<PAGE>
As filed with the Securities and Exchange Commission on March 28, 2000
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FINGER LAKES BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
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<S> <C> <C>
Delaware 6712 (To be applied for)
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification) Identification Number)
</TABLE>
470 Exchange Street
Geneva, New York 14456
(315) 789-3838
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
G. Thomas Bowers
Chairman, President and Chief Executive Officer
Finger Lakes Bancorp, Inc.
470 Exchange Street
Geneva, New York 14456
(315) 789-3838
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
John J. Gorman, Esq.
Alan Schick, Esq.
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of 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, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box. |_|
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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Proposed Proposed maximum
Title of each class of Amount to be maximum offering aggregate Amount of
securities to be registered registered price per share offering price (1) registration fee
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<S> <C> <C> <C> <C>
Common Stock, $.01 par value per share 2,440,945 shares $7.00 $17,086,615 $4,511
===============================================================================================================================
</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
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PROSPECTUS
FINGER LAKES BANCORP, INC.
(Proposed holding company for Savings Bank of the Finger Lakes)
Up to 2,122,545 shares of common stock
Finger Lakes Bancorp, Inc. is offering common stock. The shares we are
offering represent the 66.9% ownership interest in Finger Lakes Financial Corp.
now owned by Finger Lakes Financial Corporation, MHC, the mutual holding company
of Finger Lakes Financial Corp. Finger Lakes Financial Corp. is the mid-tier
stock holding company parent of Savings Bank of the Finger Lakes, FSB. The
remaining 33.1% ownership interest in Finger Lakes Financial is owned by the
public, and will be exchanged for new common stock in Finger Lakes Bancorp, Inc.
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If you are a current or former depositor of Savings Bank of the Finger Lakes-
o You may have priority rights to purchase shares at $7.00 per share.
o You may purchase up to 106,127 shares (at the maximum), which is equal to
5% of the shares offered in the offering but may purchase no fewer than 25
shares.
o You will not pay a commission to buy any shares or to exchange existing
shares.
o Our offering will end at _____.m., Eastern Time on ____________, 2000.
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If you are currently a shareholder of Finger Lakes Financial -
o Your shares will be exchanged automatically for new shares of Finger Lakes
Bancorp.
o After the exchange of shares, your percentage ownership interest in Finger
Lakes Bancorp will be equivalent to your current percentage ownership
interest in Finger Lakes Financial.
o You may also purchase additional shares at $7.00 per share if shares are
left after the sale to the current and former depositors of Savings Bank of
the Finger Lakes, provided any new shares you buy are not greater than 5%
of the shares offered and which, when added to the shares you will get in
the exchange, do not exceed 5% of the shares outstanding immediately
following the offering.
o You will not pay a commission to buy any shares or to exchange existing
shares.
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If you fit none of the above categories, but are interested in purchasing shares
of our common stock -
o You may purchase shares at $7.00 per share after priorit orders are filled.
o You may purchase the lesser of up to 106,127 shares (at the maximum), or 5%
of the shares offered in the offering. You may purchase no fewer than 25
shares.
o You will not pay a commission to buy any shares.
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OFFERING SUMMARY
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<CAPTION>
MINIMUM MAXIMUM
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<S> <C> <C>
Number of Shares: 1,568,863 2,122,545
Gross offering proceeds: $10,982,041 $14,857,815
Estimated offering expenses: 750,000 750,000
Estimated net proceeds: $10,232,041 $14,107,815
Estimated net proceeds per share: $6.52 $6.65
</TABLE>
The maximum number of shares offered may be increased to 2,440,945. We will
terminate the offering of new stock, and the exchange of existing shares if we
do not sell the minimum number of shares. We have applied to the Nasdaq Stock
Market for approval to list our common stock on the Nasdaq National Market under
the symbol "FLBC".
For a discussion of risks that you should consider, see "Risk Factors"
beginning on page __.
For more information, please call the stock information center at
(315) ___-____.
These securities are not deposits or accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved of
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
The date of this prospectus is May __, 2000
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[INSERT MAP SHOWING FINGER LAKES FINANCIAL'S MARKET AREA]
<PAGE>
TABLE OF CONTENTS
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Page
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<S> <C>
SUMMARY .......................................................................1
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF FINGER LAKES FINANCIAL AND SUBSIDIARY.............................13
FINGER LAKES BANCORP..........................................................15
SAVINGS BANK OF THE FINGER LAKES..............................................15
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE...................................16
USE OF PROCEEDS...............................................................18
DIVIDEND POLICY...............................................................19
MARKET FOR THE COMMON STOCK...................................................20
CAPITALIZATION................................................................22
PRO FORMA TABLES..............................................................23
FINGER LAKES FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME....................................26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS............................................27
BUSINESS OF SAVINGS BANK OF THE FINGER LAKES..................................36
REGULATION....................................................................53
TAXATION .....................................................................58
MANAGEMENT OF FINGER LAKES BANCORP............................................59
MANAGEMENT OF FINGER LAKES FINANCIAL..........................................59
EXECUTIVE COMPENSATION........................................................62
BENEFICIAL OWNERSHIP OF COMMON STOCK..........................................67
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS.............................67
THE CONVERSION................................................................68
COMPARISON OF STOCKHOLDERS' RIGHTS............................................92
RESTRICTIONS ON ACQUISITION OF FINGER LAKES BANCORP...........................99
DESCRIPTION OF CAPITAL STOCK OF FINGER LAKES BANCORP.........................100
EXPERTS ....................................................................102
LEGAL MATTERS................................................................102
ADDITIONAL INFORMATION.......................................................102
</TABLE>
<PAGE>
Questions and Answers about the Stock Offering
If you are interested in general information about the offering the following
questions and answers apply to you.
Q: Why did I receive this prospectus and packet of information from Finger
Lakes Bancorp?
A: Finger Lakes Bancorp is the proposed holding company for the Savings Bank
of the Finger Lakes. We are providing this prospectus and packet of
information to provide information about the conversion of Finger Lakes
Financial Corp., MHC, the mutual holding company parent of Finger Lakes
Financial Corp. and the offering of common stock in Finger Lakes Bancorp.
We have sent packets of information to all depositors of Savings Bank of
the Finger Lakes and shareholders of Finger Lakes Financial as well as
certain people of the general public who request information on our stock
offering.
Q: What is meant by the "conversion"?
A: The current corporate structure of Savings Bank of the Finger Lakes
involves three entities; Finger Lakes Financial Corp., MHC, which owns
66.9% of Finger Lakes Financial Corp., which in turn is the stock holding
company of Savings Bank of the Finger Lakes. We are reorganizing our
corporate structure by offering to depositors and possibly the public the
66.9% ownership interest in common stock and creating Finger Lakes Bancorp.
Additionally, the 33.1% interest in Finger Lakes Financial, which is owned
by the general public, will be exchanged for new shares in Finger Lakes
Bancorp. As a result, Finger Lakes Bancorp will be 100% owned by public
shareholders and will be the parent holding company of Savings Bank of the
Finger Lakes.
Q: Why are we utilizing the stock holding company corporate structure?
A: The stock holding company form of ownership is used by many business
corporations including banks and savings institutions. As a result of the
conversion, we will have additional capital which will allow us to continue
to expand our banking franchise throughout the Finger Lakes Region. This
increased capital will enhance our ability to continue to increase and
diversify our income earning assets. As a holding company for a fully
converted institution, we will have greater flexibility in connection with
mergers and acquisitions. In addition, by selling new shares and listing
the stock on the Nasdaq National Market, we believe it will be easier to
establish a liquid and active trading market which will make it easier for
you to buy and sell our common stock.
Q: Is Savings Bank of the Finger Lakes being purchased by another company in
any sort of a merger or acquisition?
A: No. We are simply reorganizing our corporate structure. We are setting up a
new holding company which will have the same Board of Directors as we
currently have at the bank. Prior to the reorganization, public
shareholders constituted only 33.1% ownership, whereas after the
reorganization, the public will own 100% of the stock company.
If you are a current or former depositor of Savings Bank of the Finger Lakes,
the following questions and answers apply to you.
Q: Will this reorganization affect any of my deposit accounts or loans at
Savings Bank of the Finger Lakes?
A: No. The terms and balance of all of your deposit and loan accounts will not
be affected.
Q: Will my deposit accounts still be insured by the FDIC?
A: Yes. Your deposit accounts will still be insured by the Federal Deposit
Insurance Corporation up to the maximum legal limit.
(i)
<PAGE>
Q: Can I place an order to purchase any of the shares being offered in the
stock offering?
A: Yes. You may place an order to purchase shares in the offering by
completing the order form and certification form found in your packet of
information and returning it to the stock information center or to any
branch of the bank. If you are not interested in purchasing stock, you do
not need to send in your stock order form.
Q: Why am I asked to vote on the reorganization and stock offering of the
bank?
A: We are required by our government regulators to allow ou depositors to vote
on our proposed reorganization and stock offering. If you were a depositor
on ____, 2000, we have attached one or more proxy cards to the stock order
forms found in the front pocket of the outer mailing envelope.
Q: How do I vote on the conversion and stock offering?
A: You vote by properly completing the proxy cards attached to the order form
that we sent in your packet of information. You should vote and sign all
your proxy cards and return them in the mail today in the blue envelope
marked PROXY RETURN ENVELOPE. The Board of Directors of the bank recommends
that you vote "FOR" the conversion.
Q: When do I have to vote?
A: We will need your properly executed proxy cards to tally at the special
meeting of members to be held on June __, 2000 at the main office of the
bank located at 470 Exchange Street in Geneva, New York. Therefore, we
recommend that you mail your proxy cards at least five days prior to the
meeting to allow time for delivery and processing. You may also drop off
your proxy cards at any branch of the bank, or you may vote in person at
the special meeting of members.
Q: Who can help answer any other questions I may have?
A: For answers to other questions, we encourage you to read this prospectus in
its entirety. Questions may also be directed to our stock information
center at (315) ___-____ Monday through Friday between the hours of 9:00
a.m. and 5:00 p.m. You may also visit the stock information center located
on the ____ floor of the main office of the bank at 470 Exchange Street in
Geneva, New York.
If you are interested in purchasing stock in Finger Lakes Bancorp, the following
questions and answers apply to you.
Q: What particular factors should I consider when deciding whether to purchase
the stock?
A: There are many important factors to consider before making an investment
decision. Therefore, you should read this entire prospectus before making
an investment decision. Additionally, we invite you to attend one of our
informational community meetings where officers of the bank as well as
investment banking professionals will make presentations regarding the
offering. Enclosed in your packet of information is a card detailing the
place and times of these meetings. Please call our stock information center
at (315) ___-____ to reserve a place today.
Q: Will the stock be insured or guaranteed?
A: No. Unlike deposit accounts at Savings Bank of the Finger Lakes, our stock
will not be insured or guaranteed by the Federal Deposit Insurance
Corporation, or any other government agency.
(ii)
<PAGE>
Q: How many shares of stock are being offered and at what price?
A: We are offering for sale up to 2,122,545 shares of common stock at a
subscription price of $7.00 per share. We must sell at least 1,568,863
shares. If the appraised market value of the common stock changes due to
market or financial conditions, then we may be required to sell up to
2,440,945 shares without notice to you.
Q: Do I pay a commission in order to purchase the shares of stock?
A: No. You will not be charged a commission or fee to purchase our stock.
Q: Will dividends be paid on the stock?
A: We intend to pay quarterly cash dividends on our common stock. We
anticipate paying an initial dividend at a rate of __% based on a per share
price of $7.00. We expect to begin paying dividends in September of 2000.
However, there can be no assurance that dividends will be paid or will
continue in the future.
Q: How do I purchase the stock?
A: First, you should read this prospectus carefully. Then, complete and return
the enclosed stock order form and certification form together with your
payment. You may return your order to any branch of the bank or to the
stock information center located at the main office of the bank, or by mail
in the enclosed white envelope marked STOCK ORDER RETURN.
Q: How many shares of stock may I place an order for?
A: If you want to place an order for stock, you must purchase at least 25
shares, or $175 worth. You may purchase up to 106,127 shares (at the
maximum), which is equal to 5% of the shares offered in the offering.
However, you may not own more than 5% of the shares outstanding immediately
following the conversion when added to shares owned by you and your
associates or people acting in concert with you.
Q: How do I pay for the stock?
A: You may pay with a personal check or money order, or by cash in person at
any branch of the bank. If you bring in cash, we will convert it into a
certified bank check and forward it to the stock center for processing. You
may also authorize us to make a direct withdrawal from one or more of your
deposit accounts at the bank. Simply fill out the payment section of the
order form appropriately. We will not actually withdraw the money from your
account or accounts until the offering is complete.
Q: Will I receive any interest on my payment up until the time that the
reorganization and stock offering is complete?
A: We will pay interest at the bank's passbook deposit rate from the day we
receive your check, money order or cash payment until the completion of the
offering. If you are paying for your stock by authorizing us to withdraw
money out of one or more of your accounts at Savings Bank of the Finger
Lakes, we will place a hold on the funds for the amounts you indicated when
we receive your order form. We will not actually withdraw the money until
the offering is complete.
Q: Will I be penalized by paying for stock with my certificate of deposit at
the bank?
A: No. Any early withdrawal penalties will be waived for any portion of your
CD or CD's which you use to purchase stock in our offering. Any remaining
portion of your CD will remain at the bank. However, if you reduce your CD
to less than the required minimum, the remaining balance may be converted
to a regular deposit account.
(iii)
<PAGE>
Q: I currently have an IRA at Savings Bank of the Finger Lakes. May I use this
to purchase stock in the Offering?
A: You may use an IRA to purchase shares in the offering. However, Savings
Bank of the Finger Lakes is not a registered broker dealer and is unable to
purchase shares through your IRA. We can assist you in setting up a
brokerage account at a registered broker dealer and transferring over your
funds in order to place an order for stock. This process does take extra
time, however. We encourage you to contact the stock information center as
soon as possible but no later than one week before the close of the
offering.
Q: When is the deadline to subscribe for stock?
A: We must receive a properly signed order form and certification form with
the required payment on or before 12:00 noon, Eastern Time, on June __,
2000.
Q: Can I change my mind after I place an order to subscribe for stock?
A: No. After we receive your order form and payment, you may not cancel or
modify your order. However, if we extend the offering beyond ________,
2000, you will be able to change or cancel your order. If you cancel your
order, you will receive a prompt refund plus interest.
Q: Can the offering be extended?
A: If we do not receive sufficient orders, we can extend the offering beyond
June __, 2000. We must complete any offering to general members of the
public within 45 days after the close of the offering, unless we receive
regulatory approval to further extend the offering. No single extension can
exceed 45 days, and the extensions may not go beyond June __, 2002.
Q: What happens if there are not enough shares of stock to fill all orders?
A: If there is an oversubscription, you may not receive any or all of the
shares you want to purchase.
Q: When will I receive my shares of common stock?
A: We will mail you your stock certificate promptly after the completion of
the reorganization and the offering. We are unable to transfer any shares
directly into an existing brokerage account which you may have.
Q: Will I be able to sell my shares after I purchase them?
A: Yes. We anticipate having our stock quoted on the Nasdaq National Market
under the symbol "FLBC." Friedman, Billings, Ramsey & Co., Inc., or FBR, is
a registered broker dealer and has indicated that they plan on making a
market in our common stock. However, there can be no assurance that an
active and liquid trading market will develop and that someone will want to
buy your shares or that you will be able to sell them for the same or more
money than you originally paid.
Q: How do I sell my shares of common stock?
A: When you decide you want to sell your shares on the Nasdaq National Market,
you will need to sell your shares through a registered broker dealer. You
may sell these shares either through an existing account or by setting up a
new account with a registered broker dealer.
Q: Who can help answer any other questions I may have about the stock
offering?
A: For answers to other questions, we encourage you to read this prospectus in
its entirety. Questions may also be directed to our stock information
center at (315) ___-____ Monday through Friday between the
(iv)
<PAGE>
hours of 9:00 a.m. and 5:00 p.m. You may also visit the stock information
center located on the ____ floor of the main office of the bank at 470
Exchange Street in Geneva, New York.
If you are currently a shareholder of Finger Lakes Financial, the following
questions and answers apply to you.
Q: What will happen to the shares I currently own of Finger Lakes Financial?
A: You will receive shares in Finger Lakes Bancorp in exchange for shares you
currently own in Finger Lakes Financial.
Q: How many new shares will I receive in exchange for my ol ones?
A: The number of shares you receive will depend on how many shares we sell in
the offering. The exchange ratio is calculated to preserve your percentage,
after certain adjustments, of the total shares outstanding after the
offering as your percentage of the total minority shares outstanding before
the offering. If we sell the maximum number of shares, the exchange ratio
will be 0.8881. As an example, if you currently own 100 shares, we will
issue you 88.81 shares in Finger Lakes Bancorp. If we sell the minimum
number of shares, the exchange ratio will be 0.6564, and you would receive
65.64 shares in the above example. No fractional shares of Finger Lakes
Bancorp common stock will be issued to any public shareholders of Finger
Lakes Financial upon consummation of the conversion. The holder of a
fractional share shall receive a check in an amount equal to the product
obtained by multiplying the fractional share interest to which the holder
would be entitled by $7.00.
Q: What do I need to do in order to receive my new shares?
A: At this point, you do not need to do anything with your current shares of
Finger Lakes Financial common stock. Promptly after the closing of the
reorganization and stock offering, we will send you a letter of transmittal
from our exchange agent if you have the shares of Finger Lakes Financial in
your possession. The letter of transmittal will require you to send in your
old stock certificate in order for us to send you back your new certificate
of stock in Finger Lakes Bancorp. If you currently have your shares in a
brokerage account, you own your shares in "street name" and the exchange
will occur automatically.
Q: May I purchase any of the new shares being offered by Finger Lakes Bancorp?
A: You may place an order to purchase new shares in additio to your old ones.
However, you may not own more than 5% of the shares outstanding following
the offering when combined with shares you receive in the exchange as well
as any shares owned by your associates or persons acting in concert with
you. For more information about purchasing shares of Finger Lakes Bancorp,
please refer to the section above.
Q: Do I have to vote on the reorganization and stock offering?
A: Enclosed in your packet of information is a proxy card used to vote at the
Special Meeting of Shareholders to be held at ___ _.m. on ____ at our main
offices located at 470 Exchange Street in Geneva, New York. You will need
to return your proxy cards in the enclosed envelope before the special
meeting in order for them to be tallied. You may also vote in person at the
Special Meeting of Shareholders.
Q: Who can help answer any other questions I may have about the exchange of my
shares?
A: For answers to other questions, we encourage you to read this prospectus in
its entirety. Questions may also be directed to our stock information
center at (315) ___-____ Monday through Friday between the hours of 9:00
a.m. and 5:00 p.m. You may also visit the stock information center located
on the ____ floor of the main office of the bank at 470 Exchange Street in
Geneva, New York.
(v)
<PAGE>
To ensure that each person receives a prospectus at least 48 hours prior to the
expiration date of June __, 2000 in accordance with federal law, no prospectus
will be mailed any later than five days prior to June __, 2000 or hand delivered
any later than two days prior to June __, 2000.
(vi)
<PAGE>
SUMMARY
The following summary explains the significant aspects of the conversion and the
exchange offering. It may not contain all the information that is important to
you. For additional information, you should read this entire document carefully,
including the consolidated financial statements and the notes to the
consolidated financial statements.
The Companies
Finger Lakes Bancorp, Inc.
470 Exchange Street, Geneva, New York 14456
(315) 789-3838
Savings Bank of the Finger Lakes formed Finger Lakes Bancorp as a
Delaware-chartered corporation to own all of its capital stock following the
conversion. Finger Lakes Bancorp has applied to the Office of Thrift Supervision
for approval to become a savings and loan holding company.
Finger Lakes Financial Corp., MHC
470 Exchange Street, Geneva, New York 14456
(315) 789-3838
Finger Lakes Financial Corp., MHC is currently the mutual holding company
of Finger Lakes Financial. As of December 31, 1999, Finger Lakes Financial
Corp., MHC's sole business activity consists of its ownership of 2,389,948
shares of Finger Lakes Financial's common stock, which represents 66.9% of its
outstanding shares, as well as $201,000 in cash.
Finger Lakes Financial Corp.
470 Exchange Street, Geneva, New York 14456
(315) 789-3838
Finger Lakes Financial is currently the mid-tier stock holding company of
Savings Bank of the Finger Lakes. Finger Lakes Financial owns all of the
outstanding common stock of Savings Bank of the Finger Lakes. Finger Lakes
Financial Corp., MHC owns 2,389,948 shares of Finger Lakes Financial's
outstanding common stock. The remaining 1,180,052 shares of common stock are
held by the public. At December 31, 1999 Finger Lakes Financial had consolidated
assets totaling $301.2 million, deposits of $208.1 million and consolidated
stockholders' equity of $19.4 million.
Savings Bank of the Finger Lakes
470 Exchange Street, Geneva, New York 14456
(315) 789-3838
Savings Bank of the Finger Lakes is a federally-chartered savings bank
headquartered in Geneva, New York. Savings Bank of the Finger Lakes is a
community-oriented financial institution offering traditional financial services
to its local community. It conducts operations through its main office in
Geneva, New York and its six branch offices. Savings Bank of the Fingers Lakes
opened its seventh full-service office in Auburn, New York in the spring of
2000. A full description of its products and services begins on page _____ of
this prospectus. Savings Bank of the Finger Lakes' primary market area is in the
Finger Lakes region of New York state.
<PAGE>
Business Strategy
We have several strategies designed to improve our profitability and
enhance our franchise in the Finger Lakes region of New York state. These
strategies include:
o Controlled growth while expanding our market area;
o Complementing our traditional mortgage lending by increasing
multi-family and commercial real estate lending as well as
non-mortgage lending;
o Maintaining our asset quality; and
o Increasing our fee and service income.
These strategies are discussed in detail beginning on page __ of the
prospectus.
The Conversion
The Offering
We are selling in this offering common stock which represents the 66.9%
ownership interest in Finger Lakes Financial now owned by Finger Lakes Financial
Corp., MHC. Under the plan of conversion, current and former depositors of
Savings Bank of the Finger Lakes and Finger Lakes Financial's employee stock
ownership plan have priority rights to subscribe for shares in Finger Lakes
Bancorp. The priorities are as follows:
(1) Depositors with $50 or more on deposit as of December 31, 1998 get
first priority.
(2) Finger Lakes Financial's employee stock benefit plans, including the
employee stock ownership plan, get second priority. The employee stock
ownership plan expects to purchase from 125,509 to 169,803 shares of
common stock.
(3) Depositors with $50 or more on deposit as of March 31, 2000 get third
priority.
(4) Depositors as of __________, 2000, get fourth priority.
We are selling between 1,568,863 and 2,122,545 shares of common stock, all
at a price of $7.00 per share. The number of shares to be sold may be increased
to 2,440,945. The actual amount of shares we sell will depend on an independent
appraisal of Finger Lakes Financial Corp., MHC and Finger Lakes Financial
performed by FinPro, Inc., an independent appraisal firm. The factors that went
into the appraisal are discussed below under "$7.00 Per Share Stock Pricing,
Exchange Ratio and Number of Shares to Be Issued in the Conversion."
The priority offering expires at _____ p.m., Eastern Time, on June ___,
2000, unless extended by Finger Lakes Bancorp. You cannot transfer your
subscription rights. If you attempt to transfer your rights, you may lose the
right to purchase shares and may be subject to criminal prosecution and/or other
sanctions.
During the priority offering, we will also offer shares of common stock to
the general public. In this part of the offering, current stockholders of Finger
Lakes Financial will have first preference and people who reside in our
community will have second preference. This part of the offering will end on
June ___, 2000, unless extended with the approval of the Office of Thrift
Supervision, if necessary.
You will not pay a commission to buy any shares in the offering.
Friedman, Billings, Ramsey & Co., Inc. is managing the offering. Friedman,
Billings, Ramsey & Co., Inc. is a registered broker dealer and member of the
National Association of Securities Dealers, Inc. It is not obligated to purchase
any shares of common stock in our offering.
2
<PAGE>
Shares not sold in the offering may be offered for sale in a syndicated
offering, which would be an offering to the general public on a best efforts
basis by a selling group of broker-dealers managed by Friedman, Billings, Ramsey
& Co., Inc.
We have described the offering in greater detail beginning at page _____ of
this prospectus.
The following chart shows our current ownership structure which is commonly
referred to as the "two-tier" mutual holding company structure:
<TABLE>
<S> <C> <C> <C>
-----------------------------------------------------
Finger Lakes Financial Corp., MHC
-----------------------------------------------------
|
| 66.9% of Common Stock
- -------------------------- |
33.1% of -----------------------------------------------------
Public Shareholders ---------------- Finger Lakes Financial Corp.
Common -----------------------------------------------------
Stock |
- -------------------------- | 100% of Common Stock
|
-----------------------------------------------------
Savings Bank of the Finger Lakes
-----------------------------------------------------
</TABLE>
Following the conversion, our ownership structure will be as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------- ----------------------------------
100% of
Finger Lakes Bancorp, Inc. ------------------ Public Stockholders
Common Stock
- ------------------------------------- ----------------------------------
| 100% of
| Common Stock
- ------------------------------------
Savings Bank of the Finger Lakes
- ------------------------------------
</TABLE>
The Exchange of Finger Lakes Financial Common Stock
If you are now a stockholder of Finger Lakes Financial, your shares will be
cancelled and exchanged for new shares in Finger Lakes Bancorp. The number of
shares you will get will be based on an exchange ratio. The actual number of
shares you receive will depend upon the number of shares we sell in our
offering, which in turn will depend upon the final appraised value of Finger
Lakes Financial and Finger Lakes Financial Corp., MHC. The following table shows
how the exchange ratio will adjust based on the number of shares sold in our
offering. The table also shows how many shares a hypothetical owner of Finger
Lakes Financial common stock would receive in the exchange, adjusted for the
number of shares sold in the offering.
3
<PAGE>
<TABLE>
<CAPTION>
Shares to be exchanged Total shares 100 shares of
Shares to be sold for Finger Lakes Bancorp of Finger Lakes
in this offering common stock common stock Financial
------------------------- ------------------------ to be Exchange would be
Amount Percent Amount Percent outstanding ratio exchanged for
----------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum............. 1,568,863 66.9% 774,587 33.1% 2,343,450 0.6564 65.64
Midpoint............ 1,845,645 66.9% 911,355 33.1% 2,757,000 0.7723 77.23
Maximum............. 2,122,545 66.9% 1,048,005 33.1% 3,170,550 0.8881 88.81
15% above maximum... 2,440,945 66.9% 1,205,188 33.1% 3,646,133 1.0213 102.13
</TABLE>
If you own your shares of Finger Lakes Financial in "street name," the
exchange will occur automatically and you need take no action. If you have
certificated shares, you will receive a transmittal form with instructions to
surrender your stock certificates after the offering is completed. You will
receive new certificates of Finger Lake Bancorp common stock within five
business days after we receive properly executed transmittal forms.
No fractional shares of Finger Lakes Bancorp common stock will be issued to
any public stockholder of Finger Lakes Financial upon consummation of the
conversion. For each fractional share that would otherwise be issued, Finger
Lakes Bancorp will pay by check an amount equal to the product obtained by
multiplying the fractional share interest to which the holder would otherwise be
entitled by the subscription price. Payment for fractional shares will be made
as soon as practicable after the receipt by the exchange agent of surrendered
Finger Lakes Financial stock certificates.
Under federal regulations, current stockholders of Finger Lakes Financial
do not have dissenters' rights or appraisal rights.
Reasons for the Conversion
We are pursuing the conversion for the following reasons:
o As a result of the conversion, we will have more capital which will
enable us to continue to expand our banking franchise through de novo
branching, and offering new products and banking services. We will
thereby be in a better position to increase our market presence in the
Finger Lakes region of New York.
o The larger capital base resulting from the conversion will allow us to
increase our income earning assets, which in turn should permit us to
continue to increase our earnings.
o After the conversion, our common stock will be listed on the Nasdaq
National Market. We believe this listing and the larger number of
outstanding shares will provide additional liquidity and visibility
for our common stock. We believe that as a result, it will be easier
for you to buy and sell our common stock.
o As a holding company for a fully converted stock institution, we will
have greater strategic flexibility in connection with merger and
acquisition transactions. Unlike a mutual holding company, we can
merge with and into any other stock institution or its holding
company.
Conditions to Completion of Conversion
We cannot complete our conversion and our offering unless:
(1) It is approved by at least a majority of votes eligible to be cast by
members of Finger Lakes Financial Corp., MHC;
4
<PAGE>
(2) It is approved by at least two-thirds of the outstanding shares of
Finger Lakes Financial common stock; and
(3) It is approved by at least a majority of the votes cast by
shareholders of Finger Lakes Financial common stock, not including
those shares held by Finger Lakes Financial Corp., MHC.
Finger Lakes Financial Corp., MHC intends to vote its 66.9% ownership
interest in favor of the conversion. In addition, as of December 31, 1999,
directors and executive officers of Finger Lakes Financial and their associates
beneficially own 189,218 shares of Finger Lakes Financial, or 5.3% of the
outstanding shares. They intend to vote those shares in favor of the conversion.
$7.00 per Share Stock Pricing, Exchange Ratio and Number of Shares to be Issued
in the Conversion
We are offering each share of stock at $7.00 per share. The amount of
common stock we are offering in the conversion is based on an independent
appraisal of the estimated market value of Finger Lakes Financial Corp., MHC and
Finger Lakes Financial assuming Finger Lakes Financial Corp., MHC has already
completed the conversion. FinPro, Inc., the independent appraiser, has estimated
that, in its opinion, as of March 13, 2000, this market value was between $16.4
million and $22.2 million, with a midpoint of $19.3 million. The appraisal was
based in part on Finger Lakes Financial's financial condition and results of
operations and the effect of the additional capital raised by the sale of common
stock in this offering. Based on this valuation and the approximate 66.9%
ownership interest being sold in this offering, the Board of Directors of Finger
Lakes Financial, MHC and Finger Lakes Financial established an offering range
between 1,568,863 to 2,122,545 shares. This offering range means the $7.00 per
share purchase price for our shares will range from 58.0% to 70.1% of our
estimated post-conversion stockholders' equity per share, using December 31,
1999 financial data. See "The Conversion--Stock Pricing and Number of Shares to
be Issued" on page _____.
The independent appraisal will be updated prior to the completion of the
conversion. If the market value changes to either below $16.4 million or above
$25.5 million, subscribers will be notified and provided with the opportunity to
modify or cancel their orders. See "The Conversion--Stock Pricing and Number of
Shares to be Issued" for additional details.
Purchase Limitations
The minimum number of shares that may be purchased is 25.
If you are not now a Finger Lakes Financial stockholder -
You may not purchase more than 5% of the shares offered, or 106,127 shares
at the maximum of the offering range, either alone or together with associates
or persons acting in concert with you.
If you are now a Finger Lakes Financial stockholder -
You may not either alone or together with associates or persons acting in
concert purchase shares greater than 5% of the shares offered or, when combined
with shares you receive in the exchange, may not make purchases which will
exceed 5% of the shares outstanding immediately following the offering, or
158,527 shares at the maximum of the offering range. For example, if you are to
receive 77,230 shares in the exchange, you may only purchase up to an additional
81,297 shares in the offering.
For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "The Conversion--Limitations on Common
Stock Purchases" on page _____.
5
<PAGE>
How Investors can Purchase Common Stock
You can subscribe for shares of common stock in the offering, by sending or
delivering an original, signed stock order form together with full payment to us
in the postage-paid envelope provided so that we receive the stock order form
before the end of the offering. The certification that is on the back of the
stock order form also must be signed. Payment for shares may be made in cash if
made in person, or by check or money order. Savings Bank of the Finger Lakes
will pay interest at the rate of _____% from the date funds are received until
completion or termination of the conversion. Subscribers who have deposit
accounts with Savings Bank of the Finger Lakes may include instructions on the
stock order form requesting withdrawal from those deposit account(s) to purchase
shares. Withdrawals from certificates of deposit may be made without incurring
an early withdrawal penalty. All funds authorized for withdrawal from deposit
accounts with Savings Bank of the Finger Lakes will earn interest at the
applicable deposit account rate. However, a hold will be placed on those funds
making them unavailable until the completion of the conversion. After we receive
an order, the order cannot be withdrawn or changed, except with our consent.
IMPORTANT: To ensure the proper identification of subscription rights, list
all qualifying deposit accounts, as of the respective qualifying dates, on
the stock order form. Persons who do not list all qualifying deposit
accounts may be subject to reduction or rejection of their subscription.
Except for those with priority rights to purchase shares, we have the
discretion to accept or reject orders received in the offering. If an order is
rejected in part, there is no right to cancel the remainder of the order.
Owners of self-directed individual retirement accounts who are eligible to
purchase common stock may use the assets of their individual retirement accounts
to purchase shares of common stock in the conversion. However, they may not do
so if their accounts are maintained on deposit with Savings Bank of the Finger
Lakes. If you want to use funds in a self directed individual retirement account
maintained by Savings Bank of the Finger Lakes to purchase shares of common
stock, you must transfer your account to an unaffiliated institution or broker.
If you are interested in doing so, you should contact the stock information
center as soon as possible, and in any event at least one week before the
expiration date.
For further information on how to purchase stock, see "The
Conversion--Procedure for Purchasing Shares."
Use of Proceeds
We will use the proceeds of this offering as follows:
o Net proceeds estimated to be between $5.1 million and $7.1 million,
will be contributed to Savings Bank of the Finger Lakes. Funds infused
into the Savings Bank of Finger Lakes will be used to expand our
branch network through de novo branching and offering new products and
banking services.
o Finger Lakes Bancorp will retain approximately 50% of the net proceeds
(between $5.1 million and $7.1 million), a portion of which may be
used to fund a loan to the employee stock ownership plan to fund its
purchase of common stock. The balance of the funds retained by us will
be used for general corporate purposes. These purposes may include
paying dividends or buying back shares of common stock. In addition,
these funds may be used for future diversification or acquisition
activities, although we do not have plans to do so now.
For further discussion, see "Use of Proceeds."
6
<PAGE>
Purchases by Officers and Directors
We expect our directors and executive officers, together with their
families, to subscribe for 77,714 shares, which equals approximately 4.21% of
the shares sold at the midpoint of the offering range. The purchase price paid
by them will be the same $7.00 per share price as that paid by all other persons
who purchase shares in the conversion. See "Subscriptions by Executive Officers
and Directors."
Benefits of the Conversion to Management
Savings Bank of the Finger Lakes' employee stock ownership plan expects to
purchase up to 8% of the shares we sell in this offering, or 169,803 shares
assuming we sell the maximum of the shares proposed to be sold. If we sell more
shares than the maximum of the offering range, this plan will have first
priority to purchase shares over this maximum, up to the total of 8%. We reserve
the right to purchase common stock in the open market following the offering in
order to fund the employee stock ownership plan. This plan is a tax-qualified
retirement plan for all eligible employees. Assuming the plan purchases 169,803
shares in the offering, Finger Lakes Bancorp will recognize additional
compensation expense of $1,188,621 over a period of 15 years, or approximately
$79,200 per year, from the consummation of the conversion, assuming the shares
have a fair market value of $7.00 per share for the full 15-year period. If, in
the future, the shares have a fair market value greater or less than $7.00, the
compensation expenses will increase or decrease, accordingly.
We also intend to implement two stock-based incentive plans. Neither plan
will be implemented earlier than six months after the conversion. One plan, the
2001 recognition plan, would reserve 4% of the shares sold in the offering, or
84,901 shares at the maximum of the offering range, for awards to key employees
and directors, at no cost to the recipients. In the event the 2001 recognition
plan is adopted more than one year following the completion of the conversion,
it would reserve up to 5% of the shares sold in the offering for awards to key
employees and directors. The second plan, the 2001 stock option plan, will
reserve 10% of the shares sold in this offering, or 212,254 shares at the
maximum of the offering range, to be issued when options to be granted to key
employees and directors are exercised. Awards made under these plans would be
subject to a vesting schedule.
We also will convert options previously awarded in the Savings Bank of the
Finger Lakes stock option plans into options to purchase our common stock, with
the number and exercise price to be adjusted based on the exchange ratio and the
term and vesting period will remain unchanged.
In connection with the conversion, Finger Lakes Bancorp plans to enter into
an employment agreement with G. Thomas Bowers, President and Chief Executive
Officer and Terry L. Hammond, Executive Vice President and Chief Financial
Officer. The employment agreements will provide cash payments to Mr. Bowers and
Mr. Hammond if their employment is terminated following a change in control of
Finger Lakes Bancorp. Each executive will be entitled to a package of cash
and/or benefits with a maximum value equal to up to three times his average
annual compensation during the three-year period preceding the change in
control. If a change in control had occurred as of December 31, 1999, the
aggregate value of the severance benefits payable to Mr. Bowers and Mr. Hammond
under the proposed employment agreements would have been approximately $567,000
and $282,000, respectively.
Dividend Policy
Finger Lakes Financial now pays a cash dividend of $0.06 per share per
quarter, or $0.24 per share per year. After the conversion, we expect to
establish a dividend rate of ___% (based upon a price of $7.00 per share). The
dividend rate and the continued payment of dividends will depend on a number of
factors including our capital requirements, our financial conditions and results
of operations, tax considerations, statutory and regulatory limitations, and
general economic conditions. No assurance can be given that we will continue to
pay dividends or that they will not be reduced in the future. Assuming the
offering is completed by July 2000, the first dividend is expected to be
declared for the quarter ending September 2000.
7
<PAGE>
The following table summarizes these plans. The value of shares shown in
the table assumes a value of $7.00 per share, the price at which shares in the
offering will be sold. No value is given for options because their exercise
price will be equal to the fair market value of the common stock on the day the
options are granted. As a result, value can be received under an option only if
the market price of common stock increases after the option grant.
<TABLE>
<CAPTION>
Number of Shares Value of Grants
to be Granted or Agreements Percentage of
------------------------------- ------------------------------- Common Stock
At Minimum At Maximum At Minimum At Maximum to be Sold
of of of of in the
Offering Range Offering Range Offering Range Offering Range Offering
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Employee stock ownership plan ................... 125,509 169,803 $ 878,563 $1,188,621 8%
2001 recognition plan ........................... 62,754 84,901 439,278 594,307 4%
2001 stock option plan .......................... 156,886 212,254 -- -- 10%
Aggregate value of severance benefits under
employment agreements ........................ -- -- -- -- --
Total ........................................... 345,149 466,958 $1,317,841 $1,782,928 22%
</TABLE>
As of the date of this prospectus, management of Finger Lakes Financial
owned, or had the right to acquire, __________ shares of Finger Lakes Financial.
After the exchange and assuming the grant of the additional shares shown in the
above table, management and the employee stock ownership plan would own
__________ and __________ shares of Finger Lake Bancorp at the minimum and
maximum, respectively, of the offering range. That would amount to _____% and
_____%, respectively, of the shares of our common stock outstanding after the
offering at the minimum and maximum of the offering range.
Market for Common Stock
We have applied to the Nasdaq Stock Market to list the common stock on the
Nasdaq National Market under the symbol FLBC. The common stock of Finger Lakes
Financial is currently listed on the Nasdaq SmallCap Market under the symbol
SBFL. While it is expected that Finger Lakes Bancorp common stock will be more
easily tradeable because there will be significantly more outstanding shares
than Finger Lakes Financial's common stock, there can be no assurance of this.
Friedman, Billings, Ramsey & Co., Inc. has advised us that it intends to be
a market maker in the common stock and will assist us in obtaining additional
market makers.
Comparison of Stockholders' Rights
After the conversion, the stockholders of Finger Lakes Financial will
become stockholders of Finger Lakes Bancorp and their rights as stockholders
will be governed by Finger Lakes Bancorp's certificate of incorporation and
bylaws and Delaware law, rather than Finger Lakes Financial's federal charter
and bylaws and federal law and regulations. For a discussion of material
differences in the rights of stockholders of Finger Lakes Bancorp and Finger
Lakes Financial and an explanation of possible anti-takeover effects of
provisions in Finger Lakes Bancorp's certificate of incorporation and bylaws,
see "Comparison of Stockholders' Rights" on page ___.
8
<PAGE>
RISK FACTORS
- --------------------------------------------------------------------------------
You should consider carefully the following risk factors before deciding
whether to invest in our common stock.
- --------------------------------------------------------------------------------
We own property that has environmental liability.
In 1989, we foreclosed on property in Geneva, New York that was the site of
a laundry and dry-cleaning business. We performed an environmental investigation
and remediation of soil contaminated at the site, but subsequent testing
indicated the need for additional groundwater and soil remediation. We have
entered into a Voluntary Remediation Agreement with the New York Department of
Environmental Conservation ("DEC") and DEC has approved our work plan to perform
the remediation. At December 31, 1999, we had a $684,000 accrued liability on
our financial statements for the estimated remediation costs. Once the
remediation work plan has been completed to DEC's satisfaction, DEC will release
us from liability of the on-site environmental contamination, but that could
take a number of years to accomplish. In addition, we have obtained
environmental liability insurance against third party liability claims that
could arise from any off-site migration of the contamination, and we intend to
obtain additional insurance against cost overruns in the remediation. We believe
that the recorded liability, together with the insurance coverage, should be
adequate to cover reasonably anticipated liabilities in connection with this
matter. However, it is possible that our liability exposure for the site will
exceed the amounts reserved and insured. For additional information on this
environmental liability, see Note 13 to the consolidated financial statements.
Increases in interest rates may cause earnings to decline and decrease the value
of our mortgage-backed securities and investment securities classified as
available for sale.
To be profitable, we have to earn more money in interest and other income
than we pay as interest and other expenses. Our loan portfolio primarily
consists of loans which either mature or reprice after five years. At December
31, 1999, our deposit accounts consist of time deposit accounts, of which $98.3
million, or 47.2% of total deposits have remaining terms to maturity of less
than one year, as well as demand deposits such as NOW and passbook accounts. If
interest rates rise, the amount of interest we pay on deposits is likely to
increase more quickly than the amount of interest we receive on our loans,
mortgage-backed securities and investment securities. This could cause our
profits to decrease. If interest rates fall, many borrowers may refinance more
quickly, and interest rates on interest earning assets could fall, perhaps
faster than the interest rates on our liabilities. This could also cause our
profits to decrease. For additional information on our exposure to interest
rates, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations-- Management of Market Risk."
In addition, when interest rates rise, it causes a reduction in the fair
value of our mortgage-backed securities and investment securities. At December
31, 1999, our mortgage-backed securities and investment securities which were
classified as available for sale had a fair value of $118.8 million, which is
$5.8 million less than the $124.6 million amortized cost of such securities. The
$5.8 million unrealized loss on such securities ($3.5 million, net of taxes) is
shown on our consolidated statement of financial condition as a reduction of
stockholders' equity but does not affect our income statement unless we sell
these securities and realize the loss.
Our low return on equity after the stock offering may cause our common stock
price to decline.
Our annualized return on equity for the fiscal years ended December 31,
1999 and 1998 was 6.19% and 3.29%, respectively. These ratios are below the
industry averages. Moreover, we will not be able to deploy the increased capital
from this offering immediately. Our ability to profitably leverage our new
capital will be significantly affected by competition for loans and deposits.
Initially, we intend to invest the net proceeds in short term investments which
generally have lower yields than mortgage and non-mortgage loans. Until we can
leverage
9
<PAGE>
our increased capital by growing interest-earning assets and interest-bearing
liabilities, we expect our return on equity to continue to be below the industry
average, which may negatively impact the value of our common stock.
You may not be able to sell your shares when you desire, or for $7.00 or more
per share.
We expect that the common stock will trade on the Nasdaq National Market
System. We cannot predict whether a liquid trading market in shares of our
common stock will develop or how liquid that market might become. Persons
purchasing shares may not be able to sell their shares when they desire if a
liquid trading market does not develop or sell them at a price equal to or above
the initial offering price of $7.00 per share even if a liquid trading market
develops.
Our stock price may decline.
In several cases, common stock issued by recently converted financial
institutions has traded at a price that is below the price at which such shares
were sold in the initial offerings of those companies. The purchase price of our
common stock in the offering is based on the independent appraisal by FinPro.
After our shares begin trading, the trading price of our common stock will be
determined by the marketplace, and may be influenced by many factors, including
prevailing interest rates, investor perceptions and general industry and
economic conditions.
The implementation of stock-based benefits will increase our future compensation
expense and reduce our earnings.
We intend to adopt a stock option plan that will provide for the granting
of options to purchase common stock, a recognition and retention plan that will
provide for awards of restricted stock to our eligible officers, employees and
directors and an employee stock ownership plan that will distribute stock to all
of our qualifying employees over a period of time. The recognition and retention
plan and the ESOP will increase our future costs of compensating our directors
and employees. The cost of the ESOP will vary based on our stock price over
time, while the cost of the Recognition and Retention Plan will be based on our
stock price when the awards are first granted.
Strong competition within our market area makes it difficult to achieve the
desired level of profitability.
Competition in the banking and financial services industry is intense. We
have competed for customers by offering excellent service and competitive rates
on our loans and deposit products. We compete with commercial banks, savings
institutions, mortgage banking firms, credit unions, finance companies, mutual
funds, insurance companies, and brokerage and investment banking firms. Many of
these competitors, such as regional banks, have greater resources than we do and
offer services that we do not provide. Moreover, many of our competitors offer
services through the Internet, which we do not offer, and many larger
institutions that do not have a physical presence in our market area compete
with us through the use of the Internet. Our profitability depends upon our
continued ability to successfully compete in our market area.
Our loans are concentrated in a small geographic area, increasing our
susceptibility to a deterioration in asset quality if the local economy falters.
Our loan portfolio is primarily secured by real estate located in the
Finger Lakes region of New York State. Accordingly, the asset quality of our
loan portfolio is largely dependent upon the economy and unemployment rate in
this area. A downturn in our primary lending area could adversely affect our
operations and profitability. Moreover, a downturn in the local economy may
affect us more severely than some of our larger competitors whose lending
operations are more geographically diverse.
10
<PAGE>
There are many factors beyond our control that affect the demand for loans.
There are many factors beyond our control that can affect the demand for
loans. Because making loans is our primary business and primary source of
profits, our inability to insure a demand for loans is a continuing risk to our
results of operations. The economy in our market area has not grown
significantly in recent years. Consequently, loan originations have decreased
during the past year. Customer demand for loans could be reduced further by a
weaker economy, an increase in unemployment, a decrease in real estate values,
an increase in interest rates or increased competition from other institutions.
If customer demand for loans decreases, our profits may decrease because our
alternative investments, such as mortgage-backed securities and investment
securities, have lower yields than loans.
The increase in multi-family and commercial real estate lending and non-mortgage
related lending increases the risk that some of our loans will not be repaid.
Our portfolio of loans that are not one- to four-family mortgage loans has
been increasing, and our goal is to continue to increase this portfolio because
of the higher yields these loans provide. At December 31, 1999 multi-family and
commercial real estate loans totaled $28.5 million or 17.82% of total loans
compared to $20.5 million or 14.05% of total loans at December 31, 1998. At
December 31, 1999 loans that were not secured by real estate totaled $38.2
million or 23.89% of total loans compared to $29.3 million or 20.03% of total
loans at December 31, 1998. These types of loans generally expose a lender to
greater credit risks than loans secured by one- to four-family real estate. We
intend to continue emphasizing the origination of loans that are not secured by
real estate, in particular, the origination of commercial business loans. As we
increase our portfolio of these loans we may begin to experience higher levels
of nonperforming loans and credit losses.
Our investment of the proceeds of the offering affords our management
significant discretion and they may not be able to achieve acceptable returns on
the proceeds.
We intend to contribute approximately 50% of the net proceeds to Savings
Bank of the Finger Lakes. We will use a portion of the net proceeds to fund the
ESOP and may use the remaining net proceeds as a possible source of funds to
finance the acquisition of other financial institutions and other businesses,
pay dividends to stockholders, repurchase common stock, purchase mortgage-backed
and investment securities, or for other general corporate purposes. Savings Bank
of the Finger Lakes may use the proceeds it receives to establish or acquire
additional branch offices, fund new loans, purchase mortgage-backed and
investment securities, fund the recognition and retention plan or for general
corporate purposes. We have not, however, allocated specific amounts of proceeds
for any of these purposes and we will have significant flexibility in
determining the amounts of net proceeds we apply to different uses and the
timing of such applications. Our failure to apply these funds effectively could
hurt our profits.
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 us
until the completion or termination of the conversion, including any extension
of the expiration date. Because, among other factors, completion of the
conversion will be subject to an update of the independent appraisal prepared by
FinPro, there may be one or more delays in the completion of the conversion.
Subscribers will have no access to subscription funds and/or shares of
conversion stock until the conversion is completed or terminated.
Recent market volatility--impact on common stock price.
In recent months, stock markets in the United States and worldwide have
been extremely 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 all financial institution securities has
been adversely affected by weakening economies worldwide, even though local
community-based financial institutions may not have any credit exposure outside
the
11
<PAGE>
United States. An investor should understand that, in the short-term, the value
of an investment in the common stock is subject to fluctuation, including loss,
due to volatility in stock markets generally.
Banking reform legislation may increase competition.
In November 1999, President Clinton signed into law the Gramm-Leach-Bliley
Financial Services Modernization Act of 1999. This legislation is intended to
modernize the financial services industry by establishing a comprehensive
framework to permit affiliations among commercial banks, insurance companies,
securities firms and other financial service providers. To the extent the
legislation permits banks, securities firms and insurance companies to
affiliate, the financial services industry may experience further consolidation.
This could result in a growing number of larger financial institutions that
offer a wider variety of financial services than we currently offer and that can
aggressively compete in the markets we currently serve. This could adversely
impact our profitability.
Anti-takeover provisions in our charter and bylaws and voting control of
management may discourage takeover proposals that may offer a premium above the
trading price of our common stock.
Provisions in Savings Bank of the Finger Lakes' and Finger Lakes Bancorp's
charters and bylaws. Provisions in our charters and bylaws may discourage
potential proxy contests and other potential takeover attempts, particularly
those that have not been negotiated with our Board of Directors. As a result,
these provisions generally may serve to perpetuate existing management. Examples
of these provisions include a limitation on the voting of shares held by a
single beneficial owner in excess of 10% of our outstanding shares and the
election of directors for three-year terms so that only approximately one-third
of our directors are elected annually. For a more detailed discussion of these
provisions, see "Comparison of Stockholders' Rights" and "Restrictions on
Acquisitions of Finger Lakes Bancorp."
Voting control of officers and directors. Our employees and directors over
time may obtain a large number of shares through their purchases in the
conversion, their interests in the employee stock ownership plan, and the
proposed stock-based benefit plans. This share ownership will give our employees
and directors a significant vote on matters important to shareholders. Further,
this possible ownership level could discourage takeover attempts that
shareholders might like to see happen. In addition, the total ownership or
voting level by employees and directors from these sources could reach in excess
of 20% of our outstanding stock. That level would enable our employees and
directors as a group to defeat any stockholder matter that required an 80% vote.
12
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
OF FINGER LAKES FINANCIAL AND SUBSIDIARY
The following tables set forth selected consolidated historical financial
and other data of Finger Lakes Financial and the Savings Bank of the Finger
Lakes for the periods and at the dates indicated. The information is derived in
part from, and should be read together with, the Consolidated Financial
Statements and Notes thereto of Finger Lakes Financial contained elsewhere in
this prospectus.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Condition Data:
Total assets .................................... $ 301,241 $ 282,376 $ 247,708 $ 200,429 $ 167,773
Cash and cash equivalents ....................... 6,095 4,375 4,394 6,366 6,823
Securities available for sale ................... 118,750 115,333 99,880 83,830 61,719
Securities held to maturity ..................... 1,593 4,640 14,096 13,347 4,705
Loans, net ...................................... 158,854 145,136 118,439 88,682 86,050
Deposits ........................................ 208,132 202,434 186,534 153,832 144,846
Advances from Federal Home Loan Bank ............ 69,960 54,815 36,721 23,800 --
Stockholders' equity ............................ 19,379 21,964 21,679 20,350 20,734
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1999 1998 1997 1996 1995(1)
--------- --------- --------- --------- ---------
(In Thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Selected Operating Data:
Total interest income ........................... $ 20,317 $ 18,645 $ 15,840 $ 13,560 $ 8,187
Total interest expense .......................... 12,021 11,201 9,197 7,370 4,426
--------- --------- --------- --------- ---------
Net interest income ............................ 8,296 7,444 6,643 6,190 3,761
Provision for loan losses ....................... 200 240 120 483 290
--------- --------- --------- --------- ---------
Net interest income after provision for
loan losses .................................... 8,096 7,204 6,523 5,707 3,471
Noninterest income .............................. 1,328 1,202 721 1,093 123
Noninterest expense ............................. 7,259 7,213 5,835 6,741 5,068
--------- --------- --------- --------- ---------
Income (loss) before income tax
expense (benefit) .............................. 2,165 1,193 1,409 59 (1,474)
Income tax expense (benefit) .................... 860 469 562 23 (571)
--------- --------- --------- --------- ---------
Net income (loss) ............................... $ 1,305 $ 724 $ 847 $ 36 $ (903)
========= ========= ========= ========= =========
Net income (loss) per share- basic .............. $ .37 $ .20 $ .24 $ .01 $ (.25)
========= ========= ========= ========= =========
Net income (loss) per share - dilute ............ $ .36 $ .20 $ .24 $ .01 $ (.25)
========= ========= ========= ========= =========
Dividends per share ............................. $ .24 $ .23 $ .20 $ .20 $ .15
========= ========= ========= ========= =========
</TABLE>
- ----------
(1) Reflects eight months of operations insofar as the Savings Bank of Finger
Lakes converted its fiscal year end from April 30 to December 31 in 1995.
13
<PAGE>
<TABLE>
<CAPTION>
Eight Months
Ended
At or For the Year Ended December 31, December 31,
------------------------------------------------ -------------
1999 1998 1997 1996 1995 (1)
------ ------ ------ ------ -------------
<S> <C> <C> <C> <C> <C>
Selected Ratios:
Performance Ratios:
Return on assets (ratio of net income to
average total assets)(3) ................................ 0.44% 0.27% 0.40% 0.02% (0.79)%
Return on stockholders' equity (ratio of net
income to average equity)(3) ............................ 6.19 3.29 4.05 0.18 (6.44)
Interest rate spread information (2):
Average during period ................................... 2.74 2.71 2.82 3.17 3.27
End of period ........................................... 2.77 2.73 2.84 2.79 3.24
Net interest margin
(net interest income divided by
average interest-earning assets) ....................... 2.93 2.96 3.14 3.48 3.56
Operating expenses to average total
assets(3) .............................................. 2.47 2.74 2.66 3.60 4.45
Average interest-earning assets to
average interest-bearing liabilities .................... 104.65 105.39 107.29 106.68 106.95
Dividend Payout ratio .................................... 67 115 87 2000 n/a
Asset Quality Ratios:
Non-performing assets to total assets(4) ................. 0.32% 0.43% 0.50% 0.93% 1.78%
Allowance for loan losses to
non-performing loans(4) ................................. 230.38% 115.75% 203.72% 118.52% 78.39%
Allowance for loan losses to
loans, net .............................................. 0.84% 0.80% 0.96% 1.21% 0.93%
Capital Ratios:
Stockholders' equity to total assets
at end of period ........................................ 6.43% 7.78% 8.75% 10.15% 12.36%
Average stockholders' equity to
average assets .......................................... 7.17% 8.36% 9.54% 10.85% 12.31%
Other Data:
Number of full service customer facilities
at end of period ........................................ 6 6 5 4 3
</TABLE>
- ----------
(1) Reflects eight months of operations insofar as Savings Bank of Finger Lakes
converted its fiscal year end from April 30 to December 31 in 1995.
(2) Interest rate spread represents the difference between the weighted average
yield on average interest-earning assets and the weighted average cost of
average interest-bearing liabilities.
(3) For purposes of computing these rates, the eight month period ended December
31, 1995 has been annualized.
(4) Nonperforming loans consist of non-accrual loans and non-performing assets
consist of non-performing loans, troubled debt restructuring and real estate
owned.
14
<PAGE>
FINGER LAKES BANCORP
Finger Lakes Bancorp was organized under Delaware law in March 2000 for the
purpose of acquiring all of the outstanding shares of capital stock of Savings
Bank of the Finger Lakes. Finger Lakes Bancorp has applied to the Office of
Thrift Supervision to become a savings and loan holding company and will be
regulated by that agency. After completion of the conversion, Finger Lakes
Bancorp will conduct business initially as a unitary savings and loan holding
company. Upon consummation of the conversion, Finger Lakes Bancorp's assets will
consist primarily of the shares of Savings Bank of the Finger Lakes capital
stock acquired in the conversion and that portion of the net proceeds of the
conversion permitted by the Office of Thrift Supervision to be retained by
Finger Lakes Bancorp and the loan to the Employee Stock Ownership Plan. Finger
Lakes Bancorp expects to retain $5.1 million of the net proceeds of the offering
(at the minimum). Finger Lakes Bancorp initially will have no significant
liabilities. Initially, Finger Lakes Bancorp will neither own nor lease any
property, but instead will use the premises, equipment and furniture of Savings
Bank of the Finger Lakes. At the present time, Finger Lakes Bancorp does not
intend to employ any persons other than officers but will use the support staff
of Savings Bank of the Finger Lakes from time to time. Additional employees will
be hired as appropriate to the extent Finger Lakes Bancorp expands its business.
The management of Finger Lakes Bancorp is set forth under "Management of Finger
Lakes Bancorp."
The conversion will provide Finger Lakes Bancorp with additional capital to
support future growth. Management believes that the holding company structure
will provide Finger Lakes Bancorp with additional flexibility to diversify its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies or for other business or investment purposes.
Although there are no current arrangements, understandings or agreements,
written or oral, regarding any such opportunities or transactions, Finger Lakes
Bancorp will be in a position after the conversion to take advantage of any such
acquisition and expansion opportunities that may arise, as restricted by
regulatory limitations and Finger Lakes Bancorp's financial position. The
initial activities of Finger Lakes Bancorp are anticipated to be funded
primarily by the conversion proceeds retained by Finger Lakes Bancorp and
earnings thereon or, alternatively, through dividends received from Savings Bank
of the Finger Lakes.
Finger Lakes Bancorp's executive office is located at 470 Exchange Street,
Geneva, New York, and its telephone number is (315) 789-3838.
SAVINGS BANK OF THE FINGER LAKES
We were formed as the result of a merger consummated in 1984 in which
Geneva Savings Bank, a New York-chartered mutual savings bank, acquired Geneva
Federal Savings and Loan Association, a federal mutual savings and loan
association, and converted to a federal mutual savings bank known as the Savings
Bank of the Finger Lakes. Both institutions had conducted their business
primarily in the Geneva, New York area.
On November 10, 1994, we completed a reorganization from a federally
chartered, mutual savings bank to a federally chartered mutual holding company
known as Finger Lakes Financial Corporation, MHC. As part of the reorganization,
we organized a federally chartered stock savings bank and transferred
substantially all of its assets and liabilities, including all of its
deposit-taking, lending and other banking functions and its corporate name to
the newly created stock savings bank called the Savings Bank of the Finger
Lakes.
On August 17, 1998, we reorganized into the two-tier mutual holding company
structure with Finger Lakes Financial Corp. as the mid-tier stock holding
company parent of the Savings Bank of the Finger Lakes. The reorganization into
the two-tier structure had no impact on the operations of the Savings Bank of
the Finger Lakes or Finger Lakes Financial Corp., MHC.
We are a community-oriented financial institution offering traditional
financial services to our local community. Our primary lending area includes the
Finger Lakes region of New York state. We will continue to seek opportunities to
increase our presence in our market area by expanding our branch franchise and
emphasizing a variety of loan products. Our primary lending activity involves
the origination of fixed rate and adjustable rate
15
<PAGE>
mortgage loans secured by one- to four- family residential real estate. To a
lesser extent, we make loans secured by commercial real estate and multi-family
properties, and single family residential construction loans. In addition, we
originate loans that are not secured by real estate, and purchase mobile home
loans. Management anticipates that commercial and multi-family loans, as well
as, loans that are not secured by real estate, in particular commercial business
loans, will increase as a percentage of overall loans.
We are currently selling substantially all newly originated fixed-rate
residential mortgage loans and retaining the servicing on such loans. At
December 31, 1999, we were servicing $39.1 million in loans for others. We
generally limit our lending activities, except with respect to mobile home
loans, to the Finger Lakes region of New York state. We believe that we have a
substantial market share in Ontario county and competitive market shares in the
other counties in our primary market area, both with respect to deposits and
loans. We generally limit our non-residential real estate loans to the western
New York market area and generally do not lend outside New York and New Jersey
with respect to mobile home loans. We do not engage in securities trading and
limit our investments to U.S. Treasury and federal government agency
obligations, corporate and municipal bonds, mortgage-backed securities, which
are insured by federal agencies, collateralized mortgage obligations, and equity
securities.
We currently conduct operations through our main office in Geneva, New
York, and six full service branch offices in western and central New York. We
opened our sixth full service branch office in Auburn, New York in the spring of
2000.
Our principal executive office is located at 470 Exchange Street, Geneva,
New York 14456, and our telephone number at that address is (315) 789-3838.
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At December 31, 1999, Savings Bank of the Finger Lakes exceeded all of the
applicable regulatory capital requirements. The table on the following pages
sets forth the historical regulatory capital of Savings Bank of the Finger Lakes
at December 31, 1999 and the pro forma regulatory capital of Savings Bank of the
Finger Lakes after giving effect to the conversion, based upon the sale at $7.00
per share of the number of shares shown in the table. The pro forma regulatory
capital amounts reflect the receipt by Savings Bank of the Finger Lakes of 50%
of the net conversion proceeds, which will be retained by Finger Lakes Bancorp
and funding of the employee stock ownership plan and the 2001 recognition plan.
The pro forma risk-based capital amounts assume the investment of the net
proceeds received by Savings Bank of the Finger Lakes in assets which have a
risk-weight of 20% under applicable regulations, as if the net proceeds had been
received and so applied at December 31, 1999. See "Pro Forma Data" for the
assumptions used to determine the net proceeds of the offering. For purposes of
the table below, the entire amount expected to be borrowed by the employee stock
ownership plan and the entire cost of the shares expected to be acquired by the
2001 recognition plan are deducted from pro forma regulatory capital.
16
<PAGE>
<TABLE>
<CAPTION>
Savings Bank of the Finger Lakes Pro Forma at December 31, 1999
Historical at ---------------------------------------------------------------
December 31, 1999 1,568,863 Shares 1,845,645 Shares
-------------------------------- ---------------------------- ----------------------------
Percent of Percent of Percent of
Amount Assets(2) Amount Assets(2) Amount Assets(2)
---------- ----------- -------- ---------- -------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP capital ....... $ 19,238 6.38% $ 23,177 7.60% $ 23,913 7.82%
Tangible capital:
Capital level ... $ 22,597 7.41% 26,395 8.55% $ 27,131 8.76%
Requirement ..... 4,576 1.50 4,633 1.50 4,644 1.50
-------- ------ -------- -------- -------- ------
Excess ........ $ 18,021 5.91% $ 21,762 7.05% $ 22,487 7.26%
======== ====== ======== ======== ======== ======
Core capital:
Capital level ... $ 22,597 7.41% $ 26,395 8.55% $ 27,131 8.76%
Requirement(3) .. 12,202 4.00 12,354 4.00 12,384 4.00
-------- ------ -------- -------- -------- ------
Excess ........ $ 10,395 3.41% $ 14,041 4.55% $ 14,474 4.76%
======== ====== ======== ======== ======== ======
Risk-based capital:
Capital level(4) $ 23,034 16.66% $ 26,832 19.15% $ 27,568 19.62%
Requirement ..... 11,059 8.00 11,211 8.00 11,240 8.00
-------- ------ -------- -------- -------- ------
Excess ........ $ 11,975 8.66% $ 15,621 11.15% $ 16,328 11.62%
======== ====== ======== ======== ======== ======
Assets ............. $301,241 $305,039 $305,775
Tangible Assets .... $305,062 $308,860 $309,596
Core Assets ........ $305,062 $308,860 $309,596
Risk Weighted Assets $138,235 $140,134 $140,502
<CAPTION>
Pro Forma at December 31, 1999
---------------------------------------------------------------
2,122,545 Shares 2,440,945 Shares(1)
-------------------------- ------------------------------
Percent of Percent of
Amount Assets(2) Amount Assets(2)(3)
-------- ---------- -------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> >
GAAP capital ....... $ 24,650 8.04% $ 25,498 8.30%
Tangible capital:
Capital level ... $ 27,868 8.98% $ 28,716 9.23%
Requirement ..... 4,655 1.50 4,668 1.50
-------- ------- -------- -------
Excess ........ $ 23,213 7.48 $ 24,048 7.73%
======== ======= ======== =======
Core capital:
Capital level ... $ 27,868 8.98% $ 28,716 9.23%
Requirement(3) .. 12,413 4.00 12,447 4.00
-------- ------- -------- -------
Excess ........ $ 15,455 4.98% $ 16,269 5.23%
======== ======= ======== =======
Risk-based capital:
Capital level(4) $ 28,305 20.09% $ 29,153 20.63%
Requirement ..... 11,270 8.00 11,304 8.00
-------- ------- -------- -------
Excess ........ $ 17,035 12.09% $ 17,849 12.63%
======== ======= ======== =======
Assets ............. $306,512 $307,360
Tangible Assets .... $310,333 $311,181
Core Assets ........ $310,333 $311,181
Risk Weighted Assets $140,871 $141,294
</TABLE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market or general financial conditions following the commencement of the
offering.
(2) Tangible and core capital levels are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets. Pro forma total adjusted and risk-weighted assets
used for the capital calculations include the proceeds of the employee
stock ownership plan's purchase of 8% of the Finger Lakes Bancorp common
stock in the offering. Pro forma total adjusted assets were $308.9 million,
$309.6 million, $310.3 million and $311.2 million, respectively, at the
minimum, midpoint, maximum and maximum, as adjusted, of the offering range.
Pro forma risk-weighted assets were $140.1 million, $140.5 million, $140.9
million and $141.3 million, respectively, at the minimum, midpoint,
maximum, and maximum, as adjusted, of the offering range.
(3) The current Office of Thrift Supervision core capital requirement for
savings banks is 4% of total adjusted assets. The Office of Thrift
Supervision has proposed core capital requirements which would require a
core capital ratio of 3% of total adjusted assets for savings banks that
receive the highest supervisory rating for safety and soundness, and a 4%
to 5% core capital ratio requirement for all other savings banks. See
"Regulation--Federal Regulation of Savings Institutions--Capital
Requirements."
(4) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weighting.
17
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the common stock in the
offering cannot be determined until the offering is completed, it is presently
anticipated that the net proceeds will be between $10.2 million and $14.1
million, or $16.3 million if the offering range is increased by 15%. See "Pro
Forma Data" and "The Conversion--Share Exchange Ratio" and "--Stock Pricing and
Number of Shares to be Issued" as to the assumptions used to arrive at these
amounts. Finger Lakes Bancorp will be unable to use any of the net proceeds of
the offering until the consummation of the conversion.
Finger Lakes Bancorp estimates that it will use between $5.1 million and
$7.1 million, or $8.2 million if the offering range is increased by 15%, to
purchase all of the capital stock of Savings Bank of the Finger Lakes to be
issued upon conversion. Finger Lakes Bancorp will retain approximately 50% of
the net proceeds, a portion of which is expected to be used to fund the loan to
the employee stock ownership plan. The balance of funds retained by Finger Lakes
Bancorp will be used for general corporate purposes. These purposes may include
investment in federal funds, short-term investment grade marketable securities
and mortgage-backed securities.
The loan to the employee stock ownership plan will enable it to purchase up
to 8% of the shares of Finger Lakes Bancorp common stock issued in the offering.
Finger Lakes Bancorp and Savings Bank of the Finger Lakes may also elect to fund
the employee stock ownership plan's stock purchases through a loan by a third
party financial institution. We may also determine to fund the employee stock
ownership plan through open market purchases of common stock following
completion of the offering. See "Management of Finger Lakes
Financial--Benefits." The net proceeds retained by Finger Lake Bancorp may also
be used to support the future expansion by offering new products and banking
services of operations through branch acquisitions, the establishment of new
branch offices, and the acquisition of other financial institutions or
diversification into other banking related businesses. Neither Finger Lakes
Bancorp nor Savings Bank of the Finger Lakes has any current specific plans,
arrangements or understandings regarding any additional expansions or
acquisitions at this time, nor have criteria been established to identify
potential candidates for acquisition.
A tabular presentation of Finger Lakes Bancorp's expected use of proceeds
is set forth below:
<TABLE>
<CAPTION>
Minimum Maximum
1,568,863 Shares 2,122,545 Shares
---------------- ----------------
<S> <C> <C>
Net proceeds ....................................................... $10,232,041 $14,107,815
=========== ===========
Purchase of Savings Bank of the Finger Lakes common stock .......... 5,116,021 7,053,908
Funds loaned to ESOP ............................................... 878,563 1,188,621
----------- -----------
Funds retained for general corporate purposes ...................... $ 4,237,458 $ 5,865,287
=========== ===========
</TABLE>
Upon completion of the conversion, the Board of Directors of Finger Lakes
Bancorp will have the authority to repurchase stock, as permitted by statutory
and regulatory authority. Office of Thrift Supervision regulations generally do
not permit Finger Lakes Bancorp to repurchase any shares of its common stock
without regulatory approval for three years except that beginning one year
following completion of the conversion, Finger Lakes Bancorp may repurchase its
common stock so long as:
(1) the repurchases within the following two years are part of an
open-market program not involving greater than 5% of its outstanding capital
stock during a twelve-month period;
(2) the repurchases do not cause Savings Bank of the Finger Lakes to become
"undercapitalized" within the meaning of the Office of Thrift Supervision prompt
corrective action regulation; and
(3) Finger Lakes Bancorp provides to the Regional Director of the Office of
Thrift Supervision no later than ten days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and the program is not disapproved by the Regional Director.
18
<PAGE>
Under current Office of Thrift Supervision policies, repurchases may be
allowed in the first year following the conversion and in amounts greater than
5% in the second and third years following the conversion provided there are
valid and compelling business reasons for the repurchases and the Office of
Thrift Supervision does not object to the repurchases. Such repurchases may not
exceed 25% of the total shares outstanding during the three years following the
conversion.
Based upon facts and circumstances following the conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. These facts and circumstances may include but
are not be limited to:
(1) market and economic factors such as the price at which the stock is
trading in the market, the volume of trading, the attractiveness of other
investment alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per share of
the remaining outstanding shares, and the opportunity to improve Finger Lakes
Bancorp's return on equity;
(2) the avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and
(3) any other circumstances in which repurchases would be in the best
interests of Finger Lakes Bancorp and its shareholders.
In the event Finger Lakes Bancorp determines to repurchase stock,
repurchases may be made at market prices which may be in excess of the
Subscription Price in the offering. To the extent that Finger Lakes Bancorp
repurchases stock at market prices in excess of the per share book value,
repurchases may have a dilutive effect upon the interests of existing
stockholders.
The portion of the net proceeds not retained by Finger Lakes Bancorp,
estimated to be $7.1 million at the maximum of the valuation range, will be
contributed to Savings Bank of the Finger Lakes. Such proceeds received by
Savings Bank of the Finger Lakes will increase Savings Bank of the Finger Lakes'
capital. Funds will be added to Savings Bank of the Finger Lakes' general funds
to be used for general corporate purposes, including investment in one-to
four-family residential mortgage loans, investment in federal funds, short-term
investment grade marketable securities and mortgage-backed securities. Savings
Bank of the Finger Lakes may also use such funds for the expansion of its
facilities, and to expand operations through acquisitions of other financial
institutions, branch offices, or other financial services companies. Savings
Bank of the Finger Lakes and Finger Lakes Bancorp have not determined the
approximate amount of net proceeds to be used for each of the purposes mentioned
above.
DIVIDEND POLICY
Finger Lakes Financial now pays a cash dividend of $0.06 per share per
quarter, or $0.24 per share per year. After the conversion, we expect to
establish a dividend rate of ___% (based upon a price of $7.00 per share). The
dividend rate and the continued payment of dividends will depend on a number of
factors including our capital requirements, our financial condition and results
of operations, tax considerations, statutory and regulatory limitations, and
general economic conditions. No assurance can be given that we will continue to
pay dividends or that they will not be reduced in the future. Assuming the
offering is completed by July 2000, the first dividend is expected to be
declared for the quarter ending September 2000.
Savings Bank of the Finger Lakes will not be permitted to pay dividends on
its capital stock to Finger Lakes Bancorp if Savings Bank of the Finger Lakes'
stockholders' equity would be reduced below the amount required for the
liquidation account. See "The Conversion--Liquidation Rights." For information
concerning federal and state law and regulations which apply to Savings Bank of
the Finger Lakes in determining the amount of proceeds which may be retained by
Finger Lakes Bancorp and regarding a savings institution's ability to make
capital distributions, including payment of dividends to its holding company,
see
19
<PAGE>
"Taxation--Federal Taxation" and "Regulation--Federal Regulation of Savings
Institutions--Limitation on Capital Distributions."
Unlike Savings Bank of the Finger Lakes, Finger Lakes Bancorp is not
restricted by Office of Thrift Supervision regulations on the payment of
dividends to its stockholders, although the source of dividends will depend on
the net proceeds retained by Finger Lakes Bancorp and earnings thereon and may
depend, in part, upon dividends from Savings Bank of the Finger Lakes. Finger
Lakes Bancorp is subject, however, to the requirements of Delaware law, which
generally limit dividends to an amount equal to the excess of the net assets of
Finger Lakes Bancorp over its statutory capital or, if there is no excess, to
its net profits for the current and/or immediately preceding fiscal year. For
these purposes, net assets means the amount by which total assets exceed total
liabilities, and statutory capital generally means the aggregate par value of
the outstanding shares of Finger Lakes Bancorp's capital stock.
Additionally, in connection with the conversion, Finger Lakes Bancorp and
Savings Bank of the Finger Lakes have committed to the Office of Thrift
Supervision that during the one-year period following the consummation of the
conversion, Finger Lakes Bancorp will not take any action to declare an
extraordinary dividend to stockholders that would be treated by recipient
stockholders as a tax-free return of capital for federal income tax purposes
without prior approval of the Office of Thrift Supervision.
MARKET FOR THE COMMON STOCK
There is an established market for Finger Lakes Financial common stock
which is currently listed on the Nasdaq SmallCap Market under the symbol,
"SBFL." At December 31, 1999 Finger Lakes Financial had ______ market makers,
including Friedman, Billings, Ramsey & Co., Inc. As a newly formed company,
however, Finger Lakes Bancorp has not issued capital stock. It is expected that
the Finger Lakes Bancorp common stock will be more liquid than Finger Lakes
Financial common stock since there will be significantly more outstanding shares
owned by the public. Finger Lakes Bancorp has applied to have its common stock
listed on the Nasdaq National Market under the symbol "FLBC." However, there can
be no assurance that an active and liquid trading market for the common stock
will develop or, if developed, will be maintained. The shares of Finger Lakes
Financial common stock owned by the public will automatically, without further
action by those holders, be converted into and become a right to receive a
number of shares of Finger Lakes Bancorp common stock that is determined
pursuant to the exchange ratio. See "The Conversion--Share Exchange Ratio."
The development of a public market having the desirable characteristics of
depth, liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within the control of Finger Lakes
Bancorp, Finger Lakes Financial or any market maker. In the event that
institutional investors buy a relatively large proportion of the offering, the
number of active buyers and sellers of the common stock at any particular time
may be limited. There can be no assurance that persons purchasing the common
stock will be able to sell their shares at or above the subscription price of
$7.00 per share. Therefore, purchasers of the common stock should have a
long-term investment intent and should recognize that there may be a limited
trading market in the common stock. This may make it difficult to sell the
common stock after the conversion and may have an adverse effect on the price at
which the common stock can be sold.
The following table sets forth the high and low bid quotes for Finger Lakes
Financial common stock and the adjusted cash dividends per share declared for
the periods indicated. These quotations represent prices between dealers and do
not include retail markups, markdowns, or commissions and do not reflect actual
transactions. This information has been obtained from monthly statistical
summaries provided by the Nasdaq Stock Market. As of December 31, 1999 there
were 1,180,052 publicly-held shares of Finger Lakes Financial common stock
outstanding. In connection with the conversion, each share of Finger Lakes
Financial's common stock will be converted into shares of Finger Lakes Bancorp
common stock, based upon the exchange ratio that is described in other parts of
this prospectus. Accordingly, the information in this table should be reviewed
in conjunction with the exchange ratio at various levels of the offering range.
20
<PAGE>
<TABLE>
<CAPTION>
Cash Dividend
Fiscal 2000 High Bid(1) Low Bid(1) Declared
-------------- ------------- ------------
<S> <C> <C> <C>
Quarter Ended March 31, 2000................ $ $ $
Fiscal 1999
Quarter Ended December 31, 1999............. $ 9.750 $ 7.000 $ 0.06
Quarter Ended September 30, 1999............ $ 11.000 $ 8.125 $ 0.06
Quarter Ended June 30, 1999................. $ 11.750 $ 10.500 $ 0.06
Quarter Ended March 31, 1999................ $ 15.750 $ 11.375 $ 0.06
Fiscal 1998
Quarter Ended December 31, 1998............. $ 13.250 $ 9.00 $ 0.06
Quarter Ended September 30, 1998............ $ 19.375 $ 11.000 $ 0.06
Quarter Ended June 30, 1998................. $ 21.500 $ 18.625 $ 0.06
Quarter Ended March 31, 1998................ $ 24.750 $ 14.750 $ 0.05
</TABLE>
- ----------
(1)Common stock prices and dividends have been adjusted to reflect two for one
stock split effective March 2, 1998.
At January 31, 2000, the business day immediately preceding the public
announcement of the conversion, and at __________, 2000, the last sale of Finger
Lakes Financial common stock as reported on the Nasdaq SmallCap Market was at a
price of $7.50 per share and $_____ per share, respectively. At December 31,
1999, Finger Lakes Financial had approximately 197 stockholders of record. All
publicly-held shares of Finger Lakes Financial common stock, including shares
held by Finger Lakes Financial's officers and directors, will on the effective
date of the conversion be automatically converted into and become the right to
receive a number of shares of Finger Lakes Bancorp common stock determined
pursuant to the exchange ratio, and options to purchase shares of Finger Lakes
Financial common stock will be converted into options to purchase a number of
shares of Finger Lakes Bancorp common stock determined pursuant to the exchange
ratio, for the same aggregate exercise price. See "Beneficial Ownership of
Common Stock."
21
<PAGE>
CAPITALIZATION
The following table presents the historical consolidated capitalization of
Finger Lakes Financial at December 31, 1999, and the pro forma consolidated
capitalization of Finger Lakes Bancorp after giving effect to the conversion,
based upon the assumptions set forth in the "Pro Forma Data" section.
<TABLE>
<CAPTION>
Pro Forma at December 31, 1999
------------------------------------------------------------------------
Maximum
Minimum Midpoint Maximum as adjusted(1)
1,568,863 1,845,645 2,122,545 2,440,945
Finger Lakes Financial shares at shares at shares at shares at
Historical at $7.00 $7.00 $7.00 $7.00
December 31, 1999 per share per share per share per share
---------------------- --------- --------- --------- -------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) ................... $ 208,132 $ 208,132 $ 208,132 $ 208,132 $ 208,132
Borrowed funds ................ 69,960 69,960 69,960 69,960 69,960
--------- --------- --------- --------- ---------
Total deposits and borrowed
funds ....................... $ 278,092 $ 278,092 $ 278,092 $ 278,092 $ 278,092
========= ========= ========= ========= =========
Stockholders' equity:
Preferred stock, $.01 par
value, _____ shares
authorized; none to be
issued(3) .................. -- -- -- -- --
Common Stock, $.01 par value
(post-conversion), _____
shares authorized;
shares to be issued as
reflected(3) ................ 36 23 28 32 36
Additional paid-in
capital(3)(4) ............... 4,787 15,032 16,965 18,899 21,124
Retained income(5) ............ 18,262 18,262 18,262 18,262 18,262
Accumulated other
comprehensive
income (loss) ............... (3,525) (3,525) (3,525) (3,525) (3,525)
Less:
Common Stock held by
existing Employee Stock
Ownership Plan .............. (181) (181) (181) (181) (181)
Common Stock to be acquired
by ESOP ................. -- (879) (1,034) (1,189) (1,367)
Common Stock to be acquired
by Recognition Plan(7) ...... -- (439) (517) (594) (683)
--------- --------- --------- --------- ---------
Total stockholders' equity .... $ 19,379 $ 28,293 $ 29,998 $ 31,704 $ 33,666
========= ========= ========= ========= =========
Total stockholders' equity as a
percentage of total assets .. 6.43% 9.12% 9.62% 10.11% 10.67%
========= ========= ========= ========= =========
</TABLE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market or general financial conditions following the commencement of the
subscription and community offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
common stock in the conversion. These withdrawals would reduce pro forma
deposits by the amount of the withdrawals.
