As filed with the Securities and Exchange Commission on December 30, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OSWEGO COUNTY BANCORP, INC.
(in organization)
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(Name of Small Business Issuer in its to be filed Articles of Incorporation)
<TABLE>
<S> <C> <C>
Delaware 6711 To be Requested
- ------------------------------- ------------------------------------- ------------------
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification No.)
</TABLE>
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
Gregory J. Kreis
President and Chief Executive Officer
44 East Bridge Street
Oswego, New York 13126
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(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy to:
John P. Soukenik, Esq.
David Teeples, Esq,
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington, D.C. 20005
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Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration 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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
====================================================================================================================
Amount Proposed Maximum Amount of
Title of each Class of to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share Offering Price Fee
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par
value per share (1) 759,220 shares $10.00 $7,592,200(2) $2,111
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares of Common Stock to be issued to the Oswego County
Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that the Registration Statement
shall thereafter become effective in accordance with section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission acting pursuant to said section 8(a)
may determine.
Disclosure alternative used (check one): Alternative 1___ Alternative 2 x
===============================================================================
<PAGE>
PROSPECTUS
[Logo]
Oswego County Bancorp, Inc.
Minimum of 469,200 and Maximum of 634,800 Shares of Common Stock
Oswego County Savings Bank is converting from the mutual to the stock form in
accordance with a plan of reorganization and stock issuance. As part of the
reorganization, Oswego County Savings Bank will become a majority owned
subsidiary of Oswego County Bancorp, Inc. Oswego County Bancorp, Inc. is
offering for sale to the public a minority ownership interest in its common
stock. Oswego County MHC, a New York-chartered mutual holding company, will own
the remaining shares of Oswego County Bancorp, Inc. common stock. The
Superintendent of Banks of the State of New York, the Federal Deposit Insurance
Corporation and a majority of the votes eligible to be cast by voting depositors
of Oswego County Savings Bank must approve reorganization and the stock
issuance.
Terms of the Offering
An independent appraiser has estimated the pro forma market value of Oswego
County Savings Bank, on a fully converted basis, to be between $10.0 million and
$14.1 million. Based on this estimate, Oswego County Bancorp, Inc. will offer
between 469,200 shares and 634,800 shares to its depositors, trustees and
officers, its employee stock ownership plan and the public and will issue
between 550,800and 745,200 shares to Oswego County MHC. In addition, Oswego
County Bancorp, Inc. intends to issue between 18,768 and 25,392 shares to a
charitable foundation. Oswego County Bancorp, Inc. may increase the number of
shares offered to up to 730,020 shares, subject to regulatory approval. Upon
completion of the reorganization and offering, the Oswego County MHC will own
53% of the common stock, the persons who purchase common stock in the offering
will own 45.2% of the common stock and the charitable foundation will own 1.8%
of the common stock. Based on these estimates, we are making the following
offering of shares of common stock:
<TABLE>
<CAPTION>
Adjusted
Minimum Midpoint Maximum Maximum
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<S> <C> <C> <C> <C>
Per Share Price $10.00 $10.00 $10.00 $10.00
Number of Shares 469,200 552,000 634,800 730,020
Underwriting Commission and Other Expenses $524,700 $524,700 $524,700 $524,700
Net Proceeds to the Bank $4,167,300 $4,995,300 $5,823,300 $6,775,500
Net Proceeds Per Share $8.88 $9.05 $9.17 $9.28
</TABLE>
Please refer to Risk Factors beginning on page ___ of this document.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other governmental agency.
These securities are subject to risk, including the loss of investment.
Neither the Securities Exchange Commission, the Superintendent of Banks of the
State of New York, the New York State Banking Department, the Federal Deposit
Insurance Corporation, nor any state securities regulator has approved or
disapproved these securities or determined if this Prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
For information on how to subscribe for common stock, call the Stock Center at
(315)___-____.
Other Related Matters
Oswego County Savings Bank has agreed to merge with Oswego City Savings Bank.
Within 30 days of the completion of this offering, we will send the holders of
Oswego County Bancorp, Inc.'s common stock information about Oswego City Savings
Bank and we will hold a stockholders meeting to consider the merger. If the
merger receives the necessary approvals, including the approval of a majority of
Oswego County Bancorp, Inc.'s publicly traded shares, the holders of Oswego
County Bancorp, Inc.'s common stock will receive shares of Pathfinder Bancorp,
Inc., the holding company of Oswego City Savings Bank, in exchange for their
Oswego County Bancorp, Inc.'s common stock. We will determine the number of
shares an Oswego County Bancorp, Inc.'s shareholder will receive based on the
market value of publicly traded shares of Oswego County Bancorp, Inc. and
Pathfinder Bancorp and certain other standards. The exchange ratio provides for
a minimum 15% premium to Oswego County Bancorp, Inc.'s shareholders.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
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The date of this Prospectus is ___________________, 1999
<PAGE>
[INSERT MAP]
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE OFFERING
Q: What is the Mutual Company?
A: Oswego County, MHC (the "MHC") is a New York-chartered mutual
corporation that is being established in connection with the mutual
holding company reorganization (the "Reorganization") of Oswego County
Savings Bank (the "Bank"). The MHC will be chartered under the laws of
the State of New York and will be regulated by the New York State
Banking Department (the "Department") and the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). The MHC will own
53% of the Oswego County Bancorp, Inc.'s (the Stock Company")
outstanding common stock, par value $0.01 (the "Common Stock") or
648,000 at the midpoint of the valuation range established by the
independent appraisal. Persons who purchase Common Stock in the
Offering, and the Oswego County Foundation (the "Foundation") will own
the remaining 47% of the Common Stock. The Stock Company will own 100%
of the issued and outstanding shares of the Bank.
Q: Who will be the minority stockholders of the Bank?
A: All persons who purchase Common Stock in the Offering, including the
employee stock ownership plan ("ESOP") of the Stock Company and the
Foundation, will be the minority stockholders (the "Minority
Stockholders") of the Stock Company, and will own 47% of the Common
Stock upon completion of the Offering. The 47% of the Common Stock
owned by purchasers in the Offering and the Foundation is referred to
as the "Minority Ownership Interest." The MHC will own 53% of the
Common Stock, and will remain its majority stockholder as long as the
MHC remains in existence.
Q: Why is the Stock Company issuing stock if the Bank has agreed to merge
with Oswego City Savings Bank?
A: It is the policy of the FDIC to prohibit the direct merger of a mutual
savings bank like the Bank into a stock savings bank (i.e.,a merger
conversion). While it is unclear whether this policy applies to a
merger into a stock savings bank subsidiary of a mutual holding
company, the FDIC staff has raised concerns that such a structure has
at least some of the attributes of a merger conversion. The FDIC,
however, has determined that a mutual holding company reorganization
and stock issuance by the Stock Company followed by the proposed merger
does not violate the prohibition against a merger conversion if the
merger is approved by the Stock Company's new shareholders and a
sufficient trading period precedes the vote to allow for those
shareholders to realize the benefit of any appreciation in the market
value of their stock.
Q: What is the purpose of the Reorganization and the Offering?
A: The primary purpose of the Reorganization and the Offering is to create
a structure to facilitate the merger between the Bank and Oswego City
Savings Bank ("Oswego City"). However, if the merger is not completed,
the additional equity capital raised in the Offering will support the
growth and expansion of the Bank as an independent organization. The
Bank
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can also use the increased capital to expand its lending and investment
activities. The Reorganization will create 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 Stock Company. The Bank also
is establishing the Foundation that will be dedicated exclusively to
supporting charitable causes and community development activities in
its market area.
Q: Why is the Stock Company conducting a minority stock offering instead
of selling all of its stock in the Offering?
A: The public ownership of a minority interest in the Stock Company will
result in an ownership structure identical to the ownership structure
of Oswego City's mutual holding company organization. The existence of
identical organizations will facilitate the proposed merger for
regulatory and corporate purposes. Moreover, even if the merger is not
completed, the mutual holding company form of organization better
serves the capital needs of the Bank. The Bank does not need all of the
capital that would be raised in a "standard" or "full" stock
conversion, where all of a converting institution's common stock is
offered for sale. A savings institution, such as the Bank, that
converts to stock form using the mutual holding company structure sells
only a minority of its stock holding company's 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 Stock Company will have the flexibility
to raise additional capital in the future by selling the unsold shares
held by MHC. Moreover, the mutual holding company structure allows the
Bank to maintain its independence and community focus, if the merger
with locally based Oswego City is not completed. Because the MHC will
control a majority of the Common Stock, the Reorganization will permit
the Bank to achieve the benefits of being a stock company without the
loss of control by the Bank's Board of Directors.
Q: What happens to my Common Stock if the Bank merges with Oswego City
Savings Bank?
A: You will receive shares of Pathfinder Bancorp, Inc. ("Pathfinder"), the
publicly traded holding company of Oswego City Savings Bank, in
exchange for your shares of Common Stock. The number of shares you will
receive depends on the market price of Common Stock and Pathfinder
common stock, subject to certain limitations. The exchange ratio
provides for a minimum 15% premium to Stock Company shareholders. Thus,
if the Merger is completed, for each share of Common Stock you purchase
for $10.00 you will receive a share of Pathfinder common stock with a
market value of at least $11.50.
However, no merger will occur unless it receives the approval of
holders of a majority of the Stock Company's publicly held common stock
after those shareholders have had an opportunity to review detailed
information about the merger and Oswego City.
Q: How do I order the Common Stock?
A: You must complete and return the stock order form and certification
form (together, the
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<PAGE>
"Order Form") to the Bank, together with your payment, before 12:00
noon New York time on March __, 1999. Please review the 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
15,000 shares (or $150,000). In certain instances, your order may be
grouped together with orders by other persons who are associated with
you (such as your spouse, children or relatives living in your home or
corporations, partnerships 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 5% of the shares of
Common Stock offered for sale in the Offering. 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:
o First, to persons who had one or more deposit accounts with
the Bank aggregating at least $100 on September 30, 1997
("Eligible Account Holders").
o Second, up to 10% of the Minority Ownership Interest may be
purchased by the Bank's tax-qualified employee benefit plans,
including the Stock Company's ESOP (which is expected to
purchase up to 8% of the Minority Ownership Interest).
o Third, to persons who had one or more deposit accounts with
the Bank aggregating at least $100 on December 31, 1998
("Supplemental Eligible Account Holders").
o Fourth, to employees, officers and trustees of the Bank.
Q: What will happen to my subscription funds if the Offering is not
completed?
A: If the minimum number of shares to be sold in the Offering (469,200
shares) is not sold by March __, 1999, the Bank may: (i) terminate the
Offering and promptly refund all payments for Common Stock, including
interest on such payments at the Bank's passbook rate of ___%; or (ii)
extend the Offering for an additional 45 days (to April __, 1999) or,
if approved by the Superintendent, for an additional period after such
45-day extension. The Bank is not required to give purchasers notice of
any extension unless the expiration date is later than April __, 1999,
in which event purchasers will be "re-solicited" (i.e., given the right
to increase decrease, confirm or rescind their orders). Purchasers who
fail to respond to the re-solicitation within 20 days will have their
orders rescinded and their subscription funds returned promptly.
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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 stock issuance. The plan of
stock issuance is part of the plan of reorganization and is available
at any Bank office. There 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 at least the lesser of 100 shares or the amount
subscribed for. Likewise, if insufficient shares of Common Stock are
available in the third category, the Bank will allocate shares in such
a manner that will allow Supplemental Eligible Account Holders to
purchase at least 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 March __, 1999.
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
persons residing in the Bank's community of Oswego County, New York.
Q: May I transfer my subscription rights?
A: No. Transferring subscription rights or entering into an agreement or
understanding for the transfer of subscription rights is prohibited.
Q: What particular factors should I consider when deciding whether to buy
Common Stock?
A: Before you decide to purchase Common Stock, you should read this entire
prospectus of the Bank ("Prospectus"), including the Risk Factors
section on pages __ to __ of this Prospectus.
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
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126
(315) ___-____
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
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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 the Federal Deposit
Insurance Corporation.
5
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the financial statements and the notes to the financial statements.
You should note as you read this Prospectus that at times capitalized
terms are used. Each term is defined the first time that it is used to assist
you in reading this Prospectus. Defined terms are used to help 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 formation of the mutual holding company organization are referred to
as the "Reorganization," and the offer and sale of 47% of the Common Stock is
referred to as the "Offering." References to "Oswego County," the "Bank," "we,"
"us," and "our" refer to Oswego County Savings Bank either in its current form
or as a stock savings bank following the Reorganization, references to the Stock
Company refer to Oswego County Bancorp, Inc. and references to "MHC" refer to
Oswego County MHC. In certain circumstances where appropriate, "we," "us," or
"our" refer collectively to the MHC, the Stock Company and the Bank.
The MHC:
Oswego County MHC
44 East Bridge Street
Oswego, New York 13126-2547
The MHC is not an operating company and has not engaged in any
significant business to date. It was formed as a New York-chartered mutual
corporation to be the holding company for the Stock Company. The sole activity
of the MHC is the ownership of 53% of the issued and outstanding stock of the
Stock Company. The holding company structure will provide greater flexibility in
terms of operations, expansion and diversification. It will also facilitate the
proposed merger with Oswego City. See "Oswego County MHC" on page____.
Oswego County Bancorp, Inc.
44 East Bridge Street
Oswego, New York 13126-2547
Oswego County Bancorp, Inc. is not an operating company and has not
engaged in any significant business to date. It was formed recently as a
Delaware-chartered corporation to be the holding company for the Bank. The sole
activity of the Stock Company is the ownership of all of the issued and
outstanding stock of the Bank. The holding company structure will provide
greater flexibility in terms of operations, expansion and diversification. It
will also facilitate the proposed merger with Oswego City. See page "Oswego
County Bancorp, Inc." on page____.
The Bank:
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126-2547
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Oswego County was established in Oswego, New York in 1870. We are a
community and customer-oriented New York-chartered mutual savings bank serving
primarily Oswego, New York and the surrounding area through four full service
banking offices located in Oswego, Fulton and Pulaski, New York. We provide
financial services to individuals, families and small businesses. Historically,
we have emphasized residential mortgage lending, primarily originating
one-to-four family mortgage loans. Our deposits are insured up to the applicable
limits by the Federal Deposit Insurance Corporation. At September 30, 1998, we
had total assets of $109.8 million, deposits of $95.8 million, and net worth of
$11.4 million. See "Oswego County Savings Bank" on pages ____ to _____.
The Bank's current business strategy is to operate as a
well-capitalized, profitable and community-oriented savings bank dedicated to
providing quality retail financial products and personalized customer service.
The Bank has implemented this strategy by emphasizing retail deposits as its
primary source of funds and investing a substantial part of such funds in
locally originated residential first mortgage loans, in mortgage-backed and
related securities and in other liquid investment securities. Specifically, the
Bank's business strategy incorporates the following elements: (i) operating as a
community-oriented financial institution and maintaining a strong core customer
base by providing a high degree of personalized banking service; (ii)
emphasizing traditional lending and investment activities; (iii) improving asset
quality; (iv) maintaining a strong retail deposit base; and (v) managing
interest rate risk while achieving desirable levels of profitability.
When the Bank's chairman, president and chief executive officer retired
in June 1996, the Bank's Board of Trustees formed a committee to search for his
replacement. The search process culminated with the hiring of Gregory Kreis as
president and chief executive officer in January 1997. Mr. Kreis had 29 years of
banking experience in three commercial banks in Vermont, most recently as
president and chief executive officer of a $145 million community bank in
southern Vermont. Since joining the Bank Mr. Kreis has retained the services of
a new senior consumer and mortgage lending officer, a new commercial lending
officer and a new human resources and training officer. In addition, the Bank
created the new positions of operations officer and compliance/security officer
and promoted then-current officers to fill those positions. The internal auditor
was transferred to the position of treasurer and chief financial officer.
The new management team reviewed and revised the Bank's policies and
procedures in all major functional areas including lending, investments,
asset-liability management, and asset classification. Under the direction of new
management, the Bank also undertook a comprehensive review of all non-performing
assets and major loans including all commercial mortgage loans. The results of
this review are reflected in, the Bank's loan loss provisions of $1.1 million in
1996 and $525,000 in 1997. During this period, the Bank also experienced
relatively high levels of non-performing assets primarily attributable to the
failure of the Bank's real estate market to recover fully from the recession of
the early 1990s, and collections policies and procedures that were in need of
revision.
New management has implemented new more stringent loan underwriting
policies and procedures in an effort to improve asset quality in the future.
Management believes that loan provisions may be lower in the future due to the
nature of and volume of current and anticipated loan production, market area
trends and the current level of non-preforming assets. Lending activity and
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new business development to date has been limited following the change of
management's as the new management team has sought to develop and implement the
policies and procedures designed to enable the Bank to maintain compliance with
laws and regulations, while also minimizing risk exposure. The Bank believes
that it is in a position to pursue actively lending and business opportunities
in fiscal 1999.
Financial and operational highlights and goals of the Bank include the
following:
o Community Banking. The Bank is committed to meeting the
financial needs of its customers in Oswego County, New York
and surrounding communities. Management believes that the Bank
can be more effective in servicing its customers than many of
its non-local competitors because of its ability to quickly
and effectively provide senior management responses to
customer needs and inquiries and its extensive knowledge of
the local market.
o Emphasis on Retail Deposits. The Bank's liability strategy
emphasizes retail deposits drawn from the four full-service
offices in its market area rather than institutional or
wholesale deposits. At September 30, 1998, 60.1% of the Bank's
deposit base of $95.8 million consisted of core deposits,
which included non-interest-bearing demand accounts, NOW
accounts, and savings and money market deposit accounts.
o Focus on Residential lending. A cornerstone of our lending
program has long been one-to-four family residential lending.
We believe that, in comparison to many other types of assets,
one-to-four family residential loans carry acceptable yields
and credit risk. In addition, such loans create strong ties to
consumers which can be utilized to market other financial
products. At September 30, 1998, we had $63.3 million (or
85.7% of total loans) of residential mortgage loans and home
equity loans. See "Business Lending Activities." In recent
years, to increase the yield on interest-earning assets and
to increase the amount of our interest rate sensitive assets,
we have purchased adjustable-rate mortgage-backed securities
and short-term investment securities. In February 1998, we
began a program of actively originating 30-year fixed-rate
one-to-four family residential loans for eventual sale in the
secondary market to address our goal of providing a broad
range of loan products to our customers.
o Improved Asset Quality. The Bank's new senior management team
in place since April 1997 has revised the Bank's policies and
procedures in all major functional areas including lending,
investments, asset-liability management and asset
classification. Senior management undertook a comprehensive
review of the Bank's assets to ensure all problem assets have
been identified, addressed through additional collateral,
workout or foreclosure and reserved, as necessary. The ratio
of non-performing assets to total assets was 2.22% and our
ratio of non-performing loans to total loans was 2.69% at
September 30, 1998. At September 30, 1998, our ratio of
allowance for loan losses to total loans was 1.74% and our
ratio of allowance for loan losses to total non-performing
loans was 64.45%. See "Business - Asset Quality."
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The Mutual Holding Company Structure
The mutual holding company structure differs significantly from a stock
holding company structure used in a "standard" mutual-to-stock conversion. In a
three-tier mutual holding company organization, the stock holding company of a
savings bank converting to the stock form 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 unsold shares that are issued to
the MHC may be offered for sale by the Stock Company. See "Regulation -- Holding
Company Regulation -- Mutual Holding Company Regulation." In addition, because
the MHC controls a majority of the 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.
The Reorganization
The Bank's Board of Trustees has adopted the Amended and Restated Plan
of Reorganization from Mutual Savings Bank to Mutual Holding Company and Plan of
Stock Issuance (the "Plan") which is subject to the requirements of the Federal
Deposit Insurance Corporation ("FDIC") and the New York State Banking Department
(the "Department"). The Plan describes the terms of the mutual holding company
reorganization (the "Reorganization") and the offering of a Minority Interest of
Common Stock to the public (the "Offering").
The Reorganization and Offering involve a number of steps, including
the following:
o The Bank will establish the MHC and the Stock Company, neither
of which will have any assets prior to the completion of the
Reorganization.
o 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 Stock Company.
o The Stock Company will issue between 1,038,768 shares and
1,405,392 shares of common stock in the Offering. The MHC will
own 53% of these shares (or between 550,800 shares and 745,200
shares); depositors and the public 45.2% of these shares (or
between 469,200 shares and 634,800 shares); and the Foundation
will own 1.8% of these shares (or between 18,768 shares and
25,392 shares).
o Interest that depositors had in the Bank will become interests
in the MHC, which will own 53% of the shares of the Common
Stock.
The Stock Offering
We are offering between 469,200 and 634,800 shares of Common Stock at
$10.00 per share in the Offering. We may increase the offering to 730,020 shares
without further notice to you. Any increase over 634,800 shares would require
the approval of the Superintendent and the FDIC. You may not change or cancel
any stock order previously delivered to us as a result of an increase in the
Offering within these limits.
Stock Purchase Priorities. The shares of Common Stock will be offered
on the basis of
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priorities. Certain depositors, the ESOP established by us and our employees,
officers and trustees will receive subscription rights to purchase shares of
Common Stock. Any remaining shares not subscribed for may be offered in a direct
community offering or a public offering. See "The Reorganization and Offering -
Community Offering" and "-- Syndicated Community Offering" on pages _____ to
____.
Prohibition on Transfer of Subscription Rights. You may not sell or
assign your subscription rights. Any transfer of subscription rights is
prohibited by law and may result in the forfeiture of your subscription rights.
Stock Pricing and Number of Shares to be Issued. We set the purchase
price per share of the Common Stock at $10.00. This is the price most commonly
used in recent years in stock offerings involving initial public offerings of
mutual savings institutions converting to the stock form. The number or range of
shares of Common Stock to be issued in the offering is based on an independent
appraisal of the pro forma market value of the common stock by RP Financial, an
appraisal firm experienced in appraisals of savings institutions. RP Financial
has estimated that as of December 4, 1998, the estimated valuation range of the
Common Stock was between $10.0 million and $14.1 million (with a midpoint of
$12.1 million). The Estimated Valuation Range represents our estimated market
value after giving effect to the sale of the common stock in this offering and
the issuance of a number of shares equal to 4% of the shares sold in the
Offering to the Foundation. The Bank's Board of Trustees has determined to sell
shares to the public that will constitute a 45.2% ownership interest. Based on
this valuation and the $10.00 per share price, the number of shares of Common
Stock that we will issue in the Offering will range from between 469,200 shares
and 634,800 shares. The establishment of, and contribution to, the Foundation
will have the effect of reducing our market valuation. See "Risk Factors - the
Expense and Dilutive Effect of the Stock Contribution to the Foundation" on
pages ___ and ___ and "Comparison of Valuation and Pro Forma Information With No
Foundation" on pages ___ to ___.
The appraisal was based both upon our financial condition and results
of operations and upon the effect of the additional capital we will raise in
this Offering. The independent appraisal will be updated before we complete the
Offering. 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
$16.2 million. If this occurs, the maximum number of shares that can be sold in
this offering can increase to up to 730,020 shares (plus the 29,201shares to be
issued to the Foundation). If the Estimated Valuation Range is either below
$10.0 million or above $16.2 million, then you will be notified and will have
the opportunity to modify or cancel your order. See "The Stock Pricing and
Number of Shares to be Issued" on pages ____ to ____.
The independent valuation prepared by RP Financial is not a
recommendation as to the advisability of purchasing the Common Stock.
Accordingly, you should not buy the Common Stock based solely on the independent
valuation.
Termination of the Offering. The subscription offering will terminate
at 12:00 noon, Oswego, New York time, on ________________, 1999. Any direct
community offering or public offering may terminate at any time without notice,
but no later than ________________, 1999, without approval by the Superintendent
of Banks of the New York State Banking Department and the FDIC. If the offering
is not completed by _____________________, 1999, we will notify all subscribers
and will give them the opportunity to cancel or modify their order.
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<PAGE>
Benefits to Management and Employees from the Offering. Our employees
will participate in the Offering through individual purchases and through
purchases of stock through our employee stock ownership plan, which is a type of
retirement plan. If we do not merge with Oswego City, we also intend to
implement a Recognition and Retention Plan ("Recognition Plan" or "RRP") and a
stock option plan (the "Stock Option Plan"), which may benefit the officers,
employees and directors. If we adopt the RRP, we will award stock at no cost to
them. We are not permitted to adopt the RRP and Stock Option Plan until at least
six months after the Offering. The plans are subject to stockholder approval.
The Charitable Foundation. To further our commitment to the local
community, we intend to establish the Foundation as part of the Offering. We
will make a contribution to the Foundation, in the form of shares of common
stock, equal to 4.0% of the shares sold in the Offering. The Foundation will be
dedicated exclusively to supporting charitable causes and community development
in the Bank's market area. Due to the issuance of shares of Common Stock to the
Foundation, persons purchasing shares in the Offering will have their ownership
and voting interest in the Stock Company diluted by 0.8%. We will incur an
expense equal to the full amount of the contribution to the Foundation, offset
in part by a tax benefit, during the quarter in which the contribution is made.
Such expense will reduce our earnings. See "Risk Factors - The Expense and
Dilutive Effect of the Stock Contribution to the Foundation" on pages ___ and
___, "Pro Forma Data" on pages ___ to ___ and "The Reorganization and Offering -
Establishment of the Foundation - Tax Considerations" on pages ___ to ___.
Use of the Proceeds Raised from the Sale of Common Stock in the
Offering. We will use the net proceeds received from the offering as follows.
The percentages used are estimates.
o 50% will be used to buy all of the capital stock of the Bank.
o 50% will be retained to fund a loan to the employee stock
ownership plan for its purchase of common stock and the
remainder initially will be placed in short-term investments,
which may later be used as a possible source of funds for
stock repurchases, the payment of dividends to stockholders,
and for other general corporate purposes.
The proceeds received by the Bank will increase our capital and will be
available for expansion of our retail banking franchise through future lending
and investment, in addition to general corporate purposes. If the Merger is
completed, the proceeds of the Offering will become part of the capital of the
combined entities. See "Use of Proceeds" on pages ____ and ____.
The Merger
Oswego County Savings Bank has agreed to merge with Oswego City Savings
Bank. Within 30 days of the completion of this Offering, we will send the
holders of Common Stock information about Oswego City Savings Bank and we will
hold a stockholders meeting to consider the merger. If the merger receives the
necessary approvals, including the approval of a majority of the Stock Company's
publicly traded shares, the holders of the Common Stock will receive shares of
Pathfinder in exchange for their Common Stock. We will determine the number of
shares a Stock Company shareholder will receive based on the market value of
publicly traded shares of the Stock Company and Pathfinder and certain other
standards. The exchange ratio provides for a minimum
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<PAGE>
15% premium to Stock Company shareholders. Thus, if the Merger is completed, for
each share of Common Stock you purchase for $10.00 you will receive a share of
Pathfinder common stock with a market value of at least $11.50.
Consummation of the Merger is subject to, among other things: (i)
receipt of all necessary approvals and consents from regulators or governmental
entities, including approval of the Plan of Merger by the Superintendent and the
FDIC ; (ii) the approval of the merger agreement by the requisite vote of the
stockholders of Pathfinder and the Stock Company; (iii) approval of the
Reorganization and the Offering by our voting depositors; (iv) consummation of
the Offering; and (v) the satisfaction or waiver of certain other conditions.
The merger agreement will be presented to the Stock Company's stockholders for
their approval within 30 days of the completion of the Offering.
We have applied for all necessary regulatory approvals in order to
consummate the Merger. If all of the requisite approvals are received within the
anticipated timeframes, we would complete the Merger within _____ days following
the consummation of the Offering.
Dividends
If the Merger is completed, the payment of dividends will be subject to
the policies of Oswego City and Pathfinder. If the Merger is not completed, the
Stock Company intends to pay dividends to its shareholders. However, we have not
yet determined the amount and timing of such payments. The determination to pay
a dividend is dependent upon a number of factors, including (i) investment
opportunities available, (ii) capital requirements, (iii) regulatory
limitations, (iv) results of operations and financial condition, (v) tax
considerations, and (vi) general economic conditions. See "Dividends" on pages
___ and ___.
Market for the Common Stock
We anticipate the Common Stock to be traded on the over-the-counter
market through the OTC "Electronic Bulletin Board" under the symbol "______". If
the Merger is completed, holders of Common Stock will exchange their shares for
Pathfinder Bancorp, Inc. common stock which is traded on The Nasdaq Small Cap
System under the symbol "PBHC." However, if the Merger is not completed, it is
likely that an active and liquid trading market will not develop or be
maintained due to the relatively small size of the Offering. Investors should
have a long-term investment intent. Persons purchasing shares may not be able to
sell their shares when they desire or sell them at a price equal to or above
$10.00. FBR has informed us that it has agreed to make a market in the common
stock. FBR will, however, not be subject to any obligation with respect to such
efforts. See "Market for the Common Stock" on page ____.
Prospectus Delivery and Procedures for Common Stock
To ensure that each person or entity is properly identified as to his
stock purchase priorities, you must list all deposit accounts on the order form
accompanying this Prospectus, giving all names on each account and the account
numbers at the applicable date. The failure to provide accurate and complete
account information on the order form may result in a reduction or elimination
of your order.
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<PAGE>
We will only accept orders submitted on original order forms. We will
not accept photocopies or facsimile copies of order forms or the form of
certification. Payment by cash, check, money order, bank draft or withdrawal
from an existing account at the Bank must accompany your order form. We will not
accept wire transfers. See "The Reorganization and Offering - Procedure for
Purchasing Shares in the Subscription Offering" on pages ___ to ___.
To ensure that each purchaser receives an Prospectus at least 48 hours
prior to the respective expiration dates for the Offering, in accordance with
Rule 15c2-8 of the Exchange Act, as amended, we will mail no Prospectus later
than five days prior to such date or hand deliver any later than two days prior
to such date. Execution of the stock order form will confirm receipt or delivery
in accordance with Rule 15c2-8. We will only distribute stock order forms if
they are accompanied by a Prospectus and a certification form requiring each
prospective investor to acknowledge, among other things, that the shares of
Common Stock are not insured by the Bank, the FDIC or any other governmental
agency and that such prospective investor has received a copy of this
Prospectus, which, among other things, describes the risks involved in the
investment in the Common Stock.
Nontransferability of Subscription Rights
The subscription rights of Eligible Account Holders, Supplemental
Eligible Account Holders and Employee Benefit Plans are nontransferable.
Certificates representing shares of Common Stock purchased in the Subscription
Offering must be registered in the name of the Eligible Account Holder or
Supplemental Eligible Account Holder, as the case may be. Joint stock
registration will be allowed only if the qualifying deposit account is so
registered. See "The Reorganization and Offering - Restrictions on Transfer of
Subscription Rights and Shares."
Voting Control of Officers and Directors
Trustees of the Bank are expected to purchase approximately 2.5% and
1.9% of the shares of Common Stock outstanding, based upon the minimum and the
maximum of the Estimated Valuation Range, including shares issued to the
Foundation, respectively. Additionally, assuming the implementation of the ESOP,
RRP and Stock Option Plan, trustees, officers and employees have the potential
to control the voting of approximately 129,470 or 11.9% and 165,930 or 11.3%, of
the Common Stock at the minimum and the maximum of the Estimated Valuation
Range, including shares issued to the Foundation.
The Foundation will hold Common Stock in an amount equal to 1.8% of the
Common Stock issued in the Reorganization and Offering. These shares are voted
as directed by the Board of Directors of the Foundation, which will initially
consist of six directors of whom two will be officers or directors of the Bank.
However, the FDIC and the Superintendent of Banks of the New York State Banking
Department (the "Superintendent") have imposed conditions regarding voting of
the common stock by the Foundation. See "The Offering - Establishment of Oswego
County Foundation."
Role of the Marketing Agent
The Bank has engaged FBR as a financial and marketing advisor in
connection with the offering of the Common Stock and FBR has agreed to use its
best efforts to assist the Bank with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Offering. The
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<PAGE>
Bank has agreed to pay FBR a fee of $150,000 for its services provided and
expenses incurred in connection with the Offering. See "The Offering - Marketing
Arrangements."
Expiration Date for the Subscription Offering
The Expiration Date for the Subscription Offering is 12:00 noon Oswego,
New York time on _________________, 1999 unless extended by the Bank for an
initial period of up to 45 days after the Expiration Date or for one or more
additional 60 day periods thereafter, upon approval of the Superintendent, and
if necessary, the FDIC. The Subscription Offering may not be extended beyond
_____________, 2001. See "The Offering - Subscription Offering and Subscription
Rights."
No Board Recommendations
The Bank's Board of Trustees is not making any recommendations to
depositors or other potential investors regarding whether such persons should
purchase the Common Stock. Purchasers of the Common Stock should also consider
that the Bank may merge with Oswego City upon receipt of requisite approvals.
Each investor should base his investment decision on an evaluation of his or her
best interests.
Stock Center
If you have any questions regarding the purchase of Common Stock or the
Offering, call the Stock Center at (315)___-___. ]
Important Risks in Owning the Common Stock
Before you decide to purchase stock in the Offering, you should read
the "Risk Factors" section on pages ____ to ____ of this Prospectus, in addition
to the other sections of this Prospectus. The Common Stock is subject to
investment risk, including the possible loss of the principal of your
investment.
14
<PAGE>
SELECTED PRO FORMA UNAUDITED CONSOLIDATED
FINANCIAL DATA OF OSWEGO COUNTY SAVINGS BANK
(Dollars in Thousands, Except Per Share Data)
Set forth below are selected financial and other data of the Bank at
and for the periods indicated. The selected financial and other data does not
purport to be complete and is qualified in its entirety by reference to the
detailed information, financial statements and notes thereto of the Bank that
are presented elsewhere in this Prospectus. The Selected Financial Condition and
Selected Operating Data at December 31, 1997 and 1996 and for the year ended are
derived from the audited financial statements of the Bank. The financial
statements, from which the Selected Financial Condition and Selected Operating
Data at or for the nine-month periods ended September 30, 1998 and 1997 is
derived, are unaudited.
<TABLE>
<CAPTION>
At September 30, At December 31,
1998(1) 1997 1996
------- ---- ----
(In Thousands)
<S> <C> <C> <C>
Selected Financial Condition Data:
Total assets $109,764 $112,139 $115,650
Cash and due from banks(2) 3,576 4,083 4,723
Federal funds sold and other short-term 750 2,681 12,819
investments
Securities held to maturity 15,334 10,441 10,106
Securities available for sale 12,895 10,921 5
Loans, net 72,498 79,052 83,504
Deposits 95,844 97,899 102,015
Net worth 11,425 11,173 11,197
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended Years Ended December
September 30, 31,
1998(1) 1997(1) 1997 1996
------- ------- ---- ----
(In Thousands)
Selected Operations Data:
<S> <C> <C> <C> <C>
Total interest income $5,956 $6,183 $8,233 $8,169
Total interest expense 2,577 2,816 3,738 3,973
------ ------ ------ ------
Net interest income 3,379 3,367 4,495 4,196
Provision for loan losses 90 339 525 1,141
Non-Interest income 387 375 535 502
Non-Interest expense 3,327 3,378 4,479 3,737
Income (loss) before income tax expense 349 25 26 (180)
(benefit)
Income tax expense (benefit) 153 9 56 (119)
------ ------ ------ ------
Net income (loss) $ 196 $ 16 $ (30) $ (61)
====== ====== ====== ======
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
At or For the Nine Months Ended At or For the Year Ended
September 30, December 31,
------------------------------- ------------------------
1998(1) 1997(1) 1997 1996
------- ------- ---- ----
Selected Ratios (3) (In percentages)
<S> <C> <C> <C> <C>
Return on average assets 0.24 0.02 (0.03) (0.05)
Return on average equity 2.30 0.18 (0.25) (0.52)
Average equity to average assets 10.34 10.37 10.41 10.04
Equity to assets at end of period 10.41 9.96 9.96 9.68
Interest rate spread(4) 3.72 3.66 3.66 3.28
Net interest margin(4) 4.35 4.21 4.23 3.81
Non-performing loans to total loans
at end of period(5) 2.69 2.96 2.20 2.56
Non-performing assets to total assets
at end of period(5) 2.22 2.45 2.12 2.31
Allowance for loan losses to total
non-performing loans 64.45 69.63 79.43 72.61
Average interest-earning assets to
average interest-bearing liabilities 119.14 115.94 116.19 114.99
Net interest income after provision
for loan losses to total non-interest
expenses 98.86 89.64 88.64 81.78
Non-interest expenses to average
total assets 3.03 2.96 3.94 3.19
</TABLE>
- ----------
(1) In the opinion of management, financial information at September 30,
1998 and for the nine months ended September 30, 1998 and 1997 reflect
all adjustments (consisting only of normal recurring accruals) which
are necessary for a fair presentation of the information as of such
date and for such periods. The operating and other data for the nine
months ended September 30, 1998 may not be indicative of the operations
of Oswego County on an annualized basis.
(2) Includes cash and due from banks as well as interest-earning deposits
in other institutions.
(3) With the exception of end of period ratios, all ratios are based on
average monthly balances. The ratios for the nine month periods have
been annualized where appropriate.
(4) Interest rate spread represents the differences between the average
yield on interest-earning assets and the average rate on
interest-bearing liabilities. Net interest margin represents net
interest income as a percentage of average interest-earning assets.
(5) Non-performing loans consist of non-accrual loans, and non-performing
assets consist of non-performing loans and, where applicable, real
estate acquired by foreclosure.
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<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.
Risks Associated with the Proposed Merger
Except for limited unaudited pro forma data, no substantive information
about Oswego City is included in this Prospectus. However, the Bank has a
binding commitment to merge with Oswego City and, subject to certain regulatory
and stockholder approvals and market conditions, the Bank may merge with Oswego
City within a short time following the completion of the Reorganization and
Offering. Prior to any merger, holders of Common Stock will receive detailed
information about Oswego City in a merger proxy statement and have the
opportunity to vote for or against the merger at a stockholders meeting. If a
majority of the Stock Company's public stock holders vote for the merger,
holders of Common Stock will receive shares of Pathfinder Bancorp common stock
in exchange for your Common Stock or if you vote against the merger, you may
exercise dissenters' rights.
You should base your investment decision on the information about the
Bank contained in this Prospectus. While the exchange ratio in the merger
agreement provides for a minimum 15% premium above the offering price, the
completion of the Merger is uncertain. If the Merger is not completed, an active
and liquid market for the Common Stock may not develop or be maintained due to
the relatively small number of publicly traded shares. Moreover, the Bank's
relatively small size may adversely affect its ability to compete with larger
financial institutions and other competitors. A person contemplating the
purchase of Common Stock should consider the possibility of holding the Common
Stock as a long-term investment.
Recent Market Volatility and Risk of Investment Loss
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 and exposure to highly
leveraged hedge funds, even though local community-based financial institutions
may have no credit exposure outside the United States or loans to hedge funds.
Therefore, 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 and Potential Negative Effect
on Trading Price of Common Stock
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 reinvest prudently the capital raised in the Offering. Consequently, the
Bank's return on equity in the period following the Reorganization is expected
to be less than the average return on equity for publicly traded
17
<PAGE>
savings institutions and their holding companies and, during such time, the
Common Stock may trade at a discount to the market. See "Selected Financial
Information" for numerical information regarding the Bank's historical return on
equity and "Capitalization" for a discussion of the Bank's estimated pro forma
consolidated capitalization as a result of the Reorganization and Offering.
In addition, the expenses associated with the ESOP and the RRP (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. The Bank has sought to
reduce the vulnerability of its operations to changes in interest rates through
an analysis of its interest rate risk ("IRP") undertaken by measuring changes in
the market value of its portfolio equity ("NPV") and net interest income ("NII")
for instantaneous and sustained parallel shifts in market interest rates.
Pursuant to such analysis, the Bank determined that a theoretical 200 basis
point increase in market interest rates would have resulted as of September 30,
1998 in a negative $1.2 million change in the Bank's NPV and a decrease in NII
of $37,000 over the following twelve-month period. Prolonged increases in market
rates of interest could adversely affect the Bank's interest rate spread and net
interest margin since the repricing of certain of the Bank's assets and
liabilities assumed to mature or reprice within a stated period may in fact
mature or reprice at different times and at different volumes. Moreover,
prolonged increases in interest rates could adversely affect the demand for
residential mortgage loans within the Bank's market area. The Bank has sought to
reduce the exposure of its net interest income to increases in market interest
rates by investing in adjustable-rate mortgage-backed securities and short-term
investment securities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Market Risk Analysis."
Changes in interest rates also affect the value of the Bank's
interest-earning assets, and in particular the Bank's investments in securities.
Generally, the value of the Bank's securities investments, including
mortgage-backed securities, fluctuates inversely with changes in interest rates.
At September 30, 1998, $12.9 million of the Bank's investment securities and
mortgage-backed securities were classified as 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 effect 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 that can affect the average life of loans and mortgage-backed
securities. Decreases in interest rates can result in increased prepayments of
loans and mortgage-backed 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 interest rates
that are comparable to the rates on the maturing loans or securities.
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<PAGE>
Reliance Upon Local Economy
Substantially all of the Bank's loans and deposits are generated
within Oswego County, New York, which is located on Lake Ontario approximately
30 miles northwest of Syracuse, New York. The recession of the early 1990's
adversely affected the Bank's market area, increasing unemployment and
restricting economic growth. Two large area employers closed their operations in
the mid 1990s resulting in the loss of approximately 850 jobs. The market's
recover has been slower than many other areas of the United States, especially
the real estate market. Management estimates that residential real estate prices
have fallen by approximately 20 to 30 percent over the last decade. Despite the
slow economic recovery and the large layoffs, the market area's largest
employers, including Niagara Mohawk Power, Alcan Aluminum and Nestle, and the
presence of the State University of New York, College at Oswego provide a stable
source of employment to the area. However, the market area continues to
experience limited population and economic growth and the unemployment rate,
while lower in recent periods, is still higher than the United States and New
York averages. If the Bank continues to rely almost exclusively on the Oswego
County market area as its source of loans and deposits, the market's economic
growth and stability will have a direct impact on the Bank's profitability.
The Expense and Dilutive Effect of the Contribution of Shares and Cash to the
Foundation
The Bank intends to establish the Foundation in connection with the
Reorganization. The Bank will make a contribution to the Foundation in the form
of shares of Common Stock equal to 4.0% of shares issued in the Offering, or
18,768 shares at the midpoint of the Offering Range. Due to the issuance of
additional shares of Common Stock to the Foundation, persons purchasing shares
in the Offering will have their ownership and voting interests in the Bank
diluted by 0.8%. The contribution of Common Stock to the Foundation will be
dilutive to the interests of stockholders and the contribution will have an
adverse impact on the reported earnings of the Bank in the fiscal year in which
the Foundation is established and the contribution is made. If the Foundation
had been established and the contribution made at December 31, 1997, and
assuming the sale of the Common Stock at the midpoint of the estimated valuation
range, the Bank would have reported net income of $______ rather than reporting
net income of $______ for the year ended December 31, 1997. In addition, the
establishment and funding of a 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 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 Foundation."
Minority Public Ownership and Provisions that May Discourage Attempts to Acquire
the Company
Voting Control of the MHC. Under New York law, the Bank's Plan of
Reorganization from a Mutual Savings Bank to a Mutual Holding Company and the
Plan of Stock Issuance, and the MHC's governing corporate instruments, the MHC
must own at least 51% of the Stock Company's voting shares. The board of
trustees, which will consist of persons who are members of the board of
directors of the Stock Company and the Bank, will control the MHC. The MHC will
elect all members of the board of directors of the Stock Company, and as a
general matter, will control the outcome of all matters presented to the
stockholders of the Stock Company for resolution by vote, except for matters
that require a vote greater than a majority. The MHC, acting through its board
of
19
<PAGE>
trustees, will be able to control the business and operations of the Stock
Company and will be able to prevent any challenge to the ownership or control of
the Stock Company by the Minority Stockholders. Accordingly, a change in control
of the Bank cannot occur unless the MHC first converts to the stock form of
organization. Although New York law, applicable regulations and the Plan permit
the MHC to convert from the mutual to the capital stock form of organization, it
is not anticipated that a conversion of the MHC will occur in the foreseeable
future and there can be no assurance when, if ever, such a conversion would
occur.
Provisions in the Stock Company's and Bank's Governing Instruments.
Certain provisions of the Stock Company's Certificate of Incorporation and
Bylaws, particularly a provision limiting voting rights, as well as certain
federal and state regulations, assist the Stock Company in maintaining its
status as an independent publicly owned corporation. These provisions provide
for, among other things, supermajority voting, staggered boards of directors,
noncumulative voting for directors, advance notice requirements for stockholder
nominations to the Board of Directors, discretion in the Board of Directors to
consider non-financial aspects of an acquisition of the Stock Company, ability
of the Board to expand the size of the Board and fill new seats resulting from
such expansion, limits on the calling of special meetings of stockholders, and
limits on the ability of Minority Stockholders to vote Common Stock in excess of
5% of the issued and outstanding shares (inclusive of shares issued to the MHC).
The regulations of the Department prohibit, except with the prior approval of
the Superintendent, for a period of one year following the date of the
Reorganization and Offering, offers to acquire or the acquisition of beneficial
ownership of more than 5% of the equity securities of the Bank or Stock 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 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 and Offering, however, the Federal Reserve Board is
expected to impose certain conditions on the waiver by the MHC of dividends paid
on the Common Stock. In particular, it is expected that the Federal Reserve
Board will require the MHC 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 Stock Company
must maintain the cumulative amount of waived dividends, if any, in a restricted
capital account that would be added to any liquidation account of the Bank, and
would not be available for distribution to Minority Stockholders. The Plan also
provides that if the MHC 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--Dividend Waivers by
the Mutual Holding Company." It is not currently intended that the MHC will
waive dividends declared by the Stock Company.
Lending Risks Associated with Consumer, Commercial Business Lending and
Commercial Real Estate
At September 30, 1998, the Bank's commercial real estate loans totaled
$8.6 million, or 11.6% of total loans and its consumer loans totaled $1.8
million, or 2.4% of total loans. Commercial
20
<PAGE>
real estate and consumer loans are generally considered to involve a greater
risk of loss than residential mortgage loans. See "Business -- Consumer Loans"
and "-- Commercial Mortgage Loans."
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 compete successfully in its market area.
Regulatory Oversight and Legislation
The Bank is subject to extensive regulation, supervision and
examination by the Department and by the FDIC. As bank holding companies, the
MHC and the Stock 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 that 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 Stock Company and the MHC. See
"Regulation."
Absence of Active, Liquid Trading Market for Common Stock
The Bank was not able to issue capital stock while in the mutual form
and the Stock Company, as a newly organized company, have never issued capital
stock. Consequently, there is no established market for the Common Stock at this
time. We anticipate the Common Stock to be traded on the over-the-counter market
through the OTC "Electronic Bulletin Board" under the symbol "______." If the
Merger is completed, holders of Common Stock will exchange their shares for
Pathfinder Bancorp, Inc. common stock which is traded on the Nasdaq Small Cap
System under the symbol "PBHC."
Friedman, Billings, Ramsey & Co., Inc. intends to make a market in the
Common Stock but is under no obligation to do so, and the Bank 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 Bank, the Stock Company nor any market maker has control.
Accordingly, if the Merger is not completed, it is unlikely that an active and
liquid trading market for the Common Stock will develop or that, if developed,
will continue due to the relatively small size of the Offering. There is also no
21
<PAGE>
assurance that purchasers of the Common Stock will be able to sell their shares
at or above the purchase price. In the event a liquid market for the Common
Stock does not develop or market makers for the Common Stock discontinue their
activities, such occurrences will likely 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 Offering
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
Bank until the completion or termination of the Offering, including any
extension of the expiration date. Because completion of the Offering will be
subject to an update of the independent appraisal prepared by RP Financial,
among other factors, there may be one or more delays in the completion of the
Offering. Subscribers will have no access to subscription funds and/or shares of
Common Stock until the Offering is completed or terminated.
Increased Compensation Expenses Associated with the ESOP and the Reorganization
Plan
The Bank will recognize material employee compensation and benefit
expenses assuming the ESOP and the Reorganization Plan are implemented. We
cannot predict the actual aggregate amount of these new expenses 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. We would
measure the fair market value of the ESOP when shares are committed to be
released for allocation to the ESOP participants; in the case of the RRP, we
would measure the fair market value 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. However,
the fair market value of the Common Stock at future dates, which may be higher
or lower than the Purchase Price, will determine the amount of the actual
expenses. See "Management of the Bank--Executive Compensation--Employee Stock
Ownership Plan and Trust" and "--Executive Compensation-Recognition Plan."
Dilutive Effect of the Reorganization Plan and Stock Option Plan
If the Reorganization and the Offering are completed and stockholders
approve the RRP and Stock Option Plan, the Stock Company intends to issue shares
of Common Stock to officers and directors/trustees of the Bank through these
plans. If the shares for these plans are issued from the Bank'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 Common Stock may be
reduced. It is expected that earnings per share would be reduced by
approximately $__ and stockholders' equity per share would be reduced by
approximately $__as a result of the implementation of the Recognition Plan. The
issuance of authorized-but-unissued shares of Common Stock to fund the RRP in an
amount equal to 4% of the Minority Ownership Interest would dilute the voting
interests of existing stockholders by approximately __%. 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 __%. See "Pro
Forma Data" and "Management of the Bank--Executive Compensation."
22
<PAGE>
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 depend 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 Advisor/Best Efforts Offering
The Bank has engaged Friedman, Billings, Ramsey & Co., Inc. as its
financial and marketing advisor, and this firm has agreed to use its best
efforts to solicit subscriptions and purchase 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, nor has it prepared an
opinion as to the fairness of the purchase price or the terms of the Offering.
Friedman, Billings, Ramsey & Co., Inc. has not verified the accuracy or
completeness of the information contained in this Prospectus. See "The
Reorganization and Offering-Syndicated Community Offering," and "--Marketing
Arrangement." FBR provided no advice or other services to the Bank regarding the
proposed merger with Oswego City.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Bank has received an opinion of RP Financial that, pursuant to RP
Financial'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 - Effects of the Reorganization -- Tax Effects".
OSWEGO COUNTY MHC
As part of the Reorganization, the Bank will organize the MHC as a New
York mutual holding company with the powers set forth in its proposed
organization certificate and bylaws. As long as they remain depositors of the
Bank, persons who had liquidation rights and limited voting rights with respect
to the Bank as of the date of the Reorganization will continue to have such
rights
23
<PAGE>
solely with respect to the MHC after the Reorganization.
The MHC's principal assets will be the shares of Common Stock received
in the Reorganization and up to $100,000 received as its initial capitalization.
Immediately after the consummation of the Reorganization, it is expected that
the MHC will not engage in any business activity other than its investment in,
and control of, a majority of the Common Stock. The MHC will be a mutual
corporation chartered under New York law and regulated by the Department. The
MHC will also be subject to the limitations and restrictions imposed on bank
holding companies by the Bank Holding Company Act. See "Regulation -- The Mutual
Holding Company"
The executive office of the MHC is located at 44 East Bridge, Oswego,
New York 13126. Its telephone number at that address is (315) 343-4100.
OSWEGO COUNTY BANCORP, INC.
The Stock Company was formed at the direction of the Bank in December
1998 for the purpose of becoming a bank holding stock company and owning all of
the outstanding stock of the Bank issued in the Reorganization and Offering. The
Stock Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of New York, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Stock Company initially
will consist only of the business of the Bank. The Stock Company structure will,
however, provide the Stock Company with greater flexibility than the Bank has to
diversify its business activities, through existing or newly formed
subsidiaries, or through acquisitions or mergers of stock financial
institutions, as well as, other companies. Although there are no current
arrangements, understandings or agreements regarding any such activity or
acquisition (except for the merger with Oswego City), the Stock Company will be
in a position after the Reorganization and Offering, subject to regulatory
restrictions, to take advantage of any favorable acquisition opportunities that
may arise.
The assets of the Stock Company will consist initially of the stock of
the Bank, a note evidencing the Stock Company's loan to the ESOP and up to [ %]
of the net proceeds from the Offering (less the amount used to fund the ESOP
loan). See "Use of Proceeds." Initially, any activities of the Stock Company are
anticipated to be funded by such retained proceeds and the income thereon and
dividends from the Bank, if any. See "Dividends" and "Regulation - The Stock
Company." Thereafter, activities of the Stock Company may also be funded through
sales of additional securities, through borrowings and through income generated
by other activities of the Stock Company. At this time, there are no plans
regarding such other activities other than the intended loan to the ESOP to
facilitate its purchase of Common Stock in the Offering. See "Management of the
Bank - Benefit Plans - Employee Stock Ownership Plan."
The executive office of the Stock Company is located at 44 East Bridge,
Oswego, New York 13126. Its telephone number at that address is (315) 343-4100.
24
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Oswego County Savings Bank was established in Oswego, New York in 1870.
We are a community and customer-oriented New York-chartered savings bank serving
primarily the Oswego, New York and surrounding area through four full-service
banking offices located in Oswego, Fulton and Pulaski, New York. We provide
financial services to individuals, families and small businesses. Historically,
we have emphasized residential mortgage lending, primarily originating one-to
four-family mortgage loans. Our deposits are insured up to the applicable limits
by the Federal Deposit Insurance Corporation. At September 30, 1998, we had
total assets of $109.8 million, deposits of $95.8 million, and net worth of
$11.4 million. See "Oswego County Savings Bank" on pages ____ to _____.
THE PROPOSED MERGER WITH OSWEGO CITY
On September 5, 1997, the Bank entered into a merger agreement with
Oswego City and its mutual holding company, Pathfinder MHC. The agreement was
amended on January 13, 1998, April 30, 1998 and December 17, 1998, to address
various regulatory concerns about the structure of the merger and to extend the
agreement's term. The agreement provides that following the completion of the
Reorganization and Offering MHC would merge with Pathfinder MHC, the Stock
Company would merge with Pathfinder and the Bank would merge with Oswego City.
If the Merger receives the necessary approvals, holders of the Stock
Company's publicly traded common stock will exchange those shares for shares of
Pathfinder. The merger agreement provides for an exchange ratio based on the
market value of publicly traded shares of the Stock Company and Pathfinder and
certain other standards. To reflect a minimum appreciation in the value of the
Bank's common stock, the exchange ratio ensures a 15% premium in the Stock
Company's common stock over the issuance price.
Consummation of the Merger is subject to, among other things: (i)
receipt of all necessary approvals and consents from regulators or governmental
entities, including approval of the Plan of Merger by the Superintendent and the
FDIC ; (ii) the approval of the merger agreement by the requisite vote of the
stockholders of Pathfinder and the Stock Company; (iii) approval of the
Reorganization and the Offering by our voting depositors; (iv) consummation of
the Offering; and (v) the satisfaction or waiver of certain other conditions.
The merger agreement will be presented to the Stock Company's stockholders for
their approval within 30 days of the completion of the Offering.
We have applied for all necessary regulatory approvals in order to
consummate the Merger. If all of the requisite approvals are received within the
anticipated timeframes, we would complete the Merger is expected to be completed
within _____ days following the consummation of the Offering.
Limited unaudited pro forma information regarding the combined
condensed balance sheets and statement of income for Pathfinder and the Stock
Company is provided in this Prospectus. See "Pro Forma Information Regarding the
Merger." We will provide detailed information about Pathfinder to the holders of
Common Stock prior to a meeting of the Stock Company's stockholders to consider
the Merger. Among other things, the completion of the Merger is conditional upon
the approval of the Merger by a majority of the Stock Company's public
stockholders.
25
<PAGE>
USE OF PROCEEDS
We cannot determine the actual net proceeds from the sale of the Common
Stock until the Offering is completed, but anticipate net proceeds of $___
million and $___ million (or up to $___ million in the event of an increase in
the aggregate pro forma market value of the Common Stock of up to 15% above the
maximum of the Estimated Valuation Range). See "Pro Forma Data" and "The
Reorganization and Offering - Stock Pricing" and "--Number of Shares to be
Issued" as to the assumptions used to arrive at such amounts.
In exchange for all of the common stock of the Bank issued in the
Offering, the Stock Company will contribute approximately [ %] of the net
proceeds from the sale of Common Stock to the Bank. On an interim basis, the
proceeds will be invested by the Stock Company and the Bank in short-term
investments similar to those currently in the Bank's portfolio. The specific
types and amounts of short-term assets will be determined based on market
conditions at the time of the completion of the Offering. In addition, the Stock
Company intends to provide the funding for the ESOP loan. Based upon the initial
purchase price of $10.00 per share, the dollar amount of the ESOP loan would
range from $___ million (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to $___ million (based upon the sale of shares at the
maximum of the Estimated Valuation Range). The interest rate to be charged by
the Stock Company on the ESOP loan will be based upon the [prime rate] of
interest as reported in ________ at the time of origination. It is anticipated
that the ESOP will repay the loan through periodic tax-deductible contributions
from the Bank over a ___-year period.
If the Merger is not completed, the net proceeds received by the Bank
will become part of the Bank's general funds for use in its business and will be
used to support the Bank's existing operations, subject to applicable regulatory
restrictions. Immediately upon the completion of the Offering, it is anticipated
that the Bank will invest such proceeds into short-term assets. Subsequently,
the Bank intends to redirect the net proceeds to the origination of loans,
subject to market conditions.
After the completion of the Offering and if the Merger is not
completed, the Stock Company will redirect the net proceeds invested by it in
short-term assets into a variety of securities similar to those already held by
the Bank, as well as in deposit accounts with the Bank. Also, the Stock Company
may use a portion of the proceeds to fund the RRP, subject to stockholder
approval of such plan. Compensation expense related to the RRP will be
recognized as share awards vest. See "Pro Forma Data." Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the initial
purchase price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $__ million (based upon the
sale of shares at the minimum of the Estimated Valuation Range and including
shares issued to the Foundation) to approximately $__ million (based upon the
sale of shares at the maximum of the Estimated Valuation Range). In the event
that the per share price of the Stock Company Common Stock increases above the
$10.00 per share purchase price following completion of the Offering, the amount
necessary to fund the RRP would also increase. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
purchase Common Stock in the Offering. See "Business of the Bank - Lending
Activities" and "- Investment Activities" and "Management of the Bank - Benefit
Plans - Employee Stock Ownership Plan" and "- RRP."
26
<PAGE>
The proceeds may also be utilized by the Stock Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to applicable
regulations, although the Stock Company currently has no specific plan to
repurchase any of its stock. In the future, the Board of Directors of the Stock
Company will make decisions on the repurchase of the Common Stock based on its
view of the appropriateness of the price of the Common Stock as well as the
Stock Company's and the Bank's investment opportunities and capital needs.
DIVIDENDS
If the Merger is completed, the payment of dividends will be subject to
the policies of Oswego City and Pathfinder. If the Merger is not completed, the
Stock Company plans to pay dividends in the future, but it has not yet
determined the amount and timing of such payments. The Board of Directors, in
its discretion, will determine when and if to declare a dividend. The Board will
take into account the Stock Company's consolidated financial condition, the
Bank's requirements, tax considerations, industry standards,
economic conditions, regulatory restrictions, general business practices and
other factors.
It is not presently anticipated that the Stock Company will conduct
significant operations independent of those of the Bank for some time following
the Reorganization. As such, the Stock Company does not expect to have any
significant source of income other than earnings on the net proceeds from the
Offering retained by the Stock Company (which proceeds are currently estimated
to range from $___ million to $___ million based on the minimum and the maximum
of the Estimated Valuation Range, respectively or $___ million to $___million
after the purchase of stock of the Bank) and dividends from the Bank, if any.
Consequently, the ability of the Stock Company to pay cash dividends to its
stockholders will be dependent upon such retained proceeds and earnings thereon,
and upon the ability of the Bank to pay dividends to the Stock Company. See
"Description of Capital Stock - Stock Company Capital Stock - Dividends."
The Bank, like all savings banks regulated by the FDIC, is subject to
certain restrictions on the payment of dividends based on its net income and its
capital in excess of the regulatory capital requirements. In addition, under New
York state banking law, a New York chartered stock savings bank may declare and
pay dividends out of its net profits, unless there is an impairment of capital,
but approval of the Superintendent is required if the total of all dividends
declared in a calendar year would exceed the total of its net profits for that
year combined with its retained net profits of the preceding two years, subject
to certain adjustments. See "The Reorganization and Offering - Effects of
Reorganization -- Deposit Accounts and Loans" and "Regulation - The Bank --
Capital Requirements" and "- Limitations on Dividends." Earnings allocated to
the Bank's "excess" bad debt reserves and deducted for federal income tax
purposes cannot be used by the Bank to pay cash dividends without adverse tax
consequences. See "Regulation" and "Taxation."
MARKET FOR COMMON STOCK
The Bank, as a mutual savings bank, and the Stock Company, as a newly
organized company, have never issued capital stock. Consequently, there is not
at this time an existing market for the Common Stock. We anticipate the Common
Stock to be traded on the over-the-counter market through the OTC "Electronic
Bulletin Board" under the symbol "______". If the Merger is completed, holders
of Common Stock will exchange their shares for Pathfinder common stock which
27
<PAGE>
is traded on The Nasdaq Small Cap System under the symbol "PBHC." FBR has agreed
to act as a market maker for the Common Stock following the Offering, and assist
in securing additional market makers to do the same. A public trading market
having the desirable characteristics of depth, liquidity and orderliness depends
upon the presence in the marketplace of both willing buyers and sellers of the
Common Stock at any given time. Accordingly, if the Merger is not completed, it
is unlikely that an active and liquid market for the Common Stock will develop
or be maintained due to the relatively small size of the Offering. There also
can be no assurance that resales of the Common Stock can be made at or above the
purchase price. See "The Stock Pricing" and "--Number of Shares to be Issued."
28
<PAGE>
REGULATORY CAPITAL
At September 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 September 30, 1998, on a historical and pro forma
basis assuming that the indicated number of shares were sold as of such date.
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 Recognition 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 MHC's and the Stock Company's pro forma stockholders' equity will
exceed these requirements. See "Regulation--Holding Company Regulation."
<TABLE>
<CAPTION>
Pro Forma at September 30, 1998
----------------------------------------------------------------------------------
Actual, as of Maximum As
September 30, 1998 Minimum Midpoint Maximum Adjust(1)
--------------------- -------------------- -------------------- ------------------- --------------------
Percent of Percent of Percent of Percent of Percent of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
--------- ----------- -------- ----------- -------- ----------- ------- ----------- ------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital and Retained
Earnings Under
Generally
Accepted
Accounting
Principles ............. $11,425 10.4% $12,845 11.5% $13,160 11.8% $13,475 12.0% $13,837 12.3%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Leverage
capital(3) ............. $11,364 10.2% $12,784 11.3% $13,099 11.6% $13,414 11.8% $13,776 12.1%
Tier 1 Capital
Requirement(4) ......... 4,439 4.0 4,510 4.0 4,526 4.0 4,541 4.0 4,558 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess ............... $ 6,925 6.2% $ 8,274 7.3% $ 8,573 7.6% $ 8,873 7.8% $ 9,217 8.1%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Tier 1 Capital to
Risk-based Assets ...... $11,364 15.2% $12,784 16.9% $13,099 17.2% $13,414 17.6% $13,776 18.0%
Core Capital(3)(5)
Requirement ............ 2,981 4.0 3,030 4.0 3,040 4.0 3,050 4.0 3,062 4.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess ............... $ 8,383 11.2% $ 9,755 12.9% $10,059 13.2% $10,364 13.6% $10,713 14.0%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
Total Risk-based Capital
Total Risk-
Based(3)(5) .......... $12,299 16.5% $13,719 18.1% $14,034 18.5% $14,349 18.8% $14,711 19.2%
Risk-Based
Requirement .......... 5,962 8.0 6,059 8.0 6,080 8.0 6,100 8.0 6,124 8.0
------- ---- ------- ---- ------- ---- ------- ---- ------- ----
Excess ............... $ 6,337 8.5% $ 7,660 10.1% $ 7,954 10.5% $ 8,248 10.8% $ 8,586 11.2%
======= ==== ======= ==== ======= ==== ======= ==== ======= ====
</TABLE>
- --------------------------
(1) As adjusted to give effect to an increase in the number of shares that
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 RRP 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 MHC by the Bank
with $100,000. See "Management of the Bank--Executive Compensation" for a
discussion of the Stock Award Plan and ESOP.
