit the investment of Plan
assets in Common Stock. Employees are eligible to join the Plan on the first of
the month following completion of one year of continuous employment (during
which 1,000 hours are completed). The first year eligibility period runs from
the date of hire to the anniversary of such date. If an employee does not
satisfy the eligibility requirements during such period then the next
eligibility period shall be the calendar year. Employees are eligible to
contribute, on a pre-tax basis, up to 15% of their eligible salary, in
increments of 1%. The Bank shall make a matching contribution equal to 50% of a
member's contributions on up to 6% of a member's compensation. In addition, the
Bank may make an additional discretionary contribution allocated among members'
accounts on the basis of compensation. All employee contributions and earnings
thereon under the Plan are at all times fully 100% vested. A member vests in
employer matching and discretionary contributions at the rate of 20% per year
beginning in the second year of employment and continuing until the member is
100% vested after six years of employment. Employees are entitled to borrow,
within tax law limits, from amounts allocated to their accounts.
Plan benefits will be paid to each member in a lump sum or in equal payments
over a fixed period upon termination, disability or death. In addition, the Plan
permits employees to withdraw salary reduction contributions prior to age 59 1/2
or termination in the event the employee suffers a financial hardship. In
certain circumstances, the Plan permits employees to withdraw the Bank's
matching contributions to their accounts. The Plan permits employees to direct
the investment of their own accounts into various investment options.
At December 31, 1997, the market value of the Prior Plan trust fund equaled
approximately $899,856. The total contribution (i.e, both the employee and Bank
contributions) to the Prior Plan for the Prior Plan year ended December 31,
1997, was approximately $109,654.
DEFINED BENEFIT PENSION PLAN. The Bank maintains the Financial Institutions
Retirement Fund, which is a qualified, tax-exempt defined benefit plan
("Retirement Plan"). All employees age 21 or older who have worked at the Bank
for a period of one year in which they have 1,000 or more hours of service are
eligible for membership in the Plan. Once eligible, an employee must have been
credited with 1,000 or more hours of service with the Bank during the year in
order to accrue benefits under the Retirement Plan. The Bank annually
contributes an amount to the Retirement Plan necessary to satisfy the
actuarially determined minimum funding requirements in accordance with the
Employee Retirement Income Security Act ("ERISA").
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The regular form of all retirement benefits (i.e., normal, early or
disability) is a life annuity with a guaranteed term of 10 years. For a married
participant, the normal form of benefit is a joint and survivor annuity where,
upon the participant's death, the participant's spouse is entitled to receive a
benefit equal to 50% of that paid during the participant's lifetime. An optional
form of benefit may be selected instead of the normal form of benefits. These
optional forms include various annuity forms as well as a lump sum payment after
age 55. Benefits payable upon death may be made in a lump sum, installments over
10 years, or a lifetime annuity.
The normal retirement benefit payable at or after age 65, is an amount equal
to 1.5% multiplied by years of benefit service (not to exceed 30) times average
compensation based on the average of the five years providing the highest
average. A reduced benefit is payable upon retirement at age 55 at or after
completion of five years of service. A member is fully vested in his account
upon completion of 5 or more years of employment or upon attaining normal
retirement age.
The following table indicates the annual retirement benefit that would be
payable under the Retirement Plan upon retirement at age 65 in calendar year
1998, expressed in the form of a single life annuity for the average salary and
benefit service classifications specified below.
<TABLE>
<CAPTION>
HIGHEST YEARS OF SERVICE AND
FIVE-YEAR BENEFIT PAYABLE AT RETIREMENT(1)
AVERAGE ------------------------------------------
COMPENSATION 15 20 25 30
- ---------------- --------- --------- --------- ---------
<C> <S> <C> <C> <C> <C>
$ 50,000 .................. 11,250 15,000 18,750 22,500
$ 75,000 .................. 16,875 22,500 28,125 33,750
$ 100,000 .................. 22,500 30,000 37,500 45,000
$ 125,000 .................. 28,125 37,500 46,875 56,250
$ 150,000 .................. 33,750 45,000 56,250 67,500
</TABLE>
- ------------------------
(1) No additional credit is received for years of service in excess of 30,
however, increases in compensation after 30 years will generally cause an
increase in benefits.
As of September 30, 1997, Mr. J. Bruce Whittaker had 25 years of credited
service (I.E., benefit service), under the Retirement Plan.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST. The Bank intends to implement an
employee stock ownership plan ("ESOP") in connection with the Reorganization.
Employees with at least one year of employment with the Bank and who have
attained age 21 are eligible to participate. As part of the Reorganization, the
ESOP intends to borrow funds from the Company and use those funds to purchase a
number of shares equal to up to 8% of Minority Ownership Interest. Collateral
for the loan will be the Common Stock purchased by the ESOP. The loan will be
repaid principally from the Bank's discretionary contributions to the ESOP over
a period of up to ten years. It is anticipated that the interest rate for the
loan will be a floating rate equal to the Prime Rate published in the WALL
STREET JOURNAL at the time of the Offering. Shares purchased by the ESOP will be
held in a suspense account for allocation among participants as the loan is
repaid.
Contributions to the ESOP and shares released from the suspense account in
an amount proportional to the repayment of the ESOP loan will be allocated among
ESOP participants on the basis of compensation in the year of allocation. For
this purpose, compensation is defined as wages reported on federal income tax
form W-2 but not in excess of Code Section 401(a)(17) limit. Participants in the
ESOP will receive credit for service prior to the effective date of the ESOP. A
participant is 100% vested in his benefits after five years or upon normal
retirement (as defined in the ESOP), early retirement, disability or death of
the participant. A participant who terminates employment for reasons other than
death, retirement, or disability prior to five years of credited service will
forfeit his benefits under the ESOP. Benefits will be payable in the form of
Common Stock and/or cash upon death, retirement, early
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retirement, disability or separation from service. The Bank's contributions to
the ESOP are discretionary, subject to the loan terms and tax law limits, and,
therefore, benefits payable under the ESOP cannot be estimated. Pursuant to
Statement of Position 93-6, (Employers' Accounting for Employee Stock Ownership
Plans), the Bank is required to record compensation expense in an amount equal
to the fair market value of the shares released from the suspense account.
In connection with the establishment of the ESOP, the Bank will establish a
committee of nonemployee directors to administer the ESOP. The Bank will either
appoint its non-employee directors or an independent financial institution to
serve as trustee of the ESOP. The ESOP trustee, subject to its fiduciary duty,
must vote all allocated shares held in the ESOP in accordance with the
instructions of participating employees. Under the ESOP, nondirected shares, and
shares held in the suspense account, will be voted in a manner calculated to
most accurately reflect the instructions it has received from participants
regarding the allocated stock so long as such vote is in accordance with the
provisions of ERISA.
STOCK OPTION PLAN. At a meeting of the Company's stockholders to be held no
earlier than six months after the completion of the Reorganization, the board of
directors intends to submit for shareholder approval a Stock Option Plan for
directors and officers of the Bank and of the Company. If approved by the
stockholders, Common Stock in an aggregate amount equal to 10% of the Minority
Ownership Interest would be reserved for issuance by the Company upon the
exercise of the stock options granted under the Stock Option Plan. Ten percent
of the shares issued in the Offering would amount to 81,425 shares, 95,794
shares, 110,163 shares and 126,688 shares at the minimum, midpoint, maximum and
adjusted maximum of the Offering Range, respectively. If the plan is approved
within one year of the completion of the Reorganization, no options would be
granted under the Stock Option Plan until the date on which shareholder approval
is received.
The exercise price of the options granted under the Stock Option Plan will
be equal to the fair market value of the shares on the date of grant of the
stock options. If the Stock Option Plan is adopted within one year following the
Offering, options will become exercisable at a rate of 20% at the end of each
twelve (12) months of service with the Bank after the date of grant, subject to
early vesting in the event of death or disability. Options granted under the
Stock Option Plan would be adjusted for capital changes such as stock splits and
stock dividends. Notwithstanding the foregoing, awards will be 100% vested upon
termination of employment due to death or disability, and if the Stock Option
Plan is adopted more than 12 months after the Offering, awards would be 100%
vested upon normal retirement or a change in control of the Bank or the Company.
Under FDIC and Department rules, if the Stock Option Plan is adopted within the
first 12 months after completion of the Offering, no individual officer can
receive more than 25% of the awards under the plan, no outside director can
receive more than 5% of the awards under the plan, and all outside directors as
a group can receive no more than 30% of the awards under the plan in the
aggregate. No determination has been made as to the specific terms of the plan
or as to awards thereunder.
The Stock Option Plan would be administered by a committee of non-employee
members of the Company's board of directors. Options granted under the Stock
Option Plan to employees could be "incentive" stock options designed to result
in beneficial tax treatment to the employee but no tax deduction to the Company.
Non-qualified stock options could also be granted under the Stock Option Plan,
and will be granted to the non-employee directors who receive grants of stock
options. In the event an option recipient terminated his employment or service
as an employee or director, the options would terminate during certain specified
periods. The Stock Option Plan will terminate ten years following its adoption,
unless earlier terminated by the Company.
STOCK AWARD PLAN. At a meeting of the Company's stockholders to be held no
earlier than six months after the completion of the Reorganization, the board of
directors also intends to submit the Stock Award Plan for shareholder approval.
The Stock Award Plan will provide the Bank's directors and officers an ownership
interest in the Company in a manner designed to encourage them to continue their
service with
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the Bank. The Bank will contribute funds to the restricted stock plan from time
to time to enable it to acquire an aggregate amount of Common Stock equal to up
to 4% of the shares of the Minority Ownership Interest in a larger percentage of
the Common Stock issued in the Offering if the restricted stock plan is adopted
more than a year after completion of the Offering. Four percent of the shares
issued in the Offering would amount to 32,570 shares, 38,318 shares, 44,065
shares or 50,675 shares at the minimum, midpoint, maximum or adjusted maximum of
the Offering Range, respectively. In the event that additional authorized but
unissued shares would be acquired by the Stock Award Plan after the Offering,
the interests of existing stockholders would be diluted. The executive officers
and directors will be awarded Common Stock under the Stock Award Plan without
having to pay cash for the shares. No awards under the Stock Award Plan will be
made until the date the Stock Award Plan is approved by the Company's
stockholders.
Awards under the Stock Award Plan would be nontransferable and
nonassignable, and during the lifetime of the recipient could only be earned by
the director or officer. If the Stock Award Plan is adopted within one year
following completion of the Offering, the shares which are subject to an award
would vest and be earned by the recipient at a rate of 20% of the shares awarded
at the end of each full twelve (12) months of service with the Bank after the
date of grant of the award. Awards would be adjusted for capital changes such as
stock dividends and stock splits. Notwithstanding the foregoing, awards would be
100% vested upon termination of employment or service due to death or
disability, and if the Stock Award Plan is adopted more than 12 months after
completion of the Reorganization, awards would be 100% vested upon normal
retirement or a change in control of the Bank or the Company. If employment or
service were to terminate for other reasons, the award recipient would forfeit
any nonvested award. If employment or service is terminated for cause (as would
be defined in the Stock Award Plan), shares not already delivered under the
Stock Award Plan would be forfeited. Under FDIC and Department rules, if the
Stock Award Plan is adopted within the first 12 months after completion of the
Reorganization and Offering, shares of Common Stock granted under the restricted
stock plan may not exceed 4% of the Minority Ownership Interest, no individual
officer can receive more than 25% of the awards under the plan, no outside
director can receive more than 5% of the awards under the plan, and all outside
directors as a group can receive no more than 30% of the awards under the plan
in the aggregate. No determination has been made as to the specific terms of the
plan or as to awards thereunder. The Stock Award Plan would be administered by a
committee of non-employee members of the Company's board of directors. The Stock
Award Plan will terminate fifteen years following its adoption, unless earlier
terminated by the Company.
When shares become vested under the Stock Award Plan, the participant will
recognize income equal to the fair market value of the Common Stock earned,
determined as of the date of vesting, unless the recipient makes an election
under Section83(b) of the Code to be taxed earlier. The amount of income
recognized by the participant would be a deductible expense for tax purposes for
the Company. If the Stock Award Plan is adopted within one year following
completion of the Reorganization and Offering, dividends and other earnings will
accrue and be payable to the award recipient when the shares vest. If the Stock
Award Plan is adopted within one year following completion of the Reorganization
and Offering, shares not yet vested under the Stock Award Plan will be voted by
the trustee of the Stock Award Plan, taking into account the best interests of
the recipients of the Stock Award Plan grants. If the Stock Award Plan is
adopted more than one year following completion of the Reorganization and
Offering, dividends declared on unvested shares will be distributed to the
participant when paid, and the participant will be entitled to vote the unvested
shares.
INDEBTEDNESS OF MANAGEMENT
Under New York Banking law, the Bank, as a mutual institution, cannot make a
loan to a trustee or a person who is an "executive officer" for regulatory
purposes, except for loans made to executive officers that are secured by a
first mortgage on a primary residence or by a deposit account at the Bank. Any
such loans that are outstanding have been made in the ordinary course of
business on the same terms and
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conditions as the Bank would make to any other customer and do not involve more
than a normal risk of collectibility or present other unfavorable features.
Following the Reorganization, the Bank will not be subject to this restriction
in connection with loans to directors and executive officers.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
THE MUTUAL HOLDING COMPANY STRUCTURE. Under New York law, the Plan of
Reorganization, and the Company's governing corporate instruments, at least 51%
of the Company's voting shares must be owned by the Mutual Company. The Mutual
Company will be controlled by its board of trustees, who will consist of persons
who also are members of the board of directors of the Company and the Bank. The
Mutual Company will be able to elect all members of the board of directors of
the Company, and as a general matter, will be able to control the outcome of all
matters presented to the stockholders of the Company for resolution by vote,
except for matters that require a vote greater than a majority. The Mutual
Company, acting through its board of trustees, will be able to control the
business and operations of the Company and the Bank, and will be able to prevent
any challenge to the ownership or control of the Company by Minority
Stockholders. Accordingly, a change in control of the Company and the Bank
cannot occur unless the Mutual Company first converts to the stock form of
organization. Although New York law, applicable regulations and the Plan of
Reorganization permit the Mutual Company to convert from the mutual to the
capital stock form of organization, it is not anticipated that a conversion of
the Mutual Company will occur in the foreseeable future.
In addition to the anti-takeover aspects of the Mutual Company structure,
the following is a general summary of certain provisions of the Company's
Certificate of Incorporation and bylaws and certain other regulatory provisions
which will restrict the ability of stockholders to influence management
policies, and which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Company's Certificate of
Incorporation and bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's application to the Superintendent and the Company's
Registration Statement filed with the SEC. See "Additional Information." The
following discussion does not reflect the powers and provisions of the Bank's
charter.
PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
RESTRICTIONS ON CALL OF SPECIAL MEETINGS. The Certificate of Incorporation
provides that a special meeting of stockholders may be called by the Chairman of
the Board of the Company or pursuant to a resolution adopted by a majority of
the board of directors. Stockholders are not authorized to call a special
meeting of stockholders.
ABSENCE OF CUMULATIVE VOTING. The Certificate of Incorporation provides
that there shall be no cumulative voting rights in the election of directors.
LIMITATION ON VOTING RIGHTS. The Certificate of Incorporation provides that
(i) no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of the
Company, inclusive of shares of such class held by the Mutual Company (provided
that such limitation shall not apply to the Mutual Company or any tax-qualified
employee stock benefit plans maintained by the Company); and that (ii) shares
beneficially owned in violation of the stock ownership restriction described
above shall not be entitled to vote and shall not be voted by any person or
counted as voting stock in connection with any matter submitted to a vote of
stockholders. For these purposes, a person (including management) who has
obtained the right to vote shares of the Common Stock pursuant to revocable
proxies shall not be deemed to be the "beneficial owner" of those shares if that
person is not otherwise deemed to be a beneficial owner of those shares.
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AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Certificate of Incorporation must be approved by the Company's board of
directors and also by a majority of the outstanding shares of the Company's
voting stock; provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (I.E.,
provisions relating to the call of special stockholder meetings, cumulative
voting, limitation on voting rights and director liability).
The bylaws may be amended by the affirmative vote of the total number of
directors of the Company or the affirmative vote of at least 80% of the total
votes eligible to be voted at a duly constituted meeting of stockholders.
FEDERAL RESERVE BOARD REGULATIONS
The Change in Bank Control Act and the BHCA, together with the Federal
Reserve Board regulations under those acts, require that the consent of the
Federal Reserve Board be obtained prior to any person or company acquiring
"control" of a bank holding company. Control is conclusively presumed to exist
if an individual or company acquires more than 25% of any class of voting stock
of the bank holding company. Control is rebuttably presumed to exist if the
person acquires more than 10% of any class of voting stock of a bank holding
company if either (i) the holding company has registered securities under
Section 12 of the Exchange Act or (ii) no other person will own a greater
percentage of that class of voting securities immediately after the transaction.
The regulations provide a procedure to rebut the rebuttable control presumption.
Since the Company's Common Stock will be registered under Section 12 of the
Exchange Act, any acquisition of 10% or more of the Company's Common Stock will
give rise to a rebuttable presumption that the acquiror of such stock controls
the Company, requiring the acquiror, prior to acquiring such stock, to rebut the
presumption of control to the satisfaction of the Federal Reserve Board or
obtain Federal Reserve Board approval for the acquisition of control.
Restrictions applicable to the operations of bank holding companies may deter
companies from seeking to obtain control of the Company. See "Regulation."
NEW YORK BANKING LAW
In addition to federal law, the New York State Banking Law generally
requires prior approval of the New York State Banking Board before any action is
taken that causes any entity or person to acquire direct or indirect control of
a banking institution which is organized in New York State. Control is presumed
to exist if any company or person 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 or person that owns, controls or holds with power to vote 10% or
more of the voting stock of a banking institution.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
GENERAL
The Company is authorized to issue 4,000,000 shares of Common Stock having a
par value of $.10 per share. The Company currently expects to issue between
1,829,370 and 2,475,030 shares, with an adjusted maximum of 2,846,284 shares, of
Common Stock and no shares of Preferred Stock in the Reorganization. Each share
of the Common Stock will have the same relative rights as, and will be identical
in all respects with, each other share of the Common Stock. Upon payment of the
purchase price for the Common Stock, in accordance with the Plan of
Reorganization, all such stock will be duly authorized, fully paid, validly
issued, and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NONWITHDRAWABLE CAPITAL, WILL
NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
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COMMON STOCK
VOTING RIGHTS. Under Delaware law, the holders of the Common Stock will
possess exclusive voting power in the Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
except as discussed in "Restrictions on Acquisition of the Company-- Provisions
of the Company's Certificate of Incorporation and Bylaws--Limitation on Voting
Rights." There will be no right to cumulate votes in the election of directors.
If the Company issues Preferred Stock, subsequent to the Reorganization, holders
of the Preferred Stock may also possess voting rights.
DIVIDENDS. Upon consummation of the Reorganization, the Company's only
asset will be the net proceeds, the ESOP loan and the Bank's common stock. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. The Company's source for the payment of cash
dividends may in the future depend on the receipt of dividends from the Bank.
See "Dividend Policy." The holders of Common Stock will be entitled to receive
and share equally in such dividends as may be declared by the board of directors
of the Company out of funds legally available therefore. If the Company issues
Preferred Stock, the holders thereof may have a priority over the holders of the
Common Stock with respect to dividends.
LIQUIDATION OR DISSOLUTION. In the unlikely event of the liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive--after payment or provision for payment of all debts and liabilities of
the Company (including all deposits in the Bank and accrued interest thereon)
and after distribution of the liquidation account established upon completion of
the Offering for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who continue their deposit accounts at the Bank--all
assets of the Company available for distribution, in cash or in kind. See "The
Reorganization and Offering--Liquidation Rights." If Preferred Stock is issued
subsequent to the Offering, the holders thereof may have a priority over the
holders of Common Stock in the event of liquidation or dissolution.
NO PREEMPTIVE RIGHTS. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
TRANSFER AGENT AND REGISTRAR
will act as the transfer agent and registrar for
the Common Stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock and the federal income tax consequences of
the Reorganization will be passed upon for the Bank and the Company by the firm
of Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel
to the Company and the Bank. The New York income tax consequences of the
Reorganization will be passed upon for the Company and the Bank by
PricewaterhouseCoopers, LLP. The federal income tax consequences of certain
matters relating to the establishment of the Charitable Foundation will be
passed upon for the Company and the Bank by PricewaterhouseCoopers. Certain
legal matters will be passed upon for Friedman Billings, Ramsey & Co., Inc. by
Patton Boggs, LLC, Washington, D.C.
EXPERTS
The financial statements of Greene County Savings Bank as of June 30, 1998
and for each of the years in the two-year period ended June 30, 1998 have been
included herein and in the registration statement in reliance upon the report of
PricewaterhouseCoopers, LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as "Experts" in accounting
and auditing.
99
<PAGE>
FinPro has consented to the publication herein of the summary of its report
to the Bank and the Company setting forth its belief as to the estimated pro
forma market value of the Common Stock upon Reorganization and its valuation
with respect to Subscription Rights.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, NW, Washington, D.C. 20549, and copies of such material can be
obtained from the SEC at prescribed rates. The SEC maintains a web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the SEC. The address of this web
site is http://www.sec.gov. The statements contained herein as to the contents
of any contract or other document filed as an exhibit to the registration
statement are, of necessity, brief descriptions thereof and are not necessarily
complete but do contain all material information regarding such documents; each
such statement is qualified by reference to such contract or document.
The Bank has filed an Application with the Department with respect to the
Reorganization. Pursuant to the rules and regulations of the Department, this
Prospectus omits certain information contained in that Application. The
Application may be examined at the office of the Department, 2 Rector Street,
New York, New York, and at the Bank's main office at 425 Main & Church Streets,
Catskill, New York, 12414-1300.
In connection with the Offering, the Company will register the Common Stock
with the SEC under Section 12(g) of the Exchange Act; and, upon such
registration, the Company and the holders of its Common Stock will become
subject to the proxy solicitation rules, reporting requirements and restrictions
on stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting and certain other requirements
of the Exchange Act. Under the Plan, the Company has undertaken that it will not
terminate such registration for a period of at least three years following the
Reorganization.
A copy of the Certificate of Incorporation and bylaws of the Company, as
well as the Plan of Reorganization, are available without charge from the Bank
by contacting the Secretary, 425 Main & Church Streets, Catskill, New York,
12414-1300; (518) 943-3700. Copies of the Independent Valuation are available
for inspection at each of the Bank's offices.
100
<PAGE>
GREENE COUNTY SAVINGS BANK
FINANCIAL STATEMENTS
(AND REPORT OF INDEPENDENT ACCOUNTANTS)
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANT
To the Board of Trustees
Greene County Savings Bank
In our opinion, the accompanying statement of financial condition and the
related statements of income and changes in net worth and cash flows present
fairly, in all material respects, the financial position of Greene County
Savings Bank at June 30, 1998, and the results of their operations and their
cash flows for each of the two years in the period ended June 30, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Pricewaterhouse LLP
Albany, New York
August 7, 1998
F-1
<PAGE>
GREENE COUNTY SAVINGS BANK
STATEMENT OF FINANCIAL CONDITION
JUNE 30, 1998
<TABLE>
<S> <C>
ASSETS
Cash and due from banks....................................................... $ 2,476,032
Federal funds sold............................................................ 5,796,051
-----------
Total cash and cash equivalents............................................. 8,272,083
Investment securities, at fair value.......................................... 47,778,335
Loans......................................................................... 81,191,211
Less: allowance for possible loan losses.................................... (728,478)
Unearned origination fees and costs, net.................................... (202,771)
-----------
Net loans receivable...................................................... 80,259,962
Premises and equipment........................................................ 2,584,281
Accrued interest receivable................................................... 1,091,120
Prepaid expenses and other assets............................................. 143,600
Other real estate............................................................. 123,548
-----------
Total assets................................................................ $140,252,929
-----------
-----------
LIABILITIES AND NET WORTH
Deposits:
Savings certificates, $100,000 and over..................................... $ 6,672,000
Other savings certificates.................................................. 48,930,036
Regular and day-to-day...................................................... 32,950,825
Money market accounts....................................................... 19,609,467
Checking accounts........................................................... 7,514,136
NOW accounts................................................................ 6,186,521
Christmas Club.............................................................. 460,774
-----------
122,323,759
Accrued interest and other liabilities........................................ 509,314
Accrued income taxes.......................................................... 2,101
Tax escrow funds.............................................................. 1,687,530
-----------
Total liabilities........................................................... 124,522,704
Net worth:
Surplus..................................................................... 2,706,456
Undivided profits........................................................... 12,781,368
Unrealized gain on securities available for sale, net of applicable deferred
income taxes.............................................................. 242,400
-----------
Total net worth........................................................... 16,730,225
-----------
Total liabilities and net worth........................................... $140,252,929
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
GREENE COUNTY SAVINGS BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
INTEREST INCOME:
Interest on loans................................................................... $ 6,367,282 $ 6,175,215
Interest and dividends on investments:
US Treasury....................................................................... 985,130 962,932
US Government agencies............................................................ 856,073 687,256
State and political subdivisions.................................................. 341,222 362,490
Corporation debt securities....................................................... 405,225 456,678
Mortgage-backed securities........................................................ 110,488 69,863
Other securities.................................................................. 17,724 23,441
Federal funds sold.................................................................. 393,310 536,826
Other interest income............................................................... 26,902 22,615
------------ ------------
9,503,356 9,297,316
------------ ------------
INTEREST EXPENSE:
Interest on deposits................................................................ 4,967,487 4,779,678
------------ ------------
Net interest income............................................................. 4,535,869 4,517,638
------------ ------------
Less: provision for loan losses....................................................... 120,000 125,000
------------ ------------
Net interest income after provision for loan losses................................... 4,415,869 4,392,638
NON-INTEREST INCOME:
Service charges on deposit accounts................................................. 251,188 230,442
Other operating income.............................................................. 185,479 289,968
------------ ------------
Total other income................................................................ 436,667 520,410
------------ ------------
NON-INTEREST EXPENSES:
Salaries and employee benefits...................................................... 1,571,650 1,491,651
Occupancy expense, net.............................................................. 208,381 157,190
Equipment and furniture expense..................................................... 185,476 163,845
Other............................................................................... 1,183,752 960,563
------------ ------------
Total other expenses.............................................................. 3,149,259 2,773,249
------------ ------------
Income before provision for taxes............................................... 1,703,277 2,139,799
PROVISION FOR INCOME TAXES
Current............................................................................. 565,609 720,287
Deferred............................................................................ (12,248) (28,625)
------------ ------------
Total provision for income taxes.................................................. 553,361 691,662
------------ ------------
Net income...................................................................... $ 1,149,916 $ 1,448,137
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
GREENE COUNTY SAVINGS BANK
STATEMENTS OF CHANGES IN NET WORTH
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON
SECURITIES
AVAILABLE-
FOR-SALE,
NET TOTAL
UNDIVIDED OF DEFERRED NET
PROFITS SURPLUS INCOME TAXES WORTH
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Balances at June 30, 1996............................. $ 10,183,316 $ 2,706,456 $ (7,200) $ 12,882,572
Net income for year ended June 30, 1997............... 1,448,137 1,448,137
Change in unrealized gain on securities available for
sale, net of applicable deferred income taxes....... 75,200 75,200
------------- ------------ ------------ -------------
Balance at June 30, 1997.............................. 11,631,453 2,706,456 68,000 14,405,909
------------- ------------ ------------ -------------
Net income for year ended June 30, 1998............... 1,149,916 1,149,916
Change in unrealized gain on securities available for
sale, net of applicable deferred income taxes....... 174,400 174,400
------------- ------------ ------------ -------------
Balance at June 30, 1998.............................. $ 12,781,369 $ 2,706,456 $ 242,400 $ 15,730,225
------------- ------------ ------------ -------------
------------- ------------ ------------ -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
GREENE COUNTY SAVINGS BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------------- --------------
<S> <C> <C>
Net income........................................................................ $ 1,149,916 $ 1,448,137
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.................................................................... 147,128 110,400
Net accretion of security premiums and discounts................................ (161,533) (167,837)
Provision for loan losses....................................................... 120,000 125,000
Loss on sale of other real estate............................................... 2,793 12,009
Provision (credit) for deferred income taxes.................................... (12,248) (28,625)
Net change in unearned loan fees and costs...................................... (12,848) (57,951)
Net (increase) decrease in accrued interest receivable.......................... (48,580) 257,062
Net (increase) decrease in prepaids and other assets............................ 11,571 443,512
Net (decrease) increase in other liabilities.................................... (235,666) 47,460
-------------- --------------
Net cash provided by operating activities..................................... 960,533 2,189,167
-------------- --------------
Cash flows from investing activities:
Proceeds from maturities of available-for-sale securities....................... 7,686,731 7,500,000
Purchases of securities available-for-sale...................................... (12,651,981) (10,888,898)
Principal payments on securities available-for-sale............................. 2,423,055 744,667
Principal payments on mortgage-backed securities available-for-sale............... 1,923,198 1,338,993
Purchases of mortgage-backed securities available-for-sale...................... (4,024,423) --
Proceeds from maturities of mortgage-backed securities available-for-sale....... 325,809 --
Proceeds from sale of other real estate......................................... 179,699 68,378
Net increase in loans receivable................................................ (4,971,125) (2,730,620)
Purchases of premises and equipment............................................. (1,060,217) (409,778)
-------------- --------------
Net cash used by investing activities......................................... (10,169,254) (4,377,258)
-------------- --------------
Cash flows from financing activities
Net increase in deposits........................................................ 6,468,829 1,668,328
Net increase (decrease) in escrow payments...................................... 123,905 (25,143)
-------------- --------------
Net cash provided by financing activities..................................... 6,592,734 1,643,185
-------------- --------------
Net decrease in cash and cash equivalents......................................... (2,615,987) (544,906)
Cash and cash equivalents at beginning of period.................................. 10,888,070 11,432,976
-------------- --------------
Cash and cash equivalents at end of period........................................ $ 8,272,083 $ 10,888,070
-------------- --------------
-------------- --------------
Cash paid during the period for:
Interest........................................................................ $ 4,967,903 $ 4,779,770
-------------- --------------
Income taxes.................................................................... $ 833,551 $ 738,257
-------------- --------------
Non-cash investing activity:
Foreclosed loans transferred to other real estate............................... $ 252,007 $ 70,457
-------------- --------------
Net change in unrealized gain on available-for-sale securities.................. $ 174,400 $ 75,200
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS:
Greene County Savings Bank (the "Bank" or "Company"), a New York
State-charted mutual savings bank, has four full service offices located in its
market area consisting of Greene County, New York. The Bank is primarily engaged
in the business of attracting deposits from the general public in the Bank's
market area, and investing such deposits, together with other sources of funds,
in loans and investment securities.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash on hand, amounts due from banks,
interest-bearing deposits (with original maturity of three months or less) and
federal funds sold. Generally, federal funds are sold for one-day periods. The
carrying amounts reported in the balance sheet for cash and cash equivalents
approximate those assets' fair values.
INVESTMENT SECURITIES:
The Company has classified its investments in debt and equity securities as
available-for-sale. Available-for-sale securities are reported at fair value,
with net unrealized gains and losses reflected as a separate component of net
worth, net of applicable income taxes. None of the Company's investment
securities have been classified as trading or held-to-maturity securities.
Realized gains or losses on investment security transactions are based on
the specific identification method and are reported under other income. Fair
values of investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments. Premiums and discounts are
amortized and accreted, respectively, using methods that approximate the
effective yield method over the remaining contractual maturity, adjusted for
anticipated prepayments.
LOANS:
Fair values for variable rate loans that reprice frequently, with no
significant credit risk, are based on carrying values. Fair values for fixed
rate loans are estimated using discounted cash flows and interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest approximates fair value.
Interest on loans is accrued and credited to income based upon the principal
amount outstanding. Unearned discount on installment loans is recognized as
income over the term of the loan, principally using a method that approximates
the effective yield method. Nonrefundable loan fees and related direct
F-6
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
costs are deferred and amortized over the life of the loan as an adjustment to
loan yield using the effective interest method.
ALLOWANCE FOR POSSIBLE LOAN LOSSES:
The allowance for loan losses is maintained at a level considered adequate
to provide for potential loan losses. The allowance is increased by a provision
for loan losses, charged to expense, and reduced by net charge-offs. The level
of the allowance is based on management's evaluation of the collectibility of
the loan portfolio, including the nature of the portfolio, credit
concentrations, trends in historical loss experience, specific impaired loans,
and economic conditions. The measurement of impaired loans is generally based on
the present value of estimated future cash flows, except that all collateral
dependent loans are measured for impairment based on the fair value of the
collateral.
INCOME RECOGNITION ON IMPAIRED AND NON-ACCRUAL LOANS:
The Bank places a loan, including impaired loans, on nonaccrual status when
it is specifically determined to be impaired or when principal and interest is
delinquent for 90 days or more. Any unpaid interest previously accrued on these
loans is reversed from income. When a loan is specifically determined to be
impaired, collection of interest and principal are generally applied as a
reduction to principal outstanding. Interest income on all other nonaccrual
loans is recognized on a cash basis.
PREMISES AND EQUIPMENT:
Premises and equipment is stated at cost. Depreciation is computed using
principally the straight-line method over the estimated useful lives of the
related assets. Maintenance and repairs are charged to expense when incurred.
Gains and losses from sales or other dispositions of depreciable property are
included in current operations.
OTHER REAL ESTATE:
Properties acquired through foreclosure, or by deed in lieu of foreclosure,
are carried at the lower of cost (fair value at the date of foreclosure) or fair
value less estimated disposal costs.
DEPOSITS:
Fair values disclosed for demand and savings deposits are equal to the
carrying amounts at the reporting date. The carrying amounts for variable rate
money market and certificates of deposit approximate fair values at the
reporting date. Fair values for fixed rate certificates of deposit are estimated
using discounted cash flows and interest rates currently being offered on
similar certificates. The carrying value of accrued interest approximates fair
value.
RESTRICTIONS ON RETAINED EARNINGS:
Retained earnings of the Bank are subject to certain restrictions under New
York State Banking regulations. As required under these regulations, if the net
worth of the Bank is less than ten percent of the amount due depositors at the
close of any accounting period, five percent of net earnings, before dividends
paid to depositors and losses on sale of assets, for such period is credited to
appropriated retained earnings.
F-7
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Unappropriated retained earnings represent accumulated undistributed net
earnings of the Bank which have not been allocated to appropriated equity and
are not restricted as to use under New York State banking regulations.
INCOME TAXES:
Provisions for income taxes are based on taxes currently payable or
refundable and deferred income taxes on temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are reported in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled.
2. INVESTMENT SECURITIES
Securities available-for-sale at June 30, 1998 consist of the following:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
U.S. Treasury.......................... $ 12,969,356 $ 221,625 $ 1,216 $ 13,189,765
U.S. Government agencies............... 8,569,188 59,086 7,793 8,620,481
State and political subdivisions....... 7,389,943 101,296 11,652 7,479,587
Mortgage-backed securities............. 5,196,204 8,442 15,586 5,189,060
Asset-backed securities................ 6,304,752 20,227 1,296 6,323,683
Corporate debt securities.............. 3,735,833 64,429 1,466 3,798,796
Equity securities and other............ 81,454 81,454
Foreign obligations.................... 75,000 75,000
Federal Home Loan Bank stock........... 700,000 700,000
Mutual funds........................... 2,352,605 32,096 2,320,509
------------- ----------- ----------- -------------
$ 47,374,335 $ 475,105 $ 71,105 $ 47,778,335
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The amortized cost and estimated fair value of debt securities at June 30,
1998, by contractual maturity, are shown below. Expected maturities may differ
from contractual maturities, because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------- -------------
<S> <C> <C>
Amounts maturing in:
One year or less................................................................. $ 7,787,368 $ 7,828,078
After one year through five years................................................ 20,290,540 20,563,884
After five years through ten years............................................... 4,586,412 4,696,667
Mortgage-backed securities....................................................... 5,196,204 5,189,060
Asset-backed securities.......................................................... 6,304,752 6,323,683
------------- -------------
$ 44,165,276 $ 44,601,372
------------- -------------
------------- -------------
</TABLE>
F-8
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT SECURITIES (CONTINUED)
The Bank participates in a securities lending program with the custodian of
substantially all Bank securities. Under the terms of the agreement, the
custodian acts as an agent for the Bank and loans available securities to
borrowers. At June 30, 1998, $4,985,000 of securities were on loan under this
program.
3. LOANS
Major classifications of loans at June 30, 1998 are summarized as follows
<TABLE>
<S> <C>
Real estate mortgages:
Residential.................................................. $64,705,332
Commercial................................................... 5,706,421
Home equity loans.............................................. 4,727,206
Commercial loans............................................... 1,336,229
Installment loans to individuals............................... 4,171,688
Passbook loans to individuals.................................. 544,335
----------
$81,191,211
----------
----------
</TABLE>
At June 30, 1998, loans to officers and trustees were not significant.
Changes in the allowance for possible loan losses for the periods ended June
30 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Balance, beginning of year............................................ $ 723,019 $ 596,924
Provision charged to expense.......................................... 120,000 125,000
Loans charged off..................................................... (126,224) (11,002)
Recoveries............................................................ 11,683 12,097
---------- ----------
$ 728,478 $ 723,019
---------- ----------
---------- ----------
</TABLE>
At June 30, 1998, the Bank's impaired loans for which specific valuation
allowances were recorded were not significant.
4. PREMISES AND EQUIPMENT
A summary of premises and equipment at June 30, 1998 is as follows:
<TABLE>
<S> <C>
Land............................................................ 409,702
Buildings and improvements...................................... 2,156,500
Furniture and equipment......................................... 1,859,570
---------
4,425,772
Less: accumulated depreciation.................................. (1,841,491)
---------
$2,584,281
---------
---------
</TABLE>
F-9
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Current:
Federal income tax.................................................. $ 471,448 $ 573,013
State income tax.................................................... 94,161 147,274
---------- ----------
Total current..................................................... 565,609 720,287
Deferred income tax................................................. (12,248) (28,625)
---------- ----------
Total income tax expense.......................................... $ 553,361 $ 691,662
---------- ----------
---------- ----------
</TABLE>
The Bank's effective tax rate differs from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Tax based on federal statutory rate............................................. 34% 34%
State income taxes, net of federal benefit...................................... 3.7 4.5
Tax exempt income............................................................... (5.7) (5.9)
Other, net...................................................................... .5 (.3)
--- ---
Total income tax expense.................................................... 32.5% 32.3%
--- ---
--- ---
</TABLE>
The components of the deferred tax assets and liabilities at June 30 were as
follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................................... $ 184,414 $ 145,257
Nonaccruing interest................................................ 34,739 17,583
Loan origination fee adjustments.................................... 24,281
---------- ----------
Total deferred tax assets......................................... $ 219,153 $ 187,121
---------- ----------
---------- ----------
Deferred tax liabilities:
Depreciation........................................................ 160,069 133,104
Investments......................................................... 219,403 97,590
---------- ----------
Total deferred tax liabilities.................................... $ 379,472 $ 230,694
---------- ----------
---------- ----------
</TABLE>
F-10
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENT LIABILITIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT:
The Bank enters into financial agreements in the normal course of business
that have off-balance sheet risk. These agreements include commitments to extend
credit and involve, to varying degrees, elements of credit risk in excess of the
amount recognized on the statement of financial condition.
The Bank uses the same credit policies in making commitments as it does for
on-balance sheet instruments.
Contract amounts of financial instruments that represent credit risk at June
30, 1998 are as follows:
<TABLE>
<S> <C>
Commercial lines of credit...................................... $ 235,000
Commitments to extend credit.................................... 2,154,300
---------
$2,389,300
---------
---------
</TABLE>
Commitments to extend credit and commercial lines of credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration dates
or other termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being fully drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
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. Commitments
to extend credit are primarily secured by a first lien on real estate.
Collateral on extensions of commercial lines of credit varies but may include
accounts receivable, inventory, property, plant and equipment, and income
producing commercial property.
7. EMPLOYEE BENEFIT PLANS
Substantially all Bank employees who have completed one year of service and
attained the age of 21 are covered by a noncontributory, multi-employer, defined
benefit pension plan. Under the plan, retirement benefits are primarily a
function of both years of service and level of compensation. The Bank recognized
pension expense in the amount of $102,000 and $151,000 in 1998 and 1997,
respectively.
The Bank also participated in a multi-employer, defined contribution plan
covering substantially all employees who have completed one year of service. The
plan includes Section 401(k) and Thrift provisions as defined under the Internal
Revenue Code. The provisions permit employees to contribute up to 15% of their
total compensation on a pre-tax basis. The Bank matches 50% of the first 6% of
employee contributions. Company contributions associated with the plan amounted
to $56,000 and $36,000 in 1998 and 1997, respectively.
8. LINES-OF-CREDIT
At June 30, 1998, the Bank had available two lines-of-credit from other
financial institutions for $2,000,000 and $1,000,000. These credit lines are
collateralized by investment securities and carry interest based on the federal
funds rate or other published rates. At June 30, 1998, there was no outstanding
balances on these credit lines.
F-11
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. CONCENTRATIONS OF CREDIT RISK
The Bank grants residential, consumer and commercial loans to customers
primarily located in Greene County, New York. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent upon the employment and other economic
factors of the County.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company determines fair values based on quoted market values, where
available, or on estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. In that regard, the
derived fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in immediate
settlement of the instrument. Statement of Financial Accounting Standard No.
107, "Disclosures About Fair Value of Financial Instruments," excludes certain
financial instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company. The methods to determine fair
value for each financial instrument are listed in Note 1. The carrying amounts
and estimated fair values of financial instruments as of June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------
<S> <C> <C>
CARRYING FAIR
AMOUNT VALUE
---------- ----------
(IN)THOUSANDS
Cash and short-term investments....................................... $ 8,272 $ 8,272
Investment securities................................................. $ 47,374 $ 47,778
Net loans............................................................. $ 80,260 $ 81,453
Deposits.............................................................. $ 122,324 $ 122,427
</TABLE>
11. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classifications 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 I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I 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.
F-12
<PAGE>
GREENE COUNTY SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. REGULATORY MATTERS (CONTINUED)
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
CORRECTIVE
FOR CAPITAL ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
------------------------ ------------------------- ------------
<S> <C> <C> <C> <C> <C>
AMOUNT RATIO AMOUNT RATIO AMOUNT
------------- --------- ------------ ----- ------------
As of June 30, 1998:
Total capital
(to risk weighted assets)........................... $ 16,216,000 21% $ 6,098,000 8% $ 7,622,000
Tier I Capital
(to risk weighted assets)........................... $ 15,488,000 20% $ 3,049,000 4% $ 4,574,000
Tier I capital
(to average assets)................................. $ 15,488,000 11% $ 5,588,000 4% $ 6,985,000
<CAPTION>
<S> <C>
RATIO
---------
As of June 30, 1998:
Total capital
(to risk weighted assets)........................... 10%
Tier I Capital
(to risk weighted assets)........................... 6%
Tier I capital
(to average assets)................................. 5%
</TABLE>
12. SUBSEQUENT EVENT
On July 1, 1998, the Board of Trustees of the Bank adopted a Plan of
Conversion to convert from a state-chartered mutual savings bank to a
state-chartered stock savings bank with the concurrent formation of a holding
company. The holding company will be organized for the purpose of acquiring and
holding all of the outstanding capital stock of the Bank to be issued in the
conversion. The Conversion is expected to be accomplished through the adoption
of a new state stock charter and bylaws for the Bank and the sale of the holding
company's stock in an underwritten public offering.
At the time of the Conversion, the Bank will establish a liquidation account
in an amount equal to its capital as of the date of the latest statement of
financial condition appearing in the final prospectus. The liquidation account
will be maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Bank after the Conversion. 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 account then held.
Subsequent to the Conversion, the Bank 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 or if such declaration and payment would otherwise
violate regulatory requirements.
The registration statement on Form SB-2 is expected to be filed by the
proposed holding company of the Bank with the Securities and Exchange Commission
in the fall of 1998, at which point it will become effective in accordance with
Section 8(a) of the Securities Act of 1933.
F-13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE BANK. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK 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. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
UNTIL 1998 OR 25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING, 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.
GREENE COUNTY BANCORP, INC.
(Proposed Holding Company for
Greene County Savings Bank)
UP TO 1,266,876 SHARES
COMMON STOCK
($.10 PAR VALUE PER SHARE)
---------------------
PROSPECTUS
---------------------
FRIEDMAN, BILLINGS RAMSEY & CO., INC.