(3) Finger Lakes Financial has 10,000,000 authorized shares of preferred stock.
Finger Lakes Financial has 20,000,000 authorized shares of Finger Lakes
Financial common stock, par value $.01 per share. Finger Lakes Financial
common stock and additional paid-in capital have been reclassified to
reflect the number of shares of Finger Lakes Bancorp common stock to be
outstanding.
(4) No effect has been given to the issuance of additional shares of Finger
Lakes Bancorp common stock pursuant to the 2001 stock option plan and 2001
recognition plan expected to be adopted by Finger Lakes Bancorp. If these
plans are approved by stockholders, an amount equal to 10% of the shares of
Finger Lakes Bancorp common stock issued in the offering will be reserved
for issuance upon the exercise of options under the 2001 stock option plan,
and the 2001 recognition plan will acquire an amount of common stock equal
to 4% of the number of shares sold in the offering, either through open
market purchases or from authorized but unissued shares. No effect has been
given to the exercise of options currently outstanding. See "Management of
Finger Lakes Financial--Benefits."
(5) Pro forma retained earnings does not reflect consolidation of $201,000 of
capital from Finger Lakes Financial Corp., MHC. The earnings of Savings
Bank of the Finger Lakes will be substantially restricted after the
conversion, see "The Conversion--Liquidation Rights" and
"Regulation--Federal Regulation of Savings Institutions--Limitation on
Capital Distributions."
(6) Assumes that 8% of the shares issued in the offering will be acquired by
the employee stock ownership plan financed by a loan from Finger Lakes
Bancorp. The loan will be repaid principally from Savings Bank of the
Finger Lakes' contributions to the employee stock ownership plan. Since
Finger Lakes Bancorp will finance the employee stock ownership plan debt,
this debt will be eliminated through consolidation and no liability will be
reflected on Finger Lakes Bancorp's consolidated financial statements.
Accordingly, the amount of stock acquired by the employee stock ownership
plan is shown in this table as a reduction of total stockholders' equity.
(7) Assumes a number of shares of common stock equal to 4% of the common stock
to be sold in the offering will be purchased by the 2001 recognition plan
in open market purchases. The dollar amount of common stock to be purchased
is based on the $7.00 per share subscription price in the offering and
represents unearned compensation and is reflected as a reduction of
capital. This amount does not
22
<PAGE>
reflect possible increases or decreases in the value of stock relative to
the subscription price in the offering. As Finger Lakes Bancorp accrues
compensation expense to reflect the vesting of shares pursuant to the 2001
recognition plan, the deferred charge against capital will be reduced
through a charge to operations. Implementation of the 2001 recognition plan
will require stockholder approval. If the shares to fund the plan are
assumed to come from authorized but unissued shares purchased by the 2001
Recognition Plan from Finger Lakes Bancorp at the subscription price, at
the minimum, midpoint, maximum and the maximum, as adjusted, of the
offering range, the number of outstanding shares would be 2,406,204,
2,830,825, 3,255,451 and 3,743,770, respectively, and total stockholders'
equity would be $28.7 million, $30.5 million, $32.3 million and $34.3
million, respectively, at December 31, 1999. As a result of the plan
acquiring authorized but unissued shares from Finger Lakes Bancorp,
stockholders' ownership in Finger Lakes Bancorp would be diluted by
approximately 3.83%.
PRO FORMA TABLES
The following table summarizes historical data of Finger Lakes Financial
and pro forma data of Finger Lakes Bancorp at or for the fiscal year ended
December 31, 1999, based on assumptions set forth below and in the table, and
should not be used as a basis for projections of market value of the common
stock following the conversion. No effect has been given in the tables to the
possible issuance of additional shares reserved for future issuance pursuant to
currently outstanding stock options or the 2001 stock option plan, nor does book
value give effect to the liquidation account to be established in the
conversion, the bad debt reserve on liquidation. See "The
Conversion--Liquidation Rights," and "Management of Savings Bank of the Finger
Lakes--Directors' Compensation," and "--Executive Compensation."
Pro forma consolidated net income of Finger Lakes Financial for the twelve
months ended December 31, 1999 has been calculated as if Finger Lakes Financial
has been in existence and estimated net proceeds received by Finger Lakes
Financial and Savings Bank of the Finger Lakes had been invested at an assumed
interest rate of 5.98% for the twelve months ended December 31, 1999. The
reinvestment rate was calculated based on the one year U.S. Treasury bill rate
(which, in light of changes in interest rates in recent periods is deemed by
Finger Lakes Financial and Savings Bank of the Finger Lakes to more accurately
reflect the pro forma reinvestment rate in recent periods than the arithmetic
average method). The effect of withdrawals from deposit accounts for the
purchase of common stock has not been reflected. The pro forma after-tax yield
on the estimated net proceeds is assumed to be 3.59% for the twelve months ended
December 31, 1999, based on the an effective 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. No effect has
been given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. It is assumed that Finger Lakes Financial will
retain 50% of the estimated adjusted net conversion 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 stated amount of assets and liabilities of Finger Lakes
Financial computed in accordance with generally accepted accounting principles
("GAAP"). The pro forma stockholders' equity is not intended to represent the
fair market value of the common stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
23
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1999
Based upon the Sale for $7.00 of
-----------------------------------------------------------------------------
1,568,863 1,845,645 2,122,545 2,440,945
Shares Shares Shares Shares(1)
----------- ----------- ----------- -----------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Gross proceeds ............................. $ 10,982 $ 12,920 $ 14,858 $ 17,087
Expenses ................................... (750) (750) (750) (750)
----------- ----------- ----------- -----------
Estimated net proceeds ................... $ 10,232 $ 12,170 $ 14,108 $ 16,337
Common stock purchased by Employee Stock
Ownership Plan(2) ...................... (879) (1,034) (1,189) (1,367)
Common stock purchased by 2001
Recognition Plan(3) ................... (439) (517) (594) (683)
----------- ----------- ----------- -----------
Estimated net proceeds, as adjusted ...... $ 8,914 $ 10,619 $ 12,325 $ 14,287
=========== =========== =========== ===========
For the fiscal year ended December 31, 1999:
Consolidated net income:
Historical combined ...................... $ 1,305 $ 1,305 $ 1,305 $ 1,305
Pro forma adjustments:
Income on adjusted net proceeds ......... 320 381 442 513
Employee Stock Ownership Plan(2) ........ (35) (41) (48) (55)
2001 Recognition Plan(3) ................ (53) (62) (71) (82)
----------- ----------- ----------- -----------
Pro forma net income .................. $ 1,537 $ 1,583 $ 1,628 $ 1,681
=========== =========== =========== ===========
Net income per share(4):
Historical combined(8) ................... $ .59 $ .50 $ .44 $ .38
Pro forma adjustments:
Income on net proceeds ................... .15 .15 .15 .15
Employee Stock Ownership Plan(2) ......... (.02) (.02) (.02) (.02)
2001 Recognition Plan(3) ................. (.02) (.02) (.02) (.02)
----------- ----------- ----------- -----------
Pro forma net income per share(4)(5) .... $ .70 $ .61 $ .55 $ .49
=========== =========== =========== ===========
Pro forma price to earnings ................ 10.00x 11.48x 12.73x 14.29x
=========== =========== =========== ===========
Number of shares used in price-to-earnings
ratio calculations ....................... 2,193,781 2,580,921 2,968,059 3,413,266
At December 31, 1999:
Stockholders' equity:
Historical combined(8) ................... $ 19,379 $ 19,379 $ 19,379 $ 19,379
Estimated net proceeds ................... 10,232 12,170 14,108 16,337
Less: Common stock acquired by
Employee Stock Ownership Plan(2) ......... (879) (1,034) (1,189) (1,367)
Common Stock acquired by 2001
Recognition Plan(3) .................. (439) (517) (594) (683)
----------- ----------- ----------- -----------
Pro forma stockholders' equity(6) .......... 28,293 29,998 31,704 33,666
Intangible assets ........................ -- -- -- --
----------- ----------- ----------- -----------
Pro forma tangible stockholders' equity .. $ 28,293 $ 29,998 $ 31,704 $ 33,666
=========== =========== =========== ===========
Stockholders' equity per share(7):
Historical combined ...................... $ 8.27 $ 7.03 $ 6.11 $ 5.31
Estimated net proceeds ................... 4.37 4.41 4.45 4.48
Less: Common stock acquired by Employee
Stock Ownership Plan(2) .................. (.38) (.38) (.38) (.37)
Common Stock acquired by 2001
Recognition Plan(3) .................. (.19) (.19) (.19) (.19)
----------- ----------- ----------- -----------
Pro forma stockholders' equity per
share(6)(7) ............................ $ 12.07 $ 10.87 $ 9.99 $ 9.23
=========== =========== =========== ===========
Pro forma tangible stockholders'
equity per share ....................... $ 12.07 $ 10.87 $ 9.99 $ 9.23
=========== =========== =========== ===========
Offering price as a percentage of pro
forma stockholders' equity per share ..... 58.00% 64.40% 70.07% 75.84%
=========== =========== =========== ===========
Offering price as a percentage of pro
forma tangible stockholders'
equity per share ......................... 58.00% 64.40% 70.07% 75.84%
=========== =========== =========== ===========
Number of shares used in book value
per share calculations ................... 2,327,300 2,738,000 3,148,700 3,621,005
</TABLE>
- ----------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the offering range to reflect changes
in market and financial conditions following the commencement of the
offering.
(footnotes continued on next page)
24
<PAGE>
(2) Assumes that 8% of shares of common stock sold in the offering will be
purchased by the Employee Stock Ownership Plan. For purposes of this table,
the funds used to acquire these shares are assumed to have been borrowed by
the Employee Stock Ownership Plan from the net proceeds of the offering
retained by Finger Lakes Bancorp. Savings Bank of the Finger Lakes intends
to make annual contributions to the Employee Stock Ownership Plan in an
amount at least equal to the principal of the debt. Savings Bank of the
Finger Lakes' total annual payments on the Employee Stock Ownership Plan
debt are based upon 15 equal annual installments of principal. Statement of
Position 93-6 requires that an employer record compensation expense in an
amount equal to the fair value of the shares committed to be released to
employees. The pro forma adjustments assume that the Employee Stock
Ownership Plan shares are allocated in equal annual installments based on
the number of loan repayment installments assumed to be paid by Savings
Bank of the Finger Lakes, the fair value of the common stock remains at the
subscription price and the Employee Stock Ownership Plan expense reflects
an effective combined federal and state tax rate of 40%. The unallocated
Employee Stock Ownership Plan shares are reflected as a reduction of
stockholders' equity. No reinvestment is assumed on proceeds contributed to
fund the Employee Stock Ownership Plan. The pro forma net income further
assumes (i) that 8,367, 9,843, 11,320 and 13,018 shares were committed to
be released with respect to December 31, 1999 at the minimum, midpoint,
maximum, and adjusted maximum of the offering range, respectively, and (ii)
in accordance with Statement of Position 93-6, only the Employee Stock
Ownership Plan shares committed to be released during the respective period
were considered outstanding for purposes of net income per share
calculations.
(3) If approved by Finger Lakes Bancorp's stockholders, the 2001 Recognition
Plan intends to purchase an aggregate number of shares of common stock
equal to 4% of the shares to be issued in the offering. Stockholder
approval of the 2001 Recognition Plan and purchases by the plan may not
occur earlier than six months after the completion of the conversion. The
shares may be acquired directly from Finger Lakes Bancorp, or through open
market purchases. The funds to be used by the 2001 Recognition Plan to
purchase the shares will be provided by Finger Lakes Bancorp or Savings
Bank of the Finger Lakes. The table assumes that the 2001 Recognition Plan
acquires the shares through open market purchases at the subscription price
with funds contributed by Finger Lakes Bancorp, and that 20% of the amount
contributed to the 2001 Recognition Plan is amortized as an expense during
the fiscal year ended December 31, 1999, and the 2001 Recognition Plan
expense reflects an effective combined federal and state tax rate of 40%.
Assuming stockholder approval of the plan and that the plan shares are
awarded through the use of authorized-but-unissued shares of common stock,
stockholders would have their voting interests diluted by approximately
3.83%.
(4) Per share figures include shares of Finger Lakes Bancorp common stock that
will be exchanged for the publicly-held shares of Finger Lakes Financial
common stock in the share exchange. Net income per share computations are
determined by taking the number of subscription shares assumed to be sold
in the offering and the number of exchange shares assumed to be issued in
the share exchange and, in accordance with Statement of Position 93-6,
subtracting the Employee Stock Ownership Plan shares which have not been
committed for release during the respective period. See Note 2 above. The
number of shares of common stock actually sold and the corresponding number
of exchange shares may be more or less than the assumed amounts.
(5) No effect has been given to the issuance of additional shares of common
stock pursuant to the 2001 Stock Option Plan, which is expected to be
adopted by Finger Lakes Bancorp following the offering and presented to
stockholders for approval not earlier than six months after the completion
of the conversion. If the 2001 Stock Option Plan is approved by
stockholders, an amount equal to 10% of the common stock sold in the
offerings will be reserved for future issuance upon the exercise of options
to be granted under the 2001 Stock Option Plan. The issuance of authorized
but previously unissued shares of common stock pursuant to the exercise of
options under such plan would dilute existing stockholders' interests.
Assuming stockholder approval of the plan, that all the options were
exercised at the end of the period at an exercise price equal to the
subscription price, and that the 2001 Recognition Plan purchases shares in
the open market at the subscription price, pro forma net income per share
for the fiscal year ended December 31, 1999 would be $.63, $.55, $.50 and
$.44, and the pro forma stockholders' equity per share at December 31, 1999
would be $11.61, $10.53, $9.73 and $9.03, in each case at the minimum,
midpoint, maximum and adjusted maximum of the offering range, respectively.
(6) The retained income of Savings Bank of the Finger Lakes will be
substantially restricted after the conversion. See "Dividend Policy," "The
Conversion--Liquidation Rights" and "Regulation--Federal Regulation of
Savings Institutions--Limitation on Capital Distributions."
(7) Per share figures include shares of Finger Lakes Bancorp common stock that
will be exchanged for publicly-held shares of Finger Lakes Financial common
stock in the share exchange. Stockholders' equity per share calculations
are based upon the sum of (i) the number of subscription shares assumed to
be sold in the offering, and (ii) exchange shares equal to the minimum,
midpoint, maximum and adjusted maximum of the offering range, respectively.
The exchange shares reflect an exchange ratio of 0.6564, 0.7723, 0.8881 and
1.0213, respectively, at the minimum, midpoint, maximum, and adjusted
maximum of the offering range, respectively. The number of subscription
shares actually sold and the corresponding number of exchange shares may be
more or less than the assumed amounts.
25
<PAGE>
FINGER LAKES FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Finger Lakes Financial
for the fiscal years ended December 31, 1999, 1998 and 1997 have been audited by
KPMG LLP, independent certified public accountants, whose report thereon appears
elsewhere herein. These Statements should be read in conjunction with the
consolidated financial statements of Finger Lakes Financial and notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans ............................................................ $12,137,138 10,821,304 8,587,760
Securities ....................................................... 8,173,120 7,810,063 7,204,518
Federal funds sold and other short-term investments .............. 6,187 14,085 47,503
----------- ----------- -----------
Total interest income .......................................... 20,316,445 18,645,452 15,839,781
----------- ----------- -----------
Interest expense:
Deposits ......................................................... 8,660,307 8,678,198 7,738,344
Borrowings ....................................................... 3,360,357 2,523,136 1,458,051
----------- ----------- -----------
Total interest expense ......................................... 12,020,664 11,201,334 9,196,395
----------- ----------- -----------
Net interest income ............................................ 8,295,781 7,444,118 6,643,386
Provision for loan losses ........................................... 200,000 240,000 120,000
----------- ----------- -----------
Net interest income after provision for loan losses .............. 8,095,781 7,204,118 6,523,386
----------- ----------- -----------
Noninterest income:
Service charges .................................................. 1,026,636 803,134 507,537
Net gain on sales of loans ....................................... 224,351 276,612 26,695
Net gain on sales of securities .................................. 77,137 106,231 142,160
Other ............................................................ -- 15,722 44,963
----------- ----------- -----------
Total noninterest income ....................................... 1,328,124 1,201,699 721,355
----------- ----------- -----------
Noninterest expense:
Salaries and employee benefits ................................... 3,591,839 3,322,895 2,868,536
Office occupancy and equipment ................................... 1,387,261 1,209,563 859,561
Provision for environmental remediation of real estate owned ..... 90,000 620,000 150,400
Deposit insurance premiums ....................................... 119,947 112,400 100,524
Professional fees ................................................ 347,007 342,144 315,430
Marketing and advertising ........................................ 247,907 264,185 243,049
Data processing .................................................. 158,934 119,188 176,032
Real estate owned ................................................ 72,150 8,650 53,651
Other ............................................................ 1,243,493 1,214,198 1,068,445
----------- ----------- -----------
Total noninterest expense ...................................... 7,258,538 7,213,223 5,835,628
----------- ----------- -----------
Income before income tax expense ............................... 2,165,367 1,192,594 1,409,113
Income tax expense .................................................. 860,426 468,565 561,616
----------- ----------- -----------
Net income ................................................... $ 1,304,941 724,029 847,497
=========== =========== ===========
Net income per common share:
Basic ...................................................... $ 0.37 0.20 0.24
=========== =========== ===========
Diluted .................................................... $ 0.36 0.20 0.24
=========== =========== ===========
</TABLE>
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This discussion and analysis reflects Finger Lakes Financial's consolidated
financial statements and other relevant statistical data and is intended to
enhance your understanding of our financial condition and results of operations.
You should read the information in this section in conjunction with Finger Lakes
Financial's consolidated financial statements and their notes beginning on page
F-1 of this prospectus, and the other statistical data provided in this
prospectus. This prospectus contains certain "forward-looking statements" which
may be identified by the use of such words as "believe," "expect," "anticipate,"
"should," "planned," "estimated" and "potential." Examples of forward-looking
statements include, but are not limited to, estimates with respect to our
financial condition, results of operations and business that are subject to
various factors which could cause actual results to differ materially from these
estimates and most other statements that are not historical in nature. These
factors include, but are not limited to, general and local economic conditions,
changes in interest rates, deposit flows, demand for mortgage and other loans,
real estate values, and competition; changes in accounting principles, policies,
or guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting our
operations, pricing, products and services.
General
Our results of operations depend primarily upon the results of operations
of our wholly-owned subsidiary, Savings Bank of the Finger Lakes, which depend
primarily on net interest income. Net interest income is the difference between
the interest income we earn on our interest-earning assets, consisting primarily
of loans and investment and mortgage-backed securities, and the interest we pay
on our interest-bearing liabilities, primarily savings accounts, time deposits
and other borrowings. Our results of operations are also affected by our
provision for loan losses, other income and other expense. Other expense
consists of non-interest expenses, including salaries and employee benefits,
occupancy, data processing fees, deposit insurance premiums, advertising and
other expenses. Other income consists of non-interest income, including service
charges and fees, gain (loss) on sale of loans and securities and other income.
Our results of operations may also be affected significantly by general and
local economic and competitive conditions, particularly those with respect to
changes in market interest rates, government policies and actions of regulatory
authorities.
Business Strategy
We have several strategies designed to improve our profitability and
enhance our franchise in our market area which comprises the Finger Lakes region
of New York state. We seek to implement these strategies in a manner that is
consistent with safety and soundness. These strategies are discussed below. You
should be aware that we are subject to intense competition, and there can be no
assurances that we will successfully implement these strategies:
Controlled growth while expanding our market area. We have sought to
increase our presence in the Finger Lakes region in New York by expanding our
branch network and emphasizing a variety of loan products in addition to
traditional one- to four-family mortgage loans. As a result, our assets have
increased to $301.2 million at December 31, 1999, from $167.8 million at
December 31, 1995, an increase of 79.5%. During this period, we have increased
our total full-service offices from three to seven. Our growth has been targeted
to include those areas of the Finger Lakes region that have shown relative
economic strength. Management's goal is to develop an increased market presence
in the Finger Lakes region.
Complementing our traditional mortgage lending by increasing multi-family
and commercial real estate lending as well as non-mortgage lending, particularly
commercial business lending. To complement our traditional emphasis on one- to
four-family mortgage lending, we have sought to increase our multi-family and
commercial real estate lending as well as our non-mortgage lending, particularly
commercial business lending. At December 31, 1999, our multi-family and
commercial real estate loans totaled $28.5 million, or 17.82% of total loans. At
December 31, 1999, non-mortgage loans, consisting of commercial business,
consumer, mobile home and home equity and property improvement loans totaled
$38.2 million, or 23.89% of total loans. Management
27
<PAGE>
has determined to emphasize its commercial business lending activities, and in
this regard, has added to its staff persons who are charged with originating and
servicing our commercial business loan portfolio. Because the yields on these
types of loans are generally higher than the yields on one- to four-family
mortgage loans, our goal over the next several years is to increase the
origination of these loans consistent with safety and soundness considerations.
Although these loans offer higher yields than one- to four-family mortgage
loans, they also involve greater risk.
Maintaining asset quality. Our high asset quality is a result of our
underwriting standards, the diligence of our loan collection department in
contacting delinquent borrowers and the stability of the local economy. We also
invest in mortgage-backed securities issued by Freddie Mac, Fannie Mae and
Ginnie Mae and other investment securities, primarily U.S. government and agency
obligations. We will only purchase investment securities rated "A" or higher by
Moodys Investment Rating Service. At December 31, 1999, our ratio of non-
performing assets and troubled debt restructurings to total assets was 0.32%,
and our ratio of non-performing loans and troubled debt restructurings to total
loans was 0.54%.
Increasing fee and servicing income. We have sought to increase our income
by increasing our sources of fee income. During the year ended December 31,
1999, service charges and other fee income totaled $1.0 million as compared to
$803,000 and $508,000 during the years ended December 31, 1998 and 1997,
respectively. We receive fee income from the servicing of loans sold in the
secondary market and from fees on our deposit accounts. In recent periods we
have sold fixed rate mortgages into the secondary market without recourse and on
a servicing retained basis. At December 31, 1999 residential mortgage loans
serviced for others totaled $39.1 million. Our fee and servicing income has also
increased as a result of fees received from certain of our deposit accounts. We
also offer our customers mutual funds, financial planning services and insurance
and annuity products through our wholly owned subsidiary SBFL Agency Inc, which
is an additional source of fee income.
Financial Condition
Our total assets as of December 31, 1999 were $301.2 million, a net
increase of $18.8 million, or 6.7% from December 31, 1998. The increase was due
primarily to a $13.8 million or 9.5% increase in our loan portfolio. Our loan
growth is a result of competitive expansion into other markets within the Finger
Lakes region in New York attracting new commercial and personal lending
customers. With management's continued emphasis on lending activities, loans
increased by $4.9 million, home equity loans increased by $5.3 million, and
commercial business loans increased by $4.1 million. Securities classified as
available for sale at December 31, 1999 were $118.8 million, an increase of $3.5
million from December 31, 1998, while securities classified as held to maturity
at December 31, 1999 were $1.6 million, a decrease of $3.0 million from December
31, 1998. Other assets totaled $6.1 million at December 31, 1999, an increase of
$2.6 million from 1998. This increase is primarily the result of deferred tax
assets attributed to the unrealized losses on securities available for sale.
The growth in assets during 1999 was funded by a combination of a $5.7
million increase in total deposits and a $15.1 million increase in borrowed
funds. Certificates of deposit increased by $4.7 million and all other deposits
increased by $1.0 million in 1999. Total deposit growth of $5.7 million is
reflective of our expansion into the Ithaca and Canandaigua markets and
aggressively pricing deposits, particularly certificates of deposit. The
increase in borrowed funds reflects a continuation of our strategy of using
funding sources other than retail deposits to support asset growth.
Stockholders' equity totaled $19.4 million as of December 31, 1999, a
decrease of $2.6 million from December 31, 1998. Although net income of $1.3
million in 1999 represents an 80.2% increase over 1998, the decrease in
stockholders' equity results primarily from recognition of a $3.7 million
unrealized loss in the fair value of securities available for sale, net of
related deferred income taxes.
28
<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 from average interest-earning assets and the resultant
yields, as well as the interest expense on average interest-bearing liabilities,
expressed both in dollar and rates, and the net interest margin. No
tax-equivalent adjustments have been made and all average balances are daily
average balances. Non-accruing loans have been included in the yield
calculations in this table and dividends received are included as interest
income.
<TABLE>
<CAPTION>
At December 31, 1999 Year Ended December 31, 1999 Year Ended December 31, 1998
---------------------- ------------------------------ ------------------------------
Yield/ Average Yield/ Average Yield/
Balance Rate Balance Interest Rate Balance Interest Rate
-------- --------- --------- --------- -------- -------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans(1)......................... $160,204 8.00% $ 153,783 $ 12,137 7.89% $132,324 $10,821 8.18%
Securities (2)................... 123,866 6.42 128,761 8,173 6.35 119,256 7,810 6.55
Money market investments......... 200 4.75 114 6 5.26 293 14 4.78
-------- ------ --------- --------- ------ -------- ------ ------
Total interest-earning assets.... 282,920 7.31 282,658 20,316 7.19 251,873 18,645 7.40
------ --------- ------ ------ ------
Non-interest-earning assets...... 18,321 11,101 11,519
-------- --------- --------
Total assets..................... $301,241 $ 293,759 $263,392
======== ========= ========
Interest-bearing liabilities:
Deposits(3)...................... $208,132 4.15 208,166 $ 8,660 4.16 $193,227 $8,678 4.49
Borrowed funds................... 69,960 5.64 61,923 3,360 5.43 45,771 2,523 5.51
-------- ------ --------- --------- ------ -------- ------ ------
Total interest-bearing
liabilities 278,092 4.53 270,089 12,020 4.45 238,998 11,201 4.69
------ --------- ------ ------ ------
Non-interest-bearing liabilities. 3,770 2,601 2,369
-------- --------- --------
Total liabilities................ 281,862 272,690 241,367
Stockholders' equity............. 19,379 21,069 22,025
-------- --------- --------
Total liabilities and
stockholders' equity $301,241 $ 293,759 $263,392
======== ========= ========
Net interest income.............. $ 8,296 $7,444
========= ======
Interest rate spread(4).......... 2.78% 2.74% 2.71%
====== ====== ======
Net interest margin(5)........... 2.93% 2.96%
====== ======
Average interest-earning assets
to average interest-bearing
liabilities 104.65% 105.39%
====== ======
<CAPTION>
Year Ended December 31, 1997
-----------------------------
Average Yield/
Balance Interest Rate
-------- -------- ------
(Dollars In Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans(1)......................... $ 99,939 $ 8,588 8.59%
Securities (2)................... 110,762 7,204 6.50
Money market investments......... 788 47 5.96
-------- -------- ------
Total interest-earning assets.... 211,489 15,839 7.49
-------- ------
Non-interest-earning assets...... 7,820
--------
Total assets..................... $219,309
========
Interest-bearing liabilities:
Deposits(3)...................... $171,993 $ 7,738 4.50
Borrowed funds................... 25,127 1,458 5.80
-------- -------- ------
Total interest-bearing
liabilities 197,120 9,196 4.67
-------- ------
Non-interest-bearing liabilities. 1,260
--------
Total liabilities................ 198,380
Stockholders' equity............. 20,929
--------
Total liabilities and
stockholders' equity $219,309
========
Net interest income.............. $ 6,643
========
Interest rate spread(4).......... 2.82%
======
Net interest margin(5)........... 3.14%
======
Average interest-earning assets
to average interest-bearing
liabilities 107.29%
======
</TABLE>
- ----------
(1)Includes premiums, net of deferred fees.
(2)Includes securities available for sale and held to maturity at amortized cost
and Federal Home Loan Bank stock.
(3)Includes noninterest-bearing deposits.
(4)Represents the difference between the weighted average yield on
interest-earning assets and the weighted average costs of average
interest-bearing liabilities.
(5)Net interest income divided by interest-earning assets.
29
<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
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), (ii) changes in rate (change in rate multiplied
by prior year volume), and (iii) total change in rate and 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>
Year Ended December 31,
-------------------------------------------------------------------------------------
1999 vs. 1998 1998 vs. 1997
----------------------------------------- ----------------------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Total Increase/ Due to Total Increase/
---------------------- ----------------------
Rate Volume (Decrease) Rate Volume (Decrease)
------- ------- ---------- ------- ------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans .................................... $ (439) $ 1,755 $ 1,316 $ (550) $ 2,783 $ 2,233
Securities ............................... (259) 622 363 (54) 552 606
Money market investments ................. 1 (9) (8) (3) (30) (33)
------- ------- ------- ------- ------- -------
Total interest-earning assets ......... (697) 2,368 1,671 (499) 3,305 2,806
------- ------- ------- ------- ------- -------
Interest-bearing liabilities:
Deposits ................................. (689) 671 (18) (15) 955 940
Borrowed funds ........................... (53) 890 837 (133) 1,198 1,065
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities ... (742) 1,561 819 (148) 2,153 2,005
------- ------- ------- ------- ------- -------
Increase (decrease) in net interest income $ 45 $ 807 $ 852 $ (351) $ 1,152 $ 801
======= ======= ======= ======= ======= =======
</TABLE>
Results of Operations
Comparison of the years ended December 31, 1999 and 1998
Net Interest Income. Our net interest income is determined by its interest
rate spread (i.e., the difference between yields earned on interest-earning
assets and rates paid on interest-bearing liabilities) and the relative amounts
of interest-earning assets and interest-bearing liabilities. Net interest income
amounted to $8.3 million in 1999, an increase of $852,000 from 1998. The
increase resulted from a $30.8 million increase in the total average interest-
earning assets, primarily from loan growth, offset by a $31.1 million increase
in average interest-bearing liabilities, the net of which contributed to a
$807,000 increase in net interest income. The average interest rate spread in
1999 was 2.74% versus 2.71% in 1998. The average yield on interest-earning
assets decreased 21 basis points, while the average cost of funds decreased 24
basis points from 1998 to 1999, the benefits of which contributed to a $45,000
increase in net interest income in 1999. The decline in the average yield on
interest earning assets was attributable to a declining rate environment through
the second quarter of 1999 and increased competitive pressures. The cost of
funds, correspondingly, declined as a result of the rate environment, as well as
deposit pricing strategies designed to lower the overall cost of deposits.
Interest Income. Total interest income in 1999 amounted to $20.3 million,
an increase of $1.7 million from 1998. Although the average yield on earning
assets declined to 7.19% in 1999 compared to 7.40% in 1998, interest income on
loans increased to $12.1 million in 1999, an increase of $1.3 million from 1998.
This improvement was attributable to loan growth as the average total
outstanding loan balance increased by $21.5 million to $153.8 million for 1999.
Interest income on securities amounted to $8.2 million, an increase of $363,000
from the prior year. This increase was attributed to growth in the portfolio as
the average outstanding securities balance increased by $9.5 million to $128.8
million for 1999.
30
<PAGE>
Interest Expense. Total interest expense in 1999 was $12.0 million, an
increase of $819,000 from 1998. In 1999, interest expense on deposits amounted
to $8.7 million while interest expense on borrowed funds amounted to $3.4
million. Interest expense on deposits remained essentially flat year over year,
as an increase of $671,000 attributed to the growth in the average outstanding
deposit base was offset by a decrease of $689,000 attributed to the decline of
0.33% in the average cost of deposits to 4.16%. However, interest expense on
borrowings increased $837,000, from $2.5 million in 1998, due to a $16.1 million
increase in average outstanding borrowings. The average cost of borrowed funds
decreased 0.08% to 5.43% for the year ended December 31, 1999.
Provision for Loan Losses. Our provision for loan losses amounted to
$200,000 in 1999, a decrease of $40,000 from the prior year. Our allowance for
loan losses amounted to $1.3 million as of December 31, 1999, or 0.84% of total
loans outstanding, as compared to $1.2 million or 0.80% at December 31, 1998.
The reduction in the provision reflects an improvement in the credit quality of
the portfolio in 1999 as non-performing loans decreased $429,000 to $587,000 at
December 31, 1999 from $1.0 million at December 31, 1998. Net charge-offs in
1999 were $27,000 versus $213,000 in 1998, representing 0.02% and 0.16%,
respectively, of total average loans outstanding. The decrease in net
charge-offs was primarily a result of a significant 1999 recovery for $90,000 of
a previously charged-off commercial business loan bringing total recoveries to
$185,000 in 1999 as compared to $80,000 in 1998. Also, gross loan charge offs
declined by $81,000 to $212,000 in 1999 from $293,000 in 1998 as we devoted
greater resources to monitoring of problem loans and collection efforts. The
slight 4 basis point increase in the allowance for loan losses as a percentage
of total loans outstanding is a result of qualitative factors including, but not
limited to, the substantial growth in multi-family and commercial business loans
and entry into new markets. Management reviews the adequacy of the allowance for
loan losses quarterly through an asset classification and review process and an
analysis of the level of loan delinquencies and general market and economic
conditions.
Noninterest Income. Noninterest income, consisting primarily of service
charges on deposit accounts, loan servicing fees, income from the sale of
annuities and mutual funds, and gains and losses on loans and securities sold,
was $1.3 million in 1999, an increase of $126,000 or 10.5% compared to 1998.
Service charges were $1.0 million in 1999, an increase of $224,000 over 1998.
Net gains on sales of securities in 1999 were $77,000, as compared to $106,000
in 1998. Net gains on sales of loans were $224,000 in 1999, as compared to
$277,000 in 1998.
Noninterest Expense. Noninterest expense amounted to $7.3 million in 1999,
comparable to 1998. However, excluding provisions for environmental remediation,
expenses increased $576,000 or 8.7%. This increase reflects our investment in
the future with increased staff, branch expansion, and upgrading technological
capabilities for data processing. Increases of $269,000 in salaries and employee
benefits expense and $177,000 in office occupancy and equipment expense were
primarily the result of a full year of expenses including depreciation expense
relating to a new branch office in Canandaigua, New York. Data processing
expense amounted to $159,000, an increase of $40,000 or 33.6%. This increase is
primarily the result of additional processing costs associated with the new
branch office, and data communications upgraded at two branches in Ithaca, New
York. We recorded provisions for environmental remediation of real estate owned
of $90,000 during 1999, as compared to $620,000 in 1998. This decrease is
primarily the result of management's determination of the provision required
each year to ensure that the accrual established for environmental remediation
as of December 31 is appropriate. See note 13 of the "Consolidated Financial
Statements." Professional fees of $347,000 in 1999, which includes legal,
consulting and accounting services, remained consistent in 1999 as compared to
1998 as did deposit insurance premiums, which totaled $120,000 for 1999.
Marketing and advertising expense decreased $16,000 to $248,000 in 1999,
reflecting larger media expenditures in 1998 relating to the new branch office
in Canandaigua. Real estate owned expenses increased $63,000 to $72,000 in 1999
as compared to $9,000 in 1998, reflecting higher levels of foreclosure in 1999,
as well as fewer gains on sale of real estate owned. Other noninterest expense
of $1.2 million in 1999 is comprised of expenses such as postage, office
supplies, telephone charges, loan servicing expenses, directors fees, and third
party check processing charges and remains consistent with the prior year.
Income Taxes. Our recorded income tax expense was $860,000 for the year
ended December 31, 1999 on income before taxes for the year of $2.2 million,
reflecting an effective tax rate of 39.7%. In 1998, the effective rate was
39.3%.
31
<PAGE>
Comparison of the years ended December 31, 1998 and 1997
Net Interest Income. Net interest income amounted to $7.4 million in 1998,
an increase of $801,000 from the prior year. The average interest rate spread in
1998 was 2.71%, versus 2.82% in 1997. The average yield on interest-earning
assets decreased 9 basis points, while the average cost of funds increased 2
basis points from 1997 to 1998.
Interest Income. Total interest income in 1998 amounted to $18.6 million,
an increase of $2.8 million from 1997. Although the average yield on earning
assets declined to 7.40% in 1998 compared to 7.49% in 1997, interest income on
loans increased to $10.8 million in 1998, an increase of $2.2 million from $8.6
million in 1997. This improvement was attributable to loan growth as average
total outstanding loans increased by $32.4 million to $132.3 million for 1998.
Interest income on securities amounted to $7.8 million, an increase of $606,000
from $7.2 million in 1997. This increase was attributed to growth in the
portfolio as the average outstanding securities balance increased by $8.5
million to $119.3 million for 1998.
Interest Expense. Total interest expense for 1998 increased $2.0 million to
$11.2 million from $9.2 million in 1997. Interest expense on deposits increased
to $8.7 million in 1998 from $7.7 million in 1997 while interest expense on
borrowed funds increased $1.0 million to $2.5 million in 1998. The increase in
interest expense on deposits was attributed to the growth in the average
outstanding deposit base of $21.2 million to $193.2 million. The average cost of
deposits remained essentially flat at 4.49%, as compared to 4.50% in 1997. The
increase in interest expense on borrowed funds is attributable to an increase in
the average outstanding borrowings of $20.7 million partially offset by the
average cost of borrowings decreasing in 1998 to 5.51%, from 5.80% in 1997. The
overall average cost of funds for the year ended December 31, 1998 was 4.69%,
increasing slightly from 4.67% in 1997.
Provision for Loan Losses. Our provision for loan losses increased to
$240,000 in 1998 from $120,000 in 1997. Our allowance for loan losses amounted
to $1.2 million as of December 31, 1998 or 0.80% of total loans outstanding, as
compared to $1.1 million as of December 31, 1997 or 0.96% of total loans
outstanding. Net charge- offs in 1998 were $213,000 versus $59,000 in 1997,
representing 0.16% and 0.06%, respectively, of total average loans outstanding.
Non-performing loans increased from $564,000 as of December 31, 1997 to
$1,016,000 as of December 31, 1998.
Noninterest Income. Noninterest income was $1.2 million in 1998, an
increase of $480,000 or 66.7% from 1997. Service charge income for 1998 was
$803,000, as compared to $508,000 for 1997, an increase of $295,000 or 58.1%.
This increase reflects increased service charges on deposit accounts of
$128,000. Also, income from the sale of annuities and mutual funds from our
investment subsidiary increased from $62,500 in 1997 to $146,000 in 1998. Net
gains on sales of securities in 1998 were $106,000 as compared to $142,000 in
1997. Net gains on sales of loans were $276,000 in 1998 as compared to $27,000
in 1997.
Noninterest Expense. Noninterest expenses amounted to $7.2 million in 1998,
an increase of $1.3 million from $5.8 million in 1997. However, excluding
provisions for environmental remediation, expenses increased $908,000 or 16.7%.
Salaries and employee benefits increased $454,000 to $3.3 million in 1998 from
$2.9 million in 1997, and office occupancy and equipment expenses increased
$350,000 to $1.2 million in 1998 from $860,000 in 1997. These increases were
primarily the result of two new branch offices opened during 1997 and 1998.
Professional fees, which primarily include legal and audit fees, increased
$27,000 to $342,000 in 1998 from $315,000 in 1997. Data processing expenses
decreased by $57,000 to $119,000 in 1998 as a result of a system conversion in
October 1997 from a service bureau to an in-house system, thereby reducing third
party support fees. We also reduced real estate owned expense by $47,000,
primarily from the disposal or sale of various properties in 1997 and fewer
properties held in 1998 as compared to 1997. Noninterest expense for 1998 also
includes a loss provision of $620,000 established for environmental remediation
costs associated with a former laundry site acquired through foreclosure in
1989, as compared to a loss provision of $150,000 in 1997. See note 13 of the
"Consolidated Financial Statements."
Income Taxes. We recorded income tax expense of $469,000 for 1998 on income
before taxes of $1,193,000, reflecting an effective tax rate of 39.3%, which is
consistent with the effective tax rate in 1997 of 39.9%.
32
<PAGE>
Quantitative and Qualitative Disclosures About Market Risk
The following table presents the difference between our interest-earning
assets and interest-bearing liabilities within specified maturities at December
31, 1999. This table does not necessarily indicate the impact that general
interest rate movements would have on our net interest income because the
repricing of certain assets and liabilities is subject to competitive pressure
and certain limitations. As a result, certain assets and liabilities indicated
as maturing or otherwise repricing within a stated period may in fact mature or
reprice at different times and at different volumes.
<TABLE>
<CAPTION>
More than 1 More Than 3
Within 3 4 to 12 Year to Years to Over
Months Months 3 Years 5 Years Five Years Total
--------- --------- --------- --------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:(1)
Mortgage loans(2) ......................... $ 5,733 $ 26,463 $ 37,259 $ 32,330 $ 19,625 $ 121,410
Other loans(2) ............................ 14,758 3,103 8,213 7,490 4,480 38,044
Securities available for sale(3) ......... 18,767 14,353 23,074 13,309 49,247 118,750
Securities held to maturity(3) ............ -- 30 67 75 1,421 1,593
--------- --------- --------- --------- --------- ---------
Federal Home Loan Bank Stock .............. -- -- -- -- 3,523 3,523
Total interest-earning assets .......... 39,258 43,949 68,613 53,204 78,296 283,320
--------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Deposits:(4)
NOW accounts ........................... 734 2,203 4,112 1,645 1,096 9,790
Savings accounts ....................... 3,457 10,371 19,359 7,744 5,162 46,093
Money market accounts .................. 377 1,129 2,109 843 562 5,020
Certificates of deposit ................ 26,492 71,816 28,521 5,642 73 132,544
Borrowings ............................. 17,100 27,000 8,860 15,000 2,000 69,960
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities ... 48,160 112,519 62,961 30,874 8,893 263,407
--------- --------- --------- --------- --------- ---------
Excess (deficiency) of interest-earning
assets over interest-bearing liabilities $ (8,902) $ (68,570) $ 5,652 $ 22,330 $ 69,403 $ 19,913
========= ========= ========= ========= ========= =========
Cumulative excess (deficiency) of
interest-earning assets over
interest-bearing liabilities ........... $ (8,902) $ (77,472) $ (71,820) $ (49,490) $ 19,913
========= ========= ========= ========= =========
Cumulative excess (deficiency)
of interest-earning liabilities as a
percentage of total assets ............. (2.96)% (25.72)% (23.84)% (16.43)% 6.61%
========= ========= ========= ========= =========
</TABLE>
- ----------
(1) Adjustable- and floating-rate assets are included in the period in which
interest rates are next scheduled to adjust rather than in the period in
which they are due, and fixed-rate assets are included in the periods in
which they are scheduled to be repaid based on scheduled amortization, in
each case adjusted to take into account estimated prepayments. For
fixed-rate mortgages and mortgage-backed securities, annual prepayment
rates ranging from 5% to 10.5%, based on the type of loan or mortgage
security and the coupon rate, were used.
(2) Balances have been reduced for non-performing loans, which amounted to
$587,000 at December 31, 1999.
(3) Amounts shown are at carrying amounts.
(4) Our negotiable order of withdrawal ("NOW") accounts, passbook savings
accounts and money market deposit accounts are generally subject to
immediate withdrawal. However, management considers a certain portion of
these accounts to be core deposits having significantly longer effective
maturities based on our retention of such deposits in changing interest
rate environments. NOW accounts, passbook savings accounts and money market
deposit accounts are assumed to be withdrawn at annual rates of 30% of the
declining balance of such accounts during the period shown. Management
believes these rates are indicative of expected withdrawal rates in a
rising interest rate environment. If all of our NOW accounts, passbook
savings account and money market accounts had been assumed to be subject to
repricing within one year, the cumulative one-year deficiency of
interest-earning assets to interest-bearing liabilities would have been
$120.1 million or 39.9% of total assets.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Additionally, certain assets, such as adjustable-rate mortgage
loans, have features which restrict changes in interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the ability
of many borrowers to service their debt may decrease in the event of an interest
rate increase.
The OTS requires the Savings Bank of the Finger Lakes to measure interest
rate risk by computing estimated changes in the net portfolio value ("NPV") of
cash flows from assets, liabilities and off-balance sheet items in the
33
<PAGE>
event of a range of assumed changes in market interest rates. These computations
estimate the effect on NPV of sudden and sustained 1% to 3% increases and
decreases in market interest rates. The Savings Bank of the Finger Lakes' board
of directors has adopted an interest rate risk policy which establishes maximum
decreases in estimated NPV in the event of 1%, 2% and 3% increases and decreases
in market interest rates, respectively. The following tables set forth those
limits and certain calculations, based on information provided to the Savings
Bank of the Finger Lakes by the OTS, with respect to the sensitivity of NPV to
changes in market interest rates at December 31, 1999.
<TABLE>
<CAPTION>
Basis Point Estimated Net Portfolio Value NPV as % of PV of Assets
Change ------------------------------------------- ------------------------------
in Rates $ Amount $ Change % Change NPV Ratio BP Change
-------- -------- -------- -------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
+300 $ 5,753 $(16,765) (74)% 2.05% (538) bp
+200 11,628 (10,890) (48) 4.04 (339) bp
+100 17,410 (5,108) (23) 5.89 (155) bp
NC 22,518 7.43
-100 27,732 5,214 23 8.94 150 bp
-200 28,594 6,076 27 9.12 169 bp
-300 28,801 6,283 28 9.11 168 bp
</TABLE>
As shown by the table, increases in interest rates will significantly
decrease our NPV, while decreases in interest rates will result in smaller net
increases in our NPV The table suggests that in the event of a 200 basis point
change in interest rates we would experience a decrease in NPV as a percentage
of assets to 4.04% from 7.43% in a rising interest rate environment and a
increase in NPV as a percentage of assets to 9.12% from 7.43% in a decreasing
interest rate environment.
In order to offset some of our interest rate risk we are seeking to extend
the maturities of our FHLB advances and other liabilities, while adding shorter
duration assets, including shorter term commercial business loans.
The Board of Directors is responsible for reviewing asset liability
management policies. On at least a quarterly basis, the Board reviews interest
rate risk and trends, as well as liquidity and capital ratios and requirements.
Management is responsible for administering the policies and determinations of
the Board of Directors with respect to our asset and liability goals and
strategies.
Liquidity and Capital Resources
Our liquidity management objective is to ensure the availability of
sufficient cash flows to meet all financial commitments and to capitalize on
opportunities for expansion. Liquidity management addresses the ability to meet
deposit withdrawals on demand or at contractual maturity, to repay borrowings as
they mature, and to fund new loans and investments as opportunities arise. Our
primary sources of internally generated funds are principal and interest
payments on loans receivable, cash flows generated from operations, and cash
flows generated by investments. External sources of funds include increases in
deposits and advances from the FHLB.
Savings Bank of the Finger Lakes is required under applicable federal
regulations to maintain specified levels of "liquid" investments in qualifying
types of United States Government, federal agency and other investments having
maturities of five years of less. Current OTS regulations require that a savings
association maintain liquid assets of not less than 4% of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. Monetary penalties may be imposed for failure to meet applicable
liquidity requirements. At December 31, 1999, Savings Bank of the Finger Lakes'
liquidity, as measured for regulatory purposes, was in excess of the minimum OTS
requirement. Savings Bank of the Finger Lakes will receive 50% of the net
proceeds of the offering, or approximately $5.1 million at the minimum of the
offering range and $7.1 million at the maximum of the offering
34
<PAGE>
range. Management of Savings Bank of the Finger Lakes intends to initially
invest a substantial portion of these funds in shorter-term investments that are
considered "liquid" investments, and, as a result, Savings Bank of the Finger
Lakes' liquidity will be initially increased due to the proceeds received from
the stock offering. The effects of the stock offering on liquidity are likely to
decrease over time as the offering proceeds are deployed into other investments
and activities, such as establishing or acquiring additional branch offices,
funding new loans, and funding the recognition and retention plan or for general
corporate purposes.
At December 31, 1999, we had loan commitments of $3.1 million and unused
lines of credit of $14.7 million extended to borrowers. We believe that we have
adequate resources to fund loan commitments as they arise. If we require funds
beyond our internal funding capabilities, additional advances from the FHLB are
available including a line of credit agreement with a maximum available limit of
$29.2 million . At December 31, 1999, approximately $98.3 million of time
deposits were scheduled to mature within a year, and we expect that a portion of
these time deposits will not be renewed upon maturity.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statement, as amended by
SFAS No. 137, establishes comprehensive accounting and reporting requirements
for derivative instruments and hedging activities. The statement requires
companies to recognize all derivatives as either assets or liabilities, with the
instruments measured at fair value. The accounting for gains and losses
resulting from changes in fair value of the derivative instrument depends on the
intended use of the derivative and the type of risk being hedged. This statement
is effective for all quarters of fiscal years beginning after June 15, 2000,
although earlier adoption is permitted. We do not currently invest in derivative
instruments, therefore the provisions of SFAS No. 133 are not expected to have a
significant effect on our consolidated financial statements. SFAS No. 133 also
permits certain reclassifications of securities from the held-to-maturity to the
available-for-sale classification. We have no current intention to reclassify
any securities pursuant to SFAS No. 133.
Year 2000
We developed and implemented a plan to resolve issues associated with
computer systems and related embedded technology with respect to the rollover of
the two digit year value to 00 ("Year 2000"). The issue was whether computer
systems would properly recognize the date sensitive information when the year
changed to 2000.
We have not experienced any significant issues associated with the Year
2000 problem as a result of the date change to January 1, 2000 or any date
subsequent thereto. The incremental costs related to the Year 2000 compliance
were approximately $137,800 in 1999 and $51,500 in 1998, respectively. Any
additional incremental costs associated with Year 2000 issues are not expected
to be material. Management will continue to monitor operations through the year
2000 and although no assurances can be given, it is not expected that any future
adverse developments will arise with respect to Year 2000.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Finger Lakes
Financial have been prepared in accordance with generally accepted accounting
principles ("GAAP"). GAAP generally requires the measurement of financial
position and operating results in terms of historical dollars without
consideration for changes in the relative purchasing power of money over time
due to inflation. The impact of inflation is reflected in the increased cost of
our operations. Unlike industrial companies, our assets and liabilities are
primarily monetary in nature. As a result, changes in market interest rates have
a greater impact on performance than the effects of inflation.
35
<PAGE>
BUSINESS OF SAVINGS BANK OF THE FINGER LAKES
Savings Bank of the Finger Lakes was formed as the result of the merger in
1984 of Geneva Savings Bank, a New York-chartered savings bank, and Geneva
Federal Savings and Loan Association. On November 10, 1994, Savings Bank of the
Finger Lakes completed its reorganization from a federally chartered, mutual
savings bank to a federally chartered mutual holding company known as Finger
Lakes Financial Corporation, MHC. As part of the reorganization, Savings Bank of
the Finger Lakes organized a federally chartered stock savings bank and
transferred substantially all of its assets and liabilities, including all of
its deposit-taking, lending and other banking functions and its corporate name
to the newly created stock savings bank called Savings Bank of the Finger Lakes
in exchange for 2,389,948 shares of common stock. Concurrent with the
reorganization, Savings Bank of the Finger Lakes sold 1,180,052 shares of common
stock, in a public offering. The Savings Bank of the Finger Lakes reorganized
into the two-tier mutual holding company structure on August 17, 1998. The
reorganization into the two-tier structure had no impact on the operations of
the Savings Bank of the Finger Lakes.
Savings Bank of the Finger Lakes has traditionally operated as a community
oriented savings institution providing mortgage loans and other traditional
financial services to those in its local community. Savings Bank of the Finger
Lakes is primarily engaged in attracting deposits from the general public
through its offices and using those funds to originate loans secured by real
estate. Savings Bank of the Finger Lakes also originates commercial business
loans, consumer loans, mobile home loans and home equity loans and lines of
credit. Savings Bank of the Finger Lakes also has a securities portfolio
primarily consisting of mortgage-backed securities issued by federal agencies,
United States common stocks and corporate and municipal bonds.
Market Area
The Savings Bank of the Finger Lakes currently conducts business through
its main office and branch offices located in the Finger Lakes region of New
York State. Geneva, New York, where Savings Bank of the Finger Lakes is
headquartered, is located in the eastern end of Ontario county and has a
population of approximately 14,000 as of December 1999. We have sought to
increase our presence in the Finger Lakes region by expanding our branch network
and emphasizing a variety of loan and investment products. Our growth has been
targeted to include those areas of the Finger Lakes region that have shown
relative economic strength. Our market area is mainly rural with employment
based primarily in education, service industries, and small manufacturing
concerns, which have experienced little growth in recent years, and agricultural
operations. Approximately 50% of the market area's labor force is employed in
traditional white collar jobs. The two largest employers in Geneva are Hobart
and William Smith Colleges and Geneva General Hospital. The largest employer in
Seneca county is ITT Fluid Technology. The largest employer in Tompkins county
is Cornell University.
Lending Activities
General. Our loan portfolio is predominantly comprised of conventional real
estate mortgages, primarily on residences and one-to four-family dwellings, but
also on commercial real estate. Our primary emphasis in the past has been on the
origination of residential mortgages. In recent years we have sought to increase
our multi-family and commercial real estate lending as well as non-mortgage
lending, in particular home equity loans and commercial business lending. At
December 31, 1999, loans totaled $160.0 million, of which $90.6 million, or
56.60%, were secured by one-to four-family real estate, $28.5 million, or 17.82%
were secured by multi-family and commercial real estate, $2.7 million, or 1.69%,
were construction loans, and $38.2 million or 23.89% were non-mortgage loans. At
December 31, 1999, commercial business loans were $9.5 million, or 5.96% of
total loans, consumer loans were $6.0 million, or 3.73% of total loans, mobile
home loans were $4.5 million, or 2.81% of total loans and home equity and
property improvement loans were $18.2 million, or 11.39% of total loans.
36
<PAGE>
Loan Portfolio Composition. The following table sets forth the composition
of our loan portfolio by type of loan at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------
1999 1998 1997
---------------------- ---------------------- -----------------------
Amount Percent Amount Percent Amount Percent
--------- ------- --------- ------- --------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loans:
One-to-four-family real estate ........ $ 90,587 56.60% $ 89,456 61.19% $ 75,679 63.42%
Multi-family and commercial real estate 28,520 17.82 20,534 14.05 19,243 16.13
Construction .......................... 2,695 1.69 6,912 4.73 2,103 1.75
--------- ------ --------- ====== --------- ------
Total mortgage loans .................. 121,802 76.11 116,902 79.97 97,025 81.30
--------- ------ --------- ------ --------- ------
Non-Mortgage Loans:
Commercial business ................... 9,536 5.96% 5,413 3.70% 3,392 2.84%
Home equity and property improvement .. 18,235 11.39 12,874 8.81 9,184 7.70
Mobile home ........................... 4,501 2.81 4,074 2.79 4,916 4.12
Consumer .............................. 5,966 3.73 6,920 4.73 4,819 4.04
--------- ------ --------- ------ --------- ------
Total non-mortgage loans .............. 38,238 23.89 29,281 20.03 22,311 18.70
--------- ------ --------- ------ --------- ------
Total loans ........................... 160,040 100.00% 146,183 100.00% 119,336 100.00%
====== ====== ======
Premiums, net of deferred fees ........ 163 129 252
Allowance for loan losses ............. (1,349) (1,176) (1,149)
--------- --------- ---------
Net loans ............................. $ 158,854 $ 145,136 $ 118,439
========= ========= =========
<CAPTION>
At December 31,
----------------------------------------------------------------
1996 1995
--------------------------- ---------------------------
Amount Percent Amount Percent
--------- ------- --------- -------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Mortgage Loans:
One-to-four-family real estate ........ $ 57,932 64.60% $ 54,483 62.76%
Multi-family and commercial real estate 11,176 12.46 11,843 13.64
Construction .......................... 1,296 1.44 373 0.43
--------- ------ --------- ------
Total mortgage loans .................. 70,404 78.50 66,699 76.83
--------- ------ --------- ------
Non-Mortgage Loans:
Commercial business ................... 3,290 3.67% 3,074 3.54%
Home equity and property improvement .. 6,137 6.84 5,779 6.66
Mobile home ........................... 5,703 6.36 6,654 7.66
Consumer .............................. 4,155 4.63 4,613 5.31
--------- ------ --------- ------
Total non-mortgage loans .............. 19,285 21.50 20,120 23.17
--------- ------ --------- ------
Total loans ........................... 89,689 100.00% 86,819 100.00%
====== ======
Premiums, net of deferred fees ........ 81 40
Allowance for loan losses ............. (1,088) (809)
--------- ---------
Net loans ............................. $ 88,682 $ 86,050
========= =========
</TABLE>
37
<PAGE>
Contractual Principal Repayments. The following table sets forth certain
information at December 31, 1999 regarding the dollar amount of loans maturing
in our portfolio, based on the contractual terms to maturity. Demand loans,
loans having no stated schedule of repayments and no stated maturity and
overdrafts are reported as due under one year.
<TABLE>
<CAPTION>
Due Under Due 1-3 Due 3-5 Due 5-10 Due 10-20 Due 20+
1 Year Years Years Years Years Years Total
-------- -------- -------- -------- -------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
One-to four-family real estate .......... $ 3,089 $ 6,908 $ 8,009 $ 25,593 $ 26,659 $ 20,329 $ 90,587
Multi-family and commercial real estate . 2,095 4,765 5,651 13,525 2,484 -- 28,520
Construction ............................ 2,695 -- -- -- -- -- 2,695
Commercial business ..................... 2,371 5,453 1,712 -- -- -- 9,536
Home equity and property improvement .... 1,725 3,943 298 -- -- -- 5,966
Mobile home ............................. 234 548 674 2,439 606 -- 4,501
Consumer ................................ 604 1,370 1,618 5,449 6,789 2,405 18,235
-------- -------- -------- -------- -------- -------- --------
Total ................................... $ 12,813 $ 22,987 $ 17,962 $ 47,006 $ 36,538 $ 22,734 $160,040
======== ======== ======== ======== ======== ======== ========
</TABLE>
The following table sets forth the dollar amount of all loans due after one
year from December 31, 1999, which have fixed interest rates or which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(Dollars In Thousands)
<S> <C> <C> <C>
One-to four-family real estate.................... $53,496 $ 34,002 $ 87,498
Multi-family and commercial real estate........... 5,705 20,720 26,425
Commercial business............................... 2,029 5,136 7,165
Home equity and property improvement.............. 4,241 -- 4,241
Mobile home....................................... 4,267 -- 4,267
Consumer.......................................... 10,278 7,353 17,631
------- -------- --------
Total............................................. $80,016 $ 67,211 147,227
======= ======== ========
Percent of total.................................. 54.35% 45.65% 100.00%
------- -------- --------
</TABLE>
Scheduled contractual amortization of loans does not reflect the actual
term of the loan portfolio. The average life of loans is substantially less than
their contractual terms because of prepayments and due-on-sale clauses, which
give Savings Bank of the Finger Lakes the right to declare a conventional loan
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage.
38
<PAGE>
Originations, Purchases and Sales of Loans.
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1999 1998 1997
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Loan originations:
One-to four-family real estate.............................. $ 21,869 $ 42,138 $ 22,587
Multi-family and commercial real estate..................... 7,924 4,582 5,469
Construction................................................ 5,257 8,844 1,894
Commercial business loans................................... 10,936 4,087 916
Home equity and property improvement loans.................. 10,234 7,806 4,782
Mobile home loans........................................... 1,388 132 127
Consumer loans.............................................. 3,030 6,040 3,659
-------- -------- --------
Total loans originated...................................... 60,638 73,629 39,434
Purchases................................................... 51 770 11,026
-------- -------- --------
Total loans originated and purchased........................ 60,689 74,399 50,460
-------- -------- --------
Sales and principal reductions:
Loans sold.................................................. 14,000 21,135 4,533
Loan principal payments and other reductions................ 32,832 26,417 16,280
-------- -------- --------
Total sold and principal reductions......................... 46,832 47,552 20,813
Increase (decrease) due to other items, net................. (139) (150) 110
-------- -------- --------
Net increase in net loan portfolio.......................... $ 13,718 $ 26,697 $ 29,757
======== ======== ========
</TABLE>
One-to Four-Family Real Estate Loans. Our primary lending activity is the
origination of loans secured by first mortgage liens on single-family
residences. At December 31, 1999, $90.6 million, or 56.6%, of our total loan
portfolio consisted of one-to four-family real estate loans.
We offer both fixed-rate and adjustable-rate one-to four-family real estate
loans with various terms up to 30 years. In recent periods a substantial number
of our originations of fixed-rate loans had terms of 15 years. Currently,
substantially all fixed-rate loans originated by us are sold to Fannie Mae on a
servicing retained basis. As of December 31, 1999, 58.0% of our one-to
four-family real estate loan portfolio had terms of between 16 and 30 years.
We offer adjustable-rate mortgages in order to decrease the vulnerability
of our operations to changes in interest rates. At December 31, 1999, 38.0% of
the one-to four-family real estate loans in our loan portfolio consisted of
adjustable-rate loans. Adjustable-rate mortgages are offered with initial rates
which are fixed for one, three and five years and adjust annually thereafter.
One year adjustable rate loans have a 2% cap on the annual rate adjustment with
a 6% rate adjustment cap over the life of the loan. Three and five year
adjustable rate mortgages have a 3% cap on the annual rate adjustment with a 6%
rate adjustment cap over the life of the loan. Adjustable rate loans are priced
in accordance with the corresponding treasury security. Adjustable-rate mortgage
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
property securing the loan may be adversely affected by higher interest rates.
Originations of one-to four- family real estate loans in 1999 totaled $21.9
million. The decrease in one-to four-family real estate loan originations from
the $42.1 million originated in 1998 reflects the significant refinancing
activity that occurred in 1998. Generally, one-to four-family mortgage loans are
originated with loan-to-value ratios up to 95% of the appraised value of the
property or the purchase price of the property with private mortgage insurance.
Loans have "due on sale" clauses, which are provisions giving us the right to
declare a loan immediately due and payable in the event the borrower sells or
otherwise disposes of the property serving as collateral for the mortgage. We
receive appraisals on all one-to four-family loans. We also review and verify
each loan applicant's income and credit history.
Multi-Family and Commercial Real Estate Loans. At December 31, 1999, $28.5
million, or 17.82%, of our total loan portfolio consisted of loans secured by
existing multi-family and commercial real estate. Our multi-family
39
<PAGE>
and commercial real estate loans include loans secured by small office
buildings, retail establishments, light manufacturing and distribution
facilities and apartment buildings.
We originate both fixed- and adjustable-rate multi-family and commercial
real estate loans. We generally offer multi-family and commercial real estate
loans with amortization schedules of up to twenty years with no more than five
years at a fixed rate of interest. Multi-family and commercial business loans
are originated with loan-to-value ratios generally up to 80% of the lower of the
purchase price or an independent appraisal. In deciding to originate a
multi-family or commercial real estate loan, we will review the credit
worthiness of the borrower, the expected cash flow from the property securing
the loan, the cash flow from the property to debt service requirements of the
borrower, the value of the property and the quality of the management involved
with the property. Generally, we will obtain the personal guarantee of the
principals when originating multi-family and commercial real estate loans.
Multi-family and commercial real estate lending is generally considered to
involve a higher degree of credit risk than one-to four-family residential
lending. Such lending may involve large loan balances concentrated on a single
borrower or group 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. Consequently the
repayment of the loan may be subject to adverse conditions in the real estate
market or the economy generally.
Construction Loans. We make construction loans for residential and
commercial purposes. Construction loans are disbursed as construction is
completed. We generally will not make construction loans on a speculative basis.
At December 31, 1999, construction loans totaled $2.7 million, or 1.69%, of the
total loan portfolio. Of this amount, residential construction loans amounted to
$1.1 million or 0.71% of our total loan portfolio. Residential construction
lending is generally limited to our primary lending area. Residential
construction loans are generally to end owners and are structured to be
converted to permanent loans at the end of the construction phase, which
typically is no more than nine months. Residential construction loans have terms
which generally match the non-construction loans then offered by us, except that
during the construction phase the borrower only pays interest on the loan. The
interest rates charged on such loans are generally 0.25% higher than those
charged on other single-family residential loans. Residential construction loans
are underwritten pursuant to the same general guidelines used for originating
permanent loans. In addition, residential construction loans may be sold to
Fannie Mae on a servicing retained basis following its conversion to a permanent
loan following the construction period.
At December 31, 1999, commercial construction loans amounted to $1.6
million or 0.98% of our total loan portfolio. Commercial construction lending is
generally limited to our primary lending areas. These loans are generally
structured to convert to permanent financing at the end of the construction
phase, which typically is no more than twenty-four months, including a "lease up
period" of up to twelve months. Commercial construction loans may also be
structured for permanent financing by other financial institutions upon
completion of the construction period. Commercial construction loans are
underwritten pursuant to established policy guidelines. Construction financing
is generally considered to involve a higher degree of credit risk than long-term
financing on owner-occupied real estate because of the uncertainties of
construction, including the possibility of costs exceeding the initial
estimates.
Commercial Business Loans. At December 31, 1999, $9.5 million, or 5.96%, of
our total loan portfolio consisted of commercial business loans. Commercial
business loans are generally provided to various types of closely held
businesses located principally in our primary market area. Our commercial
business loans may be structured as short-term self-liquidating lines of credit
and term loans. Commercial business term loans generally have terms of five
years or less (up to seven years if guaranteed by the Small Business
Administration) and interest rates which float in accordance with the prime
rate, although we also originate commercial business loans with fixed rates of
interest. Our commercial lines of credit and commercial term loans generally are
secured by equipment, machinery or other corporate assets including real estate
and receivables. In addition, we generally obtain personal guarantees from the
principals of the borrower with respect to commercial business loans.
We have actively sought to increase our commercial business lending. We
established a commercial lending department in 1996. This department currently
has three dedicated lenders and three back office support staff. Our
originations of commercial business loans have increased substantially. During
1999, we originated $10.9 million in commercial business loans compared to $4.1
million and $916,000 during 1998 and 1997, respectively.
40
<PAGE>
Commercial business loans generally are deemed to entail significantly
greater credit risk than that which is involved with residential real estate
lending. The repayment of commercial business loans typically is dependent on
the successful operations and income of the borrower. Such risks can be
significantly affected by economic conditions. In addition, commercial business
lending generally requires substantially greater oversight efforts compared to
residential real estate lending.
Home Equity and Property Improvement Loans. We offer home equity loans and
lines of credit and property improvement loans, the total of which amounted to
$18.2 million, or 11.39%, of the total loan portfolio as of December 31, 1999.
Home equity loans and lines of credit are generally made only for owner occupied
homes. Home equity loans and lines of credit are secured by second mortgages on
residences with the maximum loan to appraised value ratio permitted by Savings
Bank of the Finger Lakes (after inclusion of any senior liens on the property
thereto) being 100%. We intend to continue emphasizing the origination of home
equity and property improvement loans within our market area.
Mobile Home Loans. We purchase mobile home loans from a third-party loan
originator who specializes in such lending. As of December 31, 1999, we had $4.5
million, or 2.81%, of our total loan portfolio secured by mobile homes owned by
individuals. While we generally lend throughout the states of New York and New
Jersey, the mobile home units are primarily located in what we believe to be
well-managed mobile home parks. Mobile home loans are made at fixed rates for
terms of up to 20 years, although most mobile home loans have terms of 15 years.
Consumer Loans. Subject to the restrictions contained in federal laws and
regulations, we also are authorized to make loans for a wide variety of personal
or consumer purposes. As of December 31, 1999, $6.0 million, or 3.73%, of our
total loan portfolio consisted of consumer loans. We also offer unsecured
personal loans in amounts up to $5,000.
Loan Originations and Underwriting. Our lending activities are subject to
written, non-discriminatory, underwriting standards and the loan origination
procedures adopted by management and the Board of Directors. Designated loan
officers have the authority to approve residential loans up to $240,000 and
consumer loans up to $100,000. Residential and consumer loans up to $350,000 may
be approved by a senior lending officer. Residential and consumer loans
exceeding these amounts and up to $500,000 may be approved by our President and
or senior loan officer. Commercial business loans and commercial real estate
loans may be approved by designated loan officers up to $200,000. Commercial
business loans and multi-family and commercial real estate loans in excess of
$200,000 and up to $500,000 may be approved by a senior loan officer or
President and Chief Executive Officer. All loans in excess of the individual
loan limits described above must be approved by the loan committee which
consists of officers of the Savings Bank of the Finger Lakes. This committee has
the authority to approve loans up to $750,000. If any loan or group of loans to
one borrower exceeds $750,000, it must be approved by the loan committee and
subsequently approved by a committee of the Board of Directors. At December 31,
1999, our lending limit to one borrower was $2.0 million. On that date, there
were no borrowers in excess of our lending limits.
41
<PAGE>
Asset Quality
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1999, in dollar amount and as a percentage of
our total loan portfolio. The amounts presented represent principal balances of
the related loans, rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
Multi-family and
One- to Four-family Commercial Real Commercial
Real Estate Estate Construction Business Mobile Home
---------------- ---------------- ---------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
------ ---- ------ ---- ---- ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30 - 59 days ........ $ 724 0.45% $ -- --% $ -- --% $ 9 0.01% $ 58 0.04%
60 - 89 days ........ 206 0.13 152 0.09 -- -- -- -- 18 0.01
90 days and over..... 393 0.25 -- -- -- -- 181 0.11 13 0.01
------ ---- ------ ---- ---- ---- ------ ---- ------ ----
Total delinquent
loans ............... $1,323 0.83% $ 152 0.09% $ -- --% $ 190 0.12% $ 89 0.06%
====== ==== ====== ==== ==== ==== ====== ==== ====== ====
<CAPTION>
Home Equity and
Property
Improvement Consumer Total
--------------- --------------- ---------------
Amount % Amount % Amount %
------ ---- ------ ---- ------ ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans delinquent for:
30 - 59 days ........ $ 116 0.07% $ 52 0.03% $ 959 0.60%
60 - 89 days ........ -- -- 14 0.01 390 0.24
90 days and over..... -- -- -- -- 587 0.37
------ ---- ------ ---- ------ ----
Total delinquent
loans ............... $ 116 0.07% $ 66 0.04% $1,936 1.21%
====== ==== ====== ==== ====== ====
</TABLE>
42
<PAGE>
Loan Delinquencies and Collection Procedures. Our collection procedures
provide that if a loan is past due five days after expiration of the applicable
grace period, a telephone call is made to the borrower stressing the need to
make the loan current and obtaining the reasons for delinquency. This process is
implemented by a special asset manager and a collector. If payment is not
promptly received, we will exercise our rights to debit the borrower's deposit
account (if a deposit relationship exists) or otherwise exercise our rights of
offset. If the loan becomes past due 60 days we will send the borrower a demand
letter and a notice of intent to foreclose or repossess the underlying
collateral. Loans that are written off at the conclusion of the process are
turned over to a collection agency for additional recovery efforts.
Non-Performing Loans. All loans are reviewed on a regular basis and are
placed on a non-accrual status when, in the opinion of management, there is
reasonable probability of loss of principal or the collection of additional
interest is deemed insufficient to warrant further accrual. Generally, we place
all loans 90 days or more past due on non-accrual status. In addition, we place
any loan on non-accrual 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-accruing status,
total interest accrued and unpaid to date is reversed. Application of cash
payments received while a loan is on non-accrual is determined by the chief
financial officer and the senior loan officer. 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.
Generally, consumer loans are charged-off before they become 120 days
delinquent.
As of December 31, 1999, our total nonaccrual loans amounted to $587,000,
or 0.37% of total loans, compared to $1,016,000, or 0.69% of total loans, at
December 31, 1998. The largest non-performing loan at December 31, 1999,
consisted of a one-to four-family mortgage on which $224,000 was outstanding.
Troubled Debt Restructurings. A troubled debt restructuring occurs when we,
for economic or legal reasons related to a borrower's financial difficulties,
grant a concession to the borrower, either as a deferment or reduction of
interest or principal, that we would not otherwise consider. As of December 31,
1999, we had $282,000 of troubled debt restructurings, compared to $121,000 as
of December 31, 1998. All troubled debt restructurings were performing in
accordance with modified or restructured terms at December 31, 1999.
Real Estate Owned. Real estate owned consists of property acquired through
formal foreclosures or by deed in lieu of foreclosure and is recorded at the
lower of recorded investment or fair value. Write-downs from recorded investment
to 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 recorded investment or fair value, less estimated selling expenses.
Adjustments to the carrying value of such properties that result from subsequent
declines in value are charged to operations in the period in which the declines
occur. As of December 31, 1999, we held three parcels of real estate owned with
an aggregate carrying value of $93,000.
43
<PAGE>
The following table sets forth the amounts and categories of our
non-performing assets and troubled debt restructurings at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One-to-four-family real estate................. $ 393 $ 673 $ 403 $ 194 $ 549
Multi-family and commercial real estate........ -- -- 3 407 73
Construction................................... -- -- -- -- --
Commercial business............................ 181 268 6 133 90
Home equity and property improvement........... -- 17 38 83 95
Mobile home.................................... 13 20 58 60 36
Consumer....................................... -- 38 56 41 189
-------- -------- -------- -------- -------
Total non-performing loans.................... 587 1,016 564 918 1,032
Real estate owned................................ 93 90 150 275 453
-------- -------- -------- -------- -------
Total non-performing assets................... $ 680 $ 1,106 $ 714 $ 1,193 $ 1,485
======== ======== ======== ======== =======
Troubled debt restructurings..................... $ 282 $ 121 $ 520 $ 669 $ 1,506
Total non-performing loans and troubled debt
restructurings as a percentage of total loans.. 0.54% 0.78% 0.91% 1.77% 2.92%
Total non-performing assets and troubled debt
restructurings as a percentage of total assets. 0.32% 0.43% 0.50% 0.93% 1.78%
</TABLE>
We had no accruing loans greater than 90 days delinquent at December 31,
1999, 1998 and 1997. The additional interest income that would have been
recorded during the years ended December 31, 1999, December 31, 1998 and
December 31, 1997 if our non-performing loans at the end of such periods had
been current in accordance with their terms during such periods was $65,000,
$78,000, and $59,000, respectively.
Classified Assets. Federal regulations require that each insured savings
association classify its assets on a regular basis. 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 losses. If an asset or portion thereof is classified
loss, a specific valuation allowance will be established to cover 100% of the
portion of the asset classified loss, or such amount will be charged-off.
General loss allowances related to assets classified substandard or doubtful may
be included in determining an institution's regulatory capital, while specific
valuation allowances do not qualify as regulatory capital. Federal examiners may
disagree with an insured institution's classifications and amounts reserved and
have the authority to require a savings association to classify additional
assets, or to change the classification of existing classified assets, and, if
appropriate, to establish reserves.
At December 31, 1999, we had $885,000 of assets categorized as special
mention, $1.5 million of assets classified as substandard and $152,000 of assets
classified as doubtful or loss. As of December 31, 1999, total classified
assets, including real estate owned and special mention assets, amounted to
0.87% of total assets.
44
<PAGE>
Allowance for Loan Losses. It is management's policy to maintain an
allowance for estimated loan losses based upon (1) in the case of residential
loans, management's review of delinquent loans, loans in foreclosure and market
conditions; (2) in the case of commercial business loans and commercial real
estate loans, identification of a significant decline in value; and (3) in the
case of consumer loans, an assessment of risks inherent in the loan portfolio.
Although management uses available information to make such determinations,
future adjustments to allowances may be necessary based on economic and market
conditions and as a result of future examinations by regulatory authorities, and
net earnings could be significantly affected, if circumstances differ
substantially from the assumptions used in making the initial determinations.
At December 31, 1999, our allowance for loan losses amounted to $1,349,000
compared to $1,176,000 at December 31, 1998.
The following table sets forth an analysis of our allowance for loan losses
during the periods indicated. See Notes 1 and 3 to the Notes to Consolidated
Financial Statements included herein.
<TABLE>
<CAPTION>
At or for
At or for the Eight Months
the Year Ended December 31, Ended
--------------------------------------------------------- December 31,
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding ......................... $ 160,040 $ 146,183 $ 119,336 $ 89,689 $ 86,819
========= ========= ========= ========= =========
Average loans outstanding ....................... $ 153,783 $ 132,324 $ 99,939 $ 87,058 $ 85,547
========= ========= ========= ========= =========
Balance at beginning of period .................. $ 1,176 $ 1,149 $ 1,088 $ 809 $ 771
--------- --------- --------- --------- ---------
Charge-offs:
One- to four-family real estate .............. (93) (38) (9) (35) (66)
Multi-family and commercial real estate ...... -- -- -- -- --
Construction ................................. -- -- -- -- --
Consumer ..................................... (113) (141) (137) (183) (75)
Commercial business .......................... (6) (114) (1) (48) (182)
Home equity and property improvement ......... -- -- -- -- --
--------- --------- --------- --------- ---------
Total charge-offs: .............................. (212) (293) (147) (266) (323)
Recoveries ...................................... 185 80 88 62 71
--------- --------- --------- --------- ---------
Net charge-offs ................................. (27) (213) (59) (204) (252)
Provision for loan losses ....................... 200 240 120 483 290
--------- --------- --------- --------- ---------
Balance at end of period ........................ $ 1,349 $ 1,176 $ 1,149 $ 1,088 $ 809
========= ========= ========= ========= =========
Allowance for loan losses as a percentage of
total loans outstanding ...................... 0.84% 0.80% 0.96% 1.21% 0.93%
========= ========= ========= ========= =========
Net charge-offs as a percentage of average
loans outstanding(1) ......................... 0.02% 0.16% 0.06% 0.24% 0.29%
========= ========= ========= ========= =========
Allowance for loan losses to non-performing loans 229.81% 115.75% 203.72% 118.52% 78.49%
========= ========= ========= ========= =========
</TABLE>
- ----------
(1) This rate has been annualized for the eight months ended December 31, 1995.
Although we believe that we have established our allowance for loan losses
in accordance with generally accepted accounting principles, there can be no
assurance that regulators, in reviewing our loan portfolio, will not request us
to significantly increase the allowance for loan losses, thereby reducing our
retained earnings and income.
45
<PAGE>
Allocation of Allowance for Loan Losses. The following table sets forth the
allocation of the allowance for loan losses by loan category at the dates
indicated. The allocation of the allowance by category is not necessarily
indicative of future losses and does not restrict the use of the allowance to
absorb losses in any category.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------
1999 1998 1997
-------------------- -------------------- ----------------------
% of Loans % of Loans % of Loans
in Each in Each in Each
Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans
------ ----------- ------ ----------- ------ -----------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at end of period applicable to:
One-to-four-family real estate ........ $ 314 56.60% $ 315 61.19% $ 320 63.42%
Multi-family and commercial
real estate ........................ 360 17.82 325 14.05 314 16.13
Construction .......................... 6 1.69 3 4.73 1 1.75
Commercial business ................... 194 5.96 160 3.70 85 2.84
Consumer .............................. 119 3.73 91 4.73 94 4.04
Mobile home ........................... 10 2.81 7 2.79 29 4.12
Home equity and property
improvement ........................ 76 11.39 40 8.81 76 7.70
------ ------ ------
Unallocated ........................... 270 -- 235 -- 230 --
------ ------ ------ ------ ------ ------
Total allowance for loan losses ....... $1,349 100.00% $1,176 100.00% $1,149 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
At December 31,
-------------------------------------------------
1996 1995
-------------------- ----------------------
% of Loans % of Loans
in Each in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars In Thousands)
<S> <C> <C> <C> <C>
Balance at end of period applicable to:
One-to-four-family real estate ........ $ 257 64.60% $ 275 62.76%
Multi-family and commercial
real estate ........................ 254 12.46 122 13.64
Construction .......................... 3 1.44 1 0.43
Commercial business ................... 114 3.67 125 3.54
Consumer .............................. 115 4.63 58 5.31
Mobile home ........................... 38 6.36 44 7.66
Home equity and property
improvement ........................ 45 6.84 43 6.66
------ ------
Unallocated ........................... 262 -- 141 --
------ ------ ------ ------
Total allowance for loan losses ....... $1,088 100.00% $ 809 100.00%
====== ====== ====== ======
</TABLE>
46
<PAGE>
Investment Activities
General. Our investment securities policy is contained within our overall
asset/liability policy. The policy, which is established by senior management
and approved by the Board of Directors, is based upon our asset and liability
management goals and is designed to provide a portfolio of high quality,
diversified investments while seeking to optimize net interest income within
acceptable limits of safety and liquidity. Investment activities consist
primarily of investments in fixed and adjustable rate mortgage-backed
securities, including collateralized mortgage obligations ("CMOs") and U.S.