29
<PAGE>
(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 September 30, 1998.
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at September 30, 1998 and the pro forma consolidated capitalization of the Bank
after giving effect to the Offering, based upon the sale of shares at the
maximum of the Estimated Valuation Range and the other assumptions set forth
under "Pro Forma Unaudited Financial Information Additional Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based upon the Sale at $10.00 Per Share of
-----------------------------------------------------------------------------
469,200 552,000 634,800 730,020
Bank Shares Shares Shares Shares (adjusted
Historical (Minimum) (Midpoint) (Maximum) Maximum)(1)
-----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2).............................. $95,844 $95,844 $95,844 $95,844 $95,844
Other borrowings......................... 0 0 0 0 0
------- ------- ------- ------- -------
Total deposits and other borrowed funds.. $95,844 $95,844 $95,844 $95,844 $95,844
======= ======= ======= ======= =======
Stockholders' equity:
Common Stock, $.01 par value, ____
shares authorized; shares to be issued
as reflected(3)....................... -- 10 12 14 16
Additional paid-in capital(4)............ -- 4,344 5,204 6,063 7,051
Retained earnings(5)..................... 11,363 11,263 11,263 11,263 11,263
Tax Benefit of Contribution to
Foundation(6).................... -- 75 88 102 117
Net Unrealized Gain................. 62 62 62 62 62
Less:
Expense of Contribution to Foundation. -- (188) (221) (254) (292)
Common Stock acquired by ESOP(7)...... -- (375) (442) (508) (584)
Common Stock acquired by Recognition
Plans(8)............................ -- (188) (221) (254) (292)
------- ------- ------- ------- -------
Total stockholders' equity............... $11,425 $15,004 $15,746 $16,488 $17,341
======= ======= ======= ======= =======
</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 569,568, 670,080, 770,592 and 886,181 shares to be
issued to the MHC and the 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 Bank and 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 Minority Ownership Interest. See "Management of
the Bank--Executive Compensation--Stock Option Plan."
30
<PAGE>
(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
$100,000.
(6) Represents the tax effect of the contribution to the Foundation based on a
40% tax rate. The realization of the deferred tax benefit is limited
annually to 10% of the Bank's annual taxable income, subject to the ability
of the Bank 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 Minority Ownership Interest will be purchased by the
ESOP and that the funds used to acquire the ESOP shares will be borrowed
from the Stock Company. The Common Stock acquired by the ESOP is reflected
as a reduction of stockholders' equity. See "Management of the
Bank--Executive Compensation--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 RRP through open market
purchases. 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--Dilutive Effect of RRP and Stock Option Plan," footnote 3 to the
table under "Pro Forma Data," "Management of the Bank--Executive
Compensation-RRP."
31
<PAGE>
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 $4.2 million and $5.8 million (or up to $6.8 million)
based upon the following assumptions: (i) Friedman, Billings, Ramsey & Co., Inc.
will receive a fixed fee of $150,000; (ii) the Foundation will be funded with a
total contribution equal to 4.0% of the shares of Common Stock issued in the
Offering; (iii) Reorganization expenses, excluding the fees payable to Friedman,
Billings, Ramsey & Co., Inc., will be approximately $374,700; and (iv) the MHC
will be capitalized by the Bank with $100,000. Actual expenses may vary from
those estimated.
Pro forma net income of the Bank for the nine-months ended September
30, 1998 has been calculated as if the Common Stock had been sold at the
beginning of the period and the net proceeds had been invested at 5.49% (the one
year U.S. Treasury bill rate as of September 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 Bank is assumed to be 3.29%
for the nine-months ended September 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.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the Bank,
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>
Maximum
Minimum Midpoint Maximum as Adjusted
469,200 552,000 634,800 730,020
$10.00 $10.00 $10.00 $10.00
per Share per Share per Share per Share(7)
--------- --------- --------- ------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ................................................... $4,880 $5,520 $6,348 $7,300
Plus: Shares Issued to the Foundation ............................ 188 221 254 292
------ ------ ------ ------
Pro Forma Market Capitalization .................................. $4,880 $5,741 $6,602 $7,592
Gross Proceeds ................................................... 4,692 5,520 6,348 7,300
Less Cash Contribution to Foundation ............................. 0 0 0 0
Less Expenses .................................................... 525 525 525 525
0 0 0 0
------ ------ ------ ------
Estimated net proceeds ......................................... $4,167 $4,995 $5,823 $6,775
Less: Common Stock purchased by ESOP ............................. (375) (442) (508) (584)
Less: Common Stock purchased by Recog. Plans ..................... (188) (221) (254) (292)
------ ------ ------ ------
Estimated net proceeds, as adjusted ............................ $3,604 $4,333 $5,061 $5,899
====== ====== ====== ======
For the 12 Months Ended December 31, 1997
Consolidated net income before cumulative effect of change in
accounting principle(1)
Historical ..................................................... ($30) ($30) ($30) ($30)
Pro forma income on net proceeds ............................... 119 143 167 194
Pro forma ESOP adjustment(2) ................................... (23) (26) (30) (35)
Pro forma MRP adjustment(3) .................................... (23) (26) (30) (35)
------ ------ ------ ------
</TABLE>
32
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Pro forma net income(1)............................... $ 43 $ 61 $ 77 $ 94
======= ======= ======= =======
Per share net income (reflects SOP 93-6)(1)
Historical............................................... ($0.03) ($0.03) ($0.02) ($0.02)
Pro forma income on net proceeds......................... 0.12 0.12 0.12 0.12
Pro forma ESOP adjustment(2)............................. (0.02) (0.02) (0.02) (0.02)
Pro forma MRP adjustment(3).............................. (0.02) (0.02) (0.02) (0.02)
------- ------- ------- -------
Pro forma net income per share........................ $ 0.05 $ 0.05 $ 0.06 $ 0.06
======= ======= ======= =======
At December 31, 1997 Stockholders' equity:
Historical............................................... $11,173 $11,173 $11,173 $11,173
Estimated net proceeds................................... 4,167 4,995 5,823 6,775
Less: Capitalization of the MHC.......................... (100) (100) (100) (100)
Plus: Shares Issued to Foundation........................ 188 221 254 292
Less: Contribution to Foundation......................... (188) (221) (254) (292)
Plus: Tax benefit of the Contribution to the Foundation.. 75 88 102 117
Less: Common Stock acquired by ESOP...................... (375) (442) (508) (584)
Less: Common Stock acquired by MRP....................... (188) (221) (254) (292)
------- ------- ------- -------
Pro forma stockholders' equity(3)(4)(5)............... $14,752 $15,494 $16,236 $17,089
======= ======= ======= =======
Stockholders' equity per share(6)
Historical............................................... $ 10.76 $ 9.14 $ 7.95 $6.91
Estimated net proceeds................................... 4.01 4.09 4.14 4.19
Less: Capitalization of the MHC.......................... (0.10) (0.08) (0.07) (0.06)
Plus: Shares Issued to Foundation....................... 0.18 0.18 0.18 0.18
Less: Contribution to Foundation......................... (0.18) (0.18) (0.18) (0.18)
Plus: tax benefit of the Contribution to the Foundation.. 0.07 0.07 0.07 0.07
Less: Common Stock acquired by ESOP(2)................... (0.36) (0.36) (0.36) (0.36)
Less: Common Stock acquired by MRP(3).................... (0.18) (0.18) (0.18) (0.18)
------- ------- ------- -------
Pro forma stockholders' equity per share(3)(4)(5)..... $ 14.20 $ 12.68 $ 11.55 $ 10.57
======= ======= ======= =======
Offering price as a percentage of pro forma net earnings
per share ............................................... 200.00 200.00 166.67 166.67
======= ======= ======= =======
Offering price as a percentage of pro forma stockholders'
equity per share(6)...................................... 70.42% 78.86% 86.58% 94.61%
======= ======= ======= =======
</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 $113,
$132, $152 and $175 at the minimum, midpoint, maximum and adjusted maximum
of the Estimated Valuation Range, respectively. Assuming the contribution
to the Foundation was incurred during the year ended December 31, 1997, pro
forma net income per share would be $(0.07), $(0.06), $(0.06) and $(0.05)
at the minimum, midpoint, maximum and adjusted maximum, respectively. Per
share net income data is based on 1,004,986, 1,182,336, 1,359,686, and
1,563,639 shares outstanding, which represents shares issued in the
Reorganization, shares contributed to the Foundation and shares to be
allocated or distributed under the ESOP and RRP for the period presented.
(2) It is assumed that 8% of the Minority Ownership Interest will be purchased
by the ESOP. The funds used to acquire such shares are assumed to have been
borrowed by the ESOP from the Bank. The amount to be borrowed 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 __%. 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 December 31, 1997, and was made at the end
of the period; (ii) that 3,754, 4,416, 5,078 and 5,840 shares at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively, were committed to be released during the year ended
December 31, 1997, at an average fair value of $10.00 per share in
accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net income per share calculations. See "Management of the
Bank--Executive Compensation--Employee Stock Ownership Plan and Trust."
(3) Gives effect to the restricted stock plan expected to be adopted by the
Bank following the Offering. This plan intends to acquire a number of
shares of Common Stock equal to 4% of the Minority Ownership Interest, or
18,768, 22,080, 25,392 and 29,201 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
33
<PAGE>
or treasury stock of the Bank, 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 RRP instead of open market purchases would dilute
the voting interests of existing stockholders by approximately __% and pro
forma net income per share would be $0.05, $0.06, $0.07 and $0.07 at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively, and pro forma stockholders' equity per share would be
$14.14, $12.63, $11,53, and $10.57 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 granted under
the restricted stock plan will be equal to the Subscription Price. See
"Management of the Bank--Executive Compensation."
(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 Bank
following the Offering. Under the Stock Option Plan, an amount equal to 10%
of the Minority Ownership Interest, or 46,920, 55,200, 63,480 and 73,020
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 $0.06, 0.07, 0.07 and 0.07, respectively, and the
pro forma stockholders' equity per share would be $14.02, $12.56, $11.49
and $10.54, respectively. See "Management of the Bank--Executive
Compensation--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 1,038,768, 1,222,080,
1,405,392, and 1,616,201 shares outstanding representing shares issued in
the Reorganization, shares purchased by the ESOP and the restricted stock
plan, and shares contributed to the Foundation.
(7) As adjusted to give effect to an increase in the number of shares that
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.
34
<PAGE>
<TABLE>
<CAPTION>
Maximum
Minimum Midpoint Maximum as Adjusted
469,200 552,000 634,800 730,020
$10.00 $10.00 $10.00 $10.00
per Share per Share per Share per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds ............................................................. $ 4,692 $ 5,520 $ 6,348 $ 7,300
Plus: Shares Issued to the Foundation ...................................... 188 221 254 292
------- ------- ------- -------
Pro Forma Market Capitalization ............................................ $ 4,880 $ 5,741 $ 6,602 $ 7,592
Gross Proceeds ............................................................. 4,692 5,520 6,348 7,300
Less Expenses .............................................................. 525 525 525 525
0 0 0 0
------- ------- ------- -------
Estimated net proceeds ................................................... $ 4,167 $ 4,995 $ 5,823 $ 6,775
Less: Common Stock purchased by ESOP ....................................... (375) (442) (508) (584)
Less: Common Stock purchased by Recog. Plans ............................... (188) (221) (254) (292)
------- ------- ------- -------
Estimated net proceeds, as adjusted ...................................... $ 3,604 $ 4,333 $ 5,061 $ 5,899
For the Nine Months Ended September 30, 1998
Consolidated net income(1)
Historical Income ........................................................ $ 196 $ 196 $ 196 $ 196
Pro forma income on net proceeds ......................................... 95 114 133 155
Pro forma ESOP adjustment(2) ............................................. (23) (26) (30) (35)
Pro forma MRP adjustment(3) .............................................. (23) (26) (30) (35)
------- ------- ------- -------
Pro forma net income .................................................. $ 245 $ 258 $ 269 $ 281
Per share net income (reflects SOP 93-6)(1)
Historical Income ........................................................ $ 0.20 $ 0.17 $ 0.14 $ 0.13
Pro forma income on net proceeds ......................................... 0.09 0.10 0.10 0.10
Pro forma ESOP on net proceeds(2) ........................................ (0.02) (0.02) (0.02) (0.02)
Pro forma MRP adjustment(3) .............................................. (0.02) (0.02) (0.02) (0.02)
------- ------- ------- -------
Pro forma net income per share ........................................ $ 0.25 $ 0.23 $ 0.20 $ 0.19
At September 30, 1998
Stockholders' equity:
Historical ............................................................... $11,425 $11,425 $11,4251 $11,425
Estimated net proceeds ................................................... 4,167 4,995 5,823 6,775
Less: Capitalization of the MHC .......................................... (100) (100) (100) (100)
Plus: Shares Issued to Foundation ........................................ 188 221 254 292
Less: Contribution to Foundation ......................................... (188) (221) (254) (292)
Plus: Tax benefit of the Contribution to the Foundation .................. 75 88 102 117
Less: Common Stock acquired by ESOP ...................................... (375) (442) (508) (584)
Less: Common Stock acquired by MRP ....................................... (188) (221) (254) (292)
------- ------- ------- -------
Pro forma stockholders' equity(3)(4)(5) ............................... $15,004 $15,746 $16,488 $17,341
Stockholders' equity per share (per SEC comment, does not reflect
SOP 93-6)(6)
Historical ............................................................... $ 11.00 $ 9.35 $ 8.13 $ 7.07
Estimated net proceeds ................................................... 4.01 4.09 4.14 4.19
Less: Capitalization of the MHC .......................................... (0.10) (0.08) (0.07) (0.06)
Plus: Shares Issued to Foundation ....................................... 0.18 0.18 0.18 0.18
Less: Contribution to Foundation ......................................... (0.18) (0.18) (0.18) (0.18)
Plus: tax benefit of the Contribution to the Foundation .................. 0.07 0.07 0.07 0.07
Less: Common Stock acquired by ESOP(2) ................................... (0.36) (0.36) (0.36) (0.36)
Less: Common Stock acquired by MRP(3) .................................... (0.18) (0.18) (0.18) (0.18)
------- ------- ------- -------
Pro forma stockholders' equity per share(3)(4)(5) ..................... $ 14.44 $ 12.89 $ 11.73 $ 10.73
Offering price as a percentage of pro forma net earnings per share ......... 30.00 32.61 37.50 39.47
Offering price as a percentage of pro forma stockholders' equity per
share(6) ................................................................. 69.25% 77.58% 85.25% 93.20%
</TABLE>
35
<PAGE>
- ----------
(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 $113,000,
$132,000, $152,000 and $175,000 at the minimum, midpoint, maximum and
adjusted maximum of the Estimated Valuation Range, respectively. Assuming
the contribution to the Foundation was incurred during the nine months
ended September 30, 1998, pro forma net income per share would be $0.13,
$0.11, $0.09 and $0.07 at the minimum, midpoint, maximum and adjusted
maximum, respectively. Per share net income data is based on 1,004,047,
1,181,232, 1,358,417 and 1,562,179 shares outstanding, which represents
shares issued in the Reorganization, shares contributed to the Foundation
and shares to be allocated or distributed under the ESOP and RRP for the
period presented.
(2) It is assumed that 8% of the Minority Ownership Interest will be purchased
by the ESOP. The funds used to acquire such shares are assumed to have been
borrowed by the ESOP from the Bank. The amount to be borrowed 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 __%. 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 December 31, 1997, and was made at the end
of the period; (ii) that 2,815, 3,312, 3,809 and 4,380 shares at the
minimum, midpoint, maximum and adjusted maximum of the Estimated Valuation
Range, respectively, were committed to be released during the year ended
December 31, 1997, at an average fair value of $10.00 per share in
accordance with Statement of Position ("SOP") 93-6; and (iii) only the ESOP
shares committed to be released were considered outstanding for purposes of
the net income per share calculations. See "Management of the
Bank--Executive Compensation--Employee Stock Ownership Plan and Trust."
(3) Gives effect to the restricted stock plan expected to be adopted by the
Bank following the Offering. This plan intends to acquire a number of
shares of Common Stock equal to 4% of the Minority Ownership Interest, or
18,768, 22,080, 25,392 and 29,201 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
Bank, 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 RRP
instead of open market purchases would dilute the voting interests of
existing stockholders by approximately __% and pro forma net income per
share would be $0.25, $0.22, $0.20 and $0.18 at the minimum, midpoint,
maximum and adjusted maximum of the Estimated Valuation Range,
respectively, and pro forma stockholders' equity per share would be $14.37,
$12.83, $11.71 and $10.72 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 granted under the
restricted stock plan will be equal to the Subscription Price. See
"Management of the Bank--Executive Compensation."
(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 Bank
following the Offering. Under the Stock Option Plan, an amount equal to 10%
of the Minority Ownership Interest, or 46,920, 55,200, 63,480 and 73,020
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 $0.25, $0.22, $0.21 and $0.19, respectively, and
the pro forma stockholders' equity per share would be $14.25, $12.75,
$11.66 and $10.69, respectively. See "Management of the Bank--Executive
Compensation--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 1,030,768, 1,222,080,
1,405,392 and 1,616,201 shares outstanding representing shares issued in
the Reorganization, shares purchased by the ESOP and the restricted stock
plan, and shares contributed to the Foundation.
(7) As adjusted to give effect to an increase in the number of shares that
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.
36
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Reorganization, RP Financial has estimated that the pro forma aggregate market
capitalization of the Stock Company would be approximately $5.8 million at the
midpoint, which is approximately $9,000 greater than the pro forma aggregate
market capitalization of the Stock Company if the Foundation is included, and
would result in an approximately $230,000 increase in the amount of Common Stock
offered for sale in the Stock Issuance. At the mid-point, the pro forma price to
book ratio and pro forma price to earnings ratio without the Foundation would be
77.58% and 32.61x, respectively, compared to 78.80% and 34.09x, respectively,
with the Foundation. Further, assuming the midpoint of the Estimated Offering
Range, pro forma stockholders' equity per share and pro forma earnings per share
without the Foundation would be $12.69 and $0.22, respectively, and $12.89 and
$0.23, respectively, with the Foundation. There is no assurance that in the
event the Foundation was not formed that the appraisal prepared at the time
would have concluded that the pro forma market value of the 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 maximum, as
adjusted, of the Estimated Offering Range, assuming the Reorganization and Stock
Issuance was completed at September 30, 1998.
<TABLE>
<CAPTION>
At the Minimum At the Midpoint At the Maximum
--------------------------- -------------------------- -------------------------
With With With
Foundation No Foundation Foundation No Foundation Foundation No Foundation
---------- ------------- ---------- ------------- ---------- -------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Estimated offering amount ................. $ 4,692 $ 4,888 $ 5,520 $ 5,750 $ 6,348 $ 6,613
Pro forma market capitalization ........... 4,880 4,888 5,741 5,750 6,602 6,613
Total assets .............................. 113,342 113,439 114,084 114,198 114,826 114,957
Total liabilities ......................... 98,338 98,338 98,338 98,338 98,338 98,338
Pro forma stockholders' equity ............ 15,004 15,101 15,746 15,860 16,488 16,619
Pro forma consolidated net earnings ....... 245 249 258 259 269 271
Pro forma stockholders' equity per share .. 14.44 14.22 12.89 12.69 11.73 11.56
Pro forma consolidated net earnings per
share .................................. 0.25 0.25 0.23 0.22 0.20 0.20
Pro Forma Pricing Ratios:
Price/Stockholders' Equity ............. 69.25% 70.32% 77.58% 78.80% 85.25% 86.51%
Price/Earnings ......................... 30.00x 30.00x 32.61x 34.09x 37.50x 37.50x
Price/Assets ........................... 9.16% 9.37% 10.71% 10.95% 12.24% 12.50%
Pro Forma Financial Ratios:
Return on Assets ....................... 0.29% 0.29% 0.30% 0.30% 0.31% 0.31%
Return on Stockholders' Equity ......... 2.18% 2.20% 2.18% 2.18% 2.18% 2.17%
Stockholders' Equity/Assets ............ 13.24% 13.31% 13.80% 13.89% 14.36% 14.46%
</TABLE>
At the Maximum,
As Adjusted
----------------------------
With
Foundation No Foundation
---------- -------------
Estimated offering amount ................ $ 7,300 $ 7,604
Pro forma market capitalization .......... 7,592 7,604
Total assets ............................. 115,679 115,830
Total liabilities ........................ 98,338 98,338
Pro forma stockholders' equity ........... 17,341 17,492
Pro forma consolidated net earnings ...... 281 284
Pro forma stockholders' equity per share.. 10.73 10.58
Pro forma consolidated net earnings per
share ................................. 0.19 0.18
Pro Forma Pricing Ratios:
Price/Stockholders' Equity ............ 95.20% 94.52%
Price/Earnings ........................ 39.47x 41.67x
Price/Assets .......................... 13.97% 14.27%
Pro Forma Financial Ratios:
Return on Assets ...................... 0.32% 0.33%
Return on Stockholders' Equity ........ 2.16% 2.16%
Stockholders' Equity/Assets ........... 14.99% 15.10%
37
<PAGE>
PRO FORMA DATA REGARDING THE MERGER
The following is limited unaudited pro forma information regarding the
combined condensed balance sheets and financial statements of Pathfinder and the
Stock Company. Information is provided assuming the completion of the Offering
at the minimum, midpoint, maximum and adjusted maximum of the Estimated
Valuation Range. We will provide detailed information about Pathfinder to the
holders of Common Stock prior to a meeting of the Stock Company's stockholders
to consider the Merger. The completion of the Merger is conditioned upon the
receipt of several regulatory and corporate approvals and you should not
purchase Common Stock based on the assumption that the Merger will be completed.
38
<PAGE>
Pro Forma Unaudited Combined Condensed Balance Sheet as of December 31, 1998
The following unaudited pro forma combined balance sheet information reflects
(i) the historical consolidated balance sheet of the Pathfinder and the Stock
Company as of December 31, 1998, and (ii) the pro forma combined condensed
balance sheet of Pathfinder at the respective dates after giving effect to the
Merger.
<TABLE>
<CAPTION>
At December 31, 1998
--------------------------------------------------------------------
Pathfinder
and the
The Stock Pro Forma Stock Company
Pathfinder Company Adjustments Combined
---------------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C>
Assets
Cash and due from banks .................................... $ $ $ $
Federal funds sold .........................................
Total cash and cash equivalents ..........................
Investment securities ......................................
Mortgage loans-held for sale ...............................
Loans:
Real estate ..............................................
Consumer and other .......................................
Total loans ...........................................
Less: Unearned discounts and origination fees ............
Allowance for loan losses ...........................
Loan receivable, net ..................................
Premises and Equipment .....................................
Accrued interest receivable ................................
Other real estate ..........................................
Intangible assets ..........................................
Purchase accounting adjustments to noncurrent assets .......
Other assets ...............................................
Total assets .............................................
Liabilities
Due to depositors ..........................................
Borrowed funds .............................................
Note payable-ESOP ..........................................
Other liabilities ..........................................
Total liabilities ........................................
Shareholders' Equity
Common stock, par value $.10 per share; authorized
9,000,000 shares; 2,874,999 shares issued and
outstanding ..............................................
Paid in capital ............................................
Retained earnings ..........................................
Unearned stock based compensation ..........................
Accumulated other comprehensive income .....................
Unearned ESOP shares .......................................
Treasury stock, at cost; 43,625 shares .....................
Total shareholders' equity ...............................
Total liabilities and shareholders' equity .................
</TABLE>
Assumptions:
(1) The appraised value of the Stock Company at the midpoint of the Offering is
$__ million.
(2) The average of the bid and ask price of the Company's Common Stock for the
ten days preceding the consummation of the Merger is $15.00 per share.
(3) The Company issues _______ shares of Common Stock, 53%, or _______ shares
are issued to the Mutual Holding Company and 47%, or _______ shares, are
issued to the public.
(4) The book value of net assets acquired over the purchase price of $_________
will be allocated to noncurrent assets acquired.
(5) The goodwill and the purchase accounting adjustment to noncurrent assets
are amortized over a 15 year period.
The preliminary analysis does not take into consideration adjustments for the
fair value of the Stock Company's loans and deposits at the time of the
consummation of the Merger.
39
<PAGE>
Pro Forma Unaudited Combined Condensed Statement of Income
The following unaudited pro forma combined condensed statement of
income of Pathfinder and the Stock Company reflect the historical statements of
income of Pathfinder and the Stock Company, as indicated below, for the year
ended December 31, 1998 and the pro forma combined condensed statements of
income of Pathfinder, after giving effect to the Merger. The Merger has been
reflected using the purchase method of accounting. The pro forma combined
condensed statement of income was prepared on the assumption that the Merger had
been effected as of the beginning of the annual period. As such, the per share
data reflects an additional number of shares issued to represent the fair value
of the Stock Company based upon the preliminary valuation applied retroactively
to beginning of the period book value. The earnings per share information
presented below is based upon a minimum, midpoint and maximum range of the
preliminary valuation. The midpoint represents the expected fair value and the
minimum and maximum result from 15% adjustments to the midpoint to create a
range of variance. There can be no assurance that the actual valuation will be
the same as the preliminary valuation of the Stock Company of $__ million as of
December 31, 1998.
Pro Forma Unaudited Combined Condensed Statements of Income for the Year Ended
December 31, 1998
<TABLE>
<CAPTION>
Adjustments Combined
----------- ----------
<S> <C> <C>
Interest income.................................................... $ $
Interest expense...................................................
---------- ----------
Net interest income..............................................
Provision for possible loan losses.................................
---------- ----------
Net interest income after provision for possible loan losses.......
Noninterest income.................................................
---------- ----------
Earnings before income tax expense.................................
Income tax expense.................................................
---------- ----------
Net income......................................................... $ $
========== ==========
Earnings per share minimum:
Basic............................................................ $
Diluted.......................................................... $
Earnings per share midpoint:
Basic............................................................ $
Diluted.......................................................... $
Earnings per share maximum:
Basic............................................................ $
Diluted $
</TABLE>
- ----------
(1) The number of additional shares issued to represent the fair value of
County Savings is based upon a preliminary valuation of $____ million at
the minimum of the range and an average trading price for the Company's
stock of $_____.
(2) The number of additional shares issued to represent the fair value of
County Savings is based upon a preliminary valuation of $____ million at
the midpoint of the range and an average trading price for the Company's
stock of $_____.
(3) The number of additional shares issued to represent the fair value of
County Savings is based upon a preliminary valuation of $____ million at
the maximum of the range and an average trading price for the Company's
stock of $_____.
(a) Represents the interest income earned on the net proceeds of the offering
at the mid-point ($_________ at ____%), and for EPS calculation purposes
($_________ at ____%) at the minimum and ($_________ at ____%) at the
maximum of the offering range.
(b) Represents the estimated impact to earnings resulting from the allocation
of the excess of the book value of net assets acquired over the purchase
price at the mid-point of the offering range of $_______, and for EPS
calculation purposes $_______ at the minimum and $______ at the maximum of
the offering range.
(c) Reflects the expense associated with the amortization of shares purchased
to fund the Company's ESOP and Management and Recognition Plans ("MRP").
The ESOP amortizes over 10 years and the MRP over 5 years.
40
<PAGE>
Set forth below is the pro forma information regarding net proceed the
consolidated net income, net income per share, stockholders' equity and
stockholders' equity per share at and for the year ended December 31, 1998 after
the taking into account the affect of the Offering at the minimum, midpoint,
maximum and adjusted maximum. The actual net proceeds from the sale of the
Common Stock cannot be determined until the Offering is complete. The following
pro forma information is based on the following assumptions: (i) historical
information reflects the operations of the Company; (ii) the pro forma effects
of the Merger reflect the historical operations of Oswego County, adjusted to
reflect the purchase accounting adjustments and the issuance of shares of Common
Stock to the Mutual Holding Company; (iii) the per share price of Common Stock
sold in the Offering is $_____; (iv) the Charitable Foundation is funded with
assets worth $___________; (v) offering expenses total $_______; $_______;
$_______ and $_______ at the minimum, midpoint, maximum and adjusted maximum;
(vi) the ESOP will purchase 8% of the shares sold in the Offering; (vii) the
Recognition and Retention Plans purchase 4% of the shares sold in the Offering;
and (viii) the Mutual Holding Company is capitalized with an additional
$100,000. Actual expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the year ended
December 31, 1998 has been calculated as if the Common Stock had been sold at
the beginning of the period and the net proceeds were invested at ____% which
was the one year U.S. Treasury Bill Rate as of December 31, 1998. The tables do
not reflect the effect of withdrawals from deposit accounts in order to purchase
the Common Stock. The pro forma after tax-yield for the Company is assumed to be
____% for the year ended December 31, 1998, (assuming a tax rate of 31% for each
period).
41
<PAGE>
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the date on which the
transactions actually occur and should not be taken as indicative of future
results of operations.
<TABLE>
<CAPTION>
Maximum
Minimum Midpoint Maximum as Adjusted
469,200 552,000 634,800 730,020
$10.00 $10.00 $10.00 $10.00
per Share per Share per Share per Share
--------- --------- --------- ---------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds......................................................... $ $ $ $
Less contribution to Charitable Foundation.............................
Less expenses..........................................................
Estimated net proceeds...............................................
Less: Common Stock purchased by ESOP...................................
Less: Common Stock purchased by Recognition and Retention Plan.........
Estimated net proceeds, as adjusted(3)...............................
For the 12 Months Ended December 31, 1998
Consolidated net income(4).............................................
Historical income(4).................................................
Pro forma impact of Merger(2)........................................
Pro forma income on net proceeds.....................................
Pro forma Recognition and Retention Plan adjustment(6)...............
Pro forma net income per share(6)(7)(8)...........................
Per share net income (reflects SOP 93-6)(4)
Historical(1)........................................................
Pro forma impact of Merger(2)........................................
Pro forma income on net proceeds.....................................
Pro forma ESOP adjustment(5).........................................
Pro forma Recognition and Retention Plan adjustment..................
Pro forma net income per share(6)(7)(8)...........................
At December 31, 1998 Stockholders' equity:
Historical(1)........................................................
Pro forma impact on Merger(2)........................................
Estimated net proceeds...............................................
Plus: Tax benefit of the contribution to the Charitable Foundation ..
Less: Common Stock acquired by ESOP(5)...............................
Less: Common Stock acquired by Recognition and Retention ............
Plan(6)...........................................................
Pro forma stockholders' equity....................................
Stockholders' equity per share
Historical(1)........................................................
Pro forma impact of the Merger(2)....................................
Estimated net proceeds...............................................
Plus: tax benefit of the contribution to the Charitable Foundation...
Less: Common Stock acquired by ESOP(5)...............................
Less: Common Stock acquired by Recognition and Retention Plan........
Pro forma stockholders' equity per share(6)(8)....................
Offering price as a percentage of pro forma net earnings per share.....
Offering price as a percentage of pro forma stockholders' equity per
share................................................................
</TABLE>
42
<PAGE>
- ----------
(1) Historical financial information reflects the consolidated financial
information of the Company.
(2) Pro forma impact of the Merger reflects the consolidated financial
information of Oswego County, adjusted to reflect purchase accounting and
the issuance of shares to the Mutual Holding Company.
(3) Estimated net proceeds, as adjusted, consist of the estimated net proceeds
of the Offering minus (i) the proceeds to be used to purchase Common Stock
by the ESOP, and (ii) the value of the shares of Common Stock to be
purchased in order to fund the Recognition and Retention Plan, following
receipt of stockholder approval.
(4) Does not give effect to the non-recurring expense that will be recognized
in fiscal 1998 as a result of the establishment of the Charitable
Foundation.
(5) Assumes that 8.0% of the shares issued in the Offering will be purchased by
the ESOP with funds loaned by the Company. The Company and the Bank intend
to make annual contributions to the ESOP in an amount equal to the interest
and principal requirement of the loan. The ESOP loan is expected to be
repaid over 10 years.
(6) Assumes that the Recognition and Retention Plan will purchase, following
receipt of stockholder approval, a number of shares of Common Stock equal
to 4% of the Offering. Funds used to purchase shares of Common Stock for
the Recognition and Retention Plan will be contributed by the Company. It
is assumed that shares to fund the Recognition and Retention Plan will be
acquired in open market transactions. The issuance of authorized but
unissued shares to fund the Recognition and Retention Plan would dilute the
voting and ownership interests of stockholders by ____%, and under such
circumstances pro forma net income per share for the year ended December
31, 1998 would be $____, $____, $____ and $____ at the minimum, midpoint,
maximum and adjusted maximum, respectively. Stockholders' equity per share
at December 31, 1998 would be (i) $____, $____, $____ and $____, at the
minimum, midpoint, maximum and adjusted maximum respectively. There can be
no assurance that the actual purchase price of shares purchased to fund the
Recognition and Retention Plan will be equal to the $15 unadjusted price
per share.
(7) The per share calculations are determined by adding the number of shares
assumed to be issued in the Offering, and, in accordance with SOP 93-6,
subtracting 97.5% and 95.0% of the ESOP shares which have not been
committed for release during the year ended December 31, 1998 ________,
________, and _________ shares of Common Stock are outstanding at the
minimum, midpoint, maximum and adjusted maximum of the Offering,
respectively, and at December 31, 1998 that _________, _________, _________
and _________ shares of Common Stock are outstanding at the minimum,
midpoint, maximum and adjusted maximum of the Estimated Price Range,
respectively.
(8) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan, which will be adopted by the
Company following the Offering and presented for approval by stockholders
at an annual or special meeting of stockholders fo the Company held at
least six months following the consummation of the Offering. If the Stock
Option Plan is approved by stockholders, and amount equal to 10% of the
Common Stock issued in the Offering, or ______, ______, ______ and ______
shares at the minimum, midpoint, maximum and adjusted maximum of the
Offering, 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 stockholder approval of the Stock Option Plan, that all these
options were exercised at the beginning of the period at an exercise price
of $_____ per share and that the shares to fund the Recognition and
Retention Plan are acquired through open market purchases at the Purchase
Price, (i) pro forma net income per share for the year ended December 31,
1998 would be $____, $____, $____ and $____ at the minimum, midpoint,
maximum and adjusted maximum of the Offering, respectively; (ii)
stockholders' equity per share at December 31, 1998 would be $____, $____,
$____ and $____ at the minimum, midpoint, maximum and adjusted maximum of
such range respectively.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Oswego County's results of operations depend primarily on its net
interest income, which is the difference between interest and dividend income on
interest-earning assets, which principally consist of loans, mortgage-backed
securities and investment securities, and interest expense on interest-bearing
deposits. Oswego County's results of operations also are affected by the
provision for losses on loans; the level of its noninterest income; its general,
administrative and other expenses, including compensation and benefits,
occupancy and equipment expense, real estate owned expense and other expenses;
and its income tax expense.
Business Strategy
The Bank's current business strategy is to operate as a
well-capitalized, profitable and community-oriented savings bank dedicated to
providing quality retail financial products and personalized customer service.
The Bank has implemented this strategy by emphasizing retail deposits as its
primary source of funds and investing a substantial part of such funds in
locally originated residential first mortgage loans, in mortgage-backed and
related securities and in other liquid investment securities. Specifically, the
Bank's business strategy incorporates the following elements: (i) operating as a
community-oriented financial institution and maintaining a strong core customer
base by providing a high degree of personalized banking service; (ii)
emphasizing traditional lending and investment activities; (iii) improving asset
quality; (iv) maintaining a strong retail deposit base; and (v) managing
interest rate risk while achieving desirable levels of profitability.
When the Bank's chairman, president and chief executive officer retired
in June 1996, the Bank's Board of Trustees formed a committee to search for his
replacement. The search process culminated with the hiring of Gregory Kreis as
president and chief executive officer in January 1997. Mr. Kreis had 29 years of
banking experience in three commercial banks in Vermont, most recently as
president and chief executive officer of a $145 million community bank in
southern Vermont. Since joining the Bank Mr. Kreis has retained the services of
a new senior consumer and mortgage lending officer, a new commercial lending
officer and a new human resources and training officer. In addition, the Bank
created the new positions of operations officer and compliance/security officer
and promoted then-current officers to fill those positions. The internal auditor
was transferred to the position of treasurer and chief financial officer.
The new management team reviewed and revised the Bank's policies and
procedures in all major function areas including lending, investments,
asset-liability management, and asset classification. Under the direction of new
management, the Bank also undertook a comprehensive review of all non-performing
assets and major loans including all commercial mortgage loans. As a result of
this review, the Bank established additional loan loss provisions equal to $1.1
million in fiscal 1996 and $525,000 in fiscal 1997. During this period, the Bank
also experienced higher levels of non-performing assets primarily attributable
to the failure of the Bank's real estate market to recover fully from the
recession of the early 1990s and collections policies and procedures that were
in need of revision.
44
<PAGE>
New management has implemented new more stringent loan underwriting
procedures in an effort to maintain asset quality in the future. Management
believes loan provisions will be lower in the future due to the nature of and
volume of current and anticipated loan production, market area trends and the
current level of the allowance for loan losses and non-preforming assets.
Lending activity and new business development has been limited following the
change of management as the new management team has sought to develop and
implement the policies and procedures designed to enable the Bank to maintain
compliance with laws and regulations, while also minimizing risk exposure. The
Bank believes that it is in a position to pursue actively lending and business
opportunities in fiscal 1999.
Financial and operational highlights and goals of the Bank include the
following:
o Community Banking. The Bank is committed to meeting the
financial needs of its customers in Oswego County, New York
and surrounding communities. Management believes that the Bank
can be more effective in servicing its customers than many of
its non-local competitors because of its ability quickly and
effectively to provide senior management responses to customer
needs and inquiries and its extensive knowledge of the local
market.
o Emphasis on Retail Deposits. The Bank's liability strategy
emphasizes retail deposits drawn from the four full-service
offices in its market area rather than institutional or
wholesale deposits. At September 30, 1998, 60.1% of the Bank's
deposit base of $95.8 million consisted of core deposits,
which included non-interest-bearing demand accounts, NOW
accounts, and savings and money market deposit accounts.
o Focus on Residential lending. A cornerstone of our lending
program has long been one-to-four family residential lending.
We believe that, in comparison to many other types of assets,
one-to-four family residential loans carry acceptable yields
and credit risk. In addition, such loans create strong ties to
consumers which can be utilized to market other financial
products. At September 30, 1998, we had $63.3 million (or
85.7% of total loans) of residential mortgage loans and home
equity loans. See "Business of Oswego County Savings Bank -
Lending Activities." In recent years, to increase the yield on
interest-earning assets and to increase the amount of our
interest rate sensitive assets, we have purchased
adjustable-rate mortgage-backed securities and short-term
investment securities. In February 1998, we began a program of
actively originating 30-year fixed-rate 1-4 family residential
loans for eventual sale in the secondary market to address our
goal of providing a broad range of loan products to our
customers.
o Improved Asset Quality. The Bank's new senior management team
in place since April 1997 has revised the Bank's policies and
procedures in all major functional areas including lending,
investments, asset-liability management and asset
classification. Senior management undertook a comprehensive
review of the Bank's assets to ensure the adequacy of the
allowances for loan losses. Following this review, the Bank
established significant additional loan loss allowances. The
recognition of such losses is expected to expedite the problem
asset resolution process. The ratio of non-performing assets
to total assets was 2.22% and the ratio
45
<PAGE>
of non-performing loans to total loans was 2.69% at September
30, 1998. At September 30, 1998, the ratio of allowance for
loan losses to total loans was 1.74% and the ratio of
allowance for loan losses to total non-performing loans was
64.45%. See "Business - Asset Quality."
o Strong Net Interest Margin. The Bank manages its interest-rate
risk exposure by monitoring the levels of interest-rate
sensitive assets and liabilities. It has maintained a
relatively strong net interest margin due primarily to its
high level of adjustable-rate mortgage loans and core
deposits. At September 30, 1998, $61.6 million or 83.5% of its
total loans had adjustable interest rates and $57.6 million or
60.1% of its total deposits were core deposits.
Market Risk Analysis
Qualitative Analysis In order to minimize the potential for adverse
effects of material fluctuations in interest rates on Oswego County's results of
operations, Oswego County has implemented and continues to monitor its asset and
liability management policies to better match the maturities and repricing terms
of its interest-earning assets and interest-bearing liabilities. Such policies
have consisted primarily of (i) purchasing adjustable-rate mortgage-backed
securities and short-term investment securities; (ii) since February 1998,
originating 30-year fixed-rate one-to-four family residential loans for eventual
sale in the secondary market; and (iii) managing interest expense, by
maintaining a strong retail deposit base and emphasizing core deposits.
Since the early 1980s, Oswego County has originated primarily
adjustable-rate mortgage ("ARM") loans and has not originated fixed-rate
residential mortgage loans with terms of over 15 years. All of the ARMs
currently offered by Oswego County have interest rates which adjust every one or
three years, although the portfolio contains some ARMs with a fixed-rate of
interest for ten years and an annual interest rate adjustment thereafter. As
interest rates decreased during the 1990s, Oswego County's origination of ARMs
has decreased due to the preference of Oswego County's customers for fixed-rate
residential mortgage loans. In February 1998, the Bank commenced the origination
of long-term fixed-rate one-to-four family residential loans in order to provide
a full range of products to customers, but generally only under terms,
conditions and documentation which allow their sale in the secondary market.
Oswego County's portfolio of adjustable-rate, one-to-four family residential
mortgage loans amounted to $52.6 million or 97% of all residential mortgage and
home equity loans at September 30, 1998.
In order to better match the maturity or repricing of its
interest-bearing liabilities with the maturity of its interest-earning assets,
Oswego County offers certificates of deposit with terms in excess of one year.
At September 30, 1998, $9.9 million or 25.8% of Oswego County's certificates of
deposit mature in more than one year.
Oswego County considers its savings deposit and money market accounts
to be core deposits that are less likely to be withdrawn if interest rates rise.
The savings deposits and money market accounts have variable interest rates, and
Oswego County believes that it can adjust the interest rate on the accounts to
retain a substantial portion of these deposits. While the amount of savings
deposit and money market accounts has declined in recent years, savings deposit
and money market accounts amounted to $47.0 million or 49.0% of total deposits
at September 30, 1998, compared to $48.5 million or 49.6% of total deposits at
December 31, 1997.
46
<PAGE>
Quantitative Analysis. The Bank has sought to reduce the vulnerability
of its operations to changes in interest rates through an analysis IRP
undertaken by measuring changes in NPV and NII for instantaneous and sustained
parallel shifts in market interest rates. Pursuant to such analysis, the Bank
determined that a theoretical 200 basis point increase in market interest rates
would have resulted as of September 30, 1998 in a negative $1.2 million change
in the Bank's NPV and a decrease in NII of $37,000. Prolonged increases in
market rates of interest could adversely affect the Bank's interest rate spread
and net interest margin since the repricing of certain of the Bank's assets and
liabilities assumed to mature or reprice within a stated period may in fact
mature or reprice at different times and at different volumes. Moreover,
prolonged increases in interest rates could adversely affect the demand for
residential mortgage loans within the Bank's primary market area. The
assumptions used by management to evaluate the vulnerability of the Bank's
operations to changes in interest rates in the table below are primarily based
on assumptions provided by the Bank's management. Although management finds
these assumptions reasonable, the interest rate sensitivity of the assets and
liabilities and the estimated effects of changes in interest rates on net
interest income and the net economic value ("NEV") indicated in the following
table could vary substantially if different assumptions were used or actual
experience differs from such assumptions.
The following table presents the Bank's internal calculations of NEV at
September 30, 1998.
<TABLE>
<CAPTION>
Change in Interest
Rates in Basis Points Net Interest Income Current MVPE
--------------------- ------------------------------------------- -----------------------------------------
Dollar Percentage Dollar Percentage
Estimated Change from Change Estimated Change Change from
Value Base from Base Value from Base Base
--------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
+400 3,887 (367) (8.63) 11,196 (3,044) (21.38)
+200 4,217 (37) (.86) 12,999 (1,241) (8.71)
Base 4,254 N/A N/A 14,240 N/A N/A
-200 4,557 303 7.12 14,810 570 4.00
-400 5,035 781 18.36 15,277 1,037 7.28
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV requires the making of
certain assumptions which may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the above table's presentation assumes that the composition of the Bank's
interest sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured and also assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the above table provides an indication of the
Bank's interest rate risk exposure at a particular point in time, such
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on the Bank's net interest income and
will differ from actual results.
Changes in Financial Condition
Oswego County's total assets decreased by $2.3 million or 2.1% to
$109.8 million at September 30, 1998 from $112.1 million at December 31, 1997,
primarily due to a $6.7 million or 8.3% decline in the loan portfolio. Total
assets also decreased in the fiscal year ended December 31, 1997 as compared to
the fiscal year ended December 31, 1996. The decline during that period was $3.5
million or 3.0% primarily reflecting a $10.1 million or 78.9% decrease in Oswego
Country's
47
<PAGE>
federal funds sold and other short-term investments and a $4.6 million or 5.4%
decrease in the loan portfolio. These decreases were substantially offset by a
$10.9 million increase in the portfolio of securities available for sale
portfolio.
At September 30, 1998, loans amounted to $73.8 million or 67.2% of
total assets. Of the total loan portfolio, $63.3 million or 85.7% consisted of
residential mortgages and home equity loans. Commercial mortgages accounted for
$8.6 million or 11.6% of the total loan portfolio at September 30, 1998, while
the remainder of the portfolio consisted of $1.8 million of consumer loans and
$124,000 of commercial loans.
Securities represented 25.7% and 19.05% of total assets at September
30, 1998 and December 31, 1997, respectively, and cash and cash equivalents
amounted to $4.3 million or 3.9% of total assets at September 30, 1998.
Non-performing assets have increased from 2.12% of total assets at
December 31, 1997 to 2.22% of total assets at September 30, 1998. Non-accruing
one-to-four family mortgage loans and home equity loans represented 67.9% of the
total non-performing loans at September 30, 1998 compared to 74.6% at December
31, 1997. At September 30, 1998, Oswego County had $449,000 of foreclosed assets
consisting of $377,000 of one-to-four family properties and $72,000 of
commercial properties. At September 30, 1998, Oswego County's allowance for loan
losses equaled $1.3 million representing 1.74% of total loans outstanding and
64.5% of total non-performing loans, compared to 1.75% and 69.63% at December
31, 1997, respectively.
Oswego County's total deposits decreased during 1998 to $95.8 million
at September 30, 1998 from $97.9 million at December 31, 1997. Time deposits
decreased by $1.4 million or 3.5% during the nine-month period ended September
30, 1998, while demand deposits increased by $905,000 or 9.4% during the same
period. The decrease in total deposits is attributable to Oswego County's
decision not to renew jumbo time deposits at the current market rates which was
partially offset by the seasonal increase in demand deposits.
Total net worth was $11.4 million at September 30, 1998, an increase of
$252,000 from December 31, 1997. The increase was due to net income of $196,000
during the nine-month period ended September 30, 1998 and a $56,000 increase in
the net unrealized gain on securities available for sale.
48
<PAGE>
Average Balances, Net Interest Income and Yields Earned and Rates Paid.
The following table presents for the periods indicated the total dollar amount
of interest income from the Bank's average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates, and the net interest margin.
All average balances are based on monthly balances. The Bank does not believe
that the monthly averages differ significantly from what the daily averages
would have been during these periods.
<TABLE>
<CAPTION>
As of Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1998 September 30, 1997
-------------------- ------------------------------- ------------------------------
Yield/ Average Yield/ Average Yield/
Balance Rate(1) Balance Interest Rate(1) Balance Interest Rate
------- ------- ------- -------- ------- ------- -------- ----
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 73,778 8.21% $ 76,586 $ 4,742 8.28% $ 84,159 $ 5,148 8.18%
Securities ( ) 28,230 5.68 23,517 1,063 6.04 18,607 839 6.03
Short term investments 750 5.41 3,553 151 5.68 3,966 196 6.61
Total interest-earning
assets 102,758 7.49 103,656 5,956 7.68 106,732 6,183 7.75
Noninterest-earning
assets 7,006 6,216 7,505
Total assets 109,764 109,872 114,237
Interest-bearing
liabilities:
Deposits(2) 85,273 3.87 87,007 2,577 3.96 92,060 2,816 4.09
Total interest-bearing
liabilities 85,273 3.87 87,007 2,577 3.96 92,060 2,816 4.09
Noninterest-bearing
deposits 10,571 10,360 9,175
Noninterest-bearing
liabilities 2,495 1,149 1,150
-------- -------- --------
Total noninterest bearing
liabilities 13,066 11,509 10,325
Total liabilities 98,339 98,516 102,385
Net worth 11,425 11,356 11,852
-------- -------- --------
Total liabilities and
net worth 109,764 109,872 114,237
======== ======== ========
Net interest income;
average interest rate
spread 3.62% $ 3,379 3.72% $ 3,367 3.66%
======== ========
Net interest margin(3) 4.35% 4.21%
Average interest-earning
assets to average
interest-bearing
liabilities 120.50% 119.14% 115.94%
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1997 December 31, 1996
----------------- -----------------
Average Yield Average Yield
Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1) $ 83,388 $ 6,841 8.20% $ 84,918 $ 6,847 8.06%
Securities ( ) 19,062 1,151 6.04 8,237 454 5.50
Short term investments 3,733 241 6.46 16,528 868 5.25
Total interest-earning
assets 106,183 8,233 7.75 109,683 8,169 7.45
Noninterest-earning
assets 7,405 7,584
Total assets 113,588 117,267
Interest-bearing
liabilities:
Deposits(2) 91,384 3,738 4.09 95,388 3.973 4.25
Total interest-bearing
liabilities 91,384 3,738 4.09 95,388 3,973 4.25
Noninterest-bearing
deposits 9,217 9,200
Noninterest-bearing
liabilities 1,162 911
-------- --------
Total noninterest bearing
liabilities 10,379 10,111
Total liabilities 101,763 105,499
Net worth 11,825 11,768
-------- --------
Total liabilities and
net worth 113,588 117,267
======== ========
Net interest income;
average interest rate
spread $ 4,495 3.66% $ 4,196 3.28%
======== ========
Net interest margin(3) 4.23% 3.81%
Average interest-earning
assets to average
interest-bearing
liabilities 116.19% 114.99%
</TABLE>
- ----------
(1) Excludes non-accruing loans.
(2) Includes noninterest-bearing checking accounts.
(3) Equals net interest income divided by average interest-earning assets.
( ) Average balance represents the carrying amount of securities available
for sale and securities held to maturity.
49
<PAGE>
Rate/Volume Analysis. The following table describes the extent to which
changes in interest rates and changes in volume of interest-related assets and
liabilities have affected Oswego County interest income and expense during the
periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes attributable to
(i) changes in volume (change in volume multiplied by prior year rate), and (ii)
changes in rate (change in rate multiplied by prior year volume). The combined
effect of changes in both rate and volume has been allocated proportionately to
the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
1998 vs. 1997 1997 vs. 1996
------------------------------------ -------------------------------------
Increase(Decrease) Increase(Decrease)
Due to Total Due to Total
--------------------------- Increase ------------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
--------- ---------- ----------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable $(505) $ 98 $(407) $(124) $ 118 $ (6)
Securities 223 2 225 650 47 697
Short Term Investments (19) (26) (45) (791) 164 (627)
---- ---- ---- ----- ---- -----
Total interest-earning assets (301) 74 (227) (266) 330 64
===== ==== ===== ===== ==== =====
Interest-bearing liabilities:
Deposits (151) (88) (239) (165) (170) (235)
----- ---- ----- ----- ----- -----
Total interest-bearing liabilities (151) (88) (239) (165) (170) (235)
----- ---- ----- ----- ----- -----
Increase (decrease) in net interest
income $(151) $162 $ 12 $(101) $ 400 $ 299
===== ==== ===== ===== ===== =====
</TABLE>
- --------------
Results of Operations
Oswego County's net income was $196,000 for the nine-month period ended
September 30, 1998, an increase of $180,000 as compared to net income of $16,000
in the comparable nine-month period in fiscal 1997. Oswego County experienced
net losses of $30,000 and $61,000 in fiscal 1997 and1996, respectfully, after
reporting net income of $553,000 in fiscal 1995. Net income for fiscal 1997 and
1996 was primarily impacted by substantial increases in the provision for loan
losses as further described below.
Net Interest Income Oswego County's net interest income is determined
by its average interest rate spread (i.e., the difference between the average
yields earned on its interest-earning assets and the average rates paid on its
interest-bearing liabilities), the relative amounts of interest-earning assets
and interest-bearing liabilities.
Oswego County's net interest income has remained relatively stable for
the nine-month period ended September 30, 1998 and fiscal 1997 and 1996. For the
nine-month period ended September 30, 1998, net interest income increased
$12,000 or 0.4% following an increase of $299,000 or 7.1% in fiscal 1997 and a
decrease of $303,000 or 6.7% in fiscal 1996 as compared to the respective
comparable periods.
50
<PAGE>
Interest Income Interest income on loans decreased by $407,000 or 7.9%
during the nine-month period ended September 30, 1998, decreased by $6,000 or
.09% in fiscal 1997 and by $260,000 or 3.7% in fiscal 1996 from the respective
comparable prior periods. During the subject periods, the average balance of
Oswego County's loan portfolio has gradually decreased from $84.9 million in
1996, to $83.4 million in fiscal 1997, to $76.6 million for the nine-month
period ended September 30, 1998, and the average yield on the loan portfolio has
increased slightly from 8.06%, to 8.20% to 8.28% during those same periods.
Income from Oswego County's securities portfolio increased during the
nine-month period ended September 30, 1998 as compared to the comparable period
during fiscal 1997 as well as during both fiscal 1997 and 1996 as compared to
prior comparable periods. Such income increased by $225,000 or 26.8% during the
nine-months ended September 30, 1998 and by $697,000 or 153.5% and by $109,000
or 31.6% during fiscal 1997 and 1996, respectively. The average amount of Oswego
County's investment in securities increased from $8.2 million in fiscal 1996, to
$19.1 million in fiscal 1997, to $23.5 million for the nine-month period ended
September 30, 1998, and the average yield on the securities portfolio increased
from 5.51%, to 6.04%, to 6.04%, for those same periods.
Other interest income, which consists of interest on federal funds sold
and other short-term investments, fluctuated during the subject periods from
$151,000 for the nine-month period ended September 30, 1998 as compared to
$196,000 in the comparable 1997 period and was $241,000 in fiscal 1997 compared
to $868,000 in fiscal 1996. The average amount of federal funds and short-term
investments decreased from $16.5 million in fiscal 1996 to $3.7 million in
fiscal 1997 and decreased slightly to $3.6 million in the nine-month period
ended September 30, 1998. The average yields on these investments, which are
generally more market sensitive, fluctuated from 5.25% in fiscal 1996, to 6.46%
in fiscal 1997, to 5.68% in the nine-month period ended September 30, 1998. As a
result of these fluctuations in the average investment and yield in such funds,
total interest income decreased by $45,000 or 23.0% during the nine-month period
ended September 30, 1998 compared to the comparable nine-month period in 1997,
decreased by $627,000 or 72.2% during fiscal 1997 and increased by $249,000 or
40.2% during fiscal 1996 compared to the respective prior periods..
Interest Expense Interest on deposits decreased by $239,000 or 8.5% in
the nine-month period ended September 30, 1998 as compared to the comparable
period in fiscal 1997 and by $235,000 or 5.9% in 1997 as compared to fiscal
1996. Interest on deposits increased by $400,000 or 11.2% in fiscal 1996 as
compared to fiscal 1995. During the subject periods, the average balance and
average cost of interest-bearing deposits varied slightly from period to period
with the average balance decreasing from $95.4 million, to $91.4 million, to
$87.0 million from fiscal 1996, to fiscal 1997, to the nine-month period ended
September 30, 1998, respectively and the average cost decreasing from 4.17% to
4.09% from fiscal 1996 to 1997 and to 3.96% for the nine-month period ended
September 30, 1998.
Provision for Loan Losses The provisions for loan losses were $90,000,
$339,000, $525,000 and $1.1 million for the nine-month periods ended September
30, 1998 and 1997, fiscal 1997 and 1996, respectively. These provisions were
based upon, among other variables, non-accruing loans totaling $2.0 million,
$1.8 million and $2.2 million at September 30, 1998, December 31, 1997, and
December 31, 1996, respectively. Delinquencies in Oswego County's primary market
area were at unusually high levels during 1995 and 1996 as a result of extensive
job losses in the region in 1995
51
<PAGE>
as customers were unable to pay outstanding obligations and in many cases were
forced to move from the area in order to seek new employment.
Non-interest Income Non-interest income increased by $12,000 or 3.2%
during the nine-month period ended September 30, 1998 as compared to the
comparable 1997 period. Such income increased by $34,000 or 6.8% and by $275,000
or 121.7% during fiscal 1997 and 1996, respectfully. The increase in the
nine-month period was partially the result of an increase of $6,000 or 2.0% in
income from service charges. The increase in fiscal 1997 was primarily the
result of a $54,000 recovery from Oswego County's Nationar investment as
compared to a $14,000 provision in fiscal 1996. This increase was partially
offset by a $28,000 or 37.8% decrease in other non-interest income. The $275,000
increase in non-interest income in fiscal 1996 was primarily the result of
fiscal 1995 having a net loss from the sale of securities of $132,000 in 1995
and a provision of $120,000 in 1995 for the Nationar investment as compared to
fiscal 1996 in which no loss on security sales was incurred and a substantially
lower provision for the Nationar investment. The $46,000 or 11.6% increase in
income from service charges from fiscal 1995 to 1996 also contributed to the
fiscal 1996 increase in non-interest income.
Non-interest Expenses Non-interest expenses decreased during the
nine-month period ended September 30, 1998 and during fiscal 1997 and 1996 over
the prior comparable periods. The decrease of $51,000 or 1.5% during the
nine-month period was primarily the result of a $408,000 or 82.4% decrease in
trustee fees and benefits which was substantially offset by an $87,000 or 36.6%
increase in professional fees, an $86,000 or 34.7% increase in other
non-interest expenses, an $80,000 or 50.6% increase in real estate owned
expenses, and a $64,000 or 4.4% increase in salaries and employee benefits. The
trustee fees and benefits expense incurred during the period was substanitally
lower than the expense incurred during the comparable 1997 period in which a
retirement plan for the Board of Trustees was established and vested benefits in
that plan were accrued by Oswego County. The professional fee increase during
the 1998 nine-month period related to expenses associated with the contemplated
merger with Oswego City and Year 2000 compliance issues; the increase in
salaries and employee benefits was primarily related to the hiring of new staff;
and real estate owned and costs incurred for preparation for sale of the real
estate.
The increase in total non-interest expense of $742,000 or 19.9% during
fiscal 1997 was primarily the result of an increase of $435,000 or 430.7% for
trustee fees and benefits, a $305,000 or 391.0% increase in professional fees
and a $113,000 or 131.4% increase in real estate owned. The increase in trustee
fees and benefits was the result of the establishment of a retirement plan for
the Board of Trustees and the accrual for vested benefits in that plan as well
as an increase in trustee fees. The increase in professional fees primarily
resulted from costs associated with an audit and computer consultant fees
incurred in connection with the establishment of a fixed-rate mortgage program
and the increase in real estate owned expense related to expenses incurred for
the preparation on an apartment complex for sale.
The increase in total non-interest expense of $401,000 or 12.0% during
fiscal 1996 was primarily the result of a $411,000 or 23.2% increase in salaries
and employee benefits, a $45,000 or 80.4% increase in trustee fees and benefits
and a $29,000 or 13.2% increase in data processing expenses. These increases
were partially offset by a $112,000 decrease in deposit insurance premiums. The
$411,000 increase in salaries and employee benefits resulted from the funding
during 1996 of a deferred compensation plan for the retiring president. The
amount of trustee fees increased as a result of the numerous meetings that were
held while Oswego County recruited and
52
<PAGE>
interviewed candidates for a new chief executive officer and president and the
increase in data processing fees was the result of the installation of a new
automated teller machine program. The decrease in the deposit insurance premium
was the result of lower premium rates.
Federal Income Taxes Income tax expense increased by $144,000 in the
nine-month period ended September 30, 1998 as compared to the same period in
1997. For fiscal 1997 Oswego County had a $56,000 income tax expense as compared
to a $119,000 income tax benefit in fiscal 1996. The increase in the nine-month
period ended September 30, 1998 resulted from a $324,000 increase in pre-tax
income and the tax effect of non-deductible merger-related expenses. See Note 8
of Notes to Financial Statements. The tax expense incurred in 1997 was the
result of operating income for that period and the tax effect of non-deductible
merger related expenses. The income tax benefit in fiscal 1996 was the result of
a $180,000 pre-tax loss experienced by Oswego County for that period.
Liquidity and Capital Resources
Oswego County's liquidity, represented by cash and cash equivalents and
securities available for sale, is a product of its operating, investing and
financing activities. Oswego County's primary sources of funds are deposits, the
amortization, prepayment and maturity of outstanding loans, mortgage-backed
securities, the maturity of investment securities and other short-term
investments and funds provided from operations. While scheduled payments from
the amortization of loans, maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. In addition, Oswego County invests excess funds in
federal funds sold and other short-term interest-earning assets which provide
liquidity to meet lending requirements. The Bank has been able to generate
sufficient cash through its deposits and has not utilized borrowings as a source
of funds during the past five years.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold or U.S. Treasury securities. On a longer term basis,
the Bank maintains a strategy of investing in various lending products as
described in greater detail under "Business - Lending Activities." Most of such
products have either short-terms (five years or less)or interest rates that
adjust at least every three years. The Bank uses its sources of funds primarily
to meet its ongoing commitments, to pay maturing certificates of deposit and
savings withdrawals, fund loan commitments and maintain a portfolio of
investment securities. At September 30, 1998, there were outstanding commitments
and unused letters of credit by Oswego County to originate or acquire mortgage
loans and other loans aggregating $1.0 million and $9,000, respectively,
consisting primarily of fixed and adjustable-rate residential loans that are
expected to close on or prior to December 31, 1998. Certificates of deposit
scheduled to mature in one year or less at September 30, 1998, totaled $28.4
million. Based on historical experience, management believes that a significant
portion of maturing deposits will remain with Oswego County. Oswego County
anticipates that it will continue to have sufficient funds, together with
borrowings, to meet its current commitments.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein
have been prepared in accordance with generally accepted accounting principles,
which generally require the measurement of financial position and operating
results in terms of historical dollars, without considering changes
53
<PAGE>
in relative purchasing power over time due to inflation. Unlike most industrial
companies, virtually all of Oswego County's assets and liabilities are monetary
in nature. As a result, interest rates generally have a more significant impact
on Oswego County's performance than does the effect of inflation.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed and developed without
considering the impact of the upcoming changes in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations. We have conducted a thorough assessment of our internal systems
as well as the efforts of our outside data processing service provider. During
this assessment phase, the Oswego County identified all in-house systems and
third party relationships, and assessed whether they were "mission-critical."
Mission-critical is defined as a system that is vital to the successful
continuance of a core business activity. The assessment includes both
information technology systems and non-information technology systems. Examples
of non-information technology systems include utility and telephone companies,
security systems, and financial organizations. Also included in the assessment
is the identification of those systems and vendors whom the Oswego County has
control over and those the Oswego County does not. Examples of those vendors
whom the Oswego County has control over include organizations which the Oswego
County has a material relationship with. Vendors whom the Oswego County has no
control over include utility companies.