NOVEMBER , 1998
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS
AND ARE NOT FEDERALLY INSURED OR GUARANTEED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
INDEMNIFICATION OF DIRECTORS AND OFFICERS OF THE CORPORATION
Article 9 of the Certificate of Incorporation of Greene County Bancorp, Inc.
(the "Corporation") sets forth circumstances under which directors, officers,
employees and agents of the Corporation may be insured or indemnified against
liability which they may incur in their capacities as such.
Article 9:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article 9
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
and "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article 9 shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article 9 is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover
II-1
<PAGE>
an advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final adjudication
that, the indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses, under this
Article 9 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article 9 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article 9 with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
AMOUNT
----------
<S> <C> <C>
* Legal Fees and Expenses.......................................................................... $ 110,000
* Printing, Postage and Mailing.................................................................... 110,000
* Appraisal and Business Plan Fees and Expenses.................................................... 25,000
* Accounting Fees and Expenses..................................................................... 90,000
Blue Sky Filing Fees and Expenses
* (including counsel fees)......................................................................... 20,000
* Conversion Data Processing....................................................................... 7,500
** Underwriter's Fees and Expenses.................................................................. 150,000
* Filing Fees (NASD, New York State and SEC)....................................................... 23,500
* Other Expenses................................................................................... 24,000
----------
* Total............................................................................................ $ 560,000
----------
----------
</TABLE>
- ------------------------
* Estimated
** Greene County Bancorp, Inc. has retained Friedman, Billings, Ramsey & Co.,
Inc. ("FBR") to assist in the sale of common stock on a best efforts basis
in the Offering. FBR will receive fees of $110,000, exclusive of estimated
expenses of $40,000.
II-2
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Not Applicable.
ITEM 27. EXHIBITS:
The exhibits filed as part of this registration statement are as follows:
(A) LIST OF EXHIBITS
<TABLE>
<C> <S>
1.1 Engagement Letter between Greene County Savings Bank and Friedman, Billings, Ramsey &
Co., Inc.
1.2 Agency Agreement among Greene County Bancorp, Inc., Greene County Savings Bank and
Friedman, Billings, Ramsey & Co., Inc. *
2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and
Stock Issuance Plan
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.
3.2 Bylaws of Greene County Bancorp, Inc.
3.3 Proposed Charter of The Bank of Greene County
3.4 Proposed Bylaws of The Bank of Greene County
4 Form of Common Stock Certificate of Greene County Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of securities
being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion of PriceWaterhouseCoopers
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in Opinions included
on Exhibits 5 and 8.1)
23.2 Consent of PriceWaterhouseCoopers
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule (in Electronic Filing Only)
99.1 Appraisal Agreement between Greene County Savings Bank and FinPro, Inc.*
99.2 Appraisal Report of FinPro, Inc. (separately filed)**
99.3 Proxy Statement
99.4 Marketing Materials*
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
99.5 Order and Acknowledgment Form and Certification Form*
</TABLE>
- ------------------------
* To be filed supplementally or by amendment.
** Paper copy of this Exhibit was filed supplementally pursuant to Rule 202 of
Regulation ST.
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement; (iii) Include any additional or
changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the Underwriting Agreement certificates in such documentation and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer 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 small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer 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 small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the city of
Catskill, State of New York on August 27, 1998.
GREENE COUNTY BANCORP, INC.
BY:
-----------------------------------------
J. Bruce Whittaker
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
(Duly authorized representative)
II-5
<PAGE>
POWER OF ATTORNEY
We, the undersigned directors and officers of Greene County Bancorp, Inc.
(the "Company") hereby severally constitute and appoint J. Bruce Whittaker as
our true and lawful attorney and agent, to do any and all things in our names in
the capacities indicated below which said J. Bruce Whittaker may deem necessary
or advisable to enable the Company to comply with the Securities Act of 1933,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form SB-2 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said J. Bruce Whittaker shall do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and as of the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
President, Chief Executive
Officer and Director
- ------------------------------ (principal executive August 27, 1998
J. Bruce Whittaker officer)
Vice President and
Treasurer (principal
- ------------------------------ accounting and financial August 27, 1998
Edmund L. Smith, Jr. officer)
Chairman of the Board
- ------------------------------ August 27, 1998
Walter H. Ingalls
Director
- ------------------------------ August, 27, 1998
Richard J. Buck
Director
- ------------------------------ August 27, 1998
Anthony Camera, Jr.
Director
- ------------------------------ August 27, 1998
David H. Jenkins, Dvm
Director
- ------------------------------ August 27, 1998
Raphael Klein
Director
- ------------------------------ August 27, 1998
Dennis R. O'grady
Director
- ------------------------------ August 27, 1998
Paul Slutzky
Director
- ------------------------------ August 27, 1998
Martin C. Smith
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
1.1 Engagement Letter between Greene County Savings Bank and Friedman, Billings, Ramsey &
Co., Inc.
1.2 Agency Agreement among Greene County Bancorp, Inc., Greene County Savings Bank and
Friedman, Billings, Ramsey & Co., Inc. *
2 Plan of Reorganization from a Mutual Savings Bank to a Mutual Holding Company and
Stock Issuance Plan
3.1 Certificate of Incorporation of Greene County Bancorp, Inc.
3.2 Bylaws of Greene County Bancorp, Inc.
3.3 Charter of The Bank of Greene County.
3.4 Bylaws of The Bank of Greene County.
4 Form of Common Stock Certificate of Greene County Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding legality of securities
being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C.
8.2 Form of State Tax Opinion of PriceWaterhouseCoopers
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in Opinions included
on Exhibits 5 and 8.1)
23.2 Consent of PriceWaterhouseCoopers
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27.1 EDGAR Financial Data Schedule (in Electronic Filing Only)
99.1 Appraisal Agreement between Greene County Savings Bank and FinPro, Inc.*
99.2 Appraisal Report of FinPro, Inc. (separately filed) **
99.3 Proxy Statement
99.4 Marketing Materials*
99.5 Order and Acknowledgment Form and Certification Form*
</TABLE>
- ------------------------
* To be filed supplementally or by amendment.
** Paper copy of this Exhibit was filed supplementally pursuant to Rule 202 of
Regulation ST.
<PAGE>
August 14, 1998
Board of Trustees
Attn: J. Bruce Whittaker
President & Chief Executive Officer
Greene County Savings Bank
425 Main & Church Street
Catskill, NY 12414
RE: Plan of Reorganization and Stock Issuance Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBR") and Greene County Savings Bank ("Greene
County") concerning our Investment Banking Services in connection with the
proposed reorganization of Greene County from the mutual savings bank format
into the mutual holding company structure and concurrent minority stock
offering.
FBR is prepared to assist Greene County in connection with the offering of its
shares of common stock during the Subscription Offering and Community Offering
as such terms are defined in Greene County's Plan of Reorganization and Stock
Issuance (the"Plan"). The specific terms of the services contemplated hereunder
shall be set forth in a definitive sales agency agreement (the "Agreement")
between FBR and Greene County to be executed prior to mailing of the Offering
materials. The price of the shares during the Subscription Offering and
Community Offering will be the price established by the Greene County Board of
Trustees, based upon an independent appraisal as approved by the appropriate
regulatory authorities, provided such price is mutually acceptable to FBR and
Greene County.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
1. Act as the Financial Advisor to Greene County
2. Create marketing materials and formulate a marketing plan
3. Conduct training for all Directors and Employees concerning the
reorganization and stock offering
4. Manage Stock Center and staff with FBR personnel
5. Assist Greene County and Attorneys with listing on Nasdaq
6. Provide general advisory services including capital management strategies,
dividend policy and mergers and acquisitions strategies for a period of one
year following the completion of the Offering
After the Offering, FBR intends to become a Market Maker and continue coverage
of Greene County through after market support and research.
At the appropriate time, FBR, in conjunction with its counsel,
will conduct an examination of the relevant documents and records
of Greene County as FBR deems necessary and appropriate. Greene
County will make all documents, records and other information deemed necessary
by FBR or its counsel available to them upon request.
For its services hereunder, FBR will receive the following compensation and
reimbursement from Greene County:
<PAGE>
Mr. J. Bruce Whittaker
August 14, 1998
Page 2 of 5
1. A management fee of $25,000 payable as follows; $12,500 upon the signing of
this letter and $12,500 upon receiving regulatory approval of the Plan
Application. Should the Plan be terminated for any reason not attributable to
the action or inaction of FBR, FBR shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination occurred.
2. A fixed marketing fee of $110,000. The management fee of $25,000 will be
subtracted from the marketing fee.
3. The balance of the foregoing commissions are to be payable to FBR at closing
as defined in the agreement to be entered into between FBR and Greene County.
4. FBR shall be reimbursed for allocable expenses incurred by them, including
legal fees, whether or not the Agreement is consummated. These reimbursable
expenses including legal fees shall not exceed $40,000.
It is further understood that Greene County will pay all other expenses of the
Plan including but not limited to its attorneys' fees, NASD filing fees, filing
and registration fees and fees of either FBR's attorneys or the attorneys
relating to any required state securities law filings, telephone charges, air
freight, supplies, conversion agent charges, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make
certain representations to the NASD in connection with the Plan, Greene County
warrants that: (a) Greene County has not privately placed any securities within
the last 18 months; (b) there have been no material dealings within the last 12
months between Greene County and any NASD member or any person related to or
associated with any such member; (c) none of the officers or trustees of Greene
County has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with FBR , Greene County has no financial or management
consulting contracts outstanding with any other person; (e) Greene County has
not granted FBR a right of first refusal with respect to the underwriting of any
future offering of Greene County stock; and (f) there has been no intermediary
between FBR and Greene County in connection with the public offering of Greene
County shares, and no person is being compensated in any manner for providing
such service.
Greene County agrees to indemnify FBR and its controlling persons,
representatives and agents in accordance with the indemnification provisions
(the "Indemnification Provisions") set forth in the Appendix, and agrees to the
other provisions of the Appendix, which is incorporated herein by this
reference, regardless of whether the proposed Offering is consummated.
This letter is merely a statement of intent and is not a binding legal agreement
except as to the compensation and reimbursement paragraphs numbered 1-4 above
and the indemnity described above. While FBR and Greene County agree in
principle to the contents hereof and the purpose to proceed promptly, and in
good faith, to work out the arrangements with respect to the proposed offering,
any legal obligations between FBR and Greene County shall be only as set forth
in a duly executed Agreement. The indemnification provision described above will
be superseded by the indemnification provisions of the Agreement entered into by
Greene County and FBR. Such Agreement shall be in the form and content
satisfactory to, among other things, there being in FBR's opinion no material
adverse change in the condition or operations of Greene County or no market
conditions which might render the sale of the shares by Greene County hereby
contemplated inadvisable.
The validity and interpretation of this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia (excluding the conflicts of laws rules).
<PAGE>
Mr. J. Bruce Whittaker
August 14, 1998
Page 3 of 5
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $12,500. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
By: Karen K. Edwards, CFA David H. Neiswander
Title: Managing Director Vice President
Date: August 14, 1998
Agreed and Accepted to this _________ day of ____________ , 1998.
Greene County Savings Bank
By:
---------------------------------
Title:
---------------------------------
<PAGE>
Mr. J. Bruce Whittaker
August 14, 1998
Page 4 of 5
APPENDIX
Greene County agrees to indemnify and hold harmless FBR and its affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees, agents and controlling persons (FBR
and each person being an "Indemnified Party") from and against all losses,
claims, damages and liabilities (or actions, including shareholder actions, in
respect thereof), joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, which are
related to or result from the performance by FBR of the services contemplated by
or the engagement of FBR pursuant to, this letter agreement and will promptly
reimburse any Indemnified Party for all reasonable expenses (including
reasonable counsel fees and expenses) as they are incurred in connection with
the investigation of, preparation for or defense arising from any threatened or
pending claim, whether or not such Indemnified Party is a party and whether or
not such claim, action or proceeding is initiated or brought by Greene County.
Greene County will not be liable to any Indemnified Party under the foregoing
indemnification and reimbursement provisions, (i) for any settlement by an
Indemnified Party effected without its prior written consent (not to be
unreasonably withheld); or (ii) to the extent that any loss, claim, damage or
liability is found in a final non-appealable judgment by a court of competent
jurisdiction to have resulted primarily from FBR's willful misconduct or gross
negligence. Greene County also agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to
Greene County or its security holders or creditors related to or arising out of
the engagement of FBR pursuant to, or the performance by FBR of the services
contemplated by, this letter agreement except to the extent that any loss,
claim, damage or liability is found in a final non-appealable judgment by a
court of competent jurisdiction to have resulted primarily from FBR's willful
misconduct or gross negligence.
Promptly after receipt by an Indemnified Party of notice of any intention
or threat to commence an action, suit or proceeding or notice of the
commencement of any action, suit or proceeding, such Indemnified Party will, if
a claim in respect thereof is to be made against Greene County pursuant hereto,
promptly notify Greene County in writing of the same. In case any such action is
brought against any Indemnified Party and such Indemnified Party notifies Greene
County of the commencement thereof, Greene County may elect to assume the
defense thereof, with counsel reasonably satisfactory to such Indemnified Party,
and an Indemnified Party may retain counsel to participate in the defense of any
such action; provided, however, that in no event shall Greene County
be required to pay fees and expenses for more than one firm of attorneys
representing Indemnified Parties unless the defense of one Indemnified Party is
unique or separate from that of another Indemnified Party subject to the same
claim or condition. Any failure or delay by an Indemnified Party to give the
notice referred to in this paragraph shall not affect such Indemnified Party's
right to be indemnified hereunder, except to the extent that such failure or
delay causes actual harm to Greene County, or prejudices its ability to defend
such action, suit or proceeding on behalf of such Indemnified Party.
If the indemnification provided for in this letter agreement is for any reason
held unenforceable by an Indemnified Party (other than as a result of a judicial
determination as to FBR's willful misconduct or gross negligence), Greene County
agrees to contribute to the losses, claims, damages and liabilities for which
such indemnification is held unenforceable (i) in such proportion as is
appropriate to reflect the relative benefits to Greene County, on the one hand,
and FBR on the other hand, of the Offering as contemplated (whether or not the
Offering is consummated) or, (ii) if (but only if) the allocation provided for
in clause (i) is for any reason unenforceable, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
but also the relative fault of Greene County, on the one hand and FBR, on the
other hand, as well as any other relevant equitable considerations. Greene
County agrees that for the purposes of this paragraph the relative benefits to
Greene County and FBR of the Transactions as contemplated shall be deemed to be
in the same proportion that the total value received or contemplated to be
received by Greene County or its shareholders, as the case may be, as a result
of or in connection with the Transactions bear to the fees paid or to be paid to
FBR under this letter agreement. Notwithstanding the foregoing, Greene County
expressly agrees that FBR shall not be required to contribute any amount in
excess of the amount by which fees owed FBR hereunder (excluding reimbursable
expenses), exceeds the amount of any damages which FBR has otherwise been
required to pay.
<PAGE>
Mr. J. Bruce Whittaker
August 14, 1998
Page 5 of 5
Greene County agrees that without FBR's prior written consent, which shall not
be unreasonably withheld, it will not settle, compromise or consent to the entry
of any judgment in any pending or threatened claim, action or proceeding in
respect of which this indemnification could be sought under the indemnification
provisions of this letter agreement (in which FBR or any other indemnified Party
is an actual or potential party to such claim, action or proceeding), unless
such settlement, compromise or consent includes an unconditional release of each
Indemnified Party from all liability arising out of such claim, action or
proceeding.
In the event that an Indemnified Party is requested or required to appear as a
witness in any action brought by or on behalf of or against Greene County in
which such Indemnified Party is not named as a defendant, Greene County agrees
to promptly reimburse FBR on a monthly basis for all expenses incurred by it in
connection with such Indemnified Party's appearing and preparing to appear as
such a witness, including, without limitation, the reasonable fees and
disbursements of its legal counsel. In addition to any reimbursed fees, expenses
or costs outlined hereunder, FBR shall also receive from Greene County cash
compensation of $1,000.00 per person, per day, plus reasonable out-of-pocket
expenses and costs should FBR be required to provide testimony in any formal or
informal proceeding regarding the Offering.
If multiple claims are brought with respect to at least one of which
indemnification is permitted under applicable law and provided for under this
agreement, we agree that any judgment or arbitrated award shall be conclusively
deemed to be based on claims as to which indemnification is permitted and
provided for, except to the extent the judgment or arbitrated award expressly
states that the award, or any portion thereof, is based solely on a claim as to
which indemnification is not available.
In the event that Greene County does not promptly assume the defense of a claim
or action, the Indemnified Party shall have the right to employ counsel
reasonable satisfactory to Greene County, at Greene County's expense, to defend
such pending or threatened action or claim.
Agreed and Accepted to this _________ day of ___________, 1998.
Greene County Savings Bank
By:
------------------------------
Title:
-----------------------------
<PAGE>
GREENE COUNTY SAVINGS BANK
PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS BANK
TO A MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Introduction - Business Purpose..........................................................................1
2. Definitions..............................................................................................2
3. The Reorganization.......................................................................................7
4. Conditions to Implementation of the Reorganization......................................................10
5. Special Meeting and Vote Required to Approve the Plan...................................................11
6. Charters and Bylaws.....................................................................................12
7. Liquidation and Voting Rights...........................................................................12
8. Conversion of MHC to a Federal MHC......................................................................12
9. Conversion of MHC to Stock Form.........................................................................12
10. Timing of the Reorganization and Sale of Capital Stock..................................................13
11. Number of Shares to be Offered..........................................................................14
12. Independent Valuation and Purchase Price of Shares......................................................14
13. Method of Offering Shares and Rights to Purchase Stock..................................................15
14. Additional Limitations on Purchases of Common Stock.....................................................17
15. Payment for Stock.......................................................................................19
16. Manner of Exercising Subscription Rights Through Order Forms............................................20
17. Undelivered, Defective or Late Order Form; Insufficient Payment.........................................21
18. Completion of the Stock Offering........................................................................21
19. Market for Common Stock.................................................................................21
20. Stock Purchases by Management s After the Stock Offering................................................21
21. Resales of Stock by Management Persons..................................................................22
22. Stock Certificates......................................................................................22
23. Restriction on Financing Stock Purchases................................................................22
24. Stock Benefit Plans.....................................................................................22
25. Post-Reorganization Filing and Market Making............................................................23
26. Liquidation Account.....................................................................................23
27. Employment and Other Severance Agreements...............................................................24
28. Payment of Dividends and Repurchase of Stock............................................................24
29. Establishment of Charitable Foundation.................................................................25
30. Interpretation..........................................................................................25
31. Reorganization and Stock Offering Expenses..............................................................25
32. Amendment or Termination of the Plan....................................................................25
Exhibits
- --------
Exhibit A ....... Restated Organization Certificate and Bylaws of the Bank
Exhibit B ....... Certificate of Incorporation and Bylaws of the Holding Company
Exhibit C ....... Organization Certificate and Bylaws of the Mutual Holding Company
</TABLE>
<PAGE>
1. Introduction - Business Purpose
The Board of Trustees of Greene County Savings Bank (the "Bank") has
adopted this Plan of Reorganization from a Mutual Savings Bank to a Mutual
Holding Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank
proposes to reorganize from a state-chartered mutual savings bank into the
mutual holding company structure (the "Reorganization") under the laws of the
State of New York and the regulations of the Banking Board and the FDIC, and
other applicable Federal laws and regulations. As part of the Reorganization and
the Plan, the Bank will convert to a New York-chartered stock savings bank (the
"Stock Bank"), and will establish Greene County Bancorp, MHC (the "MHC") as a
New York corporation and Greene County Bancorp (the "Holding Company") as a
Delaware corporation. The Holding Company will be a majority-owned subsidiary of
the MHC at all times so long as the MHC remains in existence, and the Stock Bank
will become a wholly-owned subsidiary of the Holding Company. Concurrently with
the Reorganization, the Holding Company intends to offer for sale up to 49.0% of
its Common Stock in the Stock Offering on a priority basis to qualifying
depositors and Tax-Qualified Employee Plans of the Bank, with any remaining
shares offered to the public in a Community Offering. The Board of Trustees may,
in its sole discretion, elect to form the MHC and Holding Company as federal
corporations chartered and regulated by the Office of Thrift Supervision ("OTS")
in which case all references to holding company applications to, and regulation
by, the FRB or the Department, shall mean the OTS.
The primary purpose of the Reorganization is to establish a holding
company and stock savings bank charter which will enable the Bank to compete and
expand more effectively in the financial services marketplace. The
Reorganization will permit the Holding Company to issue Capital Stock, which is
a source of capital not available to mutual savings banks. Since the Holding
Company will not be offering all of its common stock for sale to depositors and
the public in the Stock Offering, the Reorganization will result in less capital
raised in comparison to a standard mutual-to-stock conversion. The
Reorganization also will offer the Bank more capital raising opportunities to
effect future transactions, including the acquisition of banks and other
financial services companies, since a majority of the Holding Company's common
stock will be available for sale in the future. It will also provide the Bank
with greater flexibility to structure and finance the expansion of its
operations, including the potential acquisition of other financial institutions.
Lastly, the Reorganization will enable the Bank to better manage its capital by
providing broader investment opportunities through the holding company structure
and by enabling the Bank to distribute excess capital to stockholders of the
Holding Company. Although the Reorganization and Stock Offering will create a
stock savings bank and stock holding company, only a minority of the Common
Stock will be offered for sale in the Stock Offering. As a result, the Bank's
mutual form of ownership and its ability to remain an independent savings bank
and to provide community-oriented financial services will be preserved through
the mutual holding company structure.
As part of the Reorganization, and consistent with the Bank's ongoing
commitment to remain an independent community-oriented savings bank, the Bank
may establish a charitable foundation. The charitable foundation would be
intended to compliment the Bank's existing community reinvestment and charitable
activities in a manner that would allow the local community to share in the
growth and success of the Bank. The Holding Company may donate to the charitable
foundation immediately following the Reorganization cash, securities or Common
Stock in an amount equal to up to 5% of the Common Stock issued in the Stock
Offering.
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<PAGE>
This Plan has been unanimously approved by the Board of Trustees of
the Bank and must be approved by the affirmative vote of at least (i) a majority
of the eligible votes of Voting Depositors, and (ii) 75% of the aggregate dollar
amount of deposits of the Voting Depositors represented at the Special Meeting
either in person or by valid proxy and entitled to vote thereat. Each Voting
Depositor will be entitled to cast one vote for each $100 or fraction thereof of
deposits in the Bank on the Voting Record Date. No Voting Depositor may cast
more than 1,000 votes at the Special Meeting. By approving the Plan, the Voting
Depositors will also be approving all steps necessary and incidental to the
formation of the Stock Bank, the Holding Company and the MHC, including any
merger necessary to consummate the Reorganization. The Reorganization is subject
to the approval of the Superintendent, the Federal Reserve Board and the FDIC.
2. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
Acting in Concert: Means (i) knowing participation in a joint activity
or interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; (ii) a combination or pooling of votes or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise; or (iii) a person or company which acts in concert
with another persons or company ("other party") shall also be deemed to be
acting in concert with any person or company who is also acting in concert with
the other party, except that any Tax-Qualified Employee Benefit Plan or
Non-Tax-Qualified Employee Benefit Plan will not be deemed to be acting in
concert with any other Tax-Qualified Employee Benefit Plan or Non- Tax-Qualified
Employee Benefit Plan or with its trustee or a person who serves in a similar
capacity solely for the purpose of determining whether stock held by the trustee
and stock held by the plan will be aggregated. The determination of whether a
group is acting in concert shall be made solely by the Board of Trustees of the
Bank or officers delegated by such Board, and may be based on any evidence upon
which the Board or such delegatee chooses to rely.
Actual Subscription Price: The price per share, determined as provided
in this Plan, at which the Common Stock will be sold in the Subscription
Offering.
Affiliate: Any person that controls, is controlled by, or is under
common control with another person.
Associate: The term "Associate," when used to indicate a relationship
with any person, means: (i) any corporation or organization (other than the
Bank, the Holding Company, the MHC or a majority-owned subsidiary of any
thereof) of which such person is a director, officer or partner or is, directly
or indirectly, 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; (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 Bank, the MHC, the Stock Holding Company or any
subsidiary of the MHC or the Holding Company or any affiliate thereof; and (iv)
any person acting in concert with any of the persons or entities specified in
clauses (i) through (iii) above; provided, however, that any Tax-Qualified or
Non-Tax-Qualified Employee Plan shall not be deemed to be an associate of any
trustee, director or officer of the MHC, the Holding Company or the Bank, to the
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<PAGE>
extent provided in Sections 11-13 hereof. When used to refer to a person other
than an officer or director of the Bank, the Bank in its sole discretion may
determine the persons that are Associates of other persons.
Bank: Greene County Savings Bank in its pre-Reorganization form and
post-Reorganization stock form, as indicated by the context.
Banking Board: The Banking Board of the New York State Banking
Department.
Banking Law: The Banking Law of the State of New York.
BHCA: The Bank Holding Company Act of 1956, as amended.
BIF: The Bank Insurance Fund.
BMA: The Bank Merger Act.
Capital Stock: Any and all authorized stock of the Bank or the Holding
Company.
Charitable Foundation: The Charitable Foundation established in
connection with the Reorganization pursuant to Section 29 of the Plan.
Common Stock: Common stock issuable by the Holding Company in
connection with the Reorganization, including securities convertible into Common
Stock, pursuant to its certificate of incorporation.
Community: Greene County, New York.
Community Offering: The offering to certain members of the general
public of any unsubscribed shares in the Subscription Offering which may be
effected pursuant to this Plan. The Community Offering may include a syndicated
community offering or public offering.
Department: The State of New York Banking Department.
Deposit Account(s): All withdrawable deposits of the Bank as defined in
Section 9019 of the Banking Law, including, without limitation, savings, time,
demand, NOW accounts, money market, certificate and passbook accounts maintained
by the Bank.
Community Offering: The offering to certain members of the general
public of any unsubscribed shares in the Subscription Offering which may be
effected pursuant to this Plan. The Community Offering may include a syndicated
community offering or public offering.
Effective Date: The date upon which all necessary approvals have been
obtained to consummate the Reorganization, and the transfer of assets and
liabilities of the Bank to the Stock Bank is completed.
Eligible Account Holder: Any person holding a Qualifying Deposit on
the Eligibility Record Date.
3
<PAGE>
Eligibility Record Date: June 30, 1997, the date for determining who
qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
Estimated Valuation Range: The range of the estimated pro forma market
value of the total number of shares of Common Stock to be issued by the Holding
Company to the MHC and to Minority Stockholders, as determined by the
Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
FRB: The Board of Governors of the Federal Reserve System.
Holding Company: Greene County Bancorp, the Delaware or federal
corporation which will be majority-owned by the MHC and which will own 100% of
the common stock of the Bank.
Holding Company Application: The holding company application to be
submitted by the MHC and the Holding Company to the FRB to have the MHC and the
Holding Company acquire direct and indirect control of the Bank.
Independent Appraiser: The appraiser retained by the Bank to prepare
an appraisal of the pro forma market value of the Bank and the Holding Company.
Independent Valuation: The estimated pro forma market value of the
Holding Company and the Bank as determined by the Independent Appraiser.
Liquidation Account: The liquidation account established pursuant to
this Plan.
Management Person: Any Officer or Trustee of the Bank or any Affiliate
of the Bank, and any person acting in concert with any such Officer or Trustee.
Marketing Agent: The broker-dealer responsible for organizing and
managing the Stock Offering and sale of the Common Stock.
Market Maker: A dealer (i.e., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering, buying,
selling or otherwise dealing or trading in securities issued by another person)
who, with respect to a particular security, (i) regularly publishes bona fide
competitive bid and offer quotations on request, and (ii) is ready, willing and
able to effect transactions in reasonable quantities at the dealer's quoted
prices with other brokers or dealers.
MHC: Greene County Bancorp, MHC, the mutual holding company resulting
from the Reorganization.
4
<PAGE>
Minority Ownership Interest: The shares of the Holding Company's Common
Stock owned by persons other than the MHC, expressed as a percentage of the
total shares of Holding Company Common Stock outstanding.
Minority Stockholder: Any owner of the Holding Company's Common Stock,
other than the MHC.
Minority Stock Offering: One or more offerings of up to 49% in the
aggregate of the outstanding Common Stock of the Holding Company to persons
other than the MHC.
Non-Voting Stock: Any Capital Stock other than Voting Stock.
Notice: The Notice of Mutual Holding Company Reorganization to be
submitted by the Bank to the FDIC and the Department to notify the FDIC and the
Department of the Reorganization and the Stock Offering.
Offering Range: The aggregate purchase price of the Common Stock to be
sold in the Stock Offering based on the Independent Valuation expressed as a
range which may vary within 15% above or 15% below the midpoint of such range,
with a possible adjustment by up to 15% above the maximum of such range. The
Offering Range will be based on the Estimated Valuation Range, but will
represent a Minority Ownership Interest equal to up to 49% of the Common Stock.
Officer: An executive officer of the Holding Company or the Bank,
including the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and any other employee participating in major
policy making functions of the institution.
Person: An individual, corporation, partnership, association,
joint-stock company, trust (including Individual Retirement Accounts and KEOGH
Accounts), unincorporated organization, government entity or political
subdivision thereof or any other entity.
Plan: This Plan of Reorganization from a Mutual Savings Bank to a
Mutual Holding Company and Stock Issuance Plan.
Qualifying Deposit: The aggregate of one or more Deposit Accounts with
an aggregate balance of $100 or more as of the close of business on the
Eligibility Record Date or as of the close of business on the Supplemental
Eligibility Record Date, as the case may be. Deposit Accounts with aggregate
total deposit balances of less than $100 shall not constitute a Qualifying
Deposit.
Regulations: The regulations of the Banking Board regarding mutual
holding companies and conversion to stock form, and the regulations of the FDIC,
but only to the extent the regulations of the FDIC conflict with Parts 86 and
111 of the General Regulations of the New York Banking Board.
Reorganization: The reorganization of the Bank into the mutual holding
company structure including the organization of the MHC, the Holding Company and
the Stock Bank pursuant to this Plan.
Resident: The terms "resident" "residence," "reside," or "residing" as
used herein with respect to any person shall mean any person who occupies a
dwelling within the Bank's Community, has an intent to remain with the Community
for a period of time, and manifests the genuineness of that intent by
5
<PAGE>
establishing an ongoing physical presence within the Community together with an
indication that such presence within the Community is something other than
merely transitory in nature. To the extent the person is a corporation or other
business entity, the principal place of business or headquarters shall be in the
Community. To the extent a person is a personal benefit plan, the circumstances
of the beneficiary shall apply with respect to this definition. In the case of
all other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.
SEC: The Securities and Exchange Commission.
Special Meeting: The Special Meeting of Depositors, and any adjournment
thereof, called for the purpose of considering and voting on the Plan.
Stock Bank: The New York chartered stock savings bank resulting from
the Reorganization in accordance with the Plan.
Stock Offering: The offering of Common Stock of the Holding Company to
the Charitable Foundation (if adopted) and to persons other than the MHC, in the
Subscription Offering and, to the extent shares remain available, in a Community
Offering or Syndicated Community Offering.
Subscription Offering: The offering of Common Stock of the Holding
Company to Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental
Eligible Account Holders, and trustees, Officers and Employees for subscription
and purchase pursuant to this Plan.
Subsidiary: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
Superintendent: The Superintendent of Banks of the State of New York.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder, a Tax-Qualified Employee Plan or an Officer or Trustee of the
Bank.
Supplemental Eligibility Record Date: The supplemental record date for
determining who qualifies as a Supplemental Eligible Account Holder. The
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding the Superintendent's approval of the Reorganization.
Syndicated Community Offering: At the discretion of the Bank and the
Holding Company, the offering of Common Stock following or contemporaneously
with the Community Offering through a syndicate of broker-dealers.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan (including any employee stock ownership plan, stock bonus
plan, profit-sharing plan, or other plan) of the Bank, the Holding Company, the
MHC or any of their affiliates, which, with its related trusts, meets the
requirements to be qualified under Section 401 of the Internal Revenue Code. The
term Non-Tax-Qualified Employee Plan means any defined benefit plan or defined
contribution plan which is not so qualified.
6
<PAGE>
Trustee: A trustee of the Bank on or before the Effective Date.
Voting Depositor: An Eligible Account Holder who continues to have a
Deposit Account as of the Voting Record Date.
Voting Record Date: The date established by the Bank for determining
eligibility to vote on the Plan at the Special Meeting.
Voting Stock:
(1) Voting Stock means common stock or preferred stock, or similar
interests if the shares by statute, charter or in any manner, entitle the
holder: (i) To vote for or to select directors of the Bank or the Holding
Company; and (ii) To vote on or to direct the conduct of the operations or other
significant policies of the Bank or the Holding Company.
(2) Notwithstanding paragraph (1) above, preferred stock is not "Voting
Stock" if: (i) Voting rights associated with the preferred stock are limited
solely to the type customarily provided by statute with regard to matters that
would significantly and adversely affect the rights or preferences of the
preferred stock, such as the issuance of additional amounts or classes of senior
securities, the modification of the terms of the preferred stock, the
dissolution of the Bank or the Holding Company, or the payment of dividends by
the Bank or the Holding Company when preferred dividends are in arrears; (ii)
The preferred stock represents an essentially passive investment or financing
device and does not otherwise provide the holder with control over the issuer;
and (iii) The preferred stock does not at the time entitle the holder, by
statute, charter, or otherwise, to select or to vote for the selection of
directors of the Bank or the Holding Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above, "Voting
Stock" shall be deemed to include preferred stock and other securities that,
upon transfer or otherwise, are convertible into Voting Stock or exercisable to
acquire Voting Stock where the holder of the stock, convertible security or
right to acquire Voting Stock has the preponderant economic risk in the
underlying Voting Stock. Securities immediately convertible into Voting Stock at
the option of the holder without payment of additional consideration shall be
deemed to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be deemed to
vest the holder with the preponderant economic risk in the underlying Voting
Stock if the holder has paid less than 50% of the consideration required to
directly acquire the Voting Stock and has no other economic interest in the
underlying Voting Stock.
3. The Reorganization
A. Organization of the Holding Companies and the Bank
As part of the Reorganization, the Bank will convert to a New York
stock savings bank and will establish the Holding Company as a Delaware
corporation and the MHC as a New York corporation. The Reorganization will be
effected as follows, or in any manner approved by the Superintendent that is
consistent with the purposes of this Plan and applicable laws and regulations.
As follows:
(i) the Bank will organize an interim stock savings bank as a
wholly-owned subsidiary ("Interim One"); (ii) Interim One will organize
an interim stock savings bank as a wholly-owned subsidiary ("Interim
Two"); (iii) Interim One will organize the Holding Company as a
wholly-owned subsidiary; (iv) the Bank will exchange its charter for a
New York stock savings bank charter to
7
<PAGE>
become the Stock Bank and Interim One will exchange its charter for a
New York mutual holding company charter to become the MHC; (v)
simultaneously with step (iv), Interim Two will merge with and into the
Stock Bank with the Stock Bank as the resulting institution; (vi) all
of the initially issued stock of the Stock Bank will be transferred to
the MHC in exchange for membership interests in the MHC; and (vii) the
MHC will contribute the capital stock of the Bank to the Holding
Company, and the Stock Bank will become a wholly-owned subsidiary of
the Holding Company.
Upon completion of the Reorganization and Stock Offering, the MHC, the
Holding Company and the Stock Bank will be structured as follows:
<TABLE>
<CAPTION>
The MHC Public
Stockholders
<S> <C>
At least Up to
51% of 49% of
the the
Common Common
Stock Stock
The Holding Company
100% of the
Common Stock
The Stock Bank
</TABLE>
- -------------
Contemporaneously with the Reorganization, the Holding Company will
offer for sale in the Stock Offering shares of Common Stock representing up to
49% of the pro forma market value of the Holding Company and the Bank. Upon
consummation of the Reorganization, the legal existence of the Bank will not
terminate, but the Stock Bank will be a continuation of the Bank, and all
property of the Bank, including its right, title, and interest in and to all
property of whatsoever kind and nature, will inure to the Stock Bank immediately
by operation of law and without the necessity of any conveyance or transfer and
without any further act or deed. The Stock Bank will have, hold, and enjoy the
same in its right and fully and to the same extent as the same was possessed,
held, and enjoyed by the Bank. The Stock Bank will continue to have, succeed to,
and be responsible for all the rights, liabilities and obligations of the Bank
and will maintain its headquarters and operations at the Bank's present
locations.
Upon consummation of the Reorganization, substantially all of the
assets and liabilities (including all savings accounts and demand deposit
accounts) of the Bank shall be become the assets and liabilities of the Stock
Bank, which will thereupon become an operating savings bank subsidiary of the
Holding Company and of the MHC. The Holding Company expects to receive or retain
(as the case may be) up to 50% of the net proceeds of the Stock Offering. The
Stock Bank may distribute additional capital to the Holding Company following
the Reorganization, subject to the applicable regulations governing capital
distributions.
8
<PAGE>
B. Effect on Deposit Accounts and Borrowings
Upon consummation of the Reorganization each deposit account in the
Bank on the Effective Date will become a deposit account in the Stock Bank in
the same amount and upon the same terms and conditions, and will continue to be
federally insured up to the legal maximum by the FDIC in the same manner, as the
deposit account existed in the Bank immediately prior to the Reorganization.
Upon consummation of the Reorganization, all loans and other borrowings from the
Bank shall retain the same status with the Stock Bank after the Reorganization
as they had with the Bank immediately prior to the Reorganization.
C. The Bank
Upon completion of the Reorganization the Stock Bank will be authorized
to exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under New York law. A
copy of the proposed Restated Organization Certificate and Bylaws of the Stock
Bank is attached as Exhibit A and is made a part of this Plan. The
Reorganization will not result in any reduction of the amount of retained
earnings (other than the assets of the Bank retained by or distributed to the
Holding Company or the MHC), undivided profits, and general loss reserves that
the Bank had prior to the Reorganization. Such retained earnings and general
loss reserves will be accounted for by the MHC, the Holding Company and the
Stock Bank on a consolidated basis in accordance with generally accepted
accounting principles.
The initial members of the Board of Directors of the Stock Bank will be
the members of the existing Board of Trustees of the Bank. The Stock Bank will
be wholly-owned by the Holding Company. The Holding Company will be wholly-owned
by its stockholders who will consist of the MHC and the persons who purchase
Common Stock in the Stock Offering and any subsequent Minority Stock Offering.
Upon the Effective Date of the Reorganization, any liquidation rights of
depositors under New York law will be transferred to the MHC and/or the Stock
Bank and the Holding Company, subject to the conditions specified below.
D. The Holding Company
The Holding Company will be a Delaware corporation and will be
authorized to exercise any and all powers, rights and privileges, and will be
subject to all limitations applicable to bank holding companies and savings bank
holding companies under applicable federal and New York laws and regulations.
The initial members of the Board of Directors of the Holding Company will be the
members of the existing Board of Trustees of the Bank. Thereafter, the voting
stockholders of the Holding Company will elect annually approximately one-third
of the Holding Company's directors. A copy of the Certificate of Incorporation
and Bylaws of the Holding Company is attached as Exhibit B and is made part of
this Plan.
The Holding Company will have the power to issue shares of Capital
Stock to persons other than the MHC. However, so long as the MHC is in
existence, the MHC will be required to own at least 51% of the Voting Stock of
the Holding Company. The Holding Company may issue any amount of Non-Voting
Stock to persons other than the MHC. The Holding Company will be authorized to
undertake one or more Minority Stock Offerings of up to 49% in the aggregate of
the total outstanding Common
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Stock of the Holding Company, and the Holding Company intends to offer for sale
up to 49% of its Common Stock in the Stock Offering.
E. The Mutual Holding Company
As a mutual corporation, the MHC will have no stockholders. The
trustees of the MHC will have exclusive voting authority as to all matters
relating to the MHC other than any conversion of the MHC to stock form. Any
liquidation rights of depositors that existed under New York law prior to the
Reorganization shall continue in the MHC following the Reorganization. The
rights and powers of the MHC will be defined by the MHC's Organization
Certificate and Bylaws (a copy of which is attached as Exhibit C and made a part
of this Plan) and by applicable statutory and regulatory provisions of Federal
and New York law. The MHC will be regulated by the FRB as a bank holding
company. In the future, the MHC may elect to be regulated by the Office of
Thrift Supervision as a savings and loan holding company, in which case it would
be subject to the limitations and restrictions imposed on savings and loan
holding companies by Section 10(o)(5) of the Home Owners' Loan Act.
The New York Banking Law requires that the Board of Directors of a
subsidiary savings bank of a mutual holding company include at least one
director who is not an officer, employee or director of the mutual holding
company or an officer or employee of the stock subsidiary bank, who will
represent the interests of minority stockholders of the subsidiary stock bank.
Accordingly, the initial members of the Board of Trustees of the MHC will
consist of all but one member of the existing Board of Trustees of the Bank.
Thereafter, approximately one-third of the trustees of the MHC will be elected
annually by the members of the Board of Trustees of the MHC.
4. Conditions to Implementation of the Reorganization
Consummation of the Reorganization is conditioned upon the following:
A. Approval of the Plan by a majority of the Board of Trustees of
the Bank.
B. Approval of the Plan by the affirmative vote of at least (i) a
majority of the total eligible votes of the Voting Depositors,
and (ii) 75% of the aggregate dollar amount of deposits of
Voting Depositors represented at the Special Meeting either in
person or by valid proxy and entitled to vote at the Special
Meeting.
C. Approval by the Superintendent of the Plan, the Restated
Organization Certificate and Bylaws of the Stock Bank and the
MHC, and the Banking Board's approval of the Organization
Certificate of the MHC, and all other transactions
contemplated by the Plan for which approval is required by the
Superintendent and the Banking Board.
D. Submission of the Notice to the FDIC, and the Bank either (i)
receives a notice of intent not to object from the FDIC, or
(ii) 60 days (subject to extension for an additional 60 days)
have passed following the acceptance of a complete Notice by
the FDIC.
E. Approval by the FRB pursuant to the BHCA for the MHC and the
Holding Company to become bank holding companies by owning or
acquiring, directly or indirectly, the
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majority of the Stock Bank's common stock to be issued in
connection with the Reorganization.
F. Approval by the FDIC pursuant to the BMA of any merger or
transfer of assets and liabilities involving the Bank or an
interim savings bank in connection with the Reorganization.
G. Receipt by the Bank of either a private letter ruling from the
Internal Revenue Service or an opinion of the Bank's counsel
as to the federal income tax consequences of the
Reorganization to the MHC, the Holding Company and the Bank.
H. Receipt by the Bank of either a private letter ruling of the
New York State Department of Revenue or an opinion of counsel
or of the Bank's independent public accountants as to the New
York income tax consequences of the Reorganization to the MHC,
the Holding Company and the Bank.
5. Special Meeting and Vote Required to Approve the Plan
Subsequent to the approval of the Plan by the Superintendent, the
Special Meeting shall be scheduled in accordance with the Bank's Bylaws.
Promptly after receipt of approval and at least 20 days but not more than 45
days prior to the Special Meeting, the Bank shall distribute proxy solicitation
materials to all Voting Depositors. The proxy solicitation materials shall
include a proxy card and proxy statement and other documents authorized for use
by the regulatory authorities. A copy of the Plan will be made available to all
Voting Depositors upon request. Pursuant to the Regulations, an affirmative vote
of at least (i) a majority of the total eligible votes of Voting Depositors, and
(ii) 75% of the aggregate dollar amount of deposits of the Voting Depositors
represented at the Special Meeting either in person or by valid proxy and
entitled to vote thereat shall be required for approval of the Plan. The Board
of Trustees shall appoint an independent custodian and tabulator to receive and
hold the proxy cards and to count the votes cast in favor of and in opposition
to the Plan. Within five days after the Special Meeting, the President and
Secretary of the Bank will certify to the Superintendent the result of the vote
taken at the Special Meeting. Each Voting Depositor shall be entitled to cast
one vote for each $100 or fraction thereof of deposits in the Bank on the Voting
Record Date. No Voting Depositor may cast more than 1,000 votes at the Special
Meeting.
6. Charters and Bylaws
Copies of the proposed Restated Organization Certificate and Bylaws of
the Stock Bank, the proposed Certificate of Incorporation and Bylaws of the
Holding Company and the proposed Charter and Bylaws of the MHC are attached
hereto as Exhibits A, B and C, respectively, and are made a part of this Plan.
By their approval of this Plan, the Voting Depositors shall have approved and
adopted the Charter and Bylaws of the Bank, the Holding Company and the MHC.