Government and Agency securities.
We have invested in a portfolio of mortgage-backed securities which are
insured or guaranteed by the Freddie Mac, Ginnie Mae, or Fannie Mae, all of
which are agencies of the federal government or government sponsored
corporations. The portfolio also includes collateralized mortgage obligations
("CMOs"), of which $31.8 million or 63.4% are backed by Freddie Mac, Ginnie Mae
and Fannie Mae securities, and $18.3 million or 36.6% are obligations of private
issuers. Mortgage-backed securities, including CMOs backed by U.S. Government
agencies, increase the liquidity and the quality of our assets by virtue of the
guarantees that back either the securities themselves or, in the case of the
CMOs, the underlying securities. In addition, at December 31, 1999, 35.8% of our
mortgage-backed securities portfolio consisted of pools of adjustable-rate
mortgages. Mortgage-backed securities of this type serve to reduce the interest
rate risk associated with changes in interest rates.
Of our total investment in mortgage-backed securities at December 31, 1999,
$50.2 million consisted of CMOs, $4.5 million consisted of Freddie Mac
certificates, $11.8 million consisted of Fannie Mae certificates and $3.8
million consisted of Ginnie Mae certificates.
The following table sets forth the activity in our mortgage-backed
securities portfolio during the periods indicated. Our mortgage-backed
securities are classified as available for sale, and consequently are carried on
our financial statements at fair value.
<TABLE>
<CAPTION>
At or for the Year Ended
December 31,
--------------------------------------------------
1999 1998 1997
-------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Mortgage-backed securities at beginning of period ...... $ 86,612 $ 71,824 $ 67,589
Purchases .............................................. 14,636 62,821 44,818
Sales .................................................. (5,738) (25,856) (32,009)
Repayments ............................................. (22,396) (21,669) (9,468)
Unrealized gain (loss) ................................. (2,812) (415) 998
Net accretion/amortization ............................. (37) (93) (104)
-------- -------- --------
Mortgage-backed securities at end of period ............ $ 70,265 $ 86,612 $ 71,824
======== ======== ========
Weighted average yield at end of period ................ 6.57% 6.49% 6.55%
======== ======== ========
</TABLE>
At December 31, 1999, all of the $70.3 million was scheduled to mature
after five years. Due to prepayments of the underlying loans, the actual
maturities of mortgage-backed securities generally are substantially less than
the scheduled maturities.
At December 31, 1999, fixed rate mortgage-backed securities amounted to
$45.1 million and adjustable rate mortgage-backed securities amounted to $25.2
million. All mortgage-backed securities qualify for regulatory liquidity.
Federally chartered savings institutions have 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 and loan
associations, certain bankers' acceptances and federal funds. Subject to various
restrictions, federally chartered savings institutions may also invest a portion
of their assets in commercial paper, corporate debt securities and mutual funds,
the assets of which conform to the
47
<PAGE>
investments that federally chartered savings institutions are otherwise
authorized to make directly. In addition, we have certain additional investment
authority under OTS regulations as a result of certain grandfathered powers
permitted under the terms of the approval of our conversion from state to
federal charter.
Our investment securities portfolio is managed in accordance with a written
investment policy adopted by the Board of Directors and administered by the
Executive Committee which consists of five Board members, including the chief
executive officer. An investment officer is authorized to purchase and sell
investments up to certain limits set forth in the investment policy. All other
investment transactions must receive prior approval of the Executive Committee.
At the time of purchase of an investment or mortgage-backed security, management
designates the security as either held to maturity or available for sale based
on our investment objectives, operational needs and intent. We maintain no
trading account securities. Investment activities are monitored to ensure that
they are consistent with the investment policy's established guidelines and
objectives.
As of December 31, 1999, our held to maturity investment securities
portfolio had an amortized cost of $1.6 million, consisting of securities issued
by municipal agencies. As of the same date, our securities available for sale
portfolio had a fair value of $118.7 million, of which $42.5 million was
securities issued by the U.S. Government and Federal Government agencies, $70.3
million was mortgage-backed securities, $4.6 million was corporate debt
securities and $1.4 million was mutual funds and common stock.
48
<PAGE>
The following table sets forth certain information relating to Savings Bank of
the Finger Lakes' investment securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
--------------------- ---------------------- ---------------------
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:
U.S. Government and agency bonds...... $ 45,401 $ 42,546 $ 25,962 $ 26,064 $ 26,344 $ 26,462
Mortgage-backed securities:
Collateralized mortgage obligations. 51,996 50,142 59,063 59,044 21,580 21,730
Fannie Mae.......................... 12,307 11,818 16,436 16,597 19,750 20,015
Freddie Mac......................... 4,585 4,495 6,115 6,188 15,272 15,484
Ginnie Mae.......................... 3,949 3,810 4,760 4,784 14,567 14,594
--------- -------- --------- --------- --------- ---------
Total mortgage-backed securities...... 72,837 70,265 86,374 86,613 71,169 71,823
Corporate and municipal bonds......... 4,729 4,559 -- -- -- --
--------- -------- --------- --------- --------- ---------
Total debt securities.................. 122,967 117,370 112,336 112,677 97,513 98,285
Equity securities...................... 1,657 1,380 2,738 2,656 1,645 1,595
--------- -------- --------- --------- --------- ---------
Total securities available for sale.... $ 124,624 $118,750 $ 115,074 $ 115,333 $ 99,158 $ 99,880
========= ======== ========= ========= ========= =========
Securities held to maturity:
Debt securities:
U.S. Government and agency bonds...... $ -- $ -- $ 4,000 $ 4,022 $ 14,096 $ 14,136
Corporate and municipal bonds......... 1,593 1,567 640 640 -- --
--------- -------- --------- --------- --------- ---------
Total debt securities................. 1,593 1,567 4,640 4,662 14,096 14,136
--------- -------- --------- --------- --------- ---------
Total securities held to maturity..... $ 1,593 $ 1,567 4,640 4,662 14,096 14,136
--------- -------- --------- --------- --------- ---------
Total securities...................... $ 126,217 $120,317 $ 119,714 $ 119,995 $ 113,254 $ 114,016
========= ======== ========= ========= ========= =========
</TABLE>
At December 31, 1999, the contractual maturities of debt securities is as
follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
---------------------- ---------------------
Fair Amortized
Cost Yield Cost Yield
---------- -------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
One year or less................. $ -- --% 30 5.50%
After one year through five years 5,063 6.31 142 5.50
After five years through ten years 45,550 6.52 929 4.91
After ten years.................. 66,757 6.57 492 4.99
---------- -------- ---------- --------
Total............................ $ 117,370 6.54% $ 1,593 5.00%
========== ======== ========== ========
</TABLE>
49
<PAGE>
Sources of Funds
General. Deposits are the primary source of our funds for lending and other
investment purposes. In addition to deposits, we derive funds from loan
principal repayments. Loan repayments are a relatively stable source of funds,
while deposit inflows and outflows are significantly influenced by general
interest rates and money market conditions. Borrowings are used on a short-term
basis to compensate for reductions in the availability of funds from other
sources and are also used on a longer term basis for general business purposes.
Deposits. Our deposits are attracted principally from within our primary
market area through the offering of a broad selection of deposit instruments,
including NOW accounts, money market accounts, regular savings accounts, and
term certificate accounts. 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.
Interest rates paid, maturity terms, service fees and withdrawal penalties
are established by us 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 regulations.
We do not advertise for deposits outside our primary market area or utilize
the services of deposit brokers.
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by us at the dates indicated.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
-------------------- --------------------- ----------------------
Amount Percent Amount Percent Amount Percent
--------- ------- --------- -------- ---------- ---------
(Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit.......... $ 132,544 63.68% $ 127,852 63.16% $ 112,702 60.42%
--------- ------- --------- -------- ---------- ---------
Transaction Accounts:
Savings accounts................. 46,093 22.15 47,259 23.34 48,285 25.88
Money market accounts ........... 5,020 2.41 3,196 1.58 2,198 1.18
Demand deposits and NOW accounts 24,475 11.76 24,127 11.92 23,349 12.52
--------- ------- --------- -------- ---------- ---------
Total transaction accounts.... 75,588 36.32 74,582 36.84 73,832 39.58
--------- ------- --------- -------- ---------- ---------
Total deposits................ $ 208,132 100.00% $ 202,434 100.00% $ 186,534 100.00%
========= ======= ========= ======== ========== =========
</TABLE>
The following table sets forth the deposit activities of Savings Bank of
the Finger Lakes during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Deposits.................................................. $ 619,483 $ 500,594 $ 360,637
Withdrawals............................................... (622,445) (493,372) (335,673)
---------- ---------- ----------
Net increase (decrease) before interest credited.......... (2,962) 7,222 24,964
Interest credited......................................... 8,660 8,678 7,738
---------- ---------- ----------
Net increase in deposits.................................. $ 5,698 $ 15,900 $ 32,702
========== ========== ==========
</TABLE>
50
<PAGE>
The following table sets forth the maturities of our certificates of
deposit having principal amounts of $100,000 or more as of December 31, 1999.
<TABLE>
<CAPTION>
Maturity Period Amount Percent
--------------- ------ -------
(In Thousands)
<S> <C> <C>
Three months or less............................... $ 4,335 17.6%
Over three through six months...................... 6,408 26.0
Over six through twelve months..................... 8,334 33.9
Over twelve months................................. 5,523 22.5
-------- ----
Total certificates of deposit with
balances of $100,000 or more.................. $ 24,600 100%
======== ===
</TABLE>
The following table shows the interest rate and maturity information for
our certificates of deposit as of December 31, 1999.
<TABLE>
<CAPTION>
Maturity Date
----------------------------------------------------------------------------------
Interest Rate 1 Year or Less Over 1 to 2 Years Over 2 to 3 Years Over 3 Years Total
------------- -------------- ----------------- ----------------- ------------ -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.00% - 4.00% $ 1,704 $ -- $ -- $ -- $ 1,704
4.01% - 6.00% 86,817 23,586 1,869 4,522 116,794
6.01% - 8.00% 9,788 1,192 1,873 1,193 14,046
-------- -------- ------- -------- --------
Total $ 98,309 $ 24,778 $ 3,742 $ 5,715 $132,544
======== ======== ======= ======== ========
</TABLE>
Borrowings. We may obtain advances from the FHLB of New York secured by our
investment in FHLB of New York stock, our portfolio of investment securities and
certain of our residential mortgage loans, provided certain standards related to
creditworthiness have been met. Such advances are made pursuant to several
credit programs, each of which has its own interest rate and range of
maturities.
The following table sets forth the maximum month-end balance and average
balance of our FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
For Year Ended December 31,
----------------------------------
1999 1998 1997
------- -------- --------
(Dollars In Thousands)
<S> <C> <C> <C>
Maximum balance........................................ $ 69,960 $ 54,892 $ 36,721
Average balance........................................ 61,923 45,532 24,656
Weighted average interest rate on FHLB advances........ 5.43% 5.51% 5.70%
</TABLE>
The following table sets forth certain information as to our FHLB advances
at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1999 1998 1997
------- -------- --------
(In Thousands)
<S> <C> <C> <C>
FHLB advances.......................................... $ 69,960 $ 54,815 $ 36,721
Weighted average interest rate on FHLB advances........ 5.64% 5.51% 5.76%
</TABLE>
Subsidiary. SBFL Agency, Inc. is a wholly owned subsidiary of the Bank.
SBFL Agency, Inc. was established in November 1995 to sell a line of fixed rate
annuity products. At December 31, 1999 SBFL Agency, Inc. offered mutual funds,
financial planning services and insurance annuity products.
Employees. We have 85 full-time employees and 23 part-time employees at
December 31, 1999. None of these employees is represented by a collective
bargaining agreement, and we believe that we enjoy good relations with our
personnel.
51
<PAGE>
Properties
At December 31, 1999, we conducted our business from our main office at 470
Exchange Street, Geneva, New York.
The following table sets forth certain information with respect to the
office and other properties of the Savings Bank of the Finger Lakes at December
31, 1999.
<TABLE>
<CAPTION>
Net Book
Value/Lease
Description/Address Leased/Owned Expiration Date
- ------------------- ------------ ---------------
(Dollars in Thousands)
<S> <C> <C>
Main Office Owned $ 631
470 Exchange Street
Geneva, New York
Branch Offices
Pyramid Mall Leased May 2014
Routes 5 and 20
Geneva, New York
Seaway Plaza Leased March 2011
Routes 5 and 20
Waterloo, New York
Commons Leased March 2001
301 E. State Street
Ithaca, New York
South Meadow Owned on Leased $ 776
702 South Meadow Street Land May 2017
Ithaca, New York
Canandaigua Owned on Leased $ 747
659 South Main Street Land September 2018
Canandaigua, New York
</TABLE>
52
<PAGE>
Legal Proceedings
There are various claims and lawsuits in which we are periodically involved
incident to our business. We believe that these routine legal proceedings, in
the aggregate, are not material to our financial condition and results of
operations.
REGULATION
Savings Bank of the Finger Lakes is examined and supervised extensively by
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation.
Savings Bank of the Finger Lakes is a member of and owns stock in the Federal
Home Loan Bank of New York, which is one of the twelve regional banks in the
Federal Home Loan Bank System. 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.
Savings Bank of the Finger Lakes also is regulated by the Board of Governors of
the Federal Reserve System, governing reserves to be maintained against deposits
and other matters. The Office of Thrift Supervision examines Savings Bank of the
Finger Lakes and prepares reports for the consideration of Savings Bank of the
Finger Lakes' Board of Directors on any deficiencies that they may find in
Savings Bank of the Finger Lakes' operations. The Federal Deposit Insurance
Corporation also examines Savings Bank of the Finger Lakes in its role as the
administrator of the Savings Association Insurance Fund. Savings Bank of the
Finger Lakes' relationship with its depositors and borrowers also is regulated
to a great extent by both federal and state laws, especially in matters
concerning the ownership of savings accounts and the form and content of Savings
Bank of the Finger Lakes' mortgage documents. Any change in this regulation,
whether by the Federal Deposit Insurance Corporation, Office of Thrift
Supervision, or Congress, could have a material adverse impact on Finger Lakes
Bancorp and Savings Bank of the Finger Lakes and their operations.
Federal Regulation of Savings Institutions
Business Activities. The activities of federal savings associations are
subject to extensive regulation including restrictions or requirements with
respect to loans to one borrower, the percentage of non-mortgage loans or
investments to total assets, capital distributions, permissible investments and
lending activities, liquidity, transactions with affiliates and community
reinvestment. The description of statutory provisions and regulations applicable
to savings associations set forth herein does not purport to be a complete
description of these statutes and regulations and their effect on Savings Bank
of the Finger Lakes.
Loans to One Borrower. Federal savings associations generally may not make
a loan or extend credit to a single or related group of borrowers in excess of
15% of unimpaired capital and surplus on an unsecured basis. An additional
amount may be lent, equal to 10% of unimpaired capital and surplus, if the loan
is secured by readily-marketable collateral, which is defined to include
certain securities and bullion, but generally does not include real estate. As
of December 31, 1999, Savings Bank of the Finger Lakes was in compliance with
its loans-to-one-borrower limitations.
Qualified Thrift Lender Test. As a federal savings association, Savings
Bank of the Finger Lakes is required to satisfy a qualified thrift lender test
whereby it must maintain at least 65% of its "portfolio assets" in "qualified
thrift investments" consisting primarily of residential mortgages and related
investments, including mortgage-backed and related securities. "Portfolio
assets" generally means total assets less specified liquid assets up to 20% of
total assets, goodwill and other intangible assets, and the value of property
used to conduct business. A savings association that fails the qualified thrift
lender test must either convert to a bank charter or operate under specified
restrictions. As of December 31, 1999, Savings Bank of the Finger Lakes
maintained 87.72% of its portfolio assets in qualified thrift investments and,
therefore, met the qualified thrift lender test.
Capital Distributions
OTS regulations govern capital distributions by savings institutions, which
include cash dividends, stock repurchases and other transactions charged to the
capital account of a savings institution to make capital distributions.
53
<PAGE>
Under new regulations effective April 1, 1999, a savings institution must file
an application for OTS approval of the capital distribution if either (1) the
total capital distributions for the applicable calendar year exceed the sum of
the institution's net income for that year to date plus the institution's
retained net income for the preceding two years, (2) the institution would not
be at least adequately capitalized following the distribution, (3) the
distribution would violate any applicable statute, regulation, agreement or
OTS-imposed condition, or (4) the institution is not eligible for expedited
treatment of its filings. If an application is not required to be filed, savings
institutions which are a subsidiary of a holding company, as well as certain
other institutions, must still file a notice with the OTS at least 30 days
before the board of directors declares a dividend or approves a capital
distribution.
Any additional capital distributions would require prior regulatory
approval. In the event Savings Bank of the Finger Lakes' capital fell below its
fully-phased in requirement or the Office of Thrift Supervision notified it that
it was in need of more than normal supervision, Savings Bank of the Finger
Lakes' ability to make capital distributions could be restricted. In addition,
the Office of Thrift Supervision could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
Office of Thrift Supervision determines that the distribution would constitute
an unsafe or unsound practice.
Liquidity. Savings Bank of the Finger Lakes is required to maintain an
average daily balance of specified liquid assets equal to a quarterly average of
not less than a specified percentage of its net withdrawable deposit accounts
plus borrowings payable in one year or less. The current requirement is 4%.
Savings Bank of the Finger Lakes' average liquidity ratio for the quarter ended
December 31, 1999 was 41.98%, which exceeded the applicable requirements.
Community Reinvestment Act and Fair Lending Laws. Savings associations have
a responsibility under the Community Reinvestment Act and related regulations of
the Office of Thrift Supervision to help meet the credit needs of their
communities, including low- and moderate-income neighborhoods. In addition, the
Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from
discriminating in their lending practices on the basis of characteristics
specified in those statutes. An institution's failure to comply with the
provisions of the Community Reinvestment Act could, at a minimum, result in
regulatory restrictions on its activities, and failure to comply with the Equal
Credit Opportunity Act and the Fair Housing Act could result in enforcement
actions by the Office of Thrift Supervision, as well as other federal regulatory
agencies and the Department of Justice. Savings Bank of the Finger Lakes
received a satisfactory Community Reinvestment Act rating under the current
Community Reinvestment Act regulations in its most recent federal examination by
the Office of Thrift Supervision.
Transactions with Related Parties. Savings Bank of the Finger Lakes'
authority to engage in transactions with related parties or "affiliates" or to
make loans to specified insiders, is limited by Sections 23A and 23B of the
Federal Reserve Act. The term "affiliates" for these purposes generally means
any company that controls or is under common control with an institution,
including Finger Lakes Bancorp and its non-savings institution subsidiaries.
Section 23A limits the aggregate amount of certain "covered" transactions with
any individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of covered transactions with
all affiliates to 20% of the savings institution's capital and surplus. Covered
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B provides that
covered transactions with affiliates, including loans and asset purchases, must
be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. In addition, savings institutions are prohibited from lending to any
affiliate that is engaged in activities that are not permissible for bank
holding companies and no savings institution may purchase the securities of any
affiliate other than a subsidiary.
Savings Bank of the Finger Lakes' authority to extend credit to executive
officers, directors and 10% stockholders, as well as entities controlled by
these persons, is currently governed by Sections 22(g) and 22(h) of the Federal
Reserve Act, and also by Regulation O. Among other things, these regulations
generally require these loans to be made on terms substantially the same as
those offered to unaffiliated individuals and do not involve more than the
normal risk of repayment. However, recent regulations now permit executive
officers and directors to receive the
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<PAGE>
same terms through benefit or compensation plans, that are widely available to
other employees, as long as the director or executive officer is not given
preferential treatment compared to other participating employees. Regulation O
also places individual and aggregate limits on the amount of loans Savings Bank
of the Finger Lakes may make to these persons based, in part, on Savings Bank of
the Finger Lakes' capital position, and requires approval procedures to be
followed. At December 31, 1999, Savings Bank of the Finger Lakes was in
compliance with these regulations.
Enforcement. The Office of Thrift Supervision has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and attorneys, appraisers and accountants who knowingly or
recklessly participate in wrongful action likely to have an adverse effect on an
insured institution. Formal enforcement action may range from the issuance of a
capital directive or cease and desist order to removal of officers and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. The
Federal Deposit Insurance Corporation also has the authority to recommend to the
Director of the Office of Thrift Supervision that enforcement action be taken
with respect to a particular savings institution. If action is not taken by the
Director, the Federal Deposit Insurance Corporation has authority to take such
action under specified circumstances.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, compensation, and such other operational and managerial
standards as the agency deems appropriate. The federal banking agencies adopted
Interagency Guidelines Prescribing Standards for Safety and Soundness to
implement the safety and soundness standards required under the Federal law. The
guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. The guidelines address internal controls and
information systems; internal audit systems; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; and compensation, fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard. If an institution fails to meet these
standards, the appropriate federal banking agency may require the institution to
submit a compliance plan.
Capital Requirements. Office of Thrift Supervision capital regulations
require savings institutions to meet three capital standards: a 1.5% tangible
capital standard, a 4.0% leverage or core capital ratio and an 8.0% risk-based
capital standard. Core capital is defined as common stockholders' equity,
including retained earnings, certain non- cumulative perpetual preferred stock
and related surplus, minority interests in equity accounts of consolidated
subsidiaries less intangibles other than certain qualifying supervisory goodwill
and certain mortgage servicing rights. Tangible capital is defined as core
capital less all intangible assets, including supervisory goodwill, plus a
specified amount of mortgage servicing rights. Office of Thrift Supervision
regulations also require that, in meeting the tangible, leverage and risk-based
capital standards, institutions must deduct investments in and loans to
subsidiaries engaged in activities not permissible for a national bank, and
unrealized gains or losses on certain available for sale securities.
The risk-based capital standard for savings institutions requires the
maintenance of Tier 2 core and total capital, which is defined as core capital
and supplementary capital, to risk weighted assets of 4.0% and 8.0%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, are multiplied by a risk-weight of
0% to 100%, as assigned by the Office of Thrift Supervision capital regulation
based on the risks the Office of Thrift Supervision believes are inherent in the
type of asset. The components of Tier 1 core capital are equivalent to those
discussed earlier under the 4.0% leverage ratio standard. The components of
supplementary capital currently include cumulative preferred stock, long-term
perpetual preferred stock, mandatory convertible securities, subordinated debt
and intermediate preferred stock and allowance 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-
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<PAGE>
weighted assets. Overall, the amount of supplementary capital included as part
of total capital cannot exceed 100% of core capital.
Office of Thrift Supervision regulatory capital rules also incorporate an
interest rate risk component. Savings associations with "above normal" interest
rate risk exposure are subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. A savings association's
interest rate risk is measured by the decline in the net portfolio value of its
assets, i.e., the difference between incoming and outgoing discounted cash flows
from assets, liabilities and off-balance sheet contracts, that would result from
a hypothetical 200-basis point increase or decrease in market interest rates,
divided by the estimated economic value of the association's assets. In
calculating its total capital under the risk-based rule, a savings association
with a measured interest rate risk exposure exceeding 2%, must deduct an
interest rate component equal to one-half of the excess change. The Office of
Thrift Supervision has deferred, for the present time, the date on which the
interest rate component is to be deducted from total capital. The rule also
provides that the Director of the Office of Thrift Supervision may waive or
defer an institution's interest rate risk component on a case-by-case basis.
At December 31, 1999, Savings Bank of the Finger Lakes exceeded each of the
three Office of Thrift Supervision capital requirements. See "Historical and Pro
Forma Capital Compliance" for a table which sets forth in terms of dollars and
percentages the Office of Thrift Supervision tangible, leverage and risk-based
capital requirements, Savings Bank of the Finger Lakes' historical amounts and
percentages at December 31, 1999, and pro forma amounts and percentages based
upon the issuance of the shares within the offering range and assuming that a
portion of the net proceeds are retained by Finger Lakes Bancorp.
Prompt Corrective Regulatory Action
Under the Office of Thrift Supervision Prompt Corrective Action
regulations, the Office of Thrift Supervision is required to take supervisory
actions against undercapitalized institutions, the severity of which depends
upon the institution's level of capital. Generally, a savings institution that
has total risk-based capital of less than 8.0% or a leverage ratio or a Tier 1
core capital ratio that is less than 4.0% is considered to be undercapitalized.
A savings institution that has the total risk-based capital less than 6.0%, a
Tier 1 core risk-based capital ratio of less than 3.0% or a leverage ratio that
is less than 3.0% is considered to be "significantly undercapitalized" and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2.0% is deemed to be "critically undercapitalized." Generally, the banking
regulator is required to appoint a receiver or conservator for an institution
that is "critically undercapitalized." The regulation also provides that a
capital restoration plan must be filed with the Office of Thrift Supervision
within 45 days of the date an institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." In addition, numerous mandatory supervisory actions become
immediately applicable to the institution, including, but not limited to,
restrictions on growth, investment activities, capital distributions, and
affiliate transactions. The Office of Thrift Supervision could also take any one
of a number of discretionary supervisory actions against undercapitalized
institutions, including the issuance of a capital directive and the replacement
of senior executive officers and directors.
Insurance of Deposit Accounts
The Federal Deposit Insurance Corporation has adopted a risk-based deposit
insurance assessment system. The Federal Deposit Insurance Corporation assigns
an institution to one of three capital categories based on the institution's
financial information, as of the reporting period ending seven months before the
assessment period, and one of three supervisory subcategories within each
capital group. The three capital categories are well capitalized, adequately
capitalized and undercapitalized. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
Federal Deposit Insurance Corporation by the institution's primary federal
regulator and information which the Federal Deposit Insurance Corporation
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds. An institution's assessment rate depends
on the capital category and supervisory category to which it is assigned. The
Federal Deposit Insurance Corporation is authorized to raise the assessment
rates. The Federal Deposit Insurance Corporation has exercised this authority
several times in the past and may raise insurance premiums in the future. If
this type of action is taken by
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<PAGE>
the Federal Deposit Insurance Corporation, it could have an adverse effect on
the earnings of Savings Bank of the Finger Lakes.
Federal Home Loan Bank System
Savings Bank of the Finger Lakes, as a federal association, is required to
be a member of the Federal Home Loan Bank System, which consists of 12 regional
Federal Home Loan Banks. The Federal Home Loan Bank System provides a central
credit facility primarily for member institutions. Savings Bank of the Finger
Lakes, as a member of the Federal Home Loan Bank of New York, is required to
acquire and hold shares of capital stock in that Federal Home Loan Bank in an
amount at least equal to 1% of the aggregate principal amount of its unpaid
residential mortgage loans and similar obligations at the beginning of each
year, or 1/20 of its borrowings from the Federal Home Loan Bank, whichever is
greater. As of December 31, 1999, Savings Bank of the Finger Lakes was in
compliance with this requirement. The Federal Home Loan Banks are required to
provide funds for the resolution of insolvent thrifts and to contribute funds
for affordable housing programs. These requirements could reduce the amount of
dividends that the Federal Home Loan Banks pay to their members and could also
result in the Federal Home Loan Banks imposing a higher rate of interest on
advances to their members.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts, such
as negotiable order of withdrawal and regular checking accounts. At December 31,
1999, Savings Bank of the Finger Lakes was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements
imposed by the Office of Thrift Supervision.
Thrift Charter
Congress has been considering legislation in various forms that would
require federal thrifts, such as Savings Bank of the Finger Lakes, to convert
their charters to national or state bank charters. Savings Bank of the Finger
Lakes cannot determine whether, or in what form, legislation may eventually be
enacted and there can be no assurance that any legislation that is enacted would
not adversely affect Finger Lakes Bancorp and Savings Bank of the Finger Lakes.
Holding Company Regulation
Finger Lakes Bancorp will be a non-diversified unitary savings and loan
holding company, as those terms are defined under federal law, subject to
regulation and supervision by that agency. In addition, the Office of Thrift
Supervision has enforcement authority over Finger Lakes Bancorp and its
non-savings institution subsidiaries. Among other things, this authority permits
the Office of Thrift Supervision to restrict or prohibit activities that are
determined to be a risk to the subsidiary savings institution. Savings Bank of
the Finger Lakes must notify the Office of Thrift Supervision 30 days before
declaring any dividend to Finger Lakes Bancorp.
As a unitary savings and loan holding company, Finger Lakes Bancorp
generally will not be restricted under existing laws as to the types of business
activities in which it may engage, provided that Savings Bank of the Finger
Lakes continues to be a qualified thrift lender. See "--Federal Regulation of
Savings Institutions--Qualified Thrift Lender Test" for a discussion of the
qualified thrift lender requirements. Upon any non-supervisory acquisition by
Finger Lakes Bancorp of another savings association, Finger Lakes Bancorp would
become a multiple savings and loan holding company if the acquired institution
is held as a separate subsidiary and would be subject to extensive limitations
on the types of business activities in which it could engage. Federal law limits
the activities of a multiple savings and loan holding company and its
non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under the Bank Holding Company Act of 1956.
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<PAGE>
Federal law prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
institution or holding company thereof, without prior written approval of the
Office of Thrift Supervision. It also prohibits the acquisition or retention of,
with specified exceptions, more than 5% of a non-subsidiary savings institution,
a non-subsidiary holding company, or a non-subsidiary company engaged in
activities other than those permitted by Federal law; or acquiring or retaining
control of an institution that is not federally insured. In evaluating
applications by holding companies to acquire savings institutions, the Office of
Thrift Supervision must consider the financial and managerial resources, future
prospects of Savings Bank of the Finger Lakes and institution involved, the
effect of the acquisition on the risk to the insurance fund, the convenience and
needs of the community and competitive factors.
Federal Securities Laws
Finger Lakes Bancorp has filed with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933, as amended, for the
registration of the common stock to be issued pursuant to the conversion. Upon
completion of the conversion, Finger Lakes Bancorp common stock will be
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934. Finger Lakes Bancorp will then be subject to the
information, proxy solicitation, insider trading restrictions and other
requirements under the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of the common
stock to be issued in the conversion does not cover the resale of the shares.
Shares of the common stock purchased by persons who are not affiliates of Finger
Lakes Bancorp may be resold without registration. Shares purchased by an
affiliate of Finger Lakes Bancorp will be subject to the resale restrictions of
Rule 144 under the Securities Act of 1933. If Finger Lakes Bancorp meets the
current public information requirements of Rule 144 under the Securities Act of
1933, each affiliate of Finger Lakes Bancorp who complies with the other
conditions of Rule 144, including those that require the affiliate's sale to be
aggregated with those of other persons, would be able to sell in the public
market, without registration, a number of shares not to exceed, in any
three-month period, the greater of 1% of the outstanding shares of Finger Lakes
Bancorp, or the average weekly volume of trading in the shares during the
preceding four calendar weeks. Provision may be made in the future by Finger
Lakes Bancorp to permit affiliates to have their shares registered for sale
under the Securities Act of 1933.
TAXATION
Federal Taxation
For federal income tax purposes, Finger Lakes Financial and its subsidiary
file a consolidated federal income tax return on a calendar year basis using the
accrual method of accounting.
As a result of the enactment of the Small Business Job Protection Act of
1996, all savings banks and savings associations may convert to a commercial
bank charter, diversify their lending, or be merged into a commercial bank
without having to recapture any of their pre-1988 tax bad debt reserve
accumulations. Any post-1987 reserves must be recaptured, regardless of whether
or not a particular thrift intends to convert its charter, be acquired, or
diversify its activities. The recapture tax on post-1987 reserves is assessed in
equal installments over the six taxable years beginning in 1996. However, if a
thrift met the residential loan requirement included in the federal legislation,
then the thrift could suspend its tax bad debt recapture for the 1996 and 1997
tax years. At December 31, 1999, Finger Lakes Financial had a balance of
approximately $3.0 million of bad debt reserves that would be recaptured under
this legislation.
Deferred income taxes arise from the recognition of items of income and
expense for tax purposes in years different from those in which they are
recognized in the consolidated financial statements. Finger Lakes Financial
accounts for deferred income taxes by the asset and liability method, applying
the enacted statutory rates in effect at the balance sheet date to differences
between the book basis and the tax basis of assets and liabilities. The
resulting deferred tax liabilities and assets are adjusted to reflect changes in
the tax laws.
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Finger Lakes Financial is subject to the corporate alternative minimum tax
to the extent it exceeds Finger Lakes Financial's regular income tax for the
year. The alternative minimum tax will be imposed at the rate of 20% of a
specially computed tax base. Included in this base are a number of preference
items, including interest on certain tax- exempt bonds issued after August 7,
1986, and an "adjusted current earnings" computation which is similar to a tax
earnings and profits computation. In addition, for purposes of the alternative
minimum tax, the amount of alternative minimum taxable income that may be offset
by net operating losses is limited to 90% of alternative minimum taxable income.
In 1998, Finger Lakes Financial Corp., MHC and its subsidiaries were
audited by the Internal Revenue Service for tax years 1992 and 1995. Amended
returns were filed, and approximately $22,000 in additional taxes were assessed
and paid. For additional information regarding taxation, see Note 7 of Notes to
Consolidated Financial Statements.
State Taxation
New York State Taxation. Finger Lakes Bancorp and Savings Bank of the
Finger Lakes will report income on a combined calendar year basis to New York
state. New York State Franchise Tax on corporations is imposed in an amount
equal to the greater of (a) 9% of "entire net income" allocable to New York
State (b) 3% of "alternative entire net income" allocable to New York State (c)
0.01% of the average value of assets allocable to New York State or (d) nominal
minimum tax. Entire net income is based on federal taxable income, subject to
certain modifications. Alternative entire net income is equal to entire net
income without certain modifications.
Delaware Taxation
As a Delaware holding company not earning income in Delaware, Finger Lakes
Bancorp is exempt from Delaware corporate income tax but is required to file an
annual report with and pay an annual franchise tax to the State of Delaware.
MANAGEMENT OF FINGER LAKES BANCORP
The Board of Directors of Finger Lakes Bancorp is divided into three
classes and will be elected by the stockholders of Finger Lakes Bancorp and
Finger Lakes Financial, respectively, for staggered three year terms, or until
their successors are elected and qualified. One class of directors, consisting
of directors G. Thomas Bowers, Richard J. Harrison, Bernard G. Lynch and Arthur
W. Pearce have terms of office expiring in 2001; a second class, consisting of
directors Chris M. Hansen, and Joan C. Rogers have terms of office expiring in
2002; and a third class, consisting of directors Michael J. Hanna, James E.
Hunter and Ronald C. Long have a term of office expiring in 2003. Their names
and biographical information are set forth under "Management of Finger Lakes
Financial--Directors."
The following individuals hold positions as executive officers of Finger
Lakes Bancorp as is set forth below opposite their names:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
G. Thomas Bowers Chairman of the Board, President and Chief Executive Officer
Terry L. Hammond Executive Vice President, Chief Financial Officer
and Secretary
Thomas A. Mayfield Senior Vice President and Senior Loan Officer
Leslie J. Zornow Senior Vice President-Retail Banking
</TABLE>
The executive officers of Finger Lakes Bancorp 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.
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<PAGE>
MANAGEMENT OF FINGER LAKES FINANCIAL
Directors
The Board of Directors of Finger Lakes Financial is composed of nine
members. Directors of Finger Lakes Financial are generally elected to serve for
a three year term or until their respective successors shall have been elected
and shall qualify. The following table sets forth certain information regarding
the composition of the Board of Directors as of December 31, 1999 including
their terms of office.
<TABLE>
<CAPTION>
Position Held at Current Term
Name Age Finger Lakes Financial Director Since (1) to Expire
- ------------------ --------- ---------------------- ------------------ ------------
<S> <C> <C> <C> <C>
G. Thomas Bowers 56 Chairman of the Board, President 1995 2001
and Chief Executive Officer
Michael J. Hanna 54 Director 1994 2000
Chris M. Hansen 64 Director 1983 2002
Richard J. Harrison 54 Director 1997 2001
James E. Hunter 64 Director 1990 2000
Ronald C. Long 63 Director 1994 2000
Bernard G. Lynch 69 Director 1962 2001
Arthur W. Pearce 57 Director 1998 2001
Joan C. Rogers 66 Director 1993 2002
</TABLE>
- ----------
(1) Reflects initial appointment to Finger Lakes Financial's predecessors.
The principal occupations of each director and executive officer of Finger
Lakes Financial during at least the past five years is set forth below.
G. Thomas Bowers has served as the Company's President and Chief Executive
Officer since July 1995. In 1998 Mr. Bowers was elected Chairman of the Board of
Directors. He was President and Chief Executive Officer of Citizens Savings
Bank, FSB, Ithaca, New York, from July 1992 until December 1994. Mr. Bowers was
employed by Columbia Banking Savings and Loan Association, Rochester, New York,
from 1987 until June 1992, serving as President and Chief Executive Officer from
April 1991 until June 1992.
Michael J. Hanna has served as Director of Athletics at Hobart and William
Smith Colleges, Geneva, New York, since 1981.
Chris M. Hansen is retired from the position as President of C.M. Hansen
Farms, Inc., located in Hall, New York, which owns a citrus operation in
LaBelle, Florida.
Richard J. Harrison served as Executive Vice President and Director of
Dominion Capital Corporation, Fairport, New York, since 1994. Mr. Harrison is
President of Newwwdeal.com, an internet service company founded in 1999, as well
as principal in Atlantic Associates, a consulting organization. He was also
President of United Auto Finance, Inc., Fairport, New York, from 1994 to
December 1998. Prior to 1994, Mr. Harrison was employed by Rochester Community
Savings Bank, Rochester, New York, serving as President of its subsidiary,
American Credit Services, Inc.
James E. Hunter is a professor at Cornell University and the Director of
the New York State Agricultural Experiment Station, Geneva, New York.
Ronald C. Long is President of Long Milk Haulers, Inc., Penn Yan, New York,
which owns and operates a milk hauling and trucking operation.
Bernard G. Lynch is retired from his position as President of the Lynch
Furniture Co., Inc., a retail furniture outlet with stores in Geneva and Auburn,
New York, where he served full-time in the position until 1992.
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<PAGE>
Arthur W. Pearce retired in July 1997 after over 20 years in mortgage
banking. From December 1994 until July 1997 he was Senior Vice President,
Community Banking, of M&T Bank, Ithaca, New York, and from December 1992 until
December 1994 he was Executive President of Citizens Savings Bank, FSB, Ithaca,
New York.
Joan C. Rogers is retired from her position as Vice President of BJR
Broadcasting, Seneca Falls, New York, where she served in such capacity for more
than the past five years.
Terry L. Hammond has served as the Company's Executive Vice President,
Chief Financial Officer and Secretary since January 1, 1999. Prior to that, he
served as Senior Vice President, Chief Financial Officer and Secretary since
joining the Company in 1990. Prior to that, Mr. Hammond was employed by Monroe
Savings Bank, Rochester, New York, in the same capacity.
Thomas A. Mayfield serves as the Company's Senior Vice President and Senior
Loan Officer. He joined the Company in that capacity in April 1996. For two
years prior to that, Mr. Mayfield served in a similar capacity at Savannah Bank,
N.A., Savannah, New York.
Leslie J. Zornow has served as the Company's Senior Vice President, Retail
Banking, since January 1, 1999. Prior to that, she served as Vice President,
Branch Administration and Marketing from 1996 to 1998 and as Vice President,
Human Resources and Marketing since joining the Company in 1995. Prior to that,
Ms. Zornow was employed by Monroe County, New York, Department of Communications
as Deputy Director.
Board Meetings and Committees of the Board
Regular meetings of the Board of Directors of Finger Lakes Financial are
held on a monthly basis. The Board of Directors held a total of 14 meetings
during the 1999 calendar year. During 1999, each director attended at least 75%
of the total of such Board meetings and meetings of Board Committees on which he
or she served.
The Board of Directors has established various Committees, which are
described below.
The Executive Committee generally has the power and authority to act on
behalf of the Board of Directors between scheduled meetings of the Board unless
specific Board of Directors' action is required or unless otherwise restricted
by Finger Lakes Financial's Charter or Bylaws or the Board of Directors. The
Executive Committee also administers the investment policy adopted by the Board
of Directors. During 1999, the Executive Committee met seven times. The current
members of the Executive Committee are Mr. Bowers (Chairman) and Messrs. Hanna,
Harrison, Hunter, Lynch and Pearce.
The Audit/Community Reinvestment Act ("CRA") Committee reviews (i) reports
from the internal audit department, (ii) the independent auditors' reports and
the results of their examination, prior to review by and with the entire Board
of Directors and (iii) the Office of Thrift Supervision, Federal Deposit
Insurance Corporation and other regulatory reports, prior to review by and with
the entire Board of Directors. The Audit/CRA Committee also meets periodically
with Finger Lakes Financial's CRA Officer to review the Company's CRA
activities. During 1999, the Audit/CRA Committee met four times. The current
members of the Audit/CRA Committee are Mr. Lynch (Chairman), Messrs. Long and
Pearce and Mrs. Rogers.
The Salary and Personnel Committee oversees the compensation programs
provided our management, including basic salaries, bonuses and benefit plans. It
also administers the 1996 Stock Option Plan and the 1996 Management Recognition
Plan. See "Executive Compensation" below. During 1999, the Salary and Personnel
Committee met two times. The current members of the Salary and Personnel
Committee are Messrs. Hansen, Harrison and Hunter.
The Nominating Committee nominates persons to serve as directors of Finger
Lakes Financial. During 1999, the Nominating Committee met one time. The current
members of the Nominating Committee are Mr. Lynch (Chairman) and Messrs. Bowers
and Hunter.
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<PAGE>
Directors' Compensation
During 1999, Finger Lakes Financial paid directors' fees aggregating
$106,350 to the non-employee members of the Board of Directors, consisting of
(i) attendance fees of $300 for each meeting of the Board of Directors attended
and $200 for each meeting of a Board Committee attended, and (ii) a retainer of
$2,000 per calendar quarter. Mr. Bowers, who is the only employee director, is
paid no additional compensation for his services as a director.
Directors who are not employees of Finger Lakes Financial are entitled to
participate in the 1998 Restated Deferred Compensation Plan for Directors (the
"Restated Plan"). The Restated Plan allows participating outside directors to
defer up to 100% of their compensation from the Company into certain
"hypothetical" investment options designated by the Salary and Personnel
Committee, including Finger Lakes Financial common stock. The Restated Plan is
unfunded and may require the Company to issue common stock to the participating
directors at such time as the director has elected to receive a distribution, or
upon the death of the participating director. Of the $106,350 in fees paid to
non-employee directors in 1999, $65,500 was deferred in accordance with the
Restated Plan.
EXECUTIVE COMPENSATION
Shown on the table below is information on the annual and long-term
compensation for services rendered to Finger Lakes Financial in all capacities,
for the years ended December 31, 1999, 1998 and 1997, paid by Finger Lakes
Financial to its Chief Executive Officer and Executive Vice President. No other
executive officer of the Company received salary and bonus in excess of $100,000
in 1999.
<TABLE>
<CAPTION>
====================================================================================================================================
Annual Compensation Long-Term Compensation
------------------------------------------------ -----------------------------------------
Other Restricted All Other
Name and Annual Stock Option Compensation
Principal Position Year Salary($)(1) Bonus($) Compensation ($)(2) Awards ($)(3) Grants(#)(4) (5)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers, President 1999 $ 182,606 $ 20,947 $ 0 $ 0 0 $ 7,606
and Chief Executive Officer -------
1998 174,585 20,227 0 54,250 0 10,610
1997 168,562 0 0 128,469 0 24,160
- ------------------------------------------------------------------------------------------------------------------------------------
Terry L. Hammond, Executive 1999 $ 96,100 $ 8,610 $ 0 $ 0 0 $ 3,512
Vice President and Chief 1998 86,100 8,320 0 0 0 6,693
Financial Officer 1997 83,203 0 0 35,750 8,600 7,776
====================================================================================================================================
</TABLE>
(1) The amounts shown include cash compensation earned and paid during the year
indicated as well as cash compensation deferred at the executives' election
into the 401(k) Plan. The Company makes no contributions to the 401(k)
Plan.
(2) Does not reflect the value of perquisites and other personal benefits
because the aggregate amount of such compensation for any year did not
exceed 10% of the executives' annual salary and bonus for that year.
(3) The amounts shown reflect restricted awards of common stock under the
Company's 1996 Management Recognition Plan. See "Executive
Compensation--1996 Management Recognition Plan" below. The amounts shown
represent the aggregate market value of the shares awarded on the dates of
the awards (for Mr. Bowers 2,800 shares awarded in 1998; 9,500 shares
awarded in 1997 and for Mr. Hammond 3,000 shares awarded in 1997). The
awards vest and the shares are paid out over periods ranging from three to
five years, each commencing one year from the respective award date. The
total number and dollar value of shares credited to Mr. Bowers' award
account at 1999 year-end, based on the market value of the common stock on
December 31, 1999 ($8.00 per share) was 13,946 shares ($111,568). Mr.
Hammond's total number of shares and dollar value at 1999 year end was
5,720 shares and $45,763. Dividends are payable on such shares at the same
rate as dividends are paid on other shares of common stock.
(4) See "Executive Compensation--1996 Stock Option Plan" below.
(5) The amounts shown reflect: (i) the aggregate market value, on the date of
allocation, of shares of common stock allocated during the referenced year
to Mr. Bowers' account under the ESOP ($4,376 at December 31, 1999; $7,481
at December 31, 1998; $23,066 at December 31, 1997 (see "Executive
Compensation--Employee Stock Ownership Plan" below); and (ii) the
compensatory value ($3,230 in 1999; $3,129 in 1998; $1,094 in 1997) of life
insurance premiums paid by Finger Lakes Financial on Mr. Bowers' behalf.
The amounts shown for Mr. Hammond reflect the aggregate market value, on
the date of allocation of shares of common stock allocated during the
referenced year to Mr. Hammond's account under the ESOP.
1996 Management Recognition Plan
The objective of the Company's 1996 Management Recognition Plan (the
"Recognition Plan") is to enable the Company to provide certain of its officers
and other employees with a proprietary interest in the Company, through
restricted stock awards which vest at subsequent dates, as compensation for
their contributions to the Company as well as an incentive to make such
contributions in the future by continuing their employment with the
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<PAGE>
Company. The Recognition Plan has been funded with 47,200 shares of common stock
(purchased on the open market in 1996 with funds provided by the Company), which
are held by a third-party trustee until they are awarded, and thereafter vested
and distributed, to recipient employees in accordance with the terms of the
Recognition Plan.
The Recognition Plan is administered by the Salary and Personnel Committee
of the Board of Directors (the "Committee"), which consists solely of
disinterested directors. The Committee determines, among other things, the
employees who are to receive restricted stock awards under the Recognition Plan,
the number of shares covered by each award, and the vesting schedule by which
awarded shares vest and are paid out by the trustee to each recipient. Under the
terms of the Recognition Plan, the trustee is authorized to vote, in its
discretion, all Recognition Plan shares which have not yet vested. Dividends are
payable on awarded shares, for the benefit of the respective recipients, at the
same rate as dividends are paid on other shares of common stock. The Recognition
Plan also contains customary anti-dilution provisions. The Board of Directors of
Finger Lakes Financial can terminate the Recognition Plan at any time.
If an award recipient's employment with Finger Lakes Financial is
terminated by reason of his or her death, disability or retirement, or in the
event of a change in control of Finger Lakes Financial, all shares subject to
the award become immediately vested and payable to the recipient. However, upon
any other termination of an award recipient's employment, all rights to shares
not yet vested are forfeited.
At December 31, 1999, an aggregate of 47,200 shares of common stock has
been awarded under the Recognition Plan to an aggregate of ten employees,
including the Chief Executive Officer and Finger Lakes Financial's three other
current executive officers. Shares awarded under the Recognition Plan vest over
periods ranging from three to five years, each commencing one year from the
respective award date.
1996 Stock Option Plan
The Company's 1996 Stock Option Plan (the "Option Plan") is designated to
improve the growth and profitability of the Company by providing its employees
with a proprietary interest in the Company as an incentive to contribute to the
success of the Company and to reward employees for outstanding performance. The
Option Plan is intended to be qualified under Section 422 of the Internal
Revenue Code of 1986, as amended, and provides for the grant of incentive stock
options, non-statutory stock options and stock appreciation rights. An aggregate
of 118,000 shares of common stock are available for option grants under the
Option Plan. The Option Plan terminates in 2006.
The Option Plan is administered by the Salary and Personnel Committee,
which determines, among other things, the employees who are to receive options
under the Option Plan, the types of options to be granted and the number of
shares covered by each option. The exercise price of each option must be at
least equal to the market value of the common stock on the option grant date (or
110% of such market value in the case of an incentive stock option granted to a
holder of 10% or more of the outstanding common stock).
Options vest and become exercisable at the rate of 20% per year, commencing
one year from the option grant date. Options are only exercisable upon vesting
and until the earlier of ten years after the option grant date (or five years
after the option grant date in the case of an incentive stock option granted to
a holder of 10% or more of the outstanding common stock) or three months after
termination of the optionee's employment with the Company. However, if an
optionee's employment is terminated due to death, disability or retirement, or
in the event of a change in control of Finger Lakes Financial, the optionee or
his or her estate has one year following termination in which to exercise an
otherwise exercisable option. Options are non-transferable except by will or the
laws of descent and distribution. The Option Plan also contains customary
anti-dilution provision.
Under the Option Plan, the Committee is also authorized to grant stock
appreciation rights, under which an optionee may surrender an exercisable option
in return for payment by Finger Lakes Financial of cash or common stock in an
amount equal to the excess of the then-current market value of the common stock
over the exercise price of the surrendered option.
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<PAGE>
At December 31, 1999, options to purchase an aggregate of 109,000 shares of
common stock, at prices ranging from $6.75 to $14.50 per share, were outstanding
and held by an aggregate of 10 employees, including the Chief Executive Officer
and the three other current executive officers.
Shown below is information with respect to the total unexercised options to
purchase common stock held by the executives at December 31, 1999. No options
were granted to or exercised by the executives during 1999.
<TABLE>
Aggregated Option Exercises in 1999 and Year-End Option Values
<CAPTION>
Value of All Unexercised
Unexercised Option Held In-the-Money Options at
at Year End(#) Year End($)(1)
Shares Acquired Value -------------------------- --------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers 0 0 17,700 11,800 None None
Terry L. Hammond 0 0 12,320 9,880 2,700 1,800
</TABLE>
- ----------
(1) Expressed as the excess of the per share market value of the common stock at
December 31, 1999 ($8.00) over the per share exercise price of the options.
Employee Stock Ownership Plan ("ESOP")
The purpose of the ESOP is to recognize and reward the contributions made
to Finger Lakes Financial by its employees. Employees who have at least one year
of credited service with Finger Lakes Financial (including Finger Lakes
Financial and Savings Bank of the Finger Lakes in its forms prior to the
Reorganization) and who have attained age 21 are eligible to participate in the
ESOP.
The ESOP borrowed funds in 1994 from a third-party lender in order to fund
the purchase of 94,396 shares of common stock. Subsequent to the 1998
Reorganization, the third-party loan was repaid with the proceeds of a loan from
Finger Lakes Financial. The loan to the ESOP, which bears interest at a fixed
rate of 7.75% per annum, will be repaid principally from Finger Lakes
Financial's contributions to the ESOP over ten years. Finger Lakes Financial
may, in any years, make additional discretionary contributions for the benefit
of plan participants in either cash or shares of common stock (which may be
newly issued or acquired by the purchase of outstanding shares). Such purchases,
if made, may be funded through additional borrowing by the ESOP or additional
contributions from Finger Lakes Financial. 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.
The shares purchased by the ESOP with the proceeds of the loan are held in
a suspense account and released on a pro rata basis as debt service payments are
made. Discretionary contributions to the ESOP, and the release of shares from
the suspense account, are allocated among participants on the basis of
compensation. Forfeitures are reallocated among remaining participants and may
reduce any amount Finger Lakes Financial might otherwise have contributed to the
ESOP. Allocations may be paid out to a participant, either in shares of common
stock or in cash, upon retirement, early retirement or separation from service.
Finger Lake Financial's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated. Recipients of shares paid out under
the ESOP must give Finger Lakes Financial a right of first refusal when selling
the shares so acquired.
The trustees under the ESOP must vote all allocated shares held in the ESOP
in accordance with the instructions of the participating employees, and
unallocated shares, as well as allocated shares for which employees do not give
instructions, must be voted in the same ratio as the shares for which
instructions are given. The ESOP is subject to the Employee Retirement Income
Security Act of 1974, as amended, as well as the regulations of the Internal
Revenue Service and the Department of Labor.
Employment Agreements
During 1999, Mr. Bowers was compensated for his services as President,
Chief Executive Officer and a director of Finger Lakes Financial pursuant to an
employment agreement with Finger Lakes Financial dated January 26, 1995 (the
"Employment Agreement"). The Employment Agreement provides for an annual base
salary, subject
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to increases in the sole discretion of Finger Lakes Financial, and customary
fringe benefits. As an annual incentive, the Employment agreements also provides
for the payment, in the sole discretion of the Board of Directors, of an annual
bonus. In 1999, Mr. Bowers received a bonus of $20,947.
The Employment Agreement may be terminated by either Mr. Bowers or Finger
Lakes Financial at any time upon ten days' notice. However, if Finger Lakes
Financial terminated the Employment Agreement without cause or fails to comply
with any material provision thereof, or if Mr. Bowers terminates the Employment
Agreement for good reason, Mr. Bowers will be entitled to severance pay
amounting to 2.99 times the average annual compensation paid him during the last
five years of his employment by Finger Lakes Financial. In addition, Mr. Bowers
may continue to participate in employee benefit plans of Finger Lakes Financial
(other than retirement and stock compensation plans) for three years following
his termination.
Pursuant to the Employment Agreement, Mr. Bowers is also the beneficiary of
a non-qualified, unfunded Supplemental Retirement Agreement with Finger Lakes
Financial dated February 28, 1995 and amended June 22, 1998 (the "Retirement
Agreement"), which provides that, upon his reaching age 62, Finger Lakes
Financial will pay Mr. Bowers or his surviving spouse $30,000 per year for 20
years (or, upon their earlier deaths, a lump sum payment to their estates),
subject to a downward adjustment equal to 6% of the total cash value in all
policies subject to any split dollar agreement in effect as of Mr. Bower's 62nd
birthday. Such payments will be provided in part by premiums paid under an
insurance policy on Mr. Bower's life maintained for Finger Lakes Financial's
benefit. The Retirement Agreement vests at the rate of 20% per year on June 30
of each year. The Retirement Agreements is currently 80% vested, and would pay
Mr. Bowers, were his employment to terminate currently, $24,000 per year upon
his reaching age 62.
Benefits to be considered following completion of the Conversion
2001 Stock Option Plan. We intend to submit for shareholder approval, no
earlier than six months after the completion of the conversion, the 2001 stock
option plan for directors and officers of the Savings Bank of the Finger Lakes
and of Finger Lakes Bancorp. If approved by the shareholders, the 2001 stock
option plan will reserve 10% of the shares sold in the offering to be issued
when options granted to officers and directors are exercised. Ten percent of the
shares issued in the offering would amount to 156,886 shares, 184,564 shares,
212,254 shares or 244,094 shares at the minimum, mid-point, maximum and adjusted
maximum of the offering range, respectively. No options would be granted under
the 2001 stock option plan until the date on which shareholder approval is
received.
The exercise price of the options granted under the 2001 stock option plan
will be equal to the fair market value of the shares on the date of grant of the
stock options. If the 2001 stock option plan is adopted within one year
following the offering, options will vest at a rate of 20% at the end of each 12
months of service with the Savings Bank of the Finger Lakes after the date of
grant. Options granted under the 2001 stock option plan would be adjusted for
capital changes such as stock splits and stock dividends. Awards will be 100%
vested upon termination of employment due to death or disability, and if the
2001 stock option plan is adopted more than one year after the conversion,
awards would be 100% vested upon normal retirement or a change in control of the
Savings Bank of the Finger Lakes or the Finger Lakes Bancorp. Under OTS rules,
if the 2001 stock option plan is adopted within one year of the conversion, no
individual officer may receive more than 25% of the awards under the plan, no
non- employee director may receive more than 5% of the awards under the plan,
and all non-employee directors as a group can receive no more than 30% of the
awards under the plan in the aggregate.
The 2001 stock option plan would be administered by a committee of
non-employee members of the Finger Lakes Bancorp's board of directors. Options
granted under the 2001 stock option plan to employees may be "incentive" stock
options, designed to result in a beneficial tax treatment to the employee but no
tax deduction to Finger Lakes Bancorp. Non-qualified stock options may also be
granted to employees under the 2001 stock option plan, and will be granted to
the non-employee directors who receive stock options. In the event an option
recipient terminated his employment or service as an employee or director, the
options would terminate during certain specified periods.
2001 Recognition Plan. We also intend to submit for shareholder approval,
no earlier than six months after the completion of the conversion, the 2001
recognition plan. The 2001 recognition plan is designed to encourage directors
and officers to continue their service with the Savings Bank of the Finger Lakes
by giving them an
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ownership interest in the Finger Lakes Bancorp. If approved by shareholders, the
2001 recognition plan will reserve 4% of the shares sold in the offering or
62,754 shares, 73,825 shares, 84,901 or 97,637 shares at the minimum, midpoint,
maximum and adjusted maximum of the offering range, respectively. In the event
the 2001 recognition plan is adopted more than one year following the completion
of the conversion, it would reserve up to 5% of the shares sold in the offering
for awards to officers and directors. The officers and directors will be awarded
common stock under the 2001 recognition plan without having to pay cash for the
shares. No awards would be made under the 2001 recognition plan until the date
on which shareholder approval is received.
Awards under the 2001 recognition plan would be nontransferable and
nonassignable, and during the lifetime of the recipient could only be earned by
him. Under OTS rules, if the 2001 recognition plan is adopted within one year
following the conversion, the shares which are subject to an award would vest at
a rate of 20% at the end of each full 12 months of service with the Savings Bank
of the Finger Lakes after the date of grant of the award. Awards would be
adjusted for capital changes such as stock dividends and stock splits. Awards
would be 100% vested upon termination of employment or service due to death or
disability, and if the 2001 recognition plan is adopted more than one year after
the conversion, awards would be 100% vested upon normal retirement or a change
in control of the Savings Bank of the Finger Lakes or the Finger Lakes Bancorp.
If employment or service were to terminate for other reasons, the award
recipient would forfeit any nonvested award. If employment or service is
terminated for cause (as defined in the 2001 recognition plan ), shares not
already delivered would be forfeited. Under OTS rules, if the 2001 recognition
plan is adopted within one year of the conversion, no individual officer may
receive more than 25% of the awards under the plan, no non-employee director may
receive more than 5% of the awards under the plan, and all non-employee
directors as a group may receive no more than 30% of the awards under the plan
in the aggregate.
The recipient of an award will recognize income equal to the fair market
value of the stock earned, determined as of the date of vesting, unless the
recipient makes an election under ss. 83(b) of the Code to be taxed earlier. The
amount of income recognized by the recipient would be a deductible expense for
tax purposes for the Finger Lakes Bancorp. If the 2001 recognition plan is
adopted within one year following the conversion, dividends and other earnings
will accrue and be payable to the award recipient when the shares vest. If the
2001 recognition plan is adopted within one year following the conversion,
shares not yet vested will be voted by the trustee of the 2001 recognition plan,
taking into account the best interests of the award recipients. If the 2001
recognition plan is adopted more than one year following the conversion,
dividends declared on unvested shares will be distributed to the recipient when
paid, and the recipient will be entitled to vote the unvested shares.
Employment Agreements. Upon completion of the offering, Finger Lakes
Bancorp intends to enter into an employment agreements with G. Thomas Bowers,
President and Chief Executive Officer and Terry L. Hammond, Executive Vice
President and Chief Financial Officer. The agreements will have a term of 36
months. On each anniversary date, the agreements may be extended for an
additional twelve months, so that the remaining term is 36 months. If an
agreement is not renewed, the agreement will expire 36 months following the
anniversary date. Under the agreement, the current base salary for G. Thomas
Bowers will be $____________ and for Terry L. Hammond, $______________. The base
salary may be increased but not decreased. In addition to the base salary, the
agreements provide for, among other things, participation in retirement plans
and other employee and fringe benefits. The agreements permit termination for
cause at any time. In the event of termination for reasons other than for cause,
or in the event the executive resigns because he has not been re-elected to his
current offices, there has been a material change in his functions, duties or
responsibilities, a relocation of his principal place of employment by more than
30 miles, a liquidation or dissolution of Savings Bank of the Finger Lakes, a
breach of the agreement by Finger Lakes Bancorp, or following a change in
control of Savings Bank of the Finger Lakes or Finger Lakes Bancorp, the
executive would be entitled to cash and/or benefits up to three times his
average annual compensation during the preceding three-year period. The
executive would also receive continued life, health, dental and disability
coverage for 36 months from the date of termination. If the payments to the
executive would include an "excess parachute payment" as defined by Internal
Revenue Code Section 280G, the payments would be reduced by the amount necessary
in order to avoid having an excess parachute payment.
At retirement, the executives will be entitled to all benefits available
under any retirement or other benefit plan maintained by Savings Bank of the
Finger Lakes. If an executive is disabled for a period of six months, Finger
Lakes Bancorp may terminate the agreement but must pay him his base salary for
the remaining term of the agreement or one year, whichever is longer, reduced by
any benefits paid under any disability insurance policy or similar arrangement.
If the executive dies, his beneficiaries will receive his base salary for one
year following his
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death and will also receive continued medical, dental, and other benefits for
one year. If the executive is terminated for reasons unrelated to a change in
control, the executive will not compete with Savings Bank of the Finger Lakes
for one year.
BENEFICIAL OWNERSHIP OF COMMON STOCK
Beneficial Ownership of Finger Lakes Financial Common Stock as of December 31,
1999.
<TABLE>
<CAPTION>
Number of Shares Percent of All Percent of
Name of of Common Stock Common Stock Publicly Held
Beneficial Owner Beneficially Owned(1) Outstanding(1) Common Stock(2)
---------------- --------------------- -------------- ---------------
<S> <C> <C> <C>
G. Thomas Bowers(3) 85,865 2.4% 7.3%
Michael J. Hanna(4) 200 0.0% 0.0%
Chris M. Hansen(5) 9,083 0.3% 0.8%
Richard J. Harrison 7,158 0.2% 0.6%
James E. Hunter 3,008 0.1% 0.3%
Ronald C. Long(6) 8,640 0.2% 0.7%
Bernard G. Lynch 7,250 0.2% 0.6%
Arthur W. Pearce 5,000 0.1% 0.4%
Joan C. Rogers 5,100 0.1% 0.4%
Terry L. Hammond(7) 27,145 0.8% 2.3%
Thomas A. Mayfield(8) 21,702 0.6% 1.8%
Leslie J. Zornow(9) 9,067 0.3% 0.8%
All directors and executive officers
as a group (12 persons) 189,218 5.3% 16.0%
</TABLE>
- ----------
(1) Based on 3,570,000 shares outstanding.
(2) Based on 1,180,052 shares held by persons other than Finger Lakes Financial
Corp., MHC.
(3) Includes (i) 4,000 shares owned by Mr. Bowers' wife; (ii) 3,790 shares held
in the 401(k) plan for Mr. Bowers' account; (iii) presently exercisable
options to purchase 17,700 shares; and (iv) 4,094 shares held in the ESOP
for Mr. Bowers' account, as to which shares he only indirect voting power
only. See "Executive Compensation" below.
(4) Shares held jointly by Mr. Hanna and his daughter.
(5) Includes 3,980 shares held in a benefit plan of C.M. Hansen Farms, Inc., of
which Mr. Hansen is a trustee and beneficiary.
(6) Included 1,289 shares owned by Mr. Long's wife.
(7) Includes (i) 8,421 shares held in the 401(k) Plan for Mr. Hammond's
account, as to which shares he has investment power only; (ii) 333 shares
which will vest within 60 days under the 1996 Management Recognition Plan;
(iii) presently exercisable options to purchase 12,320 shares; and (iv)
4,650 shares held in the ESOP for Mr. Hammond's account, as to which shares
he had indirect voting power only. See "Executive Compensation" below.
(8) Includes (i) 2,085 shares held in the 401(k) Plan for Mr. Mayfield's
account, as to which shares he has investment power only; (ii) 333 shares
which will vest within 60 days under the 1996 Management Recognition Plan;
(iii) presently exercisable options to purchase 11,160 shares; and (iv)
1,389 shares held in the ESOP for Mr. Mayfield's account, as to which
shares he has indirect voting power only. See "Executive Compensation"
below.
(9) Includes (i) 185 shares held in the 401(k) Plan for Ms. Zornow's account,
as to which shares she has investment power only; (ii) 200 shares which
will vest within 60 days under the 1996 Management Recognition Plan; (iii)
presently exercisable options to purchase 5,340 shares; and (iv) 1,442
shares held in the ESOP for Ms. Zornow's account, as to which shares she
has indirect voting power only. See "Executive Compensation" below.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth, for each of Finger Lakes Bancorp's Directors
and executive officers and for all of the Directors and executive officers as a
group, the following information:
(1) the number of exchange shares to be held upon consummation of the
conversion, based upon their beneficial ownership of Finger Lakes Financial
common stock as of December 31, 1999;
(2) the proposed purchases of subscription shares, assuming sufficient
shares are available to satisfy their subscriptions; and
(3) the total amount of Finger Lakes Bancorp common stock to be held upon
consummation of the conversion.
In each case, it is assumed that subscription shares are sold at the midpoint of
the offering range. Because of limitations on the purchase of subscription
shares, directors and executive officers may be precluded from
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purchasing subscription shares if the offering is sold at the maximum or the
maximum, as adjusted, of the offering range. See "The Conversion--Limitations on
Common Stock Purchases."
<TABLE>
<CAPTION>
Proposed Purchases of Total Common Stock
Number of Conversion Stock(1) To Be Held
Exchange Shares ----------------------------- ------------------------------------------
to be Held(2)(3) Number of Shares Amount Number of Shares Percentage of Total
---------------- ---------------- ------ ---------------- -------------------
<S> <C> <C> <C> <C> <C>
G. Thomas Bowers $250,000
Michael J. Hanna 1,000
Chris M. Hansen 10,000
Richard J. Harrison 25,000
James E. Hunter 20,000
Ronald C. Long 18,000
Bernard G. Lynch 75,000
Arthur W. Pearce 50,000
Joan C. Rogers 10,000
Terry L. Hammond 25,000
Thomas A. Mayfield 50,000
Leslie J. Zornow 10,000
</TABLE>
- ----------
(1) Includes proposed subscriptions, if any, by associates. Does not include
the subscription order by the Employee Stock Ownership Plan. Purchases by
the Employee Stock Ownership Plan are expected to be 8% of the shares
issued in the offering.
(2) Includes shares underlying options that may be exercised within 60 days of
the date as of which ownership is being determined, and vested shares of
restricted stock. See "Beneficial Ownership of Common Stock."
(3) Does not include stock options and awards that may be granted under Finger
Lakes Bancorp's 2001 Stock Option Plan and 2001 Recognition Plan if these
plans are approved by stockholders at an annual meeting or special meeting
of shareholders at least six months following the conversion. See
"Management of Finger Lakes Financial--Benefits."
THE CONVERSION
The Board of Directors of Finger Lakes Financial and Finger Lakes Financial
Corp., MHC and the Office of Thrift Supervision have approved the plan of
conversion, subject to approval by the members of Finger Lakes Financial Corp.,
MHC entitled to vote on the matter, the stockholders of Finger Lakes Financial
entitled to vote on the matter and the satisfaction of other conditions. Office
of Thrift Supervision approval, however, does not constitute a recommendation or
endorsement of the Plan by that agency.
General
On January 31, 2000, the Board of Directors of Finger Lakes Financial
Corp., MHC adopted the plan of conversion, pursuant to which Finger Lakes
Financial Corp., MHC will be converted from a federally-chartered mutual holding
company to a Delaware stock corporation to be named "Finger Lakes Bancorp." It
is currently intended that all of the capital stock of Savings Bank of the
Finger Lakes be held by Finger Lakes Bancorp after the conversion. The plan of
conversion was approved by the Office of Thrift Supervision, subject to, among
other things, approval of the plan of conversion by Finger Lakes Financial
Corp., MHC's members and the stockholders of Finger Lakes Financial. The special
meeting of members and the special meeting of stockholders have been called for
this purpose.
As part of the conversion, each of the minority shares will automatically,
without further action by their holders, be converted into and become a right to
receive a number of shares of Finger Lakes Bancorp common stock determined
pursuant to the exchange ratio, which ensures that immediately after the
conversion and the share exchange, the public shareholders of Finger Lakes
Financial common stock will own the same aggregate percentage of Finger Lakes
Bancorp common stock as they owned of Finger Lakes Financial's common stock
immediately prior to the conversion, with adjustments discussed below. Pursuant
to the plan of conversion, the conversion will be effected as follows or in any
other manner that is consistent with applicable federal law and regulations and
the intent of the plan of conversion. Except for step (1) each of the following
steps in the conversion will be completed contemporaneously on the effective
date:
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(1) Savings Bank of the Finger Lakes will organize Finger Lakes Bancorp as
a direct subsidiary of Savings Bank of the Finger Lakes;
(2) Finger Lakes Bancorp will organize an interim savings bank (the
"Interim Savings Bank") as a wholly-owned federal stock savings bank subsidiary
of Finger Lakes Bancorp;
(3) Finger Lakes Financial Corp., MHC will merge with and into Finger Lakes
Financial pursuant to the Agreement of Merger between Finger Lakes Financial
Corp., MHC and Finger Lakes Financial. Each Eligible Account Holder and
Supplemental Eligible Account Holder will receive an interest in the liquidation
account established in Finger Lakes Financial pursuant to regulations of the
Office of Thrift Supervision in exchange for such member's ownership interest in
Finger Lakes Financial Corp., MHC, and Finger Lakes Financial's common stock
held by Finger Lakes Financial Corp., MHC will be canceled;
(4) Finger Lakes Financial will convert into or exchange its charter for an
interim federal stock savings bank and will merge with and into Savings Bank of
the Finger Lakes (the "Mid-Tier Merger") with Savings Bank of the Finger Lakes
as the resulting entity pursuant to the Agreement of Merger between Finger Lakes
Financial and Savings Bank of the Finger Lakes, whereby (i) Finger Lakes
Financial stockholders other than the mutual holding company will constructively
receive shares of Savings Bank of the Finger Lakes common stock in exchange for
their Mid-Tier Holding Company common stock and (ii) each Eligible Account
Holder and Supplemental Eligible Account Holder will receive an interest in a
Liquidation Account of Savings Bank of the Finger Lakes in exchange for such
person's interest in Finger Lakes Financial.
(5) Contemporaneously with the Mid-Tier Merger, Interim will merge with and
into Savings Bank of the Finger Lakes with Savings Bank of the Finger Lakes as
the surviving entity (the "Bank Merger") pursuant to the Agreement of Merger
between Savings Bank of the Finger Lakes and Interim. Constructive shareholders
of Savings Bank of the Finger Lakes (i.e., minority stockholders immediately
prior to the conversion) will exchange the shares of Bank common stock that they
constructively received in the Mid-Tier Merger for Finger Lakes Bancorp common
stock.
(6) Contemporaneously with the Bank Merger, Finger Lakes Bancorp will sell
the subscription shares in the offering.
Finger Lakes Bancorp expects to receive the approval of the Office of
Thrift Supervision to become a savings and loan holding company and to own all
of the common stock of Savings Bank of the Finger Lakes. Finger Lakes Bancorp
intends to retain $____ million of the net proceeds of the offering and to
contribute the balance of the net proceeds of the offering to Savings Bank of
the Finger Lakes. The conversion will be effected only upon completion of the
sale of all of the shares of common stock of Finger Lakes Bancorp to be issued
pursuant to the plan of conversion.
The plan of conversion provides generally that Finger Lakes Bancorp will
offer shares of common stock for sale in the subscription offering to Eligible
Account Holders, Finger Lakes Financial's tax-qualified plans including the
employee stock ownership plan, supplemental eligible account holders and other
members. Subject to the prior rights of these holders of subscription rights,
Finger Lakes Bancorp will offer common stock for sale in a concurrent community
offering to members of the general public, with a preference given to the public
shareholders of Finger Lakes Financial common stock, and then to persons
residing in Savings Bank of the Finger Lakes' community. Finger Lakes Bancorp
has the right to accept or reject, in whole or in part, any orders to purchase
shares of the common stock received in the community offering. The community
offering must be completed within 45 days after the completion of the
subscription offering unless otherwise extended by the Office of Thrift
Supervision. See "--Community Offering."
The number of shares of common stock to be issued in the offering will be
determined based upon an independent appraisal of the estimated pro forma market
value of the common stock of Finger Lakes Bancorp. All shares of common stock to
be issued and sold in the offering will be sold at the same price. The
independent valuation will be updated and the final number of the shares to be
issued in the offering will be determined at the completion of the offering. See
"--Stock Pricing and Number of Shares to be Issued" for more information as to
the determination of the estimated pro forma market value of the common stock.
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<PAGE>
The appraisal was prepared pursuant to written guidelines promulgated by
the Office of Thrift Supervision. The Office of Thrift Supervision appraisal
guidelines specify the market value approach, including:
(1) selection of a peer group of publicly traded institutions that share
characteristics with the company;
(2) analysis of the company's financial condition, operating results and
other financial and nonfinancial characteristics in comparison to the peer
group; and
(3) application of certain market value ratios of the peer group to the
company.
The appraisal considered the pro forma impacts of the offering. Consistent
with the Office of Thrift Supervision appraisal guidelines, the appraisal
applied three primary methodologies: the pro forma price-to-book value approach
applied to both reported book value and tangible book value; the pro forma
price-to-earnings approach applied to reported and core earnings; and the pro
forma price-to-asset approach. The market value ratios applied in the three
methodologies were based upon the current market valuations of the peer group
companies, subject to valuation adjustments applied by FinPro to account for
differences between Finger Lakes Bancorp and the peer group. FinPro applied a
slight downward adjustment in the valuation for balance sheet strength. The
adjustment for balance sheet strength was based upon Savings Bank of the Finger
Lakes' lower loan levels, slower growth rates and interest rate risk position
which were partially mitigated by the Savings Bank of the Finger Lakes' expected
post conversion capital levels, which is expected to improve the interest rate
risk position and fund future growth. The valuation was adjusted downward for
Savings Bank of the Finger Lakes' earnings quality, predictability and growth
based upon Savings Bank of the Finger Lakes' lower return on average assets and
lower return on average equity relative to the Comparable Group, among other
things. FinPro also adjusted the market value slightly downward relative to the
Comparable Group, citing that the Savings Bank of the Finger Lakes' will need
time to properly invest the proceeds raised in the conversion. Furthermore,
FinPro adjusted the market value downward based upon the weakness of pricing
multiples of thrifts that performed a second step conversion relative to the
overall thrift market and due to the weak subscription interest experienced in
recent second step conversions. FinPro did not adjust the market value for
market area, management, dividends, liquidity of the issue, recent regulatory
matters or the acquisition market. At the midpoint, based on the valuation
adjustments applied in the appraisal, the pro forma value of Finger Lakes
Bancorp was at a discount to the peer group averages as measured by
price-to-book ratios, price-to-earnings multiples and price-to-asset ratios.
The following is a brief summary of the conversion. The summary is
qualified in its entirety by reference to the provisions of the plan of
conversion. A copy of the plan of conversion is available for inspection at each
branch of Savings Bank of the Finger Lakes and at the Northeast Regional and
Washington, D.C. offices of the Office of Thrift Supervision. The plan of
conversion is also filed as an exhibit to the application to convert from mutual
to stock form of which this prospectus is a part, copies of which may be
obtained from the Office of Thrift Supervision. See "Additional Information."
Purposes of Conversion
The Finger Lakes Financial Corp., MHC, as a federally-chartered mutual
holding company, does not have stockholders and has no authority to issue
capital stock. As a result of the conversion, the Finger Lakes Financial Corp.,
MHC will be restructured into the form used by holding companies of commercial
banks, many business entities and a growing number of savings institutions. An
important distinction between the mutual holding company form of organization
and the fully public form is that, by federal law, a mutual holding company must
always own over 50.1% of the common stock of its savings institution subsidiary.
Only a minority of the subsidiary's outstanding stock can be sold to investors.
If Savings Bank of the Finger Lakes had undertaken a full conversion to public
ownership in 1994, a much greater amount of Finger Lakes Financial common stock
would have been offered, resulting in more stock offering proceeds than
management believes could have been effectively deployed at that time. High
levels of capital might, in the opinion of management, have exceeded the
available opportunities in Savings Bank of the Finger Lakes' market area in
1994. Management determined, therefore, that the amount of capital raised in the
1994 mutual holding company reorganization was consistent with its capabilities
and loan demand in its market at that time.
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<PAGE>
Through the conversion, Finger Lakes Bancorp will become the stock holding
company of Savings Bank of the Finger Lakes, which will complete the transition
to full public ownership. The stock holding company form of organization will
provide Finger Lakes Bancorp with the ability to diversify Finger Lakes Bancorp
and Savings Bank of the Finger Lakes' business activities through the
acquisition of or mergers with both stock savings institutions and commercial
banks, as well as other companies.
The potential impact of the conversion upon Savings Bank of the Finger
Lakes' capital base is significant. Savings Bank of the Finger Lakes had equity
in accordance with generally accepted accounting principles of $19.2 million, or
6.38% of assets at December 31, 1999. Assuming that $12.9 million, the mid-point
of the $11.0 million to $14.9 million offering range established by the Board of
Directors based on the estimated pro forma market value of the common stock, of
gross proceeds are realized from the sale of common stock, and assuming that all
except $5.1 million of the net proceeds are contributed to Savings Bank of the
Finger Lakes as additional capital, Savings Bank of the Finger Lakes' ratio of
capital to adjusted assets, calculated under generally accepted accounting
principles, will increase to 8.29%. The investment of the net proceeds from the
sale of the common stock will provide Savings Bank of the Finger Lakes with
additional income to further increase its capital position. The additional
capital may also assist Savings Bank of the Finger Lakes in offering new
programs and expanded services to its customers.
After completion of the conversion and depending on market conditions, the
unissued common and preferred stock authorized by Finger Lakes Bancorp's
certificate of incorporation will permit Finger Lakes Bancorp to raise
additional equity capital through further sales of securities, and to issue
securities in connection with possible acquisitions. At the present time, Finger
Lakes Bancorp has no plans with respect to additional offerings of securities,
other than the issuance of additional shares upon exercise of stock options or
the possible issuance of authorized but unissued shares to Finger Lakes
Bancorp's stock benefit programs.
Approvals Required
The affirmative vote of a majority of the total eligible votes of the
members of Finger Lakes Financial Corp., MHC at the special meeting of members
is required to approve the plan of conversion. By their approval of the plan of
conversion, the members of Finger Lakes Financial Corp., MHC will also be deemed
to approve the merger of Finger Lakes Financial Corp., MHC into Finger Lakes
Financial and the merger of the Interim Savings Bank into Savings Bank of the
Finger Lakes. The affirmative vote of the holders of at least two-thirds of the
outstanding common stock of Finger Lakes Financial and a majority of the
publicly-held shares of Finger Lakes Financial common stock voted at the special
meeting of stockholders is required to approve the plan of conversion. The
conversion must also be approved by the Office of Thrift Supervision.
Share Exchange Ratio
Office of Thrift Supervision regulations provide that in a conversion of a
mutual holding company to stock form, the minority stockholders will be entitled
to exchange their shares of subsidiary savings bank common stock for common
stock of the converted holding company, provided that the bank and the mutual
holding company demonstrate to the satisfaction of the Office of Thrift
Supervision that the basis for the exchange is fair and reasonable. The Boards
of Directors of Finger Lakes Financial and of Finger Lakes Bancorp have
determined that each publicly-held share of Finger Lakes Financial common stock
will on the effective date of the conversion be automatically converted into and
become the right to receive a number of exchange shares determined pursuant to
the exchange ratio. We are not required to adjust the share exchange ratio to
reflect the waiver of dividends by Finger Lakes Financial Corp., MHC.