The most important mission critical matter concerns the data processing
provided by our third party service bureau. The service bureau with which we
operate is providing us with periodic updates of its compliance progress. We
have participated in the first phase of testing with the provider satisfactorily
with the second phase to be completed prior to December 31, 1998. The service
bureau has indicated that it will be compliant by such date. We are in the
process of developing a contingency plan to deal with the potential that our
service bureau is unable to bring its systems into compliance by year 2000. We
believe that we would use manual systems as a contingency plan if our current
provider is unable to resolve this problem in time. There can be no assurance in
this regard, however, and it is possible that as a result we could experience
data processing delays, errors or failures, all of which could have a material
adverse impact on our financial condition and results of operations. We estimate
that our expenses related to year 2000 compliance will be approximately $_______
and have incurred $_______ through September 30, 1998.
We have also evaluated our non-information technology systems to
determine if such systems may have embedded technology that could also be
affected by the year 2000 problem. We have determined that there are only a few
systems of this type that could be affected but have been informed, however, by
the vendors that the systems are or will be year 2000 compliant by year 2000.
Computer problems experienced by our commercial borrowers could have an
adverse effect on their business operations and their ability to repay their
loans when due. The Oswego County has recently begun evaluating Year 2000
readiness of its commercial loan applicants as part of the loan underwriting
process and is calling upon major existing borrowers to assess their readiness
and identify potential problems.
54
<PAGE>
Impact of New Accounting Standards
Effective January 1, 1998 Oswego County adopted the remaining
provisions of Statement of Financial Accounting Standards (SFAS) No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, which relates to the accounting for securities lending,
repurchase agreements, and other secured financing activities. These provisions,
which were delayed for implementation by SFAS No. 127, did not have a material
impact on Oswego County. In addition, the Financial Accounting Standards Board
(FASB) is considering certain amendments and interpretations of SFAS No. 125
which, if enacted in the future, could affect the accounting for transactions
within their scope.
On January 1, 1998, the Bank adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income includes the reported net income of a company adjusted for items that are
currently accounted for as direct entries to equity, such as the mark to market
adjustment on securities available for sale, foreign currency items and minimum
pension liability adjustments. At the Bank, comprehensive income represents net
income plus other comprehensive income, which consist of the net change in
unrealized gains or losses on securities available for sale for the period.
Accumulated other comprehensive income represents the net unrealized gains or
losses on securities available for sale as of the balance sheet dates.
Comprehensive income (loss) for the nine-month periods ended September 30, 1998
and 1997 was $(56,516) and ($20,267), respectively.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue producing
segments of the entity for which such information is available and is utilized
by the chief operation decision maker. Specific information to be reported for
individual segments included profit or loss, certain specific revenue and
expense items, and total assets. A reconciliation of segment financial
information to amounts reported in the financial statements would be provided.
SFAS No. 131, effective in 1998, will not have an impact on the Bank's statement
of financial condition and statement of operations.
The Financial Accounting Standards Board issued Statement of Financial
Standards No. 132, Employers' Disclosures about Pensions and Other Post
Retirement Benefits, in February 1998. This statement revises employers'
disclosures about pension and other post retirement benefit plans. It does not
change the measurement or the recognition of these plans. The statement is
effective for the Bank in 1998 and will not impact its financial position or
results of operations.
FASB Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, was issued in June 1998. This statement establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives be recognized as either assets or
liabilities in the balance sheet and that those instruments be measured at fair
value. The accounting for changes in the fair value of a derivative (that is,
gains and losses) depends on the intended use of the derivative and the
resulting designation. This statement is effective for all fiscal quarters
beginning January 1, 2000. Earlier adoption, however, is permitted. The Bank
anticipates, based on current activities, that the adoption of SFAS No. 133 will
not have an effect on the results of its operations.
55
<PAGE>
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage-Backed Enterprise," which amends SFAS No 65,
"Accounting for Certain Mortgage Banking Activities." This statement contains
the subsequent accounting for securities retained after the securitization of
mortgage loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after securitization of other types of assets by a
nonmortgage banking enterprise. This statement is effective for the first
quarter beginning on January 1, 1999. This statement will not have any impact on
the Bank's financial position or results of operations as the Bank does not
currently securitize mortgage loans.
56
<PAGE>
BUSINESS
Lending Activities
General. At September 30, 1998, Oswego County's net loans totaled $72.5
million, which represented 66.0% of Oswego County's $109.8 million of total
assets at that date. The principal lending activity of Oswego County is the
origination of residential, home equity and commercial mortgages loans. To a
lesser extent, Oswego County also makes commercial loans and consumer loans. At
September 30, 1998, $63.3 million or 85.7% of Oswego County's total loans
consisted of residential mortgage and home equity loans. Commercial mortgage
loans totaled $8.6 million at such date, representing 11.6% of total loans.
Commercial loans totaled $124,000 and consumer loans totaled $1.8 million at
September 30, 1998.
The types of loans that Oswego County may originate are subject to
federal and state laws and regulations. Interest rates charged by the Bank on
loans are affected principally by the demand for such loans and the supply of
money available for lending purposes and the rates offered by its competitors.
These factors are, in turn, affected by general and economic conditions, the
monetary policy of the federal government, including the Federal Reserve Board,
legislative and tax policies, and governmental budgetary matters.
A New York-chartered savings bank generally may not make loans to one
borrower and related entities in an amount which exceeds 15% of its unimpaired
capital and surplus, although loans in an amount equal to an additional 10% of
unimpaired capital and surplus may be made to a borrower if the loans are fully
secured by readily marketable securities. At September 30, 1998, Oswego County's
limit on loans-to-one borrower was $1.0 million and its five largest loans or
groups of loans-to-one borrower, including related entities, aggregated
$1,180,000, $741,000, $737,000, $667,000 and $636,000. Three of Oswego County's
five largest loans or groups of loans were performing in accordance with their
terms at September 30, 1998. The $741,000 group of loans consists of two loans,
one of which is current and the other of which is 15 days delinquent. The
$667,000 group of loans consists of seven loans. The borrower has filed
bankruptcy, all of the loans are in default and Oswego County is in the process
of foreclosure.
57
<PAGE>
Loan Composition. The following table sets forth the composition of
Oswego's loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ -------------------------------------------------
1998 1997 1996
------ ------ -----
Amount % Amount % Amount %
------ ------ ------ ------ ------ -------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgages and
home equity loans $ 63,255 85.74% $ 67,405 83.78% $ 70,687 83.08%
Commercial mortgages 8,570 11.61 11,145 13.85 11,490 13.50
Commercial loans 124 0.17 276 0.34 589 0.69
Consumer loans 1,829 2.48 1,634 2.03 2,321 2.73
-------- ------ -------- ----- ----
Total loans 73,778 100.00% 80,460 100.00% 85,087 100.00%
====== ====== ======
Allowance for loan losses (1,280) (1,409) (1,583)
-------- -------- --------
Net loans $ 72,498 $ 79,052 $ 83,504
======== ======== ========
</TABLE>
Loans Due or Adjusting After One Year. The following table
sets forth the dollar amount of all loans, before net items, due or adjusting
after one year from September 30, 1998 as shown in the preceding table, which
have fixed interest rates or which have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed-Rate Adjustable-Rate Total
---------- --------------- -----
(In Thousands)
<S> <C> <C> <C>
Residential mortgages and
home equity loans $ 9,013 $12,131 $21,144
Commercial mortgages 777 1,701 2,478
Commercial loans 124 -- 124
Consumer loans 1,691 -- 1,691
------- ------- -------
Total $11,605 $13,832 $25,437
======= ======= =======
</TABLE>
Origination, Purchase and Sale of Loans. The lending
activities of Oswego County are subject to the written, non-discriminatory,
underwriting standards and loan origination procedures established by Oswego
County's Board of Trustees, management, the secondary market investors (i.e.,
FHLMC, FNMA, GNMA) and private mortgage insurance companies (PMI). Loan
originations are obtained by a variety of sources, including referrals from real
estate brokers, developers, builders, existing customers, newspaper, radio and
walk-in customers. Loan applications are taken by lending personnel, and the
loan origination department supervises the procurement of credit reports,
appraisals and other documentation involved with a loan. Property valuations are
generally performed by independent outside appraisers licensed in New York
State. Hazard insurance is required on all security property. Title insurance is
required on all newly originated mortgage loans.
Oswego County's loan approval process is intended to assess
the borrower's ability to repay the loan, the viability of the loan and the
adequacy of the value of the property that will
58
<PAGE>
secure the loan. A loan application file is first reviewed by a loan originator
or branch manager and then underwritten to established standards and policies.
The Board has granted underwriting authority to branch managers, loan
underwriters, the senior loan officer and the president in varying levels. All
loans in aggregate amounts of over $100,000 are presented to either the Board of
Trustees or the Board Loan Committee for approval. (Residential real estate
loans to be sold in the secondary market are exempt from this procedure since
they are subject to investor underwriting requirements.)
Historically, Oswego County has originated substantially all
of the loans in its portfolio and held them until maturity. However, in February
1998, Oswego County began the origination of fixed-rate residential mortgage
loans with the intention of selling those loans in the secondary market in order
to manage its interest rate risk. The residential loans are generally made on
terms, conditions and documentation which permit the sale to FHLMC. Since
February 1998 the Bank has originated $2.4 million of fixed-rate loans. Oswego
County had not sold any of these loans as of September 30, 1998. The ALCO
committee has established $5 million of fixed-rate loans may be retained in
portfolio.
Historically, Oswego County has not purchased loans (excluding
mortgage-backed securities), and Oswego County does not currently intend to
become an active purchaser of loans in the foreseeable future. Oswego County has
purchased participation interests in loans with Board approval.
The following table shows total loans originated and repaid
during the period indicated. (No loans were purchased or sold during the periods
shown.
<TABLE>
<CAPTION>
Nine Month Ended
September 30, December 31,
-------------------- --------------------
1998 1997 1998 1997
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Loan originations:
Residential mortgages, home equity and
commercial mortgage loans $ 3,532 $ 4,294 $ 5,337 $ 8,254
Commercial loans 79 30 30 293
Consumer loans 646 1,018 1,211 1,955
-------- ------- -------- --------
Total loans originated 4,257 5,342 6,578 10,502
Loan principal reductions (11,659) (8,255) (11,831) (12,700)
Increase (decrease) due to other
items, net 720 450 626 108
-------- ------- -------- --------
Net increase (decrease) $ (6,682) $(2,463) $ (4,627) $ (2,090)
======== ======= ======== ========
</TABLE>
Residential Mortgages and Home Equity Loans. Historically,
Oswego County has concentrated its lending activities on the origination of
loans secured primarily by first mortgage liens on existing one-to-four family
residences and home equity loans secured by second mortgages on one-to-four
family residences. At September 30, 1998, $63.3 million or 85.7% of Oswego
County's total loans consisted of such loans.
Since the 1980s, Oswego County has originated primarily ARM
loans and has not originated fixed-rate residential mortgages with terms over 15
years in order to manage its interest-rate risk. However, in February 1998,
Oswego County commenced the origination of long-term, fixed-rate one-to-four
family residential loans in order to provide a full range of products to its
59
<PAGE>
customers, but generally only under terms, conditions and documentation which
permit the sale thereof in the secondary market. Oswego County offers terms from
15 to 30 years on these loans. Oswego County plans to sell its first pool of
such loans late in 1998.
From the early 1980s to February 1998, Oswego County
emphasized for its portfolio one-to-four family residential mortgage loans which
provide for periodic adjustments to the interest rate. The loans emphasized by
Oswego County during this period had up to 30-year terms and an interest rate
which adjusted every year or three years in accordance with a designated index,
(currently the weekly average yield on U.S. Treasury securities adjusted to a
constant comparable maturity of one year or three years, respectively, as made
available by the Federal Reserve Board). Oswego County generally does not offer
deeply discounted interest rates on its ARMs. There is a cap on the amount of
any increase or decrease in the interest rate during the applicable adjustment
period, and various caps, depending on when the loan was originated, on the
amount which the interest rate can increase or decrease over the life of the
loan. Oswego County's adjustable-rate loans currently being originated are not
assumable and do not contain prepayment penalties. Oswego County has not engaged
in the practice of using a cap on the payments that could allow the loan balance
to increase rather than decrease, resulting in negative amortization, although
it has on a limited basis extended the maturity of the loan. Approximately $52.2
million or 85.0% of the permanent residential loans in Oswego County's loan
portfolio at September 30, 1998 had adjustable interest rates. In addition
Oswego County offered an ARM loan (10/1) fixed for the first 10 years then
adjustable every year thereafter.
The demand for adjustable-rate loans in Oswego County's
primary market area has been a function of several factors, including the level
of interest rates, the expectations of changes in the level of interest rates
and the difference between the interest rates and loan fees offered for
fixed-rate loans and adjustable-rate loans. The relative amount of fixed-rate
and adjustable-rate residential loans that can be originated at any time is
largely determined by the demand for each in a competitive environment. Due to
the generally lower rates of interest prevailing in recent periods, demand for
adjustable-rate, one-to-four family residential loans in Oswego County's primary
market decreased as consumer preference for fixed-rate loans increased. In order
to meet the demands of the marketplace Oswego County initiated its fixed-rate
residential loan program.
Adjustable-rate loans decrease the risks associated with
changes in interest rates but involve other risks, primarily because as interest
rates rise, the payment by the borrower rises to the extent permitted by the
terms of the loan, thereby increasing the potential for default. At the same
time, the marketability of the underlying property may be adversely affected by
higher interest rates. Oswego County believes that these risks, which have not
had a material adverse effect on Oswego County to date, generally are less than
the risks associated with holding fixed-rate loans in an increasing interest
rate environment. In addition, Oswego County minimizes the credit risks
associated with ARMs by (i) imposing a maximum LTV ratio of 95% on such loans
and (ii) requiring that the borrower's payments based on the initial interest
rate generally not exceed 28% of the borrower's gross income.
Oswego County is permitted to lend up to 100% of the appraised
value of the real property securing a residential loan; however, if the amount
of a residential loan originated or refinanced exceeds 90% of the appraised
value, Oswego County is required by federal regulations to obtain private
mortgage insurance on the portion of the principal amount that exceeds 80% of
the appraised value of the security property. Pursuant to underwriting
guidelines adopted by the Board
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<PAGE>
of Trustees, Oswego County will lend up to 95% of the appraised value of the
property securing a fixed-rate, single-family residential loan which is being
originated for sale, and generally requires borrowers to obtain private mortgage
insurance on the portion of the principal amount of the loan that exceeds 80% of
the appraised value of the security property. The maximum LTV ratio for ARMs is
95% of the appraised value of the property.
Oswego County generally requires title insurance insuring the
priority and validity of its mortgage lien, as well as fire and extended
coverage casualty insurance in order to protect the properties securing its
residential and other mortgage loans. Borrowers may be required to advance
funds, with each monthly payment of principal and interest, to a loan escrow
account from which the Bank makes disbursements for items such as real estate
taxes, hazard insurance premiums and mortgage insurance premiums as they become
due. The properties securing all of Oswego County's mortgage loans are appraised
by independent appraisers licensed in New York State.
Home equity loans are originated by Oswego County for up to
75% of the appraised value, less the amount of any existing prior liens on the
property. The Bank secures the loan with a mortgage on the property (generally a
second mortgage) and will originate the loan even if another institution holds
the first mortgage. There is a maximum term of 5 years on fixed-rate and 15
years on adjustable-rate loans. At September 30, 1998, home equity loans totaled
$1.9 million or 2.57% of Oswego County's total loans.
Consumer Loans. Subject to restrictions contained in
applicable federal and state laws and regulations, Oswego County is authorized
to make loans for a wide variety of personal or consumer purposes. At September
30, 1998, $1.8 million or 2.5% of Oswego County's total loans consisted of
consumer loans. Oswego County originates consumer loans in order to provide a
full range of financial services to its customers and because such loans
generally have shorter terms and higher interest rates than residential mortgage
loans. The consumer loans offered by Oswego County include loans secured by
deposit accounts in Oswego County, automobile loans, recreational vehicles,
boats and other miscellaneous loans.
Oswego County's loans secured by deposit accounts in Oswego
County amounted to $281,000 or .38% of Oswego County's total loans at September
30, 1998. Such loans are originated for up to 100% of the account balance, with
a hold placed on the account restricting the withdrawal of the account balance.
The interest rate on the loan is typically equal to the interest rate paid on
the account plus 3.0%. Oswego County offers automobile loans on both new and
used vehicles, with most of the loans secured by used vehicles. The automobile
loans have terms of up to five years and have fixed interest rates. Automobile
loans amounted to $339,000 or .46% of the total loans at September 30, 1998.
Consumer loans generally have shorter terms and higher
interest rates than mortgage loans but generally involve more credit risk than
mortgage loans because of the type and nature of the collateral and, in certain
cases, the absence of collateral. In addition, consumer lending collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness and personal
bankruptcy. In most cases, any repossessed collateral for a defaulted consumer
loan will not provide an adequate source of repayment of the outstanding loan
balance because of improper repair and maintenance of the underlying security.
The remaining deficiency often does not warrant further substantial collection
efforts against the borrower. Oswego County believes that the generally higher
yields earned on
61
<PAGE>
consumer loans compensate for the increased credit risk associated with such
loans and that consumer loans are important to its efforts to increase rate
sensitivity, shorten the average maturity of its loan portfolio and provide a
full range of services to its customers.
Commercial Mortgage Loans. At September 30, 1998, $8.6 million
or 11.6% of Oswego County's total loans consisted of commercial mortgage loans.
At September 30, 1998, Oswego County's commercial mortgage loan portfolio
consisted of 67 loans with an average balance of approximately $118,000. A
majority of Oswego County's commercial mortgage loans are secured by apartment
buildings located in its primary market area.
Commercial mortgage lending is generally considered to involve
a higher degree of risk than single-family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers. In addition, the payment experience on loans
secured by income-producing properties is typically dependent on the successful
operation of the related real estate project and thus may be subject to a
greater extent to adverse conditions in the real estate market or in the economy
generally.
Loan Origination and Loan Fees. In addition to interest earned
on loans, Oswego County receives loan origination fees or "points" for many of
the loans it originates. Loan points are a percentage of the principal amount of
the mortgage loan and are charged to the borrower in connection with the
origination of the loan.
Asset Quality
General. When a borrower fails to make a required payment on a
loan, Oswego County attempts to cure the deficiency by contacting the borrower
and seeking payment. Late charges are generally imposed following the tenth day
after a payment is due on consumer loans and the fifteenth day after a payment
is due on mortgage loans. In most cases, deficiencies are cured promptly. If a
delinquency extends beyond 30 days, the loan and payment history is reviewed and
efforts are made to collect the loan. While Oswego County generally prefers to
work with borrowers to resolve such problems, when the account becomes 60 to 90
days delinquent, Oswego County institutes foreclosure or other proceedings, as
necessary, to minimize any potential loss.
A loan is placed on non-accrual status when it is 90 days or
more past due. In addition, Oswego County places any loan on non-accrual status
if any part of it is classified as doubtful. Subsequent payments are either
applied to the outstanding principal balance, the first 90 days of interest due
or recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
Real estate acquired by Oswego County as a result of
foreclosure or by deed-in-lieu of foreclosure under generally accepted
accounting principles are classified as real estate owned until sold. Real
estate owned properties are held for sale and carried at the lower of fair value
minus estimated costs to sell the property, or cost (generally the balance of
the loan on the property at the date of acquisition). Writedowns from recorded
investments to estimated fair value which are required at the time of
foreclosure are charged to the allowance for loan losses. After the date of
acquisition, all costs incurred in maintaining the property are expenses and
costs incurred for the
62
<PAGE>
improvement or development of such property are capitalized up to the extent of
their net value. Adjustments to carrying value of such properties that result
from subsequent decline in value are charged to operations in the period in
which the decline occurs.
Delinquent Loans. The following table sets forth information
concerning delinquent loans at September 30, 1998, in dollar amount and as a
percentage of Oswego County's total loan portfolio. The amounts presented
represent the total outstanding principal balances of the related loans, rather
than the actual payment amounts which are past due. At September 30, 1998,
<TABLE>
<CAPTION>
Residential
Mortgages and Home Commercial Commercial Consumer
Equity Loans Mortgage Loans Loans Total
------------------ -------------- -------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
------ ---- ------ ---- ------ --- ------ ---- ------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent
for:
30 - 59 days $1,796 2.84% $ 87 1.02% $ -- -- $ 63 3.44% $1,946 2.64%
60 - 89 days 36 0.05 -- -- -- -- -- - 36 0.05
90 days and over 935 1.48 637 7.43 -- -- -- - 1,572 2.13
------ ---- ---- ---- ------ --- ----- ---- ------ ----
Total delinquent
loans $2,767 4.37% $724 8.45% $ -- -- $ 63 3.44% $3,554 4.82%
====== ==== ==== ==== ====== === ===== ==== ====== ====
</TABLE>
Non-Performing Assets. The following table, derived from
information contained in Oswego County's call report schedules filed with the
Federal Deposit Insurance Corporation, sets forth the amounts and categories of
Oswego County's non-performing assets at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
------------- --------------------------
1998 1997 1996
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Non-accruing loans:
Residential mortgages and home equity loans $1,349 $1,323 $2,029
Commercial mortgages 637 449 122
Consumer -- 2 29
Commercial -- -- --
------ ------ ------
Total $1,986 $1,774 $2,180
------ ====== ======
Accruing loans delinquent more than 90 days:
Residential mortgages and home equity loans -- -- --
Commercial mortgages -- -- --
Consumer -- -- --
Commercial -- -- --
------ ------ ------
Total $ -- $ -- $ --
====== ====== ======
Foreclosed assets:
Residential mortgages and home equity loans 377 514 403
Commercial mortgages 72 85 88
Consumer -- -- --
Commercial -- -- --
------ ------ ------
Total $ 449 $ 599 $ 491
====== ====== ======
Total non-performing assets $2,435 $2,373 $2,671
====== ====== ======
Total as a percentage of total assets % 2.22% 2.12% 2.31%
===== ==== ====
</TABLE>
63
<PAGE>
If the non-accruing loans for the nine-months ended September
30, 1998 and the year ended December 31, 1997 had been current in accordance
with their terms during such periods, the gross interest income on such loans
would have amounted to $68,000 and $122,000, respectively. No interest income on
these non-accruing loans was recorded during such periods.
Classified Assets. Federal regulations require that each
insured savings bank classifies its assets on a regular basis. In addition, in
connection with examinations of insured institutions, federal examiners have
authority to identify problem assets and, if appropriate, classify them. There
are three classifications for problem assets: "substandard," "doubtful" and
"loss." Substandard assets have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and of
such little value that continuance as an asset of the institution is not
warranted. Another category designated "special mention" also must be
established and maintained for assets which do not currently expose an insured
institution to a sufficient degree of risk to warrant classification as
substandard, doubtful or loss. Assets classified as substandard or doubtful
require the institution to establish general allowances for loan and lease
losses. If an asset or portion thereof is classified loss, the insured
institution must either establish specific allowances for loan losses in the
amount of 100% of the portion of the asset classified loss, or charge-off such
amount. General loss allowances established to cover possible losses related to
assets classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses do not qualify as regulatory capital. Federal examiners may disagree with
an insured institution's classifications and amounts reserved.
Exclusive of any assets classified as loss which have been
fully reserved or charged-off, Oswego County's classified assets at September
30, 1998 consisted of $1.9 million of assets classified as substandard, which
represented 1.7% of total assets. Oswego County had no loans classified as
doubtful at such date.
Allowance for Loan Losses At September 30, 1998, Oswego
County's allowance for loan losses amounted to $1.3 million or 1.74% of the
total loan portfolio. Oswego County's loan portfolio consists primarily of
residential mortgage, home equity and commercial mortgage loans and, to a lesser
extent, consumer loans and commercial loans. Oswego County believes that there
are no material elements of risk in its loan portfolio, and total nonperforming
assets are closely monitored. The classification of assets policy is reviewed
periodically by the Board of Trustees. Allowance for loan losses is maintained
by management at a level considered adequate to cover possible losses that are
currently anticipated based on the past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, general
economic conditions, and other factors and estimates which are subject to change
over time. Although management believes that it uses the best information
available to make such determinations, future adjustments to allowances may be
necessary, and net income could be significantly affected, if circumstances
differ substantially from the assumptions used in making the initial
determinations.
64
<PAGE>
The following table sets forth an analysis of the Bank's
allowance for loan losses during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------------------- ------------------------------
1998 1997 1997 1996
---------- -------- ------- --------
(In Thousands)
<S> <C> <C> <C> <C>
Total loans outstanding at end of period $73,778 $82,624 $80,460 $85,087
Average loans outstanding 76,586 84,159 83,388 84,918
Balance at beginning of period 1,409 1,583 1,583 762
Charge-offs(1) (267) (248) (724) (330)
Recoveries 48 17 25 11
------- ------- ------- -------
Net charge-offs (219) (231) (699) (319)
Provision for loan losses 90 339 525 1,140
------- ------- ------- -------
Balance at end of period $ 1,280 $ 1,692 $ 1,409 $ 1,583
Allowance for loan losses as a percent of
total loans outstanding 1.74% 2.05% 1.75% 1.86%
Ratio of net charge-offs (recoveries) to
average loans outstanding .29% .27% .84% .38%
</TABLE>
- ----------
(1) Charge-offs in fiscal 1997 primarily consisted of nonowner occupied
multifamily loans;
The following table presents the allocation of Oswego County's
allowance for loan losses by type of loan at each of the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
----------------------------- -------------------------------------------------------------
1998 1997 1996
----------------------------- ----------------------------- ------------------------------
Loan Loan Loan
Category Category Category
Amount as a % Amount as a % Amount as a %
of of Total of of Total of of Total
Allowance Loans Allowance Loans Allowance Loans
-------------- ------------ -------------- ------------ ---------------- ------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential mortgage and
home equity loans $ 750 85.74% $ 702 83.78% $ 757 83.08%
Commercial mortgage 404 11.61 512 13.85 738 13.50
Commercial loans 5 0.17 5 0.34 8 0.69
Consumer loans 41 2.48 38 2.03 54 2.73
Unallocated 80 -- 152 -- 26 --
------- ------ ------ ------ ------ ------
Total $ 1,280 100.00% $1,409 100.00% $1,583 100.00%
======= ====== ====== ====== ====== ======
</TABLE>
65
<PAGE>
Investment Securities
Oswego County has authority to invest in various types of
liquid assets, including United States Treasury obligations, securities of
various federal agencies and of state and municipal governments, certificates of
deposit at federally-insured banks and savings institutions and federal funds.
Each purchase of an investment security is ratified by the Board of Trustees and
the Asset Liability Committee. Oswego County's investment securities are carried
in accordance with generally accepted accounting principles.
Oswego County's investment securities portfolio's largest
component are securities issued by U.S. government-sponsored agencies which had
a carrying value of $19.9 million or 70.6% of the portfolio as of September 30,
1998. As of that same date, the portfolio also included $1.8 million of U.S.
Treasury securities, $4.1 of general obligations of corporatations and
municipalities and $2.5 million of other mortgage-backed securities.
At September 30, 1998, Oswego County's investment securities
portfolio had an amortized cost of $28.1 million or 25.7% of total assets as of
such date. The amortized cost of investment securities being held to maturity at
September 30, 1998 was $15.3 million with a fair value of $15.5. The amortized
cost and fair value of investment securities available for sale at September 30,
1998 was $12.8 million and $12.9 million, respectively.
66
<PAGE>
The following table sets forth certain information relating to
the Bank's investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31,
--------------------------- -----------------------------------------------------------
1998 1997 1996
--------------------------- -------------------------- ----------------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------- ---------- ------------ ----------- ------------ -----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities available for sale
Debt securities:
United States Treasury $ 1,010 $ 1,023 $ 4,017 $ 4,027 $ -- $ --
United States Government
agency obligations 11,780 11,870 6,893 6, 892 -- --
------- ------- ------- ------- ------- -------
Total debt securities 12,790 12,893 10,910 10,919 -- --
Equity securities - corporate stocks 2 2 2 2 5 5
------- ------- ------- ------- ------- -------
Total securities available
for sale $12,792 $12,895 $10,912 $10,921 $ 5 $ 5
------- ------- ------- ------- ------- -------
Securities held to maturity
Debt securities:
United States Treasury 750 751 3,149 3,153 3,645 3,654
Corporate and municipal
securities 4,077 4,127 4,809 4,823 4,373 4,379
Mortgage-backed securities:
GNMA 2,444 2,469 62 65 71 73
FNMA 49 51 54 56 -- --
FHLMC 24 25 29 30 108 112
United States Government
agency obligations 7,990 8,085 2,338 2,348 1,909 1,912
------- ------- ------- ------- ------- -------
Total securities held to
maturity 15,334 15,508 10,441 10,475 10,106 10,130
------- ------- ------- ------- ------- -------
Total Securities $28,126 $28,403 $21,353 $21,396 $10,111 $10,135
======= ======= ======= ======= ======= =======
</TABLE>
Mortgage-Backed Securities
Mortgage-backed securities represent a participation interest
in a pool of single-family or multi-family mortgages, the principal and interest
payments on which are passed from the mortgage originators, through
intermediaries (generally U.S. Government agencies and government-sponsored
enterprises) that pool and repackage the participation interests in the form of
securities, to investors such as Oswego County. Such U.S. Government agencies
and government-sponsored enterprises, which guarantee the payment of principal
and interest to investors, primarily include the FHLMC, the FNMA and the GNMA.
The FHLMC, which is a corporation chartered by the U.S.
Government, issues participation certificates backed principally by conventional
mortgage loans. The FHLMC guarantees the timely payment of interest and the
ultimate return of principal on participation
67
<PAGE>
certificates. The FNMA is a private corporation chartered by the U.S. Congress
with a mandate to establish a secondary market for mortgage loans. The FNMA
guarantees the timely payment of principal and interest on FNMA securities. The
GNMA is a government agency within the Department of Housing and Urban
Development which is intended to help finance government-assisted housing
programs. GNMA securities are backed by FHA-insured and VA-guaranteed loans, and
the timely payment of principal and interest on GNMA securities are guaranteed
by the GNMA and backed by the full faith and credit of the U.S. Government.
Because the FHLMC, the FNMA and the GNMA were established to provide support for
low- and middle-income housing, there are limits to the maximum size of loans
that qualify for these programs. For example, the FNMA and the FHLMC currently
limit their loans secured by a single-family, owner-occupied residence to
$227,000. To accommodate larger-sized loans, and loans that, for other reasons,
do not conform to the agency programs, a number of private institutions have
established their own home-loan origination and securitization programs.
Mortgage-backed securities typically are issued with stated
principal amounts, and the securities are backed by pools of mortgages that have
loans with interest rates that are within a range and have varying maturities.
The underlying pool of mortgages, i.e., fixed-rate or adjustable-rate, as well
as prepayment risk, are passed on to the certificate holder. The life of a
mortgage-backed pass-through security thus approximates the life of the
underlying mortgages.
At September 30, 1998, the amortized value of Oswego County's
mortgage-backed securities amounted $2.5 million, which represented 2.3% of
Oswego County's $109.8 million of total assets at that date. All of Oswego
County's $2.5 million of mortgage-backed securities at September 30, 1998 were
insured or guaranteed by the GNMA, the FHLMC or the FNMA, and all of those
securities were held to maturity. Ninety-five percent of the mortgage-backed
securities had adjustable rates of interest at September 30, 1998. The amortized
cost and fair value of mortgage-backed securities at September 30, 1998 were
$2.5 million.
Mortgage-backed securities generally yield less than the loans
which underlie such securities because of their payment guarantees or credit
enhancements which offer nominal credit risk. In addition, mortgage-backed
securities are more liquid than individual mortgage loans and may be used to
collateralize borrowings or other obligations of Oswego County.
The following table sets forth the composition of the Bank's
mortgage-backed securities portfolio at each of the dates indicated. All of the
mortgage-backed securities held at such dates were held to maturity.
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------------------------------
1998 1997 1996
------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities:
FNMA $ 49 $ 54 $ --
FHLMC 24 29 108
GNMA 2,444 62 71
------ ------ ------
Subtotal $2,517 $ 145 $ 179
====== ====== ======
</TABLE>
68
<PAGE>
The following table sets forth the activity in the Bank's
mortgage-backed securities portfolio during the periods indicated.
<TABLE>
<CAPTION>
At or For the At or For the Year
Nine Months Ended
Ended September 30, December 31,
------------------------- -------------------------------
1998 1997 1997 1996
----------- ----------- --------------- -------------
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage-backed securities at
beginning of period (cost) $ 145 $179 $179 $235
Purchases 2,542 0 0 0
Repayments (168) (27) (34) (56)
Premium amortization 3 0 0 0
------ ---- ---- ----
Mortgage-backed securities at end
of period (cost) 2,517 152 145 179
Mortgaged-backed securities at end
of period (fair value) 2,544 159 151 185
Weighted average yield at end of
period 5.99% 8.03% 8.03% 8.03%
</TABLE>
Sources of Funds
General. Deposits are the primary source of Oswego County's
funds for lending and other investment purposes. In addition to deposits, Oswego
County derives funds from principal and interest payments on loans and
mortgage-backed securities. Loan repayments are a relatively stable source of
funds, while deposits inflows and outflows are significantly influenced by
general interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They may also be used on a longer term basis for general business
purposes.
Deposits. Oswego County's deposit products include a broad
selection of deposit instruments, including demand deposits, money market
deposits, savings deposits and time deposits. Deposit account terms vary, with
the principal differences being the minimum balance required, the time periods
the funds must remain on deposit and the interest rate.
Oswego County's deposits are obtained primarily from residents
of Oswego County in New York State. Management of Oswego County estimates that
less than 1% of Oswego County's deposits are obtained from customers residing
outside of New York State. Oswego County does not pay fees to brokers to solicit
funds for deposit with Oswego County or actively solicit negotiable-rate
certificates of deposit with balances of $100,000 or more.
Interest rates paid, maturity terms, service fees and
withdrawal penalties are established by Oswego County on a periodic basis.
Determination of rates and terms are predicated on funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and federal and
state regulations.
69
<PAGE>
The following table sets forth the activity in the Bank's
deposits during the periods indicated.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
----------------------------- ---------------------------------
1998 1997 1997 1996
-------------- ------------ -------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
Beginning balance $97,899 $102,015 $102,015 $101,436
------- -------- -------- --------
Net increase (decrease) before
interest credited(1) (4,632) (6,620) (7,854) (3,393)
Interest credited 2,577 2,816 3,738 3,973
------- -------- -------- --------
Net increase (decrease) in
deposits (2,055) (3,804) (4,116) 579
------- -------- -------- --------
Ending Balance $95,844 $ 98,211 $ 97,899 $102,015
======= ======== ======== ========
</TABLE>
- ---------------------
(1) The information provided is net of deposits and withdrawals because the
gross amount of deposits and withdrawals is not readily available.
The following table sets forth the dollar amount of deposits
in the various types of deposit programs offered by Oswego County at the dates
indicated.
<TABLE>
<CAPTION>
September 30, December 31,
------------------------ ----------------------------------------------------
1998 1997 1996
------------------------ ----------------------- ------------------------
Amount % Amount % Amount %
---------- ---------- ---------- ------------ ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits:
2.00% - 3.99% $ 15 .01% -- -- -- --
4.00% - 5.99% 33,600 35.06 33,071 33.78 30,747 30.14
6.00% - 7.99% 4,677 4.88 6,626 6.77 12,676 12.43
------- ------ ------- ------ -------- ------
Total time deposits: 38,292 39.95 39,697 40.55 43,423 42.57
------- ------ ------- ------ -------- ------
Transaction accounts:
Savings deposits 46,420 48.43 47,969 49.00 49,255 48.28
Money market deposits 561 0.59 566 0.58 791 0.80
Demand deposits 10,571 11.03 9,666 9.87 8,546 8.38
------- ------ ------- ------ -------- ------
Total transaction
accounts 57,552 60.05 58,201 59.45 58,592 57.43
Accrued interest payable -- 0.00 -- 0.00 -- 0.00
------- ------ ------- ------ -------- ------
Total deposits $95,844 100.00% $97,899 100.00% $102,015 100.00%
======= ====== ======= ====== ======== ======
</TABLE>
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<PAGE>
The following table presents the average balance of each type
of deposit and the average rate paid on each type of deposit for the periods
indicated.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
---------------------------------------------------- ----------------------------------------------
1998 1997 1997 1996
------------------------ ---------------------- ---------------------- --------------------
Average Average Average Average
Average Rate Average Rate Average Rate Average Rate
Balance Paid Balance Paid Balance Paid Balance Paid
---------- ----------- ---------- ---------- --------- ---------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NOW $ 468 2.45% $ -- -% $ -- -% $ -- --%
Savings deposits 47,808 2.81 50,161 3.01 49,883 3.01 51,250 3.01
Demand deposits 10,360 0.00 9,175 0.00 9,217 0.00 9,200 0.00
Money market deposits 548 2.54 845 2.67 793 2.68 1,036 2.70
Time deposits 38,183 5.44 41,054 5.43 40,708 5.44 43,102 5.58
------- ---- -------- ---- -------- ---- ------ ----
Total interest-
bearing deposits(2) $97,367 3.96% $101,235 4.09% $100,601 4.09% $104,588 3.80%
======= ==== ======== ==== ======== ==== ======== ====
</TABLE>
The following table shows the interest rate and maturity
information for the Bank's certificates of deposit at September 30, 1998.
<TABLE>
<CAPTION>
Maturity Date
-------------------------------------------------------------------------------------------------
Over six
Six Months Months Over 1 Over 2 Over 3
or Less to 1 Year to 2 Years to 3 Years Years Total
--------------- --------------- --------------- --------------- ----------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Amount $ 16,783 $ 11,625 $ 4,496 $ 1,753 $ 3,635 $ 38,292
Average Rate 5.24% 5.43% 5.71% 5.64% 5.93% 5.43%
</TABLE>
The following table sets forth the maturities of the Bank's
certificates of deposit having principal amounts of $100,000 or more at
September 30, 1998.
Certificates of deposit maturing
in quarter ending: Amount
------------------------------------------------ ------------
(In Thousands)
December 31, 1998 $1,522
March 31, 1999 413
June 30, 1999 1,143
After June 30, 1999 2,298
------
Total certificates of deposit with
balances of $100,000 or more $5,376
======
Subsidiaries
Oswego County currently has no subsidiaries.
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<PAGE>
Legal Proceedings
Oswego County is involved in routine legal proceedings
occurring in the ordinary course of business which, in the aggregate, are
believed by management to be immaterial to the financial condition and results
of operations of Oswego County.
Employees
Oswego County had 47 full-time employees and 6 part-time
employees at September 30, 1998. None of these employees is represented by a
collective bargaining agent, and Oswego County believes that it enjoys good
relations with its personnel.
The following table sets forth certain information relating
the Oswego County's offices at September 30, 1998.
<TABLE>
<CAPTION>
Net Book Value of
Owned Lease Property and Leasehold Deposits at
or Expiration Improvements at September 30,
Location(1) Leased Date September 30, 1998 1998
- ----------------------------- ------ ---------- ---------------------- -------------
<S> <C> <C>
Executive Office: (In thousands)
44 East Bridge Street
Oswego, New York 13126 Owned N/A $167 $42,622
Branch Offices:
4879 N Jefferson Street
Pulaski, New York 13142 Owned N/A 365 29,895
1930 Rt. 3 West
Fulton, New York 13069 Owned N/A 133 14,137
30 W. Utica Street
Oswego, New York 13126 Owned N/A 911 9,214
</TABLE>
72
<PAGE>
REGULATION
Set forth below is a brief description of certain laws and
regulations which are applicable to the Bank and the MHC. The description of the
laws and regulations hereunder, as well as descriptions of laws and regulations
contained elsewhere herein, does not purport to be complete and is qualified in
its entirety by reference to applicable laws and regulations.
The Bank
General. The Bank is subject to extensive regulation and
examination by the Department, as its chartering authority, and by the FDIC, as
the insurer of its deposits, and, upon Reorganization, will be subject to
certain requirements established by the Department and the FDIC. The federal and
state laws and regulations which are applicable to banks regulate, among other
things, the scope of their business, their investments, their reserves against
deposits, the timing of the availability of deposited funds and the nature and
amount of and collateral for certain loans. The Bank must file reports with the
Department and the FDIC concerning its activities and financial condition, in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as establishing branches and mergers with, or acquisitions of,
other depository institutions. There are periodic examinations by the Department
and the FDIC to test the Bank's compliance with various regulatory requirements.
This regulation and supervision establishes a comprehensive framework of
activities in which an institution can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulation, whether by the Department, the FDIC or as a result of the enactment
of legislation, could have a material adverse impact on the Bank and its
operations.
Capital Requirements. The FDIC has promulgated regulations and
adopted a statement of policy regarding the capital adequacy of state-chartered
banks which, like the Bank, will not be members of the Federal Reserve System.
The FDIC's capital regulations establish a minimum 3.0% Tier 1
leverage capital requirement for the most highly-rated state-chartered,
non-member banks, with an additional cushion of at least 100 to 200 basis points
for all other state-chartered, non-member banks, which effectively will increase
the minimum Tier 1 leverage ratio for such other banks to 4.0% to 5.0% or more.
Under the FDIC's regulation, the highest-rated banks are those that the FDIC
determines are not anticipating or experiencing significant growth and have well
diversified risk, including no undue interest rate risk exposure, excellent
asset quality, high liquidity, good earnings and, in general, which are
considered a strong banking organization and are rated composite 1 under the
Uniform Financial Institutions Rating System. Leverage or core capital is
defined as the sum of common stockholders' equity (including retained earnings),
noncumulative perpetual preferred stock and related surplus, and minority
interests in consolidated subsidiaries, minus all intangible assets other than
certain qualifying supervisory goodwill and certain mortgage servicing rights.
The FDIC also requires that savings banks meet a risk-based
capital standard. The risk-based capital standard for savings banks requires the
maintenance of total capital (which is defined as Tier 1 capital and
supplementary (Tier 2) capital) to risk-weighted assets of 8%. In
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<PAGE>
determining the amount of risk-weighted assets, all assets, plus certain
off-balance sheet assets, are multiplied by a risk-weight of 0% to 100%, based
on the risks the FDIC believes are inherent in the type of asset or item. The
components of Tier 1 capital are equivalent to those discussed above under the
3% leverage capital standard. The components of supplementary capital include
certain perpetual preferred stock, certain mandatory convertible securities,
certain subordinated debt and intermediate preferred stock and general
allowances for loan and lease losses. Allowance for loan and lease losses
includable in supplementary capital is limited to a maximum of 1.25% of
risk-weighted assets. Overall, the amount of capital counted toward
supplementary capital cannot exceed 100% of core capital. At September 30, 1998,
the Bank met each of its capital requirements.
In August 1995, the FDIC, along with the other federal banking
agencies, adopted a regulation providing that the agencies will take account of
the exposure of a bank's capital and economic value to changes in interest rate
risk in assessing a bank's capital adequacy. According to the agencies,
applicable considerations include the quality of the bank's interest rate risk
management process, the overall financial condition of the bank and the level of
other risks at the bank for which capital is needed. Institutions with
significant interest rate risk may be required to hold additional capital. The
agencies recently issued a joint policy statement providing guidance on interest
rate risk management, including a discussion of the critical factors affecting
the agencies' evaluation of interest rate risk in connection with capital
adequacy. The agencies have determined not to proceed with a previously issued
proposal to develop a supervisory framework for measuring interest rate risk and
an explicit capital component for interest rate risk.
See "Regulatory Capital Requirements" for information with
respect to the Bank's historical leverage and risk-based capital at September
30, 1998 and pro forma after giving effect to the issuance of shares in the
Stock Issuance.
Activities and Investments of New York-Chartered Savings
Banks. The Bank derives its lending, investment and other authority primarily
from the applicable provisions of New York State Banking Law and the regulations
of the Department, as limited by FDIC regulations and other federal laws and
regulations. See " - Activities and Investments of FDIC Insured State-Chartered
Banks." These New York laws and regulations authorize savings banks, including
the Bank, to invest in real estate mortgages, consumer and commercial loans,
certain types of debt securities, including certain corporate debt securities
and obligations of federal, State and local governments and agencies, certain
types of corporate equity securities and certain other assets. Under the
statutory authority for investing in equity securities, a savings bank may
directly invest up to 7.5% of its assets in certain corporate stock and may also
invest up to 7.5% of its assets in certain mutual fund securities. Investment in
stock of a single corporation is limited to the lesser of 2% of the outstanding
stock of such corporation or 1% of the savings bank's assets, except as set
forth below. Such equity securities must meet certain tests of financial
performance. A savings bank's lending powers are not subject to percentage of
asset limitations, although there are limits applicable to single borrowers. A
savings bank may also, pursuant to the "leeway" authority, make investments not
otherwise permitted under the New York State Banking Law. This authority permits
investments in otherwise impermissible investments of up to 1% of the savings
bank's assets in any single investment, subject to certain restrictions and to
an aggregate limit for all such investments of up to 5% of assets. Additionally,
in lieu of investing in such securities in accordance with the reliance upon the
specific investment authority set forth in the New York State Bank Law, savings
banks are authorized to elect to invest under a "prudent person" standard in a
wider range of debt and equity securities as compared to the types of
investments permissible under such specific investment
74
<PAGE>
authority. However, in the event a savings bank elects to utilize the "prudent
person" standard, it will be unable to avail itself of the other provisions of
the New York State Banking Law and regulations which set forth specific
investment authority. A New York-chartered stock savings bank may also exercise
trust powers upon approval of the Department.
The Department has been granted the authority to maintain the
power of state-chartered banks reciprocal with those of a national bank. Under
the terms of the legislation, the Department is granted such authority for only
one year unless legislation is adopted within such period which extends the
effective period of such power. However, any regulations adopted by the
Department pursuant to the authority granted by such legislation would be
effective regardless of whether legislation is enacted extending the effective
period.
New York-chartered savings banks may also invest in
subsidiaries under their service corporation investment power. A savings bank
may use this power to invest in corporations that engage in various activities
authorized for savings banks, plus any additional activities which may be
authorized by the Department. Investment by a savings bank in the stock, capital
notes and 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 directors 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.
With certain limited exceptions, a New York-chartered savings
bank may not make loans or extend credit for commercial, corporate or business
purposes (including lease financing) to a single borrower, the aggregate amount
of which would be in excess of 15% of the bank's net worth. The Bank currently
complies with all applicable loans-to-one-borrower limitations.
Activities and Investments of FDIC-Insured State-Chartered
Banks. The activities and equity investments of FDIC-insured, state-chartered
banks are generally limited to those that are permissible for national banks.
Under regulations dealing with equity investments, an insured state bank
generally may not directly or indirectly acquire or retain any equity investment
of a type, or in an amount, that is not permissible for a national bank. An
insured state bank is not prohibited from, among other things, (i) acquiring or
retaining a majority interest in a subsidiary, (ii) investing as a limited
partner in a partnership the sole purpose of which is direct or indirect
investment in the acquisition, rehabilitation or new construction of a qualified
housing project, provided that such limited partnership investments may not
exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting
stock of a company that solely provides or reinsures directors', trustees' and
officers' liability insurance coverage or bankers' blanket bond group insurance
coverage for insured depository institutions, and (iv) acquiring or retaining
the voting shares of a depository institution if certain requirements are met.
In addition, an FDIC-insured state-chartered bank may not directly, or
indirectly through a subsidiary, engage as "principal" in any activity that is
not permissible for a national bank unless the FDIC has determined that such
activities would pose no
75
<PAGE>
risk to the insurance fund of which it is a member and the bank is in compliance
with applicable regulatory capital requirements.
Excluded from the foregoing proscription is the provision of
savings bank life insurance by an FDIC-insured state-chartered bank that is
located in New York or certain other states and is otherwise authorized to sell
such insurance, provided that (i) the FDIC does not alter its determination
pursuant to the FDIA that such activities do not pose a significant risk to the
insurance fund of which the Bank is a member, (ii) the insurance underwriting is
conducted through a division of the bank that meets the definition of
"department" contained in FDIC regulations and (iii) the bank discloses to
purchasers of life insurance policies and other products that they are not
insured by the FDIC, among other things.
Also excluded from the foregoing proscription is the
investment by a state-chartered FDIC-insured bank in common and preferred stock
listed on a national securities exchange and in shares of an investment company
registered under the Investment Company Act of 1940. [In order to qualify for
the exception, a state-chartered FDIC-insured bank must (i) have held such types
of investments during the 14-month period from September 30, 1990 through
November 26, 1991, (ii) be chartered in a state that authorized such investments
as of September 30, 1991 and (iii) file a one-time notice with the FDIC in the
required form and receive FDIC approval of such notice. In addition, the total
investment permitted under the exception may not exceed 100% of the bank's tier
one capital as calculated under FDIC regulations. The Bank received FDIC
approval of its notice to engage in this investment activity on [___________,
1993]. As of September 30, 1998, the book value of the Bank's investments under
this exception was $________ million, which equaled ______% of its tier one
capital. Such grandfathering authority is subject to termination upon the FDIC's
determination that such investments pose a safety and soundness risk to the Bank
or in the event the Bank converts its charter or undergoes a change in control.]
Regulatory Enforcement Authority. Applicable banking laws
include substantial enforcement powers available to federal banking regulators.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions against banking organizations and
institution-affiliated parties, as defined. In general, these enforcement
actions may be initiated for violations of laws and regulations and unsafe or
unsound practices. Other actions or inactions may provide the basis for
enforcement action, including misleading or untimely reports filed with
regulatory authorities.
Under the New York State Banking Law, the Department may issue
an order to a New York-chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the Department that any
director, trustee or officer of any banking organization has violated any law,
or has continued unauthorized or unsafe practices in conducting the business of
the banking organization after having been notified by the Department to
discontinue such practices, such director, trustee or officer may be removed
from office by the Department after notice and an opportunity to be heard. The
Bank does not know of any past or current practice, condition or violation that
might lead to any proceeding by the Department against the Bank or any of its
directors or officers. The Department also may take possession of a banking
organization under specified statutory criteria.
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<PAGE>
Prompt Corrective Action. Section 38 of the Federal Deposit
Insurance Act ("FDIA") provides the federal banking regulators with broad power
to take "prompt corrective action" to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Under regulations adopted by the federal banking regulators,
an institution shall be deemed to be (i) "well capitalized" if it has total
risk-based capital ratio of 10.0% or more, has a Tier I risk-based capital ratio
of 6.0% or more, has a Tier I leverage capital ratio of 5.0% or more and is not
subject to specified requirements to meet and maintain a specific capital level
for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, a Tier I risk-based capital ratio of
4.0% or more and a Tier I leverage capital ratio of 4.0% or more (3.0% under
certain circumstances) and does not meet the definition of "well capitalized,"
(iii) "undercapitalized" if it has a total risk-based capital ratio that is less
than 8.0%, a Tier I risk-based capital ratio that is less than 4.0% or a Tier I
leverage capital ratio that is less than 4.0% (3.0% under certain
circumstances), (iv) "significantly undercapitalized" if it has a total
risk-based capital ratio that is less than 6.0%, a Tier I risk-based capital
ratio that is less than 3.0% or a Tier I leverage capital ratio that is less
than 3.0%, and (v) "critically undercapitalized" if it has a ratio of tangible
equity to total assets that is equal to or less than 2.0%. The regulations also
provide that a federal banking regulator may, after notice and an opportunity
for a hearing, reclassify a "well capitalized" institution as "adequately
capitalized" and may require an "adequately capitalized" institution or an
"undercapitalized" institution to comply with supervisory actions as if it were
in the next lower category if the institution is in an unsafe or unsound
condition or engaging in an unsafe or unsound practice. The federal banking
regulator may not, however, reclassify a "significantly undercapitalized"
institution as "critically undercapitalized."
An institution generally must file a written capital
restoration plan which meets specified requirements, as well as a performance
guaranty by each company that controls the institution, with an appropriate
federal banking regulator within 45 days of the date that the institution
receives notice or is deemed to have notice that it is "undercapitalized,"
"significantly undercapitalized" or "critically undercapitalized." Immediately
upon becoming undercapitalized, an institution becomes subject to statutory
provisions which, among other things, set forth various mandatory and
discretionary restrictions on the operations of such an institution.
At September 30, 1998, the Bank had capital levels which
qualified it as a "well-capitalized" institution.
FDIC Insurance Premiums. The Bank is a member of the BIF
administered by the FDIC. As insurer, the FDIC is authorized to conduct
examinations of, and to require reporting by, FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious threat to the FDIC.
The FDIC may terminate the deposit insurance of any insured
depository institution, including the Bank, if it determines after a hearing
that the institution has engaged or is engaging in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, order or any condition imposed by an agreement with
the FDIC. It also may suspend deposit insurance temporarily during the hearing
process for the permanent termination of insurance, if the institution has no
tangible capital. If insurance of accounts is terminated, the accounts at the
institution at the time of the termination, less subsequent
77
<PAGE>
withdrawals, shall continue to be insured for a period of six months to two
years, as determined by the FDIC. Management is aware of no existing
circumstances which would result in termination of the Bank's deposit insurance.
Beginning October 1, 1996, effective assessment rates range
from zero basis points to 27 basis points. From 1997 through 1999, FDIC-insured
institutions will pay approximately 1.3 basis points of their BIF-assessable
deposits to fund the Financing Corporation. Based upon the $94,325,709 of
BIF-assessable deposits, the Bank paid $2,877 in insurance premiums for the
quarter ended September 30, 1998.
Brokered Deposits. The FDIA restricts the use of brokered
deposits by certain depository institutions. Under the FDIA and applicable
regulations, (i) a "well capitalized insured depository institution" may solicit
and accept, renew or roll over any brokered deposit without restriction, (ii) an
"adequately capitalized insured depository institution" may not accept, renew or
roll over any brokered deposit unless it has applied for and been granted a
waiver of this prohibition by the FDIC and (iii) an "undercapitalized insured
depository institution" may not (x) accept, renew or roll over any brokered
deposit or (y) solicit deposits by offering an effective yield that exceeds by
more than 75 basis points the prevailing effective yields on insured deposits of
comparable maturity in such institution's normal market area or in the market
area in which such deposits are being solicited. The term "undercapitalized
insured depository institution" is defined to mean any insured depository
institution that fails to meet the minimum regulatory capital requirement
prescribed by its appropriate federal banking agency. The FDIC may, on a
case-by-case basis and upon application by an adequately capitalized insured
depository institution, waive the restriction on brokered deposits upon a
finding that the acceptance of brokered deposits does not constitute an unsafe
or unsound practice with respect to such institution. [The Bank had no brokered
deposits outstanding at September 30, 1998.]
Community Investment and Consumer Protection Laws. In
connection with its lending activities, the Bank is subject to a variety of
federal laws designed to protect borrowers and promote lending to various
sectors of the economy and population. Included among these are the federal Home
Mortgage Disclosure Act, Real Estate Settlement Procedures Act, Truth-in-Lending
Act, Equal Credit Opportunity Act, Fair Credit Reporting Act and Community
Reinvestment Act ("CRA").
The CRA requires insured institutions to define the
communities that they serve, identify the credit needs of those communities and
adopt and implement a "Community Reinvestment Act Statement" pursuant to which
they offer credit products and take other actions that respond to the credit
needs of the community. The responsible federal banking regulator (in the case
of the Bank, the FDIC) must conduct regular CRA examinations of insured
financial institutions and assign to them a CRA rating of "outstanding,"
"satisfactory," "needs improvement" or "unsatisfactory." The Bank's current
federal CRA rating is "outstanding."
The Bank is also subject to provisions of the New York State
Banking Law which impose continuing and affirmative obligations upon banking
institutions organized in New York State to serve the credit needs of its local
community ("NYCRA"), which are similar to those imposed by the CRA. Pursuant to
the NYCRA, a bank must file an annual NYCRA report and copies of all federal CRA
reports with the Department. The NYCRA requires the Department to make an annual
written assessment of a bank's compliance with the NYCRA, utilizing a
four-tiered
78
<PAGE>
rating system, and make such assessment available to the public. The NYCRA also
requires the Department to consider a bank's NYCRA rating when reviewing a
bank's application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application. The Bank's latest NYCRA rating, received from the Department
was "satisfactory."
Limitations on Dividends. The MHC is a legal entity separate
and distinct from the Bank. The MHC's principal source of revenue consists of
dividends from the Bank. The payment of dividends by the Bank is subject to
various regulatory requirements.
Under New York State Banking Law, a New York-chartered stock
savings bank may declare and pay dividends out of its net profits, unless there
is an impairment of capital, but approval of the Department is required if the
total of all dividends declared in a calendar year would exceed the total of its
net profits for that year combined with its retained net profits of the
preceding two years, subject to certain adjustments.
Miscellaneous. The Bank is subject to certain restrictions on
loans to the MHC or its non-bank subsidiaries, on investments in the stock or
securities thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter of credit on
behalf of the MHC or its non-bank subsidiaries. The Bank also is subject to
certain restrictions on most types of transactions with the MHC or its non-bank
subsidiaries, requiring that the terms of such transactions be substantially
equivalent to terms of similar transactions with non-affiliated firms.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain reserves against their transaction accounts
(primarily NOW and Super NOW checking accounts) and non-personal time deposits.
As of September 30, 1998, the Bank was in compliance with applicable
requirements. However, because required reserves must be maintained in the form
of vault cash or a noninterest-bearing account at a Federal Reserve Bank, the
effect of this reserve requirement is to reduce an institution's earning assets.
Holding Company Regulation
Federal Bank Holding Company Regulation. Upon consummation of
the Reorganization, the MHC, as majority shareholder of the Bank, will become a
bank holding company. 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 MHC
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
79
<PAGE>
Reorganization and Offering, the MHC'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.
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
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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.
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 Board 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.
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Mutual Holding Company Regulation. Under New York law, the MHC
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
MHC 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 MHC of dividends paid on the
Common Stock. In particular, the MHC 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 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 MHC 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 MHC to Stock Form."
Management does not believe that the MHC will initially waive
dividends declared by the Bank. If the MHC decides that it is in its best
interest to waive a particular dividend to be paid by the Bank, and the Federal
Reserve Board approves such waiver, then the Bank would pay such dividend only
to Minority Stockholders, and the amount of the dividend waived by the MHC would
be treated in the manner described above. The MHC'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 MHC's capital
needs, the investment alternatives available to the MHC as compared to those
available to the Bank, and regulatory approvals. There can be no assurance (i)
that after the Reorganization the MHC will waive dividends paid by the Bank,
(ii) that the Federal Reserve Board will approve any dividend waivers by the MHC
or (iii) of the terms that may be imposed by the Federal Reserve Board on any
dividend waiver.
Conversion of the MHC to Stock Form. New York law, regulations
of the Department and the Plan of Reorganization permit the MHC 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 MHC would
merge with and into the Bank, with the Bank 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
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Transaction, each share of Common Stock outstanding immediately prior to the
completion of the Conversion Transaction held by persons other than the MHC
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 and MHC Assets Adjustment described below (if required by
the applicable federal banking regulators) 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 also would be affected by any
purchases by such persons in the offering that would be conducted as part of the
Conversion Transaction.
As set forth in the Plan of Reorganization, the Dividend
Waiver and MHC Assets 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 MHC and
(ii) assets, other than Common Stock, held by the MHC. Pursuant to the Dividend
Waiver and MHC Assets Adjustment, the percentage of the to-be outstanding shares
of the 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 Bank's stockholders' equity at the time of the Conversion
Transaction less the aggregate amount of dividends waived by the MHC, and the
denominator is equal to the Bank'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 in the Conversion
Transaction minus the value of the MHC's assets other than Common Stock and the
denominator is equal to the appraised pro forma market value of the resulting
entity in the Conversion Transaction.
TAXATION
Federal Taxation
General. The Bank will be subject to federal income taxation
in the same general manner as other corporations with some exceptions discussed
below. The following discussion of federal taxation is intended only to
summarize certain pertinent federal income tax matters and is not a
comprehensive description of the tax rules applicable to the Bank. The Bank's
federal income tax returns have been audited or closed without audit by the
Internal Revenue Service through 1994.
Method of Accounting. For federal income tax purposes, the
Bank currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31. For federal income tax
purposes, after the Reorganization, the Stock Company and the Bank will file
consolidated income tax returns.
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. In 1996, the Internal
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Revenue Code was amended, effective for tax years beginning in 1996, to change
the method by which the Bank may take tax deductions for bad debts. The Bank is
now required, for Federal income tax purposes, to use the experience method in
determining its tax bad debt deduction, which generally permits tax deductions
for bad debts based upon a six year moving average of actual loan loss
experience. The Federal legislation also required recapture of any excess tax
bad debt reserves at December 31, 1995 over those established as of December 31,
1987. The Bank's recapture was insignificant.
Taxable Distributions and Recapture. If the Bank makes certain
types of distributions ("non-dividend distributions") to the Stock Company which
are not in the nature of dividends, such distributions will be considered to
have been made first from the Bank's unrecaptured tax bad debt reserves
(including the balance of its reserves as of December 31, 1987 which are not
part of excess reserves). An amount based on the non-dividend distribution will
be included in the Bank's income for tax purposes. Non-dividend distributions
subject to this rule include distributions in excess of the Bank's current and
accumulated earnings and profits, as calculated for Federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of the Bank's current or accumulated earnings
and profits are not subject to this rule. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserves. At December 31, 1997, the Bank's total pre-1998 reserve was
approximately $1,107,000.
Minimum Tax. The Internal Revenue Code imposes a tax on
alternative minimum taxable income at a rate of 20%. In general, the alternative
minimum tax is imposed if, because of high levels of certain deductions and tax
exempt income, there is a substantial difference between a corporation's gross
income and its taxable income. Net operating losses can offset no more than 90%
of the alternative minimum tax income. Certain payments of alternative minimum
tax may be used as credits against regular tax liabilities in future years. The
Bank has not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. For tax years beginning after
August 5, 1997, a financial institution may carry back net operating losses to
the preceding two taxable years and forward to the succeeding 20 taxable years.
[At December 31, 1997, the Bank had no net operating loss carryforwards for
federal income tax purposes.]
New York State Taxation
General. The Bank and the Stock Company will report income on
a combined basis to New York State. The MHC will not be included in the combined
return. The 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) nominal minimum
tax. Alternative entire net income is equal to entire net income without certain
modifications. The basis of the determination of each tax is the greater of a
tax on entire net income (or on alternative entire net income) or a tax computed
on taxable assets.
Bad Debt Deduction. New York State enacted legislation in
1996, which among other things, decoupled the Federal and New York State tax
laws regarding thrift bad debt deductions and permits the continued use of the
bank debt reserve method under Section 593. Thus,
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provided the Bank continues to satisfy certain definitional tests and other
conditions, they are permitted to continue to compute their annual for bad debt
deduction using either a six year moving average experience method or a
statutory percentage equal to 32% of the Bank's New York State taxable income.
MANAGEMENT
Management of the Stock Company
The Board of Directors of the Stock Company will consist of
the same individuals who serve as trustees of the Bank. The Board of Directors
of the Stock Company is divided into three classes, each of which contains
approximately one-third of the Board. The directors shall be elected by the
stockholders of the Stock Company for staggered three-year terms, or until their
successors are elected and qualified. One class of directors, consisting of
Messrs. Kreis and Schneible, has a term of office expiring at the first annual
meeting of stockholders, a second class, consisting of Messrs. Frassinelli, and
Heins, has a term of office expiring at the second annual meeting of
stockholders and a third class, consisting of Messrs. Brower, Shapiro and
Walrath has a term of office expiring at the third annual meeting of
stockholders.