The total shares of Common Stock authorized under the Holding Company
Charter will exceed the shares of Common Stock to be issued to the MHC and the
minority stockholders in the Reorganization. In addition, the Certificate of
Incorporation of the Holding Company will include provisions that: (i) eliminate
cumulative voting for the election of directors; (ii) prohibit any person or
group acting in concert
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(other than the MHC) from voting shares in excess of 10% of the Common Stock of
the Holding Company; and (iii) prohibit persons other than the Board of
Directors of the Stock Bank or committees of the Board of Directors of the Stock
Bank from calling special meetings of the stockholders of the Stock Bank.
7. Liquidation and Voting Rights
Following the Reorganization, each Eligible Account Holder and each
Supplemental Eligible Account Holder will have an interest in the Liquidation
Account established pursuant to this Plan so long as such person remains a
depositor of the Stock Bank after the Reorganization. In addition, following the
Reorganization, all depositors who had liquidation rights with respect to the
Bank as of the date of the Reorganization will continue to have such rights
solely with respect to the MHC for so long as they remain depositors of the
Stock Bank. In addition, all persons who become depositors of the Stock Bank
subsequent to the Reorganization also will have liquidation rights with respect
to the MHC. In each case, no person who ceases to be the holder of a Deposit
Account with the Bank after the Reorganization shall have any liquidation rights
with respect to the MHC.
8. Conversion of MHC to a Federal MHC
Upon completion of the Reorganization, the MHC will be chartered under
New York law. The MHC, however, may elect to convert its charter to a federal
mutual holding company charter in the future, in which case the MHC would be
regulated by the Office of Thrift Supervision ("OTS") or any successor thereto.
Such a charter conversion would be subject to the approval of the Board of
Trustees of the MHC, the OTS and applicable regulatory authority.
9. Conversion of MHC to Stock Form
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will occur, and the Board of Trustees has no intent or plan to undertake a
Conversion Transaction. If the Conversion Transaction does not occur, the MHC
will always own a majority of the Common Stock of the Holding Company.
In a Conversion Transaction, the MHC would merge with and into the
Stock Bank or the Holding Company (at the discretion of the MHC), and certain
depositors of the Stock Bank would receive the right to subscribe for a number
of shares of common stock of the Holding Company, as determined by the formula
set forth in the following paragraphs. The additional shares of Common stock of
the Holding Company issued in the Conversion Transaction would be sold at their
aggregate pro forma market value.
Any Conversion Transaction shall be fair and equitable to Minority
Stockholders. In any Conversion Transaction, Minority Stockholders, if any, will
be entitled to maintain the same percentage ownership interest in the Holding
Company after the Conversion Transaction as their percentage ownership interest
in the Holding Company immediately prior to the Conversion Transaction (i.e.,
the Minority Ownership Interest), subject only to the following adjustments (if
required by federal or state law, regulation, or regulatory policy) to reflect:
(i) the cumulative effect of the aggregate amount of dividends waived by the
MHC; and (ii) the market value of assets of the MHC (other than common stock of
the Holding Company).
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The adjustment referred to in clause (i) of the preceding paragraph
above would require that the Minority Ownership Interest (expressed as a
percentage) be adjusted by multiplying the Minority Ownership Interest by the
following fraction:
(Holding Company stockholders' equity immediately preceding the Conversion
Transaction) - (aggregate amount of dividends waived by MHC) Holding Company
stockholders' equity immediately preceding the Conversion Transaction
The Minority Ownership Interest (expressed as a percentage) shall also
be adjusted to reflect any assets of the MHC other than the Common Stock of the
Holding Company by multiplying the result obtained in the preceding paragraph by
the following fraction:
(pro forma market value of Holding Company) - (market value of assets of MHC
other than Holding Company common stock) pro forma market value of Holding
Company
At the sole discretion of the Board of Trustees of the MHC and the
Board of Directors of the Holding Company, a Conversion Transaction may be
effected in any other manner necessary to qualify the Conversion Transaction as
a tax-free reorganization under applicable federal and state tax laws, provided
such Conversion Transaction does not diminish the rights and ownership interest
of Minority Stockholders as set forth in the preceding paragraphs. If a
Conversion Transaction does not occur, the MHC will always own a majority of the
Voting Stock of the Holding Company.
A Conversion Transaction would require the approval of applicable
federal and state bank regulators, and would be presented to a vote of the
depositors of the Stock Bank and the stockholders of the Holding Company as of a
voting record date prior to the completion of the Conversion Transaction.
Federal and state regulatory policy requires that in any Conversion Transaction
the depositors of the MHC will be accorded the same stock purchase priorities as
if the MHC were a mutual savings bank converting to stock form.
10. Timing of the Reorganization and Sale of Capital Stock
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan.
Subject to the approval of the FDIC, the FRB and the Superintendent, the Holding
Company intends to commence the Stock Offering concurrently with the proxy
solicitation of Voting Depositors. Subject to regulatory approval, the Holding
Company may close the Stock Offering before the Special Meeting, provided that
the offer and sale of the Common Stock shall be conditioned upon approval of the
Plan by the Voting Depositors at the Special Meeting. The Bank's proxy
solicitation materials may permit certain Voting Depositors to return to the
Bank by a reasonable date certain a postage paid card or other written
communication requesting receipt of the prospectus if the prospectus is not
mailed concurrently with the proxy solicitation materials. The Stock Offering
shall be conducted in compliance with the securities offering regulations of the
FDIC, the SEC and the Banking Board. The Bank will not finance or loan funds to
any person to purchase Common Stock.
11. Number of Shares to be Offered
A. The total number of shares (or range thereof) of Common Stock to be
issued and offered for sale pursuant to the Plan shall be determined initially
by the Board of Trustees of the Bank and the Board of Directors of the Holding
Company in conjunction with the determination of the Independent
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Appraiser. The number of shares to be offered may be adjusted prior to
completion of the Stock Offering. The total number of shares of Common Stock
that may be issued to persons other than the MHC at the close of the Stock
Offering must be no greater than 49.0% of the issued and outstanding shares of
Common Stock of the Holding Company.
B. For a period of 30 days following the completion of the
Reorganization, the Boards of Directors of the Holding Company and the MHC, in
their sole discretion, may determine to issue or allocate shares of Common Stock
("Contingent Shares") (a) to subscribers to fill orders resulting from (i) any
allocation oversights in the event of an oversubscription, (ii) lost or damaged
stock order forms which the Company's Board determines should have been filled
in the Offering, or (iii) orders initially rejected but later found to be
legitimate, or (b) in the event of an issuance described in (a), to the MHC in
order to maintain a Minority Ownership Interest at a percentage desired by the
Boards of Directors of the MHC and the Holding Company. Contingent Shares may be
authorized but unissued shares or shares issued to the MHC in the
Reorganization, and shall include no more than a number of shares equal to 2% of
the shares issued in the Offering. Contingent Shares will not be included in the
total number of shares for purposes of determining any individual or maximum
purchase limitation or the number of shares of stock to be purchased by
Tax-Qualified Employee Plans. In the event of an oversubscription in the
Offering, Contingent Shares will be allocated to a subscriber based upon the
allocation of shares to persons who had the same or similar deposit account
balance as that subscriber.
12. Independent Valuation and Purchase Price of Shares
The total number of shares (and a range thereof) (the "Offering Range")
of Common Stock to be issued and offered for sale in the Stock Offering will be
determined jointly by the Board of Trustees of the Bank and the Board of
Directors of the Holding Company immediately prior to the commencement of the
Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the FDIC
and the Superintendent, if necessary. In particular, the total number of shares
may be increased by up to 15% of the number of shares offered in the
Subscription and Community Offerings if the Estimated Valuation Range is
increased subsequent to the commencement of the Subscription and Community
Offerings to reflect changes in market and financial conditions.
All shares sold in the Stock Offering will be sold at a uniform price
per share referred to in this Plan as the Actual Subscription Price. The
aggregate purchase price for all shares of Common Stock will not be inconsistent
with the estimated consolidated pro forma market value of the Holding Company
and the Bank. The estimated consolidated pro forma market value of the Holding
Company and the Bank will be determined for such purpose by the Independent
Appraiser. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Valuation Range will be established, which range will
vary within 15% above to 15% below the midpoint of such range. The shares of
Common Stock being sold in the Stock Offering will represent a minority
ownership interest in the outstanding Common Stock of the Holding Company equal
to up to 49% of the estimated pro forma market value of the Common Stock based
upon the Independent Valuation. The percentage of Common Stock offered for sale
in the Stock Offering and the Offering Range shall be determined by the Board of
Directors of the Holding Company and the Board of Trustees of the Bank prior to
commencement of the Subscription and Community Offerings, and will be confirmed
upon completion of the Stock Offering based on the final or updated Independent
Valuation submitted by the Independent Appraiser.
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The number of shares of Common Stock to be issued in the Stock Offering
and the purchase price per share may be increased or decreased by the Holding
Company. In the event that the aggregate purchase price of the Common Stock is
below the minimum of the Estimated Valuation Range, or materially above the
maximum of the Estimated Valuation Range, resolicitation of purchasers may be
required, provided that up to a 15% increase above the maximum of the Estimated
Valuation Range will not be deemed material so as to require a resolicitation.
Any such resolicitation shall be effected in such manner and within such time as
the Bank shall establish, with the approval of the FDIC and the Superintendent,
if required. Based upon the Independent Valuation as updated prior to the
commencement of the Subscription and Community Offerings, the Board of Directors
of the Holding Company will fix the Actual Subscription Price. If there is a
Syndicated Community Offering of shares of Common Stock not subscribed for in
the Subscription and Community Offerings, the price per share at which the
Common Stock is sold in such Syndicated Community Offering shall be equal to the
Actual Subscription Price.
Notwithstanding the foregoing, no sale of Common Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the Holding Company, the Bank and to the FDIC and the Department
that, to the best knowledge of the Independent Appraiser, nothing of a material
nature has occurred which, taking into account all relevant factors, would cause
the Independent Appraiser to conclude that the aggregate value of the Common
Stock at the purchase price per share is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company and the
Bank. An increase in the aggregate value of the Common Stock by up to 15% would
not be deemed to be material. If such confirmation is not received, the Holding
Company may cancel the Stock Offering, extend the Stock Offering and establish a
new Actual Subscription Price and/or Estimated Valuation Range, extend, reopen
or hold a new Stock Offering or take such other action as the FDIC and the
Department may permit. The estimated market value of the Holding Company and the
Bank shall be determined for such purpose by an Independent Appraiser on the
basis of such appropriate factors as are not inconsistent with FDIC and
Department regulations. The Common Stock to be issued in the Stock Offering
shall be fully paid and nonassessable.
13. Method of Offering Shares and Rights to Purchase Stock
In descending order of priority, the opportunity to purchase Common
Stock shall be given in the Subscription Offering to: (1) Eligible Account
Holders; (2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account
Holders; and (4) employees, officers, and trustees. Any shares of Common Stock
that are not subscribed for in the Subscription Offering may be offered for sale
in a Community Offering and/or Syndicated Community Offering. The minimum
purchase by any person shall be 25 shares. The Bank may use its discretion in
determining whether prospective purchasers are "residents," "associates," or
"acting in concert", and in interpreting any and all other provisions of the
Plan. All such determinations are in the sole discretion of the Bank, and may be
based on whatever evidence the Bank chooses to use in making any such
determination.
In addition to the priorities set forth below, the Board of Directors
may establish other priorities for the purchase of Common Stock, subject to the
approval of the Banking Board and the FDIC, and may change the order of
priorities set forth below if required by the FDIC or the Department. The
priorities for the purchase of shares in the Stock Offering are as follows:
A. Subscription Offering
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Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall receive non- transferrable subscription rights to subscribe for shares of
Common Stock offered in the Stock Offering in an amount equal to the greater of
$100,000, or one-tenth of one percent (.10%) of the total shares offered in the
Stock Offering. If there are insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will be allocated to Eligible
Account Holders so as to permit each such subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the same proportion that
each such subscriber's Qualifying Deposit bears to the total amount of
Qualifying Deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled; provided that the Bank may, in its sole
discretion, and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5% of
the maximum number of shares offered in the Stock Offering, subject to the
overall purchase limitations set forth in the Section 14. Subscription rights to
purchase Common Stock received by Officers and trustees of the Bank including
associates of Officers and trustees, based on their increased deposits in the
Bank in the one year preceding the Eligibility Record Date, shall be
subordinated to the subscription rights of other Eligible Account Holders. To
ensure proper allocation of stock, each Eligible Account Holder must list on his
or her subscription order form all Deposit Accounts in which he had an ownership
interest as of the Eligibility Record Date.
Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Stock Offering. In the event of an
oversubscription in the Stock Offering, subscriptions for shares by the
Tax-Qualified Employee Plans may be satisfied, in whole or in part, out of
authorized but unissued shares of the Holding Company (subject to FDIC approval)
subject to the maximum purchase limitations applicable to such plans and set
forth in Section 13, or may be satisfied, in whole or in part, through open
market purchases by the Tax-Qualified Employee Plans subsequent to the closing
of the Stock Offering. If the final valuation exceeds the maximum of the
Offering Range, up to 10% of Common Stock issued in the Stock Offering may be
sold to the Tax Qualified Employee Plans notwithstanding any oversubscription by
Eligible Account Holders, subject to FDIC approval.
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall receive non-transferable subscription rights to subscribe
for shares of Common Stock offered in the Stock Offering in an amount equal to
the greater of $100,000, or one-tenth of one percent (.10%) of the total shares
offered in the Stock Offering. In the event Supplemental Eligible Account
Holders subscribe for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders and the Tax-Qualified Employee Plans,
exceed available shares, the shares of Common Stock will be allocated among
subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated to each subscribing Supplemental Eligible Account Holder whose
subscription remains unfilled in the same proportion that such subscriber's
Qualifying Deposits on the Supplemental Eligibility Record Date bear to the
total amount of Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled;
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provided that the Bank may, in its sole discretion, and without further notice
to or solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to 5% of the maximum number of shares offered in the
Stock Offering, subject to the overall purchase limitations set forth in Section
14.
Priority 4: Employees, Officers and Trustees. To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans and Supplemental Eligible
Account Holders, each employee, officer and trustee of the Bank shall have the
opportunity to purchase up to $100,000 of the Common Stock offered in the Stock
Offering; provided that the Bank may, in its sole discretion, and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to 5% of the maximum
number of shares offered in the Stock Offering, subject to the overall purchase
limitations set forth in Section 14. In the event that trustees, officers and
employees subscribe for a number of shares, which, when added to the shares
subscribed for by Eligible Account Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders is in excess of the total shares offered
in the Stock Offering, the subscriptions of such persons will be allocated among
trustees, officers and employees on a pro rata basis based on the size of each
person's orders.
B. Community Offering/Public Offering
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Community Offering. This will involve an
offering of all unsubscribed shares directly to the general public with a
preference given to those natural persons who are residents of the Community.
The Community Offering, if any, shall be for a period of not more than 45 days
unless extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription Offering. The
Holding Company and the Bank may use an investment banking firm or firms on a
best efforts basis to sell the unsubscribed shares in the Subscription and
Community Offering. The Holding Company and the Bank may pay a commission or
other fee to such investment banking firm or firms as to the shares sold by such
firm or firms in the Subscription and Community Offering and may also reimburse
such firm or firms for expenses incurred in connection with the sale. The
Community Offering may include a Syndicated Community Offering managed by such
investment banking firm or firms. The Common Stock will be offered and sold in
the Community Offering, in accordance with FDIC and Banking Board regulations,
so as to achieve the widest distribution of the Common Stock. No person,
individually, or with an Associate or group of persons acting in concert, may
subscribe for or purchase more than $100,000 of Common Stock offered in the
Community Offering. Further, the Holding Company may limit total subscriptions
under this Section 13(B) so as to assure that the number of shares available for
the public offering may be up to a specified percentage of the number of shares
of Common Stock. Finally, the Holding Company may reserve shares offered in the
Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community
Offering, shares may be allocated (to the extent shares remain available) first
to cover any reservation of shares for a public offering or institutional
orders, next to cover orders of natural persons who are residents of the
Community, then to cover the orders of any other person subscribing for shares
in the Community Offering so that each such person may receive 1,000 shares, and
thereafter, on a pro rata basis to such persons based on the amount of their
respective subscriptions.
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The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person under this Section
13(B).
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, shall then be sold to the underwriters for
resale to the general public in a Syndicated Community Offering. It is expected
that the Syndicated Community Offering will commence as soon as practicable
after termination of the Subscription Offering and the Community Offering, if
any. The Syndicated Community Offering shall be completed within 45 days after
the termination of the Subscription Offering, unless such period is extended as
provided herein. The Syndicated Community Offering price and the underwriting
discount shall be determined by an underwriting agreement between the Holding
Company, the Bank and the underwriters. Such underwriting agreement shall be
filed with the FDIC, the Department and the SEC.
If for any reason a Syndicated Community Offering of unsubscribed
shares of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the Board of Directors
of the Holding Company and the Board of Trustees of the Bank will seek to make
other arrangements for the sale of the remaining shares. Such other arrangements
will be subject to the approval of the Superintendent and the FDIC and to
compliance with applicable securities laws.
Depending upon market and financial conditions, the Board of Directors
of the Holding Company and the Board of Trustees of the Bank, with the approval
of the Department and FDIC, may increase or decrease any of the purchase
limitations set forth in this Section 13.
14. Additional Limitations on Purchases of Common Stock
Purchases of Common Stock in the Stock Offering will be subject to the
following additional purchase limitations:
A. The aggregate amount of outstanding Common Stock of the
Holding Company owned or controlled by persons other than MHC
at the close of the Stock Offering shall not exceed 49% of the
Holding Company's total outstanding Common Stock.
B. No person, Associate thereof, or group of persons acting in
concert, may purchase more than $200,000 of Common Stock in
the Stock Offering, except that: (i) the Holding Company
may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers,
increase such maximum purchase limitation up to 5% of the
number of shares offered in the Stock Offering; (ii)
Tax-Qualified Employee Plans may purchase up to 10% of the
shares offered in the Stock Offering; and (iii) for purposes
of this subsection 14(B) shares to be held by any
Tax-Qualified Employee Plan and attributable to a person
shall not be aggregated with other shares purchased directly
by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock
Offering by all Management Persons and their Associates,
exclusive of any stock acquired by such persons in the
secondary market, shall not exceed 32% of the outstanding
shares of
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Common Stock of the Holding Company held by persons other than
the MHC at the close of the Stock Offering. In calculating the
number of shares held by Management Persons and their
Associates under this paragraph or under the provisions of
paragraph D of this section, shares held by any Tax-Qualified
Employee Benefit Plans of the Bank that are attributable to
such persons shall not be counted.
D. Notwithstanding any other provision of this Plan, no person
shall be entitled to purchase any Common Stock to the extent
such purchase would be illegal under any federal law or state
law or regulation or would violate regulations or policies of
the National Association of Securities Dealers, Inc.,
particularly those regarding free riding and withholding. The
Holding Company and/or its agents may ask for an acceptable
legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such
opinion is not timely furnished.
E. The Board of Directors of the Holding Company has the right in
its sole discretion to reject any order submitted by a person
whose representations the Board of Directors believes to be
false or who it otherwise believes, either alone or acting in
concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of
this Plan.
F. The Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in
which persons entitled to subscribe for Common Stock pursuant
to the Plan reside. However, the Holding Company and the Bank
are not required to offer Common Stock to any person who
resides in a foreign country.
Prior to the consummation of the Stock Offering, no person shall offer
to transfer, or enter into any agreement or understanding to transfer the legal
or beneficial ownership of any subscription rights or shares of Common Stock,
except pursuant to this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE
DEEMED TO CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE
LIMITATIONS IN THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE
ASSOCIATES OR A GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH
THE PURCHASE LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF
THIS PLAN SHALL BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION. SUCH
DETERMINATION SHALL BE CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE BANK
MAY TAKE ANY REMEDIAL ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE
PURCHASE OR REFERRING THE MATTER TO THE DEPARTMENT FOR ACTION, AS IN ITS SOLE
DISCRETION THE BANK MAY DEEM APPROPRIATE.
15. Payment for Stock
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; provided, that if the
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Employee Plans subscribe for shares during the Subscription Offering, such plans
will not be required to pay for the shares at the time they subscribe but rather
may pay for such shares of Common Stock subscribed for by such plans at the
Actual Subscription Price upon consummation of the Stock Offering. The Holding
Company or the Bank may make scheduled discretionary contributions to an
Employee Plan provided such contributions from the Bank, if any, do not cause
the Bank to fail to meet its regulatory capital requirement.
Payment for Common Stock shall be made either by check or money order,
or if a purchaser has a Deposit Account in the Bank, such purchaser may pay for
the shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook, money market or certificate account at the Bank in an
amount equal to the purchase price of such shares. Such authorized withdrawal,
whether from a savings passbook or certificate account, shall be without penalty
as to premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the purchaser's
Deposit Account but may not be used by the purchaser until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
Commissioner) following the Stock Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the purchase price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Bank at a rate, not less than the Bank's passbook rate, established by the Bank
on payment for Common Stock received by check or money order. Such interest will
be paid from the date payment is received by the Bank until consummation or
termination of the Stock Offering. If for any reason the Stock Offering is not
consummated, all payments made by subscribers in the Stock Offering will be
refunded to them with interest. In case of amounts authorized for withdrawal
from Deposit Accounts, refunds will be made by canceling the authorization for
withdrawal.
16. Manner of Exercising Subscription Rights Through Order Forms
As soon as practicable after the prospectus prepared by the Holding
Company and the Bank has been declared effective by the Department and the SEC,
copies of the prospectus and order forms will be distributed to all Eligible
Account Holders and Supplemental Eligible Account Holders at their last known
addresses appearing on the records of the Bank for the purpose of subscribing
for shares of Common Stock in the Subscription Offering and will be made
available for use by those persons entitled to purchase in the Direct Community
Offering.
Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Community Offerings. Each order form will contain, among other things, the
following:
A. A specified date by which all order forms must be received by
the Bank, which date shall be not less than 20, nor more than
45 days, following the date on which the order forms are
mailed by the Bank, and which date will constitute the
termination of the Subscription Offering;
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B. The purchase price per share for shares of Common Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of
Common Stock that may be subscribed for pursuant to the
exercise of subscription rights or otherwise purchased in the
Community Offering;
D. Instructions as to how the recipient of the order form is to
indicate thereon the number of shares of Common Stock for
which such person elects to subscribe and the available
alternative methods of payment therefor;
E. An acknowledgment that the recipient of the order form has
received a final copy of the prospectus prior to execution of
the order form;
F. A statement indicating the consequences of failing to
properly complete and return the order form, including a
statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription
Offering, and can only be exercised by delivering to the
Bank within the subscription period such properly completed
and executed order form, together with cash (if delivered in
person), check or money order in the full amount of the
purchase price as specified in the order form for the shares
of Common Stock for which the recipient elects to subscribe
in the Subscription Offering (or by authorizing on the order
form that the Bank withdraw said amount from the
subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed order form, once
received by the Bank, may not be modified or amended by the
subscriber without the consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
17. Undelivered, Defective or Late Order Form; Insufficient Payment
In the event order forms (a) are not delivered and are returned to the
Bank by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the person to whom such
rights have been granted will lapse as though such person failed to return the
order form within the time period specified thereon; provided, that the Bank
may, but will not be required to, waive any immaterial irregularity on any order
form or require the submission of corrected order forms or the remittance of
full payment for subscribed shares by such date as the Bank may specify. The
interpretation by the Bank of terms and conditions of this Plan and of the order
forms will be final, subject to the authority of the Department and the FDIC.
18. Completion of the Stock Offering
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The Stock Offering will be terminated if not completed within 90 days
from the date of approval by the Superintendent, unless an extension is approved
by the Superintendent.
19. Market for Common Stock
If at the close of the Stock Offering the Holding Company has more than
100 shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain
a market for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
20. Stock Purchases by Management Persons After the Stock Offering
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase or acquire direct or
indirect beneficial ownership, without the prior written approval of the
Superintendent, and, if applicable, the FDIC, any Common Stock of the Holding
Company, except from a broker-dealer registered with the SEC. The foregoing
shall not apply to purchases of stock made by and held by any Tax-Qualified or
Non-Tax Qualified Employee Plan of the Stock Bank or the Holding Company even if
such stock is attributable to Management Persons or their Associates.
21. Resales of Stock by Management Persons
Common Stock purchased by Management Persons and their Associates in
the Stock Offering may not be resold for a period of at least one year following
the date of purchase, except in the case of death of the Management Person or
Associate.
22. Stock Certificates
Each stock certificate shall bear a legend giving appropriate notice of
the restrictions set forth in Sections 20 and 21 above. Appropriate instructions
shall be issued to the Holding Company's transfer agent with respect to
applicable restrictions on transfers of such stock. Any shares of stock issued
as a stock dividend, stock split or otherwise with respect to such restricted
stock, shall be subject to the same restrictions as apply to the restricted
stock.
23. Restriction on Financing Stock Purchases
The Holding Company will not knowingly offer or sell any of the Common
Stock proposed to be issued to any person whose purchase would be financed by
funds loaned to the person by the Holding Company, the Bank or any of their
Affiliates.
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24. Stock Benefit Plans
The Board of Directors of the Stock Bank and/or the Holding Company
intend to adopt for the benefit of employees, officers and directors of the
Stock Bank, one or more stock benefit plans, including an ESOP, stock award
plans and stock option plans, which will be authorized to purchase Common Stock
and grant options for Common Stock. However, only the Tax-Qualified Employee
Plans will be permitted to purchase Common Stock in the Stock Offering on a
priority basis as set forth in this Plan. Subject to the approval of the
Superintendent and the FDIC, the Board of Directors of the Bank intends to
establish the ESOP and authorize the ESOP and any other Tax-Qualified Employee
Plans to purchase in the aggregate up to 10% of the Common Stock issued in the
Stock Offering. The Stock Bank or the Holding Company may make scheduled
discretionary contributions to one or more Tax-Qualified Employee Plans to
purchase Common Stock issued in the Stock Offering or to purchase issued and
outstanding shares of Common Stock or authorized but unissued shares of Common
Stock subsequent to the completion of the Stock Offering, provided such
contributions do not cause the Stock Bank to fail to meet any of its regulatory
capital requirements. This Plan shall specifically authorize the grant and
issuance by the Holding Company of (i) awards of Common Stock after the Stock
Offering pursuant to one or more stock recognition and award plans (the
"Recognition Plans") in an amount equal to up to 4% of the number of shares of
Common Stock issued in the Stock Offering (and in an amount equal to up to 5% of
the number of shares of Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock Offering), (ii) options to purchase a number of shares of Common Stock in
an amount equal to up to 10% of the number of shares of Common Stock issued in
the Stock Offering and shares of Common Stock issuable upon exercise of such
options, and (iii) Common Stock to one or more Tax Qualified Employee Plans,
including the ESOP, at the closing of the Stock Offering or at any time
thereafter, in an amount equal to up to 10% of the number of shares of Common
Stock issued in the Stock Offering. Shares awarded to the Tax Qualified Employee
Plans or pursuant to the Recognition Plans, and shares issued upon exercise of
options may be authorized but unissued shares of the Holding Company's Common
Stock, or shares of Common Stock purchased by the Holding Company or such plans
in the open market. Any Recognition Plan or stock option plan will be subject to
stockholder approval.
25. Post-Reorganization Filing and Market Making
It is likely that there will be a limited market for the Common Stock
sold in the Stock Offering, and purchasers must be prepared to hold the Common
Stock for an indefinite period of time. If the Holding Company has more than 35
stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
26. Liquidation Account
The Stock Bank or the Holding Company shall establish at the completion
of the Reorganization a Liquidation Account in an amount equal to the Bank's net
worth (determined in accordance with generally accepted accounting principles)
as set forth in the latest statement of financial condition contained in the
proxy statement used in connection with obtaining approval of the
Reorganization. The Liquidation Account will be maintained by the Stock Bank
and/or the Stock Holding Company for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain Deposit
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Accounts with the Stock Bank following the Reorganization. Each Eligible Account
Holder and Supplemental Eligible Account Holder shall, with respect to each
Deposit Account, hold a related inchoate interest in a portion of the
Liquidation Account balance, in relation to each Deposit Account balance at the
Eligibility Record Date or Supplemental Eligibility Record Date, as the case may
be, or to such balance as it may be subsequently reduced, as hereinafter
provided. The initial Liquidation Account balance shall not be increased, and
shall be subject to downward adjustment to the extent of any downward adjustment
of any subaccount balance of any Eligible Account Holder or Supplemental
Eligible Account Holder in accordance with Section 86.4(g)(5) of the
Regulations.
In the unlikely event of a complete liquidation of the Stock Bank and
the Holding Company (and only in such event), following all liquidation payments
to creditors (including those to depositors to the extent of their Deposit
Accounts) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidating distribution from the Liquidation
Account, in the amount of the then-adjusted subaccount balance for his Deposit
Account then held, before any liquidation distribution may be made to any
holders of the Stock Bank's capital stock. No Conversion Transaction and no
merger, consolidation, purchase of bulk assets with assumption of Deposit
Accounts and other liabilities, or similar transactions with an FDIC-insured
institution, in which the Stock Bank or the Holding Company is not the surviving
institution, shall be deemed to be a complete liquidation for this purpose. In
such transactions, the Liquidation Account shall be assumed by the surviving
institution.
The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the Liquidation Account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
or Supplemental Eligible Account Holder's Qualifying Deposit and the denominator
of which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the Stock Bank. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below.
If, at the close of business on the last day of any period for which
the Stock Bank or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the effective date of the Reorganization, the
deposit balance in the Deposit Account of an Eligible Account Holder or
Supplemental Eligible Account Holder is less than the lesser of (i) the balance
in the Deposit Account at the close of business on the last day of any period
for which the Stock Bank or the Holding Company, as the case may be, has
prepared audited financial statements subsequent to the Eligibility Record Date
or Supplemental Eligibility Record Date, or (ii) the amount in such Deposit
Account as of the Eligibility Record Date or Supplemental Eligibility Record
Date, the subaccount balance for such Deposit Account shall be adjusted by
reducing such subaccount balance in an amount proportionate to the reduction in
such deposit balance. In the event of such downward adjustment, the subaccount
balance shall not be subsequently increased, notwithstanding any subsequent
increase in the deposit balance of the related Deposit Account. If any such
Deposit Account is closed, the related subaccount shall be reduced to zero. For
purposes of this Section and Section 86.4(f)(5) of the Regulations, a time
account shall be deemed to be closed upon its maturity date regardless of any
renewal thereof. A distribution of each subaccount balance may be made only in
the event of a complete liquidation of the Stock Bank and the Holding Company
subsequent to the Reorganization and only out of funds available for such
purpose after payment of all creditors.
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Neither the Stock Bank nor the Holding Company shall be required to set
aside funds for the purpose of establishing the Liquidation Account, and the
creation and maintenance of the Liquidation Account shall not operate to
restrict the use or application of any of the net worth accounts of the Stock
Bank or the Stock Holding Company, except that neither the Stock Bank nor the
Holding Company shall declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause its net worth to be reduced
below the amount required for the Liquidation Account.
27. Employment and Other Severance Agreements
Following or contemporaneously with the Reorganization, the Stock Bank
and/or the Holding Company may enter into employment and/or severance
arrangements with one or more executive officers of the Stock Bank and/or the
Holding Company. It is anticipated that any employment contracts entered into by
the Stock Bank and/or the Holding Company will be for terms not exceeding three
years and that such contracts will provide for annual renewals of the term of
the contracts, subject to approval by the Board of Directors. The Stock Bank
and/or the Holding Company also may enter into severance arrangements with one
or more executive officers which provide for the payment of severance
compensation in the event of a change in control of the Stock Bank and/or the
Holding Company. The terms of such employment and severance arrangements have
not been determined as of this time, but will be described in any prospectus
circulated in connection with the Stock Offering and will be subject to and
comply with all regulations of the Banking Board.
28. Payment of Dividends and Repurchase of Stock
The Holding Company may not declare or pay a cash dividend on, or
repurchase any of, its Common Stock if the effect thereof would cause its
regulatory capital or the regulatory capital of the Bank to be reduced below the
amount required (i) to maintain the Liquidation Account or (ii) under FDIC rules
and regulations. Otherwise, the Holding Company may declare dividends or make
other capital distributions in accordance with applicable laws and regulations.
Subject to any applicable regulatory approvals the MHC may waive its right to
receive dividends declared by the Holding Company.
29. Establishment and Funding of Charitable Foundation
As part of the Reorganization, the Holding Company and the Bank may
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code (the "Charitable
Foundation"), and donate to the Charitable Foundation cash, securities, or
Common Stock in an amount up to 5% of the number of shares of Common Stock sold
in the Stock Offering. The Charitable Foundation would be formed in connection
with the Reorganization in order to complement the Bank's existing community
reinvestment activities and to share with the Bank's local community a part of
the Bank's financial success as a locally headquartered, community-oriented,
financial services institution. The Charitable Foundation would be dedicated to
the promotion of charitable purposes including community development,
not-for-profit community groups and other types of organizations or civic-minded
projects. It is expected that the Charitable Foundation would annually
distribute total grants to assist charitable organizations or to fund projects
within its local community of not less than 5% of the average fair value of
Charitable Foundation assets each year. In order to serve the purposes for which
it was formed and maintain its Section 501(c)(3) qualification, the Charitable
Foundation may sell, on an annual basis, a limited portion of any securities
contributed to it by the Holding Company.
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The board of directors of the Charitable Foundation would be comprised
of individuals who are officers or trustees of the Bank. The board of directors
of the Charitable Foundation would be responsible for establishing the policies
of the Charitable Foundation with respect to grants or donations, consistent
with the stated purposes of the Charitable Foundation, respectively. The
establishment and funding of the Charitable Foundation as part of the
Reorganization is subject to the approval of the Superintendent and, if
applicable, the FDIC. The decision to proceed with the formation of the
Charitable Foundation, including the amount of the grant to the Foundation,
shall be at the sole discretion of the Board of Trustees.
30. Interpretation
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the Bank
shall be final, subject to the authority of the Superintendent.
31. Reorganization and Stock Offering Expenses
The Regulations require that the expenses of any Stock Offering must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization and
the Stock Offering will be reasonable.
32. Amendment or Termination of the Plan
If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Bank's Board of Trustees as a result of
comments from regulatory authorities or otherwise, at any time prior to
submission of the Plan and proxy materials to the Voting Depositors. At any time
after submission of the Plan and proxy materials to the Voting Depositors, the
terms of the Plan that relate to the Reorganization may be amended by a majority
vote of the Board of Trustees only with the concurrence of the Superintendent,
and, if applicable, the FDIC. Terms of the Plan relating to the Stock Offering
including, without limitation, Sections 10 through 30, may be amended by a
majority vote of the Bank's Board of Trustees as a result of comments from
regulatory authorities or otherwise at any time prior to the approval of the
Plan by the Superintendent and at any time thereafter with the concurrence of
the Superintendent. The Plan may be terminated by a majority vote of the Board
of Trustees at any time prior to the earlier of approval of the Plan by the
Superintendent and the date of the Special Meeting, and may be terminated by a
majority vote of the Board of Trustees at any time thereafter with the
concurrence of the Superintendent. In its discretion, the Board of Trustees may
modify or terminate the Plan upon the order of the regulatory authorities
without a resolicitation of proxies or another meeting of the Voting Depositors;
however, any material amendment of the terms of the Plan that relate to the
Reorganization which occur after the Special Meeting shall require a
resolicitation of Voting Depositors.
The Plan shall be terminated if the Reorganization is not completed
within 24 months from the date upon which the Voting Depositors of the Bank
approve the Plan, and may not be extended by the Bank or the Superintendent.
Dated: July 1, 1998.
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
GREENE COUNTY BANCORP, INC.
Article 1. Corporate Title. The name of the Corporation is Greene
County Bancorp, Inc. (hereinafter referred to as the "Corporation").
Article 2. Registered Office. The address of the registered office of
the Corporation in the State of Delaware is Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, County of New Castle. The name of the
registered agent at that address is The Corporation Trust Company.
Article 3. Purpose The purpose of the Corporation is to engage in any
lawful act or activity for which a corporation may be organized under the
General Corporation Law of Delaware.
Article 4. Capital Stock.
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is four million (4,000,000) consisting
of four million (4,000,000) shares of Common Stock, par value one cent ($.10)
per share (the "Common Stock").
B. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 5% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit, except that such restriction and all
restrictions set forth in this subsection "B" shall not apply to Greene County
Bancorp, MHC (the "Mutual Holding Company"), or any tax qualified employee stock
benefit plan established by the Corporation, which shall be able to vote in
respect to shares held in excess of the Limit. The number of votes which may be
cast by any record owner by virtue of the provisions hereof in respect of Common
Stock beneficially owned by such person owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single record owner
of all Common Stock owned by such person would be entitled to cast, multiplied
by a fraction, the numerator of which is the number of shares of such class or
series which are both beneficially owned by such person and owned of record by
such record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit.
<PAGE>
2. The following definitions shall apply to this Section B of this
Article 4:
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on the date of
filing of this Certificate of Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934 (or any successor rule or
statutory provision), or, if said Rule 13d-3 shall be
rescinded and there shall be no successor rule or statutory
provision thereto, pursuant to said Rule 13d-3 as in effect on
the date of filing of this Certificate of Incorporation;
provided, however, that a person shall, in any event, also be
deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding (but shall
not be deemed to be the beneficial owner of any voting
shares solely by reason of an agreement, contract, or
other arrangement with this Corporation to effect any
transaction which is described in any one or more clauses
of Section A of Article 8) or upon the exercise of
conversion rights, exchange rights, warrants, or options
or otherwise, or (ii) sole or shared voting or investment
power with respect thereto pursuant to any agreement,
arrangement, understanding, relationship or otherwise (but
shall not be deemed to be the beneficial owner of any
voting shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant
to a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any
such affiliate is otherwise deemed the beneficial owner);
or
(3) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or
any of its affiliates acts as a partnership, limited
partnership, syndicate or other group pursuant to any
agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of
capital stock of this Corporation; and provided further,
however, that (1) no Director or Officer of this
Corporation (or any affiliate of any such Director or
Officer) shall, solely by reason of any or all of such
Directors or Officers acting in their capacities as such,
be deemed, for any purposes hereof, to beneficially own
any Common Stock beneficially owned by another such
Director or Officer (or any affiliate thereof), and (2)
neither any employee stock ownership plan or similar plan
of this Corporation or any
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subsidiary of this Corporation, nor any trustee with
respect thereto or any affiliate of such trustee (solely
by reason of such capacity of such trustee), shall be
deemed, for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For purposes of
computing the percentage beneficial ownership of Common
Stock of a person the outstanding Common Stock shall
include shares deemed owned by such person, through
application of this subsection but shall not include any
other Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon exercise of
conversion rights, warrants or options, or otherwise. For
all other purposes, the outstanding Common Stock shall
include only Common Stock then outstanding and shall not
include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or
otherwise.
(c) A "person" shall include an individual, firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or
similar company, a syndicate or any other group formed for
the purpose of acquiring, holding or disposing of
securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, (ii) any other factual
matter relating to the applicability or effect of this section as may reasonably
be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this section, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this section) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate of Incorporation to a
majority or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
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stockholder consent or approval shall be deemed to refer to such majority or
other proportion of the votes (or the holders thereof) then entitled to be cast
in respect of such capital stock, after giving effect to the provisions of this
section.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Corporation and its
stockholders.
7. In the event that any provision (or portion thereof) of this
section shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this section shall
remain in full force and effect, and shall be construed as if such invalid,
prohibited or unenforceable provision had been stricken herefrom or otherwise
rendered inapplicable, it being the intent of this Corporation and its
stockholders that such remaining provision (or portion thereof) of this section
remain, to the fullest extent permitted by law, applicable and enforceable as to
all stockholders, including stockholders owning an amount of stock over the
Limit, notwithstanding any such finding.
Article 5. Management of Corporation. The following provisions are
inserted for the management of the business and the conduct of the affairs of
the Corporation, and for further definition, limitation and regulation of the
powers of the Corporation and of its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by statute or by this Certificate of
Incorporation or the Bylaws of the Corporation, the Directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
stockholders of the Corporation and may be effected by the unanimous consent in
writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a majority of
the total number of Directors the Corporation would have if there were no
vacancies on the Board of Directors (the "Whole Board") or as otherwise provided
in the Bylaws.
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Article 6. Directors
A. The number of Directors shall be fixed from time to time exclusively
by the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. The Directors shall be divided into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter, and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter. At each
annual meeting of stockholders following such initial classification and
election, Directors elected to succeed those Directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election.
B. Newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires. No decrease
in the number of Directors constituting the Board of Directors shall shorten the
term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.
D. Any Director, or the entire Board of Directors, may be removed from
office at any time, but only for cause and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of Directors (after giving effect to the provisions of Article 4 of
this Certificate of Incorporation ("Article 4")), voting together as a single
class.
Article 7. Bylaws. The Board of Directors is expressly empowered to
adopt, amend or repeal the Bylaws of the Corporation. Any adoption, amendment or
repeal of the Bylaws of the Corporation by the Board of Directors shall require
the approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation; provided,
however, that, in addition to any vote of the holders of any class or series of
stock of the Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least 80% of the voting
power of all of the then-outstanding shares of the capital stock of the
Corporation entitled to vote generally in the election of Directors (after
giving effect to the provisions of Article 4), voting together as a single
class, shall be required to adopt, amend or repeal any provisions of the Bylaws
of the Corporation.
Article 8. Evaluation of Offers. The Board of Directors of the
Corporation, when evaluating any offer of another Person (as defined in Article
4 hereof) to (A) make a tender or
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exchange offer for any equity security of the Corporation, (B) merge or
consolidate the Corporation with another corporation or entity or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
subsidiaries; on the communities in which the Corporation and its subsidiaries
operate or are located; on the ability of the Corporation to fulfill its
corporate objectives as a savings bank holding company; and on the ability of
its subsidiary savings bank to fulfill the objectives of a stock savings bank
under applicable statutes and regulations.
Article 9. Indemnification.
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
9 shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, if required under the Delaware
General Corporation Law, that an advancement of expenses incurred by an
indemnitee in his or her capacity as a Director of Officer (and not in any other
capacity in which service was or is rendered by such indemnitee, including,
without limitation, service to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for
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such expenses under this Section or otherwise. The rights to indemnification and
to the advancement of expenses conferred in Sections A and B of this Article 9
shall be contract rights and such rights shall continue as to an indemnitee who
has ceased to be a Director, Officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article 9 is not paid in
full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the indemnitee to enforce a right to an
advancement of expenses), it shall be a defense that, and (ii) in any suit by
the Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the Corporation shall be entitled to recover such expenses upon
a final adjudication that, the indemnitee has not met any applicable standard
for indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the indemnitee has not met such
applicable standard of conduct, shall create a presumption that the indemnitee
has not met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking, the burden of proving that the
indemnitee is not entitled to be indemnified, or to such advancement of
expenses, under this Article 9 or otherwise, shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article 9 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
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F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the advancement
of expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article 9 with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
Article 10. Limitation of Liability. A Director of this Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the Director derived an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a Director of the Corporation existing at the time of such repeal
or modification.
Article 11. Mutual Holding Company. At all times so long as the Mutual
Holding Company shall be in existence, the Mutual Holding Company shall own at
least a majority of the Voting Stock of the Corporation and the Corporation
shall not be authorized to issue any shares of Voting Stock or take any action
while the Mutual Holding Company is in existence if after such issuance or
action the Mutual Holding Company shall own less than the majority of the
Corporation's Voting Stock. For these purposes, "Voting Stock" means common
stock or preferred stock, or similar interests if the shares by statute, charter
or in any manner, entitle the holder: (i) to vote for or to select Directors of
the Corporation; and (ii) to vote on or to direct the conduct of the operations
or other significant policies of the Corporation. Notwithstanding anything in
the preceding sentence, preferred stock is not "Voting Stock" if: (i) voting
rights associated with the preferred stock are limited solely to the type
customarily provided by statute with regard to matters that would significantly
and adversely affect the rights or preferences of the preferred stock, such as
the issuance of additional amounts or classes of senior securities, the
modification of the terms of the preferred stock, the dissolution of the
Corporation, or the payment of dividends by the Corporation when preferred
dividends are in arrears; (ii) the preferred stock represents an essentially
passive investment or financing device and does not otherwise provide the holder
with control over the Corporation; and (iii) the preferred stock does not at the
time entitle the holder, by statute, charter, or otherwise, to select or to vote
for the selection of Directors of the Corporation. Notwithstanding anything in
the preceding two sentences, "Voting Stock" shall be deemed to include preferred
stock and other securities that, upon transfer or otherwise, are convertible
into Voting Stock or exercisable to acquire Voting Stock where the holder of the
stock, convertible security or right to acquire Voting Stock has the
preponderant economic risk in the underlying Voting Stock. Securities
immediately convertible into Voting Stock at the option of the holder without
payment
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of additional consideration shall be deemed to constitute the Voting Stock into
which they are convertible; other convertible securities and rights to acquire
Voting Stock shall not be deemed to vest the holder with the preponderant
economic risk in the underlying Voting Stock if the holder has paid less than
50% of the consideration required to directly acquire the Voting Stock and has
no other economic interest in the underlying Voting Stock.