Consequently, the public stockholders of Finger Lakes Financial common stock
will own the same percentage of common stock. Finger Lakes Bancorp after the
conversion as they hold in Finger Lakes Financial, subject to additional
purchase, or the receipt of cash in lieu of fractional shares. The total number
of shares held by the public shareholders of Finger Lakes Financial common stock
after the conversion also would be affected by any purchases by these persons in
the offering and by the receipt of cash in lieu of fractional shares. At
December 31, 1999, there were 3,570,000 shares of Finger Lakes Financial common
stock outstanding, 1,180,052, or 33.1%, of which were publicly held. Based on
the percentage of Finger Lakes Financial common stock held by the public and the
offering range, the exchange ratio is expected to range from approximately
0.6564 exchange shares for each publicly-held share of Finger Lakes Financial at
the minimum of the offering range to 1.0213 exchange shares for each
publicly-held share of Finger Lakes Financial at the adjusted maximum of the
offering range.
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<PAGE>
Based on the independent valuation, the 66.9% of the outstanding shares of
Finger Lakes Financial common stock held by Finger Lakes Financial Corp., MHC as
of the date of the independent valuation, and Finger Lakes Financial Corp., the
following table sets forth, at the minimum, midpoint, maximum, and adjusted
maximum of the Offering Range: (1) the total number of subscription shares and
exchange shares to be issued in the conversion; (2) the percentage of common
stock outstanding after the conversion that will be sold in the offering and
issued in the share exchange; and (3) the exchange ratio.
<TABLE>
<CAPTION>
Shares to be exchanged Total shares 100 shares of
Shares to be sold for Finger Lakes Bancorp of Finger Lakes
in this offering common stock common stock Financial
------------------------- ------------------------ to be Exchange would be
Amount Percent Amount Percent outstanding ratio exchanged for
----------- ----------- ----------- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Minimum............. 1,568,863 66.9% 774,587 33.1% 2,343,450 0.6564 65.64
Midpoint............ 1,845,645 66.9% 911,355 33.1% 2,757,000 0.7723 77.23
Maximum............. 2,122,545 66.9% 1,048,005 33.1% 3,170,550 0.8881 88.81
15% above maximum... 2,440,945 66.9% 1,205,188 33.1% 3,646,133 1.0213 102.13
</TABLE>
Options to purchase shares of Finger Lakes Financial common stock also will
be converted into and become options to purchase Finger Lakes Bancorp common
stock. At December 31, 1999, there were outstanding options to purchase 109,000
shares of Finger Lakes Financial common stock. The number of shares of common
stock to be received upon exercise of these options will be determined pursuant
to the exchange ratio. The aggregate exercise price, duration, and vesting
schedule of these options will not be affected. At December 31, 1999, options to
purchase 58,400 shares were vested. If all of these options to purchase shares
of Finger Lakes Financial common stock are exercised prior to the effective
date, then there will be:
(1) an increase in the percentage of Finger Lakes Financial common stock
held by the public shareholders of Finger Lakes Financial common stock to 34.1%;
(2) an increase in the number of shares of common stock issued to the
public shareholders of Finger Lakes Financial common stock in the share
exchange; and
(3) a decrease in the exchange ratio to .6414, .7546, .8678, and .9980 at
the minimum, midpoint, maximum and adjusted maximum, respectively, of the
offering range.
Executive officers and directors of Finger Lakes Financial do not intend to
exercise options prior to the effective date. Finger Lakes Financial has no
plans to grant additional stock options prior to the effective date.
Effect of the Conversion on Minority Stockholders
Effect on Stockholders' Equity per Share of the Shares Exchanged. The
conversion will increase the stockholders' equity of the public shareholders of
Finger Lakes Financial common stock. At December 31, 1999, the stockholders'
equity per share of Finger Lakes Financial common stock was $5.43, including
shares held by Finger Lakes Financial Corp., MHC. As adjusted at that date for
the exchange ratio, stockholders' equity per share would be $8.27, $7.03, $6.11
and $5.31 at the minimum, midpoint, maximum, and adjusted maximum, of the
offering range. Based on the pro forma information set forth for December 31,
1999, in "Pro Forma Data," pro forma stockholders' equity per share following
the conversion will be $12.07, $10.87, $9.99, and $9.23 at the minimum,
midpoint, maximum and adjusted maximum, respectively, of the offering range.
Effect on Earnings per Share of the Shares Exchanged. The conversion will
also affect the public shareholders of Finger Lakes Financial common stock pro
forma earnings per share. For the year ended December 31, 1999, basic earnings
per share of Finger Lakes Financial common stock was $0.37, respectively,
including shares held by Finger Lakes Financial Corp., MHC. As adjusted at these
dates for the exchange ratio, such earnings per share amounts would range from
$0.55 to $0.41, respectively, for the minimum to the adjusted maximum of the
offering range. Based on the pro forma information set forth for the fiscal year
ended December
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31, 1999 in "Pro Forma Data", earnings per share of common stock following the
conversion will range from $0.70 to $0.49, respectively, for the minimum to the
adjusted maximum of the offering range.
Effect on the Market and Appraised Value of the Shares Exchanged. The
aggregate subscription price of the shares of common stock received in exchange
for the publicly-held shares of Finger Lakes Financial common stock is $5.4
million, $6.4 million, $7.3 million, and $8.4 million at the minimum, midpoint,
maximum and adjusted maximum, respectively, of the offering range. The last
trade of Finger Lakes Financial common stock on January 31, 2000, the last
trading day preceding the announcement of the conversion, was $7.50 per share,
and the price at which Finger Lakes Financial common stock last traded on
________________, was $_____ per share.
Dissenters' and Appraisal Rights. Under Office of Thrift Supervision
regulations, the public shareholders of Finger Lakes Financial common stock will
not have dissenters' rights or appraisal rights in connection with the exchange
of publicly-held shares of Finger Lakes Financial common stock for shares of
common stock of Finger Lakes Bancorp.
Effects of Conversion on Depositors, Borrowers and Members
General. Each depositor in Savings Bank of the Finger Lakes has both a
deposit account in Savings Bank of the Finger Lakes and a pro rata ownership
interest in the net worth of Finger Lakes Financial Corp., MHC based upon the
balance in his or her account. This interest may only be realized in the event
of a liquidation of Finger Lakes Financial Corp., MHC and Savings Bank of the
Finger Lakes. However, this ownership interest is tied to the depositor's
account and has no tangible market value separate from the deposit account. Any
depositor who opens a deposit account obtains a pro rata ownership interest in
Finger Lakes Financial Corp., MHC without any additional payment beyond the
amount of the deposit. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of Finger Lakes Financial Corp., MHC, which is lost to
the extent that the balance in the account is reduced or closed.
Consequently, depositors in a stock subsidiary of a mutual holding company
normally have no way of realizing the value of their ownership interest, which
has realizable value only in the unlikely event that Finger Lakes Financial
Corp., MHC and Savings Bank of the Finger Lakes are liquidated. If this occurs,
the depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves of Finger Lakes Financial Corp., MHC after other
claims, including claims of depositors to the amounts of their deposits, are
paid.
When a mutual holding company converts to stock form, permanent
nonwithdrawable capital stock is created in the stock holding company to
represent the ownership of the subsidiary institution's net worth. The common
stock is separate and apart from deposit accounts and cannot be and is not
insured by the Federal Deposit Insurance Corporation or any other governmental
agency. Certificates are issued to evidence ownership of the capital stock. The
stock certificates are transferable, and therefore the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in Savings Bank of the Finger Lakes.
Continuity. While the conversion is being accomplished, the normal business
of Savings Bank of the Finger Lakes of accepting deposits and making loans will
continue without interruption. Savings Bank of the Finger Lakes will continue to
be regulated by the Office of Thrift Supervision and the Federal Deposit
Insurance Corporation. After the conversion, Savings Bank of the Finger Lakes
will continue to provide services for depositors and borrowers under current
policies by its present management and staff. The Directors serving Finger Lakes
Financial at the time of the conversion will serve as Directors of Finger Lakes
Bancorp after the conversion. The Directors of Finger Lakes Bancorp will consist
of individuals currently serving on the Board of Directors of Finger Lakes
Financial.
Effect on Deposit Accounts. Under the plan of conversion, each depositor in
Savings Bank of the Finger Lakes at the time of the conversion will
automatically continue as a depositor after the conversion, and each of the
deposit accounts will remain the same with respect to deposit balance, interest
rate and other terms. Each such account will be insured by the Federal Deposit
Insurance Corporation to the same extent as before the conversion. Depositors
will continue to hold their existing certificates, passbooks and other evidences
of their accounts.
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<PAGE>
Effect on Loans. No loan outstanding from Savings Bank of the Finger Lakes
will be affected by the conversion, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
conversion.
Effect on Voting Rights of Members. At present, all depositors of Savings
Bank of the Finger Lakes are members of, and have voting rights in, Finger Lakes
Financial Corp., MHC as to all matters requiring membership action. Upon
completion of the conversion, depositors and borrowers will cease to be members
of Finger Lakes Financial Corp., MHC and will no longer be entitled to vote at
meetings of Finger Lakes Financial Corp., MHC. Upon completion of the
conversion, all voting rights in Savings Bank of the Finger Lakes will be vested
in Finger Lakes Bancorp as the sole shareholder of Savings Bank of the Finger
Lakes. Exclusive voting rights with respect to Finger Lakes Bancorp will be
vested in the holders of common stock. Depositors of Savings Bank of the Finger
Lakes will not have voting rights after the conversion except to the extent that
they become stockholders of Finger Lakes Bancorp through the purchase of common
stock.
Tax Effects. Finger Lakes Financial will receive an opinion of counsel or
tax advisor with regard to federal and state income taxation to the effect that
the adoption and implementation of the plan of conversion will not be taxable
for federal or state income tax purposes to Finger Lakes Financial, Finger Lakes
Financial Corp., MHC the minority stockholders, the Interim Savings Bank,
members of Finger Lakes Financial Corp., MHC, eligible account holders or
Savings Bank of the Finger Lakes. See "--Tax Aspects."
Effect on Liquidation Rights. If Savings Bank of the Finger Lakes were to
liquidate prior to the conversion, all claims of creditors of Savings Bank of
the Finger Lakes, including those of depositors to the extent of their deposit
balances, would be paid first. Thereafter, if there were any assets of Savings
Bank of the Finger Lakes remaining, these assets would be distributed to Finger
Lakes Financial Corp., MHC, to the extent of its stock ownership interest in
Finger Lakes Financial. Were Finger Lakes Financial Corp., MHC to liquidate, all
claims of creditors would be paid first. Thereafter, if there were any assets of
Finger Lakes Financial Corp., MHC remaining, members of Finger Lakes Financial,
Corp., MHC would receive the remaining assets, pro rata, based upon the deposit
balances in their deposit account in Savings Bank of the Finger Lakes
immediately prior to liquidation. In the unlikely event that Savings Bank of the
Finger Lakes were to liquidate after the conversion, all claims of creditors,
including those of depositors, would also be paid first, followed by
distribution of the "liquidation account" to depositors, with any assets
remaining thereafter distributed to Finger Lakes Bancorp as the holder of
Savings Bank of the Finger Lakes' capital stock. Pursuant to the rules and
regulations of the Office of Thrift Supervision, a post-conversion merger,
consolidation, sale of bulk assets or similar combination or transaction with
another insured savings institution would not be considered a liquidation and,
in such a transaction, the liquidation account would be assumed by the surviving
institution.
Stock Pricing and Number of Shares to be Issued
The plan of conversion and federal regulations require that the aggregate
purchase price of the common stock in the offering must be based on the
appraised pro forma market value of the common stock, as determined by the
independent valuation. Savings Bank of the Finger Lakes and Finger Lakes Bancorp
have retained FinPro to make the valuation. For its services in making the
valuation, FinPro will receive a fee of $18,000. This amount does not include a
fee of $14,000 to be paid to FinPro for assistance in preparation of a business
plan. Savings Bank of the Finger Lakes and Finger Lakes Bancorp have agreed to
indemnify FinPro and its employees and affiliates against specified losses,
including any losses in connection with claims under the federal securities
laws, arising out of its services as appraiser, except where FinPro's liability
results from its negligence or bad faith.
The independent valuation was prepared by FinPro in reliance upon the
information contained in this prospectus, including the consolidated financial
statements. FinPro also considered the following factors, among others: the
present and projected operating results and financial condition of Finger Lakes
Bancorp and Savings Bank of the Finger Lakes; the economic and demographic
conditions in Savings Bank of the Finger Lakes' existing marketing area; certain
historical, financial and other information relating to Savings Bank of the
Finger Lakes; a comparative evaluation of the operating and financial statistics
of Savings Bank of the Finger Lakes with those of other publicly traded savings
institutions located in Savings Bank of the Finger Lakes' region and on a
national basis; the aggregate size of the offering of the common stock; the
impact of the conversion on Savings Bank of the Finger Lakes' stockholders'
equity and earnings potential; the proposed dividend policy of Finger
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<PAGE>
Lakes Bancorp and Savings Bank of the Finger Lakes; and the trading market for
securities of comparable institutions and general conditions in the market for
the securities.
The following table presents a summary of selected pricing ratios for
comparable public thrift institutions used by FinPro to help establish the
market value of Finger Lakes Bancorp and the resulting pricing ratios for Finger
Lakes Bancorp.
<TABLE>
<CAPTION>
Pro forma Pro forma Pro forma Pro forma
price to core earnings price to book price to tangible price to assets
multiple value ratio book value ratio
---------------------- ------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Finger Lakes Bancorp:
15% above maximum....................... 14.29 75.84 75.84 8.09
Maximum................................. 12.73 70.07 70.07 7.08
Midpoint................................ 11.48 64.40 64.40 6.19
Minimum................................. 10.00 58.00 58.00 5.29
All Fully Converted Thrifts Publicly
Traded on the NYSE, NASDAQ & AMEX
Exchanges as of 03/13/00:
Averages................................ 13.02 93.84 98.75 9.98
Medians................................. 10.55 85.37 90.47 8.77
Valuation peer group institutions as of
03/13/00
Averages................................ 9.83 96.75 103.90 7.34
Medians................................. 8.70 91.24 97.43 6.40
</TABLE>
The independent valuation was prepared based on the assumption that the
aggregate amount of common stock sold in the offering would be equal to the
estimated pro forma market value of Finger Lakes Bancorp multiplied by the
percentage of Finger Lakes Financial common stock owned by Finger Lakes
Financial Corp., MHC as adjusted to reflect certain waived dividends and assets
held by Finger Lakes Financial Corp., MHC. The independent valuation states that
as of March 13, 2000, the estimated pro forma market value, or valuation range,
of Finger Lakes Bancorp ranged from a minimum of $16.4 million to a maximum of
$22.2 million with a midpoint of $19.3 million. The Board of Directors
determined to offer the subscription shares for a $7.00 per share subscription
price. The aggregate offering price of the subscription shares offered in the
offering will be equal to the valuation range multiplied by the percentage of
Finger Lakes Financial common stock owned by Finger Lakes Financial Corp., MHC,
as adjusted. The number of subscription shares offered in the offering will be
equal to the aggregate offering price of the subscription shares divided by the
subscription price. Based on the valuation range, the percentage of Finger Lakes
Financial common stock owned by Finger Lakes Financial Corp., MHC, as adjusted,
and the subscription price, the minimum of the offering range will be 1,568,863
subscription shares, the midpoint of the offering range will be 1,845,645
subscription shares, and the maximum of the offering range will be 2,122,545
subscription shares.
The Board of Directors reviewed the independent valuation and, in
particular, considered the following:
(1) Savings Bank of the Finger Lakes' financial condition and results of
operations;
(2) financial comparisons of Savings Bank of the Finger Lakes in relation
to financial institutions of similar size and asset quality;
(3) stock market conditions generally and in particular for financial
institutions; and
(4) the historical trading price of the publicly-held shares of Finger
Lakes Financial common stock.
All of these factors are set forth in the independent valuation. The Board
also reviewed the methodology and the assumptions used by FinPro in preparing
the independent valuation. The offering range may be amended with the approval
of the Office of Thrift Supervision, if required, if necessitated by subsequent
developments in the financial condition of Finger Lakes Bancorp or Savings Bank
of the Finger Lakes or market conditions generally. In the event the independent
valuation is updated to amend the pro forma market value of Finger Lakes
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<PAGE>
Bancorp to less than $16,404,150 or more than $25,522,931, the appraisal will be
filed with the Securities and Exchange Commission by posteffective amendment.
The independent valuation, however, is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
shares. FinPro did not independently verify the Consolidated Financial
Statements and other information provided by Finger Lakes Financial, nor did
FinPro value independently the assets or liabilities of Savings Bank of the
Finger Lakes. The independent valuation considers Savings Bank of the Finger
Lakes as a going concern and should not be considered as an indication of the
liquidation value of Savings Bank of the Finger Lakes. Moreover, because the
valuation is necessarily based upon estimates and projections of a number of
matters, all of which may change from time to time, no assurance can be given
that persons purchasing shares in the offering will thereafter be able to sell
their shares at prices at or above the subscription price.
Following commencement of the subscription offering, the maximum of the
valuation range may be increased by up to 15% to up to $16,695,203, which will
result in a corresponding increase of up to 15% in the maximum of the offering
range to up to 2,385,029 shares, to reflect changes in the market and financial
conditions, without the resolicitation of subscribers. The minimum of the
valuation range and of the offering range may not be decreased without a
resolicitation of subscribers. The subscription price of $7.00 per share will
remain fixed. 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 offering range to fill unfilled orders in the subscription
and community offerings.
If the update to the independent valuation at the conclusion of the
offering results in an increase in the maximum of the valuation range to more
than $16,695,203 and a corresponding increase in the offering range to more than
2,385,029 shares, or a decrease in the minimum of the valuation range to less
than $10,730,692 and a corresponding decrease in the offering range to fewer
than 1,532,956 shares, then Finger Lakes Bancorp, after consulting with the
Office of Thrift Supervision, may terminate the plan of conversion and return by
check all funds promptly with interest at Savings Bank of the Finger Lakes'
passbook rate of interest on payments made by check, certified or teller's
check, bank draft or money order. Alternatively, Finger Lakes Bancorp may extend
or hold a new subscription offering, community offering, or both, establish a
new offering range, commence a resolicitation of subscribers or take other
actions as permitted by the Office of Thrift Supervision in order to complete
the conversion. In the event that a resolicitation is commenced, unless an
affirmative response is received within a reasonable period of time, all funds
will be promptly returned to investors as described above. A resolicitation, if
any, following the conclusion of the subscription and community offerings would
not exceed 45 days unless further extended by the Office of Thrift Supervision
for periods of up to 90 days not to extend beyond _________, 2002, which is two
years after the special meeting of members of Finger Lakes Financial Corp., MHC
to approve the conversion.
An increase in the number of shares to be issued in the offering would
decrease both a subscriber's ownership interest and Finger Lakes Bancorp's pro
forma earnings and stockholders' equity on a per share basis while increasing
pro forma earnings and stockholders' equity on an aggregate basis. A decrease in
the number of shares to be issued in the offering would increase both a
subscriber's ownership interest and Finger Lakes Bancorp's pro forma earnings
and stockholders' equity on a per share basis while decreasing pro forma
earnings and stockholders' equity on an aggregate basis. For a presentation of
the effects of these changes, see "Pro Forma Data."
Copies of the appraisal report of FinPro, Inc. and the detailed memorandum
of the appraiser setting forth the method and assumptions for the appraisal are
available for inspection at the main office of Savings Bank of the Finger Lakes
and the other locations specified under "Additional Information."
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Exchange of Stock Certificates
Until the effective date of the conversion, publicly-held shares of Finger
Lakes Financial common stock will continue to be available for trading on the
Nasdaq SmallCap Market. The conversion of Finger Lakes Financial common stock
into Finger Lakes Bancorp common stock will occur automatically on the effective
date of the conversion. After the effective date of the conversion, former
holders of Finger Lakes Financial common stock will have no further equity
interest in Finger Lakes Financial, other than as stockholders of Finger Lakes
Bancorp, and there will be no further transfers of Finger Lakes Financial common
stock on the stock transfer records of Finger Lakes Financial.
As soon as practicable after the effective date of the conversion, Finger
Lakes Bancorp, or a bank or trust company designated by Finger Lakes Bancorp, in
the capacity of exchange agent, will send a transmittal form to each public
shareholder of Finger Lakes Financial. The transmittal forms are expected to be
mailed within five business days after the effective date of the conversion and
will contain instructions with respect to the surrender of certificates
representing Finger Lakes Financial common stock to be exchanged into Finger
Lakes Bancorp common stock. It is expected that certificates for shares of
Finger Lakes Bancorp common stock will be distributed within five business days
after the receipt of properly executed transmittal forms and other required
documents.
Finger Lakes Financial stockholders should not forward Finger Lakes
Financial Corp. stock certificates to Finger Lakes Financial, the stock
information center, or the exchange agent until they have received transmittal
forms.
Until the certificates representing Finger Lakes Financial common stock are
surrendered for exchange after consummation of the conversion, upon compliance
with the terms of the transmittal form, holders of such certificates will not
receive the shares of Finger Lakes Bancorp common stock and will not be paid
dividends on Finger Lakes Bancorp common stock into which these shares have been
converted. When certificates are surrendered, any unpaid dividends will be paid
without interest. For all other purposes, however, each certificate which
represents shares of Finger Lakes Financial common stock outstanding at the
effective date of the conversion will be deemed to evidence ownership of the
shares of Finger Lakes Bancorp common stock into which those shares have been
converted by virtue of the conversion.
All shares of Finger Lakes Bancorp common stock issued upon exchange of
shares of Finger Lakes Financial common stock shall be deemed to have been
issued in full satisfaction of all rights pertaining to these shares of Finger
Lakes Financial common stock, subject, however, to Finger Lakes Bancorp's
obligation to pay any dividends or make any other distributions with a record
date prior to the effective date which may have been declared or made by Finger
Lakes Financial on shares of Finger Lakes Financial common stock on or prior to
the effective date and which remain unpaid at the effective date. Finger Lakes
Financial intends to continue to pay a quarterly cash dividend of $0.06 per
share through the fiscal quarter ending June 30, 2000. Subject to the receipt of
any required regulatory approval, the Mutual Holding Company may decide to waive
the receipt of any dividend.
No fractional shares of Finger Lakes Bancorp common stock will be issued to
any public shareholder of Finger Lakes Financial upon consummation of the
conversion. For each fractional share that would otherwise be issued, Finger
Lakes Bancorp will pay by check an amount equal to the product obtained by
multiplying the fractional share interest to which the holder would otherwise be
entitled by the subscription price. Payment for fractional shares will be made
as soon as practicable after the receipt by the exchange agent of surrendered
Finger Lakes Financial stock certificates.
If a certificate for Finger Lakes Financial common stock has been lost,
stolen or destroyed, the exchange agent will issue the consideration properly
payable upon receipt of appropriate evidence as to the loss, theft or
destruction, appropriate evidence as to the ownership of the certificate by the
claimant, and appropriate and customary indemnification.
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Subscription Offering and Subscription Rights
In accordance with the plan of conversion, rights to subscribe for the
purchase of common stock in the subscription offering have been granted under
the plan of conversion in the following order of descending priority. All
subscriptions received will depend on the availability of common stock after
satisfaction of all subscriptions of all persons having prior rights in the
subscription offering and to the maximum, minimum, and overall purchase
limitations set forth in the plan of conversion and as described below under
"--Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each depositor with aggregate deposit
account balances, including demand deposit accounts, of $50 or more (a
"Qualifying Deposit") at December 31, 1998 ("Eligible Account Holders") will
receive, without payment therefor, nontransferable subscription rights to
subscribe in the subscription offering for 5% of the shares issued in the
offering, subject to the overall purchase limitations and exclusive of shares
purchased by the employee stock ownership plan from any increase in the shares
offered pursuant to an increase in the maximum of the offering range. At the
midpoint of the offering range, 5% of the shares issued in the offering is equal
to approximately 92,282 shares. See "--Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares first will be allocated so as to permit each subscribing Eligible Account
Holder to purchase a number of shares sufficient to make his total allocation
equal to the lesser of 100 shares or the number of shares for which he
subscribed. Thereafter, unallocated shares, except for additional shares issued
to the Employee Stock Ownership Plan upon an increase in the maximum of the
offering range, will be allocated to each subscribing Eligible Account Holder
whose subscription remains unfilled in the proportion that the amount of his
aggregate Qualifying Deposit bears to the total amount of Qualifying Deposits of
all subscribing Eligible Account Holders whose subscriptions remain unfilled. If
an amount so allocated exceeds the amount subscribed for by any one or more
Eligible Account Holders, the excess shall be reallocated among those Eligible
Account Holders whose subscriptions are not fully satisfied until all available
shares have been allocated.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form and certification form all deposit accounts
in which he has an ownership interest on December 31, 1998. 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
directors or officers of Finger Lakes Financial or their associates will be
subordinated to the subscription rights of other Eligible Account Holders to the
extent attributable to increased deposits in the twelve months preceding
December 31, 1998.
Priority 2: Tax-qualified Plans. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the tax-qualified employee stock benefit plans of Finger Lakes Bancorp
and Savings Bank of the Finger Lakes, including the employee stock ownership
plan, will receive, without payment therefor, nontransferable subscription
rights to purchase in the aggregate up to 8% of the common stock offered in the
subscription offering, including any shares to be issued in the subscription
offering as a result of an increase in the valuation range after commencement of
the subscription offering and prior to completion of the conversion.
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 tax-qualified employee stock benefit plans, each
depositor with a Qualifying Deposit at March 31, 2000 who is not an Eligible
Account Holder ("Supplemental Eligible Account Holder") will receive, without
payment therefor, nontransferable subscription rights to subscribe in the
subscription offering for 5% of the shares offered in the offering, subject to
the overall purchase limitations. See "--Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all subscriptions,
shares will be allocated so as to permit each subscribing Supplemental Eligible
Account Holder to purchase a number of shares sufficient to make his total
allocation equal to the lesser of 100 shares or the number of shares for which
he subscribed. Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible Account Holder whose subscription remains
unfilled in the proportion that the amount of his Qualifying Deposit bears to
the total amount of Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form and certification form all
deposit accounts in which he has an ownership interest at March
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31, 2000. Failure to list an account could result in less shares being allocated
than if all accounts had been disclosed.
Priority 4: Other Members. To the extent that there are shares remaining
after satisfaction of subscriptions by Eligible Account Holders, the
tax-qualified employee stock benefit plans, and Supplemental Eligible Account
Holders, each member of Finger Lakes Financial Corp., MHC on the voting record
date who is not an Eligible Account Holder or Supplemental Eligible Account
Holder ("Other Members") will receive, without payment therefor, nontransferable
subscription rights to subscribe in the Subscription Offering for 5% of the
shares offered in the offering, subject to the overall purchase limitations. See
"--Limitations on Common Stock Purchases." If there are not sufficient shares
available to satisfy all subscriptions, available shares will be allocated on a
pro rata basis based on the size of the order of each Other Member.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire on June ___, 2000 unless extended for up to 45 days or such
additional periods by Savings Bank of the Finger Lakes with the approval of the
Office of Thrift Supervision, if necessary. Savings Bank of the Finger Lakes and
Finger Lakes Bancorp may determine to extend the subscription offering and/or
the community offering for any reason, whether or not subscriptions have been
received for shares at the minimum, midpoint, or maximum of the offering range,
and are not required to give subscribers notice of any such extension.
Subscription rights which have not been exercised prior to the expiration date
will become void.
Finger Lakes Bancorp will not execute orders until all shares of common
stock have been subscribed for or otherwise sold. If 1,568,863 shares have not
been subscribed for or sold within 45 days after the expiration date, unless the
period is extended with the consent of the Office of Thrift Supervision, all
funds delivered to Savings Bank of the Finger Lakes pursuant to the subscription
offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be cancelled. If an extension beyond the 45 day
period following the expiration date granted, Finger Lakes Bancorp will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions. Extensions may not go beyond __________, 2002,
which is two years after the special meeting of members of the Finger Lakes
Financial Corp., MHC to approve the conversion.
Persons in Nonqualified States or Foreign Countries. Finger Lakes Bancorp
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 of conversion reside. However, Finger Lakes Bancorp is not required to
offer stock in the offering to any person who resides in a foreign country or
resides in a state of the United States with respect to which:
(1) a small number of persons otherwise eligible to subscribe for shares of
common stock reside; or
(2) Finger Lakes Bancorp determines that compliance with the securities
laws of a state would be impracticable for reasons of cost or otherwise,
including but not limited to a request that Finger Lakes Bancorp or its officers
or directors, under the securities laws of a state, register as a broker,
dealer, salesman or selling agent or register or otherwise qualify the
subscription rights or common stock for sale in a state. Where the number of
persons eligible to subscribe for shares in one state is small, Finger Lakes
Bancorp will base its decision as to whether or not to offer the common stock in
a state on a number of factors, including the size of accounts being held by
account holders in the state, the cost of registering or qualifying the shares
or the need to register Finger Lakes Bancorp, its officers, directors or
employees as brokers, dealers or salesmen.
Community Offering
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the tax-qualified employee
stock benefit plans, Supplemental Eligible Account Holders, and Other Members,
Finger Lakes Bancorp has determined to offer shares pursuant to the plan of
conversion to certain members of the general public in a direct community
offering, with preference given first to the public shareholders of Finger Lakes
Financial common stock and then to natural persons residing in Savings Bank of
the Finger Lakes' community. Savings Bank of the Finger Lakes' community means
the New York counties of Ontario, Seneca, Tompkins and Cayuga. These persons,
together with associates of and persons acting in concert with such persons, may
subscribe for up to 5% of the shares issued in the offering, subject to the
overall purchase
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limitations. See "--Limitations on Common Stock Purchases." The minimum purchase
is 25 shares. The opportunity to subscribe for shares of common stock in the
community offering category is subject to the right of Finger Lakes Bancorp, in
its 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. If Finger Lakes Bancorp with the approval of the Office of
Thrift Supervision increases the maximum purchase limitation, Finger Lakes
Bancorp is only required to resolicit persons who subscribed for the maximum
purchase amount and may, in the sole discretion of Finger Lakes Bancorp,
resolicit certain other large subscribers. The limitation may be increased to
9.99% provided that orders for common stock exceeding 5% of the subscription
shares issued in the offering shall not exceed in the aggregate 10% of the total
subscription shares issued in the offering. Requests to purchase additional
shares of the common stock in the event that the purchase limitation is so
increased will be determined by the Board of Directors of Finger Lakes Bancorp
in its sole discretion.
If the amount of stock remaining is insufficient to fill the orders of
natural persons residing in Savings Bank of the Finger Lakes' community, the
remaining stock will be allocated among those persons in the manner that permits
each of these persons, to the extent possible, to purchase the number of shares
necessary to make his total allocation of common stock equal to the lesser of
100 shares or the number of shares subscribed for by each such person. However,
if there are insufficient shares available for this allocation, then shares will
be allocated among natural persons residing in the community whose orders remain
unsatisfied in the proportion that the unfilled subscription of each bears to
the total unfilled subscriptions of all those persons whose subscriptions remain
unsatisfied. Similar allocation procedures will be used for orders of the public
shareholders of Finger Lakes Financial common stock. If all orders of natural
persons residing in Savings Bank of the Finger Lakes' community are filled, any
shares remaining will be allocated to other persons who purchase in the
community offering applying the same allocation described above for natural
persons residing in the community.
The term "resided" or "residing" as used herein shall mean any person who
occupies a dwelling within Savings Bank of the Finger Lakes' community, has a
present intent to remain within the community for a period of time, and
manifests the genuineness of that intent by establishing an ongoing physical
presence within the community together with an indication that this presence
within Savings Bank of the Finger Lakes' community is something other than
merely transitory in nature. To the extent the person is a corporation or other
business entity, the principal place of business or headquarters shall be in
Savings Bank of the Finger Lakes' community. To the extent a person is a
personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
Savings Bank of the Finger Lakes may utilize deposit or loan records or other
evidence provided to it to make a determination as to whether a person is a
resident. In all cases, however, the determination shall be in the sole
discretion of Savings Bank of the Finger Lakes.
The community offering will terminate no more than 45 days following the
expiration date, unless extended by Savings Bank of the Finger Lakes and Finger
Lakes Bancorp with the approval of the Office of Thrift Supervision, if
necessary. Savings Bank of the Finger Lakes and Finger Lakes Bancorp may
determine to extend the subscription offering and/or the community offering for
any reason, whether or not subscriptions have been received for shares at the
minimum, midpoint, or maximum of the offering range, and are not required to
give subscribers notice of any such extension. Finger Lakes Bancorp will not
execute orders until all shares of common stock have been subscribed for or
otherwise sold. If 1,568,863 shares have not been subscribed for or sold within
45 days after the expiration date, unless this period is extended with the
consent of the Office of Thrift Supervision, all funds delivered to Savings Bank
of the Finger Lakes pursuant to the subscription offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be cancelled. If an extension beyond the 45 day period following the expiration
date is granted, Savings Bank of the Finger Lakes will notify subscribers of the
extension of time and of any rights of subscribers to modify or rescind their
subscriptions. These extensions may not go beyond __________, 2002, which is two
years after the special meeting of members of Finger Lakes Financial Corp., MHC
to approve the conversion.
The Board of Directors has the right to reject any order submitted in the
offering by a person whose representations the Board of Directors believes to be
false or who it otherwise believes, either alone or acting in concert with
others, is violating, evading, circumventing, or intends to violate, evade or
circumvent the terms and conditions of the plan of conversion.
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Syndicated Community Offering
If feasible, the Board of Directors may determine to offer all subscription
shares not subscribed for in the subscription and community offerings in a
syndicated community offering, subject to such terms, conditions and procedures
as may be determined by Finger Lakes Bancorp, in a manner that will achieve the
widest distribution of the common stock. However, Finger Lakes Bancorp retains
the right to accept or reject in whole or in part any subscriptions in the
syndicated community offering. In the syndicated community offering, any person
together with any associate or group of persons acting in concert may purchase a
number of subscription shares that when combined with exchange shares received
by the person, together with any associate or group of persons acting in concert
is equal to 106,127 shares at the maximum, subject to the overall maximum
purchase limitations. The shares purchased by any person together with an
associate or group of persons acting in concert in the community offering shall
be counted toward meeting the overall purchase limitations. Provided that the
subscription offering has commenced, Finger Lakes Bancorp may commence the
syndicated community offering at any time after the mailing to the members of
the proxy statement to be used in connection with the special meeting of members
of Finger Lakes Financial Corp., MHC. The completion of the offer and sale of
the subscription shares shall be conditioned upon the approval of the plan of
conversion by the members. If the syndicated community offering is not sooner
commenced pursuant to the provisions of the preceding sentence, the syndicated
community offering will be commenced as soon as practicable following the date
upon which the subscription and community offerings terminate.
Alternatively, if a syndicated community offering is not held, Finger Lakes
Bancorp shall have the right to sell any subscription shares remaining following
the subscription and community offerings in an underwritten firm commitment
public offering. The overall purchase limitations shall not be applicable to
sales to underwriters for purposes of such an offering but shall be applicable
to the sales by the underwriters to the public. The price to be paid by the
underwriters in such an offering shall be equal to the subscription price less
an underwriting discount to be negotiated among the underwriters and Finger
Lakes Bancorp, which will in no event exceed an amount deemed to be acceptable
by the Office of Thrift Supervision.
If for any reason a syndicated community offering or an underwritten firm
commitment public offering of shares of subscription shares not sold in the
subscription and community offerings cannot be effected, or in the event that
any insignificant residue of shares of subscription shares is not sold in the
subscription and community offerings or in the syndicated community or
underwritten firm commitment public offering, other arrangements will be made
for the disposition of unsubscribed shares by Finger Lakes Bancorp, if possible.
The Office of Thrift Supervision must approve these other purchase arrangements.
Plan of Distribution and Selling Commissions
Offering materials for the offering initially have been distributed by
mail, with additional copies made available at Savings Bank of the Finger Lakes'
office and by Friedman, Billings, Ramsey & Co., Inc. All prospective purchasers
are to send payment along with a completed order form and certification form
directly to Savings Bank of the Finger Lakes, where funds will be held in a
segregated special escrow account and not released until the offering is
completed or terminated.
To assist in the marketing of the common stock, Savings Bank of the Finger
Lakes has retained Friedman, Billings, Ramsey & Co., Inc., which are
broker/dealers registered with the National Association of Securities Dealers,
Inc. Friedman, Billings, Ramsey & Co., Inc. will assist Savings Bank of the
Finger Lakes in the offering as follows:
(1) act as the financial advisor to the Savings Bank of the Finger Lakes;
(2) create marketing materials and formulate a marketing plan;
(3) conduct training for all directors and employees concerning the
reorganization and stock offerings; and
(4) manage the stock center and staff it with Friedman, Billings, Ramsey &
Co., Inc. personnel.
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For these services, Friedman, Billings, Ramsey & Co., Inc. and Investment
Bank Services will receive a marketing fee of $215,000. Friedman, Billings,
Ramsey & Co., Inc. will also be reimbursed for allocable expenses, including
their attorney's fees of $25,000.
Savings Bank of the Finger Lakes has made an advance payment to Friedman,
Billings, Ramsey & Co., Inc. in the amount of $25,000. Savings Bank of the
Finger Lakes will indemnify Friedman, Billings, Ramsey & Co., Inc. against
liabilities and expenses, including legal fees, incurred in connection with
certain claims or litigation arising out of or based upon untrue statements or
omissions contained in the offering material for the common stock, including
liabilities under the Securities Act of 1933.
Some Directors and executive officers of Finger Lakes Bancorp and Savings
Bank of the Finger Lakes may participate in the solicitation of offers to
purchase common stock. These persons will be reimbursed for their reasonable
out-of-pocket expenses, including, but not limited to, de minimis telephone and
postage expenses, incurred in connection with the solicitation. Other regular,
full-time employees of Savings Bank of the Finger Lakes may participate in the
offering but only in ministerial capacities, providing clerical work in
effecting a sales transaction or answering questions of a potential purchaser,
provided that the content of the employee's responses is limited to information
contained in the prospectus or other offering documents, and no offers or sales
may be made by tellers or at the teller counter. All sales activity will be
conducted in a segregated or separately identifiable area of Savings Bank of the
Finger Lakes's offices apart from the area accessible to the general public for
the purpose of making deposits or withdrawals. Other questions of prospective
purchasers will be directed to executive officers or registered representatives.
These other employees have been instructed not to solicit offers to purchase
common stock or provide advice regarding the purchase of common stock. Finger
Lakes Bancorp will rely on Rule 3a41 under the Securities Exchange Act of 1934,
and sales of common stock will be conducted within the requirements of Rule
3a41, so as to permit officers, directors and employees to participate in the
sale of common stock. No officer, director or employee of Finger Lakes Bancorp
or Savings Bank of the Finger Lakes will be compensated in connection with his
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the common stock.
Procedure for Purchasing Shares
Expiration Date. The offering will terminate at ______.m., Eastern time, on
________, 2000, unless extended by Savings Bank of the Finger Lakes and Finger
Lakes Bancorp, with the approval of the Office of Thrift Supervision, if
required. This extension may be approved by Savings Bank of the Finger Lakes and
Finger Lakes Bancorp, in their sole discretion, without further approval or
additional notice to purchasers in the offering. Any extension of the offering
beyond 45 days after the expiration date of the offering would require Office of
Thrift Supervision approval and potential purchasers would be given the right to
increase, decrease, or rescind their orders for common stock. If the minimum
number of shares offered in the offering is not sold by the expiration date,
Finger Lakes Bancorp may terminate the offering and promptly refund all orders
for common stock. A reduction in the number of shares below the minimum of the
offering range will not require the approval of Finger Lakes Financial Corp.,
MHC's members or Finger Lakes Financial's stockholders, or an amendment to the
independent valuation. If the number of shares is reduced below the minimum of
the offering range, purchasers will be given an opportunity to increase,
decrease, or rescind their orders.
To ensure that each purchaser receives a prospectus at least 48 hours
before the expiration date of the offering in accordance with Rule 15c28 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to this date or hand delivered any later than two days prior to
this date. Execution of an order form will confirm receipt of delivery in
accordance with Rule 15c28. Order forms will be distributed only with a
prospectus.
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Finger Lakes Bancorp reserves the right in its sole discretion to terminate
the offering at any time and for any reason, in which case Finger Lakes Bancorp
will cancel any withdrawal orders, and return all purchase orders, plus interest
at Savings Bank of the Finger Lakes' current passbook rate from the date of
receipt.
Use of Order and Certification Forms. In order to purchase shares of the
common stock, each purchaser must complete an order form and a certification
form. Incomplete order forms, or order forms that are not accompanied by a
signed certification form, will not be accepted. Finger Lakes Bancorp will not
be required to accept orders submitted on photocopied or facsimilied stock order
forms. Any person receiving an order form who desires to purchase shares of
common stock must do so by delivering, by mail or in person, to Finger Lakes
Bancorp a properly executed and completed order form and a certification form,
together with full payment for the shares purchased. All order forms with
properly executed certification forms must be received at the stock center or a
branch of the Savings Bank of the Finger Lakes prior to _____.m, Eastern time on
____________, 2000. Once tendered, an order form cannot be modified or revoked
without the consent of Finger Lakes Bancorp. Finger Lakes Bancorp reserves the
absolute right, in its sole discretion, to reject orders received in the
community offering, in whole or in part, at the time of receipt or at any time
prior to completion of the offering. Each person ordering shares is required to
represent that he is purchasing shares for his own account and that he has no
agreement or understanding with any person for the sale or transfer of the
shares. The interpretation by Finger Lakes Bancorp of the terms and conditions
of the plan of conversion and of the acceptability of the order forms and
certification forms will be final.
The order form includes a certification in which subscribers acknowledge
that the common stock is not a deposit or savings account that is federally
insured or otherwise guaranteed by Savings Bank of the Finger Lakes or the
federal government and that the subscribers received a copy of this prospectus
describing the nature of the common stock and the risks involved in an
investment in the common stock, including the "Risk Factors" described in this
prospectus. The certification is required by federal regulation and is intended
to ensure that subscribers are aware of the Risk Factors before making an
investment decision. However, signing the order form and certification will not
result in investors waiving their rights under the Securities Act of 1933.
Payment for Shares. Payment for all shares will be required to accompany
all completed order forms for the purchase to be valid. Payment for shares may
be made by:
(1) cash, if delivered in person to a branch of Savings Bank of the Finger
Lakes;
(2) check, money order, certified or teller's check or bank draft made
payable to Savings Bank of the Finger Lakes; or
(3) authorization of withdrawal from savings accounts, including
certificates of deposit, maintained with Savings Bank of the Finger Lakes.
Appropriate means by which withdrawals may be authorized are provided in
the order forms. Once a withdrawal amount has been authorized, a hold will be
placed on these funds, making them unavailable to the depositor until the
offering has been completed or terminated. In the case of payments authorized to
be made through withdrawal from deposit accounts, all funds authorized for
withdrawal will continue to earn interest at the contract rate until the
offering is completed or terminated. Interest penalties for early withdrawal
applicable to certificate accounts will not apply to withdrawals authorized for
the purchase of shares of common stock; however, if a withdrawal results in a
certificate account with a balance less than the applicable minimum balance
requirement, the certificate shall be cancelled at the time of withdrawal
without penalty, and the remaining balance will earn interest at the passbook
rate subsequent to the withdrawal. In the case of payments made by cash, check
or money order, these funds will be placed in a segregated savings account and
interest will be paid by Savings Bank of the Finger Lakes at the current
passbook rate per annum from the date payment is received until the offering is
completed or terminated. An executed order form, once received by Savings Bank
of the Finger
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Lakes, may not be modified, amended or rescinded without the consent of Savings
Bank of the Finger Lakes, unless the offering is not completed by the expiration
date, in which event purchasers may be given the opportunity to increase,
decrease, or rescind their orders for a specified period of time.
A depositor interested in using his or her individual retirement account
funds to purchase common stock must do so through a self-directed individual
retirement account. There will be no early withdrawal or Internal Revenue
Service interest penalties for these transfers. Depositors interested in using
funds in a Savings Bank of the Finger Lakes individual retirement account to
purchase common stock should contact the stock center at Savings Bank of the
Finger Lakes as soon as possible but no later than one week prior to the
subscription deadline so that the necessary forms may be forwarded for execution
and returned prior to the expiration date.
The employee stock ownership plan will not be required to pay for shares
purchased until consummation of the offering, provided that there is in force
from the time the order is received a loan commitment from an unrelated
financial institution or Finger Lakes Bancorp to lend to the employee stock
ownership plan the necessary amount to fund the purchase.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering and Savings Bank of the Finger Lakes checks representing
interest paid on subscriptions made by cash, check, or money order will be
mailed by Savings Bank of the Finger Lakes to the persons entitled thereto at
the address noted on the order form, as soon as practicable following
consummation of the offering and receipt of all necessary regulatory approvals.
Any certificates returned as undeliverable will be held by Savings Bank of the
Finger Lakes until claimed by persons legally entitled thereto or otherwise
disposed of in accordance with applicable law. Until certificates for the common
stock are available and delivered to purchasers, purchasers may not be able to
sell the shares of stock which they ordered. Regulations prohibit Savings Bank
of the Finger Lakes from lending funds or extending credit to any persons to
purchase common stock in the offering.
Other Restrictions. Notwithstanding any other provision of the plan of
conversion, no person is entitled to purchase any common stock to the extent the
purchase would be illegal under any federal or state law or regulation,
including state "bluesky" registrations, or would violate regulations or
policies of the National Association of Securities Dealers, Inc. particularly
those regarding free riding and withholding. Savings Bank of the Finger Lakes
and/or its agents may ask for an acceptable legal opinion from any purchaser as
to the legality of their purchase and may refuse to honor any purchase order if
an opinion is not timely furnished.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the conversion, Office of Thrift Supervision
conversion regulations prohibit any person with subscription rights, including
the Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members of Savings Bank of the Finger Lakes, from transferring or entering into
any agreement or understanding to transfer the legal or beneficial ownership of
the subscription rights issued under the plan of conversion or the shares of
common stock to be issued upon their exercise. These rights may be exercised
only by the person to whom they are granted and only for his account. Each
person exercising subscription rights will be required to certify that he is
purchasing shares solely for his own account and that he has no agreement or
understanding regarding the sale or transfer of such shares. The regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase subscription rights or shares of common
stock prior to the completion of the conversion.
Savings Bank of the Finger Lakes and Finger Lakes Bancorp will pursue any
and all legal and equitable remedies in the event they become aware of the
transfer of subscription rights and will not honor orders known by them to
involve the transfer of subscription rights.
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Limitations on Common Stock Purchases
The plan of conversion includes the following limitations on the number of
shares of common stock which may be purchased during the conversion:
(1) No person may purchase less than 25 shares of common stock;
(2) The tax-qualified employee stock benefit plans, including the employee
stock ownership plan, may purchase in the aggregate up to 8% of the subscription
shares issued in the offering, including shares issued in the event of an
increase in the offering range of up to 15%. The employee stock ownership plan
expects to subscribe for 8% of the shares sold, or 125,509 shares at the minimum
of the offering range and 169,803 shares at the maximum of the offering range;
(3) Except for the employee stock ownership plan, as described above, no
other individual or entity and their associates, and groups of persons acting in
concert, may purchase more than 5% of the shares offered in the offering. Finger
Lakes Financial's stockholders will be subject to an additional limitation upon
the number of shares he or she may purchase in the offering. As previously
described, Finger Lakes Financial's stockholders will receive shares of Finger
Lakes Bancorp common stock in exchange for their shares of Finger Lakes
Financial. The number of shares purchased by a Finger Lakes Financial
stockholder in the offering, when combined with the shares that he or she
receives in exchange for Finger Lakes Financial common stock, may not exceed 5%
of the shares outstanding at the completion of the offering. This limitation
also applies to associates and groups of persons acting in concert. This
limitation only limits the amount of stock that Finger Lakes Financial's
stockholders may purchase; and
(4) The maximum number of shares of common stock which may be purchased in
all categories of the offering by officers and Directors of Savings Bank of the
Finger Lakes and their associates in the aggregate, shall not exceed 25% of the
subscription shares offered in the offering.
Depending upon market or financial conditions, the Board of Directors of Finger
Lakes Bancorp, with the approval of the Office of Thrift Supervision and without
further approval of members of Finger Lakes Financial Corp., MHC, may decrease
or further increase the purchase limitations. Savings Bank of the Finger Lakes
may need regulatory approval to increase the purchase limitations. If this
amount is increased, subscribers for the maximum amount will be, and some other
large subscribers who through their subscriptions evidence a desire to purchase
the maximum allowable number of shares in the sole discretion of Savings Bank of
the Finger Lakes may be, given the opportunity to increase their subscriptions
up to the then applicable limit. The effect of this type of resolicitation will
be an increase in the number of shares owned by subscribers who choose to
increase their subscriptions. In addition, the Boards of Directors of Finger
Lakes Bancorp and Savings Bank of the Finger Lakes may, in their sole
discretion, increase the maximum purchase limitation referred to above up to
9.99%, provided that orders for shares exceeding 5% of the shares being offered
shall not exceed, in the aggregate, 10% of the total offering. Requests to
purchase additional shares under this provision will be determined by the
respective Boards of Directors in their sole discretion.
In the event of an increase in the total number of shares offered in the
offering due to an increase in the offering range of up to 15%, the maximum
number of shares that may be purchased as restricted by the purchase limitations
shall not be increased proportionately, except for the employee stock ownership
plan, and the additional shares sold will be allocated in the following order of
priority in accordance with the plan of conversion:
(1) to fill the employee stock ownership plan's subscription for 8% of the
total number of shares sold;
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(2) in the event that there is an oversubscription at the Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member levels, to fill
unfulfilled subscriptions of these subscribers according to their respective
priorities; and
(3) to fill unfulfilled subscriptions in the community offering with
preference given first to Finger Lakes Financial stockholders and then to
natural persons residing in Savings Bank of the Finger Lakes' community.
The term "associate" of a person is defined to mean:
(1) any corporation or organization, other than Finger Lakes Financial,
Savings Bank of the Finger Lakes, or a majority owned subsidiary of Savings Bank
of the Finger Lakes, of which the person is an officer, partner or 10%
stockholder;
(2) any trust or other estate in which the person has a substantial
beneficial interest or serves as a director or in a similar fiduciary capacity;
provided, however, this term shall not include any employee stock benefit plan
in which the person has a substantial beneficial interest or serves as director
or in a similar fiduciary capacity; and
(3) any relative or spouse of the persons, or any relative of the spouse,
who either has the same home as the person or who is a Director or officer of
Finger Lakes Financial, or Savings Bank of the Finger Lakes.
Directors are not treated as associates of each other solely because of their
Board membership. For a further discussion of limitations on purchases of a
converting institution's stock at the time of conversion and subsequent to
conversion, see "Certain Restrictions on Purchase or Transfer of Shares after
Conversion" and "Restrictions on Acquisition of Finger Lakes Bancorp."
Liquidation Rights
In the unlikely event of a complete liquidation of Finger Lakes Financial
prior to the conversion, all claims of creditors of Finger Lakes Financial,
including those of depositors to the extent of their deposit balances, would be
paid first. Thereafter, if there were any assets of Finger Lakes Financial
remaining, these assets would be distributed to stockholders, including Finger
Lakes Financial Corp., MHC. Were Finger Lakes Financial Corp., MHC and Finger
Lakes Financial to liquidate prior to the conversion, all claims of creditors
would be paid first. Then, if there were any assets of Finger Lakes Financial
Corp., MHC remaining, members of Finger Lakes Financial Corp., MHC would receive
these remaining assets, pro rata, based upon the deposit balances in their
deposit account in Savings Bank of the Finger Lakes immediately prior to
liquidation. In the unlikely event that Savings Bank of the Finger Lakes were to
liquidate after conversion, all claims of creditors, including those of
depositors, would also be paid first, followed by distribution of the
"liquidation account" to certain depositors, with any assets remaining
thereafter distributed to Finger Lakes Bancorp as the holder of Savings Bank of
the Finger Lakes capital stock. Pursuant to the rules and regulations of the
Office of Thrift Supervision, a postconversion merger, consolidation, sale of
bulk assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in these types of
transactions, the liquidation account would be assumed by the surviving
institution.
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The plan of conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an amount
equal to the greater of:
(1) the sum of (a) Finger Lakes Financial Corp., MHC's ownership interest
in the surplus and reserves of Finger Lakes Financial as of the date of its
latest balance sheet contained in this prospectus, and (b) the restricted
retained income account that reflects dividends waived by Finger Lakes Financial
Corp., MHC; or
(2) the retained earnings of Savings Bank of the Finger Lakes at the time
that Savings Bank of the Finger Lakes reorganized into Finger Lakes Financial
Corp., MHC in 1994.
The purpose of the liquidation account is to provide Eligible Account Holders
and each Supplemental Eligible Account Holders who maintain their deposit
accounts with Savings Bank of the Finger Lakes after the conversion with a
distribution upon complete liquidation of Savings Bank of the Finger Lakes after
the conversion. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he were to continue to maintain his deposit account at Savings Bank
of the Finger Lakes, would be entitled, on a complete liquidation of Savings
Bank of the Finger Lakes after the conversion to an interest in the liquidation
account prior to any payment to the stockholders of Finger Lakes Bancorp. Each
Eligible Account Holder and each Supplemental Eligible Account Holder would have
an initial interest in the liquidation account for each deposit account,
including regular accounts, transaction accounts such as negotiable order of
withdrawal accounts, money market deposit accounts, and certificates of deposit,
with a balance of $50 or more held in Savings Bank of the Finger Lakes on
December 31, 1998, or March 31, 2000, respectively. Each Eligible Account Holder
and Supplemental Eligible Account Holder will have a pro rata interest in the
total liquidation account for each such deposit account based on the proportion
that the balance of each such deposit account on December 31, 1998, or March 31,
2000, respectively, bore to the balance of all deposit accounts in Finger Lakes
Financial on such dates.
If, however, on any December 31 annual closing date, commencing after
December 31, 2000, the amount in any such deposit account is less than the
amount in the deposit account on December 31, 1998, or March 31, 2000,
respectively, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced from time
to time by the proportion of any such reduction, and such interest will cease to
exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Payment pursuant to liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders would be separate and
apart from any insured deposit accounts to such depositor. Any assets remaining
after the above liquidation rights of Eligible Account Holders and Supplemental
Eligible Account Holders are satisfied would be distributed to Finger Lakes
Bancorp as the sole shareholder of Savings Bank of the Finger Lakes.
Tax Aspects
The conversion will be effected as follows:
(1) Savings Bank of the Finger Lakes will charter Finger Lakes Bancorp as a
first tier Delaware chartered stock holding company;
(2) Finger Lakes Bancorp will charter an interim federal association
("Interim Savings Bank");
(3) Finger Lakes Financial Corp., MHC will exchange its charter for an
interim stock savings association charter and simultaneous merger into Finger
Lakes Financial in a tax-free reorganization under Section 368(a)(1)(A) of the
Internal Revenue Code;
(4) Finger Lakes Financial will exchange its charter for a federal interim
savings bank charter and
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simultaneously merge into Savings Bank of the Finger Lakes with Finger Lakes
Financial's shareholders constructively receiving shares of Savings Bank of the
Finger Lakes;
(5) a merger of the Interim Savings Bank into Savings Bank of the Finger
Lakes with Savings Bank of the Finger Lakes stockholders (formerly stockholders
of Finger Lakes Financial) exchanging their common stock for common stock of
Finger Lakes Bancorp in a tax-free reorganization under Internal Revenue Code
Section 368(a)(1)(A) by reason of Internal Revenue Code Section 368(a)(2)(E).
Consummation of the conversion is expressly conditioned upon the prior receipt
of an opinion of counsel or tax advisor with respect to federal and state income
taxation that indicates that the conversion will not be a taxable transaction to
Finger Lakes Financial Corp., MHC, Finger Lakes Financial, Finger Lakes Bancorp,
the Interim Savings Bank, Eligible Account Holders, Supplemental Eligible
Account Holders, or members of Finger Lakes Financial Corp., MHC. Unlike private
letter rulings, opinions of counsel or tax advisors are not binding on the IRS
or the New York Division of Treasury, Department of Taxation and Finance and
either agency could disagree with such opinions. In the event of such
disagreement, there can be no assurance that the Company or the Bank would
prevail in a judicial proceeding.
Pursuant to Revenue Procedure 00-3, the Internal Revenue Service has stated
that it will not rule on whether a transaction qualifies as a tax-free
reorganization under Internal Revenue Code Section 368(a)(1)(A), including a
transaction that qualifies under Internal Revenue Code Section 368(a)(1)(A) by
reason of Internal Revenue Code Section 368(a)(2)(E), or whether the taxpayer
qualifies under those sections for nonrecognition of income treatment but that
it would rule on significant sub-issues that must be resolved to determine
whether the transaction qualifies under the above sections. In several
instances, the Internal Revenue Service has ruled favorably on certain
significant sub-issues associated with downstream mergers of mutual holding
companies into their less than 80 percent owned subsidiary savings associations
in a second step conversion. In these cases, the Internal Revenue Service has
ruled that:
(1) the exchange of the member's equity interests in the mutual holding
company for interests in a liquidation account established at the savings
association will satisfy the continuity of interest requirement with respect to
the merger of the mutual holding company into the savings association;
(2) pursuant to the merger of an interim savings association into the
savings association, the stock holding company will acquire "control," as
defined in Internal Revenue Code Section 368(c), of the savings association as
the interests in the liquidation account and the shares of savings association
stock previously held by the mutual holding company will be disregarded; and
(3) the continuity of interest requirement will not be violated by the
exchange of stock holding company stock for savings association stock in the
merger of an interim savings association into the savings association.
In December 1994, the Internal Revenue Service issued Revenue Procedure
94-76 which states that the Internal Revenue Service will not issue private
letter rulings with respect to downstream mergers of a corporation into a "less
than 80 percent distributee", i.e., a corporation, such as Finger Lakes
Financial, in which the merging corporation, i.e., Finger Lakes Financial Corp.,
MHC, possesses less than 80 percent of the total voting power of the stock of
the corporation and less than 80 percent of the total value of the stock of the
corporation. The Internal Revenue Service assumed this "no-rule" position to
study whether these downstream mergers circumvent the purpose behind the repeal
of General Utilities & Operating Co. v. Helvering, 296 U.S. 200 (1935). In
Notice 96-6, the Internal Revenue Service indicated that it intended to close
its study project on this issue, however, Rev. Proc. 96-22 made permanent the
Internal Revenue Service decision not to issue advance rulings on these
downstream mergers. Counsel to Finger Lakes Bancorp is of a view that the
downstream merger to effect the conversion of Finger Lakes Financial Corp., MHC
to stock form, where after consummation of the conversion,
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Finger Lakes Bancorp holds 100% of the shares of Finger Lakes Financial and the
untaxed appreciation of Finger Lakes Financial remains in corporate solution, is
not the type of downstream merger that can be considered as circumventing the
repeal of General Utilities.
Prior to the effective date of the conversion, Finger Lakes Financial
Corp., MHC and Finger Lakes Financial will receive an opinion of counsel, Luse
Lehman Gorman Pomerenk & Schick, A Professional Corporation, which will indicate
that the federal income tax consequences of the conversion will be as follows:
(1) The conversion of Finger Lakes Financial Corp., MHC from mutual to
stock form will constitute a mere change in identity, form or place of
reorganization within the meaning of Internal Revenue Code Section 368(a)(1)(F);
(2) The merger of Finger Lakes Financial Corp., MHC with and into Finger
Lakes Financial will qualify as a reorganization within the meaning of Internal
Revenue Code Section 368(a)(1)(A);
(3) The exchange of the members' equity interests in Finger Lakes Financial
Corp., MHC for interests in a liquidation account established at Finger Lakes
Financial will satisfy the continuity of interest requirement with respect to
the merger of Finger Lakes Financial Corp., MHC into Finger Lakes Financial;
(4) Finger Lakes Financial Corp., MHC will not recognize any gain or loss
on the transfer of its assets to Finger Lakes Financial in exchange for a
liquidation account in Finger Lakes Financial;
(5) No gain or loss will be recognized by Finger Lakes Financial upon the
receipt of the assets of Finger Lakes Financial Corp., MHC in exchange for a
liquidation account in Finger Lakes Financial;
(6) The basis of the assets of Finger Lakes Financial Corp., MHC, other
than Finger Lakes Financial common stock, to be received by Finger Lakes
Financial will be the same as the basis of those assets in the hands of Finger
Lakes Financial Corp., MHC immediately prior to the transfer, the basis of
Finger Lakes Financial common stock will be zero;
(7) The holding period of the assets of Finger Lakes Financial Corp., MHC
to be received by Finger Lakes Financial will include the holding period of
those assets in the hands of Finger Lakes Financial Corp., MHC immediately prior
to the transfer;
(8) Finger Lakes Financial Corp., MHC members will recognize no gain or
loss upon the receipt of an interest in the liquidation account in Finger Lakes
Financial in exchange for their membership interest in Finger Lakes Financial
Corp., MHC;
(9) The conversion of the Finger Lakes Financial to a federally chartered
interim stock savings association will constitute a mere change in identity,
form or place of organization within the meaning of Section 368(a)(1)(F) of the
Code.
(10) The Mid-Tier Merger qualifies as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code.
(11) The exchange of the members equity interest in the Finger Lakes
Financial's liquidation account for interests in a Liquidation Account
established at the Savings Bank of the Finger Lakes in the Mid-Tier Merger will
satisfy the continuity of interest requirement of the income tax regulations.
(12) The Finger Lakes Financial will not recognize any gain or loss on the
transfer of its assets to the Savings Bank of the Finger Lakes in exchange for
an interest in a Liquidation Account established in Savings
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Bank of the Finger Lakes for the benefit of those persons who remain depositors
of Savings Bank of the Finger Lakes and Savings Bank of the Finger Lakes
assumption of the Finger Lakes Financial 's liabilities, if any.
(13) No gain or loss will be recognized by Savings Bank of the Finger Lakes
upon the receipt of the assets of the Finger Lakes Financial in the Mid-Tier
Merger.
(14) The basis of the assets of the Finger Lakes Financial (other than
stock in Savings Bank of the Finger Lakes) to be received by Savings Bank of the
Finger Lakes will be the same as the basis of such assets in the hands of the
Finger Lakes Financial immediately prior to the transfer.
(15) The holding period of the assets of the Finger Lakes Financial (other
than stock in Savings Bank of the Finger Lakes) to be received by Savings Bank
of the Finger Lakes will include the holding period of those assets in the hands
of the Finger Lakes Financial immediately prior to the transfer.
(16) The merger of the Interim Savings Bank into Savings Bank of the Finger
Lakes with Savings Bank of the Finger Lakes as the surviving institution ("Bank
Merger") qualifies as a reorganization within the meaning of Internal Revenue
Code Section 368(a)(1)(A), pursuant to Internal Revenue Code Section
368(a)(2)(E);
(17) Persons who have an interest in the liquidation account established in
Finger Lakes Financial (i.e., former members of Finger Lakes Financial Corp.,
MHC) will recognize no gain or loss upon the receipt of an interest in the
Liquidation Account in Savings Bank of the Finger Lakes in exchange for their
interest in Finger Lakes Financial liquidation account.
(18) The exchange of shares of Finger lakes Bancorp common stock for common
stock of Savings Bank of the Finger Lakes in the Bank Merger, following the
Mid-Tier Merger will not violate the continuity of interest requirement of the
income tax regulations.
(19) Finger Lakes Financial shareholders will not recognize any gain or
loss upon their constructive exchange of Finger Lakes Financial Common Stock for
Savings Bank of the Finger Lakes Common Stock.
(20) The Interim Savings Bank will not recognize any gain or loss on the
transfer of its assets to Savings Bank of the Finger Lakes in exchange for
Savings Bank of the Finger Lakes stock and the assumption by Savings Bank of the
Finger Lakes of the liabilities, if any, of the Interim Savings Bank;
(21) Savings Bank of the Finger Lakes will not recognize any gain or loss
on the receipt of the assets of the Interim Savings Bank in exchange for Savings
Bank of the Finger Lakes stock;
(22) Savings Bank of the Finger Lakes's basis in the assets received from
the Interim Savings Bank in the proposed transaction will, in each case, be the
same as the basis of those assets in the hands of the Interim Savings Bank
immediately prior to the transaction;
(23) Finger Lakes Bancorp will not recognize any gain or loss upon its
receipt of Savings Bank of the Finger Lakes stock solely in exchange for Finger
Lakes Bancorp stock;
(24) Savings Bank of the Finger Lakes's holding period for the assets
received from the Interim Savings Bank in the proposed transaction will, in each
instance, include the period during which those assets were held by the Interim
Savings Bank;
(25) Savings Bank of the Finger Lakes stockholders will not recognize any
gain or loss upon their exchange of Savings Bank of the Finger Lakes stock
solely for shares of Finger Lakes Bancorp common stock;
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(26) Cash received in the merger of the Interim Savings Bank into Savings
Bank of the Finger Lakes by a Savings Bank of the Finger Lakes stockholder in
lieu of a fractional share interest of Finger Lakes Bancorp common stock will be
treated as having been received as a distribution in full payment in exchange
for a fractional share interest of Savings Bank of the Finger Lakes common stock
which the stockholders would otherwise be entitled to receive, and will qualify
as capital gain or loss, assuming Savings Bank of the Finger Lakes common stock
surrendered in exchange therefor was held as a capital asset by the stockholder;
(27) Each Savings Bank of the Finger Lakes stockholder's aggregate basis in
his or her Finger Lakes Bancorp common stock received in the exchange, including
fractional shares which Savings Bank of the Finger Lakes stockholder's otherwise
would be entitled to receive, will be the same as the basis of Savings Bank of
the Finger Lakes common stock surrendered in exchange therefor;
(28) Each Savings Bank of the Finger Lakes stockholder's holding period in
his or her Finger Lakes Bancorp common stock received in the exchange, including
fractional shares which Savings Bank of the Finger Lakes stockholder's otherwise
would be entitled to receive, will include the period during which Savings Bank
of the Finger Lakes common stock surrendered was held, provided that Savings
Bank of the Finger Lakes common stock surrendered is a capital asset in the
hands of Savings Bank of the Finger Lakes stockholder on the date of the
exchange;
(29) Finger Lakes Bancorp's basis in Savings Bank of the Finger Lakes
common stock which it receives would be the same as the basis of the property
exchanged for the Savings Bank of the Finger Lakes common stock;
(30) No gain or loss will be recognized by Finger Lakes Bancorp on the
receipt of money in exchange for Finger Lakes Bancorp common stock in the
offering; and
(31) The Eligible Account Holders and Supplemental Eligible Account Holders
will recognize gain, if any, upon issuance to them of nontransferable
subscription rights to purchase Finger Lakes Bancorp common stock, but only to
the extent of the value, if any, of the subscription rights.
In the view of FinPro, which view is not binding on the Internal Revenue
Service, the subscription rights do not have any value, based on the fact that
these 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 Subscription Price for the unsubscribed shares of common
stock. If the subscription rights granted to Eligible Account Holders and
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of these rights could result in taxable gain to those Eligible Account
Holders and Supplemental Eligible Account Holders who exercise the subscription
rights in an amount equal to the value and Finger Lakes Financial could
recognize gain on a distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisors
as to the tax consequences in the event that subscription rights are deemed to
have an ascertainable value.
Unlike private rulings, an opinion of counsel is not binding on the
Internal Revenue Service and the Internal Revenue Service could disagree with
the conclusions reached therein. Depending on the conclusion or conclusions with
which the Internal Revenue Service disagrees, the Internal Revenue Service may
take the position that the transaction is taxable to any one or more of Finger
Lakes Financial Corp., MHC and/or the members of Finger Lakes Financial Corp.,
MHC, Finger Lakes Financial, the public stockholders of Finger Lakes Financial,
and/or the Eligible Account Holders and Supplemental Eligible Account Holders
who exercise their subscription rights. In the event of a disagreement, there
can be no assurance that the Internal Revenue Service would not prevail in a
judicial or administrative proceeding.
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The form of this opinion has been filed with the Securities and Exchange
Commission as an exhibit to Finger Lakes Bancorp's registration statement. An
opinion on the New York state income tax consequences which will be consistent
with the federal tax opinion will be issued prior to the conversion by KPMG LLP,
tax advisors to Finger Lakes Financial Corp., MHC and Finger Lakes Financial.
Certain Restrictions on Purchase or Transfer of Shares after Conversion
All Subscription Shares purchased in the offering by a Director or an
executive officer of Savings Bank of the Finger Lakes generally may not be sold
for a period of one year following the conversion, except in the event of the
death of the Director or executive officer. Each certificate for restricted
shares will bear a legend giving notice of this restriction on transfer, and
instructions will be issued to the effect that any transfer within this time
period of any certificate or record ownership of the shares other than as
provided above is a violation of the restriction. Any shares of common stock
issued at a later date as a stock dividend, stock split, or otherwise, with
respect to the restricted stock will be similarly restricted. The Directors and
executive officers of Savings Bank of the Finger Lakes will also be restricted
by the insider trading rules promulgated pursuant to the Securities Exchange Act
of 1934.
Purchases of outstanding shares of common stock of Finger Lakes Bancorp by
Directors, executive officers, or any person who was an executive officer after
adoption of the plan of conversion, and their associates during the three-year
period following the conversion may be made only through a broker or dealer
registered with the Securities and Exchange Commission, except with the prior
written approval of the Office of Thrift Supervision. This restriction does not
apply, however, to negotiated transactions involving more than 1% of Finger
Lakes Bancorp's outstanding common stock or to the purchase of stock pursuant to
a stock option plan or any tax qualified employee stock benefit plan or nontax
qualified employee stock benefit plan of Savings Bank of the Finger Lakes or
Finger Lakes Bancorp, including any employee plans, recognition plans or
restricted stock plans.
Office of Thrift Supervision regulations applicable to Finger Lakes Bancorp
as a result of the conversion prohibit Finger Lakes Bancorp from repurchasing
shares of its common stock for three years, except for an offer to all
stockholders on a pro rata basis, or the repurchase of qualifying shares of a
Director. Notwithstanding the foregoing and except as provided below, beginning
one year following completion of the conversion, Finger Lakes Bancorp may
repurchase its common stock so long as:
(1) the repurchases within the following two years are part of an
open-market program not involving greater than 5% of its outstanding capital
stock during a twelve-month period;
(2) the repurchases do not cause Savings Bank of the Finger Lakes to become
"undercapitalized" within the meaning of the Office of Thrift Supervision prompt
corrective action regulation; and
(3) Finger Lakes Bancorp provides to the Regional Director of the Office of
Thrift Supervision no later than ten 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.
See "Regulation--Prompt Corrective Regulatory Action."
In addition, under current Office of Thrift Supervision policies, repurchases
may be allowed in the first year following the conversion and in amounts greater
than 5% in the second and third years following the conversion provided there
are valid and compelling business reasons for such repurchases and the Office of
Thrift Supervision does not object to such repurchases.
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COMPARISON OF STOCKHOLDERS' RIGHTS
General. As a result of the conversion, holders of Finger Lakes Financial
common stock will become stockholders of Finger Lakes Bancorp, a Delaware
corporation. There are certain differences in stockholder rights arising from
distinctions between Finger Lakes Financial's federal stock charter and bylaws
and Finger Lakes Bancorp's certificate of incorporation and bylaws and from
distinctions between laws applicable to federally- chartered savings
institutions and laws applicable to Delaware corporations.
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences and similarities affecting the rights of stockholders. The
discussion herein is qualified in its entirety by reference to the certificate
of incorporation and bylaws of Finger Lakes Bancorp and the Delaware General
Corporate Law. See "Additional Information" for procedures for obtaining a copy
of Finger Lakes Bancorp' certificate of incorporation and bylaws.
Authorized Capital Stock. Finger Lakes Bancorp's authorized capital stock
consists of 5,000,0000 shares of common stock, par value $.01 per share, and
1,000,000 shares of preferred stock, par value $.01 per share. Finger Lakes
Financial's authorized capital stock consists of __________ shares of Finger
Lakes Financial common stock and __________ shares of preferred stock, par value
$1.00 per share. The shares of Finger Lakes Bancorp common stock and preferred
stock were authorized in an amount greater than that to be issued in the
conversion to provide Finger Lakes Bancorp' Board of Directors with flexibility
to effect, among other transactions, financing, acquisitions, stock dividends,
stock splits and employee stock options. However, these additional authorized
shares may also be used by the Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of Finger Lakes Bancorp. The Board
of Directors of Finger Lakes Bancorp also has sole authority to determine the
terms of any one or more series of preferred stock, including voting rights,
conversion rates, and liquidation preferences. As a result of the ability to fix
voting rights for a series of preferred stock, the Board has the power, to the
extent consistent with its fiduciary duty, to issue a series of preferred stock
to persons friendly to management in order to attempt to block a post tender
offer merger or other transaction by which a third party seeks control, and
thereby assist management to retain its position. Finger Lakes Bancorp's Board
currently has no plans for the issuance of additional shares, other than the
issuance of additional shares pursuant to stock benefit plans.
Issuance of Capital Stock. Pursuant to applicable laws and regulations,
Finger Lakes Financial Corp., MHC is required to own not less than a majority of
the outstanding Finger Lakes Financial common stock. There will be no such
restriction applicable to Finger Lakes Bancorp following consummation of the
conversion.
Finger Lakes Bancorp's certificate of incorporation does not contain
restrictions on the issuance of shares of capital stock to directors, officers
or controlling persons of Finger Lakes Bancorp, whereas Finger Lakes Financial's
federal stock charter restricts such issuance to general public offerings, or if
qualifying shares, to directors, unless the share issuance or the plan under
which they would be issued has been approved by a majority of the total votes
eligible to be cast at a legal stockholders' meeting. Thus, stock related
compensation plans, such as stock option plans, could be adopted by Finger Lakes
Bancorp without stockholder approval and shares of Finger Lakes Bancorp capital
stock could be issued directly to directors or officers without stockholder
approval. The bylaws of the National Association of Securities Dealers, Inc.,
however, generally require corporations with securities which are quoted on the
Nasdaq National Market System to obtain stockholder approval of most stock
compensation plans for directors, officers and key employees of the corporation.
Moreover, although generally not required, stockholder approval of stock related
compensation plans may be sought in certain instances in order to qualify such
plans for favorable federal income tax and securities law treatment under
current laws and regulations.
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Voting Rights. Neither Finger Lakes Financial's federal stock charter or
bylaws nor Finger Lakes Bancorp's certificate of incorporation or bylaws
currently provide for cumulative voting in elections of directors. For
additional information regarding voting rights, see "--Limitations on
Acquisitions of Voting Stock and Voting Rights" below.
Payment of Dividends. The ability of Finger Lakes Financial to pay
dividends on its capital stock is restricted by Office of Thrift Supervision
regulations and by federal income tax considerations related to savings
institutions such as Finger Lakes Financial. See "Regulation--Limitation on
Capital Distributions." Although Finger Lakes Bancorp is not subject to these
restrictions as a Delaware corporation, such restrictions will indirectly affect
Finger Lakes Bancorp because dividends from Savings Bank of the Finger Lakes
will be a primary source of funds of Finger Lakes Bancorp for the payment of
dividends to stockholders of Finger Lakes Bancorp.
Certain restrictions generally imposed on Delaware corporations may also
have an impact on Finger Lakes Bancorp's ability to pay dividends. Delaware law
generally provides that Finger Lakes Bancorp is limited to paying dividends in
an amount equal to the excess of its net assets (total assets minus total
liabilities) over its statutory capital or, if no such excess exists, equal to
its net profits for the current year and/or the immediately preceding fiscal
year.
Board of Directors. Finger Lakes Financial's federal stock charter and
bylaws and Finger Lakes Bancorp's certificate of incorporation and bylaws each
require the Board of Directors of Finger Lakes Financial and Finger Lakes
Bancorp to be divided into three classes as nearly equal in number as possible
and that the members of each class shall be elected for a term of three years
and until their successors are elected and qualified, with one class being
elected annually.
Under Finger Lakes Financial's bylaws, any vacancies in the Board of
Directors of Finger Lakes Financial may be filled by the affirmative vote of a
majority of the remaining directors although less than a quorum of the Board of
Directors. Persons elected by the directors of Finger Lakes Financial to fill
vacancies may only serve until the next annual meeting of stockholders. Under
Finger Lakes Bancorp's certificate of incorporation, any vacancy occurring in
the Board of Directors of Finger Lakes Bancorp, including any vacancy created by
reason of an increase in the number of directors, may be filled by the remaining
directors, and any director so chosen shall hold office for the remainder of the
term to which the director has been elected and until his or her successor is
elected and qualified.
Under Finger Lakes Financial's bylaws, any director may be removed for
cause by the holders of a majority of the outstanding voting shares. Finger
Lakes Bancorp's certificate of incorporation provides that any director may be
removed for cause by the holders of at least 80% of the outstanding voting
shares of Finger Lakes Bancorp.
Limitations on Liability. Finger Lakes Bancorp's certificate of
incorporation provides that the directors of Finger Lakes Bancorp shall not be
personally liable for monetary damages to Finger Lakes Bancorp for certain
actions as directors, except for liabilities that involve intentional misconduct
or a knowing violation of law by the director, the authorization or illegal
distributions or receipt of an improper personal benefit from their positions as
directors. This provision might, in certain instances, discourage or deter
shareholders or management from bringing a lawsuit against directors for a
breach of their duties even though such an action, if successful, might have
benefitted Finger Lakes Bancorp.
Currently, federal law does not permit federally-chartered companies such
as Finger Lakes Financial to limit the personal liability of directors in the
manner provided by the Delaware law and the laws of many other states.
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Indemnification of Directors, Officers, Employees and Agents. Finger Lakes
Financial's federal stock charter and bylaws do not contain any provision
relating to indemnification of directors and officers of Finger Lakes Financial.
Under current Office of Thrift Supervision regulations, however, Finger Lakes
Financial shall indemnify its directors, officers and employees for any costs
incurred in connection with any litigation involving any such person's
activities as a director, officer or employee if such person obtains a final
judgment on the merits in his or her favor. In addition, indemnification is
permitted in the case of a settlement, a final judgment against such person or
final judgment other than on the merits, if a majority of disinterested
directors determine that such person was acting in good faith within the scope
of his or her employment as he or she could reasonably have perceived it under
the circumstances and for a purpose he or she could reasonably have believed
under the circumstances was in the best interest of Finger Lakes Financial or
its stockholders. Finger Lakes Financial also is permitted to pay ongoing
expenses incurred by a director, officer or employee if a majority of
disinterested directors concludes that such person may ultimately be entitled to
indemnification. Before making any indemnification payment, Finger Lakes
Financial is required to notify the Office of Thrift Supervision of its
intention and such payment cannot be made if the Office of Thrift Supervision
objects thereto.
The officers, directors, agents and employees of Finger Lakes Bancorp are
indemnified with respect to certain actions pursuant to Finger Lakes Bancorp's
certificate of incorporation, which complies with Delaware law regarding
indemnification. Delaware law allows Finger Lakes Bancorp to indemnify the
aforementioned persons for expenses, settlements, judgments and fines in suits
in which such person has been made a party by reason of the fact that he or she
is or was an agent of Finger Lakes Bancorp. No such indemnification may be given
if the acts or omissions of the person are adjudged to be in violation of law,
if such person is liable to the corporation for an unlawful distribution, or if
such person personally received a benefit to which he or she was not entitled.
Special Meetings of Stockholders. Finger Lakes Bancorp's certificate of
incorporation provides that special meetings of the stockholders of Finger Lakes
Bancorp may be called only by the board of directors. Finger Lakes Financial's
federal stock charter provides that special meetings of Finger Lakes Financial's
stockholders may be called by the Chairman, President, a majority of the Board
of Directors or the holders of not less than a majority of the outstanding
capital stock of Finger Lakes Financial entitled to vote at the meeting.
Stockholder Nominations and Proposals. Finger Lakes Financial's bylaws
generally provide that stockholders may submit nominations for election of
director at an annual meeting of stockholders and any new business to be taken
up at such a meeting by filing such in writing with Finger Lakes Financial at
least thirty days before the date of any such meeting.
Finger Lakes Bancorp's bylaws generally provide that any stockholder
desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of stockholders must submit written notice to Finger
Lakes Bancorp at least 90 days in advance of the meeting, together with certain
information relating to the nomination or new business. However, if less than
100 days notice or prior disclosure of the date of the meeting is given,
stockholders must submit such written notice no later than the tenth day
following the date on which notice of the meeting is mailed to stockholders or
such public disclosure was made. Failure to comply with these advance notice
requirements will preclude such nominations or new business from being
considered at the meeting. Management believes that it is in the best interests
of Finger Lakes Bancorp and its stockholders to provide sufficient time to
enable management to disclose to stockholders information about a dissident
slate of nominations for directors. This advance notice requirement may also
give management time to solicit its own proxies in an attempt to defeat any
dissident slate of nominations, should management determine that doing so is in
the best interest of stockholders generally. Similarly, adequate advance notice
of stockholder proposals will give management time to study such proposals and
to determine whether to recommend to the stockholders that such proposals be
adopted. In certain instances, such provisions could make it more difficult to
oppose management's nominees or proposals, even if stockholders believe such
nominees or proposals are in their best interests.
