<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER 0-26466
TAPPAN ZEE FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3840352
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 NORTH BROADWAY, TARRYTOWN, NEW YORK 10591-0187
(Address of principal executive offices) (Zip Code)
(914) 631-0344
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Not applicable)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $.01 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1)YES X NO (2)YES X NO
--- ---- --- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. / /
As of May 31, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $16,720,320 based on the closing price on
the that date and a total of 1,560,062 shares of Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the Registrant's Annual Report to Shareholders for fiscal 1996
are incorporated herein by reference into Item 1 of Part I and Items 5,6,7
and 8 of Part II.
(2) Portions of definitive Proxy Statement for the Registrant's 1996 Annual
Meeting of Shareholders are incorporated herein by reference into Items 10,
11, 12 and 13 of Part III.
<PAGE> 2
TAPPAN ZEE FINANCIAL, INC.
<TABLE>
<CAPTION>
PART I
Page
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<S> <C> <C>
Item 1. Business 2
Item 2. Properties 28
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters 28
Item 6. Selected Financial Data 28
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 28
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 28
PART III
Item 10. Directors and Executive Officers of the Registrant 28
Item 11. Executive Compensation 29
Item 12. Security Ownership of Certain Beneficial Owners and Management 29
Item 13. Certain Relationships and Related Transactions 29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 29
Signatures 32
</TABLE>
1
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PART I
ITEM 1. BUSINESS
GENERAL
Tappan Zee Financial, Inc. (the "Registrant") is the unitary savings
association holding company for Tarrytowns Bank, FSB (the "Bank"), a federally
chartered savings bank and wholly-owned subsidiary of the Registrant. On
October 5, 1995, the Bank converted from a mutual savings bank to a stock
savings bank (the " Conversion"). Collectively, the Registrant and the Bank
are referred to herein as the "Company." Concurrent with the Conversion, the
Registrant sold 1,620,062 shares of its common stock in a subscription and
community offering at a price of $10 per share, for net proceeds of $14.9
million.
The Company's primary market area consists of the Village of Tarrytown
and its neighboring communities in Westchester County, New York with business
conducted from one office located in Tarrytown, New York. The Bank is a
community-oriented savings institution whose business primarily consists of
accepting deposits from customers within its market area and investing those
funds in mortgage loans secured by one- to four-family residences. To a
significantly lesser extent, funds are invested in multi-family, commercial real
estate, construction, commercial business and consumer loans. The Company also
invests in mortgage-backed and other securities. The Registrant has no business
activities other than its ownership of the Bank.
The Company's results of operations are dependent primarily on net
interest income, which is the difference between the interest income earned on
its interest-earning assets, such as loans and securities, and the interest
expense on its interest-bearing liabilities, such as deposits. The Company also
generates non-interest income such as service charges and other fees. The
Company's non-interest expenses primarily consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums, net costs of
real estate owned, data processing fees and other operating expenses. The
Company's results of operations are significantly affected by general economic
and competitive conditions (particularly changes in market interest rates),
government policies, changes in accounting standards and actions of regulatory
agencies.
MARKET AREA AND COMPETITION
The Company's deposit gathering and lending markets are concentrated in the
communities surrounding its office in the Village of Tarrytown located in
Westchester County, New York, although the Company also lends to borrowers
located elsewhere in Westchester County. Westchester County borders
New York City to the south, Connecticut to the east, northern New Jersey and the
County of Rockland in New York to the west and the New York County of Putnam to
the north. In addition to being a suburb of New York City, Westchester contains
villages, towns and cities with shopping, office and industrial centers, as well
as farms and rural areas. More than 875,000 people live in Westchester County
representing more than 320,000 households with a median household income greater
than $45,000. The population of the Village of Tarrytown exceeds 10,700, with a
median household income that is on par with that of Westchester County.
Some of the nation's major corporations have Westchester operations,
including IBM Corporation, Texaco Inc., American Telephone and Telegraph Co.,
New York Telephone, Pepsico, Readers Digest, Inc., Tambrands, Inc., Kraft
General Foods, Inc., Metro-North Commuter Railroad Company and Consolidated
Edison of New York, Inc. Many other industrial, insurance, educational,
financial and health service corporations employ significant numbers of local
residents and also serve to meet the educational, cultural and social needs of
the area. The labor force contains larger percentages of professional, technical
and clerical workers than New York State as a whole. However, many companies
have downsized their operations and staff sizes in the last few years. For
example, IBM Corporation has had a series of staff reductions resulting in a
significant decline in the number of jobs in the area. In addition, General
Motors recently closed its plant located in the Village of North Tarrytown,
which employed approximately 2,100 people. Many of the employees who worked at
the plant did not live in Tarrytown or its neighboring communities, therefore,
the Company currently does not believe the plant closing will have a material
adverse effect on its residential mortgage loan portfolio. However, it is likely
that the plant closing will have an adverse effect on some of the local
Tarrytown businesses, which may adversely affect the Company's commercial real
estate and commercial loan portfolios. In addition, it is the Company's
understanding that a substantial portion of North Tarrytown's tax base is
attributable to the General Motors plant. It is possible that the commercial
businesses and homeowners in North Tarrytown and Tarrytown (which comprise a
single school district) will face higher property tax assessments due to the
plant closing. This could adversely affect the ability of those commercial
businesses and homeowners who are borrowers of the Company to continue to repay
their outstanding loans in a timely fashion. The Company, however, is unable to
determine at this time the ultimate impact of any such event.
2
<PAGE> 4
The Northeast region of the United States, which includes the Company's
market area, has been affected by the prolonged recession that occurred in the
early 1990s, which resulted in a contraction of economic activity and a
deterioration of the local real estate market. If another recession were to
occur, and as a result the Company experiences a significant increase in
non-performing assets, it is likely that the Company's future operating results
would be affected by (i) significant provisions for loan losses and reduced
interest income, (ii) significant provisions for real estate owned losses, and
(iii) significant costs incurred in connection with managing foreclosed
properties and collection efforts on delinquent loans.
The Company faces substantial competition for both the deposits it accepts
and the loans it makes. Westchester County has a high density of financial
institutions, including branch offices of major commercial banks, all of which
compete with the Company to varying degrees. The Village of Tarrytown has
full-service branch offices of the following commercial banks: First Union
National Bank, Chase Manhattan Bank, Fleet Bank, Bank of New York and Union
State Bank. The Company also encounters significant competition for deposits
from commercial banks, savings banks and savings and loan associations located
in Westchester County, as well as short-term money market securities, money
market mutual funds, and corporate and government securities. Due to the size
of the Company relative to its competitors, the Company offers a more limited
product line than many competitors, with an emphasis on product delivery and
customer service rather than a very broad product line. The Company competes
for deposits by offering a variety of customer services and deposit accounts at
generally competitive interest rates.The Company's competition for loans comes
principally from savings banks, savings and loan associations, commercial
banks, mortgage bankers, brokers and other institutional lenders. The Company
competes for loans primarily by emphasizing the quality of its loan services
and by charging loan fees and interest rates that are generally competitive
within its market area. Changes in the demand for loans relative to the
availability of credit may affect the level of competition from financial
institutions which may be more willing than the Company or its competitors to
make credit available but which have not generally engaged in lending
activities in the Company's market area in the past. Competition may also
increase as a result of the lifting of restrictions on the interstate
operations of financial institutions.
LENDING ACTIVITIES
Loan Portfolio Composition. The Company's loan portfolio consists
primarily of conventional first mortgage loans secured by one- to four-family
residences. At March 31, 1996, the Company had total gross loans outstanding of
$52.1 million (before deducting the allowance for loan losses and net deferred
loan fees), of which $38.8 million, or 74.4%, were one- to four-family,
owner-occupied residential mortgage loans. The remainder consisted of $3.3
million of multi-family mortgage loans, or 6.3% of total loans; $3.6 million of
commercial real estate mortgage loans, or 6.9% of total loans; $2.5 million of
construction mortgage loans, net of loans in process, or 4.7% of total loans;
$2.7 million of commercial business loans, or 5.2% of total loans; and $1.3
million of consumer loans, or 2.5% of total loans.
The types of loans that the Company may originate are subject to federal
and state laws and regulations. Interest rates charged by the Company on loans
are affected by the demand for such loans, the supply of money available for
lending purposes and the rates offered by competitors. These factors are in
turn affected by, among other things, economic conditions, monetary policies of
the federal government, including the Federal Reserve Board, and legislative
tax policies.
The following table sets forth the composition of the Company's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated:
3
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<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ------------------------ ------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ------------ ----------- ---------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 38,762 75.75 % $ 39,020 77.68 % $ 36,011 79.98 %
Multi-family 3,287 6.42 3,443 6.85 2,649 5.88
Commercial 3,561 6.96 4,019 8.00 2,965 6.59
Construction, net 2,462 4.81 1,115 2.22 824 1.83
Net deferred loan fees (284) (0.55) (324) (0.64) (278) (0.62)
---------- ---------- ---------- ---------- --------- --------
Total mortgage loans 47,788 93.39 47,273 94.11 42,171 93.66
Commercial loans:
Commercial business loans, net 2,727 5.33 2,415 4.81 2,211 4.91
Net deferred loan fees (1) -- (1) -- (1) --
---------- ---------- ---------- ---------- --------- --------
Total commercial loans 2,726 5.33 2,414 4.81 2,210 4.91
Consumer loans:
Automobile loans 724 1.41 603 1.20 415 0.92
Other consumer loans 821 1.60 789 1.57 1,003 2.23
Unearned discounts (235) (0.46) (199) (0.40) (236) (0.52)
Net deferred loan costs 4 0.01 3 0.01 3 --
---------- ---------- ---------- ---------- --------- --------
Total consumer loans 1,314 2.56 1,196 2.38 1,185 2.63
Allowance for loan losses (654) (1.28) (650) (1.30) (540) (1.20)
---------- ---------- ---------- ---------- --------- --------
Total loans, net $51,174 100.00 % $50,233 100.00 % $45,026 100.00 %
---------- ---------- ---------- ---------- --------- --------
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
--------------------------------------------------------
1993 1992
--------------------------- --------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family $ 35,634 77.11 % $ 35,524 77.00 %
Multi-family 2,757 5.97 2,575 5.58
Commercial 2,958 6.40 2,814 6.10
Construction, net 1,462 3.16 1,492 3.24
Net deferred loan fees (237) (0.51) (230) (0.50)
--------- -------- --------- --------
Total mortgage loans 42,574 92.13 42,175 91.42
Commercial loans:
Commercial business loans, net 2,878 6.23 2,992 6.49
Net deferred loan fees -- -- (3) (0.01)
--------- -------- --------- --------
Total commercial loans 2,878 6.23 2,989 6.48
Consumer loans:
Automobile loans 501 1.08 481 1.04
Other consumer loans 994 2.15 1,069 2.32
Unearned discounts (258) (0.56) (282) (0.61)
Net deferred loan costs 4 0.01 4 0.01
--------- -------- --------- --------
Total consumer loans 1,241 2.68 1,272 2.76
Allowance for loan losses (482) (1.04) (303) (0.66)
--------- -------- --------- --------
Total loans, net $46,211 100.00 % $46,133 100.00 %
--------- -------- --------- --------
</TABLE>
Loan Maturity. The following table shows the contractual maturity of the
Company's gross loans at March 31, 1996. The table reflects the entire unpaid
principal balance in the maturity period that includes the final loan payment
date and, accordingly, does not give effect to periodic principal repayments or
possible prepayments. Principal repayments and prepayments totaled $8.2
million, $9.5 million and $10.0 million for the years ended March 31, 1996,
1995 and 1994, respectively.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------------------------------------------------
ONE-TO FOUR- MULTI- COMMERCIAL COMMERICAL
FAMILY FAMILY MORTGAGE CONSTRUCTION BUSINESS CONSUMER TOTAL
-------------- -------- ---------- ------------ ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Contractual maturity:
One year or less $ 758 $ 734 $ -- $ 3,200 $ 1,590 $ 98 $ 6,380
--------- -------- -------- -------- --------- -------- --------
After one year:
More than 1 year to 5 years 2,272 1,761 2,864 -- 925 1,259 9,081
More than 5 years 35,732 792 697 -- 232 188 37,641
--------- -------- -------- -------- --------- -------- --------
Total after one year 38,004 2,553 3,561 -- 1,157 1,447 46,722
--------- -------- -------- -------- --------- -------- --------
Total amount due $ 38,762 $ 3,287 $ 3,561 $ 3,200 $ 2,747 $ 1,545 $ 53,102
========= ======== ======== ======== ========= ======== ========
</TABLE>
The following table sets forth the dollar amounts in each loan category at
March 31, 1996 that are contractually due after March 31, 1997, and whether
such loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER MARCH 31, 1997
-------------------------------------------------
FIXED ADJUSTABLE TOTAL
-------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
One-to four-family $23,833 $14,171 $38,004
Multi-family 2,334 219 2,553
Commercial 3,303 258 3,561
Commercial business loans 1,157 -- 1,157
Consumer loans 1,447 -- 1,447
--------- --------- ---------
Total $32,074 $14,648 $46,722
========= ========= =========
</TABLE>
4
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Origination, Purchase, Sale and Servicing of Loans. The Company's lending
activities are conducted through its office. The Company originates both
adjustable-rate mortgage loans and fixed-rate mortgage loans. Loan originations
are generally obtained from existing or past customers and members of the local
communities. Its ability to originate loans is dependent upon the relative
customer demand for fixed-rate or adjustable-rate mortgage loans, which is
affected by the current and expected future levels of interest rates. During
the fiscal year ended March 31, 1996, the Company experienced an increase in
fixed-rate mortgage loan originations, as compared to originations of
adjustable-rate mortgage loans. The Company currently holds for its portfolio
all loans it originates and, from time to time, may purchase participations in
mortgage loans originated by other institutions. The determination to purchase
participations in specific loans or pools of loans is based upon criteria
substantially similar to the Company's underwriting policies, which consider
the financial condition of the borrower, the location of the underlying
property and the appraised value of the property, among other factors. The
Company has no current plans to sell loans it originates in the future, but
continually reviews the merits of adopting such a program to increase liquidity
or reduce interest rate risk. The Company does not service loans for others and
has no current plans to begin such activities.
The following table sets forth the Company's loan originations, repayments
and other portfolio activity for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
---------------------------------------------------
1996 1995 1994
------------ -------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Unpaid principal balances at beginning
of year $ 52,239 $ 46,160 $ 47,484
Loans originated:
Mortgage loans:
One- to four-family 4,125 8,201 4,956
Multi-family 150 1,399 1,189
Commercial -- 1,257 460
Construction 2,580 2,280 370
Commercial business 1,471 2,289 1,281
Consumer 967 732 719
--------- --------- ---------
Total loans originated 9,293 16,158 8,975
--------- --------- ---------
Principal repayments (8,233) (9,462) (10,023)
Charge-offs (86) (63) (105)
Transfers to real estate owned (111) (554) (171)
--------- --------- ---------
Unpaid principal balances at end of year 53,102 52,239 46,160
Less:
Construction loans in process (738) (815) (32)
Unearned discounts (235) (199) (236)
Unused lines of credit (20) (20) (50)
Allowance for loan losses (654) (650) (540)
Net deferred loan fee (281) (322) (276)
--------- --------- ---------
Net loans at end of year $ 51,174 $ 50,233 $ 45,026
========= ========= =========
</TABLE>
5
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One- to Four-Family Mortgage Lending. The Company offers both fixed-rate
and adjustable-rate mortgage loans, with maturities up to thirty years, which
are secured by one- to four-family, owner-occupied residences. Substantially
all such loans are secured by property located in Westchester County, New York.
At March 31, 1996, $38.8 million, or 74.4% of the Company's total gross loans
outstanding, were one- to four-family residential mortgage loans. Of the one-
to four-family residential mortgage loans outstanding at that date, 63.4%, or
$24.6 million, were fixed-rate loans and 36.6%, or $14.2 million, were
adjustable-rate loans. The interest rates for the majority of the Company's
adjustable-rate mortgage loans are indexed to the yield on one-year U.S.
Treasury securities. The Company currently offers a number of adjustable-rate
mortgage loan programs with interest rates which adjust either every one, three
or five years. An adjustable-rate mortgage loan may carry an initial interest
rate that is less than the fully-indexed rate for the loan. All adjustable-rate
mortgage loans offered have lifetime interest rate caps or ceilings. Generally,
adjustable-rate mortgage loans pose credit risks somewhat greater than the
credit risk inherent in fixed-rate loans primarily because, as interest rates
rise, the underlying payments of the borrowers rise, increasing the potential
for default. It is the Company's policy to underwrite its adjustable-rate
mortgage loans based on the fully-indexed rate. The Company currently has no
mortgage loans that are subject to negative amortization.
In view of its operating strategy, the Company adheres to its Board
approved underwriting guidelines for loan origination, which, though prudent in
approach to credit risk and evaluation of collateral, allow management
flexibility with respect to documentation of certain matters and certain credit
requirements. However, the Company generally originates loans using guidelines
comparable to Federal National Mortgage Association ("FNMA") or Federal Home
Loan Mortgage Corporation ("FHLMC") underwriting guidelines. The Company's
policy is to originate one- to four-family residential mortgage loans in
amounts up to 80% of the lower of the appraised value or the selling price of
the property securing the loan. The Company has not offered and currently does
not offer products with a higher loan-to-value ratio in conjunction with
private mortgage insurance, and has no plans to do so in the future. Mortgage
loans originated by the Company generally include due-on-sale clauses which
provide the Company with the contractual right to deem the loan immediately due
and payable in the event the borrower transfers ownership of the property
without the Company's consent. Due-on-sale clauses are an important means of
adjusting the rates on the Company's fixed-rate mortgage loan portfolio and the
Company has generally exercised its rights under these clauses.
Multi-Family Mortgage Lending. The Company originates multi-family
mortgage loans generally secured by five- to ten-unit apartment buildings
located in the Company's market area. In reaching its decision on whether to
make a multi-family loan, the Company considers the qualifications of the
borrower as well as the underlying property. Some of the factors considered
are: the net operating income of the mortgaged premises before debt service and
depreciation; the debt service ratio (the ratio of the property's net cash flow
to debt service requirements); and the ratio of loan amount to appraised value.
Pursuant to the Company's underwriting policies, a multi-family mortgage loan
may only be made in an amount up to the lesser of (i) 75% of the appraised
value of the underlying property or (ii) the Company's current loans-to-one
borrower limit; subsequent declines in the real estate values in the Company's
primary market area have resulted in an increase in the loan-to-value ratios on
certain multi-family mortgage loans. The Company's multi-family mortgage loans
are generally fixed-rate loans and may be made with terms up to fifteen years,
generally with a five-year balloon maturity and a fifteen-year amortization
schedule. Properties securing a loan are appraised by an independent appraiser
and title insurance is required on all loans. The Company's multi-family
mortgage loan portfolio at March 31, 1996 was approximately $3.3 million, or
6.3% of total gross loans outstanding. The Company's largest multi-family
mortgage loan at March 31, 1996 had an outstanding balance of $466,000 and is
secured by a ten-unit apartment building situated over three storefront
properties.
When evaluating the qualifications of the borrower for a multi-family
mortgage loan, the Company considers the financial resources and income level
of the borrower, the borrower's experience in owning or managing similar
properties, and the Company's lending experience with the borrower. The Company
requires that the borrower be able to demonstrate strong management skills and
the ability to maintain the property from current rental income. The borrower
should also present evidence of the ability to repay the mortgage and a history
of making mortgage payments on a timely basis. In making its assessment of the
creditworthiness of the borrower, the Company generally reviews the financial
statements, employment and credit history of the borrower, as well as other
related documentation.
Mortgage loans secured by apartment buildings and other multi-family
residential properties are generally larger and involve a greater degree of
risk than one- to four-family residential mortgage loans. Because payments on
loans secured by multi-family properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to circumstances outside the borrower's control,
including adverse conditions in the real estate market or the economy. The
Company seeks to minimize these risks through its underwriting policies, which
require such loans to be qualified at origination on the basis of the
property's income and debt service ratio.
6
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Commercial Real Estate Mortgage Lending. The Company originates
commercial real estate mortgage loans that are generally secured by a
combination of residential and retail facilities and, to a lesser extent,
properties used for business purposes, such as small office buildings, located
in the Company's market area. The Company's underwriting procedures provide
that commercial real estate loans may be made in amounts up to the lesser of
(i) 75% of the lesser of the appraised value or purchase price of the property
or (ii) the Company's current loans-to-one borrower limit. These loans are
generally fixed-rate loans and may be made with terms up to fifteen years,
generally with a five-year balloon maturity and a fifteen-year amortization
schedule. The Company's underwriting standards and procedures for these loans
are similar to those applicable to its multi-family mortgage loans, whereby the
Company considers factors such as the net operating income of the property and
the borrower's expertise, credit history and profitability. At March 31, 1996,
the Company's commercial real estate mortgage portfolio was $3.6 million, or
6.9% of total gross loans outstanding. The largest commercial real estate loan
in the Company's portfolio at March 31, 1996 was $352,000 and is secured by an
office and storage facility.
Mortgage loans secured by commercial real estate properties, like
multi-family mortgage loans, are generally larger and involve a greater degree
of risk than one- to four-family residential mortgage loans. This risk is
attributable to the uncertain realization of projected income-producing cash
flows which are affected by vacancy rates, the ability to maintain rent levels
against competitively-priced properties and the ability to collect rent from
tenants on a timely basis. Because payments on loans secured by commercial real
estate properties are often dependent on the successful operation or management
of the properties, repayment of such loans may be subject to a greater extent
to circumstances outside the borrower's control, including adverse conditions
in the real estate market or the economy. The Company seeks to minimize these
risks through its underwriting standards, which require such loans to be
qualified at origination on the basis of the property's income and debt service
ratio.
Construction Lending. The Company originates loans for the acquisition
and development of property to contractors and individuals in its market area.
The Company's construction loans primarily have been made to finance the
construction of one- to four-family, owner-occupied residential properties,
multi-family properties and other properties. These loans are all fixed-rate
loans with maturities of one year or less. The Company's policies provide that
construction loans may be made in amounts up to 80% of the appraised value of
the property for construction of one- to four-family residences and
multi-family properties, and up to 75% of the appraised value of other types of
properties. All construction loans are subject to the limitation on
loans-to-one borrower. The Company requires an independent appraisal of the
property. If the borrower is a corporation, the Company generally requires
personal guarantees and a permanent loan commitment from another lender if the
Company will not be making the permanent loan. Loan proceeds are disbursed in
increments, subject to inspection by Company inspectors as construction
progresses. Subject to the Company's limitation on loans-to-one borrower,
during favorable economic conditions, the Company will consider making up to
two residential construction loans to one borrower. If economic conditions are
not favorable, the Company will not make construction loans, unless there is a
confirmed permanent mortgage takeout or the Company has approved the borrower
for permanent financing. At March 31, 1996, the Company had $2.5 million (net
of undisbursed loan funds of $738,000) of construction loans which amounted to
4.7% of the Company's gross loans outstanding. The largest construction loan in
the Company's portfolio at March 31, 1996 was $500,000 and is secured by
single-family residential property.
Construction lending generally involves additional risks to the lender as
compared with residential permanent mortgage lending. These risks are
attributable to the fact that loan funds are advanced upon the security of the
project under construction, predicated on the present value of the property and
the anticipated future value of the property upon completion of construction or
development. Moreover, because of the uncertainties inherent in delays
resulting from labor problems, materials shortages, weather conditions and
other contingencies, it is relatively difficult to evaluate the total funds
required to complete a project and to establish the loan-to-value ratio. If the
Company's initial estimate of the property's value at completion is inaccurate,
the Company may be confronted with a project, when completed, having an
insufficient value to assure full repayment.
Commercial Business Lending. The Company also offers limited types of
short-term and medium-term commercial business loans on a secured and unsecured
basis to borrowers located in the Company's market area. These loans include
time and demand loans, term loans and lines of credit. At March 31, 1996, the
Company's commercial business loan portfolio amounted to $2.7 million, or 5.2%
of total gross loans outstanding. The largest commercial business loan
outstanding at March 31, 1996 was a $325,000 loan secured by marketable
securities.
7
<PAGE> 9
The Company's lines of credit are typically established for one year and
are subject to renewal upon satisfactory review of the borrower's financial
statements and credit history. Secured short-term commercial business loans are
usually collateralized by real estate and are generally guaranteed by a
principal of the borrower. Interest on these loans is usually payable monthly
at rates that fluctuate based on a spread above the prime rate. The Company
offers term loans with terms of up to ten years, although the majority of such
loans have terms of five years or less. Typically, term loans have floating
interest rates based on a spread above the prime rate. The Company also offers
business loans on a revolving basis, whereby the borrower pays interest only.
Interest on such loans fluctuates based on the prime rate. Normally these loans
require periodic interest payments during the loan term, with full repayment of
principal and interest at maturity.
Similar to construction loans and commercial mortgage loans, commercial
business loans generally carry greater credit risks than residential mortgage
loans because their repayment is more dependent on (i) the underlying financial
condition of the borrower and/or the value of any property or the cash flow
from any property securing the loan or the business being financed, and (ii)
general as well as local economic conditions.
Consumer Lending. The Company offers various types of secured and
unsecured consumer loans, including automobile loans, home improvement loans
and personal loans. The Company's consumer loans have original maturities of
not more than five years, with the exception that home improvement loans may
have original maturities of up to ten years. Interest rates charged on such
loans are set at competitive rates, taking into consideration the type and term
of the loan. Consumer loan applications are reviewed and approved in
conformance with standards approved by the Company's Board of Directors. At
March 31, 1996, the Company's consumer loan portfolio totaled $1.3 million, or
2.5% of the total gross loans outstanding.
Loan Approval Procedures and Authority. The Board of Directors
establishes the lending policies of the Company and reviews properties offered
as security. The Board of Directors has established the following lending
authority: the Vice President may approve mortgage loans in amounts up to
$200,000 and commercial business loans in amounts up to $75,000; the President
may approve mortgage loans up to $350,000 and commercial business loans up to
$150,000; commercial business loans in excess of $150,000 and up to $225,000
must be approved by both the President and Vice President or by the Board; and
mortgage loans above $350,000 and commercial business loans above $225,000
require Board approval. The foregoing lending limits are reviewed annually
and, as needed, revised by the Board of Directors.
For all loans originated by the Company, upon receipt of a completed loan
application from a prospective borrower, a credit report is ordered and certain
other information is verified by an independent credit agency, and, if
necessary, additional financial information is required to be submitted by the
borrower. An appraisal of any real estate intended to secure the proposed loan
is required, which appraisal currently is performed by an independent appraiser
designated and approved by the Company. The Board annually approves the
independent appraisers used by the Company and approves the Company's appraisal
policy. It is the Company's policy to require title and hazard insurance on all
real estate loans. In connection with a borrower's request for a renewal of a
multi-family or commercial mortgage loan with a five-year balloon maturity, the
Company evaluates both the borrower's ability to service the renewed loan
applying an interest rate that reflects prevailing market conditions, as well
as the value of the underlying collateral property. The evaluation of the
property typically involves a letter update of the existing appraisal unless in
the appraiser's opinion the original appraisal is no longer substantially
relevant, in which case a full appraisal is obtained.
ASSET QUALITY
Non-Performing Loans. Loans are considered non-performing if they are in
foreclosure or are 90 or more days delinquent. Management and the Board of
Directors perform a monthly review of all delinquent loans. The actions taken
by the Company with respect to delinquencies vary depending on the nature of
the loan and period of delinquency. The Company's policies generally provide
that delinquent mortgage loans be reviewed and that a written late charge
notice be mailed no later than the 15th day of delinquency. The Company's
policies provide that telephone contact be attempted to ascertain the reasons
for delinquency and the prospects of repayment. When contact is made with the
borrower at any time prior to foreclosure, the Company attempts to obtain full
payment or work out a repayment schedule with the borrower to avoid
foreclosure.
Non-performing loans amounted to $1.6 million (13 loans) at March 31,
1996, as compared to $2.6 million (23 loans) at March 31, 1995. The decline in
non-performing loans is a result of a combination of factors including
collections, charge-offs and the emergence of fewer new problem loans.
The following table sets forth delinquencies in the Company's loan
portfolio at the dates indicated:
8
<PAGE> 10
<TABLE>
<CAPTION>
MARCH 31, 1996 MARCH 31, 1995
---------------------------------------------- -----------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
-------------------- ---------------------- ------------------------ -----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE OF LOANS BALANCE
--------- ---------- --------- ---------- --------- ---------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family 2 $ 286 8 $ 1,198 5 $ 605 9 $ 1,408
Multi-family 1 266 -- -- -- -- 4 761
Commercial 1 144 2 392 -- -- 2 331
Commercial business loans -- -- 1 40 3 34 6 113
Consumer loans 1 4 2 2 2 5 2 31
------- -------- ------- --------- ------- --------- ------- -----------
Total 5 $ 700 13 $ 1,632 10 $ 644 23 $ 2,644
======= ======== ======= ========= ======= ========= ======= ===========
Delinquent loans to
total loans 0.71 1.35% 1.84% 3.15% 1.40% 1.27% 3.21% 5.20%
======= ======== ======= ========= ======= ========= ======= ===========
</TABLE>
It is the Company's general policy to stop the accrual of interest on all
loans 90 days or more past due. Certain loans 90 days or more past due may
continue to accrue interest based on management's evaluation of the loan, and
the underlying collateral and the credit worthiness of the borrower.
When a loan is placed on non-accrual status, unpaid interest is reversed
against interest income of the current period. Thereafter, interest payments
received on non-accrual loans are recognized as income unless future
collections are doubtful, in which case the payments received are applied as a
reduction of principal. A loan remains on non-accrual status until the factors
that indicated doubtful collectibility no longer exist or until a loan is
determined to be uncollectible and is charged-off against the allowance for
loan losses.
The classification of a loan as non-performing does not necessarily
indicate that loan principal or interest will not be collected. Historical
experience indicates that a portion of non-performing assets will eventually be
recovered. When all collection efforts have been exhausted, and management
determines that the borrower is unable to repay its obligation, the Company
will commence foreclosure procedures.
Real Estate Owned. Property acquired by the Company as a result of
foreclosure on a mortgage loan is classified as real estate owned ("REO") and
is recorded at the lower of the recorded investment in the related loan or the
fair value of the property at the date of acquisition, with any resulting
writedown charged to the allowance for loan losses. Thereafter, an allowance
for losses on real estate owned is established if the cost of a property
exceeds its current fair value less estimated sales costs. The Company obtains
an appraisal on a real estate owned property as soon as practicable after it
takes possession of the real property. The Company will generally reassess the
value of real estate owned at least annually thereafter. At March 31, 1996,
REO amounted to $402,000 and related to two single-family residences.
See page 11 of the 1996 Annual Report to Shareholders (the "1996 Annual
Report") herein incorporated by reference, for further information regarding
non-accrual loans, other past due loans and real estate owned.
Classified Assets. Federal regulations require that the Company utilize
an internal asset classification system as a means of reporting problem and
potential problem assets. The Company has incorporated the OTS internal asset
classifications as a part of its credit monitoring system. The Company
currently classifies problem and potential problem assets as "Substandard,"
"Doubtful" or "Loss" assets. An asset is considered "Substandard" if it is
inadequately protected by the current equity and paying capacity of the obligor
or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the insured institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"Doubtful" have all of the weaknesses inherent in those classified
"Substandard" with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "Loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss
reserve is not warranted. Assets which do not currently expose the insured
institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"Special Mention."
9
<PAGE> 11
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances, which is a regulatory term, represent loss
allowances which have been established to recognize the inherent risk
associated with lending activities, but which, unlike specific allowances, have
not been allocated to particular problem assets. When an insured institution
classifies one or more assets, or portions thereof, as "Loss," it is required
either to establish a specific allowance for losses equal to 100% of the amount
of the asset so classified or to charge-off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
OTS which can order the establishment of additional general or specific loss
allowances. The OTS, in conjunction with the other federal banking agencies,
has adopted an interagency policy statement on the allowance for loan and lease
losses. The policy statement provides guidance for financial institutions on
both the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectability of the
portfolio in a reasonable manner; and that management has established
acceptable allowance evaluation processes that meet the objectives set forth
in the policy statement. Although management believes that adequate specific
and general loan loss allowances have been established, actual losses are
dependent upon future events and, as such, further additions to the level of
specific and general loan loss allowances may become necessary.
The Company's Internal Auditor reviews and classifies the Company's
assets monthly and reports the results to the Examining and Audit Committee of
the Board of Directors on a monthly basis. The Examining and Audit Committee
then reviews the report of the Internal Auditor and reports the results of its
review to the Board of Directors. Assets are classified in accordance with the
management guidelines described above. REO is classified as Substandard. At
March 31, 1996, the Company had $2.0 million of assets classified as
Substandard (loans of $1.6 million and REO of $402,000) and no assets
classified as Special Mention, Doubtful or Loss. As of March 31, 1996, loans
classified as Substandard included seven loans totaling $1.0 million secured by
one- to four-family, owner-occupied residences. These loans are classified as
Substandard due to delinquencies or other identifiable weaknesses.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the Company's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover loan losses which are deemed probable and estimable. The
allowance is based upon a number of factors, including asset classifications,
economic trends, industry experience and trends, industry and geographic
concentrations, estimated collateral values, management's assessment of the
credit risk inherent in the portfolio, historical loan loss experience, and the
Company's underwriting policies. At March 31, 1996, the Company's allowance
for loan losses was $654,000, or 1.26% of total loans and 40.07% of
non-performing loans, as compared to $650,000, or 1.28% of total loans and
24.58% of non-performing loans, at March 31, 1995. The Company will continue
to monitor and modify its allowance for loan losses as conditions dictate.
Various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. These agencies
may require the Company to establish additional allowances, based on their
judgements of the information available at the time of the examination.
The Company's REO is initially recorded at the lower of the recorded
investment in the loan or the fair value of the related assets at the date of
foreclosure, less costs to sell. Thereafter, if there is a further
deterioration in value, the Company provides an REO valuation allowance and
charges operations for the diminution in value. It is the policy of the Company
to obtain an appraisal on all real estate acquired through foreclosure as soon
as practicable after it takes possession of the property. The Company generally
reassesses the value of real estate owned at least annually thereafter. It is
the policy of the Company to charge-off consumer loans when management
determines that such loans are no longer collectible.
See page 12 of the 1996 Annual Report herein incorporated by reference,
for the activity in the Company's allowance for loan losses and allowance for
losses on real estate owned.
10
<PAGE> 12
The following table sets forth the Company's allowance for loan losses
allocated by loan category, the percent of the allocated allowances to the
total allowance, and the percent of loans in each category to total loans at
the dates indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------------------------
1996 1995
--------------------------------------------- ------------------------------------------
PERCENT OF PERCENT OF
PERCENT OF LOANS IN PERCENT OF LOANS IN
ALLOWANCE EACH ALLOWANCE EACH
ALLOWANCE TO TOTAL CATEGORY TO ALLOWANCE TO TOTAL CATEGORY TO
AMOUNT ALLOWANCE TOTAL LOANS AMOUNT ALLOWANCE TOTAL LOANS
---------- ----------- ------------- ---------- ------------ --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $184 28 % 75 % $204 31 % 76 %
Multi- family 13 2 6 68 11 7
Commercial 56 9 7 66 10 8
Construction 32 5 5 19 3 2
Commercial business loans 29 4 5 24 4 5
Consumer loans 15 2 2 15 2 2
Unallocated 325 50 0 254 39 0
------- ---- ---- ------ ---- ----
Total $654 100 % 100 % $650 100 % 100 %
======= ==== ==== ====== ==== ====
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
---------------------------------------------------------------------------------------------
1994 1993
------------------------------------------- ---------------------------------------------
Percent of Percent of
Percent of Loans in Percent of Loans in
Allowance Each Allowance Each
Allowance to Total Category to Allowance to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
----------- ----------- ----------- ---------- ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One-to four-family $128 24 % 79 % $112 23 % 76 %
Multi- family 12 2 6 27 6 6
Commercial 32 6 6 30 6 6
Construction 173 32 2 85 18 3
Commercial business loans 24 4 5 54 11 6
Consumer loans 14 3 2 16 3 3
Unallocated 157 29 0 158 33 0
------ ---- ---- ------- ---- ----
Total $540 100 % 100 % $482 100 % 100 %
====== ==== ==== ======= ==== ====
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
---------------------------------------------
1992
---------------------------------------------
PERCENT OF
PERCENT OF LOANS IN
ALLOWANCE EACH
ALLOWANCE TO TOTAL CATEGORY TO
AMOUNT ALLOWANCE TOTAL LOANS
---------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Mortgage loans:
One-to four-family $83 28 % 76 %
Multi- family 10 3 6
Commercial 30 10 6
Construction 107 35 3
Commercial business loans 57 19 6
Consumer loans 16 5 3
Unallocated 0 0 0
------- ----- -----
Total $303 100 % 100 %
======= ===== =====
</TABLE>
11
<PAGE> 13
INVESTMENT ACTIVITIES
Investment Policies. The investment policy of the Company, which is
established by the Board of Directors, is based upon its asset/liability
management goals and emphasizes high credit quality and diversified investments
while seeking to optimize net interest income within acceptable limits of
safety and liquidity. The investment policy is designed to provide and maintain
liquidity to meet day-to-day, cyclical and long-term changes in the Company's
asset/liability structure. The Company's investment goal has been to invest
available funds in highly liquid instruments that have adjustable and fixed
rates and that generally at the time of purchase, do not exceed an average life
of eight years with respect to collateralized mortgage obligations ("CMOs") and
eleven years with respect to other mortgage-backed securities, or that meet
specific requirements of the Company's asset/liability goals. A CMO is a
special type of debt security in which the stream of principal and interest
payments on the underlying mortgages or mortgage-backed securities is used to
create classes with different maturities and, in some cases, amortization
schedules as well as a residual interest, with each class possessing different
risk characteristics. At March 31, 1996, the Company's securities portfolio
amounted to $51.2 million (amortized cost) with an estimated weighted average
remaining life of 5.6 years.
The Company's investment policy permits it to invest in U.S. government
obligations; certain securities of various government-sponsored agencies,
including mortgage-backed securities issued/guaranteed by FNMA, FHLMC and the
Government National Mortgage Association ("GNMA"); certificates of deposit of
insured banks and savings associations; federal funds; and investment grade
corporate debt securities and commercial paper.
The Company's investment policy prohibits investment in certain types of
mortgage derivative securities that management considers to be high risk. The
Company generally purchases only short-and medium-term classes of CMOs
guaranteed by the FNMA or FHLMC. A substantial portion of the Company's CMOs
have consisted of real estate mortgage investment conduits ("REMICs").
Thrift Bulletin Number 52, the OTS Policy Statement on securities
portfolio policies and unsuitable investment practices ("TB-52"), requires that
institutions classify mortgage derivative products acquired, including certain
tranches of CMOs, as "high-risk mortgage securities" if such products exhibit
greater price volatility than a benchmark fixed-rate 30-year mortgage-backed
pass-through security. Institutions may only hold high-risk mortgage securities
to reduce interest-rate risk in accordance with safe and sound practices and
must also follow certain prudent safeguards in the purchase and retention of
such securities. At March 31, 1996, the Company did not have any CMOs that were
identified as "high-risk mortgage securities." The Company has never invested
in CMO residual interests or in CMO tranches that met the definition of a
high-risk mortgage security at the time of investment.
Mortgage-Backed Securities. The Company invests in mortgage-backed
securities and uses such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage loan demand.
At March 31, 1996, the carrying value of mortgage-backed securities totaled
$31.4 million, or 27.4% of total assets. The fair value of all mortgage-backed
securities totaled $31.5 million at March 31, 1996. Mortgage-backed securities
in the Company's available-for-sale portfolio are carried at fair value.
Mortgage-backed securities in the Company's held-to-maturity portfolio are
carried at amortized cost. The mortgage-backed securities portfolio includes
CMOs with a net carrying value at March 31, 1996 of $18.7 million.
At March 31, 1996, all securities in the Company's mortgage-backed
securities portfolio were directly insured or guaranteed by GNMA, FNMA or
FHLMC, thereby providing the certificate holder a guarantee of timely payments
of interest and scheduled principal payments, whether or not they have been
collected. The Company's mortgage-backed securities portfolio had a weighted
average yield of 7.06% at March 31, 1996.
Mortgage-backed securities generally yield less than the loans that
underlie such securities because of the cost of payment guarantees or credit
enhancements that reduce credit risk. In addition, mortgage-backed securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings of the Company. In general, under OTS regulations mortgage-backed
securities issued or guaranteed by GNMA, FNMA and FHLMC and certain AAA-rated
mortgage-backed pass-through securities are weighted at no more than 20% for
risk-based capital purposes, compared to the 50% risk weighting assigned to
most non-securitized residential mortgage loans. See "Regulation--Regulation
of Federal Savings Association--Capital Requirements."
12
<PAGE> 14
While mortgage-backed securities carry a reduced credit risk as compared
to whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities. In contrast to mortgage-backed pass-through securities in which
cash flow is received (and, hence, prepayment risk is shared) pro rata by all
securities holders, the cash flows from the mortgages or mortgage-backed
securities underlying CMOs are segmented and paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranche of a CMO may therefore carry prepayment
risk that differs from that of both the underlying collateral and other
tranches. It is the Company's strategy to purchase tranches of CMOs that are
categorized as "planned amortization classes," "targeted amortization classes"
or "very accurately defined maturities" and are intended to produce stable cash
flows in different interest rate environments.
The following table sets forth activity in the Company's mortgage-backed
securities portfolio for the periods indicated.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
----------------------------------------------------------
1996 1995 1994
-------------- ------------------ ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Amortized cost at beginning of year $ 23,935 $ 21,157 $ 21,915
Purchases 14,137 5,510 6,960
Sales of available-for-sale securities (3,709) -- --
Principal repayments (2,812) (2,733) (7,744)
Premium and discount amortization, net 8 1 26
-------------- ----------------- ---------------
Amortized cost at end of year $ 31,559 $ 23,935 $ 21,157
============== ================= ===============
</TABLE>
At March 31, 1996, the Company held no securities issued by any one entity
with a total carrying value in excess of 10% of the Company's equity at that
date, except for obligations of the U.S. government and government-sponsored
agencies and certain mortgage-backed securities which are fully collateralized
by mortgages held by single-purpose entities and guaranteed by
government-sponsored agencies.
The following table sets forth the amortized cost and fair value of the
Company's securities, by accounting classification category and by type of
security, at the dates indicated:
13
<PAGE> 15
<TABLE>
<CAPTION>
AT MARCH 31,
----------------------------------------------------------------------------------------------------
1996 1995 1994
----------------------------- ----------------------------- --------------------------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE COST VALUE
---------- ----------- --------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HELD -TO-MATURITY/ HELD FOR
INVESTMENT(1)
Mortgage-backed securities:
CMOs $ 1,108 $ 1,113 $ 6,177 $ 5,968 $14,873 $14,669
Pass-through securities 5,129 5,249 7,688 7,648 6,284 6,345
---------- ----------- --------- ---------- ---------- ----------
6,237 6,362 13,865 13,616 21,157 21,014
Other debt securities:
Agency and other 3,199 3,234 3,199 3,031 8,427 8,260
Equity securities(2) -- -- -- -- 1,210 1,210
---------- ----------- --------- ---------- ---------- ----------
Total 9,436 9,596 17,064 16,647 30,794 30,484
---------- ----------- --------- ---------- ---------- ----------
AVAILABLE-FOR-SALE (1)
Mortgage-backed securities:
CMOs 17,651 17,555 7,773 7,487 -- --
Pass-through securities 7,671 7,622 2,297 2,307 -- --
---------- ----------- --------- ---------- ---------- ----------
25,322 25,177 10,070 9,794 -- --
Other debt securities:
U.S. Treasury 6,490 6,493 1,008 983 -- --
Agency and other 8,616 8,530 2,610 2,517 -- --
15,106 15,023 3,618 3,500 -- --
Equity securities 1,344 1,344 23 23 -- --
Net unrealized loss (228) -- (394) -- -- --
---------- ----------- --------- ---------- ---------- ----------
Total 41,544 41,544 13,317 13,317 -- --
---------- ----------- --------- ---------- ---------- ----------
Total securities, net $50,980 $51,140 $30,381 $29,964 $30,794 $30,484
========== =========== ========= ========== ========== ==========
</TABLE>
(1) In fiscal 1995, the Company adopted SFAS No. 115 and classified its
securities as held-to-maturity and available-for-sale. In fiscal 1994,
the Company classified all securities as held-for-investment.
(2) In accordance with SFAS No. 12, prior to the adoption of SFAS No. 115,
equity securities are net of an allowance for unrealized loss of $12,000
at March 31, 1994.
The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of the Company's debt securities at
March 31, 1996, by remaining period to contractual maturity. With respect to
mortgage-backed securities, the entire amount is reflected in the maturity
period that includes the final security payment date and, accordingly, no
effect has been given to periodic repayments or possible prepayments.
14
<PAGE> 16
<TABLE>
<CAPTION>
AT MARCH 31, 1996
-------------------------------------------------------------------------------------------
HELD-TO-MATURITY AVAILABLE-FOR-SALE
--------------------------------------------- -------------------------------------------
WEIGHTED WEIGHTED
AMORTIZED FAIR AVERAGE AMORTIZED FAIR AVERAGE
COST VALUE YIELD COST VALUE YIELD
------------ ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities due:
In one year or less $ 342 $ 341 8.50% $ -- $ -- %
After one year through five years 873 864 9.71 1,873 1,872 6.57
After five years through ten years 958 980 7.95 2,282 2,354 7.79
After 10 years 4,064 4,177 7.95 21,167 20,951 6.68
---------- ---------- --------- -----------
Total $ 6,237 $ 6,362 8.23% $ 25,322 $ 25,177 6.77%
========== ========== ========= ===========
Other debt securities due:
In one year or less $ -- $ -- -- % $ 5,486 $ 5,486 5.28%
After one year through five years 250 252 7.23 4,504 4,459 5.76
After five years through ten years 2,600 2,625 7.17 5,071 5,026 6.46
After 10 years 349 357 6.38 45 52 5.50
---------- ---------- --------- -----------
Total $ 3,199 $ 3,234 7.09% $ 15,106 $ 15,023 5.82%
========== ========== ========= ===========
Total debt securities due:
In one year or less $ 342 $ 341 8.50% $ 5,486 $ 5,486 5.28%
After one year through five years 1,123 1,116 9.16 6,377 6,331 6.00
After five years through ten years 3,558 3,605 7.38 7,353 7,380 6.87
After 10 years 4,413 4,534 7.83 21,212 21,003 6.68
---------- ---------- --------- -----------
Total $ 9,436 $ 9,596 7.84% $ 40,428 $ 40,200 6.42%
========== ========== ========= ===========
</TABLE>
SOURCES OF FUNDS
General. Deposits, loan and security repayments and prepayments, proceeds
from sales of securities and cash flows generated from operations are the
primary sources of the Company's funds for use in lending, investing and for
other general purposes.
Deposits. The Company offers a variety of deposit accounts with a range
of interest rates and terms. The Company's deposits consist of regular
(passbook) savings accounts, statement savings accounts, checking accounts,
money market accounts and certificates of deposit. In recent years, the Company
has offered certificates of deposit with maturities of up to 30 months. At
March 31, 1996, the Company's core deposits (which the Company considers to
consist of checking accounts, NOW accounts, money market accounts, regular
savings accounts and statement savings accounts) constituted 41.8% of total
deposits. The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Company's deposits are obtained predominantly from the areas
nearby its office location. The Company relies primarily on customer service
and long-standing relationships with customers to attract and retain these
deposits; however, market interest rates and rates offered by competing
financial institutions significantly affect the Company's ability to attract
and retain deposits. Certificate accounts in excess of $100,000 are not
actively solicited by the Company nor does the Company use brokers to obtain
deposits.
The following table presents the deposit activity of the Company for the
periods indicated.
15
<PAGE> 17
<TABLE>
<CAPTION>
FOR THE YEAR ENDED MARCH 31,
-----------------------------------------
1996 1995 1994
---------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deposits $ 147,679 $ 107,186 $ 97,669
Withdrawals 143,571 105,777 99,948
---------- ----------- ------------
Net cash inflow (outflow) 4,108 1,409 (2,279)
Interest credited 3,987 2,894 2,747
---------- ----------- ------------
Net increase in deposits $ 8,095 $ 4,303 $ 468
========== =========== ============
</TABLE>
At March 31, 1996, the Company had $7.6 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
AMOUNT AVERAGE RATE
------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Within three months $ 1,650 6.03 %
After three but within six months 1,953 5.48
After six but within 12 months 2,568 5.65
After 12 months 1,469 6.15
--------
Total $ 7,640 5.78 %
========
</TABLE>
The following table sets forth the distribution of the Company's deposit
accounts and the related weighted average interest rates at the dates
indicated.
<TABLE>
<CAPTION>
AT MARCH 31,
-----------------------------------------------------------------------------
1996 1995
-------------------------------------- ------------------------------------
PERCENT WEIGHTED PERCENT WEIGHTED
OF TOTAL AVERAGE OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE AMOUNT DEPOSITS RATE
---------- ----------- ----------- --------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Checking $ 2,001 2.23 % $ 1,554 1.90 %
NOW 4,164 4.63 2.00 % 4,423 5.41 2.00 %
Money market 3,484 3.88 2.75 3,865 4.72 3.00
Regular savings 16,402 18.24 3.10 17,940 21.93 3.25
Statement savings 11,563 12.86 3.20 11,070 13.53 3.88
Certificate accounts:
Less than one year to maturity 40,448 44.99 5.68 34,753 42.48 5.33
One to three years to maturity 11,846 13.17 6.33 8,208 10.03 6.01
-------- ------ ------ ------- ------ -----
Total certificate accounts 52,294 58.16 5.83 42,961 52.51 5.46
-------- ------ ------ ------- ------ -----
Total $89,908 100.00 % 4.57 % $81,813 100.00 % 4.35 %
======== ====== ====== ======= ====== =====
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31,
----------------------------------
1994
----------------------------------
PERCENT WEIGHTED
OF TOTAL AVERAGE
AMOUNT DEPOSITS RATE
--------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Checking $1,659 2.14 %
NOW 4,221 5.45 1.90 %
Money market 4,524 5.84 2.25
Regular savings 23,497 30.31 2.80
Statement savings 9,815 12.66 3.25
Certificate accounts:
Less than one year to maturity 24,106 31.10 3.83
One to three years to maturity 9,688 12.50 4.85
-------- ------- ------
Total certificate accounts 33,794 43.60 4.12
-------- ------- ------
Total $77,510 100.00 % 3.30 %
======== ======= ======
</TABLE>
Borrowings. The Company historically has not used borrowings as a source
of funds. However, the Company may obtain advances from the Federal Home Loan
Bank ("FHLB") of New York as an alternative to retail deposit funds and may do
so in the future as part of its operating strategy. FHLB advances may also be
used to acquire certain other assets as may be deemed appropriate for
investment purposes. These advances would be collateralized primarily by
certain of the Company's mortgage loans and mortgage-backed securities and
secondarily by the Company's investment in capital stock of the FHLB. Such
advances may be made pursuant to several different credit programs, each of
which has its own interest rate and range of maturities. The maximum amount
that the FHLB will advance to member institutions, including the Bank,
fluctuates from time to time in accordance with the policies of the OTS and the
FHLB. As of March 31, 1996, the maximum amount of FHLB advances available to
the Company was $11.2 million, based on the Bank's current investment in FHLB
stock; the Company's total FHLB borrowing capacity (including advances), based
on 25% of the Bank's assets, was $27.3 million.
SUBSIDIARY ACTIVITIES
The sole subsidiary of the Registrant is the Bank. The Bank does not have
any subsidiaries.
16
<PAGE> 18
PERSONNEL
As of March 31, 1996, the Company had 12 full-time employees and one
part-time employee. The Company has experienced a very low turnover rate among
its employees and, as of March 31, 1996, 11 of the Company's employees have
been with the Company for more than five years. The employees are not
represented by a collective bargaining unit and the Company considers its
relationship with its employees to be good.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Registrant and the Bank will report their income for tax
return purposes on a calendar year basis using the accrual method of accounting
and will be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly the Bank's tax
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Registrant. The Bank
was last audited by the IRS for its taxable year ended December 31, 1991.
Tax Bad Debt Reserves. Savings institutions such as the Bank which meet
certain definitional tests primarily relating to their assets and the nature of
their business ("qualifying thrifts") are permitted to establish a tax reserve
for bad debts and to make annual additions thereto, which additions may, within
specified formula limits, be deducted in arriving at their taxable income. The
Bank's deduction with respect to "qualifying loans," which are generally loans
secured by certain interests in real property, may be computed using an amount
based on the Bank's actual loss experience ("Experience Method"), or a
percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed with certain modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. Use of the PTI Method has the effect of
reducing the marginal rate of federal tax on the Bank's income to 31.3%,
exclusive of any minimum or environmental tax, as compared to the generally
applicable maximum corporate federal income tax rate of 34%. The Bank's
deduction with respect to non-qualifying loans must be computed under the
experience method which is based on the Bank's actual charge-offs. Each year
the Bank reviews the most favorable way to calculate the deduction attributable
to an addition to the tax bad debt reserve.
The Bank presently satisfies the qualifying thrift definitional tests. If
the Bank failed to satisfy such tests in any taxable year, it would be unable
to use the PTI Method in computing additions to its tax bad debt reserve and
may be required to recapture (i.e., take into income) a portion of its bad debt
reserves over a multi-year period. (If the Bank were a "large bank,"(total
assets greater than $500 million) which it now is not, at the time it failed to
satisfy such tests, it would be unable to make additions to its tax bad debt
reserve. Instead, the Bank would be required to deduct bad debts as they occur
and would additionally be required to recapture its cumulative bad debt
reserves ratably over a multi-year period.) Among other things, the qualifying
thrift definitional tests require the Bank to hold at least 60% of its assets
as "qualifying assets." Qualifying assets generally include cash, obligations
of the United States or any agency or instrumentality thereof, certain
obligations of a state or political subdivision thereof, loans secured by
interests in improved residential real property or by savings accounts, student
loans and property used by the Bank in the conduct of its banking business. The
Bank's ratio of qualifying assets to total assets exceeded 60% through March
31, 1996. Although there can be no assurance that the Bank will satisfy the 60%
test in the future, management believes that this level of qualifying assets
can be maintained by the Bank.
The amount of the addition to the reserve for losses on qualifying real
property loans under the PTI Method cannot exceed the amount necessary to
increase the balance of the reserve for losses on qualifying real property
loans at the close of the taxable year to 6 percent of the balance of the
qualifying real property loans outstanding at the end of the taxable year. As
of March 31, 1996, the Bank's tax reserve for bad debts on qualifying real
property loans was less than 6 percent of its qualifying real property loans
outstanding. Also, if the Bank uses the PTI Method, its aggregate addition to
its reserve for losses on qualifying real property loans cannot, when added to
the addition to the reserve for losses on non-qualifying loans, exceed the
amount by which: (i) 12 percent of the amount that the total deposits or
withdrawable accounts of depositors of the Bank at the close of the taxable
year exceeds (ii) the sum of the Bank's surplus, undivided profits and reserves
at the beginning of such year. As of March 31, 1996, 12 percent of the Bank's
deposits and withdrawable accounts, less its surplus, undivided profits and
reserves, exceeded the balance of its reserve for losses on qualifying real
property loans.
17
<PAGE> 19
Under pending legislative proposals (which are subject to change), the PTI
Method would be repealed and the Bank would be permitted to use only the
Experience Method of computing additions to its bad debt reserve. In addition,
the Bank would be required to recapture (i.e., take into income) over a
six-year period, beginning with the Bank's taxable year beginning January 1,
1996, the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the greater of (a) the
balance of such reserve as of December 31, 1987 (or a lesser amount if the
Bank's loan portfolio has decreased since December 31, 1987) or (b) an amount
that would have been the balance of such reserves as of December 31, 1995 had
the Bank always computed the additions to its reserves using the experience
method. At December 31, 1995 and 1987, the Bank's bad debt reserves for
federal tax purposes were approximately $1.5 million. However, under the
proposed legislation, such recapture requirements would be suspended for each
of two successive taxable years beginning January 1, 1996 in which the Bank
originates a minimum amount of certain residential loans based upon the average
of the principal amounts of such loans made by the Bank during its six taxable
years preceding January 1, 1996. See page 13 of the 1996 Annual Report herein
incorporated by reference for a further discussion of the legislative
proposals.
Distributions. To the extent that: (i) the Bank's tax bad debt reserve
for losses on qualifying real property loans exceeds the amount that would have
been allowed under the experience method (the "Excess Bad Debt Reserve"); and
(ii) the Bank makes "non-dividend distributions" to the Company that are
considered to have been made from the Excess Bad Debt Reserve or the
supplemental reserve for losses on loans ("Excess Distributions"), then an
amount based on the amount distributed will be included in the Bank's taxable
income. Non-dividend distributions include distributions in excess of the
Bank's current and accumulated earnings and profits, as calculated for federal
income tax purposes, distributions in redemption of stock, and distributions in
partial or complete liquidation. However, dividends paid out of the Bank's
current or accumulated earnings and profits will not be considered to result in
a distribution from the Bank's bad debt reserves.
The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the Excess Distribution. Thus, if the Bank
makes a "non-dividend distribution" that is an Excess Distribution,
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, assuming a 34% federal corporate
income tax rate. See "Regulation of Federal Savings Association--Limitations of
Capital Distributions" for limits on the payment of dividends by the Bank. The
Bank does not intend to pay dividends that would result in a recapture of any
portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The Internal Revenue Code (the "Code")
imposes a tax ("AMT") on alternative minimum taxable income ("AMTI") at a rate
of 20%. AMTI is increased by certain preference items, including the excess of
the tax bad debt reserve deduction using the PTI Method over the deduction that
would have been allowable under the experience method. Only 90% of AMTI can be
offset by net operating loss carryovers of which the Company currently has
none. AMTI is also adjusted by determining the tax treatment of certain items
in a manner that negates the deferral of income resulting from the regular tax
treatment of those items. Thus, the Company's AMTI is increased by an amount
equal to 75% of the amount by which the Company's adjusted current earnings
exceeds its AMTI (determined without regard to this adjustment and prior to
reduction for net operating losses). In addition, for taxable years beginning
after December 31, 1986 and before January 1, 1996, an environmental tax of
0.12% of the excess of AMTI (with certain modifications) over $2 million is
imposed on corporations, including the Company, whether or not an AMT is paid.
The Company does not expect to be subject to the AMT, but may be subject to the
environmental tax liability. Under pending legislative proposals, the AMT would
be extended to taxable years beginning before January, 2007.
Dividends Received Deduction and Other Matters. In any taxable period for
which the Registrant owns more than 80% of the Bank's voting stock, the
Registrant may exclude from its income 100% of dividends received from the Bank
as a member of the same affiliated group of corporations. The corporate
dividends received deduction is generally 70% in the case of dividends received
from unaffiliated corporations with which the Registrant and the Bank will not
file a consolidated tax return, except that if the Registrant and the Bank own
more than 20% of the stock of a corporation distributing a dividend then 80% of
any dividends received may be deducted. Under pending legislative proposals,
the 70% dividends received deduction would be reduced to 50%.
STATE AND LOCAL TAXATION
State of New York. The Bank and the Registrant are subject to New York
State franchise tax on net income or one of several alternative bases,
whichever results in the highest tax. "Net income" means federal taxable income
with adjustments. The New York State tax rate for the 1996 and 1995 calendar
years was 10.755% and 11.205%, respectively (including commuter transportation
and other surcharges). In general, the Registrant will not be required to pay
New York State tax on dividends and interest received from the Bank or on gains
realized on the sale of Bank stock.
18
<PAGE> 20
For New York State tax purposes, the Bank is permitted deductions for
additions to its bad debt reserves under procedures similar to those that apply
for federal income tax purposes, except that the effective allowable percentage
under the PTI method is 32% rather than 8%. If the PTI method is repealed (see
"Federal Taxation--Tax Bad Debt Reserves"), the Bank may be required for New
York State tax purposes to include in its entire net income, for the last
taxable year the PTI method applied, the excess of the New York State reserves
for losses on qualifying real property loans over its reserves for losses on
such loans maintained for federal tax purposes (the "Excess Reserves"). The
Bank has established a deferred tax liability of approximately $161,000 with
respect to its Excess Reserves which approximate $2.2 million at March 31,
1996.
Delaware Taxation. As a Delaware holding company not earning income in
Delaware, the Registrant 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.
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination, and supervision
by the OTS, as its chartering agency, and the FDIC, as its deposit insurer. The
Bank's deposit accounts are insured up to applicable limits by the SAIF by the
FDIC, and it is a member of FHLB of New York. The Bank must file reports with
the OTS and the FDIC concerning its activities and financial condition, and it
must obtain regulatory approvals prior to entering into certain transactions,
such as mergers with, or acquisitions of, other depository institutions. The
OTS and the FDIC conduct periodic examinations to assess the Bank's compliance
with various regulatory requirements. This regulation and supervision
establishes a comprehensive framework of activities in which a savings
association can engage and is intended primarily for the protection of the
insurance fund and depositors. The Registrant, as a savings association
holding company, is also required to file certain reports with, and otherwise
comply with, the rules and regulations of the OTS and of the Securities and
Exchange Commission (the "SEC") under the federal securities laws.
The OTS and the FDIC have significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Registrant, the Bank, and the operations of both.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations, and it does not
purport to be a comprehensive description of all such statutes and regulations.
REGULATION OF FEDERAL SAVINGS ASSOCIATION
Business Activities. The Bank derives its lending and investment powers
from the Home Owner's Loan Act, as amended ("HOLA") and the regulations of the
OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial
and consumer loans, certain types of debt securities, and certain other assets.
The Bank may also establish service corporations that may engage in activities
not otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 400% of an association's capital on
the aggregate amount of loans secured by nonresidential real estate property;
(c) a limit of 10% of an association's assets on commercial loans; (d) a limit
of 35% of an association's assets on the aggregate amount of consumer loans and
acquisitions of certain debt securities; (e) a limit of 5% of assets on
non-conforming loans (loans in excess of the specific limitations of HOLA); and
(f) a limit of the greater of 5% of assets or an association's capital on
certain construction loans made for the purpose of financing what is or is
expected to become residential property.
Loans to One Borrower. Under HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
the association's unimpaired capital and surplus. An additional amount may be
lent, equal to 10% of unimpaired capital and surplus, if such loan or extension
of credit is fully secured by readily-marketable collateral. Such collateral is
defined to include certain debt and equity securities and bullion, but
generally does not include real estate. At March 31, 1996, the Bank's limit on
loans to one borrower was $2.4 million. At March 31, 1996, the Bank's largest
aggregate amount of loans to one borrower was $642,000 and the second largest
borrower had an aggregate balance of $640,000.
19
<PAGE> 21
QTL Test. HOLA requires a savings association to meet a QTL test. Under
the QTL test, a savings association is required to maintain at least 65% of its
"portfolio assets" in certain "qualified thrift investments" in at least 9
months of the most recent 12-month period. "Portfolio assets" means, in
general, an association's total assets less the sum of (a) specified liquid
assets up to 20% of total assets, (b) certain intangibles, including goodwill
and credit card and purchased mortgage servicing rights, and (c) the value of
property used to conduct the association's business. "Qualified thrift
investments" includes various types of loans made for residential and housing
purposes, investments related to such purposes, including certain
mortgage-backed and related securities, and consumer loans up to 10% of the
association's portfolio assets. At March 31, 1996, the Bank maintained 80.4% of
its portfolio assets in qualified thrift investments. The Bank had also met the
QTL test in each of the prior 12 months and, therefore, was a qualified thrift
lender.
A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (a) engaging in any new
activity not permissible for a national bank, (b) paying dividends not
permissible under national bank regulations, (c) obtaining new advances from
any FHLB, and (d) establishing any new branch office in a location not
permissible for a national bank in the association's home state. In addition,
within one year of the date a savings association ceases to meet the QTL test,
any company controlling the association would have to register under, and
become subject to the requirements of the Bank Holding Company Act of 1956, as
amended. If the savings association does not requalify under the QTL test
within the three-year period after it failed the QTL test, it would be required
to terminate any activity and to dispose of any investment not permissible for
a national bank and would have to repay as promptly as possible any outstanding
advances from an FHLB. A savings association that has failed the QTL test may
requalify under the QTL test and be free of such limitations, but it may do so
only once.
Capital Requirements. The OTS regulations require savings associations to
meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets, and a
risk-based capital ratio requirement of 8% of core and supplementary capital to
total risk-based assets. In determining the amount of risk-weighted assets for
purposes of the risk-based capital requirement, a savings association must
compute its risk-based assets by multiplying its assets and certain off-balance
sheet items by risk-weights, which range from 0% for cash and obligations
issued by the United States Government or its agencies to 100% for consumer and
commercial loans, as assigned by the OTS capital regulation based on the risks
OTS believes are inherent in the type of asset.
Tangible capital is defined, generally, as common stockholder's equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related earnings, minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles other than certain purchased
mortgage servicing rights and investments in and loans to subsidiaries engaged
in activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships. Supplementary capital currently includes cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, and the allowance for loan
and lease losses. The allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets,
and the amount of supplementary capital that may be included as total capital
cannot exceed the amount of core capital.
When determining its compliance with the risk-based capital requirement, a
savings association with "above normal" interest rate risk is required to
deduct a portion of such capital from its total capital to account for the
"above normal" interest rate risk. 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) resulting from a hypothetical 2%
increase or decrease in market rates of interest, divided by the estimated
economic value of the association's assets, as calculated in accordance with
guidelines set forth by the OTS. At the times when the 3-month Treasury bond
equivalent yield falls below 4%, an association may compute its interest rate
risk on the basis of a decrease equal to one-half of that Treasury rate rather
than on the basis of 2%. A savings association whose measured interest rate
risk exposure exceeds 2% would be considered to have "above normal" risk. The
interest rate risk component is an amount equal to one-half of the difference
between the association's measured interest rate risk and 2%, multiplied by the
estimated economic value of the association's assets. That dollar amount is
deducted from an association's total capital in calculating compliance with its
risk-based capital requirement. Any required deduction for interest rate risk
becomes effective on the last day of the third quarter following the reporting
date of the association's financial data on which the interest rate risk was
computed. A savings association with assets of less than $300 million and a
risk-based capital ratio in excess of 12% is not required, unless the OTS
determines otherwise, to comply with the standard reporting requirements for
the interest rate risk component, and the association may provide such selected
information as the OTS determines. Currently, the Bank qualifies for this
exemption from the filing requirements. The regulations also authorize the
Director of the OTS to waive or defer an association's interest rate risk
component on a case-by-case basis.
20
<PAGE> 22
At March 31, 1996, the Bank met each of its capital requirements. The
table below presents the Bank's regulatory capital as compared to the OTS
regulatory capital requirements at March 31, 1996:
<TABLE>
<CAPTION>
AT MARCH 31, 1996
---------------------------
PERCENT OF
AMOUNT ASSETS(1)
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
GAAP capital $ 16,080 14.75%
=========== =======
Tangible capital:
Capital level (2) $ 16,220 14.86%
Requirement 1,637 1.50
----------- -------
Excess $ 14,583 13.36%
=========== =======
Core capital:
Capital level (2) $ 16,220 14.86%
Requirement 3,275 3.00
----------- -------
Excess $ 12,945 11.86%
=========== =======
Risk-based capital:
Capital level (2) $ 16,772 38.00%
Requirement 3,527 8.00
----------- -------
Excess $ 13,245 30.00%
=========== =======
</TABLE>
(1) Tangible capital levels are shown as a percentage of tangible
assets. Core capital levels are shown as a percentage of
adjusted assets. Risk-based capital levels are shown as a
percentage of risk-weighted assets.
(2) The difference between capital under generally accepted
accounting principles ("GAAP") and regulatory tangible and
core capital is an adjustment to increase regulatory capital
by the amount of the net unrealized loss on
available-for-sale securities recognized for GAAP purposes.
Regulatory risk-based capital reflects this adjustment and
the inclusion of a portion of the general allowance for loan
losses.
Limitation on Capital Distributions. OTS regulations currently impose
limitations upon capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger, and other
distributions charged against capital. At least 30-days written notice must be
given to the OTS of a proposed capital distribution by a savings association,
and capital distributions in excess of specified earnings or by certain
institutions are subject to approval by the OTS. An association that has
capital in excess of all regulatory capital requirements before and after a
proposed capital distribution and that is not otherwise restricted in making
capital distributions, could, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (a) 100% of its net earnings to date during the calendar year plus the
amount that would reduce by one-half its "surplus capital ratio" (the excess
capital over its fully phased-in capital requirements) at the beginning of the
calendar year, or (b) 75% of its net earnings for the previous four quarters.
Any additional capital distributions would require prior OTS approval. In
addition, the OTS can prohibit a proposed capital distribution, otherwise
permissible under the regulation, if the OTS has determined that the
association is in need of more than normal supervision or if it determines that
a proposed distribution by an association would constitute an unsafe or unsound
practice. Furthermore, under the OTS prompt corrective action regulations, the
Bank would be prohibited from making any capital distribution if, after the
distribution, the Bank failed to meet its minimum capital requirements, as
described above. See "-- Prompt Corrective Regulatory Action."
The OTS has proposed regulations that would simplify the existing
procedures governing capital distributions by savings associations. Under the
proposed regulations, the approval of the OTS would be required only for an
association that is deemed to be in troubled condition or that is
undercapitalized or would be undercapitalized after the capital distribution. A
savings association would be able to make a capital distribution without notice
to or approval of the OTS if it is not held by a savings and loan holding
company, is not deemed to be in troubled condition, has received either of the
two highest composite supervisory ratings, and would continue to be adequately
capitalized after such distribution. Notice would have to be given to the OTS
by any association that is held by a savings and loan holding company or that
had received a composite supervisory rating below the highest two composite
supervisory ratings. An association's capital rating would be determined under
the prompt corrective action regulations. See "-- Prompt Corrective Regulatory
Action."
21
<PAGE> 23
Liquidity. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10% depending upon economic conditions and the
savings flows of member institutions, and is currently 5%. OTS regulations also
require each savings association to maintain an average daily balance of
short-term liquid assets at a specified percentage (currently 1%) of the total
of its net withdrawable deposit accounts and borrowings payable in one year or
less. Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's average liquidity ratio for the month ended March 31,
1996 was 19.0%, which exceeded the applicable requirements. The Bank has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
Assessments. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the association's latest quarterly Thrift Financial Report. The assessments
paid by the Bank for the fiscal years ended March 31, 1996, 1995 and 1994
totaled $31,000, $29,000 and $28,000, respectively.
Branching. Subject to certain limitations, HOLA and the OTS regulations
permit federally chartered savings associations to establish branches in any
state of the United States. The authority to establish such a branch is
available (a) in states that expressly authorize branches of savings
associations located in another state and (b) to an association that qualifies
as a "domestic building and loan association" under the Internal Revenue Code
of 1986, which imposes qualification requirements similar to those for a
"qualified thrift lender" under HOLA. See "-- QTL Test." The authority for a
federal savings association to establish an interstate branch network would
facilitate a geographic diversification of the association's activities. This
authority under HOLA and the OTS regulations preempts any state law purporting
to regulate branching by federal savings associations.
Community Reinvestment. Under the Community Reinvestment Act ("CRA"), as
implemented by OTS regulations, a savings association has a continuing and
affirmative obligation consistent with its safe and sound operation to help
meet the credit needs of its entire community, including low and moderate
income neighborhoods. The CRA does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the OTS, in connection with its examination of a savings association,
to assess the association's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such association. The CRA also requires all institutions to make public
disclosure of their CRA ratings. The Bank received a "Satisfactory" CRA rating
in its most recent examination.
In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual
performance in meeting community needs. In particular, the proposed system
would focus on three tests: (a) a lending test, to evaluate the institution's
record of making loans in its service areas; (b) an investment test, to
evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefiting low or moderate income
individuals and businesses; and (c) a service test, to evaluate the
institution's delivery of services through its branches, ATMs, and other
offices. Small savings associations would be assessed pursuant to a streamlined
approach focusing on a lesser range of information and performance standards.
The term "small savings association" is defined as including associations with
less than $250 million in assets or an affiliate of a holding company with
banking and thrift assets of less than $1 billion, which would include the
Bank. The amended CRA regulations would also clarify how an institution's CRA
performance would be considered in the application process.
22
<PAGE> 24
Transactions with Related Parties. The Bank's authority to engage in
transactions with its "affiliates" is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act ("FRA"). In general, an
affiliate of the Bank is any company that controls the Bank or any other
company that is controlled by a company that controls the Bank, excluding any
Bank subsidiary other than those that are insured depository institutions. The
OTS regulations prohibit a savings association (a) from lending to any of its
affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the Bank Holding Company Act ("BHC
Act") and (b) from purchasing the securities of any affiliate other than a
subsidiary. Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the capital and surplus of the savings
association and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings association's capital and surplus. Extensions
of credit to 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 certain
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 association as those
prevailing at the time for comparable transactions with nonaffiliated
companies. In the absence of comparable transactions, such transactions may
only occur under terms and circumstances, including credit standards, that in
good faith would be offered to or would apply to nonaffiliated companies.
The Bank's authority to extend credit to its directors, executive
officers, and 10% shareholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h)
of the FRA and Regulation O of the Federal Reserve Board ("FRB") thereunder.
Among other things, these provisions require that extensions of credit to
insiders (a) be made on terms that are substantially the same as, and follow
credit underwriting procedures that are not less stringent than, those
prevailing for comparable transactions with unaffiliated persons and that do
not involve more than the normal risk of repayment or present other unfavorable
features and (b) not exceed certain limitations on the amount of credit
extended to such persons, individually and in the aggregate, which limits are
based, in part, on the amount of the association's capital. In addition,
extensions of credit in excess of certain limits must be approved by the
association's board of directors.
Enforcement. Under the Federal Deposit Insurance Act ("FDI Act"), the OTS
has primary enforcement responsibility over savings associations and has the
authority to bring enforcement action against all "institution-affiliated
parties," including any controlling stockholder or any shareholder, attorney,
appraiser and accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or
certain other wrongful actions that causes or is likely to cause more than a
minimal loss or other significant adverse effect on an insured savings
association. Civil penalties cover a wide range of violations and actions and
range from $5,000 for each day during which violations of law, regulations,
orders, and certain written agreements and conditions continue, up to
$1,000,000 per day for such violations if the person obtained a substantial
pecuniary gain as a result of such violation or knowingly or recklessly caused
a substantial loss to the institution. Criminal penalties for certain financial
institution crimes include fines of up to $1 million and imprisonment for up to
30 years. In addition, regulators have substantial discretion to take
enforcement action against an institution that fails to comply with its
regulatory requirements, particularly with respect to its capital requirements.
Possible enforcement actions range from the imposition of a capital plan and
capital directive to receivership, conservatorship, or the termination of
deposit insurance. Under the FDI Act, the FDIC has the authority to recommend
to the Director of OTS that enforcement action be taken with respect to a
particular savings association. If action is not taken by the Director of the
OTS, the FDIC has authority to take such action under certain circumstances.
23
<PAGE> 25
Standards for Safety and Soundness. The FDI Act, as amended by Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") and the Riegle
Community Development and Regulatory Improvement Act of 1994 ("Community
Development Act"), requires the OTS, together with the other federal bank
regulatory agencies, to prescribe standards, by regulations or guidelines,
relating to internal controls, information systems and internal audit systems,
loan documentation, credit underwriting, interest rate risk exposure, asset
growth, asset quality, earnings, stock valuation, and compensation, fees and
benefits and such other operational and managerial standards as the agencies
deem appropriate. The OTS and the federal bank regulatory agencies have
adopted, effective August 9, 1995, a set of guidelines prescribing safety and
soundness standards pursuant to FDICIA as amended. The guidelines establish
general standards relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. In general, the
guidelines require, among other things, appropriate systems and practices to
identify and manage the risks and exposures specified in the guidelines. The
guidelines prohibit excessive compensation as an unsafe and unsound practice
and describe compensation as excessive when the amounts paid are unreasonable
or disproportionate to the services performed by an executive officer,
employee, director or principal shareholder. The OTS and the other agencies
determined that stock valuation standards were not appropriate. In addition,
the OTS adopted regulations that authorize, but do not require, the OTS to
order an institution that has been given notice by the OTS that it is not
satisfying any of such safety and soundness standards to submit a compliance
plan. If, after being so notified, an institution fails to submit an acceptable
compliance plan or fails in any material respect to implement an accepted
compliance plan, the OTS must issue an order directing action to correct the
deficiency and may issue an order directing other actions of the types to which
an undercapitalized association is subject under the "prompt corrective action"
provisions of FDICIA. If an institution fails to comply with such an order, the
OTS may seek to enforce such order in judicial proceedings and to impose civil
money penalties. The OTS and the federal bank regulatory agencies also proposed
guidelines for asset quality and earnings standards.
Real Estate Lending Standards. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of
financing the construction of improvements on real estate. The OTS regulations
require each savings association to establish and maintain written internal
real estate lending standards that are consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its real estate lending activities. The standards also must be
consistent with accompanying OTS guidelines, which include loan-to-value ratios
for the different types of real estate loans. Associations are also permitted
to make a limited amount of loans that do not conform to the proposed
loan-to-value limitations so long as such exceptions are reviewed and justified
appropriately. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standards are justified.
Prompt Corrective Regulatory Action. Under the OTS prompt corrective
action regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings associations.
For this purpose, a savings association would be placed in one of five
categories based on the association's capital. Generally, a savings association
is treated as "well capitalized" if its ratio of total capital to risk-weighted
assets is at least 10.0%, its ratio of core capital to risk-weighted assets is
at least 6.0%, its ratio of core capital to total assets is at least 5.0%, and
it is not subject to any order or directive by the OTS to meet a specific
capital level. A savings association will be treated as "adequately
capitalized" if its ratio of total capital to risk-weighted assets is at least
8.0%, its ratio of core capital to risk-weighted assets is at least 4.0%, and
its ratio of core capital to total assets is at least 4.0% (3.0% if the
association receives the highest rating on the CAMEL financial institutions
rating system). A savings association that has a total risk-based capital of
less than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than
4.0% (3.0% leverage ratio if the association receives the highest rating on the
CAMEL financial institutions rating system) is considered to be
"undercapitalized." A savings association that has a total risk-based capital
of less than 6.0% or a Tier 1 risk-based capital ratio or a leverage ratio of
less than 3.0% is considered to be "significantly undercapitalized." A savings
association that has a tangible capital to assets ratio equal to or less than
2% is deemed to be "critically undercapitalized." The elements of an
association's capital for purposes of the prompt corrective action regulations
are defined generally as they are under the regulations for minimum capital
requirements. See "-- Capital Requirements."
24
<PAGE> 26
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three undercapitalized
categories. The OTS is required to monitor closely the condition of an
undercapitalized association and to restrict the asset growth, acquisitions,
branching, and new lines of business of such an association. Significantly
undercapitalized associations are subject to restrictions on compensation of
senior executive officers; such an association may not, without OTS consent,
pay any bonus or provide compensation to any senior executive officer at a rate
exceeding the officer's average rate of compensation (excluding bonuses, stock
options and profit-sharing) during the 12 months preceding the month when the
association became undercapitalized. A significantly undercapitalized
association may also be subject, among other things, to forced changes in the
composition of its board of directors or senior management, additional
restrictions on transactions with affiliates, restrictions on acceptance of
deposits from correspondent associations, further restrictions on asset growth,
restrictions on rates paid on deposits, forced termination or reduction of
activities deemed risky, and any further operational restrictions deemed
necessary by the OTS.
If one or more grounds exist for appointing a conservator or receiver for
an association, the OTS may require the association to issue additional debt or
stock, sell assets, be acquired by a depository association holding company or
combine with another depository association. The OTS and the FDIC have a broad
range of grounds under which they may appoint a receiver or conservator for an
insured depository association. Under FDICIA, the OTS is required to appoint a
receiver (or with the concurrence of the FDIC, a conservator) for a critically
undercapitalized association within 90 days after the association becomes
critically undercapitalized or, with the concurrence of the FDIC, to take such
other action that would better achieve the purposes of the prompt corrective
action provisions. Such alternative action can be renewed for successive 90-day
periods. However, if the association continues to be critically
undercapitalized on average during the quarter that begins 270 days after it
first became critically undercapitalized, a receiver must be appointed, unless
the OTS makes certain findings with which the FDIC concurs and the Director of
the OTS and the Chairman of the FDIC certify that the association is viable. In
addition, an association that is critically undercapitalized is subject to more
severe restrictions on its activities, and is prohibited, without prior
approval of the FDIC from, among other things, entering into certain material
transactions or paying interest on new or renewed liabilities at a rate that
would significantly increase the association's weighted average cost of funds.
Where appropriate, the OTS can impose corrective action by a savings and
loan holding company under the "prompt corrective action" provisions of FDICIA.
Insurance of Deposit Accounts. Pursuant to FDICIA, the FDIC established a
risk-based assessment system for determining the deposit insurance assessments
to be paid by insured depository institutions. Under the assessment system, the
FDIC 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. The three capital categories consist of
(a) well capitalized, (b) adequately capitalized, or (c) undercapitalized. The
FDIC also assigns an institution to one of three supervisory subcategories
within each capital group. The supervisory subgroup to which an institution is
assigned is based on a supervisory evaluation provided to the FDIC by the
institution's primary federal regulator and information that the FDIC
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. Under
the regulation, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates currently range from 0.23% of
deposits for an institution in the highest category (i.e., well-capitalized
and financially sound, with no more than a few minor weaknesses), such as the
Bank, to 0.31% of deposits for an institution in the lowest category (i.e.,
undercapitalized and substantial supervisory concern). The FDIC is authorized
to raise the assessment rates in certain circumstances. If the FDIC determines
that assessment rates should be increased, institutions in all risk categories
could be affected. The FDIC has exercised this authority several times in the
past and may raise insurance premiums in the future. If such action is taken by
the FDIC, it could have an adverse effect on the earnings of the Bank. The
Bank's assessment rate for fiscal 1996 was 0.23% of deposits.
25
<PAGE> 27
The FDI Act requires that the SAIF and BIF each be recapitalized until its
reserves are at least 1.25% of the deposits insured by that fund. Upon
reaching the 1.25% reserve ratio, the assessment rates for that fund could be
reduced. The FDIC has reported that the BIF attained the 1.25% reserve ratio
in May 1995 but that the SAIF is not likely to reach the 1.25% reserve ratio
based on reasonably optimistic financial projections, until after 2000.
Effective on January 1, 1996, "well capitalized" BIF-insured institutions
without any significant supervisory concerns are being assessed the legal
minimum of $2,000 per year. The other BIF-insured institutions will pay at new
assessment rates ranging from 0.03% of deposits to 0.27% of deposits. It is
estimated that 92% of the BIF-insured institutions will pay only the minimum
annual assessment. Because the SAIF has not attained the required 1.25%
reserve ratio, SAIF-insured institutions will continue to pay assessments at
the current assessment rates ranging from 0.23% of deposits to 0.31% of
deposits. The resulting disparity in deposit insurance assessments between
SAIF members and BIF members is likely to provide BIF-insured institutions with
certain competitive advantages in the pricing of loans and deposits, and in
lowered operating costs, pending any legislative action to remedy the
disparity.
The proposed Balanced Budget Act of 1995 ("Budget Act"), which was
approved by the Congress but vetoed by the President, included provisions that
focused on a resolution of the financial problems of the SAIF. Under the
provisions of the Budget Act, all SAIF member institutions would have paid a
special assessment to recapitalize the SAIF, and the assessment base for the
payments on the Financing Corporation bonds would have been expanded to include
the deposits of both BIF- and SAIF-insured institutions. The amount of the
special assessment required to recapitalize the SAIF was then estimated to be
approximately 80 basis points of the SAIF-assessable deposits. This estimate
of the special SAIF assessment was less than the assessment of 85 to 90 basis
points that had been previously estimated. The special assessment would have
been imposed on the first business day of January 1996, or on such other date
prescribed by the FDIC not later than 60 days after enactment of the Budget
Act, based on the amount of SAIF deposits on March 31, 1995. If an 85 or a 90
basis point assessment were assessed against the Bank's deposits as of March
31, 1995, the Bank's aggregate special SAIF assessment would be approximately
$695,000 or $736,000, respectively, and an assessment of 80 basis points would
be $655,000. The Budget Act also would have provided that the BIF could not
assess regular insurance assessments when it has a reserve ratio of 1.25% or
more except on those of its member institutions that have been found to have
"moderately severe" or "unsatisfactory" financial, operational, or compliance
weaknesses.
The Budget Act also provided for the merger of the BIF and SAIF on January
1, 1998, with such merger being conditioned upon the prior elimination of the
thrift charter. Congressional leaders had also agreed that Congress should
consider and act upon separate legislation to eliminate the thrift charter as
early as possible in 1996. If adopted, such legislation would require that the
Bank, as a federal savings and loan association, convert to a bank charter.
Such a requirement to convert to a bank charter could cause the Bank to lose
the favorable tax treatment for its bad debt reserves which is currently
permitted under section 593 of the Internal Revenue Code and to have all or
part of its existing bad debt reserves recaptured into income. See "Federal
and State Taxation--Federal Taxation--Tax Bad Debt Reserves."
The above described provisions of the Budget Act were not the basis for
the President's veto, and the federal banking regulators continue to seek a
legislative solution for the recapitalization of the SAIF. In February 1996,
representatives of the FDIC, the OTS and the Treasury Department stated to
Congress that, unless Congress adopts legislation to strengthen the SAIF,
SAIF's current problems could result in an erosion of the SAIF deposit base,
could cause a default on the Financing Corporation bonds, and could leave the
SAIF unable to meet its obligations to insured depositors. If enacted by
Congress, such legislation as described above would have the effect of reducing
the capital of SAIF member institutions by the after-tax cost of the special
SAIF assessment, plus any related additional tax liabilities. The legislation
would also have the effect of reducing any differential that may otherwise be
required in the assessment rates for the BIF and SAIF.
Federal Home Loan Bank System. The Bank is a member of the FHLB of New
York, which is one of the regional FHLBs composing the FHLB System. Each FHLB
provides a central credit facility primarily for its member institutions. The
Bank, as a member of the FHLB of New York, is required to acquire and hold
shares of capital stock in the FHLB of New York in an amount at least equal to
the greater of 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 advances (borrowings) from the FHLB of New York. The Bank was in compliance
with this requirement with an investment in FHLB of New York stock at March 31,
1996, of $561,000. Any advances from a FHLB must be secured by specified types
of collateral, and all long-term advances may be obtained only for the purpose
of providing funds for residential housing finance.
The FHLBs 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 earnings that the FHLBs can pay as
dividends to their members and could also result in the FHLBs imposing a higher
rate of interest on advances to their members. For the fiscal years ended March
31, 1996, 1995 and 1994, dividends from the FHLB of New York to the Bank
amounted to $37,000, $36,000 and $50,000, respectively. If dividends were
reduced, or interest on future FHLB advances increased, the Bank's net
26
<PAGE> 28
interest income would likely also be reduced. Further, there can be no
assurance that the impact of FDICIA and the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") on the FHLBs will not also
cause a decrease in the value of the FHLB stock held by the Bank.
Federal Reserve System. The Bank is subject to provisions of the FRA and
the FRB's regulations pursuant to which depositary institutions may be required
to maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3%
of the aggregate of transaction accounts up to $52.0 million. The amount of
aggregate transaction accounts in excess of $52.0 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 12%.
The FRB regulations currently exempt $4.3 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of
either vault cash, a non-interest-bearing account at a Federal Reserve Bank, or
a pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. FHLB System members are also
authorized to borrow from the Federal Reserve "discount window," but FRB
regulations require such institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
HOLDING COMPANY REGULATION
General. The Registrant is a unitary savings association holding company
within the meaning of the HOLA. As such, the Registrant is required to
register with the OTS and is subject to OTS examination, regulation and
reporting requirements. The OTS has enforcement authority over the Registrant.
Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the subsidiary savings
institution.
The Registrant is required to obtain the prior approval of the OTS to
acquire all, or substantially all, of the assets of another savings institution
or holding company thereof. Prior OTS approval is required for the Registrant
to acquire direct or indirect ownership or control of any voting securities of
a non-subsidiary savings institution, a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA, if, after giving effect to such acquisition, it would, directly or
indirectly, own or control more than 5% of any class of voting shares of such
institution or company.
Interstate Banking. The OTS is prohibited from approving any acquisition
that would result in a multiple savings and loan holding company controlling
savings institutions in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan holding
companies, and (ii) the acquisition of a savings institution in another state
if the laws of the state of the target savings institution specifically permit
such acquisitions. Under New York law, reciprocal interstate acquisitions are
authorized for savings and loan holding companies and savings institutions.
Certain states do not authorize interstate acquisitions under any
circumstances; however, federal law authorizing acquisitions in supervisory
cases preempts such state law.
Acquisition of the Holding Company. Federal law generally provides that
no person (including a company), or group acting in concert, directly or
indirectly, may acquire 10% or more of a class of the outstanding voting
securities of a savings association holding company without giving at least 60
days written notice to the OTS and providing the OTS an opportunity to
disapprove the proposed acquisition. Such acquisitions of control may be
disapproved if it is determined, among other things, that (i) the acquisition
would substantially lessen competition; (ii) the financial condition of the
acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
In addition, federal regulations governing conversions of mutual savings
institutions to the stock form of organization prohibit the direct or indirect
acquisition without OTS approval of more than 10% of any equity security of a
savings institution within three years of the savings institution's conversion
to stock form. This limitation applies to acquisitions of the stock of the
Registrant. Such acquisition may be disapproved if it is found, among other
things, that the proposed acquisition (i) would frustrate the purposes of the
provisions of the regulations regarding conversions, (ii) would be manipulative
or deceptive, (iii) would subvert the fairness of the conversion, (iv) would be
likely to result in injury to the savings institution, (v) would not be
consistent with economical home financing, (vi) would otherwise violate law or
regulation, or (vii) would not contribute to the prudent development of the
savings institution's conversion proceeds.
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<PAGE> 29
Federal Securities Laws. The Registrant's common stock is registered with
the SEC under Section 12(g) of the Securities Exhange Act of 1934, as amended
("Exchange Act"). The Registrant is subject to the information, proxy,
solicitation, insider trading restrictions and other requirements of the
Exchange Act.
ITEM 2. PROPERTIES
The Company conducts its business through its sole office located in
Tarrytown, New York. The property, which had a net book value of $488,000 as of
March 31, 1996, was acquired in 1973. Management believes that the Company's
current facilities are adequate to meet the present and immediately foreseeable
needs of the Bank and the Registrant.
ITEM 3. LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings in the aggregate are believed by management to be
immaterial to the Company's financial condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information required by this item appears under the caption "Market
for Common Stock" on page 36 of the 1996 Annual Report incorporated herein by
reference.
The Registrant initiated its first stock repurchase program on May 13,
1996 as authorized by the OTS. As of May 31, 1996 the registrant repurchased
60,000 shares, or 3.7% of its outstanding common stock (the maximum authorized
by the OTS is 5%), at an aggregate cost of $727,500.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item appears on page 1 of the 1996 Annual
Report incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item appears on pages 3 through 13 of the
1996 Annual Report incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item appears on pages 14 through 35 of
the 1996 Annual Report incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
The information required by this item appears under the captions "Election
of Directors," "Nominees for Election as Director," "Continuing Directors,"
"Committees and Meetings of the Board of Directors of the Company" and
"Executive Officers" on pages 6 through 10 and "Section 16 (a) Compliance" on
page 18 of the Registrant's Proxy Statement for its Annual Meeting of
Shareholders to be held on July 10, 1996 (the "1996 Proxy Statement")
incorporated herein by reference.
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<PAGE> 30
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears under the captions
"Compensation of Directors" on pages 8 and 9 and "Executive Compensation,"
"Summary Compensation Table," "Employment Agreements," "Employee Retention
Agreements" and "Benefits" on pages 10 through 17 of the 1996 Proxy Statement
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item appears under the captions
"Principal Shareholders of the Company" on page 3 and 4, and "Stock Owned by
Management" on page 5 of the 1996 Proxy Statement incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item appears under the caption
"Transactions with Certain Related Persons" on page 17 of the 1996 Proxy
Statement incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following consolidated financial statements of the Registrant, its
bank subsidiary and the independent auditors' report thereon, included on pages
14 through 35 of the 1996 Annual Report incorporated herein by reference.
1. Consolidated Financial Statements:
Balance Sheets at March 31, 1996 and 1995;
Statements of Income for the years ended March 31, 1996, 1995 and
1994;
Statements of Changes in Shareholders' Equity for the years ended
March 31, 1996, 1995 and 1994;
Statements of Cash Flows for the years ended March 31, 1996, 1995 and
1994;
Notes to Consolidated Financial Statements.
2. All schedules are omitted because they are not required or
applicable, or the required information is shown in the consolidated financial
statements or the notes thereto.
3. Exhibits
(a) The following exhibits are filed as part of this report, except as
otherwise indicated.
<TABLE>
<CAPTION>
DESIGNATION DESCRIPTION
----------- -----------
<S> <C>
3.1 Certificate of Incorporation of Tappan Zee Financial, Inc.
(Incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-1, No. 33-94128, filed on June 30, 1995, as
amended, (the "Registration Statement"))
3.2 Bylaws of Tappan Zee Financial, Inc. (Incorporated by reference
to Exhibit 3.2 to the Registration Statement)
4.1 Certificate of Incorporation of Tappan Zee Financial, Inc. (See
Exhibit 3.1 hereto)
</TABLE>
29
<PAGE> 31
<TABLE>
<S> <C>
4.2 Bylaws of Tappan Zee Financial, Inc. (See Exhibit 3.2 hereto)
4.3 Specimen Stock Certificate (Incorporated by reference to
Exhibit 4.3 to the Registration Statement)
10.1 Agency Agreement, by and among Tappan Zee Financial, Inc.,
Tarrytowns Bank, FSB and Sandler O'Neill & Partners, L.P.,
dated August 14, 1995 (Incorporated by reference to Exhibit 1.2
to the Registration Statement)
10.2 Tappan Zee Financial, Inc. 1996 Stock Option Plan for Officers
and Employees (See Exhibit A to Exhibit 99.1 hereto)
10.3 Tappan Zee Financial, Inc. 1996 Stock Option Plan for Outside
Directors (See Exhibit B to Exhibit 99.1 hereto)
10.4 Tappan Zee Financial, Inc. Recognition and Retention Plan for
Officers and Employees (See Exhibit C to Exhibit 99.1 hereto)
10.5 Tappan Zee Financial, Inc. Recognition and Retention Plan for
Outside Directors (See Exhibit D to Exhibit 99.1 hereto)
10.6 Employee Stock Ownership Plan of Tappan Zee Financial, Inc. and
Certain Affiliates, as amended
10.7 Loan Agreement to the Employee Stock Ownership Plan Trust of
Tappan Zee Financial, Inc. and Certain Affiliates
10.8 Tarrytowns Bank Deferred Compensation Plan for Directors of
Tarrytowns Bank, FSB (Incorporated by reference to Exhibit 10.7
to the Registration Statement)
10.9 Retirement Plan for Board Members of Tappan Zee Financial, Inc.
and Certain Affiliates, adopted effective as of October 5, 1995
10.10 Employment Agreement by and between Tappan Zee Financial, Inc.
and Stephen C. Byelick, adopted effective as of October 5, 1995
10.11 Employment Agreement by and between Tappan Zee Financial, Inc.
and Harry G. Murphy, adopted effective as of October 5, 1995
10.12 Employment Agreement by and between Tarrytowns Bank, FSB and
Stephen C. Byelick, effective as of October 5, 1995
10.13 Employment Agreement by and between Tarrytowns Bank, FSB and
Harry G. Murphy, effective as of October 5, 1995
10.14 Employee Retention Agreement by and among Tappan Zee Financial,
Inc., Tarrytowns Bank, FSB and Robert Brennen, effective as of
October 5, 1995
10.15 Employee Retention Agreement by and among Tappan Zee Financial,
Inc., Tarrytowns Bank, FSB and Christina Vidal, effective as of
October 5, 1995
10.16 Employee Retention Agreement by and among Tappan Zee Financial,
Inc., Tarrytowns Bank, FSB and Margaret E. Sampson, effective
as of October 5, 1995
</TABLE>
30
<PAGE> 32
<TABLE>
<S> <C>
10.17 Employee Retention Agreement by and among Tappan Zee Financial,
Inc., Tarrytowns Bank, FSB and Valerie Wilson, effective as of
October 5, 1995
13.1 1996 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21.1 to the Registration Statement)
27.1 Financial Data Schedule
99.1 Proxy Statement for 1996 Annual Meeting of Shareholders
</TABLE>
31
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Tappan Zee Financial, Inc.