Article 12. Conversion of Mutual Holding Company. The Mutual Holding
Company may elect to convert to stock form (a "Conversion Transaction") in
accordance with The Greene County Savings Bank Plan of Reorganization from a
Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, dated
July 1, 1998 (the "Plan"), and applicable law and regulation to the extent such
applicable law and regulation does not diminish the ownership rights of Minority
Stockholders (as hereinafter defined). In a Conversion Transaction, the Mutual
Holding Company will merge with and into Greene County Savings Bank (the "Bank")
or the Corporation (or an affiliate or successor corporation of either), with
the Bank or the Corporation, respectively, as the resulting entity, and the
depositors of the Bank will receive the right to subscribe for a number of
shares of common stock of the Corporation, as determined by the formula set
forth in the following paragraphs and in the Plan. The additional shares of
Common Stock of the Corporation issued in the Conversion Transaction shall be
sold at their aggregate pro forma market value. In the event that the Mutual
Holding Company merges into the Corporation, a liquidation account may be
established and maintained in the Corporation.
In any Conversion Transaction, stockholders of the Corporation other
than the Mutual Holding Company ("Minority Stockholders"), if any, will be
entitled to maintain the same percentage ownership interest in the Corporation
after the Conversion Transaction as their ownership interest in the Corporation
immediately prior to the Conversion Transaction (i.e., the "Minority Ownership
Interest"), subject only to adjustment as set forth in the Plan (if required by
federal or state law, regulation, or regulatory policy) to reflect (i) the
cumulative effect of the aggregate amount of dividends waived by the Mutual
Holding Company, and (ii) the market value of assets of the Mutual Holding
Company (other than Common Stock of the Corporation).
The adjustment referred to in clause (i) above would require that the
Minority Ownership Interest (expressed as a percentage) be adjusted by
multiplying the Minority Ownership Interest by a fraction, the numerator of
which is equal to the Corporation's stockholders' equity at the time of the
Conversion Transaction less the aggregate dollar amount of dividends waived by
the Mutual Holding Company, and the denominator of which is equal to the
Corporation's stockholders' equity at the time of the Conversion Transaction.
The adjusted Minority Ownership Interest (expressed as a percentage)
resulting from the immediately preceding paragraph would be further adjusted
pursuant to clause (ii) above by multiplying it by a fraction, the numerator of
which is equal to the pro forma market value of the Corporation less the market
value of assets of the Mutual Holding Company other than Corporation Common
Stock, and the denominator of which is equal to the pro forma market value of
the Corporation.
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At the sole discretion of the Board of Directors of the Mutual Holding
Company and the Corporation, a Conversion Transaction may be effected in any
other manner necessary to qualify the Conversion Transaction as a tax-free
reorganization under applicable federal and state tax laws, provided such
Conversion Transaction does not diminish the rights and ownership interest of
Minority Stockholders as set forth in the preceding paragraphs of this Section.
If a Conversion Transaction does not occur, the Mutual Holding Company will
always own a majority of the Voting Stock of the Corporation.
Article 13. Amendments. The Corporation reserves the right to amend or
repeal any provision contained in this Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all rights conferred
upon stockholders are granted subject to this reservation; provided, however,
that, notwithstanding any other provision of this Certificate of Incorporation
or any provision of law which might otherwise permit a lesser vote or no vote,
but in addition to any vote of the holders of any class or series of the stock
of the Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of Directors (after giving effect to the
provisions of Article 4), voting together as a single class, shall be required
to amend or repeal this Article 13, Section C of Article 4, Sections C or D of
Article 5, Article 6, Article 7, Article 8 or Article 10.
Article 14. Sole Incorporator The name and mailing address of the sole
incorporator are as follows:
Name Mailing Address
---- ---------------
Robert B. Pomerenk 5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this _____ day of September,
1998.
----------------------------
Robert B. Pomerenk
Incorporator
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BYLAWS
OF
GREENE COUNTY BANCORP, INC.
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting. An annual meeting of the stockholders, for
the election of Directors to succeed those whose terms expire and for the
transaction of such other business as may properly come before the meeting,
shall be held at such place, on such date, and at such time as the Board of
Directors shall each year fix, which date shall be within thirteen (13) months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.
Section 2. Special Meetings. Subject to the rights of the holders of
any class or series of preferred stock of the Corporation, special meetings of
stockholders of the Corporation may be called by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of Directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings. Written notice of the place, date, and
time of all meetings of the stockholders shall be given, not less than ten (10)
nor more than sixty (60) days before the date on which the meeting is to be
held, to each stockholder entitled to vote at such meeting, except as otherwise
provided herein or required by law (meaning, here and hereinafter, as required
from time to time by the Delaware General Corporation Law or the Certificate of
Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than thirty
(30) days after the date for which the meeting was originally noticed, or if a
new record date is fixed for the adjourned meeting, written notice of the place,
date, and time of the adjourned meeting shall be given in conformity herewith.
At any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum. At any meeting of the stockholders, the holders of a
majority of all of the shares of the stock entitled to vote at the meeting,
present in person or by proxy (after giving effect to the Article 4 of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law. Where a separate vote by a class or classes is required,
a majority of the shares of such class or classes present in person or
represented by proxy shall constitute a quorum entitled to take action with
respect to that vote on that matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization. Such person as the Board of Directors may have
designated or, in the absence of such a person, the Chairman of the Board of the
Corporation or, in his or her absence, the Chief Executive Officer or, in his or
her absence, such person as may be chosen by the holders of a majority of the
shares entitled to vote who are present, in person or by proxy, shall call to
order any meeting of the stockholders and act as chairman of the meeting. In the
absence of the Secretary of the Corporation, the secretary of the meeting shall
be such person as the chairman appoints.
Section 6. Conduct of Business. (a) The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him or her in order. The date and time of the opening and
closing of the polls for each matter upon which the stockholders will vote at
the meeting shall be announced at the meeting.
(b) At any annual meeting of the stockholders, only such
business shall be conducted as shall have been brought before the meeting: (i)
by or at the direction of the Board of Directors; or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who complies
with the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed to
and received at the principal office of the Corporation not less than ninety
(90) days prior to the date of the annual meeting; provided, however, that in
the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in
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accordance with the provisions of this Section 6(b). The Officer of the
Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he or she should so determine, he or she shall so declare
to the meeting and any such business so determined to be not properly brought
before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which Directors are to
be elected only: (i) by or at the direction of the Board of Directors or; (ii)
by any stockholder of the Corporation entitled to vote for the election of
Directors at the meeting who complies with the notice procedures set forth in
this Section 6(c). Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a stockholder's notice shall
be delivered or mailed to and received at the principal office of the
Corporation not less than ninety (90) days prior to the date of the meeting;
provided, however, that in the event that less than one hundred (100) days'
notice or prior disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such stockholder's notice shall set forth: (i) as to each person whom such
stockholder proposes to nominate for election or re-election as a Director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for the election of Directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934 (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a Director if elected); and (ii) as to
the stockholder giving notice of nomination (x) the name and address, as they
appear on the Corporation's books, of such stockholder and (y) the class and
number of shares of the Corporation's capital stock that are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the provisions of this Section 6(c). The Officer of the
Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she should so determine, he or she shall declare to the
meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
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created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or by his or her proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state the
name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. The Corporation shall,
in advance of any meeting of stockholders, appoint one or more inspectors to act
at the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by the Certificate of Incorporation or by law, all
other matters shall be determined by a majority of the votes present and cast at
a properly called meeting of stockholders.
Section 8. Stock List. A complete list of stockholders entitled to vote
at any meeting of stockholders, arranged in alphabetical order for each class of
stock and showing the address of each such stockholder and the number of shares
registered in his or her name, shall be open to the examination of any such
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during
the whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the identity
of the stockholders entitled to vote at the meeting and the number of shares
held by each of them.
Section 9. Consent of Stockholders in Lieu of Meeting. Subject to the
rights of the holders of any class or series of preferred stock of the
Corporation, any action required or permitted to be taken by the stockholders of
the Corporation must be effected at an annual or special meeting of stockholders
of the Corporation and may not be effected by any consent in writing by such
stockholders.
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ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office. The business and
affairs of the Corporation shall be under the direction of its Board of
Directors. The number of Directors who shall constitute the Whole Board shall be
such number as the Board of Directors shall from time-to-time by resolution so
designate. The Board of Directors shall annually elect a Chairman of the Board
from among its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of
any class or series of Preferred Stock, shall be divided, with respect to the
time for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, commencing with the first
annual meeting, Directors elected to succeed those Directors whose terms then
expire shall be elected for a term of office to expire at the third succeeding
annual meeting of stockholders after their election, with each Director to hold
office until his or her successor shall have been duly elected and qualified.
Section 2. Chairman of the Board. The Chairman of the Board shall,
subject to the provisions of these Bylaws and to the direction of the Board of
Directors, serve in a general executive capacity and, when present, shall
preside at all meetings of the Board of Directors or the stockholders of the
Corporation. The Chairman of the Board shall perform all duties and have all
powers which are commonly incident to the office of Chairman of the Board or
which are delegated to him or her by the Board of Directors. He or she shall
have power to sign all stock certificates, contracts and other instruments of
the Corporation which are authorized.
Section 3. Vacancies and Newly Created Directorships. Subject to the
rights of the holders of any class or series of preferred stock, and unless the
Board of Directors otherwise determines, newly created Directorships resulting
from any increase in the authorized number of Directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by a
majority vote of the Directors then in office, though less than a quorum, and
Directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires and until such Director's successor shall have been duly elected
and qualified. No decrease in the number of authorized Directors constituting
the Board shall shorten the term of any incumbent Director.
Section 4. Regular Meetings. Each regular meetings of the Board of
Directors shall be held at such place, on such date, and at such time as shall
have been established by the Board of Directors and publicized among all
Directors. A notice of each regular meeting shall not be required.
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Section 5. Special Meetings. Special meetings of the Board of Directors
may be called by the President of the Bank. If the President is absent or
disabled, any two Vice Presidents may call a special meeting If the President
and all the Vice President are absent or disabled, the Secretary may call a
special meeting if he or she is requested to do so by two or more Directors.
Notice of the place, date, and time of each such special meeting shall be given
to each Director by whom it is not waived by mailing written notice not less
than five (5) days before the meeting or by facsimile transmission of the same
not less than twenty-four (24) hours before the meeting. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
Section 6. Quorum. At any meeting of the Board of Directors, a majority
of the Whole Board shall constitute a quorum for all purposes. If a quorum shall
fail to attend any meeting, a majority of those present may adjourn the meeting
to another place, date, or time, without further notice or waiver thereof.
Section 7. Participation in Meetings By Conference Telephone. Members
of the Board of Directors, or of any committee thereof, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person at such meeting.
Section 8. Conduct of Business. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the vote
of a majority of the Directors present, except as otherwise provided herein or
required by law. Action may be taken by the Board of Directors without a meeting
if all members thereof consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
Section 9. Powers. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as may
be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form
as it may determine, of written obligations of every kind,
negotiable or non-negotiable, secured or unsecured, and to do
all things necessary in connection therewith;
(4) To remove any Officer of the Corporation with or without
cause, and from time-to-time to devolve the powers and duties
of any Officer upon any other person;
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(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees
and agents;
(6) To adopt from time-to-time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers,
employees and agents of the Corporation and its subsidiaries
as it may determine;
(7) To adopt from time-to-time such insurance, retirement, and
other benefit plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may
determine; and
(8) To adopt from time-to-time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business
and affairs.
Section 10. Compensation of Directors. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as Directors, including, without limitation,
their services as members of committees of the Board of Directors.
Section 11. Directors' Age Limitation and Directors Emeriti. No person
shall be eligible for initial election as a Director who is seventy (70) years
of age or more, except for any director who was a director of Greene County
Savings Bank on the date of adoption of these bylaws. The office of a director
shall become vacant on the day of the annual meeting of the Board of Directors
following such director's seventieth (70th) birthday.
The Board may elect annually Emeriti Members of the Board consisting of
former Board Members who have been forced to retire upon reaching the mandatory
age of seventy (70) years. No Emeriti Member may be elected or serve after their
seventy-fifth (75th) birthday. Directors Emeriti must have previously served as
members of the Board of Directors. Emeriti Members are entitled to receive
notice of all Board Meetings. They may attend Board Meetings but shall not have
the right to vote nor shall such position carry with it any of the
responsibilities, powers and privileges of the regular members of the Board.
ARTICLE III - COMMITTEES
Section 1. Committee of the Board of Directors. The Board of Directors,
by a vote of a majority of the Whole Board, may from time-to-time designate
committees of the Board, with such lawfully delegable powers and duties as it
thereby confers, to serve at the pleasure of the Board and shall, for those
committees and any others provided for herein, elect a Director or Directors to
serve as the member or members, designating, if it desires, other Directors as
alternate members who may replace any absent or disqualified member at any
meeting of the committee. Any committee so designated may exercise the power and
authority of the Board of Directors to declare a dividend, to
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authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to the Delaware General Corporation Law if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his or her place, the member or members of
the committee present at the meeting and not disqualified from voting, whether
or not he or she or they constitute a quorum, may by unanimous vote appoint
another member of the Board of Directors to act at the meeting in the place of
the absent or disqualified member.
Section 2. Conduct of Business. Each committee may determine the
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings;
one-third (1/3) of the members shall constitute a quorum unless the committee
shall consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee.
Section 3. Executive Committee. There will be an Executive Committee
consisting of at least five members, all of whom shall be Board Members. At the
annual Board meeting the Directors will elect the members to the Executive
Committee and the Chairman of the Committee. These elected members will serve
until the next annual meeting or until their successors are elected. Except as
otherwise limited by law, the Executive Committee will have power to decide all
bank matters which need to be decided between regular Board meetings. The
President will call Executive Committee meetings. If the President is absent or
disabled, any two Vice Presidents may do so. If both the President and all the
Vice Presidents are absent or disabled, any two committee members may do so. In
order to conduct an Executive Committee meeting, at least four members must be
present (called a "Quorum"). The Executive Committee will keep a record of all
business transacted at its meetings and will report all such business to the
Board of Directors at the first regular meeting following each Executive
Committee meeting. If a vacancy occurs among the Executive Committee members
between annual Board meetings, the Board upon nomination by the President, will
elect a replacement.
ARTICLE IV - OFFICERS
Section 1. Generally. (a) The Board of Directors as soon as may be
practicable after the annual meeting of stockholders, shall choose a President
and Chief Executive Officer, one or more Vice Presidents, and a Secretary and
from time to time may choose such other Officers as it may deem proper. Any
number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next
annual election of Officers and until their respective successors are chosen,
but any Officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of Directors then
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constituting the Board of Directors (without prejudice to any contract rights
that an Officer may have).
(c) All Officers chosen by the Board of Directors shall each
have such powers and duties as generally pertain to their respective offices,
subject to the specific provisions of this Article IV. Such Officers shall also
have such powers and duties as from time to time may be conferred by the Board
of Directors or by any committee thereof.
Section 2. President and Chief Executive Officer. The President and
Chief Executive Officer (the "President") shall have general responsibility for
the management and control of the business and affairs of the Corporation and
shall perform all duties and have all powers which are commonly incident to the
offices of President and Chief Executive Officer or which are delegated to him
or her by the Board of Directors. The President , if present, shall preside at
all meetings of the Executive Committee of the Board. Subject to the direction
of the Board of Directors, the President shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized and shall have general supervision of all of the other Officers,
employees and agents of the Corporation.
Section 3. Vice President. The Vice President or Vice Presidents shall
perform the duties of the President in his or her absence or during his
disability to act. In addition, the Vice Presidents shall perform the duties and
exercise the powers usually incident to their respective offices and/or such
other duties and powers as may be properly assigned to them by the Board of
Directors, the Chairman of the Board or the President. A Vice President or Vice
Presidents may be designated as Executive Vice President or Senior Vice
President.
Section 4. Secretary. The Secretary or an Assistant Secretary shall
issue notices of meetings, shall keep their minutes, shall have charge of the
seal and the corporate books, shall perform such other duties and exercise such
other powers as are usually incident to such offices and/or such other duties
and powers as are properly assigned thereto by the Board of Directors, the
Chairman of the Board or the President.
Section 5. Assistant Secretaries and Other Officers. The Board of
Directors may appoint one or more Assistant Secretaries and such other Officers
who shall have such powers and shall perform such duties as are provided in
these Bylaws or as may be assigned to them by the Board of Directors, the
Chairman of the Board or the President.
Section 6. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to, any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which the Corporation may possess by
reason of its ownership of securities in such other corporation.
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ARTICLE V - STOCK
Section 1. Certificates of Stock. Each stockholder shall be entitled to
a certificate signed by, or in the name of the Corporation by, the Chairman of
the Board or the President, and by the Secretary or an Assistant Secretary, or
any Treasurer or Assistant Treasurer, certifying the number of shares owned by
him or her. Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock Transfers of stock shall be made only
upon the transfer books of the Corporation kept at an office of the Corporation
or by transfer agents designated to transfer shares of the stock of the
Corporation. Except where a certificate is issued in accordance with Section 4
of Article V of these Bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new certificate
is issued therefor.
Section 3. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or to exercise any rights in respect of any change, conversion or
exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates. In the event of the
loss, theft or destruction of any certificate of stock, another may be issued in
its place pursuant to such regulations as the Board of Directors may establish
concerning proof of such loss, theft or destruction and concerning the giving of
a satisfactory bond or bonds of indemnity.
Section 5. Regulations. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
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ARTICLE VI - NOTICES
Section 1. Notices. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, Director,
Officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the U.S. mails, postage prepaid, or by sending such notice by
facsimile transmission or by courier. Any such notice shall be addressed to such
stockholder, Director, Officer, employee or agent at his or her last known
address as the same appears on the books of the Corporation. The time when such
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by facsimile transmission or other courier, shall be the time of the
giving of the notice.
Section 2. Waivers. A written waiver of any notice, signed by a
stockholder, Director, Officer, employee or agent, whether before or after the
time of the event for which notice is to be given, shall be deemed equivalent to
the notice required to be given to such stockholder, Director, Officer, employee
or agent. Neither the business nor the purpose of any meeting need be specified
in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures. In addition to the provisions for use
of facsimile signatures elsewhere specifically authorized in these Bylaws,
facsimile signatures of any Officer or Officers of the Corporation may be used
whenever and as authorized by the Board of Directors or a committee thereof.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of Directors
or a committee thereof, duplicates of the seal may be kept and used by the Chief
Financial Officer or by an Assistant Secretary or an assistant to the Chief
Financial Officer.
Section 3. Reliance upon Books, Reports and Records Each Director, each
member of any committee designated by the Board of Directors, and each Officer
of the Corporation shall, in the performance of his or her duties, be fully
protected in relying in good faith upon the books of account or other records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of its Officers or employees, or committees
of the Board of Directors so designated, or by any other person as to matters
which such Director or committee member reasonably believes are within such
other person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
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Section 5. Time Periods. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded, and the day of the event shall be included.
ARTICLE VIII - AMENDMENT
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change is given not less
than two days prior to the meeting. The stockholders shall also have power to
amend, alter or repeal these Bylaws at any meeting of stockholders, provided
notice of the proposed change was given in the Notice of the Meeting; provided,
however, that, notwithstanding any other provisions of these Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the Voting Stock Designation or these Bylaws, the affirmative votes of
the holders of at least 80% of the voting power of all the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal any provisions of these Bylaws.
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Exhibit 3.3
RESTATED ORGANIZATION CERTIFICATE
OF
THE BANK OF GREENE COUNTY
We, Walter H. Ingalls, being the Chairman of the Board, J. Bruce
Whittaker, being the President and Chief Executive Officer, and Bruce P. Egger,
being the Secretary, of Greene County Savings Bank, do hereby certify as
follows:
FIRST, the name of the Corporation is Greene County Savings Bank.
SECOND, the Corporation was created by an act of the New York
legislature in 1889.
THIRD, the text of the Organization Certificate of Greene County
Savings Bank is hereby amended and restated in its entirety to read as follows:
Section 1. Corporate Title. The full corporate title of the institution
is The Bank of Greene County ("Savings Bank").
Section 2. Office. The principal office of the Savings Bank shall be
located in the County of Greene, City of Catskill, State of New York.
Section 3. Duration. The duration of the Savings Bank is perpetual.
Section 4. Purpose and Powers. The purpose of the Savings Bank is to
pursue any or all of the lawful objectives of a New York chartered capital stock
savings bank and to exercise all the express, implied, and incidental powers
conferred thereby and by all acts amendatory thereof and supplemental thereto,
subject to the Constitution and laws of New York and the United States as they
are now in effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations, and orders of the New York State
Banking Department ("NYSBD").
Section 5. Capital Stock. The total number of shares of all classes of
the capital stock which the Savings Bank has authority to issue is one million
two hundred thousand (1,200,000), of which one million (1,000,000) shall be
common stock, par value $.01 per share, and of which two hundred thousand
(200,000) shall be preferred stock, par value $.01 per share. The shares may be
issued from time to time as authorized by the Board of Directors without further
approval of stockholders except as otherwise provided in this Section 5 or to
the extent that such approval is required by governing law, rule, or regulation.
The consideration for the issuance of the shares shall be paid in full before
their issuance and shall not be less than the par value. Neither promissory
notes or other obligations for future payment, nor future services shall
constitute payment or part payment for the issuance of shares of the Savings
Bank. The consideration for the shares shall be
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cash, tangible or intangible property (to the extent direct investment in such
property would be permitted), labor or services actually performed for the
Savings Bank, or any combination of the foregoing. In the absence of actual
fraud in the transaction, the value of such property, labor, or services, as
determined by the Board of Directors of the Savings Bank, shall be conclusive.
Upon payment of such consideration, such shares shall be deemed to be fully paid
and nonassessable. In the case of a stock dividend, that part of the surplus of
the Savings Bank which is transferred to stated capital upon the issuance of
shares as a share dividend shall be deemed to be the consideration for their
issuance.
Except for shares issuable in connection with the conversion of the
Savings Bank from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the Savings Bank other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, provided
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of
preferred stock, voting as a class or series, to elect some
members of the Board of Directors, less than a majority
thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the Savings Bank with another corporation or
the sale, lease, or conveyance (other than by mortgage or
pledge) of properties or business in exchange for securities
of a corporation other than the Savings Bank if the preferred
stock is exchanged for securities of such other corporation;
provided that no provision may require such approval for
transactions undertaken with the assistance or pursuant to the
direction of the NYSBD or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific
terms of any class or series of capital stock as set forth in
this Section 5 (or in any supplementary sections hereto),
including any amendment which would create or enlarge any
class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving institution in a merger or
consolidation for the Savings Bank, shall not be considered to
be such an adverse change.
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A description of the different classes and series (if any) of the
Savings Bank's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections hereto), the holders of the common
stock shall exclusively possess all voting power. Each holder
of shares of common stock shall be entitled to one vote for
each share held by such holder. Stockholders shall not be
entitled to cumulate their votes for election of directors.
Whenever there shall have been paid, or declared and
set aside for payment to the holders of the outstanding shares
of any class of stock having preference over the common stock
as to the payment of dividends, the full amount of dividends
and of sinking fund, or retirement fund, or other retirement
payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may
be paid on the common stock and on any class or series of
stock entitled to participate therewith as to dividends out of
any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or
winding up of the Savings Bank, the holders of the common
stock (and the holders of any class or series of stock
entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash
or in kind, the assets of the Savings Bank available for
distribution remaining after: (i) payment or provision for
payment of the Savings Bank's debts and liabilities; (ii)
distributions or provision for distributions in settlement of
its liquidation account; and (iii) distributions or provision
for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation,
dissolution, or winding up of the Savings Bank. Each share of
common stock shall have the same relative rights as and be
identical in all respects with all of the other shares of
common stock.
B. Preferred Stock. The Savings Bank may provide in supplementary
sections to its Restated Organization Certificate for one or more classes of
preferred stock, which shall be separately identified. The shares of any class
may be divided into and issued in series, with each series separately designated
so as to distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a supplementary section
to the Restated Organization Certificate. All shares of the same class shall be
identical except as to the following relative rights and preferences, as to
which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative
and, if so, from which date(s), the payment
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date(s) for dividends, and the participating or other special
rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if
so, the price(s) at which, and the terms and conditions on
which, such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the
event of voluntary or involuntary liquidation, dissolution, or
winding up of the Savings Bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application,
including the price(s) at which such shares may be redeemed or
purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes of
stock of the Savings Bank and, if so, the conversion price(s)
or the rate(s) of exchange, and the adjustments thereof, if
any, at which such conversion or exchange may be made, and any
other terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued
shares of serial preferred stock and whether such shares may
be reissued as shares of the same or any other series of
serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all of the other shares
of the same series.
The Board of Directors shall have authority to divide, by the adoption
of supplementary Restated Organization Certificate sections, any authorized
class of preferred stock into series, and, within the limitations set forth in
this section and the remainder of this Restated Organization Certificate, fix
and determine the relative rights and preferences of the shares of any series so
established.
Prior to the issuance of any preferred shares of a series established
by a supplementary Restated Organization Certificate section adopted by the
Board of Directors, the Savings Bank shall file with the Superintendent of Banks
of the State of New York a dated copy of that supplementary
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section of this Restated Organization Certificate establishing and designating
the series and fixing and determining the relative rights and preferences
thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the
Savings Bank shall not be entitled to preemptive rights with respect to any
shares of the Savings Bank which may be issued.
Section 7. Liquidation Account. Pursuant to the requirements of the
NYSBD's regulations, the Savings Bank shall establish and maintain a liquidation
account for the benefit of its deposit account holders as of June 30, 1997 and
September 30, 1998 ("eligible depositors"). In the event of a complete
liquidation of the Savings Bank, it shall comply with such regulations with
respect to the amount and the priorities on liquidation of each of the Savings
Bank's eligible depositor's inchoate interest in the liquidation account, to the
extent it is still in existence; provided that an eligible depositor's inchoate
interest in the liquidation account shall not entitle such eligible depositor to
any voting rights at meetings of the Savings Bank's stockholders.
Section 8. Purchase Limitation Applicable for Three Years.
Notwithstanding anything contained in the Savings Bank's Restated Organization
Certificate or Bylaws to the contrary, for a period of three years from the date
of consummation of the mutual holding company reorganization by the Savings
Bank's mutual predecessor, no person (other than the Savings Bank's parent stock
holding company and its mutual holding company) shall directly or indirectly
acquire the beneficial ownership of more than 10% of any class of any equity
security of the Savings Bank.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matter submitted to the stockholders for a vote; provided, however, that a
person shall not be deemed to be the beneficial owner of shares represented by
proxies held by such person unless such shares are otherwise deemed beneficially
owned by such person.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock company, a
trust, any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of
acquiring, holding or disposing of the equity securities of
the Savings Bank or any other entity.
(ii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iii) The term "acting in concert" means (a) knowing participation
in a joint activity or conscious parallel action towards a
common goal whether or not pursuant to an express agreement,
or (b) a combination or pooling of voting or other interests
in the
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securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
Section 9. Call for Special Meetings. Special meetings of the
stockholders for any purpose or purposes, unless otherwise prescribed by the
regulations of the NYSBD, may be called at any time by the Chairman of the Board
of Directors or the majority of the Whole Board of Directors (the term "Whole
Board of Directors" shall mean the total number of directors the Savings Bank
would have if there were no vacancies).
Section 10. Directors. The Savings Bank shall be under the direction of
a Board of Directors. The authorized number of directors, as stated in the
Savings Bank's Bylaws, shall not be less than seven (7) nor more than twenty
(20) except when a greater number is approved by the NYSBD or its delegatees.
Each of the following persons shall be a director of the Savings Bank
upon the effectiveness of this Restated Organization Certificate, for the terms
indicated or until his successor is elected and qualified, and they shall
constitute the initial Board of Directors of the Savings Bank:
Class I with terms to expire at the first annual meeting of
stockholders:
J. Bruce Whittaker
Dennis R. O'Grady
Martin C. Smith
Class II with terms to expire at the annual meeting of stockholders one
year thereafter:
Richard J. Buck
Raphael Klein
Anthony Camera, Jr.
Class III with terms to expire at the annual meeting of stockholders
two years thereafter:
Walter H. Ingalls
Paul Slutzky
David H. Jenkins, DVM
Section 11. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this Restated Organization
Certificate shall be made, unless such is first proposed by a majority of the
Whole Board of Directors of the Savings Bank, then preliminarily approved by the
NYSBD, which preliminary approval may be granted by the NYSBD pursuant to
regulations specifying preapproved organization certificate amendments, and
thereafter approved by the affirmative vote of the holders of at least 80% of
the total votes eligible to be cast at a legal meeting. Any amendment, addition,
alteration, change or repeal so acted upon shall be
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effective upon filing with the NYSBD in accordance with the regulatory
procedures or on such other date as the NYSBD may specify in its preliminary
approval.
Section 12. Amendment of Bylaws. No amendment, addition, alteration,
change or repeal of the Bylaws of the Savings Bank shall be made, unless made in
a manner consistent with the Regulations of the NYSBD and approved by a majority
of the Whole Board of Directors or by the affirmative vote of at least 80% of
the votes eligible to be cast by the stockholders of the Savings Bank at any
legal meeting.
Section 13. Indemnification. (a) Scope of Indemnification. Except to
the extent expressly prohibited by the New York Banking Law, the Savings Bank
shall indemnify each person made, or threatened to be made, a party to any
action or proceeding, whether criminal or civil, by reason of the fact that such
person or such person's testator or intestate is or was a director or officer of
the Savings Bank, or is or was serving, in any capacity, at the request of the
Savings Bank, any other corporation, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorneys' fees
and expenses reasonably incurred in enforcing such person's right to
indemnification, incurred in connection with such action or proceeding, or any
appeal therein, provided that no such indemnification shall be made if a
judgment or other final adjudication adverse to such person establishes that
such person's acts were committed in bad faith or were the result of active and
deliberate dishonesty and were material to the cause of action so adjudicated,
or that such person personally gained in fact a financial profit or other
advantage to which such person was not legally entitled, and provided that no
such indemnification shall be required with respect to any settlement or other
nonadjudicated disposition of any threatened or pending action or proceeding
unless the Savings Bank has given its prior consent to such settlement or other
disposition.
(b) Reimbursement of Expenses. The Savings Bank shall advance or
promptly reimburse upon request any person entitled to indemnification hereunder
for all reasonable expenses, including attorneys' fees and expenses, reasonably
incurred in defending any action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
person to repay such amount if such person is ultimately found not to be
entitled to indemnification or, where indemnification is granted, to the extent
the expenses so advanced or reimbursed exceed the amount to which such person is
entitled; provided, however, that such person shall cooperate in good faith with
any request by the Savings Bank that common counsel be used by the parties to
any action or proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interests between or among
parties.
(c) Additional Rights. Nothing herein shall limit or affect any right
of any director, officer, or other corporate personnel otherwise than hereunder
to indemnification or expenses, including attorneys' fees and expenses, under
any statute, rule, regulation, certificate of incorporation, Bylaws, insurance
policy, contract, or otherwise. Without affecting or limiting the rights of any
director, officer or other corporate personnel pursuant to this Section 13, the
Savings Bank is authorized to enter into agreements with any of its directors,
officers or other corporate
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personnel extending rights to indemnification and advancement of expenses to the
fullest extent permitted by applicable law
(d) Notice of Amendments or Elimination. Anything in this Restated
Organization Certificate to the contrary notwithstanding, no elimination or
amendment of this Section 13 adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no elimination
of or amendment to this Section 13 shall deprive any such person's rights
hereunder arising out of alleged or actual occurrences, act or failures to act
prior to such 60th day. Any amendments or eliminations made pursuant to this
Section 13 are only effective with regard to acts occurring after such date.
(e) Amendment or Elimination. The Savings Bank shall not, except by
elimination or amendment of this Section 13 in a manner consistent with the
preceding subsection (d), take any corporate action or enter into any agreement
which prohibits or otherwise limits the rights of any person to indemnification
in accordance with the provisions of this Section 13. The indemnification of any
person provided by this Section 13 shall continue after such person has ceased
to be a director or officer of the Savings Bank and shall inure to the benefit
of such person's heirs, executors, administrators and legal representatives.
(f) Severability of Provision. In case any provision in this Section 13
shall be determined at any time to be unenforceable in any respect, the other
provisions of this Section 13 shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest possible
enforcement in the circumstances, it being the intention of the Savings Bank to
afford indemnification and advancement of expenses to its directors or officers,
acting in such capacities or in the other capacities mentioned herein, to the
fullest extent permitted by law.
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IN WITNESS WHEREOF, we have made, signed and acknowledged this
Certificate in duplicate, this____day of _____________, 1998.
---------------------------
Walter H. Ingalls
Chairman of the Board
---------------------------
J. Bruce Whittaker
President and Chief Executive
Officer
---------------------------
Bruce P. Egger
Secretary
STATE OF NEW YORK )
) ss:
COUNTY OF GREENE )
On this ___ day of ________, 1998, there personally appeared before me
Walter H. Ingalls, J. Bruce Whittaker and Bruce P. Egger to me known to be the
individuals described in and who executed the foregoing certificate, and
severally acknowledged to me that they executed the same and that the contents
thereof are true.
Notary Public
----------------------------
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BYLAWS OF
THE BANK OF GREENE COUNTY
ARTICLE I. PRINCIPAL OFFICE
The principal office of The Bank of Greene County ("Savings Bank") is
425 Main & Church Streets, Catskill, New York 12414.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the principal office of the Savings Bank or at
such other place in the State of New York in which the principal place of
business of the Savings Bank is located as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Savings
Bank for the election of Directors and for the transaction of any other business
of the Savings Bank shall be held annually [within the last four months of each
calendar year.]
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the New York Banking Law
and the regulations of the New York State Banking Department ("NYSBD") or other
applicable law, may be called at any time by the Chairman of the Board of
Directors (as set forth in Article V, Section 2, hereinafter referred to as the
"Chairman of the Board") or by a majority of the Whole Board of Directors. The
term "Whole Board of Directors" shall mean the total number of Directors which
the Savings Bank would have if there were no vacancies.
Section 4. Conduct of Meetings. The Chairman of the Board shall preside
at all meetings and in his or her absence, the President or a person designated
by a majority of the Board shall preside at all meetings. The chairman of any
meeting of stockholders shall determine the order of business and the procedures
at the meeting, including such regulations of the manner of voting and the
conduct of discussion.
Section 5. Notice of Meetings. Written notice stating the place, day
and hour of the meeting and in the case of a special meeting, the purpose(s) for
which the meeting is called and the person by or at whose direction the meeting
is being called, shall be delivered not fewer than ten (10) nor more than fifty
(50) days before the date of the meeting, either personally or by mail, by or at
the direction of the Chairman of the Board, the Secretary, or the Board of
Directors calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the mail, addressed to the shareholder at the address as it appears
on the stock transfer books or records of the Savings Bank as of the record date
for the meeting with postage prepaid. When any shareholders' meeting, either
annual or special, is adjourned for thirty
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(30) days or more, notice of the adjourned meeting shall be given as in the case
of an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than thirty (30) days or of the
business to be transacted at the meeting, other than an announcement at the
meeting at which such adjournment is taken. Notice of any annual or special
meeting of shareholders may be waived by unanimous consent of all shareholders.
Section 6. Quorum. A majority of the outstanding shares of the Savings
Bank entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than a
quorum. If less than a majority of the outstanding shares is represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally notified. The existence of a quorum
at any meeting, or the existence of a duly organized meeting at which enough
shareholders have withdrawn from such meeting to constitute less than a quorum,
however, shall not serve to amend, alter or modify any provisions in the Savings
Bank's Restated Organization Certificate or these Bylaws which require the vote
of more than a majority of the outstanding shares entitled to vote at a duly
organized meeting.
Section 7. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies solicited on behalf of management shall be
voted as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the Whole Board of Directors. No proxy shall be
valid more than eleven months from the date of its execution except as otherwise
provided herein.
Section 8. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Savings Bank to the contrary, at any meeting of the
shareholders of the Savings Bank any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 9. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by such person,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares
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held by or under the control of a receiver may be voted by such receiver without
the transfer into his or her name, if authority to do so is contained in an
appropriate order of the court or other public authority by which such receiver
was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Savings Bank nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the Savings
Bank, shall be voted at any meeting or counted in determining the total number
of outstanding shares at any given time for purposes of any meeting.
Section 10. Cumulative Voting. Shareholders shall not be entitled to
cumulate their votes for election of Directors.
Section 11. Written Consent of Shareholders. Any action required or
permitted to be taken at an annual or special meeting of shareholders, or any
other action which may be taken at a meeting of the shareholders, may be taken
without a meeting if consent in writing, setting forth the action so taken,
shall be given by all of the shareholders entitled to vote with respect to the
subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The entire management and control of the
affairs of the Savings Bank shall be vested in the Board of Directors. No person
shall be eligible for initial election as a Director who is seventy (70) years
of age or more (except for any director who was a director of the Savings Bank
as of the date of the effectiveness of the conversion of the Savings Bank from
the mutual to the stock form of organization and the reorganization of the
Savings Bank into the mutual holding company structure). The office of a
director shall become vacant on the last day of the month in which such director
reaches his or her seventieth fifth (75th) birthday. As used in these Bylaws,
the phrase "all of the Directors" shall mean the total number of Directors the
Savings Bank would have if there were no vacancies on the Board of Directors.
Section 2. Number and Term. The number of Directors constituting the
entire Board shall not be less than seven (7) nor more than twenty (20), as
determined from time to time by resolution of the Board. The Board of Directors
shall be divided into three classes as nearly equal in number as is possible.
The members of each class shall be elected for a term of three years and until
their successors are elected and qualified. One class shall be elected by ballot
annually.
Section 3. Chairman of the Board. At its annual meeting the Board of
Directors shall elect from among its members a Chairman of the Board. The
Chairman of the Board shall preside at all
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meetings of the Board of Directors and shall perform all such other duties as
the Board of Directors may from time to time prescribe.
Section 4. Regular Meetings. Regular Board meetings will be held on the
third Tuesday of each month. If any third Tuesday falls on a legal holiday, that
month's meeting will be held on the next business day after the holiday. The
Board may decide to hold any monthly meeting on a day other than the third
Tuesday of the month. The annual Board meeting will be held each year on the
third Tuesday in October unless another time is set by the Board.
Section 5. Special Meetings. The President of the Bank may call a
special meeting. If the President is absent or disabled, any two Vice Presidents
may do so. If the President and all the Vice President are absent or disabled,
the Secretary may call a special meeting if he or she is requested to do so by
two or more Directors.
Section 6. Participation in Meetings by Directors. Members of the Board
of Directors, or any committee thereof, may participate in a meeting of such
Board or a committee by means of conference telephone, or by means of similar
communications equipment by means of which all persons participating in the
meeting can speak and hear each other at the same time and such participation
shall constitute presence in person at such meeting.
Section 7. Notice. Any regular meeting of the Board of Directors may be
held without notice, if the date, hour and place of such meeting have been fixed
by the Board of Directors. Except as provided in the preceding sentence, notice
of each regular or special meeting of the Board of Directors, stating the date,
hour and place thereof, shall be given by the Secretary to each Director (a) not
less than seventy-two (72) hours before the meeting by depositing the notice in
the United States mail, with first-class postage thereon prepaid, directed to
each Director at the address designated by him or her for such purpose (or, if
none is designated, at his or her last known address) or (b) not less than
twenty-four (24) hours before the meeting by (i) delivering the same to each
Director personally, (ii) sending the same by facsimile or other electronic
transmission to the address designated by him or her for such purpose (or, if
none is designated, to his or her last known address) or (iii) delivering the
notice to the address designated by him or her for such purpose (or, if none is
designated, to his or her last known address). Notice of a meeting need not be
given to any Director who submits a signed waiver of notice whether before or
after the meeting or who attends the meeting without protesting, prior thereto
or at its commencement, the lack of notice to him or her. The notice of any
regular meeting of the Board of Directors need not specify the purpose or
purposes for which the meeting is called, except as provided in Section 5 of
this Article I and as provided in these Bylaws.
Section 8. Quorum. At least five members must be present in order to
conduct a Board meeting. This minimum number constitutes a "quorum" but less
than a quorum shall have the power to adjourn from time to time until the next
regular meeting.
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Section 9. Manner of Acting. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by applicable law, the
Restated Organization Certificate or by these Bylaws.
Section 10. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the Directors.
Section 11. Vacancies. All vacancies in the office of Director,
including newly created Directorships resulting from an increase in the number
of Directors, may be filled by the affirmative vote of a majority of the
remaining Directors, although less than a quorum of the Board of Directors, or
by a majority vote of the stockholders. A Director elected to fill a vacancy
shall be elected to serve for the balance of the unexpired term and a Director
elected to fill a vacancy to be filled by reason of an increase in the number of
Directors shall be elected to serve for the balance of the unexpired term of the
class to which such Director is elected.
Section 12. Compensation. Directors, as such, may receive compensation
for their services, including a stated retainer. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
the Board of Directors. Members of standing, special or temporary committees, as
such, may receive compensation for their services, including a stated retainer,
as the Board of Directors may determine. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
committees.
Section 13. Presumption of Assent. A Director of the Savings Bank who
is present at a meeting of the Board of Directors at which action on any Savings
Bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the Secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the Secretary of the Savings
Bank within five days after the date on which a copy of the minutes of the
meeting is received. Such right to dissent shall not apply to a Director who
voted in favor of such action.
Section 14. Emergency Authority. In the event there shall occur an
acute emergency resulting from a hostile attack, as defined in Article 7 of the
New York State Defense Emergency Act, which shall be of such severity as to
prevent the conduct and management of the affairs and business of the Savings
Bank by its Directors and officers as otherwise provided in these Bylaws, any
three or more available members of the then-incumbent Executive Committee shall
constitute an emergency Board of Directors which shall have the power, subject
to limitations prescribed in Article 7 of the New York State Defense Emergency
Act, by a majority of such persons present, to take any and every action which
may be necessary to meet the exigencies of the acute emergency and to enable the
Savings Bank to conduct its business during such period, including the
relocation
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elsewhere of any office of the Savings Bank which shall be unable to function
because of the acute emergency. If during the period of acute emergency there
shall be no Executive Committee, or a minimum of three members of the then
incumbent Executive Committee shall not be available, then and in that event
such other available Directors as may be needed to obtain the minimum of three
members shall serve on the emergency Board of Directors.
During a period of acute emergency resulting from a hostile attack, the
emergency management of the Savings Bank shall be in accordance with the powers
and limitations contained in the existing provisions of Article 7 of the New
York State Defense Emergency Act, and such provisions shall suspend or modify
these Bylaws to the extent of any conflict.
Section 15. Directors Emeriti. The Board may elect annually Emeriti
Members of the Board consisting of former Board Members who have been forced to
retire upon reaching the mandatory age of seventy (70) years. No Emeriti Member
may be elected or serve after their seventy-fifth (75th) birthday. Directors
Emeriti must have previously served as members of the Board of Directors.
Emeriti Members are entitled to receive notice of all Board Meetings. They may
attend Board Meetings but shall not have the right to vote nor shall such
position carry with it any of the responsibilities, powers and privileges of the
regular members of the Board.
ARTICLE IV. COMMITTEES
Section 1. Majority Vote. The Members of the Committees described in
this Article will be designated by a majority vote of the entire Board. Where
the President nominates committee members, such nominees shall be approved and
elected by a majority vote of the entire Board.
Section 2. Executive Committee. There will be an Executive Committee
consisting of at least five members, all of whom shall be Board Members. At the
annual Board meeting the Directors will elect the members to the Executive
Committee and the Chairman of the Committee. These elected members will serve
until the next annual meeting or until their successors are elected. Except as
otherwise limited by law, the Executive Committee will have power to decide all
bank matters which need to be decided between regular Board meetings. Their
duties also include ensuring that management implements the policies and
objectives of the Board. The President will call Executive Committee meetings.