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Stockholder Action Without a Meeting. The bylaws of Finger Lakes Financial
provide that any action to be taken or which may be taken at any annual or
special meeting of stockholders may be taken if a consent in writing, setting
forth the actions so taken, is given by the holders of all outstanding shares
entitled to vote. Finger Lakes Bancorp's certificate of incorporation
specifically denies the authority of stockholders to act without a meeting.
Stockholder's Right to Examine Books and Records. A federal regulation
which is applicable to Finger Lakes Financial provides that stockholders may
inspect and copy specified books and records of a federally- chartered savings
institution after proper written notice for a proper purpose. Delaware law
similarly provides that a stockholder may inspect books and records upon written
demand stating the purpose of the inspection, if such purpose is reasonably
related to such person's interest as a stockholder.
Limitations on Acquisitions of Voting Stock and Voting Rights. Finger Lakes
Bancorp's certificate of incorporation provides that in no event shall any
record owner of any outstanding common stock which is beneficially owned,
directly or indirectly, by a person who beneficially owns in excess of 10% of
the then outstanding shares of common stock be entitled or permitted to any vote
in respect of the shares held in excess of such limit.
Mergers, Consolidations and Sales of Assets. A federal regulation requires
the approval of two-thirds of the Board of Directors of Finger Lakes Financial
and the holders of two-thirds of the outstanding stock of Finger Lakes Financial
entitled to vote thereon for mergers, consolidations and sales of all or
substantially all of Finger Lakes Financial's assets. Such regulation permits
Finger Lakes Financial to merge with another corporation without obtaining the
approval of its stockholders if:
(1) it does not involve an interim savings institution;
(2) Finger Lakes Financial's federal stock charter is not changed;
(3) each share of Finger Lakes Financial's stock outstanding immediately
prior to the effective date of the transaction is to be an identical outstanding
share or a treasury share of Finger Lakes Financial after such effective date;
and
(4) either:
(a) no shares of voting stock of Finger Lakes Financial and no
securities convertible into such stock are to be issued or delivered under
the plan of combination or
(b) the authorized unissued shares or the treasury shares of voting
stock of Finger Lakes Financial to be issued or delivered under the plan of
combination, plus those initially issuable upon conversion of any
securities to be issued or delivered under such plan, do not exceed 15% of
the total shares of voting stock of Finger Lakes Financial outstanding
immediately prior to the effective date of the transaction.
Finger Lakes Bancorp's certificate of incorporation requires the approval
of the holders of at least 80% of Finger Lakes Bancorp's outstanding shares of
voting stock to approve certain "Business Combinations" involving an "Interested
Stockholder" except in cases where the proposed transaction has been approved in
advance by two- thirds of those members of Finger Lakes Bancorp's Board of
Directors who are unaffiliated with the Interested Stockholder and were
directors prior to the time when the Interested Stockholder became an Interested
Stockholder. The term "Interested Stockholder" is defined to include any
individual, corporation, partnership or other entity, other than Finger Lakes
Bancorp or its subsidiary, which owns beneficially or controls, directly or
indirectly, 10% or more of the outstanding shares of voting stock of Finger
Lakes Bancorp or an affiliate of such
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person or entity. This provision of the certificate of incorporation applies to
any "Business Combination," which is defined to include, among other things:
(1) any merger or consolidation of Finger Lakes Bancorp with or into any
Interested Stockholder;
(2) any sale, lease, exchange, mortgage, transfer, or other disposition of
25% or more of the assets of Finger Lakes Bancorp and its subsidiaries to an
Interested Stockholder;
(3) the issuance or transfer of any securities of Finger Lakes Bancorp or a
subsidiary of Finger Lakes Bancorp to an Interested Stockholder having a value
exceeding 25% of the combined fair market value of the outstanding sections of
Finger Lakes Bancorp; or
(4) any reclassification of common stock of Finger Lakes Bancorp or any
recapitalization involving the common stock of Finger Lakes Bancorp.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of Finger Lakes
Bancorp and any other affected class of stock. One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years. Such
15% stockholder, in order to obtain approval of a business combination, must
obtain the approval of two- thirds of the outstanding stock, excluding the stock
owned by such 15% stockholder, or satisfy other requirements under Delaware law
relating to board of director approval of his or her acquisition of the shares
of Finger Lakes Bancorp. The increased stockholder vote required to approve a
business combination may have the effect of foreclosing mergers and other
business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.
Finger Lakes Bancorp's certificate of incorporation requires the Finger
Lakes Bancorp's Board of Directors to consider certain factors in addition to
the amount of consideration to be paid when evaluating certain business
combinations or a tender or exchange offer. These additional factors include the
social and economic effects of the transaction on its customers and employees
and the communities served by Finger Lakes Bancorp.
Dissenters' Rights of Appraisal. Office of Thrift Supervision regulations
generally provide that a stockholder of a federally-chartered savings
institution that engages in a merger, consolidation or sale of all or
substantially all of its assets shall have the right to demand from such
institution payment of the fair or appraised value of his or her stock in the
institution, subject to specified procedural requirements. This regulation also
provides, however, that the stockholders of a federally-chartered savings
institution with stock which is listed on a national securities exchange or
quoted on The Nasdaq Stock Market are not entitled to dissenters' rights in
connection with a merger involving such savings institution if the stockholder
is required to accept only "qualified consideration" for his or her stock, which
is defined to include cash, shares of stock of any institution or corporation
which at the effective date of the merger will be listed on a national
securities exchange or quoted on the Nasdaq Stock Market or any combination of
such shares of stock and cash.
Under Delaware law, shareholders of Finger Lakes Bancorp generally will not
have dissenters' appraisal rights in connection with a plan of merger or
consolidation to which Finger Lakes Bancorp is a party because the common stock
is expected to be listed on The Nasdaq National System.
Amendment of Governing Instruments. No amendment of Finger Lakes
Financial's federal stock charter may be made unless it is first proposed by the
Board of Directors of Finger Lakes Financial, then preliminarily approved by the
Office of Thrift Supervision, and thereafter approved by the holders of a
majority of the total votes eligible to be cast at a legal meeting. Finger Lakes
Bancorp' certificate of incorporation may be amended by
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the vote of the holders of a majority of the outstanding shares of Finger Lakes
Bancorp common stock, except that the provisions of the certificate of
incorporation governing the calling of meeting of stockholders, stockholders'
nominations and proposals, authorized capital stock, denial of preemptive
rights, the number and staggered terms of directors, removal of directors,
approval of certain business combinations, the evaluation of certain business
combinations, elimination of directors' liability, indemnification of officers
and directors, and the manner of amending the certificate of incorporation and
bylaws, each may not be repealed, altered, amended or rescinded except by the
vote of the holders of at least 80% of the outstanding shares of Finger Lakes
Bancorp. This provision is intended to prevent the holders of a lesser
percentage of the outstanding stock of Finger Lakes Bancorp from circumventing
any of the foregoing provisions by amending the certificate of incorporation to
delete or modify one of such provisions.
The bylaws of Finger Lakes Financial may be amended by a majority vote of
the full Board of Directors of Finger Lakes Financial or by a majority vote of
the votes cast by the stockholders of Finger Lakes Financial at any legal
meeting. Finger Lakes Bancorp's bylaws may only be amended by a two-thirds vote
of the Board of Directors of Finger Lakes Bancorp or by the holders of at least
80% of the outstanding stock of Finger Lakes Bancorp.
Purpose and Takeover Defensive Effects of Finger Lakes Bancorp's
Certificate of Incorporation and Bylaws. The Board of Directors of Finger Lakes
Financial believes that the provisions described above are prudent and will
reduce Finger Lakes Bancorp vulnerability to takeover attempts and certain other
transactions that have not been negotiated with and approved by its Board of
Directors. These provisions will also assist Finger Lakes Financial in the
orderly deployment of the conversion proceeds into productive assets during the
initial period after the conversion. The Board of Directors believes these
provisions are in the best interest of Finger Lakes Financial, Finger Lakes
Bancorp and its stockholders. In the judgment of the Board of Directors, Finger
Lakes Bancorp's Board will be in the best position to determine the true value
of Finger Lakes Bancorp and to negotiate more effectively for what may be in the
best interests of its stockholders. Accordingly, the Board of Directors believes
that it is in the best interest of Finger Lakes Bancorp and its stockholders to
encourage potential acquirors to negotiate directly with the Board of Directors
of Finger Lakes Bancorp and that these provisions will encourage such
negotiations and discourage hostile takeover attempts. It is also the view of
the Board of Directors that these provisions should not discourage persons from
proposing a merger or other transaction at a price reflective of the true value
of Finger Lakes Bancorp and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of Finger Lakes
Bancorp for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of Finger Lakes Bancorp's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive Finger
Lakes Bancorp's remaining stockholders of benefits of certain protective
provisions of the Securities Exchange Act of 1934, if the number of beneficial
owners became less than 300, thereby allowing for deregistration under the
Securities Exchange Act of 1934.
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Despite the belief of Finger Lakes Financial and Finger Lakes Bancorp as to
the benefits to stockholders of these provisions of Finger Lakes Bancorp's
certificate of incorporation and bylaws, these provisions may also have the
effect of discouraging a future takeover attempt that would not be approved by
Finger Lakes Bancorp's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. Such provisions will also render the removal
of Finger Lakes Bancorp's Board of Directors and of management more difficult.
The Board of Directors of Finger Lakes Financial and Finger Lakes Bancorp,
however, have concluded that the potential benefits outweigh the possible
disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, Finger Lakes Bancorp may adopt
additional anti-takeover charter provisions or other devices regarding the
acquisition of its equity securities that would be permitted for a Delaware
business corporation.
The cumulative effect of the restriction on acquisition of Finger Lakes
Bancorp contained in the certificate of incorporation and bylaws of Finger Lakes
Bancorp and in federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of Finger Lakes Bancorp may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
RESTRICTIONS ON ACQUISITION OF FINGER LAKES BANCORP
The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations.
Conversion Regulations
Office of Thrift Supervision regulations prohibit any person from making an
offer, announcing an intent to make an offer or participating in any other
arrangement to purchase stock or acquiring stock or subscription rights in a
converting institution or its holding company from another person prior to
completion of its conversion. Further, without the prior written approval of the
Office of Thrift Supervision, no person may make such an offer or announcement
of an offer to purchase shares or actually acquire shares in the converting
institution or its holding company, for a period of three years from the date of
the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than __% of the outstanding stock of the institution or its holding
company. The Office of Thrift Supervision has defined "person" to include any
individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association or its holding company, or an underwriter or
member of a selling group acting on the converting institution's, or its holding
company's, behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution or its holding company or who controls more than __% of
the outstanding shares or voting rights of a converting or converted institution
or its holding company.
As permitted by Office of Thrift Supervision regulations, Savings Bank of
the Finger Lakes' charter contains a provision whereby the acquisition or offer
to acquire ownership of more than 10% of the issued and outstanding shares of
any class of equity securities of the Savings Bank of the Finger Lakes by any
person, either directly or through an affiliate of such person, will be
prohibited for a period of five years following the date of
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consummation of the conversion. Any stock in excess of 10% acquired in violation
of the charter provision will not be counted as outstanding for voting purposes.
Change of Control Regulations
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings association or its parent holding company unless the
Office of Thrift Supervision has been given 60 days' prior written notice and
has not issued a notice disapproving the proposed acquisition. In addition,
Office of Thrift Supervision regulations provide that no company may acquire
control of a savings association without the prior approval of the Office of
Thrift Supervision. Any company that acquires such control becomes a "savings
and loan holding company" subject to registration, examination and regulation by
the Office of Thrift Supervision.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than ___% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the Office of Thrift Supervision
that the acquiror has the power to direct, or directly or indirectly to exercise
a controlling influence over, the management or policies of the institution.
Acquisition of more than ____% of any class of a savings association's voting
stock, if the acquiror also is subject to any one of eight "control factors,"
constitutes a rebuttable determination of control under the regulations. Such
control factors include the acquiror being one of the two largest stockholders.
The determination of control may be rebutted by submission to the Office of
Thrift Supervision, prior to the acquisition of stock or the occurrence of any
other circumstances giving rise to such determination, of a statement setting
forth facts and circumstances which would support a finding that no control
relationship will exist and containing certain undertakings. The regulations
provide that persons or companies which acquire beneficial ownership exceeding
___% or more of any class of a savings association's stock must file with the
Office of Thrift Supervision a certification form that the holder is not in
control of such institution, is not subject to a rebuttable determination of
control and will take no action which would result in a determination or
rebuttable determination of control without prior notice to or approval of the
Office of Thrift Supervision, as applicable. There are also rebuttable
presumptions in the regulations concerning whether a group"acting in concert"
exists, including presumed action in concert among members of an "immediate
family."
The Office of Thrift Supervision may prohibit an acquisition of control if
it finds, among other things, that:
(1) the acquisition would result in a monopoly or substantially lessen
competition;
(2) the financial condition of the acquiring person might jeopardize the
financial stability of the institution; or
(3) the competence, experience or integrity of the acquiring person
indicates that it would not be in the interest of the depositors or the public
to permit the acquisition of control by such person.
DESCRIPTION OF CAPITAL STOCK OF FINGER LAKES BANCORP
General
At the effective date, Finger Lakes Bancorp will be authorized to issue
5,000,000 shares of common stock having a par value of $.01 per share and
1,000,000 shares of preferred stock. Finger Lakes Bancorp currently expects to
issue in the conversion up to 2,440,945, subject to adjustment, shares of common
stock in the offering, and up to 1,205,188 shares, subject to adjustment, in
exchange for the publicly held shares of Finger Lakes Financial. Finger Lakes
Bancorp does not intend to issue shares of preferred stock in the conversion.
Each share of Finger Lakes Bancorp common stock will have the same relative
rights as, and will be identical in all
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respects with, each other share of common stock. Upon payment of the
Subscription Price for the common stock, in accordance with the plan of
conversion, all of the common stock will be duly authorized, fully paid and
nonassessable.
The common stock of Finger Lakes Bancorp will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the Federal Deposit Insurance Corporation or any other government agency.
Common Stock
Dividends. Finger Lakes Bancorp can pay dividends out of statutory surplus
or from net profits if, as and when declared by its Board of Directors. The
payment of dividends by Finger Lakes Bancorp is subject to limitations that are
imposed by law and applicable regulation. The holders of common stock of Finger
Lakes Bancorp will be entitled to receive and share equally in dividends as may
be declared by the Board of Directors of Finger Lakes Bancorp out of funds
legally available therefor. If Finger Lakes Bancorp issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. Upon the conversion, the holders of common stock of Finger
Lakes Bancorp will possess exclusive voting rights in Finger Lakes Bancorp. They
will elect Finger Lakes Bancorp's Board of Directors and act on other matters as
are required to be presented to them under Delaware law or as are otherwise
presented to them by the Board of Directors. Generally, each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of Directors. If Finger Lakes Bancorp issues
preferred stock, holders of the preferred stock may also possess voting rights.
Certain matters require an 80% stockholder vote.
As a federal stock savings association, corporate powers and control of
Savings Bank of the Finger Lakes are vested in its Board of Directors, who elect
the officers of Savings Bank of the Finger Lakes and who fill any vacancies on
the Board of Directors as it exists upon the conversion. Voting rights of
Savings Bank of the Finger Lakes are vested exclusively in the owners of the
shares of capital stock of Savings Bank of the Finger Lakes, which will be
Finger Lakes Bancorp, and voted at the direction of Finger Lakes Bancorp's Board
of Directors. Consequently, the holders of the common stock will not have direct
control of Savings Bank of the Finger Lakes.
Liquidation. In the event of any liquidation, dissolution or winding up of
Finger Lakes Financial, Finger Lakes Bancorp, as holder of Savings Bank of the
Finger Lakes's capital stock would be entitled to receive, after payment or
provision for payment of all debts and liabilities of Savings Bank of the Finger
Lakes, 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, all assets of Savings
Bank of the Finger Lakes available for distribution. In the event of
liquidation, dissolution or winding up of Finger Lakes Bancorp, 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 Finger Lakes
Bancorp 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 of Finger Lakes Bancorp 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 Finger Lakes Bancorp's authorized preferred stock
will be issued in the conversion. Preferred stock may be issued with preferences
and designations as the Board of Directors may from time to time
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determine. The Board of Directors can, without stockholder approval, issue
preferred stock with voting, dividend, liquidation and conversion rights that
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.
TRANSFER AGENT
The transfer agent and registrar for Finger Lakes Bancorp common stock is
American Stock Transfer and Trust, New York, New York.
EXPERTS
The consolidated financial statements of Finger Lakes Financial Corp. and
Subsidiary as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999 included in this prospectus have been
audited by KPMG LLP, independent auditors and in reliance upon their report
appearing elsewhere herein in the registration statement, and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
FinPro has consented to the publication herein of the summary of its report
to Finger Lakes Financial setting forth its opinion as to the estimated pro
forma market value of the common stock upon stock offering and its letter with
respect to subscription rights.
LEGAL MATTERS
The legality of the common stock will be passed upon for Finger Lakes
Bancorp by Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special
counsel to Finger Lakes Bancorp and Finger Lakes Financial. Certain legal
matters will be passed upon for Friedman, Billings, Ramsey & Co., Inc. by Nixon
& Peabody, LLP, Washington, D.C.
ADDITIONAL INFORMATION
Finger Lakes Bancorp has filed with the Securities and Exchange Commission
a registration statement under the Securities Act of 1933 with respect to the
common stock offered hereby. As permitted by the rules and regulations of the
Securities and Exchange Commission, 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 Securities and
Exchange Commission 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 Finger Lakes
Bancorp. The statements contained in this prospectus as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
are, of necessity, brief descriptions of the material terms of, and should be
read in conjunction with, such contract or document.
Finger Lakes Financial Corp., MHC has filed an Application on Form AC with
respect to the conversion. This prospectus omits certain information contained
in the application. The Application may be examined at the principal office of
the Office of Thrift Supervision, 1700 G Street, N.W., Washington, D.C. 20552,
and at the Northeast Regional Office of the Office of Thrift Supervision, 10
Exchange Place, Jersey City, New Jersey, 07302.
In connection with the stock offering, Finger Lakes Bancorp will register
its common stock with the SEC under Section 12 of the Securities Exchange Act of
1934, and, upon such registration, Finger Lakes Bancorp 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 Securities Exchange Act of 1934. Under the
stock issuance plan, Finger Lakes Bancorp has undertaken that it will not
terminate such registration for a period of at least three years following the
stock offering.
102
<PAGE>
Finger Lakes Financial Corp.
and Subsidiary
Consolidated Financial Statements
Contents
<TABLE>
<S> <C>
Independent Auditors' Report F-2
Consolidated Statement of Financial Condition F-3
(as of December 31, 1999 and 1998)
Consolidated Statements of Income F-4
(for the years ended December 31, 1999, 1998 and 1997)
Consolidated Statements of Stockholders' Equity F-5
and Comprehensive Income (loss)
(for the years ended December 31, 1999, 1998 and 1997)
Consolidated Statements of Cash Flows F-6
(for the years ended December 31, 1999, 1998 and 1997)
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Finger Lakes Financial Corp.:
We have audited the accompanying consolidated statements of financial condition
of Finger Lakes Financial Corp. and subsidiary as of December 31, 1999 and 1998,
and the related consolidated statements of income, stockholders' equity and
comprehensive income (loss), and cash flows for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Finger Lakes
Financial Corp. and subsidiary at December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/KPMG LLP
Rochester, New York
January 24, 2000, except for note 1
which is as of January 31, 2000
F-2
<PAGE>
<TABLE>
FINGER LAKES FINANCIAL CORP.
Consolidated Statements of Financial Condition
December 31, 1999 and 1998
<CAPTION>
Assets 1999 1998
------------- -------------
<S> <C> <C>
Cash and cash equivalents $ 6,094,962 4,374,734
Securities available for sale, at fair value 118,750,207 115,332,807
Securities held to maturity, fair value of $1,567,273
in 1999 and $4,662,530 in 1998 1,592,795 4,639,772
Loans 160,203,637 146,311,360
Less allowance for loan losses 1,349,477 1,175,758
------------- -------------
Net loans 158,854,160 145,135,602
Accrued interest receivable 2,180,211 1,907,702
Federal Home Loan Bank stock, at cost 3,523,000 2,940,800
Premises and equipment, net 4,149,400 4,555,914
Other assets 6,096,471 3,488,735
------------- -------------
Total assets $ 301,241,206 282,376,066
============= =============
Liabilities and Stockholders' Equity
Liabilities:
Deposits $ 208,132,284 202,433,971
Advances from Federal Home Loan Bank 69,959,730 54,815,261
Other liabilities 3,770,292 3,163,238
------------- -------------
Total liabilities 281,862,306 260,412,470
------------- -------------
Commitments and contingencies (notes 12 and 13)
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized; none
issued and outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 3,570,000 shares issued and outstanding 35,700 35,700
Additional paid-in capital 4,786,957 4,749,256
Retained earnings 18,261,689 17,239,959
Accumulated other comprehensive income (loss) (3,524,843) 155,405
Unallocated shares of ESOP (180,603) (216,724)
------------- -------------
Total stockholders' equity 19,378,900 21,963,596
------------- -------------
Total liabilities and stockholders' equity $ 301,241,206 282,376,066
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
FINGER LAKES FINANCIAL CORP.
Consolidated Statements of Income
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Loans $12,137,138 10,821,304 8,587,760
Securities 8,173,120 7,810,063 7,204,518
Federal funds sold and other
short-term investments 6,187 14,085 47,503
----------- ----------- -----------
Total interest income 20,316,445 18,645,452 15,839,781
----------- ----------- -----------
Interest expense:
Deposits 8,660,307 8,678,198 7,738,344
Borrowings 3,360,357 2,523,136 1,458,051
----------- ----------- -----------
Total interest expense 12,020,664 11,201,334 9,196,395
----------- ----------- -----------
Net interest income 8,295,781 7,444,118 6,643,386
Provision for loan losses 200,000 240,000 120,000
----------- ----------- -----------
Net interest income after
provision for loan losses 8,095,781 7,204,118 6,523,386
----------- ----------- -----------
Noninterest income:
Service charges 1,026,636 803,134 507,537
Net gain on sales of loans 224,351 276,612 26,695
Net gain on sales of securities 77,137 106,231 142,160
Other -- 15,722 44,963
----------- ----------- -----------
Total noninterest income 1,328,124 1,201,699 721,355
----------- ----------- -----------
Noninterest expenses:
Salaries and employee benefits 3,591,839 3,322,895 2,868,536
Office occupancy and equipment 1,387,261 1,209,563 859,561
Provision for environmental remediation
of real estate owned 90,000 620,000 150,400
Deposit insurance premiums 119,947 112,400 100,524
Professional fees 347,007 342,144
315,430
Marketing and advertising 247,907 264,185 243,049
Data processing 158,934 119,188 176,032
Real estate owned 72,150 8,650 53,651
Other 1,243,493 1,214,198 1,068,445
----------- ----------- -----------
Total noninterest expense 7,258,538 7,213,223 5,835,628
----------- ----------- -----------
Income before income tax
expense 2,165,367 1,192,594 1,409,113
Income tax expense 860,426 468,565 561,616
----------- ----------- -----------
Net income $ 1,304,941 724,029 847,497
=========== =========== ===========
Net income per common share:
Basic $ 0.37 0.20 0.24
=========== =========== ===========
Diluted $ 0.36 0.20 0.24
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
FINGER LAKES FINANCIAL CORP.
Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss)
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Unallo-
Accumulated cated
Additional other shares
Common paid-in Retained comprehensive of
stock capital earnings income(loss) ESOP Total
----------- ----------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 17,850 4,594,554 16,193,706 (135,561) (320,270) 20,350,279
Comprehensive income:
Net income -- -- 847,497 -- -- 847,497
Unrealized gain on securities
available for sale, net of taxes -- -- -- 568,573 -- 568,573
----------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income -- -- 847,497 568,573 -- 1,416,070
----------- ----------- ----------- ----------- ----------- -----------
Allocation of shares under ESOP -- 81,332 -- -- 67,426 148,758
Cash dividends declared,
$0.20 per share -- -- (236,010) -- -- (236,010)
Two-for-one stock split 17,850 -- (17,850) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 35,700 4,675,886 16,787,342 433,012 (252,844) 21,679,096
Comprehensive income:
Net income -- -- 724,029 -- -- 724,029
Unrealized loss on securities
available for sale, net of taxes -- -- -- (277,607) -- (277,607)
----------- ----------- ----------- ----------- ----------- -----------
Total comprehensive income -- -- 724,029 (277,607) -- 446,422
----------- ----------- ----------- ----------- ----------- -----------
Allocation of shares under ESOP -- 73,370 -- -- 36,120 109,490
Cash dividends declared,
$0.23 per share -- -- (271,412) -- -- (271,412)
----------- ----------- ----------- ----------- ----------- -----------
Balance, December 31, 1998 35,700 4,749,256 17,239,959 155,405 (216,724) 21,963,596
Comprehensive loss:
Net income -- -- 1,304,941 -- -- 1,304,941
Unrealized loss on securities
available for sale, net of taxes -- -- -- (3,680,248) -- (3,680,248)
----------- ----------- ----------- ----------- ----------- -----------
Total comprehensive loss -- -- 1,304,941 (3,680,248) -- (2,375,307)
----------- ----------- ----------- ----------- ----------- -----------
Allocation of shares under ESOP -- 37,701 -- -- 36,121 73,822
Cash dividends declared,
$0.24 per share -- -- (283,211) -- -- (283,211)
----------- ----------- ----------- ----------- ----------- -----------
-- 36,120 109,490
Balance, December 31, 1999 $ 35,700 4,786,957 18,261,689 (3,524,843) (180,603) 19,378,900
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
FINGER LAKES FINANCIAL CORP.
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,304,941 724,029 847,497
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 668,929 597,548 371,910
Amortization of loan fees and other, net (171,724) 283,635 32,929
Provision for loan losses 200,000 240,000 120,000
Provision for environmental remediation 90,000 620,000 150,400
Proceeds from sales of loans 14,224,557 21,411,559 4,559,531
Loans originated for sale (15,262,000) (15,221,497) (4,532,836)
Net gain on sales of loans (224,351) (276,612) (26,695)
Net gain on sales of securities (77,137) (106,231) (142,160)
Net loss (gain) from sale of real
estate owned 15,311 (33,333) 9,030
Deferred income taxes (65,993) (199,081) (3,174)
Increase in accrued interest
receivable (272,509) (101,550) (466,550)
Decrease (increase) in other assets 25,257 113,906 (296,991)
Increase in other liabilities 590,878 122,560 347,164
------------ ------------ ------------
Net cash provided by
operating activities 1,046,159 8,174,933 970,055
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from maturities of and principal
collected on securities available for sale 25,395,980 35,669,146 13,427,056
Proceeds from maturities of and principal
collected on securities held to maturity 4,021,823 10,100,000 3,250,000
Proceeds from sales of securities
available for sale 18,413,431 51,605,954 46,318,299
Purchases of securities available for sale (53,261,255) (103,170,611) (74,815,294)
Purchases of securities held to maturity (969,395) (640,000) (3,996,665)
Loans originated and purchased (45,427,221) (59,177,514) (45,927,586)
Principal collected on loans 32,528,962 26,044,180 16,167,373
Proceeds from sales of real estate owned 256,788 277,784 169,237
Purchases of FHLB stock (582,200) (869,700) (701,100)
Purchases of premises and equipment, net (262,415) (1,503,334) (2,153,687)
------------ ------------ ------------
Net cash used in
investing activities (19,885,502) (41,664,095) (48,262,367)
------------ ------------ ------------
</TABLE>
(Continued)
F-6
<PAGE>
FINGER LAKES FINANCIAL CORP.
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in savings
and demand accounts $ 1,005,839 749,899 13,545,519
Net increase in time deposits 4,692,474 15,149,726 19,157,142
Net increase (decrease) in short term
FHLB advances 3,100,000 (16,008,000) 8,208,000
Long term advances from FHLB 23,000,000 35,000,000 5,000,000
Repayments of long term advances
from FHLB (10,955,531) (897,730) (287,009)
Principal payments on ESOP debt -- (252,844) (67,426)
Common stock dividends paid (283,211) (271,412) (236,011)
------------ ------------ ------------
Net cash provided by
financing activities 20,559,571 33,469,639 45,320,215
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 1,720,228 (19,523) (1,972,097)
Cash and cash equivalents at beginning
of year 4,374,734 4,394,257 6,366,354
------------ ------------ ------------
Cash and cash equivalents at end of year $ 6,094,962 4,374,734 4,394,257
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 11,843,376 10,994,155 9,116,530
============ ============ ============
Income taxes $ 545,000 582,011 420,500
============ ============ ============
Non-cash investing activities:
Transfer of loans to real estate
owned $ 289,786 233,448 53,368
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
(1) Summary of Significant Accounting Policies
Organization
Finger Lakes Financial Corp. (the Company), through its wholly-owned
subsidiary Savings Bank of the Finger Lakes, FSB (the Bank), provides
financial services to individuals and businesses primarily in the Finger
Lakes region of Upstate New York. The Company and Bank are subject to
regulation by certain federal agencies including the Office of Thrift
Supervision (OTS).
Finger Lakes Financial Corporation, M.H.C. (the Mutual Holding Company), a
mutual holding company whose activity is not included in the accompanying
consolidated financial statements, owns approximately 66.9% of the
outstanding common stock of the Company.
In August 1998, the Mutual Holding Company and the Bank reorganized into a
two-tier holding company. The reorganization included the formation of the
Company, a federally chartered stock holding company, and was effected by
the exchange of all outstanding common shares of the Bank for an equal
number of common shares of the Company. The reorganization had no impact on
the accompanying consolidated financial statements, or on the operations of
the Bank or the Mutual Holding Company.
Reorganization and Second Step Conversion
On January 31, 2000, the Mutual Holding Company adopted a Plan of
Conversion and Reorganization to convert from a federally chartered mutual
holding company to a state charted capital stock holding company. As part
of the conversion, each of the minority shares of the Company will
automatically be converted into and become a right to receive a number of
shares of the Bancorp common stock determined pursuant to an exchange
ratio, which ensures that immediately after the conversion and the share
exchange, the public common stock shareholders of the Company will own the
same aggregate percentage of the Bancorp common stock as they owned of
common stock immediately prior to the conversion. The Bank will organize
Bancorp as a direct subsidiary of the Bank and the Company will merge with
and into the Bank. Contemporaneously with the Plan, Bancorp will sell the
shares through a common stock offering representing 66.9% ownership
interest in the Company now owned by the Mutual Holding Company.
The proposed Plan is subject to approval by the OTS and by at least a
majority of the votes eligible to be cast either in person or by proxy by
members of the Mutual Holding Company at a meeting at which the Plan of
Conversion and Reorganization will be presented. December 31, 1998 has been
established as the eligibility record date for determining the eligible
account holders entitled to receive nontransferable subscription rights to
subscribe for the conversion stock.
The Reorganization will be accounted for as a change in corporate form with
no resulting change in the historical basis of the Company's assets,
liabilities and equity. In the event that the Reorganization and Offering
are not successfully completed, the costs incurred in connection with the
Reorganization and Offering will be expensed at the time that the
unsuccessful completion is determined. The Company has not incurred any
such costs as of December 31, 1999.
F-8
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and the Bank (collectively referred to as "the Company"
hereafter). All intercompany accounts and transactions have been eliminated
in consolidation.
The preparation of the consolidated 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. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, due from banks, federal
funds sold and other short-term investments with maturities of less than 90
days.
Securities
The Company classifies its debt securities as either available for sale or
held to maturity. Held to maturity securities are those securities that the
Company has the intent and the ability to hold until maturity. All other
securities are classified as available for sale.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at amortized cost. Unrealized holding gains and
losses, net of the related tax effect, on available for sale securities are
excluded from earnings and are reported as accumulated other comprehensive
income or loss in stockholders' equity until realized. Realized gains or
losses on securities sold are recognized on the trade date using the
specific identification method.
A decline in the fair value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to
earnings, resulting in the establishment of a new cost basis for the
security.
Interest income includes the amortization of premiums and accretion of
discounts as an adjustment to yield using the interest method.
Loans
Loans are reported at the principal amount outstanding, net of unearned
discount and net deferred fees or costs. Loan origination and commitment
fees and certain direct origination costs are deferred and amortized over
the contractual life of the related loans using the interest method.
Mortgage loans held for sale are reported at the lower of aggregate cost or
market value as determined by outstanding commitments from investors or, in
the absence of such commitments, the current investor yield requirements.
The Company generally retains the servicing rights to loans sold.
Generally, the Company places all loans 90 days or more past due on
non-accrual status. In addition, the Company 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, any
accrued interest is reversed. 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.
F-9
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Allowance for Loan Losses
The allowance for loan losses is increased by loan loss provisions charged
to operations based upon management's evaluation of the loan portfolio,
historical loan loss experience, current economic conditions and such other
factors as management considers appropriate to estimate loan losses.
Management believes that the allowance for loan losses is adequate. While
management uses available information to identify 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 Company's allowance
for loan losses. Such agencies may require the Company to recognize
additions to the allowance at the time of their examination.
Management considers a loan impaired when, based on current information and
events, it is probable that the Company will be unable to collect all
principal and interest due under the original terms of the loan agreement.
Accordingly, the Company measures certain impaired commercial loans at the
present value of future cash flows discounted using the loan's effective
interest rate; or at the loan's observable market price; or at the fair
value of the collateral, if the loan is collateral dependent. Impairment
losses are included in the allowance for loan losses. In considering loans
for evaluation of impairment, management generally excludes large groups of
smaller balance, homogeneous loans, such as residential mortgage loans,
home equity loans and all consumer loans. These loans are collectively
evaluated for impairment. When a loan is impaired and the future repayment
of the recorded balance is doubtful, interest payments received are applied
to principal and no interest income is recognized. If the recorded loan
balance is expected to be paid, interest income is recognized on a cash
basis.
Mortgage Servicing Rights
The Company recognizes, as separate assets, the rights to service mortgage
loans sold when those rights are retained by the Company. Servicing assets
are amortized in proportion to and over the estimated period of net
servicing income.
The Company stratifies its servicing assets by underlying loan type,
primarily 15 and 30 year amortizing loans. The estimated fair value of each
stratum is determined through a discounted cash flow analysis of future
cash flows, incorporating numerous assumptions, including servicing income,
servicing costs, market discount rates, and prepayment speeds.
The Company assesses impairment of servicing assets based on the fair value
of the related servicing rights on a stratum-by-stratum basis, with any
impairment recognized in earnings through a valuation allowance for each
impaired stratum. Individual allowances for each stratum are then adjusted
in subsequent periods to reflect changes in the measurement of impairment.
There was no allowance for impairment of servicing assets at December 31,
1999 and 1998.
Real Estate Owned
Real estate owned consists of property acquired through, or by deed in lieu
of, foreclosure and is recorded at the lower of cost or fair value.
Write-downs to 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 value are charged to operations in the period
in which the declines occur.
F-10
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Real Estate Owned, Continued
Provisions for environmental remediation costs related to real estate owned
are recorded when it is probable that remedial efforts will be required and
the costs can be reasonably estimated.
Premises and Equipment
Land is carried at cost and buildings, furniture, fixtures and equipment
are carried at cost less accumulated depreciation. Depreciation is provided
over the estimated service lives of the respective assets on the
straight-line method.
Federal Home Loan Bank (FHLB) Stock
As a member of the FHLB system, the Company is required to maintain an
investment in FHLB stock equal to the greater of 1% of the aggregate
outstanding mortgage loans held by the Company, or 5% of total outstanding
advances. FHLB stock is a non-marketable security and, accordingly, is
carried at cost.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Pension Plan
The Company has a defined benefit pension plan covering substantially all
employees. The plan provides pension benefits that are based on each
employee's years of service and average compensation prior to retirement.
The Company's funding policy is to contribute annually at least the minimum
amount required by law. The Retirement System for Savings Institutions
serves as Plan Trustee and Administrator.
Stock Option and Management Recognition Plans
The Company has a stock option plan and a management recognition plan for
officers and key employees. The Company has elected to continue to apply
the provisions of Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations and
provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants as if the fair-value-based method defined
in Statement of Financial Accounting Standards (SFAS) No. 123 had been
applied. Accordingly, no compensation expense has been recorded for the
stock option plan and compensation expense for the management recognition
plan is recognized on a straight-line method over the vesting period.
F-11
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(1) Summary of Significant Accounting Policies, Continued
Stock Split
In January 1998, the Board of Directors declared a two-for-one stock split
in the form of a 100% common stock dividend. All references in the
consolidated financial statements and notes thereto to share data
(including number of shares, per-share amounts, stock option and stock
grant data, and fair value of the Company's common stock) have been
restated giving retroactive recognition to the stock split.
Net Income Per Share
Basic net income per common share is computed by dividing net income by the
weighted average number of total common shares outstanding during the
period and contingently issuable shares. Diluted net income per common
share reflects the effects of common stock issuable upon exercise of
dilutive stock options and other stock grants.
Financial Instruments With Off-Balance Sheet Risk
The Company does not engage in the use of derivative financial instruments
and the Company's only financial instruments with off-balance sheet risk
are commercial letters of credit and mortgage and commercial loan
commitments. These off-balance sheet items are shown in the Company's
consolidated statement of financial condition upon funding.
Company Segments
The Company engages in the traditional operations of a community banking
enterprise, principally the delivery of loan and deposit products and other
financial services. Management makes operating decisions and assesses
performance based on an ongoing review of the Company's community banking
operations, which constitute the Company's only operating segment for
financial reporting purposes.
Reclassifications
Certain items in the 1998 and 1997 financial statements have been
reclassified in order to be consistent with the current year's
presentation.
New Accounting Standards
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 statement of financial
condition 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 resulting
designation. This statement is effective for fiscal years beginning after
June 15, 2000, although earlier adoption is permitted. The Company
anticipates, based on current activities, that the adoption of SFAS No. 133
will not have an effect on the Company's financial position or results of
operations. SFAS No. 133 also permits reclassification of securities from
the held to maturity to the available for sale classification. The Company
has no current intention to reclassify any securities pursuant to the
statement.
F-12
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(2) Securities
The aggregate amortized cost and fair value of securities are as follows:
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1999
Securities Available for Sale
Debt securities:
U.S. Government and
agency bonds $ 45,400,944 -- 2,854,708 42,546,236
Mortgage-backed securities:
Collateralized mortgage
obligations 51,996,360 1,658 1,856,404 50,141,614
FNMA 12,307,199 -- 488,636 11,818,563
FHLMC 4,585,345 1,728 92,363 4,494,710
GNMA 3,949,078 -- 138,987 3,810,091
Corporate bonds 4,729,416 -- 170,461 4,558,955
------------ ------------ ------------ ------------
Total debt
securities 122,968,342 3,386 5,601,559 117,370,169
Equity securities 1,656,602 61 276,625 1,380,038
------------ ------------ ------------ ------------
Total securities
available for sale $124,624,944 3,447 5,878,184 118,750,207
============ ============ ============ ============
Securities Held to Maturity -
Municipal bonds $ 1,592,795 -- 25,522 1,567,273
============ ============ ============ ============
December 31, 1998
Securities Available for Sale
Debt securities:
U.S. Government and
agency bonds $ 25,961,721 116,533 14,120 26,064,134
Mortgage-backed securities:
Collateralized mortgage
obligations 59,062,754 178,478 196,868 59,044,364
FNMA 16,435,960 161,007 -- 16,596,967
FHLMC 6,115,621 75,101 3,206 6,187,516
GNMA 4,759,638 24,461 -- 4,784,099
------------ ------------ ------------ ------------
Total debt
securities 112,335,694 555,580 214,194 112,677,080
</TABLE>
F-13
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(2) Securities, Continued
<TABLE>
<CAPTION>
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
December 31, 1998, Continued
Equity securities 2,738,105 3,203 85,581 2,655,727
------------ ------------ ------------ ------------
Total securities
available for sale $115,073,799 558,783 299,775 115,332,807
============ ============ ============ ============
Securities Held to Maturity
U.S. Government and
agency bonds 3,999,772 22,758 -- 4,022,530
Corporate and municipal
bonds 640,000 -- -- --
------------ ------------ ------------ ------------
Total securities held
to maturity $ 4,639,772 22,758 -- 4,662,530
============ ============ ============ ============
</TABLE>
Proceeds from the sale of securities available for sale for the years ended
December 31, 1999, 1998 and 1997 were $18,413,431, $51,605,954 and $46,318,299,
respectively. Gross gains and losses realized on those sales follow:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Gross realized gains $ 81,423 313,068 327,812
Gross realized losses (4,286) (206,837) (185,652)
-------- -------- --------
Net gains realized $ 77,137 106,231 142,160
======== ======== ========
</TABLE>
The contractual maturities of debt securities at December 31, 1999 are as
follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
---------------------------------- ----------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
One year or less $ -- -- 30,000 30,000
After one year through
five years 5,234,246 5,063,437 141,666 141,666
After five years through
ten years 48,478,231 45,549,857 928,890 913,149
After ten years 69,255,865 66,756,875 492,239 482,458
------------ ------------ ------------ ------------
Total $122,968,342 117,370,169 1,592,795 1,567,273
============ ============ ============ ============
</TABLE>
F-14
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(2) Securities, Continued
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay the obligation with or without
prepayment penalties.
At December 31, 1999 and 1998, securities carried at $46,119,705 and
$26,385,000, respectively, were pledged to secure advances from the FHLB of
New York.
(3) Loans
Loans consist of the following at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------------- -------------
<S> <C> <C>
Mortgage loans:
One to four family $ 90,587,529 89,455,464
Multi-family and commercial 28,519,656 20,533,704
Construction 2,695,125 6,912,383
------------- -------------
Total mortgage loans 121,802,310 116,901,551
Commercial business 9,536,216 5,412,658
Home equity and property improvement loans 18,234,697 12,873,693
Mobile home loans 4,500,533 4,073,837
Consumer loans 5,966,557 6,920,387
------------- -------------
Total loans 160,040,313 146,182,126
Premiums, net of deferred fees 163,324 129,234
Allowance for loan losses (1,349,477) (1,175,758)
------------- -------------
Net loans $ 158,854,160 145,135,602
============= =============
</TABLE>
The following table summarizes activity in the allowance for loan losses:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 1,175,758 1,148,786 1,087,637
Provision for loan losses 200,000 240,000 120,000
Loans charged-off (211,984) (293,134) (146,886)
Recoveries 185,703 80,106 88,035
----------- ----------- -----------
Balance, end of year $ 1,349,477 1,175,758 1,148,786
=========== =========== ===========
</TABLE>
Substantially all of the Company's loan portfolio is located in New York
State, with the greatest concentration in Ontario, Seneca and Tompkins
Counties. Accordingly, the ultimate collectibility of a substantial portion
of the Company's loan portfolio is susceptible to changes in market
conditions in these areas.
F-15
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(3) Loans, Net, Continued
The principal balance of all loans not accruing interest amounted to
approximately $586,700 and $1,016,000 at December 31, 1999 and 1998,
respectively. The interest income forgone for non-accruing loans was
$64,744, $78,166 and $59,400 for the years ended December 31, 1999, 1998,
and 1997, respectively. At December 31, 1999 and 1998, the recorded
investment in loans that are considered impaired was $169,924 and $268,236,
respectively. The Company has provided an allowance for loan losses of
$50,977 and $88,518 at December 31, 1999 and 1998, respectively, for these
loans. The average recorded investment in such impaired loans was
approximately $206,500 in 1999, $331,700 in 1998 and $74,900 in 1997 and
interest income on impaired loans of $0 in 1999, $12,912 in 1998, and
$3,088 in 1997, was recognized.
Proceeds from the sale of residential and commercial mortgage loans to FNMA
and others were $14,224,557 in 1999, $21,411,559 in 1998, and $4,559,531 in
1997. The net gain on sale of such loans was $224,351, $276,612 and $26,695
for the years ended December 31, 1999, 1998, and 1997 respectively. Loans
serviced for others, amounting to $39,081,954 and $26,770,611 at December
31, 1999 and 1998, respectively, are not included in the consolidated
financial statements. Originated mortgage servicing rights of $253,785 and
$143,276 are included in other assets at December 31, 1999 and 1998,
respectively. The net carrying value of these servicing rights approximated
fair value. Residential mortgage loans held for sale were $454,700 and
$1,204,000 at December 31, 1999 and 1998, respectively.
(4) Premises and Equipment
Premises and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Land $ 113,000 113,000
Building 3,328,317 3,294,248
Furniture, fixtures and equipment 2,958,367 2,759,238
---------- ----------
6,399,684 6,166,486
Less accumulated depreciation and
amortization 2,250,284 1,610,572
---------- ----------
Premises and equipment, net $4,149,400 4,555,914
========== ==========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1999, 1998, and 1997 was $668,929, $597,548 and $371,910, respectively.
F-16
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(5) Deposits
Deposits and the applicable weighted average interest rates at December 31,
1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- -----------------------------------
Weighted Weighted
Average Average
Amount Interest Rate Amount Interest Rate
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Demand deposits and NOW
accounts $ 24,474,602 1.17% 24,127,812 1.17%
------------ ------------ ------------ ------------
Savings accounts 46,093,326 2.40% 47,258,689 2.74%
Money market accounts 5,020,227 3.07% 3,195,816 2.89%
------------ ------------
51,113,553 2.46% 50,454,505 2.75%
------------ ------------ ------------ ------------
Certificates of deposit maturing:
12 months or less 98,308,695 88,404,748
13-24 months 24,778,136 28,829,883
25-36 months 3,742,491 4,279,881
37-48 months 4,007,255 2,032,335
49-60 months 1,634,750 4,196,753
61 months or longer 72,802 108,054
------------ ------------
132,544,129 5.34% 127,851,654 5.56%
------------ ------------ ------------ ------------
$208,132,284 4.15% 202,433,971 4.34%
============ ============ ============ ============
</TABLE>
Certificates of deposit equal to or greater than $100,000 amounted to
$24,599,864 and $22,609,407 at December 31, 1999 and 1998, respectively.
Interest on deposits is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
NOW accounts $ 279,365 394,664 341,458
Savings accounts 1,280,547 1,365,558 1,390,960
Money market accounts 106,266 38,124 57,470
Certificates of deposit 6,994,129 6,879,852 5,948,456
---------- ---------- ----------
$8,660,307 8,678,198 7,738,344
========== ========== ==========
</TABLE>
F-17
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(6) Advances from Federal Home Loan Bank
The Company utilizes advance programs offered by the Federal Home Loan Bank
of New York including a variable rate line of credit agreement with a
maximum available limit of $29,175,000. The agreement, which expires
October 13, 2000, is renewable on an annual basis. Advances are
collateralized by a blanket lien on the Bank's 1-4 family mortgage loans or
investment securities.
Total outstanding advances from the FHLB at December 31, 1999 and 1998 are
as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
Weighted Weighted
Average Average
Amount Interest Rate Amount Interest Rate
------ ------------- ------ -------------
<S> <C> <C> <C> <C>
Overnight line of credit $ 2,100,000 5.10% 6,000,000 5.13%
Due in:
1999 -- -- 10,000,000 5.63%
2000 17,000,000 5.79% -- --
2001 5,000,000 5.88% 3,000,000 5.45%
2002 3,859,730 6.36% 3,815,261 6.26%
2003 20,000,000 5.52% 20,000,000 5.52%
2004 10,000,000 6.01% --
2007 2,000,000 5.65% 2,000,000 5.65%
2008 -- -- 10,000,000 4.75%
2009 10,000,000 5.01% -- --
----------- ---- ----------- ----
$69,959,730 5.64% 54,815,261 5.41%
=========== ==== =========== ====
</TABLE>
Advances of $37,000,000 are callable at the discretion of the FHLB in or
after 2000. Such advances have a weighted average interest rate of 5.48%
and mature from 2003 to 2009.
During 1999 and 1998 advances from the FHLB had an average outstanding
balance of approximately $61,923,000 and $45,532,000, respectively, with
the maximum amount outstanding at any month end of $69,959,730 in 1999 and
$54,892,000 in 1998. Such borrowings had a weighted-average borrowing rate
of 5.43% for 1999 and 5.41% for 1998.
(7) Income Taxes
Total income taxes for the years ended December 31, 1999, 1998 and 1997
were allocated as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Income from operations $ 860,426 468,565 561,616
Stockholders' equity, for
unrealized gain/loss on
securities (2,453,498) (185,264) 378,599
----------- ----------- -----------
$(1,593,072) 283,301 940,215
=========== =========== ===========
</TABLE>
F-18
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes, Continued
The components of income tax expense (benefit) attributable to income from
operations follow:
<TABLE>
<CAPTION>
Current Deferred Total
--------- --------- ---------
<S> <C> <C> <C>
Year ended December 31, 1999:
Federal $ 782,650 (114,246) 668,404
State 143,769 48,253 192,022
--------- --------- ---------
$ 926,419 (65,993) 860,426
========= ========= =========
Year ended December 31, 1998:
Federal $ 492,296 (128,696) 363,600
State 175,350 (70,385) 104,965
--------- --------- ---------
$ 667,646 (199,081) 468,565
========= ========= =========
Year ended December 31, 1997:
Federal $ 437,999 (2,698) 435,301
State 126,791 (476) 126,315
--------- --------- ---------
$ 564,790 (3,174) 561,616
========= ========= =========
</TABLE>
The actual tax expense differs from the "expected" tax expense computed by
applying the U.S. Federal corporate income tax rate of 34% to income before
income taxes as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax
expense $ 736,225 405,482 479,098
Increase (decrease) in taxes resulting from:
State income tax expense,
net of federal
income tax benefit 125,005 69,277 83,368
Other, net (804) (6,194) (850)
--------- --------- ---------
$ 860,426 468,565 561,616
========= ========= =========
</TABLE>
F-19
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes, Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 428,547 387,804
Net unrealized loss on securities
available for sale 2,349,895 --
Supplemental retirement benefits 76,480 81,873
Postretirement benefits 133,910 99,940
Deferred compensation 65,562 40,467
Accrued environmental remediation costs 266,373 275,809
New York State credits 77,761 75,087
Other 25,463 36,323
---------- ----------
Total deferred tax assets 3,423,991 997,303
---------- ----------
Deferred tax liabilities:
Net unrealized gain on securities available
for sale -- 103,487
Premises and equipment, principally due to
differences in depreciation 155,777 166,212
Mortgage servicing rights 98,849 57,225
Other -- 20,389
---------- ----------
Total deferred tax liabilities 254,626 347,313
---------- ----------
Net deferred tax assets included
in other assets $3,169,365 649,990
========== ==========
</TABLE>
As a thrift institution, the Bank is subject to special provisions in the
Federal and New York State tax laws regarding its allowable tax bad debt
deductions and related tax bad debt reserves. The Bank currently calculates
its Federal reserve using a loss experience method and its New York State
reserve using a percentage of taxable income method. These reserves consist
of a defined base-year amount, plus additional amounts ("excess reserves")
accumulated after the base year. The Bank's Federal base year reserve is
designated as the tax bad debt reserve at December 31, 1987. Recent
amendments to the New York State tax law redesignated the Bank's state tax
bad debt reserves at December 31, 1995, as the base-year amount.
SFAS No. 109 requires recognition of deferred tax liabilities with respect
to such excess reserves, as well as any portion of the base-year amount
which is expected to become taxable (or "recaptured") in the foreseeable
future. For New York State purposes, recognition of deferred tax
liabilities is not required on excess reserves resulting from use of the
percentage of taxable income method unless all or a portion is expected to
become taxable in the forseeable future.
F-20
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(7) Income Taxes, Continued
In accordance with SFAS No. 109, deferred tax liabilities have not been
recognized with respect to the Federal base-year reserve of approximately
$3,025,000, and the state base-year reserve of approximately $3,240,000 at
December 31, 1999, since the Bank does not expect that these amounts will
become taxable in the foreseeable future. Under Federal and New York State
tax law, as amended, events that would result in taxation of these reserves
include redemption of the Bank's stock, payment of dividends or
distributions in excess of earnings and profits, or failure by the
institution to qualify as a bank for Federal income tax purposes. The
unrecognized deferred tax liability at December 31, 1999 with respect to
the Federal base-year reserve was $1,030,000. The unrecognized deferred tax
liability at December 31, 1999 with respect to the state base-year reserve
and the excess reserve resulting from use of the percentage of taxable
income method was $190,000 (net of Federal benefit).
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income within
a loss carryback period. A valuation allowance is recognized when it is
more likely than not that some portion 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 at December 31, 1999 and 1998.
(8) Retirement Plans
The following table sets forth the defined benefit pension and other
postretirement plan benefit obligations, fair value of plan assets and
funded status, as of and for the years ended December 31, 1999 and 1998,
using the most recent actuarial data measured at October 1, 1999 and 1998:
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
------------------------------ ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 2,338,585 2,010,012 666,771 488,372
Service cost 101,828 69,996 33,123 25,051
Interest cost 150,864 143,289 42,815 37,889
Curtailment -- -- (232,831) --
Termination benefits -- 64,561 -- --
Actuarial (gain)/loss (211,701) 189,231 (141,240) 129,721
Benefits paid (144,281) (138,504) (16,156) (14,262)
----------- ----------- ----------- -----------
Benefit obligation at end of year 2,235,295 2,338,585 352,482 666,771
----------- ----------- ----------- -----------
Change in plan assets:
Fair value of plan assets at beginning
of year 2,851,610 2,983,294 -- --
Actual return on plan assets 505,687 6,820 -- --
Employer contribution -- -- 16,156 14,262
Benefits paid (144,281) (138,504) (16,156) (14,262)
----------- ----------- ----------- -----------
Fair value of plan assets at end
of year 3,213,016 2,851,610 -- --
----------- ----------- ----------- -----------
</TABLE>
F-21
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(8) Retirement Plans, Continued
<TABLE>
<CAPTION>
Pension Benefits Postretirement Benefits
---------------------------- ----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Funded status 977,721 513,025 (352,482) (666,771)
Unamortized net (asset) obligation at
transition -- (19,826) 8,683 290,336
Unrecognized net (gain) loss subsequent
to transition (794,630) (299,684) -- 159,539
Unamortized prior service cost -- 485 -- (19,068)
--------- --------- --------- ---------
Prepaid (accrued) benefit cost at
year-end $ 183,091 194,000 (343,799) (235,964)
========= ========= ========= =========
</TABLE>
Pension Plan
Pension plan expense (benefit) consists of the following in 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost $ 101,828 69,996 57,229
Interest on projected benefit obligation 150,864 143,289 139,658
Expected return on plan assets (222,442) (233,416) (199,195)
Amortization of net transition asset (19,826) (22,283) (22,283)
Amortization of unrecognized gain -- (32,979) (19,428)
Amortization of unrecognized
prior service cost 485 590 590
Termination benefits charge -- 64,561 --
--------- --------- ---------
Net periodic pension expense (benefit) $ 10,909 (10,242) (43,429)
========= ========= =========
Weighted average discount rate 7.75% 6.50% 7.25%
========= ========= =========
Expected long-term rate of return 8.00% 8.00% 8.00%
========= ========= =========
</TABLE>
The projected benefit obligation for the pension plan assumed a long-term
rate of increase in future compensation levels of 5.5%, 4.5% and 5.0% for
1999, 1998 and 1997, respectively.
Postretirement Plan
Net periodic postretirement benefit cost included the following in 1999,
1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 33,123 25,051 17,054
Interest cost 42,815 37,889 32,191
Net curtailment charge 26,672 -- --
Net amortization and deferral 21,381 17,033 15,847
-------- -------- --------
Net periodic postretirement
benefit cost $123,991 79,973 65,092
======== ======== ========
</TABLE>
F-22
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(8) Retirement Plans, Continued
For measurement purposes, an annual rate of increase in the per capita cost
of average health care benefits for retirees of 6.5% and 7.0% at December
31, 1999 and 1998, respectively, was assumed. The rate is assumed to
decrease gradually to 5.0% by 2005 and remain at that level thereafter. The
health care cost trend 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, 1999 by $18,850, and the net periodic
postretirement benefit cost by $17,300 for the year then ended.
The weighted average discount rate used in determining the accumulated
postretirement obligation was 7.75%, 6.50% and 7.50% for 1999, 1998 and
1997, respectively.
During 1999, the Company curtailed the postretirement plan by discontinuing
to offer postretirement benefits to employees. As a result, the Company
incurred a $26,672 net curtailment charge which represented the accelerated
amortization of substantially all of the transition obligation less the
reduction in the projected benefit obligation.
401(k) Plan
The Company has a 401(k) plan covering substantially all employees. The
Company currently does not match employee contributions to the 401(k) plan.
Participants vest immediately in their own contributions and over a period
of six years in any Company contributions. Expense for this plan was
$7,900, $7,300 and $2,100 for the years ended December 31, 1999, 1998 and
1997, respectively.
Supplemental Employee Retirement Plan (SERP)
The Company maintains a nonqualified SERP for key executives. The following
table sets forth the changes the SERP's change in benefit obligation and
change in plan assets for 1999 and 1998, using the most recent actuarial
data measured at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ 418,453 539,649
Interest cost 26,032 27,452
Amendments -- (115,199)
Actuarial (gain)/loss 16,076 (1,955)
Benefits paid (45,019) (31,494)
--------- ---------
Benefit obligation at end of year 415,542 418,453
--------- ---------
Change in plan assets:
Fair value of plan assets at beginning of year -- --
Employer contributions 45,019 31,494
Benefits paid (45,019) (31,494)
--------- ---------
Fair value of plan assets at end of year -- --
--------- ---------
</TABLE>
F-23
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(8) Retirement Plans, Continued
Supplemental Employee Retirement Plan (SERP), Continued
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Funded status (415,542) (418,453)
Unamortized net obligation at
transition 303,200 322,150
Unrecognized net loss (gain) subsequent
to transition 14,121 (1,955)
Unrecognized prior service cost (98,271) (106,735)
--------- ---------
Accrued benefit cost at year end $(196,492) (204,993)
========= =========
</TABLE>
Annual expense related to the SERP consists of the following in 1999, 1998
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Interest cost $ 26,032 27,452 78,852
Amortization of net transition obligation 18,950 18,950 18,950
Unrecognized prior service cost (8,464) (8,464) --
-------- -------- --------
Net periodic pension expense $ 36,518 37,938 97,802
======== ======== ========
Weighted average discount rate 7.75% 6.50% 6.75%
======== ======== ========
</TABLE>
(9) Employee Stock Ownership Plan
The Company has a noncontributory employee stock ownership plan (ESOP)
covering substantially all employees. The Company reports compensation
expense equal to the current market price of the shares released to
participants each year. As of December 31, 1999, 44,324 shares have been
allocated to employees with the remaining unallocated shares held in trust.
Compensation expense amounted to $69,441, $105,028 and $141,059 for the
years ended December 31, 1999, 1998 and 1997, respectively.
(10) Stock Option and Management Recognition Plans
In accordance with the 1996 Stock Option Plan (the "SOP"), the Company's
Board of Directors may grant stock options to officers and key employees to
purchase up to 118,000 shares of authorized but unissued common stock.
Options are granted with an exercise price equal to the fair market value
at the date of grant. All stock options have ten-year terms and vest and
become fully exercisable after five years from the date of grant.
At December 31, 1999, there were 9,000 shares available for grant under the
SOP. The per share weighted-average fair value of stock options granted was
$1.43 in 1999, $3.71 in 1998 and $7.52 in 1997 on the date of grant using
the Black Scholes option-pricing model with the following weighted-average
assumptions: 1999 - expected dividend yield of 3.00%, risk-free interest
rate of 6.50%, assumed volitility of 37.01% and an expected life of 10
years; 1998 - expected dividend yield of 2.09%, risk-free interest rate of
5.25%, assumed volitility of 38.23% and an expected life of 10 years; and
1997 - expected dividend yield of 1.25%, risk-free interest rate of 5.75%,
assumed volitility of 26.30% and an expected life of 10 years.
F-24
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(10) Stock Option and Management Recognition Plans, continued
The Company applies APB Opinion No. 25 in accounting for its SOP and
accordingly, no compensation cost has been recognized for stock options in
the financial statements. Had the Company recognized compensation cost
based on the fair value at the grant date for its stock option under SFAS
No. 123, the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net income As reported $1,304,941 724,029 847,497
Pro forma 1,278,257 693,497 820,817
Net income per share - basic As reported $ 0.37 0.20 0.24
Pro forma 0.36 0.19 0.24
</TABLE>
Stock option activity for the years ended December 31, 1999, 1998 and 1997
follows:
<TABLE>
<CAPTION>
Weighted-
Number of average
shares exercise price
------ --------------
<S> <C> <C>
Balance at January 1, 1997 80,700 $ 7.93
Granted 28,600 11.63
-------- ------
Balance at December 31, 1997 109,300 8.89
Granted 8,700 17.21
Forfeited (2,000) (8.00)
-------- ------
Balance at December 31, 1998 116,000 9.53
Granted 1,000 9.00
Forfeited (2,000) (19.88)
Cancelled (6,000) (17.98)
-------- ------
Balance at December 31, 1999 109,000 $ 8.87
======== ======
</TABLE>
The range of exercise prices and weighted-average remaining contractual
life of outstanding options was $6.75 - $14.50 and six years at December
31, 1999 and $6.75 - $20.00 and seven years at December 31, 1998,
respectively . At December 31, 1999 and 1998, the number of options
exercisable was 58,400 and 37,200 respectively.
The Company also has a Management Recognition Plan (MRP) pursuant to which
the Company's Board of Directors may award shares of common stock to
officers and key employees. In 1996, the Company contributed funds to an
irrevocable trust held by an independent third party, which purchased
47,200 issued and outstanding shares for $8.4375 per share. As of December
31, 1999, all shares had been granted to employees with original vesting
periods of three to five years. Compensation expense in the amount of the
fair market value of the common stock at the date of the grant to the
officer or employee is recognized prorata over the vesting period. MRP
expense included in salaries and employee benefits in the consolidated
statement of income was $106,000 in each of 1999 and 1998 and $70,000 in
1997.
F-25
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(11) Net Income Per Share
The following is a summary of the net income per share calculation for the
years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998
---- ----
Weighted Weighted
Average Per-Share Average Per-Share
Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net income per share - basic
Weighted average shares 3,570,000 3,570,000
---------- ---------
Income available
to common
shareholders $1,304,941 3,570,000 $0.37 $ 724,029 3,570,000 $0.20
---------- ---------- ===== ---------- ---------- =====
Effect of dilutive securities:
Common stock options 18,447 43,982
---------- ----------
Net income per share - diluted $1,304,941 3,588,447 $0.36 $ 724,029 3,613,982 $0.20
========== ========== ===== ========== ========== =====
<CAPTION>
1999
----
Weighted
Average Per-Share
Income Shares Amount
------ ------ ------
<S> <C> <C> <C>
Net income per share - basic
Weighted average shares 3,570,000
----------
Income available
to common
shareholders $ 847,497 3,570,000 $0.24
---------- ---------- =====
Effect of dilutive securities:
Common stock options 23,574
----------
Net Income per share - diluted $ 847,497 3,593,594 $0.24
========== ========== =====
</TABLE>
(12) Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments are primarily commitments to extend
credit. These instruments involve, to varying degrees, elements of credit
and interest rate risk and at December 31, 1999 and 1998 are not reflected
in the consolidated statements of financial condition.
The following is a summary of the maximum credit exposure of each class of
lending related off-balance sheet financial instruments outstanding at
December 31:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Commitments to originate loans:
Fixed rate mortgage loans $1,108,450 2,251,161
Adjustable rate mortgage loans 144,000 1,182,000
Commercial real estate loans 1,223,000 2,243,000
Commercial loans 300,000 --
Consumer home equity loans 324,100 511,400
---------- ----------
$3,099,550 6,187,561
========== ==========
</TABLE>
F-26
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(11) Commitments and Contingencies - continued
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Unused lines of credit:
Construction loans $ 994,955 1,282,439
Commercial lines of credit 5,355,963 2,001,192
Home equity lines of credit 7,859,186 5,386,745
Other 503,219 489,531
----------- -----------
$14,713,323 9,159,907
=========== ===========
Outstanding letters of credit $ 90,000 12,000
=========== ===========
Commitments to sell loans:
Fixed rate mortgage loans $ 666,720 1,867,000
=========== ===========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since certain commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Company
evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
customer. Substantially all commitments to extend credit, if funded, will
represent loans secured by real estate. At December 31, 1999, the Company
had no significant concentrations of credit risk in the loan portfolio
outside the natural geographic concentration pertaining to the communities
that the Company serves.
The Company enters into forward contracts for future delivery of
residential mortgage loans at a specified yield to reduce the interest rate
risk associated with fixed rate residential mortgages held for sale and
commitments to fund residential mortgages. Credit risk arises from the
possible inability of the other parties to comply with the contract terms.
Substantially all of the Company's contracts are with FNMA, a U.S.
government-sponsored agency.
At December 31, 1999, the Company occupies branch facilities under
noncancelable operating leases. Office occupancy and equipment expense
includes rental expense of $272,251, $243,420 and $199,382 for the years
ended December 31, 1999, 1998 and 1997, respectively. The approximate
future minimum annual rental payments under the existing terms of such
leases at December 31, 1999 are as follows: $298,488, $258,018, $252,124,
$252,124 and $252,124 for the years ending December 31, 2000, 2001, 2002,
2003, and 2004, respectively, and $2,200,408 in later years.
F-27
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(12) Environmental Matter
In April 1989, the Company foreclosed on property that had been a dry
cleaning and laundry facility. Environmental investigations revealed ground
water and soil contamination and the Company incurred in excess of $500,000
in remediation costs through 1992. During the period from 1993 to 1998 the
Company had discussions with the Department of Environmental Commission
(DEC) and performed periodic soil testing to determine if the property
could be sold. In October 1998, further testing revealed a new and more
volatile contaminant in the soil. As a result, the Company recorded a
provision of $620,000 in December 1998 and $90,000 in 1999. At December 31,
1998, the Company had a $691,000 accrual in other liabilities for the
estimated probable costs relating to the remediation. In April 1999, the
Company submitted an application for a voluntary cleanup agreement and a
proposed remediation plan to the DEC. In May 1999, the Company received
comments from the DEC regarding the proposed remediation plan which
included suggestions of alternative remediation methods. In response to
these comments, the Company completed a detailed evaluation of the
alternative remediation methodologies. In October 1999, the Company
submitted a Focused Feasibility Study and Remediation Work Plan for
voluntary cleanup to the DEC. In December 1999, the DEC approved the
voluntary cleanup agreement and work plan. The Company anticipates approval
of the final design work plan from the DEC by June 2000. When the final
design work plan has been approved by the DEC, the Company intends to
purchase a cleanup cost CAP insurance policy with a coverage limit of $1
million for a 2 year term. The Company has purchased a pollution legal
liability insurance policy with a coverage limit of $2 million and a policy
term of 5 years, which provides coverage against third party liability
claims that could arise from any off-site migration of the contamination.
At December 31, 1999, the Company had a $684,000 accrual in other
liabilities for the estimated remediation costs. Management for the Company
believes that the recorded liability, together with the insurance coverage,
should be adequate to cover reasonably anticipated liabilities in
connection with this matter. However, it is possible that our liability
exposure for the site will exceed the amounts reserved and insured.
(13) Stockholders' Equity and Regulatory Capital Requirements
Other Comprehensive Income
The components of other comprehensive income (loss) for 1999, 1998 and 1997
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Unrealized holding gains (loss)
arising during year $(3,633,966) (213,868) 653,869
Less: reclassification adjustment for gains
included in net income 46,282 63,739 85,296
----------- ----------- -----------
Change in unrealized gains on securities,
available for sale, net of taxes $(3,680,248) (277,607) 568,573
=========== =========== ===========
</TABLE>
Dividends
The Mutual Holding Company, which owns 2,389,948 shares of stock in Finger
Lakes Financial Corp., waived receipt of its dividend thereby reducing the
actual dividend payments. The amount of dividends waived by the Mutual
Holding Company was $573,600 in 1999, $550,000 in 1998 and $478,000 in
1997.
Payment of dividends by the Bank is subject to non-objection by the OTS. As
of December 31, 1999, the amount of capital available for distribution was
$5.7 million.
F-28
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(14) Stockholders' Equity and Regulatory Capital Requirements, continued
Regulatory Capital Requirements
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. Under the OTS capital regulations in effect
at December 31, 1999, the Bank was required to maintain a minimum ratio of
tangible capital to tangible assets of 1.5%; a minimum leverage ratio of
core (Tier 1) capital to total adjusted tangible assets of 4.0%; and a
minimum ratio of total capital (core capital and supplementary capital) to
risk-weighted assets of 8.0%, of which 4.0% must be core (Tier 1) capital.
The regulations establish a framework for the classification of savings
institutions into five categories: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Generally, an institution is considered well
capitalized if it has a core (Tier 1) capital ratio of at least 5.0%; a
core (Tier 1) risk-based capital ratio of at least 6.0%; and a total
risk-based capital ratio of at least 10.0%.
Management believes that, as of December 31, 1999 and 1998, the Bank meets
all capital adequacy requirements to which it is subject. Further, the most
recent OTS notification categorized the Bank as a well-capitalized
institution under the prompt corrective action regulations. There have been
no conditions or events since that notification that management believes
have changed the Bank's capital classification.
The following is a summary of the Bank's actual regulatory capital amounts
and ratios as of December 31, 1999 and 1998, compared to the OTS
requirements for minimum capital adequacy and for classification as a
well-capitalized institution. OTS capital regulations apply at only the
Bank level as the OTS does not impose capital requirements on the Holding
Company.
<TABLE>
<CAPTION>
Minimum
Actual Requirement Well Capitalized
----------------------- ----------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
Total capital (to risk
weighted assets) $23,034,000 16.66% 11,058,800 8.00% 13,823,500 10.00%
Tier 1 capital (to risk
weighted assets) 22,597,000 16.35% 5,529,400 4.00% 8,294,100 6.00%
Tier 1 capital (to
average assets) 22,597,000 7.41% 12,202,480 4.00% 15,253,100 5.00%
Tangible capital 22,597,000 7.41% 4,575,930 1.50% -- --
</TABLE>
1999 Adjusted Tangible Assets were $305,062,000. 1999 Risk Weighted Assets
were $138,235,000.
F-29
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(14) Stockholders' Equity and Regulatory Capital Requirements, continued
<TABLE>
<CAPTION>
Minimum
Actual Requirement Well Capitalized
----------------------- ----------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998
Total capital (to risk
weighted assets) $20,350,000 17.04% 9,552,560 8.00% 11,940,700 10.00%
Tier 1 capital (to risk
weighted assets) 21,328,000 17.86% 4,776,280 4.00% 7,164,420 6.00%
Tier 1 capital (to
average assets) 21,328,000 7.55% 8,475,150 3.00% 14,125,250 5.00%
Tangible capital 21,328,000 7.55% 4,237,575 1.50% -- --
</TABLE>
1998 Adjusted Tangible Assets were $282,505,000. 1998 Risk Weighted Assets
were $119,407,000.
Regulatory capital ratios of the Company at December 31, 1999, computed on
a consolidated basis are summarized below:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Total capital (to risk weighted assets) 16.81% 17.45%
Tier 1 capital (to risk weighted assets) 16.50% 18.27%
Tier 1 capital (to average assets) 7.46% 7.71%
Tangible capital 7.46% 7.71%
</TABLE>
(15) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating its fair value disclosure for financial instruments:
Securities
Fair values for securities are based on quoted market prices. Where quoted
market prices are not available, fair values are based on quoted market
prices of comparable instruments.
Loans
The fair values of variable rate loans that reprice frequently and have no
significant credit risk, approximates carrying values. Fair values of fixed
rate residential mortgage loans are based on quoted market prices of
similar loans sold in the secondary market, adjusted for differences in
loan characteristics. The fair values of other 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 delinquent more than 30 days
are reduced by an allocated amount of the general allowance for loan
losses.
F-30
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(15) Fair Value of Financial Instruments, Continued
Deposits
The fair values of demand deposits, savings accounts and money market
accounts are, by definition, equal to the amounts payable on demand at the
reporting date (e.g., their carrying values). The fair value of fixed
maturity time deposits is estimated using a discounted cash flow approach
that applies interest rates currently being offered on certificates of
deposits to a schedule of weighted average expected monthly maturities.
Advances from FHLB
The fair value of advances from the FHLB is estimated using a discounted
cash flow approach that applies interest rates currently being offered for
advances with similar terms.
The estimated fair value of the Company's financial instruments is as
follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
-------------------------------- -------------------------------
Carrying Carrying
amount Fair value amount Fair value
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Financial assets:
Securities $120,343,002 120,317,480 119,972,579 119,995,337
Loans 158,854,160 158,867,205 145,135,602 149,089,220
Financial liabilities:
Deposits:
Demand deposit accounts,
savings and money
market accounts 75,588,155 75,588,155 74,582,317 74,582,317
Time deposits 132,544,129 132,598,680 127,851,654 127,952,986
Advances from FHLB 69,595,730 70,897,337 54,815,261 55,066,529
</TABLE>
Other Financial Instruments
Based on the characteristics of cash, cash equivalents, and FHLB stock, the
carrying value approximates the fair value. The fair value of commitments
to extend credit are equal to the deferred fees outstanding, as the
contractual rates and fees approximate 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-31
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(16) Condensed Parent Company Only Financial Information
The following condensed statements of condition of Finger Lakes Financial
Corp. as of December 31, 1999 and 1998 and the condensed statements of
income and condensed statements of cash flows for 1999 and 1998 should be
read in conjunction with the Consolidated Financial Statements and related
notes:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Condensed Statement of Condition
Assets:
Cash $ 210,690 $ 441,823
Notes receivable from
subsidiary 180,603 216,724
Other assets 49,746 59,344
Investment in subsidiary 19,237,662 21,535,356
----------- -----------
$19,678,701 $22,253,247
=========== ===========
Liabilities and stockholders' equity:
Note payable to subsidiary $ 299,801 $ 289,651
Stockholders' equity 19,378,900 21,963,596
----------- -----------
$19,678,701 $22,253,247
=========== ===========
</TABLE>
Condensed Statement of Income
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Income $ 15,958 $ 3,596
Expense 22,340 4,553
----------- -----------
Loss before income taxes and
equity in earnings of subsidiary (6,382) (957)
Income tax benefit 2,591 --
----------- -----------
Loss before equity in earnings
of subsidiary (3,791) (957)
Equity in earnings of subsidiary 1,308,732 724,986
----------- -----------
Net income $ 1,304,941 $ 724,029
=========== ===========
</TABLE>
F-32
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
(16) Condensed Parent Company Only Financial Information, Continued
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,304,941 $ 724,029
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in earnings of subsidiary (1,308,732) (724,985)
Other, net 9,598 (59,345)
Net cash provided by
(used in) operating
activities 5,807 (60,301)
----------- -----------
Cash flows from investing activities:
Note receivable originated to subsidiary -- (225,754)
Principal collected on note receivable 36,121 9,030
----------- -----------
Net cash provided by (used in)
investing activities 36,121 (216,724)
----------- -----------
Cash flows from financing activities:
Increase in note payable to subsidiary 10,150 289,651
Capitalization of Company -- 500,000
Cash dividends paid (283,211) (70,803)
----------- -----------
Net cash (used in) provided by
financing activities (273,061) 718,848
----------- -----------
Net (decrease) increase in cash and
cash equivalents (231,133) 441,823
Cash and cash equivalents at beginning
of period 441,823 --
----------- -----------
Cash and cash equivalents at end
of period $ 210,690 $ 441,823
=========== ===========
</TABLE>
F-33
<PAGE>
FINGER LAKES FINANCIAL CORP.
Notes to Consolidated Financial Statements, Continued
Quarterly Summarized Financial Information (Unaudited)
Selected quarterly financial data for fiscal 1999 and 1998 follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1999
-----------------------------------------------------------------------
By Quarter 1 2 3 4 Year
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest income $4,871 4,987 5,208 5,251 20,317
Interest expense 2,910 2,950 3,050 3,111 12,021
------ ------ ------ ------ ------
Net interest income 1,961 2,037 2,158 2,140 8,296
Provision for loan
losses 75 50 35 40 200
Non-interest income 303 363 307 355 1,328
Non-interest expense 1,734 1,850 1,797 1,878 7,259
------ ------ ------ ------ ------
Income before income
taxes 455 500 633 577 2,165
Income taxes 182 200 260 218 860
------ ------ ------ ------ ------
Net income $ 273 300 373 359 1,305
====== ====== ====== ====== ======
Net income per common share:
Basic $ 0.08 0.08 0.10 0.11 0.36
Diluted $ 0.08 0.08 0.10 0.10 0.36
====== ====== ====== ====== ======
<CAPTION>
1998
-----------------------------------------------------------------------
By Quarter 1 2 3 4 Year
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Interest income $4,443 4,551 4,693 4,959 18,646
Interest expense 2,617 2,730 2,885 2,969 11,201
------ ------ ------ ------ ------
Net interest income 1,826 1,821 1,808 1,990 7,445
Provision for loan
losses 60 60 60 60 240
Non-interest income 238 322 285 356 1,201
Non-interest expense 1,562 1,623 1,661 2,367 7,213
------ ------ ------ ------ ------
Income before income
taxes 442 460 372 (81) 1,193
Income taxes 176 184 142 (33) 469
------ ------ ------ ------ ------
Net income $ 266 276 230 (48) 724
====== ====== ====== ====== ======
Net income per common share:
Basic $ 0.07 0.08 0.06 (0.01) 0.20
Diluted $ 0.07 0.08 0.06 (0.01) 0.20
====== ====== ====== ====== ======
</TABLE>
F-34
<PAGE>
- --------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representation other than as contained in this prospectus, and, if given or
made, such other information or representation must not be relied upon as having
been authorized by Finger Lakes Bancorp, or Savings Bank of the Finger Lakes.
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 whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of Finger Lakes Bancorp or Savings Bank of the Finger
Lakes since any of the dates as of which information is furnished herein or
since the date hereof.
Up to __________ Shares
(Anticipated Maximum)
Finger Lakes Bancorp, Inc.
(Proposed Holding Company for
Savings Bank of the Finger Lakes)
COMMON STOCK
Par Value $.01 per share
------------------
PROSPECTUS
------------------
Friedman, Billings, Ramsey Co., Inc.
May __, 2000
----------------
These securities are not deposits or accounts and
are not federally insured or guaranteed.
----------------
Until ________, 2000 or 25 days after commencement of the Syndicated Community
Offering, if any, whichever is later, all dealers effecting transactions in the
registered securities, whether or not participating in this distribution, may be
required to deliver a prospectus when acting as underwriters and with respect to
their unsold allotments of subscriptions.
- --------------------------------------------------------------------------------
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Amount
------
<S> <C>
* Legal Fees and Expenses................................. $ 150,000
* Printing, Postage and Mailing........................... 150,000
* Appraisal and Business Plan Fees and Expenses........... 30,000
* Accounting Fees and Expenses............................ 85,000
* Conversion Data Processing.............................. 15,000
** Marketing Fees and Expenses............................. 265,000
* Filing Fees (NASD, OTS and SEC)......................... 20,000
* Other Expenses.......................................... 35,000
---------
* Total .................................................. $ 750,000
=========
</TABLE>
- ----------
* Estimated
** Savings Bank of the Finger Lakes, FSB and Finger Lakes Bancorp, Inc. have
retained Friedman, Billings, Ramsey & Co., Inc ("FBR") to assist in the
sale of common stock on a best efforts basis in the Subscription and
Community Offerings. For purposes of computing estimated expenses, it has
been assumed that FBR will receive fees of approximately $215,000,
exclusive of attorneys' fees of $25,000. FBR estimates that its expenses
shall not exceed $15,000.
Item 14. Indemnification of Directors and Officers
Indemnification of Directors and Officers of Finger Lakes Bancorp, Inc.
Article TENTH of the Certificate of Incorporation of Finger Lakes Bancorp,
Inc. (the "Corporation") sets forth circumstances under which directors,
officers, employees and agents of the Corporation may be insured or indemnified
against liability which they incur in their capacities as such:
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation
<PAGE>
Law requires, an advancement of expenses incurred by an indemnitee in his or her
capacity as a Director or Officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise. The rights
to indemnification and to the advancement of expenses conferred in Sections A
and B of this Article TENTH 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 TENTH 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 TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH 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 TENTH 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.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules:
The exhibits and financial statement schedules filed as part of this
registration statement are as follows:
(a) List of Exhibits
<TABLE>
<S> <C>
1.1 Engagement Letter between Finger Lakes Bancorp, Inc. and Friedman,
Billings, Ramsey & Co., Inc.