Dated: June 24, 1996 By: /s/Stephen C. Byelick
-------------------------------
Stephen C. Byelick
President and Chief Executive Officer
Dated: June 24, 1996 By: /s/Harry G. Murphy
-------------------------------
Harry G. Murphy
Vice President and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/Marvin Levy Chairman June 24, 1996
- -------------------------
Marvin Levy
/s/ Stephen C. Byelick Director June 24, 1996
- ----------------------
Stephen C. Byelick
/s/ John T. Cooney Director June 24, 1996
- -------------------------
John T. Cooney
/s/Gerald L. Logan Director June 24, 1996
- -------------------------
Gerald L. Logan
/s/Harry G. Murphy Director June 24, 1996
- -----------------------
Harry G. Murphy
/s/Kevin J. Plunkett Director June 24, 1996
- ---------------------------
Kevin J. Plunkett
/s/Paul R. Wheatley Director June 24, 1996
- --------------------------
Paul R. Wheatley
32
<PAGE> 34
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
EXHIBITS
TO
FORM 10-K
SEC File No. 0-26466
------------------
TAPPAN ZEE FINANCIAL, INC.
TARRYTOWN, NEW YORK
================================================================================
<PAGE> 35
DESIGNATION DESCRIPTION PAGE
10.9 Retirement Plan for Board Members of Tappan Zee
Financial, Inc. and Certain Affiliates, adopted
effective as of October 5, 1995..................
10.10 Employment Agreement by and between Tappan Zee
Financial, Inc. and Stephen C. Byelick, adopted
effective as of October 5, 1995..................
10.11 Employment Agreement by and between Tappan Zee
Financial, Inc. and Harry G. Murphy, adopted
effective as of October 5, 1995..................
10.12 Employment Agreement by and between Tarrytowns
Bank, FSB and Stephen C. Byelick, effective as
of October 5, 1995...............................
10.13 Employment Agreement by and between Tarrytowns
Bank, FSB and Harry G. Murphy, effective as
of October 5, 1995...............................
10.14 Employee Retention Agreement by and among Tappan
Zee Financial, Inc., Tarrytowns Bank, FSB and
Robert Brennen, effective as of October 5,
1995.............................................
10.15 Employee Retention Agreement by and among Tappan
Zee Financial, Inc., Tarrytowns Bank, FSB and
Christina Vidal, effective as of October 5,
1995.............................................
10.16 Employee Retention Agreement by and among Tappan
Zee Financial, Inc., Tarrytowns Bank, FSB and
Valerie Wilson, effective as of October 5,
1995.............................................
10.17 Employee Retention Agreements by and among Tappan
Zee Financial, Inc., Tarrytowns Bank, FSB and
Margaret E. Sampson, effective as of October 5,
1995.............................................
13.1 1996 Annual Report to Shareholders...............
21.1 Subsidiaries of the Registrant (Incorporated by
reference to Exhibit 21.1 to the Registration
Statement).......................................
27.1 Financial Data Schedule (EDGAR only).............
99.1 Proxy Statement for 1996 Annual Meeting of
Stockholders.....................................
-2-
<PAGE> 36
DESIGNATION DESCRIPTION PAGE
3.1 Certificate of Incorporation of Tappan Zee
Financial, Inc. (Incorporated by reference to
Exhibit 3.1 to the Registration Statement on
Form S-1, No. 33-94128, filed on June 30, 1995,
as amended (the "Registration Statement")).......
3.2 Bylaws of Tappan Zee Financial, Inc.
(Incorporated by reference to Exhibit 3.2 to
the Registration Statement)......................
4.1 Certificate of Incorporation of Tappan Zee
Financial, Inc. (See Exhibit 3.1 hereto).........
4.2 Bylaws of Tappan Zee Financial, Inc. (See
Exhibit 3.2 hereto)..............................
4.3 Speciman Stock Certificate (Incorporated by
reference to Exhibit 4.3 to the Registration
Statement).......................................
10.1 Agency Agreement, by and among Tappan Zee
Financial, Inc., Tarrytowns Bank, FSB and
Sandler O'Neill & Partners, L.P., dated August
14, 1995 (Incorporated by reference to Exhibit
1.2 to the Registration Statement)...............
10.2 Tappan Zee Financial, Inc. 1996 Stock Option Plan
for Officers and Employees (See Exhibit A to
Exhibit 99.1 hereto).............................
10.3 Tappan Zee Financial, Inc. 1996 Stock Option Plan
for Outside Directors (See Exhibit B to
Exhibit 99.1 hereto).............................
10.4 Tappan Zee Financial, Inc. Recognition and
Retention Plan for Officers and Employees
(See Exhibit C to Exhibit 99.1 hereto)...........
10.5 Tappan Zee Financial, Inc. Recognition and
Retention Plan for Outside Directors (See
Exhibit D to Exhibit 99.1 hereto)................
10.6 Employee Stock Ownership Plan of Tappan Zee
Financial, Inc. and Certain Affiliates, as
amended..........................................
10.7 Loan Agreement to the Employee Stock Ownership
Plan of Tappan Zee Financial, Inc. and Certain
Affiliates.......................................
10.8 Tarrytowns Bank Deferred Compensation Plan for
Directors of Tarrytowns Bank, FSB (Incorporated
by reference to Exhibit 10.7 to the Registration
Statement).......................................
<PAGE> 1
EMPLOYEE STOCK OWNERSHIP PLAN
OF
TAPPAN ZEE FINANCIAL, INC.
AND
CERTAIN AFFILIATES
ADOPTED ON JULY 25, 1995
EFFECTIVE UPON THE CONVERSION DATE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 ACCOUNT.................................................... 1
SECTION 1.2 AFFILIATED EMPLOYER........................................ 1
SECTION 1.3 ALLOCATION COMPENSATION.................................... 1
SECTION 1.4 BOARD...................................................... 2
SECTION 1.5 BENEFICIARY................................................ 2
SECTION 1.6 BREAK IN SERVICE........................................... 2
SECTION 1.7 CHANGE IN CONTROL.......................................... 2
SECTION 1.8 CODE....................................................... 2
SECTION 1.9 COMMITTEE.................................................. 2
SECTION 1.10 DISABILITY................................................. 2
SECTION 1.11 DOMESTIC RELATIONS ORDER................................... 2
SECTION 1.12 EFFECTIVE DATE............................................. 3
SECTION 1.13 ELIGIBLE EMPLOYEE.......................................... 3
SECTION 1.14 ELIGIBLE PARTICIPANT....................................... 3
SECTION 1.15 EMPLOYEE................................................... 3
SECTION 1.16 EMPLOYER................................................... 3
SECTION 1.17 EMPLOYMENT COMMENCEMENT DATE............................... 3
SECTION 1.18 ERISA...................................................... 3
SECTION 1.19 ESOP CONTRIBUTION.......................................... 3
SECTION 1.20 FAIR MARKET VALUE.......................................... 3
SECTION 1.21 FAMILY MEMBER.............................................. 4
SECTION 1.22 FINANCED SHARE............................................. 4
SECTION 1.23 FIVE PERCENT OWNER......................................... 4
SECTION 1.24 FORFEITURES................................................ 4
SECTION 1.25 FORMER PARTICIPANT......................................... 4
SECTION 1.26 GENERAL INVESTMENT ACCOUNT................................. 4
SECTION 1.27 HIGHLY COMPENSATED EMPLOYEE................................ 4
SECTION 1.28 HOUR OF SERVICE............................................ 5
SECTION 1.29 INVESTMENT ACCOUNT......................................... 5
SECTION 1.30 INVESTMENT FUND............................................ 6
SECTION 1.31 LOAN REPAYMENT ACCOUNT..................................... 6
SECTION 1.32 LOAN REPAYMENT CONTRIBUTION................................ 6
SECTION 1.33 MATERNITY OR PATERNITY LEAVE............................... 6
SECTION 1.34 MILITARY SERVICE........................................... 6
SECTION 1.35 NAMED FIDUCIARY............................................ 6
SECTION 1.36 OFFICER.................................................... 6
SECTION 1.37 PARTICIPANT................................................ 6
SECTION 1.38 PERIOD OF SERVICE.......................................... 6
SECTION 1.39 PERIOD OF SEVERANCE........................................ 6
</TABLE>
(i)
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SECTION 1.40 PLAN....................................................... 7
SECTION 1.41 PLAN ADMINISTRATOR......................................... 7
SECTION 1.42 PLAN YEAR.................................................. 7
SECTION 1.43 QUALIFIED DOMESTIC RELATIONS ORDER......................... 7
SECTION 1.44 QUALIFIED PARTICIPANT...................................... 7
SECTION 1.45 RETIREMENT................................................. 7
SECTION 1.46 SHARE...................................................... 7
SECTION 1.47 SHARE ACQUISITION LOAN..................................... 8
SECTION 1.48 SHARE INVESTMENT ACCOUNT................................... 8
SECTION 1.49 TENDER OFFER............................................... 8
SECTION 1.50 TOTAL COMPENSATION......................................... 8
SECTION 1.51 TRUST...................................................... 9
SECTION 1.52 TRUST AGREEMENT............................................ 9
SECTION 1.53 TRUST FUND................................................. 9
SECTION 1.54 TRUSTEE.................................................... 9
SECTION 1.55 VALUATION DATE............................................. 9
ARTICLE II
PARTICIPATION
SECTION 2.1 ELIGIBILITY FOR PARTICIPATION.............................. 9
SECTION 2.2 COMMENCEMENT OF PARTICIPATION.............................. 10
SECTION 2.3 TERMINATION OF PARTICIPATION............................... 10
SECTION 2.4 ADJUSTMENTS TO PERIOD OF SERVICE........................... 10
ARTICLE III
SPECIAL PROVISIONS
SECTION 3.1 MILITARY SERVICE........................................... 11
SECTION 3.2 MATERNITY OR PATERNITY LEAVE............................... 11
SECTION 3.3 LEAVE OF ABSENCE........................................... 12
ARTICLE IV
CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED
SECTION 4.1 CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED................ 12
</TABLE>
(ii)
<PAGE> 4
<TABLE>
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<S> <C> <C>
ARTICLE V
CONTRIBUTIONS BY THE EMPLOYER
SECTION 5.1 IN GENERAL................................................. 12
SECTION 5.2 LOAN REPAYMENT CONTRIBUTIONS............................... 12
SECTION 5.3 ESOP CONTRIBUTIONS......................................... 13
SECTION 5.4 TIME AND MANNER OF PAYMENT................................. 13
ARTICLE VI
SHARE ACQUISITION LOANS
SECTION 6.1 IN GENERAL................................................. 14
SECTION 6.2 COLLATERAL; LIABILITY FOR REPAYMENT........................ 14
SECTION 6.3 LOAN REPAYMENT ACCOUNT..................................... 15
SECTION 6.4 RELEASE OF FINANCED SHARES................................. 15
SECTION 6.5 RESTRICTIONS ON FINANCED SHARES............................ 16
ARTICLE VII
ALLOCATION OF CONTRIBUTIONS
SECTION 7.1 ALLOCATION AMONG ELIGIBLE PARTICIPANTS..................... 17
SECTION 7.2 ALLOCATION OF RELEASED SHARES OR OTHER PROPERTY............ 17
SECTION 7.3 ALLOCATION OF ESOP CONTRIBUTIONS........................... 17
SECTION 7.4 NO ALLOCATION AFTER TERMINATION OF PARTICIPATION........... 17
ARTICLE VIII
LIMITATIONS ON ALLOCATIONS
SECTION 8.1 OPTIONAL LIMITATIONS ON ALLOCATIONS OF ESOP CONTRIBUTIONS.. 18
SECTION 8.2 GENERAL LIMITATIONS ON CONTRIBUTIONS....................... 18
ARTICLE IX
VESTING
SECTION 9.1 VESTING.................................................... 22
</TABLE>
(iii)
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SECTION 9.2 VESTING ON DEATH, DISABILITY, RETIREMENT OR CHANGE IN CONT. 22
SECTION 9.3 FORFEITURES ON TERMINATION OF EMPLOYMENT................... 22
SECTION 9.4 AMOUNTS CREDITED UPON RE-EMPLOYMENT........................ 22
SECTION 9.5 ALLOCATION OF FORFEITURES.................................. 23
SECTION 9.6 ACCELERATED VESTING UPON CHANGE IN CONTROL................. 23
ARTICLE X
THE TRUST FUND
SECTION 10.1 THE TRUST FUND............................................. 25
SECTION 10.2 INVESTMENTS................................................ 25
SECTION 10.3 DIVERSIFICATION OF INVESTMENTS............................. 26
SECTION 10.4 USE OF COMMINGLED TRUST FUNDS.............................. 27
SECTION 10.5 MANAGEMENT AND CONTROL OF ASSETS........................... 27
ARTICLE XI
VALUATION OF INTERESTS IN THE TRUST FUND
SECTION 11.1 ESTABLISHMENT OF INVESTMENT ACCOUNTS....................... 28
SECTION 11.2 SHARE INVESTMENT ACCOUNTS.................................. 28
SECTION 11.3 GENERAL INVESTMENT ACCOUNTS................................ 28
SECTION 11.4 VALUATION OF INVESTMENT ACCOUNTS........................... 28
SECTION 11.5 ANNUAL STATEMENTS.......................................... 29
ARTICLE XII
SHARES
SECTION 12.1 SPECIFIC ALLOCATION OF SHARES.............................. 29
SECTION 12.2 DIVIDENDS.................................................. 29
SECTION 12.3 VOTING RIGHTS.............................................. 30
SECTION 12.4 TENDER OFFERS.............................................. 32
ARTICLE XIII
PAYMENT OF BENEFITS
SECTION 13.1 IN GENERAL................................................. 34
</TABLE>
(iv)
<PAGE> 6
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<S> <C> <C>
SECTION 13.2 DESIGNATION OF BENEFICIARIES............................... 34
SECTION 13.3 DISTRIBUTIONS TO PARTICIPANTS AND FORMER PARTICIPANTS...... 35
SECTION 13.4 MANNER OF PAYMENT.......................................... 38
SECTION 13.5 PUT OPTIONS................................................ 39
SECTION 13.6 RIGHT OF FIRST REFUSAL..................................... 39
SECTION 13.7 MINIMUM REQUIRED DISTRIBUTIONS............................. 40
SECTION 13.8 DIRECT ROLLOVER OF ELIGIBLE ROLLOVER DISTRIBUTIONS......... 41
SECTION 13.9 VALUATION OF SHARES UPON SETTLEMENT TO A PARTICIPANT....... 43
ARTICLE XIV
ADMINISTRATION
SECTION 14.1 NAMED FIDUCIARIES.......................................... 43
SECTION 14.2 PLAN ADMINISTRATOR......................................... 43
SECTION 14.3 COMMITTEE RESPONSIBILITIES................................. 45
SECTION 14.4 CLAIMS PROCEDURE........................................... 46
SECTION 14.5 CLAIMS REVIEW PROCEDURE.................................... 46
SECTION 14.8 ALLOCATION OF FIDUCIARY RESPONSIBILITIES AND EMPLOYMENT OF
ADVISORS................................................... 47
SECTION 14.9 OTHER ADMINISTRATIVE PROVISIONS............................ 47
ARTICLE XV
AMENDMENT, TERMINATION AND TAX QUALIFICATION
SECTION 15.1 AMENDMENT AND TERMINATION BY TAPPAN ZEE FINANCIAL, INC..... 48
SECTION 15.2 AMENDMENT OR TERMINATION OTHER THAN BY TAPPAN ZEE
FINANCIAL, INC............................................. 48
SECTION 15.3 CONFORMITY TO INTERNAL REVENUE CODE........................ 49
SECTION 15.4 CONTINGENT NATURE OF CONTRIBUTIONS......................... 49
ARTICLE XVI
SPECIAL RULES FOR TOP HEAVY PLAN YEARS
SECTION 16.1 IN GENERAL................................................. 50
SECTION 16.2 DEFINITION OF TOP HEAVY PLAN............................... 50
SECTION 16.3 DETERMINATION DATE......................................... 51
SECTION 16.4 CUMULATIVE ACCRUED BENEFITS................................ 51
SECTION 16.5 KEY EMPLOYEES.............................................. 51
</TABLE>
(v)
<PAGE> 7
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<S> <C> <C>
SECTION 16.6 REQUIRED AGGREGATION GROUP................................. 52
SECTION 16.7 PERMISSIBLE AGGREGATION GROUP.............................. 53
SECTION 16.8 SPECIAL REQUIREMENTS DURING TOP HEAVY PLAN YEARS........... 53
ARTICLE XVII
MISCELLANEOUS PROVISIONS
SECTION 17.1 GOVERNING LAW.............................................. 54
SECTION 17.2 NO RIGHT TO CONTINUED EMPLOYMENT........................... 54
SECTION 17.3 CONSTRUCTION OF LANGUAGE................................... 54
SECTION 17.4 HEADINGS................................................... 54
SECTION 17.5 MERGER WITH OTHER PLANS.................................... 54
SECTION 17.6 NON-ALIENATION OF BENEFITS................................. 55
SECTION 17.7 PROCEDURES INVOLVING DOMESTIC RELATIONS ORDERS............. 55
SECTION 17.8 LEASED EMPLOYEES........................................... 55
SECTION 17.9 STATUS AS AN EMPLOYEE STOCK OWNERSHIP PLAN................. 56
</TABLE>
(vi)
<PAGE> 8
EMPLOYEE STOCK OWNERSHIP PLAN
OF
TAPPAN ZEE FINANCIAL, INC.
AND
CERTAIN AFFILIATES
ARTICLE I
DEFINITIONS
The following definitions shall apply for the purposes of the
Plan, unless a different meaning is clearly indicated by the context:
SECTION 1.1 ACCOUNT means an account established for each
Participant to which is allocated such Participant's share, if any, of all
Financed Shares and other property that are released from the Loan Repayment
Account in accordance with section 6.4, together with his share, if any, of any
ESOP Contributions that may be made by the Employer.
SECTION 1.2 AFFILIATED EMPLOYER means any corporation which is a
member of a controlled group of corporations (as defined in section 414(b) of
the Code) that includes the Employer; any trade or business (whether or not
incorporated) that is under common control (as defined in section 414(c) of the
Code) with the Employer; any organization (whether or not incorporated) that is
a member of an affiliated service group (as defined in section 414(m) of the
Code) that includes the Employer; any leasing organization (as defined in
section 414(n) of the Code) to the extent that any of its employees are required
pursuant to section 414(n) of the Code to be treated as employees of the
Employer; and any other entity that is required to be aggregated with the
Employer pursuant to regulations under section 414(o) of the Code.
SECTION 1.3 ALLOCATION COMPENSATION during any period means the
compensation taken into account in determining the allocation of benefits and
contributions among Participants and consists of the aggregate compensation
received by an Employee from the Employer with respect to such period as
reported to the Internal Revenue Service as wages for such period pursuant to
section 6041(a) of the Code, plus the amount by which such Employee's
compensation with respect to such period has been reduced pursuant to a
compensation reduction agreement under the terms of any of the following plans
which may be maintained by the Employer:
(a) a qualified cash or deferred arrangement described in
section 401(k) of the Code;
<PAGE> 9
-2-
(b) a salary reduction simplified employee pension plan
described in section 408(k) of the Code;
(c) a tax deferred annuity plan described in section 403(b) of
the Code; or
(d) a cafeteria plan described in section 125 of the Code.
In no event, however, shall an Employee's Allocation Compensation for any
calendar year include any compensation in excess of $150,000. The $150,000
limitation set forth in the preceding sentence shall be indexed in accordance
with regulations prescribed under section 401(a)(17) of the Code. If there are
less than twelve (12) months in the Plan Year, the $150,000 limitation (as
adjusted) shall be prorated by multiplying such limitation by a fraction, the
numerator of which is the number of months in the Plan Year and the denominator
of which is twelve (12). For purposes of applying the foregoing limitations to
any person who is a Five Percent Owner or who is one of the ten Highly
Compensated Employees with the highest Total Compensation (determined prior to
the application of this sentence), any Allocation Compensation paid to the
spouse of such person or to any lineal descendant of such person who has not
attained age 19 on or before the last day of such calendar year shall be deemed
to have been paid to such person.
SECTION 1.4 BOARD means the Board of Directors of Tappan Zee
Financial, Inc.
SECTION 1.5 BENEFICIARY means the person or persons designated
by a Participant or Former Participant or other person entitled to a benefit
under the Plan, or otherwise determined to be entitled to a benefit under the
Plan. If more than one person is designated, each shall have an equal share
unless the person making the designation directed otherwise. The word "person"
includes an individual, a trust, an estate or any other person that is permitted
to be named as a Beneficiary.
SECTION 1.6 BREAK IN SERVICE means a Period of Severance of at
least 365 consecutive days.
SECTION 1.7 CHANGE IN CONTROL means an event described in
section 9.6(b).
SECTION 1.8 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
SECTION 1.9 COMMITTEE means the Compensation Committee
described in section 14.3.
SECTION 1.10 DISABILITY means a condition of total incapacity,
mental or physical, for further performance of duty with the Employer, which the
Plan Administrator shall have determined, on the basis of competent medical
evidence, is likely to be permanent.
SECTION 1.11 DOMESTIC RELATIONS ORDER means a judgment, decree
or order (including the approval of a property settlement) that is made pursuant
to a state domestic
<PAGE> 10
-3-
relations or community property law and relates to the provision of child
support, alimony payments, or marital property rights to a spouse, child or
other dependent of a Participant or Former Participant.
SECTION 1.12 EFFECTIVE DATE means October 5, 1995.
SECTION 1.13 ELIGIBLE EMPLOYEE means an Employee who is eligible
for participation in the Plan in accordance with Article II.
SECTION 1.14 ELIGIBLE PARTICIPANT means, for any Plan Year, an
Employee who is or was a Participant during all or part of such Plan Year.
SECTION 1.15 EMPLOYEE means any person, including an officer,
who is employed by the Employer.
SECTION 1.16 EMPLOYER means Tappan Zee Financial, Inc., and any
successor thereto and any Affiliated Employer which, with the prior written
approval of the Board of Directors of Tappan Zee Financial, Inc. and subject to
such terms and conditions as may be imposed by the Board of Directors of Tappan
Zee Financial, Inc., shall adopt this Plan.
SECTION 1.17 EMPLOYMENT COMMENCEMENT DATE means the date on
which a person first performs an Hour of Service, except that if an Employee
separates from service with the Employer, incurs a Break in Service and
subsequently returns to service with the Employer, his Employment Commencement
Date shall be the date on which he first performs an Hour of Service following
the Break in Service.
SECTION 1.18 ERISA means the Employee Retirement Income Security
Act of 1974, as amended from time to time (including the corresponding
provisions of any succeeding law).
SECTION 1.19 ESOP CONTRIBUTION means Shares or amounts of money
contributed to the Plan by the Employer in accordance with section 5.3.
SECTION 1.20 FAIR MARKET VALUE on any date means:
(a) with respect to a Share:
(i) the final quoted sale price on the date in
question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) as
reported in the principal consolidated reporting system with
respect to securities listed or admitted to trading on the
principal United States securities exchange on which like Shares
are listed or admitted to trading; or
(ii) if like Shares are not listed or admitted to
trading on any such exchange, the closing bid quotation with
respect to a Share on such
<PAGE> 11
-4-
date on the National Association of Securities Dealers Automated
Quotation System, or, if no such quotation is provided, on
another similar system, selected by the Committee, then in use;
or
(iii) if sections 1.20(a)(i) and (ii) are not
applicable, the fair market value of a Share as determined by an
appraiser independent of the Employer and experienced and expert
in the field of corporate appraisal.
(b) with respect to property other than Shares, the fair market
value determined in the manner determined by the Trustee.
SECTION 1.21 FAMILY MEMBER means, with respect to any person,
such person's spouse and lineal ascendants or descendants and the spouses of
such lineal ascendants or descendants.
SECTION 1.22 FINANCED SHARE means: (a) a Share that has been
purchased with the proceeds of a Share Acquisition Loan, that has been allocated
to the Loan Repayment Account in accordance with section 6.3 and that has not
been released in accordance with section 6.4; or (b) a Share that constitutes a
dividend paid with respect to a Share described in section 1.22(a), that has
been allocated to the Loan Repayment Account in accordance with section 6.3 and
that has not been released in accordance with section 6.4.
SECTION 1.23 FIVE PERCENT OWNER means, for any Plan Year, a
person who, during such Plan Year, owned (or was considered as owning for
purposes of section 318 of the Code): (a) more than 5% of the value of all
classes of outstanding stock of the Employer; or (b) stock possessing more than
5% of the combined voting power of all classes of outstanding stock of the
Employer.
SECTION 1.24 FORFEITURES means the amounts forfeited by
Participants and Former Participants on termination of employment prior to full
vesting, pursuant to section 9.3, less amounts credited because of
re-employment, pursuant to section 9.4.
SECTION 1.25 FORMER PARTICIPANT means a Participant whose
participation in the Plan has terminated pursuant to section 2.3.
SECTION 1.26 GENERAL INVESTMENT ACCOUNT means an Investment
Account established and maintained in accordance with Article XI.
SECTION 1.27 HIGHLY COMPENSATED EMPLOYEE means, for any Plan
Year, an Employee who:
(a) at any time during such Plan Year or the immediately
preceding Plan Year was a Five Percent Owner; or
(b) is a member of the group consisting of the 100 Employees
and persons employed by any Affiliated Employer who received the
greatest Total Compensation for such Plan Year and during such Plan
Year:
<PAGE> 12
-5-
(i) received Total Compensation for such Plan Year in
excess of $75,000 (or such higher amount as may be permitted
under section 414(q) of the Code); or
(ii) received Total Compensation for such Plan Year that
was in excess of both (A) $50,000 (or such higher amount as may
be permitted under section 414(q) of the Code) and (B) the Total
Compensation for such Plan Year of at least 80% of the Employees
and persons employed by any Affiliated Employer for such Plan
Year; or
(iii) was an Officer of the Employer or any Affiliated
Employer and received Total Compensation for such Plan Year in
excess of 50% of the amount in effect under section 415(b)(1)(A)
of the Code for such Plan Year; or
(c) during the immediately preceding Plan Year:
(i) received Total Compensation for such Plan Year in
excess of $75,000 (or such higher amount as may be permitted
under section 414(q) of the Code); or
(ii) received Total Compensation for such Plan Year that
was in excess of both (A) $50,000 (or such higher amount as may
be permitted under section 414(q) of the Code) and (B) the Total
Compensation for such Plan Year of at least 80% of the Employees
and persons employed by an Affiliated Employer for such Plan
Year; or
(iii) was an Officer of the Employer or any Affiliated
Employer and received Total Compensation for such Plan Year in
excess of 50% of the amount in effect under section 415(b)(1)(A)
of the Code for such Plan Year.
The determination of who is a Highly Compensated Employee will be made in
accordance with section 414(q) of the Code and the regulations thereunder. For
purposes of applying any provisions of the Plan applicable to Highly Compensated
Employees, any person who is a Family Member of a Five Percent Owner or one of
the ten Highly Compensated Employees with the highest Total Compensation for a
Plan Year shall not be treated as a separate person for such Plan Year, and any
Total Compensation or Allocation Compensation paid to such person for such Plan
Year, as well as his share of allocations of contributions or Shares under this
Plan, shall be attributed to the Five Percent Owner or Highly Compensated
Employee.
SECTION 1.28 HOUR OF SERVICE means each hour for which a person
is paid, or entitled to payment, for the performance of duties for the Employer
or any Affiliated Employer.
SECTION 1.29 INVESTMENT ACCOUNT means either a General
Investment Account or a Share Investment Account.
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SECTION 1.30 INVESTMENT FUND means any one of the three or more
funds as may be established from time to time by the Committee which, together
with any and all Shares and other investments held under the Plan, constitute
the Trust Fund.
SECTION 1.31 LOAN REPAYMENT ACCOUNT means an account established
and maintained in accordance with section 6.3.
SECTION 1.32 LOAN REPAYMENT CONTRIBUTION means amounts of money
contributed to the Plan by the Employer in accordance with section 5.2.
SECTION 1.33 MATERNITY OR PATERNITY LEAVE means a person's
absence from work for the Employer and all Affiliated Employers: (a) by reason
of the pregnancy of such person; (b) by reason of the birth of a child of such
person; (c) by reason of the placement of a child with the person in connection
with the adoption of such child by such person; or (d) for purposes of caring
for a child of such person immediately following the birth of the child or the
placement of the child with such person.
SECTION 1.34 MILITARY SERVICE means service in the armed forces
of the United States. It may also include, if and to the extent that the Board
so provides and if all Participants and Former Participants in like
circumstances are similarly treated, special service for the government of the
United States and other public service.
SECTION 1.35 NAMED FIDUCIARY means any person, committee,
corporation or organization as described in section 14.1.
SECTION 1.36 OFFICER means an employee who is an administrative
executive in regular and continued service with the Employer or any Affiliated
Employer; provided, however, that at no time shall more than the lesser of (a)
50 employees or (b) the greater of: (i) 3 employees or (ii) 10% of all employees
be treated as Officers. The determination of whether an employee is to be
considered an Officer shall be made in accordance with section 416(i) of the
Code.
SECTION 1.37 PARTICIPANT means any person who has satisfied the
eligibility requirements set forth in section 2.1, who has become a Participant
in accordance with section 2.2, and whose participation has not terminated under
section 2.3.
SECTION 1.38 PERIOD OF SERVICE means a period of consecutive days
commencing on a person's Employment Commencement Date and ending on the date a
Period of Severance begins, with any adjustments required under section 2.4.
Whenever used in the Plan, a Period of Service "of year(s)" means the quotient
of the Period of Service divided by 365, and any fractional part of a year shall
for such purposes be disregarded.
SECTION 1.39 PERIOD OF SEVERANCE means a period of consecutive
days commencing with the earlier of:
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(a) the date on which a person terminates service with the
Employer and all Affiliated Employers by reason of resignation,
retirement, discharge or death; or
(b) the first anniversary of the date on which a person
terminates service with the Employer and all Affiliated Employers for any
other reason including layoff, disability, leave of absence or any other
cessation of service not otherwise included as service under the Plan;
and ending on the first date following such separation from service on which
such person performs an Hour of Service.
SECTION 1.40 PLAN means the Employee Stock Ownership Plan of
Tappan Zee Financial, Inc. and Certain Affiliates as amended from time to time.
The Plan may be referred to as the "Employee Stock Ownership Plan of Tappan Zee
Financial, Inc. and Certain Affiliates."
SECTION 1.41 PLAN ADMINISTRATOR means any person, committee,
corporation or organization designated in section 14.2, or appointed pursuant to
section 14.2, to perform the responsibilities of that office.
SECTION 1.42 PLAN YEAR means the period commencing on the
Effective Date and ending on December 31, 1995 and each calendar year
thereafter.
SECTION 1.43 QUALIFIED DOMESTIC RELATIONS ORDER means a Domestic
Relations Order that: (a) clearly specifies (i) the name and last known mailing
address of the Participant or Former Participant and of each person given rights
under such Domestic Relations Order, (ii) the amount or percentages of the
Participant's or Former Participant's benefits under this Plan to be paid to
each person covered by such Domestic Relations Order, (iii) the number of
payments or the period to which such Domestic Relations Order applies, and (iv)
the name of this Plan; and (b) does not require the payment of a benefit in a
form or amount that is (i) not otherwise provided for under the Plan, or (ii)
inconsistent with a previous Qualified Domestic Relations Order.
SECTION 1.44 QUALIFIED PARTICIPANT means a Participant who has
attained age 55 and who has been a Participant in the Plan for at least 10
years.
SECTION 1.45 RETIREMENT means: (a) any termination of
participation in the Plan at or after attainment of age 65; and (b) any
retirement under an applicable qualified defined benefit plan of the Employer as
in effect from time to time with entitlement to a normal or early retirement
allowance.
SECTION 1.46 SHARE means a share of any class of stock issued by
the Employer or any Affiliated Employer; provided that such share is a
"qualifying employer security" within the meaning section 409(l) of the Code and
section 407(d)(5) of ERISA.
<PAGE> 15
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SECTION 1.47 SHARE ACQUISITION LOAN means a loan obtained by the
Trustee in accordance with Article VI.
SECTION 1.48 SHARE INVESTMENT ACCOUNT means an Investment Account
established and maintained in accordance with Article XI.
SECTION 1.49 TENDER OFFER means a tender offer made to holders of
any one or more classes of Shares generally, or any other offer, made to holders
of any one or more classes of Shares generally, to purchase, exchange, redeem or
otherwise transfer Shares, whether for cash or other consideration.
SECTION 1.50 TOTAL COMPENSATION during any period means an
employee's aggregate total compensation paid by the Employer and any Affiliated
Employer with respect to such period, including earned income, wages, salaries,
fees for professional services actually rendered in the course of employment
with the Employer and any Affiliated Employer (including, but not limited to,
commissions paid to salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips and bonuses) but
excluding the following:
(a) contributions by the Employer and any Affiliated Employer
(i) under a deferred compensation plan to the extent not included in the
employee's gross income for the taxable year in which contributed, or
(ii) under a simplified employee pension to the extent the contributions
are excludable under section 402(h) of the Code (in calendar years
beginning after December 31, 1986) or deductible under section 219(b)(2)
of the Code (in calendar years beginning before January 1, 1987), or
(iii) for the purchase of an annuity contract under section 403(b) of the
Code (whether or not made under a salary reduction agreement or
excludable from gross income);
(b) distributions from a deferred compensation plan, whether or
not includible in the employee's gross income; and
(c) other amounts that qualify for special tax benefits under
the Code, such as premiums for group life insurance to the extent not
includible as gross income.
In addition, solely for purposes of identifying those employees who are Highly
Compensated Employees, each employee's Total Compensation shall include any
amounts by which the employee's compensation paid by the Employer or any
Affiliated Employer has been reduced pursuant to a compensation reduction
agreement under the terms of any qualified cash or deferred arrangement
described in section 401(k) of the Code, any salary reduction simplified
employee pension plan described in section 408(k) of the Code, any tax deferred
annuity plan described in section 403(b) of the Code, or any cafeteria plan
described in section 125 of the Code. In no event, however, shall an employee's
Total Compensation for (i) any calendar year beginning after December 31, 1988
and before January 1, 1994, include any compensation in excess of $200,000 (or
such higher amount as may be permitted under section 401(a)(17) of the Code) and
(ii) for any calendar year beginning after January 1, 1994, include any
compensation
<PAGE> 16
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in excess of $150,000 (or such higher amount as may be permitted under section
401(a)(17) of the Code). For purposes of applying the foregoing limitations to
any person who is a Five Percent Owner or who is one of the ten Highly
Compensated Employees with the highest Total Compensation (determined prior to
the application of this sentence), any Total Compensation paid to the spouse of
such person or to any lineal descendant of such person who has not attained age
19 on or before the last day of such calendar year, shall be deemed to have been
paid to such person.
SECTION 1.51 TRUST means the legal relationship created by the
Trust Agreement pursuant to which the Trustee holds the Trust Fund in trust. The
Trust may be referred to as the "Employee Stock Ownership Plan Trust of Tappan
Zee Financial, Inc. and Certain Affiliates."
SECTION 1.52 TRUST AGREEMENT means the agreement between Tappan
Zee Financial, Inc. and the Trustee therein named or its successors pursuant to
which the Trust Fund shall be held in trust.
SECTION 1.53 TRUST FUND means the corpus (consisting of
contributions paid over to the Trustee, and investments thereof), and all
earnings, appreciations or additions thereof and thereto, held by the Trustee
under the Trust Agreement in accordance with the Plan, less any depreciation
thereof and any payments made therefrom pursuant to the Plan.
SECTION 1.54 TRUSTEE means the Trustee of the Trust Fund from
time to time in office. The Trustee shall serve as Trustee until it is removed
or resigns from office and is replaced by a successor Trustee appointed in
accordance with the terms of the Trust Agreement.
SECTION 1.55 VALUATION DATE means the last business day of March,
June, September and December.
ARTICLE II
PARTICIPATION
SECTION 2.1 ELIGIBILITY FOR PARTICIPATION.
(a) Only Eligible Employees may be or become Participants in
the Plan. An Employee shall be an Eligible Employee if he is a common-law
employee of an Employer and is not excluded under section 2.1(b).
(b) An Employee is not an Eligible Employee if he:
(i) is an Employee who has waived any claim to participation in
the Plan; or
<PAGE> 17
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(ii) is an Employee or in a unit of Employees covered by a
collective bargaining agreement with the Employer where retirement
benefits were the subject of good faith bargaining, unless such agreement
expressly provides that Employees such as he be covered under the Plan;
or
(iii) is a "leased employee" as defined in section 17.8(a).
SECTION 2.2 COMMENCEMENT OF PARTICIPATION.
Every Employee who is an Eligible Employee on the Effective Date
shall automatically become a Participant on the Effective Date. An Employee who
becomes an Eligible Employee after the Effective Date shall automatically become
a Participant on the first day of the month following the month in which he
becomes an Eligible Employee.
SECTION 2.3 TERMINATION OF PARTICIPATION.
Participation in the Plan shall cease, and a Participant shall
become a Former Participant, upon termination of employment with the Employer,
death, Disability or Retirement, failure to return to work upon the expiration
of a leave of absence granted by the Employer pursuant to section 3.3 or
becoming an Employee who is excluded under section 2.1(b).
SECTION 2.4 ADJUSTMENTS TO PERIOD OF SERVICE.
(a) The Period of Service of an Employee shall include any
period during which the Employee is separated from the service of the Employer
and all Affiliated Employers if such period is less than 365 consecutive days
measured from the date on which such Employee terminates service and ending with
the first date following such termination for which the Employer is credited
with an Hour of Service.
(b) The Period of Service of an Employee who returns to the
service of the Employer and all Affiliated Employers following a separation from
service shall commence with the first date following such separation from
service for which the Employer is credited with an Hour of Service, and he shall
be given credit for any Period of Service prior to such separation, except that
if such separation includes a Break in Service, such credit shall not be given
until he completes a Period of Service of one year following such Break in
Service.
(c) The Period of Service of an Employee who is absent on
Maternity or Paternity Leave shall exclude any period of such absence that
occurs after the first anniversary of the commencement of such absence.
(d) An Employee's Period of Service shall also be adjusted to
the extent required by the Family and Medical Leave Act or any regulations
promulgated thereunder.
<PAGE> 18
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Article III
SPECIAL PROVISIONS
SECTION 3.1 MILITARY SERVICE.
In the case of a termination of employment of any Employee to
enter directly into Military Service, the entire period of his absence shall be
treated, for purposes of vesting and eligibility for participation (but not,
except as required by law, for purposes of eligibility to share in allocations
of contributions in accordance with Article VII), as if he had worked for the
Employer during the period of his absence. In the event of the re-employment of
such person by the Employer within a period of not more than six months:
(a) after he becomes entitled to release or discharge, if he
has entered into the armed forces; or
(b) after such service terminates, if he has entered into other
service defined as Military Service;
such period, also, shall be deemed to be Military Service.
SECTION 3.2 MATERNITY OR PATERNITY LEAVE.
(a) Subject to section 3.2(b), in the event of an Employee's
absence from work in the service of the Employer and all Affiliated Employers
for a period:
(i) that commences on or after October 1, 1985;
(ii) for which the person is not paid or entitled to
payment by the Employer or any Affiliated Employer;
(iii) that constitutes Maternity or Paternity Leave; and
(iv) that exceeds one year;
then solely for purposes of determining when a Break in Service has occurred or
when a Period of Severance of five years has occurred for purposes of section
9.4, the period of such an absence commencing on the first anniversary of such
absence and ending on the second anniversary of the commencement of such absence
(or, if earlier, on the last day of such absence) shall not be treated as a
Period of Severance.
(b) Notwithstanding anything in the Plan to the contrary, this
section 3.2 shall not apply unless the person furnishes to the Plan
Administrator such information as the Plan Administrator may reasonably require
in order to establish: (i) that the person's absence is one described in section
3.2(a); and (ii) the number of working days during such absence.
<PAGE> 19
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SECTION 3.3 LEAVE OF ABSENCE.
In the event of temporary absence from work in the service of the
Employer and all Affiliated Employers for any period of two years or less for
which a Participant shall have been granted a leave of absence by the Employer,
the entire period of his absence shall be treated for purposes of vesting and
eligibility for participation (but not for purposes of eligibility to share in
the allocation of contributions in accordance with Article VII), as if he had
worked for the Employer during the period of his absence. Absence from work for
a period greater than, or failure to return to work upon the expiration of, the
period of leave of absence granted by the Employer shall terminate participation
in the Plan as of the date on which such period ended. In granting leaves of
absence for purposes of the Plan, all Employees in like circumstances shall be
similarly treated.
ARTICLE IV
CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED
SECTION 4.1 CONTRIBUTIONS BY PARTICIPANTS NOT PERMITTED.
Participants shall not be required, nor shall they be permitted,
to make contributions to the Plan.
ARTICLE V
CONTRIBUTIONS BY THE EMPLOYER
SECTION 5.1 IN GENERAL.
Subject to the limitations of Article VIII, for each Plan Year,
the Employer shall contribute to the Plan the amount, if any, determined by the
Board, but in no event less than the amount described in section 5.2(a). The
amount contributed for any Plan Year shall be treated as a Loan Repayment
Contribution, an ESOP Contribution, or a combination thereof, in accordance with
the provisions of this Article V.
SECTION 5.2 LOAN REPAYMENT CONTRIBUTIONS.
For each Plan Year, a portion of the Employer's contributions, if
any, to the Plan for such Plan Year equal to the sum of:
<PAGE> 20
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(a) the minimum amount required to be added to the Loan
Repayment Account in order to provide adequate funds for the payment of
the principal and interest then required to be repaid under the terms of
any outstanding Share Acquisition Loan obtained by the Trustee; plus
(b) the additional amount, if any, designated by the Committee
to be applied to the prepayment of principal or interest under the terms
of any outstanding Share Acquisition Loan obtained by the Trustee;
shall be treated as a Loan Repayment Contribution for such Plan Year. A Loan
Repayment Contribution for a Plan Year shall be allocated to the Loan Repayment
Account and shall be applied by the Trustee, in the manner directed by the
Committee, to the payment of accrued interest and to the reduction of the
principal balance of any Share Acquisition Loan obtained by the Trustee that is
outstanding on the date on which the Loan Repayment Contribution is made. To the
extent that a Loan Repayment Contribution for a Plan Year results in a release
of Financed Shares in accordance with section 6.4, such Shares shall be
allocated among the Accounts of Eligible Participants for such Plan Year in
accordance with section 7.2.
SECTION 5.3 ESOP CONTRIBUTIONS.
In the event that the amount of the Employer's contributions
to the Plan for a Plan Year exceeds the amount of the Loan Repayment
Contributions for such Plan Year, such excess shall be treated as an ESOP
Contribution and shall be allocated among the Accounts of the Eligible
Participants for such Plan Year in accordance with section 7.3.
SECTION 5.4 TIME AND MANNER OF PAYMENT.
(a) Payment of contributions made pursuant to this Article
V shall be made:
(i) in cash, in the case of a Loan Repayment
Contribution; and
(ii) in cash, in Shares or in a combination of cash
and Shares, in the case of an ESOP Contribution.
(b) Contributions made pursuant to this Article V for a Plan
Year shall be paid to the Trust Fund on or before the due date (including any
extensions thereof) of the Employer's federal income tax return for its taxable
year during which such Plan Year ends. All such contributions shall be allocated
to the Accounts of the Eligible Participants, in the case of an ESOP
Contribution, or to the Loan Repayment Account, in the case of a Loan Repayment
Contribution, as soon as is practicable following the payment thereof to the
Trust Fund.
<PAGE> 21
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ARTICLE VI
SHARE ACQUISITION LOANS
SECTION 6.1 IN GENERAL.
The Committee may, with the prior approval of the Board, direct
the Trustee to obtain a Share Acquisition Loan on behalf of the Plan, the
proceeds of which shall be applied on the earliest practicable date:
(a) to purchase Shares; or
(b) to make payments of principal or interest, or a combination
of principal and interest, with respect to such Share Acquisition Loan;
or
(c) to make payments of principal and interest, or a
combination of principal and interest, with respect to a previously
obtained Share Acquisition Loan that is then outstanding.
Any such Share Acquisition Loan shall be obtained on such terms and conditions
as the Committee may approve; provided, however, that such terms and conditions
shall provide for the payment of interest at no more than a reasonable rate and
shall permit such Share Acquisition Loan to satisfy the requirements of section
4975(d)(3) of the Code and section 408(b)(3) of ERISA.
SECTION 6.2 COLLATERAL; LIABILITY FOR REPAYMENT.
(a) The Committee may direct the Trustee to pledge, at the time
a Share Acquisition Loan is obtained, the following assets of the Plan as
collateral for such Share Acquisition Loan:
(i) any Shares purchased with the proceeds of such Share
Acquisition Loan and any earnings attributable thereto;
(ii) any Financed Shares then pledged as collateral for a prior
Share Acquisition Loan which is repaid with the proceeds of such Share
Acquisition Loan and any earnings attributable thereto; and
(iii) pending the application thereof to purchase Shares or repay
a prior Share Acquisition Loan, the proceeds of such Share Acquisition
Loan and any earnings attributable thereto.
Except as specifically provided in this section 6.2(a), no assets of the Plan
shall be pledged as collateral for the repayment of any Share Acquisition Loan.
<PAGE> 22
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(b) No person entitled to payment under a Share Acquisition
Loan shall have any right to the assets of the Plan except for:
(i) Financed Shares that have been pledged as collateral for
such Share Acquisition Loan pursuant to section 6.2(a);
(ii) Loan Repayment Contributions made pursuant to section 5.2;
and
(iii) earnings attributable to Financed Shares described in
section 6.2(b)(i) and to Loan Repayment Contributions described in
section 6.2(b)(ii).
Except in the event of a default or a refinancing pursuant to which an existing
Share Acquisition Loan is repaid, the aggregate amount of all payments of
principal and interest made by the Trustee with respect to all Share Acquisition
Loans obtained on behalf of the Plan shall at no time exceed the aggregate
amount of all Loan Repayment Contributions theretofore made plus the aggregate
amount of all earnings (other than dividends paid in the form of Shares)
attributable to Financed Shares and to such Loan Repayment Contributions.
(c) Any Share Acquisition Loan shall be without recourse
against the Plan and Trust.
SECTION 6.3 LOAN REPAYMENT ACCOUNT.
In the event that one or more Share Acquisition Loans shall be
obtained, a Loan Repayment Account shall be established under the Plan. The Loan
Repayment Account shall be credited with all Shares acquired with the proceeds
of a Share Acquisition Loan, all Loan Repayment Contributions and all earnings
(including dividends paid in the form of Shares) or appreciation attributable to
such Shares and Loan Repayment Contributions. The Loan Repayment Account shall
be charged with all payments of principal and interest made by the Trustee with
respect to any Share Acquisition Loan, all Shares released in accordance with
section 6.4 and all losses, depreciation or expenses attributable to Shares or
to other property credited thereto. The Financed Shares, as well as any earnings
thereon, shall be allocated to such Loan Repayment Account and shall be
accounted for separately from all other amounts contributed under the Plan.
SECTION 6.4 RELEASE OF FINANCED SHARES.
As of the last day of each Plan Year during which a Share
Acquisition Loan is outstanding, a portion of the Financed Shares purchased with
the proceeds of such Share Acquisition Loan and allocated to the Loan Repayment
Account shall be released. The number of Financed Shares released in any such
Plan Year shall be equal to the amount determined according to one of the
following methods:
(a) by computing the product of: (i) the number of Financed
Shares purchased with the proceeds of such Share Acquisition Loan and allocated
to the
<PAGE> 23
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Loan Repayment Account immediately before the release is effected;
multiplied by (ii) a fraction, the numerator of which is the aggregate
amount of the principal and interest payments (other than payments made
upon the refinancing of a Share Acquisition Loan as contemplated by
section 6.1(c)) made with respect to such Share Acquisition Loan during
such Plan Year, and the denominator of which is the aggregate amount of
all principal and interest remaining to be paid with respect to such
Share Acquisition Loan as of the first day of such Plan Year; or
(b) by computing the product of: (i) the number of Financed
Shares purchased with the proceeds of such Share Acquisition Loan and
allocated to the Loan Repayment Account immediately before the release
is effected; multiplied by (ii) a fraction, the numerator of which is
the aggregate amount of the principal payments (other than payments
made upon the refinancing of a Share Acquisition Loan as contemplated
by section 6.1(c)) made with respect to such Share Acquisition Loan
during such Plan Year, and the denominator of which is the aggregate
amount of all of principal remaining to be paid with respect to such
Share Acquisition Loan as of the first day of such Plan Year; provided,
however, that the method described in this section 6.4(b) may be used
only if the Share Acquisition Loan does not extend for a period in
excess of 10 years after the date of origination and only to the extent
that principal payments on such Share Acquisition Loan are made at
least as rapidly as under a loan of like principal amount with a like
interest rate and term requiring level amortization of principal and
interest.
The method to be used shall be specified in the documents governing the Share
Acquisition Loan or, if not specified therein, prescribed by the Committee, in
its discretion. In the event that property other than, or in addition to,
Financed Shares shall be held in the Loan Repayment Account and pledged as
collateral for a Share Acquisition Loan, then the property to be released
pursuant to this section 6.4 shall be property having a Fair Market Value
determined by applying the method to be used to the Fair Market Value of all
property pledged as collateral for such Share Acquisition Loan; provided,
however, that no property other than Financed Shares shall be released pursuant
to this section 6.4 unless all Financed Shares have previously been released.
SECTION 6.5 RESTRICTIONS ON FINANCED SHARES.
Except to the extent required under any applicable law, rule or
regulation, no Shares purchased with the proceeds of a Share Acquisition Loan
shall be subject to a put, call or other option, or to any buy-sell or similar
arrangement, while held by the Trustee or when distributed from the Plan. The
provisions of this section 6.5 shall continue to apply in the event that this
Plan shall cease to be an employee stock ownership plan, within the meaning of
section 4975(e)(7) of the Code.
<PAGE> 24
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ARTICLE VII
ALLOCATION OF CONTRIBUTIONS
SECTION 7.1 ALLOCATION AMONG ELIGIBLE PARTICIPANTS.
Subject to the limitations of Article VIII, ESOP Contributions
for a Plan Year made in accordance with section 5.3 and Financed Shares and
other property that are released from the Loan Repayment Account for a Plan Year
in accordance with section 6.4 shall be allocated among the Eligible
Participants for such Plan Year, in the manner provided in this Article VII.
SECTION 7.2 ALLOCATION OF RELEASED SHARES OR OTHER PROPERTY.
Subject to the limitations of Article VIII, in the event that
Financed Shares or other property are released from the Loan Repayment Account
for a Plan Year in accordance with section 6.4, such released Shares or other
property shall be allocated among the Accounts of the Eligible Participants for
the Plan Year in the proportion that each such Eligible Particip- ant's
Allocation Compensation for the portion of the Plan Year during which he was a
Participant bears to the aggregate Allocation Compensation of all Eligible
Participants for the portion of the Plan Year during which they were
Participants.
SECTION 7.3 ALLOCATION OF ESOP CONTRIBUTIONS.
Subject to the limitations of Article VIII, in the event that the
Employer makes an ESOP Contribution for a Plan Year, such ESOP Contribution
shall be allocated among the Accounts of the Eligible Participants for such Plan
Year in the proportion that each such Eligible Participant's Allocation
Compensation for the portion of the Plan Year during which he was a Participant
bears to the aggregate Allocation Compensation of all Eligible Participants for
the portion of such Plan Year during which they were Eligible Participants.
SECTION 7.4 NO ALLOCATION AFTER TERMINATION OF PARTICIPATION.
No amount of the Employer's contributions for a Plan Year, nor
any Financed Shares or other property released during a Plan Year, shall be
allocated to the account of any person who is not an Eligible Participant for
such Plan Year, even if such person was a Participant during part of such Plan
Year.
<PAGE> 25
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ARTICLE VIII
LIMITATIONS ON ALLOCATIONS
SECTION 8.1 OPTIONAL LIMITATIONS ON ALLOCATIONS OF ESOP CONTRIBUTIONS.
If, for any Plan Year, the application of sections 7.2 and 7.3 would
result in more than one-third of the number of Shares or of the amount of money
or property to be allocated thereunder being allocated to the Accounts of
Eligible Participants for such Plan Year who are also Highly Compensated
Employees for such Plan Year, then the Committee may, but shall not be required
to, direct that this section 8.1 shall apply in lieu of sections 7.2 and 7.3. If
the Committee gives such a direction, then the Committee shall impose a maximum
dollar limitation on the amount of Allocation Compensation that may be taken
into account for each Eligible Participant. The dollar limitation which shall be
imposed shall be the limitation which produces the result that the aggregate
Allocation Compensation taken into account for Eligible Participants who are
Highly Compensated Employees, constitutes exactly one-third of the aggregate
Allocation Compensation taken into account for all Eligible Participants. In
determining whether more than one-third of the number of Shares or of the amount
of money or property to be allocated under the Plan for a Plan Year would be
allocated to the Highly Compensated Employees, any allocation to be made to the
Account of a Family Member of a Highly Compensated Employee who is either a Five
Percent Owner or one of the ten Highly Compensated Employees with the highest
Total Compensation, shall be treated as an allocation to such Highly Compensated
Employee.
SECTION 8.2 GENERAL LIMITATIONS ON CONTRIBUTIONS.
(a) No amount shall be allocated to a Participant's Account under this
Plan for any Limitation Year, to the extent that such an allocation would result
in an Annual Addition of an amount greater than the lesser of (i) $30,000 (or
such other amount as is permissible under section 415(c)(1)(A) of the Code, or
(ii) 25% of the Participant's Total Compensation for such Limitation Year.
(b) In the case of a Participant who may be entitled to benefits under
any qualified defined benefit plan (whether or not terminated) now in effect or
ever maintained by the Employer, such Participant's Annual Additions under this
Plan shall, in addition to the limitations provided under section 8.2(a), be
further limited so that the sum of the Participant's Defined Contribution Plan
Fraction plus his Defined Benefit Plan Fraction does not exceed 1.0 for any
Limitation Year; provided, however, that for any Limitation Year ending prior to
January 1, 1983, the sum of his Defined Contribution Plan Fraction plus his
Defined Benefit Plan Fraction shall not exceed 1.4; and provided further, that
this limitation shall only apply if and to the extent that the benefits under
the Employer's Retirement Plan are not limited so that such sum is not exceeded.
(c) For purposes of this section 8.2, the following special
definitions shall apply:
<PAGE> 26
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(i) Annual Addition means the sum of the following amounts
allocated on behalf of a Participant for a Limitation Year:
(A) all contributions by the Employer (including
contributions made under a salary reduction agreement pursuant
to sections 401(k), 408(k) or 403(b) of the Code) under any
qualified defined contribution plan (other than this Plan)
maintained by the Employer, as well as the Participant's
allocable share, if any, of any forfeitures under such plans;
plus
(B) (I) for Limitation Years that began prior to
January 1, 1987, the lesser of (1) 50% of the Participant's
voluntary nondeductible contributions to all qualified defined
contribution plans maintained by the Employer, or (2) the
amount by which the Participant's nondeductible voluntary
contributions to such plans exceeds 6% of his Total
Compensation; and (II) for Limitation Years that begin after
December 31, 1986, all of the Participant's voluntary
nondeductible contributions to such plans; plus
(C) all ESOP Contributions under this Plan; plus
(D) except as hereinafter provided in this section
8.2(c)(i), a portion of the Employer's Loan Repayment
Contributions to the Plan for such Limitation Year which bears
the same proportion to the total amount of the Employer's Loan
Repayment Contributions for the Limitation Year that the
number of Shares (or the Fair Market Value of property other
than Shares) allocated to the Participant's Account pursuant
to section 7.2 or 8.1, whichever is applicable, bears to the
aggregate number of Shares (or Fair Market Value of property
other than Shares) so allocated to all Participants for such
Limitation Year.
Notwithstanding section 8.2(c)(i)(D), if, for any Limitation Year, the
aggregate amount of ESOP Contributions allocated to the Accounts of the
individuals who are Highly Compensated Employees for such Limitation
Year, when added to such Highly Compensated Employees' allocable share
of any Loan Repayment Contributions for such Limitation Year, does not
exceed one-third of the total of all ESOP Contributions and Loan
Repayment Contributions for such Limitation Year, then that portion, if
any, of the Loan Repayment Contributions for such Limitation Year that
is applied to the payment of interest on a Share Acquisition Loan shall
not be included as an Annual Addition. In determining whether more than
one-third of the number of Shares or of the amount of money or property
to be allocated under the Plan for a Plan Year would be allocated to
the Highly Compensated Employees, any allocation to be made to the
Account of a Family Member of a Highly Compensated Employee who is
either a Five Percent Owner or one of the ten Highly Compensated
Employees with the highest Total Compensation, shall be treated as an
allocation to such Highly Compensated Employee.
<PAGE> 27
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(ii) Employer means Tappan Zee Financial, Inc., and all
members of a controlled group of corporations, as defined in section
414(b) of the Code, as modified by section 415(h) of the Code, all
commonly controlled trades or businesses, as defined in section 414(c)
of the Code, as modified by section 415(h) of the Code, all affiliated
service groups, as defined in section 414(m) of the Code, of which
Tappan Zee Financial, Inc. is a member, as well as any leasing
organization, as defined in section 17.8, that employs any person who
is considered an employee under section 17.8 and any other entity that
is required to be aggregated with the Employer pursuant to regulations
under section 414(o) of the Code.
(iii) Defined Benefit Plan Fraction means, for any Participant
for any Limitation Year, a fraction, the numerator of which is the
Projected Annual Benefit (determined as of the end of such Limitation
Year) of the Participant under any qualified defined benefit plans
(whether or not terminated) maintained by the Employer for the current
and all prior Limitation Years, and the denominator of which is as
follows: (A) for Limitation Years ending prior to January 1, 1983, the
lesser of (I) the dollar limitation in effect under section 415(b)(1)
(A) of the Code for such Limitation Year, or (II) the amount which may
be taken into account under section 415(b)(1)(B) of the Code with
respect to such Participant for such Limitation Year; and (B) in all
other cases, the lesser of (I) (except as provided in section 16.8(b)
for a Top Heavy Plan Year) the product of 1.25 multiplied by the dollar
limitation in effect under section 415(b)(1)(A) of the Code for such
Limitation Year, or (II) the product of 1.4 multiplied by the amount
which may be taken into account under section 415(b)(1)(B) of the Code
with respect to such Participant for such Limitation Year.
(iv) Defined Contribution Plan Fraction means, for any
Participant for any Limitation Year, a fraction (A) the numerator of
which is the sum of such Participant's Annual Additions (determined as
of the end of such Limitation Year) under this Plan and any other
qualified defined contribution plans (whether or not terminated)
maintained by the Employer for the current and all prior Limitation
Years, and (B) the denominator of which is as follows: (I) for
Limitation Years ending prior to January 1, 1983, the sum of the lesser
of the following amounts for such Limitation Year and for each prior
Limitation Year during which such Participant was employed by the
Employer: (1) the Maximum Permissible Amount for such Limitation Year
(without regard to section 415(c)(6) of the Code), or (2) the amount
which may be taken into account under section 415(c)(1)(B) of the Code
with respect to such Participant for such Limitation Year; and (II) in
all other cases, the sum of the lesser of the following amounts for
such Limitation Year and for each prior Limitation during which such
Participant was employed by the Employer: (1) (except as provided in
section 16.8(b) for a Top Heavy Plan Year) the product of 1.25
multiplied by the Maximum Permissible Amount for such Limitation Year
(determined without regard to section 415(c)(6) of the Code), or (2)
the product of 1.4 multiplied by
<PAGE> 28
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the amount which may be taken into account under section 415(c)(1)(B)
of the Code (or section 415(c)(7) of the Code, if applicable) with
respect to such Participant for such Limitation Year; provided,
however, that the Plan Administrator may, at his election, adopt the
transition rule set forth in section 415(e)(6) of the Code in making
the computation set forth in this section 8.2(c)(iv). If the sum of a
Participant's Defined Benefit Plan Fraction and Defined Contribution
Plan Fraction exceeded 1.0 as of September 30, 1983, then such
Participant's Defined Contribution Plan Fraction shall be determined
under regulations to be prescribed by the Secretary of the Treasury so
that the sum of the fractions does not exceed 1.0.
(v) Limitation Year means the Plan Year; provided, however,
that if the Employer changes the Limitation Year, the new Limitation
Year shall begin on a date within the Limitation Year in which the
amendment is made.
(vi) Maximum Permissible Amount means (A) $25,000 (or such
higher amount as may be permitted under section 415(d) of the Code
because of cost of living increases) for Limitation Years beginning
prior to January 1, 1983, and (B) the greater of (I) $30,000, or (II)
25% of the dollar limitation in effect under section 415(b)(1)(A) of
the Code for Limitation Years beginning on or after January 1, 1983.
(vii) Projected Annual Benefit means a Participant's annual
retirement benefit (adjusted to the actuarial equivalent of a straight
life annuity if expressed in a form other than a straight life or
qualified joint and survivor annuity) under any qualified defined
benefit plan maintained by the Employer, whether or not terminated,
assuming that the Participant will continue employment until the later
of current age or normal retirement age under such plan, and that the
Participant's Total Compensation for the Limitation Year and all other
relevant factors used to determine benefits under such plan will remain
constant for all future Limitation Years.
(d) When a Participant's Annual Addition to this Plan must be
reduced to satisfy the limitations of section 8.2(a) or (b), such reduction
shall be applied first to ESOP Contributions; and second, if necessary, to
Shares allocated as a result of a Loan Repayment Contribution which are included
as an Annual Addition. The amount by which any Participant's Annual Addition to
this Plan is reduced shall be allocated in accordance with Articles V and VII as
a contribution by the Employer in the next succeeding Limitation Year.
(e) Prior to determining a Participant's actual Total
Compensation for a Limitation Year, the Employer may determine the limitations
under this section 8.2 for a Participant on the basis of a reasonable estimation
of the Participant's Total Compensation for the Limitation Year that is
uniformly determined for all Participants who are similarly situated. As soon as
it is administratively feasible after the end of the Limitation Year, the
limitations of this section 8.2 shall be determined on the basis of the
Participant's actual Total Compensation for the Limitation Year.
<PAGE> 29
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ARTICLE IX
VESTING
SECTION 9.1 VESTING.
Subject to the provisions of section 9.6(a), the balance credited to
each Employee's Account shall become vested in accordance with the following
schedule:
<TABLE>
<CAPTION>
Period of Service Vested
In Years Percentage
----------------- ----------
<S> <C>
0 but less than 1 10%
1 but less than 2 20%
2 but less than 3 40%
3 but less than 4 60%
4 but less than 5 80%
5 or more 100%
</TABLE>
SECTION 9.2 VESTING ON DEATH, DISABILITY, RETIREMENT OR CHANGE IN
CONTROL.
Any previously unvested portion of the remainder of the balance
credited to the Account of a Participant or of a person who is a Former
Participant solely because he is excluded from participation under section
2.1(b) shall become fully vested in him immediately upon attainment of age 65,
or, if earlier, upon the termination of his participation by reason of death,
Disability, Retirement or upon the occurrence of a Change in Control of the
Employer.
SECTION 9.3 FORFEITURES ON TERMINATION OF EMPLOYMENT.
Upon the termination of employment of a Participant or Former
Participant for any reason other than death, Disability, Retirement, that
portion of the balance credited to his Account which is not vested at the date
of such termination shall be forfeited as of the last Valuation Date for the
Plan Year in which such termination of employment occurs. The proceeds of such
forfeitures, less amounts, if any, required to be credited because of
re-employment pursuant to section 9.4, shall be treated as Forfeitures and shall
be disposed of as provided in section 9.5.
SECTION 9.4 AMOUNTS CREDITED UPON RE-EMPLOYMENT.
If an Employee forfeited any amount of the balance credited to his
Account upon his termination of employment with the Employer, and is re-employed
prior to the occurrence of a Period of Severance of five years, then:
<PAGE> 30
-23-
(i) an amount equal to the Fair Market Value of the Shares
forfeited, determined as of the date of forfeiture; and
(ii) the amount credited to his General Investment Account
that was forfeited, determined as of the date of forfeiture;
shall be credited back to his Account from the proceeds of forfeitures which are
redeemed pursuant to section 9.3 during the Plan Year in which he is
re-employed, unless such proceeds are insufficient, in which case the Employer
shall make an additional contribution in the amount of such deficiency.
SECTION 9.5 ALLOCATION OF FORFEITURES.
Any Forfeitures that occur during a Plan Year shall be used to
reduce the contributions required of the Employer under the Plan and shall be
treated as Loan Repayment Contributions and ESOP Contributions in the
proportions designated by the Committee in accordance with Article V.
SECTION 9.6 ACCELERATED VESTING UPON CHANGE IN CONTROL
(a) The balance credited to each Participant's Account shall
become 100% vested upon the occurrence of a Change in Control of the Employer.
(b) A Change in Control of the Employer shall be deemed to
have occurred upon the happening of any of the following events:
(i) approval by the stockholders of Tappan Zee Financial,
Inc. of a transaction that would result in the reorganization, merger
or consolidation of Tappan Zee Financial, Inc. with one or more other
persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests
of the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934 "Exchange Act") in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership
interests in Tappan Zee Financial, Inc; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
<PAGE> 31
-24-
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of Tappan Zee
Financial, Inc.
(ii) the acquisition of all or substantially all of the
assets of Tappan Zee Financial, Inc. or beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or
more of the outstanding securities of Tappan Zee Financial, Inc.
entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of
Tappan Zee Financial, Inc. of any transaction which would result in
such an acquisition;
(iii) a complete liquidation or dissolution of Tappan Zee
Financial, Inc., or approval by its stockholders of a plan for such
liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the Board of Tappan Zee
Financial, Inc. do not belong to any of the following groups;
(A) individuals who were members of the Board of
Tappan Zee Financial, Inc. on the Effective Date of this Plan;
or
(B) individuals who first became members of the Board
of Tappan Zee Financial, Inc. after the Effective Date of this
Plan either:
(I) upon election to serve as a member of such
Board by affirmative vote of three-quarters of the
members of such Board, or of a nominating committee
thereof, in office at the time of such first
election; or
(II) upon election by the stockholders of Tappan
Zee Financial, Inc. to serve as a member of the Board
of Tappan Zee Financial, Inc., but only if nominated
for election by affirmative vote of three-quarters of
the members of the Board, or of a nominating
committee thereof, in office at the time of such
first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of Tappan Zee Financial, Inc.; or
<PAGE> 32
-25-
(v) any event which would be described in section 9.6(b)(i),
(ii), (iii) or (iv) if the name of Tarrytowns Bank, FSB were
substituted for the name "Tappan Zee Financial, Inc." therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of Tappan Zee Financial, Inc.,
an Affiliated Employer, or a subsidiary of either of them, by Tappan Zee
Financial, Inc., an Affiliated Employer, or a subsidiary of either of them, or
by any employee benefit plan maintained by any of them. For purposes of this
section 9.6(b), the term "person" shall have the meaning assigned to it under
sections 13(d)(3) or 14(d)(2) of the Exchange Act.
ARTICLE X
THE TRUST FUND
SECTION 10.1 THE TRUST FUND.
The Trust Fund shall be held and invested under the Trust Agreement
with the Trustee. The provisions of the Trust Agreement shall vest such powers
in the Trustee as to investment, control and disbursement of the Trust Fund, and
such other provisions not inconsistent with the Plan, including provision for
the appointment of one or more "investment managers" within the meaning of
section 3(38) of ERISA to manage and control (including acquiring and disposing
of) all or any of the assets of the Trust Fund, as the Board may from time to
time authorize. Except as required by ERISA, no bond or other security shall be
required of any Trustee at any time in office.
SECTION 10.2 INVESTMENTS.
(a) Except to the extent provided to the contrary in section 10.3,
the Trust Fund shall be invested in:
(i) Shares;
(ii) units of interest in such Investment Funds as may be
established from time to time by the Committee; and
(iii) such other investments as may be permitted under the
Trust Agreement;
in such proportions as shall be determined by the Committee or, if so provided
under the Trust Agreement, as directed by one or more investment managers or by
the Trustee, in its discretion; provided, however, that the investments of the
Trust Fund shall consist primarily of Shares. Notwithstanding the immediately
preceding sentence, the Trustee may temporarily invest the
<PAGE> 33
-26-
Trust Fund in short-term obligations of, or guaranteed by, the United States
Government or an agency thereof, or may retain uninvested, or sell investments
to provide, amounts of cash required for purposes of the Plan.
(b) Initially, the value of each unit in each Investment Fund shall be
$1, and one unit in any such Investment Fund shall be credited to each
Participant or Former Participant, or the Beneficiary of a deceased Participant
or Former Participant, for each $1 applicable to the purchase for him of units
in such Investment Fund. Thereafter, the Plan Administrator shall determine the
value of units in each such Investment Fund as of each Valuation Date by
dividing the fair market value of all property in each such Investment Fund as
of such Valuation Date (after deducting any expenses or other amounts then
properly chargeable against the particular Investment Fund) by the number of
units then outstanding in each such Investment Fund, and making such other
adjustments as shall be necessary to properly reflect transactions occurring
subsequent to the immediately preceding Valuation Date. For the purposes of this
Article X, fractions of units computed to three decimal places, as well as whole
units, in any of the Investment Funds may be redeemed or purchased for the
credit of Employees, Participants or Former Participants or their Beneficiaries.
SECTION 10.3 DIVERSIFICATION OF INVESTMENTS.
(a) Notwithstanding section 10.2, each Qualified Participant may:
(i) during the first 90 days of each of the first four Plan Years to
begin after the Plan Year in which he first becomes a Qualified Participant,
elect that such percentage of the balance credited to his Account as he may
specify, but in no event more than 25% of the balance credited to his
Account, be invested in one or more of the Investment Funds; and
(ii) during the first 90 days of the fifth Plan Year to begin after
the Plan Year in which he first becomes a Qualified Participant or of any
Plan Year thereafter, elect that such percentage of the balance credited to
his Account as he may specify, but in no event more than 50% of the balance
credited to his Account, be invested in one or more of the Investment Funds.
For purposes of an election under this section 10.3, the balance credited to a
Participant's Account shall be the balance credited to his Account determined as
of the last Valuation Date to occur in the Plan Year immediately preceding the
Plan Year in which such election is made.
(b) An election made under section 10.3(a) shall be made in writing,
in the form and manner prescribed by the Plan Administrator, and shall be filed
with the Plan Administrator during the election period specified in section
10.3(a). As soon as is practicable following the end of the election period
during which such election is made, the Plan Administrator shall take such
actions as are necessary to cause the specified percentage of the balance
credited to the Account of the Qualified Participant making the election to be
invested in the specified Investment Funds. Any investments made pursuant to
this section 10.3 shall be specifi-
<PAGE> 34
-27-
cally allocated to the General Investment Account of the Qualified Participant
for whom they are made.
(c) An election made under section 10.3(a) may be changed or revoked
at any time during the election period described in section 10.3(a) during which
it is initially made, during any subsequent election period described in section
10.3(a) or, upon at least 15 days' advance written notice given in the form and
manner prescribed by the Plan Administrator, as of the first day of any calendar
quarter of any Plan Year that begins after the Participant first becomes a
Qualified Participant. In no event, however, shall any election under this
section 10.3 result in more than 25% of the balance credited to the
Participant's Account being invested at the direction of the Participant, if
such election is made during a Plan Year to which section 10.3(a)(i) applies, or
result in more than 50% of the balance credited to the Participant's Account
being invested at the direction of the Participant, if such election is made
during the Plan Year to which section 10.3(a)(ii) applies or thereafter.
SECTION 10.4 USE OF COMMINGLED TRUST FUNDS.
Subject to the provisions of the Trust Agreement, amounts held in the
Trust Fund may be invested in:
(a) any commingled or group trust fund described in section 401(a) of
the Code and exempt under section 501(a) of the Code; or
(b) any common trust fund exempt under section 584 of the Code
maintained exclusively for the collective investment of the assets of trusts
that are exempt under section 501(a) of the Code;
provided that the trustee of such commingled, group or common trust fund is a
bank or trust company.
SECTION 10.5 MANAGEMENT AND CONTROL OF ASSETS.
All assets of the Plan shall be held by the Trustee in trust for the
exclusive benefit of Participants, Former Participants and their Beneficiaries.
No part of the corpus or income of the Trust Fund shall be used for, or diverted
to, purposes other than for the exclusive benefit of Participants, Former
Participants and their Beneficiaries, and for defraying reasonable
administrative expenses of the Plan and Trust Fund. No person shall have any
interest in or right to any part of the earnings of the Trust Fund, or any
rights in, to or under the Trust Fund or any part of its assets, except to the
extent expressly provided in the Plan.
<PAGE> 35
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ARTICLE XI
VALUATION OF INTERESTS IN THE TRUST FUND
SECTION 11.1 ESTABLISHMENT OF INVESTMENT ACCOUNTS.
The Plan Administrator shall establish, or cause to be
established, for each person for whom an Account is maintained a Share
Investment Account and a General Investment Account. Such Share Investment
Accounts and General Investment Accounts shall be maintained in accordance with
this Article XI.
SECTION 11.2 SHARE INVESTMENT ACCOUNTS.
The Share Investment Account established for a person in
accordance with section 11.1 shall be credited with: (a) all Shares allocated to
such person's Account; (b) all Shares purchased with amounts of money or
property allocated to such person's Account; (c) all dividends paid in the form
of Shares with respect to Shares credited to his Account; and (d) all Shares
purchased with amounts credited to such person's General Investment Account.
Such Share Investment Account shall be charged with all Shares that are sold or
exchanged to acquire other investments or to provide cash and with all Shares
that are distributed in kind.
SECTION 11.3 GENERAL INVESTMENT ACCOUNTS.
The General Investment Account that is established for a
person in accordance with section 11.1 shall be credited with: (a) all amounts,
other than Shares, allocated to such person's Account; (b) all dividends paid in
a form other than Shares with respect to Shares credited to such person's Share
Investment Account; (c) the proceeds of any sale of Shares credited to such
person's Share Investment Account; and (d) any earnings attributable to amounts
credited to such person's General Investment Account. Such General Investment
Account shall be charged with all amounts credited thereto that are applied to
the purchase of Shares, any losses or depreciation attributable to amounts
credited thereto, any expenses allocable thereto and any distributions of
amounts credited thereto.
SECTION 11.4 VALUATION OF INVESTMENT ACCOUNTS.
(a) The Plan Administrator shall determine, or cause to be
determined, the aggregate value of each person's Share Investment Account as of
each Valuation Date by multiplying the number of Shares credited to such Share
Investment Account on such Valuation Date by the Fair Market Value of a Share on
such Valuation Date.
(b) The Plan Administrator shall determine, or cause to be
determined, the aggregate value of each person's General Investment Account as
of each Valuation Date as follows:
<PAGE> 36
-29-
(i) To the extent that all or a portion of such person's
General Investment Account is invested in one or more of the Investment
Funds, the Plan Administrator shall multiply the number of units in
each Investment Fund credited to such person as of the immediately
preceding Valuation Date by the value of a unit in such Investment Fund
as of the current Valuation Date.
(ii) To the extent that all or a portion of such person's
General Investment Account is invested in investments other than the
Investment Funds, the Plan Administrator shall adjust the balance in
such manner as it shall deem appropriate to reflect earnings, losses,
expenses, benefit payments and other transactions properly chargeable
to such Account.
SECTION 11.5 ANNUAL STATEMENTS.
There shall be furnished, by mail or otherwise, at least once
in each Plan Year to each person who would then be entitled to receive all or
part of the balance credited to any Account if the Plan were then terminated, a
statement of his interest in the Plan as of such date as shall be selected by
the Plan Administrator, which statement shall be deemed to have been accepted as
correct and be binding on such person unless the Plan Administrator receives
written notice to the contrary within 30 days after the statement is mailed or
furnished to such person.
ARTICLE XII
SHARES
SECTION 12.1 SPECIFIC ALLOCATION OF SHARES.
All Shares purchased under the Plan shall be specifically
allocated to the Share Investment Accounts of Participants, Former Participants
and their Beneficiaries in accordance with section 11.2, with the exception of
Financed Shares, which shall be allocated to the Loan Repayment Account.
SECTION 12.2 DIVIDENDS.
(a) Dividends paid with respect to Shares held under the Plan
shall be credited to the Loan Repayment Account, if paid with respect to
Financed Shares. Such dividends shall be: (i) applied to the payment of
principal and accrued interest with respect to any Share Acquisition Loan, if
paid in cash; or (ii) held in the Loan Repayment Account as Financed Shares for
release in accordance with section 6.4, if paid in the form of Shares.
(b) Dividends paid with respect to Shares allocated to a
person's Share Investment Account shall be credited to such person's Share
Investment Account. Cash
<PAGE> 37
-30-
dividends credited to a person's General Investment Account shall be, at the
direction of the Board, either: (i) held in such General Investment Account and
invested in accordance with sections 10.2 and 11.2; (ii) distributed immediately
to such person; (iii) distributed to such person within 90 days of the close of
the Plan Year in which such dividends were paid; or (iv) used to make payments
of principal or interest on a Share Acquisition Loan; provided, however, that
the Fair Market Value of Financed Shares released from the Loan Repayment
Account equals or exceeds the amount of the dividend.
SECTION 12.3 VOTING RIGHTS.
(a) Each person shall direct the manner in which all voting
rights appurtenant to Shares allocated to his Share Investment Account will be
exercised, provided that such Shares were allocated to his Share Investment
Account as of the applicable record date. Such person shall, for such purpose,
be deemed a "named fiduciary" within the meaning of section 402(a)(2) of ERISA.
Such a direction shall be given by completing and filing with the inspector of
elections, the Trustee or such other person who shall be independent of the
Employer as the Committee shall designate, at least 10 days prior to the date of
the meeting of holders of Shares at which such voting rights will be exercised,
a written direction in the form and manner prescribed by the Committee. The
inspector of elections, the Trustee or such other person designated by the
Committee shall tabulate the directions given on a strictly confidential basis,
and shall provide the Committee with only the final results of the tabulation.
The final results of the tabulation shall be followed by the Committee in
directing the Trustee as to the manner in which such voting rights shall be
exercised. The Plan Administrator shall make a reasonable effort to furnish, or
cause to be furnished, to each person for whom a Share Investment Account is
maintained all annual reports, proxy materials and other information known by
the Plan Administrator to have been furnished by the issuer of the Shares, or by
any solicitor of proxies, to the holders of Shares.
(b) To the extent that any person shall fail to give
instructions with respect to the exercise of voting rights appurtenant to Shares
allocated to his Share Investment Account:
(i) the Trustee shall, with respect to each matter to be voted
upon: (A) cast a number of affirmative votes equal to the product of
(I) the number of allocated Shares for which no written instructions
have been given, multiplied by (II) a fraction, the numerator of which
is the number of allocated Shares for which affirmative votes will be
cast in accordance with written instructions given as provided in
section 12.3(a) and the denominator of which is the aggregate number of
affirmative and negative votes which will be cast in accordance with
written instructions given as aforesaid, and (B) cast a number of
negative votes equal to the excess (if any) of (I) the number of
allocated Shares for which no written instructions have been given over
(II) the number of affirmative votes being cast with respect to such
allocated Shares pursuant to section 12.3(b)(i)(A); or
(ii) if the Trustee shall determine that it may not,
consistent with its fiduciary duties, vote the allocated Shares for
which no written instructions have
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been given in the manner described in section 12.3(b)(i), it shall vote
such Shares in such manner as it, in its discretion, may determine to
be in the best interests of the persons to whose Share Investment
Accounts such Shares have been allocated.
(c) (i) The voting rights appurtenant to Financed Shares shall
be exercised as follows with respect to each matter as to which holders of
Shares may vote:
(A) a number of votes equal to the product of (I) the total
number of votes appurtenant to Financed Shares allocated to the Loan
Repayment Account on the applicable record date; multiplied by (II) a
fraction, the numerator of which is the total number of affirmative
votes cast by Participants, Former Participants and the Beneficiaries
of deceased Former Participants with respect to such matter pursuant to
section 12.3(a) and the denominator of which is the total number of
affirmative and negative votes cast by Participants, Former
Participants and the Beneficiaries of deceased Former Participants,
shall be cast in the affirmative; and
(B) a number of votes equal to the excess of (I) the total
number of votes appurtenant to Financed Shares allocated to the Loan
Repayment Account on the applicable record date, over (II) the number
of affirmative votes cast pursuant to section 12.3(c)(i)(A) shall be
cast in the negative.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.3(c)(i) shall be applied separately with respect to each class
of Shares.
(ii) If voting rights are to be exercised with respect to
Financed Shares as provided in section 12.3(c)(i)(A) and (B) at a time when
there are no Shares allocated to the Share Investment Accounts of Participants,
Former Participants and the Beneficiaries of deceased Former Participants, then
the voting rights appurtenant to Financed Shares shall be exercised as follows
with respect to each matter as to which holders of Shares may vote:
(A) Each person who is a Participant on the applicable record
date and who was a Participant on the last day of the Plan Year ending
on or immediately prior to such record date will be granted a number of
votes equal to the quotient, rounded to the nearest integral number, of
(I) such Participant's Allocation Compensation for the Plan Year ending
on or immediately prior to such record date (or for the portion of such
Plan Year during which he was a Participant); divided by (II)
$1,000.00; and
(B) a number of votes equal to the product of (I) the total
number of Financed Shares allocated to the Loan Repayment Account on
the applicable record date; multiplied by (II) a fraction, the
numerator of which is the total number of votes that are cast in the
affirmative with respect to such matter pursuant to section
12.3(c)(ii)(A) and the denominator of which is the total number of
votes that are cast either in the affirmative or in the negative with
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respect to such matter pursuant to section 12.3(c)(ii)(A), shall be
cast in the affirmative; and
(C) a number of votes equal to the excess of (I) the total
number of Financed Shares allocated to the Loan Repayment Account on
the applicable record date, over (II) the number of affirmative votes
cast with respect to such matter pursuant to section 12.3(c)(ii)(B),
shall be cast in the negative.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.3(c)(ii) shall be applied separately with respect to each class
of Shares.
SECTION 12.4 TENDER OFFERS.
(a) Each person shall direct whether Shares allocated to his
Share Investment Account will be delivered in response to any Tender Offer. Such
person shall, for such purpose, be deemed a "named fiduciary" within the meaning
of section 402(a)(2) of ERISA. Such a direction shall be given by completing and
filing with the Trustee or such other person who shall be independent of the
Employer as the Committee shall designate, at least 10 days prior to the latest
date for exercising a right to deliver Shares pursuant to such Tender Offer, a
written direction in the form and manner prescribed by the Committee. The
Trustee or other person designated by the Committee shall tabulate the
directions given on a strictly confidential basis, and shall provide the
Committee with only the final results of the tabulation. The final results of
the tabulation shall be followed by the Committee in directing the number of
Shares to be delivered. The Plan Administrator shall make a reasonable effort to
furnish, or cause to be furnished, to each person for whom a Share Investment
Account is maintained, all information known by the Plan Administrator to have
been furnished by the issuer or by or on behalf of any person making such Tender
Offer, to the holders of Shares in connection with such Tender Offer.
(b) To the extent that any person shall fail to give
instructions with respect to Shares allocated to his Share Investment Account:
(i) the Trustee shall (A) tender or otherwise offer for
purchase, exchange or redemption a number of such Shares equal to the
product of (I) the number of allocated Shares for which no written
instructions have been given, multiplied by (II) a fraction, the
numerator of which is the number of allocated Shares tendered or
otherwise offered for purchase, exchange or redemption in accordance
with written instructions given as provided in section 12.4(a) and the
denominator of which is the aggregate number of allocated Shares for
which written instructions have been given as aforesaid, and (B)
withhold a number of Shares equal to the excess (if any) of (I) the
number of allocated Shares for which no written instructions have been
given over (II) the number of Shares being tendered or otherwise
offered pursuant to section 12.4(b)(i)(A); or
(ii) if the Trustee shall determine that it may not,
consistent with its fiduciary duties, exercise the tender or other
rights appurtenant to allocated
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Shares for which no written instructions have been given in the manner
described in section 12.4(b)(i), it shall tender, or otherwise offer,
or withhold such Shares in such manner as it, in its discretion, may
determine to be in the best interests of the persons to whose Share
Investment Accounts such Shares have been allocated.
(c) In the case of any Tender Offer, any Financed Shares held
in the Loan Repayment Account shall be dealt with as follows:
(i) If such Tender Offer occurs at a time when there are no
Shares allocated to the Share Investment Accounts of Participants,
Former Participants and the Beneficiaries of deceased Former
Participants, then the disposition of the Financed Shares shall be
determined as follows:
(A) each person who is a Participant on the
applicable record date and who was a Participant on the last
day of the Plan Year ending on or immediately prior to such
record date will be granted a number of tender rights equal to
the quotient, rounded to the nearest integral number, of (I)
such Participant's Allocation Compensation for the Plan Year
ending on or immediately prior to such record date (or for the
portion of such Plan Year during which he was a Participant),
divided by (II) $1,000.00; and
(B) on the last day for delivering Shares or
otherwise responding to such Tender Offer, a number of Shares
equal to the product of (I) the total number of Financed
Shares allocated to the Loan Repayment Account on the last day
of the effective period of such Tender Offer; multiplied by
(II) a fraction, the numerator of which is the total number of
tender rights exercised in favor of the delivery of Shares in
response to the Tender Offer pursuant to section 12.4(c)(i)(A)
and the denominator of which is the total number of tender
rights that are exercisable in response to the Tender Offer
pursuant to section 12.4(c)(i)(A), shall be delivered in
response to the Tender Offer; and
(C) a number of Shares equal to the excess of (I) the
total number of Financed Shares allocated to the Loan
Repayment Account on the last day of the effective period of
such Tender Offer; over (II) the number of Shares to be
delivered in response to the Tender Offer pursuant to section
12.4(c)(i)(B), shall be withheld from delivery.
(ii) If such Tender Offer occurs at a time when the voting
rights appurtenant to such Financed Shares are to be exercised in
accordance with section 12.3(c)(i), then:
(A) on the last day for delivering Shares or
otherwise responding to such Tender Offer, a number of
Financed Shares equal to the product of (I) the total number
of Financed Shares allocated to the Loan
<PAGE> 41
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Repayment Account on the last day of the effective period of
such Tender Offer; multiplied by (II) a fraction, the
numerator of which is the total number of Shares delivered
from the Share Investment Accounts of Participants, Former
Participants and the Beneficiaries of deceased Former
Participants in response to such Tender Offer pursuant to
section 12.4(a), and the denominator of which is the total
number of Shares allocated to the Share Investment Accounts of
Participants, Former Participants and Beneficiaries of
deceased Former Participants immediately prior to the last day
for delivering Shares or otherwise responding to such Tender
Offer, shall be delivered; and
(B) a number of Financed Shares equal to the excess
of (I) the total number of Financed Shares allocated to the
Loan Repayment Account on the last day for delivering Shares
or otherwise responding to such Tender Offer; over (II) the
number of Financed Shares to be delivered pursuant to section
12.4(c)(ii)(A), shall be withheld from delivery.
To the extent that the Financed Shares consist of more than one class of Shares,
this section 12.4(c) shall be applied separately with respect to each class of
Shares.
ARTICLE XIII
PAYMENT OF BENEFITS
SECTION 13.1 IN GENERAL.
The balance credited to a Participant's or Former
Participant's Account under the Plan shall be paid only at the times, to the
extent, in the manner and to the persons provided in this Article XIII.
SECTION 13.2 DESIGNATION OF BENEFICIARIES.
(a) Subject to section 13.2(b), any person entitled to a
benefit under the Plan may designate a Beneficiary to receive any amount to
which he is entitled that remains undistributed on the date of his death. Such
person shall designate his Beneficiary (and may change or revoke any such
designation) in writing in the form and manner prescribed by the Plan
Administrator. Such designation, and any change or revocation thereof, shall be
effective only if received by the Plan Administrator prior to such person's
death and shall become irrevocable upon such person's death.
(b) A Participant or Former Participant who is married shall
automatically be deemed to have designated his spouse as his Beneficiary,
unless, prior to the time such designation would, under section 13.2(a), become
irrevocable:
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(i) the Participant or Former Participant designates an
additional or a different Beneficiary in accordance with this section
13.2; and
(ii) (A) the spouse of such Participant or Former Participant
consents to such designation in a writing that acknowledges the effect
of such consent and is witnessed by a Plan representative or a notary
public; or (B) the spouse of such Participant or Former Participant has
previously consented to such designation by signing a written waiver of
any right to consent to any designation made by the Participant or
Former Participant, and such waiver acknowledged the effect of the
waiver and was witnessed by a Plan representative or a notary public;
or (C) it is established to the satisfaction of a Plan representative
that the consent required under section 13.2(b)(ii)(A) may not be
obtained because such spouse cannot be located or because of other
circumstances permitted under regulations issued by the Secretary of
the Treasury.
(c) In the event that a Beneficiary entitled to payments
hereunder shall die after the death of the person who designated him but prior
to receiving payment of his entire interest in the Account of the person who
designated him, then such Beneficiary's interest in the Account of such person,
or any unpaid balance thereof, shall be paid as provided in section 13.3 to the
Beneficiary who has been designated by the deceased Beneficiary, or if there is
none, to the executor or administrator of the estate of such deceased
Beneficiary, or if no such executor or administrator is appointed within such
time as the Plan Administrator, in his sole discretion, shall deem reasonable,
to such one or more of the spouse and descendants and blood relatives of such
deceased Beneficiary as the Plan Administrator may select. If a person entitled
to a benefit under the Plan and any of the Beneficiaries designated by him shall
die in such circumstances that there shall be substantial doubt as to which of
them shall have been the first to die, for all purposes of the Plan, the person
who made the Beneficiary designation shall be deemed to have survived such
Beneficiary.
(d) If no Beneficiary survives the person entitled to the
benefit under the Plan or if no Beneficiary has been designated by such person,
such benefit shall be paid to the executor or administrator of the estate of
such person, or if no such executor or administrator is appointed within such
time as the Plan Administrator, in his sole discretion, shall deem reasonable,
to such one or more of the spouse and descendants and blood relatives of such
deceased person as the Plan Administrator may select.
SECTION 13.3 DISTRIBUTIONS TO PARTICIPANTS AND FORMER
PARTICIPANTS.
(a)(i) Subject to the provisions of section 13.7 with respect
to required minimum distributions, the vested portion of the balance credited to
a Participant's or a Former Participant's Account shall be distributed to him
commencing as of the last Valuation Date to occur in the Plan Year in which the
Participant or Former Participant terminates employment with the Employer or
attains age 65, whichever is later; unless the Participant or Former Participant
elects otherwise pursuant to section 13.3(a)(ii), and the payment, or first in a
series of payments, is actually made within three months following such
Valuation Date.
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(ii) A Participant or Former Participant may, upon request on
a form provided by the Plan Administrator and filed with the Plan Administrator
not later than 15 days prior to the date on which his employment with the
Employer terminates, elect that his vested interest in his Account be paid
commencing as of any earlier or later Valuation Date after his termination of
employment, but in no event later than the last Valuation Date to occur in the
calendar year in which the Participant or Former Participant attains age 70 1/2,
in which case the payment, or first in a series of payments, shall be made
within three months following such Valuation Date.
(b)(i) Subject to section 13.3(b)(ii), the vested portion of
the balance credited to the Account of a Participant or Former Participant will
be paid to him, commencing as of the Valuation Date determined under section
13.3(a), in substantially equal annual installments over a fixed period equal to
the greater of:
(A) five years; or
(B) if the vested portion of the balance credited to the
Account of the Participant or Former Participant, determined as of the
Valuation Date determined under section 13.3(a), is greater than
$500,000 (or such larger amount as may be prescribed by the Secretary
of the Treasury pursuant to section 409(o) of the Code), the sum of
five years plus the lesser of (I) five additional years, or (II) one
additional year for each $100,000 (or fraction thereof) by which the
vested portion of the balance credited to the Participant's or Former
Participant's Account exceeds $500,000 (or such larger amount as may be
prescribed by the Secretary of the Treasury pursuant to section 409(o)
of the Code).
(ii) A Participant or Former Participant may, upon request on
a form provided by the Plan Administrator and filed with the Plan Administrator
not later than 15 days prior to the date on which his employment terminates,
elect that the vested portion of the balance credited to his Account be paid,
commencing as of the Valuation Date determined under section 13.3(a):
(A) in substantially equal annual installments over a fixed
period not to exceed the lesser of (I) 10 years, or (II) the life
expectancy of the Participant or Former Participant, or, if his
Beneficiary is a natural person, the joint life and last survivor
expectancy of the Participant or Former Participant and his
Beneficiary; or
(B) subject to section 13.4, in a lump sum payment.