If the President is absent or disabled, any two Vice Presidents may do so. If
both the President and all the Vice Presidents may do so. If both the President
and all the Vice Presidents are absent or disabled, any two committee members
may do so. In order to conduct an Executive Committee meeting, at least five
members must be present (called a "Quorum"). Any member of the Executive
Committee may participate in a meeting of that Committee by means of a
conference telephone or similar communications equipment which allows all
persons participating in the meeting to hear each other at the same time. A
committee member who participates in a meeting by such means will be regarded as
present person at the meeting. The Executive Committee will keep a record of all
business transacted at its meetings and will report all such business to the
Board of Directors at the first regular meeting following each Executive
Committee meeting. If a vacancy occurs among the Executive Committee members
between annual
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Board meetings, the Board upon nomination by the President, upon nomination by
the President will elect a replacement.
Section 3. The Appraisal and Loan Committee. The Board of Directors may
establish an Appraisal and Loan Committee which will consist of nine members.
The President may from time to time designate two or more committee members to
serve as a sub-committee for the purpose of appraising, inspecting, or
reappraising any real estate in which the Bank has or may have some business
interest. A Director Emeriti shall be eligible to be an appraiser for the bank
as well as any active member of the Board. Members of this Committee may be
removed at any time by the Board with or without good cause. The Committee will
have the authority to approve and make real estate mortgage loans, home
modernization loans, home equipment loans, over-draft loans and checking
accounts, all other loans which by law the Bank can make. The Committee will
report its actions at the first regular meeting of the Board after any action is
taken. The ultimate responsibility of asset quality rests with the Appraisal and
Loan Committee. Their duty is to maximize the return on investments without
sacrificing the quality of the Bank's loan portfolio. The Committee ensures that
credit is extended in the communities serviced by the bank in compliance with
the Community Reinvestments Act and Fair Housing Laws. The Committee will
provide guidelines to management regarding the types of credit products offered,
lending authority and limits for management and will oversee appraisal by
outside vendors. The Committee will review collection procedures, foreclosing
and charge-off determinations and collateral requirements.
Section 4. Investment Committee. The Board of Directors may establish
an Investment Committee consisting of the President, ______ Board members and
Executive Vice President, if there is an elected Executive Vice President, who
may be removed from the committee by the Board with or without good cause. This
committee will have authority to buy and sell securities for the Bank. It will
report its actions at the first regular meeting of the Board after any action is
taken.
Section 5. Audit Committee. The Board of Directors will establish an
Audit Committee consisting of not less than four Directors elected by the Board
at the annual meeting. The Board of Directors will also from this Committee
elect a Chairman whose term of office will be at least one year. Once in every
calendar year, this Committee will examine the records and affairs of the Bank
to determine the Bank's true financial condition. The Committee will make this
examination in keeping with the provisions of the banking law regarding such
examinations. The Audit Committee has a duty to ensure that the audit function
is in place, is performing adequately and is meeting the objectives of the Bank.
They have a duty to verify the reliability of information presented by
management an to ensure compliance with regulations. Their purpose is to
safeguard the assets of the Bank and to ensure the prudent use of the Bank's
resources. They are responsible for determining if goals have been accomplished
and to control the budgetary process. Through interaction with the Bank's
independent auditors their duty is to detect material errors or irregularities
that exist in the Bank and to oversee their correction.
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Section 6. Personnel Committee. Personnel Committee shall consist of
seven members. At the annual meeting in each year it shall present to the Board
its recommendations as to the salaries of the officers, employees, directors
fees and committee fees for the ensuing year. The committee shall also review
personnel and serve as a search committee for new officers. The duty of the
Personnel Committee is the recruitment and retention of competent staff and
management to ensure that the Bank operates in a safe and sound matter. The
Committee will provide for management succession and will set levels of
compensation and benefits and establish codes of conduct for bank employees.
Section 7. The Re-Inspection Committee. It is the responsibility of the
Re-inspection Committee to monitor the collateral of the Bank's mortgage
portfolio to prevent potential losses to limit credit risk. The Committee will
inspect the collateral securing problem loans or loans with a high loan to value
ratio in times of declining market values. The Committee will make
recommendations to the Board for the establishment of specific reserves if they
feel there may be the possibility of a loss to the Bank due to a deterioration
in the collateral.
Section 8. Special Committees. From time to time the Board may
establish special committees to serve whatever purposes the President or the
Board may consider necessary and shall further have the right to eliminate or
add any other general committees.
Section 9. Advisory Boards. The Board may establish Advisory Boards to
the Board of Directors. Such Advisory Boards will generally be representatives
of a particular geographical area. Membership on such Advisory Boards will be at
the discretion of the Board of Directors and each such Advisory Board Member
will be elected to such a position on an annual basis. Such advisory boards may
elect a Chairman with the approval of the Board of Directors. Such Boards will
have the powers and duties as assigned by the Board of Directors.
ARTICLE V. OFFICERS
Section 1. Terms of Office. The Board of Directors at its annual
meeting shall elect a President, two or more Vice Presidents, a Secretary, a
Treasurer and an Auditor. The Board of Directors may from time to time elect
such additional officers as it may determine. The Board may establish a ranking
order and alternative titles for these elected officers. Each officer is elected
for one year or until a successor is elected and qualifies. Any officer may be
elected to more than one office except that no one person may be President and
Secretary at the same time. If any officer mentioned in this section is not
elected at the Annual Meeting, the Board may elect a person to fill that office
at any regular meeting during the year or at a special meeting called for the
purpose. The Board will elect officers to fill any vacancies which may occur
between the annual meetings.
Section 2. The President. The President is the Chief Executive Officer
of the Bank and has general charge and supervision of the Bank's affairs,
officers, and employees, subject to the direction of the Board of Trustees and
the Executive Committee. The President, if present, shall preside at all
meetings of the Executive Committee. The President, if present, shall preside at
all meetings of
8
<PAGE>
the Executive Committee. He or she shall have the power to execute and deliver
all documents requiring the official seal of the Bank. When necessary, the
President may change the duties of any of the officers and employees of the
Bank.
Section 3. Vice Presidents. The Vice President(s) will have the powers
and duties set forth in these By-Laws or assigned to them by the Board or the
President.
Section 4. Attorney. The Bank's Attorney will have the powers and
duties set forth in these By-Laws or assigned to him or her by the Board or the
President.
Section 5. Secretary. The Secretary will have the powers and duties set
forth in these By- Laws or assigned to him or her by the Board or the President.
Section 6. Treasurer. The Treasurer will have the powers and duties set
forth in these By- Laws or assigned to him or her by the Board or the President.
Section 7. Auditor. The Auditor will examine the accounts, records and
transactions of the Bank as required by the Board or the Boards' Audit
Committee. The Auditor will also perform any other duties prescribed in an audit
program approved by the Board. The Auditor is free to examine any department or
section of the Bank without previously consulting any officer in that department
or section. The Auditor must keep a record of the dates of audits and a summary
of audit findings and must make periodic comprehensive reports to the Board or
to the Audit Committee. These reports may include suggestions and
recommendations which seem appropriate to the Auditor.
Section 8. Other Officers. All other officers will have the powers and
duties set forth in these By-Laws or assigned to them by the Board or the
President.
Section 9. Officers Holding Two or More Offices. Any two or more
offices may be held by the same individual, except that neither the Chairman of
the Board nor the President may also hold the office of Secretary, and the
Auditor may not hold any other office.
Section 10. Duties of Officers May be Delegated. In case of the absence
or disability of any officer of the Savings Bank or in case of a vacancy in any
office or for any other reason that the Board of Directors may deem sufficient,
the Board of Directors, except as otherwise provided by applicable law or these
Bylaws, may temporarily delegate the powers or duties of any officer to any
other officer or to any Director.
Section 10. Other Officers. All other officers will have the powers and
duties set forth in these By-Laws or assigned to them by the Board or the
President.
9
<PAGE>
ARTICLE VI. SIGNATURE ON CHECKS,
DOCUMENTS AND DRAFTS
Section 1. Withdrawals from Depositors. Bank monies or securities
deposited with any designated depository may be withdrawn only by checks, drafts
or other orders signed by officers or employees of the Bank who are specifically
authorized to do so by the Board.
Section 2. Mortgages and Real Estate. The President, and one or more
other officers whom the Board authorizes may execute and deliver, in the regular
course of the Bank's business, all instruments relating to mortgages or real
estate in which the Bank has an interest or relating to other matters as
authorized by the Board.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Savings Bank shall be in such form as shall be determined
by the Board of Directors and approved by the NYSBD. Such certificates shall be
signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary, and sealed with the corporate seal or a
facsimile thereof. The signatures of such officers upon a certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent
or a registrar, other than the Savings Bank itself or one of its employees. Each
certificate for shares of capital stock shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Savings Bank. All certificates surrendered to the
Savings Bank for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and canceled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Savings Bank as the Board of Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the Savings Bank shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Savings Bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Savings Bank shall be deemed by the Savings Bank
to be the owner for all purposes.
10
<PAGE>
ARTICLE IX. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Savings Bank shall be as fixed by the Board of
Directors. The Savings Bank shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the Board of Directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
ARTICLE X. DIVIDENDS
Subject to the terms of the Savings Bank's Restated Organization
Certificate, the New York Banking Law, the regulations of the NYSBD and other
applicable law, the Board of Directors may, from time to time, declare, and the
Savings Bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall provide a Savings Bank seal, which shall
be two concentric circles between which shall be the name of the Savings Bank.
The year of incorporation or an emblem may appear in the center.
ARTICLE XII. RULES AND REGULATIONS
Section 1. Banking Hours. The Board or officers authorized by the Board
will determine what days and hours the Bank will be open for business.
Section 2. Rules and Regulations. The Board may make other appropriate
rules and regulations provided they are not contrary to federal or state law or
these By-Laws.
Section 3. Loss of Passbook. If a bank book is lost or cannot otherwise
be produced by the depositor, the Bank may issue a new bank book. Before doing
so, the Bank may require the depositor to provide evidence of the loss or
reasons for the unavailability and require the depositor to furnish security or
identification to the Bank. The kind of evidence and security may be determined
by an officer or branch manager.
Section 4. Withdrawals. Money can be drawn by depositors as a matter of
right only on sixty days' notice to an officer of their intention to withdraw
it. The Bank may, however, allow money to be withdrawn without such notice, and
shall not by doing so be deemed to have waived its rights to such notice and
time of payment in all subsequent cases.
11
<PAGE>
ARTICLE XIII - INDEMNIFICATION OF DIRECTORS,
OFFICERS AND EMPLOYEES
Section 1. The Bank will indemnify any present or former Director
(including a former Trustee), officer or employee to the extent permitted or
required by law. The right to be indemnified will extend to the beneficiaries
and legal representatives of each person entitled to be indemnified. The right
to be indemnified shall apply regardless of any other rights to which the
Director (including a former Trustee), officer or employee or his or her
beneficiaries or legal representatives may be entitled. This provision
establishes a contract right which may be enforced by any person covered.
ARTICLE XIV. AMENDMENTS
These Bylaws may be amended in a manner consistent with the New York
Banking Law, the regulations of the NYSBD and other applicable law at any time
by a majority vote of the Whole Board of Directors, or by the affirmative vote
of at least 80% of the votes eligible to be cast by the shareholders of the
Savings Bank at any legal meeting.
12
<PAGE>
<PAGE>
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
GREENE COUNTY BANCORP, INC.
CATSKILL, NEW YORK
$.10 par value common stock--fully paid and non-assessable
This certifies that _____________________________ is the owner of __________
shares of the common stock of GREENE COUNTY BANCORP, INC. (the "Corporation"), a
Delaware corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate in not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
DATED:
----------------------
- ------------------------------------- ------------------------------------
Secretary (SEAL) President
<PAGE>
The shares evidenced by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of 5%
of the outstanding shares of Common Stock (the "Limit") be entitled or permitted
to any vote in respect of shares held in excess of the Limit, except that such
restriction shall not apply to Greene County Bancorp, MHC.
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will furnish
to any shareholder upon request and without charge a full description of each
class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted
on any matter. The Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the voting stock of the Corporation, voting
together as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Certificate of
Incorporation.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________ Custodian ________
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as ----------------------------
tenants in common(State) (State)
</TABLE>
Additional abbreviations may also be used though not in the above list
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
- --------------------------------------------------------------------------------
(please print or typewrite name and address including postal zip code of
assignee)
- --------------------------------------------------------------------------------
Shares of
- -----------------------------------------------------------------------
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
----------------------------------
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated,
-------------------------------
In the presence of Signature:
- ----------------------------------- ------------------------------
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
[Letterhead]
WRITERS DIRECT DIAL NUMBER
(202) 274-2000
September 18, 1998
The Board of Trustees
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
Re: Greene County Savings Bank - Application for Mutual Holding
Company Reorganization and Minority Stock Issuance
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the application of Greene County Savings Bank (the "Bank") for
permission to convert from the mutual to the stock form of ownership as part of
its reorganization (the "Reorganization") into the mutual holding company form
of ownership (the "Application"). As part of the Reorganization, the Bank will
become the wholly-owned subsidiary of Greene County Bancorp, Inc. (the "Stock
Holding Company"), and the Stock Holding Company will become the majority-owned
subsidiary of Greene County Bancorp, MHC (the "Mutual Holding Company"). We have
reviewed the Application, as well as the applicable statutes and regulations
governing the Bank and the Application.
We are of the opinion as follows:
(a) That the proposed stock certificates and order forms proposed to be
used by the Bank and or the Stock Holding Company will be, when issued, legally
sufficient and in compliance with all applicable laws and regulations.
(b) That subject to the receipt of each waiver of the Superintendent of
the New York Banking Department requested in connection with the Bank's
Application, the Plan of Reorganization from a Mutual Savings Bank to a Mutual
Holding Company and Stock Issuance Plan will conform in all manner with the
Banking Law, and any rules and regulations promulgated thereunder, of the State
of New York.
<PAGE>
The Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 2
(c) That the proposed Bylaws under which the Bank will operate
immediately after its reorganization conform to the requirements of the Banking
Law and the rules and regulations promulgated thereunder of the State of New
York.
(d) Each share of common stock issued by the Stock Holding Company and
the Bank in connection with the Reorganization will be entitled to one vote and
the common stock shall initially possess exclusive voting power over the affairs
of the Stock Holding Company and the Bank, respectively. For a period of three
years from the date of the completion of the reorganization no person other than
the Stock Holding Company and the Mutual Holding Company may directly or
indirectly acquire beneficial ownership of more than 10% of any class of equity
security of the Bank.
(e) The common stock of the Stock Holding Company and the Bank, when
issued, will be validly authorized and issued and nonassessable.
This opinion has been prepared solely for the use of the Stock Holding
Company and the Bank in connection with the Application, and should not be used
for any other purpose nor relied upon by any other person (except for the New
York State Banking Department in connection with its processing of the
Application), without the prior written consent of this firm.
In addition, we hereby consent to the use of our firm's name in the
Form 86-AC and to the references to our firm in the Prospectus under the
captions "The Conversion--Principal Effects of Conversion--Tax Effects" and
"Legal And Tax Matters".
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
By: /s/ Robert B. Pomerenk
---------------------------------
Robert B. Pomerenk
<PAGE>
Exhibit 8.1
[Letterhead]
WRITER'S DIRECT DIAL NUMBER
(202) 274-2000
September 18, 1998
Board of Trustees
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414-1317 182
Re: Mutual Holding Company Formation and Stock Issuance
Ladies and Gentlemen:
We have been requested as special counsel to Greene County Savings Bank
to express our opinion concerning certain Federal income tax matters relating to
the proposed Reorganization (as defined below) of Greene County Savings Bank, a
New York-chartered mutual savings bank ("Bank") into the MHC structure. As part
of the Reorganization, the Bank will convert to a New York-chartered stock
savings bank (the "Stock Bank"), and Greene County Bancorp, MHC, a New
York-chartered mutual holding company ("MHC ") will be formed to own a majority
of the common stock of Greene County Bancorp, Inc., a Delaware chartered
corporation ("Holding Company"), which will own 100% of the common stock of the
Stock Bank.
In connection therewith, we have examined the Plan of Reorganization
From a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan,
which was adopted by the Board of Trustees of the Bank on July 1, 1998 (the
"Plan of Reorganization"), and certain other documents relating to the
Reorganization, some of which are described or referred to in the Plan of
Reorganization and which we have deemed necessary to examine in order to issue
the opinions set forth below. Unless otherwise defined, all terms used herein
have the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original
documents, the accuracy of copies and the genuineness of signatures. We have
further assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of
Reorganization has been duly and validly authorized and has been approved and
adopted by the Board of Trustees of the Bank at a meeting duly called and held;
that the Bank will comply with the terms and conditions of the Plan of
Reorganization, and that the various representations and warranties which are
provided to us are accurate, complete, true and correct. Accordingly, we express
no opinion concerning
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 2
the effect, if any, of variations from the foregoing. We specifically express no
opinion concerning tax matters relating to the Plan of Reorganization under
state and local tax laws and under Federal income tax laws except on the basis
of the documents and assumptions described above.
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date hereof,
and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein,
we are of the opinion that:
With Respect to the Exchange of the Bank's Charter for a Stock Charter
("Bank Conversion"):
1. The Bank's exchange of its New York mutual savings bank charter for
a New York stock savings bank charter is a mere change in identity and form and
therefore qualifies as a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code ("Code")
2. No gain or loss will be recognized by Bank upon the transfer of its
assets to Stock Bank solely in exchange for shares of Stock Bank stock and the
assumption by Stock Bank of the liabilities of Bank. (Code Sections 361(a) and
357(a)).
3. No gain or loss will be recognized by Stock Bank upon the receipt of
the assets of Bank in exchange for shares of Stock Bank common stock. (Code
Section 1032(a)).
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 3
4. Stock Bank's holding period in the assets received from Bank will
include the period during which such assets were held by the Bank. (Code Section
1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as the
basis of such assets in the hands of Bank immediately prior to the Bank
Conversion. (Code Section 362(b)).
6. Bank depositors will recognize no gain or loss upon the constructive
receipt of Stock Bank common stock solely in exchange for their ownership
interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively
received by the Bank's depositors (which basis is -0-) will be the same as their
basis in their ownership interests in the Bank surrendered in exchange therefor.
(Code Section 358(a)(1)).
8. The holding period of the Stock Bank common stock constructively
received by the depositors of the Bank will include the period during which the
Bank depositors held their ownership interests, provided that the ownership
interests were held as capital assets on the date of the exchange. (Code Section
1223(1)).
9. The Stock bank will succeed to and take into account the Bank's
earnings and profits or deficit in earnings and profits, as of the date of the
proposed transaction. (Code Section 381).
With Respect to the Transfer of Stock Bank Stock to MHC for Ownership
Interests (the "351 Transaction"):
10. The exchange of Stock Bank stock by the Stock Bank depositors in
exchange for ownership interests in the MHC will constitute a tax-free exchange
of property solely for voting "stock" pursuant to Section 351 of the Internal
Revenue Code.
11. Stock Bank's depositors will recognize no gain or loss upon the
transfer of the Stock Bank stock they constructively received in the Stock Bank
in exchange for ownership interests in the MHC . (Code Section 351).
12. Stock Bank depositor's basis in the MHC ownership interests
received in the 351 Transaction (which basis is -0-) will be the same as the
basis of the property transferred in exchange therefor, reduced by the sum of
the liabilities assumed by MHC or to which assets transferred are taken subject.
(Code Section 358(a)(1)).
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 4
13. Stock Bank depositor's holding period for the ownership interests
in MHC received in the transaction will include the period during which the
property exchanged was held by Stock Bank depositors, provided that such
property was a capital asset on the date of the exchange.
(Code Section 1223(1)).
14. MHC will recognize no gain or loss upon the receipt of property
from Stock Bank depositors in exchange for ownership interests in the MHC .
(Code Section 1032(a)).
15. Mutual Holding Company's basis in the property received from Stock
Bank depositors (which basis is -0-) will be the same as the basis of such
property in the hands of Stock Bank depositors immediately prior to the
transaction. (Code Section 362(a)).
16. Mutual Holding Company's holding period for the property received
from Stock Bank's depositors will include the period during which such property
was held by Stock Bank depositors. (Code Section 1223(2)).
With respect to the transfers to the Holding Company in exchange for
Common Stock in the Holding Company: (the "Secondary 351 Transaction"):
17. The MHC and the persons who purchased Common Stock of the Holding
Company in the Subscription and Community Offering ("Minority Stockholders")
will recognize no gain or loss upon the transfer of Stock Bank stock and cash,
respectively, to the Holding Company in exchange for stock in the Holding
Company. Code Sections 351(a) and 357(a).
18. Holding Company will recognize no gain or loss on its receipt of
Stock Bank stock and cash in exchange for Holding Company Stock. (Code Section
1032(a)).
19. The basis of the Holding Company Common Stock to the Minority
Stockholders will be the actual purchase price thereof, and a shareholder's
holding period for Common Stock acquired through the exercise of subscription
rights will begin on the date the rights are exercised.
PROPOSED TRANSACTION
On July 1, 1998, the Board of Trustees of the Bank adopted the Plan of
Reorganization. For what are represented to be valid business purposes, the
Bank's Board of Trustees has decided to convert to a MHC structure pursuant to
certain federal and state laws and regulations. The following steps are
proposed:
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 5
(i) The Bank will organize an interim New York-chartered stock
savings bank (Interim One) as its wholly-owned subsidiary;
(ii) Interim One will organize a Delaware mid-tier holding company
as its wholly-owned subsidiary (Holding Company); and
(iii) Interim One will also organize another interim New
York-chartered stock savings bank as its wholly-owned
subsidiary (Interim Two).
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a New York stock
savings bank charter and will become a stock savings bank that
will constructively issue its common stock to depositors of
the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a New York MHC charter and thereby become the MHC;
(vi) Interim Two will merge with and into the Bank with the Bank as
the surviving entity, the former depositors of the Bank who
constructively hold stock in the Bank will exchange their
stock in the Bank for membership interests in the MHC ;
(vii) The MHC will contribute the Bank's stock to the Holding
Company, a wholly-owned subsidiary of the MHC , for additional
shares of Holding Company; and
(viii) Contemporaneously, with the contribution set forth in "(vii)"
the Stock Holding Company will offer to sell 44.51% of its
Common Stock in the Subscription Offering and, if applicable,
the Community Offering. In addition, the Bank intends to
establish a charitable foundation (the "Charitable
Foundation") to which the Holding Company will contribute
shares of Common Stock equal to 1.96% of the shares of Common
Stock outstanding.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the
"Effective Date"), hold depository rights with respect to the Bank will
thereafter have such rights solely with respect to the Stock Bank. Each deposit
account with the Bank at the time of the exchange will become a deposit account
in the Stock Bank in the same amount and upon the same terms and conditions.
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 6
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Bank immediately prior to the
Reorganization will continue to have such rights solely with respect to the MHC
so long as they continue to hold deposit accounts with the Stock Bank. All new
depositors of the Stock Bank after the completion of the Reorganization will
have liquidation rights solely with respect to the MHC so long as they continue
to hold deposit accounts with the Stock Bank.
The shares of Interim Two common stock owned by the MHC prior to the
Reorganization shall be converted into and become shares of common stock of the
Stock Bank on the Effective Date. The shares of Stock Bank common stock
constructively received by the Stock Bank stockholders (formerly the depositors
holding liquidation rights of the Bank) will be transferred to the MHC by such
persons in exchange for liquidation rights in the MHC .
The Holding Company will have the power to issue shares of capital
stock (including common and preferred stock) to persons other than the MHC . So
long as the MHC is in existence, however, it must own a majority of the voting
stock of Holding Company. Holding Company may issue any amount of non-voting
stock to persons other than MHC . No such non-voting stock will be issued as of
the date of the Reorganization.
* * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
All of the opinions set forth above are qualified to the extent that
the validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance, or
regulation governing or pertaining to environmental matters, hazardous wastes,
toxic substances, asbestos, or the like.
<PAGE>
Board of Trustees
Greene County Savings Bank
September 18, 1998
Page 7
It is expressly understood that the opinions set forth above represent
our conclusions based upon the documents reviewed by us and the facts presented
to us. Any material amendments to such documents or changes in any significant
fact would affect the opinions expressed herein.
We have not been asked to, and we do not, render any opinion with
respect to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the
Bank's Form 86-AC Application for Approval of a Mutual Savings Bank Holding
Company Reorganization and Minority Stock Issuance as filed with the New York
State Banking Department and to the Holding Company's Registration Statement on
Form SB-2 as filed with the SEC. We also consent to the references to our firm
in the Prospectus contained in the Forms 86-AC and SB-2 under the captions "The
Reorganization and Offering - Federal and State Tax Consequences of the
Reorganization" and "Legal and Tax Matters," and to the summarization of our
opinion in such Prospectus.
Very truly yours,
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
<PAGE>
Exhibit 8.2
September 17, 1998
Board of Trustees
Greene County Savings Bank
425 Main and Church Street
Catskill, New York 12414-1317
Re: Mutual Holding Company Formation
Ladies and Gentlemen:
We have been requested to express our opinion with respect to the New York State
Franchise Tax on Banking Corporations and the New York State Personal Income Tax
consequences associated with the proposed reorganization of Greene County
Savings Bank (the "Bank"), a New York-chartered mutual savings bank, into a
mutual holding company structure. As part of the reorganization, we understand
that the Bank will convert to a New York-chartered stock savings bank ("the
Stock Bank"), and Greene County Bancorp, MHC ("Greene County"), a New
York-chartered mutual holding company ("MHC") will be formed to own a majority
of the common stock of Greene County Bancorp, Inc. a Delaware chartered
corporation ("Holding Company"), which will own 100% of the common stock of the
Stock Bank
In connection therewith, we have examined the Plan of Reorganization From a
Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan, which
was adopted by the Board of Trustees of the Bank on July 1, 1998 (the "Plan of
Reorganization"), and the opinion on federal income tax matters dated September
17, 1998 (the "federal opinion letter") which was issued by Luse Lehman Gorman
Pomerenk & Schick.
The New York State Franchise Tax and the New York State personal income tax
consequences of the reorganization are consistent with those described in the
federal opinion letter. Both taxes adopt federal definitions of taxable income,
and contain no express modification which would treat the subject transaction
differently for state purposes. Accordingly, there is complete conformity
between the federal income tax results of the reorganization stated in the
federal opinion letter and the corresponding New York State tax treatment.
The Stock Bank will be subject to the New York State Franchise Tax on Banking
Corporations in an annual amount equal to the greater of (i) 9% of "entire net
income" allocable to New York State during the taxable year or (ii) the
applicable "alternative minimum tax". The alternative minimum tax is generally
the greater of (a) 0.01% of the value of assets allocable to New York State, (b)
3% of "alternative entire net income" allocable to New York State, or (c) $250.
Entire net income is similar to federal taxable income, subject to certain
modifications. The modifications include net operating losses ("NOLs") incurred
in taxable years ending before January 1, 2001 (which cannot be carried back or
forward), and bad debt reserve additions.
<PAGE>
NOLs incurred in taxable years beginning on or after January 1, 2001 can be
carried forward to the succeeding 20 taxable years.
For federal income tax purposes, the Stock Bank will be required to use the
specific charge-off method. However, New York State tax law allows thrift
institutions such as the Stock Bank to maintain two reserves for losses on
loans--the Reserve for Losses on Nonqualifying Loans (the "NY NQL Reserve") and
the Reserve for Losses on Qualifying Real Property Loans (the "NY QRPL
Reserve"). The annual addition to the NY NQL Reserve must be determined under
the "experience" method, while the annual addition to the NY QRPL reserve may be
determined under either the experience method or the "percentage of taxable
income" method (the "PTI method"). Under the PTI method, the Stock Bank's
addition to the NY QRPL Reserve is equal to the excess, if any, of (i) 32% of
entire net income (before the addition to the NY NQL and NY QRPL Reserves) over
(ii) the amount of the addition to the NY NQL Reserve (as determined under the
experience method). Further, the addition to the NY QRPL Reserve cannot exceed
the amount necessary to increase the balance of the NY QRPL Reserve to 6% of the
balance of Qualifying Real Property Loans ("QRPL") outstanding at the end of the
taxable year.
For New York State franchise tax purposes, the Stock Bank will not be required
to include in entire net income the federal recapture income for the excess of
the federal bad debt reserve at December 31, 1995 over the balances existing at
December 31, 1987.
The reserve method of accounting is allowed for New York State franchise tax
purposes only if (i) the Stock Bank qualifies as a thrift institution, and (ii)
at least 60% of the Stock Bank's assets consists of "Qualifying Assets"
(including, but not limited to, cash, U.S. Government bonds, certain mortgage
loans issued to individuals, home improvement loans, and certain fixed assets).
For the calendar year 1997, 74% of the Bank's assets were Qualifying Assets. We
understand that, after the reorganization, the Stock Bank intends to continue to
qualify as a thrift institution, as defined in the New York State Tax law, and
also intends to continue to meet the 60% Qualifying Asset test.
If the Stock Bank ceases to qualify as a thrift institution or fails the 60%
Qualifying Asset test, it will no longer be entitled to use the reserve method
and must recapture into entire net income a portion of its bad debt reserves.
The portion subject to recapture is the excess of the NY QRPL Reserve over the
greater of (1) the federal QRPL Reserve as of the last day such reserve is
maintained for federal income tax purposes or (2) the balance of the NY QRPL
reserve which would be allowable to the taxpayer for the last taxable year the
taxpayer qualifies as a thrift institution if the taxpayer computed its reserve
balance under the experience method.
The amount of the Stock Bank's NY QRPL reserve balance subject to recapture is
approximately $1.8 million. In the year of recapture, the Stock Bank's New York
State franchise tax liability would be increased by approximately $162,000 ($1.8
million of recapture income X 9% New York State tax rate). Since it is the Stock
Bank's intent to continue qualifying as a thrift institution and meet the
Qualifying Asset test, a deferred tax liability for this item has not been
established.
<PAGE>
Alternative entire net income is equal to entire net income, but without the
allowance of certain deductions which are allowable in the computation of entire
net income.
Both Greene County and the Holding Company will be bank holding companies
subject to the New York State Franchise Tax on Banking Corporations. Holding
Company and its wholly-owned subsidiary, the Stock Bank, will be required to
file a combined New York State Franchise Tax on Banking Corporations return.
However, Greene County will not own the requisite percentage of stock in the
Holding Company (generally 80% or more) to be included in the New York combined
return of Holding Company and the Stock Bank. Consequently, Greene County will
file a separate New York State franchise tax return.
Entities filing on a combined basis are able to exclude from entire net income
100% of intercorporate dividends. Thus, any dividends paid by the Stock Bank to
Holding Company will not be subject to New York State franchise tax. However,
corporations filing on a separate return basis are able to exclude only 60% of
dividends received from a more than 50% owned subsidiary. Accordingly, Greene
County will be able to exclude only 60% of dividends received from Holding
Company. The remaining 40% of dividends received by Greene County from Holding
Company will be subject to the 9% franchise tax. If Greene County's ownership in
Holding Company's common stock is 50% or less, no dividend-received deduction
will be allowed.
As a Delaware holding company not earning income in Delaware, Holding Company
will be exempt from Delaware corporate income tax, but will be required to file
an annual report with, and pay an annual franchise tax to, the State of
Delaware.
Our opinion concerning the New York State tax consequences of the reorganization
is based upon facts set forth in the Plan of Reorganization and the federal
opinion letter. Our analysis is limited to the New York State Franchise Tax on
Banking Corporations and the New York State Personal Income Tax consequences of
the reorganization, and we express no opinion regarding any other state and
local, federal or foreign taxes associated with the transaction.
If you have any questions, please call John B. Rice at (212)259-2576 or Len
DiMeglio at (973)829-9368.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers
<PAGE>
Greene County Savings Bank
Draft of State Tax Consequences of the Reorganization Section of Prospectus
(To be Included after Federal Tax Opinion of Page 40 of Prospectus)
The Bank has received an opinion from PricewaterhouseCoopers LLP to the effect
that, for New York State tax purposes, the New York State Franchise Tax and the
New York State personal Income Tax consequences of the reorganization are
consistent with those described in the federal opinion letter. Both taxes adopt
federal definitions of taxable income, and contain no express modification which
would treat the subject transaction differently for state purposes. Accordingly,
there is complete conformity between the federal income tax results of the
reorganization stated in the federal opinion letter and the corresponding New
York State tax treatment.
<PAGE>
Greene County Savings Bank
Draft of State Taxation Section of Prospectus
(In Place of State Tax Section on Page 71 of Prospectus)
State Taxation
New York State Taxation - General. The Company and the Bank will report
income on a combined calendar year basis to New York State. New York State
franchise tax on banking 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) $250. Entire net
income is based on federal taxable income subject to certain modifications.
Alternative entire net income is equal to entire net income without certain
modifications. The Mutual Company will file a separate New York State franchise
tax return.
Bad Debt Reserves. The Bank is allowed to utilize the reserve method of
accounting for New York State franchise tax purposes and is required to maintain
two reserve accounts--the "Reserve for Losses on Nonqualifying Loans (the "NY
NQL Reserve") and the Reserve for Losses on Qualifying Real Property Loans (the
"NY QRPL Reserve"). The addition to the NY NQL Reserve must be computed under
the "experience method". The addition to the NY QRPL Reserve may be computed
under either the experience method or the "percentage of taxable income method"
(the "PTI method"). The deduction under the PTI method is equal to 32% of entire
net income (before the deduction for the bad debt reserve addition), which must
first be allocated to the NY NQL Reserve. The balance, if any, is the allowable
addition to the NY QRPL Reserve, subject to a limitation based upon 6% of
Qualifying Real Property Loans ("QRPL"). As of December 31, 1997, the Bank's NY
QRPL Reserve was subject to this limitation.
The Bank will not be subject to the six-year recapture of the excess
federal bad debt reserve at December 31, 1995.
Recapture of New York State bad debt reserves. If the Bank ceases to
qualify as a "thrift institution" (as defined in the New York State tax law), or
fails to hold at least 60% of its assets in "Qualifying Assets", it will no
longer be entitled to use the reserve method and must recapture into entire net
income a portion of its NY QRPL Reserve. The amount subject to recapture is
generally equal to the excess of the NY QRPL Reserve over the federal QRPL
Reserve as of December 31, 1995. The amount of the Bank's NY QRPL Reserve
subject to recapture is approximately $1.8 million. Since it is the Bank's
intention to continue to qualify as a thrift institution and to meet the 60%
Qualifying Asset test, a deferred tax liability has not been established for the
$162,000 New York State tax which would result from such failure.
<PAGE>
Net Operating Loss Deductions. For New York State franchise tax
purposes, the Bank is not entitled to carry back or forward net operating losses
("NOLs") incurred in taxable years ending before January 1, 2001. NOLs incurred
in taxable years beginning on or after January 1, 2001 can be carried forward to
the succeeding 20 taxable years. No carryback of NOLs will be permitted.
Corporate Dividends-Received Deduction. Similar to the federal rules,
the Company and the Bank will file a combined New York State franchise tax
report and intercompany dividends will be eliminated. However, the Mutual
Company will not own the requisite percentage (generally 80% or more) of the
common stock of the Company necessary to file on a combined basis with the
Company. As long as the Mutual Company owns more than 50% of the common stock of
the Company, it will be eligible for a 60% dividends-received deduction. The
Mutual Company will not be entitled to any dividends-received deduction if it
owns 50% or less of the common stock of the Company.
Delaware State Taxes. As a Delaware holding company not earning income
in Delaware, the Company will be exempt from Delaware corporate income tax, but
will be required to file an annual report with, and pay an annual franchise tax
to, the State of Delaware.
<PAGE>
September 17, 1998
Board of Directors
Greene County Bancorp, Inc.
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion adopted by the Board of Directors of
Greene County Savings Bank (the "Bank"), whereby the Bank will convert from a
federally chartered mutual savings bank to a federally chartered stock savings
bank and issue all of the Bank's stock to Greene County Bancorp, Inc. (the
"Holding Company"). Simultaneously, the Holding Company will issue shares of
common stock.
We understand that in accordance with the Plan of Conversion, Subscription
Rights to purchase shares of the Bank's Common Stock in the Holding Company are
to be issued to (i) Eligible Account Holders, (ii) Tax-Qualified Employee Plans,
(iii) Supplemental Eligible Account Holders, and (iv) employees, officers, and
trustees. Based solely on our observation that the Subscription Rights will be
available to such Recipients without cost, will be legally non-transferable and
of short duration, and will afford such parties the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in the Community Offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market
value; and
(2) the price at which the Subscription Rights are excercisable
will not be more or less than the pro forma market value of
the shares upon issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Bank's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the Conversion
will thereafter be able to buy or sell suc shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
---------------------------
Donald J. Musso
Director
<PAGE>
<PAGE>
Exhibit 10.1
THE BANK OF GREENE COUNTY
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of _____________,
1998 by and between The Bank of Greene County (the "Bank"), a New York-chartered
stock savings bank, with its principal administrative office at 425 Main &
Church Streets, Catskill, NY 12414-1317 182 and J. Bruce Whittaker (the
"Executive"). Any reference to "Company" herein shall mean Greene County
Bancorp, Inc., a Delaware stock corporation or any successor thereto. The
Company is a signatory hereto for the sole purpose of guaranteeing the Bank's
performance hereunder.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and upon the other terms and conditions hereinafter provided, the
parties hereby agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Bank and the Company.
During said period, Executive also agrees to serve, if elected, as an officer
and director of any subsidiary or affiliate of the Bank. Failure to reelect
Executive as President and Chief Executive Officer without the consent of the
Executive during the term of this Agreement shall constitute a breach of this
Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall
begin as of the date first above written and shall continue for a period of
thirty-six (36) full calendar months thereafter. Commencing on the first
anniversary date of this Agreement, and continuing at each anniversary date
thereafter, the Agreement shall renew for an additional year such that the
remaining term shall be three (3) years unless written notice is provided to
Executive at least ten (10) days and not more than sixty (60) days prior to any
such anniversary date, that his employment shall cease at the end of thirty-six
(36) months following such anniversary date. Prior to each notice period for
non-renewal, the disinterested members of the Board of Directors ("Board") of
the Bank will conduct a comprehensive performance evaluation and review of the
Executive for purposes of determining whether to extend the Agreement, and the
results thereof shall be included in the minutes of the Board's meeting. The
"disinterested" members of the Board of Directors shall be all directors other
than the director who is the "Executive" under this Agreement.
(b) During the period of his employment hereunder, except for periods
of absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall
<PAGE>
faithfully perform his duties hereunder including activities and services
related to the organization, operation and management of the Bank.
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute
the salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $125,000 per year
("Base Salary"). Such Base Salary shall be payable monthly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than ______________, 1999. Such review
shall be conducted by a Committee designated by the Board, and the Board may
increase, but not decrease, Executive's Base Salary (any increase in Base Salary
shall become the "Base Salary" for purposes of this Agreement). In addition to
the Base Salary provided in this Section 3(a), the Bank shall provide Executive
at no cost to Executive with all such other benefits as are provided uniformly
to permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate (and he shall
be entitled to a pro rata distribution under any incentive compensation or bonus
plan as to any year in which a termination of employment occurs, other than
termination for Cause). Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the benefits provided under sub-paragraph (b) of
this Section, the Executive and his dependents covered under the Bank's health
insurance plan, shall be entitled to continuing health care coverage upon the
Executive's retirement or termination of employment with the Bank, on or after
attainment of age fifty-five (55) with twenty-five years of service for the
Bank, in substantially the same amount as provided to the Executive and his
dependents prior to the Executive's termination of employment. Such retiree
health care coverage shall survive the termination of, or expiration of, this
Agreement. The Executive's retiree health care coverage shall cease upon his
attainment of age sixty-five (65).
2
<PAGE>
(d) In addition to the Base Salary provided for by paragraph (a) of
this Section 3, the Bank shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred by Executive performing his
obligations under this Agreement and may provide such additional compensation in
such form and such amounts as the Board may from time to time determine.
(e) Compensation and reimbursement to be paid pursuant to paragraphs
(a), (b), (c) and (d) of this Section 3 shall be paid by the Bank and the
Company, respectively, on a pro rata basis, based upon the amount of service the
Executive devotes to the Bank and Company, respectively.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(a) The provisions of this Section shall apply upon the occurrence of
an Event of Termination (as herein defined) during the Executive's term of
employment under this Agreement. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following:
(i) the termination by the Bank or the Company of Executive's full-time
employment hereunder for any reason other than (A) Disability or Retirement, as
defined in Section 5 below, or (B) Termination for Cause as defined in Section 6
hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as President and Chief Executive Officer of the
Bank,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in
Section 1, above,
(C) a relocation of Executive's principal place of employment
by more than 30 miles from its location at the effective date
of this Agreement, or a material reduction in the benefits and
perquisites to the Executive from those being provided as of
the effective date of this Agreement,
(D) liquidation or dissolution of the Bank or Company other
than liquidations or dissolutions that are caused by
reorganizations that do not affect the status of Executive, or
3
<PAGE>
(E) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C), (D) or
(E), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon sixty (60) days prior written notice
given within a reasonable period of time not to exceed four calendar months
after the initial event giving rise to said right to elect. Notwithstanding the
preceding sentence, in the event of a continuing breach of this Agreement by the
Bank, the Executive, after giving due notice within the prescribed time frame of
an initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C), (D) and (E) above.
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time following a Change in Control during the term
of this Agreement. For these purposes, a Change in Control of the Bank or the
Company shall mean a change in control of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Bank Holding
Company Act of 1956, as amended and the rules and regulations promulgated
thereunder, as in effect on the date hereof ("BHCA"); or (iii) without
limitation such a Change in Control shall be deemed to have occurred at such
time as (a) any "Person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Bank or
the Company representing 25% or more of the Bank's or the Company's outstanding
securities except for any securities of the Bank purchased by the Company in
connection with the conversion of the Bank to the stock form and any securities
purchased by the Bank's employee stock ownership plan and trust; or (b)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided,
however, that this sub-section (b) shall not apply if the Incumbent Board is
replaced by the appointment by a Federal banking agency of a conservator or
receiver for the Bank and, provided further that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
two-thirds of the directors comprising the Incumbent Board or whose nomination
for election by the Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (b), considered as though he were a member of the Incumbent Board; or (c)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Bank or the Company; or (d) a proxy statement soliciting
proxies from stockholders of the Company, by someone other than the current
management of the Company, seeking stockholder approval of a plan of
reorganization, merger or consolidation of the Company or Bank or similar
transaction with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Bank or the Company shall be distributed and the requisite number of proxies
approving such plan of reorganization, merger or
4
<PAGE>
consolidation of the Company or Bank are received and voted in favor of such
transactions; or (e) a tender offer is made for 25% or more of the outstanding
securities of the Bank or Company and shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Bank or Company have
tendered or offered to sell their shares pursuant to such tender offer and such
tendered shares have been accepted by the tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to three (3) times the sum of (i) Base Salary and (ii) the highest rate of bonus
awarded to the Executive during the prior three years. At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause
to be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Upon the occurrence of an Event of Termination, the Bank will honor
the provisions of Section 3(c) of this Agreement.
(e) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or
afforded to Executive under said paragraphs (the
"Termination Benefits") would be deemed to include an
"excess parachute payment" under Section 280G of the
Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an
amount (the "Non-Triggering Amount"), the value of
which is one dollar ($1.00) less than an amount equal
to the total amount of payments permissible under
Section 280G of the Code or any successor thereto,
then the Termination Benefits to be paid to Executive shall be
so reduced so as to be a Non-Triggering Amount.
5
<PAGE>
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall
mean termination in accordance with the Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Bank and
other plans to which Executive is a party.