The following individuals are executive officers of the Stock
Company and hold the offices set forth below opposite their names.
Executive Position Held with Stock Company
------------------------ ------------------------------------------
Gregory J. Kreis President and Chief Executive Officer
The executive officers of the Stock Company are elected
annually and hold office until their respective successors have been elected and
qualified or until death, resignation or removal by the Board of Directors.
Information concerning the principal occupations, employment
and compensation of the directors and officers of the Stock Company during the
past five years is set forth under "Management of the Bank" and "- Executive
Officers Who Are Not Directors." Directors of the Stock Company initially will
not be compensated by the Stock Company but will serve and be compensated by the
Bank. It is not anticipated that separate compensation will be paid to directors
of the Stock Company until such time as such persons devote significant time to
the separate management of the Stock Company's affairs, which is not expected to
occur until the Stock Company becomes actively engaged in additional businesses
other than holding the stock of the Bank. The Stock Company may determine that
such compensation is appropriate in the future.
Management of the Bank
Because the Bank is a mutual savings bank, the members of its
Board of Trustees have been appointed by other trustees. Upon completion of the
Reorganization and Offering, the trustees of the Bank immediately prior to the
Offering will continue to serve the Bank in its stock form as directors until
successors are eligible and qualified. Currently, each trustee serves until
December 31 of the year of his seventy-fifth birthday. Following the
Reorganization and Offering,
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directors of the Bank will serve staggered three-year terms or until their
successors are elected and qualified. Because the Stock Company will own all the
issued and outstanding capital stock of the Bank following the Reorganization
and Offering, the Board of Directors of the Stock Company will elect the
directors of the Bank. The persons who are serving as trustees of the Bank will
also serve as directors of the MHC and the Stock Company upon consummation of
the Reorganization and Offering.
The following table sets forth certain information regarding
the Board of Directors of the Bank.
Positions Held
With Director
Name Age(1) the Bank Since(2)
- -------------------- -------- ----------------------------- ----------
Michael R. Brower 48 Director 1996
Bruce P. Frassinelli 59 Chairman of the Board 1995
Paul J. Heins 59 Director 1989
Gregory J. Kreis 52 Director, President and Chief 1997
Executive Officer
Paul W. Schneible 50 Director 1996
Bernard Shapiro 72 Director 1963
Carl K. Walrath 71 Director 1974
- -----------------------------
(1) As of September 30, 1998.
(2) Includes service as a trustee of the Bank.
Set forth below is information with respect to the principal
occupations during at least the last five years for the trustees of the Bank.
Michael R. Brower. Mr. Brower is currently managing member and
Chief Executive Officer of the Oswego Cranberry Company. Previously, Mr. Brower
served as Executive Director, of the Oswego County Co-Operative Extension.
Bruce P. Frassinelli. Mr. Frassinelli is the publisher and
editor of the Palladium Times Newspaper, Oswego, New York.
Paul J. Heins. Mr. Heins is the owner of Paul's Big M Grocery
Store, Oswego, New York.
Gregory J. Kreis. Mr. Kreis has served as President and Chief
Executive Officer of the Bank since January 1997. Previously, Mr. Kreis served
as President and Chief Executive Office of Factory Point National Bank,
Manchester, Vermont.
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Paul W. Schneible. Mr. Schneible is the owner of Paul W.
Schneible, CPA, Accountants and Consultants, Oswego, New York.
Bernard Shapiro. Mr. Shapiro is currently retired. Previously,
Mr. Shapiro was the owner of a retail clothing store.
Carl K. Walrath. Mr. Walrath is currently retired. Previously,
Mr. Walrath owned an insurance agency.
Trustees' Compensation
The Chairman of the Board of Trustees receives $1,450 per
Board meeting while the other non-employee directors receive $1,250 per meeting.
In addition, the outside directors receive $350 per committee meeting. [In order
to receive such compensation, directors may not be absent for more than two
Board meetings or committee meetings, as the case may be. Board fees are subject
to periodic adjustment by the Board of Trustees.] See "- Benefits - Stock Option
Plan" and "- Recognition Plan."
Trustee's Deferred Compensation Plan
In 1997, the Bank instituted a deferred compensation plan for
Trustees (the "Trustees' Deferred Compensation Plan") who may elect to defer all
or part of their annual trustee fees to fund the Trustee's Deferred Compensation
Plan. The plan provides that deferred fees are to be invested in mutual funds,
as selected by the individual trustees. At December 1997, deferred trustees fees
included in other liabilities aggregated $83,569. Following consummation of the
Reorganization, the Trustee's Deferred Compensation Plan will apply to the
directors of the Stock Company.
Retirement Plan
In 1997, the Bank implemented a retirement plan for
nonemployee trustees (the "Retirement Plan"). The monthly basic benefit under
the Retirement Plan is equivalent to the regular board of trustees monthly
meeting fee in effect at the end of the month that the trustee terminates
service. Each trustee is fully vested upon serving the Bank for 15 years as a
trustee or upon reaching age 70. Benefit payments to a trustee begin upon the
later of either: the first month subsequent to the date that the trustee ceases
to be a trustee; or the first month subsequent to the date the trustee reaches
age 70. Succeeding installments are made monthly thereafter until death of the
trustee. The Bank recorded an expense of $363,891 for the year ended December
31, 1997. The obligation of $363,891 at December 31, 1997 is included in other
liabilities on the statement of financial condition. Following consummation of
the Reorganization, the Trustee's Deferred Compensation Plan will apply to the
directors of the Stock Company.
Compensation Committee Interlocks and Insider Participation
Determinations regarding compensation of the Bank's employees
are made by the Compensation Committee of the Board of Directors. Messrs.
Schneible and Heins serve as members of the Compensation Committee.
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Summary Compensation Table
The following table sets forth a summary of certain
information concerning the compensation paid by the Bank (including amounts
deferred to future periods by the officers) for services rendered in all
capacities during the fiscal year ended December 31, 1997 to the President and
Chief Executive Officer of the Bank. No other officers of the Bank had
compensation in excess of $100,000.
<TABLE>
<CAPTION>
===========================================================================================================================
Annual Compensation Long Term Compensation
-------------------------------- ------------------------------------
Awards Payouts
-------------------------- -------
Other Securities
Name and Fiscal Annual Restricted Underlying LTIP All Other
Principal Position Year Salary Bonus Compensation Stock Options Payouts Compensation
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gregory J. Kreis
President and Chief
Executive Officer 1997 $140,000 $ 20,000 -- -- -- -- $ --
===========================================================================================================================
</TABLE>
Benefits
Employee Stock Ownership Plan. The Stock Company has
established the ESOP for employees of the Stock Company and the Bank to become
effective upon the Reorganization and Offering. Full-time employees of the Stock
Company and the Bank who have been credited with at least 1,000 hours of service
during a twelve-month period are eligible to participate in the ESOP.
As part of the Reorganization and Offering, in order to fund
the purchase of up to 8% of the Common Stock sold in the Reorganization and
Offering, it is anticipated that the ESOP will borrow funds from the Stock
Company. It is anticipated that such loan will equal 100% of the aggregate
purchase price of the Common Stock acquired by the ESOP. The loan to the ESOP
will be repaid principally from the Stock Company's and the Bank's contributions
to the ESOP over a period of not less than 10 years, and the collateral for the
loan will be the Common Stock purchased by the ESOP. The interest rate for the
ESOP loan is expected to be ______. The Stock Company may, in any plan year,
make additional discretionary contributions for the benefit of plan participants
in either cash or shares of Common Stock, which may be acquired through the
purchase of outstanding shares in the market or from individual stockholders,
upon the original issuance of additional shares by the Stock Company or upon the
sale of treasury shares by the Stock Company. Such purchases, if made, would be
funded through additional borrowings by the ESOP or additional contributions
from the Stock Company. The timing, amount and manner of future contributions to
the ESOP will be affected by various factors, including prevailing regulatory
policies, the requirements of applicable laws and regulations and market
conditions.
Shares purchased by the ESOP with the proceeds of the loan
will be held in a suspense account and released to participants on a pro rata
basis as debt service payments are made. Shares released from the ESOP will be
allocated to each eligible participant's ESOP account based on the ratio of each
such participant's compensation to the total compensation of all eligible ESOP
participants. Forfeitures will be reallocated among remaining participating
employees and may reduce any amount the Stock Company might otherwise have
contributed to the ESOP. Upon the completion of [seven] years of service, the
account balances of participants within the ESOP will
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become 100% vested. Credit is given for years of service with the Bank prior to
adoption of the ESOP. In the case of a "change in control," as defined, however,
participants will become immediately fully vested in their account balances.
Benefits may be payable upon retirement or separation from service. The Stock
Company's contributions to the ESOP are not fixed, so benefits payable under the
ESOP cannot be estimated.
Messrs. Kreis and Hillick will serve as trustees of the ESOP.
Under the ESOP, the trustees must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees, and unallocated
shares will be voted in the same ratio on any matter as those allocated shares
for which instructions are given.
See "Risk Factors - Potential Increased Compensation Expense
After the Reorganization" for discussion which addresses compensation expense to
be incurred as a result of the ESOP.
GAAP requires that any third party borrowing by the ESOP be
reflected as a liability on the Stock Company's statement of financial
condition. Since the ESOP is borrowing from the Stock Company, such obligation
is not treated as a liability, but will be excluded from stockholders' equity.
If the ESOP purchases newly issued shares from the Stock Company, total
stockholders' equity would neither increase nor decrease, but per share
stockholders' equity and per share net earnings would decrease as the newly
issued shares are allocated to the ESOP participants.
The ESOP will be subject to the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and the
regulations of the IRS and the Department of Labor thereunder.
Stock Option Plan. If the Merger is not consummated within six
months following consummation of the Reorganization and Offering, the Board of
Directors of the Stock Company intends to adopt a Stock Option Plan, which will
be designed to attract and retain qualified personnel in key positions, provide
directors, officers and key employees with a proprietary interest in the Stock
Company as an incentive to contribute to the success of the Stock Company and
reward key employees for outstanding performance. The Stock Option Plan will
provide for the grant of incentive stock options intended to comply with the
requirements of Section 422 of the Code ("incentive stock options"),
non-incentive or compensatory stock options, stock appreciation rights and
limited rights which will be exercisable only upon a change in control of the
Stock Company or the Bank (collectively "Awards"). Awards may be granted to
directors and key employees of the Stock Company and any subsidiaries. The Stock
Option Plan will be administered and interpreted by a committee of the Board of
Directors ("Committee"). Unless sooner terminated, the Stock Option Plan shall
continue in effect for a period of 10 years from the date the Stock Option Plan
is adopted by the Board of Directors. Subject to any applicable Department and
FDIC regulations, upon exercise of "Limited Rights" in the event of a change in
control, the employee will be entitled to receive a lump sum cash payment equal
to the difference between the exercise price of the related option and the fair
market value of the shares of common stock subject to the option on the date of
exercise of the right in lieu of purchasing the stock underlying the option.
Under the Stock Option Plan, the Committee will determine
which directors, officers and key employees will be granted Awards, whether
options will be incentive or compensatory options, the number of shares subject
to each Award, the exercise price of each option, whether
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options may be exercised by delivering other shares of Common Stock and when
such options become exercisable. The per share exercise price of an incentive
stock option must at least equal the fair market value of a share of Common
Stock on the date the option is granted (110% of fair market value in the case
of incentive stock options granted to employees who are 5% stockholders). The
granting or vesting of stock options may be conditioned upon the achievement of
individual or company-wide performance goals, which could include goals such as
the achievement by the Stock Company or the Bank of specified levels of net
income, asset growth, return on assets, return on equity or other specific
performance goals.
At a meeting of stockholders of the Stock Company following
the Reorganization, which under applicable FDIC and Department rules may be held
no earlier than six months after the completion of the Reorganization, the Board
of Directors intends to present the Stock Option Plan to stockholders for
approval and to reserve an amount equal to 10% of the shares of Common Stock
sold in the Offerings (or 63,480 shares based upon the issuance of 634,800
shares), for issuance under the Stock Option Plan. FDIC and Department rules
provide that, in the event such plan is implemented within the one year
following the Reorganization, no individual officer or employee of the Bank may
receive more than 25% of the options granted under the Stock Option Plan and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate, of the options granted under the Stock Option Plan. FDIC and
Department rules also provide that the exercise price of any options granted
under any such plan must be the fair market value of the Common Stock as of the
date of grant. Each stock option or portion thereof will be exercisable at any
time on or after it vests and will be exercisable until 10 years after its date
of grant or for periods of up to one year following the death, disability or
other termination of the optionee's employment or service as a director.
However, failure to exercise incentive stock options within three months after
the date on which the optionee's employment terminates may result in adverse tax
consequences to the optionee.
At the time an Award is granted pursuant to the Stock Option
Plan, the recipient will not be required to make any payment in consideration
for such grant. With respect to incentive or compensatory stock options, the
optionee will be required to pay the applicable exercise price at the time of
exercise in order to receive the underlying shares of Common Stock. The shares
reserved for issuance under the Stock Option Plan may be authorized but
previously unissued shares, treasury shares, or shares purchased by the Stock
Company on the open market or from private sources. In the event of a stock
split, reverse stock split or stock dividend, the number of shares of Common
Stock under the Stock Option Plan, the number of shares to which any Award
relates and the exercise price per share under any option or stock appreciation
right shall be adjusted to reflect such increase or decrease in the total number
of shares of Common Stock outstanding. In the event the Stock Company declares a
special cash dividend or return of capital following the implementation of the
Stock Option Plan in an amount per share which exceeds 10% of the fair market
value of a share of Common Stock as of the date of declaration, the per share
exercise price of all previously granted options which remain unexercised as of
the date of such declaration shall, subject to certain limitations, be
proportionately adjusted to give effect to such special cash dividend or return
of capital as of the date of payment of such special cash dividend or return of
capital.
Under current provisions of the Code, the federal income tax
treatment of incentive stock options and compensatory stock options is
different. As regards incentive stock options, an optionee who meets certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised, and a federal income tax
deduction generally
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will not be available to the Stock Company at any time as a result of such grant
or exercise. With respect to compensatory stock options, the difference between
the fair market value on the date of exercise and the option exercise price
generally will be treated as compensation income upon exercise, and the Stock
Company will be entitled to a deduction in the amount of income so recognized by
the optionee. Upon the exercise of a stock appreciation right, the holder will
realize income for federal income tax purposes equal to the amount received by
him, whether in cash, shares of stock or both, and the Stock Company will be
entitled to a deduction for federal income tax purposes in the same amount.
It is currently expected that the Stock Option Plan will
provide that no individual officer will be able to receive stock options for
more than 25% of the shares available under the Stock Option Plan, or 15,870
shares if the amount of Common Stock sold in the Reorganization is equal to the
maximum of the Estimated Offering Range, vesting over a five-year period (or
3,174 shares per year based upon the maximum of the Estimated Offering Range).
Recognition Plan. If the Merger is not consummated within six
months following consummation of the Reorganization and Offering, the Board of
Directors of the Stock Company intends to adopt a Recognition Plan for
directors, officers and employees. The objective of the Recognition Plan will be
to enable the Stock Company to provide directors, officers and employees with a
proprietary interest in the Stock Company as an incentive to contribute to its
success. The Stock Company intends to present the Recognition Plan to
stockholders for their approval at a meeting of stockholders which, pursuant to
applicable FDIC and Department rules, may be held no earlier than six months
subsequent to completion of the Reorganization.
The Recognition Plan will be administered by a committee of
the Board of Directors, which will have the responsibility to invest all funds
contributed to the trust created for the Recognition Plan (the "Trust"). The
Stock Company will contribute sufficient funds to the Trust so that the Trust
can purchase, following the receipt of stockholder approval, a number of shares
equal to an aggregate of 4% of the Common Stock sold in the Offering (25,392
shares based on the sale of 634,800 shares at the maximum of the Estimated
Offering Range). Based on the Purchase Price, the shares of Common Stock in the
Recognition Plan will have an aggregate value of $188,000 and $254,000 assuming
the sale of shares at the maximum and the maximum, as adjusted, of the Estimated
Offering Range. Shares of Common Stock granted pursuant to the Recognition Plan
generally will be in the form of restricted stock vesting at the rate of 20% per
year over the five years following the date of grant. For accounting purposes,
compensation expense in the amount of the fair market value of the Common Stock
at the date of the grant to the recipient will be recognized pro rata over the
period during which the shares are earned. A recipient will be entitled to all
voting and other stockholder rights, except that the shares, while restricted,
may not be sold, pledged or otherwise disposed of and are required to be held in
the Trust. Under the terms of the Recognition Plan, recipients of awards will be
entitled to instruct the trustee of the Recognition Plan as to how the
underlying shares should be voted, and the trustee will be entitled to vote all
unallocated shares in its discretion. If a recipient's employment is terminated
as a result of death or disability, all restrictions will expire and all
allocated shares will become unrestricted. The Board of Directors of the Stock
Company can terminate the Recognition Plan at any time, and if it does so, any
shares not allocated will revert to the Stock Company. Recipients of grants
under the Recognition Plan will not be required to make any payment at the time
of grant or when the underlying shares of Common Stock become vested, other than
payment of withholding taxes.
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The amount and timing of awards made to participants in the
Recognition Plan will be solely in the discretion of the committee of the Board
of Directors, subject to the limitations imposed by FDIC regulations. In making
grants under the Recognition Plan, it is expected that the committee will
consider factors such as the duties, responsibilities and performance of
participants, their past and anticipated future contributions to the growth and
success of the Bank, compensation levels and other factors as deemed
appropriate.
It is currently expected that the Recognition Plan will
provide that no individual officer will be able to receive an award for more
than 25% of the shares available under the Recognition Plan, or 6,348 shares if
the amount of Common Stock sold in the Reorganization and Offering is equal to
the maximum of the Estimated Offering Range, vesting over a five-year period (or
1,270 shares per year based upon the maximum of the Estimated Offering Range).
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of the Stock
Company's directors and for all of the directors and executive officers as a
group, the proposed purchases of Common Stock, assuming sufficient shares are
available to satisfy their subscriptions. The amounts include shares that may be
purchased through individual retirement accounts and by associates.
<TABLE>
<CAPTION>
At the Minimum of the Estimated At the Maximum of the
Offering Range Estimated Offering Range
--------------------------------------- ---------------------------------
As a Percent
Number of As a Percent of Number of of Shares
Name Amount Shares Shares Offered1 Shares Offered(1)
- --------------------------- ------------------ ----------------- ------------------- ------------------ -------------
<S> <C> <C> <C> <C> <C>
Michael R. Brower $50,000 5,000 1.1 5,000 *
Bruce P. Frassinelli 7,500 750 * 750 *
Paul J. Heins 5,000 500 * 500 *
Gregory J. Kreis 100,000 10,000 2.1 10,000 1.6
Paul W. Schneible 50,000 5,000 1.1 5,000 *
Bernard Shapiro 25,000 2,500 * 2,500 *
Carl K. Walrath 25,000 2,500 * 2,500 *
All directors and executive $262,500 26,250 5.6 26,250 4.1
officers as a group (seven
persons)
</TABLE>
- ----------------
(1) An asterisk indicates a percentage of shares offered of less than one
percent.
In addition, the ESOP currently intends to purchase 8% of the
Common Stock sold in the Offering for the benefit of officers and employees.
Stock options and stock grants may also be granted in the future to directors,
officers and employees upon the receipt of stockholder approval of the Stock
Company's proposed stock benefit plans. See "Management - Management of the Bank
- - Benefits" for a description of these plans.
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THE REORGANIZATION AND OFFERING
General
On December 17, 1998, the Board of Trustees of the Bank adopted the
Amended and Restated Plan of Reorganization from a Mutual Savings Bank to a
Mutual Holding Company and Plan of Stock Issuance, pursuant to which the Bank
will reorganize into the mutual holding company form of organization as a wholly
owned subsidiary of the Stock Company, which in turn will be a majority-owned
subsidiary of the MHC. Following receipt of all required regulatory approvals,
the approval of the depositors of the Bank entitled to vote on the Plan, and the
satisfaction of all other conditions precedent to the Reorganization, the Bank
will consummate the Reorganization. Following completion of the Reorganization,
the Bank in its stock form will continue to conduct its business and operations
from the same offices with the same personnel as the Bank conducted prior to the
Reorganization. The Reorganization will not affect the balances, interest rates
or other terms of the Bank's loans or deposit accounts, and the deposit accounts
will continue to be insured by the FDIC to the same extent as they were prior to
the Reorganization. The MHC initially will be capitalized with $100,000. Upon
consummation of the Reorganization, such capital will be used for general
corporate purposes.
Pursuant to the Plan of Reorganization, the Reorganization will be
effected as follows or in any other manner that is consistent with applicable
New York and federal law and regulations and the intent of the Plan:
(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 Stock Company as a wholly owned
subsidiary;
(iv) the Bank will convert its charter to a New York stock savings
bank charter and Interim One will convert its charter to a New
York mutual holding company charter to become the MHC;
(v) simultaneously with step (iv), Interim Two will merge with and
into the Bank with the Bank as the resulting institution;
(vi) all of the initially issued stock of the Bank will be
transferred to the MHC in exchange for depositor interests in
the MHC;
(vii) the MHC will contribute the capital stock of the Bank to the
Stock Company, and the Bank will become a wholly owned
subsidiary of the Stock Company; and
(viii) contemporaneously with the Reorganization, the Stock Company
will sell a Minority Interest in shares of Common Stock in the
Offering.
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The Stock Company expects to receive the approval of the Federal
Reserve Board to become a bank holding company and to own all of the common
stock of the Bank. The Stock Company intends to contribute at least 50% of the
net proceeds of the Offering to the Bank. The Reorganization will be effected
only upon completion of the sale of all of the shares of Common Stock to be
issued pursuant to the Plan.
The discussion herein provides a brief summary of material aspects of
the Reorganization and Offering. The summary is qualified in its entirety by
reference to the provisions of the Plan. Copies of the Plan are available for
inspection at any office of the Bank and at the Department and the FDIC. The
Plan is also filed as an exhibit to the Registration Statement of which this
Prospectus is a part, copies of which may be obtained from the SEC. See
"Additional Information."
THE BOARD OF TRUSTEES OF THE BANK HAS ADOPTED, THE DEPARTMENT HAS
APPROVED AND THE FDIC HAS NOT OBJECTED TO THE PLAN SUBJECT TO APPROVAL BY THE
DEPOSITORS OF THE BANK ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. SUCH DEPARTMENT AND FDIC ACTIONS, HOWEVER, DO NOT
CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN BY SUCH AGENCIES.
Purposes of the Reorganization
As a mutual institution, the Bank has no authority to issue shares of
capital stock and consequently has no access to market sources of equity
capital. Only by generating and retaining earnings from year to year is the Bank
able to enhance its capital position.
As a stock corporation upon consummation of the Reorganization, the
Bank will be organized in the form used by commercial banks and corporations and
by an increasing number of savings associations. The ability to raise new equity
capital through the issuance and sale of the Bank's capital stock will allow the
Bank the flexibility to enhance its capital position more rapidly than by
accumulating earnings and at times deemed advantageous by the Board of Directors
of the Bank, thereby supporting future growth and expanded operations (including
increased lending and investment activities) as business and regulatory needs
dictate. The ability to attract new capital also will assist in increasing the
capabilities of the Bank to address the needs of the communities it serves and
enhance its ability to effect acquisitions or pursue business diversification
opportunities. Thus, whereas the acquisition alternatives available to the Bank
are quite limited as a mutual institution (because of the regulatory policy that
the surviving institution in a merger involving a mutual institution generally
must be in mutual form), upon consummation of the Reorganization the Bank will
have increased ability to merge with other mutual and stock institutions and the
Stock Company may acquire control of other mutual or stock savings associations
and retain the acquired association as a separate subsidiary of the Stock
Company. Finally, the ability to issue capital stock will enable the Bank to
establish stock compensation plans for directors, officers and employees,
thereby granting them equity interests in the Bank and greater incentive to
improve its performance. For a description of the stock compensation plans which
will be adopted by the Bank in connection with the Reorganization, see
"Management." Although the Bank's ability to raise capital and general business
flexibility will be enhanced by organizing as a subsidiary of a stock subsidiary
of a mutual holding company, such advantages will be limited by (i) the
requirement in applicable laws and regulations that a mutual holding company
maintain a majority ownership interest in its savings association holding
company subsidiary and (ii) the Stock Company's proposed offering of up to
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approximately ___% of its to-be-outstanding Common Stock (prior to the proposed
issuance of shares to the Foundation), which will affect the Stock Company's
ability to issue additional shares of Common Stock in the future absent
additional issuances of such stock to the MHC.
The foregoing advantages of the Reorganization also could be achieved
if the Bank were to reorganize into a wholly owned subsidiary of a stock form
holding company (a "standard conversion") rather than as a second-tier
subsidiary of a mutual holding company. A standard conversion also would free
the Bank from the restrictions on its ability to raise capital which result from
the requirement that its mutual holding company maintain a majority ownership
interest in the Stock Company. Nevertheless, the Board of Trustees of the Bank
unanimously believes that the Reorganization is in the best interests of the
Bank and its account holders. Because FDIC and Department regulations require
that savings institutions converting to stock form in a standard conversion sell
all of their to-be-outstanding capital stock rather than a minority interest in
such capital stock, however, the amount of equity capital that would be raised
in a standard conversion would be substantially more than that which could be
raised in a minority stock offering by a subsidiary of a mutual holding company,
which would make it more difficult for the Bank to maximize the return on its
equity. Finally, such a reorganization also would eliminate all aspects of the
mutual form of organization. Consummation of the Reorganization does not
foreclose the possibility of the MHC converting from mutual to stock form in the
future; however, no such action is contemplated at this time. See "-Conversion
of the MHC to Stock Form."
After considering the foregoing advantages and disadvantages of the
Reorganization, as well as applicable fiduciary duties and alternative
transactions, including a reorganization into a wholly owned subsidiary of a
stock form holding company rather than as a second-tier subsidiary of a mutual
holding company, the Board of Trustees of the Bank unanimously determined that
the Reorganization is in the best interests of the Bank and equitable to its
depositors.
Effects of the Reorganization
General. The Reorganization will have no effect on the Bank's present
business of accepting deposits and investing its funds in loans and other
investments permitted by law. The Reorganization will not result in any change
in the existing services provided to depositors and borrowers, or in existing
offices, management and staff. The Bank will continue to be subject to
regulation, supervision and examination by the Department and the FDIC.
Deposits and Loans. Each holder of a deposit account in the Bank at the
time of the Reorganization will continue as an account holder in the Bank after
the Reorganization, and the Reorganization will not affect the deposit balance,
interest rate or other terms of such accounts. Each such account will be insured
by the FDIC to the same extent as before the Reorganization. Depositors in the
Bank will continue to hold their existing certificates, passbooks and other
evidence of their accounts. The Reorganization will not affect the loans of any
borrower from the Bank. The amount, interest rate, maturity, security for and
obligations under each loan will remain contractually fixed as they existed
prior to the Reorganization. See "- Voting Rights" and "- Liquidation Rights"
below for a discussion of the effects of the Reorganization on the voting and
liquidation rights of the depositors of the Bank.
Continuity. During the Reorganization and Offering process, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. Following
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consummation of the Reorganization and Offering, the Bank will continue to be
subject to regulation by the FDIC and Department, and FDIC insurance of accounts
will continue without interruption. After the Reorganization and Offering, the
Bank will continue to provide services for depositors and borrowers under
current policies and by its present management and staff.
The Board of Trustees currently serving the Bank will serve as the
Board of Directors of the Bank after the Reorganization and Offering. The Board
of Directors of the Stock Company will consist of the individuals currently
serving on the Board of Trustees of the Bank. All current officers of the Bank
will retain their positions with the Bank after the Reorganization and Offering.
Voting Rights. Subsequent to the Reorganization and Offering, voting
rights will be vested exclusively in the stockholders of the Stock Company
which, in turn, will own all of the stock of the Bank. Each holder of Common
Stock shall be entitled to vote on any matter to be considered by the
stockholders of the Stock Company, subject to the provisions of the Stock
Company's Certificate of Incorporation. Depositors in the Bank will continue to
hold limited voting rights to vote on a mutual-to-stock transaction through
their interest in the MHC.
As a New York-chartered mutual holding company, the MHC will have no
authorized capital stock and, thus, no stockholders. The Plan provides for the
governing authority of the MHC to be held by the self-perpetuating appointed
Board of Directors of the MHC. Accordingly, the Board of Directors of the MHC
will, in effect, be able to govern the operations of the MHC, and hence the
Stock Company, notwithstanding objections raised by stockholders of the Stock
Company.
Liquidation Rights.
In the event of a voluntary liquidation of the Bank prior to the
Reorganization, holders of deposit accounts in the Bank would be entitled to
distribution of any assets of the Bank remaining after the claims of such
depositors (to the extent of their deposit balances) and all other creditors are
satisfied. Following the Reorganization, the holder of the Common Stock, would
be entitled to any assets remaining upon a liquidation, dissolution or
winding-up of the Bank and, except through their liquidation interests in the
MHC, discussed below, holders of deposit accounts in the Bank would have not
interest in any such assets.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the MHC following consummation of the Reorganization, holders of
deposit accounts in the Bank would be entitled, pro rata to the value of their
accounts, to distribution of any assets of the MHC remaining after the claims of
all creditors of the MHC are satisfied. Stockholders of the Stock Company will
have no liquidation or other rights with respect to the MHC unless they are also
depositors of the Bank.
There currently are no plans to liquidate the Bank, the Stock Company
or the MHC in the future.
Tax Effects. The Bank has received an opinion from its special counsel,
Elias, Matz, Tiernan & Herrick L.L.P., Washington, D.C., as to the material
federal income tax consequences of the Reorganization and Offering to the Bank,
the Stock Company and the MHC, and as to the generally applicable material
federal income tax consequences of the Reorganization and Offering to the
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Bank's account holders and to persons who purchase Common Stock in the Offering.
In the following discussion, "Stock Bank" refers to the Bank after the
Reorganization and Offering.
The opinion provides that, among other things, (i) the Bank's adoption
of a charter in stock form (the "Bank Conversion") will qualify as a tax-free
reorganization under Section 368(a)(1)(F) of the Code; (ii) the conversion of
the Bank's wholly owned subsidiary ("Interim 1") into the MHC will qualify as a
tax-free reorganization under Code Section 368(a)(1)(F); (iii) the merger of the
wholly owned subsidiary of Interim 1 ("Interim 2") into the Stock Bank with the
Stock Bank as the survivor will qualify as a tax-free reorganization under Code
Section 368(a)(1)(A); (iv) no gain or loss will be recognized by the Bank in the
Bank Conversion; (v) neither the Stock Bank nor the MHC will recognize gain or
loss upon the receipt by the Stock Bank of substantially all of the assets of
the Bank in exchange for equity interests in the MHC and the Stock Bank's
assumption of the Bank's liabilities;(vi) the MHC's basis in the stock of the
Stock Bank will increase by an amount equal to the Bank's net basis in the
property transferred to the Stock Bank; (vii) the Stock Bank's basis in the
property received from the Bank will be the same as the basis of such property
in the hands of the Bank immediately prior to the Reorganization and Offering;
(viii) the Stock Bank's holding period for the property received from the Bank
will include the period during which such property was held by the Bank; (ix)
subject to the conditions and limitations set forth in Code Sections 381, 382,
383, and 384 and the Treasury regulations promulgated thereunder, the Stock Bank
will succeed to and take into account the items of the Bank described in Code
Section 381(c); (x) no gain or loss will be recognized by the depositors of the
Bank on the receipt of equity interests with respect to the MHC in exchange for
their equity interests surrendered therefor; (xi) the exchange of stock by
depositors in exchange for equity interests in the MHC will constitute a
tax-free exchange of property solely for voting "stock" pursuant to Code Section
351; (xii) each Bank depositor's aggregate basis, if any, in the MHC equity
interest received in the exchange will equal the aggregate basis, if any, of
each depositor's equity interest in the Bank; (xiii) the holding period of the
MHC equity interests received by the depositors of Bank will include the period
during which the Bank equity interests surrendered in exchange therefor were
held; (xiv) the MHC will recognize no gain or loss upon the transfer of the
Stock Bank stock to the Stock Company in exchange for Common Stock pursuant to
Code Section 351; (xv) the Stock Company will recognize no gain or loss upon its
receipt of Stock Bank stock from the MHC in exchange for Common Stock; (xvi) the
MHC will increase its basis in its shares of the Common Stock by the MHC's basis
in its Stock Bank stock; (xvii) the Stock Company will recognize no gain or loss
upon the receipt of money in exchange for shares of Common Stock; (xviii) no
gain or loss will be recognized by the Bank's account holders upon the issuance
to them of accounts in the Stock Bank in stock form immediately after the
Reorganization and Offering, in the same dollar amounts and on the same terms
and conditions as their accounts at the Bank immediately prior to the
Reorganization and Offering; (xix) the tax basis of the Common Stock purchased
in the Reorganization and Offering will be equal to the amount paid therefor
increased, in the case of the Common Stock acquired to the exercise of
Subscription Rights, by the fair market value, if any, of the Subscription
Rights exercised; (xx) the holding period for the Common Stock purchased in the
Reorganization and Offering will commence upon the exercise of such holder's
Subscription Rights and otherwise on the day following the date of such
purchase; (xxi) gain or loss will be recognized to account holders upon the
receipt or exercise of Subscription Rights in the Reorganization and Offering,
but only to the extent such Subscription Rights are deemed to have value, as
discussed below.
The opinion of Elias, Matz, Tiernan & Herrick L.L.P. is based in part
upon, and subject to the continuing validity in all material respects through
the date of the Reorganization and Offering
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of various representations of the Bank and upon certain assumptions and
qualifications, including that the Reorganization and Offering are consummated
in the manner and according to the terms provided in the Plan of Reorganization
and Plan of Stock Issuance. Such opinion is also based upon the Code,
regulations now in effect or proposed thereunder, current administrative rulings
and practice and judicial authority, all of which are subject to change and such
change may be made with retroactive effect. Unlike private letter rulings
received from the Internal Revenue Service ("IRS"), an opinion is not binding
upon the IRS and there can be no assurance that the IRS will not take a position
contrary to the positions reflected in such opinion, or that such opinion will
be upheld by the courts if challenged by the IRS.
The Bank has also obtained an opinion from KPMG Peat Marwick LLP that
the income tax effects of the Reorganization and Offering under New York tax
laws will be substantially the same as described above with respect to federal
income tax laws.
The Stock Company and the Bank have received a letter from RP Financial
stating its belief that the subscription rights do not have any value, based on
the fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients the right only
to purchase the Common Stock at a price equal to its estimated fair market
value, which will be the same price as the Purchase Price for the unsubscribed
shares of Common Stock. If the subscription rights granted to eligible
subscribers are deemed to have an ascertainable value, receipt of such rights
would be taxable probably only to those eligible subscribers who exercise the
subscription rights (either as a capital gain or ordinary income) in an amount
equal to such value, and the Stock Company and the Bank could recognize gain on
such distribution. Eligible subscribers are encouraged to consult with their own
tax advisor as to the tax consequences in the event that such subscription
rights are deemed to have an ascertainable value. Unlike private rulings, the
letter of RP Financial is not binding on the IRS, and the IRS could disagree
with conclusions reached therein. In the event of such disagreement, there can
be no assurance that the IRS would not prevail in a judicial or administrative
proceeding.
Establishment of the Foundation
General. In furtherance of the Bank's commitment to the communities
that it serves, the Plan provides that the Bank and the Stock Company will
establish the Foundation, which will be incorporated under Delaware law as a
non-stock corporation, and will fund the Foundation with Common Stock of the
Stock Company. By further enhancing the Bank's visibility and reputation in the
communities that it serves, the Bank believes that the Foundation will enhance
the long-term value of the Bank's community banking franchise. The Foundation
will be dedicated to charitable purposes within the communities served by the
Bank, including community development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities.
Traditionally, the Bank has emphasized community lending and community
development activities within the communities that it serves. The Foundation is
being formed as a complement to the Bank's existing community activities, not as
a replacement for such activities. While the Bank intends to continue to
emphasize community lending and community development activities following the
Reorganization, such activities are not the Bank's sole corporate purpose. The
Foundation, conversely, will be completely dedicated to community activities and
the promotion of charitable causes, and may be able to support such activities
in ways that are not currently available to the Bank. The Bank believes that the
Foundation
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will enable the Stock Company and the Bank to assist their local community in
areas beyond community development and lending. The Bank believes the
establishment of the Foundation will enhance its activities under the CRA. In
this regard, the Board of Directors believes the establishment of a charitable
foundation is consistent with the Bank's commitment to community service. The
Board further believes that the funding of the Foundation with Common Stock of
the Stock Company is a means of enabling the communities served by the Bank to
share in the growth and success of the Stock Company long after completion of
the Reorganization and Offering. The Foundation will accomplish that goal by
providing for continued ties between the Foundation and Bank, thereby forming a
partnership with the Bank's community. The establishment of the Foundation will
also enable the Stock Company and the Bank to develop a unified charitable
donation strategy and will centralize the responsibility for administration and
allocation of corporate charitable funds. Charitable foundations have been
formed by other financial institutions for this purpose, among others. The Bank,
however, does not expect the contribution to the Foundation to take the place of
the Bank's traditional community lending activities. In this respect, subsequent
to the Reorganization and Offering the Bank may continue to make contributions
to other charitable organizations and/or it may make additional contributions to
the Foundation.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's Bylaws,
the Foundation's initial Board of Directors will be comprised of two members of
the Stock Company's and the Bank's Boards of Directors (Messrs. ______ and
_______) and four other individuals chosen in light of their commitment and
service to charitable and community purposes. The other persons expected to
serve as directors of the Foundation are ________________, none of whom is
affiliated with the Stock Company or the Bank. There are no plans to change the
size of the Foundation's Board of Directors during the one-year period
subsequent to consummation of the Reorganization. The Bank currently intends
that, for at least the three-year period subsequent to consummation of the
Reorganization, less than a majority of the Bank's directors will also serve as
directors of the Foundation. A Nominating Committee of the Foundation's Board
will nominate individuals eligible for election to the Board of Directors. The
members of the Foundation, who are comprised of its Board members, will elect
the Directors at the annual meeting of the Foundation from those nominated by
the Nominating Committee. Only persons serving as Directors of the Foundation
qualify as members of the Foundation, with voting authority. Directors will be
divided into three classes with each class appointed for three-year terms. It is
not anticipated that the members of the Stock Company's and the Bank's Boards of
Directors who also serve as a director of the Foundation will receive any
additional compensation for serving as a director of the Foundation. No
determination has been made at this point what, if any, compensation the other
Foundation directors will receive. The certificate of incorporation of the
Foundation provides that the corporation is organized exclusively for charitable
purposes, including community development, as set forth in Section 501(c)(3) of
the Code. The Foundation's certificate of incorporation further provides that no
part of the net earnings of the Foundation will inure to the benefit of, or be
distributable to its directors, officers or members. No award, grant or
distribution shall be made by the Foundation to any director, officer or
employee of the Stock Company or the Bank or any affiliate thereof. In addition,
any of such persons, to the extent that they serve as an officer, director or
employee of the Foundation will be subject to the conflict of interest rules of
the FDIC and the Department.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for
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which the Foundation was established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's Board of Directors will
adopt such a policy upon establishment of the Foundation. As directors of a
nonprofit corporation, directors of the Foundation will at all times be bound by
their fiduciary duty to advance the Foundation's charitable goals, to protect
the assets of the Foundation and to act in a manner consistent with the
charitable purpose for which the Foundation is established. The directors of the
Foundation will also be responsible for directing the activities of the
Foundation, including the management of the Common Stock of the Stock Company
held by the Foundation. However, it is expected that as a condition to receiving
the approval of the FDIC to the Bank's Reorganization and Offering, that the
Foundation will be required to commit to the FDIC that all shares of Common
Stock held by the Foundation will be voted in the same ratio as all other shares
of the Stock Company's Common Stock on all proposals considered by stockholders
of the Stock Company; provided, however, that, consistent with such expected
condition, the FDIC would waive this voting restriction under certain
circumstances if compliance with the voting restriction would: (i) cause a
violation of the law of the State of Delaware and the FDIC determines that
federal law would not preempt the application of the laws of Delaware to the
Foundation; (ii) would cause the Foundation to lose its tax-exempt status, or
cause the IRS to deny the Foundation's request for a determination that it is an
exempt organization or otherwise have a material and adverse tax consequence on
the Foundation; or (iii) would cause the Foundation to be subject to an excise
tax under Section 4941 of the Code. In order for the FDIC to waive such voting
restriction, the Stock Company's or the Foundation's legal counsel would be
required to render an opinion satisfactory to the FDIC that compliance with the
voting requirement would have the effect described in clauses (I), (ii) or (iii)
above. Under those circumstances, the FDIC would grant a waiver of the voting
restriction upon submission of such legal opinions(s) by the Stock Company or
the Foundation that are satisfactory to the FDIC. In the event that the FDIC
were to waive the voting requirement, the Directors would direct the voting of
the Common Stock held by the Foundation.
The Foundation's place of business is expected to initially be located
at the Bank's administrative offices and initially the Foundation is expected
initially to have no separate employees but will utilize the members of the
staff of the Stock Company or the Bank. The Board of Directors of the Foundation
will appoint such officers as may be necessary to manage the operations of the
Foundation. 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
Foundation.
The Stock Company intends to capitalize the Foundation with the number
of shares equal to 4.0% of the shares of Common Stock of the Stock Company sold
in the Offering which would have a market value of $188,000 to $254,000
($292,000 at the maximum, as adjusted), based on the Purchase Price of $10.00
per share. Messrs. ___________, who will serve as initial directors of the
Foundation, and their affiliates intend to purchase, subject to availability, an
aggregate of ______ shares of Common Stock. No other director of the Foundation
expects to purchase any shares of Common Stock. The shares of Common Stock to be
acquired by the Foundation, when combined with the proposed purchases of shares
of Common Stock by Messrs. __________ and their affiliates will total _____
shares or ____% of the total number of shares of Common Stock to be issued and
outstanding (assuming the sale of ______ shares of Common Stock).
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The Stock Company and the Bank determined to fund the Foundation with
Common Stock rather than cash because it desired to form a bond with the
communities the Bank serves in a manner that would allow such communities to
share in the growth and success of the Stock Company and the Bank over the long
term. The funding of the Foundation with stock also provides the Foundation with
a potentially larger endowment than if the Stock Company contributed cash to the
Foundation since, as a stockholder, the Foundation will share in the growth and
success of the Stock Company. As such, the contribution of Common Stock to the
Foundation has the potential to provide a self-sustaining funding mechanism
which reduces the amount of cash that the Stock Company, if it were not making
the stock donation, would have to contribute to the Foundation in future years
in order to maintain a level amount of charitable grants and donations. Because
the MHC is deemed to be a "disqualified person" (as defined under the Code), in
order to avoid certain excise tax provisions, which could be significant, the
Foundation may not own more than 2.0% of the issued and outstanding shares of
Common Stock. The Bank considered such excise tax provisions and determined that
it would be prudent to ensure that the initial contribution of Common Stock to
the Foundation be within the 2.0% safe-harbor provided by the Code. The Bank
anticipates that the Bank and the Foundation will monitor the Foundation's
ownership interest in Common Stock and will take actions as may be appropriate
in order to ensure continued compliance with the safe-harbor.
The Foundation will receive working capital from any dividends that may
be paid on the Common Stock in the future, and subject to applicable federal and
state laws, loans collateralized by the Common Stock or from the proceeds of the
sale of any of the Common Stock in the open market from time to time as may be
permitted to provide the Foundation with additional liquidity. As a private
foundation under Section 501(c)(3) of the Code, the Foundation will be required
to distribute annually in grants or donations, a minimum of 5% of the average
fair market value of its net investment assets. One of the conditions imposed on
the gift of Common Stock by the Stock Company is that the amount of Common Stock
that may be sold by the Foundation in any one year shall not exceed 5% of the
average market value of the assets held by the Foundation, except where the
Board of Directors of the Foundation determines that the failure to sell an
amount of Common Stock greater than such amount would result in a longer-term
reduction of the value of the Foundation's assets and as such would jeopardize
the Foundation's capacity to carry out its charitable purposes. Upon completion
of the Reorganization and the Offering and the contribution of shares of Common
Stock to the Foundation, the Stock Company would have 1,038,768, 1,222,080,
1,405,392 and 1,616,201 shares issued and outstanding based on the minimum,
midpoint and maximum of the Estimated Offering Range. Because the Stock Company
will have an increased number of shares outstanding, the voting and ownership
interests of Minority Stockholders in the Stock Company's Common Stock would be
diluted to 45.2% as compared to a 46.0% interest in the Stock Company if the
Foundation was not established. For additional discussion of the dilutive
effect, see "Pro Forma Data."
Tax Considerations. The Stock Company and the Bank have been advised by
their independent tax advisors that an organization created and operated for the
above charitable purposes would generally qualify as a Section 501(c)(3) exempt
organization under the Code, and further that such an organization would likely
be classified as a private foundation. This opinion presumes that the Foundation
will submit a timely request to the IRS to be recognized as an exempt
organization. As long as the Foundation files its application for recognition of
tax-exempt status within 15 months from the date of its organization, and
provided the IRS approves the application, the effective date of the
Foundation's status as a Section 501(c)(3) organization will be the date of its
organization. The Stock Company's and the Bank's independent tax advisor,
however, has not rendered any advice
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on the regulatory condition to the contribution which requires that all shares
of Common Stock of the Stock Company held by the Foundation must be voted in the
same ratio as all other outstanding shares of Common Stock of the Stock Company
on all proposals considered by stockholders of the Stock Company. Consistent
with the expected condition, in the event that the Stock Company or the
Foundation receives an opinion of its legal counsel that compliance with this
voting restriction would have the effect of causing the Foundation to lose its
tax-exempt status or otherwise have a material and adverse tax consequence on
the Foundation, or subject the Foundation to an excise tax under Section 4941 of
the Code, it is expected that the FDIC would waive such voting restriction upon
submission of a legal opinion(s) by the Stock Company or the Foundation
satisfactory to the FDIC. See "- Regulatory Conditions Imposed on the
Foundation."
Under Delaware law, the Stock Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Code, the Stock Company is generally allowed
a deduction for charitable contributions made to qualifying donees within the
taxable year of up to 10% of its taxable income (with certain modifications) for
such year. Charitable contributions made by the Stock Company in excess of the
annual deductible amount will be deductible over each of the five succeeding
taxable years, subject to certain limitations. The Stock Company and the Bank
believe that the Reorganization presents a unique opportunity to establish and
fund a charitable foundation given the substantial amount of additional capital
being raised in the Reorganization. In making such a determination, the Stock
Company and the Bank considered the dilutive impact of the contribution of
Common Stock to the Foundation on the amount of Common Stock available to be
offered for sale in the Offering. Based on such consideration, the Stock Company
and Bank believe that the contribution to the Foundation in excess of the 10%
annual deduction limitation is justified given the Bank's capital position and
its earnings, the substantial additional capital being raised in the Offering
and the potential benefits of the Foundation to the communities served by the
Bank. In this regard, assuming the sale of shares at the maximum of the
Estimated Offering Range, the Stock Company would have pro forma stockholders'
equity of $_____ million or ___% of pro forma consolidated assets and the Bank's
pro forma tangible, core and total risk-based capital ratios would be __%, __%
and __%, respectively. See "Regulatory Capital," "Capitalization," "Comparison
of Valuation and Pro Forma Information with No Foundation" and "Pro Forma Data."
The Stock Company and the Bank believe that the amount of the charitable
contribution is reasonable given the Stock Company's and the Bank's pro forma
capital positions. As such, the Stock Company and the Bank believe that the
contribution does not raise safety and soundness concerns.
The Stock Company and the Bank have received an opinion of their
independent tax advisors that the Stock Company's contribution of its own stock
to the Foundation would not constitute an act of self-dealing, and that the
Stock Company will be entitled to a deduction in the amount of the fair market
value of the stock at the time of the contribution less the nominal par value
that the Foundation is required to pay to the Stock Company for such stock,
subject to the annual deduction limitation described above. The Stock Company,
however, would be able to carry forward any unused portion of the deduction for
five years following the contribution, subject to certain limitations. The Stock
Company's and the Bank's independent tax advisor, however, has not rendered
advice as to fair market value for purposes of determining the amount of the tax
deduction. If the Foundation would have been established in fiscal 1997, the
Stock Company would have received tax benefit of approximately $_____ (based on
the Bank's pre-tax income for fiscal 1998,
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an assumed tax rate of 34.0% and a deduction for the contribution of Common
Stock equal to $_____). The Stock Company is permitted under the Code to carry
over the excess contribution over the five-year period following the
contribution to the Foundation. Assuming the close of the Offerings at the
maximum of the Estimated Price Range, the Stock Company estimates that all of
the contribution should be deductible over the six-year period. The Stock
Company and/or the Bank may make further contributions to the Foundation
following the initial contribution. In addition, the Bank and the Stock Company
also may continue to make charitable contributions to other qualifying
organizations. Any such decisions would be based on an assessment of, among
other factors, the financial condition of the Stock Company and the Bank at that
time, the interests of stockholders and depositors of the Stock Company and the
Bank, and the financial condition and operations of the Foundation.
Although the Stock Company and the Bank have received an opinion of
their independent tax advisors that the Stock Company is entitled to a deduction
for the charitable contribution, there can be no assurances that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that a
deduction for the charitable contribution will be allowed. In such event, the
Stock Company's tax benefit related to the contribution to the Foundation would
be expensed without tax benefit, resulting in a reduction in earnings in the
year in which the IRS makes such a determination. See "Risk
Factors-Establishment of the Foundation."
As a private 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 foundation will generally be subject
to a federal excise tax of 2.0%. The Foundation will be required to make an
annual filing with the IRS within four and one-half months after the close of
the Foundation's fiscal year to maintain its tax-exempt status. The Foundation
will be required to publish a notice that the annual information return will be
available for public inspection for a period of 180 days after the date of such
public notice. The information return for a private foundation must include,
among other things, an itemized list of all grants made or approved, showing the
amount of each grant, the recipient, any relationship between a grant recipient
and the Foundation's managers and a concise statement of the purpose of each
grant.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is expected to be subject to the following conditions being agreed to
by the Foundation in writing as a condition to receiving the FDIC' approval of
the Reorganization: (i) the Foundation will be subject to examination by the
FDIC; (ii) the Foundation must comply with supervisory directives imposed by the
FDIC; (iii) the Foundation will operate in accordance with written policies
adopted by its Board of Directors, including a conflict of interest policy; (iv)
any shares of Common Stock held by the Foundation must be voted in the same
ratio as all other shares of Common Stock voting on all proposals considered by
stockholders of the Stock Company; provided, however, that, consistent with the
condition, the FDIC would waive this voting restriction under certain
circumstances if compliance with the voting restriction would: (a) cause a
violation of the law of the State of Delaware, and the FDIC determines that
federal law would not preempt the application of the laws of Delaware to the
Foundation; (b) would cause the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation; or (c)
would cause the Foundation to be subject to an excise tax under Section 4941 of
the Code; and (v) any shares of Common Stock subsequently purchased by the
Foundation will be aggregated with any shares repurchased by the Stock Company
or the Bank for purposes of calculating the number of shares
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which may be repurchased during the three-year period subsequent to
Reorganization. In order for the FDIC to waive such voting restriction, the
Stock Company's or the Foundation's legal counsel would be required to render an
opinion satisfactory to the FDIC. While there is no current intention for the
Stock Company or the Foundation to seek a waiver from the FDIC from such
restrictions, there can be no assurances that a legal opinion addressing these
issues could be rendered, or if rendered, that the FDIC would grant an
unconditional waiver of the voting restriction. If the voting restriction is
waived or becomes unenforceable, the FDIC may either impose a condition that
provides a certain portion of the members of the Foundation's Board of Directors
shall be persons who are not directors, officers or employees of the Stock
Company, the Bank or any affiliate or impose such other conditions relating to
control of the Foundation's Common Stock as is determined by the FDIC to be
appropriate at the time. In no event would the voting restriction survive the
sale of shares of the Common Stock held by the Foundation.
Various FDIC regulations and policies may be deemed to apply to the
Foundation including regulations regarding (i) transactions with affiliates,
(ii) conflicts of interest, (iii) capital distributions and (iv) repurchases of
capital stock within the three-year period subsequent to the Offering. Because
only two of the directors of the Stock Company and the Bank are expected to
serve as a director of the Foundation, the Stock Company and the Bank do not
believe that the Foundation should be deemed an affiliate of the Bank. The Stock
Company and the Bank anticipate that the Foundation's affairs will be conducted
in a manner consistent with the FDIC' conflict of interest regulations. The Bank
has provided information to the FDIC demonstrating that the initial contribution
of Common Stock to the Foundation would be within the amount which the Bank
would be permitted to make as a capital distribution assuming such contribution
is deemed to have been made by the Bank.
Stock Pricing and Number of Shares to be Issued
The Plan requires that the purchase price of the Common Stock must be
based on the appraised pro forma market value of the Common Stock, as determined
on the basis of an independent valuation. The Bank has retained RP Financial to
make such valuation. For its services in making such appraisal, RP Financial's
fees and out-of-pocket expenses are estimated to be $42,500. The Bank has agreed
to indemnify RP Financial and any employees of RP Financial who act for or on
behalf of RP Financial in connection with the appraisal against any and all
loss, cost, damage, claim, liability or expense of any kind (including claims
under federal and state securities laws) arising out of any misstatement or
untrue statement of a material fact or an omission to state a material fact in
the information supplied by the Bank to RP Financial, unless RP Financial is
determined to be negligent or otherwise at fault.
An appraisal has been made by RP Financial in reliance upon the
information contained in this Prospectus, including the Financial Statements. RP
Financial also considered the following factors, among others: the present and
projected operating results and financial condition of the Stock Company and the
Bank and the economic and demographic conditions in the Bank's existing
marketing area; certain historical, financial and other information relating to
the Bank; a comparative evaluation of the operating and financial statistics of
the Bank with those of other similarly situated publicly traded mutual holding
companies located in New York and the Northeast region; the aggregate size of
the offering of the Common Stock; the impact of the Reorganization and Offering
on the Bank's net worth and earnings potential; the proposed dividend policy of
the Stock Company and the Bank; and the trading market for securities of
comparable institutions and general conditions
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in the market for such securities. In its review of the appraisal provided by RP
Financial, the Board of Directors reviewed the methodologies and the
appropriateness of the assumptions used by RP Financial in addition to the
factors enumerated above, and the Board of Trustees believes that such
assumptions were reasonable.
On the basis of the foregoing, RP Financial has advised the Stock
Company and the Bank that in its opinion, dated December 4, 1998, the estimated
pro forma market value of the Common Stock on a fully converted basis, assuming
a contribution to a charitable foundation in an amount equal to 4.0% of the
shares sold, ranged from a minimum of $4.9 million to a maximum of $6.6 million
with a midpoint of $5.7 million. The Board of Trustees of the Bank determined
that the Common Stock should be sold at $10.00 per share and that 46.0% of the
to-be-outstanding shares (prior to the contribution to the Foundation) should be
offered to Minority Stockholders. Based on the Estimated Valuation Range and the
Purchase Price, the number of shares of Common stock that the Stock Company will
issue will range from between 469,200 shares to 634,800 with a midpoint of
552,000 shares. The anticipated issuance an amount equal to 4% of the shares of
Common Stock sold in the Offering to the Foundation will result in shareholders
other than the MHC and the Foundation owning 45.2% of the shares of the Common
Stock outstanding at the conclusion of the Reorganization and Offering. The
remaining shares of the Stock Company's Common Stock that are not sold in the
Offering or contributed to the Foundation will be issued to the MHC. The
Estimated Valuation Range may be amended with the approval of the FDIC and
Superintendent, if required, or if necessitated by subsequent developments in
the financial condition of the Stock Company and the Bank or market conditions
generally. In the event the Estimated Valuation Range is updated to amend the
value of the Common Stock below $4.7 million or above $7.3 million (the maximum
of the Estimated Valuation Range, as adjusted by 15%), the new appraisal will be
filed with the Securities and Exchange Commission ("SEC") by post-effective
amendment.
Based upon current market and financial conditions and recent practices
and policies of the FDIC and the Department, in the event the Stock Company
receives orders for Common Stock in excess of $6.3 million (the maximum of the
Estimated Offering Range) and up to $7.3 million (the maximum of the Estimated
Offering Range, as adjusted by 15%), the Stock Company may be required by the
FDIC and Department to accept all such orders. No assurances, however, can be
made that the Stock Company will receive orders for Common Stock in excess of
the maximum of the Estimated Offering Range or that, if such orders are
received, that all such orders will be accepted because the Stock Company's
final valuation and number of shares to be issued are subject to the receipt of
an updated appraisal from RP Financial which reflects such an increase in the
valuation and the approval of such increase by the FDIC and Department. There is
no obligation or understanding on the part of management to take and/or pay for
any shares in order to complete the Reorganization and Offering.
RP Financial's valuation is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing such shares.
RP Financial did not independently verify the consolidated financial statements
and other information provided by the Bank, nor did RP Financial value
independently the assets or liabilities of the Bank. The valuation considers the
Bank as a going concern and should not be considered as an indication of the
liquidation value of the Bank. Moreover, because such valuation is necessarily
based upon estimates and projections of a number of matters, all of which are
subject to change from time to time, no assurance can be given that persons
purchasing Common Stock in the Offering will thereafter be able to sell such
shares at prices at or above
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the Purchase Price or in the range of the foregoing valuation of the pro forma
market value thereof.
Prior to completion of the Reorganization and Offering, the maximum of
the Estimated Offering Range may be increased up to 15% and the number of shares
of Common Stock may be increased to up to 730,020 shares to reflect changes in
market and financial conditions, without the resolicitation of subscribers. See
"- Limitations on Common Stock Purchases" as to the method of distribution and
allocation of additional shares that may be issued in the event of an increase
in the Estimated Offering Range to fill unfilled orders in the Subscription
Offering.
No sale of shares of Common Stock in the Reorganization and Offering
may be consummated unless prior to such consummation RP Financial confirms that
nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the Purchase Price is
materially incompatible with the estimate of the pro forma market value of a
share of Common Stock upon consummation of the Reorganization and Offering. If
such is not the case, a new Estimated Offering Range may be set and a new
Subscription and Community Offering and/or Syndicated Community Offering may be
held or such other action may be taken as the Stock Company and the Bank shall
determine and the FDIC and Department may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of Common
Stock may be increased or decreased without a resolicitation of subscribers,
provided that the product of the total number of shares times the Purchase Price
is not below the minimum or more than 15% above the maximum of the Estimated
Offering Range. In the event market or financial conditions change so as to
cause the aggregate Purchase Price of the shares to be below the minimum of the
Estimated Offering Range or more than 15% above the maximum of such range,
purchasers will be resolicited (i.e., permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscription funds
will be promptly refunded with interest at the Bank's passbook rate of interest,
or be permitted to modify or rescind their subscriptions). Any change in the
Estimated Offering Range must be approved by the FDIC and Department. If the
number of shares of Common Stock issued in the Reorganization is increased due
to an increase of up to 15% in the Estimated Offering Range to reflect changes
in market or financial conditions, persons who subscribed for the maximum number
of shares will be given the opportunity to subscribe for the adjusted maximum
number of shares. See "- Limitations on Common Stock Purchases."
An increase in the number of shares of Common Stock as a result of an
increase in the estimated pro forma market value would decrease both a
subscriber's ownership interest and the Stock Company's pro forma net income and
stockholders' equity on a per share basis while increasing pro forma net income
and stockholders' equity on an aggregate basis. A decrease in the number of
shares of Common Stock would increase both a subscriber's ownership interest and
the Stock Company's pro forma net income and stockholders' equity on a per share
basis while decreasing pro forma net income and stockholders' equity on an
aggregate basis. See "Pro Forma Data."
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Copies of the appraisal report of RP Financial, including any
amendments thereto, and the detailed report of the appraiser setting forth the
method and assumptions for such appraisal are available for inspection at the
main office of the Bank and the other locations specified under "Additional
Information."
Subscription Offering and Subscription Rights
In accordance with the Plan, rights to subscribe for the purchase of
Common Stock have been granted to the following persons in the following order
of descending priority: (1) Eligible Account Holders, (2) the ESOP, (3)
Supplemental Eligible Account Holders, and (4) directors, trustees, officers and
employees of the Bank. All subscriptions received will be subject to the
availability of Common Stock after satisfaction of all subscriptions of all
persons having prior rights in the Subscription Offering and to the maximum and
minimum purchase limitations set forth in the Plan and as described below under
"- Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of (i)
$150,000 (15,000 shares) of Common Stock, (ii) one- tenth of one percent (0.10%)
of the total offering of shares of Common Stock or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Common Stock to be issued by a fraction, of which the numerator is
the amount of the Eligible Account Holder's qualifying deposit and the
denominator of which is the total amount of qualifying deposits of all Eligible
Account Holders, in each case as of the close of business on) September 30, 1997
(the "Eligibility Record Date"), subject to the overall purchase limitations.
See "- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions, shares first will be allocated among subscribing Eligible Account
Holders so as to permit each such Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining after each subscribing Eligible Account Holder
has been allocated the lesser of the number of shares subscribed for or 100
shares will be allocated among the subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all subscribing Eligible Account Holders whose subscriptions remain unfilled,
provided that no fractional shares shall be issued.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in fewer shares being
allocated than if all accounts had been disclosed. The subscription rights of
Eligible Account Holders who are also trustees or officers of the Bank or their
associates will be subordinated to the subscription rights of other Eligible
Account Holders to the extent attributable to increased deposits in the year
preceding September 30, 1997.
Priority 2: Employee Stock Ownership Plan. The ESOP will receive,
without payment therefor, second priority, nontransferable subscription rights
to purchase, in the aggregate, up to 10% of the Common Stock, including any
increase in the number of shares of Common Stock after the date hereof as a
result of an increase of up to 15% in the maximum of the Estimated Offering
Range. The ESOP intends to purchase 8% of the shares of Common Stock sold in the
Offering, or 37,536
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shares and 50,784 shares based on the minimum and maximum of the Estimated
Offering Range, respectively. Subscriptions by the ESOP will not be aggregated
with shares of Common Stock purchased directly by or which are otherwise
attributable to any other participants in the Subscription and Community
Offerings, including subscriptions of any of the Bank's directors, officers,
employees or associates thereof. See "Management - Benefits - Employee Stock
Ownership Plan."
Priority 3: Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the ESOP, each Supplemental Eligible Account Holder
will receive, without payment therefor, third priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of (i) $150,000 (15,000shares) of Common Stock, (ii) one-tenth of one
percent (0.10%) of the total offering of shares of Common Stock or (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction, of which the numerator is the amount of the Supplemental Eligible
Account Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders, in
each case as of the close of business on December 31, 1998 (the "Supplemental
Eligibility Record Date"), subject to the overall purchase limitations. See
"- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions of all Supplemental Eligible Account Holders, available shares
first will be allocated among subscribing Supplemental Eligible Account Holders
so as to permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares sufficient to make his total allocation
equal to the lesser of the number of shares subscribed for or 100 shares.
Thereafter, any shares remaining available will be allocated among the
Supplemental Eligible Account Holders whose subscriptions remain unfilled in the
proportion that the amounts of their respective eligible deposits bear to the
total amount of eligible deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled, provided that no fractional
shares shall be issued.