(c) If any person entitled to a benefit under the Plan dies
before his entire benefit has been distributed to him, then the remainder of
such benefit shall be paid to the Beneficiary designated by him under section
13.2 either:
(i) in a lump sum distribution as of the Valuation Date next
following the date of his death, and the amount thereof shall be based
upon the vested portion of the balance credited to his Account as of
such Valuation Date; or
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(ii) if, prior to the death of the Participant or Former
Participant whose vested Account is being distributed, an election
pursuant to section 13.3(b)(ii)(B) is in effect for him, in a lump sum
distribution as of the Valuation Date specified in such election, or,
if earlier, as of the latest Valuation Date that would permit payment
to be made within five years after the Participant's or Former
Participant's death, and the amount thereof shall be based upon the
vested portion of the balance credited to his Account as of such
Valuation Date; or
(iii) if, prior to the death of the Participant or Former
Participant whose vested Account is being distributed, an election
pursuant to section 13.3(b)(ii)(A) is in effect for him:
(A) over the period and at the times set forth in
such election, if distribution has begun prior to the
Participant's or Former Participant's death; or
(B) commencing at the time set forth in such election
and over the period set forth in such election (or, if less,
over a period equal to the life expectancy of the Beneficiary
of the deceased Participant or Former Participant), if the
deceased Participant's or Former Participant's spouse is his
Beneficiary and distribution has not begun prior to the
deceased Participant's or Former Participant's death; or
(C) commencing on the date specified in such election
(or, if earlier, the last Valuation Date that will permit
payment to begin within one year after the deceased
Participant's or Former Participant's death) and over the
period set forth in such election (or, if less, over a period
equal to the life expectancy of the Beneficiary of the
deceased Participant or Former Participant), if the deceased
Participant's or Former Participa- nt's Beneficiary is a
natural person other than his spouse and distribution has not
begun prior to the deceased Participant's or Former
Participant's death;
and the amount thereof shall be based upon the vested portion of the
balance credited to his Account as of the Valuation Dates as of which
payments are determined; or
(iv) upon written application of the Beneficiary made in such
form and manner as the Plan Administrator may prescribe, at another
time or in another manner permitted under section 13.3(a) or (b),
subject to the following limitations:
(A)(I) If such Beneficiary is a natural person other
than the spouse of the deceased Participant or Former
Participant whose vested Account is being distributed, a
distribution that commences within one year after such
deceased Participant's or Former Participant's death shall be
made
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over a fixed period that does not exceed the life expectancy
of such Beneficiary when distribution commences.
(II) If such Beneficiary is the spouse of the
deceased Participant or Former Participant whose vested
Account is being distributed, a distribution that commences no
later than the later of: (1) the date on which the deceased
Participant or Former Participant would have attained age 70
1/2 had he lived; or (2) the first anniversary of the death of
such deceased Participant or Former Participant; shall be made
over a fixed period that does not exceed the life expectancy
of such Beneficiary when distribution commences.
(III) In all other cases where the spouse of the
deceased Participant or Former Participant whose vested
Account is being distributed is not the Beneficiary, payment
must be completed within five years after the death of such
deceased Participant or Former Participant.
(B) In cases where distribution has commenced prior
to the death of the deceased Participant or Former Participant
whose vested Account is being distributed, distribution must
be completed as least as rapidly as under the method in effect
prior to such deceased Participant's or Former Participant's
death.
SECTION 13.4 MANNER OF PAYMENT.
(a) Subject to section 13.4(b), payments of distributions made
pursuant to section 13.3 or section 13.7 shall be paid, in accordance with the
written direction of the person requesting the payment, in whole Shares, in
cash, or in a combination of cash and whole Shares. Such written direction shall
be given in such form and manner as the Plan Administrator may prescribe. If no
such direction is given, then payment shall be made in the maximum number of
whole Shares that may be acquired with the amount of the payment, plus, if
necessary, an amount of money equal to any remaining amount of the payment that
is less than the Fair Market Value of a whole Share.
(b) No distribution of a lump sum payment shall be made in
cash to the extent that the making of such distribution, when combined with all
other distributions to be made in cash as of the same Valuation Date, would
require the sale of Shares constituting 1% or more of all outstanding Shares;
provided, however, that this section 13.4(b) shall not apply to or in respect of
a Participant or Former Participant:
(i) following such Participant's or Former Participant's
termination of employment with the Employer on account of his
Retirement or Disability; or
(ii) following such Participant's or Former Participant's 65th
birthday; or
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(iii) following the death of such Participant or Former
Participant.
SECTION 13.5 PUT OPTIONS.
(a) Except as provided otherwise in section 13.5(b), each
Participant or Former Participant to whom Shares are distributed under the Plan,
each Beneficiary of a deceased Participant or Former Participant, including the
estate of a deceased Participant or Former Participant, to whom Shares are
distributed under the Plan, and each person to whom such a Participant, Former
Participant or Beneficiary gives Shares that have been distributed under the
Plan shall have the right to require the Employer to purchase from him all or
any portion of such Shares. A person shall exercise such right by delivering to
the Employer a written notice, in such form and manner as the Employer may by
written notice to such person prescribe, setting forth the number of Shares to
be purchased by the Employer, the number of the stock certificate evidencing
such person's ownership of such Shares, and the effective date of purchase. Such
notice shall be given, and the effective date of the purchase specified therein
shall be, no later than the last day of the fifteenth calendar month to begin
after the date on which the Shares to be purchased by the Employer were
distributed from the Plan. As soon as practicable following its receipt of such
notice, the Employer shall take such actions as are necessary to purchase the
Shares specified in such notice at a price per Share equal to the Fair Market
Value of a Share determined as of the effective date of the purchase.
(b) The Employer shall have no obligation to purchase any
Share (i) pursuant to a notice given, or on an effective date of purchase, after
the last day of the fifteenth calendar month to begin after the date on which
such Share was distributed from the Plan; (ii) following the earliest date on
which Shares are publicly traded on an established market; or (iii) if the
Employer is a "bank" within the meaning of section 581 of the Code and is
prohibited by law from redeeming or purchasing its own securities.
SECTION 13.6 RIGHT OF FIRST REFUSAL.
(a) For any period during which Shares are not publicly traded
on any established market, no person who owns Shares that were distributed from
the Plan, other than a person to whom such Shares were sold in compliance with
this section 13.6, shall sell such Shares to any person other than the Employer
without first offering to sell such Shares to the Employer (or person designated
by the Employer) in accordance with this section 13.6.
(b) In the event that a person to whom this section 13.6
applies shall receive and desire to accept from a person other than the Employer
a bona fide offer to purchase Shares to which this section 13.6 applies, he
shall furnish to the Employer a written notice which shall:
(i) include a copy of such offer to purchase;
(ii) offer to sell to the Employer the Shares subject to such
offer to purchase at a price per Share that is equal to the greater of:
<PAGE> 47
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(A) the price per Share specified in such offer to
purchase; or
(B) the Fair Market Value of a Share as of the date
of purchase; and otherwise upon the same terms and conditions as those
specified in such offer to purchase; and
(iii) include an indication of his intention to accept such
offer to purchase if the Employer does not accept his offer to sell.
(c) The Employer shall have the right to purchase the Shares
covered by the offer to sell contained in a notice given pursuant to section
13.6(b), on the terms and conditions specified in such notice, by written notice
given to the party making the offer to sell not later than the fourteenth day
after the notice described in section 13.6(b) is given. If the Employer does not
give such a notice during the prescribed fourteen day period, then the person
owning such Shares may accept the offer to purchase described in the notice.
SECTION 13.7 MINIMUM REQUIRED DISTRIBUTIONS.
(a) Required minimum distributions of a Participant's or
Former Participant's Account shall commence no later than:
(i) if the Participant or Former Participant attained age 70
1/2 prior to January 1, 1988 and was not a Five Percent Owner at any
time during the Plan Year ending in the calendar year in which he
attained age 70 1/2, during any of the four preceding Plan Years or
during any subsequent years, the later of (A) the calendar year in
which he attains or attained age 70 1/2 or (B) the calendar year in
which he terminates employment with the Employer; or
(ii) if the Participant or Former Participant attained age 70
1/2 prior to January 1, 1988 and is or was a Five Percent Owner at any
time during the Plan Year ending in the calendar year in which he
attained age 70 1/2, or during any of the four preceding Plan Years or
during any subsequent years, the later of (A) the calendar year in
which he attains age 70 1/2 or (B) the calendar year in which he first
becomes a Five Percent Owner; or
(iii) in all other cases, the calendar year in which the
Participant or Former Participant attains age 70 1/2.
(b) The required minimum distributions contemplated by section
13.7(a) shall be made as follows:
(i) The minimum required distribution to be made for the
calendar year for which the first minimum distribution is required
shall be no later than April 1st of the immediately following calendar
year and shall be equal to the quotient obtained by dividing (A) the
vested balance credited to the Participant's
<PAGE> 48
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or Former Participant's Account as of the last Valuation Date to occur
in the calendar year immediately preceding the calendar year in which
the first minimum distribution is required (adjusted to account for any
additions thereto or subtractions therefrom after such Valuation Date
but on or before December 31st of such calendar year); by (B) the
Participant's or Former Participant's life expectancy (or, if his
Beneficiary is a natural person, the joint life and last survivor
expectancy of him and his Beneficiary); and
(ii) the minimum required distribution to be made for each
calendar year following the calendar year for which the first minimum
distribution is required shall be made no later than December 31st of
the calendar year for which the distribution is required and shall be
equal to the quotient obtained by dividing (A) the vested balance
credited to the Participant's or Former Participant's Account as of the
last Valuation Date to occur in the calendar year prior to the calendar
year for which the distribution is required (adjusted to account for
any additions thereto or subtractions therefrom after such Valuation
Date but on or before December 31st of such calendar year and, in the
case of the distribution for the calendar year immediately following
the calendar year for which the first minimum distribution is required,
reduced by any distribution for the prior calendar year that is made in
the current calendar year); by (B) the Participant's or Former
Participant's life expectancy (or, if his Beneficiary is a natural
person, the joint life and last survivor expectancy of him and his
Beneficiary).
For purposes of this section 13.7, the life expectancy of a Participant or
Former Participant (or the joint life and last survivor expectancy of a
Participant or Former Participant and his designated Beneficiary) for the
calendar year in which the Participant or Former Participant attains age 70 1/2
shall be determined on the basis of Tables V and VI, as applicable, of section
1.72-9 of the Income Tax Regulations as of the Participant's or Former
Participant's and Beneficiary's birthday in such year. Such life expectancy or
joint life and last survivor expectancy for any subsequent year shall be equal
to the excess of (1) the life expectancy or joint life and last survivor
expectancy for the year in which the Participant or Former Participant attains
age 70 1/2, over (2) the number of whole years that have elapsed since the
Participant or Former Participant attained age 70 1/2.
(c) Payment of the distributions required to be made to a
Participant or Former Participant under this section 13.7 shall be made in
accordance with section 13.4.
SECTION 13.8 DIRECT ROLLOVER OF ELIGIBLE ROLLOVER
DISTRIBUTIONS.
(a) A Distributee may elect, at the time and in the manner
prescribed by the Plan Administer, to have any portion of an Eligible Rollover
Distribution paid directly to an Eligible Retirement Plan specified by the
Distributee in a Direct Rollover.
(b) The following rules shall apply with respect to Direct
Rollovers made pursuant to this section 13.8:
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(i) A Participant may only elect to make a Direct Rollover of
an Eligible Rollover Distribution if such Eligible Rollover
Distribution (when combined with other Eligible Rollover Distributions
made or to be made in the same calendar year) is reasonably expected to
be at least $200;
(ii) If a Participant elects a Direct Rollover of a portion of
an Eligible Rollover Distribution, that portion must be equal to at
least $500; and
(iii) A Participant may not divide his or her Eligible
Rollover Distribution into separate distributions to be transferred to
two or more Eligible Retirement Plans.
(c) For purposes of this section 13.8 and any other applicable
section of the Plan, the following definitions shall have the following
meanings:
(i) "Direct Rollover" means a payment by the Plan to the
Eligible Retirement Plan specified by the Distributee.
(ii) "Distributee" means an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's spouse or former spouse who is the alternate payee under a
Qualified Domestic Relations Order are considered Distributees with
regard to the interest of the spouse or former spouse.
(iii) "Eligible Retirement Plan" means an individual
retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) or the Code,
an annuity plan described in section 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code that accepts the
Distributee's Eligible Rollover Distribution. However, in the case of
an Eligible Rollover Distribution to the current or former spouse who
is the alternative payee under a Qualified Domestic Relations Order or
to a surviving spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(iv) "Eligible Rollover Distribution" means any distribution
of all or any portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not include: any
distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life
expectancies) of the Distributee's designated Beneficiary, or for a
specified period of ten (10) years or more; any distribution to the
extent such distribution is required under section 401(a)(9) of the
Code; and the portion of any distribution that is not includible in
gross income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
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SECTION 13.9 VALUATION OF SHARES UPON SETTLEMENT TO A
PARTICIPANT.
Notwithstanding any contrary provision in this Article XIII,
in the event that all or a portion of a payment of a distribution to a
Participant is to be made in cash, such Participant shall only be entitled to
receive the proceeds of the Shares allocated to his Account that are sold in
connection with such distribution and which are valued as of the date of such
sale.
ARTICLE XIV
ADMINISTRATION
SECTION 14.1 NAMED FIDUCIARIES.
The term "Named Fiduciary" shall mean (but only to the extent
of the responsibilities of each of them) the Plan Administrator, the Committee,
the Board and the Trustee. This Article XIV is intended to allocate to each
Named Fiduciary the responsibility for the prudent execution of the functions
assigned to him or it, and none of such responsibilities or any other
responsibility shall be shared by two or more of such Named Fiduciaries.
Whenever one Named Fiduciary is required by the Plan or Trust Agreement to
follow the directions of another Named Fiduciary, the two Named Fiduciaries
shall not be deemed to have been assigned a shared responsibility, but the
responsibility of the Named Fiduciary giving the directions shall be deemed his
sole responsibility, and the responsibility of the Named Fiduciary receiving
those directions shall be to follow them insofar as such instructions are on
their face proper under applicable law.
SECTION 14.2 PLAN ADMINISTRATOR.
There shall be a Plan Administrator, who shall be the Senior
Human Resources Officer of the Employer, or such Employee or officer as may be
designated by the Committee, as hereinafter provided, and who shall, subject to
the responsibilities of the Committee and the Board, have the responsibility for
the day-to-day control, management, operation and administration of the Plan
(except trust duties). The Plan Administrator shall have the following
responsibilities:
(a) To maintain records necessary or appropriate for the
administration of the Plan;
(b) To give and receive such instructions, notices,
information, materials, reports and certifications to the Trustee as
may be necessary or appropriate in the administration of the Plan;
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(c) To prescribe forms and make rules and regulations
consistent with the terms of the Plan and with the interpretations and
other actions of the Committee;
(d) To require such proof of age or evidence of good health of
an Employee, Participant or Former Participant or the spouse of either,
or of a Beneficiary as may be necessary or appropriate in the
administration of the Plan;
(e) To prepare and file, distribute or furnish all reports,
plan descriptions, and other information concerning the Plan,
including, without limitation, filings with the Secretary of Labor and
communications with Participants, Former Participants and other
persons, as shall be required of the Plan Administrator under ERISA;
(f) To determine any question arising in connection with the
Plan, and the Plan Administrator's decision or action in respect
thereof shall be final and conclusive and binding upon the Employer,
the Trustee, Participants, Former Participants, Beneficiaries and any
other person having an interest under the Plan; provided, however, that
any question relating to inconsistency or omission in the Plan, or
interpretation of the provisions of the Plan, shall be referred to the
Committee by the Plan Administrator and the decision of the Committee
in respect thereof shall be final;
(g) Subject to the provisions of section 14.5, to review and
dispose of claims under the Plan filed pursuant to section 14.4;
(h) If the Plan Administrator shall determine that by reason
of illness, senility, insanity, or for any other reason, it is
undesirable to make any payment to a Participant, Former Participant,
Beneficiary or any other person entitled thereto, to direct the
application of any amount so payable to the use or benefit of such
person in any manner that he may deem advisable or to direct in his
discretion the withholding of any payment under the Plan due to any
person under legal disability until a representative competent to
receive such payment in his behalf shall be appointed pursuant to law;
(i) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Committee or the Board;
and
(j) To perform any duty or take any action which is allocated
to the Plan Administrator under the Plan.
The Plan Administrator shall have the power and authority necessary or
appropriate to carry out his responsibilities. The Plan Administrator may resign
only by giving at least 30 days' prior written notice of resignation to the
Committee, and such resignation shall be effective on the date specified in such
notice.
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SECTION 14.3 COMMITTEE RESPONSIBILITIES.
The Committee shall, subject to the responsibilities of the
Board, have the following responsibilities:
(a) To review the performance of the Plan Administrator;
(b) To hear and decide appeals, pursuant to the claims
procedure contained in section 14.5 of the Plan, taken from the
decisions of the Plan Administrator;
(c) To hear and decide questions, including interpretation of
the Plan, as may be referred to the Committee by the Plan
Administrator;
(d) To review the performance of the Trustee and such
investment managers as may be appointed in or pursuant to the Trust
Agreement in investing, managing and controlling the assets of the
Plan;
(e) To the extent required by ERISA, to establish a funding
policy and method consistent with the objectives of the Plan and the
requirements of ERISA, and to review such policy and method at least
annually;
(f) To report and make recommendations to the Board regarding
changes in the Plan, including changes in the operation and management
of the Plan and removal and replacement of the Trustee and such
investment managers as may be appointed in or pursuant to the Trust
Agreement;
(g) To designate an Alternate Plan Administrator to serve in
the event that the Plan Administrator is absent or otherwise unable to
discharge his responsibilities;
(h) To remove and replace the Plan Administrator or Alternate,
or both of them, and to fill a vacancy in either office;
(i) To the extent provided under and subject to the provisions
of the Trust Agreement, to appoint "investment managers" as defined in
section 3(38) of ERISA to manage and control (including acquiring and
disposing of) all or any of the assets of the Plan;
(j) With the prior approval of the Board, to direct the
Trustee to obtain one or more Share Acquisition Loans;
(k) To develop and provide procedures and forms necessary to
enable Participants to give voting and tendering directions on a
confidential basis;
(l) To discharge such other responsibilities or follow such
directions as may be assigned or given by the Board; and
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(m) To perform any duty or take any action which is allocated
to the Committee under the Plan.
The Committee shall have the power and authority necessary or appropriate to
carry out its responsibilities.
SECTION 14.4 CLAIMS PROCEDURE.
Any claim relating to benefits under the Plan shall be filed
with the Plan Administrator on a form prescribed by him. If a claim is denied in
whole or in part, the Plan Administrator shall give the claimant written notice
of such denial, which notice shall specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was
based;
(c) Any additional material or information necessary for the
claimant to perfect his claim and an explanation of why such material
or information is needed; and
(d) An explanation of the Plan's procedure for review of the
denial of the claim.
In the event that the claim is not granted and notice of denial of a claim is
not furnished by the 30th day after such claim was filed, the claim shall be
deemed to have been denied on that day for the purpose of permitting the
claimant to request review of the claim.
SECTION 14.5 CLAIMS REVIEW PROCEDURE.
Any person whose claim filed pursuant to section 14.5 has been
denied in whole or in part by the Plan Administrator may request review of the
claim by the Committee, upon a form prescribed by the Plan Administrator. The
claimant shall file such form (including a statement of his position) with the
Committee no later than 60 days after the mailing or delivery of the written
notice of denial provided for in section 14.5, or, if such notice is not
provided, within 60 days after such claim is deemed denied pursuant to section
14.5. The claimant shall be permitted to review pertinent documents. A decision
shall be rendered by the Committee and communicated to the claimant not later
than 30 days after receipt of the claimant's written request for review.
However, if the Committee finds it necessary, due to special circumstances (for
example, the need to hold a hearing), to extend this period and so notifies the
claimant in writing, the decision shall be rendered as soon as practicable, but
in no event later than 120 days after the claimant's request for review. The
Committee's decision shall be in writing and shall specifically set forth:
(a) The reasons for the decision; and
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(b) The pertinent Plan provisions on which the decision is
based.
Any such decision of the Committee shall be binding upon the claimant and the
Employer, and the Plan Administrator shall take appropriate action to carry out
such decision.
SECTION 14.8 ALLOCATION OF FIDUCIARY RESPONSIBILITIES AND
EMPLOYMENT OF ADVISORS.
Any Named Fiduciary may:
(a) Allocate any of his or its responsibilities (other than
trustee responsibilities) under the Plan to such other person or
persons as he or it may designate, provided that such allocation and
designation shall be in writing and filed with the Plan Administrator;
(b) Employ one or more persons to render advice to him or it
with regard to any of his or its responsibilities under the Plan; and
(c) Consult with counsel, who may be counsel to the Employer.
SECTION 14.9 OTHER ADMINISTRATIVE PROVISIONS.
(a) Any person whose claim has been denied in whole or in part
must exhaust the administrative review procedures provided in section 14.5 prior
to initiating any claim for judicial review.
(b) No bond or other security shall be required of a member of
the Committee, the Plan Administrator, or any officer or Employee of the
Employer to whom fiduciary responsibilities are allocated by a Named Fiduciary,
except as may be required by ERISA.
(c) Subject to any limitation on the application of this
section 14.9(c) pursuant to ERISA, neither the Plan Administrator, nor a member
of the Committee, nor any officer or Employee of the Employer to whom fiduciary
responsibilities are allocated by a Named Fiduciary, shall be liable for any act
of omission or commission by himself or by another person, except for his own
individual willful and intentional malfeasance.
(d) The Plan Administrator or the Committee may, except with
respect to actions under section 14.5, shorten, extend or waive the time (but
not beyond 60 days) required by the Plan for filing any notice or other form
with the Plan Administrator or the Committee, or taking any other action under
the Plan.
(e) The Plan Administrator or the Committee may direct that
the costs of services provided pursuant to section 14.6, and such other
reasonable expenses as may be incurred in the administration of the Plan, shall
be paid out of the funds of the Plan unless the Employer shall pay them.
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(f) Any person, group of persons, committee, corporation or
organization may serve in more than one fiduciary capacity with respect to the
Plan.
(g) Any action taken or omitted by any fiduciary with respect
to the Plan, including any decision, interpretation, claim denial or review on
appeal, shall be conclusive and binding on all interested parties and shall be
subject to judicial modification or reversal only to the extent it is determined
by a court of competent jurisdiction that such action or omission was arbitrary
and capricious and contrary to the terms of the Plan.
ARTICLE XV
AMENDMENT, TERMINATION AND TAX QUALIFICATION
SECTION 15.1 AMENDMENT AND TERMINATION BY TAPPAN ZEE
FINANCIAL, INC.
The Employer expects to continue the Plan indefinitely, but
specifically reserves the right, in its sole discretion, at any time, by
appropriate action of the Board, to amend, in whole or in part, any or all of
the provisions of the Plan and to terminate the Plan at any time. Subject to the
provisions of section 15.2, no such amendment or termination shall permit any
part of the Trust Fund to be used for or diverted to purposes other than for the
exclusive benefit of Participants, Former Participants, Beneficiaries or other
persons entitled to benefits, and no such amendment or termination shall reduce
the accrued benefit of any Participant, Former Participant, Beneficiary or other
person who may be entitled to benefits, without his consent. In the event of a
termination or partial termination of the Plan, or in the event of a complete
discontinuance of the Employer's contributions to the Plan, the Accounts of each
affected person shall forthwith become nonforfeitable and shall be payable in
accordance with the provisions of Article XIII.
SECTION 15.2 AMENDMENT OR TERMINATION OTHER THAN BY TAPPAN ZEE
FINANCIAL, INC.
In the event that a corporation or trade or business other
than Tappan Zee Financial, Inc. shall adopt this Plan, such corporation or trade
or business shall, by adopting the Plan, empower Tappan Zee Financial, Inc. to
amend or terminate the Plan, insofar as it shall cover employees of such
corporation or trade or business, upon the terms and conditions set forth in
section 15.1; provided, however, that any such corporation or trade or business
may, by action of its board of directors or other governing body, amend or
terminate the Plan, insofar as it shall cover employees of such corporation or
trade or business, at different times and in a different manner. In the event of
any such amendment or termination by action of the board of directors or other
governing body of such a corporation or trade or business, a separate plan shall
be deemed to have been established for the employees of such corporation or
trade or business, and the assets of such plan shall be segregated from the
assets of this Plan at the earliest
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practicable date and shall be dealt with in accordance with the documents
governing such separate plan.
SECTION 15.3 CONFORMITY TO INTERNAL REVENUE CODE.
The Employer has established the Plan with the intent that the
Plan and Trust will at all times be qualified under section 401(a) and exempt
under section 501(a) of the Code and with the intent that contributions under
the Plan will be allowed as deductions in computing the net income of the
Employer for federal income tax purposes, and the provisions of the Plan and
Trust Agreement shall be construed to effectuate such intentions. Accordingly,
notwithstanding anything to the contrary hereinbefore provided, the Plan and the
Trust Agreement may be amended at any time without prior notice to Participants,
Former Participants, Beneficiaries or any other persons entitled to benefits, if
such amendment is deemed by the Board to be necessary or appropriate to
effectuate such intent.
SECTION 15.4 CONTINGENT NATURE OF CONTRIBUTIONS.
(a) All ESOP Contributions to the Plan are conditioned upon
the issuance by the Internal Revenue Service of a determination that the Plan
and Trust are qualified under section 401(a) of the Code and exempt under
section 501(a) of the Code. If the Employer applies to the Internal Revenue
Service for such a determination within 90 days after the date on which it files
its federal income tax return for its taxable year that includes the last day of
the Plan Year in which the Plan is adopted, and if the Internal Revenue Service
issues a determination that the Plan and Trust are not so qualified or exempt,
all ESOP Contributions made by the Employer prior to the date of receipt of such
a determination may, at the election of the Employer, be returned to the
Employer within one year after the date of such determination.
(b) All ESOP Contributions and Loan Repayment Contributions to
the Plan are made upon the condition that such ESOP Contributions and Loan
Repayment Contributions will be allowed as a deduction in computing the net
income of the Employer for federal income tax purposes. To the extent that any
such deduction is disallowed, the amount disallowed may, at the election of the
Employer, be returned to the Employer within one year after the deduction is
disallowed.
(c) Any contribution to the Plan made by the Employer as a
result of a mistake of fact may, at the election of the Employer, be returned to
the Employer within one year after such contribution is made.
<PAGE> 57
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ARTICLE XVI
SPECIAL RULES FOR TOP HEAVY PLAN YEARS
SECTION 16.1 IN GENERAL.
As of the Determination Date for each Plan Year, the Plan
Administrator shall determine whether the Plan is a Top Heavy Plan in accordance
with the provisions of this Article XVI. If, as of such Determination Date, the
Plan is a Top Heavy Plan, then the Plan Year immediately following such
Determination Date shall be a Top Heavy Plan Year and the special provisions of
this Article XVI shall be in effect; provided, however, that if, as of the
Determination Date for the Plan Year in which the Effective Date occurs, the
Plan is a Top Heavy Plan, such Plan Year shall be a Top Heavy Plan Year, and the
provisions of this Article XVI shall be given retroactive effect for such Plan
Year.
SECTION 16.2 DEFINITION OF TOP HEAVY PLAN.
(a) Subject to section 16.2(c), the Plan is a Top Heavy Plan
if, as of a Determination Date: (i) it is not a member of a Required Aggregation
Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all Key
Employees exceeds 60% of (B) the sum of the Cumulative Accrued Benefits of all
Employees (excluding former Key Employees), former Employees (excluding former
Key Employees and other former Employees who have not performed any services for
the Employer or any Affiliated Employer during the immediately preceding five
Plan Years), and their Beneficiaries.
(b) Subject to section 16.2(c), the Plan is a Top Heavy Plan
if, as of a Determination Date: (i) the Plan is a member of a Required
Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued Benefits of all
Key Employees under all plans that are members of the Required Aggregation Group
exceeds 60% of (B) the sum of the Cumulative Accrued Benefits of all Employees
(excluding former Key Employees), former Employees (excluding former Key
Employees and other former Employees who have not performed any services for the
Employer or any Affiliated Employer during the immediately preceding five Plan
Years), and their Beneficiaries under all plans that are members of the Required
Aggregation Group.
(c) Notwithstanding sections 16.2(a) and 16.2(b), the Plan is
not a Top Heavy Plan if, as of a Determination Date: (i) the Plan is a member of
a Permissible Aggregation Group, and (ii)(A) the sum of the Cumulative Accrued
Benefits of all Key Employees under all plans that are members of the
Permissible Aggregation Group does not exceed 60% of (B) the sum of the
Cumulative Accrued Benefits of all Employees (excluding former Key Employees),
former Employees (excluding former Key Employees and other former Employees who
have not performed any services for the Employer or any Affiliated Employer
during the immediately preceding five Plan Years), and their Beneficiaries under
all plans that are members of the Permissible Aggregation Group.
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SECTION 16.3 DETERMINATION DATE.
The Determination Date for the Plan Year in which the
Effective Date occurs shall be the last day of such Plan Year, and the
Determination Date for each Plan Year beginning after the Plan Year in which the
Effective Date occurs shall be the last day of the preceding Plan Year. The
Determination Date for any other qualified plan maintained by the Employer for a
plan year shall be the last day of the preceding plan year of each such plan,
except that in the case of the first plan year of such plan, it shall be the
last day of such first plan year.
SECTION 16.4 CUMULATIVE ACCRUED BENEFITS.
(a) An individual's Cumulative Accrued Benefits under
this Plan as of a Determination Date are equal to the sum of:
(i) the balance credited to such individual's Account
under this Plan as of the most recent Valuation Date
preceding the Determination Date;
(ii) the amount of any ESOP Contributions or Loan
Repayment Contributions made after such Valuation
Date but on or before the Determination Date; and
(iii) the amount of any distributions of such individual's
Cumulative Accrued Benefits under the Plan during the
five year period ending on the Determination Date.
For purposes of this section 16.4(a), the computation of an individual's
Cumulative Accrued Benefits, and the extent to which distributions, rollovers
and transfers are taken into account, will be made in accordance with section
416 of the Code and the regulations thereunder.
(b) For purposes of this Plan, the term "Cumulative Accrued
Benefits" with respect to any other qualified plan, shall mean the cumulative
accrued benefits determined for purposes of section 416 of the Code under the
provisions of such plans.
(c) For purposes of determining the top heavy status of a
Required Aggregation Group or a Permissible Aggregation Group, the Cumulative
Accrued Benefits under this Plan and the Cumulative Accrued Benefits under any
other plan shall be determined as of the Determination Date that falls within
the same calendar year as the Determination Dates for all other members of such
Required Aggregation Group or Permissible Aggregation Group.
SECTION 16.5 KEY EMPLOYEES.
(a) For purposes of the Plan, the term Key Employee means any
employee or former employee of the Employer or any Affiliated Employer who is at
any time during the current Plan Year or was at any time during the immediately
preceding four Plan Years:
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(i) a Five Percent Owner;
(ii) a person who would be described in section 1.23 if
the number "1%" were substituted for the number "5%"
in section 1.23 and who has an annual Total
Compensation from the Employer and any Affiliated
Employer of more than $150,000;
(iii) an Officer of the Employer or any Affiliated Employer
who has an annual Total Compensation greater than 50%
of the amount in effect under section 415(b)(1)(A) of
the Code for any such Plan Year; or
(iv) one of the ten persons owning the largest interests
in the Employer and having an annual Total
Compensation from the Employer or any Affiliated
Employer in excess of the dollar limitation in effect
under section 415(c)(1)(A) of the Code for such Plan
Year.
(b) For purposes of section 16.5(a):
(i) for purposes of section 16.5(a)(iii), in the event
the Employer or any Affiliated Employer has more
officers than are considered Officers, the term Key
Employee shall mean those officers, up to the maximum
number, with the highest annual compensation in any
one of the five consecutive Plan Years ending on the
Determination Date; and
(ii) for purposes of section 16.5(a)(iv), if two or more
persons have equal ownership interests in the
Employer, each such person shall be considered as
having a larger ownership interest than any such
person with a lower annual compensation from the
Employer or any Affiliated Employer.
(c) For purposes of section 16.5(a): (i) a person's
compensation from Affiliated Employers shall be aggregated, but his ownership
interests in Affiliated Employers shall not be aggregated; (ii) an employee
shall only be deemed to be an officer if he has the power and responsibility of
a person who is an officer within the meaning of section 416 of the Code; and
(iii) the term Key Employee shall also include the Beneficiary of a deceased Key
Employee.
SECTION 16.6 REQUIRED AGGREGATION GROUP.
For purposes of this Article XVI, a Required Aggregation Group
shall consist of (a) this Plan; (b) any other qualified plans maintained by the
Employer and any Affiliated Employers that cover Key Employees; and (c) any
other qualified plans that are required to be aggregated for purposes of
satisfying the requirements of sections 401(a)(4) or 410(b) of the Code.
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SECTION 16.7 PERMISSIBLE AGGREGATION GROUP.
For purposes of this Article XVI, a Permissible Aggregation
Group shall consist of (a) the Required Aggregation Group and (b) any other
qualified plans maintained by the Employer and any Affiliated Employers;
provided, however, that the Permissible Aggregation Group must satisfy the
requirements of sections 401(a)(4) and 410(b) of the Code.
SECTION 16.8 SPECIAL REQUIREMENTS DURING TOP HEAVY PLAN YEARS.
(a) Notwithstanding any other provision of the Plan to the
contrary, for each Top Heavy Plan Year, in the case of a Participant (other than
a Key Employee) on the last day of such Top Heavy Plan Year who is not also a
participant in another qualified plan which satisfies the minimum contribution
and benefit requirements of section 416 of the Code with respect to such
Participant, the sum of the ESOP Contributions and Loan Repayment Contributions
made with respect to such Participant, when expressed as a percentage of his
Total Compensation for such Top Heavy Plan Year, shall not be less than 3% of
such Participant's Total Compensation for such Top Heavy Plan Year or, if less,
the highest combined rate, expressed as a percentage of Total Compensation at
which ESOP Contributions and Loan Repayment Contributions were made on behalf of
a Key Employee for such Top Heavy Plan Year. The Employer shall make an
additional contribution to the Account of each Participant to the extent
necessary to satisfy the foregoing requirement.
(b) For any Top Heavy Plan Year, the number "1.0" shall be
substituted for the number "1.25" in sections 8.2(c)(iii) and 8.2(c)(iv), except
that:
(i) this section 16.8(b) shall not apply to any
individual for a Top Heavy Plan Year that is not a
Super Top Heavy Plan Year if the requirements of
section 16.8(a) would be satisfied for such Super Top
Heavy Plan Year if the number "4%" were substituted
for the number 3% in section 16.8(a); and
(ii) this section 16.8(b) shall not apply to an individual
for a Top Heavy Plan Year if, during such Top Heavy
Plan Year, there are no ESOP Contributions or Loan
Repayment Contributions allocated to such individual
under this Plan, there are no contributions under any
other qualified defined contribution plan maintained
by the Employer, and there are no accruals for such
individual under any qualified defined benefit plan
maintained by the Employer.
For purposes of this section 16.8(b), the term Super Top Heavy Plan Year means a
Top Heavy Plan Year in which the Plan would meet the definitional requirements
of sections 16.2(a) or 16.2(b) if the term "90%" were substituted for the term
"60%" in sections 16.2(a), 16.2(b) and 16.2(c).
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ARTICLE XVII
MISCELLANEOUS PROVISIONS
SECTION 17.1 GOVERNING LAW.
The Plan shall be construed, administered and enforced
according to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws are
preempted by federal law.
SECTION 17.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan, nor any provisions of
the Plan or of the Trust Agreement establishing the Trust Fund nor any action of
the Plan Administrator, the Committee or the Trustee, shall be held or construed
to confer upon any Employee any right to a continuation of employment by the
Employer. The Employer reserves the right to dismiss any Employee or otherwise
deal with any Employee to the same extent as though the Plan had not been
adopted.
SECTION 17.3 CONSTRUCTION OF LANGUAGE.
Wherever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular,
and words importing the masculine gender may be read as referring equally to the
feminine and the neuter. Any reference to an Article or section number shall
refer to an Article or section of the Plan, unless otherwise indicated.
SECTION 17.4 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 17.5 MERGER WITH OTHER PLANS.
The Plan shall not be merged or consolidated with, nor
transfer its assets or liabilities to, any other plan unless each Participant,
Former Participant, Beneficiary and other person entitled to benefits, would (if
that plan then terminated) receive a benefit immediately after the merger,
consolidation or transfer which is equal to or greater than the benefit he would
have been entitled to receive if the Plan had terminated immediately before the
merger, consolidation or transfer.
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SECTION 17.6 NON-ALIENATION OF BENEFITS.
(a) Except as provided in section 17.6(b), the right to
receive a benefit under the Plan shall not be subject in any manner to
anticipation, alienation or assignment, nor shall such right be liable for or
subject to debts, contracts, liabilities or torts. Should any Participant,
Former Participant or other person attempt to anticipate, alienate or assign his
interest in or right to a benefit, or should any person claiming against him
seek to subject such interest or right to legal or equitable process, all the
interest or right of such Participant or Former Participant or other person
entitled to benefits in the Plan shall cease, and in that event such interest or
right shall be held or applied, at the direction of the Plan Administrator, for
or to the benefit of such Participant or Former Participant, or other person or
his spouse, children or other dependents in such manner and in such proportions
as the Plan Administrator may deem proper.
(b) This section 17.6 shall not prohibit the Plan
Administrator from recognizing a Domestic Relations Order that is determined to
be a Qualified Domestic Relations Order in accordance with section 17.7.
SECTION 17.7 PROCEDURES INVOLVING DOMESTIC RELATIONS ORDERS.
Upon receiving a Domestic Relations Order, the Plan
Administrator shall segregate in a separate account or in an escrow account or
separately account for the amounts payable to any person pursuant to such
Domestic Relations Order, pending a determination whether such Domestic
Relations Order constitutes a Qualified Domestic Relations Order, and shall give
notice of the receipt of the Domestic Relations Order to the Participant or
Former Participant and each other person affected thereby. If, within 18 months
after receipt of such Domestic Relations Order, the Plan Administrator, a court
of competent jurisdiction or another appropriate authority determines that such
Domestic Relations Order constitutes a Qualified Domestic Relations Order, the
Plan Administrator shall direct the Trustee to pay the segregated amounts (plus
any interest thereon) to the person or persons entitled thereto under the
Qualified Domestic Relations Order. If it is determined that the Domestic
Relations Order is not a Qualified Domestic Relations Order or if no
determination is made within the prescribed 18- month period, the segregated
amounts shall be distributed as though the Domestic Relations Order had not been
received, and any later determination that such Domestic Relations Order
constitutes a Qualified Domestic Relations Order shall be applied only with
respect to benefits that remain undistributed on the date of such determination.
The Plan Administrator shall be authorized to establish such reasonable
administrative procedures as he deems necessary or appropriate to administer
this section 17.7. This section 17.7 shall be construed and administered so as
to comply with the requirements of section 401(a)(13) of the Code.
SECTION 17.8 LEASED EMPLOYEES.
(a) Subject to section 17.8(b), a leased employee shall be
treated as an Employee for purposes of the Plan. For purposes of this section
17.8, the term "leased employee" means any person (i) who would not, but for the
application of this section 17.8, be an Employee and (ii) who pursuant to an
agreement between the Employer and any other person
<PAGE> 63
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("leasing organization") has performed for the Employer (or for the Employer and
related persons determined in accordance with section 414(n)(6) of the Code), on
a substantially full-time basis for a period of at least one year, services of a
type historically performed by employees in the business field of the Employer.
(b) For purposes of the Plan:
(i) contributions or benefits provided to the leased employee
by the leasing organization which are attributable to services
performed for the Employer shall be treated as provided by the
Employer; and
(ii) section 17.8(a) shall not apply to a leased employee if:
(A) the number of leased employees performing
services for the Employer does not exceed 20% of the number of
the Employer's Employees who are not Highly Compensated
Employees; and
(B) such leased employee is covered by a money
purchase pension plan providing (I) a nonintegrated
contribution rate of at least 10% of the leased employee's
compensation; (II) immediate participation; (III) full and
immediate vesting; and (IV) coverage for all of the employees
of the leasing organization (other than employees who perform
substantially all of their services for the leasing
organization).
SECTION 17.9 STATUS AS AN EMPLOYEE STOCK OWNERSHIP PLAN.
It is intended that the Plan constitute an "employee stock
ownership plan," as defined in section 4975(e)(7) of the Code and section
407(d)(6) of ERISA. The Plan shall be construed and administered to give effect
to such intent.
<PAGE> 64
EMPLOYEE STOCK OWNERSHIP PLAN
OF TAPPAN ZEE FINANCIAL, INC.
AND CERTAIN AFFILIATES
(Effective October 5, 1995)
AMENDMENT
FIRST AMENDMENT
DOCUMENT: (TPW) 1071627
DRAFT DATE: 4/02/96
BOARD OF DIRECTORS
APPROVAL DATE: 4/05/96
1. Section 1.14 - Effective as of October 5, 1995, the section 1.14
definition of "Eligible Participant" shall be amended to read as follows:
SECTION 1.14 ELIGIBLE PARTICIPANT means, for
any Plan Year, an Employee who is or was a Participant during
all or part of such Plan Year.
IN WITNESS WHEREOF, this Amendment has been executed by the
undersigned officer of Tappan Zee Financial, Inc. pursuant to authority given by
resolution of the Board of Directors adopted on April 5, 1996.
TAPPAN ZEE FINANCIAL, INC.
By /s/ Harry G. Murphy
---------------------------------------
Name: Harry G. Murphy
Title: Vice President and Secretary
Page 1 of 2
<PAGE> 65
SECTION 1.14 ELIGIBLE PARTICIPANT means, for any Plan Year, an
Employee who is a Participant on the last day of such Plan Year and an Employee
who was a Participant during part of such Plan Year and whose participation
ceased prior to the last day of such Plan Year on account of his Retirement,
Disability or death.
Page 2 of 2
<PAGE> 1
LOAN AGREEMENT
BY AND BETWEEN
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF
TAPPAN ZEE FINANCIAL, INC.
AND CERTAIN AFFILIATES
AND
TAPPAN ZEE FINANCIAL, INC.
MADE AND ENTERED INTO AS OF
OCTOBER 5, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 BUSINESS DAY.................................................................................. 1
SECTION 1.2 CODE.......................................................................................... 1
SECTION 1.3 DEFAULT....................................................................................... 2
SECTION 1.4 ERISA......................................................................................... 2
SECTION 1.5 EVENT OF DEFAULT.............................................................................. 2
SECTION 1.6 INDEPENDENT COUNSEL........................................................................... 2
SECTION 1.7 LOAN.......................................................................................... 2
SECTION 1.8 LOAN DOCUMENTS................................................................................ 2
SECTION 1.9 PLEDGE AGREEMENT.............................................................................. 2
SECTION 1.10 PRINCIPAL AMOUNT.............................................................................. 2
SECTION 1.11 PROMISSORY NOTE............................................................................... 2
SECTION 1.12 REGISTER...................................................................................... 2
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT.................................................................... 2
SECTION 2.2 INTEREST...................................................................................... 3
SECTION 2.3 PROMISSORY NOTE............................................................................... 4
SECTION 2.4 PAYMENT OF TRUST LOAN......................................................................... 4
SECTION 2.5 PREPAYMENT.................................................................................... 4
SECTION 2.6 METHOD OF PAYMENTS............................................................................ 5
SECTION 2.7 USE OF PROCEEDS OF LOAN....................................................................... 6
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE........................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
SECTION 3.1 POWER, AUTHORITY, CONSENTS.................................................................... 7
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY....................................................... 7
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS................................................................. 7
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS............................................................. 7
SECTION 3.5 PURCHASES OF COMMON STOCK..................................................................... 7
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
<S> <C> <C>
SECTION 4.1 POWER, AUTHORITY, CONSENTS.................................................................... 8
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY....................................................... 8
SECTION 4.3 ESOP; CONTRIBUTIONS........................................................................... 8
SECTION 4.4 TRUSTEE; COMMITTEE............................................................................ 8
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS................................................................. 9
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT........................................................ 9
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT......................................................... 9
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER.................................................................... 10
SECTION 6.2 PAYMENTS...................................................................................... 10
SECTION 6.3 SURVIVAL...................................................................................... 10
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE AGREEMENT......................................... 10
SECTION 6.5 REMEDIES CUMULATIVE........................................................................... 11
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS................................................. 11
SECTION 6.7 NOTICES....................................................................................... 11
SECTION 6.1 COUNTERPARTS.................................................................................. 13
SECTION 6.2 CONSTRUCTION; GOVERNING LAW................................................................... 13
SECTION 6.3 SEVERABILITY.................................................................................. 13
SECTION 6.4 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION................................................... 13
EXHIBIT A FORM OF PROMISSORY NOTE............................................................................... A-1
EXHIBIT B FORM OF PLEDGE AGREEMENT.............................................................................. B-1
EXHIBIT C FORM OF ASSIGNMENT.................................................................................... C-1
EXHIBIT D FORM OF IRREVOCABLE PROXY............................................................................. D-1
</TABLE>
(ii)
<PAGE> 4
LOAN AGREEMENT
This LOAN AGREEMENT ("Loan Agreement") is made and entered
into as of the fifth (5th) day of October, 1995, by and between the EMPLOYEE
STOCK OWNERSHIP PLAN TRUST OF TAPPAN ZEE FINANCIAL, INC. AND CERTAIN AFFILIATES
("Borrower"), a trust forming part of the Employee Stock Ownership Plan of
Tappan Zee Financial, Inc. and Certain Affiliates ("ESOP"), acting through and
by its Trustee, MARINE MIDLAND BANK ("Trustee"), a banking corporation organized
under the laws of the State of New York and having an office at 250 Park Avenue,
New York, New York 10177; and TAPPAN ZEE FINANCIAL, INC. ("Lender"), a
corporation organized and existing under the laws of the state of Delaware,
having an office at 75 Broadway, Tarrytown, New York 10591.
W I T N E S S E T H :
WHEREAS, the Compensation Committee of the Lender
("Committee") has authorized the Borrower to purchase shares of common stock of
Tappan Zee Financial, Inc. ("Common Stock"), either directly from Tappan Zee
Financial Inc. or in open market purchases in an amount not to exceed 129,600
shares of Common Stock or, if less, shares of Common Stock having an aggregate
purchase price of One Million, Two Hundred and Ninety-Six Thousand Dollars
($1,296,000.00); and
WHEREAS, the Committee has further authorized the Borrower to
borrow funds from the Lender for the purpose of financing authorized purchases
of Common Stock; and
WHEREAS, the Lender is willing to make a loan to the Borrower
for such purpose;
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
The following definitions shall apply for purposes of this
Loan Agreement, except to the extent that a different meaning is plainly
indicated by the context:
SECTION 1.1 BUSINESS DAY means any day other than a Saturday,
Sunday or other day on which banks are authorized or required to close under
federal law or the laws of the State of New York.
SECTION 1.2 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
<PAGE> 5
-2-
SECTION 1.3 DEFAULT means an event or condition which would
constitute an Event of Default. The determination as to whether an event or
condition would constitute an Event of Default shall be determined without
regard to any applicable requirement of notice or lapse of time.
SECTION 1.4 ERISA means the Employee Retirement Income
Security Act of 1974, as amended (including the corresponding provisions of any
succeeding law).
SECTION 1.5 EVENT OF DEFAULT means an event or condition
described in Article 5.
SECTION 1.6 INDEPENDENT COUNSEL means Thacher Proffitt & Wood
or other counsel mutually satisfactory to both the Lender and the Borrower.
SECTION 1.7 LOAN means the loan described in section 2.1.
SECTION 1.8 LOAN DOCUMENTS means, collectively, this Loan
Agreement, the Promissory Note and the Pledge Agreement and all other documents
now or hereafter executed and delivered in connection with such documents,
including all amendments, modifications and supplements of or to all such
documents.
SECTION 1.9 PLEDGE AGREEMENT means the agreement described in
section 2.8(a).
SECTION 1.10 PRINCIPAL AMOUNT means the face amount of the
Promissory Note, determined as set forth in section 2.1(c).
SECTION 1.11 PROMISSORY NOTE means the promissory note
described in section 2.3.
SECTION 1.12 REGISTER means the register described in section
2.9.
ARTICLE II
THE LOAN; PRINCIPAL AMOUNT;
INTEREST; SECURITY; INDEMNIFICATION
SECTION 2.1 THE LOAN; PRINCIPAL AMOUNT.
(a) The Lender hereby agrees to lend to the Borrower such
amounts, and at such times, as shall be determined under this section 2.1;
provided, however, that in no event shall the aggregate amount lent under this
Loan Agreement from time to time exceed the lesser of (i) One Million, Two
Hundred and Ninety-Six Thousand Dollars ($1,296,000.00) or (ii) the
<PAGE> 6
-3-
aggregate amount paid by the Borrower, exclusive of commissions, fees and other
charges, to purchase 129,600 shares of Common Stock.
(b) Subject to the limitations of section 2.1(a), the Borrower
shall determine the amounts borrowed under this Agreement, and the times at
which such borrowings are effected. Each such determination shall be evidenced
in a writing which shall set forth the amount to be borrowed and the date on
which the Lender shall disburse such amount, and such writing shall be furnished
to the Lender by notice from the Borrower. The Lender shall disburse to the
Borrower the amount specified in each such notice on the date specified therein
or, if later, as promptly as practicable following the Lender's receipt of such
notice; provided, however, that the Lender shall have no obligation to disburse
funds pursuant to this Agreement following the occurrence of a Default or an
Event of Default until such time as such Default or Event of Default shall have
been cured.
(c) For all purposes of this Loan Agreement, the Principal
Amount on any date shall be equal to the excess, if any, of:
(i) the aggregate amount disbursed by the Lender pursuant to
section 2.1(b) on or before such date; over
(ii) the aggregate amount of any repayments of such amounts
made before such date.
The Lender shall maintain on the Register a record of, and shall record on the
Promissory Note, the Principal Amount, any changes in the Principal Amount and
the effective date of any changes in the Principal Amount.
SECTION 2.2 INTEREST.
(a) The Borrower shall pay to the Lender interest on the
Principal Amount, for the period commencing on the date of this Loan Agreement
and continuing until the Principal Amount shall be paid in full, the rate of
eight percent (8%) per annum. Interest payable under this Agreement shall be
computed on the basis of a year of 365 days and actual days elapsed (including
the first day but excluding the last) occurring in the period to which the
computation relates.
(b) Except as otherwise provided in this section 2.2(b),
accrued interest on the Principal Amount shall be payable by the Borrower
quarterly in arrears commencing on the last Business Day of the first calendar
quarter to end following the date of this Agreement and continuing on the last
Business Day of each calendar quarter thereafter and upon the payment or
prepayment of such Loan. All interest on the Principal Amount shall be paid by
the Borrower in immediately available funds. The Lender shall remit to the
Borrower, at least three (3) Business Days before the end of each calendar
quarter, a statement of the interest payment due under section 2.2(a) for such
quarter; provided, however, that a delay or failure by the Lender in providing
the Borrower with such statement shall not alter the Borrower's obligation to
make such payment.
<PAGE> 7
-4-
(c) Anything in this Loan Agreement or the Promissory Note to
the contrary notwithstanding, the obligation of the Borrower to make payments of
interest shall be subject to the limitation that payments of interest shall not
be required to be made to the Lender to the extent that the Lender's receipt
thereof would not be permissible under the law or laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Any
such payment referred to in the preceding sentence shall be made by the Borrower
to the Lender on the earliest interest payment date or dates on which the
receipt thereof would be permissible under the laws applicable to the Lender
limiting rates of interest which may be charged or collected by the Lender. Such
deferred interest shall not bear interest.
SECTION 2.3 PROMISSORY NOTE.
The Loan shall be evidenced by a Promissory Note of the
Borrower in substantially the form of Exhibit A attached hereto, dated the date
hereof, payable to the order of the Lender in the Principal Amount and otherwise
duly completed.
SECTION 2.4 PAYMENT OF TRUST LOAN.
The Principal Amount of the Loan shall be repaid in annual
installments payable on the last Business Day of each calendar year beginning
after the date of this Agreement. The amount of each such annual installment
shall be equal to a fraction of the Principal Amount on the due date of such
installment, determined in accordance with the following schedule:
<TABLE>
<CAPTION>
INSTALLMENT DUE ON FRACTION OF OUTSTANDING
LAST BUSINESS DAY OF PRINCIPAL AMOUNT
-------------------- ----------------
<S> <C>
1995 1/10
1996 1/9
1997 1/8
1998 1/7
1999 1/6
2000 1/5
2001 1/4
2002 1/3
2003 1/2
2004 entire outstanding
Principal Amount
</TABLE>
SECTION 2.5 PREPAYMENT.
The Borrower shall be entitled to prepay the Loan in whole or
in part, at any time and from time to time; provided, however, that the Borrower
shall give notice to the Lender of any such prepayment; and provided, further,
that any partial prepayment of the Loan shall be in an amount not less than TEN
THOUSAND DOLLARS ($10,000.00). Any such prepayment
<PAGE> 8
-5-
shall be: (a) permanent and irrevocable: (b) accompanied by all accrued interest
through the date of such prepayment; (c) made without premium or penalty; and
(d) applied in the inverse order of the maturity of the installments thereof
unless the Lender and the Borrower agree to apply such prepayments in some other
order.
SECTION 2.6 METHOD OF PAYMENTS.
(a) All payments of principal, interest, other charges
(including indemnities) and other amounts payable by the Borrower hereunder
shall be made in lawful money of the United States, in immediately available
funds, to the Lender at the address specified in or pursuant to this Loan
Agreement for notices to the Lender, not later than 3:00 P.M., New York time, on
the date on which such payment shall become due. Any such payment made on such
date but after such time shall, if the amount paid bears interest, and except as
expressly provided to the contrary herein, be deemed to have been made on, and
interest shall continue to accrue and be payable thereon until, the next
succeeding Business Day. If any payment of principal or interest becomes due on
a day other than a Business Day, such payment may be made on the next succeeding
Business Day, and when paid, such payment shall include interest to the day on
which such payment is in fact made.
(b) Notwithstanding anything to the contrary contained in this
Loan Agreement or the Promissory Note, neither the Borrower nor the Trustee
shall be obligated to make any payment, repayment or prepayment on the
Promissory Note or take or refrain from taking any other action hereunder or
under the Promissory Note if doing so would cause the ESOP to cease to be an
employee stock ownership plan within the meaning of section 4975(e)(7) of the
Code or qualified under section 401(a) of the Code or cause the Borrower to
cease to be a tax exempt trust under section 501(a) of the Code or if such act
or failure to act would cause the Borrower or the Trustee to engage in any
"prohibited transaction" as such term is defined in section 4975(c) of the Code
and the regulations promulgated thereunder which is not exempted by section
4975(c)(2) or (d) of the Code and the regulations promulgated thereunder or in
section 406 of ERISA and the regulations promulgated thereunder which is not
exempted by section 408(b) of ERISA and the regulations promulgated thereunder;
provided, however, that in each case, the Borrower or the Trustee or both, as
the case may be, may act or refrain from acting pursuant to this section 2.6(b)
on the basis of an opinion of Independent Counsel. The Borrower and the Trustee
may consult with Independent Counsel, and any opinion of such Independent
Counsel shall be full and complete authorization and protection in respect of
any action taken or suffered or omitted by it hereunder in good faith and in
accordance with such opinion of Independent Counsel. Nothing contained in this
section 2.6(b) shall be construed as imposing a duty on either the Borrower or
the Trustee to consult with Independent Counsel. Any obligation of the Borrower
or the Trustee to make any payment, repayment or prepayment on the Promissory
Note or to take or refrain from taking any other act hereunder or under the
Promissory Note which is excused pursuant to this section 2.6(b) shall be
considered a binding obligation of the Borrower or the Trustee, or both, as the
case may be, for the purposes of determining whether a Default or Event of
Default has occurred hereunder or under the Promissory Note and nothing in this
section 2.6(b) shall be construed as providing a defense to any remedies
otherwise available upon a Default or an Event of Default hereunder (other than
the remedy of specific performance).
<PAGE> 9
-6-
SECTION 2.7 USE OF PROCEEDS OF LOAN.
The entire proceeds of the Loan shall be used solely for
acquiring shares of Common Stock, and for no other purpose whatsoever.
SECTION 2.8 SECURITY.
(a) In order to secure the due payment and performance by the
Borrower of all of its obligations under this Loan Agreement, simultaneously
with the execution and delivery of this Loan Agreement by the Borrower, the
Borrower shall:
(i) pledge to the Lender as Collateral (as defined in the
Pledge Agreement), and grant to the Lender a first priority lien on and
security interest in, the Common Stock purchased with the Principal
Amount, by the execution and delivery to the Lender of a Pledge
Agreement in the form attached hereto as Exhibit B; and
(ii) execute and deliver, or cause to be executed and
delivered, such other agreements, instruments and documents as the
Lender may reasonably require in order to effect the purposes of the
Pledge Agreement and this Loan Agreement.
(b) The Lender shall release from encumbrance under the Pledge
Agreement and transfer to the Borrower, as of the date on which any payment or
prepayment of the Principal Amount is made, a number of shares of Common Stock
held as Collateral pursuant to section 6.4 of the ESOP.
SECTION 2.9 REGISTRATION OF THE PROMISSORY NOTE.
(a) The Lender shall maintain a Register providing for the
registration of the Principal Amount and any stated interest and of transfer and
exchange of the Promissory Note. Transfer of the Promissory Note may be effected
only by the surrender of the old instrument and either the reissuance by the
Borrower of the old instrument to the new holder or the issuance by the Borrower
of a new instrument to the new holder. The old Promissory Note so surrendered
shall be cancelled by the Lender and returned to the Borrower after such
cancellation.
(b) Any new Promissory Note issued pursuant to section 2.9(a)
shall carry the same rights to interest (unpaid and to accrue) carried by the
Promissory Note so transferred or exchanged so that there will not be any loss
or gain of interest on the note surrendered. Such new Promissory Note shall be
subject to all of the provisions and entitled to all of the benefits of this
Agreement. Prior to due presentment for registration or transfer, the Borrower
may deem and treat the registered holder of any Promissory Note as the holder
thereof for purposes of payment and all other purposes. A notation shall be made
on each new Promissory Note of the amount of all payments of principal and
interest theretofore paid.
<PAGE> 10
-7-
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BORROWER
The Borrower hereby represents and warrants to the Lender as
follows:
SECTION 3.1 POWER, AUTHORITY, CONSENTS.
The Borrower has the power to execute, deliver and perform
this Loan Agreement, the Promissory Note and the Pledge Agreement, all of which
have been duly authorized by all necessary and proper corporate or other action.
SECTION 3.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
Each of the Loan Documents, including, without limitation,
this Loan Agreement, the Promissory Note and the Pledge Agreement, have been
duly executed and delivered by the Borrower; and each constitutes the valid and
legally binding obligation of the Borrower, enforceable in accordance with its
terms.
SECTION 3.3 PROPERTIES, PRIORITY OF LIENS.
The liens which have been created and granted by the Pledge
Agreement constitute valid, first liens on the properties and assets covered by
the Pledge Agreement, subject to no prior or equal lien.
SECTION 3.4 NO DEFAULTS, COMPLIANCE WITH LAWS.
The Borrower is not in default in any material respect under
any agreement, ordinance, resolution, decree, bond, note, indenture, order or
judgment to which it is a party or by which it is bound, or any other agreement
or other instrument by which any of the properties or assets owned by it is
materially affected.
SECTION 3.5 PURCHASES OF COMMON STOCK.
Upon consummation of any purchase of Common Stock by the
Borrower with the proceeds of the Loan, the Borrower shall acquire valid, legal
and marketable title to all of the Common Stock so purchased, free and clear of
any liens, other than a pledge to the Lender of the Common Stock so purchased
pursuant to the Pledge Agreement. Neither the execution and delivery of the Loan
Documents nor the performance of any obligation thereunder violates any
provision of law or conflicts with or results in a breach of or creates (with or
without the giving of notice or lapse of time, or both) a default under any
agreement to which the Borrower is a party or by which it is bound or any of its
properties is affected. No consent of any federal, state or local governmental
authority, agency or other regulatory body, the absence of which could have a
materially adverse effect on the Borrower or the Trustee, is or was required to
be obtained in connection with the execution, delivery or performance of the
Loan Documents and the transactions contemplated therein or in connection
therewith, including, without limitation,
<PAGE> 11
-8-
with respect to the transfer of the shares of Common Stock purchased with the
proceeds of the Loan pursuant thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender hereby represents and warrants to the Borrower as
follows:
SECTION 4.1 POWER, AUTHORITY, CONSENTS.
The Lender has the power to execute, deliver and perform this
Loan Agreement, the Pledge Agreement and all documents executed by the Lender in
connection with the Loan, all of which have been duly authorized by all
necessary and proper corporate or other action. No consent, authorization or
approval or other action by any governmental authority or regulatory body, and
no notice by the Lender to, or filing by the Lender with, any governmental
authority or regulatory body is required for the due execution, delivery and
performance of this Loan Agreement.
SECTION 4.2 DUE EXECUTION, VALIDITY, ENFORCEABILITY.
This Loan Agreement and the Pledge Agreement have been duly
executed and delivered by the Lender; and each constitutes a valid and legally
binding obligation of the Lender, enforceable in accordance with its terms.
SECTION 4.3 ESOP; CONTRIBUTIONS.
The ESOP and the Borrower have been duly created, organized
and maintained by the Lender in compliance with all applicable laws, regulations
and rulings. The ESOP qualifies as an "employee stock ownership plan" as defined
in section 4975(e) (7) the Code. The ESOP provides that the Lender may make
contributions to the ESOP in an amount necessary to enable the Trustee to
amortize the Loan in accordance with the terms of the Promissory Note and this
Loan Agreement, and the Lender will make such contributions; provided, however,
that no such contributions shall be required if they would adversely affect the
qualification of the ESOP under section 401(a) of the Code.
SECTION 4.4 TRUSTEE; COMMITTEE.
The Lender has taken such action as is required to be taken by
it to duly appoint the Trustee and the members of the Committee. The Lender
expressly acknowledges and agrees that this Loan Agreement, the Promissory Note
and the Pledge Agreement are being executed by the Trustee not in its individual
capacity but solely as trustee of and on behalf of the Borrower.
<PAGE> 12
-9-
SECTION 4.5 COMPLIANCE WITH LAWS; ACTIONS.
Neither the execution and delivery by the Lender of this Loan
Agreement or any instruments required thereby, nor compliance with the terms and
provisions of any such documents by the Lender, constitutes a violation of any
provision of any law or any regulation, order, writ, injunction or decree or any
court or governmental instrumentality, or an event of default under any
agreement, to which the Lender is a party or by which the Lender is bound or to
which the Lender is subject, which violation or event of default would have a
material adverse effect on the Lender. There is no action or proceeding pending
or threatened against either of the ESOP or the Borrower before any court or
administrative agency.
ARTICLE V
EVENTS OF DEFAULT
SECTION 5.1 EVENTS OF DEFAULT UNDER LOAN AGREEMENT.
Each of the following events shall constitute an "Event of
Default" hereunder:
(a) Failure to make any payment or mandatory prepayment of
principal of the Promissory Note when due, or failure to make any payment of
interest on the Promissory Note not later than five (5) Business Days after the
date when due.
(b) Failure by the Borrower to perform or observe any term,
condition or covenant of this Loan Agreement or of any of the other Loan
Documents, including, without limitation, the Promissory Note and the Pledge
Agreement.
(c) Any representation or warranty made in writing to the
Lender in any of the Loan Documents or any certificate, statement or report made
or delivered in compliance with this Loan Agreement, shall have been false or
misleading in any material respect when made or delivered.
SECTION 5.2 LENDER'S RIGHTS UPON EVENT OF DEFAULT.
If an Event of Default under this Loan Agreement shall occur
and be continuing, the Lender shall have no rights to assets of the Borrower
other than: (a) contributions (other than contributions of Common Stock) that
are made by the Lender to enable the Borrower to meet its obligations pursuant
to this Loan Agreement and earnings attributable to the investment of such
contributions and (b) "Eligible Collateral" (as defined in the Pledge
Agreement); provided, however, that: (i) the value of the Borrower's assets
transferred to the Lender following an Event of Default in satisfaction of the
due and unpaid amount of the Loan shall not exceed the amount in default
(without regard to amounts owing solely as a result of any acceleration of the
Loan); (ii) the Borrower's assets shall be transferred to the Lender following
an Event of Default only to the extent of the failure of the Borrower to meet
the payment
<PAGE> 13
-10-
schedule of the Loan; and (iii) all rights of the Lender to the Common Stock
purchased with the proceeds of the Loan covered by the Pledge Agreement
following an Event of Default shall be governed by the terms of the Pledge
Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PAYMENTS DUE TO THE LENDER.
If any amount is payable by the Borrower to the Lender
pursuant to any indemnity obligation contained herein, then the Borrower shall
pay, at the time or times provided therefor, any such amount and shall indemnify
the Lender against and hold it harmless from any loss or damage resulting from
or arising out of the nonpayment or delay in payment of any such amount. If any
amounts as to which the Borrower has so indemnified the Lender hereunder shall
be assessed or levied against the Lender, the Lender may notify the Borrower and
make immediate payment thereof, together with interest or penalties in
connection therewith, and shall thereupon be entitled to and shall receive
immediate reimbursement therefor from the Borrower, together with interest on
each such amount as provided in section 2.2(c). Notwithstanding any other
provision contained in this Loan Agreement, the covenants and agreements of the
Borrower contained in this section 6.1 shall survive: (a) payment of the
Promissory Note and (b) termination of this Loan Agreement.
SECTION 6.2 PAYMENTS.
All payments hereunder and under the Promissory Note shall be
made without set-off or counterclaim and in such amounts as may be necessary in
order that all such payments shall not be less than the amounts otherwise
specified to be paid under this Loan Agreement and the Promissory Note, subject
to any applicable tax withholding requirements. Upon payment in full of the
Promissory Note, the Lender shall mark such Promissory Note "Paid" and return it
to the Borrower.
SECTION 6.3 SURVIVAL.
All agreements, representations and warranties made herein
shall survive the delivery of this Loan Agreement and the Promissory Note.
SECTION 6.4 MODIFICATIONS, CONSENTS AND WAIVERS; ENTIRE
AGREEMENT.
No modification, amendment or waiver of or with respect to any
provision of this Loan Agreement, the Promissory Note, the Pledge Agreement, or
any of the other Loan Documents, nor consent to any departure from any of the
terms or conditions thereof, shall in any event be effective unless it shall be
in writing and signed by the party against whom enforcement thereof is sought.
Any such waiver or consent shall be effective only in the specific
<PAGE> 14
-11-
instance and for the purpose for which given. No consent to or demand on a party
in any case shall, of itself, entitle it to any other or further notice or
demand in similar or other circumstances. This Loan Agreement embodies the
entire agreement and understanding between the Lender and the Borrower and
supersedes all prior agreements and understandings relating to the subject
matter hereof.
SECTION 6.5 REMEDIES CUMULATIVE.
Each and every right granted to the Lender hereunder or under
any other document delivered hereunder or in connection herewith, or allowed it
by law or equity, shall be cumulative and may be exercised from time to time. No
failure on the part of the Lender or the holder of the Promissory Note to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof, nor shall any single or partial exercise of any right preclude any
other or future exercise thereof or the exercise of any other right. The due
payment and performance of the obligations under the Loan Documents shall be
without regard to any counterclaim, right of offset or any other claim
whatsoever which the Borrower may have against the Lender and without regard to
any other obligation of any nature whatsoever which the Lender may have to the
Borrower, and no such counterclaim or offset shall be asserted by the Borrower
in any action, suit or proceeding instituted by the Lender for payment or
performance of such obligations.
SECTION 6.6 FURTHER ASSURANCES; COMPLIANCE WITH COVENANTS.
At any time and from time to time, upon the request of the
Lender, the Borrower shall execute, deliver and acknowledge or cause to be
executed, delivered and acknowledged, such further documents and instruments and
do such other acts and things as the Lender may reasonably request in order to
fully effect the terms of this Loan Agreement, the Promissory Note, the Pledge
Agreement, the other Loan Documents and any other agreements, instruments and
documents delivered pursuant hereto or in connection with the Loan.
SECTION 6.7 NOTICES.
Except as otherwise specifically provided for herein, all
notices, requests, reports and other communications pursuant to this Loan
Agreement shall be in writing, either by letter (delivered by hand or commercial
messenger service or sent by registered or certified mail, return receipt
requested, except for routine reports delivered in compliance with Article VI
hereof which may be sent by ordinary first-class mail) or telex or telecopier,
addressed as follows:
<PAGE> 15
-12-
(a) If to the Borrower:
Employee Stock Ownership Plan Trust
of Tappan Zee Financial, Inc.
and Certain Affiliates
c/o Tarrytowns Bank, FSB
75 Broadway
Tarrytown, New York 10591
Attention: Mr. Stephen C. Byelick
President and Chief Executive Officer
with copies to:
Marine Midland Bank
250 Park Avenue
New York, New York 10177
Attention: Mr. Richard A. Glover
Assistant Vice President
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York New York 10048
Attention: W. Edward Bright, Esq.
(b) If to the Lender:
Tappan Zee Financial, Inc.
75 Broadway
Tarrytown, New York 10591
Attention: Mr. Stephen C. Byelick
President and Chief Executive Officer
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center, 39th Floor
New York New York 10048
Attention: W. Edward Bright, Esq.
Any notice, request or communication hereunder shall be deemed to have been
given on the day on which it is delivered by hand or by commercial messenger
service, or sent by telex or telecopier, to such party at its address specified
above, or, if sent by mail, on the third Business Day after the day deposited in
the mail, postage prepaid, addressed as aforesaid. Any party may change the
person or address to whom or which notices are to be given hereunder, by notice
duly given hereunder; provided, however, that any such notice shall be deemed to
have been given only when actually received by the party to whom it is
addressed.
<PAGE> 16
-13-
SECTION 6.1 COUNTERPARTS.
This Loan Agreement may be signed in any number of
counterparts which, when taken together, shall constitute one and the same
document.
SECTION 6.2 CONSTRUCTION; GOVERNING LAW.
The headings used in the table of contents and in this Loan
Agreement are for convenience only and shall not be deemed to constitute a part
hereof. All uses herein of any gender or of singular or plural terms shall be
deemed to include uses of the other genders or plural or singular terms, as the
context may require. All references in this Loan Agreement to an Article or
section shall be to an Article or section of this Loan Agreement, unless
otherwise specified. This Loan Agreement, the Promissory Note, the Pledge
Agreement and the other Loan Documents shall be governed by, and construed and
interpreted in accordance with, the laws of the State of New York.
SECTION 6.3 SEVERABILITY.
Wherever possible, each provision of this Loan Agreement shall
be interpreted in such manner as to be effective and valid under applicable law;
however, the provisions of this Loan Agreement are severable, and if any clause
or provision hereof shall be held invalid or unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part thereof, in such jurisdiction and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision in this Loan Agreement in any jurisdiction. Each of
the covenants, agreements and conditions contained in this Loan Agreement is
independent, and compliance by a party with any of them shall not excuse
non-compliance by such party with any other. The Borrower shall not take any
action the effect of which shall constitute a breach or violation of any
provision of this Loan Agreement.
SECTION 6.4 BINDING EFFECT; NO ASSIGNMENT OR DELEGATION.
This Loan Agreement shall be binding upon and inure to the
benefit of the Borrower and its successors and the Lender and its successors and
assigns. The rights and obligations of the Borrower under this Agreement shall
not be assigned or delegated without the prior written consent of the Lender,
and any purported assignment or delegation without such consent shall be void.
<PAGE> 17
-14-
IN WITNESS WHEREOF, the parties hereto have caused this Loan
Agreement to be duly executed as of the date first above written.
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF TAPPAN ZEE FINANCIAL, INC.
BY MARINE MIDLAND BANK, AS TRUSTEE
BY: /S/ RICHARD A. GLOVER
-------------------------------------
TITLE: VICE PRESIDENT
-------------------------------------
TAPPAN ZEE FINANCIAL, INC.
BY: /S/ STEPHEN C. BYELICK
-------------------------------------
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
-------------------------------------
<PAGE> 18
MODIFICATION TO LOAN AGREEMENT
This MODIFICATION AGREEMENT, is made and entered into as of
December 29, 1995, by and between the Employee Stock Ownership Plan Trust of
Tappan Zee Financial, Inc. and Certain Affiliates ("Borrower"), a trust forming
part of the Employee Stock Ownership Plan of Tappan Zee Financial, Inc. and
Certain Affiliates ("ESOP"), acting through and by its Trustee, Marine Midland
Bank ("Trustee"), a banking corporation organized under the laws of the State of
New York and having an office at 250 Park Avenue, New York, New York 10177; and
Tappan Zee Financial, Inc. ("Lender"), a corporation organized and existing
under the laws of the state of Delaware, having an office at 75 Broadway,
Tarrytown, New York 10591.
W I T N E S S E T H :
WHEREAS, the Lender has entered into a Loan Agreement dated
October 5, 1995 with the Borrower, acting through the Trustee ("Loan
Agreement"); and
WHEREAS, section 6.4 of the Loan Agreement provides that the
Loan Agreement may be modified only by a written modification, signed by the
party against whom enforcement is sought; and
WHEREAS, the Lender wishes to modify the payment schedule
provided for in the Loan Agreement;
NOW, THEREFORE, section 2.4 of the Loan Agreement shall be
modified to read in its entirety as follows:
The Principal Amount of the Loan shall be repaid in forty (40)
quarterly installments of Thirty-Two Thousand and Four Hundred DOLLARS
($32,400.00) commencing on December 29, 1995 and continuing on the last Business
Day of each calendar quarter until the last Business Day of September, 2005, at
which time the entire Principal Amount then outstanding and all accrued interest
shall become due and payable.
Except as specifically provided herein to the contrary, the
provisions of the Loan Agreement shall remain in full force and effect.
<PAGE> 19
IN WITNESS WHEREOF, the parties hereto have caused this
Modification Agreement to be duly executed as of the date first above written.
TAPPAN ZEE FINANCIAL, INC.
BY: /S/ STEPHEN C. BYELICK
-------------------------------------
TITLE: PRESIDENT AND CHIEF EXECUTIVE OFFICER
-------------------------------------
ACCEPTED AND AGREED TO:
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
OF TAPPAN ZEE FINANCIAL, INC.
BY MARINE MIDLAND BANK, AS TRUSTEE
BY: /S/ STEPHEN HARTMAN, JR.
------------------------------------
TITLE: SENIOR VICE PRESIDENT
------------------------------------
[Notary Public
Attestations and Seals]
-2-
<PAGE> 1
RETIREMENT PLAN FOR BOARD MEMBERS
OF
TAPPAN ZEE FINANCIAL, INC.
AND
CERTAIN AFFILIATES
ADOPTED ON JULY 25, 1995
EFFECTIVE UPON THE CONVERSION DATE
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 ANNUAL COMPENSATION........................................................................... 1
SECTION 1.2 BANK.......................................................................................... 1
SECTION 1.3 BENEFICIARY................................................................................... 1
SECTION 1.4 BOARD......................................................................................... 1
SECTION 1.5 BOARD MEMBER.................................................................................. 1
SECTION 1.6 CHANGE OF CONTROL OF THE HOLDING COMPANY...................................................... 1
SECTION 1.7 CODE.......................................................................................... 3
SECTION 1.8 COMMITTEE..................................................................................... 3
SECTION 1.9 CONVERSION DATE............................................................................... 3
SECTION 1.10 DISABILITY.................................................................................... 3
SECTION 1.11 HOLDING COMPANY............................................................................... 4
SECTION 1.12 PARTICIPANT................................................................................... 4
SECTION 1.13 PARTICIPATING COMPANY......................................................................... 4
SECTION 1.14 PERSON........................................................................................ 4
SECTION 1.15 PLAN.......................................................................................... 4
SECTION 1.16 PREDECESSOR BOARD............................................................................. 4
SECTION 1.17 RETIRED PARTICIPANT........................................................................... 4
SECTION 1.18 SPOUSE........................................................................................ 4
SECTION 1.19 YEARS OF SERVICE.............................................................................. 4
ARTICLE II
ELIGIBILITY
SECTION 2.1 PARTICIPATION................................................................................. 5
SECTION 2.2 TERMINATION OF PARTICIPATION.................................................................. 5
ARTICLE III
RETIREMENT BENEFITS
SECTION 3.1 NORMAL RETIREMENT............................................................................. 5
SECTION 3.2 PAYMENTS...................................................................................... 6
SECTION 3.3 OPTIONAL FORMS OF RETIREMENT ALLOWANCE........................................................ 6
SECTION 3.4 PAYMENTS OF SMALL AMOUNTS..................................................................... 7
SECTION 3.5 AUTOMATIC DEATH BENEFIT FOR SPOUSE............................................................ 7
SECTION 3.6 BENEFICIARIES................................................................................. 8
</TABLE>
(i)
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
ARTICLE IV
ADMINISTRATION
<S> <C> <C>
SECTION 4.1 DUTIES OF THE COMMITTEE....................................................................... 8
SECTION 4.2 LIABILITIES OF THE COMMITTEE.................................................................. 9
SECTION 4.3 EXPENSES...................................................................................... 9
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1 AMENDMENT AND TERMINATION..................................................................... 9
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PLAN DOCUMENTS................................................................................ 10
SECTION 6.2 CONSTRUCTION OF LANGUAGE...................................................................... 10
SECTION 6.3 NON-ALIENATION OF BENEFITS.................................................................... 10
SECTION 6.4 INDEMNIFICATION............................................................................... 10
SECTION 6.5 SEVERABILITY.................................................................................. 10
SECTION 6.6 WAIVER........................................................................................ 10
SECTION 6.7 NOTICES....................................................................................... 11
SECTION 6.8 OPERATION AS AN UNFUNDED PLAN................................................................. 11
SECTION 6.9 REQUIRED REGULATORY PROVISIONS................................................................ 11
SECTION 6.10 GOVERNING LAW................................................................................. 12
</TABLE>
(ii)
<PAGE> 4
RETIREMENT PLAN FOR BOARD MEMBERS
OF
TAPPAN ZEE FINANCIAL, INC.
AND
CERTAIN AFFILIATES
ARTICLE I
DEFINITIONS
The following definitions shall apply for the purposes of this
Plan unless a different meaning is plainly indicated by the context:
SECTION 1.1 ANNUAL COMPENSATION means, on any date for any
Board Member, the amount of compensation paid to such Board Member for service
as a Board Member during the twelve (12) month period early on such date,
including retainer payments, fees paid solely on the basis of attendance at
meetings as a Board Member and any amounts thereof deferred at the request of
the Board Member, but excluding compensation in the form of stock options,
appreciation rights, or restricted property, or other special forms of
remuneration.
SECTION 1.2 BANK means (a) prior to the Conversion Date,
Tarrytowns Bank, FSB, a federal mutual savings bank; and (b) on and after the
Conversion Date, Tarrytowns Bank, FSB, a federal stock savings bank; and any
successor thereto.
SECTION 1.3 BENEFICIARY means the Person or Persons designated
by the Participant or Retired Participant to receive a survivor benefit under
one of the optional forms of retirement allowance provided under section 3.4 or
section 3.5. If more than one Person is designated, each shall have an equal
share unless the Participant or Retired Participant directed otherwise.
SECTION 1.4 BOARD means the Board of Directors of the Holding
Company.
SECTION 1.5 BOARD MEMBER means any individual who is a member
of the Board or a member of the board of directors of a Participating Company.
SECTION 1.6 CHANGE OF CONTROL OF THE HOLDING COMPANY means any
of the following events:
(a) the reorganization, merger or consolidation of the Holding
Company with one or more other Persons other than a transaction
following
<PAGE> 5
-2-
which at least 51% of the ownership interests of the institution
resulting from such transaction are owned by Persons who, immediately
prior to such transaction, owned at least 51% of the outstanding voting
shares of the Holding Company;
(b) the acquisition of substantially all of the assets of the
Holding Company or of more than 25% of the voting shares of the Holding
Company by any Person or by any Persons acting in concert; or
(c) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to any of
the following groups:
(i) individuals who were members of the Board on the
Conversion Date; or
(ii) individuals who first became members of the
Board after the Conversion Date either:
(A) upon election to serve as a member of
the Board by affirmative vote of a majority of the
members of the Board, or a nominating committee
thereof, in office at the time of such first
election; or
(B) upon election by the shareholders of the
Holding Company to serve as a member of the Board,
but only if nominated for election by affirmative
vote of a majority of the members of the Board, or a
nominating committee thereof, in office at the time
of such first nomination;
provided, however, that an event described in section 1.6(b) shall not be deemed
to constitute a Change of Control of the Holding Company if: (i) such event
occurs as a result of a purchase, by a person or group of persons acting in
concert, directly from the Holding Company of securities issued in connection
with a reorganization, merger or consolidation in which the Holding Company is
the surviving entity; (ii) immediately following such event, such person or
group of persons owns less than 50% of the voting shares of the Holding Company;
and (iii) prior to such event, the Board adopts a resolution stating that such
event shall not be deemed to constitute a Change of Control of the Holding
Company for purposes of the Plan.any of the following events:
(a) the reorganization, merger or consolidation of the Holding
Company with one or more other Persons other than a transaction
following which at least 51% of the ownership interests of the
institution resulting from such transaction are owned by Persons who,
immediately prior to such transaction, owned at least 51% of the
outstanding voting shares of the Holding Company;
<PAGE> 6
-3-
(b) the acquisition of substantially all of the assets of the
Holding Company or of more than 25% of the voting shares of the Holding
Company by any Person or by any Persons acting in concert; or
(c) the occurrence of any event if, immediately following such
event, at least 50% of the members of the Board do not belong to any of
the following groups:
(i) individuals who were members of the Board on the
Conversion Date; or
(ii) individuals who first became members of the
Board after the Conversion Date either:
(A) upon election to serve as a member of
the Board by affirmative vote of a majority of the
members of the Board, or a nominating committee
thereof, in office at the time of such first
election; or
(B) upon election by the shareholders of the
Holding Company to serve as a member of the Board,
but only if nominated for election by affirmative
vote of a majority of the members of the Board, or a
nominating committee thereof, in office at the time
of such first nomination;
provided, however, that an event described in section 1.6(b) shall not be deemed
to constitute a Change of Control of the Holding Company if: (i) such event
occurs as a result of a purchase, by a person or group of persons acting in
concert, directly from the Holding Company of securities issued in connection
with a reorganization, merger or consolidation in which the Holding Company is
the surviving entity; (ii) immediately following such event, such person or
group of persons owns less than 50% of the voting shares of the Holding Company;
and (iii) prior to such event, the Board adopts a resolution stating that such
event shall not be deemed to constitute a Change of Control of the Holding
Company for purposes of the Plan.
SECTION 1.7 CODE means the Internal Revenue Code of 1986
(including the corresponding provisions of any succeeding law).
SECTION 1.8 COMMITTEE means the Compensation Committee of the
Board of the Holding Company, and any successor thereto.
SECTION 1.9 CONVERSION DATE means the effective date of the
conversion of the Bank from a federal mutual savings bank to a federal stock
savings bank.
SECTION 1.10 DISABILITY means a condition of total incapacity,
mental or physical, for further service as a Board Member, which the Committee
shall have determined, on the basis of competent medical evidence, is likely to
be permanent.
<PAGE> 7
-4-
SECTION 1.11 HOLDING COMPANY means Tappan Zee Financial, Inc.,
a corporation organized and existing under the laws of the state of Delaware,
and any successor thereto.
SECTION 1.12 PARTICIPANT means a Board Member who satisfies
the eligibility requirements set forth in section 2.1 and whose participation in
the Plan has not terminated pursuant to section 2.2.
SECTION 1.13 PARTICIPATING COMPANY means any savings bank,
savings and loan association, bank, corporation, financial institution or other
business organization or institution which, with the prior approval of the
Board, and subject to such terms and conditions as may be imposed by the Board,
shall adopt this Plan for the benefit of members of its board of directors.
SECTION 1.14 PERSON means an individual, a corporation, a
bank, a savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, any
unincorporated organization and any other business organization or institution.
SECTION 1.15 PLAN means the Retirement Plan for Board Members,
as amended from time to time. The Plan may be referred to as the "Retirement
Plan for Board Members of Tappan Zee Financial, Inc., and Certain Affiliates."
SECTION 1.16 PREDECESSOR BOARD means, with the prior approval
of the Board, and subject to such terms and conditions as may be imposed by the
Board, the board of trustees or the board of directors of a Participating
Company.
SECTION 1.17 RETIRED PARTICIPANT means a former Participant
who is receiving a retirement allowance under this Plan or who is entitled to
receive a retirement allowance under this Plan at a future date.
SECTION 1.18 SPOUSE means an individual who is legally married
to a Participant or Retired Participant.
SECTION 1.19 YEARS OF SERVICE means the period beginning on
the first day of the month in which an individual becomes a Board Member and
ending on the last day of the month in which such individual ceases to be a
Board Member, but excluding (a) any period during which the individual was a
salaried officer of any Participating Company, and (b) any period during which
the individual was a salaried officer of any other institution whose board of
directors or board of trustees is considered a Predecessor Board. The Years of
Service of an individual with two or more non-consecutive periods of service as
a Board Member shall be equal to the sum of such non-consecutive periods. For
purposes of determining an individual's Years of Service, service as a member of
a Predecessor Board shall be deemed service as a Board Member. The maximum
number of Years of Service of any Board Member for purposes of the Plan shall be
10.
<PAGE> 8
-5-
ARTICLE II
ELIGIBILITY
SECTION 2.1 PARTICIPATION.
A person who is a Board Member on the Conversion Date shall
become a Participant in the Plan on the Conversion Date. A person who becomes a
Board Member after the Conversion Date shall become a Participant in the Plan
immediately upon becoming a Board Member. Any person who was a Board Member
prior to the Conversion Date, but who ceased to be a Board Member prior to the
Conversion Date, shall not be eligible for benefits under this Plan unless he
again becomes a Board Member after the Conversion Date. In no event shall any
Board Member ever become a Participant in the Plan if he is, or has at any time
been, a participant in the Deferred Compensation Plan for Directors of
Tarrytowns Bank, FSB.
SECTION 2.2 TERMINATION OF PARTICIPATION.
Participation in the Plan shall cease on the date a
Participant ceases to be a Board Member for whatever reason.
ARTICLE III
RETIREMENT BENEFITS
SECTION 3.1 NORMAL RETIREMENT.
(a) Any Participant shall be entitled to a normal retirement
allowance from the Holding Company, commencing as of the first day of the month
following the later of the month in which he attains age 65 and the month in
which he ceases to be a Board Member, in an annual amount equal to his Annual
Compensation as of the date on which he ceases to be a Board Member multiplied
by a fraction, the numerator of which is his Years of Service and the
denominator of which is 10.
(b) If a Participant who is entitled to a retirement allowance
under section 3.2(a) ceases to be a Board Member prior to attaining age 65 but
after completing 10 Years of Service, then in lieu of the deferred retirement
allowance under section 3.1(a), such person may elect to have a retirement
allowance commence as of the first day of any month after the later of (i) the
month in which he attains age 50 or (ii) the month in which he ceases to be a
Board Member, and the amount of the retirement allowance shall be equal to the
amount payable under
<PAGE> 9
-6-
section 3.1(a) reduced by 0.41667% for each month that such commencement date
precedes the date on which he would attain age 65.
(c) Any election under this section 3.2 shall be made in
writing in the form and manner prescribed by the Committee, shall be revocable
until the retirement allowance commences to be paid, and shall thereafter be
irrevocable.
SECTION 3.2 PAYMENTS.
Retirement allowances under section 3.1 shall be paid in
monthly installments, each installment being one-twelfth of the annual
retirement allowance. The first payment shall be made in accordance with section
3.1 and installments shall continue for a period equal to the Retired
Participant's Years of Service or until his earlier death.
SECTION 3.3 OPTIONAL FORMS OF RETIREMENT ALLOWANCE.
(a) With the approval of the Committee and on such terms and
conditions as the Committee may prescribe, a Participant or Retired Participant
entitled to a retirement allowance under section 3.1 may elect, at any time
prior to the commencement of such retirement allowance, to convert the allowance
otherwise payable on his account into any one of the following optional forms of
retirement allowance:
(i) Option 1 (100% Survivor Option). A reduced retirement
allowance payable during his life, with the provision that after his
death an amount equal to his reduced retirement allowance shall
continue during the life of, and shall be paid to, such person, if then
living, as he shall have named as his Beneficiary in his written
election of the option.
(ii) Option 2 (50% Survivor Option). A reduced retirement
allowance payable during his life, with the provision that after his
death an amount equal to one-half of his reduced retirement allowance
shall continue during the life of, and shall be paid to, such person,
if then living, as he shall have named as his Beneficiary in his
written election of the option.
(iii) Option 3 (5, 10 or 15 Year Term Certain). A reduced
retirement allowance payable during his life, with the provision that
an amount equal to his reduced retirement allowance shall continue to
be paid for a term certain elected by the Participant or Retired
Participant of 5, 10 or 15 years from the commencement of such
retirement allowance, and, in the event of his death before the end of
such term, the same amount shall continue to be paid for the remainder
of such term to the person (or persons) whom he shall have named as his
Beneficiary (or Beneficiaries) in his written election of the option or
any change thereof.
<PAGE> 10
-7-
(b) If Option 1 or Option 2 has been elected, if payments
begin during the Retired Participant's lifetime and if the Beneficiary is living
at the date of the death of the Participant or Retired Participant, then the
first payment to the Beneficiary shall commence as of the first day of the month
after the month in which the death of the Participant or Retired Participant
occurred, and installments shall continue during the lifetime of the
Beneficiary, the last installment being payable on the first day of the month
during which the Beneficiary's death occurs. If Option 3 has been elected, if
payments begin during the Retired Participant's lifetime, and if the Participant
or Retired Participant dies prior to the expiration of the term elected, then
the first payment to the Beneficiary shall commence as of the first day of the
month after the month in which the death of the Participant or Retired
Participant occurred, and shall continue for the remainder of such term.
(c) If Option 1 or Option 2 has been elected and the
designated Beneficiary dies after the retirement allowance has commenced to be
paid to the Retired Participant who designated him but before the death of such
Retired Participant, the amount of the reduced retirement allowance to which
such Retired Participant is then entitled shall remain unchanged and all
payments shall cease upon the death of the Retired Participant.
(d) The retirement allowance payable to a Participant or
Retired Participant electing one of the optional forms of retirement allowance
set forth in section 3.3(a) shall be determined by multiplying the retirement
allowance otherwise payable under section 3.1 by the appropriate adjustment
factor set forth in Appendix A.
(e) Any election under this section 3.3 shall be made in
writing in the form and manner prescribed by the Committee, shall be revocable
until the retirement allowance commences to be paid, and shall thereafter be
irrevocable.
SECTION 3.4 PAYMENTS OF SMALL AMOUNTS.
Notwithstanding any other provision of the Plan, if the
present value of the retirement allowance payable to a Participant or Retired
Participant shall at any time after termination of service as a Board Member and
prior to the commencement of payment thereof be less than $10,000, then the
Committee may direct that it shall be paid in such lump sum in lieu of all other
benefits under the Plan. For purposes of this section 3.4, present values shall
be determined using the interest rate and mortality assumptions then in use
under section 415 of the Code for purposes of valuing lump sum payments under
tax-qualified defined benefit plans.
SECTION 3.5 AUTOMATIC DEATH BENEFIT FOR SPOUSE.
If (a) a Participant or Retired Participant who is entitled to
a retirement allowance under section 3.1 should die prior to the commencement of
such retirement allowance or (b) a Participant who is not entitled to a
retirement allowance under section 3.1 should die while a Board Member, and if
such Participant or Retired Participant is survived by a Spouse, there shall be
paid to such surviving Spouse, until such Spouse dies, a monthly survivor's
allowance
<PAGE> 11
-8-
in an amount equal to that amount which would have been provided to such Spouse
had the Participant or Retired Participant retired immediately prior to his
death and had he effectively elected (whether or not he would have been eligible
for retirement) to take Option 2 under section 3.3 with his Spouse as his
Beneficiary and with payments commencing on the first day of the month following
his death.
SECTION 3.6 BENEFICIARIES.
A Participant or Retired Participant may designate a
Beneficiary or Beneficiaries to receive any survivor benefits payable upon his
death under an optional form of benefit elected pursuant to section 3.3. If the
Participant or Retired Participant elects Option 1 or Option 2 under section
3.3, he may only designate one Beneficiary and such Beneficiary must be a
natural person, and such designation shall be made in writing in the form and
manner prescribed by the Committee, shall be revocable until the retirement
allowance commences to be paid, and shall thereafter be irrevocable. If the
Participant or Retired Participant elects Option 3 under section 3.4, he may
designate one or more Beneficiaries who may be, but need not be, natural
persons, and such election shall be made in writing in the form and manner
prescribed by the Committee, shall be revocable until the retirement allowance
commences to be paid, and shall thereafter be irrevocable; provided, however,
that the Participant or Retired Participant may change or revoke the Beneficiary
or Beneficiaries designated at any time or from time to time, but such changes
or revocations shall be effective only if received by the Committee prior to the
Participant's or Retired Participant's death. A Beneficiary designated by a
Participant or Retired Participant to receive a survivor benefit, other than a
benefit payable for such Beneficiary's life, may designate a Beneficiary of his
own to receive such survivor benefit in the event the Beneficiary designated by
the Participant or Retired Participant dies prior to receiving complete payment
of such survivor benefit. If a Participant or Retired Participant who has
elected Option 3 dies without a Beneficiary, then the present value of any
unpaid installments shall be paid to the estate of such Participant or Retired
Participant in lieu of all other payments. If a Beneficiary of a deceased
Retired Participant entitled to payments under Option 3 dies without a
Beneficiary, then the present value of any unpaid installments shall be paid to
the estate of such Beneficiary in lieu of all other payments. In determining
such present values, the interest rate and life expectancy tables prescribed
under section 415 of the Code for purposes of valuing lump sum payments under
tax-qualified defined benefit plans shall be used.
ARTICLE IV
ADMINISTRATION
SECTION 4.1 DUTIES OF THE COMMITTEE.
The Committee shall have full responsibility for the
management, operation, interpretation and administration of the Plan in
accordance with its terms, and shall have such
<PAGE> 12
-9-
authority as is necessary or appropriate in carrying out its responsibilities.
Actions taken by the Committee pursuant to this section 4.1 shall be conclusive
and binding upon the Holding Company, Participants, Retired Participants and
other interested parties.
SECTION 4.2 LIABILITIES OF THE COMMITTEE.
Neither the Committee nor its individual members shall be
deemed to be a fiduciary with respect to this Plan; nor shall any of the
foregoing individuals or entities be liable to any Participant or Retired
Participant in connection with the management, operation, interpretation or
administration of the Plan, any such liability being solely that of the Holding
Company.
SECTION 4.3 EXPENSES.
Any expenses incurred in the management, operation,
interpretation or administration of the Plan shall be paid by the Holding
Company. In no event shall the benefits otherwise payable under this Plan be
reduced to offset the expenses incurred in managing, operating, interpreting or
administering the Plan.
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1 AMENDMENT AND TERMINATION.