1.2 Form of Agency Agreement among Finger Lakes Bancorp, Inc., Savings
Bank of the Finger Lakes and Friedman, Billings, Ramsey & Co., Inc.*
2 Plan of Conversion and Reorganization
3.1 Certificate of Incorporation of Finger Lakes Bancorp, Inc.
3.2 Bylaws of Finger Lakes Bancorp, Inc.
4 Form of Common Stock Certificate of Finger Lakes Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.
8.2 State Tax Opinion of KPMG LLP*
8.3 Letter from FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 1996 Stock Option Plan
10.3 1996 Management Recognition Plan
10.4 Employee Stock Ownership Plan*
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
opinion filed as Exhibit 5)
23.2 Consent of KPMG LLP
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on Signature Page)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Finger Lakes Bancorp, Inc. and FinPro,
Inc.
99.2 Appraisal Report of FinPro, Inc.**
99.3 Marketing Materials*
99.4 Order and Acknowledgment Form*
99.5 Proxy Statement
- ----------
* To be filed supplementally or by amendment.
** Filed pursuant to Rule 202 of Regulation S-T
</TABLE>
<PAGE>
(b) Financial Statement Schedules
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post- effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, 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 questions whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Geneva, state of New York
on March 27, 2000.
FINGER LAKES BANCORP, INC.
By: /s/ G. Thomas Bowers
--------------------------------------
G. Thomas Bowers
Chairman of the Board, President
and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Finger Lakes Bancorp, Inc.
(the "Company") hereby severally constitute and appoint G. Thomas Bowers as our
true and lawful attorney and agent, to do any and all things in our names in the
capacities indicated below which said G. Thomas Bowers may deem necessary or
advisable to enable the Company to comply with the Securities Act of 1933, and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with the registration statement on Form S-1 relating
to the offering of the Company's Common Stock, including specifically, but not
limited to, power and authority to sign for us in our names in the capacities
indicated below the registration statement and any and all amendments (including
post-effective amendments) thereto; and we hereby approve, ratify and confirm
all that said G. Thomas Bowers shall do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ G. Thomas Bowers Chairman of the Board, March 27, 2000
- ------------------------------ President, Chief Executive
G. Thomas Bowers Officer and Director (Principal
Executive Officer)
/s/ Terry L. Hammond Executive Vice President and March 27, 2000
- ------------------------------ Chief Financial Officer
Terry L. Hammond (Principal Financial and
Accounting Officer
/s/ Michael J. Hanna Director March 27, 2000
- ------------------------------
Michael J. Hanna
/s/ Chris M. Hansen Director March 27, 2000
- ------------------------------
Chris M. Hansen
/s/ Richard J. Harrison Director March 27, 2000
- ------------------------------
Richard J. Harrison
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ James E. Hunter Director March 27, 2000
- ------------------------------
James E. Hunter
/s/ Ronald C. Long Director March 27, 2000
- ------------------------------
Ronald C. Long
/s/ Bernard G. Lynch Director March 27, 2000
- ------------------------------
Bernard G. Lynch
/s/ Arthur W. Pearce Director March 27, 2000
- ------------------------------
Arthur W. Pearce
/s/ Joan C. Rogers Director March 27, 2000
- ------------------------------
Joan C. Rogers
/s/ Ralph E. Springstead Director March 27, 2000
- ------------------------------
Ralph E. Springstead
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on March 28, 2000
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM S-1
------------------------------------
FINGER LAKES BANCORP, INC.
================================================================================
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between Finger Lakes Bancorp, Inc. and Friedman,
Billings, Ramsey & Co., Inc.
1.2 Form of Agency Agreement among Finger Lakes Bancorp, Inc., Savings
Bank of the Finger Lake, FSB and Friedman, Billings, Ramsey & Co.,
Inc.*
2 Plan of Conversion and Reorganization
3.1 Certificate of Incorporation of Finger Lakes Bancorp, Inc.
3.2 Bylaws of Finger Lakes Bancorp, Inc.
4 Form of Common Stock Certificate of Finger Lakes Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.
8.2 Form of State Tax Opinion of KPMG LLP**
8.3 Letter from FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 1996 Stock Option Plan
10.3 1996 Management Recognition Plan
10.4 Employee Stock Ownership Plan*
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
opinion filed as Exhibit 5)
23.2 Consent of KPMG LLP
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on Signature Page)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Finger Lakes Bancorp, Inc. and FinPro,
Inc.
99.2 Appraisal Report of FinPro, Inc.**
99.3 Marketing Materials*
99.4 Order and Acknowledgment Form*
99.5 Proxy Statement
- ----------
* To be filed supplementally or by amendment.
** Filed pursuant to Rule 202 of Regulation S-T
<PAGE>
Exhibit 1.1
February 4, 2000
Board of Directors
Attn: G. Thomas Bowers
President & Chief Executive Officer
The Savings Bank of the Finger Lakes, FSB
470 Exchange St.
Geneva, NY 14456
RE: Reorganization and Plan of Conversion Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBR") and The Savings Bank of the Finger Lakes,
FSB (the "Savings Bank"), concerning our Investment Banking Services in
connection with the Plan of Conversion and Reorganization (the "Plan") in
connection with the reorganization of the Savings Bank, Finger Lakes Financial
Corp. (the "Company"), and Finger Lakes Financial Corporation, M.H.C. (the
"Mutual Holding Company") from the mutual holding company structure into the
stock holding company structure. All references in this document to the Company
or the Savings Bank include activities of Finger Lakes Financial Corp., Finger
Lakes Financial Corporation, M.H.C. and The Savings Bank of the Finger Lakes,
FSB.
FBR is prepared to assist the Savings Bank in connection with the offering of
its shares of common stock during the Subscription Offering and Community
Offering as such terms are defined in 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 the Savings Bank to be executed
prior to mailing of the Offering material. The price of the shares during the
Subscription Offering and Community Offering will be the price established by
the Savings Bank's Board of Directors, based upon an independent appraisal as
approved by the appropriate regulatory authorities, provided such price is
mutually acceptable to FBR and the Savings Bank.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
o Act as the Financial Advisor to the Savings Bank
o Create marketing materials and formulate a marketing plan
o Conduct training for all Directors and Employees concerning the
reorganization and stock offering
o Manage Stock Center and staff with FBR personnel
After the Offering, FBR intends to continue coverage of the Savings Bank through
research coverage and intends on making a market in the Company's stock.
<PAGE>
Mr. Bowers
February 4, 2000
Page 2 of 5
At the appropriate time, FBR, in conjunction with its counsel, will conduct an
examination of the relevant documents and records of the Savings Bank as FBR
deems necessary and appropriate. The Savings Bank will make all documents,
records and other information deemed necessary by FBR or its counsel available
to them upon request.
For its services hereunder, FBR will receive the following compensation and
reimbursement from the Savings Bank:
1. A management fee of $50,000 payable as follows, $25,000 upon the signing of
this letter and $25,000 upon receiving OTS approval of the Plan application.
Should the Plan be terminated for any reason not attributable to the action or
inaction of FBR, FBR shall have earned and be entitled to be paid fees accruing
through the stage at which point the termination occurred.
2. A marketing fee of $215,000 regardless of the number of shares of Common
Stock sold in the Subscription Offering and Community Offering provided that the
Reorganization and Conversion is consummated. The management fee of $50,000 will
be subtracted from the marketing fee.
3. The foregoing commissions are to be payable to FBR at closing as defined in
the Agreement to be entered into between FBR and the Savings Bank.
4. FBR shall be reimbursed for allocable expenses incurred by them, including
legal fees, whether or not the Agreement is consummated. FBR will notify the
Company if reimbursable expenses (excluding FBR's attorney's expenses of
$25,000) are greater than $15,000.
It is further understood that the Savings Bank 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 (limited to
$25,000) or the attorneys relating to any required state securities law filings,
telephone charges, air freight, supplies, conversion agent charges, transfer
agent charges, fees relating to auditing and accounting and costs of printing
all documents necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Plan, The Savings Bank
warrants that: (a) The Savings Bank has not privately placed any securities
within the last 18 months; (b) there have been no material dealings within the
last 12 months between the Savings Bank and any NASD member or any person
related to or associated with any such member; (c) none of the officers or
directors of the Savings Bank has any affiliation with the NASD; (d) except as
contemplated by this engagement letter with FBR, the Savings Bank has no
financial or management consulting contracts outstanding with any other person
other than The Endicott Group; (e) the Savings Bank has not granted FBR a right
of first refusal with respect to the underwriting of any future offering of the
Savings Bank's common stock; and (f) there has been no intermediary between FBR
and the Savings Bank in connection with the public offering of the Savings Bank
shares, and no person is being compensated in any manner for providing such
service.
The Savings Bank 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 the Savings Bank 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 the
<PAGE>
Mr. Bowers
February 4, 2000
Page 3 of 5
Savings Bank 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 the Savings Bank and
FBR. Such Agreement shall be in the form and content satisfactory to FBR and
subject to, among other things, there being in FBR's opinion no material adverse
change in the condition or operations of the Savings Bank or no market
conditions which might render the sale of the shares by the Savings Bank 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).
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $25,000. 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.
Title: Managing Director
Date: ________________
Agreed and Accepted to this _________ day of ____________, 2000.
The Savings Bank of the Finger Lakes, FSB, Finger Lakes Financial Corp., and
Finger Lakes Financial Corporation, M.H.C.
By: ________________________
Title: _______________________
G. Thomas Bowers
<PAGE>
Mr. Bowers
February 4, 2000
Page 4 of 5
APPENDIX A
The Savings Bank 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 the Savings
Bank. The Savings Bank 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. The Savings Bank also agrees that no Indemnified Party shall have
any liability (whether direct or indirect, in contract or tort or otherwise) to
the Savings Bank 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 the Savings Bank pursuant hereto, promptly
notify the Savings Bank in writing of the same. In case any such action is
brought against any Indemnified Party and such Indemnified Party notifies the
Savings Bank of the commencement thereof, the Savings Bank 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 the Savings Bank
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 the Savings Bank, 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), the Savings
Bank 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 the Savings Bank, 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 the Savings Bank, on the one hand and FBR, on the
other hand, as well as any other relevant equitable considerations. The Savings
Bank agrees that for the purposes of this paragraph the relative benefits to the
Savings Bank 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 the Savings Bank 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.
<PAGE>
Mr. Bowers
February 4, 2000
Page 5 of 5
Notwithstanding the foregoing, the Savings Bank 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.
The Savings Bank 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 the Savings Bank in
which such Indemnified Party is not named as a defendant, the Savings Bank
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 the Savings Bank 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, the Company agrees 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 the Savings Bank does not promptly assume the defense of a
claim or action, the Indemnified Party shall have the right to employ counsel
reasonably satisfactory to the Savings Bank, at the Savings Bank's expense, to
defend such pending or threatened action or claim.
Agreed and Accepted to this _________ day of ________________, 2000.
The Savings Bank of the Finger Lakes, FSB, Finger Lakes Financial Corp., and
Finger Lakes Financial Corporation, M.H.C
By: ________________________
Title: ________________________
G. Thomas Bowers
<PAGE>
Exhibit 2
PLAN OF CONVERSION AND REORGANIZATION
OF
FINGER LAKES FINANCIAL CORPORATION, MHC
<PAGE>
TABLE OF CONTENTS
1. INTRODUCTION.......................................................... 1
2. DEFINITIONS........................................................... 1
3. PROCEDURES FOR CONVERSION............................................. 6
4. HOLDING COMPANY APPLICATIONS AND APPROVALS............................ 8
5. SALE OF SUBSCRIPTION SHARES........................................... 8
6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES...................... 8
7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY............... 9
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)...... 9
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)............... 10
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)........................................................ 10
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)................ 10
12. COMMUNITY OFFERING (FIFTH PRIORITY)................................... 11
13. SYNDICATED COMMUNITY OFFERING......................................... 11
14. LIMITATION ON PURCHASES............................................... 12
15. PAYMENT FOR CONVERSION STOCK.......................................... 13
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS.......... 14
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT....... 15
18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES..................... 15
19. ESTABLISHMENT OF LIQUIDATION ACCOUNT.................................. 15
20. VOTING RIGHTS OF STOCKHOLDERS......................................... 16
21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION...................... 16
22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING
THE CONVERSION................................................... 17
23. TRANSFER OF DEPOSIT ACCOUNTS.......................................... 17
24. REGISTRATION AND MARKETING............................................ 17
25. TAX RULINGS OR OPINIONS............................................... 17
(i)
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26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS......................... 18
27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY............... 18
28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK.......................... 19
29. CHARTER AND BYLAWS.................................................... 19
30. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE......................... 19
31. EXPENSES OF CONVERSION................................................ 20
32. AMENDMENT OR TERMINATION OF PLAN...................................... 20
33. CONDITIONS TO CONVERSION.............................................. 20
34. INTERPRETATION........................................................ 20
EXHIBIT A AGREEMENT OF MERGER BETWEEN FINGER LAKES FINANCIAL
CORPORATION, MHC AND FINGER LAKES FINANCIAL CORP.
EXHIBIT B AGREEMENT OF MERGER BETWEEN FINGER LAKES FINANCIAL CORP. AND
THE SAVINGS BANK OF THE FINGER LAKES
EXHIBIT C AGREEMENT OF MERGER BETWEEN THE SAVINGS BANK OF THE FINGER
LAKES AND FINGER LAKES INTERIM SAVINGS BANK
EXHIBIT D CERTIFICATE OF INCORPORATION OF THE HOLDING COMPANY
EXHIBIT E BYLAWS OF HOLDING COMPANY
(ii)
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PLAN OF CONVERSION AND REORGANIZATION OF
Finger Lakes Financial Corporation, MHC
1. INTRODUCTION
This Plan of Conversion and Reorganization (the "Plan") provides for the
conversion of Finger Lakes Financial Corporation, MHC, a federal mutual holding
company (the "Mutual Holding Company") into the capital stock form of
organization (as converted, the "Holding Company"). The Mutual Holding Company
currently owns a majority of the common stock of Finger Lakes Financial Corp., a
federally-chartered stock holding company (the "Mid-Tier Holding Company") that
owns 100% of the common stock of The Savings Bank of the Finger Lakes (the
"Bank"), a federal stock savings bank which is headquartered in Geneva, New
York. The purpose of the Conversion is to convert the Mutual Holding Company to
the capital stock form of organization, which will provide the Holding Company
and the Bank with greater flexibility and capital resources to respond to
changing regulatory and market conditions and to effect corporate transactions,
including mergers and acquisitions. The Holding Company will offer Holding
Company Common Stock upon the terms and conditions set forth herein to Eligible
Account Holders, the Employee Plans established by the Bank or the Holding
Company, Supplemental Eligible Account Holders, Other Members and other persons
according to the respective priorities set forth in this Plan. Any shares not
subscribed for by the foregoing classes of persons will be offered for sale to
certain members of the public directly by the Holding Company through a
Community Offering or a Syndicated Community Offering or through an underwritten
firm commitment public offering, or through a combination thereof. As part of
the Conversion, each Minority Stockholder will receive Holding Company Common
Stock in exchange for Minority Shares. The Conversion will result in the voting
interests of the Mutual Holding Company's members being transferred to persons
who purchase Conversion Stock in the Offering. The Conversion will have no
impact on depositors, borrowers or customers of the Bank. After the Conversion,
the Bank will continue to be regulated by the OTS as its chartering authority.
The Bank also will continue to be a member of the Federal Home Loan Bank System
and all its insured savings deposits will continue to be insured by the FDIC to
the extent provided by applicable law.
This Plan has been adopted by the Board of Directors of the Mutual Holding
Company, and must also be approved by (i) a majority of the total number of
votes entitled to be cast by Voting Members of the Mutual Holding Company at a
Special Meeting of Members to be called for that purpose, and (ii) at least
two-thirds of the outstanding common stock of the Mid-Tier Holding Company at
the Special Meeting of Stockholders, including at least a majority of the votes
cast, in person or by proxy, by Minority Stockholders. Prior to the submission
of this Plan to the Voting Members and stockholders of the Mid-Tier Holding
Company for consideration, the Plan must be approved by the OTS.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - Any Person holding a Deposit Account in the Bank.
Acting in Concert - The term 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; or (ii) 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. A
person or company which acts in concert with another person 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 that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert 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.
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Adjusted Majority Ownership Interest - The percentage of the common stock
of the Mid-Tier Holding Company held by the Mutual Holding Company, as adjusted
to reflect the Dividend Waiver Adjustment.
Adjusted Minority Ownership Interest - The Minority Ownership Interest as
adjusted by the Dividend Waiver Adjustment.
Affiliate - Any person that controls, is controlled by, or is under common
control with another person.
Appraised Value Range - The range of the estimated consolidated pro forma
market value of the Holding Company, which shall also be equal to the estimated
pro forma market value of the total number of shares of Conversion Stock to be
issued in the Conversion, as determined by the Independent Appraiser prior to
the Subscription Offering and as it may be amended from time to time thereafter.
The maximum and minimum of the Appraised Value Range will vary within 15% above
and 15% below, respectively, the midpoint of the Appraised Value Range.
Associate - The term Associate when used to indicate a relationship with
any person, means (i) any corporation or organization (other than the Mid-Tier
Holding Company, the Bank or a majority-owned subsidiary of the Bank) of which
such person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity, except that for the purposes of this Plan relating to subscriptions in
the offering the term "Associate" does not include any Non-Tax-Qualified
Employee Stock Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan in
which a person has a substantial beneficial interest or serves as a trustee or
in a similar fiduciary capacity, and except that for purposes of aggregating
total shares that may be held by Officers and Directors the term "Associate"
does not include any Tax-Qualified Employee Stock Benefit Plan, and (iii) any
relative or spouse of such person, or any relative of such spouse, who has the
same home as such person or who is a Director or Officer of the Mid-Tier Holding
Company, the Bank or the Holding Company, or any of their parents or
subsidiaries.
Bank - The Savings Bank of the Finger Lakes.
Bank Merger - The merger of Interim with the Bank as set forth in this
Plan.
Code - The Internal Revenue Code of 1986, as amended.
Community - The New York Counties of Ontario, Seneca, Tompkins, and Cayuga.
Community Offering - The offering for sale to certain members of the
general public directly by the Holding Company of any shares not subscribed for
in the Subscription Offering.
Control - (including the terms "controlled by", "controlling" and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion - The conversion and reorganization of the Mutual Holding
Company to stock form pursuant to this Plan, and all steps incident or necessary
thereto, including the Exchange Offer and the Offering.
Conversion Stock - The Subscription Shares and the Exchange Shares issued
in the Conversion.
Deposit Account - The term Deposit Account means any withdrawable account
as defined in Section 561.42 of the Rules and Regulations of the OTS, and shall
include all demand deposit accounts and certificates of deposit.
Director - A member of the Board of Directors of the Bank, the Mid-Tier
Holding Company, the Holding Company or the Mutual Holding Company, as
appropriate in the context.
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Dividend Waiver Adjustment - The adjustment to the number of shares of
Holding Company Common Stock issued in the Conversion to Minority Stockholders
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 Mid-Tier Holding Company.
The adjustment referred to in (i) above requires that the Minority
Ownership Interest be adjusted by multiplying it by a fraction, the numerator of
which is the Mid-Tier Holding Company stockholders' equity at the time of the
Conversion less the aggregate amount of dividends waived by the Mutual Holding
Company and the denominator of which is the Mid-Tier Holding Company
stockholders' equity at the time of the Conversion.
The adjustment referred to in (ii) above would further adjust the Minority
Ownership Interest by multiplying the results obtained in (i) above by a
fraction, the numerator of which is the pro forma market value of the Holding
Company less the market value of assets of the Mutual Holding Company other than
Mid-Tier Holding Company common stock and the denominator of which is the pro
forma market value of the Holding Company.
Eligible Account Holder - Any Person holding a Qualifying Deposit on the
Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the Liquidation Account.
Eligibility Record Date - The date for determining Eligible Account Holders
of the Bank which is December 31, 1998.
Employees - All Persons who are employed by the Bank, the Mid-Tier Holding
Company or the Mutual Holding Company.
Employee Plans - Any Tax-Qualified Employee Stock Benefit Plan of the Bank,
including any ESOP and 401(k) Plan.
ESOP - An Employee Stock Ownership Plan and related trust established by
the Bank or the Holding Company.
Exchange Offer - The offer of Holding Company Common Stock to Minority
Stockholders in exchange for Minority Shares.
Exchange Ratio - The rate at which shares of Holding Company Common Stock
are exchanged for Minority Shares upon consummation of the Conversion. The
Exchange Ratio shall be determined as of the closing of the Conversion and shall
be the rate that will result in the Minority Stockholders owning in the
aggregate the same percentage of the outstanding shares of Holding Company
Common Stock immediately upon completion of the Conversion as the percentage of
Mid-Tier Holding Company common stock owned by them in the aggregate immediately
prior to the consummation of the Conversion, before giving effect to (i) the
Dividend Waiver Adjustment, (ii) the payment of cash in lieu of issuing
fractional shares of Holding Company Common Stock, and (iii) any shares of
Holding Company Common Stock purchased by the Minority Stockholders in the
Conversion.
Exchange Shares - Shares of Holding Company Common Stock issued to Minority
Stockholders in exchange for Minority Shares.
FDIC - The Federal Deposit Insurance Corporation.
Holding Company - The Delaware (or other state) corporation formed for the
purpose of acquiring all of the shares of capital stock of the Bank in
connection with the Conversion. Shares of Holding Company Common Stock will be
issued in the Conversion to Participants and others in the Conversion.
Holding Company Common Stock - The common stock, par value $.01 per share,
of the Holding Company.
3
<PAGE>
Independent Appraiser - The appraiser retained by the Mutual Holding
Company and the Bank to prepare an appraisal of the pro forma market value of
the Conversion Stock.
Interim - The interim federal savings bank subsidiary of the Holding
Company established to effect the Conversion.
Liquidation Account - One or more accounts established in accordance with
12 C.F.R. 563b.3(f) and OTS policy.
Member - Any Person or entity who qualifies as a member of the Mutual
Holding Company pursuant to its charter and bylaws.
MHC Merger - The merger of the Mutual Holding Company with the Mid-Tier
Holding Company as set forth in this Plan.
Mid-Tier Holding Company - Finger Lakes Financial Corp., the federal
holding company that owns 100% of the Bank's Common Stock.
Mid-Tier Merger - The conversion of the Mid-Tier Holding Company into an
interim federal stock savings bank and subsequent merger with and into the Bank
as set forth in this Plan.
Minority Shares - Any outstanding common stock of the Mid-Tier Holding
Company, or shares of common stock of the Mid-Tier Holding Company issuable upon
the exercise of options or grant of stock awards, held by persons other than the
Mutual Holding Company.
Minority Ownership Interest - The percentage of the Mid-Tier Holding
Company's common stock held by stockholders other than the Mutual Holding
Company immediately prior to the completion of the Conversion.
Minority Stockholder - Any owner of Minority Shares immediately prior to
the closing of the Conversion.
Mutual Holding Company - Finger Lakes Financial Corporation, MHC, the
mutual holding company of the Bank.
OTS - The Office of Thrift Supervision of the Department of the Treasury or
any successor thereto.
Offering - The offering for sale, pursuant to this Plan, of Holding Company
Common Stock in a Subscription Offering, Community Offering, and Syndicated
Community Offering (or underwritten public offering), as the case may be. The
term "Offering" does not include the Holding Company Common Stock issued in
exchange for Minority Shares pursuant to this Plan.
Offering Range - The number of shares of Holding Company Stock offered for
sale in the Offering multiplied by the subscription price. The Offering Range
shall be equal to the Appraised Value Range multiplied by the Adjusted Majority
Ownership Percentage.
Officer - An executive officer of the Bank, the Mid-Tier Holding Company,
the Holding Company or the Mutual Holding Company as appropriate in the context,
which includes the Chief Executive Officer, President, Senior Vice Presidents,
Executive Vice President in charge of principal business functions, Secretary
and Controller and any Person performing functions similar to those performed by
the foregoing persons.
Order Form - Any form (together with any attached cover letter and/or
certifications or acknowledgments), sent by the Bank to any Participant or
Person containing among other things a description of the alternatives available
to such Person under the Plan and by which any such Person may make elections
regarding subscriptions for Conversion Stock in the Subscription Offering.
4
<PAGE>
Other Member - Any Member on the Voting Record Date who is not an Eligible
Account Holder or Supplemental Eligible Account Holder.
Participant - Any Eligible Account Holder, Employee Plan, Supplemental
Eligible Account Holder, or Other Member.
Person - An individual, a corporation, a partnership, an association, a
joint-stock company, a trust (including Individual Retirement Accounts and KEOGH
Accounts), any unincorporated organization, a government or political
subdivision thereof or any other entity.
Plan - This Plan of Conversion and Reorganization of the Mutual Holding
Company as it exists on the date hereof and as it may hereafter be amended in
accordance with its terms.
Prospectus - The one or more documents used in offering the Conversion
Stock in the Offering and the Exchange Shares.
Qualifying Deposit - The aggregate balance of all Deposit Accounts in the
Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
Resident - Any person who occupies a dwelling within the Community, has a
present intent to remain within the Community for a period of time, and
manifests the genuineness of that intent by establishing an ongoing physical
presence within the Community together with an indication that such presence
within the Community is something other than merely transitory in nature. To the
extent the person is a corporation or other business entity, the principal place
of business or headquarters shall be in the Community. To the extent a person is
a personal benefit plan, the circumstances of the beneficiary shall apply with
respect to this definition. In the case of all other benefit plans,
circumstances of the trustee shall be examined for purposes of this definition.
The Mutual Holding Company and the Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Mutual Holding Company and the Bank. A Participant
must be a "Resident" for purposes of determining whether such person "resides"
in the Community as such term is used in this Plan.
SEC - The Securities and Exchange Commission.
Share Exchange - The Exchange of Minority Shares for Holding Company Common
Stock in the Conversion.
Special Meeting of Members - The special meeting of members of the Mutual
Holding Company and any adjournments thereof held to consider and vote upon this
Plan.
Special Meeting of Stockholders - The special meeting of stockholders of
the Mid-Tier Holding Company and any adjournments thereof held to consider and
vote upon the Plan.
Subscription Offering - The offering of Subscription Shares to
Participants.
Subscription Price - The price per Subscription Share to be paid by
Participants in the Subscription Offering and Persons in the Community Offering.
The Subscription Price will be determined by the Board of Directors of the
Mutual Holding Company and fixed prior to the commencement of the Subscription
Offering.
Subscription Shares - Shares of Holding Company Common Stock issued in the
Offering. Subscription Shares do not include Exchange Shares.
5
<PAGE>
Supplemental Eligible Account Holder - Any Person, other than Directors and
Officers of the Bank and their Associates, holding a Qualifying Deposit on the
Supplemental Eligibility Record Date, who is not an Eligible Account Holder.
Supplemental Eligibility Record Date - The date for determining
Supplemental Eligible Account Holders, which shall be the last day of the
calendar quarter preceding OTS approval of the application for conversion.
Syndicated Community Offering - The offering of Conversion Stock following
the Subscription and Community Offerings through a syndicate of broker-dealers.
Tax-Qualified Employee Stock Benefit Plan - 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, with its related trust, meets
the requirements to be "qualified" under Section 401 of the Internal Revenue
Code. The Bank may make scheduled discretionary contributions to a tax-qualified
employee stock benefit plan, provided such contributions do not cause the Bank
to fail to meet its regulatory capital requirement. A "Non-Tax-Qualified
Employee Stock Benefit Plan" is any defined benefit plan or defined contribution
plan which is not so qualified.
Voting Member - Any Person who at the close of business on the Voting
Record Date is entitled to vote as a member of the Mutual Holding Company
pursuant to its charter and bylaws.
Voting Record Date - The date fixed by the Directors in accordance with OTS
regulations for determining eligibility to vote at the Special Meeting of
Members and/or the Special Meeting of Stockholders.
3. PROCEDURES FOR CONVERSION
A. After approval of the Plan by the Board of Directors of the Bank and the
Mutual Holding Company, the Plan shall be submitted together with all other
requisite material to the OTS for its approval. Notice of the adoption of the
Plan by the Board of Directors of the Bank and the Mutual Holding Company and
the submission of the Plan to the OTS for its approval will be published in a
newspaper having general circulation in each community in which an office of the
Bank is located and copies of the Plan will be made available at each office of
the Bank for inspection by the Members. Upon receipt of notice from the OTS to
do so, the Mutual Holding Company also will cause to be published a notice of
the filing with the OTS of an application to convert in accordance with the
provisions of the Plan.
B. Promptly following approval by the OTS, the Plan will be submitted to a
vote of (i) the Voting Members at the Special Meeting of Members, and (ii) the
Stockholders of the Mid-Tier Holding Company at the Special Meeting of
Stockholders. The Mutual Holding Company will mail to all Members as of the
Voting Record Date, at their last known address appearing on the records of the
Bank, a proxy statement in either long or summary form describing the Plan which
will be submitted to a vote of the Members at the Special Meeting of Members.
The Mid-Tier Holding Company also will mail to all stockholders as of the Voting
Record Date, a proxy statement describing the Plan and the Conversion, which
will be submitted to a vote of stockholders at the special meeting of
stockholders. The Holding Company will also mail to all Participants either a
Prospectus and Order Form for the purchase of Subscription Shares or a letter
informing them of their right to receive a Prospectus and Order Form and a
postage prepaid card to request such materials, subject to other provisions of
this Plan. In addition, all Participants will receive, or be given the
opportunity to request by either returning a postage prepaid card which will be
distributed with the proxy statement or by letter addressed to the Bank's
Secretary, a copy of the Plan as well as the certificate of incorporation or
bylaws of the Holding Company. Upon approval of the Plan by (i) a majority of
the total number of votes entitled to be cast by the Voting Members, (ii) at
least two-thirds of the outstanding common stock of the Mid-Tier Holding
Company, and (iii) a majority vote of Minority Stockholders present in person or
by proxy, the Mutual Holding Company, the Holding Company and the Bank will take
all other necessary steps pursuant to applicable laws and regulations to
consummate the Conversion and Offering. The Conversion must be completed within
24 months of the approval of the Plan by the Voting Members, unless a longer
time period is permitted by governing laws and regulations.
6
<PAGE>
C. The Conversion will be effected as follows, or in any other manner which
is consistent with the purposes of this Plan and applicable laws and
regulations. The choice of which method to use to effect the Conversion will be
made by the Board of Directors of the Mutual Holding Company immediately prior
to the closing of the Conversion. Each of the steps set forth below shall be
deemed to occur in such order as is necessary to consummate the Conversion
pursuant to the Plan, the intent of the Board of Directors of the Mutual Holding
Company and the Bank, and OTS regulations. Approval of the Plan by the Members
and stockholders of the Mid-Tier Holding Company shall also constitute approval
of each of the transactions necessary to implement the Plan.
(1) The Bank will establish the Holding Company as a first-tier
Delaware chartered stock holding company subsidiary.
(2) Holding Company will charter Interim.
(3) The Mutual Holding Company will merge with and into the Mid-Tier
Holding Company (the "MHC Merger") pursuant to the Agreement of Merger
attached hereto as Exhibit A between the Mutual Holding Company and the
Mid-Tier Holding Company, whereby the shares of Mid-Tier Holding Company
common stock held by the Mutual Holding Company will be canceled and each
Eligible Account Holder and Supplemental Eligible Account Holder will
receive an interest in a Liquidation Account of the Mid-Tier Holding
Company in exchange for such person's interest in the Mutual Holding
Company.
(4) The Mid-Tier Holding Company will convert into or exchange its
charter for an interim federal stock savings bank (which shall continue to
be referred to as the "Mid-Tier Holding Company") and will merge with and
into the Bank (the "Mid-Tier Merger") with the Bank as the resulting entity
pursuant to the Agreement of Merger attached hereto as Exhibit B between
the Mid-Tier Holding Company and the Bank, whereby (i) the Mid-Tier Holding
Company stockholders other than the Mutual Holding Company ("Minority
Stockholders") will constructively receive shares of Bank common stock in
exchange for their Mid-Tier Holding Company common stock and (ii) each
Eligible Account Holder and Supplemental Eligible Account Holder will
receive an interest in a Liquidation Account of the Bank in exchange for
such person's interest in the Mid-Tier Holding Company.
(5) Contemporaneously with the Mid-Tier Merger, Interim will merge
with and into the Bank with the Bank as the surviving entity (the "Bank
Merger") pursuant to the Agreement of Merger attached hereto as Exhibit C
between the Bank and Interim. Constructive shareholders of the Bank (i.e.,
Minority Stockholders immediately prior to the Conversion) will exchange
the shares of Bank common stock that they constructively received in the
Mid-Tier Merger for Holding Company Common Stock.
(6) Contemporaneously with the Bank Merger, the Holding Company will
sell the Subscription Shares in the Offering.
D. As part of the Conversion, each of the Minority Shares shall
automatically, without further action of the holder thereof, be converted into
and become the right to receive Holding Company Common Stock based upon the
Exchange Ratio. The basis for exchange of Minority Shares for Holding Company
Common Stock shall be fair and reasonable. Options to purchase shares of
Mid-Tier Holding Company common stock which are outstanding immediately prior to
the consummation of the Conversion shall be converted into options to purchase
shares of Holding Company Common Stock, with the number of shares subject to the
option and the exercise price per share to be adjusted based upon the Exchange
Ratio so that the aggregate exercise price remains unchanged, and with the
duration of the option remaining unchanged.
E. Concurrently with the filing of the Conversion Application with the OTS,
the Holding Company shall also seek to register the Conversion Stock with the
SEC and any appropriate state securities authorities. In addition, if required
by applicable law and regulations, the Board of Directors of the Bank and the
Mid-Tier Holding Company shall prepare preliminary proxy materials as well as
other applications and information for review by the SEC and the OTS in
connection with the solicitation of stockholder approval of the Plan.
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F. The Certificate of Incorporation of the Holding Company (the
"Certificate") shall read substantially in the form of Exhibit D.
G. The home office and branch offices of the Bank shall be unaffected by
the Conversion. The executive offices of the Holding Company shall be located at
the current offices of the Mutual Holding Company.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Board of Directors of the Holding Company and the Mutual Holding
Company will take all necessary steps to convert the Mutual Holding Company to
stock form, form the Holding Company and complete the Offering. The Holding
Company shall make timely applications for any requisite regulatory approvals,
including an Application on Form AC and a Holding Company Application on Form
H-(e)1 or H-(e)1-S, to be filed with the OTS and a Registration Statement to be
filed with the SEC.
5. SALE OF SUBSCRIPTION SHARES
The Subscription Shares will be offered simultaneously in the Subscription
Offering to the Participants in the respective priorities set forth in this
Plan. The Subscription Offering may begin as early as the mailing of the Proxy
Statement for the Special Meeting of Members. The Holding Company Common Stock
will not be insured by the FDIC. The Bank will not knowingly lend funds or
otherwise extend credit to any Person to purchase shares of Holding Company
Common Stock.
Any shares of Holding Company Common Stock not subscribed for in the
Subscription Offering will be offered for sale in the Community Offering. The
Subscription Offering may be commenced prior to the Special Meeting of Members
and, in that event, the Community Offering may also be commenced prior to the
Special Meeting of Members. The offer and sale of Holding Company Common Stock
prior to the Special Meeting of Members shall, however, be conditioned upon
approval of the Plan by the Voting Members and stockholders of the Mid-Tier
Holding Company.
If feasible, any shares of Holding Company Common Stock remaining after the
Subscription and Community Offerings, will be sold in a Syndicated Community
Offering in a manner that will achieve the widest distribution of the Holding
Company Common Stock. The sale of all Holding Company Common Stock subscribed
for in the Subscription and Community Offerings will be consummated
simultaneously on the date the sale of Holding Company Common Stock in the
Syndicated Community Offering is consummated and only if all unsubscribed for
Holding Company Common Stock is sold.
6. PURCHASE PRICE AND NUMBER OF SUBSCRIPTION SHARES
The total number of shares (or a range thereof) of Holding Company Common
Stock to be offered in the Conversion will be determined jointly by the Boards
of Directors of the Bank, the Mid-Tier Holding Company and the Holding Company
immediately prior to the commencement of the Subscription and Community
Offerings, and will be based on the Appraised Value Range divided by the
Subscription Price. The Offering Range will be equal to the Appraised Value
Range multiplied by the Adjusted Majority Ownership Interest. The estimated pro
forma consolidated market value of the Holding Company will be subject to
adjustment within the Appraised Value Range if necessitated by market or
financial conditions, with the approval of the OTS, if necessary, and the
maximum of the Appraised Value Range may be increased by up to 15% subsequent to
the commencement of the Subscription and Community Offerings to reflect changes
in market and financial conditions. The number of shares of Conversion Stock
issued in the Conversion will be equal to the estimated pro forma consolidated
market value of the Holding Company, as may be amended, divided by the
Subscription Price, and the number of Subscription Shares sold in the Offering
will be equal to the product of (i) the estimated pro forma consolidated market
value of the Holding Company, as may be amended, divided by the Subscription
Price, and (ii) the Adjusted Majority Ownership Interest.
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In the event that the Subscription Price multiplied by the number of shares
of Conversion Stock to be issued in the Conversion is below the minimum of the
Appraised Value Range, or materially above the maximum of the Appraised Value
Range, resolicitation of purchasers may be required, provided that up to a 15%
increase above the maximum of the Appraised Value Range will not be deemed
material so as to require a resolicitation. Any such resolicitation shall be
effected in such manner and within such time as the Bank and the Mutual Holding
Company shall establish, with the approval of the OTS if required.
Notwithstanding the foregoing, shares of Conversion Stock will not be
issued unless, prior to the consummation of the Conversion, the Independent
Appraiser confirms to the Bank, the Mutual Holding Company, the Holding Company
and to the OTS that, to the best knowledge of the Independent Appraiser, nothing
of a material nature has occurred which, taking into account all relevant
factors, would cause the Independent Appraiser to conclude that the number of
shares of Conversion Stock issued in the Conversion multiplied by the
Subscription Price is incompatible with its estimate of the aggregate
consolidated pro forma market value of the Holding Company. An increase in the
aggregate value of the Conversion Stock by up to 15% above the maximum of the
Appraised Value Range, would not be deemed to be material. If such confirmation
is not received, the Holding Company may cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering, extend the Conversion,
establish a new Subscription Price and/or Appraised Value Range, extend, reopen
or hold new Subscription and Community Offerings and/or Syndicated Community
Offering or take such other action as the OTS may permit.
The Holding Company Common Stock to be issued in the Conversion shall be
fully paid and nonassessable.
7. RETENTION OF CONVERSION PROCEEDS BY THE HOLDING COMPANY
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Offering. The Holding Company believes that the Offering
proceeds will provide economic strength to the Holding Company and the Bank in a
highly competitive financial services industry and would facilitate the possible
expansion through acquisitions of other financial institutions, possible
diversification into other related businesses and for other business and
investment purposes, including the possible payment of dividends and future
repurchases of the Holding Company Common Stock as permitted by the OTS.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe in the Subscription Offering
for a number of shares equal to up to the greater of 5% of the Subscription
Shares, .10% of the total offering for shares, or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the number of
shares of Subscription Shares issued in the Conversion by a fraction of which
the numerator is the amount of the Eligible Account Holder's Qualifying Deposit
and the denominator is the total amount of Qualifying Deposits of all Eligible
Account Holders, in each case on the Eligibility Record Date, subject to the
provisions of Section 14.
B. In the event that Eligible Account Holders exercise subscription rights
for a number of Subscription Shares in excess of the total number of such shares
eligible for subscription, the Subscription Shares shall be allocated among the
subscribing Eligible Account Holders so as to permit each subscribing Eligible
Account Holder to purchase a number of shares sufficient to make his or her
total allocation of Subscription Shares equal to the lesser of 100 shares or the
number of shares for which such Eligible Account Holder has subscribed. Any
remaining shares will be allocated among the subscribing Eligible Account
Holders whose subscriptions remain unsatisfied in the proportion that the amount
of the Qualifying Deposit of each Eligible Account Holder whose subscription
remains unsatisfied bears to the total amount of the Qualifying Deposits of all
Eligible Account Holders whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Eligible
Account Holders, the excess shall be reallocated (one or more times as
necessary) on the same basis among those Eligible Account Holders whose
subscriptions are still not fully satisfied until all available shares have been
allocated.
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C. Subscription rights of Directors, Officers and their Associates as
Eligible Account Holders which are based on deposits made by such persons during
the twelve (12) months preceding the Eligibility Record Date shall be
subordinated to the subscription rights of all other Eligible Account Holders.
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans of the Holding Company and the Bank shall receive,
without payment, subscription rights to purchase in the aggregate up to 8% of
the Holding Company Common Stock offered in the Subscription Offering, including
any shares of Holding Company Common Stock to be issued in the Offering as a
result of an increase in the maximum of the Offering Range after commencement of
the Subscription Offering and prior to completion of the Conversion. Consistent
with applicable laws and regulations and practices and policies of the OTS, the
Employee Plans may use funds contributed by the Holding Company or the Bank
and/or borrowed from an independent financial institution to exercise such
subscription rights, and the Holding Company and the Bank may make scheduled
discretionary contributions thereto, provided that such contributions do not
cause the Holding Company or the Bank to fail to meet any applicable regulatory
capital requirements. The Employee Plans shall not be deemed to be Associates or
Affiliates of or Persons Acting in Concert with any Director or Officer of the
Holding Company or the Bank.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, without
payment, nontransferable subscription rights to subscribe in the Subscription
Offering for a number of shares equal to up to the greater of 5% of the
Subscription Shares, or fifteen times the product (rounded down to the next
whole number) obtained by multiplying the number of shares of Subscription
Shares issued in the Conversion by a fraction of which the numerator is the
amount of the Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator is the total amount of Qualifying Deposits of all Supplemental
Eligible Account Holders, in each case on the Supplemental Eligibility Record
Date, subject to the availability of sufficient shares after filling in full all
subscription orders of the Eligible Account Holders and Employee Plans and to
the purchase limitations specified in Section 14.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of Subscription Shares in excess of the total
number of such shares eligible for subscription, the Subscription Shares shall
be allocated among the subscribing Supplemental Eligible Account Holders so as
to permit each such subscribing Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Subscription Shares equal to the lesser of 100 shares or the
number of shares for which each such Supplemental Eligible Account Holder has
subscribed. Any remaining shares will be allocated among the subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each such
Supplemental Eligible Account Holder bears to the total amount of the Qualifying
Deposits of all Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied. If the amount so allocated exceeds the amount subscribed for by any
one or more Supplemental Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Supplemental Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe in the Subscription Offering for a number of
Subscription Shares equal to up to the greater of 5% of the Subscription Shares,
or .10% of the total offering of shares, subject to the purchase limitation
specified in Section 14.
B. In the event that such Other Members subscribe for a number of
Subscription Shares which, when added to the Subscription Shares subscribed for
by the Eligible Account Holders, Employee Plans and Supplemental
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Eligible Account Holders, is in excess of the total number of Subscription
Shares to be issued, the subscriptions of such Other Members will be allocated
to Other Members in proportion to the amounts of their relative subscriptions.
12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Holding Company Common Stock to
be subscribed for in the Offering are sold in the Subscription Offering, shares
remaining unsubscribed for may be made available for purchase in the Community
Offering to certain members of the general public. In the Community Offering,
any person together with any Associate or group of persons Acting in Concert may
purchase up to 5% of the Subscription Shares, subject to the purchase
limitations specified herein. The shares may be made available in the Community
Offering through a direct community marketing program which may provide for a
broker, dealer, consultant or investment banking firm experienced and expert in
the sale of savings institutions securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. Shares
offered in the Community Offering will be available for purchase by the general
public with preference given first to Minority Stockholders and then to natural
persons residing in the Community, in each case in proportion to the amounts of
the subscriptions. Any excess of shares may be made available for purchase by
the general public. The Holding Company shall make the distribution of the
Conversion Stock to be sold in the Community Offering in such a manner as to
promote a wide distribution of Conversion Stock. The Holding Company reserves
the right to reject any or all orders, in whole or in part, which are received
in the Community Offering. The number of shares of Conversion Stock that any
person may purchase in the Community Offering shall be subject to the purchase
limitations specified in Section 14; provided, however, that the shares
purchased in the Subscription Offering by any person together with an Associate
or group of persons acting in concert shall be counted toward meeting the
maximum purchase limitations found in this Section.
13. SYNDICATED COMMUNITY OFFERING
If feasible, the Board of Directors may determine to offer Subscription
Shares not subscribed for in the Subscription and Community Offerings in a
Syndicated Community Offering, subject to such terms, conditions and procedures
as may be determined by the Holding Company, in a manner that will achieve the
widest distribution of the Holding Company Common Stock subject to the right of
the Bank to accept or reject in whole or in part any subscriptions in the
Syndicated Community Offering. In the Syndicated Community Offering, any person
together with any Associate or group of Persons acting in concert may purchase
up to 5% of the Subscription Shares, subject to the purchase limitations
specified in Section 14; provided, however, that the shares purchased in the
Subscription Offering by any Person together with an Associate or group of
Persons acting in concert shall be counted toward meeting the maximum purchase
limitation found in this Section. Provided that if the Subscription Offering has
begun, the Bank may begin the Syndicated Community Offering at any time after
the mailing to the Members of the Proxy Statement to be used in connection with
the Special Meeting of Members, provided that the completion of the offer and
sale of the Conversion Stock shall be conditioned upon the approval of this Plan
by the Voting Members. If the Syndicated Community Offering does not begin
pursuant to the provisions of the preceding sentence, the Syndicated Community
Offering will begin as soon as practicable following the date upon which the
Subscription and Community Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the Bank
shall have the right to sell any Subscription Shares remaining following the
Subscription and Community Offerings in an underwritten firm commitment public
offering. The provisions of Section 14 shall not be applicable to sales to
underwriters for purposes of such an offering but shall be applicable to the
sales by the underwriters to the public. The price to be paid by the
underwriters in such an offering shall be equal to the Subscription Price less
an underwriting discount to be negotiated among such underwriters and the Bank,
which will in no event exceed an amount deemed to be acceptable by the OTS.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community or
underwritten firm commitment public offering, other arrangements will be made
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for the disposition of unsubscribed shares by the Bank, if possible. Such other
purchase arrangements will be subject to the approval of the OTS.
14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of Subscription Shares which may be subscribed for or
purchased in all categories in the Offering by any Person or Participant
together with any Associate or group of Persons Acting in Concert shall not
exceed 5% of the Subscription Shares, except for the Employee Plans which may
subscribe for up to 8% of the Holding Company Common Stock offered in the
Subscription Offering (including shares issued in the event of an increase in
the maximum of the Offering Range of 15%); provided, however, that, in the event
the maximum purchase limitation is increased, orders for Subscription Shares in
the Community Offering and in the Syndicated Offering (or, alternatively, an
underwritten firm commitment public offering), if any, shall, as determined by
the Bank, first be filled to a maximum of 1,000 shares and thereafter remaining
shares shall be allocated, on an equal number of shares basis per order until
all orders have been filled.
B. The maximum number of shares of Holding Company Common Stock which may
be purchased in all categories of the Offering by Officers and Directors of the
Bank and their Associates in the aggregate, when combined with Exchange Shares
received by such persons, shall not exceed 25% of the Conversion Stock offered
in the Conversion.
C. The maximum number of Subscription Shares which may be subscribed for or
purchased in all categories in the Offering by any Person or Participant
together with any Associate or group of Persons Acting in Concert, together with
Exchange Shares received in the Share Exchange by any such Person, or
Participant together with any Associate or group of Persons Acting in Concert,
shall not exceed 9.9% of the shares issued in the Conversion. Pursuant to this
limitation, certain depositors who are also stockholders of the Mid-Tier Holding
Company may not be permitted to purchase Holding Company Conversion Stock in the
Offering.
D. A minimum of 25 shares of Holding Company Common Stock must be purchased
by each Person purchasing shares in the Offering to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Holding Company Common Stock purchased times the price per share exceeds $500,
then such minimum purchase requirement shall be reduced to such number of shares
which when multiplied by the price per share shall not exceed $500, as
determined by the Board.
If the number of shares of Holding Company Common Stock otherwise
allocable pursuant to Sections 8 through 13, inclusive, to any Person or that
Person's Associates would be in excess of the maximum number of shares permitted
as set forth above, the number of shares of Holding Company Common Stock
allocated to each such person shall be reduced to the lowest limitation
applicable to that Person, and then the number of shares allocated to each group
consisting of a Person and that Person's Associates shall be reduced so that the
aggregate allocation to that Person and his or her Associates complies with the
above limits, and such maximum number of shares shall be reallocated among that
Person and his or her Associates as they may agree, or in the absence of an
agreement, in proportion to the shares subscribed by each (after first applying
the maximums applicable to each Person, separately).
Depending upon market or financial conditions, the Board of Directors of
the Holding Company, with the approval of the OTS and without further approval
of the Members, may decrease or further increase the purchase limitations in
this Plan, provided that the maximum purchase limitations may not be increased
to a percentage in excess of 5% of the shares issued in the Conversion except as
provided below. If the Holding Company increases the maximum purchase
limitations, the Holding Company is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the Holding Company resolicit certain other large subscribers. In the event that
the maximum purchase limitation is increased to 5% of the shares issued in the
Conversion, such limitation may be further increased to 9.99%, provided that
orders for Holding Company Common Stock exceeding 5% of the shares of Conversion
Stock issued in the Conversion shall not exceed in the aggregate 10%
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of the total shares of Conversion Stock issued in the Conversion. Requests to
purchase additional shares of the Conversion Stock in the event that the
purchase limitation is so increased will be determined by the Board of Directors
of the Holding Company in its sole discretion.
In the event of an increase in the total number of shares offered in the
Subscription Offering due to an increase in the maximum of the Offering Range of
up to 15% (the "Adjusted Maximum"), the additional shares will be used in the
following order of priority: (i) to fill the Employee Plans' subscription to the
Adjusted Maximum; (ii) in the event that there is an oversubscription at the
Eligible Account Holder, Supplemental Eligible Account Holder, Other Member, or
Minority Stockholder levels, to fill unfulfilled subscriptions of such
subscribers according to such respective priorities exclusive of the Adjusted
Maximum; and (iii) to fill unfulfilled subscriptions in the Community Offering
exclusive of the Adjusted Maximum with preference given first to Minority
Stockholders and then to natural persons residing in the Community.
For purposes of this Section 14, the Directors of the Bank, the Mid-Tier
Holding Company and the Holding Company shall not be deemed to be Associates or
a group affiliated with each other or otherwise Acting in Concert solely as a
result of their being Directors of the Bank, the Mid-Tier Holding Company or the
Holding Company.
Each Person purchasing Holding Company Common Stock in the Conversion shall
be deemed to confirm that such purchase does not conflict with the above
purchase limitations contained in this Plan.
15. PAYMENT FOR CONVERSION STOCK
All payments for Holding Company Common Stock subscribed for in the
Subscription, Community and Syndicated Community Offerings must be delivered in
full to the Holding Company, together with a properly completed and executed
Order Form and certification or acknowledgment form, or purchase order in the
case of the Syndicated Community Offering, on or prior to the expiration date of
the Offering; provided, however, that if the Employee Plans subscribe for shares
during the Subscription Offering, such plans will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of Holding
Company Common Stock subscribed for by such plans at the Subscription Price upon
consummation of the Conversion. Notwithstanding the foregoing, the Holding
Company shall have the right, in its sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Offering and to
thereafter submit payment by wire transfer for the Holding Company Common Stock
for which they are subscribing in the Offering at any time prior to 48 hours
before the completion of the Conversion, unless such 48 hour period is waived by
the Holding Company in its sole discretion.
Payment for Holding Company Common Stock subscribed for shall be made
either in cash (if delivered in person), check, money order, certified or
teller's check or bank draft. Alternatively, subscribers in the Subscription and
Community Offerings may pay for the shares for which they have subscribed by
authorizing the Bank on the Order Form to make a withdrawal from the
subscriber's Deposit Account at the Bank in an amount equal to the Subscription
Price of such shares. Such authorized withdrawal, whether from a savings
passbook or certificate account, shall be without penalty as to premature
withdrawal. If the authorized withdrawal is from a certificate account, and the
remaining balance does not meet the applicable minimum balance requirement, the
certificate shall be canceled at the time of withdrawal, without penalty, and
the remaining balance will earn interest at the passbook rate. Funds for which a
withdrawal is authorized will remain in the subscriber's Deposit Account but may
not be used by the subscriber during the Subscription and Community Offerings.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the Subscription
Price per share. Interest will continue to be earned on any amounts authorized
for withdrawal until such withdrawal is given effect. Interest will be paid by
the Bank at not less than the passbook annual rate on payments for Holding
Company Common Stock received in cash or by check. Such interest will be paid
from the date payment is received by the Bank until consummation or termination
of the Conversion. If for any reason the Conversion is not consummated, all
payments made by subscribers in the Subscription, Community and Syndicated
Community Offerings will be refunded to them with interest. In case of amounts
authorized for withdrawal from Deposit Accounts, refunds will be made by
canceling the authorization for withdrawal. The Bank is prohibited by regulation
from knowingly making any loans or granting any lines of credit for the purchase
of stock in the Conversion, and therefore, will not do so.
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16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and Bank has been declared effective by the SEC, Order Forms will be distributed
to the Eligible Account Holders, Employee Plans, Supplemental Eligible Account
Holders and Other Members at their last known addresses appearing on the records
of the Bank for the purpose of subscribing for shares of Holding Company Common
Stock in the Subscription Offering and will be made available for use by those
Persons entitled to purchase in the Community Offering. Notwithstanding the
foregoing, the Bank may elect to send Order Forms only to those Persons who
request them after receipt of such notice in a form approved by the OTS and
which is adequate to apprise the Eligible Account Holders, Employee Plans,
Supplemental Eligible Account Holders and Other Members of the pendency of the
Subscription Offering. Such notice may be included with the proxy statement for
the Special Meeting of Members and the proxy statement for the Special Meeting
of Stockholders and may also be included in the notice of the pendency of the
Conversion and the Special Meeting of Members sent to all Eligible Account
Holders in accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by a prospectus describing
the Holding Company, the Bank, the Holding Company Common Stock and the
Subscription and Community Offerings. Each Order Form will contain, among other
things, the following:
A. A specified date by which all Order Forms must be received by the
Holding Company, which date shall be not less than twenty (20), nor more
than forty-five (45) days, following the date on which the Order Forms are
mailed by the Holding Company, and which date will constitute the
termination of the Subscription Offering;
B. The Subscription Price per share for shares of Holding Company
Common Stock to be sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of Subscription
Shares which may be subscribed for pursuant to the exercise of subscription
rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to
indicate thereon the number of Subscription Shares for which such person
elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form has received
a final copy of the prospectus prior to execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and
can only be exercised by delivering to the Holding Company within the
subscription period such properly completed and executed Order Form,
together with payment in the full amount of the aggregate purchase price as
specified in the Order Form for the shares of Holding Company Common Stock
for which the recipient elects to subscribe in the Subscription Offering
(or by authorizing on the Order Form that the Bank withdraw said amount
from the subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed Order Form, once
received by the Holding Company, may not be modified or amended by the
subscriber without the consent of the Holding Company.
Notwithstanding the above, the Holding Company reserves the right in its
sole discretion to accept or reject orders received on photocopied or
facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM; INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
Holding Company or the Bank by the United States Postal Service or the Holding
Company is unable to locate the addressee, (b) are not received back by the
Holding Company or are received by the Holding Company after the expiration date
specified thereon, (c) are
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defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the
Subscription Price prior to 48 hours before the completion of the Conversion,
unless waived by the Holding Company, for the shares of Holding Company Common
Stock subscribed for (including cases in which deposit accounts from which
withdrawals are authorized are insufficient to cover the amount of the required
payment), or (e) are not mailed pursuant to a "no mail" order placed in effect
by the account holder, the subscription rights of the Person to whom such rights
have been granted will lapse as though such Person failed to return the
completed Order Form within the time period specified thereon; provided,
however, that the Holding Company may, but will not be required to, waive any
immaterial irregularity on any Order Form or require the submission of corrected
Order Forms or the remittance of full payment for subscribed shares by such date
as the Holding Company may specify. The interpretation of the Holding Company of
terms and conditions of this Plan and of the Order Forms will be final, subject
to the authority of the OTS.
18. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The Holding Company will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Holding Company Common Stock pursuant to this Plan
reside. However, no such Person will be issued subscription rights or be
permitted to purchase shares of Holding Company Common Stock in the Subscription
Offering if such Person resides in a foreign country; or in a State of the
United States with respect to which all of the following apply: (A) a small
number of Persons otherwise eligible to subscribe for shares under the Plan
reside in such state; (B) the issuance of subscription rights or the offer or
sale of shares of Holding Company Common Stock to such Persons would require the
Holding Company under the securities laws of such state, to register as a
broker, dealer, salesman or agent or to register or otherwise qualify its
securities for sale in such state; (C) such registration or qualification would
be impracticable for reasons of cost or otherwise.
19. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The Mid-Tier Holding Company shall establish at the time of the MHC Merger,
and the Bank shall establish at the time of the Mid-Tier Merger, a liquidation
account in an amount equal to the greater of: (a) the sum of (i) the percentage
of the outstanding shares of the common stock of the Mid-Tier Holding Company
owned by the Mutual Holding Company multiplied by the Mid-Tier Holding Company's
total stockholders' equity as reflected in the latest statement of financial
condition contained in the final Prospectus utilized in the Conversion, and (ii)
the restricted retained earnings account that reflects certain dividends waived
by the Mutual Holding Company; or (b) the retained earnings of the Bank at the
time the Bank underwent its mutual holding company reorganization. Following the
Conversion, the Liquidation Account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their Deposit Accounts at the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder shall, with
respect to his Deposit Account, hold a related inchoate interest in a portion of
the liquidation account balance, in relation to his Deposit Account balance at
the Eligibility Record Date or Supplemental Eligibility Record Date,
respectively, or to such balance as it may be subsequently reduced, as
hereinafter provided.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
Account Holders to the extent of their Deposit Accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the Liquidation Account, in the amount of the then
adjusted subaccount balance for his Deposit Account then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of Deposit
Accounts and other liabilities, or similar transactions with an FDIC-insured
institution, in which the Bank is not the surviving institution, shall be deemed
to be a complete liquidation for this purpose. In such transactions, the
liquidation account shall be assumed by the surviving institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of the Qualifying Deposits of such account
holder and the denominator
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of which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders. Such initial subaccount
balance shall not be increased, but shall be subject to downward adjustment as
described below.
If, at the close of business on any December 31 annual closing date,
commencing on or after the effective date of the Conversion, the deposit balance
in the Deposit Account of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the lesser of (i) the balance in the Deposit Account
at the close of business on any other annual closing date subsequent to the
Eligibility Record Date or Supplemental Eligibility Record Date, or (ii) the
amount of the Qualifying Deposit in such Deposit Account as of the Eligibility
Record Date or Supplemental Eligibility Record Date, the subaccount balance for
such Deposit Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Deposit Account. If any such Deposit Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the Bank,
except that the Bank shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its net worth to be
reduced below (i) the amount required for the Liquidation Account; or (ii) the
net worth requirements of the Bank contained in Part 567 of the Rules and
Regulations of the OTS.
20. VOTING RIGHTS OF STOCKHOLDERS
Following consummation of the Conversion, voting rights with respect to the
Bank shall be held and exercised exclusively by the holders of its capital
stock. The holders of the voting capital stock of the Holding Company shall have
the exclusive voting rights with respect to the Holding Company.
21. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All Subscription Shares purchased by Directors or Officers of the
Holding Company or the Bank in the Offering shall be subject to the restriction
that, except as provided in this Section or as may be approved by the OTS, no
interest in such shares may be sold or otherwise disposed of for value for a
period of one year following the date of purchase in the Offering.
B. The restriction on disposition of Subscription Shares set forth above in
this Section shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the Bank or the Holding Company, as the case may be,
which has been approved by the OTS; and
(ii) Any disposition of such shares following the death of the person
to whom such shares were initially sold under the terms of the Plan.
C. With respect to all Subscription Shares subject to restrictions on
resale or subsequent disposition, each of the following provisions shall apply:
(i) Each certificate representing shares restricted by this section
shall bear a legend prominently stamped on its face giving notice of the
restriction;
(ii) Instructions shall be issued to the stock transfer agent for the
Holding Company not to recognize or effect any transfer of any certificate
or record of ownership of any such shares in violation of the restriction
on transfer; and
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(iii) Any shares of capital stock of the Holding Company issued with
respect to a stock dividend, stock split, or otherwise with respect to
ownership of outstanding Subscription Shares subject to the restriction on
transfer hereunder shall be subject to the same restriction as is
applicable to such Conversion Stock.
22. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
CONVERSION
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of Holding Company Common Stock except from a
broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than 1% of the outstanding shares of
Holding Company Common Stock, the exercise of any options pursuant to a stock
option plan or purchases of Holding Company Common Stock made by or held by any
Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee Stock
Benefit Plan of the Bank or the Holding Company (including the Employee Plans)
which may be attributable to any Officer or Trustee. As used herein, the term
"negotiated transaction" means a transaction in which the securities are offered
and the terms and arrangements relating to any sale are arrived at through
direct communications between the seller or any person acting on its behalf and
the purchaser or his investment representative. The term "investment
representative" shall mean a professional investment advisor acting as agent for
the purchaser and independent of the seller and not acting on behalf of the
seller in connection with the transaction.
23. TRANSFER OF DEPOSIT ACCOUNTS
Each person holding a Deposit Account at the Bank at the time of Conversion
shall retain an identical Deposit Account at the Bank following Conversion in
the same amount and subject to the same terms and conditions (except as to
voting and liquidation rights).
24. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
Conversion pursuant to the Securities Exchange Act of 1934 (or will be a
successor issuer that succeeds to the registration of the Mid-Tier Holding
Company) and will not deregister such securities for a period of at least three
years thereafter, except that the maintenance of registration for three years
requirement may be fulfilled by any successor to the Bank or any holding company
of the Bank. In addition, the Bank or Holding Company will use its best efforts
to encourage and assist a market-maker to establish and maintain a market for
the Conversion Stock and to list those securities on a national or regional
securities exchange or the Nasdaq Stock Market.
25. TAX RULINGS OR OPINIONS
Consummation of the Conversion is expressly conditioned upon prior receipt
by the Mutual Holding Company, the Mid-Tier Holding Company and the Bank of
either a ruling or an opinion of counsel with respect to federal tax laws, and
either a ruling, an opinion of counsel, or a letter of advice from their tax
advisor with respect to New York tax laws, to the effect that consummation of
the transactions contemplated by the Conversion and this Plan will not result in
a taxable reorganization under the provisions of the applicable codes or
otherwise result in any adverse tax consequences to the Mutual Holding Company,
the Mid-Tier Holding Company, the Holding Company or the Bank, or the account
holders receiving subscription rights before or after the Conversion, except in
each case to the extent, if any, that subscription rights are deemed to have
value on the date such rights are issued.
26. STOCK BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
A. The Holding Company and the Bank are authorized to adopt Tax-Qualified
Employee Stock Benefit Plans in connection with the Conversion, including
without limitation, an ESOP. Existing as well as any newly
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created Tax-Qualified Employee Stock Benefit Plans may purchase shares of
Conversion Stock in the Conversion, to the extent permitted by the terms of such
benefit plans and this Plan.
B. As a result of the Conversion, the Holding Company shall be deemed to
have ratified and approved the all stock benefit plans maintained by the Bank
and the Mid-Tier Holding Company and shall have agreed to issue (and reserve for
issuance) Holding Company Common Stock in lieu of common stock of the Mid-Tier
Holding Company pursuant to the terms of such benefit plans. Upon consummation
of the Conversion, the Mid-Tier Holding Company common stock held by such
benefit plans shall be converted into Holding Company Common Stock based upon
the Exchange Ratio. Also upon consummation of the Conversion, (i) all rights to
purchase, sell or receive Mid- Tier Holding Company common stock and all rights
to elect to make payment in Mid-Tier Holding Company common stock under any
agreement between the Bank or the Mid-Tier Holding Company and any Director,
Officer or Employee thereof or under any plan or program of the Bank or the
Mid-Tier Holding Company shall automatically, by operation of law, be converted
into and shall become an identical right to purchase, sell or receive Holding
Company Common Stock and an identical right to make payment in Holding Company
Common Stock under any such agreement between the Bank or the Mid-Tier Holding
Company and any Director, Officer or Employee thereof or under such plan or
program of the Bank, and (ii) rights outstanding under the any stock option plan
of the Bank or the Mid-Tier Holding Company shall be assumed by the Holding
Company and thereafter shall be rights only for shares of Holding Company Common
Stock, with each such right being for a number of shares of Holding Company
Common Stock based upon the Exchange Ratio and the number of shares of Mid-Tier
Holding Company common stock that were available thereunder immediately prior to
consummation of the Conversion, with the price adjusted to reflect the Exchange
Ratio but with no change in any other term or condition of such right.
C. The Holding Company and the Bank are authorized to enter into employment
agreements with their executive officers.
D. The Holding Company and the Bank are authorized to adopt stock option
plans, restricted stock grant plans and other Non-Tax-Qualified Employee Stock
Benefit Plans, provided that such plans conform to any applicable requirements
of OTS regulators.
27. RESTRICTIONS ON ACQUISITION OF BANK AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from the
date of consummation of the Conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the Bank
without the prior written consent of the OTS.
B. (i) The charter of the Bank may contain a provision stipulating that no
person, except the Holding Company, for a period of five years following the
closing date of the Conversion, shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of any class of an equity
security of the Bank, without the prior written approval of the OTS. In
addition, such charter may also provide that for a period of five years
following the closing date of the Conversion, shares beneficially owned in
violation of the above-described charter provision 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 stockholders for a vote. In addition, special
meetings of the stockholders relating to changes in control or amendment of the
charter may only be called by the Board of Directors, and shareholders shall not
be permitted to cumulate their votes for the election of directors.
(ii) The Certificate of Incorporation of the Holding Company will contain a
provision stipulating that in no event shall any record owner of any outstanding
shares of Holding Company Common Stock who beneficially owns in excess of 10% of
such outstanding shares be entitled or permitted to any vote in respect to any
shares held in excess of 10%. In addition, the Certificate of Incorporation and
Bylaws of the Holding Company contain provisions which provide for staggered
terms of the directors, noncumulative voting for directors, limitations on the
calling of special meetings, a fair price provision for certain business
combinations and certain notice requirements.
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C. For the purposes of this section:
(i) The term "person" includes an individual, a firm, a corporation or
other entity;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security" as defined
in 15 U.S.C.ss. 8c(a)(10).
28. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
A. The Holding Company shall comply with any applicable OTS regulation in
the repurchase of any shares of its capital stock during the first three years
following consummation of the Conversion.
B. The Bank shall not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause its regulatory capital
to be reduced below (i) the amount required for the liquidation account or (ii)
the federal regulatory capital requirement in Section 567.2 of the Rules and
Regulations of the OTS. Otherwise, the Bank may declare dividends or make
capital distributions in accordance with applicable law and regulations,
including 12 C.F.R. Section 563.134 or its successor.
29. CHARTER AND BYLAWS
By voting to adopt this Plan, Members of the Mutual Holding Company will be
voting to adopt a Stock Certificate of Incorporation and Bylaws for a Delaware
corporation attached as Exhibits D and E to this Plan.
30. CONSUMMATION OF CONVERSION AND EFFECTIVE DATE
The Effective Date of the Conversion shall be the date upon which the
Articles of Combination shall be filed with the OTS with respect to the MHC
Merger, the Mid-Tier Merger and the Bank Merger. The Articles of Combination
shall be filed with the OTS after all requisite regulatory, member and
stockholder approvals have been obtained, all applicable waiting periods have
expired, and sufficient subscriptions and orders for Subscription Shares have
been received. The Closing of the sale of all Subscription Shares sold in the
Subscription Offering, Community Offering and/or Syndicated Community Offering
shall occur simultaneously on the effective date of the Closing.
31. EXPENSES OF CONVERSION
The Mutual Holding Company, the Mid-Tier Holding Company, the Bank and the
Holding Company may retain and pay for the services of legal, financial and
other advisors to assist in connection with any or all aspects of the
Conversion, including the Offering, and such parties shall use their best
efforts to assure that such expenses shall be reasonable.
32. AMENDMENT OR TERMINATION OF PLAN
If deemed necessary or desirable, this Plan may be substantively amended as
a result of comments from regulatory authorities or otherwise at any time prior
to solicitation of proxies from Members and Bank stockholders to vote on this
Plan by the Board of Directors of the Mutual Holding Company, and at any time
thereafter by the Board of Directors of the Mutual Holding Company with the
concurrence of the OTS. Any amendment to this Plan made after approval by the
Members and Bank stockholders with the approval of the OTS shall not necessitate
further approval by the Members unless otherwise required by the OTS. This Plan
may be terminated by the Board of
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Directors of the Mutual Holding Company at any time prior to the Special Meeting
of Members and the Special Meeting of Stockholders to vote on this Plan, and at
any time thereafter with the concurrence of the OTS.
By adoption of the Plan, the Members of the Mutual Holding Company
authorize the Board of Directors of the Mutual Holding Company to amend or
terminate the Plan under the circumstances set forth in this Section.
33. CONDITIONS TO CONVERSION
Consummation of the Conversion pursuant to this Plan is expressly
conditioned upon the following:
A. Prior receipt by the Mutual Holding Company, the Mid-Tier Holding
Company, and the Bank of rulings of the United States Internal Revenue Service
and the New York State taxing authorities, or opinions of counsel or tax
advisers as described in Section 26 hereof;
B. The sale of the Subscription Shares offered in the Conversion; and
C. The completion of the Conversion within the time period specified in
Section 3 of this Plan.
34. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the OTS.
Dated: January 31, 2000
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
FINGER LAKES BANCORP, INC.
FIRST: The name of the Corporation is Finger Lakes Bancorp, Inc.
(hereinafter referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the Corporation
shall have authority to issue is six million shares (6,000,000) consisting of:
1. One million (1,000,000) shares of Preferred Stock, par value one
cent ($.01) per share (the "Preferred Stock"); and
2. Five million (5,000,000) shares of Common Stock, par value one cent
($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote on any
matter, beneficially owns in excess of 10% of the then-outstanding shares of
Common Stock (the "Limit"), be entitled, or permitted to any vote in respect of
the shares held in excess of the Limit. The number of votes which may be cast 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 C of
this Article FOURTH:
(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 of clauses of Section A of Article EIGHTH)
or upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to
any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the beneficial
owner of any voting shares solely by reason of a revocable
proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such
meeting, with respect to shares of which neither such person
nor any such Affiliate is otherwise deemed the beneficial
owner); or
(3) which is 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 mean any individual, firm, corporation, or other
entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section
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and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to
(i) determining the number of shares of Common Stock beneficially
owned by any person, (ii) determining whether a person is an affiliate
of another, (iii) determining whether a person has an agreement,
arrangement, or understanding with another as to the matters referred
to in the definition of beneficial ownership, (iv) determining 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 giving
effect to the provisions of this Article FOURTH.
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 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.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the 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 not be effected by any consent
in writing by such stockholders.
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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 authorized directorships whether or not
there exist any vacancies in previously authorized directorships at the
time any such resolution is presented to the Board for adoption (the "Whole
Board") or as otherwise provided in the Bylaws.
SIXTH:
A. The number of Directors shall be fixed from time to time exclusively by
the Board of Directors pursuant to a resolution adopted by a majority of the
Whole Board. The Directors 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 with each
director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders following such initial
classification and election, Directors elected to succeed those Directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election with each
director to hold office until his or her successor shall have been duly elected
and qualified.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the Directors
then in office, though less than a quorum, and Directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been 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. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, 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 percent of the voting power of all of the
then-outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the provisions of
Article FOURTH of this Certificate of Incorporation ("Article FOURTH")), voting
together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal the Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of the
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this Certificate
of Incorporation, and except as otherwise expressly provided in this section:
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1. any merger or consolidation of the Corporation or any Subsidiary
(as hereinafter defined) with (i) any Interested Stockholder (as
hereinafter defined) or (ii) any other corporation (whether or not itself
an Interested Stockholder) which is, or after such merger or consolidation
would be, an Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Stockholder, or any Affiliate of any Interested Stockholder, of
any assets of the Corporation or any Subsidiary having an aggregate Fair
Market Value (as hereinafter defined) equaling or exceeding 25% or more of
the combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an aggregate Fair Market
Value (as hereinafter defined) equaling or exceeding 25% of the combined
Fair Market Value of the then-outstanding common stock of the Corporation
and its Subsidiaries, except to an employee benefit plan of the Corporation
or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of an Interested Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly, of
increasing the proportional share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any Subsidiary which
is directly or indirectly owned by an Interested Stockholder or any
Affiliate of an Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock") (after giving effect to
the provisions of Article FOURTH), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or by any other
provisions of this Certificate of Incorporation or any Preferred Stock
Designation or in any agreement with any national securities exchange or
otherwise.
The term "Business Combination" as used in this Article EIGHTH shall mean
any transaction which is referred to in any one or more of paragraphs 1 through
5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only the affirmative vote of the majority of the outstanding
shares of capital stock entitled to vote, or such vote as is required by law or
by this Certificate of Incorporation, if, in the case of any Business
Combination that does not involve any cash or other consideration being received
by the stockholders of the Corporation solely in their capacity as stockholders
of the Corporation, the condition specified in the following paragraph 1 is met
or, in the case of any other Business Combination, all of the conditions
specified in either of the following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by two-thirds of
the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
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(a) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at
least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder or any of its Affiliates for any shares of
Common Stock acquired by it (i) within the two-year period
immediately prior to the first public announcement of the
proposal of the Business Combination (the "Announcement
Date"), or (ii) in the transaction in which it became an
Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as of
the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders
of shares of any class of outstanding Voting Stock other than
Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to
every such class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer
taxes and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock
acquired by it (i) within the two-year period immediately
prior to the Announcement Date, or (ii) in the transaction
in which it became an Interested Stockholder, whichever is
higher;
(2) (if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock
are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation;
and
(3) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date,
whichever is higher.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or in the same form as the Interested
Stockholder has paid for shares of such class of Voting
Stock. If the Interested Stockholder has previously paid for
shares of any class of Voting Stock with varying forms of
consideration, the form of consideration to be received per
share by holders of shares of such class of Voting Stock
shall be either cash or the form used to acquire the largest
number of shares of such class of Voting Stock previously
acquired by the Interested Stockholder. The price determined
in accordance with subparagraph B.2 of this Article EIGHTH
shall be subject to appropriate adjustment in the event of
any stock dividend, stock split, combination of shares or
similar event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the
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consummation of such Business Combination: (1) except as
approved by a majority of the Disinterested Directors, there
shall have been no failure to declare and pay at the regular
date therefor any full quarterly dividends (whether or not
cumulative) on any outstanding stock having preference over
the Common Stock as to dividends or liquidation; (2) there
shall have been (i) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors, and
(ii) an increase in such annual rate of dividends as necessary
to reflect any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure to
so increase such annual rate is approved by a majority of the
Disinterested Directors; and (3) neither such Interested
Stockholder or any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such
Business Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provisions
replacing such Act, rules or regulations) shall be mailed to
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not
such proxy or information statement is required to be mailed
pursuant to such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in concert,
a corporation, a partnership, an association, a joint venture, a pool, a
joint stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other group formed for the purpose of
acquiring, holding or disposing of securities.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any holding company or Subsidiary thereof) who or which:
(a) is the beneficial owner, directly or indirectly, of more than
10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the voting
power of the then-outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by an
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act
of 1933.
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3. For purposes of this Article EIGHTH, "beneficial ownership" shall
be determined in the manner provided in Section C of Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as in effect on the date of
filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any class
of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in paragraph 2 of this section, the term "Subsidiary"
shall mean only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of Directors
who is unaffiliated with the Interested Stockholder and was a member of the
Board of Directors prior to the time that the Interested Stockholder became
an Interested Stockholder, and any Director who is thereafter chosen to
fill any vacancy of the Board of Directors or who is elected and who, in
either event, is unaffiliated with the Interested Stockholder and in
connection with his or her initial assumption of office is recommended for
appointment or election by a majority of Disinterested Directors then on
the Board of Directors.
7. "Fair Market Value" means: (a) in the case of stock, the highest
closing sales price of the stock during the 30-day period immediately
preceding the date in question of a share of such stock on the National
Association of Securities Dealers Automated Quotation System or any system
then in use, or, if such stock is admitted to trading on a principal United
States securities exchange registered under the Securities Exchange Act of
1934, Fair Market Value shall be the highest sales price reported during
the 30-day period preceding the date in question, or, if no such quotations
are available, the Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in good faith, in each
case with respect to any class of stock, appropriately adjusted for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock, and (b) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined by the
Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for any
dividend or distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a greater number
of shares of such stock or any combination or reclassification of
outstanding shares of such stock into a smaller number of shares of such
stock.
9. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in subparagraphs (a) and (b) of paragraph 2 of Section B of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Directors of the Corporation shall have the power and
duty to determine for the purposes of this Article EIGHTH, on the basis of
information known to them after reasonable inquiry (a) whether a person is an
Interested Stockholder; (b) the number of shares of Voting Stock beneficially
owned by any person; (c) whether a person is an Affiliate or Associate of
another; and (d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the issuance or
transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined Fair Market Value of the common stock of the Corporation and its
Subsidiaries. A majority
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of the Directors shall have the further power to interpret all of the terms and
provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to relieve
any Interested Stockholder from any fiduciary obligation imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to (A) make a tender or
exchange offer for any equity security of the Corporation, (B) merge or
consolidate the Corporation with another corporation or entity or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate 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.
TENTH:
A. Each person who was or is made a party or is threatened to be made a
party to or is otherwise involved in any action, suit or proceeding, whether
civil, criminal, administrative or investigative (hereinafter a "proceeding"),
by reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent or in any other capacity while serving as a Director, Officer,
employee or agent, shall be indemnified and held harmless by the Corporation to
the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than such law permitted the Corporation to
provide prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts paid in settlement) reasonably incurred or suffered by such
indemnitee in connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
B. The right to indemnification conferred in Section A of this Article
TENTH shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses incurred
by an indemnitee in his or her capacity as a Director or Officer (and not in any
other capacity in which service was or is rendered by such indemnitee,
including, without limitation, service to an employee benefit plan) shall be
made only upon delivery to the Corporation of an undertaking (hereinafter an
"undertaking"), by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal (hereinafter a "final adjudication")
that such indemnitee is not entitled to be indemnified for such expenses under
this Section or otherwise.
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The rights to indemnification and to the advancement of expenses conferred in
Sections A and B of this Article TENTH 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 TENTH 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 TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH 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 TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH: 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
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adversely affect any right or protection of a Director of the Corporation
existing at the time of such repeal or modification.
TWELFTH: 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 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, or Article
EIGHTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
Name Mailing Address
---- ---------------
Alan Schick 5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
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I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and accordingly, have hereto set my hand this 20th day of March, 2000.
/s/ Alan Schick
--------------------------
Alan Schick
Incorporator
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Exhibit 3.2
FINGER LAKES BANCORP, INC.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the Article FOURTH 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.
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.
<PAGE>
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 executive offices of the Corporation not less than
ninety (90) days prior to the date of the annual meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be received not later than the close of
business on the 10th day following the day on which such notice of the date of
the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter such
stockholder proposes to bring before the annual meeting: (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business; (iii) the class and number of shares of the Corporation's capital
stock that are beneficially owned by such stockholder; and (iv) any material
interest of such stockholder in such business. Notwithstanding anything in these
Bylaws to the contrary, no business shall be brought before or conducted at an
annual meeting except in 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 executive offices of the Corporation not less
than ninety (90) days prior to
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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 (x) the name and address, as they
appear on the Corporation's books, of such stockholder and (y) the class and
number of shares of the Corporation's capital stock that are beneficially owned
by such stockholder. At the request of the Board of Directors any person
nominated by the Board of Directors for election as a Director shall furnish to
the Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the provisions of this Section 6(c). The Officer of the
Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she should so determine, he or she shall declare to the
meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission 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,
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or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be under the direction
of its Board of Directors. The number of Directors who shall constitute the
Whole Board shall be such number as the Board of Directors shall from time to
time have designated by resolution. 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. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of preferred
stock, and unless the Board of Directors otherwise determines, newly created
Directorships resulting from any increase in the authorized number of Directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
Directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
4
<PAGE>
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by a majority of
the Directors then in office (rounded up to the nearest whole number) or by the
Chairman of the Board or by the President and Chief Executive Officer and shall
be held at such place, on such date, and at such time as they or he or she shall
fix. Notice of the place, date, and time of each such special meeting shall be
given to each Director by whom it is not waived by mailing written notice not
less than five (5) days before the meeting or be telegraphing or telexing 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 5. Quorum.