Priority 4: Trustees, Directors, Officers and Employees. To the extent
that there are sufficient shares remaining after satisfaction of all
subscriptions by Eligible Account Holders, the ESOP and Supplemental Eligible
Account Holders, then trustees, directors, officers and employees of the Bank
will receive, without payment therefor, fourth priority, nontransferable
subscription rights to subscribe for, in this category, an aggregate of up to
15% of the shares of Common Stock offered in the Subscription Offering. The
ability of trustees, directors, officers and employees to purchase Common Stock
under this category is in addition to rights which are otherwise available to
them under the Plan as they may fall within higher priority categories, and the
Plan generally allows such persons to purchase in the aggregate up to 24% of
Common Stock sold in the Offering. See "- Limitations on Common Stock
Purchases."
In the event of an oversubscription in this category, subscription
rights will be allocated among the individual trustees, directors, officers and
employees on a point system basis, whereby such individuals will receive
subscription rights in the proportion that the number of points assigned to each
of them bears to the total points assigned to all trustees, directors, officers
and employees, provided that no fractional shares shall be issued. One point
will be assigned for each year of service with the Bank, one point for each
salary increment of $5,000 per annum and five points for each
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office presently held in the Bank, including directorships. For information as
to the number of shares proposed to be purchased by certain of the trustees,
directors and officers, see "Proposed Management Purchases."
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00, noon, Oswego, New York Time, on March __, 1999
(the "Subscription Expiration Date"), unless extended for up to 45 days or for
such additional periods by the Stock Company and the Bank as may be approved by
the FDIC and Department. The Subscription Offering may not be extended beyond
_________, 2001. Subscription rights which have not been exercised prior to the
Subscription Expiration Date (unless extended) will become void.
The Stock Company and the Bank will not execute orders until at least
the minimum number of shares of Common Stock (469,200 shares) have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the Subscription Expiration Date, unless such period
is extended with the consent of the FDIC and Department, all funds delivered to
the Bank pursuant to the Subscription Offering will be returned promptly to the
subscribers with interest and all withdrawal authorizations will be canceled. If
an extension beyond the 45-day period following the Subscription Expiration Date
is granted, the Stock Company and the Bank will notify subscribers of the
extension of time and of any rights of subscribers to modify or rescind their
subscriptions.
Community Offering
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the ESOP,
Supplemental Eligible Account Holders and trustees, directors, officers and
employees of the Bank, the Stock Company and the Bank anticipate that they will
offer shares pursuant to the Plan to certain members of the general public, with
preference given to natural persons residing in Oswego County, New York (such
natural persons referred to as "Preferred Subscribers"). Such persons, together
with associates of and persons acting in concert with such persons, may purchase
up to the greater of (i) $150,000 or 15,000 shares of Common Stock, or (ii)
one-tenth of one percent (0.10%) of the total offering of shares of Common
Stock, subject to the maximum purchase limitations. See "- Limitations on Common
Stock Purchases." This amount may be increased at the sole discretion of the
Bank up to 5% (provided that any such increased amount may not exceed the
maximum purchase limit provided to subscribers in the Subscription Offering. See
"- Limitations on Common Stock Purchases"). The opportunity to subscribe for
shares of Common Stock in any Community Offering category will be subject to the
right of the Stock Company and the Bank, in their sole discretion, to accept or
reject any such orders in whole or in part either at the time of receipt of an
order or as soon as practicable following the Expiration Date. The Community
Offering may be commenced at any time subsequent to the Subscription Offering.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Community Offering, such stock
will be allocated first to each Preferred Subscriber whose order is accepted by
the Stock Company, in an amount equal to the lesser of 100 shares or the number
of shares subscribed for by each such Preferred Subscriber, if possible.
Thereafter, unallocated shares will be allocated among the Preferred Subscribers
whose accepted orders remain unsatisfied on an equal number of shares basis per
order until all orders have been filled or the remaining shares have been
allocated, provided that no fractional shares shall be issued.
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Orders for Common Stock in the Community Offering will first be filled to a
maximum of [2%] of the total number of shares of Common Stock sold in the
Offering and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled. If there are
any shares remaining, shares will be allocated to other members of the general
public who subscribe in the Community Offering applying the same allocation
described above for Preferred Subscribers.
Syndicated Community Offering
As a final step in the Offering, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings may be offered for sale to the general public in a Syndicated
Community Offering through a syndicate of registered broker-dealers to be
formed. The Bank expects to market any shares which remain unsubscribed after
the Subscription and Community Offerings through a Syndicated Community
Offering. The Stock Company and the Bank have the right to reject orders in
whole or part in their sole discretion in the Syndicated Community Offering.
Neither FBR nor any registered broker-dealer shall have any obligation to take
or purchase any shares of Common Stock in the Syndicated Community Offering;
however, FBR has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be the same price at which shares are offered and sold in the
Subscription and Community Offerings. No person will be permitted to subscribe
in the Syndicated Community Offering for more than $150,000 or 15,000 shares of
Common Stock, subject to the maximum purchase limitations. See "Limitations on
Common Stock Purchases." This amount may be increased to up to 5% of the total
offering of shares in the Subscription Offering, provided that orders for Common
Stock in the Syndicated Community Offering will first be filled to a maximum of
2% of the total number of shares of Common Stock sold in the Offering.
Thereafter, any remaining shares will be allocated on an equal number of shares
basis per order until all orders have been filled.
FBR may enter into agreements with broker-dealers ("Selected Dealers")
to assist in the sale of the shares in the Syndicated Community Offering,
although no such agreements exist as of the date of this Prospectus. No orders
may be placed or filled by or for a Selected Dealer during the Subscription
Offering. After the close of the Subscription Offering, FBR will instruct
Selected Dealers as to the number of shares to be allocated to each Selected
Dealer. Only after the close of the Subscription Offering and upon allocation of
shares to Selected Dealers may Selected Dealers take orders from their
customers. During the Subscription and Community Offerings, Selected Dealers may
only solicit indications of interest from their customers to place orders with
the Stock Company as of a certain date ("Order Date") for the purchase of shares
of Common Stock. When, and if, FBR and the Bank believe that enough indications
of interest and orders have not been received in the Subscription and Community
Offerings to consummate the Reorganization, FBR will request, as of the Order
Date, Selected Dealers to submit orders to purchase shares for which they have
previously received indications of interest from their customers. Selected
Dealers will send confirmations of the orders to such customers on the next
business day after the Order Date. Selected Dealers will debit the accounts of
their customers on the "Settlement Date" which date will be three business days
from the Order Date. Customers who authorize Selected Dealers to debit their
brokerage accounts are required to have the funds for payment in their account
on but not before the Settlement Date. On the Settlement Date, Selected Dealers
will remit funds to the account established by the Bank for each Selected
Dealer. Each customer's funds so forwarded to the Bank,
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along with all other accounts held in the same title, will be insured by the
FDIC up to $100,000 in accordance with applicable FDIC regulations. After
payment has been received by the Bank from Selected Dealers, funds will earn
interest at the Bank's passbook rate until the consummation or termination of
the Reorganization. Funds will be promptly returned, with interest, in the event
the Reorganization is not consummated as described above.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Bank with the
approval of the FDIC and Department. See "- Stock Pricing and Number of Shares
to be Issued" above for a discussion of rights of subscribers, if any, in the
event an extension is granted.
Persons in Nonqualified States or Foreign Countries
The Bank will make reasonable efforts to comply with the securities
laws of all states in the United States in which persons entitled to subscribe
for stock pursuant to the Plan reside. However, the Bank is not required to
offer stock in the Subscription Offering to any person who resides in a foreign
country or resides in a state of the United States with respect to which: (a)
the number of persons otherwise eligible to subscribe for shares under the Plan
who reside in such jurisdiction is small; (b) the granting of subscription
rights or the offer or sale of shares of Common Stock to such persons would
require any of the Stock Company and the Bank or their officers, directors or
employees, under the laws of such jurisdiction, to register as a broker, dealer,
salesman or selling agent or to register or otherwise qualify its securities for
sale in such jurisdiction or to qualify as a foreign corporation or file a
consent to service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Bank would be impracticable or
unduly burdensome for reasons of cost or otherwise. Where the number of persons
eligible to subscribe for shares in one state is small, the Bank will base its
decision as to whether or not to offer the Common Stock in such state on a
number of factors, including but not limited to the size of accounts held by
account holders in the state, the cost of registering or qualifying the shares
or the need to register the Bank, its officers, directors or employees as
brokers, dealers or salesmen.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased in the Offering:
(1) No fewer than 25 shares of Common Stock may be purchased,
to the extent such shares are available;
(2) Each Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of (i) $150,00
or 15,000 shares of Common Stock, (ii) one-tenth of one percent (0.10%)
of the total offering of shares of Common Stock or (iii) 15 times the
product (rounded down to the next whole number) obtained by multiplying
the total number of shares of Common Stock to be issued by a fraction,
of which the numerator is the amount of the qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Eligible Account Holders, in each case as of
the close of business on the Eligibility Record Date, subject to the
overall limitation in clause (7) below;
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(3) The ESOP may purchase in the aggregate up to 10% of the
shares of Common Stock sold in the Stock Issuance, including any
additional shares issued in the event of an increase in the Estimated
Offering Range; although at this time it intends to purchase only 8% of
such shares;
(4) Each Supplemental Eligible Account Holder may subscribe
for and purchase in the Subscription Offering up to the greater of (i)
$150,00 or 15,000 shares of Common Stock, (ii) one-tenth of one percent
(0.10%) of the total offering of shares of Common Stock or (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by
a fraction, of which the numerator is the amount of the qualifying
deposit of the Supplemental Eligible Account Holder and the denominator
is the total amount of qualifying deposits of all Supplemental Eligible
Account Holders, in each case as of the close of business on the
Supplemental Eligibility Record Date, subject to the overall limitation
in clause (7) below;
(5) Any Person purchasing shares of Common Stock in the
Community Offering may subscribe for and purchase in the Subscription
Offering or Community Offering, as the case may be, up to the greater
of (i) $150,000 or 15,000 shares of Common Stock or (ii) one-tenth of
one percent (0.10%) of the total offering of shares of Common Stock,
subject to the overall limitation in clause (7) below;
(6) Persons purchasing shares of Common Stock in the Community
Offering or Syndicated Community Offering may purchase in the Community
Offering or Syndicated Community Offering up to $150,000 or 15,000
shares of Common Stock, subject to the overall limitation in clause (7)
below;
(7) Except for the ESOP and certain Eligible Account Holders
and Supplemental Eligible Account Holders whose subscription rights are
based upon the amount of their deposits, the maximum number of shares
of Common Stock subscribed for or purchased in all categories of the
Offering by any person, together with associates of and groups of
persons acting in concert with such persons, shall not exceed 5% of
Common Stock sold in Offering; and
(8) No more than 24% of the total number of shares offered for
sale in the Stock Issuance may be purchased by directors and officers
of the Bank and their associates in the aggregate, excluding purchases
by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Bank, the individual amount permitted to be subscribed for may be increased
up to a maximum of 5% of the number of shares sold in the Offering. If such
amount is increased, subscribers for the maximum amount will be, and certain
other large subscribers in the sole discretion of the Bank may be, given the
opportunity to increase their subscriptions up to the then applicable limit.
The term "associate" of a person is defined to mean (i) any corporation
or other organization (other than the Stock Company, MHC and the Bank or a
majority-owned subsidiary of the Bank) 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
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a substantial beneficial interest or as to which such person serves as trustee
or in a similar fiduciary capacity, provided, however, that such term shall not
include any tax-qualified employee stock benefit plan of the Stock Company and
the Bank in which such person has a substantial beneficial interest or serves as
a trustee or in a similar fiduciary capacity; and (iii) any relative or spouse
of such person, or any relative of such spouse, who either has the same home as
such person or who is a director or officer of the Bank or any of their
subsidiaries.
The term "acting in concert" is defined to mean (1) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement, or (2) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. The
Bank may presume that certain persons are acting in concert based upon, among
other things, joint account relationships and the fact that such persons have
filed joint Schedules 13D with the SEC with respect to other companies.
Marketing Arrangements
The Stock Company and the Bank have retained FBR to consult with and to
advise the Bank, and to assist the Stock Company, on a best efforts basis, in
the distribution of the shares of Common Stock in the Subscription and Community
Offering. The services that FBR will provide include, but are not limited to (i)
training the employees of the Bank who will perform certain ministerial
functions in the Subscription and Community Offering regarding the mechanics and
regulatory requirements of the stock offering process, (ii) managing the Stock
Center by assisting interested stock subscribers and by keeping records of all
stock orders, (iii) preparing marketing materials, and (iv) assisting in the
solicitation of proxies from the Bank's members for use at the Special Meeting.
For its services, FBR will receive a management fee of $20,000 and a marketing
fee of $100,000 of the aggregate Purchase Price of the shares of Common Stock
sold in the Subscription Offering and Community Offering excluding shares
purchased by the ESOP, and officers, directors and employees of the Bank and
members of their immediate families as well as shares issued to the Foundation.
The marketing fee paid to FBR will be reduced by the amount of the management
fee. In the event that selected dealers are used to assist in the sale of shares
of Common Stock in the Community Offering, such dealers will be paid a fee of up
to ___% a of the aggregate Purchase Price of the shares sold by such dealers.
The Bank has agreed to indemnify FBR against certain claims or liabilities,
including certain liabilities under the Securities Act, and will contribute to
payments FBR may be required to make in connection with any such claims or
liabilities.
Sales of shares of Common Stock will be made primarily by registered
representatives affiliated with FBR or by the broker-dealers managed by FBR. FBR
has undertaken that the shares of Common Stock will be sold in a manner which
will ensure that the distribution standards of the New York Stock Exchange
(round lots, public shares, and aggregate market value) will be met. A Stock
Center will be established at the main office of the Bank. The Stock Company
will rely on Rule 3a4-1 of the Exchange Act and sales of Common Stock will be
conducted within the requirements of such Rule, so as to permit officers,
directors and employees to participate in the sale of the Common Stock in those
states where the law so permits. No officer, trustees, director or employee of
the Stock Company or the Bank will be compensated directly or indirectly by the
payment of commissions or other remuneration in connection with his or her
participation in the sale of Common Stock.
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The Bank may utilize certain space in its offices for activities
related to the Offerings. FDIC and Department rules impose certain restrictions
on securities sales activities by the Stock Company or the Bank. Among other
requirements, if the offices of the Bank or any affiliate are utilized, no
commissions, bonuses, or payments may be made to employees (except standard
compensation to securities personnel of registered broker-dealers), no offers or
sales may be made by tellers or at the teller counter, sales activities must be
conducted in a segregated or separately identifiable area of the Bank's offices
apart from the area used by the general public for deposit activities and offers
and sales must be made only by regular, full-time Bank employees or securities
personnel who are subject to supervision by a registered broker-dealer. In
addition, subscribers must sign a certification form acknowledging that the
Common Stock is not federally insured or guaranteed and that he or she has
received a copy of this prospectus and understands the risks involved in
purchasing any shares of Common Stock. The Stock Company and the Bank will
comply with the above-described FDIC and Department rules as well as Federal and
state securities laws.
Procedure for Purchasing Shares in the Subscription Offering
To ensure that each purchaser receives a prospectus at least 48 hours
before the Subscription Expiration Date (unless extended) in accordance with
Rule 15c2-8 of the Exchange Act, no prospectus will be mailed any later than
five days prior to such date or hand delivered any later than two days prior to
such date. Execution of the Order Form will confirm receipt or delivery in
accordance with Rule 15c2-8. Order Forms will only be distributed with a
prospectus.
To purchase shares in the Subscription Offering, an executed order form
with the required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks in the order form), must be received
by the Bank by 12:00 noon, Oswego, New York Time, on the Subscription Expiration
Date (unless extended). In addition, the Stock Company and the Bank will require
a prospective purchaser to execute a certification in the form required by
applicable FDIC and Department regulations in connection with any sale of Common
Stock. Order Forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. In addition, the Bank will not
accept orders submitted on photocopied or facsimilied order forms nor order
forms unaccompanied by an executed certification form. The Bank has the right to
waive or permit the correction of incomplete or improperly executed forms, but
does not represent that it will do so. Once received, an executed order form may
not be modified, amended or rescinded without the consent of the Bank, unless
the Offering has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
In order to ensure that Eligible Account Holders and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priority, depositors as of the close of business on the Eligibility Record Date
(September 30, 1997) or the Supplemental Eligibility Record Date (December 31,
1998) must list all accounts on the stock order form giving all names in each
account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in
person, (ii) by check or money order or (iii) by authorization of withdrawal
from deposit accounts maintained with the Bank. No wire transfers will be
accepted. Interest will be paid on payments made by cash, check or money order
at the Bank's passbook rate of interest from the date payment is received until
completion or
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termination of the Offering. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Reorganization, but a hold will be placed on
such funds, thereby making them unavailable to the depositor until completion or
termination of the Offering.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the effective
date of the Offering. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
by it at the Purchase Price upon consummation of the Subscription and Community
Offerings, if all shares are sold, or upon consummation of the Syndicated
Community Offerings if shares remain to be sold in such offering, provided that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Stock Company to lend
to the ESOP, at such time, the aggregate Purchase Price of the shares for which
it subscribed.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of Common Stock in the Subscription and Community Offerings
provided such IRAs are not maintained at the Bank. ERISA provisions and IRS
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the Offerings make
such purchases for the exclusive benefit of the IRAs. Any interested parties
wishing to use IRA funds for stock purchases are advised to contact the Stock
Center at (315) ___-____ for additional information.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address as may be specified in properly
completed Order Forms, as soon as practicable following consummation of the
Offering. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the FDIC and Department rules and regulations, no person
with subscription rights may transfer or enter into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they are
granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. Federal regulations also prohibit any person from
offering or making an announcement of an offer or intent to make an offer to
purchase such subscription rights or shares of Common Stock prior to the
completion of the Offering.
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The Bank will refer to the FDIC and Department any situations that it
believes may involve a transfer of subscription rights and will not honor orders
believed by it to involve the transfer of such rights.
Delivery of Certificates
Certificates representing Common Stock issued in the Offering will be
mailed by the Stock Company's transfer agent to the persons entitled thereto at
the addresses of such persons appearing on the stock order form as soon as
practicable following consummation of the Reorganization. Any certificates
returned as undeliverable will be held by the Stock Company until claimed by
persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for Common Stock are available and delivered
to subscribers, such subscribers may not be able to sell the shares of Common
Stock for which they have subscribed, even though trading of the Common Stock
may have commenced.
Required Approvals
Various approvals or nonobjections of the FDIC and Department are
required in order to consummate the Reorganization and Offering. The FDIC and
Department have approved the Plan, subject to approval by the Bank's depositors
and other standard conditions. The Stock Company's holding company application
is currently pending.
The Stock Company is required to make certain filings with state
securities regulatory authorities in connection with the issuance of Common
Stock in the Offering.
Certain Restrictions on Purchase or Transfer of Shares After the Reorganization
and Offering
All shares of Common Stock purchased in connection with the
Reorganization and Offering by a director or an officer of the Stock Company and
the Bank will be subject to a restriction that the shares not be sold for a
period of one year following the Reorganization and Offering except in the event
of the death of such director or officer or pursuant to a merger or similar
transaction approved by the FDIC and the Department. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date within this one year period as a stock dividend,
stock split or otherwise with respect to such restricted stock will be subject
to the same restrictions.
Purchases of Common Stock by directors, executive officers and their
associates during the three-year period following completion of the
Reorganization may be made only through a broker or dealer registered with the
SEC, except with the prior written approval of the FDIC and the Department. This
restriction does not apply, however, to negotiated transactions involving more
than 1% of the Stock Company's outstanding Common Stock or to certain purchases
of stock pursuant to an employee stock benefit plan.
Pursuant to FDIC and Department regulations, the Stock Company will
generally be prohibited from repurchasing any shares of the Common Stock within
one year following consummation of the Reorganization, although the FDIC and
Department under their current policies
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may approve a request to repurchase shares of Common Stock following the
six-month anniversary of the Reorganization. During the second and third years
following consummation of the Reorganization, the Stock Company may not
repurchase any shares of its Common Stock other than pursuant to (i) an offer to
all stockholders on a pro rata basis which is approved by the FDIC and
Department (provided, however, that the MHC may be excluded with the approval of
the FDIC and Department); (ii) the repurchase of qualifying shares of a
director, if any; (iii) purchases in the open market by a tax-qualified or
non-tax-qualified employee stock benefit plan in an amount reasonable and
appropriate to fund the plan; or (iv) purchases that are part of an open-market
stock repurchase program not involving more than 5% of its outstanding capital
stock during a 12-month period, if the repurchases do not cause the Bank to
become undercapitalized and the Bank provides to the Regional Director of the
FDIC and Department no later than 10 days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and such program is not disapproved by the Regional Director.
The FDIC and Department may permit stock repurchases in excess of such amounts
prior to the third anniversary of the Reorganization if exceptional
circumstances are shown to exist.
CERTAIN RESTRICTIONS ON ACQUISITION
OF THE COMPANY AND THE BANK
The principal federal regulatory restrictions which affect the ability
of any person, firm or entity to acquire the Stock Company, the Bank or their
respective capital stock are described below. Also discussed are certain
provisions in the Stock Company's Certificate of Incorporation and Bylaws which
may be deemed to affect the ability of a person, firm or entity to acquire the
Stock Company.
The Mutual Holding Company Structure. Under New York law, the Plan and
the Stock Company's governing corporate instruments, at least 51% of the
Company's voting shares must be owned by the MHC. The MHC will be controlled by
its board of trustees, who will consist of persons who also are members of the
board of directors of the Stock Company and the Bank. The MHC will be able to
elect all members of the board of directors of the Stock 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 MHC, 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
Stock Company and the Bank cannot occur unless the MHC first converts to the
stock form of organization. Although New York law, applicable regulations and
the Plan permit the MHC to convert from the mutual to the capital stock form of
organization, it is not anticipated that a conversion of the MHC will occur in
the foreseeable future.
In addition to the anti-takeover aspects of the MHC structure, the
following provisions of the Company's Certificate of Incorporation and bylaws
and certain other regulatory provisions will restrict the ability to
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 Stock Company's Certification of Incorporation and bylaws and the Bank's
proposed Restated Organizational Certificate 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 Stock Company's Registration
Statement filed with
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the SEC. See "Additional Information." The following discussion does not reflect
the powers and provisions of the Bank's charter.
Provisions of the Stock 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 Stock 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 5% of any class of equity security of the
Stock Company, inclusive of shares of such class held by the MHC (provided that
such limitation shall not apply to the MHC or any tax-qualified employee stock
benefit plans maintained by the Stock 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.
Amendments to Certificate of Incorporation and Bylaws. Amendments to
the Certificate of Incorporation must be approved by the Stock Company's board
of directors and also a majority of the outstanding shares of the Stock
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 Stock 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 Common Stock will be registered under Section 12 of the Exchange Act,
any acquisition of 10% or more of the Common Stock will give rise to a
rebuttable presumption that the acquirer of such stock controls the Stock
Company, requiring the acquirer, 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 Stock Company. See "Regulation."
New York Bank 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.
118
<PAGE>
Benefit Plans
In addition to the provisions of the Stock Company's Certificate of
Incorporation and Bylaws described above, certain benefit plans of the Stock
Company and the Bank adopted in connection with the Reorganization and Offering
contain provisions which also may discourage hostile takeover attempts which the
Boards of Directors of the Bank might conclude are not in the best interests of
the Stock Company, the Stock Company and the Bank or the Stock Company's
stockholders. For a description of the benefit plans and the provisions of such
plans relating to changes in control of the Stock Company or the Bank, see
"Management -- Benefits."
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Stock Company is authorized to issue ______ shares of Common Stock
having a par value of $0.01 per share and ______shares of preferred stock having
a par value of $0.01 per share (the "Preferred Stock"). The Stock Company
currently expects to issue up to a maximum of ______ shares (______ shares in
the event that the maximum of the Estimated Offering Range is increased by 15%)
of Common Stock and no shares of Preferred Stock in the Offering. 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 Common Stock. Upon payment of the
Purchase Price for the Common Stock in accordance with the Plan, all such stock
will be duly authorized, fully paid and nonassessable. Presented below is a
description of all aspects of the Stock Company's capital stock which are deemed
material to an investment decision with respect to the Offering.
The Common Stock of the Stock Company will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the FDIC.
Common Stock
Distributions. The Stock Company can pay dividends if, as and when
declared by its Board of Directors, subject to compliance with limitations which
are imposed by law. See "Dividend Policy" and "Waiver of Dividends by the MHC."
The holders of Common Stock of the Stock Company will be entitled to receive and
share equally in such dividends as may be declared by the Board of Directors of
the Stock Company out of funds legally available therefor. If the Stock Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon consummation of the Reorganization, the holders of
Common Stock will possess exclusive voting rights in the Stock Company. Each
holder of Common Stock will be entitled to one vote per share and will not have
any right to cumulate votes in the election of directors. Under certain
circumstances, shares in excess of 10.0% of the issued and outstanding shares of
Common Stock may be considered "Excess Shares" and, accordingly, not be entitled
to vote. See "Restrictions on Acquisition of the Stock Company and the Bank." If
the Stock Company issues Preferred Stock, holders of the Preferred Stock may
also possess voting rights.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Stock Company, as holder of the Bank's capital stock, would be
entitled to receive, after payment
119
<PAGE>
or provision for payment of all debts and liabilities of the Bank (including all
deposit accounts and accrued interest thereon) and after distribution of the
balance in the special liquidation account to Eligible Account Holders and
Supplemental Eligible Account Holders (see "The Reorganization and Offering --
Liquidation Rights"), all assets of the Bank available for distribution. In the
event of liquidation, dissolution or winding up of the Stock Company, the
holders of its Common Stock would be entitled to receive, after payment or
provision for payment of all its debts and liabilities, all of the assets of the
Stock Company available for distribution. If Preferred Stock is issued, the
holders thereof may have a priority over the holders of the Common Stock in the
event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock is not subject to redemption.
Preferred Stock
None of the shares of the Stock Company's authorized Preferred Stock
will be issued in the Offering. Such stock may be issued with such preferences
and designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control. The Stock
Company has no present plans to issue Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Stock Company's Common Stock
is ___________________.
EXPERTS
The financial statements of the Bank as of December 31, 1997 and 1996,
and for each of the years in the three-year period ended December 31, 1998, have
been included in this Prospectus in reliance upon the report of KPMG Peat
Marwick LLP, independent public accountants, appearing elsewhere herein and upon
the authority of said firm as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of
its report to the Bank setting forth its opinion as to the estimated pro forma
market value of the Common Stock upon Reorganization and its opinion with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the Federal income tax
consequences of the Reorganization will be passed upon for the Bank by Elias,
Matz, Tiernan & Herrick L.L.P., Washington, D.C., special counsel to the Bank
and the Stock Company. The New York income tax
120
<PAGE>
consequences of the Reorganization will be passed upon for the Bank by
_____________________. The federal income tax consequences of certain matters
relating to establishment of the Foundation will be passed upon for the Bank by
KPMG Peat Marwick LLP. Certain legal matters will be passed upon for FBR by
Breyer & Associates, Washington, D.C.
ADDITIONAL INFORMATION
The Stock Company has filed with the SEC a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the Registration Statement. Such information,
including the Appraisal Report which is an exhibit to the Registration
Statement, can be examined without charge at the public reference facilities of
the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of
such material can be obtained from the SEC at prescribed rates. In addition, the
SEC maintains a web site (http://www.sec.gov) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC, including the Stock Company. The statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the Registration Statement summarize the
provisions of such contract or other document which are deemed material.
However, such summaries are, of necessity, brief descriptions thereof and are
not necessarily complete; each such statement is qualified by reference to such
contract or document.
In connection with the Reorganization, the Stock Company will register
its Common Stock with the SEC under Section 12 of the Exchange Act, and, upon
such registration, the Stock Company and the holders of its stock will become
subject to the proxy solicitation rules, reporting requirements and restrictions
on stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting and certain other requirements
of the Exchange Act. Under the Plan, the Stock 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 Plan and the Certificate of Incorporation and Bylaws of
the Stock Company and the Charter and Bylaws of the Bank and the MHC are
available without charge from the Bank. Requests for such information should be
directed to: Stockholder Relations, Oswego County Savings Bank, 44 East Bridge
Street, Oswego, New York 13126.
121
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report...........................................
Statements of Financial Condition as of September 30, 1998
(unaudited) and December 31, 1997 and 1996.............................
Statements of Operations for the Nine Months Ended September 30,
1998 (unaudited) and 1997 and Years Ended December 31, 1997,
1996 and 1995......................................................
Statements of Changes in Equity for the Nine Months Ended
September 30, 1998 (unaudited) and 1997 and Years Ended
December 31, 1997, 1996 and 1995...................................
Statements of Cash Flows for the Nine Months Ended September 30,
1998 (unaudited) and 1997 and Years Ended December 31,
1997, 1996 and 1995................................................
Notes to Financial Statements..........................................
All schedules are omitted as the required information is not applicable or the
information is presented in the Financial Statements.
The financial statements of the Stock Company have been omitted because the
Stock Company has not yet issued any stock, has no assets or liabilities, and
has not conducted any business other than of an organizational nature.
122
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Financial Statements
Nine months ended September 30, 1998 and 1997 and
Years ended December 31, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE>
Independent Auditors' Report
The Board of Trustees
Oswego County Savings Bank:
We have audited the accompanying statements of financial condition of Oswego
County Savings Bank as of December 31, 1997 and 1996, and the related statements
of operations, changes in net worth, and cash flows for the years then ended.
These financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Oswego County Savings Bank as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
February 20, 1998, except for note 1 which is as of
December 17, 1998
Syracuse, New York
F-1
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
September 30, --------------------------------
Assets 1998 1997 1996
-------------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Cash and due from banks $ 3,576,145 4,083,082 4,723,052
Federal funds sold and other short-term
investments 750,000 2,681,128 12,819,078
Securities held to maturity, fair value of
$15,507,447 at September 30, 1998,
$10,474,998 at December 31, 1997
and $10,129,299 at December 31, 1996 15,334,354 10,441,133 10,105,638
Securities available for sale, at fair value 12,895,324 10,920,781 5,450
Loans 73,778,077 80,460,302 85,086,892
Less allowance for loan losses 1,280,224 1,408,797 1,583,299
------------ ----------- -----------
Loans, net 72,497,853 79,051,505 83,503,593
------------ ----------- -----------
Real estate owned 449,066 599,387 491,521
Premises and equipment, net 2,244,718 2,324,351 2,095,089
Accrued interest receivable 847,152 925,591 746,798
Other assets 1,169,084 1,111,923 1,160,005
------------ ----------- -----------
Total assets $ 109,763,696 112,138,881 115,650,224
============ =========== ===========
Liabilities and Net Worth
Deposits:
Demand $ 10,571,071 9,665,784 8,546,276
Savings and money market 46,981,076 48,535,652 50,046,010
Time 38,291,894 39,697,366 43,422,908
------------ ----------- -----------
95,844,041 97,898,802 102,015,194
Escrow deposits 1,013,416 1,458,361 1,717,310
Other liabilities 1,480,882 1,608,986 720,399
------------ ----------- -----------
Total liabilities 98,338,339 100,966,149 104,452,903
------------ ----------- -----------
Commitments and contingencies (note 11)
Net worth:
Surplus 3,728,639 3,728,639 3,728,639
Undivided profits - substantially restricted 7,634,791 7,438,682 7,468,682
Accumulated other comprehensive income 61,927 5,411 --
------------ ----------- -----------
Total net worth 11,425,357 11,172,732 11,197,321
------------ ----------- -----------
Total liabilities and net worth $ 109,763,696 112,138,881 115,650,224
============ =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Operations
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
-------------------------- --------------------------
1998 1997 1997 1996
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Interest income:
Loans $ 4,741,667 5,148,463 6,841,171 6,847,056
Securities 1,063,380 838,610 1,151,073 454,071
Federal funds sold and other short-term investments 150,681 195,610 240,519 867,856
---------- --------- --------- ---------
Total interest income 5,955,728 6,182,683 8,232,763 8,168,983
---------- --------- --------- ---------
Interest expense - deposits 2,576,803 2,815,991 3,737,612 3,972,550
---------- --------- --------- ---------
Net interest income 3,378,925 3,366,692 4,495,151 4,196,433
Provision for loan losses 90,000 339,131 524,816 1,140,670
---------- --------- --------- ---------
Net interest income after provision for
loan losses 3,288,925 3,027,561 3,970,335 3,055,763
---------- --------- --------- ---------
Non-interest income:
Service charges 306,314 300,514 434,381 442,055
Recovery (provision) for Nationar 33,194 34,637 54,400 (14,189)
Other 47,611 40,071 46,417 73,539
---------- --------- --------- ---------
Total non-interest income 387,119 375,222 535,198 501,405
---------- --------- --------- ---------
Non-interest expenses:
Salaries and employee benefits 1,516,764 1,453,096 1,923,888 2,184,883
Occupancy and equipment 307,723 306,081 432,506 385,716
Depreciation 179,357 128,981 167,572 152,653
Deposit insurance premiums 8,968 9,230 12,342 1,833
Data processing 186,832 167,424 221,695 247,688
Office supplies, printing and postage 143,281 174,866 240,691 207,908
Professional fees 325,214 238,030 383,201 78,473
Real estate owned, net 238,386 158,036 198,545 85,933
Trustee fees and benefits 86,750 494,566 536,066 101,250
Other 333,660 247,781 362,677 290,707
---------- --------- --------- ---------
Total non-interest expenses 3,326,935 3,378,091 4,479,183 3,737,044
---------- --------- --------- ---------
Income (loss) before income tax expense (benefit) 349,109 24,692 26,350 (179,876)
Income tax expense (benefit) 153,000 8,570 56,350 (119,241)
---------- --------- --------- ---------
Net income (loss) $ 196,109 16,122 (30,000) (60,635)
========== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Changes in Net Worth
<TABLE>
<CAPTION>
Accumulated
Comprehensive Other
Income Undivided Comprehensive
(Loss) Surplus Profits Income Total
------------- ---------- --------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ 3,728,639 7,529,317 -- 11,257,956
Comprehensive income (loss):
Net loss $ (60,635) -- (60,635) -- (60,635)
======== --------- --------- ------ ----------
Balance, December 31, 1996 3,728,639 7,468,682 -- 11,197,321
Comprehensive income (loss):
Net loss (30,000) -- (30,000) -- (30,000)
Change in the unrealized gain
(loss) on securities available
for sale, net of taxes 5,411 -- -- 5,411 5,411
--------
Total comprehensive
income (loss) $ (24,589)
======== --------- --------- ------ ----------
Balance, December 31, 1997 3,728,639 7,438,682 5,411 11,172,732
Comprehensive income:
Net income, unaudited $ 196,109 -- 196,109 -- 196,109
Change in the unrealized gain
(loss) on securities available for
sale, net of taxes, unaudited 56,516 -- -- 56,516 56,516
--------
Total comprehensive income,
unaudited $ 252,625
======== --------- --------- ------ ----------
Balance, September 30, 1998,
unaudited $ 3,728,639 7,634,791 61,927 11,425,357
========= ========= ====== ==========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
----------------------------- ------------------------------
1998 1997 1997 1996
------------ ---------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 196,109 16,122 (30,000) (60,635)
Adjustments to reconcile net income (loss) to
net cash provided by (used in)
operating activities:
Depreciation 179,357 128,981 167,572 152,653
Provision for loan losses 90,000 339,131 524,816 1,140,670
Provision (recovery) for Nationar (33,194) (34,637) (54,400) 14,189
(Gain) loss on sale of real estate owned 76,193 27,699 162,383 78,724
Investment amortization (accretion) 17,690 (10,230) (14,393) 20,140
Deferred income taxes (benefit) -- -- (134,412) (461,470)
Change in:
Accrued interest receivable 78,439 (112,125) (178,793) 19,620
Other assets (61,644) (460,942) 236,894 70,106
Escrow deposits (444,945) (559,493) (258,949) (379,925)
Other liabilities (128,104) 879,974 888,587 343,931
------------ ---------- ----------- ----------
Net cash provided by (used in)
operating activities (30,099) 214,480 1,309,305 938,003
------------ ---------- ----------- ----------
Cash flows from investing activities:
Proceeds from maturity of and principal
collected on securities held to maturity 6,618,038 3,014,909 4,167,664 4,071,905
Proceeds from maturity of and principal
collected on securities available for sale 7,399,792 -- 1,000,000 --
Purchases of securities held to maturity (11,527,247) (4,498,070) (4,498,070) (7,345,108)
Purchases of securities available for sale (9,281,844) (7,506,571) (11,900,616) --
Principal collections of loans
net of loan originations 6,188,585 2,192,786 3,296,723 1,324,656
Proceeds from sale of real estate owned 349,195 198,352 360,300 241,426
Capital expenditures, net of disposals (99,724) (375,589) (396,834) (98,610)
------------ ---------- ----------- ----------
Net cash used in investing activities $ (353,205) (6,974,183) (7,970,833) (1,805,731)
------------ ---------- ----------- ----------
</TABLE>
F-5
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Nine months ended
September 30, Years ended December 31,
----------------------------- ----------------------------
1998 1997 1997 1996
---------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from financing activities:
Net decrease in demand, savings and
money market $ (649,289) (141,050) (390,850) (765,670)
Net increase (decrease) in time deposits (1,405,472) (3,663,204) (3,725,542) 1,344,973
---------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities (2,054,761) (3,804,254) (4,116,392) 579,303
---------- ----------- ----------- ----------
Net decrease in cash and cash equivalents (2,438,065) (10,563,957) (10,777,920) (288,425)
Cash and cash equivalents at
beginning of period 6,764,210 17,542,130 17,542,130 17,830,555
---------- ----------- ---------- ----------
Cash and cash equivalents at end of period $ 4,326,145 6,978,173 6,764,210 17,542,130
========== =========== =========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 2,576,803 2,815,991 3,737,612 3,972,550
Income taxes 75,750 243,000 243,000 403,421
========== =========== =========== ==========
Non-cash investing and financing activities:
Change in accumulated
other comprehensive income $ 56,516 20,267 5,411 --
Transfer of loans to
real estate owned 275,067 39,717 630,549 445,935
========== =========== =========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(1) Reorganization, Stock Issuance and Merger
Oswego County Savings Bank (the Bank) is a mutual savings bank that is
subject to regulation by the New York State Banking Department and the
Federal Deposit Insurance Corporation (FDIC). The Bank provides financial
services to individuals and businesses primarily in Oswego County in New
York State.
On December 17, 1998, the Board of Trustees of the Bank adopted the
Amended and Restated Plan of Reorganization (the Plan), pursuant to which
the Bank will reorganize into the mutual holding company form of
organization as a wholly-owned subsidiary of Oswego County Bancorp, Inc.,
a mid-tier stock holding company that will be a majority-owned subsidiary
of Oswego County MHC (the MHC). Following receipt of all required
regulatory approvals, the approval of the depositors of the Bank entitled
to vote on the Plan of Reorganization, and the satisfaction of all other
conditions precedent to the Reorganization, the Bank will consummate the
Reorganization. Pursuant to the Plan, the Reorganization will be effected
in a manner that is consistent with applicable New York and federal law
and regulations. Contemporaneously with the Reorganization, the Oswego
County Bancorp, Inc. will sell a Minority Interest in shares of Common
Stock in a public stock offering (Offering). Subsequent to the
Reorganization and Offering, the minority interest will represent 44% of
the Oswego County Bancorp, Inc.'s outstanding shares, with the MHC owning
56%.
The Reorganization will be accounted for as a change in corporate form
with no resulting change in the historical basis of the Bank's assets,
liabilities and equity. Subsequent to the Reorganization, the existing
liquidation rights of the Bank's depositors as of the effective date will
be transferred to the MHC, and records will be maintained to ensure such
rights receive statutory priority in the event of a future mutual to
stock conversion or the MHC's liquidation.
In the event that the Reorganization and related offering are not
successfully completed, the costs incurred in connection with the
Reorganization and related offering will be expensed at the time that the
unsuccessful completion is determined. The Bank has not incurred any
stock issuance costs as of September 30, 1998 (unaudited).
The Bank intends to establish a Foundation as part of the Offering, to
which it will make a contribution in the form of shares of its common
stock equal to 2.0% of the shares issued in the Reorganization and
Offering. The Foundation will be dedicated exclusively to supporting
charitable causes and community development in the Bank's primary market
area. The Bank will incur an expense equal to the fair value of the
shares contributed to the Foundation, offset in part by a tax benefit,
during the quarter in which the contribution is made. This expense will
likely have a material impact on the Bank's earnings for such quarter and
for fiscal 1999.
(Continued)
F-7
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
On September 4, 1997, the trustees of the Bank approved the proposed
merger with Oswego City Savings Bank (City Savings), a publicly traded
bank which is 54% owned by Pathfinder Bancorp M.H.C. On September 5,
1997, the Bank entered into a merger agreement with City Savings.
Consummation of the merger is subject to, among other things: (i) receipt
of all necessary approvals and consents from regulators or governmental
entities, including approval of the Plan of Merger by the Superintendent
of Banks of State of New York and the FDIC; (ii) the approval of the
merger agreement by the requisite vote of the stockholders of Pathfinder
Bancorp and the Bank; (iii) approval of the Reorganization and the
Offering by the Bank's voting depositors; (iv) consummation of the
Offering; and (v) the satisfaction or waiver of certain other conditions.
The merger agreement is expected to be presented to the Bank's
stockholders for their approval during the first quarter of 1999. The
Merger is expected to be completed within 30 - 60 days following the
consummation of the Offering. Currently, the merger agreement will
terminate on March 31, 1999.
(2) Summary of Significant Accounting Policies
The accounting policies of the Bank conform to generally accepted
accounting principles. The following is a description of the more
significant accounting policies followed by the Bank.
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 income and expenses
during the reporting period. Actual results could differ from those
estimates.
The statement of financial condition as of September 30, 1998, and the
related statements of operations and cash flows for the nine-month
periods ended September 30, 1998 and 1997 and the statement of changes in
net worth for the nine-month period ended September 30, 1998 are
unaudited but, in the opinion of management, reflect all adjustments
(consisting only of normal recurring accruals) necessary for a fair
presentation of financial condition, results of operations and cash
flows.
(a) Securities
The Bank classifies its securities as either available for sale or
held to maturity, as the Bank does not hold any securities
considered to be trading. Held to maturity securities are those
debt securities for which the Bank has the positive intent and the
ability to hold until maturity. All other securities not included
in held to maturity are classified as available for sale.
Held to maturity securities are recorded at cost, adjusted for the
amortization or accretion of premiums or discounts. Available for
sale securities are recorded at fair value. Unrealized holding
gains and losses, net of the related tax effect, on available for
sale securities are excluded from earnings and are reported as a
separate component of net worth until realized. Transfers of
securities between categories are recorded at fair value at the
date of transfer.
A decline in the fair value of any available for sale or held to
maturity security below cost, that is deemed other than temporary,
is charged to earnings resulting in the establishment of a new
cost basis for the security.
(Continued)
F-8
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
Premiums and discounts are amortized or accreted over the life of
the related security as an adjustment to yield using the effective
interest method. Dividends and interest income are recognized when
earned. Realized gains and losses on securities are recognized on
the trade date and are calculated using the specific
identification method for determining the cost of securities sold.
(b) Loans
Loans are reported at the principal amount outstanding. Fees and
certain direct origination costs related to lending activities are
recognized in income as incurred, as the amounts are immaterial.
Generally, the Bank places all loans that are 90 days or more past
due on non-accrual status. In addition, the Bank places any loan
on non-accrual status if any part of it is classified as doubtful
or loss or if any part has been charged off. When a loan is placed
on non-accrual status, total interest accrued and unpaid to date
is reversed by a charge to interest income. Subsequent payments
are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the
ultimate collectibility of the loan.
(c) Allowance for Loan Losses
The Bank's provision for loan losses charged to operations is
based upon management's evaluation of the loan portfolio. The
allowance for loan losses is maintained at an amount management
deems adequate to provide for probable loan losses considering the
character of the loan portfolio, economic conditions, analysis of
specific loans and historical loss experience. While management
uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as
an integral part of their examination process, periodically review
the Bank's allowance for loan losses. Such agencies may require
the Bank to recognize additions to the allowance based on their
judgments about information available to them at the time of their
examinations.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 114 Accounting by Creditors for Impairment of a Loan, a
loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect
all amounts of principal and interest under the original terms of
the agreement. Large groups of smaller balance, homogeneous loans
such as the Bank's residential mortgages, home equity loans and
consumer loans that are collectively evaluated for impairment, are
excluded from the scope of SFAS No. 114. Accordingly, the Bank
measures impaired commercial loans based on the present value of
future cash flows discounted at the loan's effective interest
rate, or at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent.
(d) Loans Held for Sale
Residential mortgage loans originated and intended for sale in the
secondary market are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are
recognized through a valuation allowance by charges to the
statement of operations.
(Continued)
F-9
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(e) Real Estate Owned
Real estate owned includes property acquired through, or in lieu
of, formal foreclosure. Write-downs to estimated fair value which
are required at the time of foreclosure are charged to the
allowance for loan losses. After transfer, the property is carried
at the lower of cost or fair value, less estimated selling
expenses. Adjustments to the carrying value of such properties
that result from subsequent declines in fair value are charged to
operations in the period in which the declines occur.
(f) Premises and Equipment
Land is carried at cost and buildings, furniture and equipment are
stated at cost less accumulated depreciation. Depreciation is
computed primarily on the straight-line method over the estimated
service lives of the assets.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences
are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized
in income in the period which includes the enactment date.
(h) Pension Plan
The Bank has a defined benefit pension plan covering substantially
all of its employees. Benefits are based on credited years of
service and the employee's average compensation prior to
retirement. The Bank's funding policy is to contribute annually at
least the minimum required by law. Plan assets are invested in the
general account of the Retirement System for Savings Institutions.
(i) Other Postretirement Benefits
The Bank sponsors an unfunded defined benefit plan that covers all
of its full time employees and provides postretirement medical and
life insurance benefits. Employees are eligible for these benefits
if they retire under the Bank's defined benefit pension plan and
have attained age 55 with at least 5 years of service. Employees
are required to contribute a portion of the premium.
The Bank accrues for benefits to employees and the employees'
beneficiaries during the years that the employee renders the
necessary service.
(j) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks and Federal funds
sold and other short-term investments with maturities less than 90
days.
(Continued)
F-10
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(k) Financial Instruments With Off-Balance Sheet Risk
The Bank does not engage in the use of derivative financial
instruments and the Bank's only financial instruments with
off-balance sheet risk are commercial and residential mortgage
commitments. These off-balance sheet items are shown in the Bank's
statement of financial condition upon funding.
(l) Other Accounting Standards
Effective January 1, 1998, the Bank adopted the remaining
provisions of SFAS No. 125, Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities, which
relate to the accounting for securities lending, repurchase
agreements, and other secured financing activities. These
provisions, which were delayed for implementation by SFAS No. 127,
did not have a material impact on the Bank.
On January 1, 1998, the Bank adopted the provisions of SFAS No.
130, Reporting Comprehensive Income. This statement establishes
standards for reporting and display of comprehensive income and
its components. Comprehensive income includes the reported net
income of a company adjusted for items that are currently
accounted for as direct entries to equity, such as the mark to
market adjustment on securities available for sale, foreign
currency items and minimum pension liability adjustments. For the
Bank, comprehensive income represents net income plus other
comprehensive income, which consists of the net change for the
period in unrealized gains or losses on securities available for
sale. Accumulated other comprehensive income in the accompanying
statements of financial condition represents the net unrealized
gains or losses on securities available for sale as of the
reporting dates.
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 131, Disclosures about Segments of an Enterprise
and Related Information. SFAS No. 131 requires publicly-held
companies to report financial and other information about key
revenue producing segments of the entity for which such
information is available and is utilized by the chief operating
decision maker. Specific information to be reported for individual
segments includes profit or loss, certain specific revenue and
expense items, and total assets. A reconciliation of segment
financial information to amounts reported in the financial
statements is also provided. SFAS No. 131, which is effective for
year-end 1998, will not have an impact on the Bank's statement of
financial condition or statement of operations.
The FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, in February 1998. This
statement revises employers' disclosures about pension and other
postretirement benefit plans. It does not change the measurement
or the recognition of these plans. The statement is effective for
the Bank's year-end 1998 reporting and will not impact its
financial position or results of operations.
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, was issued in June 1998. This statement requires that
all derivatives be recognized as either assets or liabilities in
the balance sheet and that those instruments be measured at fair
value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use
of the derivative and the resulting designation. This statement is
effective for fiscal years beginning after June 15, 1999, although
earlier adoption is permitted. The Bank anticipates, based on
current activities, that the adoption of SFAS No. 133 will not
have an effect on its financial position or results of operations.
(Continued)
F-11
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained After the Securitization of
Mortgage Loans Held for Sale by a Mortgage-Banking Enterprise,"
which amends SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities." This statement conforms the subsequent accounting for
securities retained after the securitization of mortgage loans by
a mortgage banking enterprise with the accounting for such
securities by a nonmortgage banking enterprise. This statement is
effective for the first quarter beginning after December 15, 1998,
and will not have any impact on the Bank's financial position or
results of operations as the Bank does not currently securitize
mortgage loans.
(3) Securities
The amortized cost and fair value of securities are as follows:
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale Debt securities:
United States Treasury $ 4,016,906 10,457 483 4,026,880
United States Government
agency obligations 6,893,178 10,765 11,568 6,892,375
---------- ------ ------ ----------
Total debt securities 10,910,084 21,222 12,051 10,919,255
---------- ------ ------ ----------
Equity securities:
Corporate stocks 1,526 -- -- 1,526
---------- ------ ------ ----------
Total securities available
for sale $ 10,911,610 21,222 12,051 10,920,781
========== ====== ====== ==========
Securities held to maturity
Debt securities:
United States Treasury $ 3,148,730 3,804 62 3,152,472
United States Government
agency obligations 2,337,957 9,852 -- 2,347,809
Corporate and municipal
securities 4,809,088 15,775 1,478 4,823,385
Mortgage-backed securities:
GNMA 62,175 2,968 -- 65,143
FNMA 54,115 2,001 -- 56,116
FHLMC 29,068 1,005 -- 30,073
---------- ------ ------ ----------
Total securities held
to maturity $ 10,441,133 35,405 1,540 10,474,998
========== ====== ====== ==========
</TABLE>
(Continued)
F-12
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Securities available for sale Equity securities:
Corporate stocks $ 5,450 -- -- 5,450
========== ====== ===== ==========
Securities held to maturity Debt securities:
United States Treasury $ 3,644,742 9,924 1,017 3,653,649
United States Government
agency obligations 1,908,678 3,013 -- 1,911,691
Corporate and municipal securities 4,373,477 8,645 3,459 4,378,663
Mortgage-backed securities:
GNMA 70,601 2,850 -- 73,451
FHLMC 108,140 3,705 -- 111,845
---------- ------ ----- ----------
Total securities held to
maturity $ 10,105,638 28,137 4,476 10,129,299
========== ====== ===== ==========
</TABLE>
The Bank had no sales of securities during 1997 and 1996.
The following is a tabulation of debt securities, excluding
mortgage-backed securities, by the period remaining to the earlier of
maturity or call date as of December 31, 1997:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
--------------------------- --------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $ 5,899,729 5,895,485 7,027,843 7,032,188
Due after one year through five
years 5,010,355 5,023,770 3,017,932 3,031,771
Due after ten years -- -- 250,000 259,707
---------- ---------- ---------- ----------
Total $ 10,910,084 10,919,255 10,295,775 10,323,666
========== ========== ========== ==========
</TABLE>
(Continued)
F-13
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(4) Loans
The following is a summary of loans outstanding:
<TABLE>
<CAPTION>
December 31,
September 30, ---------------------------------
1998 1997 1996
------------- ---------- ----------
(unaudited)
<S> <C> <C> <C>
Residential mortgages and
home equity loans $ 63,255,058 67,404,958 70,686,388
Commercial mortgages 8,570,014 11,144,890 11,490,159
Commercial loans 123,615 276,443 589,022
Consumer loans 1,829,390 1,634,011 2,321,323
---------- ---------- ----------
Total loans 73,778,077 80,460,302 85,086,892
Allowance for loan losses (1,280,224) (1,408,797) (1,583,299)
---------- ---------- ----------
Net loans $ 72,497,853 79,051,505 83,503,593
========== ========== ==========
</TABLE>
The Bank's market area is generally Oswego County in Central New York
State. Substantially all of the Bank's portfolio is located in its market
area and, accordingly, the ultimate collectibility of the Bank's loan
portfolio is susceptible to changes in market conditions in this area.
The Bank's concentration of credit risk by loan type is shown in the
above schedule of loans outstanding. Other than general economic risks,
management is not aware of any material concentrations of credit risk to
any industry or individual borrower.
(5) Allowance for Loan Losses
The following is a summary of changes in the allowance for loan losses:
<TABLE>
<CAPTION>
Nine months ended Years ended
September 30, December 31,
-------------------------- ---------------------------
1998 1997 1997 1996
--------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 1,408,797 1,583,299 1,583,299 761,703
Provision for loan losses 90,000 339,131 524,816 1,140,670
Loan charge-offs (266,999) (247,696) (724,304) (330,198)
Recoveries 48,426 17,456 24,986 11,124
--------- --------- --------- ---------
Balance at end of period $ 1,280,224 1,692,190 1,408,797 1,583,299
========= ========= ========= =========
</TABLE>
(Continued)
F-14
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
The principal balance of all loans not accruing interest amounted to
approximately $1,774,000 and $2,180,000 at December 31, 1997 and 1996,
respectively. The interest income forgone for non-accruing loans was
$121,600 and $191,000 for the years ended December 31, 1997 and 1996,
respectively.
At December 31, 1997 and 1996, the recorded investment in impaired loans
within the scope of SFAS No. 114 totaled $1,308,793 and $1,822,763,
respectively. The impairment allowance associated with these loans was
$315,900 and $569,900 at December 31, 1997 and 1996, respectively. The
average recorded investment in impaired loans during the year was
approximately $1,728,101 and $1,833,371 for 1997 and 1996, respectively.
The amount of interest income recognized for impaired loans was not
significant for the years ended December 31, 1997 and 1996.
(6) Premises and Equipment
Premises and equipment at December 31 consist of the following:
1997 1996
--------- ---------
Land $ 426,250 426,250
Buildings and improvements 2,556,974 2,508,252
Furniture and equipment 1,893,794 1,642,953
--------- ---------
4,877,018 4,577,455
Accumulated depreciation 2,552,667 2,482,366
--------- ---------
Net $ 2,324,351 2,095,089
========= =========
(7) Deposits
Time deposit maturities are summarized as follows:
December 31,
--------------------------
1997 1996
---------- ------------
Within one year $ 30,331,083 30,142,280
After one year and within two years 5,626,894 8,823,504
After two years and within three years 1,996,810 2,287,033
After three years and within four years 893,080 1,467,698
After four years and within five years 849,499 702,393
---------- ----------
$ 39,697,366 43,422,908
========== ==========
Certificates of deposit of $100,000 and over were $4,218,572 and
$3,429,924 at December 31, 1997 and 1996, respectively.
(Continued)
F-15
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(8) Income Taxes
Total income tax expense (benefit) for the years ended December 31 was
allocated as follows:
<TABLE>
<CAPTION>
1997 1996
------ --------
<S> <C> <C>
Income (loss) before income tax expense
(benefit) $ 56,350 (119,241
Change in net worth for unrealized gain
(loss) on securities available for sale 3,760 --
------ --------
Total $ 60,110 (119,241)
====== ========
</TABLE>
Income tax expense (benefit) attributable to income (loss) from
operations consisted of the following:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1997:
Federal $ 141,818 (90,855) 50,963
State 48,944 (43,557) 5,387
------- -------- --------
Total $ 190,762 (134,412) 56,350
======= ======== ========
Year ended December 31, 1996:
Federal $ 287,030 (379,529) (92,499)
State 55,199 (81,941) (26,742)
------- -------- --------
Total $ 342,229 (461,470) (119,241)
======= ======== ========
</TABLE>
Actual income tax expense (benefit) attributable to income (loss) before
income taxes differed from the amounts computed by applying the Federal
statutory income tax rate to pre-tax income as follows:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------
1997 1996
------ --------
<S> <C> <C>
Federal income tax expense
(benefit) at statutory rate $ 8,959 (61,158)
Increase (decrease) resulting from:
Tax-exempt interest income (2,762) (5,339)
Nondeductible expenses 47,589 6,341
State taxes, net of Federal income
tax benefit 3,555 (17,650)
Other, net (991) (41,435)
------ --------
Actual income tax expense
(benefit) $ 56,350 (119,241)
====== ========
</TABLE>
(Continued)
F-16
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996
--------- -------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 662,535 723,841
Postretirement benefits 119,467 81,684
Trustees' deferred compensation and
retirement plans 250,107 93,211
Other 7,530 10,880
--------- -------
Total gross deferred tax assets 1,039,639 909,616
--------- -------
Deferred tax liabilities:
Tax bad debt reserve in excess of base-
year amounts 223,021 247,306
Depreciation 116,893 103,659
Prepaid pension expenses 79,592 81,589
Net unrealized gain on securities
available for sale 3,760 --
Other 8,659 --
Total gross deferred tax
liabilities 431,925 432,554
--------- -------
Net deferred tax asset, included in
other assets $ 607,714 477,062
========= =======
</TABLE>
Included in undivided profits at December 31, 1997 is approximately
$1,107,000 representing aggregate provisions for loan losses taken under
the Internal Revenue Code. The use of these reserves for purposes other
than to absorb losses on loans, or if the Bank fails to qualify as a Bank
for Federal income tax purposes, would result in taxable income to the
Bank.
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income
within the loss carryback period. A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred tax
assets will not be realized. In assessing the need for a valuation
allowance, management considers the scheduled reversal of the deferred
tax liabilities, the level of historical taxable income and projected
future taxable income over the periods in which the temporary differences
comprising the deferred tax assets will be deductible. Based on its
assessment, management determined that no valuation allowance is
necessary.
(Continued)
F-17
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(9) Retirement Plans
Employees' Pension Benefits
The following table sets forth the defined benefit pension plan's funded
status and amounts recognized in the Bank's financial statements, using
the most recent actuarial data measured at October 1, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Actuarial present value of accumulated
plan benefits:
Vested $ 2,454,621 2,280,200
Nonvested 42,070 144,200
--------- ---------
$ 2,496,691 2,424,400
========= =========
Plan assets at fair value $ 3,587,252 3,465,257
Projected benefit obligations 2,960,364 3,011,700
--------- ---------
Plan assets in excess of projected benefit
obligations 626,888 453,557
Unamortized net asset at transition (83,034) (107,747)
Unrecognized net gain subsequent to
transition (348,052) (107,791)
Unrecognized past service liability 3,478 4,444
--------- ---------
Net pension asset, included in other assets $ 199,280 242,463
========= =========
</TABLE>
Net periodic pension expense (credit) consists of the following
components:
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1997 1996
-------- ---------
<S> <C> <C>
Service cost $ 67,689 76,968
Interest cost on projected benefit obligation 221,786 212,702
Return on plan assets (751,518) (433,456)
Net deferral and amortization 457,940 171,685
-------- --------
Net periodic pension expense (credit) $ (4,103) 27,899
======== ========
Weighted average discount rate 7.75% 7.50%
===== =====
Expected long term rate of return 8.00% 8.00%
===== =====
</TABLE>
The projected benefit obligation assumed a long-term rate of increase in
future compensation levels of 5.0% and 5.50% for the years ended December
31, 1997 and 1996, respectively. The unamortized net asset at transition
is being amortized over 12 years from inception.
(Continued)
F-18
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
Other Postretirment Benefits
The following table sets forth the defined benefit postretirement plan's
funded status reconciled with the amount shown in the Bank's financial
statements at December 31, 1997 and 1996:
1997 1996
-------- --------
Accumulated postretirement benefit
obligation:
Retired employees $ 268,909 485,017
Active employees 487,128 464,062
-------- --------
Total 756,037 949,079
Plan assets at fair value -- --
Unfunded accumulated postretirement
benefit obligation 756,037 949,079
Unrecognized net gain (loss) 168,092 (46,170)
Unamortized prior service cost 41,146 --
Unamortized transition obligation (659,662) (698,466)
-------- --------
Accrued postretirement benefit cost,
included in other liabilities $ 305,613 204,443
======= ========
Net periodic postretirement benefit cost for the years ended December 31,
1997 and 1996 included the following components:
1997 1996
------- -------
Service cost $ 19,148 16,405
Interest cost on accumulated benefit
obligation 66,436 62,740
Net deferral and amortization 38,804 38,804
------- -------
Net periodic postretirement benefit cost $ 124,388 117,949
======= =======
For measurement purposes, a 9.50% and 10% annual rate of increase in the
per capita cost of average health care benefits for retirees was assumed
for 1997 and 1996, respectively. The rate was assumed to decrease
gradually to 5.0% by 2031 and remain at that level thereafter. The health
care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend
rates by 1% in each year would increase the accumulated postretirement
benefit obligation at December 31, 1997 by $76,000, and the net periodic
postretirement benefit cost by $137,400 for the year then ended. The
weighted average discount rate used in determining the accumulated
postretirement obligation was 7.0% for 1997 and 1996.
(Continued)
F-19
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
Other Benefit Plans
In 1997, the Bank instituted a deferred compensation plan for Trustees
(the "Trustees' Deferred Compensation Plan"), under which participants
may elect to defer all or part of their annual trustee fees to fund the
Trustees' Deferred Compensation Plan. The plan provides that deferred
fees are to be invested in mutual funds, as selected by the individual
trustees. At December 31, 1997, deferred trustees fees included in other
liabilities aggregated $83,569.
In 1997, the Bank also implemented a retirement plan for nonemployee
trustees (the "Plan"). The monthly basic benefit under the Plan shall be
equivalent to the regular board of trustees monthly meeting fee in effect
at the end of the month that the trustee terminates service. Each trustee
shall become fully vested upon serving the Bank for 15 years as a trustee
and upon reaching age 70. Benefit payments to a trustee will begin upon
the later of either: the first month subsequent to the date that the
trustee ceases to be a trustee; or the first month subsequent to the date
that the trustee reaches age 70. Succeeding installments shall be made
monthly thereafter until death of the trustee. The Bank recorded an
expense of $363,891 for the year ended December 31, 1997. The obligation
of $363,891 at December 31, 1997 is included in other liabilities on the
statement of financial condition.
(10) Regulatory Capital Requirement
The Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory - and possibly
additional discretionary - actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios (set
forth in the table below) of total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and Tier I capital (as
defined) to average assets (as defined). Management believes, as of
December 31, 1997 and 1996, that the Bank meets all capital adequacy
requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC and
the State of New York Banking Department categorized the Bank as "well
capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well capitalized" the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the Bank's category.
(Continued)
F-20
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
The Bank's regulatory capital amounts and ratios are presented in the
following table:
<TABLE>
<CAPTION>
To Be "Well
Capitalized" Under
Actual Minimum Regulatory Regulatory Capital
Regulatory Capital Capital Requirements Requirements
----------------------- ---------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital $ 11,930,321 21.1% $ 4,225,960 8.0% $ 5,282,450 10.0%
(to risk weighted assets)
Tier I Capital 10,055,398 19.0 2,112,980 4.0 3,169,470 6.0
(to risk weighted assets)
Tier I Capital 10,055,398 9.0 4,466,280 4.0 2,641,225 5.0
(to average assets)
As of December 31, 1996:
Total Capital $ 12,006,321 20.8% $ 4,315,472 8.0% $ 5,394,340 10.0%
(to risk weighted assets)
Tier I Capital 10,037,316 18.6 2,157,736 4.0 3,236,604 6.0
(to risk weighted assets)
Tier I Capital 10,037,316 9.0 4,441,461 4.0 5,551,826 5.0
(to average assets)
</TABLE>
(11) Commitments and Contingencies
In the normal course of business, there are various outstanding
commitments and contingent liabilities, such as guarantees, and
commitments to extend credit, which are not reflected in the accompanying
financial statements. The Bank does not anticipate losses as a result of
these transactions. Mortgage and other loan commitments outstanding at
December 31, 1997 and 1996 amounted to $120,000 and $1,223,000,
respectively. Fixed interest rates on mortgage and other loan commitments
outstanding can change prior to closing only if interest rates decrease.