The Board shall have the right to amend the Plan, from time to
time and at any time, in whole or in part, and to terminate the Plan; provided,
however, that no such amendment or termination shall reduce the accrued benefits
of, or impose more stringent vesting requirements on any benefits accrued by,
any Participant, Retired Participant or Beneficiary through the date of the
amendment or termination of the Plan.
<PAGE> 13
-10-
ARTICLE VI
MISCELLANEOUS PROVISIONS
SECTION 6.1 PLAN DOCUMENTS.
The Secretary of the Board shall provide a copy of this Plan
to each Board Member who becomes a Participant in the Plan.
SECTION 6.2 CONSTRUCTION OF LANGUAGE.
Wherever appropriate in the Plan, words used in the singular
may be read in the plural, words in the plural may be read in the singular, and
words importing the masculine gender shall be deemed equally to refer to the
feminine or the neuter. Any reference to an Article or section shall be to an
Article or section of the Plan, unless otherwise indicated.
SECTION 6.3 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation or assignment, nor shall such
rights be liable for or subject to debts, contracts, liabilities or torts.
SECTION 6.4 INDEMNIFICATION.
The Holding Company shall indemnify, hold harmless and defend
each Board Member, Participant, Retired Participant and the Beneficiaries of
each, against their reasonable costs, including legal fees, incurred by them, or
arising out of any action, suit or proceeding in which they may be involved, as
a result of their efforts, in good faith, to defend or enforce the terms of the
Plan.
SECTION 6.5 SEVERABILITY.
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 6.6 WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions of the Plan shall not be deemed a waiver of such
term, covenant or condition. A waiver of any provision of the Plan must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right
<PAGE> 14
-11-
or power hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 6.7 NOTICES.
Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally or 5 days after mailing if mailed,
postage prepaid, by registered or certified mail, return receipt requested,
addressed to such party at the address listed below, or at such other address as
one such party may by written notice specify to the other party:
(a) if to the Holding Company:
Tappan Zee Financial, Inc.
75 Broadway
Tarrytown, New York 10591
Attention: Corporate Secretary
(b) if to any party other than the Holding Company, to
such party at the address last furnished by such
party by written notice to the Bank or the Holding
Company.
SECTION 6.8 OPERATION AS AN UNFUNDED PLAN.
The Plan is intended to be (a) a contractual obligation of the
Holding Company to pay the benefits as and when due in accordance with its
terms, and (b) an unfunded and non-qualified plan such that the benefits payable
shall not be taxable to the recipients until such benefits are paid. The Plan is
not intended to be subject to or comply with the requirements of the Employee
Retirement Income Security Act of 1974, as amended, or of section 401(a) of the
Code. The Holding Company may establish a trust to which assets may be
transferred by the Holding Company in order to provide a portion or all of the
benefits otherwise payable by the Holding Company under the Plan; provided,
however, that the assets of such trust shall be subject to the claims of the
creditors of the Holding Company in the event that it is determined that the
Holding Company is insolvent or that grounds exist for the appointment of a
conservator or receiver. The Plan shall be administered and construed so as to
effectuate these intentions.
SECTION 6.9 REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
benefits paid by the Bank, whether pursuant to this Plan or otherwise, are
subject to and conditioned upon their compliance with section 18(k) of the
Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C. Section1828(k), and any
regulations promulgated thereunder.
<PAGE> 15
-12-
SECTION 6.10 GOVERNING LAW.
The Plan shall be construed, administered and enforced
according to the laws of the State of New York applicable to contracts between
citizens and residents of the State of New York entered into and to be performed
entirely within such jurisdiction, except to the extent that such laws are
preempted by federal law.
<PAGE> 16
<TABLE>
Appendix A
Factors for Determining Optional Benefit Forms under Section 3.3
<CAPTION>
Age Option 1 Option 2 Option 3
--- -------- -------- --------
5 Year 10 Year 15 Year
Certain Certain Certain
------- ------- -------
<S> <C> <C> <C> <C> <C>
50 90.0% 94.7% 99.6% 98.4% 97.1%
51 89.4 94.4 99.6 98.3 96.6
52 88.8 94.1 99.6 98.2 96.2
53 88.2 93.7 99.5 98.1 95.8
54 87.6 93.4 99.5 98.0 95.4
- -----------------------------------------------------------------------------------------------------------------------------------
55 87.0 93.0 99.4 97.9 95.0
56 86.4 92.7 99.3 97.5 94.2
57 85.8 92.4 99.2 97.1 93.4
58 85.2 92.0 99.1 96.7 92.6
59 84.6 91.7 98.9 96.3 91.8
- -----------------------------------------------------------------------------------------------------------------------------------
60 84.0 91.3 98.8 95.9 91.0
61 83.2 90.8 98.6 95.2 90.0
62 82.4 90.4 98.4 94.5 89.0
63 81.6 89.9 98.2 93.8 88.0
64 80.8 89.4 98.0 93.1 87.0
- -----------------------------------------------------------------------------------------------------------------------------------
65 80.0 88.9 97.8 92.4 86.0
66 79.3 88.5 97.4 91.4 84.4
67 78.6 88.0 97.1 90.4 82.8
68 77.9 87.6 96.7 89.4 81.2
69 77.2 87.1 96.4 88.4 79.6
- -----------------------------------------------------------------------------------------------------------------------------------
70 76.5 86.7 96.0 87.4 78.0
71 75.9 86.3 95.4 85.8 76.0
72 75.3 85.9 94.8 84.2 74.0
73 74.7 85.5 94.2 82.6 72.0
- -----------------------------------------------------------------------------------------------------------------------------------
75 73.5 84.7 93.0 79.4 68.0
</TABLE>
For Options 1 and 2, the survivorship factors shown above
assume that the Participant (or Retired Participant) and the Beneficiary are the
same age. For each year that the Beneficiary is older than the Participant (or
Retired Participant), add .7% in the case of Option 1, or add .4% in the case of
Option 2, to the percentage shown above (but never go above 99.0%). For each
year that the Beneficiary is younger than the Participant (or Retired
Participant), subtract .7% in the case of Option 1, or subtract .4% in the case
of Option 2, from the percentages shown above. Where the individual is not the
exact age shown (and where the difference in ages between a Participant and a
Beneficiary includes a fraction of a year), use straight-line interpolation for
the number of months.
<PAGE> 1
HOLDING COMPANY EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of October 5, 1995 by and between TAPPAN ZEE FINANCIAL, INC., a publicly
held business corporation organized and operating under the laws of the State of
Delaware and having an office at 75 Broadway, Tarrytown, New York 10591
("Holding Company") and STEPHEN C. BYELICK, an individual residing at 31 Crest
Drive, Tarrytown, New York 10591 ("Mr. Byelick").
W I T N E S S E T H :
WHEREAS, Mr. Byelick currently serves the Holding Company in
the capacity of President; and
WHEREAS, effective as of the date of this Agreement,
Tarrytowns Bank, FSB ("Bank") has converted from a federal mutual savings bank
to a federal stock savings bank and has become the wholly owned subsidiary of
the Holding Company; and
WHEREAS, the Holding Company desires to assure for itself the
continued availability of Mr. Byelick's services and the ability of Mr. Byelick
to perform such services with a minimum of personal distraction in the event of
a pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, Mr. Byelick is willing to continue to serve the
Holding Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Holding Company and
Mr. Byelick hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Holding Company agrees to continue to employ Mr. Byelick,
and Mr. Byelick hereby agrees to such continued employment, during the period
and upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement and ending on the third
anniversary date of this Agreement (each, an "Anniversary
Page 1 of 18
<PAGE> 2
Date"), plus such extensions, if any, as are provided by the Board of Directors
of the Holding Company ("Board") pursuant to section 2(b).
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the Employment Period shall automatically be extended for one
(1) additional day each day, unless either the Holding Company or Mr. Byelick
elects not to extend the Agreement further by giving written notice to the other
party, in which case the Employment Period shall end on the third anniversary of
the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on: (i) if a notice of
non-extension has been given in accordance with this section 2(b), the third
anniversary of the date on which such notice is given; and (ii) in all other
cases, the third anniversary of the date as of which the Remaining Unexpired
Employment Period is being determined. Upon termination of Mr. Byelick's
employment with the Holding Company for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not therefore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Holding Company at any time from terminating Mr. Byelick's employment during the
Employment Period with or without notice for any reason; provided, however, that
the relative rights and obligations of the Holding Company and Mr. Byelick in
the event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Mr. Byelick shall serve as President of the Holding Company,
having such power, authority and responsibility and performing such duties as
are prescribed by or under the ByLaws of the Holding Company and as are
customarily associated with such position. Mr. Byelick shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Holding Company and shall use his best efforts to
advance the interests of the Holding Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Mr.
Byelick hereunder, the Holding Company shall pay to him a salary at an initial
annual rate of ONE HUNDRED FIFTY- THREE THOUSAND DOLLARS ($153,000), payable in
approximately equal installments in accordance with the Holding Company's
customary payroll practices for senior officers. Prior to each Anniversary Date
occurring during the Employment Period, the Board shall review Mr. Byelick's
annual rate of salary and may, in its discretion, approve an increase therein.
In addition to salary, Mr. Byelick may receive other cash compensation from the
Holding Company for services hereunder at such times, in such amounts and on
such terms and conditions as the Board may determine from time to time.
Page 2 of 18
<PAGE> 3
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, Mr. Byelick shall be treated as
an employee of the Holding Company and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Holding Company, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Holding Company's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Holding Company shall cause Mr. Byelick to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Holding
Company or service in other capacities at the request of the Holding Company.
The coverage provided to Mr. Byelick pursuant to this section 6 shall be of the
same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Holding Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Holding Company shall indemnify Mr. Byelick against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any director or officer of the Holding Company or any subsidiary or affiliate
thereof.
SECTION 7. OUTSIDE ACTIVITIES.
Mr. Byelick may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. Mr. Byelick may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Holding Company and generally
applicable to all similarly situated executives. Mr. Byelick may also serve as
an officer or director of the Bank on such terms and conditions as the Holding
Company and the Bank may mutually agree upon, and such service shall not be
deemed to materially interfere with Mr. Byelick's performance of his duties
hereunder or otherwise result in a material breach of this Agreement. If Mr.
Byelick is discharged or suspended, or is subject to any regulatory prohibition
or restriction with respect to participation
Page 3 of 18
<PAGE> 4
in the affairs of the Bank, he shall continue to perform services for the
Company in accordance with this Agreement but shall not directly or indirectly
provide services to or participate in the affairs of the Bank in a manner
inconsistent with the terms of such discharge or suspension or any applicable
regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Mr. Byelick's principal place of employment shall be at the
Holding Company's executive offices at the address first above written, or at
such other location within Westchester County at which the Holding Company shall
maintain its principal executive offices, or at such other location as the
Holding Company and Mr. Byelick may mutually agree upon. The Holding Company
shall provide Mr. Byelick at his principal place of employment with a private
office, secretarial services, an automobile, and other support services and
facilities suitable to his position with the Holding Company and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Holding Company shall provide to Mr. Byelick for his exclusive
use an automobile owned or leased by the Holding Company and appropriate to his
position, to be used in the performance of his duties hereunder, including
commuting to and from his personal residence. The Holding Company shall
reimburse Mr. Bye- lick for his ordinary and necessary business expenses,
including, without limitation, all expenses associated with his business use of
the aforementioned automobile, fees for memberships in such clubs and
organizations as Mr. Byelick and the Holding Company shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Holding Company of
an itemized account of such expenses in such form as the Holding Company may
reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) Mr. Byelick's shall be entitled to the severance benefits
described herein in the event that his employment with the Holding Company
terminates during the Employment Period under any of the following
circumstances:
(i) Mr. Byelick's voluntary resignation from employment with
the Holding Company within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect Mr. Byelick to the office of President
(or a more senior office) of the Holding Company;
(B) the failure of the stockholders of the Holding
Company to elect or re-elect Mr. Byelick or the failure of the
Board (or the nominating committee thereof) to nominate
Byelick for such election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which Mr. Byelick gives written notice
to the Holding Company of its material failure, whether by
amendment of the Holding Company's Or-
Page 4 of 18
<PAGE> 5
ganization Certificate or By-laws, action of the Board or the
Holding Company's stockholders or otherwise, to vest in Mr.
Byelick the functions, duties, or responsibilities prescribed
in section 3 of this Agreement, unless, during such thirty
(30) day period, the Holding Company cures such failure in a
manner determined by Mr. Byelick, in his discretion, to be
satisfactory; or
(D) the expiration of a thirty (30) day period
following the date on which Mr. Byelick gives written notice
to the Holding Company of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of Mr. Byelick's rate of base
salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which
Mr. Byelick participates which, either individually or
together with other changes, has a material adverse effect on
the aggregate value of his total compensation package),
unless, during such thirty (30) day period, the Holding
Company cures such failure in a manner determined by Mr.
Byelick, in his discretion, to be satisfactory; or
(ii) subject to the provisions of section 10, the termination
of Mr. Byelick's employment with the Holding Company for any other
reason not described in section 9(a);
then, the Holding Company shall provide the benefits and pay to Mr. Byelick the
amounts described in section 9(b).
(b) Upon the termination of Mr. Byelick's employment with the
Holding Company under circumstances described in section 9(a) of this Agreement,
the Holding Company shall pay and provide to Mr. Byelick (or, in the event of
his death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this section 9(b)) as of the date of the termination of his
employment with the Holding Company, such payment to be made at the
time and in the manner prescribed by law applicable to the payment of
wages but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Holding Company's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for Mr.
Byelick, for the Remaining Unexpired Employment Period,
Page 5 of 18
<PAGE> 6
coverage equivalent to the coverage to which he would have been
entitled under such plans (as in effect on the date of his termination
of employment, or, if his termination of employment occurs after a
Change of Control, on the date of such Change of Control, whichever
benefits are greater), if he had continued working for the Holding
Company during the Remaining Unexpired Employment Period at the highest
annual rate of compensation achieved during that portion of the
Employment Period which is prior to Mr. Byelick's termination of
employment with the Holding Company;
(iv) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment, in an amount
equal to the present value of the salary that Mr. Byelick would have
earned if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during that portion of the Employment Period which is
prior to Mr. Byelick's termination of employment with the Holding
Company, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Holding
Company's regular payroll periods for its officers, such lump sum to be
paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Holding Company, if he were 100%
vested thereunder and had continued working for the Holding
Company during the Remaining Unexpired Employment Period, such
benefits to be determined as of the date of termination of
employment by adding to the service actually recognized under
such plans an additional period equal to the Remaining
Unexpired Employment Period and by adding to the compensation
recognized under such plans for the year in which termination
of employment occurs all amounts payable under sections
9(b)(i), (iv), (vii), (viii) and (ix); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under
Page 6 of 18
<PAGE> 7
terminating single-employer defined benefit plans for the month in
which Mr. Byelick's termination of employment occurs ("Applicable PBGC
Rate");
(vi) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the present value of the additional employer contributions to
which he would have been entitled under any and all qualified and
non-qualified defined contribution plans maintained by, or covering
employees of, the Holding Company, if he were 100% vested thereunder
and had continued working for the Holding Company during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
Mr. Byelick's termination of employment with the Holding Company, and
making the maximum amount of employee contributions, if any, required
under such plan or plans, such present value to be determined on the
basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made
to the relevant plan, equal to the Applicable PBGC Rate;
(vii) the payments that would have been made to Mr. Byelick
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Holding
Company if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period and had earned the maximum bonus
or incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period, such payments to be equal to the product
of:
(A) the maximum percentage rate at which an award was
ever available to Mr. Byelick under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to Mr.
Byelick during each such calendar year at the highest annual
rate of salary achieved during that portion of the Employment
Period which is prior to Mr. Byelick's termination of
employment with the Holding Company:
such payments to be made (without discounting for early payment) within
thirty (30) days following Mr. Byelick's termination of employment;
(viii) at the election of the Holding Company made within
thirty (30) days following his termination of employment with the
Holding Company, upon the surrender of options or appreciation rights
issued to Mr. Byelick under any stock option and appreciation rights
plan or program maintained by, or covering employees of, the Holding
Company, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the
Page 7 of 18
<PAGE> 8
exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining
Mr. Byelick's right following his termination of employment with the
Holding Company to exercise any options or appreciation rights not
surrendered pursuant hereto, Mr. Byelick shall be deemed fully vested
in all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering
employees of, the Holding Company, even if he is not vested under such
plan or program;
(ix) at the election of the Holding Company made within thirty
(30) days following Mr. Byelick's termination of employment with the
Holding Company, upon the surrender of any shares awarded to Mr.
Byelick under any restricted stock plan maintained by, or covering
employees of, the Holding Company, a lump sum payment in an amount
equal to the product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of Mr. Byelick's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining
Mr. Byelick's right following his termination of employment with the
Holding Company to any stock not surrendered pursuant hereto, Mr.
Byelick shall be deemed fully vested in all shares awarded under any
restricted stock plan maintained by, or covering employees of, the
Holding Company, even if he is not vested under such plan.
The Holding Company and Mr. Byelick hereby stipulate that the damages which may
be incurred by Mr. Byelick following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to Mr. Byelick's efforts, if any, to
mitigate damages. The Holding Company and Mr. Byelick further agree that the
Holding Company may condition the payments and benefits (if any) due under
sections 9(b)(iii), (iv), (v), (vi) and (vi) on the receipt of Mr. Byelick's
resignation from any and all positions which he holds as an officer, director or
committee member with respect to the Holding Company, the Bank or any subsidiary
or affiliate of either of them.
Page 8 of 18
<PAGE> 9
SECTION 10. TERMINATION WITHOUT ADDITIONAL HOLDING COMPANY
LIABILITY.
(a) In the event that Mr. Byelick's employment with the
Holding Company shall terminate during the Employment Period on account of:
(i) the discharge of Mr. Byelick for "cause," which, for
purposes of this Agreement shall mean: (A) Mr. Byelick intentionally
engages in dishonest conduct in connection with his performance of
services for the Holding Company resulting in his conviction of a
felony; (B) Mr. Byelick is convicted of, or pleads guilty or nolo
contendere to, a felony or any crime involving moral turpitude; (C) Mr.
Byelick willfully fails or refuses to perform his duties under this
Agreement and fails to cure such breach within sixty (60) days
following written notice thereof from the Holding Company; (D) Mr.
Byelick breaches his fiduciary duties to the Holding Company for
personal profit; or (E) Mr. Byelick's willful breach or violation of
any law, rule or regulation (other than traffic violations or similar
offenses), or final cease and desist order in connection with his
performance of services for the Holding Company.
(ii) Mr. Byelick's voluntary resignation from employment with
the Holding Company for reasons other than those specified in section
9(a);
(iii) Mr. Byelick's death; or
(iv) a determination that Mr. Byelick is eligible for
long-term disability benefits under the Holding Company's long-term
disability insurance program or, if there is no such program, under the
federal Social Security Act;
then the Holding Company shall have no further obligations under this Agreement,
other than the payment to Mr. Byelick (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Holding Company.
(b) For purposes of section 10(a)(i)(A) or (B), no act or
failure to act, on the part of Mr. Byelick, shall be considered "willful" unless
it is done, or omitted to be done, by Mr. Byelick in bad faith or without
reasonable belief that Mr. Byelick's action or omission was in the best
interests of the Holding Company. Any act, or failure to act, based upon
authority given pursuant to a resolution duly adopted by the Board or based upon
the written advice of counsel for the Holding Company shall be conclusively
presumed to be done, or omitted to be done, by Mr. Byelick in good faith and in
the best interests of the Holding Company. The cessation of employment of Mr.
Byelick shall not be deemed to be for "cause" within the meaning of section
10(a)(i) unless and until there shall have been delivered to Mr. Byelick a copy
of a resolution duly adopted by the affirmative vote of three-fourths of the
non-employee members of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to Mr. Byelick and Mr. Byelick
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, Mr. Byelick is guilty of
the conduct described in section 10(a)(i) above, and specifying the particulars
thereof in detail.
Page 9 of 18
<PAGE> 10
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Holding Company ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Holding Company of a
transaction that would result in the reorganization, merger or
consolidation of the Holding Company, respectively, with one or more
other persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Holding Company;
and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Holding Company;
(ii) the acquisition of all or substantially all of the assets
of the Holding Company or beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities of the Holding Company entitled to vote
generally in the election of directors by any person or by any persons
acting in concert, or approval by the stockholders of the Holding
Company of any transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Holding
Company, or approval by the stockholders of the Holding Company of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Holding Company do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Holding Company on the date of this Agreement; or
(B) individuals who first became members of the Board
of the Holding Company after the date of this Agreement
either:
Page 10 of 18
<PAGE> 11
(I) upon election to serve as a member of
the Board of directors of the Holding Company by
affirmative vote of three-quarters of the members of
such board, or of a nominating committee thereof, in
office at the time of such first election; or
(II) upon election by the stockholders of
the Board to serve as a member of the board of
directors of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of
a nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Holding Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Bank" were substituted for the term
"Holding Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, or a
subsidiary of either of them, or by any employee benefit plan maintained by any
of them. For purposes of this section 11(a), the term "person" shall have the
meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, Mr. Byelick shall be
entitled to the payments and benefits contemplated by section 9(b) in the event
of his termination employment with the Holding Company under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by Mr. Byelick at any
time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any reduction in any element of his package of compensation and
benefits;
(ii) resignation, voluntary or otherwise, by Mr. Byelick at
any time during the Employment Period following any relocation of his
principal place of employment or any change in working conditions at
such principal place of employment which Mr. Byelick, in his reasonable
discretion, determines to be embarrassing, derogatory or otherwise
adverse;
Page 11 of 18
<PAGE> 12
(iii) resignation, voluntary or otherwise, by Mr. Byelick at
any time during the Employment Period following the failure of any
successor to the Holding Company in the Change of Control to include
Mr. Byelick in any compensation or benefit program maintained by it or
covering any of its executive officers, unless Mr. Byelick is already
covered by a substantially similar plan of the Holding Company which is
at least as favorable to him; or
(iv) resignation, voluntary or otherwise, for any reason
whatsoever following the effective date of the Change of Control.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if Mr. Byelick's employment is
terminated upon or following (i) a Change of Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Holding Company or the Bank or "in the ownership of a substantial portion of
the assets" of the Holding Company or the Bank within the meaning of section
280G of the Code. If this Section 12 applies, then, if for any taxable year, Mr.
Byelick shall be liable for the payment of an excise tax under section 4999 of
the Code with respect to any payment in the nature of compensation made by the
Holding Company, the Bank or any direct or indirect subsidiary or affiliate of
the Holding Company or the Bank to (or for the benefit of) Mr. Byelick, the
Holding Company shall pay to Mr. Byelick an amount equal to X determined under
the following formula:
X = E x P
----------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable
to Mr. Byelick under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to Mr. Byelick under all applicable state
and local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax
applicable to Mr. Byelick under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Byelick under the terms of this Agreement, or otherwise,
and on which an excise tax under section 4999 of the Code will be assessed, the
payment determined under this section 12(a) shall be made to Mr. Byelick on the
earlier of (i) the date the Holding Company,
Page 12 of 18
<PAGE> 13
the Bank or any direct or indirect subsidiary or affiliate of the Holding
Company or the Bank is required to withhold such tax, or (ii) the date the tax
is required to be paid by Mr. Byelick.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that Mr. Byelick's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), Mr. Byelick or the Holding
Company, as the case may be, shall pay to the other party at the time that the
amount of such excise tax is finally determined, an appropriate amount, plus
interest, such that the payment made under section 12(a), when increased by the
amount of the payment made to Mr. Byelick under this section 12(b) by the
Holding Company, or when reduced by the amount of the payment made to the
Holding Company under this section 12(b) by Mr. Byelick, equals the amount that
should have properly been paid to Mr. Byelick under section 12(a). The interest
paid under this section 12(b) shall be determined at the rate provided under
section 1274(b)(2)(B) of the Code. To confirm that the proper amount, if any,
was paid to Mr. Byelick under this section 12, Mr. Byelick shall furnish to the
Holding Company a copy of each tax return which reflects a liability for an
excise tax payment made by the Holding Company, at least 20 days before the date
on which such return is required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
Mr. Byelick hereby covenants and agrees that, in the event of
his termination of employment with the Holding Company prior to the expiration
of the Employment Period, for a period of one (1) year following the date of his
termination of employment with the Holding Company (or, if less, for the
Remaining Unexpired Employment Period), he shall not, without the written
consent of the Holding Company, become an officer, employee, consultant,
director or trustee of any savings bank, savings and loan association, savings
and loan holding company, bank or bank holding company, or any direct or
indirect subsidiary or affiliate of any such entity, that entails working within
one hundred (100) miles of the headquarters of the Holding Company on the date
of Mr. Byelick's termination of employment; provided, however, that this section
13 shall not apply if Mr. Byelick's employment is terminated for the reasons set
forth in section 9(a); and provided, further, that if Mr. Byelick's employment
shall be terminated on account of disability as provided in section 10(d) of
this Agreement, this section 13 shall not prevent Mr. Byelick from accepting any
position or performing any services if (a) he first offers, by written notice,
to accept a similar position with, or perform similar services for, the Holding
Company on substantially the same terms and conditions and (b) the Holding
Company declines to accept such offer within ten (10) days after such notice is
given.
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Holding
Company, Mr. Byelick shall keep confidential and shall refrain from using for
the benefit of himself, or any person or entity other than the Holding Company
or any entity which is a subsidiary of the Holding Company or of which the
Holding Company is a subsidiary, any material document or information obtained
from the Holding Company, or from its parent or subsidiaries, in the course of
his employment with any of them concerning their properties, operations or
business
Page 13 of 18
<PAGE> 14
(unless such document or information is readily ascertainable from public or
published information or trade sources or has otherwise been made available to
the public through no fault of his own) until the same ceases to be material (or
becomes so ascertainable or available); provided, however, that nothing in this
section 14 shall prevent Mr. Byelick, with or without the Holding Company's
consent, from participating in or disclosing documents or information in
connection with any judicial or administrative investigation, inquiry or
proceeding to the extent that such participation or disclosure is required under
applicable law.
SECTION 15. SOLICITATION.
Mr. Byelick hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Holding Company,
he shall not, without the written consent of the Holding Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Holding Company, the Bank or any affiliate, as of the date of this
Agreement, of either of them, to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the Bank or any
affiliate, as of the date of this Agreement, of either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the Bank, or
any affiliate, as of the date of this Agreement, of either of them,
that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any officer
or employee of the Holding Company, the Bank, or any affiliate, as of
the date of this Agreement, of either of them, to terminate his or her
employment and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings
and loan holding company, or other institution engaged in the business
of accepting deposits and making loans, doing business within one
hundred (100) miles of the headquarters of the Holding Company, the
Bank, or any affiliate, as of the date of this Agreement, of either of
them; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Holding
Page 14 of 18
<PAGE> 15
Company to terminate an existing business or commercial relationship
with the Holding Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Mr. Byelick's employment during the term of
this Agreement or thereafter, whether by the Holding Company or by Mr. Byelick,
shall have no effect on the rights and obligations of the parties hereto under
the Holding Company's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Holding Company from time to time.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Mr. Byelick, his legal representatives and testate or intestate
distributees, and the Holding Company and its successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Holding Company may be sold or otherwise transferred.
Failure of the Holding Company to obtain from any successor its express written
assumption of the Holding Company's obligations hereunder at least sixty (60)
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Mr. Byelick:
Mr. Stephen C. Byelick
31 Crest Drive
Tarrytown, New York 10591
Page 15 of 18
<PAGE> 16
If to the Holding Company:
Tappan Zee Financial, Inc.
75 Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Holding Company shall indemnify, hold harmless and defend
Mr. Byelick against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; provided, however, that Mr. Byelick shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Holding
Company's obligations hereunder shall be conclusive evidence of Mr. Byelick's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Page 16 of 18
<PAGE> 17
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 26. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Bank of any benefits and compensation to which Mr. Byelick is or may be
entitled to under the terms and conditions of the employment agreement dated as
of the 5th day of October, 1995 between the Bank and Mr. Byelick, a copy of
which is attached hereto as Exhibit A ("Bank Agreement").
SECTION 27. NON-DUPLICATION.
In the event that Mr. Byelick shall perform services for the
Bank or any other direct or indirect subsidiary of the Holding Company, any
compensation or benefits provided to Mr. Byelick by such other employee shall be
applied to offset the obligations of the Holding Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to Mr. Byelick for all services to the Holding Company and all of its
direct or indirect subsidiaries.
Page 17 of 18
<PAGE> 18
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to Mr. Byelick by the Holding Company, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their compliance
with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C.
Section1828(k), and any regulations promulgated thereunder.
IN WITNESS WHEREOF, the Holding Company has caused this
Agreement to be executed and Mr. Byelick has hereunto set his hand, all as of
the day and year first above written.
/s/ Stephen C. Byelick
------------------------------
STEPHEN C. BYELICK
ATTEST: TAPPAN ZEE FINANCIAL, INC.
By /s/ Harry G. Murphy
-------------------
Secretary By/s/ Marvin Levy
--------------------------------
Name: Marvin Levy
Title: Chairman of the Board
[Seal]
[Notary Public
Attestations and Seals]
Page 18 of 18
<PAGE> 1
HOLDING COMPANY EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of October 5, 1995 by and between TAPPAN ZEE FINANCIAL, INC., a publicly
held business corporation organized and operating under the laws of the State of
Delaware and having an office at 75 Broadway, Tarrytown, New York 10591
("Holding Company") and HARRY G. MURPHY, an individual residing at 40 Summit
Avenue, White Plains, New York 10606 ("Mr. Murphy").
W I T N E S S E T H :
WHEREAS, Mr. Murphy currently serves the Holding Company in
the capacity of Vice President; and
WHEREAS, effective as of the date of this Agreement,
Tarrytowns Bank, FSB ("Bank") has converted from a federal mutual savings bank
to a federal stock savings bank and has become the wholly owned subsidiary of
the Holding Company; and
WHEREAS, the Holding Company desires to assure for itself the
continued availability of Mr. Murphy's services and the ability of Mr. Murphy to
perform such services with a minimum of personal distraction in the event of a
pending or threatened Change of Control (as hereinafter defined); and
WHEREAS, Mr. Murphy is willing to continue to serve the
Holding Company on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Holding Company and
Mr. Murphy hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Holding Company agrees to continue to employ Mr. Murphy,
and Mr. Murphy hereby agrees to such continued employment, during the period and
upon the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement and ending on the third
anniversary date of this Agreement (each, an "Anniversary
Page 1 of 18
<PAGE> 2
Date"), plus such extensions, if any, as are provided by the Board of Directors
of the Holding Company ("Board") pursuant to section 2(b).
(b) Except as provided in section 2(c), beginning on the date
of this Agreement, the Employment Period shall automatically be extended for one
(1) additional day each day, unless either the Holding Company or Mr. Murphy
elects not to extend the Agreement further by giving written notice to the other
party, in which case the Employment Period shall end on the third anniversary of
the date on which such written notice is given. For all purposes of this
Agreement, the term "Remaining Unexpired Employment Period" as of any date shall
mean the period beginning on such date and ending on: (i) if a notice of
non-extension has been given in accordance with this section 2(b), the third
anniversary of the date on which such notice is given; and (ii) in all other
cases, the third anniversary of the date as of which the Remaining Unexpired
Employment Period is being determined. Upon termination of Mr. Murphy's
employment with the Holding Company for any reason whatsoever, any daily
extensions provided pursuant to this section 2(b), if not therefore
discontinued, shall automatically cease.
(c) Nothing in this Agreement shall be deemed to prohibit the
Holding Company at any time from terminating Mr. Murphy's employment during the
Employment Period with or without notice for any reason; provided, however, that
the relative rights and obligations of the Holding Company and Mr. Murphy in the
event of any such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Mr. Murphy shall serve as Vice President of the Holding
Company, having such power, authority and responsibility and performing such
duties as are prescribed by or under the By-Laws of the Holding Company and as
are customarily associated with such position. Mr. Murphy shall devote his full
business time and attention (other than during weekends, holidays, approved
vacation periods, and periods of illness or approved leaves of absence) to the
business and affairs of the Holding Company and shall use his best efforts to
advance the interests of the Holding Company.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Mr. Murphy
hereunder, the Holding Company shall pay to him a salary at an initial annual
rate of NINETY-FOUR THOUSAND DOLLARS ($94,000), payable in approximately equal
installments in accordance with the Holding Company's customary payroll
practices for senior officers. Prior to each Anniversary Date occurring during
the Employment Period, the Board shall review Mr. Murphy's annual rate of salary
and may, in its discretion, approve an increase therein. In addition to salary,
Mr. Murphy may receive other cash compensation from the Holding Company for
services hereunder at such times, in such amounts and on such terms and
conditions as the Board may determine from time to time.
Page 2 of 18
<PAGE> 3
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, Mr. Murphy shall be treated as
an employee of the Holding Company and shall be entitled to participate in and
receive benefits under any and all qualified or non-qualified retirement,
pension, savings, profit-sharing or stock bonus plans, any and all group life,
health (including hospitalization, medical and major medical), dental, accident
and long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Holding Company, in accordance with the terms and conditions of such
employee benefit plans and programs and compensation plans and programs and
consistent with the Holding Company's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Holding Company shall cause Mr. Murphy to be covered by
and named as an insured under any policy or contract of insurance obtained by it
to insure its directors and officers against personal liability for acts or
omissions in connection with service as an officer or director of the Holding
Company or service in other capacities at the request of the Holding Company.
The coverage provided to Mr. Murphy pursuant to this section 6 shall be of the
same scope and on the same terms and conditions as the coverage (if any)
provided to other officers or directors of the Holding Company.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period of six (6) years thereafter, the
Holding Company shall indemnify Mr. Murphy against and hold him harmless from
any costs, liabilities, losses and exposures to the fullest extent and on the
most favorable terms and conditions that similar indemnification is offered to
any director or officer of the Holding Company or any subsidiary or affiliate
thereof.
SECTION 7. OUTSIDE ACTIVITIES.
Mr. Murphy may serve as a member of the boards of directors of
such business, community and charitable organizations as he may disclose to and
as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. Mr. Murphy may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Holding Company and generally
applicable to all similarly situated executives. Mr. Murphy may also serve as an
officer or director of the Bank on such terms and conditions as the Holding
Company and the Bank may mutually agree upon, and such service shall not be
deemed to materially interfere with Mr. Murphy's performance of his duties
hereunder or otherwise result in a material breach of this Agreement. If Mr.
Murphy is discharged or suspended, or is subject to any regulatory prohibition
or restriction with respect to participation
Page 3 of 18
<PAGE> 4
in the affairs of the Bank, he shall continue to perform services for the
Company in accordance with this Agreement but shall not directly or indirectly
provide services to or participate in the affairs of the Bank in a manner
inconsistent with the terms of such discharge or suspension or any applicable
regulatory order.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Mr. Murphy's principal place of employment shall be at the
Holding Company's executive offices at the address first above written, or at
such other location within Westchester County at which the Holding Company shall
maintain its principal executive offices, or at such other location as the
Holding Company and Mr. Murphy may mutually agree upon. The Holding Company
shall provide Mr. Murphy at his principal place of employment with a private
office, secretarial services, an automobile, and other support services and
facilities suitable to his position with the Holding Company and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Holding Company shall provide to Mr. Murphy for his exclusive use
an automobile owned or leased by the Holding Company and appropriate to his
position, to be used in the performance of his duties hereunder, including
commuting to and from his personal residence. The Holding Company shall
reimburse Mr. Murphy for his ordinary and necessary business expenses,
including, without limitation, all expenses associated with his business use of
the aforementioned automobile, fees for memberships in such clubs and
organizations as Mr. Murphy and the Holding Company shall mutually agree are
necessary and appropriate for business purposes, and his travel and
entertainment expenses incurred in connection with the performance of his duties
under this Agreement, in each case upon presentation to the Holding Company of
an itemized account of such expenses in such form as the Holding Company may
reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) Mr. Murphy's shall be entitled to the severance benefits
described herein in the event that his employment with the Holding Company
terminates during the Employment Period under any of the following
circumstances:
(i) Mr. Murphy's voluntary resignation from employment with
the Holding Company within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect Mr. Murphy to the office of Vice
President (or a more senior office) of the Holding Company;
(B) the failure of the stockholders of the Holding
Company to elect or re-elect Mr. Murphy or the failure of the
Board (or the nominating committee thereof) to nominate Murphy
for such election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which Mr. Murphy gives written notice to
the Holding Company of its
Page 4 of 18
<PAGE> 5
material failure, whether by amendment of the Holding
Company's Organization Certificate or By-laws, action of the
Board or the Holding Company's stockholders or otherwise, to
vest in Mr. Murphy the functions, duties, or responsibilities
prescribed in section 3 of this Agreement, unless, during such
thirty (30) day period, the Holding Company cures such failure
in a manner determined by Mr. Murphy, in his discretion, to be
satisfactory; or
(D) the expiration of a thirty (30) day period
following the date on which Mr. Murphy gives written notice to
the Holding Company of its material breach of any term,
condition or covenant contained in this Agreement (including,
without limitation any reduction of Mr. Murphy's rate of base
salary in effect from time to time and any change in the terms
and conditions of any compensation or benefit program in which
Mr. Murphy participates which, either individually or together
with other changes, has a material adverse effect on the
aggregate value of his total compensation package), unless,
during such thirty (30) day period, the Holding Company cures
such failure in a manner determined by Mr. Murphy, in his
discretion, to be satisfactory; or
(ii) subject to the provisions of section 10, the termination
of Mr. Murphy's employment with the Holding Company for any other
reason not described in section 9(a);
then, the Holding Company shall provide the benefits and pay to Mr. Murphy the
amounts described in section 9(b).
(b) Upon the termination of Mr. Murphy's employment with the
Holding Company under circumstances described in section 9(a) of this Agreement,
the Holding Company shall pay and provide to Mr. Murphy (or, in the event of his
death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this section 9(b)) as of the date of the termination of his
employment with the Holding Company, such payment to be made at the
time and in the manner prescribed by law applicable to the payment of
wages but in no event later than thirty (30) days after termination of
employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Holding Company's
officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary
Page 5 of 18
<PAGE> 6
to provide for Mr. Murphy, for the Remaining Unexpired Employment
Period, coverage equivalent to the coverage to which he would have been
entitled under such plans (as in effect on the date of his termination
of employment, or, if his termination of employment occurs after a
Change of Control, on the date of such Change of Control, whichever
benefits are greater), if he had continued working for the Holding
Company during the Remaining Unexpired Employment Period at the highest
annual rate of compensation achieved during that portion of the
Employment Period which is prior to Mr. Murphy's termination of
employment with the Holding Company;
(iv) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment, in an amount
equal to the present value of the salary that Mr. Murphy would have
earned if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period at the highest annual rate of
salary achieved during that portion of the Employment Period which is
prior to Mr. Murphy's termination of employment with the Holding
Company, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Holding
Company's regular payroll periods for its officers, such lump sum to be
paid in lieu of all other payments of salary provided for under this
Agreement in respect of the period following any such termination;
(v) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Holding Company, if he were 100%
vested thereunder and had continued working for the Holding
Company during the Remaining Unexpired Employment Period, such
benefits to be determined as of the date of termination of
employment by adding to the service actually recognized under
such plans an additional period equal to the Remaining
Unexpired Employment Period and by adding to the compensation
recognized under such plans for the year in which termination
of employment occurs all amounts payable under sections
9(b)(i), (iv), (vii), (viii) and (ix); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under
Page 6 of 18
<PAGE> 7
terminating single-employer defined benefit plans for the month in
which Mr. Murphy's termination of employment occurs ("Applicable PBGC
Rate");
(vi) within thirty (30) days following his termination of
employment with the Holding Company, a lump sum payment in an amount
equal to the present value of the additional employer contributions to
which he would have been entitled under any and all qualified and
non-qualified defined contribution plans maintained by, or covering
employees of, the Holding Company, if he were 100% vested thereunder
and had continued working for the Holding Company during the Remaining
Unexpired Employment Period at the highest annual rate of compensation
achieved during that portion of the Employment Period which is prior to
Mr. Murphy's termination of employment with the Holding Company, and
making the maximum amount of employee contributions, if any, required
under such plan or plans, such present value to be determined on the
basis of a discount rate, compounded using the compounding period that
corresponds to the frequency with which employer contributions are made
to the relevant plan, equal to the Applicable PBGC Rate;
(vii) the payments that would have been made to Mr. Murphy
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Holding
Company if he had continued working for the Holding Company during the
Remaining Unexpired Employment Period and had earned the maximum bonus
or incentive award in each calendar year that ends during the Remaining
Unexpired Employment Period, such payments to be equal to the product
of:
(A) the maximum percentage rate at which an award was
ever available to Mr. Murphy under such incentive compensation
plan; multiplied by
(B) the salary that would have been paid to Mr.
Murphy during each such calendar year at the highest annual
rate of salary achieved during that portion of the Employment
Period which is prior to Mr. Murphy's termination of
employment with the Holding Company:
such payments to be made (without discounting for early payment) within
thirty (30) days following Mr. Murphy's termination of employment;
(viii) at the election of the Holding Company made within
thirty (30) days following his termination of employment with the
Holding Company, upon the surrender of options or appreciation rights
issued to Mr. Murphy under any stock option and appreciation rights
plan or program maintained by, or covering employees of, the Holding
Company, a lump sum payment in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the
Page 7 of 18
<PAGE> 8
exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining
Mr. Murphy's right following his termination of employment with the
Holding Company to exercise any options or appreciation rights not
surrendered pursuant hereto, Mr. Murphy shall be deemed fully vested in
all options and appreciation rights under any stock option or
appreciation rights plan or program maintained by, or covering
employees of, the Holding Company, even if he is not vested under such
plan or program;
(ix) at the election of the Holding Company made within thirty
(30) days following Mr. Murphy's termination of employment with the
Holding Company, upon the surrender of any shares awarded to Mr. Murphy
under any restricted stock plan maintained by, or covering employees
of, the Holding Company, a lump sum payment in an amount equal to the
product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of Mr. Murphy's termination of employment; multiplied
by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining
Mr. Murphy's right following his termination of employment with the
Holding Company to any stock not surrendered pursuant hereto, Mr.
Murphy shall be deemed fully vested in all shares awarded under any
restricted stock plan maintained by, or covering employees of, the
Holding Company, even if he is not vested under such plan.
The Holding Company and Mr. Murphy hereby stipulate that the damages which may
be incurred by Mr. Murphy following any such termination of employment are not
capable of accurate measurement as of the date first above written and that the
payments and benefits contemplated by this section 9(b) constitute reasonable
damages under the circumstances and shall be payable without any requirement of
proof of actual damage and without regard to Mr. Murphy's efforts, if any, to
mitigate damages. The Holding Company and Mr. Murphy further agree that the
Holding Company may condition the payments and benefits (if any) due under
sections 9(b)(iii), (iv), (v), (vi) and (vi) on the receipt of Mr. Murphy's
resignation from any and all positions which he holds as an officer, director or
committee member with respect to the Holding Company, the Bank or any subsidiary
or affiliate of either of them.
Page 8 of 18
<PAGE> 9
SECTION 10. TERMINATION WITHOUT ADDITIONAL HOLDING COMPANY
LIABILITY.
(a) In the event that Mr. Murphy's employment with the Holding
Company shall terminate during the Employment Period on account of:
(i) the discharge of Mr. Murphy for "cause," which, for
purposes of this Agreement shall mean: (A) Mr. Murphy intentionally
engages in dishonest conduct in connection with his performance of
services for the Holding Company resulting in his conviction of a
felony; (B) Mr. Murphy is convicted of, or pleads guilty or nolo
contendere to, a felony or any crime involving moral turpitude; (C) Mr.
Murphy willfully fails or refuses to perform his duties under this
Agreement and fails to cure such breach within sixty (60) days
following written notice thereof from the Holding Company; (D) Mr.
Murphy breaches his fiduciary duties to the Holding Company for
personal profit; or (E) Mr. Murphy's willful breach or violation of any
law, rule or regulation (other than traffic violations or similar
offenses), or final cease and desist order in connection with his
performance of services for the Holding Company.
(ii) Mr. Murphy's voluntary resignation from employment with
the Holding Company for reasons other than those specified in section
9(a);
(iii) Mr. Murphy's death; or
(iv) a determination that Mr. Murphy is eligible for long-term
disability benefits under the Holding Company's long-term disability
insurance program or, if there is no such program, under the federal
Social Security Act;
then the Holding Company shall have no further obligations under this Agreement,
other than the payment to Mr. Murphy (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination of his
employment, and the provision of such other benefits, if any, to which he is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Holding Company.
(b) For purposes of section 10(a)(i)(A) or (B), no act or
failure to act, on the part of Mr. Murphy, shall be considered "willful" unless
it is done, or omitted to be done, by Mr. Murphy in bad faith or without
reasonable belief that Mr. Murphy's action or omission was in the best interests
of the Holding Company. Any act, or failure to act, based upon authority given
pursuant to a resolution duly adopted by the Board or based upon the written
advice of counsel for the Holding Company shall be conclusively presumed to be
done, or omitted to be done, by Mr. Murphy in good faith and in the best
interests of the Holding Company. The cessation of employment of Mr. Murphy
shall not be deemed to be for "cause" within the meaning of section 10(a)(i)
unless and until there shall have been delivered to Mr. Murphy a copy of a
resolution duly adopted by the affirmative vote of three-fourths of the
non-employee members of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to Mr. Murphy and Mr. Murphy
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, Mr. Murphy is guilty of
the conduct described in section 10(a)(i) above, and specifying the particulars
thereof in detail.
Page 9 of 18
<PAGE> 10
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Holding Company ("Change of
Control") shall be deemed to have occurred upon the happening of any of the
following events:
(i) approval by the stockholders of the Holding Company of a
transaction that would result in the reorganization, merger or
consolidation of the Holding Company, respectively, with one or more
other persons, other than a transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Holding Company;
and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Holding Company;
(ii) the acquisition of all or substantially all of the assets
of the Holding Company or beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
outstanding securities of the Holding Company entitled to vote
generally in the election of directors by any person or by any persons
acting in concert, or approval by the stockholders of the Holding
Company of any transaction which would result in such an acquisition;
(iii) a complete liquidation or dissolution of the Holding
Company, or approval by the stockholders of the Holding Company of a
plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Holding Company do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Holding Company on the date of this Agreement; or
(B) individuals who first became members of the Board
of the Holding Company after the date of this Agreement
either:
Page 10 of 18
<PAGE> 11
(I) upon election to serve as a member of
the Board of directors of the Holding Company by
affirmative vote of three-quarters of the members of
such board, or of a nominating committee thereof, in
office at the time of such first election; or
(II) upon election by the stockholders of
the Board to serve as a member of the board of
directors of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of
a nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Holding Company; or
(v) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Bank" were substituted for the term
"Holding Company" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Bank, or a subsidiary of either of them, by the Holding Company, the Bank, or a
subsidiary of either of them, or by any employee benefit plan maintained by any
of them. For purposes of this section 11(a), the term "person" shall have the
meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, Mr. Murphy shall be
entitled to the payments and benefits contemplated by section 9(b) in the event
of his termination employment with the Holding Company under any of the
circumstances described in section 9(a) of this Agreement or under any of the
following circumstances:
(i) resignation, voluntary or otherwise, by Mr. Murphy at any
time during the Employment Period following his demotion, loss of
title, office or significant authority or responsibility, or following
any reduction in any element of his package of compensation and
benefits;
(ii) resignation, voluntary or otherwise, by Mr. Murphy at any
time during the Employment Period following any relocation of his
principal place of employment or any change in working conditions at
such principal place of employment which Mr. Murphy, in his reasonable
discretion, determines to be embarrassing, derogatory or otherwise
adverse;
Page 11 of 18
<PAGE> 12
(iii) resignation, voluntary or otherwise, by Mr. Murphy at
any time during the Employment Period following the failure of any
successor to the Holding Company in the Change of Control to include
Mr. Murphy in any compensation or benefit program maintained by it or
covering any of its executive officers, unless Mr. Murphy is already
covered by a substantially similar plan of the Holding Company which is
at least as favorable to him; or
(iv) resignation, voluntary or otherwise, for any reason
whatsoever following the effective date of the Change of Control.
SECTION 12. TAX INDEMNIFICATION.
(a) This section 12 shall apply if Mr. Murphy's employment is
terminated upon or following (i) a Change of Control (as defined in section 11
of this Agreement); or (ii) a change "in the ownership or effective control" of
the Holding Company or the Bank or "in the ownership of a substantial portion of
the assets" of the Holding Company or the Bank within the meaning of section
280G of the Code. If this Section 12 applies, then, if for any taxable year, Mr.
Murphy shall be liable for the payment of an excise tax under section 4999 of
the Code with respect to any payment in the nature of compensation made by the
Holding Company, the Bank or any direct or indirect subsidiary or affiliate of
the Holding Company or the Bank to (or for the benefit of) Mr. Murphy, the
Holding Company shall pay to Mr. Murphy an amount equal to X determined under
the following formula:
X = E x P
------------------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E + M]
where
E = the rate at which the excise tax is assessed under
section 4999 of the Code;
P = the amount with respect to which such excise tax is
assessed, determined without regard to this section
12;
FI = the highest marginal rate of income tax applicable
to Mr. Murphy under the Code for the taxable year in
question;
SLI = the sum of the highest marginal rates of income tax
applicable to Mr. Murphy under all applicable state
and local laws for the taxable year in question; and
M = the highest marginal rate of Medicare tax
applicable to Mr. Murphy under the Code for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Mr. Murphy under the terms of this Agreement, or otherwise,
and on which an excise tax under section 4999 of the Code will be assessed, the
payment determined under this section 12(a) shall be made to Mr. Murphy on the
earlier of (i) the date the Holding Company,
Page 12 of 18
<PAGE> 13
the Bank or any direct or indirect subsidiary or affiliate of the Holding
Company or the Bank is required to withhold such tax, or (ii) the date the tax
is required to be paid by Mr. Murphy.
(b) Notwithstanding anything in this section 12 to the
contrary, in the event that Mr. Murphy's liability for the excise tax under
section 4999 of the Code for a taxable year is subsequently determined to be
different than the amount determined by the formula (X + P) x E, where X, P and
E have the meanings provided in section 12(a), Mr. Murphy or the Holding
Company, as the case may be, shall pay to the other party at the time that the
amount of such excise tax is finally determined, an appropriate amount, plus
interest, such that the payment made under section 12(a), when increased by the
amount of the payment made to Mr. Murphy under this section 12(b) by the Holding
Company, or when reduced by the amount of the payment made to the Holding
Company under this section 12(b) by Mr. Murphy, equals the amount that should
have properly been paid to Mr. Murphy under section 12(a). The interest paid
under this section 12(b) shall be determined at the rate provided under section
1274(b)(2)(B) of the Code. To confirm that the proper amount, if any, was paid
to Mr. Murphy under this section 12, Mr. Murphy shall furnish to the Holding
Company a copy of each tax return which reflects a liability for an excise tax
payment made by the Holding Company, at least 20 days before the date on which
such return is required to be filed with the Internal Revenue Service.
SECTION 13. COVENANT NOT TO COMPETE.
Mr. Murphy hereby covenants and agrees that, in the event of
his termination of employment with the Holding Company prior to the expiration
of the Employment Period, for a period of one (1) year following the date of his
termination of employment with the Holding Company (or, if less, for the
Remaining Unexpired Employment Period), he shall not, without the written
consent of the Holding Company, become an officer, employee, consultant,
director or trustee of any savings bank, savings and loan association, savings
and loan holding company, bank or bank holding company, or any direct or
indirect subsidiary or affiliate of any such entity, that entails working within
one hundred (100) miles of the headquarters of the Holding Company on the date
of Mr. Murphy's termination of employment; provided, however, that this section
13 shall not apply if Mr. Murphy's employment is terminated for the reasons set
forth in section 9(a); and provided, further, that if Mr. Murphy's employment
shall be terminated on account of disability as provided in section 10(d) of
this Agreement, this section 13 shall not prevent Mr. Murphy from accepting any
position or performing any services if (a) he first offers, by written notice,
to accept a similar position with, or perform similar services for, the Holding
Company on substantially the same terms and conditions and (b) the Holding
Company declines to accept such offer within ten (10) days after such notice is
given.
SECTION 14. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Holding
Company, Mr. Murphy shall keep confidential and shall refrain from using for the
benefit of himself, or any person or entity other than the Holding Company or
any entity which is a subsidiary of the Holding Company or of which the Holding
Company is a subsidiary, any material document or information obtained from the
Holding Company, or from its parent or subsidiaries, in the
Page 13 of 18
<PAGE> 14
course of his employment with any of them concerning their properties,
operations or business (unless such document or information is readily
ascertainable from public or published information or trade sources or has
otherwise been made available to the public through no fault of his own) until
the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 14 shall prevent Mr. Murphy,
with or without the Holding Company's consent, from participating in or
disclosing documents or information in connection with any judicial or
administrative investigation, inquiry or proceeding to the extent that such
participation or disclosure is required under applicable law.
SECTION 15. SOLICITATION.
Mr. Murphy hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Holding Company,
he shall not, without the written consent of the Holding Company, either
directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Holding Company, the Bank or any affiliate, as of the date of this
Agreement, of either of them, to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the Bank or any
affiliate, as of the date of this Agreement, of either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Holding Company, the Bank, or
any affiliate, as of the date of this Agreement, of either of them,
that is intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any officer
or employee of the Holding Company, the Bank, or any affiliate, as of
the date of this Agreement, of either of them, to terminate his or her
employment and accept employment or become affiliated with, or provide
services for compensation in any capacity whatsoever to, any savings
bank, savings and loan association, bank, bank holding company, savings
and loan holding company, or other institution engaged in the business
of accepting deposits and making loans, doing business within one
hundred (100) miles of the headquarters of the Holding Company, the
Bank, or any affiliate, as of the date of this Agreement, of either of
them; or
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Holding
Page 14 of 18
<PAGE> 15
Company to terminate an existing business or commercial relationship
with the Holding Company.
SECTION 16. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Mr. Murphy's employment during the term of
this Agreement or thereafter, whether by the Holding Company or by Mr. Murphy,
shall have no effect on the rights and obligations of the parties hereto under
the Holding Company's qualified or non-qualified retirement, pension, savings,
thrift, profit-sharing or stock bonus plans, group life, health (including
hospitalization, medical and major medical), dental, accident and long term
disability insurance plans or such other employee benefit plans or programs, or
compensation plans or programs, as may be maintained by, or cover employees of,
the Holding Company from time to time.
SECTION 17. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Mr. Murphy, his legal representatives and testate or intestate
distributees, and the Holding Company and its successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Holding Company may be sold or otherwise transferred.
Failure of the Holding Company to obtain from any successor its express written
assumption of the Holding Company's obligations hereunder at least sixty (60)
days in advance of the scheduled effective date of any such succession shall be
deemed a material breach of this Agreement.
SECTION 18. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Mr. Murphy:
Mr. Harry G. Murphy
40 Summit Avenue
White Plains, New York 10606
Page 15 of 18
<PAGE> 16
If to the Holding Company:
Tappan Zee Financial, Inc.
75 Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 19. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Holding Company shall indemnify, hold harmless and defend
Mr. Murphy against reasonable costs, including legal fees, incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; provided, however, that Mr. Murphy shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Holding
Company's obligations hereunder shall be conclusive evidence of Mr. Murphy's
entitlement to indemnification hereunder, and any such indemnification payments
shall be in addition to amounts payable pursuant to such settlement agreement,
unless such settlement agreement expressly provides otherwise.
SECTION 20. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 21. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Page 16 of 18
<PAGE> 17
SECTION 22. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 23. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 24. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 25. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 26. GUARANTEE.
The Holding Company hereby agrees to guarantee the payment by
the Bank of any benefits and compensation to which Mr. Murphy is or may be
entitled to under the terms and conditions of the employment agreement dated as
of the 5th day of October, 1995 between the Bank and Mr. Murphy, a copy of which
is attached hereto as Exhibit A ("Bank Agreement").
SECTION 27. NON-DUPLICATION.
In the event that Mr. Murphy shall perform services for the
Bank or any other direct or indirect subsidiary of the Holding Company, any
compensation or benefits provided to Mr. Murphy by such other employee shall be
applied to offset the obligations of the Holding Company hereunder, it being
intended that this Agreement set forth the aggregate compensation and benefits
payable to Mr. Murphy for all services to the Holding Company and all of its
direct or indirect subsidiaries.
Page 17 of 18
<PAGE> 18
SECTION 28. REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything herein contained to the contrary, any
payments to Mr. Murphy by the Holding Company, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their compliance
with section 18(k) of the Federal Deposit Insurance Act, 12 U.S.C.
Section1828(k), and any regulations promulgated thereunder.
IN WITNESS WHEREOF, the Holding Company has caused this
Agreement to be executed and Mr. Murphy has hereunto set his hand, all as of the
day and year first above written.
/s/ Harry G. Murphy
---------------------
Harry G. Murphy
ATTEST: TAPPAN ZEE FINANCIAL, INC.
By/s/ Harry G. Murphy
--------------------------
Secretary By/s/ Marvin Levy
----------------------------
Name: Marvin Levy
Title: Chairman of the Board
[Seal]
[Notary Public
Attestations and Seals]
Page 18 of 18
<PAGE> 1
BANK EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered
into as of October 5, 1995 by and between TARRYTOWNS BANK, FSB, a savings bank
organized and operating under the federal laws of the United States and having
an office at 75 Broadway, Tarrytown, New York 10591 ("Bank") and STEPHEN C.
BYELICK, an individual residing at 31 Crest Drive, Tarrytown, New York 10591
("Mr. Byelick").
W I T N E S S E T H :
WHEREAS, Mr. Byelick currently serves the Bank in the capacity
of President;
and
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a federal mutual savings bank to a federal stock savings bank
and has become the wholly owned subsidiary of Tappan Zee Financial, Inc., a
publicly held Delaware corporation ("Holding Company"); and
WHEREAS, the Bank desires to assure for itself the continued
availability of Mr. Byelick's services and the ability of Mr. Byelick to perform
such services with a minimum of personal distraction in the event of a pending
or threatened Change of Control (as hereinafter defined); and
WHEREAS, Mr. Byelick is willing to continue to serve the Bank
on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and conditions hereinafter set forth, the Bank and Mr. Byelick
hereby agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to continue to employ Mr. Byelick, and Mr.
Byelick hereby agrees to such continued employment, during the period and upon
the terms and conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT
PERIOD.
(a) The terms and conditions of this Agreement shall be and
remain in effect during the period of employment established under this section
2 ("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement. Prior to the first
anniversary of the date of this Agreement and on each anniversary date
thereafter (each, an "Anniversary Date"), the Board of Directors of the Bank
("Board") shall review the terms of this Agreement and Mr. Byelick's performance
of services hereunder
Page 1 of 17
<PAGE> 2
and may, in the absence of objection from Mr. Byelick, approve an extension of
the Employment Agreement. In such event, the Employment Agreement shall be
extended to the third anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining
Unexpired Employment Period" as of any date shall mean the period beginning on
such date and ending on the Anniversary Date on which the Employment Period (as
extended pursuant to section 2(a) of this Agreement) is then scheduled to
expire.
(c) Nothing in this Agreement shall be deemed to prohibit the
Bank at any time from terminating Mr. Byelick's employment during the Employment
Period with or without notice for any reason; provided, however, that the
relative rights and obligations of the Bank and Mr. Byelick in the event of any
such termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Mr. Byelick shall serve as President of the Bank, having such
power, authority and responsibility and performing such duties as are prescribed
by or under the By-Laws of the Bank and as are customarily associated with such
position. Mr. Byelick shall devote his full business time and attention (other
than during weekends, holidays, approved vacation periods, and periods of
illness or approved leave of absence) to the business and affairs of the Bank
and shall use his best efforts to advance the interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Mr.
Byelick hereunder, the Bank shall pay to him a salary at an initial annual rate
of ONE HUNDRED FIFTY THREE THOUSAND ($153,000), payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. Prior to each Anniversary Date occurring during the Employment
Period, the Board shall review Mr. Byelick's annual rate of salary and may, in
its discretion, approve an increase therein. In addition to salary, Mr. Byelick
may receive other cash compensation from the Bank for services hereunder at such
times, in such amounts and on such terms and conditions as the Board may
determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, Mr. Byelick shall be treated as
an employee of the Bank and shall be eligible to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee
Page 2 of 17
<PAGE> 3
benefit plans and programs and compensation plans and programs and consistent
with the Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6)
years thereafter, the Bank shall cause Mr. Byelick to be covered by and named as
an insured under any policy or contract of insurance obtained by it to insure
its directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank or service in
other capacities at the request of the Bank. The coverage provided to Mr.
Byelick pursuant to this section 6 shall be of the same scope and on the same
terms and conditions as the coverage (if any) provided to other officers or
directors of the Bank.
(b) To the maximum extent permitted under applicable law,
during the Employment Period and for a period six (6) years thereafter, the Bank
shall indemnify, and shall cause its subsidiaries and affiliates to indemnify
Mr. Byelick against and hold him harmless from any costs, liabilities, losses
and exposures to the fullest extent and on the most favorable terms and
conditions that similar indemnification is offered to any director or officer of
the Bank or any subsidiary or affiliate thereof. This section 6(b) shall not be
applicable where section 18 is applicable.
SECTION 7. OUTSIDE ACTIVITIES.
Mr. Byelick may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. Mr. Byelick may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly executives. Mr. Byelick may also serve as an officer or director
of the Holding Company on terms and conditions as the Bank and the Holding
Company may mutually agree upon, and such service shall not be deemed to
materially interfere with Mr. Byelick's performance of his duties hereunder or
otherwise to result in a material breach of this Agreement.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Mr. Byelick's principal place of employment shall be at the
Bank's executive offices at the address first above written, or at such other
location within Westchester County at which the Bank shall maintain its
principal executive offices, or at such other location as the Bank and Mr.
Byelick may mutually agree upon. The Bank shall provide Mr. Byelick at his
principal place of employment with a private office, secretarial services and
other support services and facilities suitable to his position with the Bank and
necessary or appropriate in connection with the performance of his assigned
duties under this Agreement. The Bank shall provide to Mr. Byelick for his
exclusive use an automobile owned or leased by the Bank and appropriate
Page 3 of 17
<PAGE> 4
to his position, to be used in the performance of his duties hereunder,
including commuting to and from his personal residence. The Bank shall reimburse
Mr. Byelick for his ordinary and necessary business expenses, including, without
limitation, all expenses associated with his business use of the aforementioned
automobile, fees for memberships in such clubs and organizations as Mr. Byelick
and the Bank shall mutually agree are necessary and appropriate for business
purposes, and his travel and entertainment expenses incurred in connection with
the performance of his duties under this Agreement, in each case upon
presentation to the Bank of an itemized account of such expenses in such form as
the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) Mr. Byelick's shall be entitled to the severance benefits
described herein in the event that his employment with the Bank terminates
during the Employment Period under any of the following circumstances:
(i) Mr. Byelick's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint
or elect or re-elect Mr. Byelick to the office of President
(or a more senior office) of the Bank;
(B) the failure of the stockholders of the Bank to
elect or re-elect Mr. Byelick or the failure of the Board (or
the nominating committee thereof) to nominate Byelick for such
election or re-election;
(C) the expiration of a thirty (30) day period
following the date on which Mr. Byelick gives written notice
to the Bank of its material failure, whether by amendment of
the Bank's Organization Certificate or By-laws, action of the
Board or the Bank's stockholders or otherwise, to vest in Mr.
Byelick the functions, duties, or responsibilities prescribed
in section 3 of this Agreement, unless, during such thirty
(30) day period, the Bank fully cures such failure;
(D) the expiration of a thirty (30) day period
following the date on which Mr. Byelick gives written notice
to the Bank of its material breach of any term, condition or
covenant contained in this Agreement (including, without
limitation any reduction of Mr. Byelick's rate of base salary
in effect from time to time and any change in the terms and
conditions of any compensation or benefit program in which Mr.
Byelick participates which, alone together with other changes,
has a material adverse effect on the aggregate value of his
total compensation package), unless, during such thirty (30)
day period, the Bank fully cures such failure; or
(ii) the termination of Mr. Byelick's employment with the Bank
for any other reason not described in section 10(a);
then, subject to section 25, the Bank shall provide the benefits and pay to Mr.
Byelick the amounts described in section 9(b).
Page 4 of 17
<PAGE> 5
(b) Upon the termination of Mr. Byelick's employment with the
Bank under circumstances described in section 9(a) of this Agreement, the Bank
shall pay and provide to Mr. Byelick (or, in the event of his death, to his
estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the
New York Labor Law and the payment of which is not otherwise provided
for under this section 9(b)) as of the date of the termination of his
employment with the Bank, such payment to be made at the time and in
the manner prescribed by law applicable to the payment of wages but in
no event later than thirty (30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers
and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
9(b)(ii), and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for Mr.
Byelick, for the Remaining Unexpired Employment Period, coverage
equivalent to the coverage to which he would have been entitled under
such plans (as in effect on the date of his termination of employment,
or, if his termination of employment occurs after a Change of Control,
on the date of such Change of Control, whichever benefits are greater)
if he had continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of compensation achieved
during that portion of the Employment Period which is prior to Mr.
Byelick's termination of employment with the Bank;
(iv) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary that Mr. Byelick would have earned if he
had continued working for the Bank during the Remaining Unexpired
Employment Period at the highest annual rate of salary achieved during
that portion of the Employment Period which is prior to Mr. Byelick's
termination of employment with the Bank, where such present value is to
be determined using a discount rate equal to the applicable short-term
federal rate prescribed under section 1274(d) of the Internal Revenue
Code of 1986 ("Code"), compounded using the compounding period
corresponding to the Bank's regular payroll periods for its officers,
such lump sum to be paid in lieu of all other payments of salary
provided for under this Agreement in respect of the period following
any such termination;
(v) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
excess, if any, of:
(A) the present value of the aggregate benefits to
which he would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Bank)
Page 5 of 17
<PAGE> 6
if he were 100% vested thereunder and had continued working
for the Bank during the Remaining Unexpired Employment Period
(such benefits to be determined as of the date of termination
of employment by adding to the service actually recognized
under such plans an additional period equal to the Remaining
Unexpired Employment Period and by adding to the compensation
recognized under such plans for the year in which termination
of employment occurs all amounts payable under sections
9(b)(i), (iv), (vii), (viii) and (ix); over
(B) the present value of the benefits to which he is
actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefits Guaranty Corporation for
the valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which Mr.
Byelick's termination of employment occurs ("Applicable PBGC Rate").
(vi) within thirty (30) days following his termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which he
would have been entitled under any and all qualified and non-qualified
defined contribution plans maintained by, or covering employees of, the
Bank, if he were 100% vested thereunder and had continued working for
the Bank during the Remaining Unexpired Employment Period at the
highest annual rate of compensation achieved during that portion of the
Employment Period which is prior to Mr. Byelick's termination of
employment with the Bank, and making the maximum amount of employee
contributions, if any, required under such plan or plans, such present
value to be determined on the basis of a discount rate, compounded
using the compounding period that corresponds to the frequency with
which employer contributions are made to the relevant plan, equal to
the Applicable PBGC Rate;
(vii) the payments that would have been made to Mr. Byelick
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank if
he had continued working for the Bank during the Remaining Unexpired
Employment Period and had earned the maximum bonus or incentive award
in each calendar year that ends during the Remaining Unexpired
Employment Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was
ever available to Mr. Byelick under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to Mr.
Byelick during each such calendar year at the highest annual
rate of salary achieved
Page 6 of 17
<PAGE> 7
during that portion of the Employment Period which is prior to
Mr. Byelick's termination of employment with the Bank:
such payments to be made (without discounting for early payment) within
thirty (30) days following Mr. Byelick's termination of employment;
(viii) at the election of the Bank made within thirty (30)
days following his termination of employment with the Bank, upon the
surrender of options or appreciation rights issued to Mr. Byelick under
any stock option and appreciation rights plan or program maintained by,
or covering employees of, the Bank, a lump sum payment in an amount
equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining
Mr. Byelick's right following his termination of employment with the
Bank to exercise any options or appreciation rights not surrendered
pursuant hereto, Mr. Byelick shall be deemed fully vested in all
options and appreciation rights under any stock option or appreciation
rights plan or program maintained by, or covering employees of, the
Bank, even if he is not vested under such plan or program;
(ix) at the election of the Bank made within thirty (30) days
following Mr. Byelick's termination of employment with the Bank, upon
the surrender of any shares awarded to Mr. Byelick under any restricted
stock plan maintained by, or covering employees of, the Bank, a lump
sum payment in an amount equal to the product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of Mr. Byelick's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining
Mr. Byelick's right following his termination of employment with the
Bank to any stock not surrendered pursuant hereto, Mr. Byelick shall be
deemed fully vested in all shares awarded under any restricted stock
plan maintained by, or covering employees of, the Bank, even if he is
not vested under such plan.
The Bank and Mr. Byelick hereby stipulate that the damages which may be incurred
by Mr. Byelick following any such termination of employment are not capable of
accurate measurement
Page 7 of 17
<PAGE> 8
as of the date first above written and that the payments and benefits
contemplated by this section 9(b) constitute reasonable damages under the
circumstances and shall be payable without any requirement of proof of actual
damage and without regard to Mr. Byelick's efforts, if any, to mitigate damages.
The Bank and Mr. Byelick further agree that the Bank may condition the payments
and benefits (if any) due under sections 9(b)(iii), (iv), (v), (vi) and (vi) on
the receipt of Mr. Byelick's resignation from any and all positions which he
holds as an officer, director or committee member with respect to the Bank, the
Holding Company or any subsidiary or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that Mr. Byelick's employment with the Bank shall
terminate during the Employment Period on account of:
(a) the discharge of Mr. Byelick for "cause," which, for
purposes of this Agreement shall mean 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, or any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that Mr. Byelick shall not be
deemed to have been discharged for cause unless and until he shall have
received a written notice of termination from the Board, accompanied by
a resolution duly adopted by affirmative vote of a majority of the
entire Board at a meeting called and held for such purpose (after
reasonable notice to Mr. Byelick and a reasonable opportunity for Mr.
Byelick to make oral and written presentations to the members of the
Board, on his own behalf, or through a representative, who may be his
legal counsel, to refute the grounds for the proposed determination)
finding that in the good faith opinion of the Board grounds exist for
discharging Mr. Byelick for cause; or
(b) Mr. Byelick's voluntary resignation from employment with
the Bank for reasons other than those specified in section 9(a)(i);
(c) Mr. Byelick's death; or
(d) a determination that Mr. Byelick is eligible for long-term
disability benefits under the Bank's long-term disability insurance
program or, if there is no such program, under the federal Social
Security Act;
then the Bank shall have no further obligations under this Agreement,
other than the payment to Mr. Byelick (or, in the event of his death,
to his estate) of his earned but unpaid salary as of the date of the
termination of his employment, and the provision of such other
benefits, if any, to which he is entitled as a former employee under
the employee benefit plans and programs and compensation plans and
programs maintained by, or covering employees of, the Bank.
Page 8 of 17
<PAGE> 9
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) approval by the stockholders of the Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, respectively, with one or more other persons, other than a
transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Bank; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Bank;
(ii) the acquisition of all or substantially all of the assets
of the Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the stockholders of the Bank of any transaction which would
result in such an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank of a plan for such liquidation
or dissolution; or
(iv) the occurrence of any event if, immediately following
such event, at least 50% of the members of the board of directors of
the Bank do not belong to any of the following groups:
(A) individuals who were members of the Board of the
Bank on the date of this Agreement; or
(B) individuals who first became members of the Board
of the Bank after the date of this Agreement either:
Page 9 of 17
<PAGE> 10
(I) upon election to serve as a member of
the Board of directors of the Bank by affirmative
vote of three-quarters of the members of such board,
or of a nominating committee thereof, in office at
the time of such first election; or
(II) upon election by the stockholders of
the Board to serve as a member of the board of
directors of the Board, but only if nominated for
election by affirmative vote of three-quarters of the
members of the board of directors of the Board, or of
a nominating committee thereof, in office at the time
of such first nomination;
provided, however, that such individual's election or
nomination did not result from an actual or threatened
election contest (within the meaning of Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) other than by or on behalf
of the Board of the Bank;
(iv) any event which would be described in section 11(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Bank" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association or any Participating Company, or any subsidiary of any of them, by
the Holding Company, the Association or any Participating Company, or any
subsidiary of any of them, or by any employee benefit plan maintained by any of
them. For purposes of this section 11 the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, Mr. Byelick shall be
entitled to the payments and benefits contemplated by section 9(b) in the event
of his termination employment with the Bank under any of the circumstances
described in section 9(a) of this Agreement or under any of the following
circumstances:
(i) resignation, voluntary or otherwise, by Mr. Byelick at any
time during the Employment Period and within ninety (90) days following
his demotion, loss of title, office or significant authority or
responsibility, or following any reduction in any element of his
package of compensation and benefits;
(ii) resignation, voluntary or otherwise, by Mr. Byelick at
any time during the Employment Period and within ninety (90) days
following any relocation of his principal place of employment or any
change in working conditions at such principal place of employment
which is embarrassing, derogatory or otherwise materially adverse;
(iii) resignation, voluntary or otherwise, by Mr. Byelick at
any time during the Employment Period following the failure of any
successor to the Bank
Page 10 of 17
<PAGE> 11
in the Change of Control to include Mr. Byelick in any compensation or
benefit program maintained by it or covering any of its executive
officers, unless Mr. Byelick is already covered by a substantially
similar plan of the Bank which is at least as favorable to him; or
(iv) resignation, voluntary or otherwise, for any reason
whatsoever following the expiration of a transition period of thirty
days beginning on the effective date of the Change of Control (or such
longer period, not to exceed ninety (90) days beginning on the
effective date of the Change in Control, as the Bank or its successor
may reasonably request) to facilitate a transfer of management
responsibilities.
SECTION 12. COVENANT NOT TO COMPETE.
Mr. Byelick hereby covenants and agrees that, in the event of
his termination of employment with the Bank prior to the expiration of the
Employment Period, for a period of one (1) year following the date of his
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within one hundred (100) miles of the
headquarters of the Bank on the date of Mr. Byelick's termination of employment;
provided, however, that this section 12 shall not apply if Mr. Byelick's
employment is terminated for the reasons set forth in section 9(a); and
provided, further, that if Mr. Byelick's employment shall be terminated on
account of disability as provided in section 9(d) of this Agreement, this
section 10 shall not prevent Mr. Byelick from accepting any position or
performing any services if (a) he first offers, by written notice, to accept a
similar position with, or perform similar services for, the Bank on
substantially the same terms and conditions and (b) the Bank declines to accept
such offer within ten (10) days after such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, Mr.
Byelick shall keep confidential and shall refrain from using for the benefit of
himself, or any person or entity other than the Bank or any entity which is a
subsidiary of the Bank or of which the Bank is a subsidiary, any material
document or information obtained from the Bank, or from its parent or
subsidiaries, in the course of his employment with any of them concerning their
properties, operations or business (unless such document or information is
readily ascertainable from public or published information or trade sources or
has otherwise been made available to the public through no fault of his own)
until the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 13 shall prevent Mr. Byelick,
with or without the Bank's consent, from participating in or disclosing
documents or information in connection with any judicial or administrative
investigation, inquiry or proceeding to the extent that such participation or
disclosure is required under applicable law.
Page 11 of 17
<PAGE> 12
SECTION 14. SOLICITATION.
Mr. Byelick hereby covenants and agrees that, for a period of
one (1) year following his termination of employment with the Bank, he shall
not, without the written consent of the Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Bank, the Holding Company or any affiliate, as of the date of this
Agreement, of either of them to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Bank, the Holding Company or any
affiliate, as of the date of this Agreement, of either of them;
(b) provide any information, advice or recommendation with
respect to any such officer or employee of any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Bank, the Holding Company or any
affiliate, as of the date of this Agreement, of either of them that is
intended, or that a reasonable person acting in like circumstances
would expect, to have the effect of causing any officer or employee of
the Bank, the Holding Company or any affiliate, as of the date of this
Agreement, of either of them to terminate his or her employment and
accept employment or become affiliated with, or provide services for
compensation in any capacity whatsoever to, any savings bank, savings
and loan association, bank, bank holding company, savings and loan
holding company, or other institution engaged in the business of
accepting deposits and making loans, doing business within one hundred
(100) miles of the headquarters of the Bank, the Holding Company, or
any affiliate, as of the date of this Agreement, of either of them;
(c) solicit, provide any information, advice or recommendation
or take any other action intended, or that a reasonable person acting
in like circumstances would expect, to have the effect of causing any
customer of the Bank to terminate an existing business or commercial
relationship with the Bank.
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Mr. Byelick's employment during the term of
this Agreement or thereafter, whether by the Bank or by Mr. Byelick, shall have
no effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such
Page 12 of 17
<PAGE> 13
other employee benefit plans or programs, or compensation plans or programs, as
may be maintained by, or cover employees of, the Bank from time to time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon Mr. Byelick, his legal representatives and testate or intestate
distributees, and the Bank and its successors and assigns, including any
successor by merger or consolidation or any other person or firm or corporation
to which all or substantially all of the assets and business of the Bank may be
sold or otherwise transferred. Failure of the Bank to obtain from any successor
its express written assumption of the Bank's obligations hereunder at least
sixty (60) days in advance of the scheduled effective date of any such
succession shall be deemed a material breach of this Agreement unless cured
within ten (10) days after notice thereof by Mr. Byelick to the Bank.
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Mr. Byelick:
Mr. Stephen C. Byelick
13 Crest Drive
Tarrytown, New York 10591
If to the Bank:
Tarrytowns Bank, FSB
75 Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
Page 13 of 17
<PAGE> 14
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend Mr. Byelick
against reasonable costs, including legal fees, incurred by him in connection
with or arising out of any action, suit or proceeding in which he may be
involved, as a result of his efforts, in good faith, to defend or enforce the
terms of this Agreement; provided, however, that Mr. Byelick shall have
substantially prevailed on the merits pursuant to a judgment, decree or order of
a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of Mr. Byelick's entitlement
to indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
Page 14 of 17
<PAGE> 15
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
SECTION 25. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to Mr.
Byelick under section 9(b) hereof (exclusive of amounts described in
section 9(b)(i), (viii) and (ix)) exceed the three times Mr. Byelick's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Bank (or for his entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to Mr. Byelick by the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. Section1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if Mr. Byelick is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. Section1818(e)(3) or 1818(g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service of such
notice, unless stayed by appropriate proceedings. If the charges in
such notice are dismissed, the Bank, in its discretion, may (i) pay to
Mr. Byelick all or part of the compensation withheld while the Bank's
obligations hereunder were suspended and (ii) reinstate, in whole or in
part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if Mr. Byelick is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1)
Page 15 of 17
<PAGE> 16
of the FDI Act, 12 U.S.C. Section1818(e)(4) or (g)(1), all prospective
obligations of the Bank under this Agreement shall terminate as of the
effective date of the order, but vested rights and obligations of the
Bank and Mr. Byelick shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of section 3(x)(1) of the
FDI Act, 12 U.S.C. Section1813(x)(1), all prospective obligations of
the Bank under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Bank and Mr. Byelick
shall not be affected.
(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision ("OTS") or his designee or the Federal
Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. Section1823(c); (ii) by the Director of the OTS or his designee
at the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Bank or when the Bank
is determined by such Director to be in an unsafe or unsound condition.
The vested rights and obligations of the parties shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
Page 16 of 17
<PAGE> 17
IN WITNESS WHEREOF, the Bank has caused this Agreement to be
executed and Mr. Byelick has hereunto set his hand, all as of the day and year
first above written.
/s/ Stephen C. Byelick
---------------------------------
STEPHEN C. BYELICK
ATTEST: TARRYTOWNS BANK, FSB
By/s/ Harry G. Murphy
------------------------------
Secretary By/s/ Marvin Levy
-------------------------------
Name: Marvin Levy
Title: Chairman of the Board
[Seal]
[Notary Public
Attestations and Seals]
Page 17 of 17
<PAGE> 1
BANK EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
October 5, 1995 by and between TARRYTOWNS BANK, FSB, a savings bank organized
and operating under the federal laws of the United States and having an office
at 75 Broadway, Tarrytown, New York 10591 ("Bank") and HARRY G. MURPHY, an
individual residing at 40 Summit Avenue, White Plains, New York 10606 ("Mr.
Murphy").
W I T N E S S E T H :
WHEREAS, Mr. Murphy currently serves the Bank in the capacity of Vice
President; and
WHEREAS, effective as of the date of this Agreement, the Bank has
converted from a federal mutual savings bank to a federal stock savings bank and
has become the wholly owned subsidiary of Tappan Zee Financial, Inc., a publicly
held Delaware corporation ("Holding Company"); and
WHEREAS, the Bank desires to assure for itself the continued
availability of Mr. Murphy's services and the ability of Mr. Murphy to perform
such services with a minimum of personal distraction in the event of a pending
or threatened Change of Control (as hereinafter defined); and
WHEREAS, Mr. Murphy is willing to continue to serve the Bank on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions hereinafter set forth, the Bank and Mr. Murphy hereby
agree as follows:
SECTION 1. EMPLOYMENT.
The Bank agrees to continue to employ Mr. Murphy, and Mr. Murphy hereby
agrees to such continued employment, during the period and upon the terms and
conditions set forth in this Agreement.
SECTION 2. EMPLOYMENT PERIOD; REMAINING UNEXPIRED EMPLOYMENT PERIOD.
(a) The terms and conditions of this Agreement shall be and remain in
effect during the period of employment established under this section 2
("Employment Period"). The Employment Period shall be for an initial term of
three years beginning on the date of this Agreement. Prior to the first
anniversary of the date of this Agreement and on each anniversary date
thereafter (each, an "Anniversary Date"), the Board of Directors of the Bank
("Board") shall review the terms of this Agreement and Mr. Murphy's performance
of services hereunder
Page 1 of 17
<PAGE> 2
and may, in the absence of objection from Mr. Murphy, approve an extension of
the Employment Agreement. In such event, the Employment Agreement shall be
extended to the third anniversary of the relevant Anniversary Date.
(b) For all purposes of this Agreement, the term "Remaining Unexpired
Employment Period" as of any date shall mean the period beginning on such date
and ending on the Anniversary Date on which the Employment Period (as extended
pursuant to section 2(a) of this Agreement) is then scheduled to expire.
(c) Nothing in this Agreement shall be deemed to prohibit the Bank at
any time from terminating Mr. Murphy's employment during the Employment Period
with or without notice for any reason; provided, however, that the relative
rights and obligations of the Bank and Mr. Murphy in the event of any such
termination shall be determined under this Agreement.
SECTION 3. DUTIES.
Mr. Murphy shall serve as Vice President of the Bank, having such
power, authority and responsibility and performing such duties as are prescribed
by or under the ByLaws of the Bank and as are customarily associated with such
position. Mr. Murphy shall devote his full business time and attention (other
than during weekends, holidays, approved vacation periods, and periods of
illness or approved leave of absence) to the business and affairs of the Bank
and shall use his best efforts to advance the interests of the Bank.
SECTION 4. CASH COMPENSATION.
In consideration for the services to be rendered by Mr. Murphy
hereunder, the Bank shall pay to him a salary at an initial annual rate of
NINETY-FOUR THOUSAND DOLLARS ($94,000), payable in approximately equal
installments in accordance with the Bank's customary payroll practices for
senior officers. Prior to each Anniversary Date occurring during the Employment
Period, the Board shall review Mr. Murphy's annual rate of salary and may, in
its discretion, approve an increase therein. In addition to salary, Mr. Murphy
may receive other cash compensation from the Bank for services hereunder at such
times, in such amounts and on such terms and conditions as the Board may
determine from time to time.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
During the Employment Period, Mr. Murphy shall be treated as an
employee of the Bank and shall be eligible to participate in and receive
benefits under any and all qualified or non-qualified retirement, pension,
savings, profit-sharing or stock bonus plans, any and all group life, health
(including hospitalization, medical and major medical), dental, accident and
long term disability insurance plans, and any other employee benefit and
compensation plans (including, but not limited to, any incentive compensation
plans or programs, stock option and appreciation rights plans and restricted
stock plans) as may from time to time be maintained by, or cover employees of,
the Bank, in accordance with the terms and conditions of such employee
Page 2 of 17
<PAGE> 3
benefit plans and programs and compensation plans and programs and consistent
with the Bank's customary practices.
SECTION 6. INDEMNIFICATION AND INSURANCE.
(a) During the Employment Period and for a period of six (6) years
thereafter, the Bank shall cause Mr. Murphy to be covered by and named as an
insured under any policy or contract of insurance obtained by it to insure its
directors and officers against personal liability for acts or omissions in
connection with service as an officer or director of the Bank or service in
other capacities at the request of the Bank. The coverage provided to Mr. Murphy
pursuant to this section 6 shall be of the same scope and on the same terms and
conditions as the coverage (if any) provided to other officers or directors of
the Bank.
(b) To the maximum extent permitted under applicable law, during the
Employment Period and for a period six (6) years thereafter, the Bank shall
indemnify, and shall cause its subsidiaries and affiliates to indemnify Mr.
Murphy against and hold him harmless from any costs, liabilities, losses and
exposures to the fullest extent and on the most favorable terms and conditions
that similar indemnification is offered to any director or officer of the Bank
or any subsidiary or affiliate thereof. This section 6(b) shall not be
applicable where section 18 is applicable.
SECTION 7. OUTSIDE ACTIVITIES.
Mr. Murphy may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld); provided, however, that such service shall not materially interfere
with the performance of his duties under this Agreement. Mr. Murphy may also
engage in personal business and investment activities which do not materially
interfere with the performance of his duties hereunder; provided, however, that
such activities are not prohibited under any code of conduct or investment or
securities trading policy established by the Bank and generally applicable to
all similarly executives. Mr. Murphy may also serve as an officer or director of
the Holding Company on terms and conditions as the Bank and the Holding Company
may mutually agree upon, and such service shall not be deemed to materially
interfere with Mr. Murphy's performance of his duties hereunder or otherwise to
result in a material breach of this Agreement.
SECTION 8. WORKING FACILITIES AND EXPENSES.
Mr. Murphy's principal place of employment shall be at the Bank's
executive offices at the address first above written, or at such other location
within Westchester County at which the Bank shall maintain its principal
executive offices, or at such other location as the Bank and Mr. Murphy may
mutually agree upon. The Bank shall provide Mr. Murphy at his principal place of
employment with a private office, secretarial services and other support
services and facilities suitable to his position with the Bank and necessary or
appropriate in connection with the performance of his assigned duties under this
Agreement. The Bank shall provide to Mr. Murphy for his exclusive use an
automobile owned or leased by the Bank and appropriate
Page 3 of 17
<PAGE> 4
to his position, to be used in the performance of his duties hereunder,
including commuting to and from his personal residence. The Bank shall reimburse
Mr. Murphy for his ordinary and necessary business expenses, including, without
limitation, all expenses associated with his business use of the aforementioned
automobile, fees for memberships in such clubs and organizations as Mr. Murphy
and the Bank shall mutually agree are necessary and appropriate for business
purposes, and his travel and entertainment expenses incurred in connection with
the performance of his duties under this Agreement, in each case upon
presentation to the Bank of an itemized account of such expenses in such form as
the Bank may reasonably require.
SECTION 9. TERMINATION OF EMPLOYMENT WITH SEVERANCE BENEFITS.
(a) Mr. Murphy's shall be entitled to the severance benefits described
herein in the event that his employment with the Bank terminates during the
Employment Period under any of the following circumstances:
(i) Mr. Murphy's voluntary resignation from employment with the Bank
within ninety (90) days following:
(A) the failure of the Board to appoint or re-appoint or elect or
re-elect Mr. Murphy to the office of Vice President (or a more senior
office) of the Bank;
(B) the failure of the stockholders of the Bank to elect or
re-elect Mr. Murphy or the failure of the Board (or the nominating
committee thereof) to nominate Murphy for such election or re-election;
(C) the expiration of a thirty (30) day period following the date
on which Mr. Murphy gives written notice to the Bank of its material
failure, whether by amendment of the Bank's Organization Certificate or
By-laws, action of the Board or the Bank's stockholders or otherwise,
to vest in Mr. Murphy the functions, duties, or responsibilities
prescribed in section 3 of this Agreement, unless, during such thirty
(30) day period, the Bank fully cures such failure;
(D) the expiration of a thirty (30) day period following the date
on which Mr. Murphy gives written notice to the Bank of its material
breach of any term, condition or covenant contained in this Agreement
(including, without limitation any reduction of Mr. Murphy's rate of
base salary in effect from time to time and any change in the terms and
conditions of any compensation or benefit program in which Mr. Murphy
participates which, alone together with other changes, has a material
adverse effect on the aggregate value of his total compensation
package), unless, during such thirty (30) day period, the Bank fully
cures such failure; or
(ii) the termination of Mr. Murphy's employment with the Bank for any
other reason not described in section 10(a);
then, subject to section 25, the Bank shall provide the benefits and pay to Mr.
Murphy the amounts described in section 9(b).
Page 4 of 17
<PAGE> 5
(b) Upon the termination of Mr. Murphy's employment with the Bank
under circumstances described in section 9(a) of this Agreement, the Bank shall
pay and provide to Mr. Murphy (or, in the event of his death, to his estate):
(i) his earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the New
York Labor Law and the payment of which is not otherwise provided for under
this section 9(b)) as of the date of the termination of his employment with
the Bank, such payment to be made at the time and in the manner prescribed
by law applicable to the payment of wages but in no event later than thirty
(30) days after termination of employment;
(ii) the benefits, if any, to which he is entitled as a former
employee under the employee benefit plans and programs and compensation
plans and programs maintained for the benefit of the Bank's officers and
employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to section 9(b)(ii), and
after taking into account the coverage provided by any subsequent employer,
if and to the extent necessary to provide for Mr. Murphy, for the Remaining
Unexpired Employment Period, coverage equivalent to the coverage to which
he would have been entitled under such plans (as in effect on the date of
his termination of employment, or, if his termination of employment occurs
after a Change of Control, on the date of such Change of Control, whichever
benefits are greater) if he had continued working for the Bank during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period which is
prior to Mr. Murphy's termination of employment with the Bank;
(iv) within thirty (30) days following his termination of employment
with the Bank, a lump sum payment, in an amount equal to the present value
of the salary that Mr. Murphy would have earned if he had continued working
for the Bank during the Remaining Unexpired Employment Period at the
highest annual rate of salary achieved during that portion of the
Employment Period which is prior to Mr. Murphy's termination of employment
with the Bank, where such present value is to be determined using a
discount rate equal to the applicable short-term federal rate prescribed
under section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding period corresponding to the Bank's regular
payroll periods for its officers, such lump sum to be paid in lieu of all
other payments of salary provided for under this Agreement in respect of
the period following any such termination;
(v) within thirty (30) days following his termination of employment
with the Bank, a lump sum payment in an amount equal to the excess, if any,
of:
(A) the present value of the aggregate benefits to which he would
be entitled under any and all qualified and non-qualified defined
benefit pension plans maintained by, or covering employees of, the
Bank)
Page 5 of 17
<PAGE> 6
if he were 100% vested thereunder and had continued working for the
Bank during the Remaining Unexpired Employment Period (such benefits to
be determined as of the date of termination of employment by adding to
the service actually recognized under such plans an additional period
equal to the Remaining Unexpired Employment Period and by adding to the
compensation recognized under such plans for the year in which
termination of employment occurs all amounts payable under sections
9(b)(i), (iv), (vii), (viii) and (ix); over
(B) the present value of the benefits to which he is actually
entitled under such defined benefit pension plans as of the date of his
termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly, equal to the annualized rate of interest prescribed by
the Pension Benefits Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit plans
for the month in which Mr. Murphy's termination of employment occurs
("Applicable PBGC Rate").
(vi) within thirty (30) days following his termination of employment
with the Bank, a lump sum payment in an amount equal to the present value
of the additional employer contributions to which he would have been
entitled under any and all qualified and non-qualified defined contribution
plans maintained by, or covering employees of, the Bank, if he were 100%
vested thereunder and had continued working for the Bank during the
Remaining Unexpired Employment Period at the highest annual rate of
compensation achieved during that portion of the Employment Period which is
prior to Mr. Murphy's termination of employment with the Bank, and making
the maximum amount of employee contributions, if any, required under such
plan or plans, such present value to be determined on the basis of a
discount rate, compounded using the compounding period that corresponds to
the frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate;
(vii) the payments that would have been made to Mr. Murphy under any
cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Bank if he had continued
working for the Bank during the Remaining Unexpired Employment Period and
had earned the maximum bonus or incentive award in each calendar year that
ends during the Remaining Unexpired Employment Period, such payments to be
equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to Mr. Murphy under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to Mr. Murphy during
each such calendar year at the highest annual rate of salary achieved
Page 6 of 17
<PAGE> 7
during that portion of the Employment Period which is prior to Mr.
Murphy's termination of employment with the Bank:
such payments to be made (without discounting for early payment) within
thirty (30) days following Mr. Murphy's termination of employment;
(viii) at the election of the Bank made within thirty (30) days
following his termination of employment with the Bank, upon the surrender
of options or appreciation rights issued to Mr. Murphy under any stock
option and appreciation rights plan or program maintained by, or covering
employees of, the Bank, a lump sum payment in an amount equal to the
product of:
(A) the excess of (I) the fair market value of a share of stock
of the same class as the stock subject to the option or appreciation
right, determined as of the date of termination of employment, over
(II) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 9(b)(viii) and for purposes of determining Mr.
Murphy's right following his termination of employment with the Bank to
exercise any options or appreciation rights not surrendered pursuant
hereto, Mr. Murphy shall be deemed fully vested in all options and
appreciation rights under any stock option or appreciation rights plan or
program maintained by, or covering employees of, the Bank, even if he is
not vested under such plan or program;
(ix) at the election of the Bank made within thirty (30) days
following Mr. Murphy's termination of employment with the Bank, upon the
surrender of any shares awarded to Mr. Murphy under any restricted stock
plan maintained by, or covering employees of, the Bank, a lump sum payment
in an amount equal to the product of:
(A) the fair market value of a share of stock of the same class
of stock granted under such plan, determined as of the date of Mr.
Murphy's termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 9(b)(ix) and for purposes of determining Mr.
Murphy's right following his termination of employment with the Bank to any
stock not surrendered pursuant hereto, Mr. Murphy shall be deemed fully
vested in all shares awarded under any restricted stock plan maintained by,
or covering employees of, the Bank, even if he is not vested under such
plan.
Page 7 of 17
<PAGE> 8
The Bank and Mr. Murphy hereby stipulate that the damages which may be incurred
by Mr. Murphy following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 9(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to Mr. Murphy's efforts, if any, to mitigate
damages. The Bank and Mr. Murphy further agree that the Bank may condition the
payments and benefits (if any) due under sections 9(b)(iii), (iv), (v), (vi) and
(vi) on the receipt of Mr. Murphy's resignation from any and all positions which
he holds as an officer, director or committee member with respect to the Bank,
the Holding Company or any subsidiary or affiliate of either of them.