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend any
meeting, a majority of those present may adjourn the meeting to another place,
date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it
may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
5
<PAGE>
(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 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committee of the Board of Directors.
The Board of Directors, by a vote of a majority of the Whole Board, may
from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so designated
may exercise the power and authority of the Board of Directors to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to Section 253 of the Delaware General Corporation
Law if the resolution which designates the committee or a supplemental
resolution of the Board of Directors shall so provide. In the absence or
disqualification of any member of any committee and any alternate member in his
or her place, the member or members of the committee present at the meeting and
not disqualified from voting, whether or not he or she or they constitute a
quorum, may by unanimous vote appoint another member of the Board of Directors
to act at the meeting in the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; a majority of the members shall
constitute a quorum, and all matters shall be determined by a majority vote of
the members present, subject to a quorum being 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 filled with the minutes of the
proceedings of such committee.
Section 3. Nominating Committee.
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members, one of which shall be the
Chairman of the Board. The Nominating Committee shall have authority (a) to
review any nominations for election to the Board of Directors made by a
stockholder of the Corporation pursuant to Section 6(c) (ii) of Article I of
these Bylaws in order to determine compliance with such By-law provision and (b)
to recommend to the Whole Board nominees for election to the Board of Directors
to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
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<PAGE>
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 Chairman of the Board, 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. The Chairman
of the Board shall be chosen from among the Directors. Any number of offices may
be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen, but any
Officer may be removed from office at any time by the affirmative vote of
two-thirds of the authorized number of Directors then constituting the Board of
Directors, or removed by an Officer pursuant to authority delegated by the Board
to such Officer in accordance with Section 8(5) of Article II.
(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. 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. 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. 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. 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 (other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. 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 or any such designation as the
Board of Directors, Chairman of the Board or President deems appropriate.
7
<PAGE>
Section 5. 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 6. 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 7. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which the Corporation may hold securities and otherwise to
exercise any and all rights and powers which the Corporation may possess by
reason of its ownership of securities in such other corporation.
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
8
<PAGE>
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
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 mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
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 telegram or
mailgram 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 Comptroller or by an Assistant Secretary or an
assistant to the Comptroller.
9
<PAGE>
Section 3. Reliance upon Books, Reports and Records.
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these 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 by a two-thirds vote 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.
10
<PAGE>
Exhibit 4
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
FINGER LAKES BANCORP, INC.
GENEVA, NEW YORK
$.01 par value common stock--fully paid and non-assessable
This certifies that _____________________________ is the owner of __________
shares of the common stock of FINGER LAKES BANCORP, INC. (the "Corporation"), a
Delaware corporation.
The shares evidenced by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, in person or
by his duly authorized attorney or legal representative, upon surrender of this
certificate properly endorsed. This Certificate is not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be executed
by the facsimile signatures of its duly authorized officers and has caused its
seal to be affixed hereto.
DATED:____________________
________________________________ ___________________________
Secretary (SEAL) President
<PAGE>
The shares evidenced by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding Common Stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of Common Stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit.
The Board of Directors of the Corporation is authorized by resolution or
resolutions, from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, limitations and restrictions thereof. The Corporation will furnish
to any shareholder upon request and without charge a full description of each
class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The Certificate of Incorporation requires the affirmative vote of
the holders of at least 80% of the voting stock of the Corporation, voting
together as a single class, to approve certain business combinations and other
transactions and to amend certain provisions of the Certificate of
Incorporation.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
_______ ______
(Cust) (Minor)
TEN ENT - as tenants by the entireties
Under Uniform Transfers to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as _____________________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list
</TABLE>
For value received, _____________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
___________________________________________________
___________________________________________________
_______________________________________________________________________________
(please print or typewrite name and address including
postal zip code of assignee)
_______________________________________________________________________________
______________________________________________________________________ Shares of
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________________
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated, _____________________________
In the presence of Signature:
_____________________________________ ____________________________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 5
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK ]
WRITER'S DIRECT DIAL NUMBER
(202) 274-2000
March 27, 2000
The Boards of Directors
Finger Lakes Financial Corporation, MHC
Savings Bank of the Finger Lakes, FSB
470 Exchange Street
Geneva, New York 14456
Re: Finger Lakes Bancorp, Inc.
Common Stock Par Value $.01 Per Share
Ladies and Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Finger Lakes Bancorp,
Inc. (the "Company") Common Stock, par value $.01 per share ("Common Stock"). We
have reviewed the Company's Certificate of Incorporation, Registration Statement
on Form S-1 (the "Form S-1"), as well as applicable statutes and regulations
governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form S-1, the Common Stock, when sold, will be legally issued, fully paid and
non-assessable.
This Opinion has been prepared solely for the use of the Company in
connection with the Form S-1. We hereby consent to our firm being referenced
under the caption "Legal Matters."
Very truly yours,
/s/ LUSE LEHMAN GORMAN POMERENK & SCHICK
----------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A PROFESSIONAL CORPORATION
<PAGE>
Exhibit 8.1
FORM OF
FEDERAL TAX OPINION
March __, 2000
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC
Savings Bank of the Finger Lakes
470 Exchange Street
Geneva, New York 14456
Ladies and Gentlemen:
You have requested this firm's opinion regarding certain federal income tax
consequences which will result from the conversion of Finger Lakes Financial
Corporation, MHC, (the "Mutual Holding Company") from the two-tier holding
company structure to the stock holding company form, as effectuated pursuant to
the three integrated transactions described below.
In connection therewith, we have made such investigations as we have deemed
relevant or necessary for the purpose of this opinion. In our examination, we
have assumed the authenticity of original documents, the accuracy of copies and
the genuineness of signatures. We have further assumed the absence of adverse
facts not apparent from the face of the instruments and documents we examined
and have relied upon the accuracy of the factual matters set forth in the Plan
of Conversion and Reorganization (the "Plan") and the Registration Statement
filed by Finger Lakes Bancorp, Inc. (the "Holding Company") with the Securities
and Exchange Commission ("SEC") under the Securities Act of 1933, as amended,
and the Application for Conversion on Form AC filed with the Office of Thrift
Supervision (the "OTS").
Our opinion is based upon the existing provisions of the Internal Revenue
Code of 1986, as amended (the "Code) and regulations thereunder (the "Treasury
Regulations"), and upon current Internal Revenue Service ("IRS") published
rulings and existing court decisions, any of which could be changed at any time.
Any such changes may be retroactive and could significantly modify the
statements and opinions expressed herein. Similarly, any change in the facts and
assumptions stated below, upon which this opinion is based, could modify the
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 2
conclusions. This opinion is as of the date hereof, and we disclaim any
obligation to advise you of any change in any matter considered herein after the
date hereof.
We, of course, opine only as to the matters we expressly set forth, and no
opinions should be inferred as to any other matters or as to the tax treatment
of the transactions that we do not specifically address. We express no opinion
as to other federal laws and regulations, or as to laws and regulations of other
jurisdictions, or as to factual or legal matters other than as set forth herein.
For purposes of this opinion, we are relying on the opinion of FinPro the
appraiser of the Company, to the effect that the subscription rights distributed
to Eligible Account Holders and Supplemental Eligible Account Holders have no
value; and on the representations provided to us by the Mutual Holding Company
and by the Savings Bank of the Finger Lakes, FSB (the "Bank") as described in
the Affidavit of the President of the Mutual Holding Company and the Bank,
incorporated herein by reference.
The Proposed Transactions
Based solely upon our review of the documents described above, and in
reliance upon such documents, we understand that the relevant facts are as
follows. On November 10, 1994, the Savings Bank of the Finger Lakes, a federally
chartered mutual savings bank ("Finger Lakes") reorganized from a mutual savings
bank to become the majority-owned stock subsidiary of the Mutual Holding
Company. To accomplish this transaction, Finger Lakes organized the Bank as a
wholly-owned subsidiary. Finger Lakes then transferred substantially all of its
assets and liabilities, including all of its deposit-taking, lending and other
banking functions and its corporate name to the newly created stock savings bank
called Savings Bank of the Finger Lakes, FSB. Finger Lakes then converted its
charter to a mutual holding company charter to become the Mutual Holding
Company.
In connection with the foregoing transaction, the Bank sold less than 50%
of its outstanding shares of Bank Common Stock to depositors, certain
tax-qualified plans and members of the public (the "Bank Minority
Stockholders"). The remaining shares of Bank Common Stock were held by the
Mutual Holding Company. The reorganization of Finger Lakes into the mutual
holding company form of organization, and the sale to the Bank Minority
Stockholders of stock in the Bank, are sometimes herein collectively referred to
as the "MHC Reorganization." On August 17, 1998, the Bank reorganized into a
two-tier holding company
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 3
form of organization whereby Finger Lakes Financial Corp., a federally-chartered
mutual holding company with the power to issue stock ("Mid-Tier Holding
Company") became the parent of the Bank and the Mid- Tier Holding Company became
the majority owned subsidiary of the Mutual Holding Company. To accomplish this
Transaction, the Bank chartered the Mid-Tier Holding Company as a wholly owned
subsidiary and the Mid-Tier Holding Company chartered an interim ("Interim")
federal stock savings bank as a wholly owned subsidiary. Interim then merged
into the Bank with the Bank's shareholders, including the Mutual Holding
Company, receiving shares of the Mid-Tier Holding Company in exchange for their
shares of Bank Common Stock. The shares of the Mid- Tier Holding Company owned
by the Bank were canceled.
On January 30, 2000, the Mutual Holding Company adopted the Plan of
Conversion and Reorganization ("Plan") providing for the conversion of the
Mutual Holding Company into the capital stock form of organization as Finger
Lakes Bancorp, Inc., (as converted, the "Holding Company").
At the present time, three transactions referred to as the "MHC Merger",
the "Mid-Tier Merger", and the "Bank Merger" are being undertaken. Pursuant to
the Plan, the conversion ("Conversion") will be effected in the following steps,
each of which will be completed contemporaneously.
(i) The Bank will establish the Holding Company as a first-tier Delaware
chartered stock holding company subsidiary.
(ii) The Company will charter an interim federal association ("Interim
Savings Bank").
(iii) The Mutual Holding Company will exchange its charter for an interim
stock savings association charter and will merge with and into the
Mid-Tier Holding Company (the "MHC Merger"), shares of Mid-Tier common
stock ("Mid-Tier Common Stock") held by the Mutual Holding Company
will be canceled and each Eligible Account Holder and Supplemental
Eligible Account Holder will receive an interest in a liquidation
account of the Mid-Tier Holding Company in exchange for such person's
interest in the Mutual Holding Company.
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 4
(iv) The Mid-Tier Holding Company will convert to a federal interim stock
savings association (as converted, the entity shall continue to be
referred to as the "Mid- Tier Holding Company") and will merge with
and into the Bank (the "Mid-Tier Merger") with the Bank as the
resulting entity and (i) Bank Minority Stockholders will
constructively receive shares of Bank Common Stock in exchange for
their Mid-Tier Common Stock and (ii) each Eligible Account Holder and
Supplemental Eligible Account Holder will receive an interest in a
liquidation account ("Liquidation Account") of the Bank in exchange
for such person's interest in the Mid-Tier Holding Company.
(v) Contemporaneously with the Mid-Tier Merger, Interim Savings Bank will
merge with and into the Bank with the Bank as the surviving entity
(the "Bank Merger"). Constructive shareholders of the Bank (i.e., Bank
Minority Stockholders immediately prior to the Conversion) will
exchange the shares of Bank Common Stock that they constructively
received in the Mid-Tier Merger for Holding Company common stock
("Holding Company Common Stock") pursuant to the exchange ratio
("Exchange Ratio").
(vi) Contemporaneously with the Bank Merger, the Holding Company will sell
Holding Company Common Stock in the Offering.
In the MHC Merger, a liquidation account is being established by the
Mid-Tier Holding Company for the benefit of Eligible Account Holders and
Supplemental Account Holders. Pursuant to Section 19 of the Plan, the
liquidation account will be equal to the greater of (a) the sum of (i) the
percentage of the outstanding shares of the common stock of the Mid-Tier Holding
Company owned by the Mutual Holding Company multiplied by the Mid-Tier Holding
Company's total stockholders' equity as reflected in the latest statement of
financial condition contained in the final Prospectus utilized in the
Conversion, and (ii) the restricted retained earnings account that reflects
certain dividends waived by the Mutual Holding Company; or (b) the retained
earnings of the Bank at the time the Bank underwent its mutual holding company
reorganization. In the Mid-Tier Merger, the liquidation account established at
the Mid-Tier Holding Company will become a part of the Liquidation Account at
the Bank.
The Plan complies with the provisions of Subpart A of 12 C.F.R. Part 563b,
which sets forth the OTS regulations for conversion of mutual institutions to
stock form. The Plan also
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 5
complies with the provisions of 12 C.F.R. Section 575.12(a), which is the OTS
regulation governing the conversion of mutual holding companies to stock form.
Upon the date of consummation of the Bank Merger ("the Effective Date"),
Interim Savings Bank will be merged with and into the Bank and Interim Savings
Bank will cease to exist as a legal entity. All of the then outstanding shares
of Bank Common Stock will be converted into and become shares of Holding Company
Common Stock pursuant to the Exchange Ratio that ensures that after the
Conversion and before giving effect to Bank Minority Stockholders' purchases in
the Offering, receipt of cash in lieu of fractional shares, and shares for which
dissenters' rights have been exercised, Bank Minority Stockholders will own the
same aggregate percentage of the Holding Company's Common Stock as they
currently own of the Bank Common Stock. The common stock of the Interim Savings
Bank owned by the Holding Company prior to the Bank Merger will be converted
into and become shares of common stock of the Bank on the Effective Date. The
Holding Company Common Stock held by the Bank immediately prior to the Effective
Date will be canceled on the Effective Date. Immediately following the Bank
Merger, additional shares of Holding Company Common Stock will be sold to
depositors and former shareholders of the Bank and to members of the public in
the Offering.
As a result of the MHC Merger, the Mid-Tier Merger and the Bank Merger, the
Holding Company will be a publicly held corporation, will register the Holding
Company Common Stock under Section 12(g) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and will become subject to the rules and
regulations thereunder and file periodic reports and proxy statements with the
SEC. The Bank will become a wholly owned subsidiary of the Holding Company and
will continue to carry on its business and activities as conducted immediately
prior to the Conversion.
The stockholders of the Holding Company will be the former Bank Minority
Stockholders of the Mid-Tier Holding Company immediately prior to the MHC Merger
(i.e., all stockholders of the Bank, excluding the Mutual Holding Company), plus
those persons who purchase shares of Holding Company Common Stock in the
Offering. Nontransferable rights to subscribe for the Holding Company Common
Stock have been granted, in order of priority, to depositors of the Bank who
have account balances of $50.00 or more as of the close of business on December
31, 1998 ("Eligible Account Holders"), the Bank's tax-qualified employee plans
("Employee Plans"), depositors of the Bank who have account balances of $50.00
or more as of the close of business on ____________, 2000 ("Supplemental
Eligible
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 6
Account Holders"), other members of the Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders) ("Other Members"), and owners
of shares of Bank Common Stock other than the Mutual Holding Company ("Bank
Minority Stockholders"). Subscription rights are nontransferable. The Holding
Company will also offer shares of Holding Company Common Stock not subscribed
for in the subscription offering, if any, for sale in a community offering to
certain members of the general public.
Opinions
Based on the foregoing description of the MHC Merger, the Mid-Tier Merger
and the Bank Merger, and subject to the qualifications and limitations set forth
in this letter, we are of the opinion that:
1. The conversion of the Mutual Holding Company to a federally chartered
interim stock savings association will constitute a mere change in identity,
form or place of organization within the meaning of section 368(a)(1)(F) of the
Code.
2. The MHC Merger qualifies as a tax-free reorganization within the meaning
of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the Code.)
3. The exchange of the members' equity interests in the Mutual Holding
Company for interests in a liquidation account established at the Mid-Tier
Holding Company in the MHC Merger will satisfy the continuity of interest
requirement of Section 1.368-1(b) of the Income Tax Regulations (cf. Rev. Rul.
69-3, 1969-1 C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).
4. The Mutual Holding Company will not recognize any gain or loss on the
transfer of its assets to the Mid-Tier Holding Company in exchange for an
interest in a liquidation account established in the Mid-Tier Holding Company
for the benefit of the Mutual Holding Company's members who remain depositors of
the Bank. (Section 361 of the Code.)
5. No gain or loss will be recognized by the Mid-Tier Holding Company upon
the receipt of the assets of the Mutual Holding Company in the MHC Merger in
exchange for the transfer to the members of the Mutual Holding Company of an
interest in the liquidation account in the Mid-Tier Holding Company. (Section
1032(a) of the Code.)
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 7
6. The basis of the assets of Mutual Holding Company (other than stock in
the Mid- Tier Holding Company) to be received by Mid-Tier Holding Company will
be the same as the basis of such assets in the hands of the Mutual Holding
Company immediately prior to the transfer. (Section 362(b) of the Code.)
7. The holding period of the assets of the Mutual Holding Company (other
than stock in Mid-Tier Holding Company) to be received by Mid-Tier Holding
Company will include the holding period of those assets in the hands of the
Mutual Holding Company. (Section 1223(2) of the Code.)
8. Mutual Holding Company members will recognize no gain or loss upon the
receipt of an interest in the liquidation account in Mid-Tier Holding Company
for their membership interest in Mutual Holding Company. (Section 354(a) of the
Code.)
9. The conversion of the Mid-Tier Holding Company to a federally chartered
interim stock savings association will constitute a mere change in identity,
form or place of organization within the meaning of Section 368(a)(1)(F) of the
Code.
10. The Mid-Tier Merger qualifies as a tax-free reorganization within the
meaning of Section 368(a)(1)(A) of the Code. (Section 368(a)(1)(A) of the Code.)
11. The exchange of the interest in the Mid-Tier Holding Company's
liquidation account for interests in a Liquidation Account established at the
Bank in the Mid-Tier Merger will satisfy the continuity of interest requirement
of Section 1.368-1(b) of the Income Tax Regulations (cf. Rev. Rul. 69-3, 1969-1
C.B. 103, and Rev. Rul. 69-646, 1969-2 C.B. 54).
12. The Mid-Tier Holding Company will not recognize any gain or loss on the
transfer of its assets to the Bank in exchange for an interest in a Liquidation
Account established in the Bank for the benefit of those persons who remain
depositors of the Bank and the Bank's assumption of the Mid-Tier Holding
Company's liabilities, if any. (Section 361 of the Code.)
13. No gain or loss will be recognized by the Bank upon the receipt of the
assets of the Mid-Tier Holding Company in the Mid-Tier Merger (Section 1032(a)
of the Code).
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 8
14. The basis of the assets of the Mid-Tier Holding Company (other than
stock in the Bank) to be received by Bank will be the same as the basis of such
assets in the hands of the Mid- Tier Holding Company immediately prior to the
transfer. (Section 362(b) of the Code.)
15. The holding period of the assets of the Mid-Tier Holding Company (other
than stock in Bank) to be received by Bank will include the holding period of
those assets in the hands of the Mid-Tier Holding Company immediately prior to
the transfer. (Section 1223(2) of the Code.)
16. Persons who have an interest in the liquidation account established in
the Mid -Tier Holding Company (i.e., former members of the Mutual Holding
Company) will recognize no gain or loss upon the receipt of an interest in the
Liquidation Account in the Bank in exchange for their interest in the Mid-Tier
Holding Company liquidation account. (Section 354(a) of the Code).
17. The Mid-Tier Holding Company shareholders will not recognize any gain
or loss upon their constructive exchange of Mid-Tier Holding Company Common
Stock for Bank Common Stock.
In addition, we are of the opinion that, based on the foregoing:
18. The Bank Merger qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code, pursuant to Section 368(a)(2)(E) of the Code.
For these purposes, each of the Bank, the holding Company and Interim Savings
Bank are "a party to the reorganization within the meaning of Section 368(b) of
the Code.
19. Interests in the liquidation account established at the Bank, and the
shares of Bank Common Stock held by Mid-Tier Holding Company prior to
consummation of the Mid-Tier Merger, will be disregarded for the purpose of
determining that an amount of stock in the Bank which constitutes "control" of
such corporation was acquired by the Holding Company in exchange for shares of
common stock of the Holding Company pursuant to the Bank Merger (Code Section
368(c)).
20. The exchange of shares of Holding Company Common Stock for the shares
of the Bank Common Stock in the Bank Merger, following consummation of the
Mid-Tier
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 9
Merger, will satisfy the continuity of interest requirement of Income Tax
Regulation Section 1.368-1(b) in the Bank Merger.
21. Interim Savings Bank will not recognize any gain or loss on the
transfer of its assets to Bank in exchange for Bank Common Stock and the
assumption by Bank of the liabilities, if any, of Interim Savings Bank. (Section
361(a) and 357(a) of the Code.)
22. Bank will not recognize any gain or loss on the receipt of the assets
of Interim Savings Bank in exchange for Bank Common Stock. (Section 1032(a) of
the Code.)
23. Bank's basis in the assets received from Interim Savings Bank in the
proposed transaction will, in each case, be the same as the basis of such assets
in the hands of Interim Savings Bank immediately prior to the transaction.
(Section 362(b) of the Code.)
24. Bank's holding period for the assets received from Interim Savings Bank
in the proposed transaction will, in each instance, include the period during
which such assets were held by Interim Savings Bank. (Section 1223(2) of the
Code.)
25. The Holding Company will not recognize any gain or loss upon its
receipt of Bank Common Stock in exchange for Interim Savings Bank stock.
(Section 354(a) of the Code.)
26. Bank shareholders will not recognize any gain or loss upon their
exchange of Bank Common Stock solely for shares of Holding Company Common Stock.
(Section 354(a) of the Code.)
27. Each Bank shareholder's aggregate basis in his or her Holding Company
Common Stock received in the exchange will be the same as the aggregate basis of
the Bank Common Stock surrendered in exchange therefor. (Section 358(a) of the
Code.)
28. Each Bank shareholder's holding period in his or her Holding Company
Common Stock received in the exchange will include the period during which the
Bank Common Stock surrendered was held, provided that the Bank Common Stock
surrendered is a capital asset in the hands of the Bank shareholder on the date
of the exchange. (Section 1223(1) of the Code.)
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 10
29. No gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon distribution to them of subscription
rights to purchase shares of Holding Company Common Stock, provided that the
amount to be paid for the Holding Company Common Stock is equal to the fair
market value of the Holding Company Common Stock.
Analysis
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations such as the MHC
Merger and the Mid-Tier Merger. Section 368(a)(2)(E) of the Code provides that a
transaction otherwise qualifying as a merger under Section 368(a)(1)(A), such as
the Bank Merger, shall not be disqualified by reason of the fact that common
stock of a corporation (referred to in the Code as the "controlling
corporation") (i.e., the Holding Company) which before the merger was in control
of the merged corporation is used in the transaction if:
(i) after the transaction, the corporation surviving the merger (the Bank)
holds substantially all of its properties and the properties of the
merged corporation (Interim Savings Bank) (other than common stock of
the controlling corporation (the Holding Company) distributed in the
transaction); and
(ii) in the transaction, former stockholders of the surviving corporation
(the Bank stockholders) exchanged, for an amount of voting common
stock of the controlling corporation, an amount of common stock in the
surviving corporation which constitutes control of such corporation.
Section 1.368-2(b)(1) of the Treasury Regulations provides that, in order
to qualify as a reorganization under Section 368(a)(1)(A), a transaction must be
a merger or consolidation effected pursuant to the corporation laws of the
United States or a state. The Plan provides that the MHC Merger, the Mid-Tier
Merger and the Bank Merger will be accomplished in accordance with applicable
state and federal law.
Treasury Regulations and case law require that, in addition to the
existence of statutory authority for a merger, certain other conditions must be
satisfied in order to qualify a proposed transaction as a reorganization within
the meaning of Section 368(a)(1)(A) of the Code. The "business purpose test,"
which requires a proposed merger to have a bona fide business
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 11
purpose, must be satisfied. See 26 C.F.R. Section 1.368-1(c). We believe that
the MHC Merger, the Mid- tier Merger and the Bank Merger satisfy the business
purpose test for the reasons set forth in the Prospectus under the caption "The
Conversion--Reasons for the Conversion." The "continuity of business enterprise
test" requires an acquiring corporation either to continue an acquired
corporation's historic business or use a significant portion of its historic
assets in a business. See 26 C.F.R. Section 1.368-1(d). We believe that the
business conducted by the Bank prior to the MHC Merger, the Mid-Tier Merger and
the Bank Merger will be unaffected by the transactions.
The "continuity of interest doctrine" requires that the continuing common
stock interest of the former owners of an acquired corporation, considered in
the aggregate, represent a "substantial part" of the value of their former
interest, and provide them with a "definite and substantial interest" in the
affairs of the acquiring corporation or a corporation in control of the
acquiring corporation. Paulsen v. Comm'r., 469 U.S. 131 (1985); Helvering v.
Minnesota Tea Co., 296 U.S. 378 (1935); John A. Nelson Co. v. Helvering, 296
U.S. 374 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d 332 (5th Cir.
1951), cert. denied, 342 U.S. 860 (1951). We believe that the MHC Merger
satisfies the continuity of interest doctrine based on the information set forth
in the Company's Registration Statement and based on Revenue Rulings 69- 646,
1969-2 C.B. 54 and 69-3, 1965-1 C.B. 103. The Mutual Holding Company, as a
federally- chartered mutual holding company, does not have stockholders and has
no authority to issue capital stock. Instead, the Mutual Holding Company has
members who are accorded a variety of proprietary rights such as voting rights
and certain rights in the unlikely event of liquidation. Prior to the MHC
Merger, certain depositors of the Bank have both a deposit account in the Bank
and a proprietary interest in the net worth of the Mutual Holding Company based
upon the balance in his account in the Bank, an interest which may only be
realized in the event of a liquidation of the Mutual Holding Company. In
accordance with the Plan, the members will receive an interest in a liquidation
account in the Stock Holding Company in exchange for their proprietary rights in
the Mutual Holding Company. This interest in the liquidation account in the
Stock Holding Company will be exchanged for an interest in a Liquidation Account
in the Bank in connection with the Mid-Tier Merger. Although the Liquidation
Account in the Stock Holding Company and the subsequent Liquidation Account in
the Bank would not allow the former Mutual Holding Company members the right to
vote or the right to pro rata distributions of earnings, they would be entitled
to share in the distribution of assets upon the liquidation of the Stock Holding
Company following the MHC Merger, or the Bank following the Mid-Tier Merger.
Therefore, it would seem that the exchange of the members proprietary interests
in the Mutual Holding Company for liquidation accounts in the Stock Holding
Company followed by the
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 12
exchange of such Stock Holding Company liquidation accounts for Liquidation
Accounts in the Bank should not violate the continuity of interest requirement
of Section 1.368-1(b) of the Treasury Regulations. In PLR 9510044, the IRS held
on similar facts that the exchange of equity interests in a mutual holding
company for a liquidation account in a stock bank satisfied the continuity of
interest doctrine. Although a private letter ruling cannot be cited as
precedent, it is illustrative of the IRS' position on an issue.
We believe that the Mid-Tier Merger satisfies the continuity of interest
doctrine based on representations received from the Bank in connection with the
preparation of this opinion, to the effect that, to the best knowledge of the
management of the Mid-Tier Holding Company and the Bank, former shareholders of
the Mid-Tier Holding Company (disregarding the Mutual Holding Company) owning
50% or more of all the outstanding stock of the Mid-Tier Holding Company
immediately prior to the Mid-Tier Merger, would continue to own shares of the
Bank immediately after the Mid-Tier Merger or, following the Bank Merger which
occurs immediately after the Mid-Tier Merger, shares of the Company, the will
own 100% of the Bank. In addition, we believe other applicable requirements of
the Treasury Regulations and case law which are preconditions to qualification
of the MHC Merger, the Mid-Tier Merger and the Bank Merger as a reorganization,
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code, are
satisfied on the basis of the information contained in the Plan and the
Prospectus.
One of the requirements of Section 368(a)(2)(E) of the Code is that
subsequent to the transaction, the corporation surviving the merger must hold
substantially all of its properties and the properties of the merged
corporation. The Bank has represented that, following the Bank Merger, it will
hold 90% of the fair market value of its net assets and at least 70%of the fair
market value of its gross assets, and at least 90% of the fair market value of
Interim Savings Bank's net assets and at least 70% of the fair market value of
Interim Savings Bank's gross assets held immediately prior to the Bank Merger.
Based upon representations, the Bank will clearly satisfy this requirement of
Code Section 368(a)(2)(E).
Pursuant to Code Section 368(a)(2)(E), the Company must also acquire
control of the Bank in the Bank Merger. Control is defined as at least 80% of
the total combined voting power of all classes of stock entitled to vote, and at
least 80% of the total number of shares. Subsequent to the Bank Merger, the
Holding Company will hold all of the Bank Common Stock. However, there is an
issue as to whether the Bank liquidation accounts must be taken into account for
purposes of this "control" test. In PLR 9510044, on facts substantially similar
to those in the present case, the IRS ruled that the liquidation interests in
the bank were to be
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 13
disregarded in determining whether control of the bank was obtained by the
holding company in accordance with Section 368(c) of the Code. We believe that
the position taken by the IRS in PLR 9510044, while not binding on the IRS with
respect to this taxpayer, is appropriate and should be followed.
In December 1994, the IRS published Revenue Procedure 94-76 which states
that the IRS will not issue private letter rulings with respect to a transaction
in which one corporation owns stock in a second corporation, the first
corporation is not the 80 percent distributee of the second corporation and the
two corporations are merged. The IRS has assumed this "no-rule" position on such
downstream mergers which it is concerned may circumvent the purpose behind the
repeal of General Utilities & Operating Co. v. Helvering, 296 U.S. 200 (1935).
Although the IRS has assumed a "no-rule" position on such downstream mergers,
the IRS has not specifically rescinded its prior position with respect to such
mergers, and therefore, at the time that this transaction is consummated, the
law prior to the publication of Rev. Proc. 94-76, as reflected in the Code,
Treasury Regulations, case law and rulings, continues to control the
transaction. Under such law, we believe that the MHC Merger qualifies as a
tax-free reorganization within the meaning of Section 368(a)(1)(A) of the Code.
Section 354 of the Code provides that no gain or loss shall be recognized
by stockholders who exchange common stock in a corporation, which is a party to
a reorganization, solely for common stock in another corporation which is a
party to the reorganization. Section 356 of the Code provides that stockholders
shall recognize gain to the extent they receive money as part of a
reorganization, such as cash received in lieu of fractional shares. Section 358
of the Code provides that, with certain adjustments for money received in a
reorganization, such as cash received in lieu of fractional shares, a
stockholder's basis in the common stock he or she receives in a reorganization
shall equal the basis of the common stock which he or she surrendered in the
transaction. Section 1223(1) states that, where a stockholder receives property
in an exchange which has the same basis as the property surrendered, he or she
shall be deemed to have held the property received for the same period as the
property exchanged, provided that the property exchanged had been held as a
capital asset.
Section 361 of the Code provides that no gain or loss shall be recognized
to a corporation which is a party to a reorganization on any transfer of
property pursuant to a plan of reorganization such as the Plan. Section 362 of
the Code provides that if property is acquired by a corporation in connection
with a reorganization, then the basis of such property shall be the same as it
would be in the hands of the transferor immediately prior to the transfer.
<PAGE>
Boards of Directors
Finger Lakes Bancorp, Inc.
Finger Lakes Financial Corp.
Finger Lakes Financial Corporation, MHC.
Savings Bank of the Finger Lakes, FSB
_____________, 2000
Page 14
Section 1223(2) of the Code states that where a corporation will have a
carryover basis in property received from another corporation which is a party
to a reorganization, the holding period of such assets in the hands of the
acquiring corporation shall include the period for which such assets were held
by the transferor, provided that the property transferred had been held as a
capital asset. Section 1032 of the Code states that no gain or loss shall be
recognizes to a corporation on the receipt of property in exchange for common
stock.
We hereby consent to the filing of the opinion as an exhibit to the MHC's
Application for Approval for Conversion filed with the Commissioner and to the
Company's Registration Statement on Form S-1 as filed with the SEC. We also
consent to the references to our firm in the Prospectus contained in the
Application for Approval of Conversion and S-1 under the captions "The
Conversion-Tax Aspects" and "Legal Opinions."
Very truly yours,
LUSE LEHMAN GORMAN POMERENK &
SCHICK, A PROFESSIONAL CORPORATION
By:_______________________________
<PAGE>
Exhibit 8.3
[LETTERHEAD OF FINPRO]
March 24, 2000
Board of Directors
Finger Lakes Financial Corp.
470 Exchange Street
Geneva, New York 14456
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Board of Directors of Savings Bank of
the Finger Lakes (the "Bank"), Finger Lakes Financial Corp, Inc. (the "Mid-Tier
Holding Company"), and Finger Lakes Financial Corp, MHC (the "MHC") whereby the
Bank, the Mid-Tier Holding Company and the MHC will reorganize into the stock
holding company structure form of organization, and issue shares of Common Stock
of a newly formed Delaware - chartered holding company, Finger Lakes Bancorp,
Inc. (the "Company") in a Subscription Offering, Eligible Public Shareholders
Offering and a Community Offering.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Company's Common Stock are to be issued to (i) Eligible Account
Holders; (ii) the ESOP; (iii) Supplemental Eligible Account Holders; (iv) Other
Members; and (v) directors, officers and employees of the Bank, collectively
referred to as the "Recipients". Based solely on our observation that the
Subscription Rights will be available to such Recipients without cost, will be
legally non-transferable and of short duration, and will afford the Recipients
the right only to purchase shares of Common Stock at the same price as will be
paid by members of the general public in the Eligible Public Shareholders and
Community Offerings, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the opinion that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are excercisable will not
be more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Common Stock in the offering will
thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
/s/ FinPro, Inc.
------------------------
FinPro, Inc.
<PAGE>
Exhibit 10.1
FORM OF EMPLOYMENT AGREEMENT
This Agreement is made effective as of ________________, 2000 by and
between the Savings Bank of the Finger Lakes, FSB (the "Bank"), a
federally-chartered stock savings and loan association, with its principal
executive office at 470 Exchange Street, Geneva, New York 14456 and
_____________ (the "Executive"). Any reference to "Company" herein shall mean
Finger Lakes Bancorp, Inc., the stock holding company parent of the Bank or any
successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Bank on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES
During the period of his employment hereunder, Executive agrees to serve as
President and Chief Executive Officer, and a member of the Board of Directors,
of the Bank and the Company. During said period, Executive also agrees to serve,
if elected, as an officer and director of any subsidiary or affiliate of the
Bank. Failure to reelect Executive as the President and Chief Executive Officer,
and a member of the Board of Directors, of the Bank and the Company without the
consent of the Executive during the term of this Agreement shall constitute a
breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall begin
as of the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary date
of this Agreement, and continuing at each anniversary date thereafter, the
Agreement shall renew for an additional year such that the remaining term shall
be three (3) years; provided, however, if written notice of nonrenewal is
provided to Executive at least ten (10) days and not more than thirty (30) days
prior to any anniversary date, the employment of Executive hereunder shall cease
at the end of thirty-six (36) months following such anniversary date. Prior to
each notice period for non-renewal, the disinterested members of the Board of
Directors of the Bank ("Board") will conduct a performance evaluation and review
of the Executive for purposes of determining whether to extend the Agreement,
and the results thereof shall be included in the minutes of the Board's meeting
and communicated to Executive.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of
<PAGE>
his duties hereunder including activities and services related to the
organization, operation and management of the Bank; provided, however, that,
with the approval of the Board, as evidenced by a resolution of such Board, from
time to time, Executive may serve, or continue to serve, on the boards of
directors of, and hold any other offices or positions in, business companies or
business organizations, which, in such Board's judgment, will not present any
conflict of interest with the Bank, or materially affect the performance of
Executive's duties pursuant to this Agreement (for purposes of this Section
2(b), Board approval shall be deemed provided as to service with any such
business companies or organizations that Executive was serving as of the date of
this Agreement).
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $______ per year
("Base Salary"). Such Base Salary shall be payable biweekly. During the period
of this Agreement, Executive's Base Salary shall be reviewed at least annually.
Such review shall be conducted by a Committee designated by the Board, and the
Board may increase, but not decrease, Executive's Base Salary (any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement). In
addition to the Base Salary provided in this Section 3(a), the Bank shall
provide Executive at no cost to Executive with all such other benefits as are
provided uniformly to permanent full-time employees of the Bank. Base Salary
shall include any amounts of compensation deferred by Executive under qualified
and nonqualified plans maintained by the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate (and he shall
be entitled to a pro rata distribution under any incentive compensation or bonus
plan as to any year in which a termination of employment occurs, other than
termination for Cause). Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses
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incurred by Executive performing his obligations under this Agreement and may
provide such additional compensation in such form and such amounts as the Board
may from time to time determine.
(d) Executive shall be entitled to twenty-five (25) days of paid vacation
per calendar year, or such greater period as may be approved from time to time
by the Board of Directors. In the event that the full vacation is not taken in
any year due to the work commitments of Executive, Executive may carry over any
such unused vacation time from year to year. Upon any termination of Executive,
Executive will be entitled to be paid the value of any accrued or accumulated
vacation time and shall be required to reimburse the Company for the value of
any vacation time taken but not yet accrued. Executive hereby expressly agrees
to permit the Company to withhold from Executive's final paycheck(s) the value
of any such reimbursements to which the Company is reasonably entitled with
respect to Executive.
(e) Executive shall be entitled to a membership, at the Bank's expense, for
him and his spouse in the Geneva Country Club. Executive will pay for his
personal use of the Club, billing the Bank for his expenses of using the Club in
connection with the Bank's business. Executive shall also be entitled to an
automobile of the Bank's selection to be used by Executive in rendering services
to the Bank, together with reimbursement for all gas, oil, maintenance,
insurance and repairs required by reason of the use of such vehicle. Executive
also shall comply with all reporting requirements established by the Bank
regarding the use of such automobile. The Bank shall pay for an annual physical
examination of Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Bank or the Company of Executive's full-time employment
hereunder for any reason other than following a Change in Control, as defined in
Section 5(a) hereof, or termination for Cause, as defined in Section 8 hereof,
or upon Retirement as defined in Section 7 hereof, or for disability as set
forth in Section 6 hereof; and (ii) Executive's resignation from the Bank's
employ, upon any (A) failure to elect or reelect or to appoint or reappoint
Executive as President and Chief Executive Officer of the Company or the Bank,
or to nominate (and as to the Bank, elect) Executive to the Board of Directors
of Bank and the Company, unless consented to by the Executive, (B) a material
change in Executive's function, duties, or responsibilities, which change would
cause Executive's position to become one of lesser responsibility, importance,
or scope from the position and attributes thereof described in Sections 1 and 2
above, to which Executive has not agreed in writing (and any such material
change shall be deemed a continuing breach of this Agreement), (C) a relocation
of Executive's principal place of employment by more than 30 miles from its
location at the effective date of the Agreement, or a material reduction in the
benefits and perquisites to the Executive from those being provided as of the
effective date of this
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Agreement (unless such reduction is part of a reduction in benefits to all
employees of the Bank in connection with Bank-wide benefit plan), (D) a
liquidation or dissolution of the Bank or the Company, or (E) material breach of
this Agreement by the Bank. Upon the occurrence of any event described in
clauses (ii) (A), (B), (C), (D) or (E) above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than thirty (30) days prior written notice given within a reasonable period
of time (not to exceed, except in case of a continuing breach, four calendar
months) after the event giving rise to said right to elect, which termination by
Executive shall be an Event of Termination.
(b) Upon the occurrence of an Event of Termination, the Bank shall pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a cash amount equal to the greater of the payments due for the
remaining term of the Agreement, or three (3) times the sum of: (i) the highest
annual rate of Base Salary paid to Executive at any time under this Agreement,
and (ii) the greater of (x) the average annual cash bonus paid to Executive with
respect to the three completed fiscal years prior to the Event of Termination,
or (y) the cash bonus paid to Executive with respect to the fiscal year ended
prior to the Event of Termination; provided however, that if the Bank is not in
compliance with its minimum capital requirements or if such payments would cause
the Bank's capital to be reduced below its minimum capital requirements, such
payments shall be deferred until such time as the Bank is in capital compliance.
At the election of the Executive, which election is to be made annually by
January 31 of each year and is irrevocable for the year in which made (and once
payments commence), such payments shall be made in a lump sum or paid monthly
during the remaining term of the agreement following the Executive's
termination. In the event that no election is made, payment to the Executive
will be made on a monthly basis during the remaining term of the Agreement. Such
payments shall not be reduced in the event the Executive obtains other
employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Bank will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the Bank for Executive prior to his
termination, except to the extent such coverage may be changed in its
application to all Bank employees. Such coverage shall cease thirty-six (36)
months following the Event of Termination.
5. CHANGE OF CONTROL.
(a) No benefit shall be payable under this Section 5 unless there shall
have been a Change in Control of the Bank or the Company, as set forth below.
For purposes of this Agreement, a "Change in Control" of the Bank or the Company
shall mean an event, which occurs subsequent to the date of this Agreement, of a
nature that: (i) would be required to be reported by the Company in response to
Item 1(a) of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a change in control of the Bank or the
Company within the meaning of the Home Owners' Loan Act and the Rules and
Regulations promulgated by the Office of Thrift Supervision (or its predecessor
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agency) thereunder; or (iii) without limitation, such a Change in Control shall
be deemed to have occurred at such time as (a) any "person" (as that term is
defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of securities representing 20% or more of a class of securities of
the Bank or Company ordinarily having the right to vote at the election of
directors ("Voting Securities"), except for any securities of the Bank purchased
by the Company in connection with the conversion of the Bank to the stock form
and any securities purchased by the Bank's employee stock ownership plan and
trust established with the approval of the Incumbent Board (as defined below),
and except that an investment advisor shall not be deemed to acquire the voting
stock of its advisee if the advisor votes the stock only upon instruction from
the beneficial owner, and does not provide the beneficial owner with advice
concerning the voting of such stock; or (b) individuals who constitute the Board
on the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination for election by the Company's shareholders was approved by the same
Nominating Committee serving under an Incumbent Board, shall be, for purposes of
this clause (b), considered as though he were a member of the Incumbent Board;
or (c) a merger, consolidation or sale of all or substantially all the assets of
the Bank or the Company occurs and the Bank or the Company is not the surviving
entity.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control shall have occurred or the Board has determined that a Change
in Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c) and (d) of this Section 5 upon his subsequent termination of
employment at any time during the term of this Agreement (regardless of whether
such termination results from his resignation or his dismissal), unless such
termination is (A) because of his death or Retirement, or, (B) for Disability.
Upon a Change in Control, Executive shall have the right to elect to terminate
his employment with the Bank and the Company at any time during the term of this
Agreement following any demotion, loss of title, office or significant
authority, reduction of his Base Salary or benefits or relocation of his
principal place of employment by more than 30 miles from its location
immediately prior to the Change in Control or such other conduct directed
against the Executive making his continued employment untenable.
(c) Upon the occurrence of a Change in Control followed by the termination
of Executive's employment by the Bank or the Company (including a termination
referred to in the last sentence of Section 5(b) above), the Executive, or, in
the event of his subsequent death (subsequent to such termination), his
beneficiary or beneficiaries, or his estate, as the case may be, shall receive
as severance pay or liquidated damages, or both, an amount equal to three times
the sum of: (i) the highest annual rate of Base Salary paid to Executive at any
time under this Agreement, and (ii) the greater of (x) the average annual cash
bonus paid to Executive with respect to the three completed fiscal years prior
to the termination, or (y) the cash bonus paid to Executive with respect to the
fiscal year ended prior to the termination. The foregoing severance/liquidated
damages payment(s), as well as all other benefits described in this Agreement
that would be payable upon a Change of Control, shall be made to the Executive's
surviving spouse, or if no surviving spouse, to his estate, in the event that
the Company or the Bank enters into an agreement as to a Change in Control of
the Company or the Bank, and Executive shall die after such agreement is
executed but prior to
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consummation of the Change in Control, which payments shall commence upon, and
shall be contingent upon, the actual consummation of the Change in Control. At
the election of the Executive pursuant to Section 4(b), such payment may be made
in a lump sum or paid monthly during the thirty-six (36) months following the
Executive's termination.
(d) Upon the occurrence of a Change in Control followed by the termination
of Executive's employment, the Bank will cause to be continued life, health and
disability insurance coverage substantially identical to the coverage maintained
by the Bank or the Company for Executive prior to his severance, except to the
extent such coverage is changed in its application to all employees of the Bank.
Such coverage shall cease thirty-six (36) months from the date of Executive's
termination of employment.
6. TERMINATION FOR DISABILITY.
(a) If, as a result of Executive's incapacity due to physical or mental
illness, he shall have been absent from his duties with the Holding Company on a
full-time basis for six (6) consecutive months, and within thirty (30) days
after written notice of potential termination is given he shall not have
returned to the full-time performance of his duties, the Bank may terminate
Executive's employment for "Disability.
(b) The Bank will pay Executive, or cause Executive to be paid under a
disability insurance plan, as disability pay, a bi-weekly payment equal to the
65% of the Executive's monthly rate of Base Salary on the effective date of such
termination. These disability payments shall commence on the effective date of
Executive's termination and will end on the earlier (i) the date Executive
returns to the full-time employment of the Bank in the same capacity as he was
employed prior to his termination for Disability and pursuant to an employment
agreement between Executive and the Bank; (ii) Executive's full-time employment
by another employer; (iii) Executive attaining the age of 65; or (iv)
Executive's death.
(c) The Bank will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
Bank for Executive prior to his termination for Disability, except to the extent
such coverage may be changed in its application to all Bank employees. This
coverage shall cease upon the earlier of (i) the date Executive returns to the
full- time employment of the Bank in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between Executive and the Bank; (ii) Executive's full-time employment by another
employer; (iii) Executive attaining the age of 65; or (iv) Executive's death.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to Executive during any period during which
Executive is incapable of performing his duties hereunder by reason of temporary
disability.
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7. TERMINATION UPON RETIREMENT.
Termination by the Bank of the Executive based on "Retirement" shall mean
termination by Executive at age 65 or in accordance with any retirement policy
established with Executive's consent with respect to him. Upon termination of
Executive upon Retirement, Executive shall be entitled to all benefits under any
retirement plan of the Bank and other plans to which Executive is a party.
8. TERMINATION FOR CAUSE.
The term "Termination for Cause' shall mean termination because of the
Executive's personal dishonesty, incompetence, willful misconduct, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. In determining incompetence, the acts
or omissions shall be measured against standards generally prevailing in the
savings institutions industry. For purposes of this paragraph, no act or failure
to act on the part of Executive shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interest of the
Bank. Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the members of the Board at a meeting of the Board called and held
for that purpose (after reasonable notice to Executive and an opportunity for
him, together with counsel, to be heard before the Board), finding that in the
good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any stock options granted to Executive
under any stock option plan of the Bank, the Company or any subsidiary or
affiliate thereof, shall become null and void effective upon Executive's receipt
of Notice of Termination for Cause pursuant to Section 9 hereof, and shall not
be exercisable by Executive at any time subsequent to such Termination for Cause
(unless it is determined in arbitration that grounds for termination of
Executive for Cause did not exist, in which event all terms of the options as of
the date of termination shall apply, and any time periods for exercising such
options shall commence from the date of resolution in arbitration).
9. NOTICE.
(a) Any purported termination by the Bank for Cause shall be communicated
by Notice of Termination to the Executive. For purposes of this Agreement, a
"Notice of Termination" shall mean a written notice which shall indicate the
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated. If,
within thirty (30) days after any Notice of Termination for Cause is given, the
Executive notifies the Bank or the Company that a dispute exists concerning the
termination, the parties shall promptly proceed to arbitration. Notwithstanding
the pendency of any such dispute, the Bank and the Company may
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discontinue to pay Executive compensation until the dispute is finally resolved
in accordance with this Agreement. If it is determined that Executive is
entitled to compensation and benefits under Section 4 or 5 of this Agreement,
the payment of such compensation and benefits by the Bank and Company shall
commence immediately following the date of resolution by arbitration, with
interest due Executive on the cash amount that would have been paid pending
arbitration (at the prime rate as published in the Wall Street Journal from time
to time).
(b) Any other purported termination by the Bank or by Executive shall be
communicated by a Notice of Termination to the other party. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in detail the facts and circumstances claimed to provide a basis
for termination of employment under the provision so indicated. "Date of
Termination" shall mean the date of the Notice of Termination. If, within thirty
(30) days after any Notice of Termination is given, the party receiving such
Notice of Termination notifies the other party that a dispute exists concerning
the termination, the parties shall promptly proceed to arbitration as provided
in Section 19 of this Agreement. Notwithstanding the pendency of any such
dispute, the Bank shall continue to pay the Executive his Base Salary, and other
compensation and benefits in effect when the notice giving rise to the dispute
was given (except as to termination of Executive for Cause). In the event of the
voluntary termination by the Executive of his employment, which is disputed by
the Bank, and if it is determined in arbitration that Executive is not entitled
to termination benefits pursuant to this Agreement, he shall return all cash
payments made to him pending resolution by arbitration, with interest thereon at
the prime rate as published in the Wall Street Journal from time to time if it
is determined in arbitration that Executive's voluntary termination of
employment was not taken in good faith and not in the reasonable belief that
grounds existed for his voluntary termination.
10. POST-TERMINATION OBLIGATIONS.
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with paragraph (b) of this Section 10 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) Executive shall, upon reasonable notice, furnish such information and
assistance to the Bank as may reasonably be required by the Bank in connection
with any litigation in which it or any of its subsidiaries or affiliates is, or
may become, a party.
(c) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Bank and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Bank. Executive will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Bank or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever (except
for such disclosure as may be required to be provided to the Office of Thrift
Supervision, the Federal Deposit Insurance Corporation, or other federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing,
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Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Bank, and Executive may disclose any
information regarding the Bank or the Company which is otherwise publicly
available. In the event of a breach or threatened breach by the Executive of the
provisions of this Section 10, the Bank will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Bank or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Bank from pursuing any other remedies available to the Bank for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Bank or any
predecessor of the Bank and Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
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14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Bank's Board of Directors may terminate the Executive's employment
at any time, but any termination by the Bank's Board of Directors, other than
Termination for Cause, shall not prejudice Executive's right to compensation or
other benefits under this Agreement. Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause as defined in Section 8 hereinabove.
(b) If the Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Bank's affairs by a notice served under
Section 8(e)(3) (12 U.S.C. ss.ss. 1818(e)(3)) or 8(g) (12 U.S.C. ss. 1818(g)) of
the Federal Deposit Insurance Act, as amended by the Financial Institutions
Reform, Recovery and Enforcement Act of 1989, the Bank's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Bank
may in its discretion (i) pay the Executive all or part of the compensation
withheld while their contract obligations were suspended and (ii) reinstate (in
whole or in part) any of the obligations which were suspended.
(c) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e) (12 U.S.C. ss.ss. 1818(e)) or 8(g) (12 U.S.C. ss. 1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, all obligations of the Bank under this
contract shall terminate as of the effective date of the order, but vested
rights of the contracting parties shall not be affected.
(d) If the Bank is in default as defined in Section 3(x) (12 U.S.C. ss.
1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, all obligations of
the Bank under this contract shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Bank under this contract shall be terminated,
except to the extent determined that continuation of the contract is necessary
for the continued operation of the institution, (i) by the Director, at the time
Federal Deposit Insurance Corporation ("FDIC") or the
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Resolution Trust Corporation enters into an agreement to provide assistance to
or on behalf of the Bank; or (ii) by the Office of Thrift Supervision ("OTS") at
the time the OTS or its District Director approves a supervisory merger to
resolve problems related to the operations of the Bank or when the Bank is
determined by the OTS or FDIC to be in an unsafe or unsound condition. Any
rights of the parties that have already vested, however, shall not be affected
by such action.
(f) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon their compliance with 12 USC
Section 1828(k) and any regulations promulgated thereunder.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware but
only to the extent not superseded by federal law.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles of Geneva, New York, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that the dispute or interpretation has been
settled by Executive and the Bank or resolved in the Executive's favor.
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21. INDEMNIFICATION.
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Bank
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements (such settlements must be approved by the
Board of Directors of the Bank).
22. SUCCESSOR TO THE BANK.
The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Company, expressly
and unconditionally to assume and agree to perform the Bank's obligations under
this Agreement, in the same manner and to the same extent that the Bank would be
required to perform if no such succession or assignment had taken place.
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Exhibit 10.2
SAVINGS BANK OF THE FINGER LAKES, FSB
1996 STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT OF THE PLAN
Savings Bank of the Finger Lakes, FSB (the "Savings Bank") hereby
establishes this 1996 Stock Option Plan (the "Plan") upon the terms and
conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
The purpose of this Plan is to improve the growth and profitability of the
Savings Bank and its Subsidiary Companies by providing Employees with a
proprietary interest in the Savings Bank as an incentive to contribute to the
success of the Savings Bank and its Subsidiary Companies, and rewarding those
Employees for outstanding performance and the attainment of targeted goals. All
Incentive Stock Options issued under this Plan are intended to comply with the
requirements of Section 422 of the Code, and the regulations thereunder, and all
provisions hereunder shall be read, interpreted and applied with that purpose in
mind.
ARTICLE III
DEFINITIONS
3.01 "Award" means an Option or Stock Appreciation Right granted pursuant
to the terms of this Plan.
3.02 "Board" means the Board of Directors of the Savings Bank.
3.03 "Change of Control" means a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act, or any successor thereto,
whether or not the Savings Bank in fact is required to comply with Regulation
14A thereunder, except that a "change in control of the Savings Bank" shall not
include any corporate reorganization of the Savings Bank undertaken in
conjunction with the conversion of Finger Lakes Financial Corporation, M.H.C.,
the parent mutual holding company of the Savings Bank, from the mutual to the
stock form.
3.04 "Code" means the Internal Revenue Code of 1986, as amended.
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3.05 "Committee" means a committee of two or more directors appointed by
the Board pursuant to Article IV hereof, none of whom shall be an Officer or
Employee of the Savings Bank, and each of whom shall be a "disinterested person"
within the meaning of Rule 16b-3 under the Exchange Act, or any successor
thereto. The functions of the committee may be undertaken by another committee
appointed by the Board.
3.06 "Common Stock" means shares of the common stock, $0.01 par value per
share, of the Savings Bank.
3.07 "Disability" means any physical or mental impairment which qualifies
an Employee for disability benefits under the applicable long-term disability
plan maintained by the Savings Bank or a Subsidiary Company, or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.
3.08 "Effective Date" means the day upon which the Board adopts this Plan.
3.09 "Employee" means any person who is employed by the Savings Bank or a
Subsidiary Company, or is an Officer of the Savings Bank or a Subsidiary
Company, but not including directors who are not also Officers of or otherwise
employed by the Savings Bank or a Subsidiary Company.
3.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.11 "Fair Market Value" shall be equal to the fair market value per share
of the Savings Bank's Common Stock on the date an Award is granted. For purposes
hereof, the Fair Market Value of a share of Common Stock shall be the closing
sale price of a share of Common Stock on the date in question (or, if such day
is not a trading day in the U.S. markets, on the nearest preceding trading day),
as reported with respect to the principal market (or the composite of the
markets, if more than one) or national quotation system in which such shares are
then traded, or if no such closing prices are reported, the mean between the
high bid and low asked prices that day on the principal market or national
quotation system then in use, or if no such quotations are available, the price
furnished by a professional securities dealer making a market in such shares
selected by the Committee.
3.12 "Incentive Stock Option" means any Option granted under this Plan
which the Board intends (at the time it is granted) to be an incentive stock
option within the meaning of Section 422 of the Code or any successor thereto.
3.13 "MHC" means Finger Lakes Financial Corporation, a federally chartered
mutual holding company and the holder of a majority of the issued and
outstanding shares of Common Stock.
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3.14 Non-Qualified Option" means any Option granted under this Plan which
is not an Incentive Stock Option.
3.15 "Offering" means the offering of Common Stock to the public pursuant
to a Plan of Stock Issuance adopted by the Savings Bank.
3.16 "Officer" means an Employee whose position in the Savings Bank or
Subsidiary Company is that of a corporate officer, as determined by the Board.
3.17 "OTS" means the Office of Thrift Supervision.
3.18 "Option" means a right granted under this Plan to purchase Common
Stock.
3.19 "Optionee" means an Employee or former Employee whom an Option is
granted under the Plan.
3.20 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Savings Bank or a Subsidiary Company, or, if no such plan is applicable,
which would constitute "retirement' under any qualified pension benefit plan
maintained by the Savings Bank or a Subsidiary Company, if such individual were
a participant in such plan.
3. 21 "Stock Appreciation Right" means a right to surrender an Option in
consideration for a payment by the Savings Bank in cash and/or Common Stock, as
provided in the discretion of the Committee in accordance with Section 8.09.
3.22 "Subsidiary Companies" means those subsidiaries of the Savings Bank,
which meet the definition of "subsidiary corporations" set forth in Section
425(f) of the Code, at the time of granting of the Option in question.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Duties of the Committee. The Plan shall be administered and
interpreted by the Committee, as appointed from time to time by the Board
pursuant to Section 4.02. The Committee shall have the authority in its absolute
discretion to adopt, amend and rescind such rules, regulations and procedures
as, in its opinion, may be advisable in the administration of the Plan,
including, without limitation, rules, regulations and procedures which (i) deal
with satisfaction of an Optionee's tax withholding obligation pursuant to
Section 12.02 hereof, (ii) include arrangements to facilitate the Optionee's
ability to borrow funds for payment of the exercise or purchase price of an
Award, if applicable, from securities brokers and dealers, and (iii) include
arrangements which provide for the payment of some or all of such exercise or
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purchase price by delivery of previously owned shares of Common Stock or other
property and/or by withholding some of the shares of Common Stock which are
being acquired. The interpretation and construction by the Committee of any
provisions of the Plan, any rule, regulation or procedure adopted by it pursuant
thereto or of any Award shall be final and binding.
4.02 Appointment and Operation of the Committee. The members of the
Committee shall be appointed by, and will serve at the pleasure of, the Board.
The Board from time to time may remove members from, or add members to, the
Committee, provided the Committee shall continue to consist of two or more
members of the Board, none of whom shall be an officer or employee of the
Savings Bank, and each of whom shall be a "disinterested person" within the
meaning of Rule 16b-3 under the Exchange Act. The Committee shall act by vote
or-written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. It may appoint one of its members to be chairman and any person,
whether or not a member, to be its secretary or agent. The Committee shall
report its actions and decisions to the Board at appropriate times but in no
event less than one time per calendar year.
4.03 Revocation for Misconduct. The Committee may by resolution immediately
revoke, rescind and terminate any Option, or portion thereof, to the extent not
yet vested, or any Stock Appreciation Right, to the extent not yet exercised,
previously granted or awarded under this Plan to an Employee who is discharged
from the employ of the Savings Bank or a Subsidiary Company for cause, which,
for purposes hereof, shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order.
4.04 Limitation on Liability. No member of the Committee shall be liable
for any action or determination made in good faith with respect to the Plan, any
rule, regulation or procedure adopted by it pursuant thereto or any Awards
granted under it. If a member of the Committee is a party or is 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 anything
done or not done by him in such capacity under or with respect to the Plan, the
Savings Bank shall, subject to the requirements of applicable laws and
regulations, indemnify such member against all liabilities and expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonahly believed to
be in the best interests of the Savings Bank and its Subsidiary Companies and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful.
4.05 Compliance with Law and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any
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government or regulatory agency as may be required. The Savings Bank shall not
be required to issue or deliver any certificates for shares of Common Stock
prior to the completion of any registration or qualification of or obtaining of
consents or approvals with respect to such shares under any Federal or state law
or any rule or regulation of any government body, which the Savings Bank shall,
in its sole discretion, determine to be necessary or advisable. Moreover, no
Option or Stock Appreciation Right may be exercised if such exercise would be
contrary to applicable laws and regulations.
4.06 Restrictions on Transfer. The Savings Bank may place a legend upon any
certificate representing shares acquired pursuant to an Award granted hereunder
noting that the transfer of such shares may be restricted by applicable laws and
regulations.
ARTICLE V
ELIGIBILITY
Awards may be granted to such Employees of the Savings Bank and its
Subsidiary Companies as may be designated from time to time by the Committee.
Awards may not be granted to individuals who are not Employees of either the
Savings Bank or its Subsidiary Companies.
ARTICLE VI
COMMON STOCK COVERED BY THE PLAN
6.01 Option Shares. The aggregate number of shares of Common Stock which
may be issued pursuant to this Plan, subject to adjustment as provided in
Article IX, shall be 59,000 shares, which is equal to 10.0% of the shares of
Common Stock issued in the Offering to persons other than the MHC. None of such
shares shall be the subject of more than one Award at any time, but if an Option
as to any shares is surrendered before exercise, or expires or terminates for
any reason without having been exercised in full, or for any other reason ceases
to be exercisable, the number of shares covered thereby shall again become
available for grant under the Plan as if no Awards had been previously granted
with respect to such shares. Notwithstanding the foregoing, if an Option is
surrendered in connection with the exercise of a Stock Appreciation Right, the
number of shares covered thereby shall not be available for grant under the
Plan. During the time this Plan remains in effect, grants to any Employee shall
not exceed options to purchase more than 25% of the shares of Common Stock
available under the Plan.
6.02 Source of Shares. The shares of Common Stock issued under the Plan may
be authorized but unissued shares, treasury shares or shares purchased by the
Savings Bank on the open market or from private sources for use under the Plan.
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ARTICLE VII
DETERMINATION OF
AWARDS, NUMBER OF SHARES, ETC.
The Committee shall, in its discretion, determine from time to time which
Employees will be granted Awards under the Plan, the number of shares of Common
Stock subject to each Award, and whether each Option will be an Incentive Stock
Option or a Non-Qualified Stock Option. In making all such determinations there
shall be taken into account the duties, responsibilities and performance of each
respective Employee, his present and potential contributions to the growth and
success of the Savings Bank, his salary and such other factors as the Committee
shall deem relevant to accomplishing the purposes of the Plan.
ARTICLE VIII
OPTIONS AND STOCK APPRECIATION RIGHTS
Each Option granted hereunder shall be on the following terms and
conditions:
8.01 Stock Option Agreement. The proper Officers on behalf of the Savings
Bank and each Optionee shall execute a Stock Option Agreement which shall set
forth the total number of shares of Common Stock to which it pertains, the
exercise price, whether it is a Non-Qualified Option or an Incentive Stock
Option, and such other terms, conditions, restrictions and privileges as the
Committee in each instance shall deem appropriate, provided they are not
inconsistent with the terms, conditions and provisions of this Plan. Each
Optionee shall receive a copy of his executed Stock Option Agreement
8.02 Option Exercise Price.
(a) Incentive Stock Options. The per share price at which the subject
Common Stock may be purchased upon exercise of an Incentive Stock Option shall
be no less than one hundred percent (100%) of the Fair Market Value of a share
of Common Stock at the time such Incentive Stock Option is granted, except as
provided in Section 8.09(b).
(b) Non-Qualified Options. The per share price at which the subject Common
Stock may be purchased upon exercise of a Non-Qualified Option shall be no less
than one hundred percent (l00%) of the Fair Market Value of a share of Common
Stock at the time such Non-Qualified Option is granted.
8.03 Vesting and Exercise of Options.
(a) General Rules. Incentive Stock Options and Non-Qualified Options
granted hereunder shall become vested and exercisable at the rate of 20% per
year on each anniversary of the date the Option was granted, and the right to
exercise shall be cumulative. Notwithstanding the foregoing, no vesting shall
occur on or after an Employee's employment
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with the Savings Bank and all Subsidiary Companies is terminated for any reason
other than his death, Disability or Retirement. In determining the number of
shares of Common Stock with respect to which Options are vested and/or
exercisable, fractional shares will be rounded to the nearest whole number if
the fraction is 0.5 or higher, and down if it is less.
(b) Accelerated Vesting Upon Death or Disability. Unless the Committee
shall specifically state otherwise at the time an Option is granted, all Options
granted hereunder shall become vested and exercisable in full on the date an
Optionee terminates his employment with the Savings Bank or a Subsidiary Company
because of his death or Disability.
8.04 Duration of Options.
(a) General Rule. Except as provided in Sections 8.04(b) and 8.09, each
Option or portion thereof granted to Employees shall be exercisable at any time
on or after it vests and becomes exercisable until the earlier of (i) ten (10)
years after its date of grant or (ii) three (3) months after the date on which
the Optionee ceases to be employed by the Savings Bank and all Subsidiary
Companies, unless the Committee in its discretion decides at the time of grant
or thereafter to extend such period of exercise upon termination of employment
from three (3) months to a period not exceeding three (3) years. To the extent
that any options on the date on which the Optionee ceases to be employed by the
Savings Bank and all Subsidiary Companies have not yet vested, they shall be
exercisable for one year from the date of vesting pursuant to Section 8.03(a)
hereof.
(b) Exception for Termination Due to Death, Disability, Retirement or
Change in Control. If an Employee dies while in the employ of the Savings Bank
or a Subsidiary Company, terminates employment with the Savings Bank or a
Subsidiary Company as a result of Disability or Retirement or in the event of a
Change in Control without having fully exercised his Options, the Optionee or
the executors, administrators, legatees or distributees of his estate shall have
the right, during the twelve-month period following the earlier of his death or
Disability, Retirement or the Change in Control to exercise such Options to the
extent vested on the date of such death, Disability, Retirement or Change in
Control In no event, however, shall any Option be exercisable within six (6)
months after the date of grant or more than ten (10) years from the date it was
granted.
8.05 Nonassignability. Options shall not be transferable by an Optionee
except by will or the laws of descent or distribution, and during an Optionee's
lifetime shall be exercisable only by such Optionee or the Optionee's guardian
or legal representative.
8.06 Manner of Exercise. Options may be exercised in part or in whole and
at one time or from time to time. The procedures for exercise shall be set forth
in the written Stock Option Agreement provided for in Section 8.01 above.
8.07 Payment for Shares. Payment in full of the purchase price for shares
of Common Stock purchased pursuant to the exercise of any Option shall be made
to the Savings Bank upon exercise of the Option. All shares sold under the Plan
shall be fully paid and nonassessable.
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Payment for shares may be made by the Optionee in cash or, at the discretion of
the Committee by delivering shares of Common Stock (including shares acquired
pursuant to the exercise of an Option) or other property equal in Fair Market
Value to the purchase price of the shares to be acquired pursuant to the Option,
by withholding some of the shares of Common Stock which are being purchased upon
exercise of an Option, or any combination of the foregoing.
8.08 Voting and Dividend Rights. No Optionee shall have any voting or
dividend rights or other rights of a stockholder in respect of any shares of
Common Stock covered by an Option prior to the time that his name is recorded on
the Savings Bank's stockholder ledger as the holder of record of such shares
acquired pursuant to an exercise of an Option.
8.09 Additional Terms Applicable to Incentive Stock Options. All Options
issued under the Plan as Incentive Stock Options will be subject, in addition to
the terms detailed in Sections 8.01 to 8.08 above, to those contained in this
Section 8.09.
(a) Notwithstanding any contrary provisions contained elsewhere in this
Plan and as long as required by Section 422 of the Code, the aggregate Fair
Market Value, determined as of the time an Incentive Stock Option is granted, of
the Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by the Optionee during any calendar year, under this Plan and
stock options that satisfy the requirements of Section 422 of the Code under any
other stock option plan or plans maintained by the Savings Bank (or any parent
or Subsidiary Company), shall not exceed $100,000.
(b) Limitation on Ten Percent Stockholders. The price at which shares of
Common Stock may be purchased upon exercise of an Incentive Stock Option granted
to an individual who, at the time such Incentive Stock Option is granted, owns,
directly or indirectly, more than ten percent (10%) of the total combined voting
power of all classes of stock issued to stockholders of the Savings Bank or any
Subsidiary Company, shall be no less than one hundred and ten percent (110%) of
the Fair Market Value of a share of the Common Stock of the Savings Bank at the
time of grant, and such Incentive Stock Option shall by its terms not be
exercisable after the earlier of the date determined under Section 8.03 or the
expiration of five (5) years from the date such Incentive Stock Option is
granted.
(c) Notice of Disposition; Withholding; Escrow. An Optionee shall
immediately notify the Savings Bank in writing of any sale, transfer, assignment
or other disposition (or action constituting a disqualifying disposition within
the meaning of Section 421 of the Code) of any shares of Common Stock acquired
through exercise of an Incentive Stock Option, within two (2) years after the
grant of such Incentive Stock Option or within one (1) year after the
acquisition of such shares, setting forth the date and manner of disposition,
the number of shares disposed of and the price at which such shares were
disposed of. The Savings Bank shall be entitled to withhold from any
compensation or other payments then or thereafter due to the Optionee such
amounts as may be necessary to satisfy any withholding requirements of Federal
or state law or regulation and, further, to collect from the Optionee any
additional
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amounts which may be required for such purpose. The Committee may, in its
discretion, require shares of Common Stock acquired by an Optionee upon exercise
of an Incentive Stock Option to be held in an escrow arrangement for the purpose
of enabling compliance with the provisions of this Section 8.09(c).
8.10 Stock Appreciation Rights.
(a) General Terms and Conditions. The Committee may, but shall not be
obligated to, authorize the Savings Bank, on such terms and conditions as it
deems appropriate in each case, to grant rights to Optionees to surrender an
exercisable Option, or any portion thereof, in consideration for the payment by
the Savings Bank of an amount equal to the excess of the Fair Market Value of
the shares of Common Stock subject to the Option, or portion thereof,
surrendered over the exercise price of the Option with respect to such shares
(any such authorized surrender and payment being hereinafter referred to as a
"Stock Appreciation Right"). Such payment, at the discretion of the Committee,
may be made in shares of Common Stock valued at the then Fair Market Value
thereof, or in cash, or partly in cash and partly in shares of Common Stock.
The terms and conditions set with respect to a Stock Appreciation Right my
include (without limitation), subject to other provisions of this Section 8.10
and the Plan, the period during which, date by which or event upon which the
Stock Appreciation Right may be exercised (which shall be on the same terms as
the Option to which it relates pursuant to Section 8.03 hereunder); the method
for valuing shares of Common Stock for purposes of this Section 8.10; a ceiling
on the amount of consideration which the Savings Bank may pay in connection with
exercise and cancellation of the Stock Appreciation Right; and arrangements for
income tax withholding. The Committee shall have complete discretion to
determine whether, when and to whom Stock Appreciation Rights may be granted.
Notwithstanding the foregoing, the Savings Bank may not permit the exercise of a
Stock Appreciation Right issued pursuant to this Plan until the Savings Bank has
been subject to the reporting requirements of Section 13 of the Exchange Act for
a period of at least one year prior to the exercise of any such Stock
Appreciation Right and until a Stock Appreciation Right issued pursuant to this
Plan has been outstanding for at least six months from the daze of grant.
(b) Time Limitations. If a holder of a Stock Appreciation Right terminates
service with the Savings Bank as an Officer or Employee, the Stock Appreciation
Right may be exercised only within the period, if any, within which the Option
to which it relates may be exercised. Notwithstanding the foregoing, any
election by an Optionee to exercise the Stock Appreciation Rights provided in
this Plan shall be made during the period beginning on the third business day
following the release for publication of quarterly or annual financial
information required to be prepared and disseminated by the Savings Bank
pursuant to the requirements of the Exchange Act and ending on the twelfth
business day following such date. The required release of information shall be
deemed to have been satisfied when the specified financial data
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appears on or in a wire service, financial news service or newspaper of general
circulation or is otherwise first made publicly available.
(c) Effects of Exercise of Stock Appreciation Rights or Options. Upon the
exercise of a Stock Appreciation Right, the number of shares of Common Stock
available under the Option to which it relates shall decrease by a number equal
to the number of shares for which the Stock Appreciation Right was exercised.
Upon the exercise of an Option, any related Stock Appreciation Right shall
terminate as to any number of shares of Common Stock subject to the Stock
Appreciation Right that exceeds the total number of shares for which the Option
remains unexercised.
(d) Time of Grant. A Stock Appreciation Right may be granted concurrently
with the Option to which it relates or at any time thereafter prior to the
exercise or expiration of such Option.
(e) Non-Transferable. The holder of a Stock Appreciation Right may not
transfer or assign the Stock Appreciation Right otherwise than by will or in
accordance with the laws of descent and distribution, and during a holder's
lifetime a Stock Appreciation Right may be exercisable only by the holder.
(f) Stock Appreciation Right Agreement. The proper Officers on behalf of
the Savings Bank and each Optionee who is granted a Stock Appreciation Right
shall execute a Stock Appreciation Right Agreement, which shall set forth the
terms, conditions, restrictions and privileges of the Stock Appreciation Right
provided that they are not inconsistent with the terms, conditions, restrictions
and privileges of this Plan. Each holder of a Stock Appreciation Right shall
receive a copy of his executed Stock Appreciation Right Agreement
ARTICLE IX
ADJUSTMENTS FOR CAPITAL CHANGES
The aggregate number of shares of Common Stock available for issuance under
this Plan, the number of shares to which any Award relates and the exercise
price per share of Common Stock under any Option shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of this Plan resulting
from a split, subdivision or consolidation of shares or any other capital
adjustment, the payment of a stock dividend, or other increase or decrease in
such shares effected without receipt or payment of consideration by the Savings
Bank. If, upon a merger, consolidation, reorganization, liquidation,
recapitalition or the like of the Savings Bank, the shares of the Savings Bank's
Common Stock shall be exchanged for other securities of the Savings Bank or of
another corporation, each recipient of an Award shall be entitled, subject to
the conditions herein stated, to purchase or acquire such number of shares of
Common Stock or amount of other securities of the Savings Bank or such other
corporation as were exchangeable for the number of shares of Common Stock of the
Savings Bank which such optionees would have been entitled
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to purchase or acquire except for such action, and appropriate adjustments shall
be made to the per share exercise price of outstanding Options.
ARTICLE X
AMENDMENT AND TERMINATION OF THE PLAN
The Board may, by resolution, at any time terminate or amend the Plan with
respect to any shares of Common Stock as to which Awards have not been granted,
subject to regulations of the OTS and any required stockholder approval or any
stockholder approval which the Board may deem to be advisable for any reason,
such as for the purpose of obtaining or retaining any statutory or regulatory
benefits under tax, securities or other laws or satisfying any applicable stock
exchange listing requirements. The Board may not, without the consent of the
holder of an Award, alter or impair any Award previously granted or awarded
under this Plan as specifically authorized herein.
ARTICLE XI
EMPLOYMENT RIGHTS
Neither the Plan nor the grant of any Awards hereunder nor any action taken
by the Committee or the Board in connection with the Plan shall create any right
on the part of any Employee of the Savings Bank or a Subsidiary Company to
continue in such capacity.
ARTICLE XII
WITHHOLDING
12.01 Tax Withholding. The Savings Bank may withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is insufficient, the
Savings Bank may require the Optionee to pay to the Savings Bank the amount
required to be withheld as a condition to delivering the shares acquired
pursuant to an Award. The Savings Bank also may withhold or collect amounts with
respect to a disqualifying disposition of shares of Common Stock acquired
pursuant to exercise of an Incentive Stock Option, as provided in Section
8.09(c).
12.02 Methods of Tax Withholding. The Committee is authorized to adopt
rules, regulations or procedures which provide for the satisfaction of an
Optionee's tax withholding obligation by the retention of shares of Common Stock
to which the Employee would otherwise be entitled pursuant to an Award and/or by
the Optionee's delivery of previously owned shares of Common Stock or other
property.
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ARTICLE XIII
EFFECTIVE DATE OF THE PLAN; TERM
13.01 Effective Date of the Plan. This Plan shall become effective on the
Effective Date, and Awards may be granted hereunder as of or after the Effective
Date and prior to the termination of the Plan, provided that no Incentive Stock
Option issued pursuant to this Plan shall qualify as such unless this Plan is
approved by the requisite vote of the holders of the outstanding voting shares
of the Savings Bank at a meeting of stockholders of the Savings Bank held within
twelve (12) months of the Effective Date. Notwithstanding the foregoing or
anything to the contrary in this Plan, the implementation of this Plan and any
Awards granted pursuant hereto is subject to the approval of the Savings Bank's
stockholders and the approval of the Plan of Stock Issuance by the OTS.
13.02 Term of Plan. Unless sooner terminated, this Plan shall remain in
effect for a period of ten (10) years ending on the tenth anniversary of the
Effective Date. Termination of the Plan shall not affect any Awards previously
granted and such Awards shall remain valid and in effect until they have been
fully exercised or earned, are surrendered or by their terms expire or are
forfeited.
ARTICLE XIV
MISCELLANEOUS
14.01 Governing Law. To the extent not governed by Federal law, this Plan
shall be construed under the laws of the State of New York.
14.02 Pronouns. Wherever appropriate, the masculine pronoun shall include
the feminine pronoun, and the singular shall include the plural.
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Exhibit 10.3
SAVINGS BANK OF THE FINGER LAKES, FSB
1996 MANAGEMENT RECOGNITION PLAN AND TRUST AGREEMENT
ARTICLE I
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Savings Bank of the Finger Lakes, FSB (the "Savings Bank") hereby
establishes a Management Recognition Plan (the "Plan") and Trust (the "Trust")
upon the terms and conditions hereinafter stated in this 1996 Management
Recognition Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agreess to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to retain personnel of experience and
ability in key positions by providing Employees of the Savings Bank and of its
subsidiaries with a proprietary interest in the Savings Bank as compensation for
their contributions to the Savings Bank and any other Subsidiaries and as an
incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Agreement with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meanings set forth below. Wherever appropriate, the masculine pronouns shall
include the feminine pronouns and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by a Recipient
to receive any benefits payable under the Plan in the event of such Recipient's
death. Such person or persons shall be designated in writing on forms provided
for this purpose by the Committee and may be changed from time to time by
similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, his estate.
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3.02 "Board" means the Board of Directors of the Savings Bank.
3.03 "Change in Control" means a change in control of a nature that would
be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act, or any successor thereto,
whether or not the Savings Bank in fact is required to comply with Regulation
14A thereunder, except that a "change in control of the Savings Bank" shall not
include any corporate reorganization of the Savings Bank undertaken in
conjunction with the conversion of Finger Lakes Financial Corporation, M.H.C.,
the parent mutual holding company of the Savings Bank, from the mutual to the
stock form.
3.04 "Code" means the Internal Revenue Code of 1986, as amended.
3.05 "Committee" means the committee appointed by the Board pursuant to
Article IV hereof. The functions of such committee may be undertaken by any
other committee appointed by the Board.
3.06 "Common Stock" means shares of the common stock, $0.01 par value per
share, of the Savings Bank.
3.07 "Disability" means any physical or mental impairment which qualifies
an employee for disability benefits under the applicable long-term disability
plan maintained by the Savings Bank or any Subsidiary or, if no such plan
applies, which would qualify such Employee for disability benefits under the
Federal Social Security System.
3.08 "Effective Date" means the day upon which the Board adopts this Plan.
3.09 "Employee" means any person who is employed by the Savings Bank or any
Subsidiary, or is an officer of the Savings Bank or any Subsidiary, including
officers or other employees who may be directors of the Savings Bank.
3.10 "Exchange Act" means the Securities Exchange Act of 1934, as amended.
3.11 "MHC" means Finger Lakes Financial Corporation, a federally
chartered mutual holding company and the holder of a majority of the issued and
outstanding shares of Common Stock.
3.12 "0TS" means the Office of Thrift Supervision.
3.13 "Plan Shares" or "Shares" means shares of Common Stock held in the
Trust which may be distributed to a Recipient pursuant to the Plan.
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3.14 "Plan Share Award" or "Award" means a right granted under this Plan to
receive a distribution of Plan Shares upon completion of the service
requirements described in Article VII
3.15 "Recipient" means an Employee who receives a Plan Share Award under
the Plan.