Variable rate loans float prior to closing. Outstanding commitments on
letters of credit at December 31, 1997 and 1996 amounted to $90,500 and
$311,300, respectively.
In February 1995, the Superintendent of Banks for the State of New York
seized Nationar, a check-clearing and trust company, freezing all of
Nationar's assets. On that date, the Bank had demand accounts of
approximately $62,700, $5,400 of Nationar capital stock, $19,200 of
Nationar preferred stock, $80,000 of a pledged security and $120,000 of
Nationar capital debentures. Based on information set forth in certain
publicly available documents, at the time, management believed that there
was a reasonable likelihood that the Bank will not recover all amounts
owed by Nationar. Accordingly, management established a provision of
$120,000 and $14,200 during 1995 and 1996, respectively. The Bank has
received distributions totaling $54,000 and $154,300 in 1997 and 1996,
respectively. Total losses, net of distributions received relating to
Nationar were approximately $80,000.
If the merger does not commence, the Bank will pay $100,000 to Oswego
City Savings Bank under an agreement for reimbursement of costs relating
to computer support.
(Continued)
F-21
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
In the normal conduct of business, the Bank is currently involved in
various litigation matters. In the opinion of management, the ultimate
disposition of these matters should not have a material adverse effect on
the financial position of the Bank.
(12) Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments, as
amended by SFAS No. 119, Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments requires disclosures
about the fair value of financial instruments for which it is practicable
to estimate fair value. The definition of a financial instrument includes
many of the assets and liabilities recognized in the Bank's statement of
financial condition, as well as certain off-balance sheet items. Fair
value is defined in SFAS Nos. 107 and 119 as the amount at which a
financial instrument could be exchanged in a current transaction between
willing parties, other than in a forced or liquidation sale.
The following methods and assumptions were used by the Bank in estimating
the fair values of its financial instruments:
(a) Cash and Cash Equivalents
For these short-term instruments that are available on demand or
that generally mature in ninety days or less, the carrying value
approximates fair value.
(b) Securities
Fair values for securities are based on quoted market prices,
where available. Where quoted market prices are not available,
fair values are based on quoted market prices of comparable
instruments.
(c) Loans
For variable rate loans that reprice frequently and have no
significant credit risk, fair values are based on carrying
amounts. The fair values of fixed rate loans are estimated through
discounted cash flow analyses using interest rates currently being
offered for loans with similar terms and credit quality.
Delinquent loans are valued using the discounted cash flow methods
described above. While credit risk is a component of the discount
rate used to value loans, delinquent loans are presumed to possess
additional risk. Therefore, the calculated fair values of loans
are reduced by the allowance for loan losses.
(Continued)
F-22
<PAGE>
OSWEGO COUNTY SAVINGS BANK
Notes to Financial Statements
(d) Deposits
The fair values disclosed for demand, savings and money market
deposits are, by definition, equal to the amounts payable on
demand at the reporting date (e.g., their carrying amounts). The
fair value of fixed maturity time deposits is estimated using a
discounted cash flow approach. This approach applies interest
rates currently being offered on these accounts to a schedule of
weighted average expected monthly maturities on time deposits.
The estimated fair values of the Bank's financial instruments as
of December 31, 1997 are as follows (in thousands):
1997
---------------------------
Carrying Fair
Amount Value
------------ ---------
Financial assets:
Cash and cash equivalents $ 6,764,210 6,764,210
Securities 21,361,914 21,395,779
Net loans 79,051,505 78,960,453
Financial liabilities:
Demand, savings and money
market deposits 58,201,436 58,201,436
Time deposits 39,697,366 39,693,795
Escrow deposits 1,608,986 1,608,986
The fair value of commitments to extend credit are equal to the
deferred fees outstanding, as the contractual rates and fees
approximates those currently charged to originate similar
commitments.
Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial
instrument. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
F-23
<PAGE>
==========================================================
No dealer, salesman or any other person has been
authorized to give any information or to make any
representation other than as contained in this Prospectus
in connection with the offering made hereby, and, if given
or made, such information shall not be relied upon as
having been authorized by the Stock Company, the Bank or
Friedman, Billings and Ramsey. This Prospectus does not
constitute an offer to sell or a solicitation of an offer
to buy any of the securities offered hereby to any person
in any jurisdiction in which such offer or solicitation is
not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person
to whom it is unlawful. Neither the delivery of this
Prospectus nor any sale hereunder shall under any
circumstances create any implication that there has been
no change in the affairs of the Stock Company or the Bank
since any of the dates as of which information is
furnished herein or since the date hereof.
Table of Contents
Page
------
Prospectus Summary...................................
Selected Consolidated Financial Information..........
and Other Data.....................................
Summary of Recent Developments.......................
Risk Factors.........................................
Oswego County Bancorp. Inc...........................
Oswego County Bank...................................
Oswego County MHC....................................
Use of Proceeds......................................
Dividend Policy......................................
Waiver of Dividends by the MHC.......................
MHC Conversion to Stock Form.........................
Market for the Common Stock..........................
Regulatory Capital..................................
Capitalization.......................................
Pro Forma Data.......................................
Comparison of Valuation and Pro Forma
Information with no Foundation.....................
Management's Discussion and Analysis of Financial
Condition and Results of Operations................
Business of Oswego County Savings Bank...............
Regulation...........................................
Taxation.............................................
Management...........................................
Proposed Management Purchases........................
Reorganization and Offering..........................
Certain Restrictions on Acquisition of the
Stock Company and the Bank.........................
Description of Capital Stock.........................
Transfer Agent and Registrar.........................
Experts..............................................
Legal and Tax Opinions...............................
Additional Information...............................
Index to Financial Statements........................
Until __________ ___, 199__ (90 days after the date of
this Prospectus), 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.
- ----------------------------------------------------------
==========================================================
Oswego County Bancorp, Inc.
(Holding Stock Company for
Oswego County Savings Bank)
Up to ______ Shares
Common Stock
---------------------------
PROSPECTUS
---------------------------
Friedman, Billings,
Ramsey & Co. Inc.
_______________, 1999
- ----------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
SEC filing fees........................................ $ 2,500
Department filing fees................................. 7,500
Nasdaq filing fees..................................... 1,200
Printing, postage and mailing .......................... 60,000
Legal fees ............................................. 150,000
Blue Sky filing fees and expenses....................... 10,000
Investment bankers and expenses......................... 110,000
Investment bankers counsel.............................. 40,000
Accounting fees......................................... 80,000
Appraiser's fees........................................ 42,500
Conversion agent fees and expenses..................... 11,000
Miscellaneous.......................................... 10,000
---------
Total................................................... $ 524,700
==========
Item 14. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their capacity
as such. The Certificate of Incorporation of the Company provides that the
directors, officers, employees and agents of the Company shall be indemnified to
the full extent permitted by law. Such indemnity shall extend to expenses,
including attorney's fees, judgments, fines and amounts paid in the settlement,
prosecution or defense of the foregoing actions.
Article 9 of the Registrant's Certificate of Incorporation provides as follows:
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
II-1
<PAGE>
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 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
II-2
<PAGE>
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 15. Recent Sales of Unregistered Securities
Not applicable.
II-3
<PAGE>
Item 16 Exhibits and Financial Statements Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (filed herewith unless otherwise noted)
1.1 Engagement Letter with Friedman, Billings, Ramsey & Co., Inc.
1.2 *Form of Agency Agreement with Friedman, Billings, Ramsey & Co., Inc.
2.1 Amend and Restated Plan of Reorganization from Mutual Savings Bank to
Mutual Holding Company and Plan of Stock Issuance.
3.1 Certificate of Incorporation of Oswego County Bancorp, Inc.
3.2 Bylaws of Oswego County Bancorp, Inc.
3.3 Restated New York Organization Certificate of Oswego County Savings
Bank
3.4 Bylaws of Oswego County Savings Bank
3.5 Organization Certificate of Oswego County MHC
3.6 Bylaws of Oswego County MHC
4.1 Form of Stock Certificate of Oswego County Bancorp, Inc.
4.2 Form of Stock Certificate of Oswego County Savings Bank
5.0 *Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: legality
8.1 *Opinion of Elias, Matz, Tiernan & Herrick L.L.P. re: Federal tax
matters
8.2 *Opinion re: New York tax matters
8.3 *Letter of RP Financial, LC. re: Subscription Rights
10.1 *Voluntary Deferred Compensation Plan for Trustees
10.2 *Trustee Emeritus Deferred Compensation Plan
23.1 Consent of Elias, Matz, Tiernan & Herrick L.L.P. (included in
Exhibits 5.0 and 8.1, respectively)
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of RP Financial, LC.
24.0 Power of Attorney, included in signature pages.
27.0 Financial Data Schedule
99.1 *Appraisal Report of RP Financial, LC.
99.2 *Subscription Order Form and Instructions
99.3 *Additional Solicitation Material
99.4 Proxy Statement and Form of Proxy
99.5 *Appraisal Report Update from RP Financial, LC, dated as of
December 4, 1998
99.6 *Certificate to Legal Counsel
- ---------------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under
the rules of Regulation S-X.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations 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 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Form SB-2 Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the State of New
York on December 30, 1998.
Oswego County Bancorp, Inc.
By: /s/Gregory J. Kreis
------------------------------------
Gregory J. Kreis
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears below
hereby makes, constitutes and appoints Gregory J. Kreis, his true and lawful
attorney, with full power to sign for each person and in such person's name and
capacity indicated below, and with full power of substitution, any and all
amendments to this Registration Statement, hereby ratifying and confirming such
person's signature as it may be signed by said attorney to any and all
amendments.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/Gregory J. Kreis President and Chief Executive December 30, 1998
- --------------------------------------- Officer
Gregory J. Kreis
/s/Robert H. Hillick Vice President and Chief December 30, 1998
- --------------------------------------- Financial Officer
Robert H. Hillick
/s/Michael R. Brower Director December 30, 1998
- ---------------------------------------
Michael R. Brower
/s/Bruce P. Frassinelli Chairman of the Board December 30, 1998
- --------------------------------------
Bruce P. Frassinelli
/s/Paul J. Heins Director December 30, 1998
- --------------------------------------
Paul H. Heins
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/Paul W. Schneible Director December 30, 1998
- --------------------------------------
Paul W. Schneible
/s/Bernard Shapiro Director December 30, 1998
- --------------------------------------
Bernard Shapiro
/s/ Carl K. Walrath Director December 30, 1998
- --------------------------------------
Carl K. Walrath
</TABLE>
Exhibit 1.1
November 6, 1998
Board of Directors
Attn: Gregory J. Kries
President & Chief Executive Officer
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126-2117
RE: Stock Issuance Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBR") and Oswego County Savings Bank ("Oswego
County") concerning our Investment Banking Services in connection with the
proposed reorganization of Oswego County from the mutual savings bank format
into the mutual holding company structure and concurrent minority stock
offering.
FBR is prepared to assist Oswego 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 Oswego 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 Oswego 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 Oswego County Board of
Directors, based upon an independent appraisal as approved by the appropriate
regulatory authorities, provided such price is mutually acceptable to FBR and
Oswego County.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
1. Act as the Financial Advisor to Oswego County
2. Create marketing materials and formulate a marketing plan
3. Conduct training for all Directors and Employees concerning the stock
offering
4. Manage Stock Center and staff with FBR personnel
5. 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 continue being a market maker and continue
coverage of Oswego 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 Oswego County, as FBR deems
necessary and appropriate. Oswego will make all documents, records and other
information deemed necessary by FBR or its counsel available to them upon
request.
<PAGE>
Mr. Gregory J. Kreis
November 6, 1998
Page 2 of 5
For its services hereunder, FBR will receive the following compensation and
reimbursement from Oswego County:
1. A management fee of $20,000 payable as follows; $10,000 upon the signing of
this letter and $10,000 upon receiving all regulatory approvals of the Plan and
the SEC declares the Registration Statement effective. 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 $100,000. The management fee of $20,000 will be
subtracted from the marketing fee.
3. The balance of the foregoing commissions is payable to FBR at closing as
defined in the Agreement to be entered into between FBR and Oswego 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 $50,000.
It is further understood that Oswego 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 purposes of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Plan, Oswego County warrants
that: (a) Oswego 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 Oswego County and any NASD member or any person related to or associated
with any such member; (c) none of the officers or trustees of Oswego County has
any affiliation with the NASD; (d) except as contemplated by this engagement
letter with FBR , Oswego County has no financial or management consulting
contracts outstanding with any other person; (e) Oswego County has not granted
FBR a right of first refusal with respect to the underwriting of any future
offering of Oswego County stock; and (f) there has been no intermediary between
FBR and Oswego County in connection with the public offering of Oswego County
shares, and no person is being compensated in any manner for providing such
service.
Oswego County agrees to indemnify FBR and its controlling persons,
representatives and agents in accordance with the indemnification provisions
(the "Indemnification Provisions") set forth in Appendix A, and agrees to the
other provisions of Appendix A, 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 in Appendix A. While FBR and Oswego 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 Oswego County shall be only as set forth
in a duly executed Agreement. The indemnification provision described in
Appendix A will be superseded by the indemnification provisions of the Agreement
entered into by Oswego 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 Oswego County or no
market conditions which might render the sale of the shares by Oswego 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. Gregory J. Kreis
November 6, 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 $10,000. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
By: J. Rock Tonkel, Jr. David H. Neiswander
Title: Managing Director Vice President
Date: November 6, 1998
Agreed and Accepted to this _________ day of _______________, 1998.
Oswego County Savings Bank
By: ________________________
Title: _______________________
<PAGE>
Mr. Gregory J. Kreis
November 6, 1998
Page 4 of 5
APPENDIX A
Oswego 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 Oswego County.
Oswego 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. Oswego County also agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to
Oswego 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 judgment by an appellate court (or
trial court if FBR fails to file a timely appeal) 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 Oswego County pursuant hereto, promptly
notify Oswego County in writing of the same. In case any such action is brought
against any Indemnified Party and such Indemnified Party notifies Oswego County
of the commencement thereof, Oswego 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 Oswego 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 Oswego 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), Oswego 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 Oswego 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 Oswego County, on the one hand and FBR, on the
other hand, as well as any other relevant equitable considerations. Oswego
County agrees that for the purposes of this paragraph the relative benefits to
Oswego 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 Oswego 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, Oswego 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. Gregory J. Kreis
November 6, 1998
Page 5 of 5
Oswego 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 Oswego County in
which such Indemnified Party is not named as a defendant, Oswego 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 Oswego 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 Oswego 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 Oswego County, at Oswego County's expense, to defend
such pending or threatened action or claim.
Agreed and Accepted to this _________ day of ________________, 1998.
Oswego County Savings Bank
By: ________________________
Title: ________________________
OSWEGO COUNTY SAVINGS BANK
AMENDED AND RESTATED PLAN OF REORGANIZATION
FROM MUTUAL SAVINGS BANK TO MUTUAL HOLDING COMPANY
AND PLAN OF STOCK ISSUANCE
1. GENERAL.
On March 19, 1998, the Board of Trustees of Oswego County Savings Bank
(the "Bank" or "Oswego"), a New York-chartered, mutual savings bank, adopted a
Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company,
pursuant to which the Bank proposed to reorganize into the mutual holding
company form of organization pursuant to the laws of the State of New York (the
"MHC Reorganization"). On December 17, 1998, the Bank's Board of Trustees
determined to amend and restate the Bank's Plan of Reorganization and adopted
this Amended and Restated Plan of Reorganization and Plan of Stock Issuance (the
"Plan"). The amendments to the Plan include (i) the organization of a mid-tier
stock holding company of a minority ownership interest in its common stock (ii)
the public offering by the mid-tier stock holding company of a minority
ownership interest in its common stock and (iii) the organization of a
charitable foundation.
As part of the MHC Reorganization, the Bank will (i) organize an
interim New York stock savings bank as a wholly owned subsidiary ("Interim
One"); (ii) Interim One will organize an interim New York stock savings bank as
a wholly owned subsidiary ("Interim Two"); (iii) Interim One will organize a
Delaware stock corporation ("SHC") as a wholly owned subsidiary of Interim One;
(iv) the Bank will convert to stock form and exchange its charter for a New York
stock savings bank charter ("Stock-form Bank"); (v) the shares of Interim One
will be cancelled and its charter will be exchanged for a New York mutual
holding company charter ("MHC"); (vi) Interim Two will merge with and into the
Stock-form Bank, with Stock-form Bank surviving as a subsidiary of MHC; (vii)
former depositors of the Bank will become depositors of the MHC; and (viii) the
MHC will transfer all of the outstanding shares of Stock-form Bank to SHC. The
MHC Reorganization shall be accomplished in accordance with the procedures set
forth in this Plan and the requirements of applicable laws and regulations and
the policies of the Banking Department of the State of New York (the
"Department").
Upon consummation of the MHC Reorganization, the converted Stock-form
Bank will be deemed to be a continuation of the Bank, and all property of the
Bank, including its right, title and interest in and to all property of whatever
kind and nature, all interests and assets previously existing or pertaining to
the Bank, or which would issue to the Bank immediately by operation of law and
without the necessity of any conveyance or transfer and without any further act
or deed, will vest in the Stock-form Bank. The Stock-form Bank will have, hold
and enjoy the same in its right and fully to the same extent as the same was
possessed, held and enjoyed by the Bank. The Stock-form Bank will continue to
have, succeed to, and be responsible for all rights, liabilities and obligations
of the Bank and, immediately upon consummation of the MHC Reorganization, will
continue its main office, its branch offices and other operations at the then
current locations of the Bank.
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This Plan is subject to the approval of the Department and the FDIC and
must receive the affirmative vote of its depositors by the margins set forth in
Section 3 of this Plan. Implementation of this Plan also is subject to the
approval of all other applicable regulatory authorities, as well as the receipt
of favorable rulings or opinions as to the tax consequences of the MHC
Reorganization.
The primary business purpose of the MHC Reorganization is to create a
legal structure that will enable Oswego to combine with Oswego City Savings Bank
("Oswego City") which is currently part of a mutual holding company
organization. Oswego City and Oswego have entered into an Agreement and Plan of
Merger, dated September 5, 1997 and amended on January 13, 1998 and April 30,
1998.
The MHC Reorganization will also enable the Bank to raise new equity
capital through the issuance and sale of shares of capital stock of the SHC.
Ready access to new sources of capital not historically available to mutual
savings institutions will allow the Bank the flexibility to enhance its capital
position more rapidly than by accumulating earnings, and at times deemed
advantageous by the Boards of Directors of the Stock-form Bank and the SHC,
thereby supporting future deposit growth and expanded operations (including
increased lending and investment activities) as business and regulatory needs
dictate. The ability to attract new capital also will assist in increasing the
capabilities of the Bank to address the needs of the communities it serves, as
well as enhance its ability to effect acquisitions. The ability of the SHC to
issue capital stock also will enable the SHC and the Stock-form Bank to
establish stock compensation plans for directors, officers and employees,
thereby granting them equity interests in the SHC and greater incentive to
improve its performance.
It is anticipated that the SHC will conduct an initial offering of its
common stock (which in the aggregate shall be less than 50% of the total
to-be-outstanding common stock of the SHC) following consummation of the MHC
Reorganization (the "Stock Offering"), subject to the approval of the Board of
Directors of the SHC and the Department. The actual issuance of shares of common
stock of the SHC in this manner shall not be a condition to the MHC
Reorganization, unless otherwise required by the Board of Trustees of the Bank.
As part of the MHC Reorganization, and consistent with the Bank's
ongoing commitment either to combine with Oswego City or 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
SHC may donate to the charitable foundation immediately following the MHC
Reorganization cash, securities or Common Stock in an amount equal to up to 8%
of the Common Stock issued in the Stock Offering.
In adopting this Plan, the Board of Trustees of the Bank determined
that the MHC Reorganization was advisable and in the best interests of the Bank
and its depositors.
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2. DEFINITIONS.
In most cases, the meaning of the terms used in this Plan are made
clear from their context and the language of the Plan. Certain of these terms,
however, require further explanation, as follows:
2.1. "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 another 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.
2.2. "Actual Purchase Price" means the price per share at which the
Common Stock is ultimately sold by the SHC to Participants in the Subscription
Offering and Persons in the Community Offering and/or Syndicated Community
Offering in accordance with the terms hereof.
2.3. "Affiliate" means a Person who, directly or indirectly, through
one or more intermediaries, controls or is controlled by or is under common
control with the Person specified.
2.4. "Associate," when used to indicate a relationship with any Person,
means (i) a corporation or organization (other than the Bank, MHC or a
majority-owned subsidiary of either of the same) 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 (exclusive of any
tax-qualified employee stock benefit plan and any non-tax-qualified employee
stock benefit plan of the Bank or the SHC in which such Person has a substantial
beneficial interest or serves as a 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 or
the Stock-form Bank or any of their subsidiaries; and (iv) any Person acting in
concert with any of the Persons or entities specified in clauses (i) through
(iii) above.
2.5. "Bank" means Oswego County Savings Bank, a New York-chartered
mutual savings bank.
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2.6. "Banking Board" means the New York Banking Board.
2.7. "BHCA" means the Bank Holding Company Act of 1956, as amended.
2.8. "Capital Stock" means any and all authorized capital stock of the
SHC.
2.9. "Code" means the Internal Revenue Code of 1986, as amended.
2.10. "Common Stock" means common stock, par value $0.01 per share, of
the SHC.
2.11. "Community Offering" means the offering for sale by the SHC of
any shares of Common Stock not subscribed for in the Subscription Offering to
(i) natural persons residing in Oswego County, New York, and (ii) such other
Persons within or without the State of New York.
2.12. "Department" means the Banking Department of the State of New
York or any successor thereto.
2.13. "Deposit Account" means withdrawable or repurchasable shares,
investment certificates or deposits or other savings accounts, including money
market deposit accounts, negotiable order of withdrawal accounts and demand
accounts, held by an account holder or depositor of the Bank.
2.14. "Depositors" means the holders of Qualifying Deposits on the
Voting Record Date.
2.15. "Director, Trustee, Officer and Employee" means the terms as
applied respectively to any Person who is a Director, Trustee, Officer or
Employee of the Bank, the Stock-form Bank, the SHC, the MHC or any subsidiary
thereof.
2.16. "Effective Date" means the date upon which the MHC Reorganization
is completed pursuant to this Plan and applicable laws and regulations.
2.17. "Eligible Account Holder" means any Person holding a Qualifying
Deposit on the Eligibility Record Date for purposes of determining eligibility
for Subscription Rights.
2.18. "Eligibility Record Date" means the date for determining
Qualifying Deposits of Eligible Account Holders and is the close of business on
September 30, 1997.
2.19. "Employee" means any person who is a full or part-time employee
of the Bank or the Stock-form Bank at the Effective Date.
2.20. "Estimated Price Range" means the range of the estimated
aggregate pro forma market value of the total number of shares of Common Stock
to be issued in the Stock Issuance, as determined by the Independent Appraiser
in accordance with Section 9 hereof.
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2.21. "FDIC" means the Federal Deposit Insurance Corporation.
2.22. "FRB" means the Board of Governors of the Federal Reserve System.
2.23. "Foundation" means the charitable foundation organized in
connection with this Plan.
2.24. "Independent Appraiser" means the independent investment banking
or financial consulting firm retained by the Bank to prepare the Independent
Valuation.
2.25. "Independent Valuation" means the estimated pro forma market
value of the Common Stock to be outstanding upon consummation of the MHC
Reorganization and the Stock Issuance, as determined by the Independent
Appraiser in accordance with Section 9 hereof.
2.26. "Initial Purchase Price" means the price per share to be paid
initially by Participants for shares of Common Stock subscribed for in the
Subscription Offering and by Persons for shares of Common Stock ordered in the
Community Offering and/or Syndicated Community Offering.
2.27. "Insider" means any officer, trustee or director of the Bank or
any Affiliate of the Bank, and any Person acting in concert with any such
officer, tustee or director.
2.28. "MHC" means the mutual holding company resulting from the MHC
Reorganization, which mutual holding shall be named "Oswego County MHC" or such
other name as may be selected by the Board of Trustees of the MHC.
2.29. "MHC Reorganization" collectively means all steps which are
necessary for the Bank to reorganize into the mutual holding company form of
organization in the manner specified herein.
2.30. "Merger" means the merger of the Bank with and into the
Stock-form Bank pursuant to the terms of the Agreement of Merger included as
Appendix A hereto.
2.31. "NYBL" means the New York Banking Law.
2.32. "Offerings" means the Subscription Offering, the Community
Offering and the Syndicated Community Offering or Public Offering.
2.33. "Officer" means the chairman of the Board of Trustees, president,
vice- president, secretary, treasurer or principal financial officer,
comptroller or principal accounting officer and any other Person performing
similar functions with respect to any organization, whether incorporated or
unincorporated.
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2.34. "Order Form" means the form provided on behalf of the Bank,
containing all such terms and provisions as set forth in Section 18 hereof, to a
Person by which Common Stock may be ordered in the Stock Offering.
2.35. "Other Investors" means Persons within or without the State of
New York who may be offered the opportunity to purchase Common Stock in the
Stock Offering to be conducted by the Bank pursuant to this Plan.
2.36. "Participant " means any Eligible Account Holder, Tax-Qualified
Employee Stock Benefit Plan, Supplemental Eligible Account Holder, and Director,
Trustee, Officer and Employee.
2.37. "Person" means any corporation, partnership, trust,
unincorporated association or any other entity or a natural person.
2.38. "Plan" means this Amended and Restated Plan of Reorganization
from Mutual Savings Bank to Mutual Holding Company and Plan of Stock Issuance,
including all Appendices hereto, as adopted by the Board of Trustees of the Bank
and as may be amended from time to time pursuant to the terms hereof.
2.39. "Preferred Stock" means any and all authorized Preferred Stock of
the SHC.
2.40. "Prospectus" means the one or more documents to be used in
offering the Common Stock in the Subscription Offering and, to the extent
applicable, Community Offering and Syndicated Community Offering and for
providing information to Participants and other Persons in connection with such
offerings.
2.41. "Public Offering" means an underwritten firm commitment offering
to the public through one or more underwriters.
2.42. "Purchase Price" means the uniform price per share at which the
Common Stock is ultimately sold by the SHC to Persons in the Stock Offering in
accordance with the terms hereof.
2.43. "Qualifying Deposit" means the aggregate balance of all Deposit
Accounts of each account holder or depositor in the Bank at the close of
business on the Eligibility Record Date, the Supplemental Record Date or the
Voting Record Date, as the case may be, provided such aggregate balance is not
less than $100.00.
2.44. "SEC" means the Securities and Exchange Commission.
2.45. "SHC" means "Oswego County Bancorp, Inc.," a to-be-formed
Delaware stock corporation, which, upon consummation of the MHC Reorganization,
shall own 100% of the issued and outstanding shares of capital stock of the
Stock-form Bank and which shall be a majority-owned subsidiary of the MHC.
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2.46. "Special Meeting" means the Special Meeting of Depositors of the
Bank called for the sole purpose of submitting this Plan and related documents
to the Depositors for their approval or disapproval, including any adjournment
of such meeting.
2.47. "Stock-form Bank" means Oswego County Savings Bank, a New
York-chartered, stock subsidiary of the SHC upon consummation of the MHC
Reorganization.
2.48. "Stock Offering" means the offering for sale by the SHC of shares
of Common Stock to the Persons and in the priorities set forth in Section 10 of
this Plan, subject to the other provisions of this Plan, including without
limitation the limitations on purchases of Common Stock set forth in Section 16
hereof.
2.49. "Subscription Offering" means the offering of the Common Stock to
Participants.
2.50. "Subscription Rights" means non-transferable rights to subscribe
for Common Stock granted to Participants pursuant to the terms of this Plan.
2.51. "Superintendent" means the Superintendent of the Banking
Department of the State of New York.
2.52. "Supplemental Eligibility Record Date" if applicable, means the
date for determining Qualifying Deposits of Supplemental Eligible Account
Holders and shall be required if the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Notice of Intent to
Convert to the Stock Form and the Application for Approval of a Mutual Savings
Bank Holding Company Reorganization filed prior to approval of such notice and
application by the FDIC and the Superintendent, respectively. If applicable, the
Supplemental Eligibility Record Date shall be the last day of the calendar
quarter preceding the FDIC and the Superintendent nonobjection and approval of
such notice and application submitted by the Bank pursuant to the Plan.
2.53. "Supplemental Eligible Account Holder" if applicable, means any
Persons, except Trustees and Officers of the Bank and their Associates, holding
a Qualifying Deposit at the close of business on the Supplemental Eligibility
Record Date.
2.54. "Syndicated Community Offering " means the offering for sale by a
syndicate of broker-dealers to the general public of shares of Common Stock not
purchased in the Subscription Offering and the Community Offering.
2.55. "Tax-Qualified Employee Stock Benefit Plan" means any defined
benefit plan or defined contribution plan, such as an employee stock ownership
plan, stock bonus plan, profit-sharing plan or other plan, which is established
for the benefit of the Employees of the Bank, the MHC, the SHC, the Stock-form
Bank or any of its Affiliates and which, with its related trust, meets the
requirements to be qualified under Section 401 of the Code as from time to time
in effect. A
7
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("Non-Tax-Qualified Employee Stock Benefit Plan") is any defined benefit plan or
defined contribution plan which is not so qualified.
2.56. "Voting Record Date" means the date for determining the
eligibility of Depositors to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR THE MHC REORGANIZATION.
The Bank shall provide the Superintendent with written notice of the
proposed MHC Reorganization. Such notice shall include a copy of this Plan, the
proposed organization certificate and bylaws for MHC, the SHC and the Stock-form
Bank and such other information as is required by applicable laws and
regulations or as the Superintendent may otherwise require. After the Bank's
submission to the Superintendent of its application to reorganize, the Bank
shall provide public notice of its plan to reorganize. Such notice may be made
by means of the posting of a notice in a conspicuous place in its branch offices
(which term shall not include separate electronic facilities), the issuance of a
press release containing all material details of the proposed MHC Reorganization
(and such other information required to make the press release not false or
misleading) and the placing of an advertisement containing such material details
(and such other information, if any) in a newspaper of general circulation in
the communities where the principal office and branches of the Bank are located.
In addition to the foregoing, the Bank shall file such applications, publish
such notices and take such other action as may be necessary to obtain the
approval of the Superintendent and, to the extent required, the Banking Board,
of this Plan and the transactions contemplated hereby.
Simultaneously with or as soon as practicable after the Bank's
submission to the Superintendent of its application to reorganize, the Bank and
the Stock-form Bank shall submit to the FDIC a notice of its intent to
reorganize into a mutual holding company organization and applications to secure
deposit insurance for the Stock-form Bank and to obtain permission to merge the
Bank with and into the Stock-form Bank pursuant to the Agreement of Merger
included as Appendix A hereto. In connection therewith, the Bank and the
Stock-form Bank shall cause the publication of such notices and take such other
actions as may be required by applicable laws and regulations. Approval of such
applications by the FDIC is a condition precedent to consummation of the MHC
Reorganization.
Simultaneously with or as soon as practicable after the Bank's
submission to the Superintendent of its application to reorganize, the MHC shall
submit an application to the FRB pursuant to Section 3 of the BHCA to acquire
the SHC and the Stock-form Bank and to operate them after the MHC
Reorganization. Simultaneously with or as soon as practicable after the Bank's
submission to reorganize, SHC shall submit an application to the FRB pursuant to
Section 3 of the BHCA to acquire the Stock-form Bank and to operate the
Stock-form Bank after the MCH Reorganization. In connection therewith, the MHC,
the SHC and the Stock-form Bank shall cause the publication of such notices and
take such other actions as may be required by applicable laws and
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regulations. Approval of such applications by the FRB is a condition precedent
to the consummation of the MHC Reorganization.
When the Superintendent shall have determined to approve or disapprove
the Plan or the MHC Reorganization, the Superintendent shall so advise the Bank
in writing. In order to approve the Plan, no provision contained in this Plan
may be determined by the Superintendent to be inequitable or detrimental to any
of the Bank, MHC, the SHC, the Stock-form Bank or the depositors of the Bank, or
to be contrary to the public interest.
If this Plan is approved by the Superintendent, and following the
receipt of all other required regulatory approvals, the Superintendent shall
endorse approval on an organization certificate for each of the MHC, the SHC and
the Stock-form Bank and cause them to be filed in the office of the
Superintendent and with the clerk of the county in which the principal office of
each is located. Upon the filing of such organization certificates, the
existence of MHC, SHC and the Stock-form Bank shall commence.
If approved by the Superintendent, the Bank shall submit this Plan, as
well as the organization certificate and bylaws of the MHC, the SHC and the
Stock-form Bank to be effective upon consummation of the MHC Reorganization, to
the Bank's Eligible Account Holders for approval at the Special Meeting, which
shall be held upon written notice given no less than 20 days nor more than 45
days prior to the date of such meeting. Such notice shall be sent by first class
mail postage prepaid and shall consist of a notice of Special Meeting and be
accompanied by a proxy statement and proxy card which includes such information
as is required by applicable laws and regulations or as the Superintendent
otherwise may require. At the Special Meeting, (i) all Depositors shall be
entitled to approve or disapprove this Plan, either in person or by valid proxy,
(ii) each Eligible Account Holder shall be entitled to cast one vote for each
full $100 of Qualifying Deposits, (iii) no Eligible Account Holder shall be
entitled to cast more than 1,000 votes, and (iv) no specific minimum amount of
Qualifying Deposits shall be required to be present either in person or by proxy
at the Special Meeting in order to constitute a quorum for the transaction of
business. This Plan must be approved by the affirmative vote of (i) at least 75%
of the aggregate dollar amount of the book value of deposits of the Bank
represented at the Special Meeting either in person or by valid proxy and
entitled to vote there at and (ii) at least a majority of the aggregate dollar
amount of the book value of deposits of the Bank entitled to vote at the Special
Meeting. Within five days after the Special Meeting, the President and Secretary
of the Bank shall certify to the Superintendent the result of the vote taken at
such meeting.
Following the organization of the MHC, the SHC and the Stock-form Bank,
the approval of the Depositors of this Plan and the receipt of all required
regulatory approvals, including without limitation the Superintendent, the
Banking Board, the FDIC and the FRB, the Bank will (i) organize Interim One;
(ii) Interim One will organize Interim Two; (iii) Interim One will organize SHC
as a wholly owned subsidiary of Interim One; (iv) the Bank will convert to stock
form and exchange its charter for a New York stock savings bank charter
(Stock-form Bank); (v) the shares of Interim One will be cancelled and its
charter will be exchanged for a New York mutual holding company charter;
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(vi) Interim Two will merge with and into the Stock-form Bank, with the
Stock-form Bank surviving as a subsidiary of the MHC; (vii) former depositors of
the Bank will have limited voting and liquidated interests in the MHC; and
(viii) the MHC will transfer all of the outstanding shares of Stock-form Bank to
the SHC. The MHC will have an Organization Certificate and Bylaws in the form
attached hereto as Exhibits A and B, respectively, which are incorporated
herein. Additionally, the SHC will have an Organization Certificate and Bylaws
in the form attached hereto as Exhibits C and D, respectively, and the
Stock-form Bank will have an Organization Certificate and Bylaws in the form
attached hereto as Exhibits E and F, respectively, which are incorporated herein
by reference.
Upon consummation of the MHC Reorganization, substantially all of the
assets and liabilities of the Bank shall be vested in the Stock-form Bank as the
survivor of the merger of Interim Two into the Stock-form Bank. All assets,
rights, obligations and liabilities of whatever nature of the Bank that are not
expressly retained by the MHC shall be deemed transferred to the Stock-form
Bank.
The trustees and officers of the Bank shall take all appropriate
actions to facilitate the MHC Reorganization, including obtaining insurance of
deposits for the Stock-form Bank promptly following its organization, taking all
appropriate actions to effect the transactions referenced in the immediately
preceding paragraph and preparing, filing and prosecuting such applications,
filings and notices as may be required under applicable laws and regulations and
policies of the Department and the FDIC to effect the MHC Reorganization.
As a result of the MHC Reorganization, the Bank will become a New
York-chartered stock-form savings bank and a wholly owned subsidiary of the SHC,
and the SHC will be a majority owned subsidiary of the MHC.
4. POWERS AND AUTHORITIES OF THE MHC, THE SHC AND THE STOCK-FORM BANK.
The rights and powers of the MHC, the SHC and the Stock-form Bank upon
consummation of the MHC Reorganization will be as specified in their respective
Organization Certificate and Bylaws, applicable laws and regulations (including,
in the case of the MHC and SHC, the BHCA and rules and regulations thereunder)
and policies of governing regulatory authorities.
Upon consummation of the MHC Reorganization, the MHC and SHC shall (i)
possess all the rights, powers and privileges, except deposit-taking powers, and
shall be subject to all the limitations, not inconsistent with Article VI-C of
the NYBL, of a mutual savings bank under Articles VI and XVI of the NYBL, and
(ii) be subject to the BHCA, provided that, notwithstanding anything herein to
the contrary, the MHC and the SHC shall not exercise any rights, powers or
privileges pursuant to any provision of federal law applicable to bank holding
companies or savings and loan holding companies which are not also authorized
under Article VI of the NYBL.
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Notwithstanding any inconsistent provisions of Sections 14-e, 600, 601,
601-a or 601-b of the NYBL, and subject to the General Regulations of the
Banking Board, the MHC and the SHC may:
(a) merge with, acquire or purchase the assets of a mutual holding
company established pursuant to Article VI-C of the NYBL or the savings
and loan holding company provisions of the Home Owners' Loan Act, as
amended;
(b) acquire or purchase the assets or stock of a stock savings bank, a
stock savings and loan association, a stock federal savings bank or a
stock federal savings and loan association;
(c) acquire a mutual savings bank, a mutual savings and loan
association, a federal mutual savings bank or a federal mutual savings
and loan association through the merger of such institutions with a
stock subsidiary of such mutual holding company; and
(d) engage in any other acquisition or combination specifically
permitted by general or special regulations promulgated by the Banking
Board; provided, however, that under current law the Banking Board
shall have no power to permit any insurance activities other than those
expressly authorized under the NYBL or to expand by interpretation the
express provisions of federal law set forth in the BHCA.
Except to the extent permitted in Sections 3(f)(2) and (3) of the BHCA
and authorized by the NYBL, the powers of the MHC and the SHC shall not include
the power to directly or indirectly engage in: the sale or underwriting of
insurance; the formation or acquisition of an insurance agency or an insurance
company; or the issue, sale, distribution and underwriting of, or to deal in,
any security arising out of a contract issued by an insurance company and
subject to the supervision of the Superintendent of Insurance of the State of
New York.
The MHC and the SHC may not dispose of any interest in the common stock
of Stock-form Bank upon consummation of the MHC Reorganization except (i)
pursuant to an offering of common stock of the Bank following consummation of
the MHC Reorganization conducted in compliance with Article VI-C of the NYBL and
Part 111 of the General Regulations of the Banking Board or (ii) pursuant a
pledge of such stock to secure borrowings upon the receipt of written approval
of the Superintendent.
Except to the extent such provisions are inconsistent with Article VI-C
of the NYBL, upon consummation of the MHC Reorganization the Bank shall be
subject to the same provisions of the NYBL as apply to savings banks which have
converted to stock form pursuant to Sections 14-e and 9017 of the NYBL.
Following consummation of the MHC Reorganization, the SHC shall have
authority to issue to Persons other than the MHC an amount of common stock and
securities convertible into common stock which in the aggregate is less than 50%
of the issued and outstanding common stock of the
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SHC, which authority shall be conducted in accordance with the requirements of
Article VI-C of the NYBL and Part 111 of the General Regulations of the Banking
Board. Following consummation of the MHC Reorganization, the SHC and the Bank
also shall have authority to issue equity or debt securities other than common
stock and securities convertible into common stock, subject to the terms of its
organization certificate, including any amendments thereto.
5. TAX CONSEQUENCES.
Consummation of the MHC Reorganization is expressly conditioned upon
prior receipt by the Bank and/or the SHC of (i) a ruling of the United States
Internal Revenue Service and/or an opinion of counsel to the effect that the MHC
Reorganization will not result in any gain or loss for federal income tax
purposes to the Bank, the Stock-form Bank, the MHC, the SHC or Depositors; and
(ii) a ruling and/or an opinion of counsel or tax advisor with respect to New
York taxation, to the effect that consummation of the MHC Reorganization will
not result in a taxable reorganization under the provisions of the applicable
codes or recapture of income or bad debt reserves by the MHC, the SHC, the Bank
or the Stock-form Bank.
6. TRANSFER OF DEPOSIT ACCOUNTS.
Each Deposit Account in the Bank at the time of the MHC Reorganization
will become, without further action by the account holder, a Deposit Account in
the Stock-form Bank after the MHC Reorganization, equivalent in withdrawable
amount to the withdrawal value, and subject to the same terms and conditions
(except as to liquidation rights), as such Deposit Account in the Bank at the
time of the MHC Reorganization.
7. VOTING AND OTHER RIGHTS OF SHAREHOLDERS OF THE STOCK-FORM BANK.
Following the MHC Reorganization, voting rights with respect to the
Stock-form Bank will be held and exercised exclusively by the holder or holders
of the capital stock of the Stock-form Bank. Neither depositors in nor borrowers
from the Stock-form Bank will have any voting rights with respect to the
Stock-form Bank in their capacities as such.
8. LIQUIDATION RIGHTS.
(a) The entire net worth of the MHC shall constitute a liquidation
account for the benefit of the depositors of its subsidiary savings bank(s). The
liquidation account shall not be a fixed amount but may increase or decrease
over time. The function of the liquidation account is to establish that upon the
complete liquidation of the MHC, the entire net worth of the MHC will be
distributed among those persons who are the depositors of its subsidiary savings
bank(s) as of the date of the liquidation. The designation of the MHC's net
worth as a liquidation account shall not operate to restrict the use or
application of the MHC's net worth accounts.
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(b) In the event of a complete liquidation of the MHC, the entire net
worth of the MHC shall be distributed ratably among all the depositors of its
subsidiary savings bank(s) as of the date of the liquidation.
(c) Upon the conversion of the MHC from a mutual to a stock-form
holding company pursuant to the terms of Section 23 hereof, the net worth of the
MHC shall no longer be designated a liquidation account. Instead, each
subsidiary savings bank shall at that time establish a liquidation account,
which liquidation account shall in the aggregate equal the MHC's liquidation
account as of its last periodic report of condition immediately preceding its
conversion into a stock-form holding company. The liquidation account
established by each subsidiary savings bank shall be in the same proportion to
the MHC's liquidation account that the total deposits of that subsidiary savings
bank bears to the total deposits of all subsidiary savings banks of the MHC. The
liquidation account established by a subsidiary savings bank shall comply with
the rules contained in Section 86.4(g) of the General Regulations of the Bank
Board.
9. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF COMMON STOCK.
(a) The price at which shares of Common Stock shall be sold shall be
based on a pro forma valuation of the aggregate market value of the Common Stock
prepared by the Independent Appraiser. The valuation shall be based on financial
information relating to the SHC and the Bank, economic and financial conditions,
a comparison of the SHC and the Bank with selected publicly held financial
institutions and holding companies and with comparable financial institutions
and mutual holding companies and such other factors as the Independent Appraiser
may deem to be important, including, but not limited to, the projected operating
results and financial condition of the SHC and the Bank. The valuation shall be
stated in terms of an Estimated Price Range, the maximum of which shall
generally be no more than 15% above the average of the minimum and maximum of
such price range and the minimum of which shall generally be no more than 15%
below such average. The valuation shall be updated during the Offerings as
market and financial conditions warrant and as may be required by the
Superintendent and the FDIC.
(b) Based upon the Independent Valuation, the Boards of Directors of
the SHC and the Bank shall fix the Initial Purchase Price and the number of
shares of Common Stock to be offered in the Subscription Offering, Community
Offering and/or Syndicated Community Offering. The Actual Purchase Price and the
total number of shares of Common Stock to be issued in the Offerings shall be
determined by the Boards of Directors of the SHC and the Bank upon conclusion of
such offerings in consultation with the Independent Appraiser and any financial
advisor or investment banker retained by the Bank in connection with such
offerings.
(c) Subject to the approval of the Superintendent and the FDIC, the
Estimated Price Range may be increased or decreased to reflect market and
economic conditions prior to completion of the Offerings or to fill the order of
the Tax-Qualified Employee Stock Benefit Plans, and under such circumstances the
SHC may increase or decrease the total number of shares of Common Stock to be
issued in the Offerings to reflect any such change. Notwithstanding anything to
the contrary
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contained in this Plan, no resolicitation of subscribers shall be required and
subscribers shall not be permitted to modify or cancel their subscriptions
unless the gross proceeds from the sale of the Common Stock issued in the
Offerings are less than the minimum or more than 15% above the maximum of the
Estimated Price Range set forth in the Prospectus. In the event of an increase
in the total number of shares offered in the Offerings due to an increase in the
Estimated Price Range, the priority of share allocation shall be as set forth in
this Plan.
10. GENERAL PROCEDURE FOR THE STOCK OFFERING.
(a) As soon as practicable after the registration of the Common Stock
under the Securities Act of 1933, as amended, and after the receipt of all
required regulatory approvals, the Common Stock shall be first offered for sale
in a Subscription Offering to Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans, Supplemental Eligible Account Holders, if applicable,
Directors, Trustees, Officers and Employees. It is anticipated that any shares
of Common Stock remaining unsold after the Subscription Offering will be sold
through a Community Offering and/or a Syndicated Community Offering. The
purchase price per share for the Common Stock shall be a uniform price
determined in accordance with Section 9 hereof.
(b) The SHC and the Bank may retain and pay for the services of
financial and other advisors and investment bankers to assist in connection with
any or all aspects of the Offerings, including in connection with the
Subscription Offering, Community Offering and/or any Syndicated Community
Offering, the payment of fees to brokers and investment bankers for assisting
Persons in completing and/or submitting Order Forms. All fees, expenses,
retainers and similar items shall be reasonable.
11. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
(a) Each Eligible Account Holder shall receive, without payment,
non-transferable Subscription Rights to purchase up to the greater of (i)
$150,000 of Common Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering or
Public Offering), (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering or (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
offered in the Subscription Offering by a fraction, of which the numerator is
the amount of the Qualifying Deposits of the Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Eligible
Account Holders.
(b) In the event of an oversubscription for shares of Common Stock
pursuant to Section 5(a), available shares shall be allocated among subscribing
Eligible Account Holders so as to permit each such Eligible Account Holder, to
the extent possible, to purchase a number of shares which will make his or her
total allocation equal to the lesser of the number of shares subscribed for or
100 shares. Any available shares remaining after each subscribing Eligible
Account Holder has been allocated the lesser of the number of shares subscribed
for or 100 shares shall be allocated among
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the subscribing Eligible Account Holders in the proportion which the Qualifying
Deposit of each such subscribing Eligible Account Holder bears to the total
Qualifying Deposits of all such subscribing Eligible Account Holders, provided
that no fractional shares shall be issued. Subscription Rights of Eligible
Account Holders who are also Trustees or Officers of the Bank and their
Associates shall be subordinated to those of other Eligible Account Holders to
the extent that they are attributable to increased deposits during the one year
period preceding the Eligibility Record Date.
12. SUBSCRIPTION RIGHTS OF TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS
Tax-Qualified Employee Stock Benefit Plans, including the employee
stock ownership plan to be established by the Bank ("ESOP"), shall receive,
without payment, non-transferable Subscription Rights to purchase in the
aggregate up to 10% of the Common Stock, including shares of Common Stock to be
issued in the Offerings as a result of an increase in the Estimated Price Range
after commencement of the Subscription Offering and prior to completion of the
Offering. The subscription rights granted to Tax-Qualified Employee Stock
Benefit Plans shall be subject to the availability of shares of Common Stock
after taking into account the shares of Common Stock purchased by Eligible
Account Holders. Shares of Common Stock purchased by any individual participant
("Plan Participant") in a Tax-Qualified Employee Stock Benefit Plan using funds
therein pursuant to the exercise of subscription rights granted to such
Participant in his individual capacity as an Eligible Account Holder and/or
Supplemental Eligible Account Holder and/or purchases by such Plan Participant
in the Community Offering shall not be deemed to be purchases by a Tax-Qualified
Employee Stock Benefit Plan for purposes of calculating the maximum amount of
Common Stock that Tax-Qualified Employee Stock Benefit Plans may purchase
pursuant to the first sentence of this Section 12 if the individual Plan
Participant controls or directs the investment authority with respect to such
account or subaccount. Consistent with applicable laws and regulations and
policies and practices of the Superintendent and the FDIC, the ESOP may use
funds contributed by the SHC or the Bank and/or borrowed from an independent
financial institution to exercise such Subscription Rights, and the SHC and the
Bank may make scheduled discretionary contributions thereto, provided that such
contributions do not cause the SHC or the Bank to fail to meet any applicable
capital maintenance requirements.
13. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
(a) Each Supplemental Eligible Account Holder shall receive, without
payment, non-transferable Subscription Rights to purchase up to the greater of
(i) $150,000 of Common Stock (or such maximum purchase limitation as may be
established for the Community Offering and/or Syndicated Community Offering or
Public Offering), (ii) one-tenth of 1% of the total offering of shares in the
Subscription Offering or (iii) 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
offered in the Subscription Offering by a fraction, of which the numerator is
the amount of the Qualifying Deposits
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of the Supplemental Eligible Account Holder and the denominator is the total
amount of all Qualifying Deposits of all Supplemental Eligible Account Holders,
subject to the availability of shares of Common Stock for purchase after taking
into account the shares of Common Stock purchased by Eligible Account Holders
and the ESOP through the exercise of Subscription Rights under Sections 11 and
12 hereof.
(b) In the event of an oversubscription for shares of Common Stock
pursuant to Section 13(a), available shares shall be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each such Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his or her total allocation (including the number of shares,
if any, allocated in accordance with Section 11(a)) equal to the lesser of the
number of shares subscribed for or 100 shares. Any remaining available shares
shall be allocated among subscribing Supplemental Eligible Account Holders in
the proportion that the amount of their respective Qualifying Deposits bears to
the total amount of the Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders, provided that no fractional shares shall be issued.
14. SUBSCRIPTION RIGHTS OF TRUSTEES, OFFICERS AND EMPLOYEES.
(a) To the extent that there are sufficient shares remaining after
satisfaction of all subscriptions under the above categories, Trustees, Officers
and Employees of the Bank shall receive, without payment, non-transferable
subscription rights to purchase in this category, in the aggregate, up to 24% of
the shares of Common Stock offered in the Subscription Offering.
(b) In the event of oversubscription pursuant to Section 14(a),
Subscription Rights for the purchase of such shares shall be allocated among the
individual Trustees, Officers and Employees of the Bank on a point system basis,
whereby a point will be assigned for each year of employment and for each salary
increment of $5,000 per annum and five points for each office held in the Bank,
including a trusteeship. If any such Trustee, Officer or Employee does not
subscribe for his or her full allocation of shares, any shares not subscribed
for may be purchased by other Trustees, Officers and Employees in proportion to
their respective subscriptions, provided that no fractional shares shall be
issued.
15. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING, PUBLIC OFFERING AND
OTHER OFFERINGS.
(a) If less than the total number of shares of the Common Stock are
sold in the Subscription Offering, it is anticipated that all remaining shares
of Common Stock shall, if practicable, be sold directly by the SHC and the Bank
in a Community Offering and/or a Syndicated Community Offering. Subject to the
requirements set forth herein, Common Stock sold in the Community Offering
and/or the Syndicated Community Offering shall achieve the widest possible
distribution of such stock.
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(b) In the event of a Community Offering, all shares of Common Stock
which are not subscribed for in the Subscription Offering shall be offered for
sale by means of a direct community marketing program, which may provide for the
use of brokers, dealers or investment banking firms experienced in the sale of
financial institution securities. Any available shares in excess of those not
subscribed for in the Subscription Offering will be available for purchase by
members of the general public who receive a Prospectus, with preference given to
natural persons residing in Oswego County, New York ("Preferred Subscribers").
(c) A Prospectus and Order Form shall be furnished to such Persons as
the SHC and the Bank may select in connection with the Community Offering and
each order for Common Stock in the Community Offering shall be subject to the
absolute right of the SHC and the Bank to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted by
the SHC, in an amount equal to the lesser of 100 shares or the number of shares
subscribed for by each such Preferred Subscriber, if possible. Thereafter, any
shares remaining will be allocated among the Preferred Subscribers whose
subscriptions remain unsatisfied on an equal number of shares basis per order
until all orders have been filled or the remaining shares have been allocated,
provided no fractional shares shall be issued. If there are any shares remaining
after all subscriptions by Preferred Subscribers have been satisfied, such
remaining shares shall be allocated to Other Account Holders of the general
public who purchase in the Community Offering applying the same allocation
described above for Preferred Subscribers.
(d) The amount of Common Stock that any Person together with any
Associate thereof or group of Persons acting in concert may purchase in the
Community Offering shall not exceed the greater of (i) $150,000 or (ii)
one-tenth of 1% of the total offering of shares in the Subscription Offering,
provided, however, that this amount may be increased to 5% of the total offering
of shares in the Subscription Offering, subject to any required regulatory
approval but without the further approval of Depositors; provided, further, that
orders for Common Stock in the Community Offering shall first be filled to a
maximum of 2% of the total number of shares of Common Stock sold in the
Offerings and thereafter any remaining shares shall be allocated on an equal
number of shares basis per order until all orders have been filled, provided no
fractional shares shall be issued. The SHC and the Bank may commence the
Community Offering concurrently with, at any time during, or as soon as
practicable after the end of, the Subscription Offering, and the Community
Offering must be completed within 45 days after the completion of the
Subscription Offering, unless extended by the SHC and the Bank with any required
regulatory approval.
(e) Subject to such terms, conditions and procedures as may be
determined by the SHC and the Bank, all shares of Common Stock not subscribed
for in the Subscription Offering or ordered in the Community Offering may be
sold by a syndicate of broker-dealers to the general public in a Syndicated
Community Offering. Each order for Common Stock in the Syndicated Community
Offering shall be subject to the absolute right of the SHC and the Bank to
accept or reject any such order in whole or in part either at the time of
receipt of an order or as soon as practicable after
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completion of the Syndicated Community Offering. The amount of Common Stock that
any Person together with any Associate thereof or group of Persons acting in
concert may purchase in the Syndicated Community Offering shall not exceed
$150,000 provided, however, that this amount may be increased to 5% of the total
offering of shares in the Subscription Offering, subject to any required
regulatory approval but without the further approval of the Depositors; provided
further that orders for Common Stock in the Syndicated Community Offering shall
first be filled to a maximum of 2% of the total number of shares of Common Stock
sold in the Offering and thereafter any remaining shares shall be allocated on
an equal number of shares basis per order until all orders have been filled,
provided no fractional shares shall be issued. The SHC and the Bank may commence
the Syndicated Community Offering concurrently with, at any time during, or as
soon as practicable after the end of the Subscription Offering and/or Community
Offering, and the Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless extended by the SHC
and the Bank with any required regulatory approval.
(f) The SHC and the Bank may sell any shares of Common Stock remaining
following the Subscription Offering, Community Offering and/or the Syndicated
Community Offering in a Public Offering. The provisions of Section 15 hereof
shall not be applicable to the sales to underwriters for purposes of the Public
Offering but shall be applicable to sales by the underwriters to the public. The
price to be paid by the underwriters in such an offering shall be equal to the
Actual Purchase Price less an underwriting discount to be negotiated among such
underwriters and the Bank and the SHC, subject to any required regulatory
approval or consent.
(g) If for any reason a Syndicated Community Offering or Public
Offering of shares of Common Stock not sold in the Subscription Offering and the
Community Offering cannot be effected, or in the event that any insignificant
residue of shares of Common Stock is not sold in the Subscription Offering,
Community Offering or Syndicated Community Offering, the SHC and the Bank shall
use their best efforts to obtain other purchases for such manner and upon such
condition as may be satisfactory to the Superintendent and the FDIC.
16. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF COMMON STOCK.
(a) The aggregate amount of outstanding Common Stock owned or
controlled by Persons other than the MHC at the close of the Stock Offering
shall be less than 50% of the total outstanding Common Stock.
(b) The aggregate amount of Common Stock acquired in the Stock Offering
by any one or more Tax-Qualified Employee Stock Benefit Plans, exclusive of any
Common Stock acquired by such plans in the secondary market, shall not exceed
ten percent (10%) of the (i) outstanding shares of Common Stock, or (ii)
stockholders' equity of the SHC, in each case held by Persons other than the MHC
at the close of the Stock Offering.
(c) The aggregate amount of Common Stock acquired in the Stock Offering
by any Non-Tax-Qualified Employee Stock Benefit Plan or any Insider of the Bank
and his or her Associates,
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exclusive of any Common Stock acquired by said plan, or such Insider and his or
her Associates, in the secondary market, shall not exceed ten percent (10%) of
the (i) outstanding shares of Common Stock, or (ii) stockholders' equity of the
SHC, held by Persons other than the MHC at the close of the Stock Offering.
(d) The aggregate amount of Common Stock acquired in the Stock Offering
by all Non-Tax-Qualified Employee Stock Benefit Plans and Insiders of the Bank
and their Associates shall not exceed thirty-four percent (34%) of the (i)
outstanding shares of Common Stock, or (ii) stockholders' equity of the SHC,
held by Persons other than the MHC at the close of the Stock Offering.
(e) Except in the case of Tax-Qualified Employee Stock Benefit Plans in
the aggregate, as set forth in Section 16(b) hereof, and certain Eligible
Account Holders and Supplemental Eligible Account Holders, and in addition to
the other restrictions and limitations set forth herein, the maximum amount of
Common Stock which any Person together with any Associate or group of Persons
acting in concert may, directly or indirectly, subscribe for or purchase in the
Stock Offering (including without limitation the Subscription Offering,
Community Offering and/or Syndicated Community Offering), shall not exceed 5% of
the total number of shares sold in the Offering.
(f) No Person may purchase fewer than 25 shares of Common Stock in the
Stock Offering, to the extent such shares are available; provided, however, that
if the Actual Purchase Price is greater than $20.00 per share, such minimum
number of shares shall be adjusted so that the aggregate Actual Purchase Price
for such minimum shares will not exceed $500.00.
(g) For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Trustees and Officers shall not be deemed to be
Associates or a group acting in concert solely as a result of their capacities
as such, (ii) shares purchased by Tax-Qualified Employee Stock Benefit Plans
shall not be attributable to the individual trustees or beneficiaries of any
such plan for purposes of determining compliance with the limitations set forth
in Section 16(e) hereof, and (iii) shares purchased by Tax-Qualified Employee
Stock Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitation set forth in Section 16(d) hereof.
(h) Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the SHC and the Bank may increase or decrease
any of the purchase limitations set forth herein at any time. In the event that
either an individual purchase limitation or the number of shares of Common Stock
to be sold in the Stock Offering is increased after commencement of the Stock
Offering, any Person who ordered the maximum number of shares of Common Stock
shall be permitted to purchase an additional number of shares such that such
Person may subscribe for the then maximum number of shares permitted to be
subscribed for by such Person, subject to the rights and preferences of any
person who has priority rights to purchase shares of Common Stock in the Stock
Offering. In the event that either an individual purchase limitation or the
number of shares of Common Stock to be sold in the Stock Offering is decreased
after commencement of the Stock Offering, the orders of any Person who
subscribed for the maximum number of shares of Common
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Stock shall be decreased by the minimum amount necessary so that such Person
shall be in compliance with the then maximum number of shares permitted to be
subscribed for by such Person.
(i) The SHC and the Bank shall have the right to take any action as
they may, in their sole discretion, deem necessary, appropriate or advisable in
order to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section 16 and elsewhere in this Plan and the terms,
conditions and representations contained in the Order Form, including, but not
limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrence) to reject, limit or revoke acceptance of any order and
to delay, terminate or refuse to consummate any sale of Common Stock which they
believe might violate, or is designed to, or is any part of a plan to, evade or
circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and binding on all
Persons and the SHC and the Bank shall be free from any liability to any Person
on account of any such action.
17. TIMING OF STOCK OFFERING, MANNER OF PURCHASING COMMON STOCK AND ORDER
FORMS.
(a) The Stock Offering may be commenced concurrently with or at any
time after the mailing to the Depositors of the proxy statement to be used in
connection with the Special Meeting. The Stock Offering may be closed before the
Special Meeting, provided that the offer and sale of the Common Stock shall be
conditioned upon the approval of the Plan by the Depositors at the Special
Meeting.
(b) The exact timing of the commencement of the Stock Offering shall be
determined by the Bank and the SHC in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
it in connection with the Stock Offering. The Bank and the SHC may consider a
number of factors in determining the exact timing of the commencement of the
Stock Offering, including, but not limited to, its current and projected future
earnings, local and national economic conditions and the prevailing market for
stocks in general and stocks of financial institutions in particular. The Bank
and the SHC shall have the right to withdraw, terminate, suspend, delay, revoke
or modify any such Stock Offering, at any time and from time to time, as they in
their sole discretion may determine, without liability to any Person, subject to
any necessary regulatory approval or concurrence.
(c) The Bank and the SHC shall have the absolute right, in their sole
discretion and without liability to any Person, to reject any Order Form,
including, but not limited to, any Order Form (i) that is improperly completed
or executed; (ii) that is not timely received; (iii) that is not accompanied by
the proper payment (or authorization of withdrawal for payment); (iv) submitted
by a Person whose representations the Bank and the SHC believes to be false or
who they otherwise believe, either alone, or acting in concert with others, is
violating, evading or circumventing, or intends to violate, evade or circumvent,
the terms and conditions of this Plan. The Bank and the SHC may, but will not be
required to, waive any irregularity on any Order Form or may require the
submission of corrected Order Forms or the remittance of full payment for shares
of Common Stock by such date
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as they may specify. The interpretation of the Bank and the SHC of the terms and
conditions of the Order Forms shall be final and conclusive.
(d) The SHC and the Bank shall make reasonable efforts to comply with
the securities laws of all jurisdictions in the United States in which
Participants reside. However, no Participant will be offered or receive any
Common Stock under the Plan if such Participant resides in a foreign country or
in a jurisdiction of the United States with respect to which all of the
following apply: (a) there are few Participants otherwise eligible to subscribe
for shares under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Common Stock to such
Participants would required the SHC or the Bank or their respective Trustees and
Officers, under the laws of such jurisdiction, to register as a broker or
dealer, salesman or selling agent or to register or otherwise qualify the Common
Stock for sale in such jurisdiction, or the SHC or the Bank would be required to
qualify as a foreign corporation or file a consent to service of process in such
jurisdiction; and (c) such registration or qualification in the judgment of the
SHC and the Bank would be impracticable or unduly burdensome for reasons of cost
or otherwise.
18. PAYMENT FOR COMMON STOCK.
(a) Payment for shares of Common Stock ordered by Persons in the Stock
Offering shall be equal to the Purchase Price per share multiplied by the number
of shares which are being ordered. Such payment may be made in cash, if
delivered in person, or by check or money order at the time the Order Form is
delivered to the Bank. In addition, the Bank and the SHC may elect to provide
Persons who have a Deposit Account with the Bank the opportunity to pay for
shares of Common Stock by authorizing the Bank to withdraw from such Deposit
Account an amount equal to the aggregate Purchase Price of such shares.