SECTION 10. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that Mr. Murphy's employment with the Bank shall terminate
during the Employment Period on account of:
(a) the discharge of Mr. Murphy for "cause," which, for purposes of
this Agreement shall mean 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, or any material breach of this Agreement, in each
case as measured against standards generally prevailing at the relevant
time in the savings and community banking industry; provided, however, that
Mr. Murphy shall not be deemed to have been discharged for cause unless and
until he shall have received a written notice of termination from the
Board, accompanied by a resolution duly adopted by affirmative vote of a
majority of the entire Board at a meeting called and held for such purpose
(after reasonable notice to Mr. Murphy and a reasonable opportunity for Mr.
Murphy to make oral and written presentations to the members of the Board,
on his own behalf, or through a representative, who may be his legal
counsel, to refute the grounds for the proposed determination) finding that
in the good faith opinion of the Board grounds exist for discharging Mr.
Murphy for cause; or
(b) Mr. Murphy's voluntary resignation from employment with the Bank
for reasons other than those specified in section 9(a)(i);
(c) Mr. Murphy's death; or
(d) a determination that Mr. Murphy is eligible for long-term
disability benefits under the Bank's long-term disability insurance program
or, if there is no such program, under the federal Social Security Act;
then the Bank shall have no further obligations under this Agreement, other
than the payment to Mr. Murphy (or, in the event of his death, to his
estate) of his earned but unpaid salary as of the date of the termination
of his employment, and the provision of such other benefits, if any, to
which he is entitled as a former
Page 8 of 17
<PAGE> 9
employee under the employee benefit plans and programs and compensation
plans and programs maintained by, or covering employees of, the Bank.
SECTION 11. TERMINATION UPON OR FOLLOWING A CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the stockholders of the Bank of a transaction that
would result in the reorganization, merger or consolidation of the Bank,
respectively, with one or more other persons, other than a transaction
following which:
(A) at least 51% of the equity ownership interests of the entity
resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who, immediately
prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Bank; and
(B) at least 51% of the securities entitled to vote generally in
the election of directors of the entity resulting from such transaction
are beneficially owned (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction, beneficially
owned (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) at least 51% of the securities entitled to vote generally in the
election of directors of the Bank;
(ii) the acquisition of all or substantially all of the assets of the
Bank or beneficial ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the outstanding securities of the
Bank entitled to vote generally in the election of directors by any person
or by any persons acting in concert, or approval by the stockholders of the
Bank of any transaction which would result in such an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or approval by
the stockholders of the Bank of a plan for such liquidation or dissolution;
or
(iv) the occurrence of any event if, immediately following such event,
at least 50% of the members of the board of directors of the Bank do not
belong to any of the following groups:
(A) individuals who were members of the Board of the Bank on the
date of this Agreement; or
Page 9 of 17
<PAGE> 10
(B) individuals who first became members of the Board of the Bank
after the date of this Agreement either:
(I) upon election to serve as a member of the Board of
directors of the Bank by affirmative vote of three-quarters of
the members of such board, or of a nominating committee thereof,
in office at the time of such first election; or
(II) upon election by the stockholders of the Board to serve
as a member of the board of directors of the Board, but only if
nominated for election by affirmative vote of three-quarters of
the members of the board of directors of the Board, or of a
nominating committee thereof, in office at the time of such first
nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the Bank;
(iv) any event which would be described in section 11(a)(i), (ii),
(iii) or (iv) if the term "Holding Company" were substituted for the term
"Bank" therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of the Holding Company, the
Association or any Participating Company, or any subsidiary of any of them, by
the Holding Company, the Association or any Participating Company, or any
subsidiary of any of them, or by any employee benefit plan maintained by any of
them. For purposes of this section 11 the term "person" shall have the meaning
assigned to it under sections 13(d)(3) or 14(d)(2) of the Exchange Act.
(b) In the event of a Change of Control, Mr. Murphy shall be entitled
to the payments and benefits contemplated by section 9(b) in the event of his
termination employment with the Bank under any of the circumstances described in
section 9(a) of this Agreement or under any of the following circumstances:
(i) resignation, voluntary or otherwise, by Mr. Murphy at any time
during the Employment Period and within ninety (90) days following his
demotion, loss of title, office or significant authority or responsibility,
or following any reduction in any element of his package of compensation
and benefits;
(ii) resignation, voluntary or otherwise, by Mr. Murphy at any time
during the Employment Period and within ninety (90) days following any
relocation of his principal place of employment or any change in working
Page 10 of 17
<PAGE> 11
conditions at such principal place of employment which is embarrassing,
derogatory or otherwise materially adverse;
(iii) resignation, voluntary or otherwise, by Mr. Murphy at any time
during the Employment Period following the failure of any successor to the
Bank in the Change of Control to include Mr. Murphy in any compensation or
benefit program maintained by it or covering any of its executive officers,
unless Mr. Murphy is already covered by a substantially similar plan of the
Bank which is at least as favorable to him; or
(iv) resignation, voluntary or otherwise, for any reason whatsoever
following the expiration of a transition period of thirty days beginning on
the effective date of the Change of Control (or such longer period, not to
exceed ninety (90) days beginning on the effective date of the Change in
Control, as the Bank or its successor may reasonably request) to facilitate
a transfer of management responsibilities.
SECTION 12. COVENANT NOT TO COMPETE.
Mr. Murphy hereby covenants and agrees that, in the event of his
termination of employment with the Bank prior to the expiration of the
Employment Period, for a period of one (1) year following the date of his
termination of employment with the Bank (or, if less, for the Remaining
Unexpired Employment Period), he shall not, without the written consent of the
Bank, become an officer, employee, consultant, director or trustee of any
savings bank, savings and loan association, savings and loan holding company,
bank or bank holding company, or any direct or indirect subsidiary or affiliate
of any such entity, that entails working within one hundred (100) miles of the
headquarters of the Bank on the date of Mr. Murphy's termination of employment;
provided, however, that this section 12 shall not apply if Mr. Murphy's
employment is terminated for the reasons set forth in section 9(a); and
provided, further, that if Mr. Murphy's employment shall be terminated on
account of disability as provided in section 9(d) of this Agreement, this
section 10 shall not prevent Mr. Murphy from accepting any position or
performing any services if (a) he first offers, by written notice, to accept a
similar position with, or perform similar services for, the Bank on
substantially the same terms and conditions and (b) the Bank declines to accept
such offer within ten (10) days after such notice is given.
SECTION 13. CONFIDENTIALITY.
Unless he obtains the prior written consent of the Bank, Mr. Murphy
shall keep confidential and shall refrain from using for the benefit of himself,
or any person or entity other than the Bank or any entity which is a subsidiary
of the Bank or of which the Bank is a subsidiary, any material document or
information obtained from the Bank, or from its parent or subsidiaries, in the
course of his employment with any of them concerning their properties,
operations or business (unless such document or information is readily
ascertainable from public or published information or trade sources or has
otherwise been made available to the public through no fault of his own) until
the same ceases to be material (or becomes so ascertainable or available);
provided, however, that nothing in this section 13 shall prevent Mr. Murphy,
with
Page 11 of 17
<PAGE> 12
or without the Bank's consent, from participating in or disclosing documents or
information in connection with any judicial or administrative investigation,
inquiry or proceeding to the extent that such participation or disclosure is
required under applicable law.
SECTION 14. SOLICITATION.
Mr. Murphy hereby covenants and agrees that, for a period of one (1)
year following his termination of employment with the Bank, he shall not,
without the written consent of the Bank, either directly or indirectly:
(a) solicit, offer employment to, or take any other action intended, or
that a reasonable person acting in like circumstances would expect, to have
the effect of causing any officer or employee of the Bank, the Holding
Company or any affiliate, as of the date of this Agreement, of either of
them to terminate his or her employment and accept employment or become
affiliated with, or provide services for compensation in any capacity
whatsoever to, any savings bank, savings and loan association, bank, bank
holding company, savings and loan holding company, or other institution
engaged in the business of accepting deposits and making loans, doing
business within one hundred (100) miles of the headquarters of the Bank,
the Holding Company or any affiliate, as of the date of this Agreement, of
either of them;
(b) provide any information, advice or recommendation with respect to
any such officer or employee of any savings bank, savings and loan
association, bank, bank holding company, savings and loan holding company,
or other institution engaged in the business of accepting deposits and
making loans, doing business within one hundred (100) miles of the
headquarters of the Bank, the Holding Company or any affiliate, as of the
date of this Agreement, of either of them that is intended, or that a
reasonable person acting in like circumstances would expect, to have the
effect of causing any officer or employee of the Bank, the Holding Company
or any affiliate, as of the date of this Agreement, of either of them to
terminate his or her employment and accept employment or become affiliated
with, or provide services for compensation in any capacity whatsoever to,
any savings bank, savings and loan association, bank, bank holding company,
savings and loan holding company, or other institution engaged in the
business of accepting deposits and making loans, doing business within one
hundred (100) miles of the headquarters of the Bank, the Holding Company,
or any affiliate, as of the date of this Agreement, of either of them;
(c) solicit, provide any information, advice or recommendation or take
any other action intended, or that a reasonable person acting in like
circumstances would expect, to have the effect of causing any customer of
the Bank to terminate an existing business or commercial relationship with
the Bank.
Page 12 of 17
<PAGE> 13
SECTION 15. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of Mr. Murphy's employment during the term of this
Agreement or thereafter, whether by the Bank or by Mr. Murphy, shall have no
effect on the rights and obligations of the parties hereto under the Bank's
qualified or non-qualified retirement, pension, savings, thrift, profit-sharing
or stock bonus plans, group life, health (including hospitalization, medical and
major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or
programs, as may be maintained by, or cover employees of, the Bank from time to
time.
SECTION 16. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon Mr.
Murphy, his legal representatives and testate or intestate distributees, and the
Bank and its successors and assigns, including any successor by merger or
consolidation or any other person or firm or corporation to which all or
substantially all of the assets and business of the Bank may be sold or
otherwise transferred. Failure of the Bank to obtain from any successor its
express written assumption of the Bank's obligations hereunder at least sixty
(60) days in advance of the scheduled effective date of any such succession
shall be deemed a material breach of this Agreement unless cured within ten (10)
days after notice thereof by Mr. Murphy to the Bank.
SECTION 17. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to Mr. Murphy:
Mr. Harry G. Murphy
40 Summit Avenue
White Plains, New York 10606
Page 13 of 17
<PAGE> 14
If to the Bank:
Tarrytowns Bank, FSB
75 Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 18. INDEMNIFICATION FOR ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend Mr. Murphy against
reasonable costs, including legal fees, incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved, as a
result of his efforts, in good faith, to defend or enforce the terms of this
Agreement; provided, however, that Mr. Murphy shall have substantially prevailed
on the merits pursuant to a judgment, decree or order of a court of competent
jurisdiction or of an arbitrator in an arbitration proceeding, or in a
settlement. For purposes of this Agreement, any settlement agreement which
provides for payment of any amounts in settlement of the Bank's obligations
hereunder shall be conclusive evidence of Mr. Murphy's entitlement to
indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
SECTION 19. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 20. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
Page 14 of 17
<PAGE> 15
SECTION 21. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 22. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States and, to the extent that
federal law is inapplicable, in accordance with the laws of the State of New
York applicable to contracts entered into and to be performed entirely within
the State of New York.
SECTION 23. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
SECTION 24. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 25. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of complying
with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to Mr. Murphy
under section 9(b) hereof (exclusive of amounts described in section
9(b)(i), (viii) and (ix)) exceed the three times Mr. Murphy's average
annual total compensation for the last five consecutive calendar years to
end prior to his termination of employment with the Bank (or for his entire
period of employment with the Bank if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary, any
payments to Mr. Murphy by the Bank, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with
section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C.
Section1828(k), and any regulations promulgated thereunder.
Page 15 of 17
<PAGE> 16
(c) Notwithstanding anything herein contained to the contrary, if Mr.
Murphy is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank pursuant to a
notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section1818(e)(3) or 1818(g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service of such notice,
unless stayed by appropriate proceedings. If the charges in such notice are
dismissed, the Bank, in its discretion, may (i) pay to Mr. Murphy all or
part of the compensation withheld while the Bank's obligations hereunder
were suspended and (ii) reinstate, in whole or in part, any of the
obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary, if Mr.
Murphy is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under section 8(e)(4) or
8(g)(1) of the FDI Act, 12 U.S.C. Section1818(e)(4) or (g)(1), all
prospective obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights and obligations of
the Bank and Mr. Murphy shall not be affected.
(e) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act,
12 U.S.C. Section1813(x)(1), all prospective obligations of the Bank under
this Agreement shall terminate as of the date of default, but vested rights
and obligations of the Bank and Mr. Murphy shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, all
prospective obligations of the Bank hereunder shall be terminated, except
to the extent that a continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of
Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority
contained in section 13(c) of the FDI Act, 12 U.S.C. Section1823(c); (ii)
by the Director of the OTS or his designee at the time such Director or
designee approves a supervisory merger to resolve problems related to the
operation of the Bank or when the Bank is determined by such Director to be
in an unsafe or unsound condition. The vested rights and obligations of the
parties shall not be affected.
If and to the extent that any of the foregoing provisions shall cease to be
required or by applicable law, rule or regulation, the same shall become
inoperative as though eliminated by formal amendment of this Agreement.
Page 16 of 17
<PAGE> 17
IN WITNESS WHEREOF, the Bank has caused this Agreement to be executed
and Mr. Murphy has hereunto set his hand, all as of the day and year first above
written.
/s/ Harry G. Murphy
----------------------------------
HARRY G. MURPHY
ATTEST: TARRYTOWNS BANK, FSB
By /s/ Harry G. Murphy
---------------------------
Secretary By /s/ Marvin Levy
-------------------------------
Name: Marvin Levy
Title: Chairman of the Board
[Seal]
[Notary Public
Attestations and Seal]
Page 17 of 17
<PAGE> 1
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and entered
into as of the 5th day of October, 1995, by and among TARRYTOWNS BANK, FSB, a
savings bank organized and operating under the federal laws of the United States
and having its executive offices at 75 North Broadway, Tarrytown, New York
10591-0187 ("Bank"); TAPPAN ZEE FINANCIAL, INC., a business corporation
organized and existing under the laws of the State of Delaware and also having
its executive offices at 75 Broadway, Tarrytown, New York 10591-0187 ("Holding
Company"); and Robert Brennen, an individual residing at 19 South Broadway,
Apartment 4-F, Tarrytown, New York 10591 ("Officer").
W I T N E S S E T H :
WHEREAS, effective as of the date of this Agreement, the Bank has
converted from a federal mutual savings bank to a federal stock savings bank and
has become a wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Bank desires to secure for itself the continued
availability of the Officer's services; and
WHEREAS, the Bank recognizes that a third party may at some time in the
future pursue a Change of Control of the Bank or the Holding Company and that
this possibility may result in the departure or distraction of the Bank's
officers; and
WHEREAS, the Bank has determined that appropriate steps should be taken
to encourage the continued attention and dedication of the Bank's officers,
including the Officer, to their duties for the Bank without the distraction that
may arise from the possibility of a Change of Control of the Bank or the Holding
Company; and
WHEREAS, the Bank believes that, by assuring certain officers,
including the Officer, of reasonable financial security in the event of a Change
of Control of the Bank or the Holding Company, such officers will be in a
position to perform their duties free from financial self interest and in the
best interests of the Bank and its shareholders; and
WHEREAS, for purposes of securing the Officer's services for the Bank,
the Board of Directors of the Bank ("Board") has authorized the proper officers
of the Bank to enter into an employee retention agreement with the Officer on
the terms and conditions set forth herein; and
WHEREAS, the Board of Directors of the Holding Company has authorized
the Holding Company to guarantee the Bank's obligations under such an employee
retention agreement; and
WHEREAS, the Officer is willing to make the Officer's services
available to the Bank on the terms and conditions set forth herein;
<PAGE> 2
-2-
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Bank, the Holding Company
and the Officer hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first above
written and shall remain in effect during the term of this Agreement which shall
be for a period of three (3) years commencing on the date of this Agreement,
plus such extensions as are provided pursuant to section 1(b); provided,
however, that if the term of this Agreement has not otherwise terminated, the
term of this Agreement will terminate on the date of the Officer's termination
of employment with the Bank; and provided, further, that the obligations under
section 8 of this Agreement shall survive the term of this Agreement if payments
become due hereunder.
(b) Prior to each anniversary date of this Agreement, the Board shall
consider the advisability of an extension of the term in light of the
circumstances then prevailing and may, in its discretion, approve an extension
to take effect as of the upcoming anniversary date. If an extension is approved,
the term of this Agreement shall be extended so that it will expire three (3)
years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary: (i) the
Officer's employment with the Bank may be terminated at any time, subject to the
terms and conditions of this Agreement; and (ii) nothing in this Agreement shall
mandate or prohibit a continuation of the Officer's employment following the
expiration of the Assurance Period upon such terms and conditions as the Bank
and the Officer may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a period
commencing on the date of a Change of Control, as defined in section 10 of this
Agreement, and ending on the second (2nd) anniversary of the date on which the
Assurance Period commences, plus such extensions as are provided pursuant to the
following sentence. The Assurance Period shall be automatically extended for one
(1) additional day each day, unless either the Bank or the Officer elects not to
extend the Assurance Period further by giving written notice to the other party,
in which case the Assurance Period shall become fixed and shall end on the
second (2nd) anniversary of the date on which such written notice is given;
provided, however, that if following a Change of Control, the Office of Thrift
Supervision (or its successor) is the Bank's primary federal regulator, the
Agreement shall be subject to extension not more frequently than annually and
only upon review and approval of the Board.
(b) Upon termination of the Officer's employment with the Bank, any
daily extensions provided pursuant to the preceding sentence, if not theretofore
discontinued, shall cease and the remaining unexpired Assurance Period under
this Agreement shall be a fixed period ending on the later of the second (2nd)
anniversary of the date of the Change of Control, as defined in section 10 of
this Agreement, or the second anniversary of the date on which the daily
extensions were discontinued.
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SECTION 3. DUTIES.
During the period of the Officer's employment that falls within the
Assurance Period, the Officer shall: (a) except to the extent allowed under
section 6 of this Agreement, devote his full business time and attention (other
than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his best efforts to advance the Bank's interests; (b) serve in the
position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he may
subsequently be appointed; and (c) subject to the direction of the Board and the
By-laws of the Bank, have such functions, duties, responsibilities and authority
commonly associated with such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Officer during the
Assurance Period, the Bank shall pay to the Officer during the Assurance Period
a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Officer on the day
before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under the
authority of the Board;
provided, however, that in no event shall the Officer's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Officer's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in approximately equal installments in accordance with the
Bank's customary payroll practices. Nothing in this section 4 shall be deemed to
prevent the Officer from receiving additional compensation other than salary for
his services to the Bank, or additional compensation for his services to the
Holding Company, upon such terms and conditions as may be prescribed by or under
the authority of the Board or the Board of Directors of the Holding Company.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Officer shall,
during the Assurance Period, be treated as an employee of the Bank and be
eligible to participate in and receive benefits under The Tarrytown and North
Tarrytown Savings and Loan Association Retirement Income Plan ("Retirement
Plan"), group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans, and such
other employee benefit plans and programs, including, but not limited to, any
incentive compensation plans or programs (whether or not employee benefit plans
or programs), any stock option and appreciation rights plan, employee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Bank, in accordance with the
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terms and conditions of such employee benefit plans and programs and
compensation plans and programs and with the Bank's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Officer may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; provided, however, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Officer's principal place of
employment shall be at the Bank's executive offices at the address first above
written, or at such other location within Westchester County at which the Bank
shall maintain its principal executive offices, or at such other location as the
Bank and the Officer may mutually agree upon. The Bank shall provide the
Officer, at his principal place of employment, with a private office,
stenographic services and other support services and facilities suitable to his
position with the Bank and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Bank shall
reimburse the Officer for his ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the performance of the Officer's duties under this
Agreement, upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH BANK LIABILITY.
(a) In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period, or prior to the commencement of the
Assurance Period but within three (3) months of and in connection with a Change
of Control as defined in section 10 of this Agreement on account of:
(i) The Officer's voluntary resignation from employment with the Bank
within ninety (90) days following:
(A) the failure of the Bank's Board to appoint or re-appoint or
elect or re-elect the Officer to serve in the same position in which
the Officer was serving, on the day before the Assurance Period
commenced or a more senior office;
(B) the failure of the stockholders of the Holding Company to elect
or re-elect the Officer as a member of the Board, if he was a member of
the Board on the day before the Assurance Period commenced;
<PAGE> 5
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(C) the expiration of a thirty (30) day period following the date
on which the Officer gives written notice to the Bank of its material
failure, whether by amendment of the Bank's Organization Certificate or
By-laws, action of the Board or the Holding Company's stockholders or
otherwise, to vest in the Officer the functions, duties, or
responsibilities vested in the Officer on the day before the Assurance
Period commenced (or the functions, duties and responsibilities of a
more senior office to which the Officer may be appointed), unless
during such thirty (30) day period, the Bank fully cures such failure;
(D) the failure of the Bank to cure a material breach of this
Agreement by the Bank, within thirty (30) days following written notice
from the Officer of such material breach;
(E) a reduction in the compensation provided to the Officer, or a
material reduction in the benefits provided to the Officer under the
Bank's program of employee benefits, compared with the compensation and
benefits that were provided to the Officer on the day before the
Assurance Period commenced;
(F) a change in the Officer's principal place of employment that
would result in a one-way commuting time in excess of the greater of
(I) 30 minutes or (II) the Officer's commuting time immediately prior
to such change; or
(ii) the discharge of the Officer by the Bank for any reason other than
for "cause" as provided in section 9(a);
then, subject to section 21, the Bank shall provide the benefits and pay to the
Officer the amounts provided for under section 8(b) of this Agreement; provided,
however, that if benefits or payments become due hereunder as a result of the
Officer's termination of employment prior to the commencement of the Assurance
Period, the benefits and payments provided for under section 8(b) of this
Agreement shall be determined as though the Officer had remained in the service
of the Bank (upon the terms and conditions in effect at the time of his actual
termination of service) and had not terminated employment with the Bank until
the date on which the Officer's Assurance Period would have commenced.
(b) Upon the termination of the Officer's employment with the Bank
under circumstances described in section 8(a) of this Agreement, the Bank shall
pay and provide to the Officer (or, in the event of the Officer's death, to the
Officer's estate):
(i) the Officer's earned but unpaid compensation (including,
without limitation, all items which constitute wages under section
190.1 of the New York Labor Law and the payment of which is not
otherwise provided for under this section 8(b)) as of the date of the
termination of the Officer's employment with the Bank, such payment to
be made at the time and in the manner prescribed by
<PAGE> 6
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law applicable to the payment of wages but in no event later than
thirty (30) days after termination of employment;
(ii) the benefits, if any, to which the Officer is entitled as a
former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Officer, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Officer would have been
entitled under such plans (as in effect on the date of his termination
of employment, or, if his termination of employment occurs after a
Change of Control, on the date of such Change of Control, whichever
benefits are greater) if the Officer had continued working for the Bank
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Officer's period of actual
employment with the Bank;
(iv) within thirty (30) days following the Officer's termination
of employment with the Bank, a lump sum payment, in an amount equal to
the present value of the salary that the Officer would have earned if
the Officer had continued working for the Bank during the remaining
unexpired Assurance Period at the highest annual rate of salary
achieved during the Officer's period of actual employment with the
Bank, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding periods corresponding to the Bank's
regular payroll periods for its officers, such lump sum to be paid in
lieu of all other payments of salary provided for under this Agreement
in respect of the period following any such termination;
(v) within thirty (30) days following the Officer's termination
of employment with the Bank, a lump sum payment in an amount equal to
the excess, if any, of:
(A) the present value of the aggregate benefits to which the
Officer would be entitled under any and all qualified and
non-qualified defined benefit pension plans maintained by, or
covering employees of, the Bank if the Officer were 100% vested
thereunder and had continued working for the Bank during the
remaining unexpired Assurance Period such benefits to be
determined as of the date of termination of employment by adding
to the service actually recognized under such plans an additional
period equal to the remaining unexpired Assurance Period and by
adding to the compensation recognized under such plans for the
<PAGE> 7
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year in which termination of employment occurs all amounts payable
under sections 8(b)(i), (vii), (viii) and (ix);
(B) the present value of the benefits to which the Officer
is actually entitled under such defined benefit pension plans as
of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Officer's termination of employment occurs ("Applicable PBGC Rate").
(vi) within thirty (30) days following the Officer's termination
of employment with the Bank, a lump sum payment in an amount equal to
the present value of the additional employer contributions to which he
would have been entitled under any and all qualified and non-qualified
defined contribution plans maintained by, or covering employees of, the
Bank, if he were 100% vested thereunder and had continued working for
the Bank during the remaining unexpired Assurance Period at the highest
annual rate of compensation achieved during the Officer's period of
actual employment with the Bank, and making the maximum amount of
employee contributions, if any, required under such plan or plans, such
present value to be determined on the basis of the discount rate,
compounded using the compounding period that corresponds to the
frequency with which employer contributions are made to the relevant
plan, equal to the Applicable PBGC Rate;
(vii) the payments that would have been made to the Officer under
any cash bonus or long-term or short-term cash incentive compensation
plan maintained by, or covering employees of, the Bank, if he had
continued working for the Bank during the remaining unexpired Assurance
Period and had earned the maximum bonus or incentive award in each
calendar year that ends during the remaining unexpired Assurance
Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Officer under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Officer
during each such calendar year at the highest annual rate of
salary achieved during the remaining unexpired Assurance Period,
such payments to be made (without discounting for early payment)
within thirty (30) days following the Officer's termination of
employment.
<PAGE> 8
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(viii) at the election of the Bank made within thirty (30) days
following the Officer's termination of employment with the Bank, upon
the surrender of options or appreciation rights issued to the Officer
under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Bank, a lump sum payment
in an amount equal to the product of:
(A) the excess of (I) the fair market value of a share of
stock of the same class as the stock subject to the option or
appreciation right, determined as of the date of termination of
employment, over (II) the exercise price per share for such option
or appreciation right, as specified in or under the relevant plan
or program; multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 8(b)(viii) and for purposes of determining
the Officer's right following his termination of employment with the
Bank to exercise any options or appreciation rights not surrendered
pursuant hereto, the Officer shall be deemed to be fully vested in all
options and appreciation rights under any stock option or appreciation
rights plan or program maintained by, or covering employees of, the
Bank, even if the Officer is not vested under such plan or program; and
(ix) at the election of the Bank made within thirty (30) days
following the Officer's termination of employment with the Bank, upon
the surrender of any shares awarded to the Officer under any restricted
stock plan maintained by, or covering employees of, the Bank, a lump
sum payment in an amount equal to the product of:
(A) the fair market value of a share of stock of the same
class of stock granted under such plan, determined as of the date
of the Officer's termination of employment; multiplied by
(B) the number of shares which are being surrendered. For
purposes of this section 8(b)(ix) and for purposes of determining
the Officer's right following his termination of employment with
the Bank to any stock not surrendered pursuant hereto, the Officer
shall be deemed to be fully vested in all shares awarded under any
restricted stock plan maintained by, or covering employees of, the
Bank, even if the Officer is not vested under such plan.
The Bank and the Officer hereby stipulate that the damages which may be incurred
by the Officer following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 8(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to the Officer's efforts, if any, to mitigate
damages.
<PAGE> 9
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SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for purposes of
this Agreement shall mean 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, or any material breach of this Agreement, in each
case as measured against standards generally prevailing at the relevant
time in the savings and community banking industry; provided, however, that
the Officer shall not be deemed to have been discharged for cause unless
and until he shall have received a written notice of termination from the
Board, accompanied by a resolution duly adopted by affirmative vote of a
majority of the entire Board at a meeting called and held for such purpose
(after reasonable notice to the Officer and a reasonable opportunity for
the Officer to make oral and written presentations to the members of the
Board, on his own behalf, or through a representative, who may be his legal
counsel, to refute the grounds for the proposed determination) finding that
in the good faith opinion of the Board grounds exist for discharging the
Officer for cause; or
(b) the Officer's voluntary resignation from employment with the Bank
for reasons other than those specified in section 8(a)(i); or
(c) the Officer's death; or
(d) a determination that the Officer is eligible for long-term
disability benefits under the Bank's long-term disability insurance program
or, if there is no such program, under the federal Social Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Officer (or, in the event of his death, to his estate) of his
earned but unpaid salary as of the date of the termination of his employment,
and the provision of such other benefits, if any, to which the Officer is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Bank.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the stockholders of the Bank of a transaction that
would result in the reorganization, merger or consolidation of the Bank,
respectively, with one or more other persons, other than a transaction
following which:
<PAGE> 10
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(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) at least 51% of the outstanding equity ownership interests
in the Bank; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the securities entitled to vote generally in the
election of directors of the Bank;
(ii) the acquisition of substantially all of the assets of the Bank or
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the outstanding securities of the Bank
entitled to vote generally in the election of directors by any person or by
any persons acting in concert, or approval by the stockholders of the Bank
of any transaction which would result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or approval by
the stockholders of the Bank of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least fifty percent (50%) of the members of the Board do not belong to
any of the following groups:
(A) individuals who were members of the Board on the date of
this Agreement; or
(B) individuals who first became members of the Board after
the date of this Agreement either:
(1) upon election to serve as a member of the Board by
affirmative vote of three-quarters (3/4) of the members of
such Board, or a nominating committee thereof, in office at
the time of such first election; or
(2) upon election by the stockholders of the Board to
serve as a member of the Board, but only if nominated for
election by affirmative vote of three-quarters (3/4) of the
members of the Board, or of a nominating committee thereof,
in office at the time of such first nomination;
<PAGE> 11
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provided, however, that such individual's election or nomination did not
result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) other than by or on behalf of the Board of the Bank;
(v) any event which would be described in section 10(a)(i), (ii), (iii)
or (iv) if the term "Holding Company" were substituted for the term "Bank"
therein.
(b) In no event, however, shall a Change of Control be deemed to have
occurred as a result of any acquisition of securities or assets of the Holding
Company, the Bank or any subsidiary of either of them, by the Holding Company,
the Bank or any subsidiary of either of them, or by any employee benefit plan
maintained by any of them.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Officer's employment during the Assurance Period
or thereafter, whether by the Bank or by the Officer, shall have no effect on
the rights and obligations of the parties hereto under the Bank's Retirement
Plan, group life, health (including hospitalization, medical and major medical),
dental, accident and long term disability insurance plans or such other employee
benefit plans or programs, or compensation plans or programs (whether or not
employee benefit plans or programs) and any defined contribution plan, employee
stock ownership plan, stock option and appreciation rights plan, and restricted
stock plan, as may be maintained by, or cover employees of, the Bank from time
to time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Officer to which the Bank or the Holding Company is a party
and any duplicative amount payable under any such agreement, plan or program
shall be applied as an offset to reduce the amounts otherwise payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Officer, his legal representatives and testate or intestate distributees, and
the Bank and the Holding Company, their respective successors and assigns,
including any successor by merger or consolidation or a statutory receiver or
any other person or firm or corporation to which all or substantially all of the
respective assets and business of the Bank or the Holding Company may be sold or
otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return
<PAGE> 12
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receipt requested, addressed to such party at the address listed below or at
such other address as one such party may by written notice specify to the other
party:
If to the Officer:
Mr. Robert Brennen
19 South Broadway
Apartment 4-F
Tarrytown, New York 10591
If to the Bank:
Tarrytowns Bank, FSB
75 North Broadway
Tarrytown, New York 10591-0187
Attention: Corporate Secretary
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
If to the Holding Company:
Tappan Zee Financial, Inc.
75 North Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
<PAGE> 13
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SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the Officer against
reasonable costs, including legal fees, incurred by the Officer in connection
with or arising out of any action, suit or proceeding in which the Officer may
be involved, as a result of the Officer's efforts, in good faith, to defend or
enforce the terms of this Agreement; provided, however, that the Officer shall
have substantially prevailed on the merits pursuant to a judgment, decree or
order of a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Officer's entitlement
to indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
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SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of complying
with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to the Officer
under section 8(b) hereof (exclusive of amounts described in section
8(b)(i), (viii) and (ix)) exceed the three times the Officer's average
annual total compensation for the last five consecutive calendar years to
end prior to his termination of employment with the Bank (or for his entire
period of employment with the Bank if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary, any
payments to the Officer by the Bank, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with
section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C.
Section1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary, if the
Officer is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank pursuant to a
notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section1818(e)(3) or 1818(g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service of such notice,
unless stayed by appropriate proceedings. If the charges in such notice are
dismissed, the Bank, in its discretion, may (i) pay to the Officer all or
part of the compensation withheld while the Bank's obligations hereunder
were suspended and (ii) reinstate, in whole or in part, any of the
obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary, if the
Officer is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under section 8(e)(4) or
8(g)(1) of the FDI Act, 12 U.S.C. Section1818(e)(4) or (g)(1), all
prospective obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights and obligations of
the Bank and the Officer shall not be affected.
(e) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act,
12
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U.S.C. Section1813(x)(1), all prospective obligations of the Bank under
this Agreement shall terminate as of the date of default, but vested rights
and obligations of the Bank and the Officer shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, all
prospective obligations of the Bank hereunder shall be terminated, except
to the extent that a continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of
Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority
contained in section 13(c) of the FDI Act, 12 U.S.C. Section1823(c); (ii)
by the Director of the OTS or his designee at the time such Director or
designee approves a supervisory merger to resolve problems related to the
operation of the Bank or when the Bank is determined by such Director to be
in an unsafe or unsound condition. The vested rights and obligations of the
parties shall not be affected.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally guarantees
to the Officer the payment of all amounts, and the performance of all other
obligations, due from the Bank in accordance with the terms of this Agreement as
and when due without any requirement of presentment, demand of payment, protest
or notice of dishonor or nonpayment.
<PAGE> 16
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IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Agreement to be executed and the Officer has hereunto set his hand, all as of
the day and year first above written.
/s/ Robert Brennen
------------------------------------
ROBERT BRENNEN
ATTEST: TARRYTOWNS BANK, FSB
By /s/ Harry G. Murphy
------------------------
Secretary By /s/ Marvin Levy
---------------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
ATTEST: TAPPAN ZEE FINANCIAL, INC.
By /s/ Harry G. Murphy
------------------------
Secretary By /s/ Marvin Levy
---------------------------------
Name: Marvin Levy
Title: Chairman of the Board
[Notary Public
Attestations and Seal]
<PAGE> 1
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and entered
into as of the 5th day of October, 1995, by and among TARRYTOWNS BANK, FSB, a
savings bank organized and operating under the federal laws of the United States
and having its executive offices at 75 North Broadway, Tarrytown, New York
10591-0187 ("Bank"); TAPPAN ZEE FINANCIAL, INC., a business corporation
organized and existing under the laws of the State of Delaware and also having
its executive offices at 75 Broadway, Tarrytown, New York 10591-0187 ("Holding
Company"); and Christina Vidal, an individual residing at 13 Hanford Place,
Tarrytown, New York 10591 ("Officer").
W I T N E S S E T H :
WHEREAS, effective as of the date of this Agreement, the Bank has
converted from a federal mutual savings bank to a federal stock savings bank and
has become a wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Bank desires to secure for itself the continued
availability of the Officer's services; and
WHEREAS, the Bank recognizes that a third party may at some time in the
future pursue a Change of Control of the Bank or the Holding Company and that
this possibility may result in the departure or distraction of the Bank's
officers; and
WHEREAS, the Bank has determined that appropriate steps should be taken
to encourage the continued attention and dedication of the Bank's officers,
including the Officer, to their duties for the Bank without the distraction that
may arise from the possibility of a Change of Control of the Bank or the Holding
Company; and
WHEREAS, the Bank believes that, by assuring certain officers,
including the Officer, of reasonable financial security in the event of a Change
of Control of the Bank or the Holding Company, such officers will be in a
position to perform their duties free from financial self interest and in the
best interests of the Bank and its shareholders; and
WHEREAS, for purposes of securing the Officer's services for the Bank,
the Board of Directors of the Bank ("Board") has authorized the proper officers
of the Bank to enter into an employee retention agreement with the Officer on
the terms and conditions set forth herein; and
WHEREAS, the Board of Directors of the Holding Company has authorized
the Holding Company to guarantee the Bank's obligations under such an employee
retention agreement; and
WHEREAS, the Officer is willing to make the Officer's services
available to the Bank on the terms and conditions set forth herein;
<PAGE> 2
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NOW, THEREFORE, in consideration of the premises and the mutual
covenants and obligations hereinafter set forth, the Bank, the Holding Company
and the Officer hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first above
written and shall remain in effect during the term of this Agreement which shall
be for a period of three (3) years commencing on the date of this Agreement,
plus such extensions as are provided pursuant to section 1(b); provided,
however, that if the term of this Agreement has not otherwise terminated, the
term of this Agreement will terminate on the date of the Officer's termination
of employment with the Bank; and provided, further, that the obligations under
section 8 of this Agreement shall survive the term of this Agreement if payments
become due hereunder.
(b) Prior to each anniversary date of this Agreement, the Board shall
consider the advisability of an extension of the term in light of the
circumstances then prevailing and may, in its discretion, approve an extension
to take effect as of the upcoming anniversary date. If an extension is approved,
the term of this Agreement shall be extended so that it will expire three (3)
years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary: (i) the
Officer's employment with the Bank may be terminated at any time, subject to the
terms and conditions of this Agreement; and (ii) nothing in this Agreement shall
mandate or prohibit a continuation of the Officer's employment following the
expiration of the Assurance Period upon such terms and conditions as the Bank
and the Officer may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a period
commencing on the date of a Change of Control, as defined in section 10 of this
Agreement, and ending on the second (2nd) anniversary of the date on which the
Assurance Period commences, plus such extensions as are provided pursuant to the
following sentence. The Assurance Period shall be automatically extended for one
(1) additional day each day, unless either the Bank or the Officer elects not to
extend the Assurance Period further by giving written notice to the other party,
in which case the Assurance Period shall become fixed and shall end on the
second (2nd) anniversary of the date on which such written notice is given;
provided, however, that if following a Change of Control, the Office of Thrift
Supervision (or its successor) is the Bank's primary federal regulator, the
Agreement shall be subject to extension not more frequently than annually and
only upon review and approval of the Board.
(b) Upon termination of the Officer's employment with the Bank, any
daily extensions provided pursuant to the preceding sentence, if not theretofore
discontinued, shall cease and the remaining unexpired Assurance Period under
this Agreement shall be a fixed period ending on the later of the second (2nd)
anniversary of the date of the Change of Control, as defined in section 10 of
this Agreement, or the second anniversary of the date on which the daily
extensions were discontinued.
<PAGE> 3
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SECTION 3. DUTIES.
During the period of the Officer's employment that falls within the
Assurance Period, the Officer shall: (a) except to the extent allowed under
section 6 of this Agreement, devote his full business time and attention (other
than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his best efforts to advance the Bank's interests; (b) serve in the
position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he may
subsequently be appointed; and (c) subject to the direction of the Board and the
By-laws of the Bank, have such functions, duties, responsibilities and authority
commonly associated with such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Officer during the
Assurance Period, the Bank shall pay to the Officer during the Assurance Period
a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Officer on the day
before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or under the
authority of the Board;
provided, however, that in no event shall the Officer's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Officer's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in approximately equal installments in accordance with the
Bank's customary payroll practices. Nothing in this section 4 shall be deemed to
prevent the Officer from receiving additional compensation other than salary for
his services to the Bank, or additional compensation for his services to the
Holding Company, upon such terms and conditions as may be prescribed by or under
the authority of the Board or the Board of Directors of the Holding Company.
SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Officer shall,
during the Assurance Period, be treated as an employee of the Bank and be
eligible to participate in and receive benefits under The Tarrytown and North
Tarrytown Savings and Loan Association Retirement Income Plan ("Retirement
Plan"), group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans, and such
other employee benefit plans and programs, including, but not limited to, any
incentive compensation plans or programs (whether or not employee benefit plans
or programs), any stock option and appreciation rights plan, employee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Bank, in accordance with the
<PAGE> 4
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terms and conditions of such employee benefit plans and programs and
compensation plans and programs and with the Bank's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Officer may serve as a member of the boards of directors of such
business, community and charitable organizations as he may disclose to and as
may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; provided, however, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Officer's principal place of
employment shall be at the Bank's executive offices at the address first above
written, or at such other location within Westchester County at which the Bank
shall maintain its principal executive offices, or at such other location as the
Bank and the Officer may mutually agree upon. The Bank shall provide the
Officer, at his principal place of employment, with a private office,
stenographic services and other support services and facilities suitable to his
position with the Bank and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Bank shall
reimburse the Officer for his ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the performance of the Officer's duties under this
Agreement, upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH BANK LIABILITY.
(a) In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period, or prior to the commencement of the
Assurance Period but within three (3) months of and in connection with a Change
of Control as defined in section 10 of this Agreement on account of:
(i) The Officer's voluntary resignation from employment with the Bank
within ninety (90) days following:
(A) the failure of the Bank's Board to appoint or re-appoint or
elect or re-elect the Officer to serve in the same position in which
the Officer was serving, on the day before the Assurance Period
commenced or a more senior office;
(B) the failure of the stockholders of the Holding Company to elect
or re-elect the Officer as a member of the Board, if he was a member of
the Board on the day before the Assurance Period commenced;
<PAGE> 5
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(C) the expiration of a thirty (30) day period following the date
on which the Officer gives written notice to the Bank of its material
failure, whether by amendment of the Bank's Organization Certificate or
By-laws, action of the Board or the Holding Company's stockholders or
otherwise, to vest in the Officer the functions, duties, or
responsibilities vested in the Officer on the day before the Assurance
Period commenced (or the functions, duties and responsibilities of a
more senior office to which the Officer may be appointed), unless
during such thirty (30) day period, the Bank fully cures such failure;
(D) the failure of the Bank to cure a material breach of this
Agreement by the Bank, within thirty (30) days following written notice
from the Officer of such material breach;
(E) a reduction in the compensation provided to the Officer, or a
material reduction in the benefits provided to the Officer under the
Bank's program of employee benefits, compared with the compensation and
benefits that were provided to the Officer on the day before the
Assurance Period commenced;
(F) a change in the Officer's principal place of employment that
would result in a one-way commuting time in excess of the greater of
(I) 30 minutes or (II) the Officer's commuting time immediately prior
to such change; or
(ii) the discharge of the Officer by the Bank for any reason other than
for "cause" as provided in section 9(a);
then, subject to section 21, the Bank shall provide the benefits and pay to the
Officer the amounts provided for under section 8(b) of this Agreement; provided,
however, that if benefits or payments become due hereunder as a result of the
Officer's termination of employment prior to the commencement of the Assurance
Period, the benefits and payments provided for under section 8(b) of this
Agreement shall be determined as though the Officer had remained in the service
of the Bank (upon the terms and conditions in effect at the time of his actual
termination of service) and had not terminated employment with the Bank until
the date on which the Officer's Assurance Period would have commenced.
(b) Upon the termination of the Officer's employment with the Bank
under circumstances described in section 8(a) of this Agreement, the Bank shall
pay and provide to the Officer (or, in the event of the Officer's death, to the
Officer's estate):
(i) the Officer's earned but unpaid compensation (including, without
limitation, all items which constitute wages under section 190.1 of the New
York Labor Law and the payment of which is not otherwise provided for under
this section 8(b)) as of the date of the termination of the Officer's
employment with the Bank, such payment to be made at the time and in the
manner prescribed by
<PAGE> 6
-6-
law applicable to the payment of wages but in no event later than thirty
(30) days after termination of employment;
(ii) the benefits, if any, to which the Officer is entitled as a
former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the Bank's
officers and employees;
(iii) continued group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance
benefits, in addition to that provided pursuant to section 8(b)(ii) and
after taking into account the coverage provided by any subsequent employer,
if and to the extent necessary to provide for the Officer, for the
remaining unexpired Assurance Period, coverage equivalent to the coverage
to which the Officer would have been entitled under such plans (as in
effect on the date of his termination of employment, or, if his termination
of employment occurs after a Change of Control, on the date of such Change
of Control, whichever benefits are greater) if the Officer had continued
working for the Bank during the remaining unexpired Assurance Period at the
highest annual rate of compensation achieved during the Officer's period of
actual employment with the Bank;
(iv) within thirty (30) days following the Officer's termination of
employment with the Bank, a lump sum payment, in an amount equal to the
present value of the salary that the Officer would have earned if the
Officer had continued working for the Bank during the remaining unexpired
Assurance Period at the highest annual rate of salary achieved during the
Officer's period of actual employment with the Bank, where such present
value is to be determined using a discount rate equal to the applicable
short-term federal rate prescribed under section 1274(d) of the Internal
Revenue Code of 1986 ("Code"), compounded using the compounding periods
corresponding to the Bank's regular payroll periods for its officers, such
lump sum to be paid in lieu of all other payments of salary provided for
under this Agreement in respect of the period following any such
termination;
(v) within thirty (30) days following the Officer's termination of
employment with the Bank, a lump sum payment in an amount equal to the
excess, if any, of:
(A) the present value of the aggregate benefits to which the
Officer would be entitled under any and all qualified and non-qualified
defined benefit pension plans maintained by, or covering employees of,
the Bank if the Officer were 100% vested thereunder and had continued
working for the Bank during the remaining unexpired Assurance Period
such benefits to be determined as of the date of termination of
employment by adding to the service actually recognized under such
plans an additional period equal to the remaining unexpired Assurance
Period and by adding to the compensation recognized under such plans
for the
<PAGE> 7
-7-
year in which termination of employment occurs all amounts payable
under sections 8(b)(i), (vii), (viii) and (ix);
(B) the present value of the benefits to which the Officer is
actually entitled under such defined benefit pension plans as of the
date of his termination;
where such present values are to be determined using the mortality tables
prescribed under section 415(b)(2)(E)(v) of the Code and a discount rate,
compounded monthly, equal to the annualized rate of interest prescribed by
the Pension Benefit Guaranty Corporation for the valuation of immediate
annuities payable under terminating single-employer defined benefit plans
for the month in which the Officer's termination of employment occurs
("Applicable PBGC Rate").
(vi) within thirty (30) days following the Officer's termination of
employment with the Bank, a lump sum payment in an amount equal to the
present value of the additional employer contributions to which he would
have been entitled under any and all qualified and non-qualified defined
contribution plans maintained by, or covering employees of, the Bank, if he
were 100% vested thereunder and had continued working for the Bank during
the remaining unexpired Assurance Period at the highest annual rate of
compensation achieved during the Officer's period of actual employment with
the Bank, and making the maximum amount of employee contributions, if any,
required under such plan or plans, such present value to be determined on
the basis of the discount rate, compounded using the compounding period
that corresponds to the frequency with which employer contributions are
made to the relevant plan, equal to the Applicable PBGC Rate;
(vii) the payments that would have been made to the Officer under any
cash bonus or long-term or short-term cash incentive compensation plan
maintained by, or covering employees of, the Bank, if he had continued
working for the Bank during the remaining unexpired Assurance Period and
had earned the maximum bonus or incentive award in each calendar year that
ends during the remaining unexpired Assurance Period, such payments to be
equal to the product of:
(A) the maximum percentage rate at which an award was ever
available to the Officer under such incentive compensation plan;
multiplied by
(B) the salary that would have been paid to the Officer during
each such calendar year at the highest annual rate of salary achieved
during the remaining unexpired Assurance Period, such payments to be
made (without discounting for early payment) within thirty (30) days
following the Officer's termination of employment.
<PAGE> 8
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(viii) at the election of the Bank made within thirty (30) days
following the Officer's termination of employment with the Bank, upon the
surrender of options or appreciation rights issued to the Officer under any
stock option and appreciation rights plan or program maintained by, or
covering employees of, the Bank, a lump sum payment in an amount equal to
the product of:
(A) the excess of (I) the fair market value of a share of stock
of the same class as the stock subject to the option or appreciation
right, determined as of the date of termination of employment, over
(II) the exercise price per share for such option or appreciation
right, as specified in or under the relevant plan or program;
multiplied by
(B) the number of shares with respect to which options or
appreciation rights are being surrendered.
For purposes of this section 8(b)(viii) and for purposes of determining the
Officer's right following his termination of employment with the Bank to
exercise any options or appreciation rights not surrendered pursuant
hereto, the Officer shall be deemed to be fully vested in all options and
appreciation rights under any stock option or appreciation rights plan or
program maintained by, or covering employees of, the Bank, even if the
Officer is not vested under such plan or program; and
(ix) at the election of the Bank made within thirty (30) days following
the Officer's termination of employment with the Bank, upon the surrender
of any shares awarded to the Officer under any restricted stock plan
maintained by, or covering employees of, the Bank, a lump sum payment in an
amount equal to the product of:
(A) the fair market value of a share of stock of the same class
of stock granted under such plan, determined as of the date of the
Officer's termination of employment; multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 8(b)(ix) and for purposes of determining
the Officer's right following his termination of employment with the
Bank to any stock not surrendered pursuant hereto, the Officer shall be
deemed to be fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Bank, even if
the Officer is not vested under such plan.
The Bank and the Officer hereby stipulate that the damages which may be incurred
by the Officer following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 8(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to the Officer's efforts, if any, to mitigate
damages.
<PAGE> 9
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SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK LIABILITY.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for purposes of
this Agreement shall mean 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, or any material breach of this Agreement, in each
case as measured against standards generally prevailing at the relevant
time in the savings and community banking industry; provided, however, that
the Officer shall not be deemed to have been discharged for cause unless
and until he shall have received a written notice of termination from the
Board, accompanied by a resolution duly adopted by affirmative vote of a
majority of the entire Board at a meeting called and held for such purpose
(after reasonable notice to the Officer and a reasonable opportunity for
the Officer to make oral and written presentations to the members of the
Board, on his own behalf, or through a representative, who may be his legal
counsel, to refute the grounds for the proposed determination) finding that
in the good faith opinion of the Board grounds exist for discharging the
Officer for cause; or
(b) the Officer's voluntary resignation from employment with the Bank
for reasons other than those specified in section 8(a)(i); or
(c) the Officer's death; or
(d) a determination that the Officer is eligible for long-term
disability benefits under the Bank's long-term disability insurance program
or, if there is no such program, under the federal Social Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Officer (or, in the event of his death, to his estate) of his
earned but unpaid salary as of the date of the termination of his employment,
and the provision of such other benefits, if any, to which the Officer is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Bank.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control") shall be
deemed to have occurred upon the happening of any of the following events:
(i) approval by the stockholders of the Bank of a transaction that
would result in the reorganization, merger or consolidation of the Bank,
respectively, with one or more other persons, other than a transaction
following which:
<PAGE> 10
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(A) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) in substantially the same relative proportions by persons
who, immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the Exchange
Act) at least 51% of the outstanding equity ownership interests
in the Bank; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) at
least 51% of the securities entitled to vote generally in the
election of directors of the Bank;
(ii) the acquisition of substantially all of the assets of the Bank or
beneficial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of the outstanding securities of the Bank
entitled to vote generally in the election of directors by any person or by
any persons acting in concert, or approval by the stockholders of the Bank
of any transaction which would result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or approval by
the stockholders of the Bank of a plan for such liquidation or dissolution;
(iv) the occurrence of any event if, immediately following such event,
at least fifty percent (50%) of the members of the Board do not belong to
any of the following groups:
(A) individuals who were members of the Board on the date of
this Agreement; or
(B) individuals who first became members of the Board after
the date of this Agreement either:
(1) upon election to serve as a member of the Board
by affirmative vote of three-quarters (3/4) of the
members of such Board, or a nominating committee
thereof, in office at the time of such first election;
or
(2) upon election by the stockholders of the Board
to serve as a member of the Board, but only if nominated
for election by affirmative vote of three-quarters (3/4)
of the members of the Board, or of a nominating
committee thereof, in office at the time of such first
nomination;
<PAGE> 11
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provided, however, that such individual's election or nomination did not
result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) other than by or on behalf of the Board of the Bank;
(v) any event which would be described in section 10(a)(i), (ii), (iii)
or (iv) if the term "Holding Company" were substituted for the term "Bank"
therein.
(b) In no event, however, shall a Change of Control be deemed to have
occurred as a result of any acquisition of securities or assets of the Holding
Company, the Bank or any subsidiary of either of them, by the Holding Company,
the Bank or any subsidiary of either of them, or by any employee benefit plan
maintained by any of them.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR PROGRAMS.
The termination of the Officer's employment during the Assurance Period
or thereafter, whether by the Bank or by the Officer, shall have no effect on
the rights and obligations of the parties hereto under the Bank's Retirement
Plan, group life, health (including hospitalization, medical and major medical),
dental, accident and long term disability insurance plans or such other employee
benefit plans or programs, or compensation plans or programs (whether or not
employee benefit plans or programs) and any defined contribution plan, employee
stock ownership plan, stock option and appreciation rights plan, and restricted
stock plan, as may be maintained by, or cover employees of, the Bank from time
to time; provided, however, that nothing in this Agreement shall be deemed to
duplicate any compensation or benefits provided under any agreement, plan or
program covering the Officer to which the Bank or the Holding Company is a party
and any duplicative amount payable under any such agreement, plan or program
shall be applied as an offset to reduce the amounts otherwise payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding upon the
Officer, his legal representatives and testate or intestate distributees, and
the Bank and the Holding Company, their respective successors and assigns,
including any successor by merger or consolidation or a statutory receiver or
any other person or firm or corporation to which all or substantially all of the
respective assets and business of the Bank or the Holding Company may be sold or
otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return
<PAGE> 12
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receipt requested, addressed to such party at the address listed below or at
such other address as one such party may by written notice specify to the other
party:
If to the Officer:
Ms. Christina Vidal
13 Hanford Place
Tarrytown, New York 10591
If to the Bank:
Tarrytowns Bank, FSB
75 North Broadway
Tarrytown, New York 10591-0187
Attention: Corporate Secretary
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
If to the Holding Company:
Tappan Zee Financial, Inc.
75 North Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
<PAGE> 13
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SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the Officer against
rea- sonable costs, including legal fees, incurred by the Officer in connection
with or arising out of any action, suit or proceeding in which the Officer may
be involved, as a result of the Officer's efforts, in good faith, to defend or
enforce the terms of this Agreement; provided, however, that the Officer shall
have substantially prevailed on the merits pursuant to a judgment, decree or
order of a court of competent jurisdiction or of an arbitrator in an arbitration
proceeding, or in a settlement. For purposes of this Agreement, any settlement
agreement which provides for payment of any amounts in settlement of the Bank's
obligations hereunder shall be conclusive evidence of the Officer's entitlement
to indemnification hereunder, and any such indemnification payments shall be in
addition to amounts payable pursuant to such settlement agreement, unless such
settlement agreement expressly provides otherwise.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is invalid or
unenforceable shall not affect the validity or enforceability of any other
provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the terms,
covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced in
accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience of
reference only and are not intended to qualify the meaning of any section. Any
reference to a section number shall refer to a section of this Agreement, unless
otherwise stated.
<PAGE> 14
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SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties relating
to the subject matter hereof, and supersedes in its entirety any and all prior
agreements, understandings or representations relating to the subject matter
hereof. No modifications of this Agreement shall be valid unless made in writing
and signed by the parties hereto.
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of complying
with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary, in no
event shall the aggregate amount of compensation payable to the Officer
under section 8(b) hereof (exclusive of amounts described in section
8(b)(i), (viii) and (ix)) exceed the three times the Officer's average
annual total compensation for the last five consecutive calendar years to
end prior to his termination of employment with the Bank (or for his entire
period of employment with the Bank if less than five calendar years).
(b) Notwithstanding anything herein contained to the contrary, any
payments to the Officer by the Bank, whether pursuant to this Agreement or
otherwise, are subject to and conditioned upon their compliance with
section 18(k) of the Federal Deposit Insurance Act ("FDI Act"), 12 U.S.C.
Section1828(k), and any regulations promulgated thereunder.
(c) Notwithstanding anything herein contained to the contrary, if the
Officer is suspended from office and/or temporarily prohibited from
participating in the conduct of the affairs of the Bank pursuant to a
notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section1818(e)(3) or 1818(g)(1), the Bank's obligations under this
Agreement shall be suspended as of the date of service of such notice,
unless stayed by appropriate proceedings. If the charges in such notice are
dismissed, the Bank, in its discretion, may (i) pay to the Officer all or
part of the compensation withheld while the Bank's obligations hereunder
were suspended and (ii) reinstate, in whole or in part, any of the
obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary, if the
Officer is removed and/or permanently prohibited from participating in the
conduct of the Bank's affairs by an order issued under section 8(e)(4) or
8(g)(1) of the FDI Act, 12 U.S.C. Section1818(e)(4) or (g)(1), all
prospective obligations of the Bank under this Agreement shall terminate as
of the effective date of the order, but vested rights and obligations of
the Bank and the Officer shall not be affected.
(e) Notwithstanding anything herein contained to the contrary, if the
Bank is in default (within the meaning of section 3(x)(1) of the FDI Act,
12
<PAGE> 15
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U.S.C. Section1813(x)(1), all prospective obligations of the Bank under
this Agreement shall terminate as of the date of default, but vested rights
and obligations of the Bank and the Officer shall not be affected.
(f) Notwithstanding anything herein contained to the contrary, all
prospective obligations of the Bank hereunder shall be terminated, except
to the extent that a continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of
Thrift Supervision ("OTS") or his designee or the Federal Deposit Insurance
Corporation ("FDIC"), at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank under the authority
contained in section 13(c) of the FDI Act, 12 U.S.C. Section1823(c); (ii)
by the Director of the OTS or his designee at the time such Director or
designee approves a supervisory merger to resolve problems related to the
operation of the Bank or when the Bank is determined by such Director to be
in an unsafe or unsound condition. The vested rights and obligations of the
parties shall not be affected.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally guarantees
to the Officer the payment of all amounts, and the performance of all other
obligations, due from the Bank in accordance with the terms of this Agreement as
and when due without any requirement of presentment, demand of payment, protest
or notice of dishonor or nonpayment.
<PAGE> 16
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IN WITNESS WHEREOF, the Bank and the Holding Company have caused this
Agreement to be executed and the Officer has hereunto set his hand, all as of
the day and year first above written.
/s/ Christina Vidal
---------------------------------------
CHRISTINA VIDAL
ATTEST: TARRYTOWNS BANK, FSB
By /s/ Harry G. Murphy
-------------------------------
Secretary By /s/ Marvin Levy
------------------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
ATTEST: TAPPAN ZEE FINANCIAL, INC.
By /s/ Harry G. Murphy
-------------------------------
Secretary By /s/ Marvin Levy
------------------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
[Notary Public
Attestations and Seal]
<PAGE> 1
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 5th day of October, 1995, by and among TARRYTOWNS BANK,
FSB, a savings bank organized and operating under the federal laws of the United
States and having its executive offices at 75 North Broadway, Tarrytown, New
York 10591-0187 ("Bank"); TAPPAN ZEE FINANCIAL, INC., a business corporation
organized and existing under the laws of the State of Delaware and also having
its executive offices at 75 Broadway, Tarrytown, New York 10591-0187 ("Holding
Company"); and Valerie Wilson, an individual residing at 2652 Cecile Drive,
Yorktown Heights, New York 10598 ("Officer").
W I T N E S S E T H :
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a federal mutual savings bank to a federal stock savings bank
and has become a wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Bank desires to secure for itself the continued
availability of the Officer's services; and
WHEREAS, the Bank recognizes that a third party may at some
time in the future pursue a Change of Control of the Bank or the Holding Company
and that this possibility may result in the departure or distraction of the
Bank's officers; and
WHEREAS, the Bank has determined that appropriate steps should
be taken to encourage the continued attention and dedication of the Bank's
officers, including the Officer, to their duties for the Bank without the
distraction that may arise from the possibility of a Change of Control of the
Bank or the Holding Company; and
WHEREAS, the Bank believes that, by assuring certain officers,
including the Officer, of reasonable financial security in the event of a Change
of Control of the Bank or the Holding Company, such officers will be in a
position to perform their duties free from financial self interest and in the
best interests of the Bank and its shareholders; and
WHEREAS, for purposes of securing the Officer's services for
the Bank, the Board of Directors of the Bank ("Board") has authorized the proper
officers of the Bank to enter into an employee retention agreement with the
Officer on the terms and conditions set forth herein; and
WHEREAS, the Board of Directors of the Holding Company has
authorized the Holding Company to guarantee the Bank's obligations under such an
employee retention agreement; and
<PAGE> 2
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WHEREAS, the Officer is willing to make the Officer's services
available to the Bank on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Bank, the Holding
Company and the Officer hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of three (3) years commencing on the date of this
Agreement, plus such extensions as are provided pursuant to section 1(b);
provided, however, that if the term of this Agreement has not otherwise
terminated, the term of this Agreement will terminate on the date of the
Officer's termination of employment with the Bank; and provided, further, that
the obligations under section 8 of this Agreement shall survive the term of this
Agreement if payments become due hereunder.
(b) Prior to each anniversary date of this Agreement, the
Board shall consider the advisability of an extension of the term in light of
the circumstances then prevailing and may, in its discretion, approve an
extension to take effect as of the upcoming anniversary date. If an extension is
approved, the term of this Agreement shall be extended so that it will expire
three (3) years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Officer's employment with the Bank may be terminated at any time,
subject to the terms and conditions of this Agreement; and (ii) nothing in this
Agreement shall mandate or prohibit a continuation of the Officer's employment
following the expiration of the Assurance Period upon such terms and conditions
as the Bank and the Officer may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the first (1st) anniversary of the date on
which the Assurance Period commences, plus such extensions as are provided
pursuant to the following sentence. The Assurance Period shall be automatically
extended for one (1) additional day each day, unless either the Bank or the
Officer elects not to extend the Assurance Period further by giving written
notice to the other party, in which case the Assurance Period shall become fixed
and shall end on the first (1st) anniversary of the date on which such written
notice is given; provided, however, that if following a Change of Control, the
Office of Thrift Supervision (or its successor) is the Bank's primary federal
regulator, the Agreement shall be subject to extension not more frequently than
annually and only upon review and approval of the Board.
<PAGE> 3
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(b) Upon termination of the Officer's employment with the
Bank, any daily extensions provided pursuant to the preceding sentence, if not
theretofore discontinued, shall cease and the remaining unexpired Assurance
Period under this Agreement shall be a fixed period ending on the later of the
first (1st) anniversary of the date of the Change of Control, as defined in
section 10 of this Agreement, or the second anniversary of the date on which the
daily extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Officer's employment that falls
within the Assurance Period, the Officer shall: (a) except to the extent allowed
under section 6 of this Agreement, devote his full business time and attention
(other than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his best efforts to advance the Bank's interests; (b) serve in the
position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he may
subsequently be appointed; and (c) subject to the direction of the Board and the
By-laws of the Bank, have such functions, duties, responsibilities and authority
commonly associated with such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Officer
during the Assurance Period, the Bank shall pay to the Officer during the
Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Officer
on the day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or
under the authority of the Board;
provided, however, that in no event shall the Officer's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Officer's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in approximately equal installments in accordance with the
Bank's customary payroll practices. Nothing in this section 4 shall be deemed to
prevent the Officer from receiving additional compensation other than salary for
his services to the Bank, or additional compensation for his services to the
Holding Company, upon such terms and conditions as may be prescribed by or under
the authority of the Board or the Board of Directors of the Holding Company.
<PAGE> 4
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Officer
shall, during the Assurance Period, be treated as an employee of the Bank and be
eligible to participate in and receive benefits under The Tarrytown and North
Tarrytown Savings and Loan Association Retirement Income Plan ("Retirement
Plan"), group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans, and such
other employee benefit plans and programs, including, but not limited to, any
incentive compensation plans or programs (whether or not employee benefit plans
or programs), any stock option and appreciation rights plan, employee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Bank, in accordance with the terms and conditions
of such employee benefit plans and programs and compensation plans and programs
and with the Bank's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Officer may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; provided, however, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Officer's principal place of
employment shall be at the Bank's executive offices at the address first above
written, or at such other location within Westchester County at which the Bank
shall maintain its principal executive offices, or at such other location as the
Bank and the Officer may mutually agree upon. The Bank shall provide the
Officer, at his principal place of employment, with a private office,
stenographic services and other support services and facilities suitable to his
position with the Bank and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Bank shall
reimburse the Officer for his ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the performance of the Officer's duties under this
Agreement, upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH BANK
LIABILITY.
(a) In the event that the Officer's employment with the Bank
shall terminate during the Assurance Period, or prior to the commencement of the
Assurance Period but within three (3) months of and in connection with a Change
of Control as defined in section 10 of this Agreement on account of:
<PAGE> 5
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(i) The Officer's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure of the Bank's Board to appoint or
re-appoint or elect or re-elect the Officer to serve in the
same position in which the Officer was serving, on the day
before the Assurance Period commenced or a more senior office;
(B) the failure of the stockholders of the Holding
Company to elect or re-elect the Officer as a member of the
Board, if he was a member of the Board on the day before the
Assurance Period commenced;
(C) the expiration of a thirty (30) day period
following the date on which the Officer gives written notice
to the Bank of its material failure, whether by amendment of
the Bank's Organization Certificate or By-laws, action of the
Board or the Holding Company's stockholders or otherwise, to
vest in the Officer the functions, duties, or responsibilities
vested in the Officer on the day before the Assurance Period
commenced (or the functions, duties and responsibilities of a
more senior office to which the Officer may be appointed),
unless during such thirty (30) day period, the Bank fully
cures such failure;
(D) the failure of the Bank to cure a material breach
of this Agreement by the Bank, within thirty (30) days
following written notice from the Officer of such material
breach;
(E) a reduction in the compensation provided to the
Officer, or a material reduction in the benefits provided to
the Officer under the Bank's program of employee benefits,
compared with the compensation and benefits that were provided
to the Officer on the day before the Assurance Period
commenced;
(F) a change in the Officer's principal place of
employment that would result in a one-way commuting time in
excess of the greater of (I) 30 minutes or (II) the Officer's
commuting time immediately prior to such change; or
(ii) the discharge of the Officer by the Bank for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Bank shall provide the benefits and pay to the
Officer the amounts provided for under section 8(b) of this Agreement; provided,
however, that if benefits or payments become due hereunder as a result of the
Officer's termination of employment prior to the commencement of the Assurance
Period, the benefits and payments provided for under
<PAGE> 6
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section 8(b) of this Agreement shall be determined as though the Officer had
remained in the service of the Bank (upon the terms and conditions in effect at
the time of his actual termination of service) and had not terminated employment
with the Bank until the date on which the Officer's Assurance Period would have
commenced.
(b) Upon the termination of the Officer's employment with the
Bank under circumstances described in section 8(a) of this Agreement, the Bank
shall pay and provide to the Officer (or, in the event of the Officer's death,
to the Officer's estate):
(i) the Officer's earned but unpaid compensation (including,
without limitation, all items which constitute wages under section
190.1 of the New York Labor Law and the payment of which is not
otherwise provided for under this section 8(b)) as of the date of the
termination of the Officer's employment with the Bank, such payment to
be made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than thirty (30) days after
termination of employment;
(ii) the benefits, if any, to which the Officer is entitled as
a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Officer, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Officer would have been
entitled under such plans (as in effect on the date of his termination
of employment, or, if his termination of employment occurs after a
Change of Control, on the date of such Change of Control, whichever
benefits are greater) if the Officer had continued working for the Bank
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Officer's period of actual
employment with the Bank;
(iv) within thirty (30) days following the Officer's
termination of employment with the Bank, a lump sum payment, in an
amount equal to the present value of the salary that the Officer would
have earned if the Officer had continued working for the Bank during
the remaining unexpired Assurance Period at the highest annual rate of
salary achieved during the Officer's period of actual employment with
the Bank, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding periods corresponding to the Bank's
regular payroll periods for its officers, such lump sum to be paid in
lieu of all other payments
<PAGE> 7
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of salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following the Officer's
termination of employment with the Bank, a lump sum payment in an
amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which the Officer would be entitled under any and all
qualified and non-qualified defined benefit pension plans
maintained by, or covering employees of, the Bank if the
Officer were 100% vested thereunder and had continued working
for the Bank during the remaining unexpired Assurance Period
such benefits to be determined as of the date of termination
of employment by adding to the service actually recognized
under such plans an additional period equal to the remaining
unexpired Assurance Period and by adding to the compensation
recognized under such plans for the year in which termination
of employment occurs all amounts payable under sections
8(b)(i), (vii), (viii) and (ix);
(B) the present value of the benefits to which the
Officer is actually entitled under such defined benefit
pension plans as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Officer's termination of employment occurs ("Applicable PBGC Rate").
(vi) within thirty (30) days following the Officer's
termination of employment with the Bank, a lump sum payment in an
amount equal to the present value of the additional employer
contributions to which he would have been entitled under any and all
qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Bank, if he were 100% vested thereunder
and had continued working for the Bank during the remaining unexpired
Assurance Period at the highest annual rate of compensation achieved
during the Officer's period of actual employment with the Bank, and
making the maximum amount of employee contributions, if any, required
under such plan or plans, such present value to be determined on the
basis of the discount rate, compounded using the compounding period
that corresponds to the frequency with which employer contributions are
made to the relevant plan, equal to the Applicable PBGC Rate;
<PAGE> 8
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(vii) the payments that would have been made to the Officer
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank, if
he had continued working for the Bank during the remaining unexpired
Assurance Period and had earned the maximum bonus or incentive award in
each calendar year that ends during the remaining unexpired Assurance
Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was
ever available to the Officer under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to the
Officer during each such calendar year at the highest annual
rate of salary achieved during the remaining unexpired
Assurance Period, such payments to be made (without
discounting for early payment) within thirty (30) days
following the Officer's termination of employment.
(viii) at the election of the Bank made within thirty (30)
days following the Officer's termination of employment with the Bank,
upon the surrender of options or appreciation rights issued to the
Officer under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Bank, a lump sum payment
in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 8(b)(viii) and for purposes of determining
the Officer's right following his termination of employment with the
Bank to exercise any options or appreciation rights not surrendered
pursuant hereto, the Officer shall be deemed to be fully vested in all
options and appreciation rights under any stock option or appreciation
rights plan or program maintained by, or covering employees of, the
Bank, even if the Officer is not vested under such plan or program; and
(ix) at the election of the Bank made within thirty (30) days
following the Officer's termination of employment with the Bank, upon
the surrender of any shares awarded to the Officer under any restricted
stock plan maintained by, or
<PAGE> 9
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covering employees of, the Bank, a lump sum payment in an amount equal
to the product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Officer's termination of employment;
multiplied by
(B) the number of shares which are being
surrendered.
For purposes of this section 8(b)(ix) and for purposes of determining
the Officer's right following his termination of employment with the
Bank to any stock not surrendered pursuant hereto, the Officer shall be
deemed to be fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Bank, even if
the Officer is not vested under such plan.
The Bank and the Officer hereby stipulate that the damages which may be incurred
by the Officer following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 8(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to the Officer's efforts, if any, to mitigate
damages.
SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK
LIABILITY.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for
purposes of this Agreement shall mean 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, or any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that the Officer shall not be
deemed to have been discharged for cause unless and until he shall have
received a written notice of termination from the Board, accompanied by
a resolution duly adopted by affirmative vote of a majority of the
entire Board at a meeting called and held for such purpose (after
reasonable notice to the Officer and a reasonable opportunity for the
Officer to make oral and written presentations to the members of the
Board, on his own behalf, or through a representative, who may be his
legal counsel, to refute the grounds for the proposed determination)
finding that in the good faith opinion of the Board grounds exist for
discharging the Officer for cause; or
<PAGE> 10
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(b) the Officer's voluntary resignation from employment
with the Bank for reasons other than those specified in section 8(a)
(i); or
(c) the Officer's death; or
(d) a determination that the Officer is eligible for long-term
disability benefits under the Bank's long-term disability insurance
program or, if there is no such program, under the federal Social
Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Officer (or, in the event of his death, to his estate) of his
earned but unpaid salary as of the date of the termination of his employment,
and the provision of such other benefits, if any, to which the Officer is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Bank.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) approval by the stockholders of the Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, respectively, with one or more other persons, other than a
transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Bank; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Bank;
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(ii) the acquisition of substantially all of the assets of the
Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the stockholders of the Bank of any transaction which would
result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank of a plan for such liquidation
or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the Board do
not belong to any of the following groups:
(A) individuals who were members of the Board on
the date of this Agreement; or
(B) individuals who first became members of the Board
after the date of this Agreement either:
(1) upon election to serve as a member of
the Board by affirmative vote of three-quarters (3/4)
of the members of such Board, or a nominating
committee thereof, in office at the time of such
first election; or
(2) upon election by the stockholders of the
Board to serve as a member of the Board, but only if
nominated for election by affirmative vote of
three-quarters (3/4) of the members of the Board, or
of a nominating committee thereof, in office at the
time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the Bank;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Bank" therein.
(b) In no event, however, shall a Change of Control be
deemed to have occurred as a result of any acquisition of securities or assets
of the Holding Company, the Bank
<PAGE> 12
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or any subsidiary of either of them, by the Holding Company, the Bank or any
subsidiary of either of them, or by any employee benefit plan maintained by any
of them.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Officer's employment during the
Assurance Period or thereafter, whether by the Bank or by the Officer, shall
have no effect on the rights and obligations of the parties hereto under the
Bank's Retirement Plan, group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or programs
(whether or not employee benefit plans or programs) and any defined contribution
plan, employee stock ownership plan, stock option and appreciation rights plan,
and restricted stock plan, as may be maintained by, or cover employees of, the
Bank from time to time; provided, however, that nothing in this Agreement shall
be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Officer to which the Bank or the Holding
Company is a party and any duplicative amount payable under any such agreement,
plan or program shall be applied as an offset to reduce the amounts otherwise
payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Officer, his legal representatives and testate or intestate
distributees, and the Bank and the Holding Company, their respective successors
and assigns, including any successor by merger or consolidation or a statutory
receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Bank or the
Holding Company may be sold or otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Officer:
Ms. Valerie Wilson
2652 Cecile Drive
Yorktown Heights, New York 10598
<PAGE> 13
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If to the Bank:
Tarrytowns Bank, FSB
75 North Broadway
Tarrytown, New York 10591-0187
Attention: Corporate Secretary
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
If to the Holding Company:
Tappan Zee Financial, Inc.
75 North Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the Officer
against reasonable costs, including legal fees, incurred by the Officer in
connection with or arising out of any action, suit or proceeding in which the
Officer may be involved, as a result of the Officer's efforts, in good faith, to
defend or enforce the terms of this Agreement; provided, however, that the
Officer shall have substantially prevailed on the merits pursuant to a judgment,
decree or order of a court of competent jurisdiction or of an arbitrator in an
arbitration proceeding, or in a settlement. For purposes of this Agreement, any
settlement agreement which provides for
<PAGE> 14
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payment of any amounts in settlement of the Bank's obligations hereunder shall
be conclusive evidence of the Officer's entitlement to indemnification
hereunder, and any such indemnification payments shall be in addition to amounts
payable pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
<PAGE> 15
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SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Officer under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i), (viii) and (ix)) exceed the three times the Officer's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Bank (or for his entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Officer by the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. Section1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. Section1818(e)(3) or 1818(g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service of such
notice, unless stayed by appropriate proceedings. If the charges in
such notice are dismissed, the Bank, in its discretion, may (i) pay to
the Officer all or part of the compensation withheld while the Bank's
obligations hereunder were suspended and (ii) reinstate, in whole or in
part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Officer is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section1818(e)(4) or (g)(1), all prospective obligations of the Bank
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Officer
shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of section 3(x)(1) of the
FDI Act, 12 U.S.C. Section1813(x)(1), all prospective obligations of
the Bank under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Bank and the Officer
shall not be affected.
<PAGE> 16
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(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision ("OTS") or his designee or the Federal
Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. Section1823(c); (ii) by the Director of the OTS or his designee
at the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Bank or when the Bank
is determined by such Director to be in an unsafe or unsound condition.
The vested rights and obligations of the parties shall not be affected.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally
guarantees to the Officer the payment of all amounts, and the performance of all
other obligations, due from the Bank in accordance with the terms of this
Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
<PAGE> 17
IN WITNESS WHEREOF, the Bank and the Holding Company have
caused this Agreement to be executed and the Officer has hereunto set his hand,
all as of the day and year first above written.
/s/ Valerie Wilson
------------------
Valerie Wilson
ATTEST: TARRYTOWNS BANK, FSB
By/s/ Harry G. Murphy
-------------------
Secretary By/s/ Marvin Levy
--------------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
ATTEST: TAPPAN ZEE FINANCIAL, INC.
By/s/ Harry G. Murphy
-------------------
Secretary By/s/ Marvin Levy
--------------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
[Notary Public
Attestations and Seals]
<PAGE> 1
EMPLOYEE RETENTION AGREEMENT
This EMPLOYEE RETENTION AGREEMENT ("Agreement") is made and
entered into as of the 5th day of October, 1995, by and among TARRYTOWNS BANK,
FSB, a savings bank organized and operating under the federal laws of the United
States and having its executive offices at 75 North Broadway, Tarrytown, New
York 10591-0187 ("Bank"); TAPPAN ZEE FINANCIAL, INC., a business corporation
organized and existing under the laws of the State of Delaware and also having
its executive offices at 75 Broadway, Tarrytown, New York 10591-0187 ("Holding
Company"); and Margaret Sampson, an individual residing at 24 South Street,
Putnam Valley, New York 10579 ("Officer").
W I T N E S S E T H :
WHEREAS, effective as of the date of this Agreement, the Bank
has converted from a federal mutual savings bank to a federal stock savings bank
and has become a wholly-owned subsidiary of the Holding Company; and
WHEREAS, the Bank desires to secure for itself the continued
availability of the Officer's services; and
WHEREAS, the Bank recognizes that a third party may at some
time in the future pursue a Change of Control of the Bank or the Holding Company
and that this possibility may result in the departure or distraction of the
Bank's officers; and
WHEREAS, the Bank has determined that appropriate steps should
be taken to encourage the continued attention and dedication of the Bank's
officers, including the Officer, to their duties for the Bank without the
distraction that may arise from the possibility of a Change of Control of the
Bank or the Holding Company; and
WHEREAS, the Bank believes that, by assuring certain officers,
including the Officer, of reasonable financial security in the event of a Change
of Control of the Bank or the Holding Company, such officers will be in a
position to perform their duties free from financial self interest and in the
best interests of the Bank and its shareholders; and
WHEREAS, for purposes of securing the Officer's services for
the Bank, the Board of Directors of the Bank ("Board") has authorized the proper
officers of the Bank to enter into an employee retention agreement with the
Officer on the terms and conditions set forth herein; and
WHEREAS, the Board of Directors of the Holding Company has
authorized the Holding Company to guarantee the Bank's obligations under such an
employee retention agreement; and
<PAGE> 2
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WHEREAS, the Officer is willing to make the Officer's services
available to the Bank on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and obligations hereinafter set forth, the Bank, the Holding
Company and the Officer hereby agree as follows:
SECTION 1. EFFECTIVE DATE.
(a) This Agreement shall be effective as of the date first
above written and shall remain in effect during the term of this Agreement which
shall be for a period of three (3) years commencing on the date of this
Agreement, plus such extensions as are provided pursuant to section 1(b);
provided, however, that if the term of this Agreement has not otherwise
terminated, the term of this Agreement will terminate on the date of the
Officer's termination of employment with the Bank; and provided, further, that
the obligations under section 8 of this Agreement shall survive the term of this
Agreement if payments become due hereunder.
(b) Prior to each anniversary date of this Agreement, the
Board shall consider the advisability of an extension of the term in light of
the circumstances then prevailing and may, in its discretion, approve an
extension to take effect as of the upcoming anniversary date. If an extension is
approved, the term of this Agreement shall be extended so that it will expire
three (3) years after such anniversary date.
(c) Notwithstanding anything herein contained to the contrary:
(i) the Officer's employment with the Bank may be terminated at any time,
subject to the terms and conditions of this Agreement; and (ii) nothing in this
Agreement shall mandate or prohibit a continuation of the Officer's employment
following the expiration of the Assurance Period upon such terms and conditions
as the Bank and the Officer may mutually agree upon.
SECTION 2. ASSURANCE PERIOD.
(a) The assurance period ("Assurance Period") shall be for a
period commencing on the date of a Change of Control, as defined in section 10
of this Agreement, and ending on the first (1st) anniversary of the date on
which the Assurance Period commences, plus such extensions as are provided
pursuant to the following sentence. The Assurance Period shall be automatically
extended for one (1) additional day each day, unless either the Bank or the
Officer elects not to extend the Assurance Period further by giving written
notice to the other party, in which case the Assurance Period shall become fixed
and shall end on the first (1st) anniversary of the date on which such written
notice is given; provided, however, that if following a Change of Control, the
Office of Thrift Supervision (or its successor) is the Bank's primary federal
regulator, the Agreement shall be subject to extension not more frequently than
annually and only upon review and approval of the Board.
<PAGE> 3
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(b) Upon termination of the Officer's employment with the
Bank, any daily extensions provided pursuant to the preceding sentence, if not
theretofore discontinued, shall cease and the remaining unexpired Assurance
Period under this Agreement shall be a fixed period ending on the later of the
first (1st) anniversary of the date of the Change of Control, as defined in
section 10 of this Agreement, or the second anniversary of the date on which the
daily extensions were discontinued.
SECTION 3. DUTIES.
During the period of the Officer's employment that falls
within the Assurance Period, the Officer shall: (a) except to the extent allowed
under section 6 of this Agreement, devote his full business time and attention
(other than during weekends, holidays, vacation periods, and periods of illness,
disability or approved leave of absence) to the business and affairs of the Bank
and use his best efforts to advance the Bank's interests; (b) serve in the
position to which the Officer is appointed by the Bank, which, during the
Assurance Period, shall be the position that the Officer held on the day before
the Assurance Period commenced or any higher office at the Bank to which he may
subsequently be appointed; and (c) subject to the direction of the Board and the
By-laws of the Bank, have such functions, duties, responsibilities and authority
commonly associated with such position.
SECTION 4. COMPENSATION.
In consideration for the services rendered by the Officer
during the Assurance Period, the Bank shall pay to the Officer during the
Assurance Period a salary at an annual rate equal to the greater of:
(a) the annual rate of salary in effect for the Officer
on the day before the Assurance Period commenced; or
(b) such higher annual rate as may be prescribed by or
under the authority of the Board;
provided, however, that in no event shall the Officer's annual rate of salary
under this Agreement in effect at a particular time during the Assurance Period
be reduced without the Officer's prior written consent. The annual salary
payable under this section 4 shall be subject to review at least once annually
and shall be paid in approximately equal installments in accordance with the
Bank's customary payroll practices. Nothing in this section 4 shall be deemed to
prevent the Officer from receiving additional compensation other than salary for
his services to the Bank, or additional compensation for his services to the
Holding Company, upon such terms and conditions as may be prescribed by or under
the authority of the Board or the Board of Directors of the Holding Company.
<PAGE> 4
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SECTION 5. EMPLOYEE BENEFIT PLANS AND PROGRAMS.
Except as otherwise provided in this Agreement, the Officer
shall, during the Assurance Period, be treated as an employee of the Bank and be
eligible to participate in and receive benefits under The Tarrytown and North
Tarrytown Savings and Loan Association Retirement Income Plan ("Retirement
Plan"), group life, health (including hospitalization, medical and major
medical), dental, accident and long term disability insurance plans, and such
other employee benefit plans and programs, including, but not limited to, any
incentive compensation plans or programs (whether or not employee benefit plans
or programs), any stock option and appreciation rights plan, employee stock
ownership plan and restricted stock plan, as may from time to time be maintained
by, or cover employees of, the Bank, in accordance with the terms and conditions
of such employee benefit plans and programs and compensation plans and programs
and with the Bank's customary practices.
SECTION 6. BOARD MEMBERSHIPS.
The Officer may serve as a member of the boards of directors
of such business, community and charitable organizations as he may disclose to
and as may be approved by the Board (which approval shall not be unreasonably
withheld), and he may engage in personal business and investment activities for
his own account; provided, however, that such service and personal business and
investment activities shall not materially interfere with the performance of his
duties under this Agreement.
SECTION 7. WORKING FACILITIES AND EXPENSES.
During the Assurance Period, the Officer's principal place of
employment shall be at the Bank's executive offices at the address first above
written, or at such other location within Westchester County at which the Bank
shall maintain its principal executive offices, or at such other location as the
Bank and the Officer may mutually agree upon. The Bank shall provide the
Officer, at his principal place of employment, with a private office,
stenographic services and other support services and facilities suitable to his
position with the Bank and necessary or appropriate in connection with the
performance of his assigned duties under this Agreement. The Bank shall
reimburse the Officer for his ordinary and necessary business expenses,
including, without limitation, the Officer's travel and entertainment expenses,
incurred in connection with the performance of the Officer's duties under this
Agreement, upon presentation to the Bank of an itemized account of such expenses
in such form as the Bank may reasonably require.
SECTION 8. TERMINATION OF EMPLOYMENT WITH BANK
LIABILITY.
(a) In the event that the Officer's employment with the Bank
shall terminate during the Assurance Period, or prior to the commencement of the
Assurance Period but within three (3) months of and in connection with a Change
of Control as defined in section 10 of this Agreement on account of:
<PAGE> 5
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(i) The Officer's voluntary resignation from employment with
the Bank within ninety (90) days following:
(A) the failure of the Bank's Board to appoint or
re-appoint or elect or re-elect the Officer to serve in the
same position in which the Officer was serving, on the day
before the Assurance Period commenced or a more senior office;
(B) the failure of the stockholders of the Holding
Company to elect or re-elect the Officer as a member of the
Board, if he was a member of the Board on the day before the
Assurance Period commenced;
(C) the expiration of a thirty (30) day period
following the date on which the Officer gives written notice
to the Bank of its material failure, whether by amendment of
the Bank's Organization Certificate or By-laws, action of the
Board or the Holding Company's stockholders or otherwise, to
vest in the Officer the functions, duties, or responsibilities
vested in the Officer on the day before the Assurance Period
commenced (or the functions, duties and responsibilities of a
more senior office to which the Officer may be appointed),
unless during such thirty (30) day period, the Bank fully
cures such failure;
(D) the failure of the Bank to cure a material breach
of this Agreement by the Bank, within thirty (30) days
following written notice from the Officer of such material
breach;
(E) a reduction in the compensation provided to the
Officer, or a material reduction in the benefits provided to
the Officer under the Bank's program of employee benefits,
compared with the compensation and benefits that were provided
to the Officer on the day before the Assurance Period
commenced;
(F) a change in the Officer's principal place of
employment that would result in a one-way commuting time in
excess of the greater of (I) 30 minutes or (II) the Officer's
commuting time immediately prior to such change; or
(ii) the discharge of the Officer by the Bank for any
reason other than for "cause" as provided in section 9(a);
then, subject to section 21, the Bank shall provide the benefits and pay to the
Officer the amounts provided for under section 8(b) of this Agreement; provided,
however, that if benefits or payments become due hereunder as a result of the
Officer's termination of employment prior to the commencement of the Assurance
Period, the benefits and payments provided for under
<PAGE> 6
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section 8(b) of this Agreement shall be determined as though the Officer had
remained in the service of the Bank (upon the terms and conditions in effect at
the time of his actual termination of service) and had not terminated employment
with the Bank until the date on which the Officer's Assurance Period would have
commenced.
(b) Upon the termination of the Officer's employment with the
Bank under circumstances described in section 8(a) of this Agreement, the Bank
shall pay and provide to the Officer (or, in the event of the Officer's death,
to the Officer's estate):
(i) the Officer's earned but unpaid compensation (including,
without limitation, all items which constitute wages under section
190.1 of the New York Labor Law and the payment of which is not
otherwise provided for under this section 8(b)) as of the date of the
termination of the Officer's employment with the Bank, such payment to
be made at the time and in the manner prescribed by law applicable to
the payment of wages but in no event later than thirty (30) days after
termination of employment;
(ii) the benefits, if any, to which the Officer is entitled as
a former employee under the employee benefit plans and programs and
compensation plans and programs maintained for the benefit of the
Bank's officers and employees;
(iii) continued group life, health (including hospitalization,
medical and major medical), dental, accident and long term disability
insurance benefits, in addition to that provided pursuant to section
8(b)(ii) and after taking into account the coverage provided by any
subsequent employer, if and to the extent necessary to provide for the
Officer, for the remaining unexpired Assurance Period, coverage
equivalent to the coverage to which the Officer would have been
entitled under such plans (as in effect on the date of his termination
of employment, or, if his termination of employment occurs after a
Change of Control, on the date of such Change of Control, whichever
benefits are greater) if the Officer had continued working for the Bank
during the remaining unexpired Assurance Period at the highest annual
rate of compensation achieved during the Officer's period of actual
employment with the Bank;
(iv) within thirty (30) days following the Officer's
termination of employment with the Bank, a lump sum payment, in an
amount equal to the present value of the salary that the Officer would
have earned if the Officer had continued working for the Bank during
the remaining unexpired Assurance Period at the highest annual rate of
salary achieved during the Officer's period of actual employment with
the Bank, where such present value is to be determined using a discount
rate equal to the applicable short-term federal rate prescribed under
section 1274(d) of the Internal Revenue Code of 1986 ("Code"),
compounded using the compounding periods corresponding to the Bank's
regular payroll periods for its officers, such lump sum to be paid in
lieu of all other payments
<PAGE> 7
-7-
of salary provided for under this Agreement in respect of the period
following any such termination;
(v) within thirty (30) days following the Officer's
termination of employment with the Bank, a lump sum payment in an
amount equal to the excess, if any, of:
(A) the present value of the aggregate benefits to
which the Officer would be entitled under any and all
qualified and non-qualified defined benefit pension plans
maintained by, or covering employees of, the Bank if the
Officer were 100% vested thereunder and had continued working
for the Bank during the remaining unexpired Assurance Period
such benefits to be determined as of the date of termination
of employment by adding to the service actually recognized
under such plans an additional period equal to the remaining
unexpired Assurance Period and by adding to the compensation
recognized under such plans for the year in which termination
of employment occurs all amounts payable under sections
8(b)(i), (vii), (viii) and (ix);
(B) the present value of the benefits to which the
Officer is actually entitled under such defined benefit
pension plans as of the date of his termination;
where such present values are to be determined using the mortality
tables prescribed under section 415(b)(2)(E)(v) of the Code and a
discount rate, compounded monthly, equal to the annualized rate of
interest prescribed by the Pension Benefit Guaranty Corporation for the
valuation of immediate annuities payable under terminating
single-employer defined benefit plans for the month in which the
Officer's termination of employment occurs ("Applicable PBGC Rate").
(vi) within thirty (30) days following the Officer's
termination of employment with the Bank, a lump sum payment in an
amount equal to the present value of the additional employer
contributions to which he would have been entitled under any and all
qualified and non-qualified defined contribution plans maintained by,
or covering employees of, the Bank, if he were 100% vested thereunder
and had continued working for the Bank during the remaining unexpired
Assurance Period at the highest annual rate of compensation achieved
during the Officer's period of actual employment with the Bank, and
making the maximum amount of employee contributions, if any, required
under such plan or plans, such present value to be determined on the
basis of the discount rate, compounded using the compounding period
that corresponds to the frequency with which employer contributions are
made to the relevant plan, equal to the Applicable PBGC Rate;
<PAGE> 8
-8-
(vii) the payments that would have been made to the Officer
under any cash bonus or long-term or short-term cash incentive
compensation plan maintained by, or covering employees of, the Bank, if
he had continued working for the Bank during the remaining unexpired
Assurance Period and had earned the maximum bonus or incentive award in
each calendar year that ends during the remaining unexpired Assurance
Period, such payments to be equal to the product of:
(A) the maximum percentage rate at which an award was
ever available to the Officer under such incentive
compensation plan; multiplied by
(B) the salary that would have been paid to the
Officer during each such calendar year at the highest annual
rate of salary achieved during the remaining unexpired
Assurance Period, such payments to be made (without
discounting for early payment) within thirty (30) days
following the Officer's termination of employment.
(viii) at the election of the Bank made within thirty (30)
days following the Officer's termination of employment with the Bank,
upon the surrender of options or appreciation rights issued to the
Officer under any stock option and appreciation rights plan or program
maintained by, or covering employees of, the Bank, a lump sum payment
in an amount equal to the product of:
(A) the excess of (I) the fair market value of a
share of stock of the same class as the stock subject to the
option or appreciation right, determined as of the date of
termination of employment, over (II) the exercise price per
share for such option or appreciation right, as specified in
or under the relevant plan or program; multiplied by
(B) the number of shares with respect to which
options or appreciation rights are being surrendered.
For purposes of this section 8(b)(viii) and for purposes of determining
the Officer's right following his termination of employment with the
Bank to exercise any options or appreciation rights not surrendered
pursuant hereto, the Officer shall be deemed to be fully vested in all
options and appreciation rights under any stock option or appreciation
rights plan or program maintained by, or covering employees of, the
Bank, even if the Officer is not vested under such plan or program; and
(ix) at the election of the Bank made within thirty (30) days
following the Officer's termination of employment with the Bank, upon
the surrender of any shares awarded to the Officer under any restricted
stock plan maintained by, or
<PAGE> 9
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covering employees of, the Bank, a lump sum payment in an amount equal
to the product of:
(A) the fair market value of a share of stock of the
same class of stock granted under such plan, determined as of
the date of the Officer's termination of employment;
multiplied by
(B) the number of shares which are being surrendered.
For purposes of this section 8(b)(ix) and for purposes of determining
the Officer's right following his termination of employment with the
Bank to any stock not surrendered pursuant hereto, the Officer shall be
deemed to be fully vested in all shares awarded under any restricted
stock plan maintained by, or covering employees of, the Bank, even if
the Officer is not vested under such plan.
The Bank and the Officer hereby stipulate that the damages which may be incurred
by the Officer following any such termination of employment are not capable of
accurate measurement as of the date first above written and that the payments
and benefits contemplated by this section 8(b) constitute reasonable damages
under the circumstances and shall be payable without any requirement of proof of
actual damage and without regard to the Officer's efforts, if any, to mitigate
damages.
SECTION 9. TERMINATION WITHOUT ADDITIONAL BANK
LIABILITY.