3.16 "Retirement" means a termination of employment which constitutes a
"retirement" under any applicable qualified pension benefit plan maintained by
the Savings Bank or a Subsidiary Company, or, if no such plan is applicable,
which would constitute "retirement" under any qualified pension benefit plan
maintained by the Savings Bank or a Subsidiary Company, if such individual were
a participant in such plan.
3.17 "Subsidiary" means any subsidiaries of the Savings Bank which, with
the consent of the Board, agree to participate in this Plan.
3.18 "Trustee" means such firm, entity or persons nominated by the
Committee and approved by the Board pursuant to Sections 4.01 and 4.02 to hold
legal title to the Plan for the purposes set forth herein.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and interpreted
by the Committee, which shall consist of two or more members of the Board, none
of whom shall be an officer or employee of the Savings Bank and each of whom
shall be a "disinterested person" within the meaning of Rule 16b-3 under the
Exchange Act. The Committee shall have all of the powers allocated to it in this
and other Sections of the Plan. The interpretation and construction by the
Committee of any provisions of the Plan or of any Plan Share Award granted
hereunder shall be final and binding. The Committee shall act by vote or written
consent of a majority of its members. Subject to the express provisions and
limitations of the Plan, the Committee may adopt such rules, regulations and
procedures as it deems appropriate for the conduct of its affairs. The Committee
shall report its actions and decisions with respect to the Plan to the Board at
appropriate times, but in no event less than one time per calendar year. The
Committee shall recommend to the Board a firm or other entity to act as Trustee
in accordance with the provisions of this Plan and Trust and the terms of
Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee shall
be appointed or approved by, and will serve at the pleasure of, the Board. The
Board may in its discretion from time to time remove members from, or add
members to, the Committee, and may remove or replace the Trustee, provided that
any directors who are selected as members of the Committee shall not be officers
or employees of the Savings Bank and shall be "disinterested persons" within the
meaning of Rule 16b-3 promulgated under the Exchange Act
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4.03 Limitation on Liability. No member of the Board or the Committee shall
be liable for any determination made in good faith with respect to the Plan or
any Plan Shares or Plan Share Awards granted under it. If a member of the Board
or the Committee is a party or is 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 anything done or not
done by him in such capacity under or with respect to the Plan, the Savings Bank
shall, subject to the requirements of applicable laws and regulations, indemnify
such member against all liabilities and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in the best interests of the
Savings Bank and any Subsidiaries and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful.
4.04 Compliance with Laws and Regulations. All Awards granted hereunder
shall be subject to all applicable federal and state laws, rules and regulations
and to such approvals by any government or regulatory agency or stockholders as
may be required.
ARTICLE V
CONTRIBUTIONS
5.01 Amount and Timing of Contributions. The Board shall determine the
amount (or the method of computing the amount) and timing of any contributions
by the Savings Bank and any Subsidiaries to the Trust established under this
Plan. Such amounts may be paid in cash or in shares of Common Stock and shall be
paid to the Trust at the designated time of contribution. No contributions by
Employees shall be permitted.
5.02 Investment of Trust Assets; Number of Plan Shares. Subject to Section
8.02 hereof, the Trustee shall invest all of the Trust's assets primarily in
Common Stock. The aggregate number of Plan Shares available for distribution
pursuant to this Plan shall be 23,600 shares of Common Stock, which shares shall
be purchased from the Savings Bank and/or from stockholders thereof by the Trust
with funds contributed by the Savings Bank.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 Awards to Emplovees. Plan Share Awards may be made to such Employees
as may be selected by the Committee. In selecting those Employees to whom Plan
Share Awards may be granted and the number of Shares covered by such Awards, the
Committee shall consider the duties, responsibilities and performance of each
respective Employee, his present and potential contributions to the growth and
success of the Savings Bank, his salary and such other factors
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as the Committee shall deem relevant to accomplishing the purposes of the Plan.
The Committee may, but shall not be required to, request the written
recommendation of the Chief Executive Officer of the Savings Bank regarding Plan
Share Awards being considered by the Committee for any Employee other than with
respect to Plan Share Awards being considered for him.
6.02 Form of Allocation. As promptly as practicable after a determination
is made pursuant to Sections 6.01 that a Plan Share Award is to be issued, the
Committee shall notify the Recipient in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award shall be distributed to the Recipient. The date on
which the Committee so notifies the Recipient shall be considered the date of
grant of the Plan Share Award. The Committee shall maintain records as to all
grants of Plan Share Awards under the Plan.
6.03 Allocations Not Required to any Specific Employee. Notwithstanding
anything to the contrary in Section 6.01 hereof, no Employee shall have any
right or entitlement to receive a Plan Share Award hereunder, such Awards being
at the total discretion of the Committee.
ARTICLE VII
EARNING AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earning Plan Shares; Forfeitures.
(a) General Rules. Subject to the terms hereof, Plan Share Awards shall be
earned by a Recipient at the rate determined by the Committee on the date of
grant or, with the concurrence of the Recipient, thereafter. Unless otherwise
determined pursuant to this Section 7.01, if the employment of an Employee is
terminated prior to the vesting of a Plan Share Award for any reason (except as
specifically provided in subsections (b), (c) and (d) below), the Recipient
shall forfeit the right to any Shares subject to the Award which have not
theretofore been earned. In the event of a forfeiture of the right to any Shares
subject to an Award, such forfeited Shares shall become available for allocation
pursuant to Section 6.01 hereof as if no Award had been previously granted with
respect to such Shares. No fractional shares shall be distributed pursuant to
this Plan.
(b) Exception for Terminations Due to Death, Disability or Retirement.
Notwithstanding the general rule contained in Section 7.01(a), all Plan Shares
subject to a Plan Share Award held by a Recipient whose employment or service
with the Savings Bank or any Subsidiary terminates due to death, Disability or
Retirement shall be deemed earned as of the Recipient's last day of employment
with the Savings Bank or any Subsidiary and shall be distributed as soon as
practicable thereafter; provided, however, that Awards shall be distributed in
accordance with Section 7.03(a).
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(c) Execration after a Change in Control. Notwithstanding the rule
contained in Section 7.01(a), all Plan Shares subject to a Plan Share Award held
by a Recipient shall be deemed earned in the event of a Change in Control.
(d) Revocation for Misconduct. Notwithstanding anything hereinafter to the
contrary, the Board may by resolution immediately revoke, rescind and terminate
any Plan Share Award, or portion thereof, previously awarded under this Plan, to
the extent Plan Shares have not been distributed hereunder to the Recipient
whether or not yet earned, in the case of an Employee who is discharged from the
employ of the Savings Bank or any Subsidiary for cause (as hereinafter defined).
Termination for cause shall mean termination because of the Employee's personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule, or regulation (other than traffic violations or similar
offenses) or final cease-and-desist order.
7.02 Distribution of Dividends. Any cash dividends or stock dividends
declared in respect of each Plan Share held by the Trust will be paid by the
Trust, as soon as practicable after the Trust's receipt thereof, to the
Recipient on whose behalf such Plan Share is then held by the Trust.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Plan Shares shall be distributed
to the Recipient or his Beneficiary, as the case may be, as soon as practicable
after they have been earned, provided, however, that no Plan Shares shall be
distributed to the Recipient or Beneficiary pursuant to a Plan Share Award
within six months from the date on which that Plan Share Award was granted to
such person.
(b) Form of Distributions. All Plan Shares, together with any Shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned and
distributable. Payments representing cash dividends shall be made in cash.
(c) Withholding. The Trustee may withhold from any cash payment or Common
Stock distribution made under this Plan sufficient amounts to cover any
applicable withholding and employment taxes, and if the amount of a cash payment
is insufficient, the Trustee may require the Recipient or Beneficiary to pay to
the Trustee the amount required to be withheld as a condition of delivering the
Plan Shares. The Trustee shall pay over to the Savings Bank or any Subsidiary
which employs or employed such Recipient any such amount withheld from or paid
by the Recipient or Beneficiary.
(d) Restrictions on Seller of Plan Shares. Plan Share Awards may not be
sold, assigned, pledged or otherwise disposed of prior to the time that they are
earned and distributed pursuant to the terms of this Plan. Following
distribution, the Committee may require
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the Recipient or his Beneficiary, as the case may be, to agree not to sell or
otherwise dispose of his distributed Plan Shares except in accordance with all
then applicable Federal and state securities laws, and the Committee may cause a
legend to be placed on the stock certificate(s) representing the distributed
Plan Shares in order to restrict the transfer of the distributed Plan Shares for
such period of time or under such circumstances as the Committee, upon the
advice of counsel, may deem appropriate.
7.04 Voting of Plan Shares. All Plan Shares which have not yet been earned
and allocated shall be voted by the Trustee in its sole discretion.
ARTICLE VIII
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and make
distributions and disbursements from the Trust in accordance with the provisions
of the Plan and Trust and the applicable directions, rules, regulations,
procedures and policies established by the Committee pursuant to the Plan.
8.02 Management of Trust. Subject to the limitations of Section 9.10, It is
the intent of this Plan and Trust that the Trustee shall have complete authority
and discretion with respect to the arrangement, control and investment of the
Trust, and that the Trustee shall invest all assets of the Trust in Common Stock
to the fullest extent practicable, except to the extent that the Trustee
determine that the holding of monies in cash or cash equivalents is necessary to
meet the obligations of the Trust. In performing their duties, the Trustee shall
have the power to do all things and execute such instruments as may be deemed
necessary or proper, including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
Common Stock without regard to any law now or hereafter in force limiting
investments for trustees or other fiduciaries. The investment authorized
herein may constitute the only investment of the Trust, and in making such
investment, the Trustee is authorized to purchase Common Stock from the
Savings Bank or from any other source, and such Common Stock so purchased
may be outstanding, newly issued, or treasury shares.
(b) To invest any Trust assets not otherwise invested in accordance
with (a) above, in such deposit accounts, and certificates of deposit
obligations of the United States Government or its agencies or such other
investments as shall be considered the equivalent of cash.
(c) To sell exchange or otherwise dispose of any property at anytime
held or acquired by the Trust.
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(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be maintained
showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may in the
opinion of the Trustee be reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and
accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a dispute
as to the disposition thereof, whether in a segregated account or held in
common with other assets of the Trust.
(i) To file federal and state income tax returns and to make any and
all elections and to exercise any and all options given to fiduciaries
pursuant to the provisions of the Code, as the same may be amended
hereafter.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and detailed
records and accounts of all transactions of the Trust, which shall be available
at all reasonable times for inspection by any legally entitled person or entity
to the extent required by applicable law, or any other person determined by the
Committee.
8.04 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be borne by the Savings Bank.
8.05 Indemnification. Subject to the requirements of applicable laws and
regulations, the Savings Bank shall indemnify, defend and hold the Trustee
harmless against all claims, expenses and liabilities arising out of or related
to the exercise of the Trustee's powers and the discharge of their duties
hereunder, unless the same shall be due to their gross negligence or willful
misconduct.
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ARTICLE IX
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan Shares
available for distribution pursuant to the Plan Share Awards and the number of
Shares to which any Plan Share Award relates shall be proportionately adjusted
for any increase or decrease in the total number of outstanding shares of Common
Stock issued subsequent to the effective date of the Plan resulting from any
split, subdivision or consolidation of shares or other capital adjustment, or
other increase or decrease in such shares effected without receipt or payment of
consideration by the Savings Bank.
9.02 Amendment and Termination of Plan. The Board may, by resolution, at
any time amend or terminate the Plan, subject to regulations of the OTS and any
required stockholder approval or any stockholder approval which the Board may
deem to be advisable for any reason, such as for the purpose of obtaining or
retaining any statutory or regulatory benefits under tax, securities or other
laws or satisfying any applicable stock exchange listing requirements. The Board
may not, without the consent of the Recipient, alter or impair his Plan Share
Award except as specifically authorized herein. Upon termination of the Plan,
the Recipient's Plan Share Awards shall be distributed to the Recipient in
accordance with the terms of Article VII hereof. Notwithstanding anything
contained in this Plan to the contrary, the provisions of Articles VI and VII of
this Plan shall not be amended more than once every six months, other than to
comport with changes in the Code, the Employee Retirement Income Security Act of
1974, as amended, or the rules and regulations promulgated under such statutes.
In the event of the termination of the Trust, the Trustee shall contribute all
remaining assets of the Trust to an Employee's trust described in Section 401(a)
of the Code or dispose of the assets of the Trust in any other manner as shall
result in the Savings Bank not being considered to own such assets either
directly or constructively within the meaning of Section 318 of the Code.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall not
be transferable by a Recipient, and during the lifetime of the Recipient, Plan
Shares may only be earned by and paid to a Recipient who was notified in writing
of an Award by the Committee pursuant to Section 6.02. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or Trust,
nor shall the Savings Bank or any Subsidiary be subject to any claim for
benefits hereunder.
9.04 Employment or Service Rights. Neither the Plan nor any grant of a Plan
Share Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right on the
part of any Employee to continue in such capacity.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share
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Award, except as expressly provided in Sections 7.02 and 7.04 above, prior to
the time said Plan Shares are actually earned and distributed to him.
9.06 Government Law. To the extent not governed by Federal law, the Plan
and Trust shall be governed by the laws of the State of New York.
9.07 Effective Date. This Plan shall be effective as of the Effective Date,
and Awards may be granted hereunder as of or after the Effective Date and as
long as the plan remains in effect. Notwithstanding the foregoing or anything to
the contrary in this Plan, the implementation of this Plan and any Awards
granted pursuant hereto is subject to the and approval of the Savings Bank's
stockholders.
9.08 Term of Plan. This Plan shall remain in effect until the earlier of
(1) ten (10) years from the Effective Date, (2) termination by the Board, or (3)
the distribution to Recipients and Beneficiaries of all assets of the Trust.
9.09 Tax Status of Trust. It is intended that the trust established hereby
be treated as an irrevocable non-grantor trust. The Trust shall apply for and
obtain its own Employer Identification Number for purposes of filing federal and
state income tax returns as required by the Code and applicable state and local
law.
9.10 Savings Clause. Notwithstanding any other provision of the Plan or the
Trust to the contrary, any duty or power granted under the Plan or Trust shall
be absolutely void to the extent that the right to perform such duty or exercise
such power or the performance or exercise thereof would cause the Savings Bank
to be considered the owner of Common Stock held by the Trust under subpart E of
part I of subchapter 3 of the Code relating to grantors and others treated as
substantial owners.
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Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
The following is the subsidiary of Finger Lakes Bancorp, Inc. following the
Conversion.
Name Ownership
- ---- ---------
Savings Bank of the Finger Lakes, FSB 100% Owned
SBFL Agency, Inc. 1000% Owned by Bank
<PAGE>
Exhibit 23.2
[LETTERHEAD OF KPMG]
600 Clinton Square
Rochester, NY 14604
Independent Auditors' Consent
The Board of Directors
Finger Lakes Financial Corp.:
We consent to the use of our independent auditors' report dated January 24,
2000, except for note 1, which is as of January 31, 2000, on the consolidated
statements of financial condition of Finger Lakes Financial Corp. and subsidiary
as of December 31, 1999 and 1998, and the related consolidated statements of
income, stockholders' equity and comprehensive income (loss), and cash flows for
each of the years in the three-year period ended December 31, 1999 included
herein, and to the references to our firm under the headings FINGER LAKES
FINANCIAL CORP. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME and "EXPERTS"
in the prospectus.
/s/ KPMG LLP
Rochester, New York
March 24, 2000
<PAGE>
Exhibit 23.3
March 24, 2000
Board of Directors
Finger Lakes Financial Corp.
470 Exchange Street
Geneva, New York 14456
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form S-1 Registration Statement and Amendments thereto of Finger Lakes Bancorp,
Inc. so filed with the Securities and Exchange Commission, the Form AC
Application for Conversion and the prospectus included therein filed by Finger
Lakes Financial Corp., MHC and any amendments thereto, for the Valuation
Appraisal Report ("Report") regarding the valuation of Finger Lakes Bancorp,
Inc. provided by FinPro, and our opinion regarding subscription rights filed as
exhibits to the Form S-1 and Form AC referred to below. We also consent to the
use of our firm's name and the inclusion of, summary of and references to our
Report and Opinion in the prospectus included in the Form S-1, and any
amendments thereto.
Very Truly Yours,
/s/ FinPro, Inc.
FinPro, Inc.
Liberty Corner, New Jersey
<PAGE>
Exhibit 99.1
Agreement to provide Appraisal and Business Plan Services
Section 1: Services to be Rendered
Appraisal
As part of the Second Step Conversion and Stock Offering services, the following
major tasks will be included:
o conduct financial due diligence, including on-site interviews of senior
management and reviews of financial and other records;
o gather an understanding of the Bank's financial condition, profitability,
risk characteristics, operations and external factors that might influence
or impact the Bank;
o prepare a detailed written valuation report of the Bank and the Company,
that is consistent with applicable regulatory guidelines and standard
valuation practices;
o prepare and deliver an opinion, in form and substance acceptable to legal
and tax counsel of the Bank, to the effect that the subscription rights
granted to eligible account holders, the applicable stock benefit plans and
others in connection with the stock offering, have no value.
The valuation report will:
o include an in-depth analysis of the operating results and financial
condition of the Bank;
o assess the interest rate risk, credit risk and liquidity risk;
o describe the business strategies of the Bank and the Company, the market
area, competition and potential for the future;
o include a detailed peer analysis of publicly traded savings institutions
for use in determining appropriate valuation adjustments based upon
multiple factors;
o include a midpoint pro forma valuation along with a range of value around
the midpoint value;
o comply, in form and substance to all applicable requirements of regulatory
authorities for purposes of its use to establish the estimated pro forma
market value of the common stock of the Company following the Second Step
Conversion and Stock Offering.
The valuation report may be periodically updated throughout the Second Step
Conversion process and will be updated at the time of the closing of the Stock
Offering.
FinPro will perform such other services as we necessary or required in
connection with the regulatory review of the appraisal and will respond to the
regulatory comments, if any, regarding the valuation appraisal and any
subsequent updates.
<PAGE>
January 20, 2000
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Business Plan
In connection with the preparation of the business plan and any other strategy
planning services, the following major tasks will be included:
o compile a historical trend analysis utilizing the past five year ends of
Regulatory Raports;
o perform detailed peer analysis;
o assess competitive situation;
o analyze the Bank markets and customers from a demographic standpoint;
o Assess the regulatory, social, political and economic environment;
o document the internal situation assessment;
o analyze the current ALM position;
o analyze the CRA position;
o identify and document strengths and weaknesses;
o document the Bank's mission statement:
o document the objectives and goals;
o document strategies;
o meet with the Regional Office of the OTS to review the business plan prior
to filing holding company applications if necessary;
o compile five year projections of performance;
o prepare assessment of strategic alternatives;
o conduct one or two planning retreats with the Board and Management to
review strategies;
o map the Bank's general ledger to FinPro's planning model and to the
Regulatory Reports;
o assess the Bank from a capital markets perspective including comparison to
national, regional, state and similar size organizations;
o prepare a written business plan in form and substance satisfactory to all
applicable regulatory authorities for purposes of submission and
dissemination in connection with the application to form a holding company,
offering prospectus and other documents concerning the holding company
formation and stock offering.
No other appraisal/planning firm provides the quantity and quality of the
planning services FinPro provides as part of it standard proposals. We urge you
to talk to our clients about the extra advantage that FinPro has afforded them.
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January 20, 2000
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Section 2: Information Requirements of the Bank
To accomplish the tasks set forth in Section 1 of this proposal, the following
information and work effort is expected of the Bank:
o provide FinPro with all financial and other information, whether or not
publicly available, necessary to familiarize FinPro with the business and
operations of the Bank;
o allow FinPro the opportunity, from time to time, to discuss the operations
of the Bank with Bank personnel;
o promptly advise FinPro of any material or contemplated material
transactions that may have an effect on the day-to-day operations of the
Bank
o provide FinPro with all support schedules required to compile Regulatory,
Board and Management reports;
o provide FinPro with offering circular, prospectus and all other materials
relevant to the appraisal function forte Second Step Conversion;
o have system download capability;
o promptly review all work products of FinPro and provide necessary sign-off
on each work product so that FinPro can move on to the next phase;
o provide FinPro with office space to perform its daily tasks. The office
space requirements consists of a table with at least two chairs along with
access to electrical outlets for FinPro's computers.
Section 3: Project Deliverables
The following is a list of deliverables that will result from FinPro's effort:
1. Pro Forma Market Valuation of the Company and the Bank
2. Computation of Exchange Ratio and Excess Dividends if any
3. Mapping of the Bank's general ledger to FinPro's five year cash flow
projection model
4. Business Plan
Section 4: Term of the Agreement and Staffing
It is anticipated that it will take approximately six months of elapsed time to
complete the tasks outlined in this proposal. During this time, FinPro will be
on-site at the Bank's facilities on a regular basis, during normal business
hours.
FinPro will assign Donald J. Musso and Kenneth G. Emerson to this engagement.
Although other FinPro staff may perform some back office analytics, Don and Ken
will be the firm's point men on this engagement and will be active in all
aspects of this engagement.
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January 20, 2000
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Section 5: Fees and Expenses
FinPro's fees for providing the services outlined in this Agreement will be:
o $l8,000 for the appraisal.
o $14,000 for the business plan.
This fee is payable according to the following schedule:
o prior to starting, a retainer of $5,000; plus
o upon the submission of the business plan to the regulators, a
non-refundable fee of $14,000; plus
o upon submission of the appraisal to the regulators, a non-refundable
fee of $7,000; plus
o upon completion of the Stock Offering, a non-refundable fee equal to
the remainder.
Should FinPro need to provide an updated appraisal for any reason outside of its
control, other than any updates required by market movements or required as a
normal part of the process such as the final appraisal update, an additional fee
of $6,500 per update will be assessed. Examples of reasons for an appraisal
update that would result in such a fee include, but are not limited to, the
financials going stale, significant accounting or regulatory adjustment to the
balance sheet or income statement, and/or the announcement or inclusion of a
transaction not originally contemplated such as a branch acquisition, large
leverage transaction, etc. Based on our understanding of the Bank's specific
situation, the need for such an update is not anticipated.
In addition to any fees that may be payable to FinPro hereunder, the Bank hereby
agrees to reimburse FinPro for all of FinPro's travel and other out-of-pocket
expenses incurred in connection with FinPro's engagement Such out-of-pocket
expenses will consist of travel to and from the Bank's facilities from FinPro's
offices, normal delivery charges such as Federal Express, and costs associated
with the actual Plan and Valuation documents such as copying. The out-of-pocket
expenses will be capped at $4,000 excluding any color copies, which will be
billed on a pass through basis and only upon Bank direction. It is FinPro policy
to provide you with an itemized accounting of the out-of-pocket expenditures so
that you can control them.
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-Confidential-
<PAGE>
Janaury 20, 2000
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In the event that the Bank shall, for any reason, discontinue the proposed
Conversion prior to delivery of the completed documents set forth above, the
Bank agrees to compensate FinPro according to FinPro's standard billing rates
for consulting services based on accumulated time and expenses, not to exceed
the respective fee caps noted above. FinPro's standard hourly rates are as
follows:
o Director Level and Above $250
o Staff Consultant Level $150
If during the course of the proposed transaction, unforeseen events occur so as
to materially change the nature or the work content of the services described in
this contract, the terms of said contract shall be subject to renegotiation by
the Bank and FinPro. Such unforeseen events shall include, but not be limited
to, major changes in the conversion regulations, appraisal guidelines or
processing procedures as they relate to conversion appraisals, major changes in
management or procedures, operating policies or philosophies, excessive delays
or suspension of processing of conversion applications by the regulators.
FinPro agrees to execute a suitable confidentiality agreement with the Bank. The
Bank acknowledges that all opinions, valuations and advice (written or oral)
given by FinPro to the Bank in connection with FinPro's engagement are intended
solely for the benefit and use of the Bank (and its directors, management, and
attorneys) in connection with the matters contemplated hereby, and the Bank
agrees that no such opinion, valuation, or advice shall be used for any other
purpose, except with respect to the opinion, valuation, proxy, prospectus and
related material to the valuation which may be used for the proper corporate
purposes of the client, or reproduced, or disseminated, quoted or referred to at
any time, in any manner or for any purpose, nor shall any public references to
FinPro be made by the Bank (or such persons), without the prior written consent
of FinPro, which consent shall not be unreasonably withheld.
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-Confidential-
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January 20, 2000
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Section 6: Representations and Warranties
FinPro, the Bank and the Company agree to the following:
1.) The Bank agrees to make available or to supply to FinPro the information set
forth in Section 2 of this Agreement.
2.) The Bank hereby represents and warrants to FinPro that any information
provided to FinPro does not and will not, to the best of the Bank's knowledge,
at the times it is provided to FinPro, contain any untrue statement of a
material fact or fail to state a material fact necessary to make the statements
therein not false or misleading in light of the circumstances under which they
were made.
3.) (a) The Bank agrees that it will indemnify and hold harmless FinPro, its
directors, officers, agents and employees of FinPro (collectively referred to in
this Section 6 as "FinPro") or its successors who act for or on behalf of FinPro
in connection with the services called for under this agreement (hereinafter
referred to as the "Agreement"), from and against any and all losses, claims,
damages and liabilities (including, but not limited to, all losses and expenses
in connection with claims under the federal securities law) arising out of or in
any way related to the services provided by FinPro under this Agreement, except
to the extent arising out of or attributable to the negligence or willful
misconduct of FinPro, its directors, officers, agents or employees.
(b) FinPro shall give written notice to the Bank of such claim for
indemnification or facts within thirty days of the assertion of any claim or
discovery of material facts upon which FinPro intends to base a claim for
indemnification hereunder. In the event the Bank elects, within seven days of
the receipt of the original notice thereof, to contest such claim by written
notice to FinPro, FinPro will be entitled to be paid any amounts payable by the
Bank hereunder, together with interest on such costs from the date incurred at
the rate of eight percent per annum within five days after a final determination
is made either in writing by the Bank or by a final judgment of a court of
competent jurisdiction that indemnification hereunder should be made. If the
Bank does not elect to challenge the claim for indemnification, FinPro shall be
paid promptly and in any event within thirty days after receipt by the Bank of
the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses, including
attorneys' fees, incurred by FinPro in connection with the contest of any claim
subject to indemnification hereunder in advance of the final determination of
any proceeding within thirty days of the receipt of such request if FinPro
furnishes the Bank:
1. a written statement of FinPro's good faith belief that it is
entitled to indemnification hereunder; and
2. a written undertaking by FinPro to repay the advance if it is
ultimately determined in a final adjudication of such proceeding
that FinPro is not entitled to such indemnification.
- --------------------------------------------------------------------------------
-Confidential-
<PAGE>
January 20, 2000
- --------------------------------------------------------------------------------
(d) In the event that the Bank elects to contest the claim, (i) FinPro will
cooperate in Good Faith with the contest; (ii) FinPro will provide the Bank with
an irrevocable power-of-attorney permitting the Bank to pursue the claim in the
name of FinPro, and (iii) FinPro will be prohibited from settling or
compromising the claim without written consent of the Bank.
(e) In the event the Bank does not pay any indemnified loss or make advance
reimbursements of expenses in accordance with the terms of this Agreement,
FinPro shall have all remedies available at law or in equity to enforce such
obligation.
This Agreement constitutes the entire understanding of the Bank and FinPro
concerning the subject matter addressed herein, and shall be governed and
construed in accordance with the laws of the State of New Jersey. This Agreement
may not be modified, supplemented or amended except by written agreement
executed by both parties.
The Bank and FinPro are not affiliated, and neither the Bank nor FinPro has an
economic interest in, or is held in common with, the other and has not derived a
significant portion of its gross revenues, receipts or net income for any period
from transactions with the other.
Please confirm that the foregoing is in accordance with your understanding and
agreement with FinPro by signing and returning to FinPro the duplicate of the
letter enclosed herewith.
Sincerely
FinPro, Inc.
By:
/s/ Donald J. Musso /s/ G. Thomas Bowers
- -------------------------------- ---------------------------------
Donald J. Musso G. Thomas Bowers
President Chief Executive Officer
2/3/2000 2/3/00
- -------------------------------- ---------------------------------
Date Date
- --------------------------------------------------------------------------------
-Confidential-
<PAGE>
Exhibit 99.5
________, 2000
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders, in lieu
of an annual meeting, of Finger Lakes Financial Corp. The Special Meeting will
be held at _____________________________, at __________ __.m., (local time) on
_______, 2000.
The enclosed Notice of Special Meeting and proxy statement/prospectus describe
the formal business to be transacted.
The special meeting is being held so that stockholders will be given an
opportunity to elect three directors, to ratify the appointment of KPMG LLP as
auditors for Finger Lakes Financial's 2000 fiscal year and to consider and vote
upon a plan of conversion and reorganization under which Finger Lakes Financial
Corp., MHC, our mutual holding company parent will convert to stock form and a
new Delaware company, Finger Lakes Bancorp, Inc. would replace Finger Lakes
Financial as the holding company for Savings Bank of the Finger Lakes.
Shareholders of Finger Lakes Financial would become shareholders in the new
company.
The Board of Directors of Finger Lakes Financial has determined that the matters
to be considered at the special meeting are in the best interest of the Finger
Lakes Financial and its stockholders. For the reasons set forth in the proxy
statement/prospectus, the Board of Directors unanimously recommends a vote "FOR"
each matter to be considered.
On behalf of the Board of Directors, we urge you to sign, date and return the
enclosed proxy card as soon as possible even if you currently plan to attend the
Special Meeting. Your vote is important, regardless of the number of shares that
you own. Voting by proxy will not prevent you from voting in person, but will
assure that your vote is counted if you are unable to attend the meeting.
Sincerely,
G. Thomas Bowers
President and Chief Executive Officer
<PAGE>
Finger Lakes Financial Corp.
470 Exchange Street
Geneva, New York 14456
(315) 789-3838
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On ______, 2000
Notice is hereby given that the Special Meeting of Stockholders, in lieu of
an annual meeting, ("Meeting') of Finger Lakes Financial Corp. will be held at
_________________, on _______, 2000 at _____ __.m., local time. Finger Lakes
Financial owns 100% of the common stock of Savings Bank of the Finger Lakes, FSB
and is majority- owned by Finger Lakes Financial Corporation, MHC.
A proxy statment/prospectus and proxy card and a for the Special Meeting
are enclosed.
The Special Meeting is for the purpose of considering and acting upon:
1. The election of three directors of Finger Lakes Financial;
2. The ratification of the appointment of KPMG LLP as auditors for Finger
Lakes Financial for the fiscal year ended December 31, 2000;
3. A plan of conversion and reorganization (the "Plan") and transactions
incident to the Plan, under which (i) Savings Bank of the Finger Lakes
will establish Finger Lakes Bancorp, Inc. as a first-tier Delaware
chartered corporation subsidiary; (ii) Finger Lakes Bancorp, Inc. will
charter an interim federal association ("Interim"); (iii) Finger Lakes
Financial Corp., MHC will merge with and into Finger Lakes Financial,
Corp. shares of the common stock of Finger Lakes Financial ("common
stock") held by Finger Lakes Financial Corp., MHC will be canceled and
certain depositors of Savings Bank of the Finger Lakes will receive an
interest in a liquidation account of Finger Lakes Financial in
exchange for such depositors' interest in Finger Lakes Financial
Corp., MHC ; (iv) Finger Lakes Financial will convert into an interim
federal savings association which will merge with and into Savings
Bank of the Finger Lakes (the "mid-tier merger") with Savings Bank of
the Finger Lakes as the resulting entity and stockholders of Finger
Lakes Financial other than Finger Lakes Financial Corp., MHC
("Minority Stockholders") will constructively receive shares of
Savings Bank of the Finger Lakes' common stock in exchange for their
common stock and certain depositors will receive an interest in a
liquidation account of Savings Bank of the Finger Lakes in exchange
for such depositors' interest in Finger Lakes Financial; (v)
contemporaneously with the mid-tier merger, Interim will merge with
and into Savings Bank of the Finger Lakes with Savings Bank of the
Finger Lakes as the surviving entity (the "bank merger") and Minority
Stockholders will exchange the shares of Savings Bank of the Finger
Lakes' common stock that they constructively received in the mid-tier
merger for Finger Lakes Bancorp's common stock pursuant to an
"exchange ratio;" and (vi) contemporaneously with the bank merger,
Finger Lakes Bancorp will offer for sale shares of common stock in a
subscription offering and community offering; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which by original or later
adjournment the Meeting may be adjourned. Stockholders of record at the close of
business on _______, 2000 are the stockholders entitled to vote at the Meeting,
and any adjournments thereof.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY THE STOCKHOLDER MAY BE
REVOKED AT ANY TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING
WITH THE SECRETARY OF FINGER LAKES FINANCIAL A WRITTEN REVOCATION OR A DULY
EXECUTED
<PAGE>
PROXY BEARING A LATER DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE
HIS OR HER PROXY AND VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING.
HOWEVER, IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO
VOTE PERSONALLY AT THE MEETING.
By Order of the Board of Directors
Terry L. Hammond
Secretary
Geneva, New York
_______, 2000
- --------------------------------------------------------------------------------
IMPORTANT: A SELF-ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF MAILED WITHIN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
PROXY STATEMENT/PROSPECTUS
of
FINGER LAKES FINANCIAL CORP.
470 Exchange Street
Geneva, New York 14456
(315) 789-3838
- --------------------------------------------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
_______, 2000
- --------------------------------------------------------------------------------
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies on behalf of the Board of Directors of Finger Lakes
Financial Corp. to be used at the Special Meeting of Stockholders, in lieu of an
annual meeting, of Finger Lakes Financial (the "Meeting"), which will be held at
_________________________, _________ on _________, 2000 at _____ __.m., local
time, and all adjournments thereof. The accompanying Notice of Special Meeting
of Stockholders and this proxy statement/prospectus are first being mailed to
stockholders on or about _______, 2000.
- --------------------------------------------------------------------------------
REVOCATION OF PROXIES
- --------------------------------------------------------------------------------
Stockholders who execute proxies in the form solicited hereby retain the
right to revoke them in the manner described below. Unless so revoked, the
shares represented by such proxies will be voted at the Meeting and all
adjournments thereof. Proxies solicited on behalf of the Board of Directors of
Finger Lakes Financial Corp. will be voted in accordance with the directions
given thereon. Please sign and return you Proxy to Finger Lakes Financial Corp.
in order for your vote to be counted. Where no instructions are indicated,
proxies will be voted "FOR" the proposals set forth in this proxy
statement/prospectus for consideration at the Meeting.
Proxies may be revoked by sending written notice of revocation to the
Secretary of Finger Lakes Financial Corp., Terry L. Hammond, at the address of
Finger Lakes Financial Corp. shown above, or by filing a duly executed proxy
bearing a later date. The presence at the Meeting of any stockholder who had
given a proxy shall not revoke such proxy unless the stockholder delivers his or
her ballot in person at the Meeting or delivers a written revocation to the
Secretary of Finger Lakes Financial Corp. prior to the voting of such proxy.
- --------------------------------------------------------------------------------
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
- --------------------------------------------------------------------------------
Holders of record of Finger Lakes Financial Corp. common stock ("common
stock") at the close of business on _______, 2000 (the "Voting Record Date") are
entitled to one vote for each share held . As of the Voting Record Date, there
were __________ shares of common stock issued and outstanding, 2,389,948 of
which were held by Finger Lakes Financial Corporation, M.H.C. and ___________ of
which were held by stockholders other than Finger Lakes Financial Corp., MHC
("Minority Stockholders"). The presence in person or by proxy of at least a
majority of the issued and outstanding shares of common stock entitled to vote
is necessary to constitute a quorum at the Meeting.
Pursuant to Office of Thrift Supervision ("OTS") regulations and the Plan,
consummation of the conversion is conditioned upon the approval of the Plan by
the OTS and by a majority of the total votes eligible to be cast by members of
Finger Lakes Financial Corp., MHC . In addition, the transactions incident to
the Conversion and the Plan must be approved by at least two-thirds of the
outstanding shares of common stock, and a
1
<PAGE>
majority of votes cast by stockholders other than Finger Lakes Financial Corp.,
MHC at the Meeting. With respect to the required affirmative vote of at least
two-thirds of the outstanding shares of common stock, abstentions and broker
non-votes will have the effect of a vote against the Plan. With respect to the
required affirmative vote by a majority of votes cast by stockholders other than
Finger Lakes Financial Corp., MHC, abstentions and broker non-votes will be
considered as shares not voted.
As of ________, ____, the Finger Lakes Financial Corp., MHC held 2,389,948
shares or 66.9% of the outstanding shares of common stock, and management
believes that all such shares will be voted to approve the Plan.
Persons and groups who beneficially own in excess of five percent of the
Mid Tier Common Stock are required to file certain reports with the Securities
and Exchange Commission ("SEC") regarding such ownership pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act"). The following table sets
forth, as of the Record Date, the shares of common stock beneficially owned by
named executive officers individually, by executive officers and directors as a
group and by each person who was the beneficial owner of more than five percent
of Finger Lakes Financial Corp.'s outstanding shares of common stock on the
Record Date. The shares of Common Stock beneficially owned by directors
individually are listed under Proposal I--Election of Directors.
<TABLE>
<CAPTION>
Amount of Shares Percent of Shares
Name and Address of Owned and Nature of Common Stock
Beneficial Owner of Beneficial Ownership(1) Outstanding (1) (2)
---------------- -------------------------- -------------------
<S> <C> <C>
Finger Lakes Financial Corporation, M.H.C. 2,389,948 66.9%
470 Exchange Street
Geneva, New York 14456
Named Executive Officers:
G. Thomas Bowers(3) 85,865 2.4%
Michael J. Hanna(4) 200 0.0%
Chris M. Hansen(5) 9,083 0.3%
Richard J. Harrison 7,158 0.2%
James E. Hunter 3,008 0.1%
Ronald C. Long(6) 8,640 0.2%
Bernard G. Lynch 7,250 0.2%
Arthur W. Pearce 5,000 0.1%
Joan C. Rogers 5,100 0.1%
Terry L. Hammond(7) 27,145 0.8%
Thomas A. Mayfield(8) 21,702 0.6%
Leslie J. Zornow(9) 9,067 0.3%
All directors and executive officers
as a group (12 persons) 189,218 16.0%
</TABLE>
- ------------------------------
(1) Based on 3,570,000 shares outstanding.
(2) Based on 1,180,052 shares held by persons other than Finger Lakes
Financial Corp., MHC.
(3) Includes (i) 4,000 shares owned by Mr. Bowers' wife; (ii) 3,790 shares
held in the 401(k) plan for Mr. Bowers' account; (iii) presently
exercisable options to purchase 17,700 shares; and (iv) 4,094 shares
held in the ESOP for Mr. Bowers' account, as to which shares he only
indirect voting power only. See "Executive Compensation" below.
(4) Shares held jointly by Mr. Hanna and his daughter.
(5) Includes 3,980 shares held in a benefit plan of C.M. Hansen Farms,
Inc., of which Mr. Hansen is a trustee and beneficiary.
(6) Included 1,289 shares owned by Mr. Long's wife.
(7) Includes (i) 8,421 shares held in the 401(k) Plan for Mr. Hammond's
account, as to which shares he has investment power only; (ii) 333
shares which will vest within 60 days under the 1996 Management
Recognition Plan; (iii) presently exercisable options to purchase
2
<PAGE>
12,320 shares; and (iv) 4,650 shares held in the ESOP for Mr. Hammond's
account, as to which shares he had indirect voting power only. See
"Executive Compensation" below.
(8) Includes (i) 2,085 shares held in the 401(k) Plan for Mr. Mayfield's
account, as to which shares he has investment power only; (ii) 333 shares
which will vest within 60 days under the 1996 Management Recognition Plan;
(iii) presently exercisable options to purchase 11,160 shares; and (iv)
1,389 shares held in the ESOP for Mr. Mayfield's account, as to which
shares he has indirect voting power only. See "Executive Compensation"
below.
(9) Includes (i) 185 shares held in the 401(k) Plan for Ms. Zornow's account,
as to which shares she has investment power only; (ii) 200 shares which
will vest within 60 days under the 1996 Management Recognition Plan; (iii)
presently exercisable options to purchase 5,340 shares; and (iv) 1,442
shares held in the ESOP for Ms. Zornow's account, as to which shares she
has indirect voting power only. See "Executive Compensation" below.
- --------------------------------------------------------------------------------
PROPOSAL I--ELECTION OF DIRECTORS
- --------------------------------------------------------------------------------
Finger Lakes Financial's Board of Directors is currently composed of ten
members. At the Meeting, Ralph E. Springstead will retire as a member of the
board, and the size of the board shall be reduced to nine persons. Finger Lakes
Financial's bylaws provide that approximately one-third of the directors are to
be elected annually. Directors of Finger Lakes Financial are generally elected
to serve for a three year period or until their respective successors shall have
been elected and shall qualify. The terms of the board of directors are
classified so that approximately one-third of the directors are up for election
in any one year. Three directors will be elected at the Meeting. The Board of
Directors has nominated to serve as directors Michael J. Hanna, James E. Hunter
and Ronald C. Long, each to serve for a three-year term.
The table below sets forth certain information regarding the composition of
Finger Lakes Financial's Board of Directors, including the terms of office of
board members. Historical information relates to Savings Bank of the Finger
Lakes and its mutual predecessor. It is intended that the proxies solicited on
behalf of the Board of Directors (other than proxies in which the vote is
withheld as to one or more nominees) will be voted at the Meeting for the
election of the nominees identified below. If any nominee is unable to serve,
the shares represented by all such proxies will be voted for the election of
such substitute as the Board of Directors may recommend. At this time, the Board
of Directors knows of no reason why any of the nominees might be unable to
serve, if elected. Except as indicated herein, there are no arrangements or
understandings between any nominee and any other person pursuant to which such
nominee was selected.
3
<PAGE>
<TABLE>
<CAPTION>
Shares of
Common Stock
Beneficially
Director Current Term Owned on the Percent
Name Age Positions Held Since (1) to Expire Record Date Of Class
---- --- -------------- --------- --------- ----------- --------
<S> <C> <C> <C>
NOMINEES
Michael J. Hanna 54 Director 1994 2000 %
James E. Hunter 64 Director 1990 2000 *
Ronald C. Long 63 Director 1994 2000 *
DIRECTORS CONTINUING IN OFFICE
G. Thomas Bowers 56 President, Chief Executive 1995 2001 *
Officer and Chairman
Richard J. Harrison 54 Director 1997 2001 *
Bernard G. Lynch 69 Director 1962 2001 *
Arthur W. Pearce 57 Director 1998 2001 *
Chris M. Hansen 64 Director 1983 2002 *
Joan C. Rogers 66 Director 1993 2002 *
</TABLE>
- ----------------------
* Less than 1%.
The principal occupations of each director and executive officer of Finger
Lakes Financial during at least the past five years is set forth below.
G. Thomas Bowers has served as the Company's President and Chief Executive
Officer since July 1995. In 1998 Mr. Bowers was elected Chairman of the Board of
Directors. He was President and Chief Executive Officer of Citizens Savings
Bank, FSB, Ithaca, New York, from July 1992 until December 1994. Mr. Bowers was
employed by Columbia Banking Savings and Loan Association, Rochester, New York,
from 1987 until June 1992, serving as President and Chief Executive Officer from
April 1991 until June 1992.
Michael J. Hanna has served as Director of Athletics at Hobart and William
Smith Colleges, Geneva, New York, since 1981.
Chris M. Hansen is retired from the position as President of C.M. Hansen
Farms, Inc., located in Hall, New York, which owns a citrus operation in
LaBelle, Florida.
Richard J. Harrison served as Executive Vice President and Director of
Dominion Capital Corporation, Fairport, New York, since 1994. Mr. Harrison is
President of Newwwdeal.com, an internet service company founded in 1999, as well
as principal in Atlantic Associates, a consulting organization. He was also
President of United Auto Finance, Inc., Fairport, New York, from 1994 to
December 1998. Prior to 1994, Mr. Harrison was employed by Rochester Community
Savings Bank, Rochester, New York, serving as President of its subsidiary,
American Credit Services, Inc.
James E. Hunter is a professor at Cornell University and the Director of
the New York State Agricultural Experiment Station, Geneva, New York.
Ronald C. Long is President of Long Milk Haulers, Inc., Penn Yan, New York,
which owns and operates a milk hauling and trucking operation.
Bernard G. Lynch is retired from his position as President of the Lynch
Furniture Co., Inc., a retail furniture outlet with stores in Geneva and Auburn,
New York, where he served full-time in the position until 1992.
4
<PAGE>
Arthur W. Pearce retired in July 1997 after over 20 years in mortgage
banking. From December 1994 until July 1997 he was Senior Vice President,
Community Banking, of M&T Bank, Ithaca, New York, and from December 1992 until
December 1994 he was Executive President of Citizens Savings Bank, FSB, Ithaca,
New York.
Joan C. Rogers is retired from her position as Vice President of BJR
Broadcasting, Seneca Falls, New York, where she served in such capacity for more
than the past five years.
Terry L. Hammond has served as the Company's Executive Vice President,
Chief Financial Officer and Secretary since January 1, 1999. Prior to that, he
served as Senior Vice President, Chief Financial Officer and Secretary since
joining the Company in 1990. Prior to that, Mr. Hammond was employed by Monroe
Savings Bank, Rochester, New York, in the same capacity.
Thomas A. Mayfield serves as the Company's Senior Vice President and Senior
Loan Officer. He joined the Company in that capacity in April 1996. For two
years prior to that, Mr. Mayfield served in a similar capacity at Savannah Bank,
N.A., Savannah, New York.
Leslie J. Zornow has served as the Company's Senior Vice President, Retail
Banking, since January 1, 1999. Prior to that, she served as Vice President,
Branch Administration and Marketing from 1996 to 1998 and as Vice President,
Human Resources and Marketing since joining the Company in 1995. Prior to that,
Ms. Zornow was employed by Monroe County, New York, Department of Communications
as Deputy Director.
- --------------------------------------------------------------------------------
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
- --------------------------------------------------------------------------------
Regular meetings of the Board of Directors of Finger Lakes Financial are
held on a monthly basis. The board of directors held a total of 14 meetings
during the 1999 calendar year. During 1999, each director attended at least 75%
of the total of such Board meetings and meetings of board committees on which he
or she served.
The board of directors has established various committees, which are
described below.
The Executive Committee generally has the power and authority to act on
behalf of the board of directors between scheduled meetings of the board unless
specific board of directors' action is required or unless otherwise restricted
by Finger Lakes Financial's Charter or Bylaws or the board of directors. The
Executive Committee also administers the investment policy adopted by the board
of directors. During 1999, the Executive Committee met seven times. The current
members of the Executive Committee are Mr. Bowers (Chairman) and Messrs. Hanna,
Harrison, Hunter, Lynch and Pearce.
The Audit/Community Reinvestment Act ("CRA") Committee reviews (i) reports
from the internal audit department, (ii) the independent auditors' reports and
the results of their examination, prior to review by and with the entire Board
of Directors and (iii) the Office of Thrift Supervision, Federal Deposit
Insurance Corporation and other regulatory reports, prior to review by and with
the entire Board of Directors. The Audit/CRA Committee also meets periodically
with Finger Lakes Financial's CRA Officer to review Finger Lakes Financial's CRA
activities. During 1999, the Audit/CRA Committee met four times. The current
members of the Audit/CRA Committee are Mr. Lynch (Chairman), Messrs. Long and
Pearce and Mrs. Rogers.
The Salary and Personnel Committee oversees the compensation programs
provided to Finger Lakes Financial's management, including basic salaries,
bonuses and benefit plans. It also administers the 1996 Stock Option Plan and
the 1996 Management Recognition Plan. See "Executive Compensation" below. During
1999, the Salary and Personnel Committee met two times. The current members of
the Salary and Personnel Committee are Messrs. Hansen, Harrison and Hunter.
The Nominating Committee nominates persons to serve as directors of Finger
Lakes Financial. During 1999, the Nominating Committee met one time. The current
members of the Nominating Committee are Mr. Lynch (Chairman) and Messrs. Bowers
and Hunter.
5
<PAGE>
Directors' Compensation
During 1999, Finger Lakes Financial paid directors' fees aggregating
$106,350 to the non-employee members of the Board of Directors, consisting of
(i) attendance fees of $300 for each meeting of the Board of Directors attended
and $200 for each meeting of a Board Committee attended, and (ii) a retainer of
$2,000 per calendar quarter. Mr. Bowers who is the only employee director is
paid no additional compensation for his services as a director.
Directors who are not employees of Finger Lakes Financial are entitled to
participate in the 1998 Restated Deferred Compensation Plan for Directors (the
"Restated Plan"). The Restated Plan allows participating outside directors to
defer up to 100% of their compensation from the Company into certain
"hypothetical" investment options designated by the Salary and Personnel
Committee, including common stock. The Restated Plan is unfunded and may require
the Company to issue common stock to the participating directors at such time as
the director has elected to receive a distribution, or upon the death of the
participating director. Of the $106,350 in fees paid to non-employee directors
in 1999, $65,500 was deferred in accordance with the Restated Plan.
Compensation Committee Interlocks and Insider Participation
Finger Lakes Financial does not independently compensate its executive
officers, directors, or employees. The Executive Compensation Committee of
Savings Bank of the Finger Lakes retains the principal responsibility for the
compensation of the officers, directors and employees of Savings Bank of the
Finger Lakes . The Executive Compensation Committee consists of Directors
______. The Executive Compensation Committee reviews the benefits provided to
Savings Bank of the Finger Lakes' officers and employees. During the year ended
______________ the Executive Compensation Committee met _____ time.
Report of the Salary and Personnel Committee
The following report of the Salary and Personnel Committee required by the
rules of the SEC to be included in this proxy statement/prospectus shall not be
deemed incorporated by reference by any statement incorporating this proxy
statement/prospectus by reference into any filing under the Securities Act of
1933, as amended (the "Securities Act"), or the Securities Exchange Act of 1934
(the "Exchange Act"), except to the extent that Finger Lakes Financial
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under either such Act.
Executive Compensation Philosophy
The fundamental compensation philosophy of the Board of Directors is that
there should be a substantial and meaningful connection between executive
compensation and shareholder value. Under the supervision of the Salary and
Personnel Committee of the Board of Directors (the "Committee"), which is
comprised of outside directors and which also administers the Recognition Plan
and the Option Plan, Finger Lakes Financial has developed and implemented
compensation policies, plans and programs designed to increase shareholder value
by aligning closely the financial interests of Finger Lakes Financial's
executive officers with those of its shareholders. In furtherance of these
goals, annual base salaries are intended to serve as a portion of an executive's
total achievable compensation. The Board of Directors believes that attracting
and retaining executives of high quality is essential to Finger Lakes
Financial's growth and success. The Board of Directors further believes that the
long term success of Finger Lakes Financial is enhanced by a comprehensive
compensation program that includes different types of incentives for motivating
executives and rewarding outstanding service, including awards that link
compensation to applicable measures of Finger Lakes Financial performance.
Finger Lakes Financial relies to a large degree on annual and long-term
incentive compensation to attract and retain executives of outstanding ability
and to motivate them to perform to the full extent of their abilities. Both the
annual and long-term components of the incentive compensation policy are closely
tied to profitability and shareholder value. In years of outstanding
achievement, executive officers are rewarded for their respective contributions
to Finger Lakes Financial's success through a combination of cash and
stock-based incentive awards. However, currently no shares of Common Stock
remain available for future awards under the Recognition Plan, and only ______
shares remain available for future awards under the Option Plan.
6
<PAGE>
Executive Officer Compensation
Finger Lakes Financial's total compensation program for executive officers
consists of both cash and stock-based compensation. The annual cash compensation
consists of a base salary determined at the beginning of each calendar year and
the awarding of incentive bonuses. The base salaries are fixed at levels that
the Committee believes to be generally comparable to amounts paid to highly
qualified senior executives at other similar banks and bank holding companies.
Salaries are reviewed on an annual basis and may be increased at that time based
on (i) the Committee's consensus that the individual's contribution to Finger
Lakes Financial has increased and (ii) increases in competitive pay levels.
In general, annual cash incentive bonuses for executives are intended to
reflect Finger Lakes Financial's belief that management's contributions to
improving shareholder return are related to earnings growth. Under the current
employment agreement between Finger Lakes Financial and Mr. Bowers, an annual
bonus may be paid to Mr. Bowers, and this decision rests in the sole discretion
of the Board of Directors. In addition, Finger Lakes Financial has a written
Formula Bonus Plan (the "Bonus Plan") that is designed to provide significant
financial incentive to Finger Lakes Financial's executives and management
personnel. Bonuses under the Bonus Plan are paid to Finger Lakes Financial's
executives only if Finger Lakes Financial meets its annual financial goals.
Bonuses range from 10% to 14% of annual salary if Finger Lakes Financial meets
its financial goals, from 15% to 20% of annual salary if it exceeds its
financial goals by at least ten percent, and from 21% to 26% of annual salary if
it exceeds its financial goals by at least twenty percent. In 1998, all four of
Finger Lakes Financial's current executive officers received bonuses that ranged
from $______ to $_____.
Long-term incentives have been provided through the grant of stock options
under the Option Plan and contingent stock awards under the Recognition Plan.
Under the Option Plan (see "Executive Compensation -- 1996 Stock Option Plan"
above), the Committee has the authority to determine the individuals to whom
stock options are granted, the terms on which option grants are made, and the
term of and the number of shares subject to each option. Through the grant of
stock options, the objective of aligning executive officers' long-range
interests with increasing shareholder return are met by providing the executive
officers with the opportunity to build a meaningful stake in Finger Lakes
Financial. In granting stock options to Finger Lakes Financial's senior
management, the Committee has reviewed and considered the individual awards,
taking into account the respective scope of accountability, strategic and
operational goals, and anticipated performance requirements and contributions of
each option grantee.
Under the Recognition Plan (see "Executive Compensation -- 1996 Management
Recognition Plan" above), the Committee has the authority to award shares of
Common Stock to officers and other key employees with a proprietary interest in
Finger Lakes Financial. In making such awards, the Committee has considered all
of the factors discussed, and has followed the procedure described, in the
previous paragraph.
However, currently no shares of Common Stock remain available for future
awards under the Recognition Plan, and only ______ shares remain available for
future awards under the Option Plan.
Executive officers may also participate in Finger Lakes Financial's 401(k)
Plan, which includes only employee contributions.
Chief Executive Officer Compensation
The key performance measure used to determine Mr. Bowers' 1999 compensation
was the Committee's assessment of his ability and dedication to provide the
leadership and vision necessary to enhance the long-term value of Finger Lakes
Financial.
Pursuant to the terms of his employment agreement with Finger Lakes
Financial (see "Executive Compensation--Employment Agreements" above), which was
approved by the Board of Directors in 1995, Mr. Bowers' annual base salary is
fixed, subject to increases by the Board of Directors in its sole discretion.
For 1999, his salary amounted to $________. The Committee believes that Mr.
Bowers' salary is fixed at a level which is comparable to the amounts paid to
other chief executive officers with comparable qualifications, experience,
responsibilities and proven results at other similar banks and bank holding
companies.
7
<PAGE>
Consistent with Finger Lakes Financial's executive compensation philosophy,
Mr. Bowers' total compensation package depends largely on annual and long-term
incentive compensation. The annual incentive component is currently made up of
the possibility of a cash bonus under the terms of his employment agreement,
determined by the Board of Directors. The long-term incentive component has
taken the form of stock options granted under the Option Plan and contingent
stock awards granted under the Recognition Plan. Both the annual and long-term
components of Mr. Bowers' incentive compensation are variable and closely tied
to corporate performance in a manner that encourages dedication to building
shareholder value.
Mr. Bowers' short-term and long-term incentive compensation for 1999
included a cash bonus of $______ and a contingent stock award of ______ shares.
In evaluating the performance and setting the compensation of Mr. Bowers as
Finger Lakes Financial's Chief Executive Officer, the Committee has taken
particular note of Finger Lakes Financial's success since he was hired in July
1995. Since 1995 year-end, total assets of Finger Lakes Financial have increased
___%, total loans have increased ___% and total deposits have increased ___%.
Excluding a special charge in the fourth quarter of 1998, earning have increased
by more than ___% in each of the last two years. In March 1998 Finger Lakes
Financial paid its shareholders a 2-for-1 stock split in the form of a 100%
stock dividend. Further, Finger Lakes Financial has opened three new branches
since March 1996.
In addition to leading Finger Lakes Financial to these financial
achievements, Mr. Bowers has established a strong record in the areas of
innovation and management efficiency, and has built a strong management team and
aggressively pursued new areas for growth.
Salary and Personnel Committee:
Ralph E. Springstead, Chairman
Chris M. Hansen
Richard J. Harrison
James E. Hunter
Stock Performance Graph
The following graph sets forth a comparison of the cumulative total
shareholder return on the common stock since Finger Lakes Financial's public
offering on November 11, 1994, based on the market price thereof and taking into
account all cash and stock dividends paid through December 31, 1999, with the
cumulative total return of the companies comprising the Nasdaq Composite Total
Return Index (US) and the companies comprising the SNL MHC Thrift Index.
8
<PAGE>
[THE FOLLOWING TABLE WAS REPRESENTED AS A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Period Ending
-----------------------------------------------------------------------------
Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 12/31/99
========================================= ========= ========= ========= ========= ========= =========
<S> <C> <C> <C> <C> <C> <C>
Finger Lakes Financial Corp 100.00 207.10 179.82 428.20 312.62 222.47
NASDAQ - Total US 100.00 141.33 173.89 213.07 300.25 542.43
MHC Thrifts 100.00 158.14 204.59 458.17 314.54 279.77
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
EXECUTIVE COMPENSATION
- --------------------------------------------------------------------------------
Shown on the table below is information on the annual and long-term
compensation for services rendered to Finger Lakes Financial in all capacities,
for the years ended December 31, 1999, 1998 and 1997, paid by Finger Lakes
Financial to its Chief Executive Officer and Executive Vice President. No other
executive officer of the Company received salary and bonus in excess of $100,000
in 1999.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
-------------------------------------------- -------------------------------------------
Other Restricted All Other
Name and Annual Stock Option Compensation
Principal Position Year Salary($)(1) Bonus($) Compensation ($)(2) Awards ($)(3) Grants(#)(4) (5)
- -------------------------------- ------- ------------ --------- ------------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers, President 1999 $ 182,606 $ 20,947 $ 0 $ 0 0 $ 7,606
and Chief Executive Officer 1998 174,585 20,227 0 54,250 0 10,610
1997 168,562 0 0 128,469 0 24,160
- -------------------------------- ------- ------------ --------- ------------------- ------------- ------------- ---------------
Terry L. Hammond, Executive Vice 1999 $ 96,100 $ 8,610 $ 0 $ 0 0 $ 3,512
President and Chief Financial 1998 86,100 8,320 0 0 0 6,693
Officer 1997 83,203 0 0 35,750 8,600 7,776
</TABLE>
(1) The amounts shown include cash compensation earned and paid during the year
indicated as well as cash compensation deferred at the executives' election
into the 401(k) Plan. The Company makes no contributions to the 401(k)
Plan.
(2) Does not reflect the value of perquisites and other personal benefits
because the aggregate amount of such compensation for any year did not
exceed 10% of the executives' annual salary and bonus for that year.
(3) The amounts shown reflect restricted awards of common stock under the
Company's 1996 Management Recognition Plan. See "Executive
Compensation--1996 Management Recognition Plan" below. The amounts shown
represent the aggregate market value of the shares awarded on the dates of
the awards (for Mr. Bowers 2,800 shares awarded in 1998; 9,500 shares
awarded in 1997 and for Mr. Hammond 3,000 shares awarded in 1997). The
awards vest and the shares are paid out over periods ranging from three to
five years, each commencing one year from the respective award date. The
total number and dollar value of shares credited to Mr. Bowers' award
account at 1999 year-end, based on the market value of the common stock on
December 31, 1999 ($8.00 per share) was 13,946 shares ($111,568). Mr.
Hammond's total number of shares and dollar value at 1999 year end was
5,720 shares and $45,763. Dividends are payable on such shares at the same
rate as dividends are paid on other shares of common stock.
(4) See "Executive Compensation--1996 Stock Option Plan" below.
(5) The amounts shown reflect: (i) the aggregate market value, on the date of
allocation, of shares of common stock allocated during the referenced year
to Mr. Bowers' account under the ESOP ($4,376 at December 31, 1999; $7,481
at December 31, 1998; $23,066 at December 31, 1997 (see "Executive
Compensation--Employee Stock Ownership Plan" below); and (ii) the
compensatory value ($3,230 in 1999; $3,129 in 1998; $1,094 in 1997) of life
insurance premiums paid by Finger Lakes Financial on Mr. Bowers' behalf.
The amounts shown for Mr. Hammond reflect the aggregate market value, on
the date of allocation of shares of common stock allocated during the
referenced year to Mr. Hammond's account under the ESOP.
Employment Agreements
During 1999, Mr. Bowers was compensated for his services as President,
chief Executive Officer and a director of Finger Lakes Financial pursuant to an
employment agreement with Finger Lakes Financial dated January 26, 1995 (the
"Employment Agreement"). The Employment Agreement provides for an annual base
salary, subject to increases in the sole discretion of Finger Lakes Financial,
and customary fringe benefits. As an annual incentive, the Employment agreements
also provides for the payment, in the sole discretion of the Board of Directors,
of an annual bonus. In 1999, Mr. Bowers received a bonus of $20,947.
The Employment Agreement may be terminated by either Mr. Bowers or Finger
Lakes Financial at any time upon ten days' notice. However, if Finger Lakes
Financial terminated the Employment Agreement without cause or fails to comply
with any material provision thereof, or if Mr. Bowers terminates the Employment
10
<PAGE>
Agreement for good reason, Mr. Bowers will be entitled to severance pay
amounting to 2.99 times the average annual compensation paid him during the last
five years of his employment by Finger Lakes Financial. In addition, Mr. Bowers
may continue to participate in employee benefit plans of Finger Lakes Financial
(other than retirement and stock compensation plans) for three years following
his termination.
Pursuant to the Employment Agreement, Mr. Bowers is also the beneficiary of
a non-qualified, unfunded Supplemental Retirement Agreement with Finger Lakes
Financial dated February 28, 1995 and amended June 22, 1998 (the "Retirement
Agreement"), which provides that, upon his reaching age 62, Finger Lakes
Financial will pay Mr. Bowers or his surviving spouse $30,000 per year for 20
years (or, upon their earlier deaths, a lump sum payment to their estates),
subject to a downward adjustment equal to 6% of the total cash value in all
policies subject to any split dollar agreement in effect as of Mr. Bower's 62nd
birthday. Such payments will be provided in part by premiums paid under an
insurance policy on Mr. Bower's life maintained for Finger Lakes Financial's
benefit. The Retirement Agreement vests at the rate of 20% per year on June 30
of each year. The Retirement Agreements is currently 80% vested, and would pay
Mr. Bowers, were his employment to terminate currently, $24,000 per year upon
his reaching age 62.
- --------------------------------------------------------------------------------
BENEFITS
- --------------------------------------------------------------------------------
1996 Management Recognition Plan
The objective of Finger Lakes Financial's 1996 Management Recognition Plan
(the "Recognition Plan") is to enable Finger Lakes Financial to provide certain
of its officers and other employees with a proprietary interest in Finger Lakes
Financial, through restricted stock awards which vest at subsequent dates, as
compensation for their contributions to Finger Lakes Financial as well as an
incentive to make such contributions in the future by continuing their
employment with Finger Lakes Financial. The Recognition Plan has been funded
with 47,200 shares of common stock (purchased on the open market in 1996 with
funds provided by Finger Lakes Financial), which are held by a third-party
trustee until they are awarded, and thereafter vested and distributed, to
recipient employees in accordance with the terms of the Recognition Plan.
The Recognition Plan is administered by the Salary and Personnel Committee
of the Board of Directors (the "Committee"), which consists solely of
disinterested directors. The Committee determines, among other things, the
employees who are to receive restricted stock awards under the Recognition Plan,
the number of shares covered by each award, and the vesting schedule by which
awarded shares vest and are paid out by the trustee to each recipient. Under the
terms of the Recognition Plan, the trustee is authorized to vote, in its
discretion, all Recognition Plan shares which have not yet vested. Dividends are
payable on awarded shares, for the benefit of the respective recipients, at the
same rate as dividends are paid on other shares of common stock. The Recognition
Plan also contains customary anti-dilution provisions. The Board of Directors of
Finger Lakes Financial can terminate the Recognition Plan at any time.
If an award recipient's employment with Finger Lakes Financial lis
terminated by reason of his or her death, disability or retirement, or in the
event of a change in control of Finger Lakes Financial, all shares subject to
the award become immediately vested and payable to the recipient. However, upon
any other termination of an award recipient's employment, all rights to shares
not yet vested are forfeited.
At December 31, 1999, an aggregate of 47,200 shares of common stock has
been awarded under the Recognition Plan to an aggregate of ten employees,
including the Chief Executive Officer and Finger Lakes Financial's three other
current executive officers. Shares awarded under the Recognition Plan vest over
periods ranging from three to five years, each commencing one year from the
respective award date.
1996 Stock Option Plan
Finger Lakes Financial's 1996 Stock Option Plan (the "Option Plan") is
designated to improve the growth and profitability of Finger Lakes Financial by
providing its employees with a proprietary interest in Finger Lakes Financial as
an incentive to contribute to the success of Finger Lakes Financial and to
reward employees for
11
<PAGE>
outstanding performance. The Option Plan is intended to be qualified under
Section 422 of the Internal Revenue Code of 1986, as amended, and provides for
the grant of incentive stock options, non-statutory stock options and stock
appreciation rights. An aggregate of 118,000 shares of common stock are
available for option grants under the Option Plan. The Option Plan terminates in
2006.
The Option Plan is administered by the Committee, which determines, among
other things, the employees who are to receive options under the Option Plan,
the types of options to be granted and the number of shares covered by each
option. The exercise price of each option must be at least equal to the market
value of the common stock on the option grant date (or 110% of such market value
in the case of an inventive stock option granted to a holder of 10% or more of
the outstanding common stock).
Options vest and become exercisable at the rate of 20% per year, commencing
one year from the option grant date. Options are only exercisable upon vesting
and until the earlier of ten years after the option grant date (or five years
after the option grant date in the case of an incentive stock option granted to
a holder of 10% or more of the outstanding common stock) or three months after
termination of the optioned's employment with Finger Lakes Financial. However,
if an optionee's employment is terminated due to death, disability or
retirement, or in the event of a change in control Finger Lakes Financial, the
optioned or his or her estate has one year following termination in which to
exercise an otherwise exercisable option. Options are non-transferable except by
will or the laws of descent and distribution. The Option Plan also contains
customary anti-dilution provision.
Under the Option Plan, the Committee is also authorized to grant stock
appreciation rights, under which an optioned may surrender an exercisable option
in return for payment by Finger Lakes Financial of cash or common stock in an
amount equal to the excess of the then-current market value of the common stock
over the exercise price of the surrendered option.
At December 31, 1999, options to purchase an aggregate of 110,000 shares of
common stock, at prices ranging from $6.75 to $14.50 per share, were outstanding
and held by an aggregate of 11 employees, including the Chief Executive Officer
and the three other current executive officers.
Shown below is information with respect to the total unexercised options to
purchase common stock held by the Chief Executive Officer at December 31, 1999.
No options were granted to or exercised by the Chief Executive Officer during
1999.
Aggregated Option Exercises in 1999 and Year-End Option Values
<TABLE>
<CAPTION>
Value of All Unexercised
Unexercised Option Held In-the-Money Options at
at Year End(#) Year End($)(1)
Shares Acquired Value
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
G. Thomas Bowers 0 0 17,700 11,800 None None
Terry L. Hammond 0 0 12,320 9,880 2,700 1,800
</TABLE>
- ----------
(1) Expressed as the excess of the per share market value of the common stock at
December 31, 1999 ($8.00) over the per share exercise price of the options
($8.00).
Employee Stock Ownership Plan ("ESOP")
The purpose of the ESOP is to recognize and reward the contributions made
to Finger Lakes Financial by its employees. Employees who have at least one year
of credited service with Finger Lakes Financial (including Finger Lakes
Financial and Savings Bank of the Finger Lakes in its forms prior to the
reorganization) and who have attained age 21 are eligible to participate in the
ESOP.
12
<PAGE>
The ESOP borrowed funds in 1994 from a third-party lender in order to fund
the purchase of 94,396 shares of common stock. Subsequent to the 1998
reorganization, the third-party loan was repaid with the proceeds of a loan from
Finger Lakes Financial. The loan to the ESOP, which bears interest at a fixed
rate of 7.75% per annum, will be repaid principally from Finger Lakes
Financial's contributions to the ESOP over ten years. Finger Lakes Financial
may, in any years, make additional discretionary contributions for the benefit
of plan participants in either cash or shares of common stock (which may be
newly issued or acquired by the purchase of outstanding shares). Such purchases,
if made, may be funded through additional borrowing by the ESOP or additional
contributions from Finger Lakes Financial. 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.
The shares purchased by the ESOP with the proceeds of the loan are held in
a suspense account and released on a pro rate basis as debt service payments are
made. Discretionary contributions to the ESOP, and the release of shares from
the suspense account, are allocated among participants on the basis of
compensation. Forfeitures are reallocated among remaining participants and may
reduce any amount Finger Lakes Financial might otherwise have contributed to the
ESOP. Allocations may be paid out to a participant, either in shares of common
stock or in cash, upon retirement, early retirement or separation from service.
Finger Lake Financial's contributions to the ESOP are not fixed, so benefits
payable under the ESOP cannot be estimated. Recipients of shares paid out under
the ESOP must give Finger Lakes Financial a right of first refusal when selling
the shares so acquired.
The trustees under the ESOP must vote all allocated shares held in the ESOP
in accordance with the instructions of the participating employees, and
unallocated shares, as well as allocated shares for which employees do not give
instructions, must be voted in the same ratio as the shares for which
instructions are given. The ESOP is subject to the Employee Retirement Income
Security Act of 1974, as amended, as well as the regulations of the Internal
Revenue Service as the Department of Labor.
- --------------------------------------------------------------------------------
TRANSACTIONS WITH CERTAIN RELATED PERSONS
- --------------------------------------------------------------------------------
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. In addition, loans made
to a director or executive officer in excess of the greater of $25,000 or 5% of
Savings Bank of the Finger Lakes' capital and surplus (up to a maximum of
$500,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors.
- --------------------------------------------------------------------------------
PROPOSAL II--RATIFICATION OF APPOINTMENT OF AUDITORS
- --------------------------------------------------------------------------------
The Board of Directors of Finger Lakes Financial has approved the
engagement of KMPG LLP to be Finger Lakes Financial's auditors for the 2000
fiscal year, subject to the ratification of the engagement by Finger Lakes
Financial's stockholders. At the Meeting, stockholders will consider and vote on
the ratification of the engagement of KPMG LLP for Finger Lakes Financial's
fiscal year ending December 31, 2000. A representative of KPMG LLP is expected
to attend the Meeting to respond to appropriate questions and to make a
statement if he so desires.
In order to ratify the selection of KPMG LLP as the auditors for the 2000
fiscal year, the proposal must receive at least a majority of the votes cast,
either in person or by proxy, in favor of such ratification. The Board of
Directors recommends a vote "FOR" the ratification of KPMG LLP as auditors for
the 2000 fiscal year.
13
<PAGE>
- --------------------------------------------------------------------------------
PROPOSAL III--APPROVAL OF THE PLAN OF CONVERSION AND REORGANIZATION
- --------------------------------------------------------------------------------
This proxy statement/prospectus includes the prospectus that describes the
conversion. Please carefully read the prospectus prior to voting on the proposal
to be presented at the Meeting.
DISSENTERS' AND APPRAISAL RIGHTS
Under OTS regulations, Finger Lakes Financial's stockholders will not have
dissenters' rights or appraisal rights in connection with the exchange of their
common stock for shares of common stock of Finger Lakes Bancorp.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described in the proxy statement/prospectus.
However, if any matters should properly come before the Meeting, it is intended
that holders of the proxies will act in accordance with their best judgment.
The Plan sets forth the terms, conditions and provisions of the proposed
Conversion. The proposed Certificate of Incorporation and Bylaws of Finger Lakes
Financial are exhibits to the Plan. The Order Form is the means by which an
order for the subscription and purchase of shares is placed. If you would like
to receive an additional copy of the prospectus, or a copy of the Plan and the
Certificate of Incorporation and Bylaws of Finger Lakes Financial, you must
request such materials in writing, addressed to Finger Lakes Financial's
secretary at the address given above. Such requests must be received by Finger
Lakes Financial no later than ______, 2000 Requesting such materials does not
obligate you to purchase shares. If Finger Lakes Financial does not receive your
request by such date, you will not be entitled to have such materials mailed to
you.
To the extent necessary to permit approval of the Plan, proxies may be
solicited by officers, directors or regular employees of Finger Lakes Financial
and/or Savings Bank of the Finger Lakes , in person, by telephone or through
other forms of communication and, if necessary, the Special Meeting may be
adjourned to a later date. Such persons will be reimbursed by Finger Lakes
Financial and/or Savings Bank of the Finger Lakes for their reasonable
out-of-pocket expenses, including, but not limited to, de minimis telephone and
postage expenses incurred in connection with such solicitation. Finger Lakes
Financial and/or Savings Bank of the Finger Lakes have not retained a proxy
solicitation firm to provide advisory services in connection with the
solicitation of proxies, although Friedman, Billings, Ramsey & Co., Inc.
("FBR"), the broker-dealers retained to assist in the marketing of Finger Lakes
Bancorp, Inc.'s Common Stock, have also agreed to assist in the proxy
solicitations. FBR will receive compensation for their services as described
herein in "The Conversion--Plan of Distribution and Selling Commissions."
YOUR VOTE IS IMPORTANT! THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
PLAN.
THIS PROXY STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL OR THE SOLICITATION OF
AN OFFER TO BUY SUBSCRIPTION SHARES. THE OFFER WILL BE MADE ONLY BY THE
PROSPECTUS.
14
<PAGE>
- --------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- --------------------------------------------------------------------------------
In the event that the conversion is not completed, Finger Lakes Financial
will hold an annual meeting next year. In order to be eligible for inclusion in
Finger Lakes Financial's proxy materials for next year's Annual Meeting of
Stockholders, any stockholder proposal to take action at such meeting must be
received at Finger Lakes Financial's executive office, 470 Exchange Street,
Geneva, New York 14456, no later than ______, 2001. Any such proposals shall be
subject to the requirements of the proxy rules adopted under the Exchange Act.
The Bylaws of Finger Lakes Financial provide an advance notice procedure
for certain business, or nominations to the Board of Directors, to be brought
before an annual meeting. In order for a stockholder to properly bring business
before an annual meeting, or to propose a nominee to the Board, the stockholder
must give written notice to the Secretary of Finger Lakes Financial not less
than ninety (90) days before the date fixed for such 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, notice by the
stockholder to be timely must be received no later than the close of business on
the tenth day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure was made. The notice must include
the stockholder's name, record address, and number of shares owned by the
stockholder, describe briefly the proposed business, the reasons for bringing
the business before the annual meeting, and any material interest of the
stockholder in the proposed business. In the case of nominations to the Board,
certain information regarding the nominee must be provided. Nothing in the
paragraph shall be deemed to require Finger Lakes Financial to include in its
proxy statement and proxy relating to an annual meeting any stockholder proposal
which does not meet all of the requirements or inclusion established by the SEC
in effect at the time such proposal is received.
Assuming the conversion is completed, the date on which the Annual Meeting
of Stockholders of Finger Lakes Financial is expected to be held is _______,
2001. Accordingly, advance written notice of business or nominations to the
Board of Directors to be brought before the 2000 Annual Meeting of Stockholders
must be given to Finger Lakes Financial no later than ______, 2000.
- --------------------------------------------------------------------------------
MISCELLANEOUS
- --------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than the matters described above in the proxy statement/propectus.
However, if any matters should properly come before the Meeting, it is intended
that holders of the proxies will act as directed by a majority of the Board of
Directors, except for matters related to the conduct of the Meeting, as to which
they shall act in accordance with their best judgment.
The cost of solicitation of proxies will be borne by Finger Lakes
Financial. Finger Lakes Financial will reimburse brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy materials to the beneficial owners of Common Stock. In addition to
solicitations by mail, directors, officers and regular employees of Savings Bank
of the Finger Lakes may solicit proxies personally or by telegraph or telephone
without additional compensation.
A copy of the Finger Lakes Financial's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 will be furnished without charge to
stockholders as of the record date upon written request to the Secretary, Finger
Lakes Financial Corp., 470 Exchange Street, Geneva, New York 14456.
BY ORDER OF THE BOARD OF DIRECTORS
Terry L. Hammond
Geneva, New York Secretary
_________, 2000
15
<PAGE>
REVOCABLE PROXY
FINGER LAKES FINANCIAL CORP.
SPECIAL MEETING OF STOCKHOLDERS
______, 2000
The undersigned hereby appoints the full Board of Directors, with full
powers of substitution to act as attorneys and proxies for the undersigned to
vote all shares of Common Stock of Finger Lakes Bancorp which the undersigned is
entitled to vote at a Special Meeting of Stockholders, in lieu of an annual
meeting ("Meeting") to be held at _________________, at _____ __.m. (local time)
on ______, 2000. The official proxy committee is authorized to cast all votes to
which the undersigned is entitled as follows:
VOTE
FOR WITHHELD
--- --------
1. The election as directors of all |_| |_|
nominees listed below (except as
marked to the contrary below)
Michael J. Hanna
James E. Hunter
Ronald C. Long
INSTRUCTION: To withhold your vote
for one or more nominees, write the
name of the nominee(s) on the lines
below.
________________________________
________________________________
FOR AGAINST ABSTAIN
--- ------- -------
2. The ratification of the appointment |_| |_| |_|
of KPMG LLP as auditors for the
fiscal year ending December 31,
2000.
FOR AGAINST
--- -------
3. Approval of a plan of conversion |_| |_|
and reorganization (the "Plan") and
transactions incident to the Plan,
pursuant to which (i) Savings Bank
of the Finger Lakes will establish
Finger Lakes Bancorp, Inc. as a
first-tier Delaware chartered
corporation subsidiary; (ii) Finger
Lakes Bancorp will charter an
interim federal association
("Interim"); (iii) Finger Lakes
Financial Corporation, MHC will
merge with and into Finger Lakes
Financial, shares of the common
stock of Finger Lakes Financial
("common stock") held by Finger
Lakes Financial Corp., MHC will be
canceled and certain depositors of
Savings Bank of the Finger Lakes
will receive an interest in a
liquidation account of Finger Lakes
Financial in exchange for such
depositors' interest in Finger
Lakes Financial Corp., MHC ; (iv)
Finger Lakes Financial will convert
into an interim federal savings
association which will merge with
and into Savings Bank of the Finger
Lakes (the "mid-tier merger") with
Savings Bank of the Finger Lakes as
the
<PAGE>
resulting entity and stockholders
of Finger Lakes Financial other
than Finger Lakes Financial Corp.,
MHC ("minority stockholders") will
constructively receive shares of
Savings Bank of the Finger Lakes 's
common stock in exchange for their
common stock and certain depositors
will receive an interest in a
liquidation account of Savings Bank
of the Finger Lakes in exchange for
such depositors' interest in Finger
Lakes Financial; (v)
contemporaneously with the mid-tier
merger, Interim will merge with and
into Savings Bank of the Finger
Lakes with Savings Bank of the
Finger Lakes as the surviving
entity (the "bank merger") and
minority stockholders will exchange
the shares of Savings Bank of the
Finger Lakes 's common stock that
they constructively received in the
mid-tier merger for Finger Lakes
Bancorp's common stock pursuant to
an "Exchange Ratio;" and (vi)
contemporaneously with the bank
merger, Finger Lakes Bancorp will
offer for sale shares of common
stock in a subscription offering.
The Board of Directors recommends a vote "FOR" each of the listed proposals.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSITIONS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING
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<PAGE>
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of Finger Lakes
Financial Corp. at the Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect. This proxy may also be revoked by sending
written notice to the Secretary of Finger Lakes Financial Corp. at the address
set forth on the Notice of Special Meeting of Stockholders, or by the filing of
a later proxy statement/prospectus prior to a vote being taken on a particular
proposal at the Meeting.
The undersigned acknowledges receipt from Finger Lakes Bancorp prior to the
execution of this proxy of a Notice of the Meeting and a proxy
statement/prospectus dated March ___, 2000.
Dated: _________________, 2000 |_|
Check Box if You Plan
to Attend Meeting
_______________________________ ________________________________
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
_______________________________ ________________________________
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
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Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.
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