(b) Consistent with applicable laws and regulations and policies and
practices of the Superintendent and the FDIC, payment for shares of Common Stock
ordered by Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit Plans may
be made with funds contributed by the Bank and/or funds obtained pursuant to a
loan from an unrelated financial institution pursuant to a loan commitment which
is in force from the time that any such plan submits an Order Form until the
closing of the transactions contemplated hereby.
(c) If a Person authorizes the Bank to withdraw the amount of the
Purchase Price from his or her Deposit Account, the Bank shall have the right to
make such withdrawal or to freeze funds equal to the aggregate Purchase Price
upon receipt of the Order Form. Notwithstanding any regulatory provisions
regarding penalties for early withdrawals from certificate accounts, the Bank
and the SHC may allow payment by means of withdrawal from certificate accounts
without the assessment of such penalties. In the case of an early withdrawal of
only a portion of such account, the certificate evidencing such account shall be
cancelled if any applicable minimum balance requirement ceases to be met. In
such case, the remaining balance will earn interest at the regular passbook
rate. However, where any applicable minimum balance is maintained in such
certificate
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account, the rate of return on the balance of the certificate account shall
remain the same as prior to such early withdrawal. This waiver of the early
withdrawal penalty applies only to withdrawals made in connection with the
purchase of Common Stock and is entirely within the discretion of the Bank.
(d) The Bank shall pay interest at not less than the passbook rate for
all amounts paid in cash, by check or money order to purchase shares of Common
Stock in the Stock Offering from the date payment is received until the Stock
Offering is completed or terminated.
(e) Neither the Bank, the MHC, the SHC, the Stock-form Bank nor any
Affiliate thereof shall knowingly loan funds or otherwise extend credit to any
Person to purchase Common Stock.
(f) Each share of Common Stock issued in the Stock Offering shall be
non-assessable upon payment in full of the Purchase Price.
19. CONDITIONS TO THE OFFERING.
Consummation of the Stock Offering is subject to (i) consummation of
the MHC Reorganization, (ii) the receipt of all required federal and New York
State approvals for the issuance of Common Stock in the Stock Offering,
including without limitation the approval of the Superintendent and the FDIC,
and (iii) the sale in the Stock Offering of such minimum number of shares of
Common Stock within the Estimated Valuation Range as may be determined by the
Boards of Trustees of the Bank and the Board of Directors of the SHC.
20. REQUIREMENT FOLLOWING STOCK OFFERING FOR REGISTRATION, MARKET MAKING
AND STOCK EXCHANGE LISTING.
If the SHC has more than thirty-five (35) holders of any class of
Capital Stock at the close of the Stock Offering, the SHC shall register that
class of stock pursuant to the Securities Exchange Act of 1934, as amended, and
shall undertake not to deregister such stock for a period of three years
thereafter. In addition, if the SHC has more than one-hundred (100) holders of
any class of Capital Stock at the close of the Stock Offering, the SHC, to the
extent required by applicable laws and regulations and policies of the
Superintendent and the FDIC, 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 to have quotations for that class of stock disseminated on the Nasdaq Stock
Market.
21. REQUIREMENTS FOR CAPITAL STOCK PURCHASES BY DIRECTORS AND OFFICERS
FOLLOWING THE STOCK OFFERING.
For a period of three years following the Stock Offering, Insiders and
their Associates may not purchase, without the prior written approval of the
Superintendent and the FDIC, the Common Stock except from a broker-dealer
registered with the SEC. This prohibition shall not apply,
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however, to (i) a negotiated transaction arrived at by direct negotiation
between buyer and seller and involving more than 1% of the outstanding class of
Common Stock and (ii) purchases of Common Stock made by and held by any
Tax-Qualified or Non-Tax-Qualified Employee Stock Benefit Plan which may be
attributable to individual Insiders and their Associates.
The foregoing restriction on purchases of Common Stock shall be in
addition to any restrictions that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON TRANSFER OF COMMON STOCK.
All shares of the Common Stock which are purchased in the Stock
Offering by Persons other than Insiders shall be transferable without
restriction. Unless otherwise permitted by the Superintendent and the FDIC,
shares of Common Stock purchased by Insiders and their Associates in the Stock
Offering shall be subject to the restriction that such shares shall 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 following the death of
the Insider or Associate. The shares of Common Stock issued by the SHC to
Insiders and their Associates shall bear the following legend giving appropriate
notice of such one year restriction:
The shares represented by this certificate may not be sold by the
registered holder hereof for a period of one year from the date of the
issuance printed hereon, except in the event of the death of the
registered holder.
In addition, the SHC shall give appropriate instructions to the
transfer agent for its Common Stock with respect to the applicable restrictions
relating to the transfer of restricted stock. Any shares issued at a later date
as a stock dividend, stock split or otherwise with respect to any such
restricted stock shall be subject to the same holding period restrictions as may
then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
23. SUBSEQUENT OFFERING OF CAPITAL STOCK OF THE SHC AND CONVERSION OF THE
MHC INTO A STOCK HOLDING COMPANY.
If approved by the Superintendent and/or any other applicable
regulatory authority, following consummation of the MHC Reorganization (i) the
SHC may sell shares of its capital stock to third persons other than the MHC and
(ii) the MHC may convert from a mutual to a stock form holding company, in each
case subject to the requirements of applicable laws and regulations, in each
case subject to the requirements of Article VI-C of the NYBL and Part 111 of the
General Regulations of the Bank Board and any other applicable laws and
regulations. The MHC, the SHC and the Bank are authorized to apply to the
Superintendent in connection with any such transaction for such
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<PAGE>
variations from the requirements of the General Regulations of the Bank Board
and this Plan as may be necessary and proper to effect the transaction.
The SHC may conduct one or more offerings of its capital stock (which
in the aggregate shall be less than 50% of the total to-be-outstanding voting
stock of the SHC) following consummation of the MHC Reorganization, subject to
the approval of the Board of Directors of the SHC, the Bank and the
Superintendent and, if applicable, the FDIC. Each such offering shall be
conducted pursuant to a Stock Issuance Plan which meets the requirements of
applicable laws and regulations and policies of the Department and/or any other
regulatory authority. The actual timing of any offering of the SHC's capital
stock shall be in the discretion of the Board of Directors of the SHC. The Plan
of Stock Issuance adopted by the Bank in connection with this Plan, as amended,
is hereby incorporated herein by reference.
Neither the MHC, the SHC, the Bank nor the Stock-form Bank shall loan
funds or otherwise extend credit to any Person for the purpose of purchasing
capital stock of the SHC issued in connection with any of the transactions
referred to in this Section 23.
24. STOCK COMPENSATION PLANS.
(a) The SHC, the MHC, the Stock-form Bank and the Bank are authorized
to adopt Tax-Qualified Employee Stock Benefit Plans in connection with the MHC
Reorganization, including, without limitation, the ESOP. Subsequent to the
Offerings, the SHC and the Bank are authorized to adopt Non-Tax Qualified
Employee Stock Benefit Plans, including without limitation, stock option plans
and restricted Plans, provided however that, any such plan shall be implemented
in accordance with applicable law and the regulations of the Superintendent and
the FDIC.
(b) Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Common Stock in the Stock Offering, to the
extent permitted by the terms of such benefit plans and this Plan.
(c) The MHC, the SHC and the Stock-form Bank are authorized to enter
into employment or severance agreements with their executive officers.
25. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION.
As part of the MHC Reorganization, the SHC and the Bank intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Code. To fund the Foundation, the Bank will
contribute funds prior to completion of the MHC Reorganization or, immediately
subsequent to the MHC Reorganization, the SHC will contribute authorized but
unissued shares of Common Stock in an amount not to exceed 8.0% of the number of
shares of Common Stock issued in the Stock Offering (provided, however, that
such amount may be reduced by the SHC and the Bank), or a combination thereof,
subject to the receipt of any required regulatory approval or consent. The
Foundation is being formed in connection with the MHC Reorganization
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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 minded, financial services institution.
26. TRUSTEES AND OFFICERS.
Unless otherwise required by the Superintendent or the FDIC, each
Person serving as a trustee of the Bank at the time of the MHC Reorganization
shall serve as a trustee or director, as the case may be, of the MHC, the SHC
and the Stock-form Bank thereafter for the terms respectively specified in the
Organization Certificate and Bylaws of the MHC, the SHC and the Stock-form Bank
and until his or her successor is elected and qualified. The officers of the
MHC, the SHC and the Stock-form Bank shall be selected by their respective Board
of Directors or Trustees upon formation of such entity.
27. EXPENSES OF THE MHC REORGANIZATION AND STOCK OFFERING.
The Bank and the SHC shall use their best efforts to ensure that the
expenses incurred by them in connection with the Stock Offering are reasonable.
28. AMENDMENT OR TERMINATION.
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 Depositors. At any time after
submission of the Plan and 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. Terms of the Plan relating to the Stock Offering
including, without limitation, Section 9 through 25, 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. 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 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 Depositors.
The Plan shall be terminated if the Reorganization is not completed
within 24 months from the date upon which the Depositors approve the Plan, and
may not be extended by the Bank or the Superintendent.
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29. INTERPRETATION OF THE PLAN.
References herein to the NYBL and the General Regulations of the Bank
Board shall in all cases be deemed to refer to the provisions of the same which
were in effect at the time of adoption of this Plan by the Board of Trustees and
Depositors and any subsequent amendments to such provisions.
30. WARRANTS.
The SHC may issue and sell, in lieu of shares of its Common Stock,
units of securities consisting of Common Stock and long-term warrants or other
equity securities, in which event any reference herein to Common Stock shall
apply to such units of equity securities, unless the context otherwise requires.
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
OSWEGO COUNTY BANCORP, INC.
ARTICLE 1. CORPORATE TITLE. The name of the Corporation is Oswego 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 _____ million (______) consisting
of _____ million (_____) shares of Common Stock, par value one cent ($.01) 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 Oswego County
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.
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.
<PAGE>
(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 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.
<PAGE>
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
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:
<PAGE>
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 "Board") or as otherwise provided in
the Bylaws.
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
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
<PAGE>
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 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 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
<PAGE>
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 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.
<PAGE>
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.
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
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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 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 Corporation
may elect to convert to stock form (a "Conversion Transaction") in accordance
with the Amended and Restated Plan of Reorganization from a Mutual Savings Bank
to a Mutual Holding Company and Stock Issuance Plan, dated ______ __, 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
Corporation will merge with and into Oswego 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.
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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.
At the sole discretion of the Board of Trustees of the Mutual Holding
Company and the Board of Directors of 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 Article 12. 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
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 December, 1998.
______________________
Incorporator
Exhibit 3.2
BYLAWS
OF
OSWEGO 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 Oswego County Bancorp, Inc.
("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 "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 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.
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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
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stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the provisions of this Section 6(b). The Officer of
the Corporation or other person presiding over the annual meeting shall, if the
facts so warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the provisions of this
Section 6(b) and, if he 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.
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SECTION 7. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized by
an instrument in writing or 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
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
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<PAGE>
annual or special meeting of stockholders of the Corporation and may be effected
by the unanimous consent in writing by such stockholders.
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 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.
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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.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President of the Bank. If the
President or Chairman is absent or disabled, any two or more directors may call
a special meeting. 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 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;
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(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;
(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 election as a Director who is seventy (70) years of age or
more.
The Board may elect annually Emeriti Members of the Board consisting of
former Board Members who have retired after being no longer eligible for
re-election as a Director because of the age limit set forth in this section. No
Emeritus 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
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Directors to declare a dividend, to 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 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
Corporation matters which need to be decided between regular Board meetings. The
President or the Chairman of the Board will call Executive Committee meetings.
If the President or the Chairman of the Board is absent or disabled, any two
members of the Executive Committee 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.
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(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen, but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors (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
9
<PAGE>
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.
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.
10
<PAGE>
SECTION 5. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI - NOTICES
SECTION 1. NOTICES. Except as otherwise specifically provided herein or
required by law, all notices required to be given to any stockholder, Director,
Officer, employee or agent shall be in writing and may in every instance be
effectively given by hand delivery to the recipient thereof, by depositing such
notice in the 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
11
<PAGE>
Director or committee member reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be as
fixed by the Board of Directors.
SECTION 5. TIME PERIODS. In applying any provision of these 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.
12
Exhibit 3.3
RESTATED ORGANIZATION CERTIFICATE
OF
OSWEGO COUNTY SAVINGS BANK
Under Section 8007
of the Banking Law
of the State of New York
ARTICLE 1
NAME
The name of the corporation is "Oswego County Savings Bank" (the "Bank").
ARTICLE II
PRINCIPAL OFFICE
The Bank's principal office is located at 44 East Bridge Street, Oswego,
New York 13126.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Bank is to pursue any or all of the lawful objectives of
a savings bank chartered under the Banking Law of the State of New York and to
exercise all of the express, implied and incidental powers conferred thereby and
by all acts amendatory thereof and supplemental thereto, or as they may
hereafter be amended, subject to all lawful and applicable rules, regulations
and orders of the Banking Board of the State of New York (the "Banking Board")
and the New York Superintendent of Banks.
ARTICLE IV
CAPITAL STOCK
Section 1. Authorized Capital Stock. The total number of shares of all
classes of capital stock which the Bank has the authority to issue is 100, all
of which shall be common stock, $1.00 par value per share (the "Common Stock").
Section 2. Designations, Powers, Rights, Qualifications, Limitations and
Restrictions Relating to the Capital Stock. A holder of Common Stock shall be
entitled to one vote for
<PAGE>
each share of Common Stock standing in the name of such holder on the stock
register of the Bank. Holders of Common Stock shall be entitled to such
dividends as may be declared by the Board of Directors out of funds lawfully
available therefor. Upon any liquidation dissolution or winding up of the
affairs of the Bank, whether voluntary or involuntary, holders of Common Stock
shall be entitled to receive pro rata the avails of the assets of the Bank
remaining after payment of expenses of settling the Bank's affairs, the
satisfaction of all liabilities of the Bank and distribution of any amounts
remaining in any liquidation account established by the Bank for the benefit of
eligible deposit account holders therein under the Banking Law of the State of
New York and the regulations of the Banking Board thereunder.
ARTICLE V
PREEMPTIVE AND SUBSCRIPTION RIGHTS
No holder of shares of Common Stock shall be entitled as such, as a matter
of preemptive or preferential right to subscribe for, purchase or otherwise
acquire any part of any new or additional issue of capital stock of any class
whatsoever of the Bank, or of securities convertible into capital stock of any
class whatsoever of the Bank, or of any warrants or other instruments evidencing
rights or options to subscribe for, purchase or otherwise acquire such capital
stock or securities, whether now or hereafter authorized or whether issued for
cash or other consideration or by way of dividend. Nothing contained herein
shall be deemed to affect subscription rights to which eligible account holders
of the Bank may be entitled pursuant to Article VI-C of the Banking Law of the
State of New York and regulations of the Banking Board thereunder.
ARTICLE VI
DURATION
The duration of the Bank is perpetual.
ARTICLE VII
BOARD OF DIRECTORS
The Bank shall be under the direction of a Board of Directors. The number
of directors shall not be less than seven (7) nor more than twenty (20). The
exact number of directors shall be fixed from time to time by the Board of
Directors pursuant to a resolution adopted by a majority of the Board of
Directors.
2
<PAGE>
ARTICLE VIII
ACTION BY STOCKHOLDERS BY WRITTEN CONSENT
Whenever stockholders of the Bank are required or permitted to take any
action by vote, such action may be taken without a meeting upon written consent,
setting forth the action so taken, signed by the holders of all outstanding
shares of capital stock of the Bank entitled to vote thereon.
ARTICLE IX
AMENDMENT OF RESTATED ORGANIZATION CERTIFICATE
No amendment, addition, alteration, change or repeal of the Restated
Organization Certificate shall be made unless it is authorized by vote of the
holders of a majority of all outstanding shares entitled to vote thereon at a
meeting of stockholders or by unanimous written consent of stockholders pursuant
to Article VIII hereof.
IN WITNESS WHEREOF, we hereby certify that the Bank was chartered under the
name "Interim Savings Bank" pursuant to an Organization Certificate filed by the
Superintendent of Banks of the State of New York on ______, 1998; that the Board
of Directors of the Bank and its sole stockholder have approved an amendment of
such Organization Certificate to change the name of the Bank to "Oswego County
Savings Bank" and directed that the text of such Organization Certificate, as
amended, be restated to read in full as set forth above; and that we have made,
signed and acknowledged this certificate in duplicate, this ____ day of
_____1998.
OSWEGO COUNTY SAVINGS BANK
By:______________________________
Gregory J. Kreis, President and
Chief Executive Officer
By:______________________________
______________, Secretary
3
<PAGE>
STATE OF NEW YORK )
) ss:
___________COUNTY )
On the ____day of ____1998, before me personally came Gregory J. Kreis, to me
known and known to me to be the individual described in and who executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.
________________________________
Notary Public
STATE OF NEW YORK )
) ss:
___________COUNTY )
On the ___day of _____1998, before me personally came ____________________, to
me known and known to me to be the individual described in and who executed the
foregoing instrument, and he duly acknowledged to me that he executed the same.
________________________________
Notary Public
4
Exhibit 3.4
BYLAWS
OF
OSWEGO COUNTY SAVINGS BANK
ARTICLE I
OFFICES
The principal office of Oswego County Savings Bank (the "Bank") shall be located
in the State of New York, City of Oswego, County of Oswego. Subject to
applicable banking laws and any required approval of the Superintendent of Banks
of the State of New York (the "Superintendent"), the Bank also may have other
offices at such other places as the Board of Directors (the "Board") may from
time to time designate or the business of the Bank may require.
ARTICLE II
STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of stockholders of the Bank for
the election of directors and the transaction of any other business as may
properly come before such meeting shall be held each year on a date to be fixed
by the Board, but in no event later than April 30th of any year, at such time
and at such place in the City of Oswego as may be designated by the Board.
Section 2. Special Meetings. Special meetings of the stockholders of the Bank
may be called only by the Board of Directors pursuant to (i) the affirmative
vote of two thirds of the directors then in office, (ii) the Chairman of the
Board, (iii) the President, or (iv) the holders of not less than 25% of the
issued and outstanding capital stock of the Bank entitled to vote generally in
an election of directors.
Section 3. Notice of Meetings. Written notice stating the place, day and hour of
any meeting of stockholders and the purpose or purposes for which the meeting is
called shall be delivered to each stockholder of record entitled to vote at such
meeting, either personally or by mail not less than ten (10) nor more than fifty
(50) days before the date of such meeting. If mailed, such notice shall be
deemed to be delivered when deposited in the U.S. mail, with postage thereon
prepaid, addressed to the stockholder at his address as it appears on the stock
transfer books or records of the Bank as of the record date prescribed in
Section 5 of this Article I, or at such other address as the stockholder shall
have furnished in writing to the Secretary of the Bank. Notice of any special
meeting shall indicate that the notice is being issued by or at the direction of
the person or persons calling such meeting. When any meeting of stockholders,
either annual or special, is adjourned to another time
<PAGE>
2
or place, no notice of the adjourned meeting must be given, other than an
announcement at the meeting at which such adjournment is taken giving the time
and place to which the meeting is adjourned. However, if after adjournment the
Board fixes a new record date for the adjourned meeting, notice of the adjourned
meeting shall be given to each stockholder of record on the new record date.
Section 4. Waiver of Notice. Notice of meeting need not be given to any
stockholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice of such stockholders.
Section 5. Fixing of Record Date. For the purpose of determining stockholders
entitled to notice of and to vote at any meeting of stockholders or any
adjournment thereof, or stockholders entitled to receive payment of any dividend
or the allotment of any rights, or in order to make a determination of
stockholders for any other proper purpose, the Board shall fix in advance a date
as the record date for any such determination of stockholders. Such date in any
case shall be not more than fifty (50) days and, in the case of a meeting of
stockholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of stockholders is to be taken.
When a determination of stockholders entitled to vote at any meeting of
stockholders has been made as provided in this Section 5, such determination
shall, unless otherwise provided by the Board, also apply to any adjournment
thereof.
Section 6. Quorum. The holders of a majority of the shares of the capital stock
of the Bank issued and outstanding and entitled to vote thereat, represented in
person or by proxy, shall constitute a quorum at a meeting of stockholders. When
a quorum is once present to organize a meeting, such quorum is not broken by the
subsequent withdrawal of any stockholders.
Section 7. Adjournments. Whether or not a quorum is present at any annual or
special meeting of stockholders, a majority in interest of those present in
person or by proxy and entitled to vote may adjourn the meeting from time to
time to another time or place, at which time, if a quorum is present, any
business may be transacted which might have been transacted at the meeting as
originally called.
Section 8. Conduct of Meetings. The Chairman of the Board or, in his absence,
the President, or, if the Chairman of the Board and the President are absent or
otherwise unable to conduct any such meetings, such other person as shall be
appointed by a majority of the Board shall serve as chairman at all meetings of
the stockholders. The Secretary of the Bank or, in his absence, such other
person as the chairman of the meeting shall appoint,
shall serve as secretary of the meeting. The chairman of the meeting shall
conduct all meetings of the stockholders in accordance with the best interests
of the Bank and shall have the authority and discretion to establish reasonable
procedural rules for the conduct of such meetings.
<PAGE>
3
Section 9. Voting. At each meeting of the stockholders, every stockholder of
record of the Bank entitled to vote at such meeting shall be entitled to vote in
person or by proxy the common or other shares of voting stock standing in his
name on the books of the Bank and entitled to be voted at such meeting at the
time fixed pursuant to Article II, Section 5 of these Bylaws. Each share of
common stock shall be entitled to one vote per share, and there shall be no
cumulative voting in elections of directors. Except as permitted by law, shares
of its own stock belonging to the Bank shall not be voted directly or
indirectly. At all meetings of stockholders all matters, except elections of
directors and where other provision is made by law or by the Restated
Organization Certificate of the Bank or by these Bylaws, shall be decided by a
majority of the votes cast by the stockholders present in person or by proxy and
entitled to vote thereon, provided that a quorum is present. Directors are to be
elected by a plurality of votes cast by the shares entitled to vote in the
election at a meeting at which a quorum is present. If, at any meeting of
stockholders, due to a vacancy or vacancies or otherwise, directors of more than
one class of the Board are to be elected, each class of directors to be elected
at the meeting shall be elected in a separate election by a plurality vote.
Section 10. Proxies. All proxies shall be in writing, signed by the stockholder
or by his duly authorized attorney-in-fact, and shall be filed with the
Secretary of the Bank before being voted. No proxy shall be valid after eleven
(11) months from the date of its execution unless otherwise provided in the
proxy. The attendance at any meeting by a stockholder who shall have previously
given a proxy applicable thereto shall not, as such, have the effect of revoking
the proxy. The Bank may treat any duly executed proxy as not revoked and in full
force and effect until it receives a duly executed instrument revoking it, or a
duly executed proxy bearing a later date.
Section 11. Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, in the absence of written directions
to the Bank to the contrary, at any meeting of the stockholders of the Bank any
one or more of such stockholders may cast, in person or by proxy, all votes to
which such ownership is entitled. In the event an attempt is made to cast
conflicting votes, in person or by proxy, by the several persons in whose names
shares of stock stand, the vote or votes to which those persons are entitled
shall be cast as directed by a majority of those holding such stock and present
in person or by proxy at such meeting, but no votes shall be cast for such stock
if a majority cannot agree.
Section 12. Inspectors of Election. In advance of any meeting of stockholders,
the Board shall appoint one or more persons, other than officers, directors or
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. Such appointment shall not be altered at the meeting. If
inspectors of election are not so appointed, the chairman of the meeting shall
make such appointment at the meeting. In case any person appointed as inspector
fails to appear or fails or refuses to act, the vacancy may be filled by
appointment by the Board in advance of the meeting or at the meeting by the
chairman of the meeting.
Section 13. Action by Written Consent. Whenever stockholders of the Bank are
required or permitted to take any action by vote, such action may be taken
without a meeting upon written
<PAGE>
4
consent, setting forth the action so taken, signed by the holders of all
outstanding shares of capital stock of the Bank entitled to vote thereon.
ARTICLE III
CAPITAL STOCK
Section 1. Certificates of Stock. Certificates of stock shall be in such form as
shall be approved by the Board, provided that each certificate shall when issued
state upon the face thereof (a) that the Bank is a corporation organized under
the laws of the State of New York; (b) the name of the person to whom the
certificate is issued; (c) the number, class and series, if any, which the
certificate represents; and (d) the par value of each share represented by the
certificate; and further provided, that each certificate shall, when issued,
state upon the back thereof the existence of any supermajority voting provisions
in the Restated Organization Certificate required to be noted on such
certificate under Section 6016 of the New York Banking Law. Each certificate
shall further state that the Corporation will furnish to any stockholder upon
request and without charge a statement of the rights and preferences of the
shares of each class or series of stock, or shall set forth such statement on
the certificate itself. The certificates shall be numbered in the order of their
issue, and shall be signed by the Chairman of the Board, the President or any
Vice President and the Secretary or any Assistant Secretary, and the seal of the
Bank or a facsimile thereof shall be impressed, affixed or reproduced thereon.
If the certificates are signed by a Transfer Agent acting on behalf of the Bank,
or are registered by a Registrar, the signatures of the officers of the Bank may
be a facsimile. In case any officer or officers who shall have signed any such
certificate or certificates shall cease to be such officer or officers of the
Bank, whether because of death, resignation or otherwise, before such
certificate or certificates shall have been delivered by the Bank, such
certificate or certificates may nevertheless be adopted by the Bank and be
issued and delivered as though the person or persons who signed such certificate
or certificates have not ceased to be such officer or officers of the Bank.
Section 2. Transfer Agent and Registrar. The Board shall have power to appoint
one or more Transfer Agents and Registrars for the transfer and registration of
certificates of stock of any class, and may require that stock certificates
shall be countersigned and registered by one or more of such Transfer Agents and
Registrars.
Section 3. Registration and Transfer of Shares. The name of each person owning a
share of the capital stock of the Bank shall be entered on the books of the Bank
together with the number of shares held by him, the numbers of the certificates
covering such shares and the dates of issue of such certificates. The shares of
stock of the Bank shall be transferable on the books of the Bank by the holders
thereof in person, or by their duly authorized attorneys or legal
representatives, on surrender and cancellation of certificates for a like number
of shares, accompanied by an assignment or power of transfer endorsed thereon or
attached thereto, duly executed, with such proof of the
<PAGE>
5
authenticity of the signature as the Bank or its agents may reasonably require
and with proper evidence of payment of all applicable transfer taxes. A record
shall be made of each transfer.
Section 4. Lost, Destroyed and Mutilated Certificates. The holder of any stock
of the Bank shall immediately notify the Bank of any loss, theft, destruction or
mutilation of the certificates therefor. The Bank may issue a new certificate of
stock in the place of any certificate theretofore issued by it alleged to have
been lost, stolen or destroyed and the Board may, in its discretion, require the
owner of the lost, stolen or destroyed certificate, or his legal
representatives, to give the Bank a bond, in such sum not exceeding double the
value of the stock and with such surety or sureties as they may require, to
indemnify it against any claim that may be made against it by reason of the
issue of such new certificate and against all other liability in the premises,
or may refer such owner to such remedy or remedies as he may have under the laws
of the State of New York.
Section 5. Holder of Record. The Bank shall be entitled to treat the holder of
record of any share or shares of stock as the holder thereof in fact and shall
not be bound to recognize any equitable or other claim to or interest in such
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise expressly provided by law.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Responsibilities; Number of Directors; Oath. The affairs of the Bank
shall be managed by its Board of Directors, which may exercise all such
authority and powers of the Bank and do all such lawful acts and things as are
not by law, the Restated Organization Certificate or these Bylaws directed or
required to be exercised or done by the stockholders. The number of directors
shall not be less than seven (7) nor more than twenty (20). The exact number of
directors shall be fixed from time to time by the Board pursuant to a resolution
adopted by a majority of the Board. Directors of the Bank shall, upon taking
office, take and subscribe to an oath as provided in Section 7015 of the New
York Banking Law, which oath shall be transmitted to the Superintendent in
accordance with such law.
Section 2. Term. Directors shall be elected for a term of office to expire at
the succeeding annual meeting of stockholders and until their respective
successors are elected and qualified.
Section 3. Qualifications.
(a) Each director shall be at least 18 years of age and at least one-half of the
directors shall be citizens of the United States. Not more than one-third of the
total number of directors may be officers of the Bank.
<PAGE>
6
(b) No director shall serve beyond the next annual meeting of the Bank following
his attainment of age 75.
(c) Each director also shall meet such qualifications as may be specified in
applicable provisions of the New York Banking Law and regulations of the New
York Banking Board thereunder.
Section 4. Regular Meetings. A regular meeting of the Board shall be held,
without notice other than these Bylaws, at the principal office of the Bank on
the third Thursday of each month, except that when any such regular meeting date
is a holiday the meeting shall be held on the following Monday; provided,
however, that the Board may, by prior action, designate a different day in the
same month for the holding of any regular meeting. The regular meeting in
December of each year shall be the annual meeting for the election of officers.
The Board may provide, by resolution, the time and place, within or without the
State of New York, for the holding of additional regular meetings without notice
other than such resolution.
Section 5. Special Meetings. Special meetings of the Board may be called at any
time by or at the request of the Chairman of the Board or the President. Special
meetings of the Board also may be convened upon the written request of a
majority of the members of the Board. The persons authorized to call special
meetings of the Board may fix any place, within or without the State of New
York, as the place for holding any special meeting of the Board called by such
persons.
Section 6. Conduct of Meetings. Meetings of the Board shall be presided over by
the Chairman of the Board and in the absence or disability of the Chairman of
the Board by the President. If the Chairman of the Board and the President are
absent from any meeting of the Board, the directors present shall, by a majority
vote, designate one of the directors present to serve as chairman of such
meeting. The chairman (or other person presiding) shall conduct all meetings of
the Board in accordance with the best interests of the Bank and shall have the
authority and discretion to establish reasonable procedural rules for the
conduct of Board meetings. Any one or more directors may participate in a
meeting of the Board or committee by means of a conference telephone or
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at any such meeting.
Section 7. Notice. At least two (2) days notice of special meetings shall be
given to each director if given in person or by telephone, telegraph, telecopy,
cable or wireless. Five (5) days notice of a special meeting is required if
notice is given by mail. The object of the special meeting need not be stated in
the notice. Such notice shall be deemed to be delivered when deposited in the
U.S. mail, with postage thereon prepaid if mailed, or when delivered to the
telegraph company if sent by telegram. Any director may waive notice of any
regular or special meeting by a writing filed with the Secretary. The attendance
of a director at a regular or special meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
7
Section 8. Quorum and Voting Requirements. A quorum at any meeting of the Board
shall consist of not less than a majority of the Board. Except as otherwise
required by law, a majority vote of the directors present at a meeting, if a
quorum is present at the time of such vote, shall constitute an act of the
Board.
Section 9. Resignation. Any director may resign at any time by sending a written
notice of such resignation to the principal office of the Bank addressed to the
Chairman of the Board or the President. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof.
Section 10. Vacancies. All vacancies in the office of director, including
vacancies created by newly created directorships resulting from an increase in
the number of directors, may be filled by a majority of the directors then
holding office at any regular or special meeting of the Board called for that
purpose. Any director so elected shall serve until the succeeding annual meeting
of stockholders and until his successor is elected and qualified.
Section 11. Removal. Any director (including persons elected by directors to
fill vacancies in the Board) may be removed from office with or without cause by
the affirmative vote of a majority of the votes eligible to be cast by
stockholders entitled to vote in an election of directors at a duly constituted
meeting of stockholders called expressly for such purpose.
Section 12. Compensation. The Board shall fix the compensation of directors for
attendance at meetings of the Board and of committees thereof, and for such
other services as are permitted by the New York Banking Law.
Section 13. Director Emeritus. Any director, upon mandatory retirement because
of age, shall be eligible for election by the Board as a director emeritus for a
term of one year. A director emeritus may attend meetings of the Board but shall
not be counted in determining a quorum and shall not have the right to vote.
Service as a director emeritus shall not exceed two years.
ARTICLE V
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 1. Executive Committee.
(a) The Board may appoint from the Board an Executive Committee of not less than
five directors of the Bank, and may delegate to such committee, except as
otherwise provided by Section 7012 of the New York Banking Law, the powers of
the Board in the management of the business and affairs of the Bank in the
intervals between meetings of the Board in all cases in which specific
directions shall not have been given by the Board, as well as the power to
authorize the seal of the Bank to be affixed to all papers which may require it.
<PAGE>
8
(b) The Executive Committee, by a vote of a majority of its members, may appoint
a chairman and fix its rules of procedure, determine its manner of acting and
specify what notice, if any, of meetings shall be given, except as the Board
shall by resolution otherwise provide. A majority of the Board shall have the
power to change the membership of the Executive Committee at any time, to fill
vacancies therein and to discharge such committee or to remove any member
thereof, either with or without cause, at any time.
(c) Meetings of the Executive Committee shall be held at such times and places
as the chairman of the Executive Committee may determine. The Executive
Committee shall keep minutes of all business transacted by it. All completed
action by the Executive Committee shall be reported to the Board at its meeting
next succeeding such action or at its meeting held in the month following the
taking of such action, and shall be subject to revision or alteration by the
Board.
Section 2. Examining Committee. The Board shall designate not less than three
members of the Board who are not employed by the Bank to constitute an Examining
Committee, which shall examine the accounts, property and concerns of the Bank
as provided in Section 254 of the New York Banking Law and make such other
examinations as the Board shall direct. The Examining Committee may employ
certified public accountants and such other assistants as it may deem necessary
to aid in its examination, and shall report to the Board at its regular meeting
following the completion of such examination. Meetings of the Examining
Committee shall be held at such times and at such places as the chairman of the
Examining Committee may determine. The Examination Committee, by a vote of a
majority of its members, may fix its rules of procedure, determine its manner of
acting and specify what notice, if any, of meetings shall be given, except as
the Board shall by resolution otherwise provide. A majority of the Board shall
have the power to change the membership of the Examining Committee at any time,
to fill vacancies therein and to discharge such committee or to remove any
member thereof, either with or without cause, at any time, provided that the
Bank shall have at all times an Examining Committee which complies with the New
York Banking Law.
Section 3. Other Committees. The Board may, by resolutions passed by a majority
of the Board, designate persons who are not necessarily directors to constitute
other committees, which shall in each case consist of three or more directors,
and shall have and may execute such powers as may be determined and specified in
the respective resolutions appointing them. A majority of all the members of any
such committee may fix its rules of procedure, determine its manner of acting
and fix the time and place of its meetings and specify what notice thereof, if
any, shall be given, unless the Board shall otherwise by resolution provide. A
majority of the Board shall have the power to change the membership of any such
committee at any time, to fill vacancies therein and to discharge any such
committee or to remove any member thereof, either with or without cause, at any
time.
<PAGE>
9
ARTICLE VI
OFFICERS
Section 1. Titles. The officers of the Bank shall be a Chairman of the Board, a
President, one or more Vice Presidents, a Secretary, a Treasurer, a Comptroller
and an Auditor. Other officers may be appointed in accordance with the
provisions of this Article VI and any two or more offices may be held by the
same person, except the offices of President and Secretary. Officers of the Bank
shall furnish to the Board a bond in such amount as the Board may deem
necessary.
Section 2. Election, Term of Office and Qualifications. The officers of the Bank
shall be elected annually by the Board. Each officer, except as may be appointed
in accordance with the provisions of this Article VI, shall hold office until
his successor shall have been chosen and shall qualify or until his death or
until he shall have resigned or until he shall have been removed in the manner
hereinafter provided.
Section 3. Removal of Officers. Any officer elected or appointed by the Board
may be removed by the Board, or his authority suspended by it, with or without
cause. Such removal or suspension without cause, however, shall be without
prejudice to his contract rights, if any. The election or appointment of an
officer shall not be deemed of itself to create contract rights.
Section 4. Vacancies in Elected Office. All vacancies in an elected office may
be filled by election at a regular or special meeting of the Board.
Section 5. Chairman of the Board and Vice Chairman of the Board. The Chairman of
the Board shall preside at all annual and special meetings of the stockholders
and at all meetings of the Board. The Chairman shall perform such other duties
as may be assigned to him by the Board. In the absence of the Chairman of the
Board, the Vice Chairman of the Board shall preside over any meetings and
perform such duties otherwise reserved for the Chairman of the Board.
Section 6. President. The President shall be a director of the Bank and shall,
in the absence of the Chairman, preside at annual or special meetings of the
stockholders and at meetings of the Board. The President also shall be the Chief
Executive Officer of the Bank and, as such, shall have executive management of
the operations of the Bank, subject to the control of the Board and the
Executive Committee. The President shall perform such other duties as may be
assigned to him by the Chairman or the Board.
Section 7. Vice Presidents. Each Vice President shall have such powers and
duties as may be assigned or delegated by the Chairman, the President or the
Board. The Board may designate one or more Vice Presidents as Executive Vice
President, Senior Vice President or Administrative Vice President.
Section 8. Secretary. The Secretary shall give due notice of meetings of the
Board and of the Executive Committee, attend meetings of the Board and keep the
minutes thereof. The Secretary shall conduct all correspondence relating to the
Board and its proceedings and shall perform such other duties as may be assigned
to him by the Chairman, the President or the Board.
<PAGE>
10
Section 9. Treasurer. Except as provided in Article VII, Section 4 hereof, the
Treasurer shall have charge of all securities held by the Bank other than real
estate bonds, mortgage notes, mortgages and deeds of trust, and see that they
are kept in the vaults of the Bank, or deposited with such bank or trust company
as may from time to time be designated by the Board as custodian thereof. He
shall see that income on all securities and depository balances under his
control are collected and received by the Bank, or credited to its account with
an authorized depository thereof. He shall have charge of all funds of the Bank
and see that the same, except such amount as may be necessary for the daily
business of the Bank, are deposited in such institutions as may be designated by
the Board. He shall prepare and present such reports as the Chairman, the
President or the Board may from time to time direct. He shall, subject to the
direction of the Chairman, the President or the Board, make all investments of
the funds of the Bank except mortgage and real estate investments. He shall
perform such other duties as may be assigned to him by the Chairman, the
President or the Board.
Section 10. Comptroller. The Comptroller shall be the chief accounting officer
of the Bank. The Comptroller shall prepare and maintain full and accurate
accounts, records and reports on all matters relating to the finances of the
Bank and shall be responsible for operating practices and systems in connection
therewith. He shall perform such other duties as may be assigned to him by the
Chairman, the President or the Board.
Section 11. Auditor. The Auditor shall make such examinations of the accounts,
records and transactions of the Bank as may be required by the Board or the
Examining Committee thereof, and he shall perform such other duties as are
prescribed in an audit program approved by the Board, to which he shall be
responsible, and such other audit duties as may be assigned by the Chairman or
by the President. He shall be free to examine any department or section of Bank
routine without previous officer consultation. He shall maintain a summary
record of dates of completed audits, and shall make periodic comprehensive
reports to the Board or to the Examining Committee thereof, which shall include
such suggestions and recommendations which he may consider advisable to make.
The Auditor shall perform such other duties, not incompatible with his primary
duty, as may be assigned to him by the Chairman, the President or the Board.
Section 12. Other Officers and Employees. All other officers and employees shall
have such authority and shall perform such duties as may be assigned to them,
from time to time, by the Chairman, the President or the Board.
<PAGE>
11
ARTICLE VII
DEPOSITORIES; AUTHORIZED SIGNATURES; AND VOTING OF SHARES
Section 1. Uninvested Funds. Uninvested funds, except cash on hand at all
offices of the Bank, shall be deposited in the name of the Bank in such accounts
and in such banks or trust companies as shall be designated by the Board and may
be withdrawn or transferred in such manner as the Board shall authorize.
Section 2. Power of Execution. Authority to execute, or to execute and attest,
all orders, documents and other instruments affecting the right, title and
interest of the Bank in all other property, whether real or personal, within
such limits as the Board shall define, shall be vested in any executive officers
and in such other officers as the Board shall designate.
Section 3. Nominees. The Board may, by resolution, designate a nominee or
nominees in whose name securities may be registered.
Section 4. Voting of Shares Owned by the Bank. Subject to the specific
directions of the Board or the Executive Committee, any share or shares of stock
issued by any other corporation and owned or controlled by the Bank may be voted
at any stockholders meeting of the other corporation by the Chairman or the
President, or in their absence by any Vice President of the Bank. Whenever in
the judgment of the Chairman or the President, or in their absence, of any Vice
President, it is desirable for the Bank to execute a proxy or give a stockholder
consent with respect to any share or shares of stock issued by any other
corporation and owned or controlled by the Bank, the proxy or consent shall be
executed in the name of the Bank by the Chairman or the President or one of the
Vice Presidents of the Bank without necessity of any authorization by the Board.
Any person or persons designated in the manner above stated as the proxy or
proxies of the Bank shall have full right, power and authority to vote the share
or shares of stock issued by the other corporation.
ARTICLE VIII
INDEMNIFICATION
Section 1. Indemnification of Directors, Officers and Employees. The Bank shall,
to the fullest extent permitted by Sections 7019-7022, inclusive, of the New
York Banking Law and any and all amendments thereof, indemnify any person who is
made, or threatened to be made, a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such person or his testator or
intestate is or was a director, officer or employee of the Bank, or is or was
serving at the request of the Bank in any capacity for another corporation, or
any partnership, joint venture, trust, employee benefit plan or other
enterprise, against judgments, fines, amounts paid in settlement and reasonable
expenses, including
<PAGE>
12
attorneys' fees, actually and necessarily incurred by the person in connection
with such action, suit or proceeding, or any appeal therein.
Section 2. Advances of Expenses. Expenses incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding, or threat
thereof, shall be paid by the Bank in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director, officer or employee to repay such amount if it is ultimately
determined that such person is not entitled to be indemnified by the Bank as
authorized in this Article VIII, or where indemnification is granted, to repay
any amount by which the expenses advanced by the Bank exceed the indemnification
to which such person is entitled.
Section 3. Exclusivity. The indemnification and advancement of expenses provided
by this Article VIII shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any agreement, vote of independent
directors, resolution of the stockholders or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, provided that no other such rights to indemnification may be made to or
on behalf of any director or officer of the Bank if a judgment or other final
adjudication adverse to the director or officer establishes that his 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 he personally
gained in fact a financial profit or other advantage to which he was not legally
entitled. The indemnification and advancement of expenses provided by this
Article VIII shall continue as to a person who has ceased to be director,
officer or employee and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 4. Purchase of Insurance. The Bank may purchase and maintain insurance:
(a) To indemnify the Bank for any obligation which it incurs as a result of the
indemnification of any director, officer or employee under the provisions of
this Article VIII;
(b) To indemnify directors, officers or employees in instances in which they may
be indemnified by the Bank under the provisions of this Article VIII; and
(c) To indemnify directors, officers or employees in instances in which they may
not otherwise be indemnified by the Bank under the provisions of this Article
VIII, provided that the contract of insurance covering such directors and
officers provides, in a manner acceptable to the Superintendent of Insurance of
the State of New York, for a retention amount and for co-insurance.
Section 5. Notice. No payment of indemnification, advancement or allowance under
this Article VIII shall be made unless the Bank has filed such notice as may be
required by the New York Banking Law or otherwise.
<PAGE>
13
ARTICLE IX
RULES AND REGULATIONS GOVERNING DEPOSITS AND DEPOSITORS
Management of the Bank shall, consistent with the applicable provisions of the
New York Banking Law and any other applicable laws and regulations, adopt rules
and regulations defining the types of deposits accepted, procedures for
deposits, withdrawals, transfers and stop payments relating to such accounts,
rules relating to the title and ownership thereof, periodic statements, service
charges, and such other matters as management shall deem necessary. Such rules
and regulations may be amended from time to time as management shall deem
necessary.
ARTICLE X
INTEREST
Section 1. Rates. The Board shall, by resolution, authorize the appropriate
officers or employees of the Bank to fix the rates of interest to be paid and
term thereof on such types of accounts offered by the Bank in conformity with
law.
Section 2. Crediting to Accounts. Interest shall be credited to depositors'
accounts as an addition to the amount on deposit therein.
<PAGE>
14
ARTICLE XI
SAFE DEPOSIT FACILITIES
Section 1. Safe Deposit Facilities. The Bank may provide safe deposit facilities
to individuals and organizations as provided by the laws of the State of New
York for the safekeeping of personal property and papers of any kind.
Section 2. Rules and Regulations. The renter of a safe shall subscribe his
signature to a contract agreeing to be bound by the rules and regulations of the
Safe Deposit Department and any amendments thereto.
ARTICLE XII
DIVIDENDS
The Board shall have power, subject to the requirements of the Restated
Organization Certificate, the Banking Law of the State of New York, the
regulations of the New York Banking Board and any other applicable laws and
regulations, to declare and pay dividends out of surplus or net profits of the
Bank and to pay such dividends to the stockholders and to fix the date or dates
for the payment of such dividends.
ARTICLE XIII
FISCAL YEAR
The fiscal year of the Bank shall end on the 31st day of December of each year.
<PAGE>
15
ARTICLE XIV
SEAL
The Board shall provide a corporate seal which shall include the name of the
Bank. The year of incorporation of the Bank and an emblem may appear on such
seal.
ARTICLE XV
EMERGENCY MANAGEMENT
When there shall occur or exist an acute emergency as defined in Article 7,
Chapter 1, Title 26 of the Unconsolidated Laws of the State of New York, as the
same may be amended from time to time, the management and control of the Bank
shall be conducted in conformance with said Article 7 as amended, any provision
of these Bylaws or resolution of the Board to the contrary notwithstanding.
ARTICLE XVI
AMENDMENTS
In furtherance of and not in limitation of the powers conferred by law, the
Board is expressly authorized to adopt, amend, alter, change or repeal from time
to time these Bylaws, except such provisions of the Bylaws as shall have been
made from time to time by the holders of shares of capital stock entitled to
vote thereon, by the affirmative vote of a majority of the Board. The
stockholders of the Bank may adopt, amend, alter, change or repeal these Bylaws,
including any provision thereof adopted by the Board, by the affirmative vote of
the holders of not less than a majority of the issued and outstanding shares of
capital stock of the Bank entitled to vote thereon at any meeting of
stockholders called for that purpose.
ARTICLE XVII
USE OF PRONOUNS
Use of the masculine general in these Bylaws shall be considered to represent
either masculine or feminine gender whenever appropriate.
Exhibit 3.5
ORGANIZATION CERTIFICATE
OF
OSWEGO COUNTY MHC
Under Articles VI, VI-C and XVI
of the Banking Law
of the State of New York
ARTICLE I
The name of the corporation is Oswego County MHC (the "Corporation").
ARTICLE II
PRINCIPAL OFFICE
The Corporation's principal office is located at 44 East Bridge Street,
Oswego, New York 13126-2547.
ARTICLE III
PURPOSE AND POWERS
The purpose of the Corporation is to pursue any or all of the lawful
objectives of a mutual holding company and a mutual savings bank chartered under
the Banking Law of the State of New York except deposit-taking powers, and to
exercise all of the express, implied and incidental powers conferred thereby and
by all acts amendatory thereof and supplemental thereto, or as they may
hereafter be amended, subject to all lawful and applicable rules, regulations
and orders of the Banking Board of the State of New York (the "Banking Board")
and the New York Superintendent of Banks and any other lawful and applicable
laws, rules, regulations and orders.
ARTICLE IV
DURATION
The duration of the Corporation is perpetual.
<PAGE>
ARTICLE V
INCORPORATORS
The name, occupation, residence and post office address of each
incorporator of the Corporation is set forth below. All such incorporators are
citizens of the United States.
<TABLE>
<CAPTION>
====================================================================================================================================
Name Occupation Residence and P.O. Address
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bruce P. Frassinelli Publisher of the Palladium Times 139 Arcadia Avenue
Newspaper Oswego, NY 13126
- ------------------------------------------------------------------------------------------------------------------------------------
Paul Heins Owner 1217 State Route 49
Paul's Big M Grogery Store Constantia, NY 13044
- ------------------------------------------------------------------------------------------------------------------------------------
Paul W. Schneible Certified Public Accountant 112 Lakeshore Road
Oswego, NY 13126
- ------------------------------------------------------------------------------------------------------------------------------------
Michael R. Brower Agriculture 56 Park Street
Pulaski, NY 13142
- ------------------------------------------------------------------------------------------------------------------------------------
Bernard Shapiro Retired Clothier 15 Wheeler Avenue
Fayetteville, NY 13066
- ------------------------------------------------------------------------------------------------------------------------------------
Carl K. Walrath Retired Insurance 47 Burden Drive
Oswego, NY 13126
- ------------------------------------------------------------------------------------------------------------------------------------
Gregory Kreis President and CEO 944 Kingdom Road
Oswego County Savings Bank P.O. Box 3011
Oswego, NY 13126
====================================================================================================================================
</TABLE>
The incorporators will not contribute any amounts to a surplus fund
because the Corporation, as a mutual holding company, does not have
deposit-taking powers and as a result thereof, the Superintendent of
Banks of the State of New York has waived the requirement to establish
such a fund under the Banking Law of the State of New York.
2
<PAGE>
ARTICLE VI
BOARD OF TRUSTEES
The Board of Trustees of the Corporation shall have the entire
management and control of the affairs of the Corporation. The number of trustees
shall not be less than seven (7) nor more than twenty (20). The exact number of
trustees shall be fixed from time to time by the Board of Trustees pursuant to a
resolution adopted by a majority of the Board of Trustees. The incorporators of
the Corporation, each of whom is free of the disqualifications specified in
Section 246 of the Banking Law of the State of New York, shall constitute the
first Board of Trustees of the Corporation.
ARTICLE VII
LIQUIDATION AND SUBSCRIPTION RIGHTS
Section 1. Liquidation Rights. As long as the Corporation is in the
mutual form of organization, the entire net worth of the Corporation, as it may
increase or decrease over time, shall constitute a liquidation account for the
benefit of holders of deposit accounts in Oswego County Savings Bank (the
"Bank") and any other savings bank subsidiary of the Corporation. In the event
of a complete liquidation of the Corporation (and only in such event), all
holders of deposit accounts in the Bank and any other savings bank subsidiary of
the Corporation on the record date established in connection with such
liquidation shall be entitled to receive pro rata the avails of the
Corporation's net worth after payment of expenses of settling the Corporation's
affairs and satisfaction of all liabilities of the Corporation. The designation
of the Corporation's net worth as a liquidation account shall not operate to
restrict the use or application of the net worth accounts of the Corporation.
In the event that the Corporation converts from the mutual to the stock
form of organization, the net worth of the Bank shall no longer be designated a
liquidation account and, instead, the Bank and any other savings bank subsidiary
of the Corporation shall at that time establish a liquidation account which
shall in the aggregate equal the Corporation's liquidation account as of its
last periodic report of condition immediately preceding such conversion from
mutual to stock form. The liquidation account established by the Bank and any
other savings bank subsidiary of the Corporation shall be in the same proportion
to the Corporation's liquidation account that the total deposits of the Bank and
any other qualifying savings bank subsidiary of the Corporation respectively
bears to the total deposits of all such subsidiary savings banks of the
Corporation and shall be in compliance with applicable provisions of the Banking
Law of the State of New York and regulations of the Banking Board thereunder.
Section 2. Subscription Rights. In the event that the Corporation
converts from the mutual to the stock form of organization, the eligible deposit
account holders in the Bank and any other savings bank subsidiary of the
Corporation shall be entitled to such subscription rights as may be required by
the Banking Law of the State of New York and regulations of the Banking Board
thereunder.
3
<PAGE>
Section 3. Limitation. Except as specifically set forth herein or in
the Banking Law of the State of New York and regulations of the Banking Board
thereunder, no holder of a deposit account in the Bank shall have any other
rights (including voting rights) as such with respect to the Corporation or any
of its assets or properties.
ARTICLE VIII
AMENDMENT OF ORGANIZATION CERTIFICATE
No amendment, addition, alteration, change or repeal of this
Organization Certificate shall be made unless it is authorized by vote of a
majority of the Board of Trustees of the Corporation.
4
<PAGE>
IN WITNESS WHEREOF, we hereby certify that the Organization Certificate
was unanimously authorized by the Incorporators of the Corporation and that we
have made, signed and acknowledged this certificate in duplicate, this __ day of
_____ 1998.
- ----------------------
- ----------------------
- ----------------------
- ----------------------
- ----------------------
- ----------------------
- ----------------------
- ----------------------
5
<PAGE>
STATE OF NEW YORK )
) ss:
_____ COUNTY )
On the __ day of _____ 1998, before me personally came
_______________________, ________________________ each of whom to me known and
known to me to be the individual described in and who executed the foregoing
instrument, and he or she duly acknowledged to me that he or she executed the
same.
_____________________________
____________________, Notary Public
Commission expires: _________________
7
Exhibit 3.6
BYLAWS
OF
Oswego County, MHC
ARTICLE I
OFFICES
The principal office of Oswego County, MHC (the "Corporation") shall be
located in the State of New York, City of Oswego, County of Oswego. Subject to
applicable banking laws and any required approval of the Superintendent of Banks
of the State of New York (the "Superintendent"), the Corporation also may have
other offices at such other places as the Board of Trustees (the "Board") may
from time to time designate or the business of the Corporation may require.
ARTICLE II
BOARD OF TRUSTEES
Section 1. Responsibilities; Number of Trustees; Oath. The Board shall
have the entire management and control of the affairs of the Corporation. The
number of trustees shall not be less than seven (7) nor more than twenty (20).
The exact number of trustees shall be fixed from time to time by the Board
pursuant to a resolution adopted by a majority of the Board. Trustees of the
Corporation shall, upon taking office, take and subscribe to an oath as provided
in Section 246 of the New York Banking Law, which oath shall be transmitted to
the Superintendent in accordance with such law.
Section 2. Qualifications.
(a) Each trustee shall be at least 18 years of age and at least
one-half of the trustees shall be citizens of the United States. Not more than
one-third of the total number of trustees may be officers of the Corporation.
(b) No person who is 70 years of age or more shall be eligible for
initial election as a trustee and no trustee shall serve beyond the 31st day of
December in the year in which he reaches his 75th birthday. This provision is
not applicable to a person serving as a trustee of Oswego County Savings Bank
upon consummation of the MHC Reorganization.
<PAGE>
2
(c) Each trustee also shall meet such qualifications as may be
specified in applicable provisions of the New York Banking Law and regulations
of the New York Banking Board thereunder.
Section 3. Regular Meetings. A regular meeting of the Board shall be
held, without notice other than these Bylaws, on the third Thursday of each
month, except that when any such regular meeting date is a holiday the meeting
shall be held on the following Monday; provided, however, that the Board may, by
prior action, designate a different day in the same month for the holding of any
regular meeting. The regular meeting in December of each year shall be the
Annual Meeting for the election of officers. The Board may provide, by
resolution, the time and place, within or without the State of New York, for the
holding of additional regular meetings without notice other than such
resolution. The Board shall hold not less than 10 regular monthly meetings per
year, provided, however, that during any three consecutive calendar months, the
Board shall meet at least twice.
Section 4. Special Meetings. Special meetings of the Board may be
called at any time by or at the request of the Chairman of the Board or the
President. Special meetings of the Board also may be convened upon the written
request of a majority of the members of the Board. The persons authorized to
call special meetings of the Board may fix any place, within or without the
State of New York, as the place for holding any special meeting of the Board
called by such persons.
Section 5. Conduct of Meetings. Meetings of the Board shall be presided
over by the Chairman of the Board and in the absence or disability of the
Chairman of the Board by the Vice Chairman of the Board and in the absence or
disability of the Vice Chairman of the Board by the President. If the Chairman
of the Board, Vice Chairman and the President are absent from any meeting of the
Board, the trustees present shall, by a majority vote, designate one of the
trustees present to serve as chairman of such meeting. The chairman (or other
person presiding) shall conduct all meetings of the Board in accordance with the
best interests of the Corporation and shall have the authority and discretion to
establish reasonable procedural rules for the conduct of Board meetings. Any one
or more trustees may participate in a meeting of the Board or committee by means
of a conference telephone or communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at any such meeting.
Section 6. Notice. At least two (2) days notice of special meetings
shall be given to each trustee if given in person or by telephone, telegraph,
telecopy, cable or wireless. Five (5) days notice of a special meeting is
required if notice is given by mail. The object of the special meeting need not
be stated in the notice. Such notice shall be deemed to be delivered when
deposited in the U.S. mail, with postage thereon prepaid if mailed, or when
delivered to the telegraph company if sent by telegram. Any trustee may waive
notice of any regular or special meeting by a writing filed with the Secretary.
The attendance of a trustee at a regular or special meeting shall constitute a
waiver of notice of such meeting, except where a trustee attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
<PAGE>
3
Section 7. Quorum and Voting Requirements. A quorum at any meeting of
the Board shall consist of not less than a majority of the Board. Except as
otherwise required by law, a majority vote of the trustees present at a meeting,
if a quorum is present at the time of such vote, shall constitute an act of the
Board.
Section 8. Resignation. Any trustee may resign at any time by sending a
written notice of such resignation to the principal office of the Corporation
addressed to the Chairman of the Board or the President. Unless otherwise
specified therein, such resignation shall take effect upon receipt thereof.
Section 9. Vacancies. All vacancies in the office of trustee, including
vacancies created by newly-created trusteeships resulting from an increase in
the number of trustees, may be filled by a majority of the trustees then holding
office at any regular meeting of the Board called for that purpose. The office
of a trustee shall become vacant in the manner specified in Section 248 of the
New York Banking Law. The Corporation shall report any vacancy in the office of
trustee to the Superintendent within ten days of the occurrence of such vacancy
and shall likewise report the name, address, age and occupation of the person
elected to fill any such vacancy and the name of the person whose place he
fills.
Section 10. Removal. Any trustee (including persons elected by trustees
to fill vacancies in the Board) may be removed from office pursuant to the
requirements set forth in Section 248 of the New York Banking Law.
Section 11. Declaration. In each year every trustee shall subscribe and
acknowledge a declaration that he has not resigned, become ineligible or in any
other manner vacated his office as trustee. Such declaration shall be filed with
the Superintendent on or before the first day of [March], unless extended in the
discretion of the Superintendent.
Section 12. Compensation. The Board shall fix the compensation of
trustees for attendance at meetings of the Board and of committees thereof and
for such other services as are specified in Section 249 of the New York Banking
Law.
Section 13. Trustee Emeritus. Any trustee, upon mandatory retirement
because of age, shall be eligible for election by the Board as a trustee
emeritus for a term of one year. A trustee emeritus may attend meetings of the
Board but shall not be counted in determining a quorum and shall not have the
right to vote.
<PAGE>
4
ARTICLE III
EXECUTIVE COMMITTEE AND OTHER COMMITTEES
Section 1. Executive Committee.
(a) The Board may appoint from the Board an Executive Committee of not
less than five trustees of the Corporation, and may delegate to such committee,
except as otherwise provided by Section 246-a of the New York Banking Law, the
powers of the Board in the management of the business and affairs of the
Corporation in the intervals between meetings of the Board in all cases in which
specific directions shall not have been given by the Board, as well as the power
to authorize the seal of the Corporation to be affixed to all papers which may
require it.
(b) The Executive Committee, by a vote of a majority of its members,
may appoint a chairman and fix its rules of procedure, determine its manner of
acting and specify what notice, if any, of meetings shall be given, except as
the Board shall by resolution otherwise provide. A majority of the Board shall
have the power to change the membership of the Executive Committee at any time,
to fill vacancies therein and to discharge such committee or to remove any
member thereof, either with or without cause, at any time.
(c) Meetings of the Executive Committee shall be held at such times and
places as the chairman of the Executive Committee may determine. The Executive
Committee shall keep minutes of all business transacted by it. All completed
action by the Executive Committee shall be reported to the Board at its meeting
next succeeding such action or at its meeting held in the month following the
taking of such action, and shall be subject to revision or alteration by the
Board.
Section 2. Examining Committee. The Board shall designate not less than
three members of the Board who are not employed by the Corporation to constitute
an Examining Committee, which shall examine the accounts, property and concerns
of the Corporation as provided in Section 254 of the New York Banking Law and
make such other examinations as the Board shall direct. The Examining Committee
may employ certified public accountants and such other assistants as it may deem
necessary to aid in its examination, and shall report to the Board at its
regular meeting following the completion of such examination. Meetings of the
Examining Committee shall be held at such times and at such places as the
chairman of the Examining Committee may determine. The Examination Committee, by
a vote of a majority of its members, may fix its rules of procedure, determine
its manner of acting and specify what notice, if any, of meetings shall be
given, except as the Board shall by resolution otherwise provide. A majority of
the Board shall have the power to change the membership of the Examining
Committee at any time, to fill vacancies therein and to discharge such committee
or to remove any member thereof, either with or without cause, at any time,
provided that the Corporation shall have at all times an Examining Committee
which complies with the New York Banking Law.
<PAGE>
5
Section 3. Other Committees. The Board may, by resolutions passed by a
majority of the Board, designate persons who are not necessarily trustees to
constitute other committees, which shall in each case consist of two or more
trustees, officers or other persons and shall have and may execute such powers
as may be determined and specified in the respective resolutions appointing
them. A majority of all the members of any such committee may fix its rules of
procedure, determine its manner of acting and fix the time and place of its
meetings and specify what notice thereof, if any, shall be given, unless the
Board shall otherwise by resolution provide. A majority of the Board shall have
the power to change the membership of any such committee at any time, to fill
vacancies therein and to discharge any such committee or to remove any member
thereof, either with or without cause, at any time.
ARTICLE IV
OFFICERS
Section 1. Titles. The officers of the Corporation shall be a Chairman
of the Board, a President, one or more Vice Presidents, a Secretary, a
Treasurer, a Comptroller and an Auditor. Other officers may be appointed in
accordance with the provisions of this Article IV and any two or more offices
may be held by the same person, except the offices of President and Secretary.
Officers of the Corporation shall furnish to the Board a bond in such amount as
the Board may deem necessary.
Section 2. Election, Term of Office and Qualifications. The officers of
the Corporation shall be elected annually by the Board. Each officer, except as
may be appointed in accordance with the provisions of this Article IV, shall
hold office until his successor shall have been chosen and shall qualify or
until his death or until he shall have resigned or until he shall have been
removed in the manner hereinafter provided.
Section 3. Removal of Officers. Any officer elected or appointed by the
Board may be removed by the Board, or his authority suspended by it, with or
without cause. Such removal or suspension without cause, however, shall be
without prejudice to his contract rights, if any. The election or appointment of
an officer shall not be deemed of itself to create contract rights.
Section 4. Vacancies in Elected Office. All vacancies in an elected
office may be filled by election at a regular or special meeting of the Board.
Section 5. Chairman of the Board. The Chairman of the Board shall
preside at all annual and special meetings of the stockholders and at all
meetings of the Board. The Chairman shall perform such other duties as may be
assigned to him by the Board.
Section 6. President. The President shall be a trustee of the
Corporation and shall, in the absence of the Chairman, preside at annual or
special meetings of the stockholders and at meetings
<PAGE>
6
of the Board. The President also shall be the Chief Executive Officer of the
Corporation and, as such, shall have executive management of the operations of
the Corporation, subject to the control of the Board and the Executive
Committee. The President shall perform such other duties as may be assigned to
him by the Chairman or the Board.
Section 7. Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned or delegated by the Chairman, the President or the
Board. The Board may designate one or more Vice Presidents as Executive Vice
President, Senior Vice President or Administrative Vice President.
Section 8. Secretary. The Secretary shall give due notice of meetings
of the Board and of the Executive Committee, attend meetings of the Board and
keep the minutes thereof. The Secretary shall conduct all correspondence
relating to the Board and its proceedings and shall perform such other duties as
may be assigned to him by the Chairman, the President or the Board.