In the event that the Officer's employment with the Bank shall
terminate during the Assurance Period on account of:
(a) the discharge of the Officer for "cause," which, for
purposes of this Agreement shall mean 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, or any material
breach of this Agreement, in each case as measured against standards
generally prevailing at the relevant time in the savings and community
banking industry; provided, however, that the Officer shall not be
deemed to have been discharged for cause unless and until he shall have
received a written notice of termination from the Board, accompanied by
a resolution duly adopted by affirmative vote of a majority of the
entire Board at a meeting called and held for such purpose (after
reasonable notice to the Officer and a reasonable opportunity for the
Officer to make oral and written presentations to the members of the
Board, on his own behalf, or through a representative, who may be his
legal counsel, to refute the grounds for the proposed determination)
finding that in the good faith opinion of the Board grounds exist for
discharging the Officer for cause; or
<PAGE> 10
-10-
(b) the Officer's voluntary resignation from employment
with the Bank for reasons other than those specified in section 8(a)
(i); or
(c) the Officer's death; or
(d) a determination that the Officer is eligible for long-term
disability benefits under the Bank's long-term disability insurance
program or, if there is no such program, under the federal Social
Security Act;
then the Bank shall have no further obligations under this Agreement, other than
the payment to the Officer (or, in the event of his death, to his estate) of his
earned but unpaid salary as of the date of the termination of his employment,
and the provision of such other benefits, if any, to which the Officer is
entitled as a former employee under the employee benefit plans and programs and
compensation plans and programs maintained by, or covering employees of, the
Bank.
SECTION 10. CHANGE OF CONTROL.
(a) A Change of Control of the Bank ("Change of Control")
shall be deemed to have occurred upon the happening of any of the following
events:
(i) approval by the stockholders of the Bank of a transaction
that would result in the reorganization, merger or consolidation of the
Bank, respectively, with one or more other persons, other than a
transaction following which:
(A) at least 51% of the equity ownership interests of
the entity resulting from such transaction are beneficially
owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions
by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3
promulgated under the Exchange Act) at least 51% of the
outstanding equity ownership interests in the Bank; and
(B) at least 51% of the securities entitled to vote
generally in the election of directors of the entity resulting
from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in
substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the securities entitled to vote
generally in the election of directors of the Bank;
<PAGE> 11
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(ii) the acquisition of substantially all of the assets of the
Bank or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding
securities of the Bank entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or
approval by the stockholders of the Bank of any transaction which would
result in an acquisition; or
(iii) a complete liquidation or dissolution of the Bank, or
approval by the stockholders of the Bank of a plan for such liquidation
or dissolution;
(iv) the occurrence of any event if, immediately following
such event, at least fifty percent (50%) of the members of the Board do
not belong to any of the following groups:
(A) individuals who were members of the Board on the
date of this Agreement; or
(B) individuals who first became members of the Board
after the date of this Agreement either:
(1) upon election to serve as a member of
the Board by affirmative vote of three-quarters (3/4)
of the members of such Board, or a nominating
committee thereof, in office at the time of such
first election; or
(2) upon election by the stockholders of the
Board to serve as a member of the Board, but only if
nominated for election by affirmative vote of
three-quarters (3/4) of the members of the Board, or
of a nominating committee thereof, in office at the
time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the
meaning of Rule 14a-11 of Regulation 14A promulgated under the Exchange
Act) or other actual or threatened solicitation of proxies or consents
(within the meaning of Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) other than by or on behalf of the Board of the Bank;
(v) any event which would be described in section 10(a)(i),
(ii), (iii) or (iv) if the term "Holding Company" were substituted for
the term "Bank" therein.
(b) In no event, however, shall a Change of Control be
deemed to have occurred as a result of any acquisition of securities or assets
of the Holding Company, the Bank
<PAGE> 12
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or any subsidiary of either of them, by the Holding Company, the Bank or any
subsidiary of either of them, or by any employee benefit plan maintained by any
of them.
SECTION 11. NO EFFECT ON EMPLOYEE BENEFIT PLANS OR
PROGRAMS.
The termination of the Officer's employment during the
Assurance Period or thereafter, whether by the Bank or by the Officer, shall
have no effect on the rights and obligations of the parties hereto under the
Bank's Retirement Plan, group life, health (including hospitalization, medical
and major medical), dental, accident and long term disability insurance plans or
such other employee benefit plans or programs, or compensation plans or programs
(whether or not employee benefit plans or programs) and any defined contribution
plan, employee stock ownership plan, stock option and appreciation rights plan,
and restricted stock plan, as may be maintained by, or cover employees of, the
Bank from time to time; provided, however, that nothing in this Agreement shall
be deemed to duplicate any compensation or benefits provided under any
agreement, plan or program covering the Officer to which the Bank or the Holding
Company is a party and any duplicative amount payable under any such agreement,
plan or program shall be applied as an offset to reduce the amounts otherwise
payable hereunder.
SECTION 12. SUCCESSORS AND ASSIGNS.
This Agreement will inure to the benefit of and be binding
upon the Officer, his legal representatives and testate or intestate
distributees, and the Bank and the Holding Company, their respective successors
and assigns, including any successor by merger or consolidation or a statutory
receiver or any other person or firm or corporation to which all or
substantially all of the respective assets and business of the Bank or the
Holding Company may be sold or otherwise transferred.
SECTION 13. NOTICES.
Any communication required or permitted to be given under this
Agreement, including any notice, direction, designation, consent, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is delivered personally, or five (5) days after mailing if
mailed, postage prepaid, by registered or certified mail, return receipt
requested, addressed to such party at the address listed below or at such other
address as one such party may by written notice specify to the other party:
If to the Officer:
Ms. Margaret Sampson
24 South Street
Putnam Valley, New York 10579
<PAGE> 13
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If to the Bank:
Tarrytowns Bank, FSB
75 North Broadway
Tarrytown, New York 10591-0187
Attention: Corporate Secretary
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
If to the Holding Company:
Tappan Zee Financial, Inc.
75 North Broadway
Tarrytown, New York 10591
Attention: Chairman of the Board
with a copy to:
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Attention: W. Edward Bright, Esq.
SECTION 14. INDEMNIFICATION AND ATTORNEYS' FEES.
The Bank shall indemnify, hold harmless and defend the Officer
against reasonable costs, including legal fees, incurred by the Officer in
connection with or arising out of any action, suit or proceeding in which the
Officer may be involved, as a result of the Officer's efforts, in good faith, to
defend or enforce the terms of this Agreement; provided, however, that the
Officer shall have substantially prevailed on the merits pursuant to a judgment,
decree or order of a court of competent jurisdiction or of an arbitrator in an
arbitration proceeding, or in a settlement. For purposes of this Agreement, any
settlement agreement which provides for
<PAGE> 14
-14-
payment of any amounts in settlement of the Bank's obligations hereunder shall
be conclusive evidence of the Officer's entitlement to indemnification
hereunder, and any such indemnification payments shall be in addition to amounts
payable pursuant to such settlement agreement, unless such settlement agreement
expressly provides otherwise.
SECTION 15. SEVERABILITY.
A determination that any provision of this Agreement is
invalid or unenforceable shall not affect the validity or enforceability of any
other provision hereof.
SECTION 16. WAIVER.
Failure to insist upon strict compliance with any of the
terms, covenants or conditions hereof shall not be deemed a waiver of such term,
covenant, or condition. A waiver of any provision of this Agreement must be made
in writing, designated as a waiver, and signed by the party against whom its
enforcement is sought. Any waiver or relinquishment of any right or power
hereunder at any one or more times shall not be deemed a waiver or
relinquishment of such right or power at any other time or times.
SECTION 17. COUNTERPARTS.
This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same Agreement.
SECTION 18. GOVERNING LAW.
This Agreement shall be governed by and construed and enforced
in accordance with the federal laws of the United States, and in the absence of
controlling federal law, the laws of the State of New York, without reference to
conflicts of law principles.
SECTION 19. HEADINGS AND CONSTRUCTION.
The headings of sections in this Agreement are for convenience
of reference only and are not intended to qualify the meaning of any section.
Any reference to a section number shall refer to a section of this Agreement,
unless otherwise stated.
SECTION 20. ENTIRE AGREEMENT; MODIFICATIONS.
This instrument contains the entire agreement of the parties
relating to the subject matter hereof, and supersedes in its entirety any and
all prior agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless made in
writing and signed by the parties hereto.
<PAGE> 15
-15-
SECTION 21. REQUIRED REGULATORY PROVISIONS.
The following provisions are included for the purposes of
complying with various laws, rules and regulations applicable to the Bank:
(a) Notwithstanding anything herein contained to the contrary,
in no event shall the aggregate amount of compensation payable to the
Officer under section 8(b) hereof (exclusive of amounts described in
section 8(b)(i), (viii) and (ix)) exceed the three times the Officer's
average annual total compensation for the last five consecutive
calendar years to end prior to his termination of employment with the
Bank (or for his entire period of employment with the Bank if less than
five calendar years).
(b) Notwithstanding anything herein contained to the contrary,
any payments to the Officer by the Bank, whether pursuant to this
Agreement or otherwise, are subject to and conditioned upon their
compliance with section 18(k) of the Federal Deposit Insurance Act
("FDI Act"), 12 U.S.C. Section1828(k), and any regulations promulgated
thereunder.
(c) Notwithstanding anything herein contained to the contrary,
if the Officer is suspended from office and/or temporarily prohibited
from participating in the conduct of the affairs of the Bank pursuant
to a notice served under section 8(e)(3) or 8(g)(1) of the FDI Act, 12
U.S.C. Section1818(e)(3) or 1818(g)(1), the Bank's obligations under
this Agreement shall be suspended as of the date of service of such
notice, unless stayed by appropriate proceedings. If the charges in
such notice are dismissed, the Bank, in its discretion, may (i) pay to
the Officer all or part of the compensation withheld while the Bank's
obligations hereunder were suspended and (ii) reinstate, in whole or in
part, any of the obligations which were suspended.
(d) Notwithstanding anything herein contained to the contrary,
if the Officer is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued
under section 8(e)(4) or 8(g)(1) of the FDI Act, 12 U.S.C.
Section1818(e)(4) or (g)(1), all prospective obligations of the Bank
under this Agreement shall terminate as of the effective date of the
order, but vested rights and obligations of the Bank and the Officer
shall not be affected.
(e) Notwithstanding anything herein contained to the contrary,
if the Bank is in default (within the meaning of section 3(x)(1) of the
FDI Act, 12 U.S.C. Section1813(x)(1), all prospective obligations of
the Bank under this Agreement shall terminate as of the date of
default, but vested rights and obligations of the Bank and the Officer
shall not be affected.
<PAGE> 16
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(f) Notwithstanding anything herein contained to the contrary,
all prospective obligations of the Bank hereunder shall be terminated,
except to the extent that a continuation of this Agreement is necessary
for the continued operation of the Bank: (i) by the Director of the
Office of Thrift Supervision ("OTS") or his designee or the Federal
Deposit Insurance Corporation ("FDIC"), at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the Bank
under the authority contained in section 13(c) of the FDI Act, 12
U.S.C. Section1823(c); (ii) by the Director of the OTS or his designee
at the time such Director or designee approves a supervisory merger to
resolve problems related to the operation of the Bank or when the Bank
is determined by such Director to be in an unsafe or unsound condition.
The vested rights and obligations of the parties shall not be affected.
SECTION 22. GUARANTY.
The Holding Company hereby irrevocably and unconditionally
guarantees to the Officer the payment of all amounts, and the performance of all
other obligations, due from the Bank in accordance with the terms of this
Agreement as and when due without any requirement of presentment, demand of
payment, protest or notice of dishonor or nonpayment.
<PAGE> 17
IN WITNESS WHEREOF, the Bank and the Holding Company have
caused this Agreement to be executed and the Officer has hereunto set his hand,
all as of the day and year first above written.
/s/ Margaret Sampson
--------------------
MARGARET SAMPSON
ATTEST: TARRYTOWNS BANK, FSB
By/s/ Harry G. Murphy
-------------------
Secretary By/s/ Marvin Levy
----------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
ATTEST: TAPPAN ZEE FINANCIAL, INC.
By/s/ Harry G. Murphy
-------------------
Secretary By/s/ Marvin Levy
----------------------------
Name: Marvin Levy
[Seal] Title: Chairman of the Board
[Notary Public
Attestations and Seals]
<PAGE> 1
DESCRIPTION OF BUSINESS: On October 5,1995, Tappan Zee Financial, Inc. became
the holding company for Tarrytowns Bank, FSB upon completion of the conversion
of the Bank from a mutual savings bank to a stock savings bank. Tarrytowns Bank,
FSB was originally founded in 1891 as Tarrytown and North Tarrytown Building and
Loan Association. In 1995, the Bank became a federally chartered mutual savings
bank and assumed its current name.
<PAGE> 2
SELECTED CONSOLIDATED FINANCIAL DATA
AT OR FOR THE FISCAL YEAR ENDED MARCH 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL CONDITION DATA:
Total assets $114,790 $91,149 $86,388 $84,636 $79,308
Loans, net 51,174 50,233 45,026 46,211 46,133
Mortgage-backed securities 31,414 23,659 21,157 21,915 19,062
Other securities 19,566 6,722 9,637 7,668 4,210
Federal funds sold 5,500 5,000 5,700 5,300 4,500
Deposits 89,908 81,813 77,510 77,042 72,730
Shareholders' equity 22,360(a) 7,818 7,201 6,199 5,333
SELECTED OPERATING DATA:
Interest income $ 7,624 $ 6,547 $ 6,346 $ 6,724 $ 6,688
Interest expense on deposits 4,002 2,912 2,766 3,356 4,352
-------- ------- ------- ------- -------
Net interest income 3,622 3,635 3,580 3,368 2,336
Provision for loan losses 90 171 151 315 190
-------- ------- ------- ------- -------
Net interest income after provision for loan losses 3,532 3,464 3,429 3,053 2,146
Non-interest income 211 67 158 32 156
Non-interest expense 2,297 2,087 1,832 1,609 1,634
-------- ------- ------- ------- -------
Income before income tax expense and cumulative
effect of changes in accounting principles 1,446 1,444 1,755 1,476 668
Income tax expense 609 610 741 704 368
-------- ------- ------- ------- -------
Income before cumulative effect of changes in
accounting principles 837 834 1,014 772 300
Cumulative effect of changes in accounting principles:
Income taxes -- -- 100 -- --
Postretirement health care benefits, net -- -- (100) -- --
-------- ------- ------- ------- -------
Net income $ 837 $ 834 $ 1,014 $ 772 $ 300
======== ======= ======= ======= =======
SELECTED STATISTICAL DATA: (b)
Return on average assets 0.81% 0.93% 1.18% 0.94% 0.40%
Return on average equity 6.04 10.81 15.25 13.66 5.63
Net interest margin (c) 3.59 4.16 4.26 4.23 3.27
Average interest rate spread (d) 2.91 3.80 3.94 3.90 2.94
Equity to total assets at end of period 19.48 8.58 8.34 7.32 6.72
Efficiency ratio (e) 60.75 50.80 47.51 46.17 61.35
Non-interest expense to average assets 2.21 2.34 2.13 1.97 2.18
Non-performing loans to total loans 3.15 5.20 4.18 5.31 5.24
Allowance for loan losses to non-performing loans 40.07 24.58 28.38 19.44 12.45
Non-performing assets to total assets 1.77 3.40 2.63 3.46 4.09
Dividend payout ratio (f) 17.23
Book value per share (g) $ 13.80
Earnings per share, from the date of conversion $ 0.31
</TABLE>
(a) Includes additional capital of $13.6 million from the sale of the
Company's common stock (other than ESOP shares)in connection with the
Bank's conversion to stock form on October 5, 1995.
(b) With the exception of end-of-period ratios, all ratios are based on
average monthly balances.
(c) Net interest income divided by average interest-earning assets.
(d) The difference between the weighted average yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities.
(e) Non-interest expense, excluding real estate owned expenses, divided by
net interest income plus non-interest income, excluding securities
gains/losses.
(f) Based on dividend paid in the fourth quarter of fiscal 1996 as a
percentage of net income from the date of conversion (the six-month
period ended March 31, 1996). If based on net income for the fourth
quarter, the ratio would be 32.93%.
(g) Shareholders' equity divided by total shares of common stock outstanding.
1
<PAGE> 3
TO OUR SHAREHOLDERS:
It is with pleasure that I present to our shareholders our first Annual Report
as a public company. Fiscal 1996 was a very eventful year. After doing business
for almost 105 years as a mutual savings and loan association, we became a
federally chartered mutual savings bank and changed our name to Tarrytowns Bank,
FSB. On October 5, 1995, Tappan Zee Financial, Inc. became the holding company
for Tarrytowns Bank, FSB, upon completion of the Bank's conversion to a stock
savings bank. The subscription and community offering was very successful with
1,620,062 shares sold at a price of $10 per share.
Despite all of these changes, our focus remains clear. Tarrytowns Bank,
FSB will continue to be a local community bank, providing the quality customer
service that has been our trademark. Although competition for deposits and loans
has increased significantly with more and more regional banks moving into our
marketplace, we continue to effectively compete because of our knowledge of the
local market and our tradition of offering personal service. We meet our
customers financial needs with extended banking hours, courteous
long-tenured employees, and prompt and customized production of a variety of
loan products. The increased capital produced by the stock offering will allow
the Bank to further expand its market share and provide for enhanced earnings.
Net income for the year ended March 31, 1996 was $837,000, a slight
increase from $834,000 for the prior year. On a per share basis, net earnings
were $0.31 for the six-month period following the conversion. Net interest
income, the primary contributor to earnings, was $3.6 million for the year ended
March 31, 1996, consistent with fiscal 1995. Non-performing loans decreased to
13 loans totaling $1.6 million at March 31, 1996 as compared with 23 loans
totaling $2.6 million last year. The decline in non-performing loans was the
result of our collection and workout efforts and also contributed to a reduction
in the provision for loan losses. Total assets at March 31, 1996 amounted to
$114.8 million, a 25.9% increase from $91.1 million a year earlier.
Shareholders' equity increased from $7.8 million to $22.4 million during fiscal
year 1996. The increase in assets and equity is primarily due to the capital
infusion from the stock offering and the increase in our deposit base, which
grew 9.9% to $89.9 million. The Company's ratio of shareholders' equity to total
assets was 19.5% and its tangible book value per share was $13.80 at March 31,
1996. The Bank's regulatory capital ratios are significantly in excess of
minimum requirements.
On March 25, 1996, the Company paid its initial cash dividend of $0.05 per
share. On May 8, 1996, the Board of Directors approved a second quarterly
dividend of $0.05 per share, payable June 25, 1996 to shareholders of record on
June 5, 1996. These dividends reflect the strong capital base of the Company and
our desire to share its success with our shareholders, who have entrusted us
with their investment capital. In addition, on April 29, 1996, we received
approval from the Office of Thrift Supervision, our regulators, to repurchase up
to 5% of the Company's common stock during the six-month period ending November
13, 1996. The Board of Directors believes that the repurchase of the stock at
the Company's recent trading range is an excellent use of capital and an
effective way to enhance shareholder value. With a substantial capital base, the
improvement of return on equity is a top priority. Management's current strategy
is to continue to deploy conversion proceeds and other liquid assets of the
Company in higher yielding mortgage and other loans originated by the Company
and in mortgage-backed securities.
Our directors, officers and staff have strong ties to our community.
Numerous local civic and charitable organizations flourish because of their
participation. We are committed to future growth and performance that will
enhance value to our shareholders and demonstrate our continued commitment to
our community. We look to the future with enthusiasm. We thank our customers for
their loyalty, our directors and employees for their dedication, and our
shareholders for their support and confidence.
Sincerely,
/s/ Stephen C. Byelick
Stephen C. Byelick
President and Chief Executive Officer
2
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Tappan Zee Financial, Inc. (the "Holding Company") is the unitary savings
association holding company for Tarrytowns Bank, FSB (the "Bank"), a federally
chartered savings bank and wholly-owned subsidiary of the Holding Company. On
October 5, 1995, the Bank converted from a mutual savings bank to a stock
savings bank (the "Conversion"). Collectively, the Holding Company and the Bank
are referred to herein as the "Company." Concurrent with the Conversion, the
Holding Company sold 1,620,062 shares of its common stock in a subscription and
community offering at a price of $10 per share, for net proceeds of $14.9
million.
The Company's primary market area consists of the Village of Tarrytown and
its neighboring communities in Westchester County, New York with business
conducted from one office located in Tarrytown, New York. The Bank is a
community-oriented savings institution whose business primarily consists of
accepting deposits from customers within its market area and investing those
funds in mortgage loans secured by one- to four-family residences. To a
significantly lesser extent, funds are invested in multi-family, commercial real
estate, construction, commercial business and consumer loans. The Company also
invests in mortgage-backed and other securities. The Holding Company has no
business activities other than its ownership of the Bank.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on its
interest-earning assets, such as loans and securities, and the interest expense
on its interest-bearing liabilities, such as deposits. The Company also
generates non-interest income such as service charges and other fees. The
Company's non-interest expenses primarily consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums, net costs of
real estate owned, data processing fees and other operating expenses. The
Company's results of operations are significantly affected by general economic
and competitive conditions (particularly changes in market interest rates),
government policies, changes in accounting standards and actions of regulatory
agencies.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the ability of the Company to generate sufficient cash flow to
meet funding needs, depositor withdrawals and operating expenses. The Bank is
required to maintain an average daily balance of liquid assets as a percentage
of net withdrawable deposit accounts plus short-term borrowings as defined by
the regulations of the Office of Thrift Supervision ("OTS"). The minimum
required liquidity ratio is currently 5.0%. At March 31, 1996, the Bank's
liquidity ratio of 19.0% was in compliance with the OTS liquidity regulations.
The Company's cash flows are derived from operating activities, investing
activities and financing activities. Cash flows from operating activities
consist primarily of interest income received and interest expense paid. Net
cash flows from investing activities consist primarily of loan originations and
payments (including amortization of principal and prepayments) and the purchase,
maturity and sale of securities, including mortgage-backed securities. During
the years ended March 31, 1996, 1995 and 1994, the Company's disbursements for
loan originations totaled $9.3 million, $15.5 million and $9.3 million,
respectively. Purchases of securities totaled $33.8 million, $5.5 million and
$13.9 million for the years ended March 31, 1996, 1995 and 1994, respectively.
Financing activity cash flows are generated primarily from deposit activity
and capital transactions such as the Conversion. For the fiscal years ended
March 1996, 1995 and 1994, the Company experienced net increases in deposits
(including the effect of interest credited) of $8.1 million, $4.3 million and
$468,000, respectively. The increase in fiscal years 1996 and 1995 reflects the
general increase in market interest rates which made deposit products
(particularly shorter term certificate of deposits) a more attractive investment
alternative for the Company's customers. The smaller increase in deposits in
fiscal 1994 reflects the generally lower level of interest rates prevailing at
that time and customer preference for non-deposit investment alternatives.
The Company has other sources of liquidity if a need for additional funds
arises, including borrowing capacity from the Federal Home Loan Bank ("FHLB") of
New York of up to 25% of the Bank's assets, which amounts to $27.3 million at
March 31, 1996. At March 31, 1996, there were no such borrowings outstanding.
The utilization of particular sources of funds depends on comparative costs and
availability. While maturities and scheduled amortization of loans and
securities provide an indication of the timing of the receipt of funds, changes
in interest rates, economic conditions, and competition strongly influence
mortgage prepayment rates and deposit flows, reducing the predictability of the
timing of sources of funds.
At March 31, 1996, the Company had outstanding loan commitments of $1.1
million, undisbursed construction loans in process of $738,000 and unadvanced
commercial lines of credit of $20,000. The Company anticipates that it will have
sufficient funds available to meet its current origination and other lending
commitments. Certificates of deposit scheduled to mature in one year or less
from March 31, 1996 totaled $40.4 million. Based upon the Company's most recent
experience and pricing strategy, management believes that a significant portion
of such deposits will remain with the Bank.
The main sources of liquidity for the Holding Company are net proceeds from
the sale of stock and dividends from the Bank. The main cash outflows are
payments of dividends to
3
<PAGE> 5
shareholders and any repurchases of the Holding Company's common stock. On April
29, 1996, the Company received approval from the OTS to repurchase up to 5% of
its outstanding common stock. The repurchase of stock may be made at
management's discretion within the six-month period ending November 13, 1996.
The Holding Company's ability to pay dividends to shareholders depends
substantially on dividends received from the Bank. The Bank may not declare or
pay cash dividends on or repurchase any of its shares of common stock if the
effect thereof would cause equity to be reduced below applicable regulatory
capital requirements or the amount required to be maintained for the liquidation
account. Unlike the Bank, the Holding Company is not subject to OTS regulatory
restrictions on the payment of dividends to its shareholders, however, it is
subject to the requirements of Delaware law. Delaware law generally limits
dividends to an amount equal to the excess of the net assets of the Holding
Company (the amount by which total assets exceed total liabilities) over its
statutory capital, or if there is no such excess, to its profits for the current
and/or immediately preceding fiscal year.
The OTS regulations require savings associations, such as the Bank, to meet
three minimum capital standards: a tangible capital ratio requirement of 1.5% of
total assets as adjusted under the OTS regulations; a leverage ratio requirement
of 3% of core capital to such adjusted total assets; and a risk-based capital
ratio requirement of 8% of core and supplementary capital to total risk-based
assets. The Bank satisfied these minimum capital standards at March 31, 1996
with tangible and leverage capital ratios of 14.9% and a total risk-based
capital ratio of 38.0%. In determining the amount of risk-weighted assets for
purposes of the risk-based capital requirement, a savings association must
compute its risk-based assets by multiplying its assets and certain off-balance
sheet items by risk-weights, which range from 0% for cash and obligations issued
by the United States Government or its agencies to 100% for consumer and
commercial loans, as assigned by the OTS capital regulations. These capital
requirements, which are applicable to the Bank only, do not consider additional
capital held at the Holding Company level, and require certain adjustments to
shareholder's equity to arrive at the various regulatory capital amounts.
The table below presents the Bank's regulatory capital amounts as compared to
the OTS regulatory capital requirements at March 31, 1996:
<TABLE>
<CAPTION>
Capital Excess
Amount Requirements Capital
------ ----------- -------
(In thousands)
<S> <C> <C> <C>
Tangible capital $16,220 $1,637 $14,583
Core capital 16,220 3,275 12,945
Risk-based capital 16,772 3,527 13,245
</TABLE>
INTEREST RATE RISK MANAGEMENT
The Company's net income is dependent to a substantial extent on its net
interest income. Net interest income is derived from the "spread" between the
yield on interest-earning assets and interest-bearing liabilities. The net
interest income of savings institutions is significantly affected by many
factors including: interest rate fluctuations; general economic conditions;
product pricing; the relative mix and maturity of interest-earning assets and
interest-bearing liabilities; non-interest-bearing sources of funds; and asset
quality. Net interest income volatility arises because, as rates fluctuate,
interest income and interest expense do not change equally. The management of
interest rate risk is an essential component of managing a savings institution.
The extent of the movement of interest rates, higher or lower, is an uncertainty
that could have a negative impact on the earnings of the Company.
Successful management of interest rate risk requires an awareness of changes
and trends in the financial marketplace and the ability to identify and assess
the sources of performance variability in an institution's operations. The
principal objectives of the Company's interest rate risk management activities
are to (i) evaluate the interest rate risk included in certain balance sheet
accounts, (ii) determine the level of risk appropriate given the Company's
business focus, operating environment, capital and liquidity requirements and
performance objectives, (iii) establish prudent asset concentration guidelines
and (iv) manage the risk within prudent levels approved by the Board of
Directors. Through such management, the Company seeks to reduce the
vulnerability of its operating results to changes in interest rates by matching
more closely the effective repricings and maturities of its interest-sensitive
assets and liabilities. In doing so, interest rate risk strategies must
accommodate customer demands for particular loan and deposit products.
The Company has taken several actions, under various market conditions,
designed to manage its level of interest rate risk. These actions have included:
(i) purchasing adjustable and fixed rate mortgage-backed securities with varying
average lives, (ii) undertaking an effort to lengthen the maturities of its
certificates of deposit, the majority of which mature in less than one year, and
(iii) increasing the percentage of the loan portfolio consisting of
adjustable-rate mortgage loans through originations, as market conditions
permit. The Company does not currently engage in trading activities or use
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors, the
Company does not intend to engage in such activities in the immediate future.
Interest rate risk may be analyzed by examining the extent to which assets
and liabilities are "interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap." An asset or liability is said to be interest
rate sensitive within a specific time period if it will mature or reprice within
that time period. The interest rate sensitivity gap is defined as the difference
between the amount of interest-earning assets maturing or repricing within the
same time period and the
4
<PAGE> 6
amount of interest-bearing liabilities maturing or repricing within that time
period. A gap is considered positive when the amount of interest rate sensitive
assets exceeds the amount of interest rate sensitive liabilities. A gap is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest rate sensitive assets. During a period of rising
interest rates a negative gap theoretically would tend to adversely affect
net interest income. Conversely, during a period of falling interest rates, a
negative gap position would theoretically tend to result in an increase in net
interest income.
At March 31, 1996, the Company's one-year gap was a negative 15.9% of total
assets, compared to a negative 22.4% at March 31, 1995. The change in the one
year gap primarily reflects the increased liquidity of the Company. See
"Liquidity and Capital Resources." Certain shortcomings are inherent in the gap
analysis. 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 of assets and liabilities may lag
behind changes in market rates. Additionally, certain assets, such as
adjustable-rate loans, have features which restrict changes in interest rates
both on a short-term basis and over the life of the asset. Further, in the event
of a change in interest rates, prepayment and early withdrawal levels would
likely deviate significantly from those assumed in calculating the gap. Finally,
the ability of many borrowers to make scheduled payments on their
adjustable-rate loans may decrease in the event of an interest rate increase.
In addition to gap analysis, the Company measures exposure to interest rate
fluctuations using computer simulation modeling. The simulation analysis
incorporates assumptions about balance sheet changes such as asset and liability
growth, loan and deposit pricing and changes due to the mix and maturity of such
assets and liabilities. Utilizing simulation modeling, the Company's net
interest income for the year ended March 31, 1997 would increase by less than 2%
with a gradual, parallel increase or decrease in rates of 200 basis points.
Also, the quarterly OTS "Interest Rate Exposure Report" is used to evaluate
the Bank's change in its net portfolio value ("NPV") arising from movements in
interest rates. This approach calculates the difference between the present
value of liabilities and the present value of expected cash flows from assets
and off-balance sheet items. NPV analysis is a longer term performance indicator
since it utilizes the present value of the future cash flows of an institution's
assets, liabilities and off-balance sheet items.
The following table sets forth, at March 31, 1996, an analysis of the Bank's
interest rate risk as measured by the estimated changes in NPV resulting from
instantaneous and sustained parallel shifts in the yield curve (+ or -400 basis
points, measured in 100 basis point increments).
<TABLE>
<CAPTION>
Estimated Increase
Change in (Decrease) in NPV
Interest Rates Estimated NPV --------------------
(Basis Points) Amount Amount Percent
-------------- ------------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C>
+400 $11,280 $(8,359) (43)%
+300 13,565 (6,074) (31)
+200 15,669 (3,970) (20)
+100 17,421 (2,218) (11)
-- 19,639 -- --
-100 21,194 1,554 8
-200 22,224 2,584 13
-300 23,552 3,912 20
-400 25,179 5,540 28
</TABLE>
5
<PAGE> 7
ANALYSIS OF NET INTEREST INCOME
The following table sets forth certain information relating to the Company's
average balance sheets, yields and costs for each of the years in the three-year
period ended March 31, 1996. The yields and costs were derived by dividing
interest income or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances were computed based on
month-end balances. Management believes that the use of average monthly
balances instead of average daily balances did not have a material effect on the
information presented. The yields include deferred fees and discounts which are
considered yield adjustments.
<TABLE>
<CAPTION>
For the Year Ended March 31,
--------------------------------------------------------------
1996 1995
----------------------------- ------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans(a) $ 51,621 $4,465 8.65% $47,275 $4,078 8.63%
Mortgage-backed securities(b) 25,660 1,811 7.06 23,001 1,661 7.22
Other securities (b) 10,338 576 5.57 7,620 406 5.33
Federal funds sold 10,846 639 5.89 6,685 313 4.68
FHLB stock 514 37 7.20 466 36 7.73
Other 1,963 96 4.89 2,251 53 2.35
-------- ------ ---- ------- ------ ----
Total interest-earning assets 100,942 $7,624 7.55% 87,298 $6,547 7.50%
====== ======
Allowance for loan losses (645) (569)
Non-interest-earning assets 3,579 2,475
-------- -------
Total assets $103,876 $89,204
======== =======
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
NOW and money market $ 8,798 $ 200 2.27% $ 8,536 $ 195 2.28%
Savings accounts 28,120 982 3.49 32,826 1,038 3.16
Certificate accounts and other 49,288 2,820 5.72 37,377 1,679 4.49
-------- ------ ------- ------
Total interest-bearing
liabilities 86,206 $4,002 4.64% 78,739 $2,912 3.70%
====== ======
Checking accounts 2,069 1,456
Other non-interest-bearing
liabilities 1,743 1,291
-------- -------
Total liabilities 90,018 81,486
Equity 13,858 7,718
-------- -------
Total liabilities and equity $103,876 $89,204
======== =======
Net interest income $3,622 $3,635
====== ======
Average interest rate spread(c) 2.91% 3.80%
Net interest margin(d) 3.59 4.16
Ratio of interest-earning assets to
interest-bearing liabilities 117.09% 110.87%
<CAPTION>
For the Year Ended March 31,
-------------------------------
1994
-------------------------------
Average Average
Balance Interest Yield/Cost
------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
ASSETS:
Interest-earning assets:
Loans(a) $46,067 $4,086 8.87%
Mortgage-backed securities(b) 20,412 1,545 7.57
Other securities (b) 9,455 477 5.04
Federal funds sold 5,562 168 3.02
FHLB stock 572 50 8.74
Other 2,020 20 0.99
------- ------ ----
Total interest-earning assets 84,088 $6,346 7.55%
======
Allowance for loan losses (501)
Non-interest-earning assets 2,329
-------
Total assets $85,916
=======
LIABILITIES AND EQUITY:
Interest-bearing liabilities:
NOW and money market $ 9,942 $ 249 2.50%
Savings accounts 31,689 969 3.06
Certificate accounts and other 34,955 1,548 4.43
------- ------
Total interest-bearing
liabilities 76,586 $2,766 3.61%
======
Checking accounts 1,296
Other non-interest-bearing
liabilities 1,386
-------
Total liabilities 79,268
Equity 6,648
-------
Total liabilities and equity $85,916
=======
Net interest income $3,580
======
Average interest rate spread(c) 3.94%
Net interest margin(d) 4.26
Ratio of interest-earning assets to
interest-bearing liabilities 109.80%
</TABLE>
(a) Balance is net of deferred loan fees, loan discounts and premiums, and
loans in process. Non-accrual loans are included in the balances.
(b) Balance represents amortized cost.
(c) Average interest rate spread represents the difference between the yield
on average interest-earning assets and the cost of average
interest-bearing liabilities.
(d) Net interest margin represents net interest income divided by average
total interest-earning assets.
6
<PAGE> 8
The following table presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to (i) changes attributable to changes in volume (changes in volume
multiplied by prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Fiscal 1996 vs. 1995 Fiscal 1995 vs. 1994
------------------------------ -----------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------- Net ------------------- Net
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 377 $ 10 $ 387 $ 105 $(113) $ (8)
Mortgage-backed securities 188 (38) 150 192 (76) 116
Other securities 153 17 170 (97) 26 (71)
Federal funds sold 249 77 326 38 107 145
FHLB stock 4 (3) 1 (9) (5) (14)
Other (7) 50 43 2 31 33
----- ----- ------ ----- ----- -----
Total 964 113 1,077 231 (30) 201
----- ----- ------ ----- ----- -----
Interest-bearing liabilities:
NOW and money market accounts 6 (1) 5 (35) (19) (54)
Savings accounts $(149) 93 (56) 15 54 69
Certificate accounts and other 574 567 1,141 110 21 131
----- ----- ------ ----- ----- -----
Total 431 659 1,090 90 56 146
----- ----- ------ ----- ----- -----
Net change in net interest income $ 533 $(546) $ (13) $ 141 $ (86) $ 55
===== ===== ====== ===== ===== =====
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1996 AND 1995
Total assets increased $23.7 million to $114.8 million at March 31, 1996 from
$91.1 million at March 31, 1995, reflecting the net proceeds from the Company's
stock offering as well as the Company's ongoing strategy of controlled growth.
In addition to the conversion proceeds, asset growth was funded primarily
through deposit inflows. Deposit liabilities increased $8.1 million to $89.9
million at March 31, 1996 from $81.8 million at March 31, 1995, primarily due to
an increase in certificates of deposit, the majority of which have remaining
maturities of one year or less.
Asset growth was concentrated in securities which increased $20.6 million to
$51.0 million at March 31, 1996 from $30.4 million at March 31, 1995. Securities
held-to-maturity amounted to $9.4 million and $17.1 million at March 31, 1996
and 1995, respectively. Securities classified as available-for-sale at March 31,
1996 and 1995 amounted to $41.5 million and $13.3 million, respectively. In
December 1995, the Company transferred $11.3 million in securities to the
available-for-sale portfolio from the held-to-maturity portfolio in accordance
with a Financial Accounting Standards Board Special Report which provided a
one-time opportunity to reclassify securities. Management intends to continue to
maintain a higher level of available-for-sale securities to enhance the
Company's overall financial flexibility.
Total loans, net, increased $941,000 to $51.2 million at March 31, 1996, from
$50.2 million at March 31, 1995. The increase was primarily attributable to
increases in construction loans and commercial business loans.
Other assets and other liabilities at March 31, 1996 amounted to $3.1 million
and $2.5 million, respectively, as compared to $2.0 million and $1.5 million a
year earlier. The increases in other assets and liabilities are primarily
attributable to the recognition of an asset for unrecognized prior service cost
and an obligation for plan benefits relating to the deferred compensation plan
for directors of the Company. See note 9 to consolidated financial statements.
Shareholders' equity at March 31, 1996 increased $14.6 million to $22.4
million from $7.8 million at March 31, 1995. The stock offering, net of the ESOP
shares, resulted in an increase in shareholders' equity of $13.6 million, at
March 31, 1996.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED MARCH 31, 1996 AND
1995
General. For the year ended March 31, 1996, the Company reported net income
of $837,000, a slight increase from $834,000 for the prior year. The increase in
interest income resulting from the deployment of stock offering proceeds and
deposit growth was offset primarily by the increase in interest paid on
certificate accounts. Decreases in the provision for loan losses and the
provision for losses on real estate owned, and an increase in the net gain on
sales of available-for-sale securities in the 1996 fiscal year were
substantially offset by the increase in non-interest expense relating to
additional benefit plans, which became effective upon the Conversion, and
increased costs associated with operating as a public company.
7
<PAGE> 9
Net Interest Income. Net interest income for the year ended March 31, 1996
remained relatively stable at $3.6 million. The average interest rate spread and
the net interest margin for the 1996 fiscal year dropped to 2.91% and 3.59%,
respectively, as compared to 3.80% and 4.16%, respectively, for the prior year.
These declines reflect the continued shifting of funds from savings accounts to
higher costing certificate accounts and the initial investment of the Conversion
proceeds in shorter term, lower yielding investments. In addition, the increase
in the rates the Company paid on certificates of deposit as a result of an
increase in short-term market interest rates had a negative impact on its
average interest rate spread and net interest margin. The flat yield curve
experienced during the year and the continuing uncertainty about the federal
budget and its effect on the future direction of interest rates were factors
considered by the Company in delaying the reinvestment of the stock offering
proceeds in longer term investments. At March 31, 1996, the Company had over
12.5% of its assets invested in federal funds, and in treasury and other
securities with an expected maturity of one year or less. Management's long term
strategy is to further reinvest such proceeds in higher yielding medium and
longer term securities and loans.
Interest Income. Total interest income for the 1996 fiscal year amounted to
$7.6 million, a 16.5% increase from last year. This increase relates to a $13.6
million increase in average interest-earning assets which is primarily due to
the investment of funds from the stock offering and deposit growth. Of the
increase in average interest-earning assets, $4.3 million was attributable to
the loan portfolio, $5.4 million related to the securities portfolios, and $3.9
million related to other earning assets (principally federal funds sold). The
increase in interest income for the year ended March 31, 1996 was also
attributable to a slight increase in the average yield on interest-earning
assets to 7.55%, from 7.50% for the 1995 fiscal year. This slight increase
reflects the disparate impact that market interest rates had on the Company's
interest-earning assets, which is attributable to the flat yield curve
experienced during the year.
Interest Expense. Interest expense on deposits for the year ended March 31,
1996 totaled $4.0 million, a 37.4% increase from $2.9 million for the 1995
fiscal year. The increase is attributable to a $7.5 million increase in average
interest-bearing deposits, in addition to the rise in the average rate paid on
deposits to 4.64%, from 3.70% for the prior year. The deposit growth is
consistent with management's strategy to increase retail deposits. The average
rate paid on deposits increased due to the general rise in interest rates and
the shift from savings accounts to higher yielding certificates of deposit.
Certificate accounts and other interest-bearing liabilities averaged $49.3
million at an average cost of 5.72% for the 1996 fiscal year as compared to an
average balance of $37.4 million at an average cost of 4.49% for the 1995 fiscal
year. The average balance of savings accounts decreased to $28.1 million for the
year ended March 31, 1996 from $32.8 million for the prior year, while the
average rate paid on savings accounts for the 1996 fiscal year increased to
3.49% from 3.16% for the 1995 fiscal year.
Provision for Loan Losses. The provision for loan losses for the year ended
March 31, 1996 decreased to $90,000, from $171,000 in the prior year. The
$81,000 decrease is primarily attributable to a $1.0 million reduction in
non-performing loans which totaled $1.6 million at March 31, 1996. The decline
in non-performing loans is a result of a combination of factors including
collections, charge-offs and the emergence of fewer new problem loans. The ratio
of the allowance for loan losses to non-performing loans was 40.07% as compared
to 24.58% a year ago. See "Asset Quality" for further information.
Non-Interest Income. Non-interest income for the year ended March 31, 1996
amounted to $211,000, an increase from $67,000 for the 1995 fiscal year. The
increase primarily reflects a net gain on the sale of available-for-sale
securities of $88,000, as compared to a net loss of $44,000 reported in the 1995
fiscal year.
Non-Interest Expense. Non-interest expense increased 10.1% to $2.3 million
for the year ended March 31, 1996 from $2.1 million for the year ended March 31,
1995. This increase was primarily attributable to higher compensation and
benefits expense and costs associated with operations as a public company,
partially offset by a decline in real estate owned costs. The increase in
compensation and benefits expense primarily reflects the recognition of costs
associated with the employee stock ownership plan ($89,000) and the directors'
retirement plan ($8,000) which became effective upon Conversion; increased
expense recognized for the deferred compensation plan for the directors
($104,000), as adopted in its amended form upon Conversion; and
performance-based salary increases. The net cost of real estate owned decreased
to $22,000 in the 1996 fiscal year, from $184,000 for the prior year primarily
due to the lower provision for losses on the sale of real estate owned. Real
estate owned costs in the prior year period reflected the costs associated with
the rehabilitation of REO properties prior to their sale. Despite the overall
increase in expenses, the Company's ratio of non-interest expenses to average
assets decreased to 2.21% in the 1996 fiscal year from 2.34% in the 1995 fiscal
year, reflecting the Company's asset growth.
Income Tax Expense. Income tax expense for the years ended March 31, 1996 and
1995 was $609,000 and $610,000, respectively, reflecting an effective tax rate
of 42.1% and 42.2%, respectively.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED MARCH 31, 1995 AND
1994
General. Net income for the fiscal year ended March 31, 1995 was $834,000,
compared to $1.0 million for the fiscal year ended March 31, 1994. The $180,000,
or 17.8%, decrease was due to a $97,000 increase in the combined provision for
loan losses and provision for losses on real estate owned, a $178,000 increase
in non-
8
<PAGE> 10
interest expense (other than the real estate owned provision) and a $91,000
decrease in non-interest income, which were partially offset by a $55,000
increase in net interest income and a $131,000 decrease in income tax expense.
Net Interest Income. Net interest income for the fiscal year ended March 31,
1995 increased $55,000, or 1.5%, to $3.6 million. This slight increase reflects
the increase in average interest-earning assets which exceeded the increase in
interest-bearing liabilities, the effect of which was offset by a decrease in
the Company's average interest rate spread of 14 basis points to 3.80% and a
decrease in the Company's net interest margin of 10 basis points to 4.16% for
the 1995 fiscal year.
Market interest rates were higher in the 1995 fiscal year across the entire
U.S. Treasury yield curve than in the 1994 fiscal year. However, the Company
generally realized lower yields on its average interest-earning assets (other
than federal funds sold) as a result of the impact of asset repricings that
occurred during the declining interest rate environment in the 1994 fiscal year.
Generally, the Company's assets repriced less quickly in the rising interest
rate environment of the 1995 fiscal year than in the declining interest rate
environment of the 1994 fiscal year. During the 1995 fiscal year, the Company's
interest-bearing liabilities, particularly its statement savings accounts and
certificate accounts which had increasing average balances, repriced more
quickly than the Company's interest-earning assets. This had a negative impact
on the Company's average interest rate spread and net interest margin in the
1995 fiscal year compared to the 1994 fiscal year.
Interest Income. Interest income totaled $6.5 million for the fiscal year
ended March 31, 1995, compared to $6.3 million for the fiscal year ended March
31, 1994. This increase reflects a $3.2 million increase in total average
interest-earning assets in the 1995 fiscal year compared to the 1994 fiscal
year, while the average yield on such assets declined only five basis points
over the same period. Interest income on mortgage and other loans remained
relatively stable at $4.1 million for the 1995 fiscal year, reflecting a $1.2
million increase in the average balance of loans offset by the effect of a 24
basis point decrease in the average yield to 8.63%. Interest income on
securities increased $45,000 to $2.1 million for the 1995 fiscal year from $2.0
million for the 1994 fiscal year. The increase is primarily due to a $116,000
increase in interest on mortgage-backed securities, attributable to a $2.6
million increase in the average balance to $23.0 million, partially offset by a
35 basis point decline in the average yield to 7.22%. Interest income on federal
funds sold increased $145,000 to $313,000 for the 1995 fiscal year, reflecting a
$1.1 million increase in average balance and a 166 basis point increase in
average yield.
Interest Expense. Interest expense on deposits increased $146,000 to $2.9
million for the fiscal year ended March 31, 1995, compared to $2.8 million for
the fiscal year ended March 31, 1994. This increase reflects both an increase in
average interest-bearing liabilities of $2.2 million during the 1995 fiscal year
and an increase in the average rate paid on such liabilities of nine basis
points over the same period. The increase in average interest-bearing
liabilities is primarily attributable to an increase in the average balance of
certificates of deposit to $37.4 million for the 1995 fiscal year from $35.0
million for the 1994 fiscal year, which increase occurred during a generally
higher interest rate environment resulting in the average rate paid on such
deposits increasing six basis points to 4.49%. The net effect was an increase of
$131,000 in interest expense on certificates of deposit. The increase in
certificates of deposit reflects the Company's general strategy of funding asset
growth with deposit liabilities. The increase in interest expense also reflects
a shift of interest-bearing liabilities from generally lower rate regular
savings accounts, the average balance of which declined by $7.4 million from the
1994 fiscal year to the 1995 fiscal year, to generally higher rate statement
savings accounts, the average balance of which increased by $8.5 million over
the same period. The Company introduced the statement savings account during the
1994 fiscal year and the shift of deposits to such accounts generally reflects
the Company's marketing efforts and pricing strategies with respect to such
account. The effect of this movement of deposits was an increase in interest
expense on statement savings accounts of $302,000 partially offset by a decrease
in interest expense on regular savings accounts of $233,000.
Provision for Loan Losses. The provision for loan losses increased to
$171,000 for the fiscal year ended March 31, 1995 from $151,000 for the fiscal
year ended March 31, 1994. This is primarily attributable to an increase in
non-performing loans to $2.6 million at March 31, 1995 from $1.9 million at
March 31, 1994 and an overall increase of $5.3 million in total loans during
this period. As a percentage of total loans, the allowance for loan losses rose
to 1.28% at March 31, 1995 from 1.19% at March 31, 1994. See "Asset Quality" for
further information.
Non-Interest Income. Non-interest income for the fiscal year ended March 31,
1995 decreased $91,000 to $67,000 from $158,000 for the fiscal year ended March
31, 1994. This decrease was primarily attributable to a net loss of $44,000 on
sale of available-for-sale securities for the 1995 fiscal year compared to a net
gain of $38,000 on sale of securities for the 1994 fiscal year. Non-interest
income was also affected by a decline in other non-interest income of $26,000
for the 1995 fiscal year compared to the 1994 fiscal year, which was partially
offset by an increase of $17,000 in service charges and other fees reflecting
increased loan and deposit activity and increases in certain transaction fees
during the 1995 fiscal year.
Non-Interest Expense. Non-interest expense increased $255,000 to $2.1 million
for the fiscal year ended March 31, 1995 from $1.8 million for the fiscal year
ended March 31, 1994. The Company's ratio of non-interest expenses to average
assets increased to 2.34% in the 1995 fiscal year from 2.13% in the 1994 fiscal
year. The increase in non-interest expense primarily reflects increases in the
net cost of real estate owned, compensation and benefits, and other non-interest
expenses.
9
<PAGE> 11
The net cost of real estate owned increased $110,000 to $184,000 for the 1995
fiscal year from $74,000 for the 1994 fiscal year, reflecting a $77,000 increase
in the provision for losses to $141,000 for the 1995 fiscal year and a $33,000
increase in net operating expenses to $43,000 for the 1995 fiscal year. The
increased provision reflects anticipated losses on the ultimate sale of the real
estate owned properties that were held at the beginning of the 1995 fiscal year
and sold later in the year. The increase in operating expenses reflects the
costs associated with the renovation of a real estate owned property obtained
through foreclosure of a commercial mortgage loan during the fiscal year.
Compensation and benefits expense increased $48,000 to $969,000 for the 1995
fiscal year compared to $921,000 for the 1994 fiscal year. This increase was
primarily attributable to a general increase in salaries. Other non-interest
expenses increased $68,000 to $391,000 for the 1995 fiscal year compared to
$323,000 for the 1994 fiscal year primarily due to increased professional fees
and a $30,000 valuation allowance established in connection with the failure of
Nationar, a check-clearing and trust company in which the Company had demand
accounts of $90,000. There was no change in this valuation allowance during
fiscal 1996.
Income Tax Expense. Income tax expense decreased $131,000, or 17.7%, to
$610,000 for the fiscal year ended March 31, 1995 from $741,000 for the fiscal
year ended March 31, 1994. This decrease was due to the decrease of $311,000, or
17.7%, in pre-tax income.
ASSET QUALITY
Loans are classified as non-performing when they become 90 days past due as
to interest or principal payments, or earlier if the ability of the borrower to
meet the contractual payment terms is in doubt. Management and the Board of
Directors perform a monthly review of all delinquent loans. The actions taken by
the Company with respect to delinquencies vary depending on the nature of the
loan and period of delinquency. It is the Company's general policy to stop the
accrual of interest on all loans 90 days or more past due. Certain loans 90 days
or more past due may continue to accrue interest based on management's
evaluation of the loan, the underlying collateral and the credit worthiness of
the borrower.
When a loan is placed on non-accrual status, unpaid interest is reversed
against interest income of the current period. Thereafter, interest payments
received on non-accrual loans are recognized as income unless future collections
are doubtful, in which case the payments received are applied as a reduction of
principal. A loan remains on non-accrual status until the factors that indicated
doubtful collectibility no longer exist or until a loan is determined to be
uncollectible and is charged off against the allowance for loan losses.
The classification of a loan as non-performing does not necessarily indicate
that loan principal or interest will not be collected. Historical experience
indicates that a portion of non-performing assets will eventually be recovered.
When all collection efforts have been exhausted, and management determines that
the borrower is unable to repay its obligation, the Company will commence
foreclosure procedures.
10
<PAGE> 12
The following table sets forth information regarding non-accrual loans, other
past due loans and real estate owned. There were no troubled debt restructurings
within the meaning of Statement of Financial Accounting Standards ("SFAS") No.
15 at any of the dates presented below.
<TABLE>
<CAPTION>
At or For the Year Ended March 31,
------------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS:
Mortgage loans:
One-to four-family $ 856 $ 523 $ 419 $ 245 $ 205
Commercial property 126 -- -- -- --
Construction -- -- 326 326 450
Commercial business -- -- 30 -- 240
------ ------ ------ ------ ------
Total $ 982 $ 523 $ 775 $ 571 $ 895
------ ------ ------ ------ ------
Number of non-accrual loans 6 2 5 2 5
ACCRUING LOANS PAST DUE NINETY DAYS OR MORE:
Mortgage loans:
One-to four-family $ 342 $ 885 $ 760 $ 631 $ 890
Multi-family -- 761 171 378 --
Commercial property 266 331 180 -- 211
Construction -- -- -- 542 388
Commercial business and consumer 42 144 17 357 50
------ ------ ------ ------ ------
Total $ 650 $2,121 $1,128 $1,908 $1,539
------ ------ ------ ------ ------
Number of accruing loans past due ninety days or more 7 21 11 18 23
Total non-performing loans $1,632 $2,644 $1,903 $2,479 $2,434
====== ====== ====== ====== ======
Number of non-performing loans 13 23 16 20 28
Allowance for loan losses $ 654 $ 650 $ 540 $ 482 $ 303
====== ====== ====== ====== ======
Real estate owned, net $ 402 $ 455 $ 367 $ 449 $ 809
====== ====== ====== ====== ======
Number of real estate owned properties 2 2 3 3 4
RATIOS:
Non-accrual loans to total loans 1.89% 1.03% 1.70% 1.22% 1.93%
Non-performing loans to total loans 3.15 5.20 4.18 5.31 5.24
Non-performing loans and real estate owned to total assets 1.77 3.40 2.63 3.46 4.09
Allowance for loan losses to:
Non-accrual loans 66.60 124.28 69.68 84.41 33.85
Non-performing loans 40.07 24.58 28.38 19.44 12.45
Total loans 1.26 1.28 1.19 1.03 0.65
Contractual interest income that would have been
recognized on non-accrual loans $ 93 $ 18 $ 81 $ 61 $ 107
Actual interest income recognized 58 -- 9 27 58
------ ------ ------ ------ ------
Interest income not recognized $ 35 $ 18 $ 72 $ 34 $ 49
====== ====== ====== ====== ======
</TABLE>
Accrued interest receivable on accruing loans past due 90 days or more
amounted to $8,000, $44,000, $14,000, $62,000 and $67,000 at March 31, 1996,
1995, 1994, 1993, and 1992, respectively. If the Company had placed all such
loans on non-accrual status at those dates, interest income for the fiscal years
ended March 31, 1996, 1995 and 1994 would have been increased (decreased) by
$36,000, ($30,000) and $48,000, respectively.
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risks inherent in the Company's
loan portfolio and the general economy. The allowance for loan losses is
maintained at an amount management considers adequate to cover loan losses which
are deemed probable and estimable. The allowance is based upon a number of
factors, including asset classifications, economic trends, industry experience
and trends, industry and geographic concentrations, estimated collateral values,
management's assessment of the credit risk inherent in the portfolio, historical
loan loss experience, and the Company's underwriting policies. The Company will
continue to monitor and modify its allowance for loan losses as conditions
dictate. Various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. These
agencies may require the Company to establish additional allowances, based on
their judgements of the information available at the time of the examination.
11
<PAGE> 13
The following table sets forth activity in the Company's allowance for loan
losses and the allowance for losses on real estate owned for the periods
indicated.
<TABLE>
<CAPTION>
For the Year Ended March 31,
-----------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of year $ 650 $ 540 $ 482 $ 303 $ 226
Provision for losses 90 171 151 315 190
Charge-offs:
Mortgage loans:
One- to four-family (48) -- (23) (35) (20)
Commercial -- -- -- (50) --
Construction loans -- (30) -- -- (64)
Commercial business loans (36) (31) (78) (22) --
Consumer loans (2) (2) (4) (29) (29)
----- ----- ----- ----- -----
Total charge-offs (86) (63) (105) (136) (113)
Recoveries -- 2 12 -- --
----- ----- ----- ----- -----
Balance at end of year $ 654 $ 650 $ 540 $ 482 $ 303
===== ===== ===== ===== =====
Ratio of net charge-offs to average loans outstanding 0.17% 0.13% 0.20% 0.29% 0.24%
ALLOWANCE FOR LOSSES ON REAL ESTATE OWNED:
Balance at beginning of year $ 60 $ 59 $ 89 $ 89 $ 115
Provision for losses -- 141 64 -- 54
Net realized losses (22) (140) (94) -- (80)
----- ----- ----- ----- -----
Balance at end of year $ 38 $ 60 $ 59 $ 89 $ 89
===== ===== ===== ===== =====
</TABLE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented herein have
been prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. The impact of inflation is reflected
in the increased cost of the Company's operations. Unlike industrial companies,
nearly all of the assets and liabilities of the Company are monetary in nature.
As a result, interest rates have a greater impact on the Company's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the price of
goods and services.
IMPACT OF PROPOSED LEGISLATION
The Federal Deposit Insurance Act requires that the Savings Association
Insurance Fund ("SAIF") and Bank Insurance Fund ("BIF") each be recapitalized
until its reserves are at least 1.25% of the deposits insured by that fund. Upon
reaching the 1.25% reserve ratio, the assessment rates for that fund could be
reduced. The FDIC has reported that the BIF attained the 1.25% reserve ratio in
May 1995 but that the SAIF is not likely to reach the 1.25% reserve ratio until
after 2000. Effective on January 1, 1996, "well capitalized" BIF-insured
institutions without any significant supervisory concerns are being assessed the
legal minimum of $2,000 per year. The other BIF-insured institutions will pay at
new assessment rates ranging from 0.03% of deposits to 0.27% of deposits. It is
estimated that 92% of the BIF-insured institutions will pay only the minimum
annual assessment. Because the SAIF has not attained the required 1.25% reserve
ratio, SAIF-insured institutions will continue to pay assessments at the current
assessment rates ranging from 0.23% of deposits to 0.31% of deposits. The
resulting disparity in deposit insurance assessments between SAIF members and
BIF members is likely to provide BIF-insured institutions with certain
competitive advantages in the pricing of loans and deposits, and in lowered
operating costs, pending any legislative action to remedy the disparity.
The proposed Balanced Budget Act of 1995 ("Budget Act"), which was approved
by the Congress but vetoed by the President, included provisions that focused on
a resolution of the financial problems of the SAIF. Under the provisions of the
Budget Act, all SAIF member institutions would pay a special assessment to
recapitalize the SAIF, and the assessment base for the payments on the Financing
Corporation ("FICO") bonds would be expanded to include the deposits of both
BIF- and SAIF-insured institutions. The amount of the special assessment
required to recapitalize the SAIF was then estimated to be approximately 80
basis points of the SAIF assessable deposits. This estimate of the special SAIF
assessment was less than the assessment of 85 to 90 basis points that had been
previously estimated. The special assessment would have been imposed on the
first business day of January 1996, or on such other date prescribed by the FDIC
not later than 60 days after enactment of the Budget Act, based on the amount of
SAIF deposits on March 31, 1995. If an 85 or a 90 basis point assessment were
assessed against the Bank's deposits as of March 31, 1995, the Bank's aggregate
special SAIF assessment would be approximately $695,000 or $736,000,
respectively, and an assessment of 80 basis points would be approximately
$655,000. The Budget Act also would have provided that the BIF could not assess
regular insurance assessments when it has a reserve ratio of 1.25% or more
except on those of its member institutions that have been found to have
"moderately severe" or "unsatisfactory" financial, operational, or compliance
weaknesses.
12
<PAGE> 14
The Budget Act also provided for the merger of the BIF and SAIF on January 1,
1998, with such merger being conditioned upon the prior elimination of the
thrift charter. Congressional leaders had also agreed that Congress should
consider and act upon separate legislation to eliminate the thrift charter as
early as possible in 1996. If adopted, such legislation would require that the
Bank, as a federal savings bank, convert to a bank charter. Such a requirement
to convert to a bank charter could cause the Bank to lose the favorable tax
treatment for its bad debt reserves which is currently permitted under section
593 of the Internal Revenue Code (the "Code") and to have all or part of its
existing bad debt reserves recaptured into income.
The above described provisions of the Budget Act were not the basis for the
President's veto, and the federal banking regulators continue to seek a
legislative solution for the recapitalization of the SAIF. In February 1996,
representatives of the FDIC, the OTS and the Treasury Department stated to
Congress that, unless Congress adopts legislation to strengthen the SAIF, SAIF's
current problems could result in an erosion of the SAIF deposit base, could
cause a default on the FICO bonds, and could leave the SAIF unable to meet its
obligations to insured depositors. If enacted by Congress, such legislation as
described above would have the effect of reducing the capital of SAIF member
institutions by the after-tax cost of the special SAIF assessment, plus any
related additional tax liabilities. The legislation would also have the effect
of reducing any differential that may otherwise be required in the assessment
rates for the BIF and SAIF.
RECAPTURE OF TAX BAD DEBT RESERVES
Under section 593 of the Internal Revenue Code, thrift institutions such as
the Bank, which met certain definitional tests primarily relating to their
assets and the nature of their business, are permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions may,
within specified limitations, be deducted in arriving at their taxable income.
The Bank's deduction with respect to "qualifying loans", which are generally
loans secured by certain interest in real property, may currently be computed
using an amount based on the Bank's actual loss experience (the "Experience
Method"), or a percentage equal to 8% of the Bank's taxable income (the "PTI
Method"), computed without regard to this deduction and with additional
modifications and reduced by the amount of any permitted addition to the
non-qualifying reserve. Similar deductions for additions to the Bank's bad debt
reserve are permitted under the New York State Bank Franchise Tax; however, for
purposes of this tax, the effective allowable percentage under the PTI method is
32% rather than 8%.
Under pending legislative proposals, the PTI Method would be repealed and the
Bank would be permitted to use only the Experience Method of computing additions
to its bad debt reserve. In addition, the Bank would be required to recapture
(i.e., take into income) over a multi-year period, beginning with the Bank's
taxable year beginning January 1, 1996, the excess of the balance of its bad
debt reserves (other than the supplemental reserve) as of December 31, 1995 over
the greater of (a) the balance of such reserve as of December 31, 1987 (or a
lesser amount if the Bank's loan portfolio has decreased since December 31,
1987) or (b) an amount that would have been the balance of such reserves as of
December 31, 1995 had the Bank always computed the additions to its reserves
using the experience method. However, under the proposed legislation, such
recapture requirements would be suspended for each of two successive taxable
years beginning January 1, 1996 in which the Bank originates a minimum amount of
certain residential loans based upon the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding January 1,
1996.
If section 593 of the Code is so amended, the Bank may be required for New
York State tax purposes to include in its entire net income the excess of its
New York State reserves for losses on qualifying real property loans over its
reserve for losses on such loans maintained for federal income tax purposes (the
"Excess Reserves"). Accordingly, if the pending legislative proposals are
enacted in their present form, unless further legislation is adopted in New
York, the Bank may be required to take its Excess Reserves into income in
computing its New York State tax for its taxable year beginning January 1, 1996.
The Bank's tax bad debt reserves at December 31, 1995 were $1.5 million for
federal purposes which equalled the reserve amount at December 31, 1987 and $3.7
million for state tax purposes, resulting in Excess Reserves of $2.2 million.
The Bank has established a deferred tax liability of approximately $161,000 with
respect to the Excess Reserves. At this time, management of the Company cannot
predict whether any legislative proposal regarding amendments to the Code
related to addition to or recapture of its tax bad debt reserve will be adopted
as proposed.
13
<PAGE> 15
MANAGEMENT'S REPORT
Management is responsible for the preparation and integrity of the
consolidated financial statements and other information presented in this annual
report. The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and reflect management's
judgements and estimates with respect to certain events and transactions.
Management is responsible for maintaining a system of internal control. The
purpose of the system is to provide reasonable assurance that transactions are
recorded in accordance with management's authorization, assets are safeguarded
against loss or unauthorized use, and that underlying financial records support
the preparation of financial statements. The system includes the communication
of written policies and procedures, selection of qualified personnel,
appropriate segregation of responsibilities, and the ongoing internal audit
function.
The Board of Directors meets periodically with Company management, the
internal auditor, and the independent auditors, KPMG Peat Marwick LLP, to review
matters relative to the quality of financial reporting, internal control, and
the nature, extent and result of the audit efforts.
The independent auditors conduct an annual audit to enable them to express an
opinion on the Company's consolidated financial statements. In connection with
the audit, the independent auditors consider the system of internal controls in
order to determine the nature, timing and extent of their auditing procedures.
/s/ Stephen C. Byelick /s/ Harry G. Murphy
Stephen C. Byelick Harry G. Murphy
President and Chief Executive Officer Vice President and Secretary
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Tappan Zee Financial, Inc.:
We have audited the accompanying consolidated balance sheets of Tappan Zee
Financial, Inc. and subsidiary as of March 31, 1996 and 1995, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended March 31, 1996. 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 aspects, the financial position of Tappan Zee
Financial, Inc. and subsidiary as of March 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1996 in conformity with generally accepted accounting
principles.
As discussed in notes 1, 2, 7 and 9 to the consolidated financial statements,
the Company changed its methods of accounting for securities in fiscal 1995, and
income taxes and certain postretirement benefits in fiscal 1994.
/s/ KPMG Peat Marwick LLP
Stamford, Connecticut
May 8, 1996
14
<PAGE> 16
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
------------------
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Cash and due from banks $ 581 $ 701
Interest-bearing deposits 2,458 1,852
Federal funds sold 5,500 5,000
Securities (note 2):
Held-to-maturity (fair value of $9,596 in 1996 and $16,647 in 1995) 9,436 17,064
Available-for-sale (amortized cost of $41,772 in 1996 and $13,711 in 1995) 41,544 13,317
-------- -------
Total securities 50,980 30,381
Loans, net (note 3):
Mortgage loans 48,072 47,597
Other loans 4,037 3,608
Allowance for loan losses (654) (650)
Net deferred loan fees (281) (322)
-------- -------
Total loans, net 51,174 50,233
Federal Home Loan Bank stock 561 504
Real estate owned, net (note 4) 402 455
Other assets (note 5) 3,134 2,023
-------- -------
Total assets $114,790 $91,149
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (note 6) $ 89,908 $ 81,813
Other liabilities (note 5) 2,522 1,518
--------- --------
Total liabilities 92,430 83,331
--------- --------
SHAREHOLDERS' EQUITY (note 10):
Preferred stock (par value $0.01 per share; 1,000,000 shares
authorized; none issued or outstanding) -- --
Common stock (par value $0.01 per share; 5,000,000 shares
authorized; 1,620,062 shares issued and outstanding) 16 --
Additional paid-in capital 14,893 --
Common Stock (121,476 shares) held by employee stock ownership plan
("ESOP") (note 9) (1,215) --
Retained earnings, substantially restricted 8,803 8,047
Net unrealized loss on available-for-sale securities, net of taxes (note 2) (137) (229)
--------- --------
Total shareholders' equity 22,360 7,818
--------- --------
Total liabilities and shareholders' equity $ 114,790 $ 91,149
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 17
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------
1996 1995 1994
------ ------- -------
<S> <C> <C> <C>
INTEREST INCOME:
Mortgage loans $4,098 $ 3,767 $ 3,742
Other loans 367 311 344
Securities 2,387 2,067 2,022
Other earning assets 772 402 238
------ ------- -------
Total interest income 7,624 6,547 6,346
Interest expense on deposits 4,002 2,912 2,766
------ ------- -------
Net interest income 3,622 3,635 3,580
Provision for loan losses (note 3) 90 171 151
------ ------- -------
Net interest income after provision for loan losses 3,532 3,464 3,429
------ ------- -------
NON-INTEREST INCOME:
Service charges and other fees 109 103 86
Net gain (loss) on sales of securities (note 2) 88 (44) 38
Other 14 8 34
------ ------- -------
Total non-interest income 211 67 158
------ ------- -------
NON-INTEREST EXPENSE:
Compensation and benefits (note 9) 1,185 969 921
Occupancy and equipment 220 229 227
Federal deposit insurance premiums 202 182 174
Data processing service fees 151 132 113
Net cost of real estate owned (note 4) 22 184 74
Other (note 8) 517 391 323
------ ------- -------
Total non-interest expense 2,297 2,087 1,832
------ ------- -------
Income before income tax expense and cumulative effect of
changes in accounting principles 1,446 1,444 1,755
Income tax expense (note 7) 609 610 741
------ ------- -------
Income before cumulative effect of changes in accounting principles 837 834 1,014
Cumulative effect of changes in accounting principles:
Income taxes (note 7) -- -- 100
Postretirement health care benefits, net of related tax effect (note 9) -- -- (100)
------ ------- -------
Net income $ 837 $ 834 $ 1,014
====== ======= =======
Earnings per share, from date of conversion (note 1) $ 0.31
======
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE> 18
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ADDITIONAL COMMON NET UNREALIZED TOTAL
COMMON PAID-IN STOCK HELD RETAINED LOSS ON SHAREHOLDERS'
STOCK CAPITAL BY ESOP EARNINGS SECURITIES EQUITY
------- ---------- ---------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1993 $-- $ -- $ -- $ 6,199 $ -- $ 6,199
Net income -- -- -- 1,014 -- 1,014
Increase in net unrealized loss on equity securities -- -- -- -- (12) (12)
--- ------- ------- ------- ----- --------
Balance at March 31, 1994 -- -- -- 7,213 (12) 7,201
Net income -- -- -- 834 -- 834
Reversal of net unrealized loss on equity securities -- -- -- -- 12 12
Net unrealized loss on available-for-sale
securities, net of taxes:
As of April 1, 1994 -- -- -- -- (99) (99)
Net increase during the year -- -- -- -- (130) (130)
--- ------- ------- ------- ----- --------
Balance at March 31, 1995 -- -- -- 8,047 (229) 7,818
Net income -- -- -- 837 -- 837
Dividends paid ($0.05 per share) -- -- -- (81) -- (81)
Issuance of common stock 16 14,885 -- -- -- 14,901
Shares purchased by ESOP -- -- (1,296) -- -- (1,296)
ESOP shares committed to be released -- 8 81 -- -- 89
Decrease in net unrealized loss on available-for-
sale securities, net of taxes -- -- -- -- 92 92
--- ------- ------- ------- ----- --------
Balance at March 31, 1996 $16 $14,893 $(1,215) $ 8,803 $(137) $ 22,360
=== ======= ======= ======= ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 837 $ 834 $ 1,014
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses 90 171 151
Provision for real estate owned losses -- 141 64
Depreciation expense 73 93 91
Accretion of net deferred loan fees (61) (47) (50)
Net (gain) loss on sales of securities (88) 44 (38)
Net (increase) decrease in accrued interest receivable (63) (65) 126
Other adjustments, net 202 (301) 127
-------- -------- --------
Net cash provided by operating activities 990 870 1,485
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities:
Available-for-sale (28,728) (526) --
Held-to-maturity (5,117) (4,984) --
Held-for-investment -- -- (13,907)
Proceeds from principal payments, maturities and calls of securities:
Available-for-sale 8,304 3,070 --
Held-to-maturity 1,424 762 --
Held-for-investment -- -- 9,449
Proceeds from sales of securities:
Available-for-sale 3,797 1,664 --
Held-for-investment -- -- 3,285
Disbursements for loan originations (9,314) (15,498) (9,286)
Principal collections on loans 8,233 9,462 10,023
Proceeds from sales of real estate owned 225 345 213
Other investing cash flows, net (103) 31 106
-------- -------- --------
Net cash used in investing activities (21,279) (5,674) (117)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 8,095 4,303 468
Net (decrease) increase in mortgage escrow funds (344) 54 (31)
Net proceeds from sale of common stock 14,901 -- --
Common stock purchased by ESOP (1,296) -- --
Dividends paid (81) -- --
-------- -------- --------
Net cash provided by financing activities 21,275 4,357 437
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 986 (447) 1,805
Cash and cash equivalents at beginning of year 7,553 8,000 6,195
-------- -------- --------
Cash and cash equivalents at end of year $ 8,539 $ 7,553 $ 8,000
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Interest paid $ 4,002 $ 2,912 $ 2,766
Income taxes paid 531 750 625
Securities transferred from held-to-maturity to available-for-sale 11,320 -- --
Mortgage loans transferred to real estate owned 111 554 171
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
On June 19, 1995, Tarrytown and North Tarrytown Savings and Loan Association
converted from a New York State chartered mutual savings and loan association to
a federally chartered mutual savings bank under the new name Tarrytowns Bank,
FSB (the "Bank"). As discussed in note 10, on October 5, 1995 Tappan Zee
Financial, Inc. (the "Holding Company") became the holding company for the Bank
upon completion of the conversion of the Bank from a mutual savings bank to a
stock savings bank (the "Conversion"). Collectively, the Holding Company and the
Bank are referred to herein as the "Company".
The Company's primary market area consists of the Village of Tarrytown and
its neighboring communities in Westchester County, New York. The Bank is a
community-oriented savings institution whose business primarily consists of
accepting deposits from customers within its market area and investing those
funds in mortgage loans secured by one- to four-family residences. To a
significantly lesser extent, funds are invested in multi-family, commercial real
estate, construction, commercial business and consumer loans. The Company also
invests in mortgage-backed and other securities. Deposits are insured up to
applicable limits by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation.
The following is a summary of the significant accounting policies followed by
the Company in the preparation of the consolidated financial statements.
Basis of Presentation
The consolidated financial statements include the accounts of the Holding
Company and its wholly-owned subsidiary, the Bank. All significant intercompany
accounts and transactions have been eliminated in the consolidated financial
statements. Prior to Conversion, the Holding Company had no operations other
than those of an organizational nature. Subsequent thereto, the Holding
Company's only business activity is the ownership of the Bank. All financial
information included herein for periods prior to the Conversion refers to the
Bank.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets, liabilities, income and expense. A material estimate
that is particularly susceptible to near-term change is the allowance for loan
losses, which is discussed below.
Certain reclassifications have been made to prior year amounts to conform to
the current year presentation. For purposes of reporting cash flows, cash
equivalents consist of overnight federal funds sold.
Securities
The securities portfolio includes debt securities and, to a much lesser
extent, equity securities. Debt securities are principally mortgage-backed
securities, consisting of collateralized mortgage obligations ("CMOs") and
pass-through securities issued by United States government-sponsored entities
(the Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation).
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities,"
prospectively as of April 1, 1994. Under SFAS No. 115, individual securities are
classified as held-to-maturity securities, trading securities, or
available-for-sale securities. Securities held-to-maturity are limited to debt
securities for which the entity has the positive intent and ability to hold to
maturity. Trading securities are debt and equity securities that are bought
principally for the purpose of selling them in the near term. All other debt and
equity securities are classified as available-for-sale.
Held-to-maturity securities are carried at amortized cost under SFAS No. 115.
Available-for-sale securities are carried at fair value, with unrealized gains
and losses excluded from earnings and reported on a net-of-tax basis as a
separate component of equity. The Company has no trading securities. Federal
Home Loan Bank stock is a restricted security held in accordance with certain
regulatory requirements and, accordingly, is carried at cost.
Prior to the adoption of SFAS No. 115, debt securities held-for-investment
were carried at amortized cost and equity securities were carried at the lower
of aggregate cost or fair value. Net unrealized losses on equity securities, if
any, were reported as a charge to equity.
Premiums and discounts on debt securities are amortized to interest income on
a level-yield basis over the expected terms of the securities. Realized gains
and losses on sales of securities are determined based on the amortized cost of
the specific securities sold. Unrealized losses on held-to-maturity and
available-for-sale securities are charged to earnings when the decline in fair
value of a security is judged to be other than temporary.
Allowance for Loan Losses
Effective April 1, 1995, the Company prospectively adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118.
Under SFAS No. 114, a loan is considered to be impaired when, based on current
information and events, it is probable that the creditor will be unable to
collect all principal and interest contractually due. Creditors are permitted to
measure impaired loans based on (i) the present value of expected future cash
flows discounted at the loan's effective interest rate, (ii) the loan's
observable
19
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
market price or (iii) the fair value of the collateral if the loan is collateral
dependent. If the approach used results in a measurement that is less than an
impaired loan's recorded investment, an impairment loss is recognized as part of
the allowance for loan losses. Accordingly, the Company's overall allowance for
loan losses consists of an allowance for losses on impaired loans measured in
accordance with SFAS No. 114, plus an allowance for probable credit losses on
the remaining loan portfolio.
The allowance for loan losses is increased by provisions for losses charged
to operations. Loan losses and recoveries of loans previously written-off are
charged or credited to the allowance as incurred or realized, respectively.
Management estimates the allowance for loan losses based on an evaluation of the
Company's past loan loss experience, known and inherent risks in the portfolio,
estimated value of underlying collateral, and current and prospective economic
conditions. In management's judgment, the allowance for loan losses is adequate
to absorb probable losses in the existing portfolio.
Establishing the allowance for loan losses involves significant management
judgements utilizing the best information available at the time of review. Those
judgements are subject to further review by various sources, including the
Company's regulators. Future adjustments to the allowance may be necessary based
on changes in economic and real estate market conditions, further information
obtained regarding known problem loans, the identification of additional problem
loans, and other factors.
Interest and Fees on Loans
Generally, a loan (including an impaired loan under SFAS No. 114) is placed
on non-accrual status when principal or interest payments become ninety days
past due, or earlier if the ability of the borrower to meet contractual payment
terms is in doubt. When loans are placed on non-accrual status, unpaid interest
is reversed against interest income of the current period. Thereafter, interest
payments received on non-accrual loans are either applied to reduce unpaid
principal balances or reported as interest income, depending on management's
judgement as to the likelihood of further collections. Loans are returned to
accrual status when collectibility is no longer considered doubtful.
Loan origination fees and certain direct loan origination costs are deferred,
and the net fee or cost is recognized as an adjustment to interest income using
the level-yield method over the contractual life of the related loan. Net
deferred fees and costs applicable to prepaid loans are recognized in interest
income at the time of prepayment. Discounts on consumer loans are accreted using
the level-yield method.
Real Estate Owned
Real estate owned consists of properties acquired through foreclosure or deed
in lieu of foreclosure. A property is initially recorded at the lower of the
recorded investment in the related loan or the fair value of the property, with
any resulting writedown charged to the allowance for loan losses. Thereafter, an
allowance for losses on real estate owned is established if the cost of a
property exceeds its current fair value less estimated sales costs. Fair value
estimates are based on recent appraisals and other available information. Costs
incurred to develop or improve properties are capitalized, while holding costs
are charged to expense.
Office Property and Equipment
Office property and equipment is comprised of land (carried at cost) and
building, furniture, fixtures and equipment (carried at cost less accumulated
depreciation). Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets. Costs incurred to improve or
extend the life of existing assets are capitalized. Repairs and maintenance, as
well as renewals and replacements of a routine nature, are charged to expense.
Income Taxes
Effective April 1, 1993, the Company changed its method of accounting for
income taxes to adopt SFAS No. 109. The cumulative effect of the accounting
change was reported in the fiscal 1994 statement of income.
Under the asset and liability method required by SFAS No. 109, deferred taxes
are recognized for the estimated future tax effects attributable to temporary
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities. A deferred tax liability is recognized for
all temporary differences that will result in future taxable income. A deferred
tax asset is recognized for all temporary differences that will result in future
tax deductions, subject to reduction of the asset by a valuation allowance in
certain circumstances. This valuation allowance is recognized if, based on an
analysis of available evidence, management determines that it is more likely
than not that some portion or all of the deferred tax asset will not be
realized.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which the temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax laws or rates is recognized in income
in the period that includes the enactment date of the change.
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Postretirement Benefit Plans
The Company has a non-contributory defined benefit pension plan which covers
substantially all employees. Pension costs are funded on a current basis. Costs
for this plan, as well as the Company's directors' retirement plan and
directors' deferred compensation plan, are accounted for in accordance with SFAS
No. 87, "Employers' Accounting for Pensions".
Effective April 1, 1993, the Company changed its method of accounting for
postretirement health care benefits upon adoption of SFAS No. 106 and reported
the cumulative effect of the accounting change in the fiscal 1994 statement of
income. The cumulative effect of the accounting change represented the full
amount of the Company's accumulated benefit obligation as of April 1, 1993, net
of related income taxes. Under SFAS No. 106, the cost of postretirement health
care benefits is recognized on an accrual basis as such benefits are earned by
active employees. Prior to fiscal 1994, the Company recognized the cost of these
benefits on a pay-as-you-go (cash) basis.
Employee Stock Ownership Plan
Compensation expense is recognized equal to the fair value of ESOP shares
that are committed to be released for allocation to participant accounts. To the
extent that the fair value of these shares differs from the original cost, the
difference is charged or credited to shareholders' equity (additional paid-in
capital). The cost of unallocated ESOP shares not yet committed to be released
is reflected as a reduction of shareholders' equity.
Earnings Per Share
Earnings per share is based on net income for the period following the
Conversion divided by the weighted average number of common shares outstanding
(net income of $470,000 and 1,495,086 shares for the six-month period ended
March31, 1996). Unallocated ESOP shares that have not been committed to be
released to participants are excluded from outstanding shares in computing
earning per share.
(2) SECURITIES
The Company prospectively adopted SFAS No. 115 effective April 1, 1994, and
classified securities of $17.8 million as available-for-sale and $13.0 million
as held-to-maturity. As a result of adoption, equity at April 1, 1994 was
decreased by $99,000, representing the net unrealized loss on securities
available-for-sale less applicable income taxes. At March 31, 1996, the net
unrealized loss on the available-for-sale portfolio was $228,000 ($137,000 after
taxes), compared to a net unrealized loss of $394,000 ($229,000 after taxes) at
March 31,1995. This adjustment to equity will continue to fluctuate in future
periods to reflect changes in the net unrealized gains and losses on securities
available-for-sale.
Sales of available-for-sale securities during fiscal 1996 resulted in gross
realized gains of $90,000 and gross realized losses of $2,000 ($1,000 and
$45,000, respectively, for fiscal 1995). Sales of held-for-investment securities
in fiscal 1994 resulted in gross realized gains of $38,000.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
special report on SFAS No.115 which provided a one-time opportunity to
reclassify securities from the held-to-maturity category to the
available-for-sale category prior to December 31, 1995, without calling into
question the intent to hold other securities to maturity. In December 1995, the
Company reclassified securities with an amortized cost and a fair value of $11.3
million and $11.5 million, respectively, from the held-to-maturity category to
the available-for-sale category.
The following are summaries of held-to-maturity and available-for-sale
securities at March 31, 1996:
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ---------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
Mortgage-backed securities:
CMOs $1,108 $ 5 $ -- $1,113
Pass-through securities 5,129 141 (21) 5,249
------ ---- ---- ------
Total 6,237 146 (21) 6,362
U.S. Agency and other
debt securities 3,199 35 -- 3,234
------ ---- ---- ------
Total $9,436 $181 $(21) $9,596
====== ==== ==== ======
</TABLE>
21
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
<TABLE>
<CAPTION>
Gross Unrealized
Amortized ------------------- Fair
Cost Gains Losses Value
--------- ----- ------ -----
(In thousands)
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE SECURITIES
Mortgage-backed securities:
CMOs $17,651 $ 93 $(189) $17,555
Pass-through securities 7,671 18 (67) 7,622
------- ---- ----- -------
Total 25,322 111 (256) 25,177
Other debt securities:
U.S. Treasury 6,490 3 -- 6,493
U.S. Agency and other 8,616 10 (96) 8,530
Mutual fund investments 1,344 -- -- 1,344
------- ---- ----- -------
Total $41,772 $124 $(352) $41,544
======= ==== ===== =======
</TABLE>
The following are summaries of held-to-maturity and available-for-sale
securities at March 31, 1995:
<TABLE>
<S> <C> <C> <C> <C>
HELD-TO-MATURITY SECURITIES
Mortgage-backed securities:
CMOs $ 6,177 $ 40 $(249) $ 5,968
Pass-through securities 7,688 66 (106) 7,648
------- ---- ----- -------
Total 13,865 106 (355) 13,616
U.S. Agency and other
debt securities 3,199 11 (179) 3,031
------- ---- ----- -------
Total $17,064 $117 $(534) $16,647
======= ==== ===== =======
AVAILABLE-FOR-SALE SECURITIES
Mortgage-backed securities:
CMOs $ 7,773 $ 24 $(310) $ 7,487
Pass-through securities 2,297 27 (17) 2,307
------- ---- ----- -------
Total 10,070 51 (327) 9,794
Other debt securities:
U.S. Treasury 1,008 -- (25) 983
U.S. Agency and other 2,610 2 (95) 2,517
Mutual fund investments 23 -- -- 23
------- ---- ----- -------
Total $13,711 $ 53 $(447) $13,317
======= ==== ===== =======
</TABLE>
The following is a summary of the amortized cost and fair value of debt
securities, other than mortgage-backed securities, by remaining term to
contractual maturity as of March 31, 1996. Actual maturities may differ from
these amounts because certain issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-Sale
---------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ----- --------- -----
(In thousands)
<S> <C> <C> <C> <C>
One year or less $ -- $ -- $ 5,486 $ 5,486
More than one year to five years 250 252 4,504 4,459
More than five years to ten years 2,600 2,625 5,071 5,026
More than ten years 349 357 45 52
------ ------ ------- -------
Total $3,199 $3,234 $15,106 $15,023
====== ====== ======= =======
</TABLE>
22
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(3) LOANS
Loans are summarized as follows at March 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
Mortgage loans: (In thousands)
<S> <C> <C>
Residential properties:
One- to four-family $ 38,762 $ 39,020
Multi-family 3,287 3,443
Commercial properties 3,561 4,019
Construction loans 3,200 1,930
Construction loans in process (738) (815)
-------- --------
48,072 47,597
-------- --------
Other loans:
Commercial business loans 2,747 2,435
Automobile loans 724 603
Other consumer loans 821 789
Unearned discounts (235) (199)
Unused commercial lines of credit (20) (20)
-------- --------
4,037 3,608
-------- --------
Total loans 52,109 51,205
Allowance for loan losses (654) (650)
Net deferred loan fees (281) (322)
-------- --------
Total loans, net $ 51,174 $ 50,233
======== ========
</TABLE>
The loan portfolio at March 31, 1996 consisted of fixed-rate loans of $37.0
million and adjustable-rate loans of $15.1 million with weighted average yields
of 8.61% and 8.33%, respectively. At March 31, 1995, fixed-rate loans were $31.7
million and adjustable-rate loans were $19.5 million.
The Company primarily originates mortgage loans secured by existing
single-family residential properties. The Company also originates multi-family
and commercial real estate loans, construction loans, commercial business loans
and consumer loans. A substantial portion of the loan portfolio is secured by
real estate properties located in Westchester County, New York. The ability of
the Company's borrowers to make principal and interest payments is dependent
upon, among other things, the level of overall economic activity and the real
estate market conditions prevailing within the Company's concentrated lending
area.
The following is a summary of loans on non-accrual status and accruing loans
past ninety days or more at March 31:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
Non-accrual loans:
Mortgage loans:
One- to four-family $ 856 $ 523 $ 419
Commercial 126 -- --
Construction -- -- 326
Commercial business -- -- 30
------ ------ ------
Total 982 523 775
------ ------ ------
Accruing loans past due ninety days or more:
Mortgage loans:
One- to four-family 342 885 760
Multi-family -- 761 171
Commercial 266 331 180
Commercial business and consumer 42 144 17
------ ------ ------
Total 650 2,121 1,128
------ ------ ------
Total non-performing loans $1,632 $2,644 $1,903
====== ====== ======
</TABLE>
23
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
If interest payments on the foregoing non-accrual loans had been made during
the respective years in accordance with the loan agreements, additional interest
income of $35,000, $18,000 and $72,000 would have been recognized in fiscal
1996, 1995 and 1994, respectively.
As discussed in note 1, the Company prospectively adopted SFAS No. 114 as of
April 1, 1995. Adoption of the new standard did not result in any adjustment to
the overall allowance for loan losses. SFAS No. 114 applies to loans that are
individually evaluated for collectibility in accordance with the Company's
normal loan review procedures (principally loans in the multi-family, commercial
mortgage and construction loan categories). At March 31, 1996, the Company had
one impaired loan with a recorded investment of $126,000, for which an allowance
for loan impairment was not required under SFAS No. 114. The Company's average
recorded investment in impaired loans was $128,000 for fiscal 1996. Interest
collections and income recognized on impaired loans was insignificant for the
period.
Activity in the allowance for loan losses is summarized as follows for the
years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 650 $ 540 $ 482
Provision for losses 90 171 151
Charge-offs (86) (63) (105)
Recoveries -- 2 12
----- ----- -----
Balance at end of year $ 654 $ 650 $ 540
===== ===== =====
</TABLE>
(4) REAL ESTATE OWNED
A summary of real estate owned properties at March 31 follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
(In thousands)
<S> <C> <C>
Single-family residences $ 440 $ 515
Allowance for losses (38) (60)
----- -----
Total, net $ 402 $ 455
===== =====
</TABLE>
Activity in the allowance for losses on real estate owned is summarized as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ----- ----
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 60 $ 59 $ 89
Provision for losses -- 141 64
Net realized losses (22) (140) (94)
---- ----- ----
Balance at end of year $ 38 $ 60 $ 59
==== ===== ====
</TABLE>
In addition to the provision for losses, the net cost of real estate owned
reported in the statements of income includes operating expenses of $22,000,
$43,000 and $10,000 in fiscal 1996, 1995 and 1994, respectively.
24
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(5) OTHER ASSETS AND LIABILITIES
A summary of other assets and liabilities at March 31 follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
(In thousands)
<S> <C> <C>
Other assets:
Office property and equipment, net of accumulated
depreciation of $364 in 1996 and $459 in 1995 $ 560 $ 632
Accrued interest receivable 698 635
Deferred income taxes (note 7) 516 640
Prior service cost for deferred compensation plan (note 9) 946 --
Other 414 116
------ ------
Total $3,134 $2,023
------ ------
Other liabilities:
Mortgage escrow funds $ 710 $1,054
Deferred compensation plan obligation (note 9) 1,110 --
Other 702 464
------ ------
Total $2,522 $1,518
====== ======
</TABLE>
(6) DEPOSITS
Deposit balances and weighted average stated interest rates at March 31 are
summarized as follows:
<TABLE>
<CAPTION>
1996 1995
----------------- ------------------
Amount Rate Amount Rate
------- ---- ------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Checking $ 2,001 $ 1,554
NOW 4,164 2.00% 4,423 2.00%
Money market 3,484 2.75 3,865 3.00
Regular savings 16,402 3.10 17,940 3.25
Statement savings 11,563 3.20 11,070 3.88
------- -------
37,614 2.81 38,852 3.13
------- -------
Savings certificates by remaining
period to maturity:
Under one year 40,448 5.68 34,753 5.33
One to three years 11,846 6.33 8,208 6.01
------- -------
52,294 5.83 42,961 5.46
------- -------
Total $89,908 4.57% $81,813 4.35%
======= ==== ======= ====
</TABLE>
Savings certificates issued in denominations of $100,000 or more totaled $7.6
million and $6.4 million at March 31, 1996 and 1995, respectively.
25
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(7) INCOME TAXES
As discussed in note 1, the Company adopted SFAS No. 109 effective April 1,
1993. The cumulative effect of the accounting change, in the amount of $100,000,
has been reported as a separate credit to earnings in the fiscal 1994 statement
of income.
Income tax expense consists of the following for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(In thousands)
<S> <C> <C> <C>
FEDERAL:
Current $ 465 $ 520 $ 586
Deferred (14) (90) (51)
----- ----- -----
Total 451 430 535
----- ----- -----
NEW YORK STATE:
Current 94 146 167
Deferred 64 34 39
----- ----- -----
Total 158 180 206
----- ----- -----
TOTAL:
Current 559 666 753
Deferred 50 (56) (12)
----- ----- -----
Total $ 609 $ 610 $ 741
===== ===== =====
</TABLE>
Total income tax expense differs from the amounts computed by applying the
applicable statutory Federal income tax rate of 34% to income before income
taxes and the cumulative effect of accounting changes. A reconciliation of the
tax at the statutory rate to the Company's actual tax expense follows for the
years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Tax at Federal statutory rate $492 $491 $597
State taxes, net of Federal tax benefit 104 119 136
Other, net 13 -- 8
---- ---- ----
Actual income tax expense $609 $610 $741
==== ==== ====
Effective income tax rate 42.1% 42.2% 42.2%
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to the Company's
deferred tax assets and liabilities at March 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
----- -----
(In thousands)
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowances for losses on loans and real estate owned $ 285 $ 294
Net unrealized loss on available-for-sale securities 91 165
Loan origination fees 116 135
Other 193 176
----- -----
Total deferred tax assets 685 770
----- -----
DEFERRED TAX LIABILITIES:
Tax bad debt reserve in excess of base-year amount (161) (123)
Other (8) (7)
----- -----
Total deferred tax liabilities (169) (130)
----- -----
Net deferred tax assets $ 516 $ 640
===== =====
</TABLE>
26
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Based on the Company's historical and anticipated future pre-tax earnings,
management believes that it is more likely than not that the Company's deferred
tax assets will be realized.
If certain definitional tests and other conditions are met, the Bank is
allowed a special bad debt deduction in determining its taxable income, based
upon a specified experience formula or a percentage of its taxable income
(currently 8% for Federal income tax purposes). For Federal and state income tax
purposes, bad debt reserves are maintained equal to the excess of tax bad debt
deductions over actual losses charged against the reserves. At March 31, 1996,
the Bank's tax bad debt reserves were $1.5 million for Federal tax purposes,
which equaled the base-year reserve amount, and $3.7 million for state tax
purposes, which exceeded the base-year reserve amount by $2.2 million. In
accordance with SFAS No. 109, deferred tax liabilities have not been recognized
with respect to the base-year tax reserves, since the Bank does not expect that
these amounts will become taxable in the foreseeable future. Events that would
result in taxation of these reserves include (i) the failure to maintain a
specified ratio of qualifying assets to total assets for tax purposes and (ii)
reduction of the reserves for purposes other than bad debt losses, including
certain distributions by the Bank to the Holding Company. The unrecognized
deferred tax liability applicable to the base-year tax reserves was $0.6 million
at March 31, 1996.
(8) OTHER NON-INTEREST EXPENSE
The components of other non-interest expense are as follows for the years
ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Professional services $149 $ 73 $ 57
Advertising 51 49 55
Stationery, printing and supplies 35 23 25
Supervisory exams and assessments 33 32 40
Insurance and surety bond premiums 52 46 46
Other 197 168 100
---- ---- ----
Total $517 $391 $323
==== ==== ====
</TABLE>
(9) BENEFIT AND STOCK OPTION PLANS
Pension Plans
All eligible employees are included in a non-contributory, multiple-employer
defined benefit pension plan. The Company's annual contributions to the plan are
based on actuarially determined funding requirements. Pension expense consisted
of the following components for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
(In thousands)
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 28 $ 32 $ 34
Interest cost on projected benefit obligation 81 89 100
Return on plan assets (80) (79) (85)
Net amortization and deferral 9 9 20
----- ----- -----
Net expense $ 38 $ 51 $ 69
===== ===== =====
</TABLE>
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The following is a reconciliation of the funded status of the plan and the
(accrued) prepaid pension cost at March 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
(In thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation--vested $ (978) $ (846)
Accumulated benefit obligation--nonvested (11) (11)
------- -------
Total accumulated benefit obligation (989) (857)
Effect of projected future compensation levels (209) (180)
------- -------
Projected benefit obligation for service rendered to date $(1,198) $(1,037)
Plan assets (insurance contract, at contract value) 970 971
------- -------
Projected benefit obligation in excess of plan assets (228) (66)
Unrecognized loss (gain) 127 (25)
Unrecognized net transition obligation 98 106
------- -------
(Accrued) prepaid pension cost $ (3) $ 15
======= =======
</TABLE>
The actuarial present values of the projected benefit obligations at March
31, 1996 and 1995 were determined based on discount rates of 7.0% and 8.25%,
respectively, and rates of increase in future compensation levels of 5.0% and
6.0%, respectively. The expected long-term rate of return on plan assets was
8.5% for fiscal 1996 and 1995.