In the event Executive is unable to perform his duties under this
Agreement on a full-time basis for a period of six (6) consecutive months by
reason of illness or other physical or mental disability, the Employer may
terminate this Agreement, provided that the Employer shall continue to be
obligated to pay the Executive his Base Salary for the remaining term of the
Agreement, or one year, whichever is the longer period of time, and provided
further that any amounts actually paid to Executive pursuant to any disability
insurance or other similar such program which the Employer has provided or may
provide on behalf of its employees or pursuant to any workman's or social
security disability program shall reduce the compensation to be paid to the
Executive pursuant to this paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
6. TERMINATION FOR CAUSE
The term "Termination for Cause" shall mean termination because of the
Executive's personal dishonesty, willful misconduct, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or omissions
shall be measured against standards generally prevailing in the savings
institutions industry. For purposes of this para graph, no act or failure to act
on the part of Executive shall be considered "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Execu tive's action or omission was in the best interest of the Bank.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after
6
<PAGE>
Termination for Cause. Any stock options granted to Executive under any stock
option plan of the Bank, the Company or any subsidiary or affiliate thereof,
shall become null and void effective upon Executive's receipt of Notice of
Termination for Cause pursuant to Section 7 hereof, and shall not be exercisable
by Executive at any time subsequent to such Termination for Cause.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, the date specified in the Notice
of Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
that a dispute exists concerning the termination, except upon the voluntary
termination by the Executive in which case the Date of Termination shall be the
date specified in the Notice, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written agreement of the
parties, by a binding arbitration award, or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal having expired and no
appeal having been perfected) and provided further that the Date of Termination
shall be extended by a notice of dispute only if such notice is given in good
faith and the party giving such notice pursues the resolution of such dispute
with reasonable diligence. Notwithstanding the pendency of any such dispute, the
Bank will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue Executive as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement,
provided such dispute is resolved within the term of this Agreement. If such
dispute is not resolved within the term of the Agreement, the Bank shall not be
obligated, upon final resolution of such dispute, to pay Executive compensation
and other payments accruing beyond the term of the Agreement. Amounts paid under
this Section shall be offset against or reduce any other amounts due under this
Agreement.
7
<PAGE>
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall
be subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information
and assistance to the Bank as may reasonably be required by the Bank in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become, a party.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder as a
result of which the Bank is paying Executive benefits under Section 4 of this
Agreement, other than a termination coincident to or following a Change in
Control, Executive agrees not to compete with the Bank and/or the Company for a
period of one (1) year following such termination in any city, town or county in
which the Bank and/or the Company has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the Bank
and/or the Company. The parties hereto, recognizing that irreparable injury will
result to the Bank and/or the Company, its business and property in the event of
Executive's breach of this Subsection 9(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by Executive, Executive's partners, agents, servants,
employers, employees and all persons acting for or with Executive. Executive
represents and admits that Executive's experience and capabilities are such that
Executive can obtain employment in a business engaged in other lines and/or of a
different nature than the Bank and/or the Company, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Bank and/or the
Company from pursuing any other remedies available to the Bank and/or the
Company for such breach or threatened breach, including the recovery of damages
from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
8
<PAGE>
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Bank or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
11. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
12. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
9
<PAGE>
13. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
14. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
15. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
16. GOVERNING LAW
This Agreement shall be governed by the laws of the State of New York
but only to the extent not superseded by federal law.
17. ARBITRATION
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Bank then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
10
<PAGE>
18. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
19. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a trustee, director or officer of the
Bank (whether or not he continues to be a trustee, director or officer at the
time of incurring such expenses or liabilities), such expenses and liabilities
to include, but not be limited to, judgments, court costs and attorneys' fees
and the cost of reasonable settlements (such settlements must be approved by the
Bank's Board). If such action, suit or proceeding is brought against Executive
in his capacity as an officer, trustee, or director of the Bank, however, such
indemnification shall not extend to matters as to which Executive is finally
adjudged to be liable for willful misconduct in the performance of his duties.
20. SUCCESSOR TO THE BANK
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
11
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and their seals to be affixed hereunto by their duly authorized
officers, and the Executive has signed this Agreement, on the day and date first
above written.
ATTEST: THE BANK OF GREENE COUNTY
By:
- ---------------------- ---------------------------------
Secretary Name:
---------------------------
Title:
--------------------------
ATTEST: GREENE COUNTY BANCORP, INC.
By:
- ---------------------- ---------------------------------
Secretary Name:
---------------------------
Title:
--------------------------
WITNESS: EXECUTIVE:
By:
- ---------------------- ---------------------------------
12
<PAGE>
Exhibit 10.2
THE BANK OF GREENE COUNTY
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective January 1, 1998)
<PAGE>
THE BANK OF GREENE COUNTY
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of
_____________, 1998, by Greene County Savings Bank, a New York chartered savings
bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth
the terms and conditions pertaining to contributions by the Employer and the
payment of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
By:
- ------------------------------------ ---------------------------------
Secretary President
<PAGE>
C 0 N T E N T S
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C>
Section 1. Plan Identity................................................................................ -1-
-------------
1.1 Name......................................................................................... -1-
----
1.2 Purpose...................................................................................... -1-
-------
1.3 Effective Date............................................................................... -1-
--------------
1.4 Fiscal Period................................................................................ -1-
-------------
1.5 Single Plan for All Employers................................................................ -1-
-----------------------------
1.6 Interpretation of Provisions................................................................. -1-
----------------------------
Section 2. Definitions.................................................................................. -1-
Section 3. Eligibility for Participation................................................................ -7-
-----------------------------
3.1 Initial Eligibility.......................................................................... -7-
-------------------
3.2 Definition of Eligibility Year............................................................... -7-
------------------------------
3.3 Terminated Employees......................................................................... -7-
--------------------
3.4 Certain Employees Ineligible................................................................. -7-
----------------------------
3.5 Participation and Reparticipation............................................................ -8-
---------------------------------
3.6 Omission of Eligible Employee................................................................ -8-
-----------------------------
3.7 Inclusion of Ineligible Employee............................................................. -8-
--------------------------------
Section 4. Contributions and Credits.................................................................... -8-
-------------------------
4.1 Discretionary Contributions.................................................................. -8-
---------------------------
4.2 Contributions for Stock Obligations.......................................................... -8-
-----------------------------------
4.3 Definitions Related to Contributions......................................................... -9-
------------------------------------
4.4 Conditions as to Contributions............................................................... -9-
------------------------------
4.5 Transfers.................................................................................... -9-
---------
Section 5. Limitations on Contributions and Allocations.................................................-10-
--------------------------------------------
5.1 Limitation on Annual Additions...............................................................-10-
------------------------------
5.2 Coordinated Limitation With Other Plans......................................................-11-
---------------------------------------
5.3 Effect of Limitations........................................................................-12-
---------------------
5.4 Limitations as to Certain Participants.......................................................-12-
--------------------------------------
Section 6. Trust Fund and Its Investment................................................................-13-
-----------------------------
6.1 Creation of Trust Fund.......................................................................-13-
----------------------
6.2 Stock Fund and Investment Fund...............................................................-13-
------------------------------
6.3 Acquisition of Stock.........................................................................-13-
--------------------
6.4 Participants' Option to Diversify............................................................-14-
---------------------------------
Section 7. Voting Rights and Dividends on Stock.........................................................-15-
------------------------------------
7.1 Voting and Tendering of Stock................................................................-15-
-----------------------------
7.2 Dividends on Stock...........................................................................-15-
------------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C>
Section 8. Adjustments to Accounts......................................................................-16-
-----------------------
8.1 Adjustments for Transactions.................................................................-16-
----------------------------
8.2 Valuation of Investment Fund.................................................................-16-
----------------------------
8.3 Adjustments for Investment Experience........................................................-16-
-------------------------------------
Section 9. Vesting of Participants' Interests...........................................................-16-
----------------------------------
9.1 Deferred Vesting in Accounts.................................................................-16-
----------------------------
9.2 Computation of Vesting Years.................................................................-17-
----------------------------
9.3 Full Vesting Upon Certain Events.............................................................-18-
--------------------------------
9.4 Full Vesting Upon Plan Termination...........................................................-18-
----------------------------------
9.5 Forfeiture, Repayment, and Restoral..........................................................-19-
-----------------------------------
9.6 Accounting for Forfeitures...................................................................-19-
--------------------------
9.7 Vesting and Nonforfeitability................................................................-19-
-----------------------------
Section 10. Payment of Benefits..........................................................................-19-
-------------------
10.1 Benefits for Participants....................................................................-19-
-------------------------
10.2 Time for Distribution........................................................................-20-
---------------------
10.3 Marital Status...............................................................................-20-
--------------
10.4 Delay in Benefit Determination...............................................................-21-
------------------------------
10.5 Accounting for Benefit Payments..............................................................-21-
-------------------------------
10.6 Options to Receive and Sell Stock............................................................-21-
---------------------------------
10.7 Restrictions on Disposition of Stock.........................................................-22-
------------------------------------
10.8 Continuing Loan Provisions; Creations of Protections and Rights..............................-22-
---------------------------------------------------------------
10.9 Direct Rollover of Eligible Distribution.....................................................-22-
----------------------------------------
10.10 Waiver of 30 Day Period After Notice of Distribution..........................................-23-
----------------------------------------------------
Section 11. Rules Governing Benefit Claims and Review of Appeals.........................................-23-
----------------------------------------------------
11.1 Claim for Benefits...........................................................................-23-
------------------
11.2 Notification by Committee....................................................................-23-
-------------------------
11.3 Claims Review Procedure......................................................................-24-
-----------------------
Section 12. The Committee and Its Functions..............................................................-24-
-------------------------------
12.1 Authority of Committee.......................................................................-24-
----------------------
12.2 Identity of Committee........................................................................-24-
---------------------
12.3 Duties of Committee..........................................................................-24-
-------------------
12.4 Valuation of Stock...........................................................................-25-
------------------
12.5 Compliance with ERISA........................................................................-25-
---------------------
12.6 Action by Committee..........................................................................-25-
-------------------
12.7 Execution of Documents.......................................................................-25-
----------------------
12.8 Adoption of Rules............................................................................-25-
-----------------
12.9 Responsibilities to Participants.............................................................-25-
--------------------------------
12.10 Alternative Payees in Event of Incapacity....................................................-26-
-----------------------------------------
12.11 Indemnification by Employers.................................................................-26-
----------------------------
12.12 Nonparticipation by Interested Member........................................................-26-
-------------------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page No.
<S> <C> <C> <C>
Section 13. Adoption, Amendment, or Termination of the Plan..............................................-26-
-----------------------------------------------
13.1 Adoption of Plan by Other Employers..........................................................-26-
-----------------------------------
13.2 Adoption of Plan by Successor................................................................-26-
-----------------------------
13.3 Plan Adoption Subject to Qualification.......................................................-26-
--------------------------------------
13.4 Right to Amend or Terminate..................................................................-27-
---------------------------
Section 14. Miscellaneous Provisions.....................................................................-27-
------------------------
14.1 Plan Creates No Employment Rights............................................................-27-
---------------------------------
14.2 Nonassignability of Benefits.................................................................-27-
----------------------------
14.3 Limit of Employer Liability..................................................................-28-
---------------------------
14.4 Treatment of Expenses........................................................................-28-
---------------------
14.5 Number and Gender............................................................................-28-
-----------------
14.6 Nondiversion of Assets.......................................................................-28-
----------------------
14.7 Separability of Provisions...................................................................-28-
--------------------------
14.8 Service of Process...........................................................................-28-
------------------
14.9 Governing State Law..........................................................................-28-
-------------------
14.10 Employer Contributions Conditioned on Deductibility..........................................-28-
---------------------------------------------------
14.11 Unclaimed Accounts...........................................................................-28-
------------------
14.12 Qualified Domestic Relations Order...........................................................-29-
----------------------------------
Section 15. Top-Heavy Provisions.........................................................................-30-
--------------------
15.1 Top-Heavy Plan...............................................................................-30-
--------------
15.2 Super Top-Heavy Plan.........................................................................-30-
--------------------
15.3 Definitions..................................................................................-30-
-----------
15.4 Top-Heavy Rules of Application...............................................................-31-
------------------------------
15.5 Top-Heavy Ratio..............................................................................-32-
---------------
15.6 Minimum Contributions........................................................................-33-
---------------------
15.7 Minimum Vesting..............................................................................-33-
---------------
15.8 Top-Heavy Provisions Control in Top-Heavy Plan...............................................-34-
----------------------------------------------
</TABLE>
(iii)
<PAGE>
THE BANK OF GREENE COUNTY
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
-------------
1.1 Name. The name of this Plan is "The Bank of Greene County Employee
Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is January 1, 1998.
1.4 Fiscal Period. This Plan shall be operated on the basis of a
January 1 to December 31 fiscal year for the purpose of keeping the Plan's books
and records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose of
crediting contributions and forfeitures and distributing benefits, determining
whether there has been any termination of Service, and applying the limitations
set forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and
the Trust to be a qualified stock bonus plan under Section 401(a) of the Code
and an employee stock ownership plan within the meaning of Section 407(d)(6) of
ERISA and Section 4975(e)(7) of the Code. The Plan is intended to have its
assets invested primarily in qualifying employer securities of one or more
Employers within the meaning of Section 407(d)(3) of ERISA, and to satisfy any
requirement under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.
Section 2. Definitions.
-----------
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated
under this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active Participant
for a particular Plan Year under Section 4.3.
<PAGE>
"Bank" means Greene County Savings Bank and any entity which succeeds
to the business of Greene County Savings Bank and adopts this Plan as its own
pursuant to Section 14.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated Beneficiaries
shall die before the Participant dies or shall die before all benefits have been
paid, the Participant's Beneficiary shall be his surviving Spouse, if any, or
his estate if he is not survived by a Spouse. The Committee may rely upon the
advice of the Participant's executor or administrator as to the identity of the
Participant's Spouse.
"Break in Service" means any Plan Year, or, for the initial eligibility
computation period under Section 3.2, the 12-consecutive month period beginning
on the first day on which an Employee has 500 or fewer Hours of Service, in
which an Employee has 500 or fewer Hours of Service. Solely for this purpose, an
Employee shall be considered employed for his normal hours of paid employment
during a Recognized Absence (said Employee shall not be credited with more than
501 Hours of Service to avoid a Break in Service), unless he does not resume his
Service at the end of the Recognized Absence. Further, if an Employee is absent
for any period beginning on or after January 1, 1985, (i) by reason of the
Employee's pregnancy, (ii) by reason of the birth of the Employee's child, (iii)
by reason of the placement of a child with the Employee in connection with the
Employee's adoption of the child, or (iv) for purposes of caring for such child
for a period beginning immediately after such birth or placement, the Employee
shall be credited with the Hours of Service which would normally have been
credited but for such absence, up to a maximum of 501 Hours of Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of
this Plan in accordance with Section 12.
"Company" means Greene County Bancorp, Inc., the stock holding company
of the Bank.
"Disability" means only a disability which renders the Participant
totally unable, as a result of bodily or mental disease or injury, to perform
any duties for an Employer for which he is reasonably fitted, which disability
is expected to be permanent or of long and indefinite duration. However, this
term shall not include any disability directly or indirectly resulting from or
related to habitual drunkenness or addiction to narcotics, a criminal act or
attempt, service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
-2-
<PAGE>
"Early Retirement" means retirement on or after a Participant's
attainment of age 55 and the completion of ten years of Service for an Employer.
If the Participant separates from Service before satisfying the age requirement,
but has satisfied the Service requirement, the Participant will be entitled to
elect early retirement upon satisfaction of the age requirement.
"Effective Date" means January 1, 1998.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any related
persons (within the meaning of Section 414(n)(6) of the Code) on a substantially
full-time basis for more than one year, if such services are performed under the
primary direction or control of the Employer. However, such a "leased employee"
shall not be considered an Employee if (i) he participates in a money purchase
pension plan sponsored by the leasing organization which provides for immediate
participation, immediate full vesting, and an annual contribution of at least 10
percent of the Employee's 415 Compensation, and (ii) leased employees do not
constitute more than 20 percent of the Employer's total work force (including
leased employees, but excluding Highly Paid Employees and any other employees
who have not performed services for the Employer on a substantially full-time
basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of
section 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Bank's consent
pursuant to Section 13.1, and any entity which succeeds to the business of any
Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each January 1
and July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"415 Compensation"
(a) shall mean wages, as defined in Code Section 3401(a) for
purposes of income tax withholding at the source.
(b) For Plan Years beginning after December 31, 1997, any
elective deferral as defined in Code Section 402(g)(3) (any Employer
contributions made on behalf of a Participant to the extent not
includible in gross income and any Employer contributions to purchase
an annuity contract under Code Section 403(b) under a salary reduction
agreement) and any amount which is contributed or deferred by the
Employer at the election of the Participant and which is not includible
in gross income of the Participant by reason of Code Section 125
(Cafeteria Plan) shall also be included in the definition of 415
Compensation.
-3-
<PAGE>
(c) 415 Compensation in excess of $160,000 (as indexed) shall
be disregarded for all Participants. For purposes of this sub-section,
the $160,000 limit shall be referred to as the "applicable limit" for
the Plan Year in question. The $160,000 limit shall be adjusted for
increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code, effective for the Plan Year which begins
within the applicable calendar year. For purposes of the applicable
limit, 415 Compensation shall be prorated over short Plan Years.
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or had 415
Compensation exceeding $80,000 and was among the most highly compensated
one-fifth of all Employees. For this purpose:
(a) "415 Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant
to Sections 125, 402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account
all individuals working for all related Employer entities described in
the definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per week or in fewer than six months per year, who has not
reached age 21, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to
be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays,
illness, disability, lay-off, jury duty, temporary military duty, or
leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period which an Employee performs no
duties. No more than 501 Hours of Service will be credited under this
paragraph for any single continuous period (whether or not such period
occurs in a single computation period). Further, no Hours of Service
shall be credited on account of payments made solely under a plan
maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee
for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not
have performed any duties. The same Hours of Service will not be
credited both under paragraph (a) or (b) as the case may be, and under
this paragraph (c). These hours will be credited to the
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employee for the computation period or periods to which the award or
agreement pertains rather than the computation period in which the
award agreement or payment is made.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee may
not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
(f) Hours of Service to be credited on account of a payment to
an Employee (including back pay) shall be recorded in the period of
Service for which the payment was made. If the period overlaps two or
more Plan Years, the Hours of Service credit shall be allocated in
proportion to the respective portions of the period included in the
several Plan Years. However, in the case of periods of 31 days or less,
the Administrator may apply a uniform policy of crediting the Hours of
Service to either the first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of
assets other than Stock. Notwithstanding the above, assets from the Investment
Fund may be used to purchase Stock in the open market or otherwise, or used to
pay on the Stock Obligation, and shares so purchased will be allocated to a
Participant's Stock Fund.
"Normal Retirement" means retirement on or after the later of a
Participant's 65th birthday or fifth year of Service.
"Normal Retirement Date" means the later of the date on which a
Participant attains age 65 or completes five years of Service.
"Participant" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"Plan Year" means the twelve month period commencing January 1 and
ending December 31, 1998 and each period of 12 consecutive months beginning on
January 1 of each succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leave on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because
of a change in business conditions; or
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(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military
Selective Service Act of 1967 (38 U.S.C. Sec. 2021).
"Service" means an Employee's period(s) of employment or
self-employment with an Employer, excluding for initial eligibility purposes any
period in which the individual was a nonresident alien and did not receive from
an Employer any earned income which constituted income from sources within the
United States. An Employee's Service shall include any service which constitutes
service with a predecessor employer within the meaning of Section 414(a) of the
Code. An Employee's Service shall also include any service with an entity which
is not an Employer, but only either (i) for a period after 1975 in which the
other entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of Section
414(b) or 414(c) of the Code, and a member of the controlled group or one of the
trades and businesses is an Employer, (ii) for a period after 1979 in which the
other entity is a member of an affiliated service group within the meaning of
Section 414(m) of the Code, and a member of the affiliated service group is an
Employer, or (iii) all employers aggregated with the Employer under Section
414(o) of the Code (but not until the Proposed Regulations under Section 414(o)
become effective).
"Spouse" means the individual, if any, to whom a Participant is
lawfully married on the date benefit payments to the Participant are to begin,
or on the date of the Participant's death, if earlier. A former spouse shall be
treated as the Spouse or surviving Spouse to the extent provided under a
qualified domestic relations order as described in section 414(p) of the Code.
"Stock" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined
in Treasury Regulations ss. 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.
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"Trustee" means one or more corporate persons or individuals selected
from time to time by the Bank to serve as trustee or co-trustees of the Trust
Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of Stock which have been acquired in exchange
for one or more Stock obligations and which have not yet been allocated to the
Participant's Accounts in accordance with Section 4.2
"Valuation Date" means the last day of the Plan Year and each other
date as of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and
ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest in his
Account.
Section 3. Eligibility for Participation.
-----------------------------
3.1 Initial Eligibility. An Employee shall enter the Plan as of the
Entry Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is
not in active Service with an Employer on the date he would otherwise
first enter the Plan, his entry shall be deferred until the next day he
is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the
12-consecutive month period beginning on the first day on which he has
an Hour of Service, and
(b) his subsequent eligibility periods will be 12-consecutive
month periods beginning on each January 1 after that first day of
Service.
3.3 Terminated Employees. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 Certain Employees Ineligible. No Employee shall participate in the
Plan while his Service is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan.
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3.5 Participation and Reparticipation. Subject to the satisfaction of
the foregoing requirements, an Employee shall participate in the Plan during
each period of his Service from the date on which he first becomes eligible
until his termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after 5 consecutive one year Breaks in Service with
a vested Account balance in the Plan shall re-enter the Plan as of the date of
his return to Service with an Employer.
3.6 Omission of Eligible Employee. If, in any Plan Year, any Employee
who should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person
who should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to the ineligible person
shall constitute a forfeiture for the Plan Year in which the discovery is made.
Section 4. Contributions and Credits.
--------------------------
4.1 Discretionary Contributions. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer may contribute for each Plan Year an amount sufficient to
cover all payments of principal and interest as they come due under the terms of
the Stock Obligation. If there is more than one Stock Obligation, the Employer
shall designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
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At the direction of the Committee, the current and projected payments
of interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it,
and any dividends on such Stock, shall be considered separately. The Stock
released from the Unallocated Stock Fund in any Plan Year shall be credited as
of the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.3 Definitions Related to Contributions. For the purposes of this
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1000 Hours of
Service during the current Plan Year. However, a Participant shall not qualify
as an Active Participant unless (i) he is in active Service with an Employer as
of the last day of the Plan Year, or (ii) he is on a Recognized Absence as of
that date, or (iii) his Service terminated during the Plan Year by reason of
Disability, death, Early or Normal Retirement.
"Cash Compensation" means a Participant's 415 Compensation as defined
in Section 2 of the Plan and shall also include amounts contributed under a
salary reduction agreement pursuant to Section 401(k) or Section 125 of the
Code.
In the event a Plan Year is a period of less than 12 months for any
reason, then Cash Compensation for the short period shall not exceed the pro
rata portion of this limit created by multiplying a fraction which is the number
of months in the short period divided by twelve times the annual compensation
limit.
4.4 Conditions as to Contributions. Employers' contributions shall in
all events be subject to the limitations set forth in Section 5. Contributions
may be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
4.5 Transfers. This Plan does not accept direct and indirect transfers,
including roll-over contributions from other tax-qualified plans.
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Section 5. Limitations on Contributions and Allocations.
--------------------------------------------
5.1 Limitation on Annual Additions. Notwithstanding anything herein to
the contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance
with Section 4.1 will result in an allocation of more than one-third
the total contributions for a Plan Year to the Accounts of Highly Paid
Employees, then allocation of such amount shall be adjusted so that
such excess will not occur.
5.1-2 After adjustment, if any, required by the preceding
paragraph, the annual additions during any Plan Year to any
Participant's Account under this and any other defined contribution
plans maintained by the Employer or an affiliate (within the purview of
Section 414(b), (c) and (m) and Section 415(h) of the Code, which
affiliate shall be deemed the Employer for this purpose) shall not
exceed the lesser of $30,000 (or such other dollar amount which results
from cost-of-living adjustments under Section 415(d) of the Code) or
"25 percent of the Participant's 415 Compensation for such limitation
year." In the event that annual additions exceed the aforesaid
limitations, they shall be reduced in the following priority:
(i) If the Participant is covered by the Plan at the end of
the Plan Year, any excess amount at the end of the Plan Year that
cannot be allocated to the Participant's Account shall be used to
reduce the Employer contribution for such Participant in the next
limitation year and any succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end
of the Plan Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce future
Employer contributions for all remaining Participants in the next
limitation year and each succeeding limitation year if necessary.
(iii) If a suspense account is in existence at any time during
a limitation year, it will not participate in any allocation of
investment gains and losses. All amounts held in suspense accounts must
be allocated to Participant's Accounts before any contributions may be
made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following
Section 5.2, the "annual addition" to a Participant's accounts means
the sum of (i) Employer contributions, (ii) Employee contributions, if
any, and (iii) forfeitures. Annual additions to a defined contribution
plan also include amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section 415(l)(2) of the
Internal Revenue Code, which is part of a pension or annuity plan
maintained by the Employer, amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such
date, which are attributable to post-retirement medical benefits
allocated to the separate account of a Key Employee under a welfare
benefit fund, as defined in Section 419A(d) of the Internal Revenue
Code, maintained by the Employer. For these purposes, annual additions
to a defined contribution plan shall not include
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the allocation of the excess amounts remaining in the Unallocated Stock
Fund subsequent to a sale of stock from such fund in accordance with a
transaction described in Section 8.1 of the Plan. The $30,000
limitations referred to shall, for each limitation year ending after
1988, be automatically adjusted to the new dollar limitations
determined by the Commissioner of Internal Revenue for the calendar
year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third
of the Employer contributions to the Plan for a year which are
deductible under Section 404(a)(9) of the Code are allocated to Highly
Paid Employees (within the meaning of Section 414(q) of the Internal
Revenue Code), the limitations imposed herein shall not apply to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's Account.
5.1-5 If the Employer contributes amounts, on behalf of
Employees covered by this Plan, to other "defined contribution plans"
as defined in Section 3(34) of ERISA, the limitation on annual
additions provided in this Section shall be applied to annual additions
in the aggregate to this Plan and to such other plans. Reduction of
annual additions, where required, shall be accomplished first by
reductions under such other plan pursuant to the directions of the
named fiduciary for administration of such other plans or under
priorities, if any, established under the terms of such other plans and
then by allocating any remaining excess for this Plan in the manner and
priority set out above with respect to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month
period beginning each January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
Accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the accrued benefit shall be limited so that the sum of his defined plan
fraction and his defined contribution plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator of which
is the sum of the annual additions to his Accounts through the current
year, and (ii) the denominator of which is the sum of the lesser of the
following amounts -A- and -B- determined for the current limitation
year and each prior limitation year of Service with an Employer: -A- is
1.25 times the dollar limit in effect for the year under Section
415(c)(1)(A) of the Code, or 1.0 times such dollar limitation if the
Plan is super top-heavy, and -B- is 35 percent of the Participant's 415
Compensation for such year. Further, if the Participant participated in
any related defined contribution plan in any years beginning before
1976, any excess of the sum of the actual annual additions to the
Participant's Accounts for those years over the maximum annual
additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into
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account as to each such year only to the extent that his average annual
voluntary contribution in those years exceeded 10 percent of his
average annual 415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with
respect to a limitation year shall be a fraction, (i) the numerator of
which is his projected annual benefit payable at normal retirement
under the Employers' defined benefit plans, and (ii) the denominator of
which is the lesser of (a) 1.25 times $90,000, or 1.0 times such dollar
limitation if the Plan is super top-heavy, and (b) 1.4 times the
Participant's average 415 Compensation during his highest-paid three
consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may
be necessary from time to time to assure compliance with the limitations set
forth in Section 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 Limitations as to Certain Participants. Aside from the limitations
set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a
transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the Code,
without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a corporation
which issued the Stock acquired by the Plan, or another corporation within the
same controlled group, as defined in Section 409(l)(4) of the Code (any such
class of stock hereafter called a "Related Class"). For this purpose, a
Participant who owns more than 25 percent of any Related Class at any time
within the one year preceding the Plan's purchase of the Stock shall be subject
to the restriction as to all allocations of the Stock, but any other Participant
shall be subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is related to
such a shareholder within the meaning of Section 267(b) of the Code, during the
period beginning on the date of sale and ending on the later of (1) the date
that is ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
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Section 6. Trust Fund and Its Investment.
-----------------------------
6.1 Creation of Trust Fund. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 Acquisition of Stock. From time to time the Committee may, in its
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the term
"guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation in order to qualify as an "exempt loan" is not a refinancing of the
Stock Obligation or the making of another Stock Obligation. The term "exempt
loan" refers to a loan that satisfies the provisions of this paragraph. A
"non-exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be
subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and shall bear
a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the
Stock Obligation, or the Stock previously pledged in connection with a
prior Stock Obligation which is being repaid with the proceeds of the
current Stock Obligation. No other assets of the Plan and Trust may be
used as collateral for a Stock Obligation, and no creditor under a
Stock Obligation shall have any right or recourse to any Plan and Trust
assets other than Stock remaining subject to a collateral pledge.
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6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with payments on
the Stock obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation shall be made by the Trustee only from Employer cash
contributions designated for such payments, from earnings on such
contributions, and from cash dividends received on Stock, in the last
case, however, subject to the further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value
of Plan assets transferred in satisfaction of the Stock Obligation must
not exceed the amount of the default. If the lender is a disqualified
person within the meaning of Section 4975 of the Code, a Stock
Obligation must provide for a transfer of Plan assets upon default only
upon and to the extent of the failure of the Plan to meet the payment
schedule of said Stock Obligation. For purposes of this paragraph, the
making of a guarantee does not make a person a lender.
6.4 Participants' Option to Diversify. The Committee shall provide for
a procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may be made within each year of the qualified election period and shall
continue for the 90-day period immediately following the last day of each year
in the qualified election period. Once a Participant makes such election, the
Plan must complete diversification in accordance with such election within 90
days after the end of the period during which the election could be made for the
Plan Year. In the discretion of the Committee, the Plan may satisfy the
diversification requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount
subject to the diversification election.
6.4-2 The Plan may offer the Participant at least three other
distinct investment options, if available under the Plan. The other
investment options shall satisfy the requirements of Regulations under
Section 404(c) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's
Account subject to the diversification election to another qualified
defined contribution plan of the Employer that offers at least three
investment options satisfying the requirements of the Regulations under
Section 404(c) of ERISA.
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Section 7. Voting Rights and Dividends on Stock.
------------------------------------
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers
shall provide the Trustee, in a timely manner, with the same notices and other
materials as are provided to other holders of the Stock, which the Trustee shall
distribute to the Participants. The Participants shall be provided with adequate
opportunity to deliver their instructions to the Trustee regarding the voting of
Stock allocated to their Accounts. The instructions of the Participants' with
respect to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with respect to
the voting of Stock. Notwithstanding any provision hereunder to the
contrary, Stock must be tendered by the Trustee in a manner determined
by the Trustee to be for the exclusive benefit of the Participants and
Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account are
used to repay the Stock Obligation, Stock with a fair market value equal to the
dividends so used must be allocated to such Participant's Account in lieu of the
dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account
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balances) and shall be applied as soon as practicable to payments of principal
and interest under the Stock Obligation incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
-----------------------
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account. Any
benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording each
asset (including any contribution receivable from an Employer) and liability at
its fair market value. Any liability with respect to short positions or options
and any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account. Any cash
dividends received on Stock credited to Participant's Accounts shall be
allocated as of the last day of the Valuation Period among the Participants'
Accounts based on the opening balance in each Participant's Stock Fund Account.
Section 9. Vesting of Participants' Interests.
----------------------------------
9.1 Deferred Vesting in Accounts. A Participant's vested interest in
his Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
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<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------- ---------------
<S> <C> <C>
Fewer than 5................................... 0%
5.............................................. 100%
</TABLE>
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
----------------------------
Year" means generally a calendar year in which an Employee has at least 1,000
Hours of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, including Service with other
employers as provided in the definition of "Service". Notwithstanding the above,
an Employee who was employed with Greene County Savings Bank, a New York mutual
bank (the "Mutual Bank") which is the predecessor to the Bank, shall receive
credit for vesting purposes for each calendar year of continuous employment with
the Mutual Bank in which such Employee completed 1,000 Hours of Service (such
years shall also be referred to as "Vesting Years"). However, a Participant's
Vesting Years shall be computed subject to the following conditions and
qualifications:
9.2-1 A Participant's Vesting Years shall not include any
Service prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account
accumulated before five (5) consecutive Breaks in Service shall be
determined without regard to any Service after such five consecutive
Breaks in Service. Further, if a Participant has five (5) consecutive
Breaks in Service before his interest in his Account has become vested
to some extent, pre-Break years of Service shall not be required to be
taken into account for purposes of determining his post-Break vested
percentage.
9.2-3 In the case of a Participant who has 5 or more
consecutive 1-year Breaks in Service, the Participant's pre-break
Service will count in vesting of the Employer-derived post- break
accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in
the accrued benefit attributable to Employer
contributions at the time of separation from Service,
or
(ii) upon returning to Service the number of consecutive
1-year Breaks in Service is less than the number of
years of Service.
9.2-4 Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38
U.S.C. Section 2021).
9.2-5 If any amendment changes the vesting schedule, including
an automatic change to or from a top-heavy vesting schedule, any
Participant with three (3) or more Vesting 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 election period must begin not later than the later of sixty (60)
days after the amendment is adopted, the amendment becomes effective,
or the Participant is issued written notice of the amendment by the
Employer or the Committee.
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<PAGE>
9.3 Full Vesting Upon Certain Events.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his
Account shall fully vest on the Participant's Normal Retirement Date. The
Participant's interest shall also fully vest in the event that his Service is
terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest
in the event of a "Change in Control" of the Bank, or the Company. For these
purposes, "Change in Control" shall mean a change in control of a nature that:
(i) would be required to be reported in response to Item 1(a) of the current
report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
results in a Change in Control of the Bank or the Company within the meaning of
the Bank Holding Company Act, as amended ("BHCA"), and applicable rules and
regulations promulgated thereunder, as in effect at the time of the Change in
Control; or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (a) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner"(as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 25% or more of the combined voting power
of Company's outstanding securities except for any securities purchased by the
Bank's employee stock ownership plan or trust; or (b) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason to
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Company's stockholders was approved by the
same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (b), considered as though he were a member of the
Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Bank or the Company or similar
transaction in which the Bank or Company is not the surviving institution
occurs; or (d) a proxy statement soliciting proxies from stockholders of the
Company, by someone other than the current management of the Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the Plan
are to be exchanged for or converted into cash or property or securities not
issued by the Company; or (e) a tender offer is made for 25% or more of the
voting securities of the Company and the shareholders owning beneficially or of
record 25% or more of the outstanding securities of the Company have tendered or
offered to sell their shares pursuant to such tender offer and such tendered
shares have been accepted by the tender offeror.
9.3-3 Upon a Change in Control described in Section 9.3-2, the Plan
shall be terminated and the Plan Administrator shall direct the Trustee to sell
a sufficient amount of Stock from the Unallocated Stock Fund to repay any
outstanding Stock Obligation in full. The proceeds of such sale shall be used to
repay such Stock Obligation. After repayment of the Stock Obligation, all
remaining shares in the Unallocated Stock Fund (or the proceeds thereof, if
applicable) shall be treated as earnings and shall be allocated in accordance
with the requirements of Section 8.1.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
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<PAGE>
termination, the interest of each affected Participant who is in Service shall
fully vest with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks In Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have a received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 Accounting for Forfeitures. If a portion of a Participant's Account
is forfeited, Stock allocated to said Participant's Account shall be forfeited
only after other assets are forfeited. If interests in more than one class of
Stock have been allocated to a Participant's account, the Participant must be
treated as forfeiting the same proportion of each class of Stock. A forfeiture
shall be charged to the Participant's Account as of the first day of the first
Valuation Period in which the forfeiture becomes certain pursuant to Section
9.5. Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are to be
credited to other Participants pursuant to Section 4.1 as of the last day of the
Plan Year in which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
-------------------
10.1 Benefits for Participants. For a Participant whose Service ends
for any reason, distribution will be made to or for the benefit of the
Participant or, in the case of the Participant's death, his Beneficiary, by
payment in a lump sum, in accordance with Section 10.2.
Notwithstanding the foregoing, if the balance credited to his Account
exceeds $5,000, his benefits shall not be paid before the latest of his 65th
birthday or the tenth anniversary of the year in which he commenced
participation in the Plan unless he elects an early payment date in a written
election filed with the Committee. A Participant may modify such an election at
any time, provided any new benefit payment date is at least 30 days after a
modified election is delivered to the Committee, subject to the provisions of
Section 10.11 hereof.
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<PAGE>
10.2 Time for Distribution.
10.2.1 Distribution of the balance of a Participant's Account
generally shall commence as soon as practicable after the last day of
the Plan Year next following his termination of Service for any reason,
but no later than one year after the close of the Plan Year:
(i) in which the Participant separates from Service
by reason of Normal Retirement, Disability, or death; or
(ii) which is the fifth Plan Year following the year
in which the Participant resigns or is dismissed, unless he is
reemployed before such date.
10.2.2 Unless the Participant elects otherwise, the
distribution of the balance of a Participant's Account shall commence not later
than the 60th day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in
which the Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the
Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with
respect to a 5-percent owner (as defined in Code Section 416),
distribution of a Participant's Account shall commence (whether or not
he remains in the employ of the Employer) not later than the April 1 of
the calendar year next following the calendar year in which the
Participant attains age 70- 1/2, and (2) with respect to all other
Participants, payment of a Participant's benefit will commence not
later than April 1 of the calendar year following the calendar year in
which the Participant attains age 70-1/2, or, if later, the year in
which the Participant retires. A Participant's benefit from that
portion of his Account committed to the Investment Fund shall be
calculated on the basis of the most recent Valuation Date before the
date of payment.
10.2.4 Distribution of a Participant's Account balance after
his death shall comply with the following requirements:
(i) If a Participant dies before his distributions
have commenced, distribution of his Account to his Beneficiary
shall commence not later than one year after the end of the
Plan Year in which the Participant died, however, if the
Participant's Beneficiary is his surviving Spouse,
distributions may commence on the date on which the
Participant would have attained age 70-1/2.
(ii) If a married Participant dies before his benefit
payments begin, then unless he has specifically elected
otherwise the Committee shall cause the balance in his Account
to be paid to his Spouse. No election by a married Participant
of a different Beneficiary shall be valid unless the election
is accompanied by the Spouse's written consent, which
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<PAGE>
(i) must acknowledge the effect of the election, (ii) must
explicitly provide either that the designated Beneficiary may
not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without
such consent, and (iii) must be witnessed by the Committee,
its representative, or a notary public. (This requirement
shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.)
10.3 Marital Status. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most reliable
information in the Employer's possession regarding its Participants' marital
status, and the Committee may, in its discretion, require a notarized affidavit
from any Participant as to his marital status. The Committee, the Plan, the
Trustee, and the Employers shall be fully protected and discharged from any
liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or
by-laws of the Employers issuing Stock, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of Stock to make the required distribution. Alternatively, a terminated
Participant or the Beneficiary of a deceased Participant may instruct the
Committee to distribute the Participant's entire vested interest in his Account
in cash. In all other cases, the Participant's vested interest in the Stock Fund
shall be distributed in shares of Stock, and his vested interest in the
Investment Fund shall be distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by reason
of the Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described in
Section 402(a)(5) of the Code, shall have the right to require the Employer
which issued the Stock to purchase the Stock for its current fair market value
(hereinafter referred to as the "put right"). The put right shall be exercisable
by written notice to the Committee during the first 60 days after the Stock is
distributed by the Plan, and, if not exercised in that period, during the first
60 days in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market value.
However, the put right shall not apply to the extent that the Stock, at the time
the put right would otherwise be exercisable, may be sold on an established
market in accordance with federal and state securities laws and regulations.
Similarly, the put option shall not apply with respect to the portion of a
Participant's Account which the Employee elected to have reinvested under Code
Section
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401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed by
the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.
The Employer or the Trustee, as the case may be, may elect to pay for
the Stock in equal periodic installments, not less frequently than annually,
over a period not longer than five years from the day after the put right is
exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 Continuing Loan Provisions; Creations of Protections and Rights.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 Direct Rollover of Eligible Distribution. A Participant or
distributee may elect, at the time and in the manner prescribed by the Trustee
or the Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does
not include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives (or
joint life expectancies) of the
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Participant and the Participant's Beneficiary, or for a specified
period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual
retirement account described in Code Section 401(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan
described in Code Section 403(a), or a qualified trust described in
Code Section 401(a), 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.
10.9-3 A "direct rollover" is a payment by the Plan to the
eligible retirement plan specified by the distributee.
10.9-4 The term "distributee" shall refer to a deceased
Participant's Spouse or a Participant's former Spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Code Section 414(p).
10.10 Waiver of 30 Day Period After Notice of Distribution. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as
applicable, clearly informs the Participant
that the Participant has a right to a period
of at least 30 days after receiving the
notice to consider the decision of whether
or not to elect a distribution (and, if
applicable, a particular option), and
(ii) the Participant, after receiving the notice,
affirmatively elects a distribution.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
----------------------------------------------------
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the day before the date on which benefits become payable, he
shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim
for benefits (or within 180 days, if special circumstances require an extension
of time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
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(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on
which the denial is based;
(iii) a description of any additional material or information
which could be submitted by the Participant or Beneficiary to support
his claim, with an explanation of the relevance of such information;
and
(iv) an explanation of the claims review procedures set forth
in Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
-------------------------------
12.1 Authority of Committee. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have no investment responsibility with respect to the Investment
Fund except to the extent, if any, specifically provided in the Trust Agreement.
In the discharge of its duties, the Committee may employ accountants, actuaries,
legal counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
12.2 Identity of Committee. The Committee shall consists of three or
more individuals selected by the Bank. Any individual, including a director,
trustee, shareholder, officer, or Employee of an Employer, shall be eligible to
serve as a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may
be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer
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the Trust. The Committee shall see to the filing with the appropriate government
agencies of all reports and returns required of the Plan Committee under ERISA
and other laws.
Further, the Committee shall have exclusive responsibility and
authority with respect to the Plan's holdings of Stock and shall direct the
Trustee in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations. The
Committee shall at all times act consistently with the Bank's long-term
intention that the Plan, as an employee stock ownership plan, be invested
primarily in Stock. Subject to the direction of the Board as to the application
of Employer contributions to Stock Obligations, and subject to the provisions of
Sections 6.4 and 10.6 as to Participants' rights under certain circumstances to
have their Accounts invested in Stock or in assets other than Stock, the
Committee shall determine in its sole discretion the extent to which assets of
the Trust shall be used to repay Stock Obligations, to purchase Stock, or to
invest in other assets to be selected by the Trustee or an investment manager.
No provision of the Plan relating to the allocation or vesting of any interests
in the Stock Fund or the Investment Fund shall restrict the Committee from
changing any holdings of the Trust, whether the changes involve an increase or a
decrease in the Stock or other assets credited to Participants' Accounts. In
determining the proper extent of the Trust's investment in Stock, the Committee
shall be authorized to employ investment counsel, legal counsel, appraisers, and
other agents to pay their reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
established by reported trading on a generally recognized public market, the
valuation of such Stock shall be determined by an independent appraiser. For
purposes of the preceding sentence, the term "independent appraiser" means any
appraiser meeting requirements similar to the requirements of the regulations
prescribed under Section 170(a)(1) of the Code.
12.5 Compliance with ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary
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to make whatever elections may be available pursuant to Sections 6 and 10, and
the Committee shall provide for the payment of benefits in the proper form and
amount from the assets of the Trust Fund. The Committee may decide in its sole
discretion to permit modifications of elections and to defer or accelerate
benefits to the extent consistent with applicable law and the best interests of
the individuals concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds
at any time that an individual qualifying for benefits under this Plan is a
minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, or a custodian for him
under the Uniform Gifts to Minors Act, or, in the case of an incompetent, to his
spouse, or his legal guardian, the payments to be used for the individual's
benefit. The Committee and the Trustee shall not be obligated to inquire as to
the actual use of the funds by the person receiving them under this Section
12.10, and any such payment shall completely discharge the obligations of the
Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 Indemnification by Employers. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employer, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
-----------------------------------------------
13.1 Adoption of Plan by Other Employers. With the consent of the Bank,
any entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
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13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure approval of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Bank intends to continue this
Plan as a permanent program. However, each participating Employer separately
reserves the right to suspend, supersede, or terminate the Plan at any time and
for any reason, as it applies to that Employer's Employees, and the Bank
reserves the right to amend, suspend, supersede, merge, consolidate, or
terminate the Plan at any time and for any reason, as it applies to the
Employees of each Employer. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall (i) reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, (ii) reduce or restrict,
either directly or indirectly, the benefit provided any Participant prior to the
amendment, or (iii) divert any portion of the Trust Fund to purposes other than
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan. Moreover, there shall not be any
transfer of assets to a successor plan or merger or consolidation with another
plan unless, in the event of the termination of the successor plan or the
surviving plan immediately following such transfer, merger, or consolidation,
each participant or beneficiary would be entitled to a benefit equal to or
greater than the benefit he would have been entitled to if the plan in which he
was previously a participant or beneficiary had terminated immediately prior to
such transfer, merger, or consolidation. Following a termination of this Plan by
the Bank, the Trustee shall continue to administer the Trust and pay benefits in
accordance with the Plan as amended from time to time and the Committee's
instructions.