Section 9. Treasurer. Except as provided in Article V, Section 4
hereof, the Treasurer shall have charge of all securities held by the
Corporation other than any real estate bonds, mortgage notes, mortgages and
deeds of trust, and see that they are kept in the vaults of the Corporation, or
deposited with such bank or trust company as may from time to time be designated
by the Board as custodian thereof. He shall see that income on all securities
and depository balances under his control are collected and received by the
Corporation, or credited to its account with an authorized depository thereof.
He shall have charge of all funds of the Corporation and see that the same,
except such amount as may be necessary for the daily business of the
Corporation, are deposited in such institutions as may be designated by the
Board. He shall prepare and present such reports as the Chairman, the President
or the Board may from time to time direct. He shall, subject to the direction of
the Chairman, the President or the Board, make all investments of the funds of
the Corporation. He shall perform such other duties as may be assigned to him by
the Chairman, the President or the Board.
Section 10. Comptroller. The Comptroller shall be the chief accounting
officer of the Corporation. The Comptroller shall prepare and maintain full and
accurate accounts, records and reports on all matters relating to the finances
of the Corporation and shall be responsible for operating practices and systems
in connection therewith. He shall perform such other duties as may be assigned
to him by the Chairman, the President or the Board.
Section 11. Auditor. The Auditor shall make such examinations of the
accounts, records and transactions of the Corporation as may be required by the
Board or the Examining Committee thereof, and he shall perform such other duties
as are prescribed in an audit program approved by the Board, to which he shall
be responsible, and such other audit duties as may be assigned by the Chairman
or by the President. He shall be free to examine any department or section of
Corporation routine without previous officer consultation. He shall maintain a
summary record of dates of completed audits, and shall make periodic
comprehensive reports to the Board or to the Examining Committee thereof, which
shall include such suggestions and recommendations which he may
<PAGE>
7
consider advisable to make. The Auditor shall perform such other duties, not
incompatible with his primary duty, as may be assigned to him by the Chairman,
the President or the Board.
Section 12. Other Officers and Employees. All other officers and
employees shall have such authority and shall perform such duties as may be
assigned to them, from time to time, by the Chairman, the President or the
Board.
ARTICLE V
DEPOSITORIES; AUTHORIZED SIGNATURES; AND VOTING OF SHARES
Section 1. Uninvested Funds. Uninvested funds shall be deposited in the
name of the Corporation in such accounts and in such banks or trust companies as
shall be designated by the Board and may be withdrawn or transferred in such
manner as the Board shall authorize.
Section 2. Power of Execution. Authority to execute, or to execute and
attest, all orders, documents and other instruments affecting the right, title
and interest of the Corporation in all other property, whether real or personal,
within such limits as the Board shall define, shall be vested in any executive
officers and in such other officers as the Board shall designate.
Section 3. Nominees. The Board may, by resolution, designate a nominee
or nominees in whose name securities may be registered.
Section 4. Voting of Shares Owned by the Corporation. Subject to the
specific directions of the Board or the Executive Committee, any share or shares
of stock issued by any other corporation and owned or controlled by the
Corporation may be voted at any stockholders meeting of the other corporation by
the Chairman or the President, or in their absence by any Vice President of the
Corporation. Whenever in the judgment of the Chairman or the President, or in
their absence, of any Vice President, it is desirable for the Corporation to
execute a proxy or give a stockholder consent with respect to any share or
shares of stock issued by any other corporation and owned or controlled by the
Corporation, the proxy or consent shall be executed in the name of the
Corporation by the Chairman or the President or one of the Vice Presidents of
the Corporation without necessity of any authorization by the Board. Any person
or persons designated in the manner above stated as the proxy or proxies of the
Corporation shall have full right, power and authority to vote the share or
shares of stock issued by the other corporation.
ARTICLE VI
INDEMNIFICATION
Section 1. Indemnification of Trustees, Officers and Employees. The
Corporation shall, to the fullest extent permitted by Sections 9006-9009,
inclusive, of the New York Banking Law and any and all amendments thereof,
indemnify any person who is made, or threatened to be made, a
<PAGE>
8
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person or his testator or intestate is or was a trustee, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation in any capacity for another corporation, or any partnership, joint
venture, trust, employee benefit plan or other enterprise, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, actually and necessarily incurred by the person in connection with such
action, suit or proceeding, or any appeal therein.
Section 2. Advances of Expenses. Expenses incurred in defending a
civil, criminal, administrative or investigative action, suit or proceeding, or
threat thereof, shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the trustee, officer or employee to repay such amount if it is
ultimately determined that such person is not entitled to be indemnified by the
Corporation as authorized in this Article VI, or where indemnification is
granted, to repay any amount by which the expenses advanced by the Corporation
exceed the indemnification to which such person is entitled.
Section 3. Exclusivity. The indemnification and advancement of expenses
provided by this Article VI shall not be deemed exclusive of any other rights to
which those indemnified may be entitled under any agreement, vote of independent
trustees or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, provided that no other
such rights to indemnification may be made to or on behalf of any trustee or
officer of the Corporation if a judgment or other final adjudication adverse to
the trustee or officer establishes that his 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 he personally gained in fact a financial
profit or other advantage to which he was not legally entitled. The
indemnification and advancement of expenses provided by this Article VI shall
continue as to a person who has ceased to be trustee, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
<PAGE>
9
Section 4. Purchase of Insurance. The Corporation may purchase and
maintain insurance:
(a) To indemnify the Corporation for any obligation which it incurs as
a result of the indemnification of any trustee, officer or employee under the
provisions of this Article VI;
(b) To indemnify trustees, officers or employees in instances in which
they may be indemnified by the Corporation under the provisions of this Article
VI; and
(c) To indemnify trustees, officers or employees in instances in which
they may not otherwise be indemnified by the Corporation under the provisions of
this Article VI, provided that the contract of insurance covering such trustees
and officers provides, in a manner acceptable to the Superintendent of Insurance
of the State of New York, for a retention amount and for co-insurance.
Section 5. Notice. No payment of indemnification, advancement or
allowance under this Article VI shall be made unless the Corporation has filed
such notice as may be required by the New York Banking Law or otherwise.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall end on the 31st day of
December of each year.
ARTICLE VIII
SEAL
The Board shall provide a corporate seal which shall include the name
of the Corporation. The year of incorporation of the Corporation and an emblem
may appear on such seal.
<PAGE>
10
ARTICLE IX
EMERGENCY MANAGEMENT
When there shall occur or exist an acute emergency as defined in
Article 7, Chapter 1, Title 26 of the Unconsolidated Laws of the State of New
York, as the same may be amended from time to time, the management and control
of the Corporation shall be conducted in conformance with said Article 7, as
amended, any provision of these Bylaws or resolution of the Board to the
contrary notwithstanding.
ARTICLE X
AMENDMENTS
In furtherance of and not in limitation of the powers conferred by law,
the Board is expressly authorized to adopt, amend, alter, change or repeal from
time to time these Bylaws.
ARTICLE XI
USE OF PRONOUNS
Use of the masculine general in these Bylaws shall be considered to
represent either masculine or feminine gender whenever appropriate.
Exhibit 4.1
(FORM OF STOCK CERTIFICATE - FRONT SIDE)
NUMBER SHARES
COMMON STOCK CUSIP
See reverse for
certain definitions
OSWEGO COUNTY BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This certifies that ___________________________________ is the
registered holder of _________________ fully paid and non-assessable shares of
the Common Stock, par value $.01 per share, of Oswego County Bancorp, Inc.,
Oswego, NewYork (the "Corporation"), incorporated under the laws of the State of
Delaware.
The shares evidenced by this Certificate are transferable only on the
books of the Corporation by the holder hereof, in person or by a duly authorized
attorney or legal representative, upon surrender of this Certificate properly
endorsed. This Certificate and the shares represented hereby are subject to all
the provisions of the Certificate of Incorporation and Bylaws of the Corporation
and any and all amendments thereto. The shares represented by this certificate
are not deposits or accounts, are not federally insured or guaranteed and are
not insured by Oswego County Savings Bank. This Certificate is not valid unless
countersigned by the Transfer Agent and registered by the Registrar.
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 facsimile seal to be affixed hereto.
Dated:
____________________________ (SEAL) _____________________________________
Gregory J. Kreis
Corporate Secretary President and Chief Executive Officer
<PAGE>
(FORM OF STOCK CERTIFICATE - BACK SIDE)
The Corporation is authorized to issue more than one class of stock,
including a class of preferred stock which may be issued in one or more series.
The Corporation will furnish to any stockholder, upon written request and
without charge, a full statement of the designations, preferences, limitations
and relative rights of the shares of each class authorized to be issued and,
with respect to the issuance of any preferred stock to be issued in series, the
relative rights, preferences and limitations between the shares of each series
so far as the rights, preferences and limitations have been fixed and determined
and the authority of the Board of Directors to fix and determine the relative
rights, preferences and limitations of subsequent series.
The Charter of the Corporation includes a provision which generally
prohibits any person (including an individual, company or group acting in
concert) from directly or indirectly offering to acquire or acquiring the
beneficial ownership of more than 10% of any class of equity securities of the
Corporation. In the event that stock is acquired in violation of this 10%
limitation, the excess shares will no longer be counted in determining the total
number of outstanding shares for purposes of any matter involving stockholder
action and the Board of Directors of the Corporation may cause such excess
shares to be transferred to an independent trustee for sale in the open market
or otherwise, with the expenses of such sale to be paid out of the proceeds of
the sale.
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT - _____________________ Custodian ____________________ under
(Cust) (Minor)
Uniform Gifts to Minors Act _____________________________
(State)
Additional abbreviations may also be used though not in the above list.
<PAGE>
For value received, __________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
TAXPAYER IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
________________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
____________________ shares of Common Stock represented by this Certificate, and
do hereby irrevocably constitute and appoint _____________ as Attorney, to
transfer the said shares on the books of the within named Corporation, with full
power of substitution.
Dated _________________, ______
_________________________________
Signature
_________________________________
Signature
NOTICE: The signature(s) to this assignment must correspond with the name(s) as
written upon the face of this Certificate in every particular, without
alteration or enlargement, or any change whatever. The signature(s) should be
guaranteed by an eligible guarantor institution (bank, stockbroker, savings and
loan association or credit union) with membership in an approved signature
medallion program, pursuant to S.E.C. Rule 17Ad-15.
Exhibit 4.2
(FORM OF STOCK CERTIFICATE - FRONT SIDE)
NUMBER SHARES
OSWEGO COUNTY SAVINGS BANK
OSWEGO, NEW YORK
$.01 par value common stock -- fully paid and non-assessable
This certifies that Oswego County Bancorp, Inc. is the owner of 100 shares of
the common stock of Oswego County Savings Bank (the "Savings Bank"), a stock
savings bank organized under the laws of the State of New York.
The shares evidenced by this Certificate are transferable only on the books of
the Savings Bank by the holder hereof, in person or by attorney or legal
representative, upon surrender of this Certificate properly endorsed.
The interest in the Savings Bank evidenced by this Certificate may not be
retired or withdrawn except as provided by the Rules and Regulations of the New
York State Banking Department and the Charter and Bylaws of the Savings Bank,
and the capital stock evidenced hereby is not an account of an insurable type
and is not insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation or Oswego County Savings Bank.
IN WITNESS THEREOF, the Savings Bank has caused this Certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
facsimile seal to be affixed hereto.
Date:
______________________________ ____________________________________
Gregory J. Kreis
Corporate Secretary President and Chief Executive Officer
<PAGE>
(SEAL)
(FORM OF STOCK CERTIFICATE - BACK SIDE)
The following abbreviations, when used in the inscription on the face
of this Certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT - . . . . . . .Custodian . . . . . . . . .under Uniform Gifts
(Cust) (Minor)
to Minors Act. . . . . . . . .
(State)
Additional abbreviations may also be used though not in the above list.
For valued received, _________________________________________
______________________________ hereby sell, assign and transfer unto
_____________________________, ________________ shares of the common stock
evidenced by this Certificate, and do hereby irrevocably constitute and appoint
_____________________, Attorney, to transfer the said shares on the books of the
within named Savings Bank, with full power of substitution.
Date ___________________
______________________________
Signature
______________________________
Signature
Exhibit 23.2
Independent Auditors' Consent
The Board of Trustees
Oswego County Savings Bank:
We consent to the use of our report dated February 20, 1998, except for note 1
of the financial statements which is as of December 17, 1998, included herein
relating to the statements of financial condition of Oswego County Savings Bank
as of December 31, 1997 and 1996, and the related statements of operations,
changes in net worth and cash flows for the years then ended and to the
reference to our firm under the heading "Experts" in the prospectus.
December 22, 1998 /s/ KPMG Peat Marwick LLP
Syracuse, New York
Exhibit 23.3
RP FINANCIAL, LC.
- ---------------------------------------
Financial Services Industry Consultants
December 23, 1998
Board of Trustees
Oswego County Savings Bank
44 East Bridge Street
Oswego, New York 13126
Members of the Board:
We hereby consent to the use of our firm's name in the Application for
Conversion on Form 86-AC of Oswego County Savings Bank, Oswego, New York, and
any amendments thereto, and in the Form SB-2 Registration Statement and any
amendments thereto for Oswego County Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of Oswego County Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
/S/ RP Financial, LC.
Exhibit 99.4
OSWEGO COUNTY SAVINGS BANK
44 East Bridge Street
Oswego, New York 13126-2547
(315) 343-4100
--------------------
NOTICE OF SPECIAL MEETING OF DEPOSITORS
--------------------
Notice is hereby given that a Special Meeting of Depositors (the
"Special Meeting") of Oswego County Savings Bank ("County Savings") will be held
at County Savings' main office, 44 East Bridge Street, Oswego, New York, on
___________, 1998 at ________p.m., local time, to consider and vote upon:
1. A Plan of Reorganization from a Mutual Savings Bank to Mutual
Holding Company (the "Plan") pursuant to which County Savings will
establish County Savings, MHC ("County MHC") as its New York chartered
mutual holding company parent (the "Reorganization"). Pursuant to the
Plan, County Savings will become a New York chartered stock savings
bank which will be wholly-owned by County MHC. The Reorganization is
being undertaken in order to facilitate the merger of County Savings
with and into Oswego City Savings Bank, a New York chartered stock
savings bank headquartered in Oswego, New York ("City Savings").
2. An Agreement and Plan of Merger, as amended (the "Agreement"),
pursuant to which County MHC will merge with and into Pathfinder
Bancorp, MHC ("City MHC"), the mutual holding company of City Savings,
followed immediately by the merger of County Savings with and into City
Savings with City Savings as the resulting savings bank. The Merger of
County MHC into City MHC, followed immediately by the merger of County
Savings into City Savings is hereinafter referred to collectively as
the "Merger." City MHC owns approximately 54% of the outstanding common
stock of Pathfinder Bancorp, Inc., a Delaware corporation (the "Stock
Holding Company"), and the remaining 46% of the common stock is owned
by the public. Upon completion of the Merger, each depositor of County
Savings will automatically become a depositor of City Savings and all
voting and liquidation rights of County Savings depositors will be
transferred to City MHC. All rights and obligations of County Savings
and County MHC will be assumed by City Savings and City MHC,
respectively. As part of the Merger, the Stock Holding Company will
offer for sale shares of its common stock on a priority basis pursuant
to a Stock Issuance Plan to County Savings' eligible depositors and
others in an amount equal to approximately 46% of the pro forma market
value of County Savings, as determined by an independent appraiser. The
Stock Holding Company will issue to City MHC shares of common stock
equal to approximately 54% of the pro forma market value of County
Savings. A vote in favor of the Agreement constitutes a vote in favor
of the Merger and the Stock Issuance Plan.
3. Such other business as may properly come before the meeting and any
adjournment(s) thereof. Management is not aware of any other matters
that may come before the Special Meeting.
The record date for determining County Savings' depositors entitled to
notice of, and to vote at, the Special Meeting, and at any adjournment(s)
thereof, is ______________, 1998 (the "Voting Record Date"). Only holders of one
or more County Savings deposit accounts as of the Voting Record Date ("Voting
Depositors") will be entitled to vote at the Special Meeting or at any
adjournment(s) thereof. A deposit account creates a single depositor
relationship for voting purposes, even though more than one person has an
interest in such deposit account. Each Voting Depositor has one vote for each
$100, or fraction thereof, on deposit in such account as of the Voting Record
Date. No Voting Depositor will be entitled to cast more than 1,000 votes.
1
<PAGE>
Please complete, date, sign and return the accompanying proxy card(s)
in the enclosed postage-paid envelope as soon as possible, whether or not you
plan to attend the Special Meeting. This will assure your representation at the
Special Meeting and may avoid the cost of additional communications. This will
not prevent you from voting in person if you attend the Special Meeting. You may
revoke your written proxy by a written instrument delivered to the secretary of
County Savings at any time prior to or at the Special Meeting. Properly
completed proxies will be voted in accordance with the instructions indicated
thereon, or if no instructions are indicated, for approval of the Agreement and
the Plan.
Your proxy is solicited by the Board of Trustees of County Savings. The
Board of Trustees unanimously recommends that voting depositors vote "for"
approval of the Agreement and "for" approval of the Plan. Failure to return a
proxy or to vote in person will have the same effect as a vote against the
Agreement and against the Plan.
Voting in favor of the Agreement will not obligate any person to
purchase common stock and voting against the Agreement or a failure to vote will
not preclude any such purchase.
BY THE BOARD OF TRUSTEES
____________________, 1998
2
<PAGE>
OSWEGO COUNTY SAVINGS BANK
44 East Bridge Street
Oswego, New York 13126-2547
PROXY STATEMENT
SPECIAL MEETING OF DEPOSITORS
TO BE HELD ON ___________, 1998
- --------------------------------------------------------------------------------
INTRODUCTION
- --------------------------------------------------------------------------------
Purpose of the Special Meeting
This Proxy Statement is being furnished to each depositor who has one
or more deposit accounts with Oswego County Savings Bank ("County Savings") as
of _______________,1998 (the "Voting Record Date," and such depositors "Voting
Depositors"), in connection with the solicitation by the Board of Trustees of
County Savings of proxies to be voted at a special meeting of depositors (the
"Special Meeting") to be held on __________, 1998 at________ p.m. local time, at
County Savings' main office, 44 East Bridge Street, Oswego, New York.
At the Special Meeting, Voting Depositors will be asked to consider and
vote upon the Agreement and Plan of Merger, dated September 5, 1997, as amended
on January 13, 1998 and April 30, 1998, between Oswego City Savings Bank ("City
Savings"), Pathfinder Bancorp, MHC ("City MHC"), Pathfinder Bancorp, Inc. (the
"Stock Holding Company") and County Savings (the "Agreement"), pursuant to which
County Savings will merge with and into City Savings with City Savings as the
resulting savings bank. To facilitate the merger, County Savings has adopted a
Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company (the
"Plan") pursuant to which County Savings will reorganize into the mutual holding
company form of ownership by converting to a New York stock savings bank charter
and forming Oswego County, MHC ("County MHC") as a New York mutual holding
company. County MHC will merge with and into City MHC with City MHC as the
resulting mutual holding company (the "Resulting MHC"). The merger of County MHC
into City MHC followed immediately by the merger of County Savings into City
Savings is referred to herein as the "Merger". As part of the Merger, the Stock
Holding Company, which owns 100% of the common stock of City Savings, will offer
for sale shares of its common stock on a priority basis in a subscription
offering to eligible depositors of County Savings and others in an amount equal
to approximately 46% of the pro forma market value of County Savings, as
determined by an independent appraiser. The Stock Holding Company will issue to
City MHC shares of common stock equal to approximately 54% of the pro forma
market value of County Savings. As part of the Merger, each depositor of County
Savings will automatically become a depositor of City Savings, and all voting
and liquidation rights of County Savings depositors will be transferred to City
MHC. All rights and obligations of County Savings and County MHC will be assumed
by City Savings and City MHC, respectively. The number of shares to be issued by
the Stock Holding Company as part of the Merger will equal the result obtained
by dividing (i) the fair value of County Savings as determined by an independent
appraiser by (ii) the average of the bid and asked price of the Stock Holding
Company's common stock as listed on the Nasdaq SmallCap Market during the ten
trading days preceding the closing date of the Merger. By voting in favor of the
Agreement, Voting Depositors will be voting in favor of the Merger.
The Plan has been adopted for the purpose of facilitating the Merger
and to permit County Savings depositors to acquire equity ownership in the
resulting savings bank by owning the common stock of the Stock Holding Company.
However, County Savings reserves the right to proceed with the Reorganization
even if the Agreement is terminated.
Copies of both the Agreement and the Plan are available without charge from
County Savings upon written request to the Secretary of County Savings, 44 East
Bridge Street, Oswego, New York 13126-2547.
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Only Voting Depositors will be entitled to vote at the Special Meeting
and any adjournment(s) thereof. Voting Depositors who execute proxies for the
Special Meeting retain the right to revoke them at any time. Proxies may be
revoked by sending written notice of revocation to the Secretary of County
Savings at the address of County Savings shown above or sending a later dated
proxy which is received no later than _________, 1998. The presence at the
Special Meeting of any Voting Depositor who has given a proxy shall not revoke
such proxy unless the Voting Depositor delivers his or her ballot in person at
the Special Meeting or delivers a written revocation to the Secretary of County
Savings prior to the voting of such proxy. Proxies solicited and received by the
Board of Trustees of County Savings will be voted in accordance with the
directions given therein. Where no instructions are indicated, proxies will be
voted FOR the proposals set forth in this Proxy Statement. If any other matters
are properly presented at the Special 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
Special Meeting.
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF TRUSTEES
OF COUNTY SAVINGS FOR USE AT THE SPECIAL MEETING OF DEPOSITORS, AND ANY
ADJOURNMENT(S) OF THAT MEETING, FOR THE PURPOSES SET FORTH IN THE NOTICE OF
SPECIAL MEETING. THIS PROXY WILL NOT BE USED AT ANY OTHER MEETING.
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK ("SUPERINTENDENT")
HAS APPROVED THE PLAN SUBJECT TO THE APPROVAL OF THE VOTING DEPOSITORS OF COUNTY
SAVINGS 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.
THE NEW YORK BANKING DEPARTMENT (THE "DEPARTMENT") HAS APPROVED THE
MERGER SUBJECT TO THE APPROVAL OF THE VOTING DEPOSITORS OF COUNTY SAVINGS AND
THE SATISFACTION OF CERTAIN OTHER CONDITIONS. THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC") HAS APPROVED THE MERGER OF COUNTY SAVINGS INTO CITY SAVINGS
AND THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE (THE "FEDERAL RESERVE") HAS
APPROVED THE MERGER OF COUNTY MHC INTO CITY MHC.
COUNTY SAVINGS' BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE
"FOR" THE AGREEMENT AND "FOR" THE PLAN. FAILURE TO RETURN YOUR PROXY OR TO VOTE
AT THE MEETING IN PERSON WILL HAVE THE SAME EFFECT AS A NEGATIVE VOTE.
Voting Rights, Voting of Proxies and Vote Required for Approval
The Board of Trustees of County Savings has fixed the close of business
on ______________, 1998 as the Voting Record Date for the purpose of determining
the Voting Depositors entitled to notice of, and to vote at, the Special
Meeting. All holders of withdrawable accounts at County Savings as of the Voting
Record Date are considered Voting Depositors and are entitled to notice of, and
to vote at, the Special Meeting. Each such Voting Depositor will be entitled to
one vote for each $100 or fraction thereof, on deposit in the Voting Depositor's
account on the Voting Record Date. However, no Voting Depositor may cast more
than 1,000 votes. An account will create a single depositor relationship for
voting purposes. Only one proxy may be cast for any such account, even though
more than one person has an interest in such an account.
The Merger must be approved by the affirmative vote, cast in person or
by proxy, of 75% of the total deposits entitled to be cast at the Special
Meeting by Voting Depositors. The Plan must be approved by the affirmative vote
of (i) 75 % of the total deposits present in person or by proxy at the Special
Meeting, and (ii) more than 50% of the total votes eligible to be cast by Voting
Depositors at the Special Meeting. The Voting Depositors also may be asked to
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consider such other business as may properly come before the Special Meeting
(although management knows of no other business to be presented).
Any questions as to the eligibility of a Voting Depositor to vote or
the number of votes allocated to each Voting Depositor, or on any other matters
relating to the voting, will be resolved in final by the Secretary of County
Savings at or prior to the Special Meeting, and the records of County Savings
will control such resolution.
Persons Making the Solicitation
Management expects to use the services of County Savings trustees,
officers, and other employees to solicit proxies personally or by telephone,
telegraph or mail. The trustees, officers and employees will not receive
additional compensation for such solicitation, but may be reimbursed for
out-of-pocket expenses incurred in connection therewith. County Savings also has
retained ________________ to act as proxy solicitation agent to, among other
things, assist in the solicitation of proxies, for a total fee of $_________ ,
plus expenses (up to a maximum of $________ ). The costs of solicitation will be
borne by County Savings.
- --------------------------------------------------------------------------------
PROPOSAL I--APPROVAL OF A PLAN OF REORGANIZATION
FROM A MUTUAL SAVINGS BANK TO MUTUAL HOLDING COMPANY
- --------------------------------------------------------------------------------
The Superintendent has approved the Plan subject to the approval of the
Bank's Voting 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.
General
Pursuant to the Plan, County Savings will become a New York chartered
stock savings bank (the "Stock Bank") and will form County MHC under New York
law as its mutual holding company parent. County MHC will own all of the common
stock of Stock Bank. The Stock Bank will succeed to the operations of County
Savings in its mutual form. County MHC will be regulated by the Department and
the Federal Reserve. The Reorganization is being undertaken to facilitate the
merger of County Savings with and into City Savings. However, County Savings
reserves the right to proceed with the Reorganization even if the Agreement is
terminated. See "Proposal II--Approval of An Agreement and Plan of Merger
Between Oswego County Savings Bank and Oswego City Savings Bank."
Effect on Deposits
Upon completion of the Reorganization, each deposit account in County
Savings at the date the Reorganization is completed will become a deposit
account in the Stock Bank in the same amount and upon the same terms (including
interest rate) and conditions (including withdrawal rights). All depositors who
had voting and liquidation rights with respect to County Savings will continue
to have such rights solely with respect to County MHC. Following completion of
the Merger all liquidation and voting rights of existing depositors of County
Savings and City Savings, as well as liquidation and voting rights of new
depositors of City Savings and the resulting savings bank will be exercisable
through City MHC. See "Proposal II--Approval of an Agreement and Plan of Merger
Between Oswego County Savings Bank and Oswego City Savings Bank--The Agreement
and Terms of the Merger." All insured deposit accounts of County Savings that
become deposit accounts of the Stock Bank will continue to be federally insured
up to the legal maximum limit by the FDIC in the same manner as deposit accounts
existing in County Savings immediately prior to the Reorganization.
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Effect on Borrowings and Other Customer Relationships
The Reorganization will not affect any borrower or other customer
relationships with County Savings, as each borrowing, contract or other customer
relationship will automatically continue with the Stock Bank on the same terms
(including interest rate) and conditions as existed with County Savings
immediately prior to the Reorganization. Upon completion of the Reorganization,
the Stock Bank may exercise any and all powers, rights and privileges of, and
shall be subject to all limitations applicable to, stock savings banks under New
York law.
There will be no change in management, the Board of Trustees of County
Savings, or branch locations, as a result of the Reorganization. Any changes in
management and the Board of Trustees will occur only in connection with the
Merger. See "Proposal II--Approval of an Agreement and Plan of Merger Between
Oswego County Savings Bank, Oswego City Savings Bank--Management of County
Savings and City Savings Following the Merger."
Federal and State Tax Consequences of the Reorganization
County Savings has requested an opinion that the Reorganization will
constitute a non-taxable reorganization under the Internal Revenue Code (the
"Code"). Unlike private letter rulings, an opinion of counsel is not binding on
the Internal Revenue Service ("IRS") or the New York Department of Taxation and
either agency could disagree with the conclusions reached therein. In the event
of such disagreement, there can be no assurance that the IRS or the New York
Department of Taxation would not prevail in a judicial or administrative
proceeding.
Accounting Treatment of Reorganization
The Reorganization will result in no change to the accounting of County
Savings' assets, liabilities, and equity. It is expected that the Merger will be
accounted for using the purchase method of accounting. See "Proposal
II--Approval of the Agreement and Plan of Merger Between Oswego County Savings
Bank and Oswego City Savings Bank."
Regulatory Approvals
In order to complete the Reorganization, the approval of the Federal
Reserve must be obtained for County MHC to acquire all of the issued and
outstanding stock of Stock Bank, thus becoming a bank holding company. The
Department must approve the formation of County MHC, and the FDIC must issue its
non-objection to County Savings' conversion to the Stock Bank.
Interpretation and Amendment of the Plan
If necessary or desirable, the terms of the Plan may be amended by a
majority vote of County Savings' Board of Trustees at any time prior to
submission of the Plan to a vote of depositors. At any time after submission of
the Plan to a vote of depositors, the terms of the Plan may be amended by a
majority vote of the Board of Trustees in response to comments received from the
Department or the FDIC, and may be amended for any other reason only with the
concurrence of the Department and the FDIC. The Plan may be terminated at any
time by a majority vote of the Board of Trustees.
THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PLAN.
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- --------------------------------------------------------------------------------
PROPOSAL II--APPROVAL OF AN AGREEMENT AND PLAN OF MERGER BETWEEN
OSWEGO COUNTY SAVINGS BANK AND OSWEGO CITY SAVINGS BANK
- --------------------------------------------------------------------------------
General
On September 5, 1997, County Savings, City Savings and City MHC entered
into the Agreement pursuant to which County Savings will be merged with and into
City Savings with City Savings as the resulting savings bank. The Agreement was
subsequently amended on January 13, 1998 and on April 30, 1998 to, among other
things, make the Stock Holding Company a party to the Agreement and to provide
for a minority stock offering to County Savings' depositors. The Merger will be
effected by having (i) County Savings form County MHC, (ii) County MHC merge
into City MHC with City MHC as the resulting mutual holding company, and (iii)
County Savings merge into City Savings with City Savings as the resulting
savings bank. City Savings is expected to change its name to Pathfinder Bank
following the Merger. The following discussion describes the material terms of
the Agreement and is qualified in its entirety by reference to the Agreement.
The Parties to the Transaction
County Savings. County Savings is a New York chartered mutual savings
bank headquartered in Oswego, New York. County Savings was chartered in 1870,
and its deposits are insured by the FDIC to the maximum extent permitted by law.
At December 31, 1997, County Savings had total assets of $112.1 million,
deposits of $97.9 million and retained earnings of $11.2 million.
County Savings is a community-oriented savings bank that is primarily
engaged in the business of attracting deposits from the general public in its
market area, and investing such deposits, together with other sources of funds,
in one-to-four family residential real estate loans. County Savings operates
from its main office and three branch offices in Fulton, Pulaski and Oswego, New
York.
City Savings. City Savings is a New York chartered savings bank
headquartered in Oswego, New York. City Savings was chartered in 1859, and its
deposits are insured by the FDIC to the maximum extent permitted by law. In 1995
City Savings reorganized into a mutual holding company and sold 881,666 shares
of its common stock to the public and issued 1,035,000 shares to City MHC. The
only business of City MHC is the ownership of a majority of the outstanding
shares of common stock of the Stock Holding Company. On December 30, 1997, City
Savings established a mid-tier stock holding company to own 100% of its common
stock, as described below.
City Savings is a community-oriented savings bank that is primarily
engaged in the business of attracting deposits from the general public in its
market area, and investing such deposits, together with other sources of funds,
in loans secured by one-to-four family real estate loans and, to a lesser
extent, loans secured by commercial or real estate, multi-family real estate,
and consumer loans. City Savings operates from its main office and four branch
offices in Oswego, Mexico and Fulton, New York.
Pathfinder Bancorp, Inc. Pathfinder Bancorp, Inc. is a Delaware
corporation that was formed recently to become City Savings' stock holding
company parent in a transaction (the "Two-Tier Reorganization") that was
approved by City Savings' stockholders on December 17, 1997, and was completed
on December 30, 1997. In the Two-Tier Reorganization, each share of City Savings
common stock was exchanged for a share of common stock of the Stock Holding
Company and City Savings became a wholly-owned subsidiary of the Stock Holding
Company. As of the date of the proxy statement, the sole activity of the Stock
Holding Company is the ownership of all of the issued and outstanding common
stock of City Savings. On February 5, 1998, the Stock Holding Company paid a
three-for-two stock split in the form of a stock dividend on all of its issued
and outstanding shares. At December 31, 1997, approximately 54% of the shares of
the Stock Holding Company were owned by City MHC and 46% were owned by the
public. At December 31, 1997 the total consolidated assets, deposits and
stockholders' equity of the Stock Holding Company were $196.5 million, $152.4
million and $23.6 million, respectively. Additional information regarding the
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Stock Holding Company is set forth in the accompanying Prospectus under the
section entitled "Business of the Stock Holding Company."
Background and Reasons for the Merger
Since the enactment of comprehensive Federal legislation in 1989,
County Savings and other Federal and state chartered savings banks have
experienced increasing costs and burdens associated with ongoing compliance with
federal and state regulations governing financial institutions. Moreover, the
costs of upgrading and maintaining the latest technology necessary for the
delivery of competitive and up-to-date financial services have significantly
increased. In addition, the market for deposits, loans, and other financial
services products has become increasingly competitive. County Savings has
substantial competition from both larger banks, and larger non-bank financial
service providers. The Board of Trustees of County Savings has witnessed in New
York and elsewhere, increased consolidation within the financial services
industry, in large part due to the competition, cost and technology changes
described above. The Board of Trustees believes this trend is likely to
continue, especially in light of recent federal legislation authorizing
interstate banking on a national basis. These trends have resulted in more
competitors, most of which are substantially larger than County Savings and
which are able to offer a wider range of financial services. The larger
competitors are also better positioned to keep abreast of technological
developments in the delivery and types of products offered to, and demanded by,
consumers.
Following the appointment of Gregory J. Kreis as President and Chief
Executive Officer of County Savings in January 1997, Mr. Kreis began an
assessment of County Savings' strengths and weaknesses as a financial
institution. Oswego County's market area is characterized by slow growth and
significant competition from financial service providers. Mr. Kreis met with the
Board of Trustees in mid-May 1997 to begin a strategic planning process. An
in-depth assessment of County Savings' prospects in its market area was
undertaken, and Mr. Kreis reviewed with the Board of Trustees those actions a
community bank, such as County Savings, should take to compete effectively over
the next three to five years. At that time the Board also reviewed several
options for the future of County Savings, including continuing as an independent
mutual savings bank, converting to a mutual holding company, completing a full
conversion to the stock form of ownership and merging with another financial
institution.
After evaluating all of the options, County Savings' Board of Trustees
concluded that because of County Savings relatively small asset size of
approximately $110 million, a merger with City Savings would offer significant
advantages to both institutions, their customers and the Oswego community,
including a practical way of creating a larger independent community-oriented
savings bank headquartered in Oswego, New York with greater prospects for long
term growth and profitability than that which would exist for either City
Savings or County Savings operating as separate savings banks. The Board of
Trustees noted that both savings banks have overlapping markets and branch
locations. Moreover, the Board of Trustees considered that many of the
improvements in operations, equipment and personnel that County Savings would
have to undertake in order to remain profitable and competitive had already been
initiated by City Savings. The Board of Trustees determined that it was in
County Savings' best interests to consider merging the financial and human
resources of the two banks into one larger institution that would be better able
to serve the Oswego community in the future.
At the next meeting, the Board of Trustees again discussed in detail
the alternatives of County Savings and at the conclusion of that meeting Mr.
Kreis was directed to meet with Chris C. Gagas, President and Chief Executive
Officer of City Savings, to discuss a possible combination of the two savings
banks. Messrs. Gagas and Kreis invited Northeast Capital & Advisory, Inc. to
assist them in structuring a merger of the two institutions. Following an
initial meeting on June 11, 1997, with Northeast Capital & Advisory, Inc., a
series of meetings occurred between Messrs. Gagas and Kreis, with both Boards
apprised of the discussions. Following these initial discussions, the Board
concluded that a merger would be in the best interest of the communities served
by County Savings, and its management and staff, and authorized Mr. Kreis to
pursue more detailed discussions with Mr. Gagas. During July and August of 1997
representatives of County Savings and City Savings conducted due diligence
investigations of the respective institutions.
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Northeast Capital & Advisory, Inc. was retained by both banks to assist
in the discussions and evaluation of the business aspects of a business
combination and to structure the Merger in a way that would be fair to both the
mutual and stock constituencies of each institution. The negotiations between
County Savings and City Savings resulted in the signing of the Agreement on
September 5, 1997. The Agreement was subsequently amended on January 13, 1998
and April 30, 1998. The Agreement has been unanimously approved by the Board of
Directors of City Savings and the Board of Trustees of County Savings.
Among the factors that influenced the Board's decision to merge with
City Savings were the Board's favorable conclusions regarding: the positive
impact of a larger, independent savings bank on the Oswego community; the future
prospects of County Savings which, together with City Savings, would be a larger
financial institution that is better able to compete and provide the necessary
resources for expanded products and services; City Savings' past performance,
sound financial condition, strong market position and reputation as a
well-managed organization with strong ties to the same market area served by
County Savings; the benefits that would inure to County Savings employees by
allowing them to participate in the training and compensation programs of a
larger, stock-owned institution; and City Savings' agreement to continue to
employ the current personnel employed by County Savings. The Board of Trustees
also determined that the Merger would provide County Savings with the one time
opportunity to establish a charitable foundation that will be funded with $2.0
million in cash and property. The charitable foundation is intended to
complement County Savings' existing community reinvestment activities in a
manner that will allow the local community to share in the growth and
profitability of City Savings and the Stock Holding Company following the
Merger. See "The Charitable Foundation."
The Agreement and the Terms of the Merger
The Agreement provides that County Savings will merge with and into
City Savings with City Savings as the resulting institution. Pursuant to the
Agreement, all depositors of County Savings will become depositors of City
Savings and any liquidation and voting rights of County Savings depositors will,
be transferred to City MHC following the Merger. As part of the Merger, the
Stock Holding Company will issue additional shares of common stock equal to the
pro forma market value of County Savings. RP Financial, LC ("RP Financial"), a
firm experienced in the valuation and appraisal of savings institutions, has
determined that as of April 17, 1998 the fair value of County Savings was $19.0
million. The intent of County Savings and City Savings is to maintain the mutual
holding company structure of City MHC following the Merger, and, at the same
time provide County Savings depositors with an opportunity to subscribe for
common stock as if County Savings itself were conducting a minority stock
offering. As a result, it was determined that shares of common stock in an
amount equal to approximately 46% of the value of County Savings will be offered
for sale in a minority stock offering (the "Offering") by the Stock Holding
Company, and the remaining shares will be issued to City MHC. The shares issued
to City MHC will be available for issuance and sale to depositors and the public
in the future as market and other conditions warrant such sale. The shares of
Stock Holding Company common stock will be offered for sale in the Offering
pursuant to the terms and priorities discussed below. (See "--The Offering") The
total number of shares to be issued by the Stock Holding Company in the Offering
and to City MHC will equal the result obtained from dividing (i) the pro forma
market value of County Savings by (ii) the average bid and asked price of the
Stock Holding Company's common stock as listed on the Nasdaq SmallCap Market
during the ten trading days preceding the closing date of the Merger. Shares
offered to eligible account holders of County Savings will be priced at a 10%
discount to the shares sold to others in the Offering.
As soon as practicable after all the conditions to the Merger have been
waived or satisfied, City MHC and County MHC will file a Plan of Merger with the
New York Secretary of State, and City Savings and County Savings will file a
Plan of Merger with the Department. The Merger will become effective at the time
the Department and New York Secretary of State endorse the Plans of Merger.
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Following the completion of the Merger, the corporate structure under
which City Savings will operate the resulting savings bank, will be as follows:
|-------------------------| |-------------------------|
| | | |
| Pathfinder Bancorp, MHC | | Public Stockholders |
| | | |
|-----------|-------------| |-------------|-----------|
| 54% of the | 46% of the
| Common Stock | Common Stock
|-----------|---------------------------------------------|------------|
| Pathfinder Bancorp, Inc. |
|----------------------------------|-----------------------------------|
| 100% of the Common Stock
|----------------------------------|-----------------------------------|
| Resulting Savings Bank (Oswego County/Oswego City) |
|----------------------------------------------------------------------|
Additional information regarding the Agreement, the Plan, the Merger
and the Offering is set forth from the section of the accompanying Prospectus
entitled "The Merger and the Offering." Following the Merger, depositors of
County Savings will be entitled to participate in any additional stock offering
conducted by the Stock Holding Company to the same extent as the depositors of
City Savings.
The Offering
Concurrently with the Merger, the Stock Holding Company is offering for
sale shares of common stock to eligible depositors of County Savings and others
in the Offering. The Offering will include both a subscription offering and, if
necessary, a community offering. The subscription offering will be made in the
following order of priority: First, to depositors of County Savings with
aggregate deposit balances of $100 or more as of December 31, 1996 ("Eligible
Account Holders"), second to the Employee Stock Ownership Plan ("ESOP") of City
Savings, third, to depositors of County Savings with aggregate deposit balances
of $100 or more as of ____________, 1998 ("Supplemental Eligible Account
Holders") and fourth, to employees, officers and trustees of County Savings. If
any shares of common stock remain after all purchase orders have been filled in
the Subscription Offering, the Stock Holding Company may offer such remaining
shares for sale in a community offering with preference given to residents of
Oswego County. All shares of common stock sold in the Offering will be sold at
the same price per share except that Eligible Account Holders will be entitled
to subscribe for their common stock at a 10% discount to the price for all other
shares of common stock sold in the Offering. The shares of common stock sold in
the Offering will constitute no more than 46% of the pro forma market value of
County Savings. Additional information regarding the Offering and the purchase
priorities set forth in the Plan are set forth in the accompanying Prospectus
under the section entitled "The Merger and the Offering."
Charitable Foundation
On or prior to the completion of the Merger, County Savings will
establish a charitable foundation (the "Charitable Foundation") for the purposes
of providing charitable contributions to qualifying organizations operating in
the City of Oswego, New York, and in other market areas served by County
Savings, and will contribute up to $2.0 million to the Charitable Foundation
immediately prior to the Merger. The Charitable Foundation is intended to
complement County Savings' existing community reinvestment activities in a
manner that will allow the local community to share in the growth and
profitability of City Savings and the Stock Holding Company following the
Merger.
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Representations and Warranties
The Agreement contains representations and warranties by each of County
Savings and City Savings regarding, among other things: (i) organization; (ii)
capitalization; (iii) authority to enter into the Agreement; (iv) compliance
with laws and orders; (v) reports and financial statements; (vi) consents and
approvals; (vii) information to be included in this proxy statement; (viii)
absence of certain changes in the business and financial condition of County
Savings and City Savings as a condition to closing; (ix) pending and threatened
litigation; (x) employees and employee benefits; (xi) tax matters; (xii)
environmental matters; (xiii) government regulation of each institution; and
(xiv) the accuracy of the representations and warranties.
Conditions to the Obligations of County Savings and City Savings
The Agreement contains a number of conditions to the obligations of
County Savings and City Savings to complete the Merger including that: (i) there
is no material adverse change in the financial condition or results of
operations of County Savings and City Savings prior to the Effective Time of the
Merger; (ii) the representations and warranties of County Savings and City
Savings are true and correct in all material respects as of the date of the
Agreement and as of the Effective Time of the Merger; (iii) each party has
performed or complied in all material respects with all obligations under the
Agreement; (iv) no government lawsuit is pending or threatened and no claim that
would reasonably be expected to have a material adverse effect on either County
Savings or City Savings has been asserted; (v) each party has received all
necessary consents or approvals; (vi) the respective Boards of County Savings
and City Savings have not amended, modified or rescinded the resolutions
adopting the Agreement; (vii) each institution has furnished the other with an
officer's certificate indicating that all required actions and conditions to
effect the Merger have been taken; and (viii) all corporate actions have been
taken to complete the Merger. In addition, a condition to closing the Merger is
that City Savings shall have taken all corporate actions necessary to permit the
Oswego City Savings Bank Employees Stock Ownership Plan to acquire additional
shares of Stock Holding Company common stock and to increase the number of
options and shares that can be awarded (or adopt new plans) under the Oswego
City Savings' Bank 1997 Stock Option Plan and Oswego City Savings Bank 1997
Recognition and Retention Plan, respectively.
The consummation of the Merger is also subject to the receipt of all
necessary governmental, stockholder and depositor approvals, as well as the
receipt of a federal tax ruling and/or tax opinion as to the treatment of the
Merger as a tax-free reorganization.
Effects of the Merger
Continuity. While the Merger is being accomplished, the normal business
of County Savings of accepting deposits and making loans will continue without
interruption. After the completion of the Merger, City Savings, as the resulting
savings bank, will continue to be subject to regulation by the Department and
the FDIC. After the Merger, City Savings will continue to provide services for
depositors and borrowers under its current policies.
Effect on Deposit Accounts. Each deposit account in County Savings at
the time of the Merger will automatically continue as a deposit account in City
Savings after the Merger, on the same terms and conditions, including interest
rates. Each such account will be insured by the FDIC up to the maximum amount
permitted by law (i.e., up to $100,000 per depositor).
Effect on Loans. No loan outstanding from County Savings will be
affected by the Merger, and the amount, interest rate, maturity and security for
each loan will remain as they were contractually established prior to the
Merger.
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
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<PAGE>
described below, after the Merger each depositor, in the event of a complete
liquidation, would have a claim as a creditor of City Savings. 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 City
Savings above that amount.
Liquidation Rights
In the unlikely event of a complete liquidation of County Savings in
its present mutual form, each depositor would have a claim to a pro rata share
of any assets of County Savings 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 amount of such depositor's deposit accounts bears to the total
amount of all deposit accounts in County Savings at the time of liquidation,
subject to the right of the State of New York to garnish such assets. After the
Merger, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of City Savings. However, except as described below, this
claim would be solely in the amount of the balance in such depositor's deposit
account plus accrued interest. A depositor would not have a claim or interest in
the assets of City Savings above that amount.
The Plan provides that upon the completion of the Merger, a special
"liquidation account" will be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders in an amount equal to the
surplus and reserves of County Savings as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the Offering.
Each Eligible Account Holder and Supplemental Eligible Account Holder who
continues to maintain a deposit account in City Savings, would, on a complete
liquidation of City Savings, have a claim to an interest in the liquidation
account after payment of all creditors prior to any payment to the stockholders
of City Savings. Each Eligible Account Holder and Supplemental Eligible Account
Holder would have a claim to a pro rata interest in the total liquidation
account equal to the proportion that such Eligible Account Holder's or
Supplemental Eligible Account Holder's qualifying deposits bears to the balance
of all qualifying deposits.
If, however, on any December 31 annual closing date, commencing after
December 31, 1998, the amount in any deposit account is less than the amount in
such deposit account on December 31, 1998 or any other annual closing date, then
such person's interest in the liquidation account relating to such deposit
account would be reduced proportionately, and such interest will cease to exist
if such deposit account is withdrawn or closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account.
Interests of Certain Persons in the Merger
In connection with the Merger, the Stock Holding Company will enter
into an employment agreement with Gregory J. Kreis who will become the President
and Chief Operating Officer of City Savings immediately following the completion
of the Merger. Mr. Kreis will become Chief Executive Officer of City Savings six
months and one day following the completion of the Merger upon the retirement of
Chris C. Gagas. The employment agreement will provide that Mr. Kreis will have a
base salary of $180,000 and will be eligible to receive a bonus of $20,000 for
the successful integration of County Savings and City Savings. Mr. Kreis will
also be eligible for such other compensation that is normal and customary in an
employment agreement with a chief executive officer of a financial institution.
Following the retirement of Mr. Gagas as Chief Executive Officer of
City Savings, Mr. Gagas will continue as Chairman of the Board and will have
primary authority over all merger and acquisition activities, although no other
such activities are planned at this time. From Mr. Gagas' retirement until
December 31, 2000, Mr. Gagas will receive total board and consulting fees of
$100,000 per annum.
The Board of Directors of City Savings as the resulting savings bank
will consist of 16 persons and will include seven trustees who currently serve
on the Board of Trustees of County Savings. The Board of Directors of the Stock
Holding Company will consist initially of the same persons who will be the
directors of City Savings as the resulting
12
<PAGE>
institution. The Board of Trustees of City MHC will consist of 14 persons and
will include six persons who currently serve as trustees of County Savings and
eight persons who currently serve as trustees of City MHC. Continuing
non-management directors of City Savings will receive an annual retainer of
$6,000, and board and committee fees.
City Savings has agreed that County Savings' trustees Robert McCormick,
Carl K. Walrath and Bernard Shapiro will be entitled to participate in the
County Savings' Trustee Emeritus Retirement Benefit Program, which provides
trustees emeritus with an annual benefit of $15,000 until the trustee's death.
The other current trustees of County Savings will become eligible to participate
in the City Savings Director Emeritus Program.
Following the Merger, the Board of Directors of the Stock Holding
Company will use its best efforts to adopt an additional stock award plan and
stock option plan, or amend City Savings' existing plans, to award persons who
are currently trustees and officers of County Savings as provided below. The
intent of the parties is to provide the Trustees and officers and employees of
County Savings with the same stock awards as would be available if County
Savings were to form its own mutual holding company and conduct a minority stock
offering equal to 46% of its pro forma value. All restricted stock awards and
stock option grants will vest no later than six years from the date of award, at
a rate of no less than 16.6% per year.
The parties have agreed to use their best efforts to authorize an
increase in the number of shares underlying options that may be granted under
the existing Oswego City Savings Bank 1997 Stock Option Plan, or in the
alternative to implement a new stock option plan for the purpose of granting
options to County Savings trustees, executive officers and employees, as set
forth below.
The parties will use their best efforts to grant non-management
trustees of County Savings who become directors of City Savings, as the
resulting savings bank, with options to purchase 7,500 shares of Stock Holding
Company common stock. In addition, the parties will use their best efforts to
grant non-management directors who are currently trustees of County Savings
additional options to be determined based upon the price of the Stock Holding
Company common stock and the number of shares of common stock outstanding prior
to the completion of the Merger (excluding shares that become outstanding as a
result of the exercise of options previously granted).
The parties have agreed to use their best efforts to grant Mr. Gregory
J. Kreis options to purchase 36,000 shares of common stock with an exercise
price equal to the fair market value of the Stock Holding Company common stock
on the date of grant. Similarly other officers of County Savings as a group who
are employed by City Savings as the resulting savings bank will be granted
options to purchase in the aggregate 11,100 shares of Stock Holding Company
common stock with an exercise price equal to the fair market value of the Stock
Holding Company common stock on the date of grant.
The parties have agreed to use their best efforts to authorize an
increase in the number of shares that may be awarded under the existing Oswego
City Savings Bank 1997 Recognition and Retention Plan, or in the alternative to
implement a new restricted stock plan for the purpose of awarding (i) each
non-employee director a restricted stock award totaling 2,700 shares, (ii) Mr.
Gregory Kreis a restricted stock award equal to 13,200 shares and (iii) all
other employees restricted stock awards equal in the aggregate to 12,450 shares.
All stock option plans and stock award plans will be subject to the
approval of stockholders of the Stock Holding Company following the completion
of the Merger, which will occur no sooner than six months after the Merger.
The Stock Holding Company will acquire in the open market or issue from
authorized but unissued shares, shares of its common stock for the purpose of
permitting the Oswego City Savings Bank Employee Stock Ownership Plan to
purchase the equivalent of 8% of the shares that would have been purchased by an
employee stock ownership plan established by County Savings if County Savings
had reorganized into the mutual holding company from ownership and conducted a
stock offering.
13
<PAGE>
Finally, employees of County Savings will be provided credit for their
years of service with County Savings for purposes of determining eligibility and
vesting of benefits (but not for benefit accrual purposes) in the tax qualified
plans of City Savings and such plans will be amended accordingly.
Accounting Treatment
It is expected that the Merger will be accounted for using the purchase
method of accounting.
Tax Treatment
The Merger will constitute a tax-free reorganization under the Internal
Revenue Code of 1986, as amended.
Regulatory Approvals
The merger of County Savings and City Savings is subject to the
approval of the FDIC and the Department. Federal Reserve approval is required
for the merger of County MHC into City MHC, and the acquisition of County
Savings by City MHC and the Stock Holding Company. There can be no assurance as
to the timing of such approvals or that such approvals will be obtained. In
addition, under federal law, a period of 15 days must expire following approval
by the FDIC within which period the Department of Justice may file objections to
the Merger under the federal antitrust laws. The Department of Justice could
take action as it deems necessary or desirable in the public interest, including
seeking to enjoin the Merger unless divestiture of an acceptable number of
branches to a competitively suitable purchaser could be made. While City Savings
and County Savings believe that the likelihood of such action by the Department
of Justice is remote, there can be no assurance that the Department of Justice
will not initiate such a proceeding.
City Savings and County Savings are not aware of any governmental
approvals or actions that are required for consummation of the Merger except as
described above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought. There can be no
assurance that any such approval or action, if needed, could be obtained, or
that it would not delay consummation of the Merger or be conditioned in a manner
that would cause City Savings or County Savings to abandon the Merger.
Recommendation of the Board of Trustees
THE BOARD OF TRUSTEES OF COUNTY SAVINGS UNANIMOUSLY RECOMMENDS THAT YOU
VOTE "FOR" APPROVAL OF THE AGREEMENT. Because a majority of the votes eligible
to be cast is required for approval, the failure by any Voting Depositor to
return a proxy card or to attend the Special Meeting and vote in person will
have the same effect as a vote against the Agreement. In the Agreement and the
Merger, the Board of Trustees of County Savings determined that the proposed
transactions are in the best interests of County Savings, its depositors and
other customers and the communities served by County Savings.
14
<PAGE>
- --------------------------------------------------------------------------------
MANAGEMENT OF COUNTY SAVINGS AND CITY SAVINGS FOLLOWING THE MERGER
- --------------------------------------------------------------------------------
Directors and Executive Officers
The Board of Trustees currently consists of seven persons. Upon
completion of the Merger, the directors of City Savings as the resulting savings
bank and the directors of the Stock Holding Company will consist of 16 persons,
seven of whom currently serve on the Board of Trustees of County Savings and
nine of whom currently serve on the Board of Directors of City Savings. The
trustees of City MHC will consist of the same persons listed below with the
exception of Ms. Janette Resnick and Mr. Carl Walrath who will not be on the
Board of Trustees of City MHC. The current trustees of County Savings, together
with information regarding their ages and occupations, are as follows:
Trustee Age Occupation
------- --- ----------
Gregory J. Kreis 51 President and Chief Executive Officer
Bruce P. Frassinelli 58 Publisher-Oswego Palladium Times
Michael R. Brower 47 Retired
Paul J. Heins 58 Owner-Paul's Big M Grocery Store
Paul W. Schneible 49 Certified Public Accountant
Bernard Shapiro 71 Retired
Carl Walrath 70 Retired
The Board of Directors of City Savings consists of nine persons. The
current directors of City Savings, together with information regarding their
ages and occupations, are set forth below.
Director Age Occupation
-------- --- ----------
Chris C. Gagas 67 Chairman of the Board and Chief
Executive Officer
Chris C. Burritt 45 President and General Manager-R.M.
Burritt Motors, Inc./Chris Cross, Inc.
Raymond W. Jung 68 Retired
Bruce E. Manwaring 56 Retired
L. William Nelson, Jr. 54 Owner and Manager-Nelson Funeral
Home
Victor S. Oakes 74 Retired
Lawrence W. O'Brien 73 Project Coordinator-Neal O'Brien
Building and Materials Corporation
Corte J. Spencer 55 Chief Executive Officer and
Administrator-Oswego Hospital
Janette Resnick 55 Executive Director-Oswego
Opportunities
15
<PAGE>
Executive Officers of the Bank Who Are Not Directors
The following table sets forth certain information (as of___________,
1998) regarding the executive officers of City Savings following the Merger
other than those persons named in the preceding table.
Name Age Occupation
---- --- ----------
Thomas W. Schneider 36 Executive Vice President and Chief
Financial Officer
W. David Schermerhorn 37 Executive Vice President and Chief
Lending Officer
Transactions With Certain Related Persons
Under New York banking law, County Savings, as a mutual institution,
cannot make a loan to a Trustee or a person who is an "executive officer,"
except for loans made to executive officers that are secured by a first mortgage
on a primary residence or by a deposit account at County Savings. All loans
outstanding by County Savings to trustees and executive officers have been made
in the ordinary course of business and on the same terms and conditions as
County Savings would make to any other customer and do not involve more than a
normal risk of collectibility or present other unfavorable features. Following
the Merger, City Savings, as the resulting savings bank, will not be subject to
this restriction in connection with loans to its directors and executive
officers.
Other Matters
The Board of Trustees is not aware of any business to come before the
Special Meeting other than those matters described above in this Proxy
Statement. However, if any other matters should properly come before the Special
Meeting, 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.
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
County Savings has filed an Application with the Department with
respect to the Reorganization into a mutual holding company and the Offering.
City Savings and City MHC have filed Applications with the FDIC, Federal Reserve
and the Department with respect to the Merger and Offering. Pursuant to the
rules and regulations of the Department, the Proxy Statement and Prospectus omit
certain information contained in Applications. The Applications may be examined
at the office of the Department, Two Rector Street, New York, New York, 10006,
and at our main office, at 44 East Bridge Road, Oswego, New York 13126 without
charge. The Agreement and the Plan may be obtained without charge by contacting
County Savings' Corporate Secretary at (315) 343-4100. In the alternative,
please sign, complete and return the enclosed postage-prepaid Information
Request Card by __________, and County Savings will provide you with a copy of
the Agreement and the Plan. You do not need to return the Information Request
Card to vote on the Merger and the Agreement. Copies of the Independent
Valuation are available for inspection at each of County Savings' offices.
This Proxy Statement does not include all of the information regarding
the Merger 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:
16
<PAGE>
PROSPECTUS SECTION PAGE IN PROSPECTUS
[To Come]
BY ORDER OF THE BOARD OF TRUSTEES
-------------------------------
Secretary
Oswego, New York
_________, 1998
17
<PAGE>
OSWEGO COUNTY SAVINGS BANK
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF TRUSTEES OF OSWEGO COUNTY SAVINGS BANK
The undersigned depositor of Oswego County Savings Bank ("County
Savings") hereby appoints the Board of Trustees of County Savings as proxy to
cast all votes which the undersigned depositor is entitled to cast at a Special
Meeting of Depositors to be held at 44 East Bridge Street, Oswego, New York at
_______, New York time, ________, 1998 and at any and all adjournments and
postponements thereof, and to act with respect to all votes that the undersigned
would be entitled to cast, if then personally present, in accordance with the
instructions on the reverse side hereof:
This proxy will be voted as directed by the undersigned depositor.
UNLESS CONTRARY DIRECTION IS GIVEN, A SIGNED PROXY WILL BE VOTED FOR ADOPTION OF
THE PLAN OF REORGANIZATION. In addition, this proxy will be voted at the
discretion of the Board of Trustees upon any other matter as may properly come
before the Special Meeting.
The undersigned depositor may revoke this proxy at any time before it
is voted by delivering to the Secretary of County Savings either a written
revocation of the proxy or a duly executed proxy bearing a later date, or by
appearing at the Special Meeting, filing a written revocation and voting in
person. The undersigned depositor hereby acknowledges receipt of the Notice of
Special Meeting and Proxy Statement and accompanying Prospectus.
IMPORTANT, PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE.
18
<PAGE>
OSWEGO COUNTY SAVINGS BANK
IMPORTANT: Please sign your name exactly as it appears on this proxy. Joint
accounts need only one signature. When signing as an attorney, administrator,
agent, officer, executor, trustee, guardian, etc., please add your full title to
your signature.
<TABLE>
<CAPTION>
FOR AGAINST
<S> <C> <C>
|--| |--| A Plan of Reorganization from a Mutual Savings Bank to Mutual Holding
|--| |--| Company (the "Plan") pursuant to which County Savings will establish County
Savings, MHC ("County MHC") as its New York chartered mutual holding
company parent (the "Reorganization"). Pursuant to the Plan, County Savings
will become a New York chartered stock savings bank which will be wholly-
owned by County MHC. The Reorganization is being undertaken in order to
facilitate the merger of County Savings with and into Oswego City Savings
Bank, a New York chartered stock savings bank headquartered in Oswego,
New York ("City Savings").
FOR AGAINST
|--| |--| An Agreement and Plan of Merger, as amended (the "Agreement"), pursuant
|--| |--| to which County MHC will merge with and into Pathfinder Bancorp, MHC
("City MHC"), the mutual holding company of City Savings, followed
immediately by the merger of County Savings with and into City Savings with
City Savings as the resulting savings bank. The Merger of County MHC into
City MHC, followed immediately by the merger of County Savings into City
Savings is hereinafter referred to collectively as the "Merger." City MHC owns
approximately 54% of the outstanding common stock of Pathfinder Bancorp,
Inc., a Delaware corporation (the "Stock Holding Company"), and the
remaining 46% of the common stock is owned by the public. Upon completion
of the Merger, each depositor of County Savings will automatically become
a depositor of City Savings and all voting and liquidation rights of County
Savings depositors will be transferred to City MHC. All rights and obligations
of County Savings and County MHC will be assumed by City Savings and
City MHC, respectively. As part of the Merger, the Stock Holding Company
will offer for sale shares of its common stock on a priority basis pursuant to a
Stock Issuance Plan to County Savings' eligible depositors and others in an
amount equal to approximately 46% of the pro forma market value of County
Savings, as determined by an independent appraiser. The Stock Holding
Company will issue to City MHC shares of common stock equal to
approximately 54% of the pro forma market value of County Savings. A vote
in favor of the Agreement constitutes a vote in favor of the Merger and the
Stock Issuance Plan.
</TABLE>
Signature______________________________________________ Date______________, 1998
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD. PLEASE SIGN AND RETURN ALL CARDS
IN THE ACCOMPANYING ENVELOPE.
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0001075954
<NAME> OSWEGO COUNTY BANCORP, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 SEP-30-1998
<EXCHANGE-RATE> 1 1
<CASH> 4,083 3,576
<INT-BEARING-DEPOSITS> 281 0
<FED-FUNDS-SOLD> 2,400 750
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 10,921 12,895
<INVESTMENTS-CARRYING> 10,441 15,334
<INVESTMENTS-MARKET> 10,475 15,507
<LOANS> 80,460 73,778
<ALLOWANCE> 1,409 1,280
<TOTAL-ASSETS> 112,139 109,764
<DEPOSITS> 97,899 95,844
<SHORT-TERM> 0 0
<LIABILITIES-OTHER> 3,067 2,794
<LONG-TERM> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 11,173 11,425
<TOTAL-LIABILITIES-AND-EQUITY> 112,139 109,764
<INTEREST-LOAN> 6,841 4,742
<INTEREST-INVEST> 1,151 1,063
<INTEREST-OTHER> 241 151
<INTEREST-TOTAL> 8,233 5,956
<INTEREST-DEPOSIT> 3,738 2,577
<INTEREST-EXPENSE> 3,738 2,577
<INTEREST-INCOME-NET> 4,495 3,379
<LOAN-LOSSES> 525 90
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 3,944 2,940
<INCOME-PRETAX> 26 349
<INCOME-PRE-EXTRAORDINARY> 26 196
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (30) 196
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 7.75 7.49
<LOANS-NON> 1,774 1,986
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 1,583 1,409
<CHARGE-OFFS> 724 267
<RECOVERIES> 25 48
<ALLOWANCE-CLOSE> 1,409 1,280
<ALLOWANCE-DOMESTIC> 1,257 1,200
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 152 80
</TABLE>