The Company also has a retirement plan for directors, which is a
non-qualified plan that became effective upon the Conversion. Outside directors
are participants in this unfunded plan only if they have elected not to
participate in the directors' deferred compensation plan described below.
Participants in the directors' retirement plan who have attained age 65 and
completed ten or more years of service (including past service as a director of
the Bank) will receive an annual retirement benefit equal to the aggregate
director compensation received (excluding stock compensation) for the final year
of board service. Reduced benefits apply for shorter service periods and for
early retirement. Pension expense was $8,000 for the six-month period ended
March 31, 1996. The actuarial present value of the accumulated and projected
benefit obligations were both $50,000 at March 31, 1996.
Deferred Compensation Plan
The Company has established a non-qualified deferred compensation plan for
directors of the Bank or the Holding Company, which was adopted in its amended
form upon Conversion. Under the plan, directors may defer all or part of the
compensation received for services to the Company (including compensation paid
to an officer-director for service as an officer). Compensation deferred is
applied to either the purchase of (i) a life insurance policy, in which case the
amount of deferred benefits payable is based on the value to the Company of
expected death benefit proceeds, or (ii) Company common stock and other
investments, in which case the amount of deferred benefits payable is based on
the investment performance of the investments made. Deferred benefits are paid
in installments over a ten-year period beginning upon termination of service as
a director. In the event of a change in control of the Holding Company or the
Bank, the plan requires full funding of any previously-purchased life insurance
contracts. In connection with the Conversion, the Company established a trust
fund with an independent fiduciary for the purpose of accumulating funds to be
used to satisfy its obligations under the plan.
Upon adoption of the amended plan, the Company recorded an asset for
unrecognized prior service cost and an obligation for plan benefits, both in the
initial amount of $1.1 million. The unrecognized prior service cost is being
amortized to compensation expense over a period of approximately 5.4 years from
the Conversion date (based on the estimated remaining service periods of the
participants). At March 31, 1996, unrecognized prior service cost of $946,000 is
included in other assets and an obligation for plan benefits of $1.1 million
(computed using a discount rate of 7.0%) is included in other liabilities. The
obligation for plan benefits includes a compensation expense accrual of $164,000
for the six-month period ended March 31, 1996 (consisting of current service
cost of $23,000, interest cost of $43,000 on the projected benefit obligation,
and prior service cost amortization of $98,000).
For financial reporting purposes, the assets held in the trust fund
(principally life insurance contracts) are not considered plan assets but,
instead, are included in the Company's consolidated balance sheet. Other assets
at March 31, 1996 includes cash surrender values of purchased life insurance
policies of approximately $250,000. Compensation and benefits expense for the
six-month period ended March 31, 1996 has been reduced by approximately $60,000
with respect to the recognition of these cash surrender values. The total death
benefits payable under the insurance policies amounted to approximately $900,000
at March 31, 1996.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Postretirement Health Care Benefits
Substantially all employees become eligible for postretirement health care
(medical and dental) benefits if they meet certain age and length of service
requirements. As discussed in note 1, effective April 1, 1993, the Company
changed its method of accounting for the cost of these benefits to adopt SFAS
No. 106, and reported the cumulative effect of the accounting change in the
fiscal 1994 statement of income. Under SFAS No. 106, the cost of postretirement
health care benefits is recognized on an accrual basis as such benefits are
earned by active employees.
The Bank recognized the full amount of its accumulated benefit obligation as
of April 1, 1993, in the amount of $171,000, as a charge to earnings. The
after-tax charge of $100,000 has been reported in the fiscal 1994 statement of
income as the cumulative effect of a change in accounting principle.
The net periodic postretirement benefit expense consisted of the following
components for the years ended March 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost (benefits earned during the period) $ 3 $ 1 $ 1
Interest cost on projected benefit obligation 18 14 14
Net amortization and deferral 4 -- --
--- --- ---
Net expense $25 $15 $15
=== === ===
</TABLE>
The actuarial and recorded liabilities for postretirement health care
benefits, none of which have been funded, were as follows as of March 31:
<TABLE>
<CAPTION>
1996 1995
----- -----
(In thousands)
<S> <C> <C>
Accumulated benefit obligation:
Retirees $ (87) $ (93)
Fully-eligible employees (120) (52)
Other active participants (60) (24)
----- -----
Total accumulated benefit obligation (267) (169)
Unrecognized loss 70 --
----- -----
Accrued postretirement benefit cost $(197) $(169)
===== =====
</TABLE>
The accumulated postretirement benefit obligation was determined using the
projected unit credit cost method, as required by SFAS No. 106, and discount
rates of 7.0% and 8.25% as of March 31, 1996 and 1995, respectively. At March
31, 1996, the assumed rate of increase in future health care costs was 10.0% for
1996, gradually decreasing to 5.5% in the year 2005 and remaining at that level
thereafter. A one-percentage-point increase in the assumed health care cost
trend rate would increase the accumulated benefit obligation by approximately
$20,000 at March 31, 1996 with an insignificant effect on expense recognized for
the year then ended.
Employee Stock Ownership Plan
In connection with the Conversion, the Company established an employee stock
ownership plan ("ESOP") for eligible employees. The ESOP borrowed approximately
$1.3 million from the Holding Company and used the funds to purchase 129,600
shares of the Holding Company's common stock sold in the offering. The ESOP will
repay the loan primarily from the Bank's contributions to the ESOP over a
ten-year period. The Bank makes quarterly contributions to the ESOP equal to the
debt service requirements less all dividends received by the ESOP.
Shares purchased by the ESOP are held in a suspense account by the plan
trustee for future allocation to participants as the loan is repaid. Shares
released from the suspense account are allocated to participants on the basis of
their relative compensation. Participants become vested in the shares allocated
to their respective accounts over a period not to exceed five years. Any
forfeited shares are allocated to other participants in the same proportion as
contributions. A total of 4,037 shares were allocated to participants as of
December 31, 1995 (the plan year end). For the quarter ended March 31, 1996, the
Company has committed for the release of 4,087 additional shares. Expense
recognized in fiscal 1996 with respect to these 8,124 shares amounted to
$89,000, based on the average fair value of the Holding Company's common stock
for the period. The cost of the 121,476 shares which have not yet been committed
to be released to participant accounts
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
($1.2 million at March 31, 1996) is reflected as a reduction of shareholders'
equity. The fair value of these shares was approximately $1.5 million at that
date.
Stock Option Plans
On April 5, 1996, the Company adopted, subject to shareholders' approval and
the non-objection of the Office of Thrift Supervision (the "OTS"), two stock
option plans: The Tappan Zee Financial, Inc. 1996 Stock Option Plan for Officers
and Employees ("Stock Option Plan") and the Tappan Zee Financial, Inc. 1996
Stock Option Plan for Outside Directors ("Directors' Stock Option Plan"). As of
March 31, 1996, no options have been granted under the plans.
Under the Stock Option Plan, 113,400 shares of authorized but unissued
Holding Company stock would be reserved for issuance upon option exercises.
Options under this plan may be either non-qualified stock options or incentive
stock options. Each option entitles the holder to purchase one share of common
stock at an exercise price equal to the fair market value on the date of grant.
Options granted prior to October 5, 1996 (one year from the Conversion) vest
ratably over five years from the date of grant. Each option, however, would
become fully exercisable upon a change in control of the Holding Company or the
Bank, or upon the death, disability or retirement of the option holder. All
options expire no later than ten years following the date of grant.
Under the Directors' Stock Option Plan, 48,600 shares of authorized but
unissued Holding Company stock would be reserved for issuance to outside
directors upon option exercises. Options granted under this plan are
non-qualified options. Other option terms and conditions are similar to those
under the Stock Option Plan.
Recognition and Retention Plans
On April 5, 1996, the Company adopted, subject to shareholders' approval and
the non-objection of the OTS, two recognition and retention plans: The Tappan
Zee Financial, Inc. Recognition and Retention Plan for Officers and Employees
("Employees' Plan") and the Tappan Zee Financial, Inc. Recognition and Retention
Plan for Outside Directors ("Directors' Plan"). The purpose of these plans is to
provide officers and non-employee directors of the Company with a proprietary
interest in the Company in a manner designed to encourage their retention.
Awards granted prior to October 5, 1996 (one year from the Conversion) under the
plans vest ratably over five years from the date of grant; however, immediate
vesting occurs upon a change in control of the Holding Company or the Bank, or
upon the death, disability or retirement of the participant.
The Employees' Plan would authorize the granting of up to 45,360 shares of
the Holding Company's common stock for the benefit of officers and employees.
The Directors' Plan would authorize the granting of up to 19,440 shares of the
Holding Company's common stock for the benefit of outside directors. As of March
31, 1996, no awards have been granted under the plans.
(10) SHAREHOLDERS' EQUITY
Stock Conversion
Concurrent with the Conversion, on October 5, 1995 the Holding Company sold
1,620,062 shares of its common stock in a subscription and community offering at
a price of $10 per share, for net proceeds of $14.9 million, after deducting
conversion costs of $1.3 million. The Holding Company used $7.4 million of the
net proceeds to acquire all of the common stock issued by the Bank in the
conversion.
In accordance with regulatory requirements, the Bank established a
liquidation account at the time of the Conversion in the amount of $7.8 million,
equal to its equity at March 31, 1995. The liquidation account is maintained for
the benefit of eligible account holders who continue to maintain their accounts
at the Bank after the Conversion. The liquidation account will be reduced
annually to the extent that eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In the
event of a complete liquidation of the Bank, each eligible account holder and
supplemental eligible account will be entitled to receive a distribution from
the liquidation account in an amount proportionate to the current adjusted
qualifying balances for accounts then held.
Capital Distributions
The Bank may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause equity to be reduced
below applicable regulatory capital requirements or the amount required to be
maintained for the liquidation account. The OTS capital distribution regulations
applicable to savings institutions (such as the Bank) that meet their regulatory
capital requirements, generally limit dividend payments in any year to the
greater of (i) 100% of year-to-date net income plus an amount that would reduce
surplus capital by one-half or (ii) 75% of net income for the most recent four
quarters. Surplus capital is the excess of actual capital at the beginning of
the year over the institution's minimum regulatory capital requirement. The cash
dividend paid by the Bank to the Holding Company in fiscal 1996 was not affected
by this limitation.
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Unlike the Bank, the Holding Company is not subject to OTS regulatory
restrictions on the payment of dividends to its shareholders. The Holding
Company is subject, however, to the requirements of Delaware law, which
generally limits dividends to an amount equal to the excess of the net assets of
the Holding Company (the amount by which total assets exceed total liabilities)
over its statutory capital, or if there is no such excess, to its net profits
for the current and/or immediately preceding fiscal year.
On March 25, 1996, the Holding Company adopted a program to repurchase up to
5% of its outstanding common stock. On April 29, 1996, the Holding Company
received approval from the OTS for the stock repurchase program. The repurchase
of stock may be made at management's discretion within the six-month period
ending November 13, 1996.
Regulatory Capital Requirements
The regulations of the OTS require that savings institutions, such as the
Bank, maintain minimum levels of regulatory capital. Under the regulations in
effect at March 31, 1996, the Bank was required to maintain (i) a minimum
tangible capital ratio of 1.5% of total adjusted assets, (ii) a minimum leverage
(core capital) ratio of 3.0% of total adjusted assets, and (iii) minimum Tier I
and total risk-based capital ratios of 4.0% and 8.0% of risk-weighted assets,
respectively.
Under its prompt corrective action regulations, the OTS is required to take
certain supervisory actions with respect to undercapitalized institutions. These
regulations establish a framework for the classification of depository
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 leverage (core capital) ratio of at least 5.0%, a Tier 1 risk-based
capital ratio of at least 6.0%, and a total risk-based capital ratio of at least
10.0%.
At March 31, 1996, the Bank was in compliance with the OTS regulatory capital
requirements and was classified as a well-capitalized institution, with tangible
and leverage capital ratios of 14.9%, and Tier 1 and total risk-based capital
ratios of 36.8% and 38.0%, respectively.
(11) COMMITMENTS AND CONTINGENCIES
Off-Balance Sheet Financial Instruments
The Company's off-balance sheet financial instruments at March 31, 1996 and
1995 were limited to fixed-rate mortgage loan origination commitments with total
contractual amounts of $1.1 million and $1.4 million, respectively, and weighted
average interest rates of 7.73% and 8.85%, respectively. These instruments
involve elements of credit risk and interest rate risk in addition to the
amounts recognized in the consolidated balance sheets. The contractual amounts
represent the Company's maximum potential exposure to credit loss, but do not
necessarily represent future cash requirements since certain commitments may
expire without being funded. Loan commitments generally have fixed expiration
dates or other termination clauses and may require the payment of a fee by the
customer. Commitments are subject to the same credit approval process applied in
the Company's general lending activities, including a case-by-case evaluation of
the customer's creditworthiness and related collateral requirements.
Federal Home Loan Bank ("FHLB") of New York Advances
The Bank may borrow funds from the FHLB of New York subject to certain
limitations. Based on the level of qualifying collateral available to secure
advances at March 31, 1996, the Bank's borrowing capacity was $27.3 million,
none of which was used at that date. Advances are secured by the Bank's
investment in FHLB stock and by a blanket security agreement. This agreement
requires the Bank to maintain as collateral certain qualifying assets (such as
securities and single-family residential mortgage loans) with a fair value, as
defined, at least equal to 115% of the outstanding advances.
Legal Proceedings
In the normal course of business, the Company is involved in various
outstanding legal proceedings. Management has discussed the nature of these
proceedings with legal counsel. In the opinion of management, the financial
position of the Company will not be affected materially as a result of the
outcome of such legal proceedings.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No.107 requires the Company to disclose fair value information about
financial instruments for which it is practicable to estimate fair value,
whether or not such financial instruments are recognized on the balance sheet.
Fair value is the amount at which a financial instrument could be exchanged in a
current transaction between willing parties, other than in a forced sale or
liquidation.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Quoted market prices are used to estimate fair values when those prices are
available. However, active markets do not exist for many types of financial
instruments. Consequently, fair values for these instruments must be estimated
by management using techniques such as discounted cash flow analysis and
comparison to similar instruments. Estimates developed using these methods are
highly subjective and require judgements regarding significant matters, such as
the amount and timing of future cash flows and the selection of discount rates
that appropriately reflect market and credit risks. Changes in these judgements
often have a material effect on the fair value estimates. In addition, since
these estimates are made as of a specific point in time, they are susceptible to
material near-term changes. Fair values disclosed in accordance with SFAS No.
107 do not reflect any premium or discount that could result from the sale of a
large volume of a particular financial instrument, nor do they reflect possible
tax ramifications or estimated transaction costs.
The following is a summary of the carrying values and estimated fair values
of the Company's financial assets and liabilities (none of which were held for
trading purposes) at March 31, 1996:
<TABLE>
<CAPTION>
(In thousands)
Carrying Estimated
Value Fair Value
-------- ----------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 581 $ 581
Interest-bearing deposits 2,458 2,458
Federal funds sold 5,500 5,500
Securities 50,980 51,140
Loans 51,174 51,701
FHLB stock 561 561
Accrued interest receivable 698 698
Financial liabilities:
Savings certificate accounts 52,294 52,556
Other deposit accounts 37,614 37,614
</TABLE>
The following is a description of the principal valuation methods used by the
Company to estimate the fair values of its financial instruments:
Securities. Fair values were determined by published market prices or
securities dealers' estimated prices.
Loans. Fair values were estimated by portfolio, for loans with similar
financial characteristics. Loans were segregated by type, such as one- to
four-family residential, multi-family residential, commercial real estate,
consumer loans and commercial loans. Each loan category was further segmented
into fixed and adjustable-rate categories, and by performing and non-performing
categories. The pricing methodology for performing one- to four-family
residential mortgage loans was determined based on the zero-coupon yield curve
plus the option-adjusted spread for fixed-rate mortgages. The fair values for
performing loans in other portfolio categories were estimated by discounting the
expected cash flows using current market rates for loans with similar terms to
borrowers of similar credit quality. The fair values of non-performing loans
were based on management's analysis of estimated cash flows discounted at rates
commensurate with the credit risk involved.
Deposit Liabilities. The fair value of savings certificate accounts
represents contractual cash flows discounted using interest rates currently
offered on accounts with similar characteristics and remaining maturities. In
accordance with SFAS No. 107, the fair values of other deposit accounts (those
with no stated maturity such as savings accounts) are equal to the carrying
amounts payable on demand. In accordance with SFAS No. 107, these fair values do
not include the value of core deposit relationships which comprise a significant
portion of the Company's deposit base. Management believes that the Company's
core deposit relationships provide a relatively stable, low-cost funding source
which has a substantial unrecognized value separate from the deposit balances.
Other Financial Instruments. The other financial assets and liabilities
listed in the table above have fair values that approximate the respective
carrying values because the instruments are payable on demand or have short-term
maturities, and present relatively low credit risk and interest rate risk. Fair
values of the loan origination commitments described in note 11 were estimated
based on an analysis of the interest rates and fees currently charged to enter
into similar transactions, considering the remaining terms of the instruments
and the creditworthiness of the potential borrowers. At March 31, 1996, the fair
values of these loan origination commitments approximated the related carrying
values which were not significant.
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(13) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued SFAS No.121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of". SFAS No. 121
establishes accounting standards for reviewing and measuring the impairment of
long-lived assets and certain identifiable intangible assets. Various assets are
excluded from the scope of SFAS No. 121, including financial instruments which
constitute most of the Company's assets. For assets included in the scope of
SFAS No. 121, such as office property and equipment, an impairment loss must be
recognized when the estimate of total undiscounted future cash flows
attributable to the asset is less than the asset's carrying value. Measurement
of the impairment loss is based on the fair value of the asset. SFAS No. 121 is
effective for financial statements issued for fiscal years beginning after
December 15, 1995. The Company's prospective adoption of SFAS No. 121 in fiscal
year 1997 is expected to have no impact on the results of operations or
financial position.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which addresses accounting for stock-based compensation
arrangements such as the stock option plans and the recognition and retention
plans described in note 9. Under SFAS No. 123, entities can recognize
stock-based compensation expense in the basic financial statements using either
(i) the approach set forth in Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees", or (ii) the fair value based
method introduced in SFAS No. 123. Under APB Opinion No. 25, compensation
expense equals the option's intrinsic value, or the excess (if any) of the
market price of the underlying stock at the measurement date over the amount the
employee is required to pay. Under the fair value based method introduced in
SFAS No. 123, compensation expense is based on the option's estimated fair value
at the grant date. The Company will adopt the provisions of APB Opinion No. 25
in accounting for the stock option plans and the recognition and retention
plans. No compensation expense will be recognized for the stock option plans
since the exercise price will equal the market price at the grant date. The cost
of the shares acquired by the recognition and retention plans will be recognized
as expense on a straight-line basis over the five-year vesting period. In
accordance with SFAS No. 123, beginning in fiscal 1997 the Company will make pro
forma disclosures of net income and earnings per share as if it had adopted the
fair value based method of accounting.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(14) PARENT COMPANY CONDENSED FINANCIAL INFORMATION
Set forth below is the condensed balance sheet of Tappan Zee Financial, Inc.
as of March 31, 1996, and its condensed statements of income and cash flows for
the period from October 5, 1995 (the Conversion date) to March 31, 1996:
<TABLE>
<CAPTION>
March 31,
1996
---------
CONDENSED BALANCE SHEET (In thousands)
<S> <C>
Assets:
Cash $ 481
Securities and interest-bearing deposits 5,805
Investment in subsidiary 16,080
--------
Total assets $ 22,366
========
Liabilities and Shareholders' Equity:
Accrued expenses $ 6
Shareholders' equity 22,360
--------
Total liabilities and shareholders' equity $ 22,366
========
<CAPTION>
From October 5, 1995
to March 31, 1996
--------------------
CONDENSED STATEMENT OF INCOME (In thousands)
<S> <C>
Dividend from subsidiary $ 90
Interest income 78
Non-interest expense (22)
--------
Income before income tax expense and equity in undistributed
earnings of subsidiary 146
Income tax expense 33
--------
Income before equity in undistributed earnings of subsidiary 113
Equity in undistributed earnings of subsidiary 357
--------
Net income $ 470
========
CONDENSED STATEMENT OF CASH FLOWS
Cash flows from operating activities:
Net income $ 470
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in undistributed earnings of subsidiary (357)
Accrued expenses 6
--------
Net cash provided by operating activities 119
--------
Cash flows from investing activities:
Purchase of subsidiary's common stock (7,357)
--------
Cash flows from investing activities:
Net proceeds from sale of common stock, exclusive of ESOP shares 13,605
Dividends paid (81)
--------
Net cash provided by financing activities 13,524
--------
Increase in cash and cash equivalents 6,286
Cash and cash equivalents at beginning of period --
--------
Cash and cash equivalents at end of period $ 6,286
========
</TABLE>
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(15) SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for fiscal 1996 and 1995 is shown below:
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------
June 30 September 30 December 31 March 31
------- ------------ ----------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
FISCAL 1996
Interest income $1,767 $1,823 $2,017 $2,017
Interest expense 939 1,040 1,023 1,000
------ ------ ------ ------
Net interest income 828 783 994 1,017
Provision for loan losses 30 25 25 10
Non-interest income 33 31 32 115
Non-interest expense 480 513 625 679
------ ------ ------ ------
Income before income tax expense 351 276 376 443
Income tax expense 150 110 152 197
------ ------ ------ ------
Net income $ 201 $ 166 $ 224 $ 246
====== ====== ====== ======
Earnings per share $ 0.15 $ 0.16
====== ======
FISCAL 1995
Interest income $1,555 $1,629 $1,669 $1,694
Interest expense 649 707 749 807
------ ------ ------ ------
Net interest income 906 922 920 887
Provision for loan losses 30 70 30 41
Non-interest income 7 7 26 27
Non-interest expense 443 577 506 561
------ ------ ------ ------
Income before income tax expense 440 282 410 312
Income tax expense 185 114 177 134
------ ------ ------ ------
Net income $ 255 $ 168 $ 233 $ 178
====== ====== ====== ======
</TABLE>
35
<PAGE> 37
CORPORATE INFORMATION
BOARD OF DIRECTORS Marvin Levy, Chairman of the Board
Stephen C. Byelick
John T. Cooney
Gerald L. Logan
Harry G. Murphy
Kevin J. Plunkett
Paul R. Wheatley
OFFICERS Stephen C. Byelick, President and Chief Executive
Officer Harry G. Murphy, Vice President and
Secretary
OFFICE LOCATION 75 North Broadway, Tarrytown, NY 10591
(914) 631-0344
SHAREHOLDERS'
INFORMATION Annual Meeting
The annual meeting of shareholders will be held
on July 10, 1996 at 5:00 p.m. at the Tarrytown
Hilton, Tarrytown, NY.
<TABLE>
<S> <C>
Transfer Agent and Registrar: General Inquiries:
Chemical Mellon Shareholder Services Tappan Zee Financial, Inc.
PO Box 590 c/o Tarrytowns Bank, FSB
Ridgefield Park, NJ 07660 75 North Broadway
Att: Shareholder Relations Tarrytown, NY 10591
(800) 851-9677 (914) 631-0344
</TABLE>
Form 10K
Our annual report on Form 10K, filed with the Securities and
Exchange Commission, may be obtained by writing to Harry G.
Murphy, Vice President and Secretary, at the above address.
STOCK MARKET DATA
The shares of common stock are quoted on The Nasdaq Stock Market under the
symbol "TPNZ." The table below sets forth the dividends declared and the high
and low closing sale price per common share for the quarters indicated.
<TABLE>
<CAPTION>
CASH CLOSING SALE PRICE
DIVIDENDS --------------------------------------
DECLARED HIGH LOW END OF PERIOD
--------- ------- ------- -------------
QUARTER ENDED
------------
<S> <C> <C> <C> <C>
December 31, 1995 $ -- $13 1/8 $10 $ 12 5/8
March 31, 1996 $0.05 12 1/4 11 3/4 12
</TABLE>
As of May 17, 1996 there were approximately 340 shareholders of record. This
does not reflect the number of persons or entities who hold their common stock
in nominee or "street" name through various brokerage firms.
<PAGE> 1
TAPPAN ZEE FINANCIAL, INC.
75 NORTH BROADWAY
TARRYTOWN, NEW YORK 10591
May 31, 1996
Dear Shareholder:
You are cordially invited to attend the 1996 Annual Meeting of
Shareholders (the "Meeting") of Tappan Zee Financial, Inc. ("Tappan Zee
Financial" or the "Company"), the holding company for Tarrytowns Bank, F.S.B.,
Tarrytown, New York, which will be held on July 10, 1996, at 5:00 p.m., at the
Tarrytown Hilton, 455 South Broadway, Tarrytown, New York 10591.
The attached Notice of Annual Meeting of Shareholders and Proxy
Statement describe the formal business to be transacted at the Meeting.
Directors and officers of Tappan Zee Financial, as well as a representative of
KPMG Peat Marwick LLP, the accounting firm appointed by the Board of Directors
to be the Company's independent auditors for the fiscal year ending March 31,
1997, will be present at the Meeting to respond to any questions that our
shareholders may have.
The Board of Directors of Tappan Zee Financial has determined that an
affirmative vote on each matter to be considered at the Meeting is in the best
interests of the Company and its shareholders and unanimously recommends a vote
"FOR" each of these matters.
Please complete, sign and return the enclosed proxy card promptly
whether or not you plan to attend the Meeting. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN. VOTING BY PROXY WILL NOT PREVENT YOU FROM
VOTING IN PERSON AT THE MEETING, BUT WILL ASSURE THAT YOUR VOTE IS COUNTED IF
YOU ARE UNABLE TO ATTEND. IF YOU ARE A SHAREHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER TO ATTEND AND TO VOTE PERSONALLY AT THE MEETING. EXAMPLES OF SUCH
DOCUMENTATION INCLUDE A BROKER'S STATEMENT, LETTER OR OTHER DOCUMENT CONFIRMING
YOUR OWNERSHIP OF SHARES OF THE COMPANY.
On behalf of the Board of Directors and the employees of Tappan Zee
Financial and Tarrytowns Bank, F.S.B., we thank you for your continued support
and appreciate your interest.
Sincerely yours,
/s/ Stephen C. Byelick
-------------------------------------
Stephen C. Byelick
President and Chief Executive Officer
<PAGE> 2
TAPPAN ZEE FINANCIAL, INC.
75 NORTH BROADWAY
TARRYTOWN, NEW YORK 10591
(914) 631-0344
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 10, 1996
NOTICE IS HEREBY GIVEN that the 1996 Annual Meeting of Shareholders of
Tappan Zee Financial, Inc. (the "Company") will be held at the Tarrytown Hilton,
455 South Broadway, Tarrytown, New York 10591 on July 10, 1996 at 5:00 p.m., New
York time, to consider and vote upon:
1. The election of three directors for terms of three years each.
2. The approval of the 1996 Stock Option Plan for Officers and
Employees.
3. The approval of the 1996 Stock Option Plan for Outside
Directors.
4. The approval of the Recognition and Retention Plan for
Officers and Employees.
5. The approval of the Recognition and Retention Plan for Outside
Directors.
6. The ratification of the appointment of KPMG Peat Marwick LLP
as independent auditors for the fiscal year ending March 31,
1997; and
7. The authorization of the Board of Directors, in its
discretion, to direct the vote of the proxies upon such other
business as may properly come before the meeting, and any
adjournment thereof, including, without limitation, a motion
to adjourn the meeting. Management is not aware of any such
business.
The Board of Directors has fixed May 17, 1996 as the record date for
the determination of shareholders entitled to notice of and to vote at the
Annual Meeting and any adjournment or postponement thereof. Only shareholders of
record at the close of business on that date will be entitled to notice of and
to vote at the Annual Meeting and any adjournment or postponement thereof. A
list of shareholders entitled to vote at the Annual Meeting will be available at
Tappan Zee Financial, Inc., 75 North Broadway, Tarrytown, New York 10591 for a
period of at least ten days prior to the meeting and will also be available at
the meeting itself.
By Order of the Board of Directors
/s/ Harry G. Murphy
-------------------------------
Harry G. Murphy
Vice President and Secretary
Tarrytown, New York
May 31, 1996
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. THE BOARD OF
DIRECTORS URGES YOU TO SIGN, DATE AND MARK THE ENCLOSED PROXY CARD PROMPTLY AND
RETURN IT IN THE ENCLOSED ENVELOPE. RETURNING THE PROXY CARD WILL NOT PREVENT
YOU FROM VOTING IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
- --------------------------------------------------------------------------------
<PAGE> 3
TAPPAN ZEE FINANCIAL, INC.
PROXY STATEMENT FOR THE
1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 10, 1996
GENERAL INFORMATION
GENERAL
This Proxy Statement and accompanying proxy card are being furnished to
the shareholders of Tappan Zee Financial, Inc. (the "Company") in connection
with the solicitation of proxies by the Board of Directors of the Company from
holders of the shares of the Company's issued and outstanding common stock, par
value $.01 per share (the "Common Stock"), as of the close of business on May
17, 1996 (the "Record Date"), for the use at the 1996 Annual Meeting of
Shareholders of the Company to be held on July 10, 1996 at the Tarrytown Hilton,
455 South Broadway, Tarrytown, New York 10591, at 5:00 p.m., New York time, and
at any adjournment or postponement thereof (the "Annual Meeting"). This Proxy
Statement, together with the enclosed proxy card, is first being mailed to
shareholders on or about May 31, 1996.
On October 5, 1995, the Company became the holding company for
Tarrytowns Bank, FSB (the "Bank") upon completion of the conversion of the Bank
from a mutual savings bank to a stock savings bank (the "Conversion"). The
Company, a Delaware corporation, operates as a savings association holding
company for its wholly-owned subsidiary, the Bank.
RECORD DATE AND VOTING RIGHTS
The Board of Directors of the Company has fixed the close of business
on May 17, 1996 as the record date for the determination of the Company's
shareholders entitled to notice of and to vote at the Annual Meeting.
Accordingly, only holders of record of shares of Common Stock at the close of
business on such date will be entitled to vote at the Annual Meeting. On the
Record Date, there were 1,580,062 shares of Common Stock issued and outstanding.
Each holder of shares of Common Stock outstanding on the Record Date
will be entitled to one vote for each share held of record upon each matter
properly submitted at the Annual Meeting and at any adjournment or postponement
thereof. The presence, in person or by proxy, of the holders of at least a
majority of the total number of outstanding shares of Common Stock entitled to
vote at the Annual Meeting is necessary to constitute a quorum thereat.
The Company's Certificate of Incorporation requires that no person (as
defined therein, other than the Company or any stock plan maintained by the
Company) may directly or indirectly hold beneficial ownership of more than 10%
of the issued and outstanding Common Stock (the "Limit"). As provided in the
Company's Certificate of Incorporation, record holders of Common Stock who
beneficially own in excess of the Limit shall be entitled to one hundredth
(1/100) of one vote per share for each share in excess of the Limit. A person or
entity is deemed to beneficially own shares owned by an affiliate as well as
persons acting in concert with such person or entity. The Company's Certificate
of Incorporation authorizes the Board of Directors (i) to make all
determinations necessary to implement and apply the Limit, including determining
whether persons or entities are acting in concert, and (ii) to demand that
<PAGE> 4
any person who is reasonably believed to beneficially own Common Stock in excess
of the Limit supply information to the Company to enable the Board of Directors
to implement and apply the Limit.
All properly executed proxies received by the Company will be voted in
accordance with the instructions indicated thereon. IF NO INSTRUCTIONS ARE
GIVEN, EXECUTED PROXIES WILL BE VOTED FOR THE ELECTION OF THE THREE NOMINEES FOR
DIRECTOR, AND FOR EACH OTHER PROPOSAL IDENTIFIED IN THE NOTICE OF ANNUAL
MEETING. Management is not aware of any matters other than those set forth in
the Notice of Annual Meeting that may be brought before the Annual Meeting. If
any other matters properly come before the Annual Meeting, the persons named in
the accompanying proxy card will vote the shares represented by all properly
executed proxies on such matters in such manner as shall be determined by a
majority of the Board of Directors of the Company.
VOTE REQUIRED
Directors are elected by a plurality of the votes cast in person or by
proxy at the Annual Meeting. The holders of Common Stock may not vote their
shares cumulatively for the election of directors. The approval of the 1996
Stock Option Plan for Officers and Employees, the 1996 Stock Option Plan for
Outside Directors, the Recognition and Retention Plan for Officers and Employees
and the Recognition and Retention Plan for Outside Directors, each requires the
affirmative vote of a majority of votes eligible to be cast at the Annual
Meeting. The ratification of the appointment by the Board of Directors of KPMG
Peat Marwick LLP as the Company's independent auditors and the authorization of
the Board of Directors, in its discretion, to vote upon such other business as
may properly come before the Annual Meeting, and any adjournment or postponement
thereof, including, without limitation, a motion to adjourn the Annual Meeting
("Proposal Seven"), require the affirmative vote of a majority of the votes cast
by the holders of Common Stock present, in person or by proxy, and entitled to
vote thereon.
Shares as to which the "ABSTAIN" box has been selected on the Proxy
Card with respect to the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company or Proposal Seven will be counted as present and
entitled to vote and will have the effect of a vote against that proposal. In
contrast, shares underlying broker non-votes will not be counted as present and
entitled to vote and will have no effect on the vote on each matter presented.
Shares as to which the "ABSTAIN" box has been selected on the Proxy Card with
respect to the approval of the 1996 Stock Option Plan for Officers and
Employees, the 1996 Stock Option Plan for Outside Directors, the Recognition and
Retention Plan for Officers and Employees and the Recognition and Retention Plan
for Outside Directors will be counted as present and entitled to vote and will
have the effect of a vote against that proposal. Shares underlying broker
non-votes will be counted as present and entitled to vote and will have the
effect of a vote against each matter presented.
REVOCABILITY OF PROXIES
A proxy may be revoked at any time before it is voted by filing a
written revocation of the proxy with the Secretary of the Company or by
submitting a duly executed proxy bearing a later date. A proxy also may be
revoked by attending and voting at the Annual Meeting or any adjournment or
postponement thereof, only if a written revocation is filed with the Secretary
of the Annual Meeting prior to the voting of such Proxy. If you are a
shareholder whose shares are not registered in your own name, you will need
appropriate documentation from your shareholder of record to vote personally at
the Annual Meeting. Examples of such documentation would include a broker's
statement, letter or other document that will confirm your ownership of shares
of the Company.
2
<PAGE> 5
SOLICITATION OF PROXIES
The Company will bear the costs of soliciting proxies from its
shareholders. In addition to the use of mail, proxies may be solicited by
officers, directors or employees of the Company and the Bank, by telephone or
through other forms of communication. The Company will also request persons,
firms and corporations holding shares in their names or in the name of their
nominees, which are beneficially owned by others, to send proxy materials to and
obtain proxies from such beneficial owners, and will reimburse such holders for
reasonable expenses incurred in connection therewith. In addition, the Company
has retained Morrow & Co. to assist in the solicitation of proxies. The
estimated cost of such solicitation is $3,500.
PRINCIPAL SHAREHOLDERS OF THE COMPANY
The following table sets forth, as of April 30, 1996, certain
information as to the Common Stock beneficially owned by persons owning in
excess of 5% of the outstanding shares of Common Stock. Management knows of no
person, except as listed below, who beneficially owned more than 5% of the
Company's outstanding shares of Common Stock as of April 30, 1996. Except as
otherwise indicated, the information provided in the following table was
obtained from filings with the Securities Exchange Commission ("SEC") and with
the Company pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Addresses provided are those listed in the filings as the
address of the person authorized to receive notices and communications. Unless
otherwise noted, each beneficial owner has sole voting and sole investment power
over the shares beneficially owned. For purposes of the table below and the
table set forth under "Stock Owned by Management," in accordance with Rule 13d-3
under the Exchange Act, a person is deemed to be the beneficial owner, for
purposes of this table, of any shares of Common Stock (1) over which he has or
shares, directly or indirectly, voting or investment power, or (2) of which he
has the right to acquire beneficial ownership at any time within 60 days after
April 30, 1996. As used herein, "voting power" is the power to vote or direct
the voting of shares and "investment power" includes the power to dispose or
direct the disposition of such shares.
3
<PAGE> 6
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT
---------------- -------------------- -------
<S> <C> <C>
The Employee Stock Ownership Plan Trust of 129,600 shares(1) 8.00%
Tappan Zee Financial, Inc. and Certain
Affiliates
250 Park Avenue
New York, NY 10177
Endeavour Capital Partners, L.P. 126,000 shares(2) 7.78%
555 Madison Avenue
New York, NY 10022
John Hancock Advisors, Inc. 117,500 shares(3) 7.25%
P.O. Box 111
Boston, Mass 02117
Wellington Management Company 113,800 shares(4) 7.02%
75 State Street
Boston, Mass 02110
</TABLE>
- ---------------------
(1) The Employee Stock Ownership Plan ("ESOP") is administered by a
committee of the Company's Board of Directors. The ESOP's assets are
held in a trust (the "ESOP Trust"), for which Marine Midland Bank
serves as trustee (the "ESOP Trustee"). The ESOP Trust purchased these
shares with funds borrowed from the Company and intends to allocate
them to employees over a period of years. The terms of the ESOP provide
that, subject to the ESOP Trustee's fiduciary responsibilities under
the Employee Retirement Income Security Act of 1974, ("ERISA") as
amended, the ESOP Trustee will vote, tender or exchange shares of
Common Stock held in the ESOP Trust in accordance with the following
rules. The ESOP Trustee will vote tender or exchange shares of Common
Stock allocated to participants' accounts in accordance with
instructions received from the participants. As of March 31, 1996,
4,037 shares held by the ESOP Trust have been allocated. The ESOP
Trustee will vote allocated shares as to which no instructions are
received and any shares that have not been allocated to participants'
accounts in the same proportion as allocated shares with respect to
which the ESOP Trustee receives instructions are voted. The ESOP
Trustee will tender or exchange any shares in the suspense account or
that otherwise have not been allocated to participants' accounts in the
same proportion as allocated shares with respect to which the ESOP
Trustee receives instructions are tendered or exchanged. With respect
to allocated shares as to which no instructions are received, the ESOP
Trustee will be deemed to have received instructions not to tender or
exchange such shares. Except as described above, the ESOP committee of
the Company's Board of Directors (the "ESOP Committee") has sole
investment power, except in limited circumstances, but no voting power
over all Common Stock held in the ESOP Trust.
(2) Endeavor Capital Partners L.P. ("Endeavor") filed with the SEC a
Schedule 13D, dated as of October 17, 1995. Based on Endeavor's
Schedule 13D, it has shared voting and investment power over the
126,000 shares with Michael J. Katz and Laurence M. Austin, the general
partners of Endeavour. Endeavor is a privately-owned investment
partnership.
(3) John Hancock Advisors, Inc ("JHA") filed with the SEC a Schedule 13G,
dated January 26, 1996. Based on JHA's Schedule 13G, JHA is the
investment advisor for The John Hancock Bank and Thrift Opportunity
Fund, a closed-end diversified management company that holds 45,000 of
the shares indicated, and the John Hancock Regional Bank Fund, an
open-end diversified management company that holds the remaining 72,500
shares. As investment advisor, JHA has sole voting and investment power
over the 117,500 shares.
(4) Wellington Management Company ("Wellington") filed with the SEC a
Schedule 13G on February 9, 1996. Based on Wellington's Schedule 13G,
Wellington, as an investment advisor, shares voting and investment
power over 98,000 shares, or 6.05% of Common Stock outstanding, with
Bay Pond Partners, L.P., a Delaware limited partnership, and has shared
investment power over an additional 15,800 shares.
4
<PAGE> 7
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of April 30, 1996 with
respect to the shares of Common Stock beneficially owned by each director of the
Company, each Named Executive Officer identified in the Summary Compensation
Table included elsewhere herein, and by all directors and executive officers as
a group.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
POSITION WITH OF BENEFICIAL COMMON STOCK
NAME THE COMPANY(1) OWNERSHIP(2)(3)(4) OUTSTANDING
---- -------------- ------------------ -----------
<S> <C> <C> <C>
Stephen C. Byelick President and Chief Executive 11,880(5) *
Officer and Director
Harry G. Murphy Vice President and Secretary 3,159 *
and Director
John T. Cooney Director 7,000 *
Marvin Levy Director and Chairman 5,000(6) *
Gerald L. Logan Director 4,500 *
Kevin J. Plunkett Director 6,100(7) *
Paul R. Wheatley Director 3,500(8) *
All directors and executive officers as a group (7 persons) 166,702 9.81%
</TABLE>
- ---------------------
* Less than one percent
(1) Titles are for both the Company and the Bank.
(2) See "Principal Shareholders of the Company" for a definition of
"beneficial ownership." All persons shown in the above table have sole
voting and investment power, except as otherwise indicated.
(3) The figures shown include shares held in trust pursuant to the ESOP
that have been allocated as of December 31, 1995 to individual accounts
as follows: Mr. Byelick, 880 shares, Mr. Murphy, 609 shares and all
directors and executive officers as a group, 1,489 shares. Such persons
have voting power (subject to the legal duties of the trustee) but no
investment power, except in limited circumstances, as to such shares.
The figures shown for Messrs. Byelick and Murphy do not include 125,563
shares held in trust pursuant to the ESOP that have not been allocated
to any individual's account and as to which Messrs. Byelick and Murphy
share voting power with other ESOP participants. The figure shown for
all directors and executive officers as a group includes such 125,563
shares as to which the members of the Company's ESOP Committee
(consisting of Messrs. Plunkett, Logan and Wheatley) may be deemed to
have sole investment power, except in limited circumstances, thereby
causing each such Committee member to be deemed a beneficial owner of
such shares. Each of the members of the ESOP Committee disclaims
beneficial ownership of such shares. See "Election of Directors
(Proposal One) -- Benefits -- Employee Stock Ownership Plan."
(4) The figures shown include shares held under the Tarrytowns Bank, FSB
Directors' Deferred Compensation Plan that have been allocated as of
December 31, 1995 to individual accounts as follows: Mr. Murphy, 1,050
shares, Mr. Levy, 1,500 shares and all directors and executive officers
as a group, 2,550 shares. Such persons have sole voting power and sole
investment power as to such shares. See "Election of Directors
(Proposal One) -- Compensation of Directors -- Deferred Compensation
Plan for Directors."
(5) Includes 4,000 shares as to which Mr. Byelick may be deemed to share
voting power, but has no investment power.
(6) Includes 1,000 shares as to which Mr. Levy may be deemed to share
voting power, but has no investment power.
(7) Mr. Plunkett may be deemed to share voting power, but has no investment
power, as to all 6,100 shares.
(8) Mr. Wheatley shares voting and investment power as to 3,000 shares and
may be deemed to share voting power, but has no investment power, as to
500 shares.
5
<PAGE> 8
--------------------------------------
ELECTION OF DIRECTORS
(PROPOSAL ONE)
--------------------------------------
The Certificate of Incorporation and Bylaws of the Company provide for
the election of directors by the shareholders. For this purpose, the Board of
Directors of the Company is divided into three classes, as nearly equal in
number as possible. The terms of office of the members of one class expire, and
a successor class is to be elected, at each annual meeting of shareholders.
There are currently seven directors of the Company.
The terms of three directors expire at the Annual Meeting. Each of the
three incumbent directors, Marvin Levy, Kevin J. Plunkett, and Paul Wheatley has
been nominated by the Nominating Committee to be re-elected at the Annual
Meeting for a three-year term expiring at the annual meeting of shareholders in
1999. The terms of the remaining two classes of directors expire at the annual
meeting of shareholders in 1997 and 1998, respectively, or when their successors
are otherwise duly elected. Each nominee has consented to being named in this
Proxy Statement and to serve if elected.
In the event that any nominee for election as a director at the Annual
Meeting is unable or declines to serve, which the Board of Directors has no
reason to expect, the persons named in the Proxy Card will vote for a substitute
nominee designated by the present Board of Directors.
Information as to Nominees and Continuing Directors. The following
table sets forth certain information with respect to each nominee for election
as a director and each director whose term does not expire at the Annual Meeting
("Continuing Director"). There are no arrangements or understandings between the
Company and any director or nominee pursuant to which such person was elected or
nominated to be director of the Company. For information with respect to
security ownership of directors, see "General Information -- Stock Owned by
Management."
<TABLE>
<CAPTION>
DIRECTOR TERM POSITION(S) HELD WITH THE
NOMINEES AGE(1) SINCE(2) EXPIRES COMPANY AND THE BANK
- -------- ------ -------- ------- --------------------
<S> <C> <C> <C> <C>
Marvin Levy 70 1980 1996 Director and Chairman of the Company
and the Bank
Kevin J. Plunkett 46 1990 1996 Director of the Company and the Bank
Paul R. Wheatley 65 1989 1996 Director of the Company and the Bank
CONTINUING
DIRECTORS
---------
Stephen C. Byelick 71 1983 1998 President and Chief Executive
Officer and Director of the Company
and Bank
Harry G. Murphy 39 1989 1997 Vice President and Secretary and
Director of the Company and the Bank
John T. Cooney 61 1982 1998 Director of the Company and the Bank
Gerald L. Logan 58 1990 1997 Director of the Company and the Bank
</TABLE>
- ---------------------
(1) As of April 30, 1996.
(2) Includes service as a Director or Director Emeritus of Tarrytowns Bank,
FSB and its predecessor, Tarrytown and North Tarrytown Saving and Loan
Association.
6
<PAGE> 9
The principal occupation and business experience of each nominee for
election as director and each Continuing Director is set forth below.
NOMINEES FOR ELECTION AS DIRECTOR
Marvin Levy has served as a Director and Chairman of the Company since
its formation in 1995, a Director of the Bank since 1980 and Director and
Chairman of the Board since 1990. Mr. Levy is a C.P.A. and has been the
President of Greller and Company P.C., a professional corporation of certified
public accountants, for in excess of 25 years.
Kevin J. Plunkett has served as a Director of the Company since its
formation in 1995 and has been a Director of the Bank since 1990. Mr. Plunkett
has been a practicing attorney since 1975. Mr. Plunkett was an Assistant
District Attorney, Felony Trial Division, of Westchester County from 1975 to
1979 and has been an Acting Village Justice for the Village of Tarrytown from
1985 to 1987. He is the Village Attorney for the Village of Irvington, N.Y. and
the Village of Dobbs Ferry, N.Y. Mr. Plunkett is currently a member in the law
firm of Plunkett & Jaffe, P.C., with offices in White Plains, New York City and
Albany. He is a member of the Board of Trustees of Iona College, New Rochelle,
New York.
Paul R. Wheatley has served as a Director of the Company since its
formation in 1995 and has been a Director of the Bank since 1989. Mr. Wheatley
was President of Beck & Wheatley Inc., an insurance agency and real estate
brokerage concern, from 1970 until his retirement in 1993.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE "FOR" THE NOMINEES FOR ELECTION AS DIRECTORS
CONTINUING DIRECTORS
Stephen C. Byelick has served as President and Chief Executive Officer
of the Company since its formation in 1995 and has been a Director or Director
Emeritus of the Bank and its Chief Executive Officer since 1983. Prior to 1983,
Mr. Byelick was a vice president with The Bank of New York, serving in a variety
of functions including branch management, lending and marketing.
Harry G. Murphy has served as Vice President and Secretary of the
Company since its formation in 1995, a Vice President of the Bank since 1983,
Vice President and Secretary of the Bank since 1987 and a Director of the Bank
since 1989. Mr. Murphy is also the Community Reinvestment Officer of the Bank.
Prior to 1983, Mr. Murphy was an assistant treasurer with The Bank of New York.
John T. Cooney has served as a Director of the Company since its
formation in 1995 and has been a Director of the Bank since 1982. Mr. Cooney is
a Vice President of County Asphalt Inc., a manufacturer of asphalt paving
materials, and has been with this company for more than 25 years. Mr. Cooney is
also a Vice President of Westchester Industries, Inc., a real estate and holding
corporation, and a partner in Cooney Realty Co., a real estate partnership, and
has been with such entities for greater than 25 years.
Gerald L. Logan has served as a Director of the Company since its
formation in 1995 and has been a Director of the Bank since 1990. Since 1995,
Mr. Logan has been a registered representative of The Windmill Group, Inc., a
financial planning firm. Mr. Logan was employed as a vice president of
Axe-Houghton Management, an investment management firm from 1954 to 1992. Mr.
Logan has been a member of the National Association of Securities Dealers, Inc.
since 1958. Mr. Logan is also associated with USF&G-AHM, an insurance company,
as a consultant.
7
<PAGE> 10
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE COMPANY
The Board of Directors meets on a monthly basis and may have additional
special meetings upon the request of the Chairman of the Board. During the
period from the Company's inception to the end of the fiscal year ended March
31, 1996, the Company's Board of Directors met 11 times. No current director
attended fewer than 75% of the total number of Board meetings and committee
meetings of which such director was a member.
The Board of Directors of the Company has established the following
committees:
The Executive Committee consists of all members of the Board of
Directors. The purpose of this committee is to monitor and manage the Company's
interest rate risk against Board and regulatory standards and coordinate such
interest rate risk management with the Company's operating plan. This committee,
from time to time, also reviews regulatory issues and reports of regulatory
examinations. This committee meets as requested by the Board of Directors. The
Executive Committee did not meet in fiscal 1995, the first year of the Company's
existence.
The Compensation Committee consists of Messrs. Plunkett (Chairman),
Logan and Wheatley. This committee establishes the compensation of the Chief
Executive Officer, approves the compensation of other officers, and determines
compensation and benefits to be paid to employees of the Bank. The committee
meets yearly and as requested by the Board of Directors. The Compensation
Committee did not meet in fiscal 1995, the first year of the Company's
existence.
The Examining and Audit Committee consists of Messrs. Logan (Chairman),
Cooney and Wheatley. The Bank's Internal Auditor reports to this committee. The
purpose of this committee is to provide assurance that the Company's internal
controls are adequate and that financial disclosures made by management portray
the Bank's financial condition and results of operations. The committee is
responsible for the classification of assets and the establishment of adequate
valuation allowances. The committee also maintains a liaison with the outside
auditors and reviews the adequacy of internal controls. The committee meets at
least annually or as called by the Committee Chairman. The Examining and Audit
Committee did not meet in fiscal 1995, the first year of the Company's
existence.
The Nominating Committee consists of Messrs. Cooney (Chairman),
Byelick, Logan and Murphy. The nominating committee nominates candidates for the
election of directors. The committee meets as called by the Committee Chairman.
The Nominating Committee did not meet in fiscal 1995, the first year of the
Company's existence, and met for the first time on April 5, 1996 to select the
nominees for election as directors at the Annual Meeting. In accordance with the
Company's Bylaws, no nominations for election as director, except those made by
the Nominating Committee, shall be voted upon at the Annual Meeting unless
properly made by a shareholder in accordance with the procedures set forth below
under "Additional Information -- Notice of Business to be Conducted at Annual
Meeting."
COMPENSATION OF DIRECTORS
Fee Arrangements. Currently, each outside director of the Company
receives a fee of $500 per meeting attended. All committee members receive a fee
of $200 for attendance at each committee meeting, with the exception of members
of the Examining and Audit Committee. Prior to its stock conversion, employee
directors of the Bank received the same fees as outside directors. The Chairman
and members of the Examining and Audit Committee receive a fee of $100 and $50,
respectively, for each committee meeting attended. On any day when the Company's
Board and the Bank's Board meet on the same day, only one meeting fee is paid to
any director. In such a circumstance, the meeting fee
8
<PAGE> 11
is paid by the Bank. Directors will also be eligible to participate in the Stock
Option Plan for Outside Directors and Retention and Recognition Plan for Outside
Directors, which are subject to approval by the shareholders. See "1996 Stock
Option Plan for Outside Directors (Proposal Three)" and "Recognition and
Retention Plan for Outside Directors (Proposal Five)."
Directors' Retirement Plan. The Company has adopted, a non-qualified
Retirement Plan for Outside Directors of the Company and the Bank (the
"Directors' Retirement Plan"), which will provide benefits to each eligible
Outside Director commencing on his termination of Board service at or after age
65. Each Outside Director who serves or has agreed to serve as an Outside
Director subsequent to the completion of the Conversion will automatically
become a participant in the Plan unless prior to, on or after such date, the
Outside Director elected to participate in the Deferred Compensation Plan
described below. In such case, the Outside Director will be deemed to have
irrevocably waived his benefits under the Directors' Retirement Plan. An
eligible Outside Director retiring at or after age 65 will be paid an annual
retirement benefit equal to the amount of the aggregate compensation for
services as a director (excluding stock compensation) paid to him for the
12-month period immediately prior to his termination of Board service,
multiplied by a fraction, the numerator of which is the number of his years of
service as an Outside Director (including service as a director or trustee of
the Bank or any predecessor) and the denominator of which is 10. An individual
who terminates Board service after having served as an Outside Director for 10
years may elect to begin collecting benefits under the Directors' Retirement
Plan at or after attainment of age 50, but the annual retirement benefits
payable to him will be reduced pursuant to the Plan's early retirement reduction
formula to reflect the commencement of benefit payments prior to age 65. An
Outside Director may elect to have his benefits distributed in any one of the
following forms: (i) a single life annuity; (ii) a 50% or 100% joint and
survivor annuity; or (iii) a single life annuity with a 5, 10, or 15 year
guaranteed term. In the event an Outside Director dies prior to the commencement
of benefit payments under the Directors' Retirement Plan, a 50% survivor annuity
will automatically be paid to his surviving spouse.
Deferred Compensation Plan for Directors. The Company has established a
non-qualified Deferred Compensation Plan for directors of the Bank or the
Company pursuant to which directors may defer all or part of the compensation
received for their services to the Company or Bank and its affiliated companies
(including compensation paid to an officer-director for service as an officer).
Any director who has elected to participate in the Deferred Compensation Plan
will be deemed to have irrevocably waived his benefits under the Directors'
Retirement Plan. Compensation deferred is applied to either the purchase of
investments (including shares of Common Stock of the Company) for the account of
the director, in which case the amount of deferred benefits payable is based on
the investment performance of the investments made, or to purchase a life
insurance policy, in which case the amount of deferred benefits payable is based
on the value to the Bank of expected death benefit proceeds. Deferred benefits
are paid in installments over a period of ten years beginning upon termination
of service as a director. In the event a director dies prior to the complete
distribution of his account in the Deferred Compensation Plan, the remainder
will be paid in a single sum payment to his designated beneficiary. In the event
of a change in control, the Plan requires full funding of any life insurance
contracts previously purchased. The Bank has established a trust fund with an
independent fiduciary ("Trustee") for the purpose of accumulating funds to be
used to satisfy its obligations under the Deferred Compensation Plan. The
Trustee will vote any shares of Common Stock purchased for a participant's
account in the Deferred Compensation Plan in accordance with the directions
given by such participant.
9
<PAGE> 12
EXECUTIVE OFFICERS
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names. There are no executive
officers of the Company who are not also directors.
NAME POSITION HELD WITH THE COMPANY
- ---- ------------------------------
Stephen C. Byelick President and Chief Executive Officer
Harry G. Murphy Vice President and Secretary
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors. The Company has
entered into an Employment Agreement with its executive officers which sets
forth the terms of their employment. See "-- Employment Agreements."
EXECUTIVE COMPENSATION
Since the formation of the Company, none of the executive officers or
other employee personnel has received remuneration from the Company.
Cash Compensation. The following table sets forth the cash compensation
paid by the Company and the Bank for services rendered in all capacities during
the fiscal year ended March 31, 1996, to the chief executive officer and the
executive officers of the Company and the Bank whose annual salary and bonus for
such fiscal year was in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND PRINCIPAL OTHER ANNUAL ALL OTHER
POSITIONS YEAR SALARY(1) BONUS COMPENSATION(2) COMPENSATION(3)
--------- ---- --------- ----- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen C Byelick, President and 1996 $158,567 $18,083 ------ $11,110
Chief Executive Officer 1995 $144,300 $17,100 ------ ------
Harry G. Murphy, 1996 $ 97,900 $12,530 ------ 7,687
Vice President and Secretary 1995 $ 97,400 $11,700 ------ ------
</TABLE>
- ---------------------
(1) Includes directors fees earned as a director of the Bank prior to its
stock conversion and compensation under the Deferred Compensation Plan
for Directors.
(2) For 1995 and 1996, there were no (a) perquisites over the lesser of
$50,000 or 10% of the individual's total salary and bonus for the year;
(b) payments of above-market preferential earnings on deferred
compensation; (c) payments of earnings with respect to long-term
incentive plans prior to settlement or maturation; (d) tax payment
reimbursements; or (e) preferential discounts on stock.
(3) Includes shares of Common Stock allocated to the accounts of Messrs.
Byelick and Murphy, pursuant to the ESOP. Mr. Byelick was allocated 880
shares and Mr. Murphy was allocated 609 shares. The value of the shares
were based on a price per share of $12.625, the final quoted sales
price of the Company's Common Stock on NASDAQ on December 31, 1995, the
date of allocation.
10
<PAGE> 13
REPORT OF COMPENSATION COMMITTEE
The following Report of the Company's Personnel and Compensation
Committee is provided in accordance with the rules and regulations of the SEC.
Pursuant to such rules and regulations, this Report shall not be deemed
"soliciting material," filed with the SEC subject to Regulation 14A or 14C of
the Commission or subject to the liabilities of section 18 of the Exchange Act.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Tappan Zee Financial, Inc. (the "Company") was formed in 1995 for the
purpose of becoming the holding company for Tarrytowns Bank, FSB (the "Bank") in
a stock conversion that took effect in October 1995. For the fiscal year ended
March 31, 1996, substantially all of the business of the Company was conducted
through the Bank. During such fiscal year, the Company's Chief Executive Officer
and other executive officers served as the Chief Executive Officer and executive
officers, respectively, of the Bank and performed substantially all of their
services in connection with the management and operation of the Bank. As a
result, all compensation of the Chief Executive Officer and all other executive
officers for such period was paid by the Bank and determined by the Board of
Directors of the Bank on the recommendation of its Compensation Committee (the
"Bank Compensation Committee"). The Board of Directors of the Bank accepted
without modification all of the Bank Compensation Committee's recommendations on
executive compensation for the fiscal year ended March 31, 1996. The composition
of the Bank Compensation Committee is the same as that of the Company's
Compensation Committee.
It is the Company's policy to cause its executive officers to be
compensated, either directly or through its affiliates, using a combination of
cash compensation (consisting of base salary and discretionary cash bonuses) and
fringe benefit plans. These elements are intended to provide an overall
compensation package that is commensurate with the Company's financial
resources, that is appropriate to assure the retention of experienced management
personnel and align their financial interests with those of the Company's
stockholders, and that is responsive to the immediate and long-term needs of
executive officers and their families. The compensation practices of other
savings and community banks in the New York City metropolitan area are
considered in establishing the overall level of compensation and the components
of the compensation package; however, it has not been a goal or policy to set
compensation at levels designed to achieve a predetermined percentile ranking
among an identified group of peer institutions.
For the fiscal year ended March 31, 1996, base salaries of all
executive officers were set at levels determined, in the subjective judgment of
the Bank Compensation Committee, to be commensurate with the executive officers'
customary respective duties and responsibilities and to enable them to maintain
appropriate standards of living within their communities. Annual salary rates
were increased by 5% over the prior year's rates, primarily to reflect cost of
living changes. In connection with a decision to discontinue the practice of
paying separately denominated compensation to officer-directors for service as a
director, a further adjustment was made in mid-year to add to base salary an
amount equivalent to the discontinued director's compensation. Discretionary
bonuses for the fiscal year ended March 31, 1996 were determined, in the
subjective judgment of the Bank Compensation Committee, with the intention of
rewarding effort, performance and results at levels above and beyond those
assumed in establishing base salary rates. Fringe benefit plans, consisting of a
pension plan and group insurance coverage, are designed to provide for the
health and welfare of the executives and their families and as well as for their
long-term financial needs. In addition, all executive officers participated in
the Bank's Employee Stock Ownership Plan (the "ESOP") for the calendar year
ended December 31, 1995. Each executive officer has an individual account within
the ESOP Trust which is invested primarily if not
11
<PAGE> 14
exclusively in employer securities, with the result that a portion of each
executive officer's long-term retirement savings is tied to the performance of
the Bank and the Company.
The determination of the Chief Executive Officer's compensation for the
fiscal year ended March 31, 1996 was based on the same general principles
applied to other executive officers and resulted in a similar 5% salary increase
and further adjustment to account for the elimination of director compensation.
The Compensation Committee recognizes the significant additional
efforts required of the Chief Executive Officer and other executive officers of
the Bank and the Company in bringing about the Bank's successful stock
conversion and the Company's initial public offering. It also recognizes that
successfully managing and operating a public company will entail additional
ongoing duties and responsibilities for each executive officer. No additional
cash compensation has awarded on this basis. It is the Compensation Committee's
judgment that such compensation should take the form of stock-based compensation
under stock benefit plans being proposed to the shareholders for their approval
at this Annual Meeting.
COMPENSATION COMMITTEE OF
TAPPAN ZEE FINANCIAL, INC.
Kevin J. Plunkett, Chairman
Gerald L. Logan, Member
Paul R. Wheatley, Member
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
There are no other interlocks, as defined under the rules and
regulations of the SEC, between the Compensation Committee and corporate
affiliates of members of the Compensation Committee or otherwise. The
Compensation Committee consists of Messrs. Plunkett (Chairman), Logan and
Wheatley.
12
<PAGE> 15
PERFORMANCE GRAPH
Pursuant to the regulations of the SEC, the graph below compares the
performance of the Company with that of the Center for Research for Securities
Prices of the University of Chicago ("CRSP") Total Return Index for the Nasdaq
Stock Market, United States and the CRSP Financial Stock Total Return Index for
the Nasdaq Stock Market from October 5, 1996, the date of the Conversion,
through March 31, 1996. On October 5, 1996, the Bank completed the Conversion
and the Company offered 1,620,026 of shares of its common stock at a
subscription price of $10.00 per share. Immediately thereafter, the Company's
common stock began trading on the Nasdaq Stock Market. The graph assumes the
reinvestment of dividends in additional shares of the same class of equity
securities as those listed below.
<TABLE>
<CAPTION>
10/5/95 10/31/95 11/30/95 12/31/95 1/31/96 2/28/96 3/31/96
<S> <C> <C> <C> <C> <C> <C> <C>
Total Return Nasdaq Stock Market (U.S.) 101.256 103.601 106.033 105.484 106.024 110.095 110.399
Nasdaq Financial Stocks 100.246 100.957 105.603 107.870 108.383 110.053 112.165
Tappan Zee Financial, Inc. 100.000 120.000 121.875 126.250 117.500 117.500 120.500
</TABLE>
THERE CAN BE NO ASSURANCE THAT STOCK PERFORMANCE WILL CONTINUE INTO THE FUTURE
WITH THE SAME OR SIMILAR TRENDS TO THOSE DEPICTED IN THE GRAPH ABOVE.
13
<PAGE> 16
EMPLOYMENT AGREEMENTS
The Company and the Bank have entered into employment agreements
(collectively, the "Employment Agreements") with Messrs. Byelick and Murphy (the
"Senior Executive(s)"). These Employment Agreements establish the respective
duties and compensation of the Senior Executives and are intended to ensure that
the Bank and the Company will be able to maintain a stable and competent
management. The continued success of the Bank and the Company depends to a
significant degree on the skills and competence of the Senior Executives.
The Employment Agreements provide for three-year terms. The Bank's
Employment Agreements provide that, commencing on the first anniversary date and
continuing each anniversary date thereafter, the Board of Directors may, with
the Senior Executive's concurrence, extend its Employment Agreements for an
additional year, so that the remaining terms shall be three years, after
conducting a performance evaluation of the Senior Executive. The Company's
Employment Agreements provide for automatic daily extensions such that the
remaining terms of the Employment Agreements shall be three years unless written
notice of non-renewal is given by the Board of Directors or the Senior
Executive. The Employment Agreements provide that the Senior Executive's base
salary will be reviewed annually. It is anticipated that this review will be
performed by the Compensation Committee of the Board and the Senior Executive's
base salary may be increased on the basis of his job performance and the overall
performance of the Bank. As of May 31, 1996, the base salaries for Messrs.
Byelick and Murphy are $153,000 and $94,000, respectively. In addition to the
base salary, the Employment Agreements provide for, among other things,
entitlement to participation in stock, retirement and welfare benefit plans and
eligibility for fringe benefits applicable to executive personnel such as a
company car and fees for club and organization memberships deemed appropriate by
the Bank or Company and the Senior Executive. The Employment Agreements provide
for termination by the Bank or the Company at any time for cause as defined in
the Employment Agreements. In the event the Bank or the Company chooses to
terminate the Senior Executive's employment for reasons other than for cause, or
in the event of the Senior Executive's resignation from the Bank and the Company
upon: (i) failure to re-appoint, elect or re-elect the Senior Executive to his
current offices; (ii) a material adverse change in the Senior Executive's
functions, duties or responsibilities; (iii) a relocation of the Senior
Executive's principal place of employment outside Westchester County without the
Senior Executive's consent; (iv) liquidation or dissolution of the Bank or the
Company; (v) a change of control; or (vi) a breach of the Employment Agreement
by the Bank or the Company, the Senior Executive or, in the event of death, his
beneficiary would be entitled to a lump sum cash payment in an amount equal to
the remaining base salary and bonus payments due to the Senior Executive and the
additional contributions or benefits that would have been earned under any
employee benefit plans of the Bank or the Company during the remaining terms of
the Employment Agreements. The Bank and the Company would also continue the
Senior Executive's life, health and disability insurance coverage for the
remaining terms of the Employment Agreements.
Payments to the Senior Executives under the Bank's Employment
Agreements will be guaranteed by the Company in the event that payments or
benefits are not paid by the Bank. To the extent that payments under the
Company's Employment Agreements and the Bank's Employment Agreements are
duplicative, payments due under the Company's Employment Agreements would be
offset by amounts actually paid by the Bank. Senior Executives would be entitled
to reimbursement of certain costs incurred in negotiating, interpreting or
enforcing the Employment Agreements. Each Employment Agreement also provides for
the Bank and the Company to indemnify the Senior Executive to the fullest extent
allowable under federal and Delaware law, respectively.
Cash and benefits paid to a Senior Executive under the Employment
Agreements together with payments under other benefit plans following a "change
in control" of the Bank or the Company may
14
<PAGE> 17
constitute an "excess parachute" payment under Section 280G of the Internal
Revenue Code of 1986, as amended ("Code"), resulting in the imposition of a 20%
excise tax on the recipient and the denial of the deduction for such excess
amounts to the Company and the Bank. The Company's Employment Agreements would
include a provision indemnifying each Senior Executive on an after-tax basis for
any "golden parachute" excise taxes. The approximate lump sum present value of
the contract damages that would be payable to Messrs. Byelick and Murphy under
the Employment Agreements if they were terminated without just cause as of April
30, 1996 is approximately $1,160,000 and $750,000, respectively, if such
termination followed a change in control and approximately $800,000 and
$515,000, respectively, if such termination did not follow such a change in
control.
EMPLOYEE RETENTION AGREEMENTS
The Company and the Bank have entered into Employee Retention
Agreements (collectively, the "Retention Agreements") with the following four
additional employees: Robert Brennen, Christina Vidal, Margaret E. Sampson and
Valerie Wilson (the "Contract Employee(s)"). The purpose of the Retention
Agreements is to secure the Contract Employees' continued availability and
attention to the Bank's affairs, relieved of distractions arising from the
possibility of a corporate change of control. The Retention Agreements do not
impose an immediate obligation on the Bank to continue the Contract Employees'
employment but provide for a period of assured employment (the "Assurance
Period") following the change of control of the Bank or Company. The Retention
Agreements provide for initial Assurance Periods of one or two years commencing
on the date of a change of control. The applicable Assurance Periods will be
automatically extended on a daily basis under the Retention Agreements until
written notice of non-extension is given by the Bank or the Contract Employee,
in which case the Assurance Period would end on the first or second anniversary
of the date such notice is given.
If, upon a change of control, or within twelve months of, and in
connection with, a change of control, a Contract Employee is discharged without
"cause" (as defined in the Retention Agreements) or he or she voluntarily
resigns within one year following a material adverse change in his position,
duties, salary or due to a material breach of the Retention Agreement by the
Bank or Company, the Contract Employee (or, in the event of his or her death,
his estate) would be entitled to a lump sum cash payment equal to the remaining
base salary and bonus payments due during the Assurance Period plus any
additional contributions and benefits that the Contract Employee would have
earned under the Bank or Company's employee benefit plans during the Assurance
Period. Each Contract Employee's life, health, and disability coverage would
also be continued during the Assurance Period. The total amount of termination
benefits payable to each Contract Employee under the Retention Agreements is
limited to three times the Contract Employee's average total compensation for
the prior five years. Payments to the Contract Employees under their respective
Retention Agreements will be guaranteed by the Company to the extent that the
required payments are not made by the Bank.
BENEFITS
Retirement Plan. The Bank has maintained a non-contributory,
tax-qualified defined benefit pension plan (the "Retirement Plan") for eligible
employees since 1957. All employees at least age 21 who have completed at least
one year of service are eligible to participate in the Retirement Plan. The
Retirement Plan provides for a benefit for each participant, including executive
officers named in the Executive Compensation Table above, equal to 2% of the
participant's average annual earnings (average W-2 compensation during the
highest 36 consecutive months of the participant's final 120 months of
employment) multiplied by the participant's years (and any fraction thereof) of
eligible employment (up to a maximum of 30 years). A participant is fully vested
in his or her benefit under the Retirement Plan after five years of service. The
Retirement Plan is funded by the Bank on an actuarial basis. The Plan
15
<PAGE> 18
is administered by the Pension Committee of the Bank's Board of Directors and
operates on a calendar year basis. The Bank has established a trust for the
Retirement Plan ("Retirement Plan Trust") and has appointed an unrelated trustee
("Trustee") to administer the Trust. Up to 10% of the Retirement Plan's assets
may be invested by the Trustee in shares of the Common Stock of the Company, in
such amounts and upon such terms and conditions as the Pension Committee may
determine to be in the best interests of the Plan participants and
beneficiaries. These shares may be acquired through open market purchases, if
permitted, or from authorized but unissued shares. The Trustee, subject to its
fiduciary duty, will vote the shares of Common Stock held in the Retirement Plan
Trust in accordance with the directions given by the Pension Committee.
The following table illustrates the annual benefit payable upon normal
retirement at age 65 (in single life annuity amounts with no offset for Social
Security benefits) at various levels of compensation and years of service:
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------
Remuneration(1) 15 20 25 30 35(4)
--------------- --------- -------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C>
$125,000 $37,500 $50,000 $ 62,500 $ 75,000 $ 75,000
150,000(2) 45,000 60,000 75,000 90,000 90,000
175,000(2) 52,500 70,000 87,500 105,000 105,000
200,000(2) 60,000 80,000 100,000 120,000(3) 120,000(3)
</TABLE>
- ---------------------
(1) The annual retirement benefits shown in the table do not reflect a
deduction for Social Security benefits and there are no other offsets
to benefits. The amounts shown in the table include salary and bonus as
reported in the Summary Compensation Table but do not include
additional benefits payable to Messrs. Byelick and Murphy under the
Deferred Compensation Plan for Directors. See "Deferred Compensation
Plan for Directors."
(2) For 1995, the average final compensation for computing benefits under
the Retirement Plan cannot exceed $150,000 (as adjusted for subsequent
years pursuant to the Code).
(3) Under current law, the maximum annual benefit payable under the
Retirement Plan cannot exceed $120,000 (as adjusted for subsequent
years pursuant to the Code).
(4) The maximum years of service credited for benefit purposes is 30 years.
The years of credited service and the average annual earnings (as
defined above) determined as of December 31, 1995, the end of the 1995 plan
year, for each of Stephen C. Byelick and Harry G. Murphy, the individuals named
in the Executive Compensation Table, were 13.0 years and $138,037 and 12.5 years
and $93,120, respectively.
Employee Stock Ownership Plan and Trust. The Company has established,
and the Bank has adopted, for the benefit of eligible employees, an ESOP and
related trust which became effective upon the Conversion. All employees of the
Bank or the Company are eligible to become participants in the ESOP. The ESOP
purchased, with funds borrowed from the Company, eight percent (8%) of the
Common Stock (129,600 shares) issued in the Conversion. The Company or the Bank
intends to make annual contributions to the ESOP in an aggregate amount of at
least equal to the principal and interest requirement on the debt. The term of
the ESOP loan is 10 years, with an interest rate of 8% per annum.
Shares purchased by the ESOP are initially pledged as collateral for
the loan, and will be held in a suspense account until released for allocation
among participants in the ESOP as the loan is repaid. The pledged shares will be
released annually from the suspense account in an amount proportional to the
16
<PAGE> 19
repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants on the basis of the participant's
compensation for the year of allocation. Benefits generally become vested at the
rate of 20% per year with 100% vesting after five years of service. Participants
also become immediately vested upon termination of employment due to death,
retirement at age 65, permanent disability or upon the occurrence of a change in
control. Forfeitures will be reallocated among remaining participating
employees, in the same proportion as contributions. Vested benefits may be paid
in a single sum or installment payments and are payable upon death, retirement
at age 65, disability or separation from service.
In connection with the establishment of the ESOP, the ESOP Committee of
the Company's Board of Directors was appointed to administer the ESOP. Marine
Midland Bank has been appointed the corporate trustee for the ESOP. The ESOP
Committee may instruct the trustee regarding investment of funds contributed to
the ESOP. The ESOP Trustee, subject to its fiduciary duty, must vote all
allocated shares held in the ESOP in accordance with the instructions of the
participating employees. Under the ESOP, unallocated shares will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock as long as such vote is in
accordance with the provisions of ERISA.
Stock Option Plans. The Board of Directors of the Company has adopted
the 1996 Stock Option Plan for Officers and Employees and the 1996 Stock Option
Plan for Outside Directors. Both plans are subject to the approval of the
shareholders of the Company at the Annual Meeting. See "1996 Stock Option Plan
for Officers and Employees (Proposal Two)" and "1996 Stock Option Plan for
Outside Directors (Proposal Three)."
Recognition and Retention Plans. The Board of Directors of the Company
has adopted Recognition and Retention Plans for Officers, Employees and Outside
Directors. These plans are subject to the approval of the shareholders at the
Annual Meeting. See "Recognition and Retention Plan for Officers and Employees
(Proposal Four)" and "Recognition and Retention Plan for Outside Directors
(Proposal Five)."
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. It is the policy of the
Bank not to make loans to executive officers and directors. The Bank, however,
may make loans or extend credit to certain persons related to executive officers
and directors. As of the Record Date, none of the Bank's directors and executive
officers had loans outstanding to the Bank. The Bank, however, may make loans or
extend credit to certain persons related to executive officers and directors.
All such loans were made by the Bank in the ordinary course of business and were
not made with more favorable terms nor involved more than the normal risk of
collectible or presented unfavorable features. The Bank intends that any
transactions in the future between the Bank and its executive officers,
directors, holders of 10% or more of the shares of any class of its common stock
and affiliates thereof, will contain terms no less favorable to the Bank than
could have been obtained by it in arm's-length negotiations with unaffiliated
persons and will be approved by a majority of independent outside directors of
the Bank not having any interest in the transaction.
17
<PAGE> 20
SECTION 16(a) COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of the Company's
common stock to file with the SEC reports of ownership and changes of ownership.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file. Other than the initial reports of beneficial ownership of securities on
Form 3 for each officer and director, which were filed within 10 days after the
date of effectiveness of the Company's registration statements under the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that all filing requirements applicable to its executive officers, directors and
greater than 10% beneficial owners were complied with.
-----------------------------------------------------------------
1996 STOCK OPTION PLAN FOR OFFICERS AND EMPLOYEES
(PROPOSAL TWO)
-----------------------------------------------------------------
GENERAL PLAN INFORMATION
The Company has adopted, subject to approval by shareholders of the
Company, the Tappan Zee Financial, Inc. 1996 Stock Option Plan for Officers and
Employees ("Employee Option Plan"). The Employee Option Plan provides for the
grant of options to purchase common stock of the Company ("Options") to certain
officers and employees. The Employee Option Plan will not take effect, and no
Options granted thereunder will be effective, prior to the date of such
shareholder approval ("Effective Date"). The Employee Option Plan is not subject
to ERISA. The principal provisions of the Employee Option Plan are summarized
below. The full text of the Employee Option Plan is set forth as Appendix A to
this Proxy Statement, to which reference is made, and the summary provided below
is qualified in its entirety by such reference.
Pursuant to regulations of the Office of Thrift Supervision ("OTS")
applicable to management stock benefit plans to be established by a federal
association or its holding company sooner than one year after the association's
stock conversion, the affirmative vote of a majority of the votes eligible to be
cast is required for approval of the Employee Option Plan. Under the Company's
Bylaws, the affirmative vote of a majority of the shares present and entitled to
vote at a meeting at which a quorum is present would ordinarily be required for
such approval. In the event that less than a majority of the votes eligible to
be cast at the Annual Meeting, but at least a majority of the votes present and
entitled to vote at the Annual Meeting, vote in favor of approval, the Employee
Option Plan will be considered approved, but it will not be implemented and no
options will be granted, prior to October 5, 1996, which is the first
anniversary of the Bank's conversion.
PURPOSE OF THE EMPLOYEE OPTION PLAN
The purpose of the Employee Option Plan is to advance the interests of
the Company and its shareholders by providing officers and employees of the
Company and its affiliates with an incentive to achieve corporate objectives and
by attracting and retaining officers and employees of outstanding competence
through the award of equity interests in the Company.
18
<PAGE> 21
DESCRIPTION OF THE EMPLOYEE OPTION PLAN
Administration. The Compensation Committee of the Board (or any
successor committee) or such other committee as the Board may designate
("Committee"), will administer the Employee Option Plan. Such Committee will be
comprised of at least three directors of the Company, and all directors on the
Committee will be "disinterested directors" (as that term is defined under
Section 16(b) of the Exchange Act and the rules and regulations promulgated
thereunder) who are not currently and have not at any time during the
immediately preceding one-year period been an employee of the Company, the Bank
or any affiliates. The Committee will determine, within the limitations of the
Employee Option Plan, the officers and employees to whom Options will be
granted, the number of shares subject to each Option, the terms of such Options
(including provisions regarding exercisability and acceleration of
exercisability) and the procedures by which the Options may be exercised.
Subject to certain specific limitations and restrictions set forth in the
Employee Option Plan, the Committee has full and final authority to interpret
the Employee Option Plan, to prescribe, amend and rescind rules and regulations,
if any, relating to the Employee Option Plan and to make all determinations
necessary or advisable for the administration of the Employee Option Plan. The
costs and expenses of administering the Employee Option Plan will be borne by
the Company and not charged to any grant of an Option nor to any participating
officer or employee.
Stock Subject to the Employee Option Plan. The Company has reserved
113,400 shares of Shares of the Company for issuance upon exercise of Options.
Such Shares may be authorized and unissued shares or shares previously issued
and reacquired by the Company. Any Shares subject to grants under the Employee
Option Plan which expire or are terminated, forfeited or cancelled without
having been exercised or vested in full, shall again be available for purposes
of the Employee Option Plan. As of May 17, 1996, the aggregate fair market value
of the Shares reserved for issuance was $1,367,888, based on the closing sales
price per share of $12.0625 on the NASDAQ Stock Market on the Record Date.
Eligibility. Any employee of the Company or its affiliates who is
selected by the Committee is eligible to participate in the Employee Option Plan
as an "Eligible Individual." As of May 17, 1996, there were 13 Eligible
Individuals.
Terms and Conditions of Options. The Employee Option Plan provides for
the grant of options which qualify for favorable federal income tax treatment as
"incentive stock options" ("ISOs"), non-qualified stock options which do not so
qualify ("NQSOs") and certain limited stock appreciation rights ("LSARs").
Unless otherwise designated by the Committee, Options granted under the Employee
Option Plan will be NQSOs, will be exercisable for a price per Share equal to
the fair market value of a Share on the date of the Option grant and will be
exercisable for a period of ten years after the date of grant (or for a shorter
period ending three months after the Option holder's termination of employment
for reasons other than death, disability or retirement or discharge for cause,
one year after termination of employment due to death disability or retirement,
or immediately upon termination for cause. In no event may an Option be granted
with an exercise price per Share that less than fair market value of a Share
when the Option is granted, or for a term exceeding ten years from the date of
grant. An Option holder's right to exercise Options is suspended during any
period when the Option holder is the subject of a pending proceeding to
terminate his or her employment for cause.
Upon the exercise of an Option, the Exercise Price must be paid in
full. Payment may be made in cash or in such other consideration as the
Committee deems appropriate, including, but not limited to, Shares already owned
by the option holder or Shares to be acquired by the option holder upon exercise
of the Option, provided that the delivery of Shares concurrently with the
exercise of an Option does not violate section 16(b) of the Exchange Act, or any
rules or regulations promulgated thereunder.
19
<PAGE> 22
Terms and Conditions of Stock Appreciation Rights. Each Option granted
under the Employee Option Plan will be accompanied by a LSAR that is exercisable
for a period commencing on the date on which a Change in Control of the Company
(as defined in the Employee Option Plan) occurs and ending six months after such
date. Upon exercise of a LSAR, the Eligible Individual will be entitled to
receive an amount equal to (a) the excess of the Change of Control Consideration
(as defined in the Employee Option Plan) over the Exercise Price per Share
specified in the LSAR, multiplied by (b) the number of Shares with respect to
which the LSAR is being exercised. Change of Control Consideration is defined in
the Employee Option Plan as the greater of (i) the highest price per Share paid
by any person who initiated or sought to effect the Change in Control during the
one-year period ending on the date of the Change in Control and (ii) the average
Fair Market Value of a Share over the last 10 trading days preceding the date of
the exercise of the LSAR. Under the Employee Option Plan, LSARs will be
cancelled at the effective time of a Change of Control effected pursuant to a
written agreement whereby the acquiror has agreed to make a monetary payment or
provide substitute options or other property equivalent in value to the value of
the Options being canceled.
REGULATORY RESTRICTIONS
The Employee Option Plan is subject to certain restrictions imposed by
the Office of Thrift Supervision that are established or implemented by a
federal savings association or its holding company within one year after the
association's conversion from a mutual association to a stock association. The
restrictions apply to the Employee Option Plan because the conversion of
Tarrytowns Bank, FSB occurred within one year prior to the date of this Annual
Meeting. To reflect these requirements, the Employee Option Plan provides (i)
that no Options may be granted prior to the date on which the Company's
shareholders approve the Employee Option Plan; (ii) that, prior to October 5,
1995, no individual officer or employee may be granted Options to purchase more
than 40,500 Shares; and (iii) that any Options granted prior to October 5, 1996
shall have an exercise price no less than the fair market value of a Share on
the date the Option is granted and will become exercisable at a rate no more
rapid than 20% per year beginning on the date of grant, with accelerated vesting
in cases of death or disability. Management of the Company has been advised by
its legal counsel that the Employee Option Plan complies with all applicable OTS
regulations. The OTS has not endorsed or approved the Employee Option Plan. No
representation to the contrary shall be made.
TERMINATION OR AMENDMENT OF THE EMPLOYEE OPTION PLAN
Unless sooner terminated, the Employee Option Plan will terminate
automatically on the day preceding the tenth anniversary of the Effective Date.
The Board may suspend or terminate the Employee Option Plan in whole or in part
at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee. In the event
of any suspension or termination of the Employee Option Plan, all Options
theretofore granted under the Employee Option Plan that are outstanding on the
date of such suspension or termination of the Employee Option Plan will remain
outstanding under the terms of the agreements granting such Options.
The Board may amend or revise the Employee Option Plan in whole or in
part at any time, but if the amendment or revision (i) materially increases the
benefits accruing under the Employee Option Plan, (ii) materially increases the
number of Shares which may be issued under the Employee Option Plan or (iii)
materially modifies the requirements as to eligibility for Options under the
Employee Option Plan, such amendment or revision will be subject to approval by
the shareholders of the Company. Subject to these above provisions, the Board
will also have broad authority to amend the Employee Option Plan to take into
account changes in applicable securities and tax laws and accounting rules, as
well as other developments.
20
<PAGE> 23
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws, regulations
and policies affecting the Company and recipients of ISOs, NQSOs and LSARs that
may be granted under the Employee Option Plan and any descriptions of the
provisions of any law, regulation or policy. Any change in applicable law or
regulation or in the policies of various taxing authorities may have a material
effect on the discussion contained herein.
There are no federal income tax consequences for the Company or the
option holder at the time an ISO is granted or upon the exercise of an ISO. If
there is no sale or other disposition of the shares acquired upon the exercise
of an ISO within two years after the date the ISO was granted, or within one
year after the exercise of the ISO, then at no time will any amount be
deductible by the Company with respect to the ISO. If the option holder
exercises an ISO and sells or otherwise disposes of the shares so acquired after
satisfying the foregoing holding period requirements, then he will realize a
capital gain or loss on the sale or disposition. If the option holder exercises
his ISO and sells or disposes of his shares prior to satisfying the foregoing
holding period requirements, then an amount equal to the difference between the
amount realized upon the sale or other disposition of such shares and the price
paid for such shares upon the exercise of the ISO will be includible in the
ordinary income of such person, and such amount will ordinarily be deductible by
the Company at the time it is includible in such person's income.
With respect to the grant of NQSOs and LSARs, there are no federal
income tax consequences for the Company or the option holder at the date of the
grant. Upon the exercise of a NQSO, an amount equal to the difference between
the fair market value of the shares to be purchased on the date of exercise and
the aggregate purchase price of such shares is generally includible in the
ordinary income of the person exercising such NQSO, although such inclusion may
be at a later date in the case of an option holder whose disposition of such
shares could result in liability under Section 16(b) of the Exchange Act
("Section 16(b)"). The Company will ordinarily be entitled to a deduction for
federal income tax purposes at the time the option holder is taxed on the
exercise of the NQSO equal to the amount which the option holder is required to
include as ordinary income.
Upon exercise of an LSAR, the amount of cash or the fair market value
of the shares received, determined on the date of exercise, is generally
includible in the ordinary income of the person exercising the LSAR, although
such inclusion may be at a later date in the case of an option holder who
receives stock on the exercise of an LSAR and whose disposition of such shares
could result in liability under Section 16(b). The Company will ordinarily be
entitled to a deduction for federal income tax purposes at the time the option
holder is taxed on the exercise of the LSAR, equal to the amount which the
option holder is required to include as ordinary income.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Options and LSARs
that may be granted under the Employee Option Plan. State and local tax
consequences may also be significant. PARTICIPANTS ARE ADVISED TO CONSULT WITH
THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE EMPLOYEE OPTION PLAN.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" APPROVAL OF THE 1996 STOCK OPTION PLAN FOR OFFICERS AND EMPLOYEES.
21
<PAGE> 24
----------------------------------------------------------
1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
(PROPOSAL THREE)
----------------------------------------------------------
GENERAL PLAN INFORMATION
The Company has adopted, subject to approval by shareholders of the
Company, the Tappan Zee Financial, Inc. 1996 Stock Option Plan for Outside
Directors ("Director Option Plan"). The Director Option Plan provides for the
grant to outside directors of Options. The Director Option Plan will not take
effect, and no Options granted thereunder will be effective, prior to the date
of such shareholder approval ("Effective Date"). The Director Option Plan is not
subject to ERISA. The principal provisions of the Director Option Plan are
summarized below. The full text of the Director Option Plan is set forth as
Appendix B to this Proxy Statement, to which reference is made, and the summary
provided below is qualified in its entirety by such reference.
Pursuant to regulations of the OTS applicable to management stock
benefit plans to be established by a federal association or its holding company
sooner than one year after the association's stock conversion, the affirmative
vote of a majority of the votes eligible to be cast is required for approval of
the Director Option Plan. Under the Company's Bylaws, the affirmative vote of a
majority of the shares present and entitled to vote at a meeting at which a
quorum is present would ordinarily be required for such approval. In the event
that less than a majority of the votes eligible to be cast at the Annual
Meeting, but at least a majority of the votes present and entitled to vote at
the Annual Meeting, vote in favor of approval, the Director Option Plan will be
considered approved, but it will not be implemented and no options will be
granted, prior to October 5, 1996, which is the first anniversary of the Bank's
Conversion.
PURPOSE OF THE DIRECTOR OPTION PLAN
The purpose of the Director Option Plan is to advance the interests of
the Company and its shareholders by providing outside directors of the Company
and its affiliates with an incentive to achieve corporate objectives and by
attracting and retaining directors of outstanding competence through the award
of equity interests in the Company.
DESCRIPTION OF THE DIRECTOR OPTION PLAN
Administration. The Committee will administer the Director Option Plan.
Options granted under the Director Option Plan are by automatic formula grant,
and the Committee has no discretion over such grants. Subject to certain
specific limitations and restrictions set forth in the Director Option Plan, the
Committee has full and final authority to interpret the Director Option Plan, to
prescribe, amend and rescind rules and regulations, if any, relating to the
Director Option Plan and to make all determinations necessary or advisable for
the administration of the Director Option Plan. The costs and expenses of
administering the Director Option Plan will be borne by the Company and not
charged to any grant of an Option nor to any participating director.
Stock Subject to the Director Option Plan. The Company has reserved
48,600 Shares for issuance of Options. Such Shares may be authorized and
unissued shares or shares previously issued and reacquired by the Company. Any
Shares subject to grants under the Director Option Plan which expire or are
terminated, forfeited or cancelled without having been exercised or vested in
full, shall again be
22
<PAGE> 25
available for purposes of the Director Option Plan. As of May 17, 1996, the
aggregate fair market value of the Shares reserved for issuance was
approximately $586,238, based on the closing sales price per share of $12.0625
on the NASDAQ Stock Market on the Record Date.
Eligibility. Members of the Board or the board of directors of the Bank
who are not employees or officers of the Company or Bank are eligible to
participate in the Director Option Plan as an "Eligible Director." As of May 17,
1996, there were five Eligible Directors.
Terms and Conditions of Options. Effective on the Effective Date of the
Director Option Plan, each person who is an Eligible Director on such date will
be granted a NQSO to purchase 8,100 Shares. Such Options will have an Exercise
Price equal to the fair market value of a Share on the date of grant and an
Exercise Period commencing on the date the Option is granted and expiring on the
earliest of (i) the date he ceases to be an Eligible Director due to a removal
for cause (in accordance with the Company's bylaws) and (ii) the last day of the
ten-year period commencing on the date the Option was granted. On the first
anniversary of the date of grant and on each anniversary thereof until all 8,100
Shares subject to the grant are exercisable, the Option will become exercisable
as to 1,620 of the Shares as to which his outstanding Option has been granted.
All optioned Shares not previously purchased or available for purchase will
become available for purchase, on the date of the Option holder's death or
Disability. In the future, newly elected Eligible Directors will receive Options
to purchase 500 shares upon joining the Board, plus an additional 500 shares
each January thereafter, subject to availability of reserved shares. These
grants will generally be 100% vested and exercisable when granted.
Options granted under the Director Option Plan will be NQSOs. Upon the
exercise of an Option, the Exercise Price must be paid in full. Payment may be
made in cash or in such other consideration as the Committee deems appropriate,
including, but not limited to, Shares already owned by the option holder or
Shares to be acquired by the option holder upon exercise of the Option, provided
that the delivery of Shares concurrently with the exercise of an Option does not
violate section 16(b) of the Exchange Act, or any rules or regulations
promulgated thereunder.
TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS. Each Option granted
under the Director Option Plan will be accompanied by an LSAR that is
exercisable for a period commencing on the date on which a Change in Control of
the Company (as defined in the Director Option Plan) occurs and ending six
months after such date. Upon exercise of a LSAR, the Eligible Individual will be
entitled to receive an amount equal to (a) the excess of the Change of Control
Consideration (as defined in the Director Option Plan) over the Exercise Price
per Share specified in the LSAR, multiplied by (b) the number of Shares with
respect to which the LSAR is being exercised. Change of Control Consideration is
defined in the Director Option Plan as the greater of (i) the highest price per
Share paid by any person who initiated or sought to effect the Change in Control
during the one-year period ending on the date of the Change in Control and (ii)
the average Fair Market Value of a Share over the last 10 trading days preceding
the date of the exercise of the LSAR. Under the Director Option Plan, LSARs will
be cancelled at the effective time of a Change of Control effected pursuant to a
written agreement whereby the acquiror has agreed to make a monetary payment or
provide substitute options or other property equivalent in value to the value of
the Options being cancelled.
REGULATORY RESTRICTIONS
The Director Option Plan is subject to certain restrictions imposed by
the OTS that are established or implemented by a federal savings association or
its holding company within one year after the association's conversion from a
mutual association to a stock association. The restrictions apply to the
Director Option Plan because the conversion of the Bank occurred within one year
prior to the date of
23
<PAGE> 26
this Annual Meeting. To reflect these requirements, the Director Option Plan
provides (i) that no Options may be granted prior to the date on which the
Company's shareholders approve the Director Option Plan; (ii) that, prior to
October 5, 1995, no directors may be granted Options to purchase more than 8,100
Shares individually and 48,000 in the aggregate; and (iii) that any Options
granted prior to October 5, 1996 shall have an exercise price no less than the
fair market value of a Share on the date the Option is granted and will become
exercisable at a rate no more rapid than 20% per year beginning on the date of
grant, with accelerated vesting in cases of death or disability. Management of
the Company has been advised by its legal counsel that the Employee Option Plan
complies with all applicable OTS regulations. The OTS has not endorsed or
approved the Employee Option Plan. No representation to the contrary shall be
made.
TERMINATION OR AMENDMENT OF THE DIRECTOR OPTION PLAN
Unless sooner terminated, the Director Option Plan will terminate
automatically on the day preceding the tenth anniversary of the Effective Date.
The Board may suspend or terminate the Director Option Plan in whole or in part
at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee. In the event
of any suspension or termination of the Director Option Plan, all Options
theretofore granted under the Director Option Plan that are effective on the
date of such suspension or termination of the Director Option Plan will remain
effective under the terms of the agreements granting such Options.