Section 14. Miscellaneous Provisions.
------------------------
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or
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<PAGE>
former spouse, child or other dependent of a Participant pursuant to a State
domestic relations or community property law, unless the judgment, decree, or
order is determined by the Committee to be a qualified domestic relations order
within the meaning of Section 414(p) of the Code, as more fully set forth in
Section 14.12 hereof.
14.3 Limit of Employer Liability. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and
the Trustee in connection with administering this Plan and Trust Fund shall be
paid by the Trustee from the Trust Fund to the extent the expenses have not been
paid or assumed by the Employer or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held
to be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the
Plan shall be the president of the Bank, or such other person as may be
designated from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance
with the laws of the State of New York to the extent those laws are applicable
under the provisions of ERISA.
14.10 Employer Contributions Conditioned on Deductibility. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall
be under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
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(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary
are unknown to the Trustees, the Plan will forfeit the benefit,
provided that the benefit is subject to a claim for reinstatement if
the Participant or Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the
Trustees shall operate as a complete discharge of all obligations of the
Trustees, to the extent of the distributions so made.
14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply
to a "qualified domestic relations order" defined in Code Section 414(p), and
such other domestic relations orders permitted to be so treated by Administrator
under the provisions of the Retirement Equity Act of 1984. Further, to the
extent provided under a "qualified domestic relations order", a former Spouse of
a Participant shall be treated as the Spouse or surviving Spouse for all
purposes under the Plan.
In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify
the Participant and any other alternate payee of the receipt of such
order and the Plan's procedures for determining the qualified status of
domestic relations orders, and
(b) Within a reasonable period after receipt of such order,
the Employer or the Plan Committee shall determine whether such order
is a qualified domestic relations order and notify the Participant and
each alternate payee of such determination. The Employer or the Plan
Committee shall establish reasonable procedures to determine the
qualified status of domestic relations orders and to administer
distributions under such qualified orders.
During any period in which the issue of whether a domestic relations
order is a qualified domestic relations order is being determined (by the
Employer or Plan Committee, by a court of competent jurisdiction, or otherwise),
the Employer or the Plan Committee shall segregate in a separate account in the
Plan or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Plan Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
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Section 15. Top-Heavy Provisions.
--------------------
15.1 Top-Heavy Plan. For any Plan Year beginning after December 31,
1983, this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
15.2 Super Top-Heavy Plan For any Plan Year beginning after December
31, 1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety
percent (90%) and this Plan is not part of any required aggregation group or
permissive aggregation group.
(b) If this Plan is a part of a required aggregation group
(but is not part of a permissive aggregation group) and the aggregate top-heavy
ratio for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and
part of a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 Definitions.
In making this determination, the Committee shall use the following definitions
and principles:
15.3-1 The "Determination Date", with respect to the first
Plan Year of any plan, means the last day of that Plan Year, and with
respect to each subsequent Plan Year, means the last day of the
preceding Plan Year. If any other plan has a Determination Date which
differs from this Plan's Determination Date, the top-heaviness of this
Plan shall be determined on the basis of the other plan's Determination
Date falling within the same calendar years as this Plan's
Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning
the largest interests in the Employer having 415 Compensation greater
than the limit then in effect under Section 415(c)(1)(A), (iii) an
owner of
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more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer, or (iv) an owner of more
than one percent of the outstanding equity interest or the outstanding
voting interest in an Employer whose annual compensation exceeds
$150,000. For purposes of determining whether an Employee is a Key
Employee, annual compensation means compensation as defined in Section
415(c)(3) of the Code, but including amounts contributed by the
Employee pursuant to a salary reduction agreement which are excludable
from the Employee's gross income under Section 125, Section 402(e)(3),
Section 402(H)(1)(B) or Section 403(b) of the Code. The Beneficiary of
a Key Employee shall also be considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time
during the five years ending on the top-heavy Determination Date for
the Plan Year has received compensation from an Employer and who has
never been a Key Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each
qualified Plan of the Employer in which at least one Key Employee
participates in the Plan Year containing the Determination Date and any
of the four (4) preceding Plan Years, and (b) any other qualified Plan
of the Employer which enables a Plan described in (a) to meet the
requirements of Code Sections 401(a)(4) and 410. For purposes of the
preceding sentence, a qualified Plan of the Employer includes a
terminated Plan maintained by the Employer within the five (5) year
period ending on the Determination Date. In the case of a required
aggregation group, each Plan in the group will be considered a
top-heavy Plan if the required aggregation group is a top-heavy group.
No Plan in the required aggregation group will be considered a
top-heavy Plan if the required aggregation group is not a top-heavy
group. All Employers aggregated under Code Sections 414(b), (c) or (m)
or (o) (but only after the Code Section 414(o) regulations become
effective) are considered a single Employer.
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the
Employer that are not required to be aggregated but which, when
considered as a group with the required aggregation group, satisfy the
requirements of Code Sections 401(a)(4) and 410 and are comparable to
the Plans in the required aggregation group. No Plan in the permissive
aggregation group will be considered a top-heavy Plan if the permissive
aggregation group is not a top-heavy group. Only a Plan that is part of
the required aggregation group will be considered a top-heavy Plan if
the permissive aggregation group is top-heavy.
15.4 Top-Heavy Rules of Application.
For purposes of determining the value of Account balances and
the present value of accrued benefits the following provisions shall apply:
15.4-1 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 or ends with the twelve (12) month period ending
on the Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy,
the present value of an individual's accrued benefits and an
individual's Account balances is counted only once each year.
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<PAGE>
15.4-3 The Account balances and accrued benefits of a
Participant who is not presently a Key Employee but who was a Key
Employee in a Plan Year beginning on or after January 1, 1984 will be
disregarded.
15.4-4 Employer contributions attributable to a salary
reduction or similar arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances
and accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount
of the Account balances of an Employee shall be increased by the
aggregate distributions made to such Employee from a Plan of the
Employer. No distribution, however, made from the Plan to an individual
(other than the beneficiary of a deceased Employee who was an Employee
within the five (5) year period ending on the Determination Date) who
has not been an Employee at any time during the five (5) year period
ending on the Determination Date shall be taken into account in
determining whether the Plan is top-heavy. Also, any amounts
recontributed by an Employee upon becoming a Participant in the Plan
shall no longer be counted as a distribution under this paragraph.
15.4-7 The present value of the accrued benefits or the amount
of the Account balances of an Employee shall be increased by the
aggregate distributions made to such Employee from a terminated Plan of
the Employer, provided that such Plan (if not terminated) would have
been required to be included in the aggregation group.
15.4-8 Accrued benefits and Account balances of an individual
shall not be taken into account for purposes of determining the
top-heavy ratios if the individual has performed no services for the
Employer during the five (5) year period ending on the applicable
Determination Date. Compensation for purposes of this subparagraph
shall not include any payments made to an individual by the Employer
pursuant to a qualified or non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount
of the Account balances of any Employee participating in this Plan
shall not include any rollover contributions or other transfers
voluntarily initiated by the Employee except as described below. If a
rollover was received by this Plan after December 31, 1983, the
rollover or transfer voluntarily initiated by the Employee was received
prior to January 1, 1984, then the rollover or transfer shall be
considered as part of the accrued benefit by the Plan receiving such
rollover or transfer. If this Plan transfers or rolls over funds to
another Plan in a transaction voluntarily initiated by the Employee
after December 31, 1983, then this Plan shall count the distribution
for purposes of determining Account balances or the present value of
accrued benefits. A transfer incident to a merger or consolidation of
two or more Plans of the Employer (including Plans of related Employers
treated as a single Employer under Code Section 414), or a transfer or
rollover between Plans of the Employer, shall not be considered as
voluntarily initiated by the Employee.
15.5 Top-Heavy Ratio.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have
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covered or could cover a Participant in this Plan, the top-heavy ratio is a
fraction, the numerator of which is the sum of the Account balances of all Key
Employees as of the Determination Date, and the denominator of which is the sum
of the Account balances of all Employees as of the Determination Date. Both the
numerator and denominator of the top-heavy ratio shall be increased to reflect
any contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation
received by any Key Employee for that year. For purposes of the special
contribution of this Section 15.2, a Key Employee's 415 Compensation
shall include amounts the Key Employee elected to defer under a
qualified 401(k) arrangement. Such a special contribution shall be made
on behalf of each Participant who is employed by an Employer on the
last day of the Plan Year, regardless of the number of his Hours of
Service, and shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan included
in the plan aggregation group which is top heavy, the sum of the Employer
contributions and forfeitures allocated to the Account of each such Non-key
Employee shall be equal to at least five percent (5%) of such Non-key Employee's
415 Compensation for that year.
15.7 Minimum Vesting. If a Participant's vested interest in his Account
is to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------- ---------------
<S> <C> <C>
Fewer than 2.................................. 0%
2............................................. 20%
3............................................. 40%
4............................................. 60%
5............................................. 80%
6............................................. 100%
</TABLE>
-33-
<PAGE>
15.8 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this Plan
becomes top-heavy and a conflict arises between the top-heavy provisions herein
set forth and the remaining provisions set forth in this Plan, the top-heavy
provisions shall control.
-34-
<PAGE>
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
The following is a subsidiary of Greene County Bancorp, Inc. following the
Reorganization:
<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
The Bank of Greene County New York
</TABLE>
<PAGE>
Exhibit 23.2
[LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form SB-2 of our
report dated August 7, 1998, except for Note 13 as to which the date is
September 15, 1998, on our audits of the financial statements of Greene County
Savings Bank. We also consent to the reference to our firm under the caption
"EXPERTS".
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers
Syracuse, New York
September 17, 1998
<PAGE>
Board of Directors
Greene County Bancorp, Inc.
Greene County Savings Bank
425 Main & Church Streets
Catskill, New York 12414
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form SB-2 Registration Statement, and amendments thereto, of Greene County
Bancorp, Inc. to be filed with the Securities and Exchange Commission, the
combined Form 86-AC Application for Approval of a Mutual Savings Bank Holding
Company Reorganization and Minority Stock Issuance ("MHC Application") filed by
Greene County Savings Bank and any amendments thereto filed with the New York
Banking Department and the Conversion Valuation Appraisal Report ("Report")
regarding the valuation of the Bank provided by FinPro, and our opinion
regarding subscription rights filed as exhibits to the form SB-2. We also
consent to the use of our firm's name and the inclusion of, summary of, and
references to our Report and Opinion in the Prospectus included in the form SB-2
and the MHC Application, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
--------------------------
Donald J. Musso
Liberty Corner, New Jersey
September 17, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,265
<INT-BEARING-DEPOSITS> 1,211
<FED-FUNDS-SOLD> 5,796
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 81,191
<ALLOWANCE> 728
<TOTAL-ASSETS> 140,253
<DEPOSITS> 122,324
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,199
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 15,730
<TOTAL-LIABILITIES-AND-EQUITY> 140,253
<INTEREST-LOAN> 6,367
<INTEREST-INVEST> 3,109
<INTEREST-OTHER> 27
<INTEREST-TOTAL> 9,503
<INTEREST-DEPOSIT> 4,967
<INTEREST-EXPENSE> 4,967
<INTEREST-INCOME-NET> 4,536
<LOAN-LOSSES> 120
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,149
<INCOME-PRETAX> 1,703
<INCOME-PRE-EXTRAORDINARY> 1,703
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,150
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.15
<LOANS-NON> 884
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 105
<ALLOWANCE-OPEN> 723
<CHARGE-OFFS> 126
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 728
<ALLOWANCE-DOMESTIC> 643
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 85
</TABLE>
<PAGE>
Exhibit 99.3
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
(518) 943-3700
__________, 1998
Dear Depositor:
On behalf of the Board of Trustees and management of Greene County
Savings Bank (the "Bank"), I cordially invite you to a Special Meeting of
Depositors to vote on the Greene County Savings Bank Plan of Reorganization from
a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the
"Plan"). The Board of Trustees of the Bank believes that the Plan is in the best
interests of the Bank and its depositors, and urges you to vote FOR the
proposal. For a discussion of the reasons why the Board of Trustees recommends
that you vote FOR the proposal, please refer to the enclosed Proxy Statement and
Prospectus.
Pursuant to the Plan, we will reorganize into what we call a "two-tier"
mutual holding company structure. We call it a two-tier structure because we
will have two levels of holding companies--a "mid-tier" stock holding company
and a "top-tier" mutual holding company. Under the terms of the Plan (i) we will
form Greene County Bancorp, Inc. as a Delaware corporation (the "Company"); (ii)
we will form Greene County Bancorp, MHC, as a New York mutual holding company
(the "Mutual Company"); (iii) we will reorganize the Bank into a capital stock
bank (the "Stock Bank") and issue 100% of our to-be outstanding common stock to
the Company; and (iv) the Company will issue shares of Common Stock to
depositors and the public and the Mutual Company. The Mutual Company will be
regulated by the New York State Banking Department and the Board of Governors of
the Federal Reserve System. After the consummation of the Reorganization, the
Stock Bank will be named The Bank of Greene County.
The Reorganization will not affect any deposit accounts or borrower
relationships that you may have with the Bank. As part of the Plan, all deposit
accounts in the Bank will become deposit accounts in the Stock Bank and will
continue to be insured by the Federal Deposit Insurance Corporation ("FDIC") on
the same terms up to the applicable limits of insurance coverage. All loans of
the Bank will become loans held by the Stock Bank, and will retain the same
status after the mutual holding company reorganization as they had prior to the
Reorganization.
Each depositor of the Bank, as of the close of business on September
30, 1998, is entitled to cast one vote for each $100, or fraction thereof, of
deposits in the Bank on that date, up to a maximum of 1,000 votes per depositor.
The principal purpose of the Reorganization is to establish a structure
that will enable us to compete and expand more effectively in the financial
services marketplace, and that will enable our depositors, employees, management
and Trustees to obtain an equity ownership interest in the Bank. Our new
structure will permit the Company to issue capital stock, which is a source of
capital not available to a mutual savings bank. In this regard, the Company will
issue between 1,829,370 and 2,475,030 shares of Common Stock in the
Reorganization. The Company intends to sell 44.51% of such shares, or between
814,249 and 1,101,631 shares, to depositors and the public pursuant to the
Prospectus, and issue 53.53% of such shares, or between 979,213 and 1,324,817
shares, to the Mutual Company. In addition, shares are being issued to a
charitable foundation as part of the Reorganization, which will result in
stockholders other than the Mutual Company owning 46.47% of the shares of the
Common Stock outstanding at the conclusion of the Reorganization. Subject to the
approval of the New York State Banking Department and the nonobjection of the
Federal Deposit Insurance Corporation, an additional 15% above the maximum
number of shares, or a total of 2,846,285 shares, may be issued in the
Reorganization, and up to 1,266,876 shares may be sold in the Offering pursuant
to the Prospectus, in the event of an increase in the estimated pro forma market
value of the Common Stock of the Company.
<PAGE>
The enclosed Proxy Statement and Prospectus contain a more detailed
analysis of the matters discussed briefly in this letter, and we urge you to
read them carefully.
Your Board of Trustees unanimously recommends that you vote FOR the
Plan by completing the enclosed proxy card and returning it in the enclosed
envelope as soon as possible. Your vote is very important.
Sincerely,
J. Bruce Whittaker
President and Chief Executive Officer
- --------------------------------------------------------------------------------
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE PLAN
SUBJECT TO THE APPROVAL OF THE BANK'S DEPOSITORS AND THE SATISFACTION OF CERTAIN
OTHER CONDITIONS. IN ADDITION, THE FDIC HAS ISSUED A LETTER OF INTENT TO ISSUE A
NOTICE OF NONOBJECTION TO THE PLAN, SUBJECT TO THE SATISFACTION OF CERTAIN
CONDITIONS. HOWEVER, SUCH APPROVAL AND THE INTENT TO ISSUE A NOTICE OF
NONOBJECTION DO NOT CONSTITUTE A RECOMMENDATION OF THE PLAN.
- --------------------------------------------------------------------------------
YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THE PLAN BY
COMPLETING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED POSTAGE-
PAID ENVELOPE AS SOON AS POSSIBLE. YOUR VOTE IS VERY IMPORTANT.
- --------------------------------------------------------------------------------
2
<PAGE>
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
(518) 943-3700
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF DEPOSITORS
To Be Held On ________, 1998
- --------------------------------------------------------------------------------
A Special Meeting of the Depositors (the "Meeting") of Greene County
Savings Bank (the "Bank"), will be held at
_______________________________________, New York on ______, ________, 1998, at
_:__ p.m., New York Time.
A Proxy Card and a Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The approval of a Plan of Reorganization from a Mutual Savings
Bank to a Mutual Holding Company and Stock Issuance Plan (the
"Plan") whereby (i) we will form Greene County Bancorp, Inc.
as a Delaware corporation (the " Company"); (ii) we will form
Greene County Bancorp, MHC, as a New York mutual holding
company (the "Mutual Company"); (iii) we will reorganize the
Bank into a capital stock savings bank to be named The Bank of
Greene County (the "Stock Bank") and issue 100% of our to-be
outstanding common stock to the Company; and (iv) the Company
will issue shares of Common Stock to depositors, the public
and the Mutual Company.
2. Such other matters as may properly come before the Meeting or
any adjournment thereof. The Board of Trustees is not aware of
any other matters to come before the Meeting.
Any action may be taken on the foregoing proposal at the Meeting on the
date specified above or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Each depositor of the Bank, as of the
close of business on September 30, 1998 (the "Record Date"), is entitled to cast
one vote for each $100, or fraction thereof, of deposits in the Bank on that
date, up to a maximum of 1,000 votes per depositor.
Your Board of Trustees unanimously recommends that you vote FOR
approval of the Plan by completing the enclosed proxy card and returning it in
the enclosed postage-paid envelope as soon as possible. The proxy will not be
used if you attend and vote at the Meeting in person. Your vote is very
important.
BY ORDER OF THE BOARD OF TRUSTEES
Secretary
Catskill, New York
______________, 1998
This Proxy Statement is neither an offer to sell nor a solicitation of
an offer to buy Common Stock. The offer is made only through the Prospectus to
certain individuals. The shares of Common Stock are not savings accounts or
savings deposits and are not insured by the Federal Deposit Insurance
Corporation or any other government agency.
3
<PAGE>
Greene County Savings Bank
425 Main and Church Streets
Catskill, New York 12414
(518) 943-3700
PROXY STATEMENT
SPECIAL MEETING OF DEPOSITORS
_____________, 1998
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Trustees of Greene County Savings Bank (the "Bank")
to be used at the Special Meeting of Depositors (the "Meeting") to be held at
the ____________________________________, New York, on ________, _________,
1998, at _:__ p.m., New York Time, and of any adjournments thereof. The
accompanying Notice of Meeting and this Proxy Statement are first being mailed
to depositors on or about __________, 1998. The meeting is being held for the
purpose of considering and voting upon a Plan of Reorganization from a Mutual
Savings Bank to a Mutual Holding Company and Stock Issuance Plan (the "Plan"),
pursuant to which we will reorganize the Bank into a "two-tier" mutual holding
company structure. Under the terms of the Plan (i) we will form Greene County
Bancorp, Inc. as a Delaware corporation (the " Company"); (ii) we will form
Greene County Bancorp, MHC, as a New York mutual holding company (the "Mutual
Company"); (iii) we will reorganize the Bank into a capital stock savings bank
to be named The Bank of Greene County (the "Stock Bank") and issue 100% of our
to-be outstanding common stock to the Company; and (iv) the Company will issue
shares of Common Stock to depositors, the public and the Mutual Company. Certain
depositors as of June 30, 1997and September, 30, 1998 will receive subscription
rights to purchase Common Stock of the Company on a priority basis. See "The
Mutual Holding Company Reorganization--The Offering." Capitalized terms that are
not defined in this Proxy Statement shall have the meaning set forth in the
"Glossary" to the enclosed Prospectus.
- --------------------------------------------------------------------------------
REVOCABILITY OF PROXIES
- --------------------------------------------------------------------------------
Depositors who execute proxies for the Meeting retain the right to
revoke them at any time. Proxies may be revoked by sending written notice of
revocation to the Secretary of the Bank at the address of the Bank shown above
or sending a later dated proxy which is received no later than _________, 1998.
The presence at the Meeting of any depositor who has given a proxy shall not
revoke such proxy unless the member delivers his or her ballot in person at the
Meeting or delivers a written revocation to the Secretary of the Bank prior to
the voting of such proxy. Proxies solicited and received by the Board of
Trustees of the Bank will be voted in accordance with the directions given
therein. Where no instructions are indicated, proxies will be voted FOR the
proposal set forth in this Proxy Statement. If any other matters are properly
presented at the Meeting, proxies will be voted on such matters in accordance
with the directions of a majority of the Board of Trustees. Management is not
aware of any other matters to be presented at the Meeting.
It is important that you review these materials to inform yourself
fully and adequately as to the matters to be considered and acted upon at the
Meeting. After you have reviewed the enclosed materials, you should then
consider carefully and act upon the matter proposed. If you wish to vote by
proxy you may do so by signing the enclosed proxy
1
<PAGE>
and returning it to the Bank. Remember that the proxy we are soliciting is valid
only for the Meeting, and any adjournment thereof, and will not be used for any
other meeting.
- --------------------------------------------------------------------------------
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
- --------------------------------------------------------------------------------
All persons who were holders of authorized deposit accounts
("Depositors") on September 30, 1998 (the "Record Date") will be eligible to
vote on the Plan at the Meeting. Each Depositor will be entitled to cast one
vote for each $100, or fraction thereof, of deposits in the Bank on the Record
Date. No depositor may cast more than ______ votes. Voting may be in person or
by proxy.
A savings, demand or other authorized account shall create a single
membership for voting purposes, even though more than one person has an interest
in such account. An affirmative vote (i) 75% of the total deposits present in
person or by proxy at the Meeting, and (ii) more than 50% of the total votes
eligible to be cast by Depositors at the Meeting, is required to approve the
Plan. Any questions as to the eligibility of a Depositor to vote or as to any
matters relating to voting, will be resolved by the Secretary of the Bank at the
time of the Meeting, and the records of the Bank will be determinative in
resolving such questions. According to the records of the Bank, as of the Record
Date there were approximately ____________ votes entitled to be cast at the
Meeting, of which ____________ votes represents a majority.
The cost of solicitation of proxies will be borne by the Bank.
Management may use the services of its Trustees, officers and other employees to
solicit proxies personally, or by telephone, telegraph or mail, without
additional compensation. Proxies may also be solicited by representatives of
Friedman, Billings, Ramsey & Co., Inc., who will be compensated by the Bank in
connection with their services as financial advisors in the Offering. See the
Prospectus,
"The Mutual Holding Company Reorganization--The Offering."
THE BOARD OF TRUSTEES OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO
APPROVE THE PLAN.
- --------------------------------------------------------------------------------
THE MUTUAL HOLDING COMPANY REORGANIZATION
- --------------------------------------------------------------------------------
The Superintendent has approved the Plan and the offering of the Common
Stock subject to the approval of the Bank's Depositors and the satisfaction of
certain conditions imposed by the Superintendent. The FDIC has issued a letter
of intent to issue a notice of nonobjection to the Plan and the Offering,
subject to the satisfaction of certain conditions. However, such regulatory
approval and the intent to issue a letter of nonobjection do not constitute a
recommendation or endorsement of the Plan or the Offering.
Description of and Reasons for the Reorganization
Our Board of Trustees unanimously adopted the Plan and the
Superintendent has approved the Plan. Pursuant to our Plan, we will reorganize
into what we call a "two-tier" mutual holding company structure. We call it a
two-tier structure because we will have two levels of holding companies--a
"mid-tier" stock holding company and a "top-tier" mutual holding company. Under
the terms of the Plan (i) we will form the Company as a Delaware corporation;
(ii) we will form the Mutual Company as a New York mutual holding company; (iii)
we will reorganize the Bank into a capital stock form of organization and issue
100% of our to-be outstanding common stock to the Company; and (iv) the Company
will issue shares of Common Stock to the depositors, public and the Mutual
Company. The number of shares of Common Stock sold to depositors and the public
pursuant to the Prospectus will be equal to 44.51% of the shares
2
<PAGE>
issued in the Reorganization and the number of shares issued to the Mutual
Company will be equal to 53.53% of the shares issued in the Reorganization. In
addition, we will issue 1.96% of the shares of Common Stock to be outstanding to
a newly established charitable foundation. We refer to all of these steps that
are part of this transaction as the "Reorganization," and we refer to the
issuance of 44.51% of the Company's Common Stock pursuant to the Prospectus as
the "Offering." The two-tier mutual holding company structure is most easily
understood by considering the following diagram:
<TABLE>
<CAPTION>
-------------------- -----------------
The Mutual Company Public
(a New York mutual Stockholders
holding company) (including the
foundation)
-------------------- -----------------
<S> <C>
53.53% of 46.47% of
the the
Common Common
Stock Stock
--------------------------------------
the Company (a Delaware corporation)
--------------------------------------
100% of the
Common Stock
--------------------------------------
The Bank
(a New York stock savings bank)
--------------------------------------
</TABLE>
- -------------
In adopting the Plan, our Board of Trustees determined that the
Reorganization is in the best interest of the Bank. The primary purpose of the
Reorganization is to establish a structure that will enable us to compete and
expand more effectively in the financial services marketplace, and that will
enable our depositors, employees, management and Trustees to obtain an equity
ownership interest in the Bank. Our new structure will permit the Company to
issue capital stock, which is a source of capital not available to a mutual
savings bank, and we will take advantage of this new ability by issuing Common
Stock in the Offering. Since the Company is not offering all of its Common Stock
for sale to depositors and the public in the Offering (but is issuing a majority
of its stock to the Mutual Company), the Reorganization will result in less
capital raised in comparison to a standard mutual-to-stock conversion. The
Reorganization, however, will also offer the Bank the opportunity to raise
additional capital since the stock held by the Mutual Company will be available
for sale in the future in the event the Mutual Company decides to convert to the
capital stock form of organization. See the Prospectus, "Regulation--Holding
Company Regulation--Mutual Holding Company Regulation." The Reorganization will
also give us greater flexibility to structure and finance the expansion of our
operations, including the potential acquisition of other financial institutions,
and to diversify into other financial services. The holding company form of
organization is expected to provide additional flexibility to diversify the
Bank's business activities through existing or newly formed subsidiaries, or
through acquisitions of or mergers with other financial institutions, as well as
other companies. Although we have no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be in a position
after the Reorganization, subject to regulatory limitations and the Company's
financial position, to take advantage of any such opportunities that may arise.
Lastly, the Reorganization will enable us to better manage our capital by giving
us broader investment opportunities through the holding company structure, and
enable us to distribute capital to stockholders of the Company in the form of
dividends and stock repurchases. Because only a minority of the Common Stock
will be offered for sale in the Offering, our current mutual form of ownership
and our ability to remain an independent savings bank and to provide
community-oriented financial services will be preserved through the mutual
holding company structure.
3
<PAGE>
The Board of Trustees believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which may
include: (i) the inability of stockholders other than the Mutual Company to
obtain majority ownership of the Company and the Bank, which may result in the
perpetuation of the management and Board of Trustees/Directors of the Bank and
the Company; and (ii) that the mutual holding company structure is a relatively
new form of corporate ownership, and new regulatory policies relating to the
mutual interest in the Mutual Company that may be adopted from time-to-time may
have an adverse impact on minority stockholders. A majority of the voting stock
of the Company will be owned by the Mutual Company, which is a mutual
institution that will be controlled by the existing Board of Trustees of the
Bank. While this structure will permit management to focus on the Company's and
the Bank's long-term business strategy for growth and capital redeployment
without undue pressure from stockholders, it will also serve to perpetuate the
existing management and trustees of the Bank. The Mutual Company will be able to
elect all members of the Board of Directors of the Company, and will be able to
control the outcome of all matters presented to the stockholders of the Company
for resolution by vote except for certain matters that must be approved by more
than a majority of stockholders of the Company. No assurance can be given that
the Mutual Company will not take action adverse to the interests of the minority
stockholders. For example, the Mutual Company could defeat a candidate for the
Board of Trustees of the Bank or other proposals put forth by the minority
stockholders.
The Reorganization does not preclude the conversion of the Mutual
Company from the mutual to stock form of organization which would be effected
through a merger of the Mutual Company into the Company or the Bank and the
concurrent sale of the shares held by the Mutual Company in a subscription
offering. A conversion of the Mutual Company from the mutual to stock form of
organization is not anticipated for the foreseeable future.
Following the completion of the Reorganization, all depositors who had
liquidation rights with respect to the Bank as of the effective date of the
Reorganization will continue to have such rights solely with respect to the
Mutual Company so long as they continue to hold deposit accounts with the Bank.
In addition, all persons who become depositors of the Bank subsequent to the
Reorganization will have such liquidation rights with respect to the Mutual
Company. Borrowers currently do not have ownership or voting rights in the Bank
and will not receive ownership or voting rights with respect to the Mutual
Company.
All insured deposit accounts of the Bank will continue to be federally
insured by the FDIC, through the BIF, up to the legal maximum limit in the same
manner as deposit accounts existing in the Bank immediately prior to the
Reorganization. Upon completion of the Reorganization, the Bank may exercise any
and all powers, rights and privileges of, and shall be subject to all
limitations applicable to, capital stock savings banks under New York law. As
long as the Mutual Company is in existence, the Mutual Company will be required
to own at least 51% of the voting stock of the Company, and the Company will own
100% of the voting stock of the Bank. The Bank and the Company may issue any
amount of non-voting stock or debt to persons other than the Mutual Company.
The Plan may be substantially amended by a majority vote of the Bank's
board of trustees prior to submission of the Plan and proxy materials to the
voting Depositors. At any time after submission of the proxy materials to the
Depositors, the terms of the Plan that relate to the Reorganization may be
amended by a majority vote of the Board of Trustees only with the concurrence of
the Superintendent, and, if applicable, the FDIC.
Interests of Management and the Board of Directors
The Company intends to establish a stock option plan for employees,
officers and directors that may grant options for a number of shares equal to
10% of the Minority Ownership Interest (or for 126,688 shares at the adjusted
maximum of the Offering Range). The stock option plan will be subject to
stockholder approval, and cannot be implemented sooner than six months after the
completion of the Offering. The exercise price for any options granted will be
the fair market value of the underlying Common Stock at the date of grant. The
shares of Common Stock issued to cover the grant of stock options may be from
the Company's authorized but unissued shares or shares purchased in the open
market.
4
<PAGE>
In addition, the Company intends to establish a restricted stock plan
that would award a number of shares equal to 4% of the Minority Ownership
Interest, or up to 50,675 shares at the adjusted maximum of the Offering Range,
to officers and directors. The restricted stock plan would also be subject to
stockholder approval and cannot be implemented sooner than six months after the
completion of the Offering. The shares of Common Stock used to satisfy grants
under the restricted stock plan may be from the Company's authorized but
unissued shares or shares purchased in the open market. See the Prospectus,
"Management of the Bank--Report of Independent Compensation Consultant."
In addition, the Company intends to establish an employee stock
ownership plan ("ESOP"), which will purchase a number of shares equal to 8% of
the Minority Ownership Interest. If the ESOP cannot acquire 8% of the Minority
Ownership Interest because of an oversubscription by Eligible Account Holders,
then the ESOP will be permitted to acquire the shares in the open market.
The Bank intends to enter into employment agreements with certain
executive officers following completion of the Reorganization. See the
Prospectus, "Management of the Bank--Report of Independent Compensation
Consultant." Directors and officers also intend to purchase shares of Common
Stock in the Offering in their capacities as depositors of the Bank. See the
Prospectus, "Participation by Management."
The Offering
The Company is offering shares of Common Stock to persons other than
the Mutual Company. An offering of between 814,249 and 1,101,631 shares of the
Common Stock (subject to adjustment to up to 1,266,876) pursuant to this
Prospectus concurrently with the Reorganization. The shares of Common Stock that
will be sold in the Offering will constitute no more than 44.51% of the shares
that will be outstanding after the Offering. Following the Reorganization and
the Offering, the Company also will be authorized to issue additional Common
Stock or preferred stock to persons other than the Mutual Company, without prior
approval of the holders of the Common Stock.
The shares of Common Stock are being offered for sale at a fixed
Subscription Price of $10.00 per share in the subscription offering pursuant to
subscription rights (the "Subscription Offering") in the following order of
priority to: (i) holders of deposit accounts with a balance of $100 or more on
June 30, 1997 ("Eligible Account Holders"); (ii) the Bank's tax-qualified
employee plans, including the ESOP; (iii) depositors whose accounts in the Bank
totaled $100 or more on September 30, 1998 ("Supplemental Eligible Account
Holders"); and (iv) employees, officers and trustees of the Bank. Concurrently,
and subject to the prior rights of holders of subscription rights, any shares of
Common Stock not subscribed for in the Subscription Offering are being offered
in the Community Offering at $10.00 per share to certain members of the general
public, with a preference first given to natural persons residing in Greene
County, New York (the "Community Offering"). Subscription rights will expire if
not exercised by 12:00 noon, New York time, on _________ , 1998 unless extended
by the Bank and the Company.
Stock Pricing and Number of Shares to be Issued
The Plan of Reorganization and federal and state regulations require
that the aggregate purchase price of the Common Stock sold in the Offering must
be based on the appraised pro forma market value of the Common Stock, as
determined by an independent valuation (the "Independent Valuation"). The Bank
has retained FinPro to make such valuation and FinPro will receive a fee of
$25,000 for its services. The Bank and the Company have agreed to indemnify
FinPro 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 FinPro's liability results from its
negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the
information contained in this Prospectus, including the Consolidated Financial
Statements. FinPro also considered the following factors, among others: the
present and projected operating results and financial condition of 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 publicly traded subsidiaries of mutual holding companies;
the aggregate size of the Offering; the impact of the Reorganization
5
<PAGE>
on the Bank's stockholders' equity and earnings potential; the proposed dividend
policy of the Company; and the trading market for securities of comparable
institutions and general conditions in the market for such securities.
The Independent Valuation states that as of __________, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$17.9 million to a maximum of $24.3 million, with a midpoint of $21.1 million
(the "Estimated Valuation Range"). The board determined to offer the shares in
the Offering at the Subscription Price of $10.00 per share, the price most
commonly used in stock offerings involving mutual-to-stock conversions. Based on
the Estimated Valuation Range and the Subscription Price of $10.00 per share,
the number of shares of Common Stock that the Company will issue will range from
1,829,370 shares to 2,475,030 shares, with a midpoint of 2,152,200 shares. The
board determined to offer 44.51% of such shares, or between 814,249 shares and
1,101,631 shares with a midpoint of 957,940 shares (the "Offering Range"), to
depositors and the public pursuant to this Prospectus. In addition, up to 48,582
shares are being issued to the Charitable Foundation as part of the
Reorganization, which will result in Minority Stockholders owning 46.47% of the
shares of the Common Stock outstanding at the conclusion of the Reorganization.
The 53.53% of the shares of the Company's Common Stock that are not sold in the
Offering or contributed to the Charitable Foundation will be issued to the
Mutual Company.
The board reviewed the Independent Valuation and, in particular,
considered (i) the Bank's financial condition and results of operations for the
year ended June 30, 1998, (ii) financial comparisons of the Bank in relation to
other financial institutions primarily including other publicly traded
subsidiaries of mutual holding companies, and (iii) stock market conditions
generally and in particular for financial institutions, all of which are set
forth in the Independent Valuation. The board also reviewed the methodology and
the assumptions used by FinPro in preparing the Independent Valuation. The
Estimated Valuation Range may be amended with the approval of the Superintendent
and the FDIC (if required), if necessitated by subsequent developments in the
financial condition of the Bank or market conditions generally.
Following commencement of the Subscription Offering, the maximum of the
Estimated Valuation Range may be increased by up to 15%, to up to $27.9 million,
which will result in a corresponding increase in the maximum of the Offering
Range to up to 1,266,876 shares to reflect changes in market and financial
conditions, without the resolicitation of subscribers (in which event up to
55,869 shares may be issued to the Charitable Foundation). The minimum of the
Estimated Valuation Range and the minimum of the Offering Range may not be
decreased without a resolicitation of subscribers. The Subscription Price of
$10.00 per share will remain fixed. See "--Limitations upon Purchases of Common
Stock" as to the method of distribution and allocation of additional shares that
may be issued in the event of an increase in the Offering Range to fill unfilled
orders in the Subscription and Community Offerings.
The Independent Valuation, however, is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
shares. FinPro did not independently verify the Financial Statements and other
information provided by the Bank, nor did FinPro value independently the assets
or liabilities of the Bank. The Independent 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
shares in the Offering will thereafter be able to sell such shares at prices at
or above the Subscription Price.
The Independent Valuation will be updated at the time of the completion
of the Offering. If the update to the Independent Valuation at the conclusion of
the Offering results in an increase in the maximum of the Estimated Valuation
Range to more than $27.9 million and a corresponding increase in the Offering
Range to more than 1,266,876 shares, or a decrease in the minimum of the
Estimated Valuation Range to less than $17.9 million and a corresponding
decrease in the Offering Range to fewer than 814,249 shares, then the Company,
after consulting with the Superintendent and the FDIC, may terminate the Plan of
Reorganization and return all funds promptly, with interest on payments made by
check, certified or teller's check, bank draft or money order, extend or hold a
new Subscription Offering, Community Offering, or both, establish a new Offering
Range, commence a resolicitation of subscribers or take such other actions as
permitted by the Superintendent and the FDIC in order to complete the
Reorganization and the Offering. 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,
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following the conclusion of the Subscription and Community Offerings would not
exceed 45 days unless further extended by the Superintendent and the FDIC for
periods of up to 90 days not to extend beyond 24 months following the special
meeting of depositors, or __________, ______.
An increase in the Independent Valuation and the number of shares to be
issued in the Offering would decrease both a subscriber's ownership interest and
the Company's pro forma earnings and stockholders equity on a per share basis
while increasing pro forma earnings and stockholder's equity on an aggregate
basis. A decrease in the Independent Valuation and the number of shares to be
issued in the Offering would increase both a subscriber's ownership interest and
the Company's pro forma earnings and stockholder's equity on a per share basis
while decreasing pro forma net income and stockholder's equity on an aggregate
basis. For a presentation of the effects of such changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro and the detailed memorandum of
the appraiser setting forth the method and assumptions for such appraisal are
available for inspection at each office of the Bank and the other locations
specified under "Additional Information."
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank and the Superintendent that, to
the best of its knowledge, nothing of a material nature has occurred that,
taking into account all relevant factors, would cause FinPro to conclude that
the Independent Valuation is incompatible with its estimate of the pro forma
market value of the Common Stock of the Company at the conclusion of the
Offering. Any change that would result in an aggregate purchase price that is
below the minimum or above the maximum of the Estimated Valuation Range would be
subject to Superintendent's approval. If such confirmation is not received, the
Bank may extend the Offering, reopen or commence a new offering, establish a new
Estimated Valuation Range and commence a resolicitation of all purchasers with
the approval of the Superintendent or take such other actions as permitted by
the Superintendent in order to complete the Offering.
Purchase Priorities and Method of Offering Shares
The Bank shall have the right, in its sole discretion, to determine
whether prospective purchasers are "residents," "associates," or "acting in
concert" as defined by the Plan of Reorganization and in interpreting any and
all other provisions of the Plan of Reorganization. All such determinations are
in the sole discretion of the Bank, and may be based on whatever evidence the
Bank chooses to use in making any such determination.
Subject to the preceding paragraph and the limitations set forth in the
"--Limitations Upon Purchases of Common Stock" section, the priorities for the
purchase of shares are as follows:
Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase up to 10,000 shares, or $100,000, of
Common Stock; provided that the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such maximum purchase limitation to up to 5% of the maximum
number of shares issued in the Offering, subject to the overall purchase
limitation set forth in the section herein titled "Limitations upon Purchases of
Common Stock." If there are insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will be allocated to Eligible
Account Holders so as to permit each subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the same proportion that
each subscriber's aggregate deposit account balances as of the Eligibility
Record Date ("Qualifying Deposits") bears to the total amount of Qualifying
Deposits of all subscribing Eligible Account Holders whose subscriptions remain
unfilled. Subscription rights to purchase Common Stock received by executive
officers and trustees of the Bank, including associates of executive officers
and trustees, based on their increased deposits in the Bank in the one year
preceding the Eligibility Record Date, shall be subordinated to the subscription
rights of other Eligible Account Holders. To ensure proper allocation of stock,
each Eligible Account Holder must list on their subscription order form all
deposit accounts in which they had an ownership interest as of the Eligibility
Record Date.
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Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee
Plans shall be given the opportunity to purchase in the aggregate up to 10% of
the Common Stock issued in the Offering. The ESOP intends to purchase up to 8%
of the Minority Ownership Interest. In the event of an oversubscription in the
Offering, subscriptions for shares by the Tax-Qualified Employee Plans may be
satisfied, in whole or in part, through open market purchases by the
Tax-Qualified Employee Plans subsequent to the closing of the Offering. If the
final valuation exceeds the maximum of the Estimated Valuation Range, up to 10%
of Common Stock issued in the Offering may be sold to the Tax Qualified Employee
Plans notwithstanding any oversubscription by Eligible Account Holders, subject
to FDIC approval, if necessary.
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the Tax-Qualified Employee Plans, each Supplemental Eligible
Account Holder shall have the opportunity to purchase up to 10,000 shares, or
$100,000, of Common Stock; provided that the Company may, in its sole discretion
and without further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase limitation to up to 5% of
the maximum number of shares issued in the Offering, subject to the overall
purchase limitations set forth in the section herein titled "Limitations Upon
Purchases of Common Stock." In the event Supplemental Eligible Account Holders
subscribe for a number of shares which, when added to the shares subscribed for
by Eligible Account Holders and the Tax-Qualified Employee Plans, exceed
available shares, the shares of Common Stock will be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of shares sufficient
to make their total allocation equal to the lesser of 100 shares or the number
of shares subscribed for. Thereafter, unallocated shares will be allocated to
each subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the same proportion that such subscriber's aggregate deposit account
balances as of the Supplemental Eligibility Record Date ("Supplemental
Qualifying Deposits") bear to the total amount of Supplemental Qualifying
Deposits of all subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled.
Priority 4: Employees, Officers and Trustees. Employees, officers and
trustees of the Bank will receive, without cost to them, nontransferable
subscription rights to subscribe for up to 10,000 shares or $100,000 of the
Common Stock; provided, that the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other prospective
purchasers, increase such purchase limitation to 5% of the maximum number of
shares issued in the Offering, subject to the overall purchase limitations set
forth in the section herein titled "Limitations upon Purchases of Stock." If
sufficient shares are not available in this priority, shares will be allocated
among trustees, officers and employees on a pro rata basis based on the size of
each person's order.
Community Offering
Any shares of Common Stock not subscribed for in the Subscription
Offering will be offered for sale in a Community Offering. This will involve an
offering of all unsubscribed shares directly to the general public. The
Community Offering, if any, shall be for a period of not more than 45 days
unless extended by the Company and the Bank, and will commence concurrently
with, during or promptly after the Subscription Offering. The Common Stock will
be offered and sold in the Community Offering, in accordance with FDIC and
Department regulations, so as to achieve the widest distribution of the Common
Stock. No person, by himself or herself, or with an associate or group of
persons acting in concert, may subscribe for or purchase more than 10,000 shares
of Common Stock offered in the Community Offering. Further, the Company may
limit total subscriptions so as to assure that the number of shares available
for the public offering may be up to a specified percentage of the number of
shares of Common Stock. Finally, the Company may reserve shares offered in the
Community Offering for sales to institutional investors.
In the event of an oversubscription for shares in the Community
Offering, shares will be allocated (to the extent shares remain available) first
to natural persons residing in Greene County, New York (the "Community").
The terms "residence," "reside," "resided" or "residing" as used herein
with respect to any person shall mean any person who occupied a dwelling within
the Bank's Community, has an intent to remain within the Community for a period
of time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is something other than merely transitory in
nature. The Bank may use deposit or loan records or such other evidence provided
to it to make a
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determination as to whether a person is a resident. In all cases, however, such
a determination shall be in the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person in the Community
Offering.
Syndicated Community Offering
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public by
a selling group of broker-dealers in a Syndicated Community Offering, subject to
terms, conditions and procedures as may be determined by the Bank and the
Company in a manner that is intended to achieve the widest distribution of the
Common Stock, subject to the rights of the Company to accept or reject in whole
or in part any order in the Syndicated Community Offering. It is expected that
the Syndicated Community Offering, if any, will begin as soon as practicable
after termination of the Subscription Offering and the Community Offering, if
any. The Syndicated Community Offering shall be completed within 45 days after
the termination of the Subscription Offering, unless such period is extended as
provided herein.
If for any reason a Syndicated Community Offering of unsubscribed
shares of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Community Offering, if any, the boards of
directors of the Company and the Bank will seek to make other arrangements for
the sale of the remaining shares. Such other arrangements will be subject to the
approval of the Department and the FDIC and to compliance with applicable state
and federal securities laws.
Restrictions on Sale of Stock by Trustees and Officers
All shares of the Common Stock purchased by trustees and officers of
the Bank in the Offering will be subject to the restriction that such shares may
not be sold or otherwise disposed of for value for a period of one year
following the date of purchase, except for any disposition of such shares (i)
following the death of the original purchaser or (ii) by reason of an exchange
of securities in connection with a merger or acquisition approved by the
applicable regulatory authorities. Sales of shares of the Common Stock by the
Company's directors and officers will also be subject to certain insider trading
and other transfer restrictions under the federal securities laws. See
"Regulation--Federal Securities Laws."
Each certificate for restricted shares will bear a legend prominently
stamped on its face giving notice of the restrictions on transfer, and
instructions will be issued to the Company's transfer agent to the effect that
any transfer within such time period of any certificate or record ownership of
such shares other than as provided above is a violation of the restriction. Any
shares of Common Stock issued pursuant to a stock dividend, stock split or
otherwise with respect to restricted shares will be subject to the same
restrictions on sale.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Offering
Prior to the completion of the Offering, no depositor or borrower may
transfer or enter into an agreement or understanding to transfer the legal or
beneficial ownership of the shares of Common Stock to be purchased by such
person in the Offering. Each depositor and borrower who submits an order form
will be required to certify that the purchase of Common Stock by such person is
solely for the purchaser's own account and there is no agreement or
understanding regarding the sale or transfer of such shares. The Bank intends to
pursue any and all legal and equitable remedies in the event it becomes aware of
any such agreement or understanding, and will not honor orders reasonably
believed by the Bank to involve such an agreement or understanding.
Procedure for Purchasing Shares of Common Stock
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<PAGE>
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date, Prospectuses may not be mailed any later than five
days prior to such date or be hand delivered any later than two days prior to
such date. Order forms may only be distributed with a Prospectus.
Expiration Date. The Offering will terminate at 12:00 noon, New York
time on December __, 1998, unless extended by the Bank for up to an additional
45 days or, if approved by the Superintendent, for an additional period after
such 45-day extension (as so extended, the "Expiration Date"). The Bank is not
required to give purchasers notice of any extension unless the Expiration Date
is later than __________, 1998, in which event purchasers will be given the
right to increase, decrease, confirm, or rescind their orders. If the minimum
number of shares sold in the Offering (814,249 shares) is not sold by the
Expiration Date, the Bank may terminate the Offering and promptly refund all
orders for Common Stock. A reduction in the number of shares below the minimum
of the Estimated Valuation Range will not require the approval of depositors or
an amendment to the Independent Valuation. If the number of shares is reduced
below the minimum of the Estimated Valuation Range, purchasers will be given an
opportunity to increase, decrease, or rescind their orders.
Use of Order Forms. In order to purchase the Common Stock, each
purchaser must complete an order form except for certain persons purchasing in
the Syndicated Community Offering as more fully described below. Any person
receiving an order form who desires to purchase Common Stock may do so by
delivering (by mail or in person) to the Bank a properly executed and completed
Order Form, together with full payment for the shares purchased. The order form
must be received prior to 12:00 noon, New York time on December __, 1998. Once
tendered, an Order Form cannot be modified or revoked without the consent of the
Bank. Each person ordering shares is required to represent that they are
purchasing such shares for their own account. The interpretation by the Bank of
the terms and conditions of the Plan and of the acceptability of the order forms
will be final. The Bank is not required to accept copies of order forms.
Payment for Shares. Payment for all shares will be required to
accompany all completed order forms for the purchase to be valid. Payment for
shares may be made by (i) check or money order, or (ii) authorization of
withdrawal from a deposit account maintained with the Bank. Third party checks
will not be accepted as payment for a subscriber's order. Appropriate means by
which such withdrawals may be authorized are provided in the order forms. Once
such a withdrawal amount has been authorized, a hold will be placed on such
funds, making them unavailable to the depositor until the Offering has been
completed or terminated. In the case of payments authorized to be made through
withdrawal from deposit accounts, all funds authorized for withdrawal will
continue to earn interest at the contract rate until the Offering is completed
or terminated. Interest penalties for early withdrawal applicable to certificate
of deposit accounts will not apply to withdrawals authorized for the purchase of
shares; however, if a withdrawal results in a certificate of deposit account
with a balance less than the applicable minimum balance requirement, the
certificate of deposit shall be canceled at the time of withdrawal without
penalty, and the remaining balance will earn interest at the Bank's passbook
rate subsequent to the withdrawal. Payments made by check or money order will be
placed in a segregated savings account and will be paid interest at the Bank's
passbook rate of ____% (calculated using the simple interest method), from the
date payment is received until the Offering is completed or terminated. Such
interest will be paid by check, on all funds held, including funds accepted as
payment for shares of Common Stock, promptly following completion or termination
of the Offering. An executed order form, once received by the Bank, may not be
modified, amended or rescinded without the consent of the Bank, unless the
Offering is not completed by __________, 1998, in which event purchasers may be
given the opportunity to increase, decrease, confirm or rescind their orders for
a specified period of time.
Depending on market conditions, the Common Stock may be offered for
sale to the general public on a best efforts basis in a Syndicated Community
Offering by a selling group of broker-dealers to be managed by Friedman,
Billings, Ramsey Co., Inc. In its discretion, Friedman, Billings, Ramsey & Co.,
Inc. will instruct selected broker-dealers as to the number of shares to be
allocated to each selected broker-dealer. Only upon allocation of shares to
selected broker-dealers may they take orders from their customers. Investors who
desire to purchase shares in the Community Offering directly through a selected
broker-dealer, which may include Friedman, Billings, Ramsey & Co., Inc., will be
advised that the members of the selling group are required either (a) upon
receipt of an executed order form or direction to execute an order form on
behalf of an investor, to forward the appropriate purchase price to the Bank for
deposit in a segregated account on or before twelve noon, prevailing time, of
the business day next following such receipt or
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execution; or (b) upon receipt of confirmation by such member of the selling
group of an investor's interest in purchasing shares, and following a mailing of
an acknowledgment by such member to such investor on the business day next
following receipt of confirmation, to debit the account of such investor on the
fifth business day next following receipt of confirmation and to forward the
appropriate purchase price to the Bank for deposit in the segregated account on
or before twelve noon, prevailing time, of the business day next following such
debiting. Payment for any shares purchased pursuant to alternative (a) above
must be made by check in full payment of the purchase price. Payment for shares
purchased pursuant to alternative (b) above may be made by wire transfer to the
Bank.
Owners of self-directed Individual Retirement Accounts ("IRA") may use
the assets of such IRAs to purchase shares of Common Stock in the Offering.
Individuals who are participants in self-directed tax qualified plans maintained
by self-employed individuals may use the assets in their self-directed Keogh
Plan accounts to purchase shares of Common Stock in the Offering. In addition,
the provisions of ERISA and IRS regulations require that executive officers,
trustees, and 10% stockholders who use self-directed IRA funds and/or Keogh Plan
accounts to purchase shares of Common Stock in the Offering, make such purchase
for the exclusive benefit of the IRA and/or Keogh Plan participant.
If the ESOP purchases shares of the Common Stock, such plan will not be
required to pay for such shares until consummation of the Offering.
Delivery of Stock Certificates. Certificates representing Common Stock
issued in the Offering will be mailed by the Bank to the persons entitled
thereto at the registered address noted on the order form, as soon as
practicable following consummation of the Offering. Any certificates returned as
undeliverable will be held by the Bank until claimed by persons legally entitled
thereto or otherwise disposed of in accordance with applicable law. Until
certificates for the Common Stock are available and delivered to purchasers,
purchasers may not be able to sell the shares of stock which they ordered.
Plan of Distribution and Selling Commissions
Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Friedman, Billings, Ramsey & Co., Inc. All prospective purchasers
are to send payment directly to the Bank, where such funds will be held in a
segregated savings account and not released until the Offering is completed or
terminated.
To assist in the marketing of the Common Stock, the Bank has retained
Friedman, Billings, Ramsey & Co., Inc., a broker-dealer registered with the
National Association of Securities Dealers, Inc. ("NASD"). Friedman, Billings,
Ramsey & Co., Inc. will assist the Bank in the Offering as follows: (i) in
training and educating the Bank's employees regarding the mechanics and
regulatory requirements of the Offering; (ii) in conducting informational
meetings for employees, customers and the general public; (iii) in coordinating
the selling efforts in the Bank's local communities; and (iv) in soliciting
orders for Common Stock. For these services, Friedman, Billings, Ramsey & Co.,
Inc. will receive a fixed fee of $110,000. If there is a Syndicated Community
Offering, the fixed fee will be a negotiated percentage of the value of the
Common Stock sold by Friedman, Billings, Ramsey & Co., Inc. and other NASD
member firms under selected broker-dealer agreements.
The Bank also will reimburse Friedman, Billings, Ramsey & Co., Inc. for
its reasonable out-of-pocket expenses associated with its marketing effort, up
to a maximum of $40,000 (including legal fees and expenses ). The Bank has made
an advance payment of $12,500 to Friedman, Billings, Ramsey & Co., Inc. If the
Plan of Reorganization is terminated by the Bank, if the Offering is not
completed by ________, 1999, or if Friedman, Billings, Ramsey & Co., Inc.
terminates its agreement with the Bank in accordance with the provisions of the
agreement, Friedman, Billings, Ramsey & Co., Inc. will only receive
reimbursement of its reasonable out-of-pocket expenses. The Bank will indemnify
Friedman, Billings, Ramsey & Co., Inc. against liabilities and expenses
(including legal fees) incurred in connection with certain claims or litigation
arising out of or based upon untrue statements or omissions contained in the
offering material for the Common Stock, including liabilities under the
Securities Act of 1933.
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Trustees and executive officers of the Bank may participate in the
solicitation of offers to purchase Common Stock. Other trained employees of the
Bank may participate in the Offering in ministerial capacities, providing
clerical work in effecting a sales transaction or answering questions of a
ministerial nature. Other questions of prospective purchasers will be directed
to executive officers or registered representatives. The Bank will rely on Rule
3a4-1 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
so as to permit officers, trustees, and employees to participate in the sale of
the Common Stock. No officer, trustee, or employee of the Bank will be
compensated for his participation by the payment of commissions or other
remuneration based either directly or indirectly on the transactions in the
Common Stock.
A Stock Center will be established at a location adjacent to the Bank's
main office. Employees will inform prospective purchasers to direct their
questions to the Stock Center and will provide such persons with the telephone
number of the Center.
Limitations upon Purchases of Common Stock
The following additional limitations have been imposed upon purchases
of shares of Common Stock. Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan of
Reorganization.
A. The aggregate amount of outstanding Common Stock of the
Company owned or controlled by persons other than Mutual
Company at the close of the Offering shall not exceed 49% of
the Company's total outstanding Common Stock.
B. No person or group of persons acting in concert, together
with their associates, may purchase more than 20,000 shares,
or $200,000, of Common Stock in the Offering, except that:
(i) the Company may, in its sole discretion and without
further notice to or solicitation of subscribers or other
prospective purchasers, increase such maximum purchase
limitation to up to 5% of the number of shares sold in the
Offering; (ii) Tax-Qualified Employee Plans may purchase up
to 10% of the shares sold in the Offering; and (iii) for
purposes of this paragraph shares to be held by any
Tax-Qualified Employee Plan and attributable to a person
shall not be aggregated with other shares purchased directly
by or otherwise attributable to such person.
C. The aggregate amount of Common Stock acquired in the Offering
by all management persons and their associates, exclusive of
any stock acquired by such persons in the secondary market,
shall not exceed 32% of the outstanding shares of Common Stock
of the Company held by persons other than the Mutual Company
at the close of the Offering. In calculating the number of
shares held by management persons and their associates under
this paragraph or under the provisions of paragraph C below,
shares held by any Tax-Qualified Employee Benefit Plan or any
Non-Tax-Qualified Employee Benefit Plan of the Bank that are
attributable to such persons shall not be counted.
D. Notwithstanding any other provision of the Plan of
Reorganization, no person shall be entitled to purchase any
Common Stock to the extent such purchase would be illegal
under any federal law or state law or regulation or would
violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free
riding and withholding. The Company and/or its agents may ask
for an acceptable legal opinion from any purchaser as to the
legality of such purchase and may refuse to honor any purchase
order if such opinion is not timely furnished.
E. The Board of Directors of the Company has the right in its
sole discretion to reject any order submitted by a person
whose representations the Board of Directors believes to be
false or who it otherwise believes, either alone or acting in
concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of
the Plan of Reorganization.
F. The Company will make reasonable efforts to comply with the
securities laws of all states in the United States in which
persons entitled to subscribe for Common Stock pursuant to the
Plan of
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Reorganization reside. However, the Company and the Bank are
not required to offer Common Stock to any person who resides
in a foreign country.
Establishment of the Charitable Foundation
General. In furtherance of the Bank's commitment to the communities
that it serves, the Bank intends to establish a Charitable Foundation in
connection with the Reorganization. The Plan of Reorganization provides that the
Bank and the Company may establish the Charitable Foundation, which will be
incorporated under Delaware law as a non-stock corporation and will be funded
with cash and shares of Common Stock contributed by the Company. The Bank will
contribute to the Charitable Foundation 1.96% of the shares of Common Stock to
be issued in the Reorganization or 35,908, 42,245, 48,582 and 55,869 shares at
the minimum, midpoint, maximum and adjusted maximum of the Offering, range and
$100,000 in cash. The contribution of Common Stock to the Charitable Foundation
will be dilutive to the interests of stockholders and will have an adverse
impact on the reported earnings of the Company in the year in which the
Charitable Foundation is established.
Purpose of the Charitable Foundation. The purpose of the Charitable
Foundation is to provide funding to support charitable causes and community
development activities. Historically, the Bank has emphasized community lending
and development activities within the communities that it services, and the
Charitable Foundation is being formed as a complement to the Bank's existing
community activities. Management believes the establishment of a Charitable
Foundation is consistent with the Bank's commitment to community service.
Funding of the Charitable Foundation with Common Stock of the Company also may
be a means of enabling the communities served by the Bank to share in the growth
and success of the Company. The Charitable Foundation will also enable the
Company and the Bank to develop a unified charitable donation strategy and will
centralize the responsibility for administration and allocation of corporate
charitable funds. Charitable foundations have been formed by other financial
institutions for this purpose, among others. The contribution to the Charitable
Foundation will not take the place of the Bank's traditional community lending
activities.
Structure of the Charitable Foundation. The Charitable Foundation will
be incorporated under Delaware law as a non-stock corporation. Pursuant to the
Charitable Foundation's Bylaws, the Charitable Foundation's initial board of
directors will consist of persons who are existing directors and officers of the
Company. Subsequent to the Reorganization, other individuals may be appointed to
the Board. The members of the Charitable Foundation, who are comprised of its
board members, will elect the directors at the annual meeting of the Charitable
Foundation from those nominated by the nominating committee. Only persons
serving as directors of the Charitable Foundation qualify as members of the
Charitable Foundation, with voting authority. Directors will be divided into
three classes with each class appointed for three-year terms. The certificate of
incorporation of the Charitable Foundation provides that the corporation is
organized exclusively for charitable purposes, including community development,
as set forth in Section 501(c)(3) of the Internal Revenue Code of 1986 (the
"Code"). The Charitable Foundation's certificate of incorporation further
provides that no part of the net earnings of the Charitable Foundation will
inure to the benefit of, or be distributable to, its directors, officers or
members.
The authority for the affairs of the Charitable Foundation will be
vested in its board of directors which will be responsible for establishing the
policies of the Charitable Foundation with respect to grants or donations
consistent with the purpose for which the Charitable Foundation was established.
Although no formal policy governing Charitable Foundation grants exists at this
time, the Charitable Foundation's board of directors will adopt such a policy
upon establishment of the Charitable Foundation. As directors of a nonprofit
corporation, directors of the Charitable Foundation will at all times be bound
by their fiduciary duty to advance the Charitable Foundation's charitable goals,
to protect the assets of the Charitable Foundation and to act in a manner
consistent with the charitable purpose for which the Charitable Foundation is
established. The directors of the Charitable Foundation also will be responsible
for directing the activities and managing the assets of the Charitable
Foundation. However, as a condition to receiving the non-objection of the
Reorganization, the Charitable Foundation has been required to commit to the
FDIC and the Department that all shares of Common Stock held by the Charitable
Foundation will be voted in the same ratio as all other shares of the Company's
Common Stock (other than shares held by the Mutual Company) on all proposals
considered by stockholders of the Company; provided, however, that, consistent
with such condition, the FDIC and the Department would waive this voting
restriction under certain circumstances (and subject to certain additional
conditions) if compliance with the voting restriction would: (i) cause a
violation of the law of the State of Delaware; (ii) cause the Charitable
Foundation to lose its tax-exempt status, or cause the Internal Revenue Service
(the "IRS") to deny the
13
<PAGE>
Charitable Foundation's request for a determination that it is an exempt
organization or otherwise have a material and adverse tax consequence on the
Charitable Foundation; or (iii) cause the Charitable Foundation to be subject to
an excise tax under Section 4941 of the Code. In order for the FDIC and the
Department to waive such voting restriction, the Company's or the Charitable
Foundation's legal counsel would be required to render an opinion satisfactory
to the FDIC and the Department that compliance with the voting requirement would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the FDIC and the Department would grant waivers of the voting
restriction upon submission of such legal opinion(s) by the Company or the
Charitable Foundation that are satisfactory to the FDIC and the Department. In
the event that the FDIC and the Department were to waive the voting requirement,
the directors would direct the voting of the Common Stock held by the Charitable
Foundation.
The Charitable Foundation's place of business will be located at the
Bank's administrative offices and initially the Charitable Foundation is
expected to have no employees but will utilize the members of the staff of the
Company or the Bank. The board of directors of the Charitable Foundation will
appoint such officers as may be necessary to manage the operation of the
Charitable Foundation. In this regard, it is expected that the Bank will be
required to provide 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 Charitable Foundation.
Under Section 501(c)(3) of the Code, the Charitable Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Charitable Foundation in any one year shall not
exceed 5% of the average market value of the assets held by the Charitable
Foundation, except where the board of directors of the Charitable Foundation
determines that the failure to sell an amount of Common Stock greater than such
amount would result in a longer-term reduction of the value of the Charitable
Foundation's assets and as such would jeopardize the Charitable Foundation's
capacity to carry out its charitable purposes. Upon completion of the
Reorganization and the contribution of shares to the Charitable Foundation, the
Company would have 1,829,370, 2,152,200 and 2,475,030 shares issued and
outstanding at the minimum, midpoint and maximum of the Estimated Valuation
Range. Because the Company will have an increased number of shares outstanding,
the voting and ownership interests of stockholders in the Company's Common Stock
would be diluted by 1.96%, as compared to their interests in the Company if the
Charitable Foundation was not established. For additional discussion of the
dilutive effect, see "Pro Forma Data."
Impact on Earnings. The contribution of cash and Common Stock to the
Charitable Foundation will have an adverse impact on the Company's and the
Bank's earnings in the year in which the contribution is made. The Company will
recognize the full expense in the amount of the contribution of cash and Common
Stock to the Charitable Foundation in the quarter in which it occurs, which is
expected to be the quarter ending December 31, 1998. The aggregate amount of the
contribution will range from $459,080 to $585,820, based on the minimum and
maximum of the Estimated Valuation Range, respectively (or up to $658,690 at the
adjusted maximum of the Estimated Valuation Range). The number of shares to be
contributed to the Charitable Foundation will range from 35,908 to 48,582, and
the amount of cash to be contributed will be fixed at $100,000. The contribution
expense will be partially offset by the tax benefit related to the expense. The
Company and the Bank have been advised by their independent tax advisors that
the contribution to the Charitable Foundation will be tax deductible, subject to
an annual limitation based on 10% of the Company's annual taxable income.
Assuming an aggregate contribution of $585,820 (based on the maximum of the
Estimated Valuation Range), the Company estimates a net tax effected expense of
$351,600 (based upon a 40% tax rate). Management cannot predict earnings for the
fiscal year ending June 30, 1999, but expects that the establishment and funding
of the Charitable Foundation will have an adverse impact on the Company's
earnings for the year. In addition to the contribution to the Charitable
Foundation, the Bank or the Mutual Company may continue making grants and
contributions to the community that would not be permitted for the Charitable
Foundation.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private Charitable Foundation. The Charitable
Foundation will submit a request to the IRS to be recognized as an exempt
organization. The Company and the Bank have received an opinion of their
independent tax advisors that the Charitable Foundation would qualify as a
Section 501(c)(3) exempt organization under the Code, except that such opinion
does not consider the impact of the condition to be agreed to by the Charitable
Foundation that Common Stock issued to the Charitable Foundation be voted in the
same ratio as all other shares of the Company's
14
<PAGE>
Common Stock (other than shares held by the Mutual Company) on all proposals
considered by stockholders of the Company. Consistent with this condition, in
the event that the Company or the Charitable Foundation receives an opinion of
their legal counsel that compliance with the voting restriction would have the
effect of causing the Charitable Foundation to lose its tax-exempt status, or
otherwise have a material and adverse tax consequence on the Charitable
Foundation or subject the Charitable Foundation to an excise tax under Section
4941 of the Code, the FDIC and the Superintendent shall waive such voting
restriction upon submission of a legal opinion by the Company or the Charitable
Foundation that is satisfactory to them. The independent tax advisors' opinion
further provides that there is substantial authority for the position that the
Company's contribution of its own stock to the Charitable Foundation would not
constitute an act of self-dealing, and that the Company would be entitled to a
deduction in the amount of the fair market value of the stock at the time of the
contribution less the nominal par value that the Charitable Foundation is
required to pay to the Company for such stock, subject to an annual limitation
based on 10% of the Company's annual taxable income. The Company, however, would
be able to carry forward any unused portion of the deduction for five years
following the contribution. Assuming the sale of Common Stock at the adjusted
maximum of the Estimated Valuation Range, the Company estimates that all of the
deduction should be deductible over the six-year period. Although the Company
and the Bank have received an opinion of their independent tax advisors that the
Company will be entitled to the deduction for the charitable contribution, there
can be no assurances that the IRS will recognize the Charitable Foundation as a
Section 501(c)(3) exempt organization or that the deduction will be permitted.
In such event, the Company's tax benefit related to the Charitable Foundation
would have to be fully expensed, resulting in a further reduction in earnings in
the year in which the IRS makes such a determination.
As a private Charitable Foundation, earnings and gains, if any, from
the sale of Common Stock or other assets are generally exempt from federal and
state corporate income taxation. However, investment income, such as interest,
dividends and capital gains, of a private Charitable Foundation will generally
be subject to a federal excise tax of 2.0%. The Charitable Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Charitable Foundation's fiscal year to maintain its
tax-exempt status. The Charitable Foundation will be required to publish a
notice that the annual information return will be available for public
inspection for a period of 180 days after the date of such public notice. The
information return for a private Charitable 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
Charitable Foundation's managers and a concise statement of the purpose of each
grant. The Charitable 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.
Comparison of Valuation and Other Factors Assuming the Charitable
Foundation is Not Established as Part of the Reorganization. The establishment
of the Charitable Foundation was taken into account by FinPro in determining the
estimated pro forma market value of the Common Stock of the Company. The
aggregate price of the shares of Common Stock being offered in the Offering is
based upon the independent appraisal conducted by FinPro of the estimated pro
forma market value of the Common Stock of the Company. The pro forma aggregate
price of the Common Stock being offered for sale in the Reorganization is
currently estimated to be between $8.1 million and $11.0 million, with a
midpoint of $9.6 million. The pro forma price to book ratio and the pro forma
price to earnings ratio, at and for the year ended June 30, 1998, are 91.41% and
15.87x, respectively, at the midpoint of the Estimated Valuation Range. In the
event that the Reorganization did not include the Charitable Foundation, FinPro
has estimated that the estimated pro forma market value of the Common Stock
being offered for sale in the Offering would be $10.0 million at the midpoint
based on a pro forma price to book ratio and a pro forma price to earnings ratio
of 91.74% and 15.87x, respectively. The amount of Common Stock being offered for
sale in the Offering at the midpoint of the Estimated Valuation Range is 42,245
less than the estimated amount of Common Stock that would be sold in the
Offering without the Charitable Foundation based on the estimate provided by
FinPro. Accordingly, certain account holders of the Bank who subscribe to
purchase Common Stock in the Subscription Offering would receive fewer shares
depending on the size of a depositor's stock order and the amount of his or her
qualifying deposits in the Bank and the overall level of subscriptions. See
"Comparison of Valuation and Pro Forma Information Without Charitable
Foundation." This estimate by FinPro was prepared solely for purposes of
providing subscribers with information with which to make an informed decision
on the Reorganization.
The decrease in the amount of Common Stock being offered as a result of
the contribution of Common Stock to the Charitable Foundation will not have a
significant effect on the Company or the Bank's capital position. The Bank's
regulatory capital is significantly in excess of its regulatory capital
requirements and will further exceed such requirements following the
Reorganization. The Bank's leverage and risk-based capital ratios at June 30,
1998 were
15
<PAGE>
11.09% and 20.32%, respectively. Assuming the sale of shares at the midpoint of
the Estimated Valuation Range, the Bank's pro forma leverage and risk-based
capital ratios at June 30, 1998 would be 13.11% and 24.08%, respectively. On a
consolidated basis, the Company's pro forma stockholders' equity would be $23.7
million, or approximately 16.0% of pro forma consolidated assets, assuming the
sale of shares at the midpoint of the Offering Range. Pro forma stockholders'
equity per share and pro forma net income per share would be $10.98 and $0.63,
respectively. If the Charitable Foundation was not being established in the
Reorganization, based on the FinPro estimate, the Company's pro forma
stockholders' equity would be approximately $24.0 million, or approximately
16.1% of pro forma consolidated assets at the midpoint of the Estimated
Valuation Range, and pro forma stockholder's equity per share and pro forma net
income per share would be substantially similar with or without the Charitable
Foundation. See "Comparison of Valuation and Pro Forma Information without
Charitable Foundation."
Regulatory Conditions Imposed on the Charitable Foundation.
Establishment of the Charitable Foundation is subject to certain conditions
agreed to by the Charitable Foundation in writing as a condition to receiving
the FDIC's non-objection to and Superintendent's approval of the Reorganization,
including the following: (i) the Charitable Foundation will be subject to
examination by the FDIC and the Department; (ii) the Charitable Foundation must
comply with supervisory directives imposed by the FDIC and the Department; (iii)
the Charitable Foundation will operate in accordance with written policies
adopted by the board of directors, including a conflict of interest policy; and
(iv) any shares of Common Stock held by the Charitable Foundation must be voted
in the same ratio as all other outstanding shares of Common Stock (other than
shares held by the Mutual Company) on all proposals considered by stockholders
of the Company; provided, however, that, consistent with the condition, the FDIC
and the Department would waive this voting restriction under certain
circumstances (and subject to additional conditions) if compliance with the
voting restriction would: (a) cause a violation of the law of the State of
Delaware; (b) would cause the Charitable Foundation to lose its tax-exempt
status or otherwise have a material and adverse tax consequence on the
Charitable Foundation; or (c) would cause the Charitable Foundation to be
subject to an excise tax under Section 4941 of the Code. In order to obtain a
waiver, the Charitable Foundation's legal counsel would be required to render an
opinion satisfactory to the FDIC and the Department. There can be no assurances
that a legal opinion addressing these issues could be rendered, or if rendered,
that the FDIC and the Department would grant unconditional waivers of the voting
restriction. In no event would the voting restriction survive the sale of shares
of the Common Stock held by the Charitable Foundation.
Potential Challenges. The establishment and funding of a Charitable
Foundation as part of a conversion of a mutual savings institution to stock form
has only recently occurred. As such, the Charitable Foundation, and the
Superintendent's approval of the Reorganization and the FDIC's nonobjection to
the Reorganization, may be subject to potential challenges notwithstanding that
the board of directors of the Company and the board of trustees of the Bank have
considered the various factors involved in the establishment of the Charitable
Foundation in reaching their determination to establish the Charitable
Foundation as part of the Reorganization. If challenges were to be instituted
seeking to prevent the Bank from establishing the Charitable Foundation in
connection with the Reorganization, no assurances could be made that the
resolution of such challenges would not result in a delay in the consummation of
the Reorganization or that any objecting persons would not be ultimately
successful in obtaining such removal or other relief against the Company or the
Bank. Additionally, if the Company and the Bank are forced to eliminate the
Charitable Foundation, the Company may be required to resolicit subscribers in
the Offering.
Effects of Reorganization
Continuity. While the Reorganization is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. During and after the completion of the Reorganization, the
Stock Bank will continue to be subject to regulation by the Department and the
FDIC. After the Reorganization, the Stock Bank will continue to provide services
for depositors and borrowers under current policies by its present management
and staff.
The Trustees serving the Bank at the time of the Reorganization will
serve as Directors of the Stock Bank and the Company after the Reorganization.
The Trustees of the Mutual Company will consist initially of individuals
currently serving on the Board of Trustees of the Bank, except that one
individual will not also serve on the Board of Trustees of the Mutual Company.
All officers of the Bank at the time of the Reorganization will retain their
positions with the Stock Bank after the Reorganization.
16
<PAGE>
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of the Reorganization will automatically continue as a depositor in
the Stock Bank after the Reorganization, and each such deposit account will
remain the same with respect to deposit balance, interest rate and other terms.
Each such account will be insured by the FDIC to the same extent as before the
Reorganization (i.e., up to $100,000 per depositor). Depositors will continue to
hold their existing certificates, passbooks and other evidences of their
accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Reorganization, and the amount, interest rate, maturity and security for
each loan will remain as they were contractually established prior to the
Reorganization.
Effect on Liquidation Rights. Were a mutual savings institution to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors may receive such remaining assets, pro rata, based upon
the deposit balances in their deposit accounts immediately prior to liquidation
subject to the rights of the State of New York to garnish such assets. As more
fully described below, after the Reorganization, each depositor, in the event of
a complete liquidation, would have a claim as a creditor of the Bank. However,
except as described below with respect to Liquidation Rights, this claim would
be solely in the amount of the balance in the deposit account plus accrued
interest. A depositor would not have an interest in the value or assets of the
Bank above that amount.
Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would have a claim to receive his or her pro
rata share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor may have
a claim to receive a pro rata share of the remaining assets in the same
proportion as the value of such depositor's deposit accounts to the total value
of all deposit accounts in the Bank at the time of liquidation, subject to the
right of the State of New York to garnish such assets. After the Reorganization,
each depositor, in the event of a complete liquidation, would have a claim as a
creditor of the Bank. However, except as described below, this claim would be
solely in the amount of the balance in the deposit account plus accrued
interest. A depositor would not have an interest in the value or assets of the
Bank above that amount.
The Plan of Reorganization provides for the establishment, upon the
completion of the Reorganization, of a special "liquidation account" 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 Reorganization. Each Eligible Account Holder and Supplemental Eligible
Account Holder, who continues to maintain a deposit account at the Bank, would,
on a complete liquidation of the Bank, have a claim to an interest in the
liquidation account after payment of all creditors but prior to any payment to
the stockholders 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, with a balance of $100 or more held in the
Bank on June 30, 1997 and September 30, 1998, respectively ("Deposit Account").
Each Eligible Account Holder and Supplemental Eligible Account Holder will have
a claim to 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 June 30, 1997 and September 30, 1998, respectively, bore to
the balance of all Deposit Accounts in the Bank on such date.
If, however, on the last day of any fiscal year of the Bank commencing
after the Eligibility Record Date or Supplemental Eligibility Record Date, as
the case may be, the deposit balance in any Deposit Account of an Eligible
Account Holder or Supplemental Eligible Account Holder is less than either (i)
the amount of qualifying deposits of such Eligible Account Holder or
Supplemental Eligible Account Holder on the Eligibility Record Date or
Supplemental Eligibility Record Date, as the case may be, or (ii) the deposit
balance in such Deposit Account at the close of business on the last day of any
previous fiscal year of the Bank commencing after the Eligibility Record Date or
the Supplemental Eligibility Record Date, then such Eligible Account Holder's or
Supplemental Eligible Account Holder's account balance would be reduced in an
amount equal to the reduction in such deposit balance, and such account balance
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 deposit balances of any Eligible Account Holder or Supplemental
Eligible Account Holder. Any assets remaining after the above liquidation rights
of Eligible Account Holders and Subsequent Eligible Account Holders are
satisfied would be distributed to the stockholders of the Bank.
17
<PAGE>
Neither the Bank nor the Company shall be required to set aside funds
for the purpose of establishing the liquidation account, and the creation and
maintenance of the account will not operate to restrict the use or application
of any of the net worth accounts of the Bank, except that neither the Bank nor
the Company shall declare or pay a cash dividend on, or repurchase any of, its
capital stock if the effect would cause its net worth to be reduced below the
amount required for the liquidation account.
- --------------------------------------------------------------------------------
MANAGEMENT OF GREENE COUNTY BANCORP, INC.
- --------------------------------------------------------------------------------
Directors of the Company
The Board of Directors of the Company consists of nine members, each of
whom is currently serving as a trustee of the Bank. Directors of the Company
will serve three-year staggered terms so that approximately one-third of the
directors will be elected at each annual meeting of stockholders. The class of
directors whose term of office expires at the first annual meeting of
stockholders following completion of the Reorganization consists of directors
Whittaker, O'Grady and Smith. The class of directors whose term expires at the
second annual meeting of stockholders following completion of the Reorganization
consists of directors Buck, Klein and Camera. The class of directors whose term
of office expires at the third annual meeting of stockholders following the
completion of the Reorganization consists of directors Ingalls, Slutzky and
Jenkins. The biographical information regarding these individuals is set forth
under "Management of the Bank-Biographical Information."
Executive Officers of the Company
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names. The biographical
information for each executive officer is set forth under "Management of the
Bank--Biographical Information."
<TABLE>
<CAPTION>
Name Age* Position
- ---- ----- ---------
<S> <C> <C>
J. Bruce Whittaker ............... 55 President and Chief Executive Officer
Bruce P. Egger ................... 49 Vice President and Secretary
Edmund L. Smith, Jr. ............. 55 Vice President and Treasurer
Daniel T. Sager .................. 44 Vice President
</TABLE>
- ---------------------------
*As of June 30, 1998
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected or until death,
resignation, retirement or removal by the board.
Since the formation of the Company, none of the executive officers has
received remuneration from the Company. It is not anticipated that the executive
officers of the Company will initially receive any remuneration in his or her
capacity as an executive officer. For information concerning compensation of
executive officers of the Bank, see "Management of the Bank."
Indemnification and Limitation of Liability
The Certificate of Incorporation of the Company provides that a
director or officer of the Company shall be indemnified by the Company to the
fullest extent authorized by the Delaware General Corporation Law ("DGCL")
against all expenses, liability and loss reasonably incurred or suffered by such
person in connection with his or her activities as a director or officer or as a
director or officer of another company, if the director or officer held such
position at the request of the 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 Company and, with respect to any criminal action or
proceeding, either had reasonable cause to believe such conduct was lawful or
did not have reasonable cause to believe his or her conduct was unlawful.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Company may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Company or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the
18
<PAGE>
Company has the power to indemnify such person against such expense, liability
or loss under the DGCL. The Company intends to obtain such insurance.
The Certificate of Incorporation also provides that directors of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the Company or
its stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174 of
the Delaware General Corporation Law (which relates to unlawful dividends or
stock purchases or redemptions), or (iv) for any transaction from which the
director derived an improper personal benefit.
MANAGEMENT OF THE BANK
Directors of the Bank
Upon completion of the Reorganization, the initial directors of the
Bank will consist of those persons who currently serve on the Board of Trustees
of the Bank. The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year. Directors of the Bank will be elected by the Company as sole
stockholder of the Bank. The proposed directors of the Bank are as follows:
<TABLE>
<CAPTION>
Director Age * Occupation Director Since Term Expires
-------- ----- ---------- -------------- ------------
<S> <C> <C> <C> <C>
Walter H. Ingalls ........ 67 Retired Lumber Company President 1966 2001
J. Bruce Whittaker ....... 55 President and Chief Executive Officer, 1987 1999
Greene County Savings Bank
Richard J. Buck .......... 73 Retired Partner, Insurance Agency 1970 2000
Raphael Klein ............ 71 Retired Movie Theater Owner 1986 2000
Paul Slutzky ............. 50 General Manager-Construction Company 1992 2001
Anthony Camera, Jr. ...... 72 Retired President and Chief Executive 1986 2000
Officer, Mutual Insurance Company
David H. Jenkins, DVM .... 44 Veterinarian/Owner-Catskill Animal Hospital 1996 2001
Dennis R. O'Grady ........ 58 Pharmacist/Co-Owner-Mikhitarian Pharmacy 1981 1999
Martin C. Smith .......... 53 Employee-Main Bros. Oil Co., Inc. 1993 1999
</TABLE>
- --------------
*As of June 30, 1998
Executive Officers of the Bank
The following table sets forth certain information (as of June 30,
1998) regarding the executive officers of the Bank, all of whom currently serve
in their indicated position as executive officers of the Bank.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
J. Bruce Whittaker ................ 55 President and Chief Executive Officer
Bruce P. Egger .................... 49 Vice President and Secretary
Edmund L. Smith, Jr. .............. 55 Vice President and Treasurer
Daniel T. Sager ................... 44 Vice President-Lending
</TABLE>
19
<PAGE>
The executive officers of the Bank will be elected annually and will
hold office until the next annual meeting of the board of directors of the Bank
held immediately after the annual meeting of stockholders of the Bank, and until
their successors are elected and qualified, or until death, resignation,
retirement or removal by the board of directors.
Biographical Information
Trustees/Directors of the Bank
J. Bruce Whittaker is President and Chief Executive Officer of
the Bank, and has served in that position since 1987. Mr. Whittaker
has been affiliated with the Bank in various capacities since 1972.
Mr. Whittaker was appointed to the Board of Trustees in 1987.
Walter H. Ingalls is the Chairman of the Board. Mr. Ingalls is
retired. Prior to his retirement, Mr. Ingalls was the President of the
GNH Lumber Co., a lumber company located in Norton Hill, New York.
Richard J. Buck is retired. Prior to his retirement he was a
partner with Grossman Agency, a general insurance agency in Catskill,
New York
Raphael Klein is retired. Prior to his retirement he was the co-owner
of Klein Theaters, a movie theater chain in Hudson, New York.
Paul Slutzky is the General Manager of I. & O. A. Slutzky Constr.
Co., a construction company located in Hunter, New York.
Anthony Camera, Jr. is retired. Prior to his retirement, he was
President of Commercial Mutual Insurance Co., an insurance company in
Catskill, New York.
David H. Jenkins, DVM is a veterinarian and the owner of Catskill
Animal Hospital, Catskill, New York.
Dennis R. O'Grady is a pharmacist and the co-owner of Mikhitarian
Pharmacy located in Catskill, New York.
Martin C. Smith is currently employed by Main Bros. Oil Co.,
Inc., and is the former owner of R.E. Smith Fuel Company, which was
purchased by Main Bros. Oil Co., Inc., located in Albany, New York.
Executive Officers of the Bank Who Are Not Directors
Bruce P. Egger has served as Vice President and Secretary of the Bank
since 1987 and has been affiliated with the Bank in various capacities
since 1977. Prior to that time, Mr. Egger worked in the retail trade.
Edmund L. Smith, Jr., has served as Vice President and Treasurer of the
Bank since 1988 and has been affiliated with the Bank in various
capacities since 1975. Prior to that time, Mr. Smith was the bursar of
Columbia-Greene Community College.
Daniel T. Sager has served as Vice President-Lending of the Bank since
1995 and has been affiliated with the Bank in various capacities since
1987. Prior to that time, Mr. Sager was employed as branch manager for
a commercial bank.
Meetings and Committees of the Bank's Board
The Board of Trustees of the Bank meets monthly and may have additional
special meetings as may be called by the Chairman or as otherwise provided by
law. During the year ended June 30, 1998, the board held 13 meetings. No trustee
attended fewer than 75% in the aggregate of the total number of meetings of the
board or board committees on which such trustee served during 1997. The Board of
Trustees of the Bank has the following standing committees: Audit Committee,
Personnel Committee, Appraisal and Loan Committee, Re-Inspection Committee and
Executive Committee.
Board of Directors and Committees of the Company after the Reorganization
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<PAGE>
Following the Reorganization, the board of directors of the Company is
expected to meet monthly, or more often as may be necessary. The board of
directors initially is expected to have a standing executive committee and an
audit committee. The board of directors may, by resolution, designate one or
more additional committees.
The executive committee initially will consist of the following six
directors of the Company: Messrs. Buck, Ingalls, Klein, Slutzky, Whittaker and
Smith. The executive committee is expected to meet as necessary when the board
is not in session to exercise general control and supervision in all matters
pertaining to the interests of the Company, subject at all times to the
direction of the board of directors. The executive committee may also serve as
the nominating committee for the purpose of identifying, evaluating and
recommending potential candidates for election to the board.
The audit committee initially will consist of the following four
directors of the Company: Messrs. Ingalls, Camera, Jenkins and O'Grady. The
audit committee is expected to meet at least quarterly to examine and approve
the audit report prepared by the independent auditors of the Bank, to review and
recommend the independent auditors to be engaged by the Company, to review the
internal audit function and internal accounting controls of the Company, and to
review and approve audit policies.
Compensation of Trustees and Directors
Directors of the Bank will receive an annual retainer of $6,000 and a
fee of $500 per meeting for attendance at Board and Committee meetings.
Directors of the Bank and the Company who are also employees of the Bank and the
Company are not eligible to receive Board fees. Initially, no separate
compensation will be paid to directors for service on the Board of Directors or
Board committees of the Company.
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ADDITIONAL INFORMATION
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The Bank has filed an Application with the Department with respect to
the Reorganization. Pursuant to the rules and regulations of the Department, the
Proxy Statement and Prospectus omit certain information contained in that
Application. The Application may be examined at the office of the Department, 2
Rector Street, New York, New York, 10006, and at our administrative offices, at
425 Main and Church Streets, Catskill, New York, 12414 without charge. The Plan
may be obtained without charge, together with the Restated Organization
Certificate and Bylaws of the Stock Bank and the Certificate of Incorporation
and Bylaws of Company, by contacting the Bank's Corporate Secretary at (518)
943-3700. In the alternative, please sign, complete and return the enclosed
postage-prepaid Information Request Card by __________, 1998, and the Bank will
provide you with a copy of the Plan. You do not need to return the Information
Request Card to vote on the Reorganization. Copies of the Independent Valuation
are available for inspection at each of the Bank's offices.
This Proxy Statement does not include all of the information regarding
the Reorganization and Offering that is set forth in the Prospectus, which is
enclosed with this Proxy Statement. The following sections of the Prospectus are
specifically incorporated into this Proxy Statement by reference hereto:
<TABLE>
<CAPTION>
PROSPECTUS SECTION PAGE IN PROSPECTUS
------------------ ------------------
<S> <C>
SELECTED FINANCIAL DATA.................................................
RECENT DEVELOPMENTS.....................................................
RISK FACTORS............................................................
GREENE COUNTY SAVINGS BANK..............................................
REGULATORY CAPITAL COMPLIANCE...........................................
USE OF PROCEEDS.........................................................
CAPITALIZATION..........................................................
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
PRO FORMA DATA..........................................................
THE REORGANIZATION AND OFFERING.........................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL.......................
CONDITION AND RESULTS OF OPERATIONS..................................
BUSINESS OF THE COMPANY.................................................
BUSINESS OF THE BANK....................................................
FEDERAL AND STATE TAXATION..............................................
REGULATION..............................................................
MANAGEMENT OF THE BANK..................................................
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY.............................
CONSOLIDATED FINANCIAL STATEMENTS....................................... F-1
</TABLE>
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OTHER MATTERS
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The Board of Trustees is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting (which
matters are expected to consist of procedural matters and a vote to adjourn the
Meeting, if necessary), it is intended that proxies in the accompanying form
will be voted in respect thereof in accordance with the judgment of the person
or persons voting the proxies.
BY ORDER OF THE BOARD OF TRUSTEES
Secretary
Catskill, New York
__________, 1998
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YOUR BOARD OF TRUSTEES RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT
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