The Board may amend or revise the Director Option Plan in whole or in
part at any time, but if the amendment or revision (i) materially increases the
benefits accruing under the Director Option Plan, (ii) materially increases the
number of Shares which may be issued under the Director Option Plan or (iii)
materially modifies the requirements as to eligibility for Options under the
Director Option Plan, such amendment or revision will be subject to approval by
the shareholders of the Company. Subject to these above provisions, the Board
will also have broad authority to amend the Director Option Plan to take into
account changes in applicable securities and tax laws and accounting rules, as
well as other developments.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws, regulations
and policies affecting the Company and recipients of ISOs, NQSOs and LSARs that
may be granted under the Director Option Plan and any descriptions of the
provisions of any law, regulation or policy. Any change in applicable law or
regulation or in the policies of various taxing authorities may have a material
effect on the discussion contained herein.
With respect to the grant of NQSOs and LSARs, there are no federal
income tax consequences for the Company or the option holder at the date of the
grant. Upon the exercise of a NQSO, an amount equal to the difference between
the fair market value of the shares to be purchased on the date of exercise and
the aggregate purchase price of such shares is generally includible in the
ordinary income of the person exercising such NQSO, although such inclusion may
be at a later date in the case of an option holder whose disposition of such
shares could result in liability under Section 16(b). The Company will
ordinarily be entitled to a deduction for federal income tax purposes at the
time the option holder is taxed on the exercise of the NQSO equal to the amount
which the option holder is required to include as ordinary income.
Upon exercise of an LSAR, the amount of cash or the fair market value
of the shares received, determined on the date of exercise, is generally
includible in the ordinary income of the person exercising
24
<PAGE> 27
the LSAR, although such inclusion may be at a later date in the case of an
option holder who receives stock on the exercise of an LSAR and whose
disposition of such shares could result in liability under Section 16(b). The
Company will ordinarily be entitled to a deduction for federal income tax
purposes at the time the option holder is taxed on the exercise of the LSAR,
equal to the amount which the option holder is required to include as ordinary
income.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Options and LSARs
that may be granted under the Director Option Plan. State and local tax
consequences may also be significant. PARTICIPANTS ARE ADVISED TO CONSULT WITH
THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE DIRECTOR OPTION PLAN.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS.
---------------------------------------------
RECOGNITION AND RETENTION PLAN
FOR OFFICERS AND EMPLOYEES
(PROPOSAL FOUR)
---------------------------------------------
GENERAL PLAN INFORMATION
The Company has adopted, subject to the approval by shareholders of the
Company, the Tappan Zee Financial, Inc. Recognition and Retention Plan for
Officers and Employees ("Employee RRP"). The Employee RRP provides for
restricted stock awards ("Awards") to certain officers and employees. The
Employee RRP will not take effect, and no Awards granted thereunder will be
effective, prior to the date of such shareholder approval ("Effective Date").
The Employee RRP is not subject to ERISA. The principal provisions of the
Employee RRP are summarized below. The full text of the Employee RRP is set
forth as Appendix C to this Proxy Statement, to which reference is made, and the
summary provided below is qualified in its entirety by such reference.
Pursuant to regulations of the OTS applicable to management stock
benefit plans to be established by a federal association or its holding company
sooner than one year after the association's stock conversion, the affirmative
vote of a majority of the votes eligible to be cast is required for approval of
the Employee RRP. Under the Company's Bylaws, the affirmative vote of a majority
of the shares present and entitled to vote at a meeting at which a quorum is
present would ordinarily be required for such approval. In the event that less
than a majority of the votes eligible to be cast at the Annual Meeting, but at
least a majority of the votes present and entitled to vote at the Annual
Meeting, vote in favor of approval, the Employee RRP will be considered
approved, but it will not be implemented and no Awards will be granted, prior to
October 5, 1996, which is the first anniversary of the Bank's Conversion.
PURPOSE OF THE EMPLOYEE RRP
The purpose of the Employee RRP is to advance the interests of the
Company and its shareholders by providing current officers and employees of the
Company and its affiliates with an incentive to achieve corporate objectives and
by attracting and retaining officers and employees of outstanding competence
through the award of equity interests in the Company.
25
<PAGE> 28
DESCRIPTION OF THE EMPLOYEE RRP
Administration. The Committee will administer the Employee RRP. Such
Committee will be comprised of at least three directors of the Company, and all
directors on the Committee will be "disinterested directors" (as that term is
defined under Section 16(b) and the rules and regulations promulgated
thereunder) who are not currently and have not at any time during the
immediately preceding one-year period been an employee of the Company, the Bank
or any affiliates. The Committee will determine, within the limitations of the
Employee RRP, the officers and employees to whom Awards will be granted, the
number of shares subject to each Award, the terms of such Awards (including
provisions regarding exercisability and acceleration of exercisability) and the
procedures by which the Awards shall be exercised. Subject to certain specific
limitations and restrictions set forth in the Employee RRP, the Committee has
full and final authority to interpret the Employee RRP, to prescribe, amend and
rescind rules and regulations, if any, relating to the Employee RRP and to make
all determinations necessary or advisable for the administration of the Employee
RRP. The costs and expenses of administering the Employee RRP will be borne by
the Company and not charged to any grant of an Award nor to any participating
officer or employee.
Stock Subject to the Employee RRP. The Company will establish a trust
("Trust") and will contribute, or cause to be contributed, to the Trust, from
time to time, such amounts of money or property as shall be determined by the
Board, in its discretion. No contributions by participants will be permitted. A
trustee will invest the assets of the Trust in Shares and in such other
investments including savings accounts, time or other interest bearing deposits
in or other interest bearing obligations of the Company, in such proportions as
shall be determined by the Committee. In no event shall the assets of the Trust
be used to purchase more than 45,360 Shares. As of May 17, 1996, the aggregate
fair market value of the Shares to be authorized for the Employee RRP was
$547,155, based on the closing sales price per share of $12.0625 on the NASDAQ
Stock Market on the Record Date.
Eligibility. Any employee of the Company or its affiliates who is
selected by the Committee is eligible to participate in the Employee RRP as an
"Eligible Individual." As of May 17, 1996, there were 13 Eligible Individuals.
Terms and Conditions of Awards. The Committee may, in its discretion,
grant Awards of restricted stock to Eligible Individuals. The Committee will
determine at the time of the grant the number of Shares subject to an Award and
the vesting schedule applicable to the Award and may, in its discretion,
establish other terms and conditions applicable to the Award.
Stock subject to Awards is held in trust pursuant to the Employee RRP
until vested. An individual to whom an Award is granted is entitled to exercise
voting rights and receive cash dividends with respect to stock subject to Awards
granted to him whether or not vested. The Committee will exercise voting rights
with respect to shares in the Employee RRP trust that have not been allocated as
directed by the individuals eligible to participate in the Employee RRP, whether
or not such individuals have been granted as Award. The shares covered by an
Award will become vested in accordance with the terms of the Award and as soon
as practicable following such vesting, the trustee will transfer the shares to
the recipient. Unless the Committee provides otherwise, the shares covered by an
Award will vest 20% each year for five years; however, if the recipient
terminates employment with the Company on account of his death or disability, or
in the event of a tender offer for, or a change of control of, the Company, then
any shares covered by the Award will become 100% vested as of the date of his
termination of employment with the Company or as of the commencement of such
tender offer or the effective date of such change of control. If an individual
covered by an Award terminates employment for reasons other than death or
disability, the individual forfeits all rights to his unvested shares remaining
26
<PAGE> 29
in the Employee RRP trust. Shares distributed to any person pursuant to an Award
generally will not be transferable for six months following the date of
distribution.
REGULATORY RESTRICTIONS
The Employee RRP is subject to certain restrictions imposed by the OTS
that are established or implemented by a federal savings association or its
holding company within one year after the association's conversion from a mutual
association to a stock association. The restrictions apply to the Employee RRP
because the conversion of the Bank occurred within one year prior to the date of
this Annual Meeting. To reflect these requirements, the Employee RRP provides
(i) that no Awards may be granted prior to the date on which the Company's
shareholders approve the Employee RRP, (ii) that, prior to October 5, 1996, no
individual shall receive Awards for more than 16,200 Shares and (iii) that, any
Awards granted prior to October 5, 1996 will become exercisable at a rate no
more rapid than 20% per year beginning on the date of the grant, with
accelerated vesting in cases of death or disability. Management of the Company
has been advised by its legal counsel that the Employee RRP complies with all
applicable OTS regulations. The OTS has not endorsed or approved the Employee
RRP. No representation to the contrary shall be made.
TERMINATION OR AMENDMENT OF THE EMPLOYEE RRP
The Board may suspend or terminate the Employee RRP in whole or in part
at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee, but the
Employee RRP may not be terminated while there are outstanding Awards that may
thereafter become vested. Upon the termination of the Employee RRP, the trustee
shall make distributions from the Trust in such amounts and to such persons as
the Committee may direct and shall return the remaining assets of the Trust, if
any, to the Company.
The Board may amend or revise the Employee RRP in whole or in part at
any time, but if the amendment or revision (1) materially increases the benefits
accruing under the Employee RRP, (2) materially increases the number of Shares
which may be issued under the Employee RRP or (3) materially modifies the
requirements as to eligibility for Awards under the Employee RRP, such amendment
or revision will be subject to approval by the shareholders of the Company.
Subject to these above provisions, the Board will also have broad authority to
amend the Employee RRP to take into account changes in applicable securities and
tax laws and accounting rules, as well as other developments.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws, regulations
and policies affecting the Company and recipients of Awards that may be granted
under the Employee RRP. Any descriptions of the provisions of any law,
regulation or policy contained herein are qualified in their entirety by
reference to the particular law, regulation or policy. Any change in applicable
law or regulation or in the policies of various taxing authorities may have a
material effect on the discussion contained herein. The Employee RRP does not
constitute a qualified plan under section 401(a) of the Code.
The award of Shares under the Employee RRP does not result in federal
income tax consequences to either the Company or the award recipient. Upon the
vesting of an award and the distribution of the vested shares, the award
recipient will generally be required to include in ordinary income, for the
taxable year in which the vesting date occur, an amount equal to the fair market
value of the shares on the vesting date, and the Company will generally be
allowed to claim a deduction, for compensation expense,
27
<PAGE> 30
in a like amount. To the extent that dividends are paid with respect to unvested
shares held under the Employee RRP and distributed to the award recipient, such
dividend amounts will likewise be includible in the ordinary income of the
recipient and allowable as a deduction, for compensation expense, to the
Company. Dividends declared and paid with respect to vested shares, as well as
any gain or loss realized upon an award recipient's disposition of the shares,
will be treated as dividend income and capital gain or loss, respectively, in
the same manner as for other shareholders.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Awards that may be
granted under the Employee RRP. State and local tax consequences may also be
significant. PARTICIPANTS ARE ADVISED TO CONSULT WITH THEIR TAX ADVISOR AS TO
THE TAX CONSEQUENCES OF THE EMPLOYEE RRP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE RECOGNITION AND RETENTION PLAN FOR OFFICERS AND EMPLOYEES.
-------------------------------------------------
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS
(PROPOSAL FIVE)
-------------------------------------------------
GENERAL PLAN INFORMATION
The Company has adopted, subject to the approval by shareholders of the
Company, the Tappan Zee Financial, Inc. Recognition and Retention Plan for
Outside Directors ("Director RRP"). The Director RRP provides for restricted
stock awards ("Awards") to outside directors and directors emeritus of the
Company or Bank. The Director RRP will not take effect, and no Awards granted
thereunder will be effective, prior to the date of such shareholder approval
("Effective Date"). The Director RRP is not subject to ERISA. The principal
provisions of the Director RRP are summarized below. The full text of the
Director RRP is set forth as Appendix D to this Proxy Statement, to which
reference is made, and the summary provided below is qualified in its entirety
by such reference.
Pursuant to regulations of the OTS applicable to management stock
benefit plans to be established by a federal association or its holding company
sooner than one year after the association's stock conversion, the affirmative
vote of a majority of the votes eligible to be cast is required for approval of
the Director RRP. Under the Company's Bylaws, the affirmative vote of a majority
of the shares present and entitled to vote at a meeting at which a quorum is
present would ordinarily be required for such approval. In the event that less
than a majority of the votes eligible to be cast at the Annual Meeting, but at
least a majority of the votes present and entitled to vote at the Annual
Meeting, vote in favor of approval, the Director RRP will be considered
approved, but it will not be implemented and no Awards will be granted, prior to
October 5, 1996, which is the first anniversary of the Bank's Conversion.
PURPOSE OF THE DIRECTOR RRP
The purpose of the Director RRP is to advance the interests of the
Company and its shareholders by providing current outside directors of the
Company and its affiliates with an incentive to achieve
28
<PAGE> 31
corporate objectives and by attracting and retaining directors of outstanding
competence through the award of equity interests in the Company.
DESCRIPTION OF THE DIRECTOR RRP
Administration. The Committee will administer the Director RRP. Awards
granted under the Director RRP are by automatic formula grant, and the Committee
has no discretion over such grants. Subject to certain specific limitations and
restrictions set forth in the Director RRP, the Committee has full and final
authority to interpret the Director RRP, to prescribe, amend and rescind rules
and regulations, if any, relating to the Director RRP and to make all
determinations necessary or advisable for the administration of the Director
RRP. The costs and expenses of administering the Director RRP will be borne by
the Company and not charged to any grant of an Award nor to any participating
director.
Stock Subject to the Director RRP. The Company will establish a trust
("Trust") and will contribute, or cause to be contributed, to the Trust, from
time to time, such amounts of money or property as shall be determined by the
Board, in its discretion. No contributions by participants shall be permitted. A
trustee will invest the assets of the Trust in Shares and in such other
investments including savings accounts, time or other interest bearing deposits
in or other interest bearing obligations of the Company, in such proportions as
shall be determined by the Committee. In no event shall the assets of the Trust
be used to purchase more than 19,440 Shares. As of May 17, 1996, the aggregate
fair market value of the Shares reserved for issuance was $234,495, based on the
closing sales price per share of $12.0625 on the NASDAQ Stock Market on the
Record Date.
Eligibility. Members of the Board or the board of directors of the Bank
who are not employees or officers of the Company or Bank are eligible to
participate in the Director RRP as an "Eligible Director." Former members of the
Board who are continuing to serve the Company in an advisory capacity to its
board of directors and who have not received an Award as an "Eligible Director"
are eligible to participate as an "Eligible Director Emeritus." As of May 17,
1996, there were five and three Eligible Directors and Eligible Directors
Emeritus, respectively.
Terms and Conditions of Awards. On the Effective Date, each Eligible
Director will be granted an Award of 3,240 Shares and each Eligible Director
Emeritus will be granted an Award of 1,080 Shares. A person who becomes an
Eligible Director subsequent to the Effective Date shall be granted, on the 15th
day of the month following the month in which such individual becomes an
Eligible Director (or, if such date is not a business day, the first business
day thereafter), an Award of 3,240 Shares. In the event that the number of
available Shares in the Trust is less than the total number of Shares with
respect to which Awards would be granted, each Eligible Director scheduled to
receive an Award will be granted an Award for a pro-rated number of whole Shares
based upon the amount of available Shares. Each Award granted prior to October
5, 1996 will become vested and distributable at a rate of 20% on each
anniversary date of the grant, but such Award will become fully vested on the
date of the Award holder's death or Disability.
Stock subject to Awards is held in trust pursuant to the Director RRP
until vested. An individual to whom an Award is granted is entitled to exercise
voting rights and receive cash dividends with respect to stock subject to Awards
granted to him whether or not vested. The Committee will exercise voting rights
with respect to shares in the Director RRP trust that have not been allocated as
directed by the individuals eligible to participate in the Director RRP, whether
or not such individuals have been granted as Award. The shares covered by an
Award will become vested in accordance with the terms of the
29
<PAGE> 32
Award and as soon as practicable following such vesting, the trustee will
transfer the shares to the recipient. Unless the Committee provides otherwise,
the shares covered by an Award will vest 20% each year for five years; however,
if the recipient terminates employment with the Company on account of his death
or disability, or in the event of a tender offer for, or a change of control of,
the Company, then any shares covered by the Award will become 100% vested as of
the date of his termination of employment with the Company or as of the
commencement of such tender offer or the effective date of such change of
control. If an individual covered by an Award terminates employment for reasons
other than death or disability, the individual forfeits all rights to his
unvested shares remaining in the Director RRP trust. Shares distributed to any
person pursuant to an Award generally will not be transferable for six months
following the date of distribution.
REGULATORY RESTRICTIONS
The Director RRP is subject to certain restrictions imposed by the OTS
that are established or implemented by a federal savings association or its
holding company within one year after the association's conversion from a mutual
association to a stock association. The restrictions apply to the Director RRP
because the conversion of the Bank occurred within one year prior to the date of
this Annual Meeting. To reflect these requirements, the Director RRP provides
(i) that no Awards may be granted prior to the date on which the Company's
shareholders approve the Director RRP and (ii) that, any Awards granted prior to
October 5, 1996 will become exercisable at a rate no more rapid than 20% per
year beginning on the date of the grant, with accelerated vesting in cases of
death or disability. Management of the Company has been advised by its legal
counsel that the Director RRP complies with all applicable OTS regulations. The
OTS has not endorsed or approved the Director RRP. No representation to the
contrary shall be made.
TERMINATION OR AMENDMENT OF THE DIRECTOR RRP
The Board may suspend or terminate the Director RRP in whole or in part
at any time prior to the tenth anniversary of the Effective Date by giving
written notice of such suspension or termination to the Committee, but the
Director RRP may not be terminated while there are outstanding Awards that may
thereafter become vested. Upon the termination of the Director RRP, the trustee
shall make distributions from the Trust in such amounts and to such persons as
the Committee may direct and shall return the remaining assets of the Trust, if
any, to the Company.
The Board may amend or revise the Director RRP in whole or in part at
any time, but if the amendment or revision (i) materially increases the benefits
accruing under the Director RRP, (ii) materially increases the number of Shares
which may be issued under the Director RRP or (iii) materially modifies the
requirements as to eligibility for Awards under the Director RRP, such amendment
or revision will be subject to approval by the shareholders of the Company.
Subject to these above provisions, the Board will also have broad authority to
amend the Director RRP to take into account changes in applicable securities and
tax laws and accounting rules, as well as other developments.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended only as a summary and does not
purport to be a comprehensive description of the federal tax laws, regulations
and policies affecting the Company and recipients of Awards that may be granted
under the Director RRP. Any descriptions of the provisions of any law,
regulation or policy contained herein are qualified in their entirety by
reference to the particular law, regulation or policy. Any change in applicable
law or regulation or in the policies of
30
<PAGE> 33
various taxing authorities may have a material effect on the discussion
contained herein. The Director RRP does not constitute a qualified plan under
section 401(a) of the Code.
The award of Shares under the Director RRP does not result in federal
income tax consequences to either the Company or the award recipient. Upon the
vesting of an award and the distribution of the vested shares, the award
recipient will generally be required to include in ordinary income, for the
taxable year in which the vesting date occur, an amount equal to the fair market
value of the shares on the vesting date, and the Company will generally be
allowed to claim a deduction, for compensation expense, in a like amount. To the
extent that dividends are paid with respect to unvested shares held under the
Director RRP and distributed to the award recipient, such dividend amounts will
likewise be includible in the ordinary income of the recipient and allowable as
a deduction, for compensation expense, to the Company. Dividends declared and
paid with respect to vested shares, as well as any gain or loss realized upon an
award recipient's disposition of the shares, will be treated as dividend income
and capital gain or loss, respectively, in the same manner as for other
shareholders.
The foregoing statements are intended to summarize the general
principles of current federal income tax law applicable to Awards that may be
granted under the Director RRP. State and local tax consequences may also be
significant. PARTICIPANTS ARE ADVISED TO CONSULT WITH THEIR TAX ADVISOR AS TO
THE TAX CONSEQUENCES OF THE DIRECTOR RRP.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS.
31
<PAGE> 34
NEW PLAN BENEFITS
TAPPAN ZEE FINANCIAL, INC. STOCK PLANS
<TABLE>
<CAPTION>
==============================================================================================================================
Employee Director Option Employee Director
Option Plan(1) Plan(2) RRP(3) RRP(4)
----------------------------------------------------------------------------------------
Name/Position # $ Value # $ Value # $ Value # $ Value
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stephen C. Byelick 40,500 0 -- -- 16,200 195,413 -- --
President and CEO
- ------------------------------------------------------------------------------------------------------------------------------
Harry G. Murphy 40,500 0 -- -- 16,200 195,413 -- --
Vice President and Secretary
- ------------------------------------------------------------------------------------------------------------------------------
All Executive Officers as a Group 81,000 0 -- -- 32,400 390,826 -- --
- ------------------------------------------------------------------------------------------------------------------------------
All Outside Directors as a Group -- -- 40,500 0 -- -- 19,440 $234,495
- ------------------------------------------------------------------------------------------------------------------------------
All Non-Executive employees as a N/A N/A -- -- N/A N/A -- --
group(5)
==============================================================================================================================
</TABLE>
(1) As of the Record Date, no grants have been made under the Employee
Option Plan. It is not determinable at this time what benefits, if any,
each of the persons or groups listed will receive under such plan. The
numbers in the table reflect the Compensation Committee's intentions of
grants to be made upon the effective date of approval of the Employee
Option Plan.
(2) On the Effective Date, each outside director will receive a
non-qualified stock option to purchase 8,100 Shares with an Exercise
Price equal to the Fair Market Value of a Share on the Effective Date.
On each anniversary of the date of the grant until all Shares are
exercisable, 1,620 Shares subject to each option will become
exercisable. Such Options will expire on the earliest of the director's
removal for cause or on the tenth anniversary of the date of the grant.
(3) As of the Record Date, no grants have been made under the Employee RRP.
It is not determinable at this time what benefits, if any, each of the
persons or groups listed will receive under such plan. The numbers in
the table reflect the Compensation Committee's intentions of grants to
be made upon the effective date of approval of the Employee Option
Plan.
(4) On the Effective Date, each Eligible Outside Director will receive an
Award of 3,240 Shares and each Eligible Director Emeritus will receive
an Award of 1,080 Shares. On each anniversary of the date of the grant
until all Shares are vested, 20% of such Award will become vested and
distributed to the grantee. The dollar value is based on a price per
Share of $12.0625 (the fair market value as reported on NASDAQ on the
Record Date). The actual value of the benefits under this plan will
depend on the fair market value of a Share on the Effective Date, which
is indeterminable at this time.
(5) As of the date of this Proxy Statement, no determination has been made
as to whether other employees will receive grants or if so, the amount
of such grants.
32
<PAGE> 35
------------------------------------------------------------------
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(PROPOSAL SIX)
------------------------------------------------------------------
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP
to act as independent auditors for the company for the fiscal year ending March
31, 1997, subject to ratification of such appointment by the Company's
shareholders.
A representative of KPMG Peat Marwick LLP is expected to be present at
the Annual Meeting and will be given an opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate questions.
No determination has been made as to what action the Board of Directors would
take if the shareholders do not ratify the appointment.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
------------------------------------------------------------------
AUTHORIZATION OF THE BOARD OF DIRECTORS, IN ITS DISCRETION,
TO DIRECT THE VOTE OF THE PROXIES UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING,
AND ANY ADJOURNMENT THEREOF, INCLUDING, WITHOUT
LIMITATION, A MOTION TO ADJOURN THE MEETING
(PROPOSAL SEVEN)
------------------------------------------------------------------
The Board is not aware of any other business that may properly come
before the Annual Meeting. The Board seeks the authorization of the shareholders
of the Company, in the event such matters come before the meeting, including,
but not limited to, consideration of whether to postpone or adjourn the Annual
Meeting once called to order, to direct the manner in which those shares
represented at the Annual Meeting by proxies solicited pursuant to this Proxy
Statement shall be voted as to such other matters. As to all such matters, the
Board intends that it would direct the voting of such shares in the manner
determined by the Board, in its discretion, and in the exercise of it duties and
responsibilities, to be in the best interests of the Company and its
shareholders, taken as a whole.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
AUTHORIZATION OF THE BOARD OF DIRECTORS OF TAPPAN ZEE FINANCIAL, INC., IN ITS
DISCRETION, TO DIRECT THE VOTE OF THE PROXIES UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE MEETING, AND ANY ADJOURNMENT THEREOF, INCLUDING,
WITHOUT LIMITATION, A MOTION TO ADJOURN THE MEETING
33
<PAGE> 36
ADDITIONAL INFORMATION
DATE FOR SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposal intended for inclusion in the Company's proxy
statement and proxy card relating to the Company's 1997 Annual Meeting of
shareholders must be received by the Company by March 1, 1997, pursuant to the
proxy soliciting regulations of the SEC. Nothing in this paragraph shall be
deemed to require the Company to include in its proxy statement and proxy card
for such meeting any shareholder proposal which does not meet the requirements
of the SEC in effect at the time. Any such proposal will be subject to 17 C.F.R.
Section240.14a-8 of the Rules and Regulations promulgated by the SEC under the
Exchange Act.
NOTICE OF BUSINESS TO BE CONDUCTED AT ANNUAL MEETING
The Bylaws of the Company provide an advance notice procedure for a
shareholder to properly bring business before an annual meeting or to nominate
any person for election to the Board of Directors. The shareholder must be a
shareholder of record and have given timely notice thereof in writing to the
Secretary of the Company. To be timely, a shareholder's notice must be delivered
to or received by the Secretary not later than the following dates: (i) with
respect to an annual meeting of shareholders, sixty (60) days in advance of such
meeting if such meeting is to be held on a day which is within thirty (30) days
preceding the anniversary of the previous year's annual meeting, or ninety (90)
days in advance of such meeting if such meeting is to be held on or after the
anniversary of the previous year's annual meeting; and (ii) with respect to an
annual meeting of shareholders held at a time other than within the time periods
set forth in the immediately preceding clause (i), the close of business on the
tenth (10th) day following the date on which notice of such meeting is first
given to shareholders. Notice shall be deemed to first be given to shareholders
when disclosure of such date of the meeting of shareholders is first made in a
press release reported to Dow Jones News Services, Associated Press or
comparable national news service, or in a document publicly filed by the Company
with the SEC pursuant to Section 13, 14 or 15(d) of the Exchange Act. A
shareholder's notice to the Secretary shall set forth as to the matter the
shareholder proposes to bring before the annual meeting (a) a brief description
of the proposal desired to be brought before the annual meeting or if a
nomination for election as a director, the name, age, business and residence
address and principal occupation or employment of such nominee, such nominee's
written consent to serve as director, if elected, and such other information
required by the proxy rules of the SEC; (b) the name and address of the
shareholder proposing such business; (c) the class and number of shares of the
Company which are owned of record by the shareholder and the dates upon which he
or she acquired such shares; (d) the identification of any person employed,
retained, or to be compensated by the shareholder submitting the proposal, or
any person acting on his or her behalf, to make solicitations or recommendations
to shareholders for the purpose of assisting in the passage of such proposal,
and a brief description of the terms of such employment, retainer or arrangement
for compensation; and (e) such other information regarding such proposal as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the SEC or required to be delivered to the Company pursuant to
the proxy rules of the Securities and Exchange Commission (whether or not the
Company is then subject to such rules). Nothing in this paragraph shall be
deemed to require the Company to include in its proxy statement and proxy card
relating to an annual meeting any shareholder proposal or nomination which does
not meet all of the requirements for inclusion established by the SEC in effect
at the time such proposal or nomination is received. See "Date For Submission of
Shareholder Proposals."
34
<PAGE> 37
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company does not know of any other matters to be brought before the shareholders
at the 1996 Annual Meeting. See "Authorization of the Board of Directors, in its
discretion, to Direct the Vote of the Proxies upon such Other Business as may
properly come before the Meeting, and any adjournment thereof, including,
without limitation, a Motion to Adjourn the Meeting (Proposal Seven)."
A copy of the 1996 Annual Report to shareholders, including the
consolidated financial statements and prepared in conformity with generally
accepted accounting principles, for the fiscal year ended March 31, 1996
accompanies this Proxy Statement. The consolidated financial statements have
been audited by KPMG Peat Marwick LLP whose report appears in the Annual Report.
THE COMPANY IS REQUIRED TO FILE AN ANNUAL REPORT ON FORM 10-K WITH THE SEC.
SHAREHOLDERS MAY OBTAIN, FREE OF CHARGE, A COPY OF THE FORM 10-K (WITHOUT
EXHIBITS) BY WRITING TO HARRY G. MURPHY, VICE PRESIDENT AND SECRETARY, TAPPAN
ZEE FINANCIAL, INC., 75 NORTH BROADWAY, TARRYTOWN, NEW YORK 10591, OR BY CALLING
(914) 631-0344.
By Order of the Board of Directors
/s/ Harry G. Murphy
Harry G. Murphy
Secretary
Tarrytown, New York
May 31, 1996
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN
THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
35
<PAGE> 38
EXHIBIT A
TAPPAN ZEE FINANCIAL, INC. 1996 STOCK OPTION PLAN FOR OFFICERS AND EMPLOYEES
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and profitability of
Tappan Zee Financial, Inc., to provide certain key officers and employees of
Tappan Zee Financial, Inc. and its affiliates with an incentive to achieve
corporate objectives, to attract and retain individuals of outstanding
competence and to provide such individuals with an equity interest in Tappan Zee
Financial, Inc.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
SECTION 2.1 BANK means Tarrytowns Bank, FSB, a federally chartered
savings institution, and any successor thereto.
SECTION 2.2 BOARD means the board of directors of Tappan Zee Financial,
Inc.
SECTION 2.3 CHANGE IN CONTROL OF THE COMPANY means any of the following
events:
(a) approval by the stockholders of Tappan Zee Financial, Inc. of a
transaction that would result in the reorganization, merger or consolidation of
Tappan Zee Financial, Inc. with one or more other persons, other than a
transaction following which:
(i) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in
Tappan Zee Financial, Inc.; and
(ii) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of Tappan Zee Financial,
Inc.;
(b) the acquisition of all or substantially all of the assets of Tappan
Zee Financial, Inc. or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding securities
of Tappan Zee Financial, Inc. entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or approval by the
stockholders of Tappan Zee Financial, Inc. of any transaction which would result
in such an acquisition;
(c) a complete liquidation or dissolution of Tappan Zee Financial,
Inc., or approval by the stockholders of Tappan Zee Financial, Inc. of a plan
for such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of Tappan Zee Financial,
Inc. do not belong to any of the following groups:
(i) individuals who were members of the Board of Directors of
Tappan Zee Financial, Inc. on the effective date of this Plan; or
(ii) individuals who first became members of the Board of
Directors of Tappan Zee Financial, Inc. after the effective date of this Plan
either:
A-1
<PAGE> 39
(A) upon election to serve as a member of the Board of
Directors of Tappan Zee Financial, Inc. by affirmative vote of three-quarters of
the members of such Board, or of a nominating committee thereof, in office at
the time of such first election; or
(B) upon election by the stockholders of Tappan Zee Financial,
Inc. to serve as a member of the Board of Tappan Zee Financial, Inc., but only
if nominated for election by affirmative vote of three-quarters of the members
of the Board of Directors of Tappan Zee Financial, Inc., or of a nominating
committee thereof, in office at the time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by
or on behalf of the Board of Tappan Zee Financial, Inc.; or
(e) any event which would be described in section 2.3(a), (b), (c) or
(d) if the term "Bank" were substituted for the term "Tappan Zee FInancial,
Inc." therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of Tappan Zee Financial, Inc.,
the Bank, or a subsidiary of either of them, by Tappan Zee Financial, Inc., the
Bank, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 2.3, the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
SECTION 2.4 CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
SECTION 2.5 COMMITTEE means the Committee described in section 3.1.
SECTION 2.6 COMPANY means Tappan Zee Financial, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto, the Bank and any successor thereto and, with the prior
approval of the Board, and subject to such terms and conditions as may be
imposed by the Board, any other savings bank, savings and loan association,
bank, corporation, financial institution or other business organization or
institution.
SECTION 2.7 DISABILITY means a condition of total incapacity, mental
or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.8 DISINTERESTED BOARD MEMBER means a member of the Board who
(a) is not a current employee of the Company, (b) is not a former employee of
the Company who receives compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable year, (c) has not been
an officer of the Company, (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a director and (d)
is not currently and for a period of at least one year has not been eligible for
discretionary awards under any stock compensation plan of the Company. The term
Disinterested Board Member shall be interpreted in such manner as shall be
necessary to conform to the requirements of section 162(m) of the Code and Rule
16b-3 promulgated under the Exchange Act.
SECTION 2.9 EFFECTIVE DATE means July 11, 1996.
SECTION 2.10 ELIGIBLE INDIVIDUAL means any individual whom the
Committee may determine to be a key officer or employee of the Company and
select to receive a grant of an Option pursuant to the Plan.
SECTION 2.11 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
SECTION 2.12 EXERCISE PRICE means the price per Share at which Shares
subject to an Option may be purchased upon exercise of the Option, determined in
accordance with section 4.4.
SECTION 2.13 FAIR MARKET VALUE means, with respect to a Share on a
specified date:
A-2
<PAGE> 40
(a) the final reported sales price on the date in question (or if there
is no reported sale on such date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated reporting
system with respect to securities listed or admitted to trading on the principal
United States securities exchange on which the Shares are listed or admitted to
trading; or
(b) if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date on the
National Association of Securities Dealers Automated Quotations System, or, if
no such quotation is provided, on another similar system, selected by the
Committee, then in use; or
(c) if sections 2.12(a) and (b) are not applicable, the fair market
value of a Share as the Committee may determine.
SECTION 2.14 INCENTIVE STOCK OPTION means a right to purchase Shares
that is granted pursuant to section 4.1, that is designated by the Committee to
be an Incentive Stock Option and that is intended to satisfy the requirements of
section 422 of the Code.
SECTION 2.15 LIMITED STOCK APPRECIATION RIGHT means a right granted
pursuant to section 4.9.
SECTION 2.16 NON-QUALIFIED STOCK OPTION means a right to purchase
Shares that (a) is granted pursuant to section 4.1 and is designated by the
Committee to be a Non-Qualified Stock Option, or (b) does not satisfy the
requirements of section 422 of the Code.
SECTION 2.17 OPTION means either an Incentive Stock Option or a
Non-Qualified Stock Option.
SECTION 2.18 OPTION PERIOD means the period during which an Option may
be exercised, determined in accordance with section 4.5.
SECTION 2.19 PERSON means an individual, a corporation, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.20 PLAN means the Tappan Zee Financial, Inc. 1996 Stock
Option Plan for Officers and Employees, as amended from time to time.
SECTION 2.21 QUALIFIED DOMESTIC RELATIONS ORDER means a Domestic
Relations Order that: (a) clearly specifies (i) the name and last known mailing
address of the Option holder and of each person given rights under such Domestic
Relations Order, (ii) the amount or percentages of the Option holder's benefits
under this Plan to be paid to each person covered by such Domestic Relations
Order, (iii) the number of payments or the period to which such Domestic
Relations Order applies, and (iv) the name of this Plan; and (b) does not
require the payment of a benefit in a form or amount that is (i) not otherwise
provided for under the Plan, or (ii) inconsistent with a previous Qualified
Domestic Relations Order. For the purposes of this Plan, a "Domestic Relations
Order" means a judgment, decree or order (including the approval of a property
settlement) that is made pursuant to a state domestic relations or community
property law and relates to the provision of child support, alimony payments, or
marital property rights to a spouse, child or other dependent of an Option
holder.
SECTION 2.22 RETIREMENT means retirement at the normal or early
retirement date as set forth in any tax-qualified retirement plan of the Bank.
SECTION 2.23 SHARE means a share of Common Stock, par value $.01 per
share, of Tappan Zee Financial, Inc.
SECTION 2.24 TERMINATION FOR CAUSE means one of the following:
(a) for an Eligible Employee who is not an officer or employee of any
bank or savings institution regulated by the Office of Thrift Suprevision,
"Termination for Cause" means termination of employment with the Company upon
the occurrence of any of the following: (A) the employee intentionally engages
in dishonest conduct in connection with his performance of services for the
Company resulting in his conviction of a felony; (B) the employee is convicted
of, or pleads guilty or nolo contendere to, a felony or any crime involving
moral turpitude; (C) the employee willfully fails or refuses to perform his
duties under any employment or retention agreement and
A-3
<PAGE> 41
fails to cure such breach within sixty (60) days following written notice
thereof from the Company; (D) the employee breaches his fiduciary duties to the
Company for personal profit; or (E) the employee's willful breach or violation
of any law, rule or regulation (other than traffic violations or similar
offenses), or final cease and desist order in connection with his performance of
services for the Company;
(b) for an Eligible Employee who is an officer or employee of a bank or
savings institution regulated by the Office of Thrift Suprevision, "Termination
for Cause" means termination of employment for 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, or any material breach of this Agreement, in each
case as measured against standards generally prevailing at the relevant time in
the savings and community banking industry; provided, however, that such
individual shall not be deemed to have been discharged for cause unless and
until he shall have received a written notice of termination from the Board,
which notice shall be given to such individual not later than five (5) business
days after the Board adopts, and shall be accompanied by, a resolution duly
approved by affirmative vote of a majority of the entire Board at a meeting
called and held for such purpose (which meeting shall be held not more than
fifteen (15) days nor more than thirty (30) days after notice to the
individual), at which meeting there shall be a reasonable opportunity for the
individual to make oral and written presentations to the members of the Board,
on his own behalf, or through a representative, who may be his legal counsel, to
refute the grounds for the proposed determination) finding that in the good
faith opinion of the Board grounds exist for discharging the individual for
cause.
ARTICLE III
ADMINISTRATION
SECTION 3.1 COMMITTEE.
The Plan shall be administered by a Committee consisting of the members
of the Compensation Committee of Tappan Zee Financial, Inc. who are
Disinterested Board Members. If fewer than three members of the Compensation
Committee are Disinterested Board Members, then the Board shall appoint to the
Committee such additional Disinterested Board Members as shall be necessary to
provide for a Committee consisting of at least three Disinterested Board
Members.
SECTION 3.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
SECTION 3.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed from time to time by the Board, the Committee shall be
responsible for the overall management and administration of the Plan and shall
have such authority as shall be necessary or appropriate in order to carry out
its responsibilities, including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all questions
that may arise under the Plan as to eligibility for participation in the Plan,
the number of Shares subject to the Options, if any, to be granted, and the
terms and conditions thereof;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of
the Plan that it may deem necessary or appropriate.
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ARTICLE IV
STOCK OPTIONS
SECTION 4.1 IN GENERAL.
Subject to the limitations of the Plan, the Committee may, in its
discretion, grant to an Eligible Individual an Option to purchase Shares. Any
such Option shall be evidenced by a written agreement which shall:
(a) designate the Option as either an Incentive Stock Option or a
Non-Qualified Stock Option;
(b) specify the number of Shares covered by the Option;
(c) specify the Exercise Price, determined in accordance with section
4.4, for the Shares subject to the Option;
(d) specify the Option Period determined in accordance with section
4.5;
(e) set forth specifically or incorporate by reference the applicable
provisions of the Plan; and
(f) contain such other terms and conditions not inconsistent with the
Plan as the Committee may, in its discretion, prescribe with respect to an
Option granted to an Eligible Individual.
SECTION 4.2 AVAILABLE SHARES.
Subject to section 5.3, the maximum aggregate number of Shares with
respect to which Options may be granted at any time shall be equal to the excess
of:
(a) 113,400 Shares; over
(b) the sum of:
(i) the number of Shares with respect to which previously
granted Options may then or may in the future be exercised; plus
(ii) the number of Shares with respect to which previously
granted Options have been exercised.
For purposes of this section 4.2, an Option shall not be considered as having
been exercised to the extent that such Option terminates by reason other than
the purchase of the related Shares.
SECTION 4.3 SIZE OF OPTION.
Subject to sections 4.2 and 4.10 and such limitations as the Board may
from time to time impose, the number of Shares as to which an Eligible
Individual may be granted Options shall be determined by the Committee, in its
discretion. Except as provided in section 4.10, the maximum number of Shares
that may be optioned to any one individual under this Plan during its entire
duration shall be the entire number of Shares available under the Plan.
SECTION 4.4 EXERCISE PRICE.
The price per Share at which an Option granted to an Eligible
Individual may be exercised shall be determined by the Committee, in its
discretion; provided, however, that the Exercise Price shall not be less than
the Fair Market Value of a Share on the date on which the Option is granted.
SECTION 4.5 OPTION PERIOD.
Subject to section 4.10, the Option Period during which an Option
granted to an Eligible Individual may be exercised shall commence on the date
specified by the Committee in the Option agreement and shall expire on the date
specified in the Option agreement or, if no date is specified, on the earliest
of:
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(a) the close of business on the last day of the three-month period
commencing on the date of the Eligible Individual's termination of employment
with the Company, other than on account of death or Disability, Retirement or a
Termination for Cause;
(b) the close of business on the last day of the one-year period
commencing on the date of the Eligible Individual's termination of employment
due to death, Disability or Retirement;
(c) the date and time when the Eligible Individual ceases to be an
employee of the Company due to a Termination for Cause; and
(d) the last day of the ten-year period commencing on the date on which
the Option was granted.
SECTION 4.6 METHOD OF EXERCISE.
(a) Subject to the limitations of the Plan and the Option agreement, an
Option holder may, at any time during the Option Period, exercise his right to
purchase all or any part of the Shares to which the Option relates; provided,
however, that the minimum number of Shares which may be purchased shall be 100,
or, if less, the total number of Shares relating to the Option which remain
unpurchased. An Option holder shall exercise an Option to purchase Shares by:
(i) giving written notice to the Committee, in such form and manner as
the Committee may prescribe, of his intent to exercise the Option;
(ii) delivering to the Committee full payment, consistent with section
4.6(b), for the Shares as to which the Option is to be exercised; and
(iii) satisfying such other conditions as may be prescribed in the
Option agreement.
(b) The Exercise Price of Shares to be purchased upon exercise of any
Option shall be paid in full in cash (by certified or bank check or such other
instrument as the Company may accept) or, if and to the extent permitted by the
Committee, by one or more of the following: (i) in the form of Shares already
owned beneficially for a period of more than six months by the Option holder
having an aggregate Fair Market Value on the date the Option is exercised equal
to the aggregate Exercise Price to be paid; (ii) after a period of six months
from the date of grant of any such Option, by requesting the Company to cancel
without payment Options outstanding to such Person for that number of Shares
whose aggregate Fair Market Value on the date of exercise, when reduced by their
aggregate Exercise Price, equals the aggregate Exercise Price of the Options
being exercised; or (iii) by a combination thereof; provided, however, that an
election under section 4.6(b)(ii) or (iii) shall be subject to the conditions
and limitations of Rule 16b-3(e) promulgated under the Exchange Act. Payment for
any Shares to be purchased upon exercise of an Option may also be made by
delivering a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the purchase price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
(c) When the requirements of section 4.6(a) and (b) have been
satisfied, the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership of such
Shares. The Person exercising the Option shall have no right to vote or to
receive dividends, nor have any other rights with respect to the Shares, prior
to the date as of which such Shares are transferred to such Person on the stock
transfer records of the Company, and no adjustments shall be made for any
dividends or other rights for which the record date is prior to the date as of
which such transfer is effected, except as may be required under section 5.3.
SECTION 4.7 LIMITATIONS ON OPTIONS.
(a) An Option by its terms shall not be transferable by the Option
holder other than by will or by the laws of descent and distribution, or
pursuant to the terms of a Qualified Domestic Relations Order, and shall be
exercisable, during the lifetime of the Option holder, only by the Option holder
or an alternate payee designated pursuant to such a Qualified Domestic Relations
Order.
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(b) The Company's obligation to deliver Shares with respect to an
Option shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Option holder to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of applicable federal,
state or local law. It may be provided that any such representation shall become
inoperative upon a registration of the Shares or upon the occurrence of any
other event eliminating the necessity of such representation. The Company shall
not be required to deliver any Shares under the Plan prior to (i) the admission
of such Shares to listing on any stock exchange on which Shares may then be
listed, or (ii) the completion of such registration or other qualification under
any state or federal law, rule or regulation as the Committee shall determine to
be necessary or advisable.
SECTION 4.8 ADDITIONAL RESTRICTIONS ON INCENTIVE STOCK OPTIONS.
In addition to the limitations of section 4.7, an Option designated by
the Committee to be an Incentive Stock Option shall be subject to the following
limitations:
(a) If, for any calendar year, the sum of (i) plus (ii) exceeds
$100,000, where (i) equals the Fair Market Value (determined as of the date of
the grant) of Shares subject to an Option intended to be an Incentive Stock
Option which first become available for purchase during such calendar year, and
(ii) equals the Fair Market Value (determined as of the date of grant) of Shares
subject to any other options intended to be Incentive Stock Options and
previously granted to the same Eligible Individual which first become
exercisable in such calendar year, then that number of Shares optioned which
causes the sum of (i) and (ii) to exceed $100,000 shall be deemed to be Shares
optioned pursuant to a Non-Qualified Stock Option or Non-Qualified Stock
Options, with the same terms as the Option or Options intended to be an
Incentive Stock Option;
(b) The Exercise Price of an Incentive Stock Option granted to an
Eligible Individual who, at the time the Option is granted, owns Shares
comprising more than 10% of the total combined voting power of all classes of
stock of the Company shall not be less than 110% of the Fair Market Value of a
Share, and if an Option designated as an Incentive Stock Option shall be granted
at an Exercise Price that does not satisfy this requirement, the designated
Exercise Price shall be observed and the Option shall be treated as a
Non-Qualified Stock Option;
(c) The Option Period of an Incentive Stock Option granted to an
Eligible Individual who, at the time the Option is granted, owns Shares
comprising more than 10% of the total combined voting power of all classes of
stock of the Company, shall expire no later than the fifth anniversary of the
date on which the Option was granted, and if an Option designated as an
Incentive Stock Option shall be granted for an Option Period that does not
satisfy this requirement, the designated Option Period shall be observed and the
Option shall be treated as a Non-Qualified Stock Option;
(d) An Incentive Stock Option that is exercised during its designated
Option Period but more than (i) three (3) months after the termination of
employment with the Company (other than on account of disability within the
meaning of section 22(e)(3) of the Code or death) of the Eligible Individual to
whom it was granted; and (ii) one (1) year after such individual's termination
of employment with the Company due to disability (within the meaning of section
22(e)(3) of the Code); may be exercised in accordance with the terms but shall
be treated as a Non-Qualified Stock Option; and
(e) Except with the prior written approval of the Committee, no
individual shall dispose of Shares acquired pursuant to the exercise of an
Incentive Stock Option until after the later of (i) the second anniversary of
the date on which the Incentive Stock Option was granted, or (ii) the first
anniversary of the date on which the Shares were acquired.
SECTION 4.9 LIMITED STOCK APPRECIATION RIGHTS.
(a) Each Option granted under this Plan shall be accompanied by a
Limited Stock Appreciation Right that is exercisable at the times and upon the
terms and conditions set forth herein. Each Limited Stock Appreciation Right
granted hereunder shall be exercisable for a period commencing on the date on
which a Change in Control of the Company occurs and ending six (6) months after
such date or, if later in the case of any Person, thirty (30) days after the
earliest date on which such Person may exercise the Limited Stock Appreciation
Right without subjecting himself to liability under section 16 of the Securities
Exchange Act of 1934, as amended. A Person in possession of a Limited Stock
Appreciation Right granted hereunder may exercise such Limited Stock
Appreciation Right by:
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(i) giving written notice to the Committee, in such form and manner as
the Committee may prescribe, of his intent to exercise the Limited Stock
Appreciation Right; and
(ii) agreeing in such written notice to the cancellation of Options
then outstanding to him for a number of Shares equal to the number of Shares for
which the Limited Stock Appreciation Right is being exercised.
Except as provided in section 4.9(c), within ten (10) days after the giving of
such a notice, the Committee shall cause the Company to deliver to such Person a
monetary payment in an amount per Share equal to the amount by which the Change
in Control Consideration exceeds the Exercise Price per Share of each of the
Options being cancelled.
(b) For purposes of section 4.9(a), the term Change in Control
Consideration shall mean the greater of (i) the highest price per Share paid by
any Person who initiated or sought to effect the Change in Control for a Share
during the period of one (1) year ending on the date of the relevant Change in
Control of the Company; and (ii) the average Fair Market Value of a Share over
the last ten (10) trading days preceding the date of exercise of the Limited
Stock Appreciation Right.
(c) Notwithstanding anything herein contained to the contrary, the
Limited Stock Appreciation Rights granted hereunder shall be cancelled at the
effective time of a Change in Control of the Company resulting from a
transaction between the Company and another party pursuant to a written
agreement whereby the consummation of the transaction is conditioned upon the
delivery to each Option holder, upon the closing of such transaction and in
exchange for the cancellation of all of such Option holder's outstanding
Options, of a monetary payment or property with a value equivalent to the value
of the Options being cancelled.
SECTION 4.10 REQUIRED REGULATORY PROVISIONS.
Notwithstanding anything contained herein to the contrary:
(a) no Option shall be granted under the Plan prior to the date on
which the Plan is approved by the holders of a majority of the Shares
outstanding on such date and eligible to vote upon the proposal to approve the
Plan;
(b) at any time prior to October 5, 1996, no individual may be granted
Options to purchase more than Forty Thousand Five Hundred (40,500) Shares;
(c) each Option granted prior to October 5, 1996 shall become
exercisable as follows:
(i) prior to the first anniversary of the date on which the
Option is granted, the Option shall not be exercisable;
(ii) on and after the first anniversary, but prior to the
second anniversary, of the date on which the Option is granted, the Option may
be exercised as to a maximum of twenty percent (20%) of the Shares subject to
the Option when granted;
(iii) on and after the second anniversary, but prior to the
third anniversary, of the date on which the Option is granted, the Option may be
exercised as to a maximum of forty percent (40%) of the Shares subject to the
Option when granted, including in such forty percent (40%) any optioned Shares
purchased prior to such second anniversary;
(iv) on and after the third anniversary, but prior to the
fourth anniversary, of the date on which the Option is granted, the Option may
be exercised as to a maximum of sixty percent (60%) of the Shares subject to the
Option when granted, including in such sixty percent (60%) any optioned Shares
purchased prior to such third anniversary;
(v) on and after the fourth anniversary, but prior to the
fifth anniversary, of the date on which the Option is granted, the Option may be
exercised as to a maximum of eighty percent (80%) of the Shares subject to the
Option when granted, including in such eighty percent (80%) any optioned Shares
purchased prior to such fourth anniversary; and
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(vi) on and after the fifth anniversary of the date on which
the Option is granted and for the remainder of the Option Period, the Option may
be exercised as to the entire number of optioned Shares not theretofore
purchased;
provided, however, that such an Option shall become fully exercisable,
and all optioned Shares not previously purchased shall become available for
purchase, on the date of the Option holder's death or Disability; and
(d) The Exercise Period of any Option granted hereunder, whether or not
previously vested, shall be suspended as of the time and date at which the
Option holder has received notice from the Board that his or her employment is
subject to a possible Termination for Cause. Such suspension shall remain in
effect until the Option holder receives official notice from the Board that he
or she has been cleared of any possible Termination for Cause, at which time,
the original Exercise Period shall be reinstated without any adjustment for the
intervening suspended period.
(e) No Option granted hereunder, whether or not previously vested,
shall be exercised after the time and date at which the Option holder's
employment with the Company is terminated in a Termination for Cause.
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in part at any
time prior to the tenth anniversary of the Effective Date by giving written
notice of such suspension or termination to the Committee Unless sooner
terminated, the Plan shall terminate automatically on the day preceding the
tenth anniversary of the Effective Date. In the event of any suspension or
termination of the Plan, all Options theretofore granted under the Plan that are
outstanding on the date of such suspension or termination of the Plan shall
remain outstanding and exercisable for the period and on the terms and
conditions set forth in the Option agreements evidencing such Options.
SECTION 5.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at any time;
provided, however, that if the amendment or revision:
(a) materially increases the benefits accruing under the Plan;
(b) materially increases the number of Shares which may be issued under
the Plan; or
(c) materially modifies the requirements as to eligibility for Options
under the Plan;
such amendment or revision shall be subject to approval by the shareholders of
the Company; and provided, further, that no amendment required to comply with or
conform to any condition imposed under section 162(m) of the Code on federal
income tax deductions allowable to the Company in respect of the Plan shall
require such approval.
SECTION 5.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS REORGANIZATION.
(a) In the event of any merger, consolidation, or other business
reorganization in which the Company is the surviving entity, and in the event of
any stock split, stock dividend or other event generally affecting the number of
Shares held by each Person who is then a holder of record of Shares, the number
of Shares covered by each outstanding Option and the number of Shares available
pursuant to section 4.2 shall be adjusted to account for such event. Such
adjustment shall be effected by multiplying such number of Shares by an amount
equal to the number of Shares that would be owned after such event by a Person
who, immediately prior to such event, was the holder of record of one Share, and
the Exercise Price of the Options shall be adjusted by dividing the Exercise
Price by such number of Shares; provided, however, that the Committee may, in
its discretion, establish another appropriate method of adjustment.
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(b) In the event of any merger, consolidation, or other business
reorganization in which the Company is not the surviving entity, any Options
granted under the Plan which remain outstanding may be cancelled as of the
effective date of such merger, consolidation, business reorganization,
liquidation or sale by the Board upon 30 days' written notice to the Option
holder; provided, however, that on or as soon as practicable following the date
of cancellation, each Option holder shall receive a monetary payment in such
amount, or other property of such kind and value, as the Board determines in
good faith to be equivalent in value to the Options that have been cancelled.
(c) In the event that the Company shall declare and pay any dividend
with respect to Shares (other than a dividend payable in Shares) which results
in a nontaxable return of capital to the holders of Shares for federal income
tax purposes or otherwise than by dividend makes distribution of property to the
holders of its Shares, the Company shall make an equivalent payment to each
Person holding an outstanding Option as of the record date for such dividend.
Such payment shall be made at substantially the same time, in substantially the
same form and in substantially the same amount per optioned Share as the
dividend or other distribution paid with respect to outstanding Shares;
provided, however, that if any dividend or distribution on outstanding Shares is
paid in property than cash, the Company, in its discretion applied uniformly to
all outstanding Options, may make such payment in a cash amount per optioned
Share equal in fair market value to the fair market value of the non-cash
dividend or distribution.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for qualification
under section 401(a) of the Code or to satisfy the definitional requirements for
an "employee benefit plan" under section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended. It is intended to be a non-qualified incentive
compensation program that is exempt from the regulatory requirements of the
Employee Retirement Income Security Act of 1974, as amended. The Plan shall be
construed and administered so as to effectuate this intent.
SECTION 6.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of the Plan
nor any action of the Board or the Committee with respect to the Plan shall be
held or construed to confer upon any Eligible Individual any right to a
continuation of employment by the Company. The Company reserves the right to
dismiss any Eligible Individual or otherwise deal with any Eligible Individual
to the same extent as though the Plan had not been adopted.
SECTION 6.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 6.4 GOVERNING LAW.
The Plan shall be construed, administered and enforced according to the
laws of the State of New York without giving effect to the conflict of laws
principles thereof, except to the extent that such laws are preempted by federal
law.
SECTION 6.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 6.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities, engagements or torts,
except to the extent provided in a Qualified Domestic Relations Order.
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SECTION 6.7 TAXES.
The Company shall have the right to deduct from all amounts paid by the
Company in cash with respect to an Option under the Plan any taxes required by
law to be withheld with respect to such Option. Where any Person is entitled to
receive Shares pursuant to the exercise of an Option, the Company shall have the
right to require such Person to pay the Company the amount of any tax which the
Company is required to withhold with respect to such Shares, or, in lieu
thereof, to retain, or to sell without notice, a sufficient number of Shares to
cover the amount required to be withheld.
SECTION 6.8 APPROVAL OF SHAREHOLDERS.
The Plan and all Options and Limited Stock Appreciation Rights granted
hereunder shall be conditioned on the approval of the Plan by the holders of a
majority of the Shares of Tappan Zee Financial, Inc. entitled to vote at an
annual or special meeting of the holders of Shares held no earlier than April 5,
1996. No Option or Limited Stock Appreciation Rights under the Plan shall be
granted, nor shall any such Option or Limited Stock Appreciation Rights be
exercised or any Shares issued or purchased, prior to such approval.
SECTION 6.9 NOTICES.
Any communication required or permitted to be given under the Plan,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Committee:
Tappan Zee Financial, Inc.
75 North Broadway
P.O. Box 187
Tarrytown, New York 10591
Attention: Corporate Secretary
(b) If to an Option holder, to the Option holder's address as shown in
the Company's personnel records.
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EXHIBIT B
TAPPAN ZEE FINANCIAL, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and profitability of
Tappan Zee Financial, Inc., to provide Eligible Directors of Tappan Zee
Financial, Inc. and its affiliates with an incentive to achieve corporate
objectives, to attract and retain key directors of outstanding competence and to
provide such Eligible Directors with an equity interest in Tappan Zee Financial,
Inc.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
SECTION 2.1 BANK means Tarrytowns Bank, FSB, a federally chartered
savings institution, and any successor thereto.
SECTION 2.2 BOARD means the board of directors of Tappan Zee Financial,
Inc.
SECTION 2.3 CHANGE IN CONTROL OF THE COMPANY means any of the following
events:
(a) approval by the stockholders of Tappan Zee Financial, Inc. of a
transaction that would result in the reorganization, merger or consolidation of
Tappan Zee Financial, Inc. with one or more other persons, other than a
transaction following which:
(i) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in
Tappan Zee Financial, Inc.; and
(ii) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of Tappan Zee Financial,
Inc.;
(b) the acquisition of all or substantially all of the assets of Tappan
Zee Financial, Inc. or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding securities
of Tappan Zee Financial, Inc. entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or approval by the
stockholders of Tappan Zee Financial, Inc. of any transaction which would result
in such an acquisition;
(c) a complete liquidation or dissolution of Tappan Zee Financial,
Inc., or approval by the stockholders of Tappan Zee Financial, Inc. of a plan
for such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of Tappan Zee Financial,
Inc. do not belong to any of the following groups:
(i) individuals who were members of the Board of Directors of
Tappan Zee Financial, Inc. on the effective date of this Plan; or
(ii) individuals who first became members of the Board of
Directors of Tappan Zee Financial, Inc. after the effective date of this Plan
either:
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(A) upon election to serve as a member of the Board of
Directors of Tappan Zee Financial, Inc. by affirmative vote of three-quarters of
the members of such Board, or of a nominating committee thereof, in office at
the time of such first election; or
(B) upon election by the stockholders of Tappan Zee Financial,
Inc. to serve as a member of the Board of Directors of Tappan Zee Financial,
Inc., but only if nominated for election by affirmative vote of three-quarters
of the members of the Board of Directors of Tappan Zee Financial, Inc., or of a
nominating committee thereof, in office at the time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by
or on behalf of the Board of Directors of Tappan Zee Financial, Inc.; or
(e) any event which would be described in section 2.3(a), (b), (c) or
(d) if the term "Bank" were substituted for the term "Tappan Zee Financial,
Inc." therein.
In no event, however, shall a Change in Control be deemed to have occurred as a
result of any acquisition of securities or assets of Tappan Zee Financial, Inc.,
the Bank, or a subsidiary of either of them, by Tappan Zee Financial, Inc., the
Bank, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 2.4, the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
SECTION 2.4 CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
SECTION 2.5 COMMITTEE means the Committee described in section 3.1.
SECTION 2.6 COMPANY means Tappan Zee Financial, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto, the Bank and any successor thereto and, with the prior
approval of the Board, and subject to such terms and conditions as may be
imposed by the Board, any other savings bank, savings and loan association,
bank, corporation, financial institution or other business organization or
institution.
SECTION 2.7 DISABILITY means a condition of total incapacity, mental
or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.8 EFFECTIVE DATE means July 11, 1996.
SECTION 2.9 ELIGIBLE DIRECTOR means a member of the Board who is not
also an employee or an officer of the Company.
SECTION 2.10 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
SECTION 2.11 EXERCISE PRICE means the price per Share at which Shares
subject to an Option may be purchased upon exercise of the Option, determined in
accordance with section 4.3.
SECTION 2.12 FAIR MARKET VALUE means, with respect to a Share on a
specified date:
(a) the final reported sales price on the date in question (or if there
is no reported sale on such date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated reporting
system with respect to securities listed or admitted to trading on the principal
United States securities exchange on which the Shares are listed or admitted to
trading; or
(b) if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date on the
National Association of Securities Dealers Automated Quotations System, or, if
no such quotation is provided, on another similar system, selected by the
Committee, then in use; or
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(c) if sections 2.12(a) and (b) are not applicable, the fair market
value of a Share as the Committee may determine.
SECTION 2.13 LIMITED STOCK APPRECIATION RIGHT means a right granted
pursuant to section 4.7.
SECTION 2.14 OPTION means a right to purchase Shares that is granted
pursuant to section 4.1.
SECTION 2.15 OPTION PERIOD means the period during which an Option may
be exercised, determined in accordance with section 4.4.
SECTION 2.16 PERSON means an individual, a corporation, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.17 PLAN means the 1996 Stock Option Plan for Outside
Directors of Tappan Zee Financial, Inc., as amended from time to time.
SECTION 2.18 QUALIFIED DOMESTIC RELATIONS ORDER means a Domestic
Relations Order that: (a) clearly specifies (i) the name and last known mailing
address of the Option holder and of each person given rights under such Domestic
Relations Order, (ii) the amount or percentages of the Option holder's benefits
under this Plan to be paid to each person covered by such Domestic Relations
Order, (iii) the number of payments or the period to which such Domestic
Relations Order applies, and (iv) the name of this Plan; and (b) does not
require the payment of a benefit in a form or amount that is (i) not otherwise
provided for under the Plan, or (ii) inconsistent with a previous Qualified
Domestic Relations Order. For the purposes of this Plan, a "Domestic Relations
Order" means a judgment, decree or order (including the approval of a property
settlement) that is made pursuant to a state domestic relations or community
property law and relates to the provision of child support, alimony payments, or
marital property rights to a spouse, child or other dependent of an Option
holder.
SECTION 2.19 SHARE means a share of Common Stock, par value $.01 per
share of Tappan Zee Financial, Inc.
ARTICLE III
ADMINISTRATION
SECTION 3.1 COMMITTEE.
The Plan shall be administered by a Committee which shall be the
Compensation Committee of Tappan Zee Financial, Inc.
SECTION 3.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
SECTION 3.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed from time to time by the Board, the Committee shall be
responsible for the overall management and administration of the Plan and shall
have such authority as shall be necessary or appropriate in order to carry out
its responsibilities, including, without limitation, the authority:
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(a) to interpret and construe the Plan, and to determine all questions
that may arise under the Plan as to eligibility for participation in the Plan,
the number of Shares subject to the Options to be granted, and the terms and
conditions thereof;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of
the Plan that it may deem necessary or appropriate.
ARTICLE IV
OPTION GRANTS
SECTION 4.1 AVAILABLE SHARES.
Subject to section 5.3, the maximum aggregate number of Shares with
respect to which Options may be granted at any time shall be equal to the excess
of:
(a) 48,600 Shares; over
(b) the sum of:
(i) the number of Shares with respect to which previously
granted Options may then or may in the future be exercised; plus
(ii) the number of Shares with respect to which previously
granted Options have been exercised.
For purposes of this section 4.1, an Option shall not be considered as having
been exercised to the extent that such Option terminates by reason other than
the purchase of the related Shares.
SECTION 4.2 OPTION GRANTS.
(a) On the Effective Date, each Person who is then an Eligible Director
shall be granted an Option to purchase Eight Thousand One Hundred (8,100)
Shares.
(b) Any Person who becomes an Eligible Director after the Effective
Date shall be granted, on the 15th day of the month following the month in which
such individual becomes an Eligible Director (or, if such date is not a business
day, the first business day thereafter), an Option to purchase Five Hundred
(500) Shares and, subject to sections 4.2(c) and 4.1, on January 1 of each
succeeding calendar year during which the Plan is in effect (or, if such date is
not a business day, the first business day thereafter) and provided that the
Eligible Director is still an Eligible Director on that date, an additional
Option to purchase Five Hundred (500) Shares. All Options granted under this
section 4.2(b) after October 5, 1996 shall not be subject to section 4.4(b) but
shall instead be exercisable immediately upon grant.
(c) Any Option granted under this section 4.2 shall be evidenced by a
written agreement which shall specify the number of Shares covered by the
Option, the Exercise Price for the Shares subject to the Option, the Option
Period, all as determined pursuant to this Article IV. The Option agreement
shall also set forth specifically or incorporate by reference the applicable
provisions of the Plan.
(d) Notwithstanding sections 4.2(a) and (b), in the event that, as of
the first business day of any calendar month, the number of available Shares
determined under section 4.1 is less than the total number of Shares with
respect to which Options would be granted under section 4.2(b) during such
month, each Eligible Director scheduled to receive a grant of Options during
such month shall be granted an Option for the number of whole Shares determined
by multiplying (i) the number of Shares with respect to which the Eligible
Director would have been granted an Option on such date by (ii) a fraction, the
numerator of which is the number of Shares that are then available under section
4.1 and the denominator of which is the total number of Shares that would have
to have been available under section 4.1 in order to grant all of the Options
that would otherwise have been granted under section 4.2(b) during such month,
and rounding to the nearest whole Share; provided, however, if rounding
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will require more Shares to be available than provided in section 4.1, then the
amount determined pursuant to this section 4.2(c) will be calculated by rounding
down to the lesser whole number.
SECTION 4.3 EXERCISE PRICE.
The price per Share at which an Option granted to an Eligible Director
under section 4.2 may be exercised shall be the Fair Market Value of a Share on
the date on which the Option is granted.
SECTION 4.4 OPTION PERIOD.
(a) Subject to section 4.4(b), the Option Period during which an Option
granted to an Eligible Director under section 4.2 may be exercised shall
commence on the date the Option is granted and shall expire on the earlier of:
(i) removal for cause in accordance with the Company's bylaws; or
(ii) the last day of the ten-year period commencing on the date on
which the Option was granted.
(b) During the Option Period, the maximum number Shares as to which an
outstanding Option may be exercised shall be as follows:
(i) prior to the first anniversary of the date on which the Option is
granted, the Option shall not be exercisable;
(ii) on and after the first anniversary, but prior to the second
anniversary, of the date on which the Option is granted, the Option may be
exercised as to a maximum of One Thousand Six Hundred and Twenty (1,620) Shares;
(iii) on and after the second anniversary, but prior to the third
anniversary, of the date on which the Option is granted, the Option may be
exercised as to a maximum of Three Thousand Two Hundred and Forty (3,240)
Shares, including in such number any optioned Shares purchased prior to such
second anniversary;
(iv) on and after the third anniversary, but prior to the fourth
anniversary, of the date on which the Option is granted, the Option may be
exercised as to a maximum of Four Thousand Eight Hundred and Sixty (4,860)
Shares, including in such number any optioned Shares purchased prior to such
third anniversary;
(v) on and after the fourth anniversary, but prior to the fifth
anniversary, of the date on which the Option is granted, the Option may be
exercised as to a maximum of Six Thousand Four Hundred and Eighty (6,480)
Shares, including in such number any optioned Shares purchased prior to such
fourth anniversary; and
(vi) on and after the fifth anniversary of the date on which the Option
is granted and for the remainder of the Option Period, the Option may be
exercised as to the entire number of optioned Shares not theretofore purchased;
provided, however, that such an Option shall become fully exercisable, and all
optioned Shares not previously purchased shall become available for purchase, on
the date of the Option holder's death or Disability.
SECTION 4.5 METHOD OF EXERCISE.
(a) Subject to the limitations of the Plan and the Option agreement, an
Option holder may, at any time during the Option Period, exercise his right to
purchase all or any part of the Shares to which the Option relates; provided,
however, that the minimum number of Shares which may be purchased at any time
shall be 100, or, if less, the total number of Shares relating to the Option
which remain unpurchased. An Option holder shall exercise an Option to purchase
Shares by:
(i) giving written notice to the Committee, in such form and manner as
the Committee may prescribe, of his intent to exercise the Option;
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(ii) delivering to the Committee full payment, consistent with section
4.5(b), for the Shares as to which the Option is to be exercised; and
(iii) satisfying such other conditions as may be prescribed in the
Option agreement.
(b) The Exercise Price of Shares to be purchased upon exercise of any
Option shall be paid in full in cash (by certified or bank check or such other
instrument as the Company may accept) or, with the approval of the Committee, by
one or more of the following: (i) in the form of Shares already owned
beneficially for a period of more than six months by the Option holder having an
aggregate Fair Market Value on the date the Option is exercised equal to the
aggregate Exercise Price to be paid; (ii) after a period of six months from the
date of grant of any such Option, by requesting the Company to cancel without
payment Options outstanding to such Person for that number of Shares whose
aggregate Fair Market Value on the date of exercise, when reduced by their
aggregate Exercise Price, equals the aggregate Exercise Price of the Options
being exercised; or (iii) by a combination thereof; provided, however, that an
election under section 4.5(b)(ii) or (iii) shall be subject to the conditions
and limitations of Rule 16b-3(e) promulgated under the Exchange Act. Payment
for any Shares to be purchased upon exercise of an Option may also be made by
delivering a properly executed exercise notice to the Company, together with a
copy of irrevocable instructions to a broker to deliver promptly to the Company
the amount of sale or loan proceeds to pay the purchase price. To facilitate the
foregoing, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
(c) When the requirements of section 4.5(a) and (b) have been
satisfied, the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership of such
Shares. The Person exercising the Option shall have no right to vote or to
receive dividends, nor have any other rights with respect to the Shares, prior
to the date as of which such Shares are transferred to such Person on the stock
transfer records of the Company, and no adjustments shall be made for any
dividends or other rights for which the record date is prior to the date as of
which such transfer is effected, except as may be required under section 5.3.
SECTION 4.6 LIMITATIONS ON OPTIONS.
(a) An Option by its terms shall not be transferable by the Option
holder other than by will or by the laws of descent and distribution, or
pursuant to the terms of a Qualified Domestic Relations Order, and shall be
exercisable, during the lifetime of the Option holder, only by the Option holder
or an alternate payee designated pursuant to such a Qualified Domestic Relations
Order.
(b) The Company's obligation to deliver Shares with respect to an
Option shall, if the Company so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Person to whom such Shares
are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of applicable federal,
state or local law. It may be provided that any such representation shall become
inoperative upon a registration of the Shares or upon the occurrence of any
other event eliminating the necessity of such representation. The Company shall
not be required to deliver any Shares under the Plan prior to (i) the admission
of such Shares to listing on any stock exchange on which Shares may then be
listed, or (ii) the completion of such registration or other qualification under
any state or federal law, rule or regulation as the Company shall determine to
be necessary or advisable.
SECTION 4.7 LIMITED STOCK APPRECIATION RIGHTS.
(a) Each Option granted under this Plan shall be accompanied by a
Limited Stock Appreciation Right that is exercisable at the times and upon the
terms and conditions set forth herein. Each Limited Stock Appreciation Right
granted hereunder shall be exercisable for a period commencing on the date on
which a Change in Control of the Company occurs and ending six (6) months after
such date or, if later in the case of any Person, thirty (30) days after the
earliest date on which such Person may exercise the Limited Stock Appreciation
Right without subjecting himself to liability under section 16 of the Securities
Exchange Act of 1934, as amended. A Person in possession of a Limited Stock
Appreciation Right granted hereunder may exercise such Limited Stock
Appreciation Right by:
(i) giving written notice to the Committee, in such form and manner as
the Committee may prescribe, of his intent to exercise the Limited Stock
Appreciation Right; and
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(ii) agreeing in such written notice to the cancellation of Options
then outstanding to him for a number of Shares equal to the number of Shares for
which the Limited Stock Appreciation Right is being exercised.
Except as provided in section 4.9(c), within ten (10) days after the giving of
such a notice, the Committee shall cause the Company to deliver to such Person a
monetary payment in an amount per Share equal to the amount by which the Change
in Control Consideration exceeds the Exercise Price per Share of each of the
Options being cancelled.
(b) For purposes of section 4.9(a), the term Change in Control
Consideration shall mean the greater of (i) the highest price per Share paid by
any Person who initiated or sought to effect the Change in Control for a Share
during the period of one (1) year ending on the date of the relevant Change in
Control of the Company; and (ii) the average Fair Market Value of a Share over
the last ten (10) trading days preceding the date of exercise of the Limited
Stock Appreciation Right.
(c) Notwithstanding anything herein contained to the contrary, the
Limited Stock Appreciation Rights granted hereunder shall be cancelled at the
effective time of a Change in Control of the Company resulting from a
transaction between the Company and another party pursuant to a written
agreement whereby the consummation of the transaction is conditioned upon the
delivery to each Option holder, upon the closing of such transaction and in
exchange for the cancellation of all of such Option holder's outstanding
Options, of a monetary payment or property with a value equivalent to the value
of the Options being cancelled.
ARTICLE V
AMENDMENT AND TERMINATION
SECTION 5.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in part at any
time prior to the tenth anniversary of the Effective Date by giving written
notice of such suspension or termination to the Committee. Unless sooner
terminated, the Plan shall terminate automatically on the day preceding the
tenth anniversary of the Effective Date. In the event of any suspension or
termination of the Plan, all Options theretofore granted under the Plan that are
outstanding on the date of such suspension or termination of the Plan shall
remain outstanding under the terms of the Option agreements evidencing such
Options.
SECTION 5.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at any time;
provided, however, that if the amendment or revision:
(a) materially increases the benefits accruing under the Plan;
(b) materially increases the number of Shares which may be issued under
the Plan; or
(c) materially modifies the requirements as to eligibility for Options
under the Plan;
such amendment or revision shall be subject to approval by the shareholders of
the Company; and provided, further, that (i) sections 4.1, 4.2, 4.3 and 4.4
shall not be amended more frequently than once in any period of six (6) months
and (ii) no amendment required to comply with or conform to any condition
imposed under section 162(m) of the Code on federal income tax deductions
allowable to the Company in respect of the Plan shall require such approval or
be subject to such limitations.
SECTION 5.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS REORGANIZATION.
(a) In the event of any merger, consolidation, or other business
reorganization in which the Company is the surviving entity, and in the event of
any stock split, stock dividend or other event generally affecting the number of
Shares held by each Person who is then a holder of record of Shares, the number
of Shares covered by each outstanding Option and the number of Shares available
pursuant to section 4.1 shall be adjusted to account for such event. Such
adjustment shall be effected by multiplying such number of Shares by an amount
equal to the number of Shares that would be owned after such event by a Person
who, immediately prior to such event, was the holder of record of one Share, and
the Exercise Price of the Options shall be adjusted by dividing the Exercise
Price
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by such number of Shares; provided, however, that the Committee may, in its
discretion, establish another appropriate method of adjustment.
(b) In the event of any merger, consolidation, or other business
reorganization in which the Company is not the surviving entity, any Options
granted under the Plan which remain outstanding may be cancelled as of the
effective date of such merger, consolidation, business reorganization,
liquidation or sale by the Board upon 30 days' written notice to the Option
holder; provided, however, that on or as soon as practicable following the date
of cancellation, each Option holder shall receive a monetary payment in such
amount, or other property of such kind and value, as the Board determines in
good faith to be equivalent in value to the Options that have been cancelled.
(c) In the event that the Company shall declare and pay any dividend
with respect to Shares (other than a dividend payable in Shares) which results
in a nontaxable return of capital to the holders of Shares for federal income
tax purposes or otherwise than by dividend makes distribution of property to the
holders of its Shares, the Company shall make an equivalent payment to each
Person holding an outstanding Option as of the record date for such dividend.
Such payment shall be made at substantially the same time, in substantially the
same form and in substantially the same amount per optioned Share as the
dividend or other distribution paid with respect to outstanding Shares;
provided, however, that if any dividend or distribution on outstanding Shares is
paid in property than cash, the Company, in its discretion applied uniformly to
all outstanding Options, may make such payment in a cash amount per optioned
Share equal in fair market value to the fair market value of the non-cash
dividend or distribution.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for qualification
under section 401(a) of the Code or to satisfy the definitional requirements for
an "employee benefit plan" under section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended. It is intended to be a non-qualified incentive
compensation program for self-employed individuals that is exempt from the
regulatory requirements of the Employee Retirement Income Security Act of 1974,
as amended. The Plan shall be construed and administered so as to effectuate
this intent.
SECTION 6.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of the Plan
nor any action of the Board or the Committee with respect to the Plan shall be
held or construed to confer upon any Eligible Director any right to a
continuation of his position as a director of the Company. The Company reserves
the right to remove any Eligible Director or otherwise deal with any Eligible
Director to the same extent as though the Plan had not been adopted.
SECTION 6.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 6.4 GOVERNING LAW.
The Plan shall be construed, administered and enforced according to the
laws of the State of New York without giving effect to the conflict of laws
principles thereof, except to the extent that such laws are preempted by federal
law.
SECTION 6.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
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SECTION 6.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities, engagements or torts,
except to the extent provided in a Qualified Domestic Relations Order.
SECTION 6.7 TAXES.
The Company shall have the right to deduct from all amounts paid by the
Company in cash with respect to an Option under the Plan any taxes required by
law to be withheld with respect to such Option. Where any Person is entitled to
receive Shares pursuant to the exercise of an Option, the Company shall have the
right to require such Person to pay the Company the amount of any tax which the
Company is required to withhold with respect to such Shares, or, in lieu
thereof, to retain, or to sell without notice, a sufficient number of Shares to
cover the amount required to be withheld.
SECTION 6.8 APPROVAL OF SHAREHOLDERS.
The Plan and all Options and Limited Stock Appreciation Rights granted
hereunder shall be conditioned on the approval of the Plan by the holders of a
majority of the Shares of Tappan Zee Financial, Inc. entitled to vote at an
annual or special meeting of the holders of Shares held no earlier than April 5,
1996. No Option or Limited Stock Appreciation Rights under the Plan shall be
granted, nor shall any such Option or Limited Stock Appreciation Right be
exercised or any Shares issued or purchased, prior to such approval.
SECTION 6.9 NOTICES.
Any communication required or permitted to be given under the Plan,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is delivered personally or five (5) days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other party:
(a) If to the Compensation Committee:
Tappan Zee Financial, Inc.
75 North Broadway
P.O. Box 187
Tarrytown, New York 10591
Attention: Corporate Secretary
(b) If to an Option holder, to the Option holder's address as shown in
the Company's records.
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EXHIBIT C
RECOGNITION AND RETENTION PLAN FOR OFFICERS OF TAPPAN ZEE FINANCIAL, INC.
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and profitability of
Tappan Zee Financial, Inc. and to provide certain key officers and employees of
Tappan Zee Financial, Inc. with an incentive to achieve corporate objectives, to
attract and retain key officers and employees of outstanding competence and to
provide such officers and employees with an equity interest in Tappan Zee
Financial, Inc.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
SECTION 2.1 AWARD means a grant of Shares to an Eligible Employee
pursuant to section 5.1.
SECTION 2.2 AWARD DATE means, with respect to a particular Award, the
date specified by the Committee in the notice of the Award issued to the
Eligible Employee by the Committee, pursuant to section 5.1.
SECTION 2.3 BANK means Tarrytowns Bank, FSB, a federally chartered
stock savings bank, and any successor thereto.
SECTION 2.4 BENEFICIARY means the Person designated by an Eligible
Employee pursuant to section 6.2, to receive distribution of any Shares
available for distribution to such Eligible Employee, in the event such Eligible
Employee dies prior to receiving distribution of such Shares.
SECTION 2.5 BOARD means the Board of Directors of Tappan Zee Financial,
Inc.
SECTION 2.6 CHANGE OF CONTROL means any of the following events:
(a) approval by the stockholders of Tappan Zee Financial, Inc. of a
transaction that would result in the reorganization, merger or consolidation of
Tappan Zee Financial, Inc. with one or more other persons, other than a
transaction following which:
(i) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in
Tappan Zee Financial, Inc.; and
(ii) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of Tappan Zee Financial,
Inc.;
(b) the acquisition of all or substantially all of the assets of Tappan
Zee Financial, Inc. or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding securities
of Tappan Zee Financial, Inc. entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or approval by the
stockholders of Tappan Zee Financial, Inc. of any transaction which would result
in such an acquisition;
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(c) a complete liquidation or dissolution of Tappan Zee Financial,
Inc., or approval by the stockholders of Tappan Zee Financial, Inc. of a plan
for such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of Tappan Zee Financial,
Inc. do not belong to any of the following groups:
(i) individuals who were members of the Board of Directors of
Tappan Zee Financial, Inc. on the Effective Date of this Plan; or
(ii) individuals who first became members of the Board of
Directors of Tappan Zee Financial, Inc. after the Effective Date of this Plan
either:
(A) upon election to serve as a member of the Board
of Directors of Tappan Zee Financial, Inc. by affirmative vote of three-quarters
of the members of such Board, or of a nominating committee thereof, in office at
the time of such first election; or
(B) upon election by the stockholders of Tappan Zee
Financial, Inc. to serve as a member of the Board of Tappan Zee Financial, Inc.,
but only if nominated for election by affirmative vote of three-quarters of the
members of the Board of Directors of Tappan Zee Financial, Inc., or of a
nominating committee thereof, in office at the time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by
or on behalf of the Board of Tappan Zee Financial, Inc.; or
(e) any event which would be described in section 2.6(a), (b), (c) or
(d) if the term "Bank" were substituted for the term "Tappan Zee Financial,
Inc." therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of Tappan Zee Financial, Inc.,
the Bank, or a subsidiary of either of them, by Tappan Zee Financial, Inc., the
Bank, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 2.6, the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
SECTION 2.7 CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
SECTION 2.8 COMMITTEE means the Committee described in section 3.1.
SECTION 2.9 COMPANY means Tappan Zee Financial, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto, the Bank and any successor thereto and, with the prior
approval of the Board, and subject to such terms and conditions as may be
imposed by the Board, any other savings bank, savings and loan association,
bank, corporation, financial institution or other business organization or
institution.
SECTION 2.10 DISABILITY means a condition of total incapacity, mental
or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.11 DISINTERESTED BOARD MEMBER means a member of the Board who
(a) is not a current employee of the Company, (b) is not a former employee of
the Company who receives compensation for prior services (other than benefits
under a tax-qualified retirement plan) during the taxable year, (c) has not been
an officer of the Company, (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a director and (d)
is not currently and for a period of at least one year has not been eligible for
discretionary awards under any stock compensation plan of the Company. The term
Disinterested Board Member shall be interpreted in such manner as shall be
necessary to conform to the requirements of section 162(m) of the Code and Rule
16b-3 promulgated under the Exchange Act.
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SECTION 2.12 EFFECTIVE DATE means July 11, 1996.
SECTION 2.13 ELIGIBLE EMPLOYEE means any employee whom the Committee
may determine to be a key officer or employee of the Company and select to
receive an Award pursuant to the Plan.
SECTION 2.14 EXCHANGE ACT means the Security and Exchange Commission
Exchange Act of 1934.
SECTION 2.15 PERSON means an individual, a corporation, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.16 PLAN means the Recognition and Retention Plan for Officers
of Tappan Zee Financial, Inc, as amended from time to time.
SECTION 2.17 QUALIFIED DOMESTIC RELATIONS ORDER means a Domestic
Relations Order that: (a) clearly specifies (i) the name and last known mailing
address of the Award holder and of each person given rights under such Domestic
Relations Order, (ii) the amount or percentages of the Award holder's benefits
under this Plan to be paid to each person covered by such Domestic Relations
Order, (iii) the number of payments or the period to which such Domestic
Relations Order applies, and (iv) the name of this Plan; and (b) does not
require the payment of a benefit in a form or amount that is (i) not otherwise
provided for under the Plan, or (ii) inconsistent with a previous Qualified
Domestic Relations Order. For the purposes of this Plan, a "Domestic Relations
Order" means a judgment, decree or order (including the approval of a property
settlement) that is made pursuant to a state domestic relations or community
property law and relates to the provision of child support, alimony payments, or
marital property rights to a spouse, child or other dependent of an Award
holder.
SECTION 2.18 SHARE means a share of common stock of Tappan Zee
Financial, Inc., par value $.01 per share.
SECTION 2.19 TERMINATION FOR CAUSE means termination of employment with
the Company upon the occurrence of any of the following: (A) the employee
intentionally engages in dishonest conduct in connection with his performance of
services for the Company resulting in his conviction of a felony; (B) the
employee is convicted of, or pleads guilty or nolo contendere to, a felony or
any crime involving moral turpitude; (C) the employee willfully fails or refuses
to perform his duties under any employment or retention agreement and fails to
cure such breach within sixty (60) days following written notice thereof from
the Company; (D) the employee breaches his fiduciary duties to the Company for
personal profit; or (E) the employee's willful breach or violation of any law,
rule or regulation (other than traffic violations or similar offenses), or final
cease and desist order in connection with his performance of services for the
Company.
SECTION 2.20 TRUST means the legal relationship created by the Trust
Agreement pursuant to which the Trustee holds the Trust Fund in trust. The Trust
may be referred to as the "Restricted Stock Plan Trust of Tappan Zee Financial,
Inc."
SECTION 2.21 TRUST AGREEMENT means the agreement between Tappan Zee
Financial, Inc. and the Trustee therein named or its successor pursuant to which
the Trust Fund shall be held in trust.
SECTION 2.22 TRUST FUND means the corpus (consisting of contributions
paid over to the Trustee, and investments thereof), and all earnings,
appreciations or additions thereof and thereto, held by the Trustee under the
Trust Agreement in accordance with the Plan, less any depreciation thereof and
any payments made therefrom pursuant to the Plan.
SECTION 2.23 TRUSTEE means the Trustee of the Trust Fund from time to
time in office. The Trustee shall serve as Trustee until it is removed or
resigns from office and is replaced by a successor Trustee or Trustees appointed
by Tappan Zee Financial, Inc.
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ARTICLE III
ADMINISTRATION
SECTION 3.1 COMMITTEE.
The Plan shall be administered by a Committee consisting of the members
of the Compensation Committee of Tappan Zee Financial, Inc. who are
Disinterested Board Members. If fewer than three members of the Compensation
Committee are Disinterested Board Members, then the Board shall appoint to the
Committee such additional Disinterested Board Members as shall be necessary to
provide for a Committee consisting of at least three Disinterested Board
Members.
SECTION 3.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
SECTION 3.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed by the Board, the Committee shall be responsible for the overall
management and administration of the Plan and shall have such authority as shall
be necessary or appropriate in order to carry out its responsibilities,
including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all questions
that may arise under the Plan as to eligibility for Awards under the Plan, the
amount of Shares, if any, to be granted pursuant to an Award, and the terms and
conditions of such Award;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of
the Plan that it may deem necessary or appropriate.
ARTICLE IV
THE TRUST FUND
SECTION 4.1 CONTRIBUTIONS.
Tappan Zee Financial, Inc. shall contribute, or cause to be
contributed, to the Trust, from time to time, such amounts of money or property
as shall be determined by the Board, in its discretion. No contributions by
Eligible Employees shall be permitted.
SECTION 4.2 THE TRUST FUND.
The Trust Fund shall be held and invested under the Trust Agreement
with the Trustee. The provisions of the Trust Agreement shall include provisions
conferring powers on the Trustee as to investment, control and disbursement of
the Trust Fund, and such other provisions not inconsistent with the Plan as may
be prescribed by or under the authority of the Board. No bond or security shall
be required of any Trustee at any time in office.
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SECTION 4.3 INVESTMENTS.
The Trustee shall invest the Trust Fund in Shares and in such other
investments as may be permitted under the Trust Agreement, including savings
accounts, time or other interest bearing deposits in or other interest bearing
obligations of the Company, in such proportions as shall be determined by the
Committee; provided, however, that in no event shall the Trust Fund be used to
purchase more than Forty-Five Thousand Three Hundred and Sixty (45,360) Shares.
Notwithstanding the immediately preceding sentence, the Trustee may temporarily
invest the Trust Fund in short-term obligations of, or guaranteed by, the U.S.
Government or an agency thereof, or the Trustee may retain the Trust Fund
uninvested or may sell assets of the Trust Fund to provide amounts required for
purposes of the Plan.
ARTICLE V
AWARDS
SECTION 5.1 IN GENERAL.
Subject to the limitations of section 5.7, the Committee may, in its
discretion, make an Award of Shares held in the Trust Fund to an Eligible
Employee. Any such Award shall be evidenced by a written notice issued by the
Committee to the Eligible Employee, which notice shall:
(a) specify the number of Shares covered by the Award;
(b) specify the Award Date;
(c) specify the dates on which such Shares shall become available for
distribution to the Eligible Employee, in accordance with section 6.1; and
(d) contain such other terms and conditions not inconsistent with the
Plan as the Board may, in its discretion, prescribe.
SECTION 5.2 SIZE OF AWARD.
Subject to section 5.7 and such limitations as the Board may from time
to time impose, the number of Shares as to which an Eligible Employee may be
granted an Award shall be determined by the Committee in its discretion;
provided however, that in no event shall the number of Shares allocated to an
Eligible Employee in an Award exceed the number of Shares then held in the Trust
and not allocated in connection with other Awards.
SECTION 5.3 SHARE ALLOCATIONS.
Upon the grant of an Award to an Eligible Employee, the Committee shall
notify the Trustee of the Award and of the number of Shares subject to the
Award. Thereafter, until such time as the Shares subject to such Award become
vested or are forfeited, the books and records of the Trustee shall reflect that
such number of Shares are being held for the benefit of the Award recipient.
SECTION 5.4 DIVIDEND RIGHTS.
(a) Any cash dividends or distributions declared and paid with respect
to Shares in the Trust Fund that are, as of the record date for such dividend,
allocated to an Eligible Employee in connection with an Award shall be promptly
paid to such Eligible Employee. Any cash dividends declared and paid with
respect to Shares that are not, as of the record date for such dividend,
allocated in connection with any Award shall, at the direction of the Committee,
be held in the Trust or used to pay the administrative expenses of the Plan,
including any compensation due to the Trustee.
(b) Any dividends or distributions declared and paid with respect to
Shares in property other than cash shall be held in the Trust Fund. If, as of
the record date for such dividend or distribution, the Shares with respect to
which it is paid are allocated to an Eligible Employee in connection with an
Award, the property so distributed shall be similarly allocated such Eligible
Employee in connection with such Award and shall be held for distribution or
forfeiture in accordance with the terms and conditions of the Award.
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SECTION 5.5 VOTING RIGHTS.
(a) Each Eligible Employee to whom an Award has been made that is not
fully vested shall have the right to direct the manner in which all voting
rights appurtenant to the Shares related to such Award will be exercised while
such Shares are held in the Trust Fund. Such a direction shall be given by
completing and filing, with the inspector of elections, the Trustee or such
other person who shall be independent of the Company as the Committee shall
designate in the direction, a written direction in the form and manner
prescribed by the Committee. If no such direction is given by an Eligible
Employee, then the voting rights appurtenant to the Shares allocated to him
shall not be exercised.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all voting rights appurtenant to such
Shares shall be exercised by the Trustee in such manner as the Committee shall
direct to reflect the voting directions given by Eligible Employees with respect
to Shares allocated in connection with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to each
Eligible Employee, all annual reports, proxy materials and other information
furnished by Tappan Zee Financial, Inc., or by any proxy solicitor, to the
holders of Shares.
SECTION 5.6 TENDER OFFERS.
(a) Each Eligible Employee to whom an Award has been made that is not
fully vested shall have the right to direct, with respect to the Shares related
to such Award, the manner of response to any tender offer, exchange offer or
other offer made to the holders of Shares. Such a direction shall be given by
completing and filing, with the inspector of elections, the Trustee or such
other person who shall be independent of the Company as the Committee shall
designate in the direction, a written direction in the form and manner
prescribed by the Committee. If no such direction is given by an Eligible
Employee, then the Shares shall not be tendered or exchanged.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all responses to tender, exchange and
other offers appurtenant to such Shares shall be given by the Trustee in such
manner as the Committee shall direct to reflect the responses given by Eligible
Employees with respect to Shares allocated in connection with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to each
Eligible Employee, all information furnished by the offeror to the holders of
Shares.
SECTION 5.7 LIMITATIONS ON AWARDS.
(a) Notwithstanding anything in the Plan to the contrary:
(i) No Award shall be granted under the Plan prior to the date on which
the Plan is approved by the holders of a majority of the Shares of outstanding
on such date and eligible to vote upon the proposal to approve the Plan;
(ii) At any time prior to October 5, 1996, no individual may be granted
Awards covering in excess of Sixteen Thousand Two Hundred (16,200) Shares;
(iii) each Award granted prior to October 5, 1996 shall become vested
and distributable as follows:
(A) prior to the first anniversary of the date on which the
Award is granted, the Award shall not be exercisable;
(B) on the first anniversary of the date on which the Award is
granted, the Award will be vested as to twenty percent (20%) of the Shares
subject to the Award when granted;
(C) on the second anniversary of the date on which the Award
is granted, the Award will be vested as to an additional twenty percent (20%) of
the Shares subject to the Award when granted;
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(D) on the third anniversary of the date on which the Award is
granted, the Award will be vested as to an additional twenty percent (20%) of
the Shares subject to the Award when granted;
(E) on the fourth anniversary of the date on which the Award
is granted, the Award will be vested as to an additional twenty percent (20%) of
the Shares subject to the Award when granted; and
(F) on the fifth anniversary of the date on which the Award is
granted, the Award will be vested as to an additional twenty percent (20%) of
the Shares subject to the Award when granted;
provided, however, that such an Award shall become fully vested on the
date of the Award holder's death or Disability.
(b) An Award by its terms shall not be transferable by the Eligible
Employee other than by will or by the laws of descent and distribution, and the
Shares granted pursuant to such Award shall be distributable, during the
lifetime of the Recipient, only to the Recipient, except to the extent provided
otherwise pursuant to the terms of a Qualified Domestic Relations Order.
ARTICLE VI
VESTING AND DISTRIBUTION OF SHARES
SECTION 6.1 VESTING OF SHARES.
Subject to the terms and conditions of the Plan, each Award made under
the Plan shall become vested at the times and upon the conditions specified by
the Committee in the Award notice; provided, however, that an Award shall become
fully vested on the date of the Award holder's death or Disability.
SECTION 6.2 DESIGNATION OF BENEFICIARY.
An Eligible Employee who has received an Award may designate a
Beneficiary to receive any undistributed Shares that are, or become, available
for distribution on, or after, the date of his death. Such designation (and any
change or revocation of such designation) shall be made in writing in the form
and manner prescribed by the Committee. In the event that the Beneficiary
designated by an Eligible Employee dies prior to the Eligible Employee, or in
the event that no Beneficiary has been designated, any undistributed Shares that
are, or become, available for distribution on, or after, the Eligible Employee's
death shall be paid to the executor or administrator of the Eligible Employee's
estate, or if no such executor or administrator is appointed within such time as
the Committee, in its sole discretion, shall deem reasonable, to such one or
more of the spouse and descendants and blood relatives of such deceased person
as the Committee may select.
SECTION 6.3 MANNER OF DISTRIBUTION.
(a) As soon as practicable following the date any Shares granted
pursuant to an Award become vested pursuant to section 6.1, the Committee shall
take such actions as are necessary to cause the transfer of record ownership of
the Shares that have become vested from the Trustee to the Award holder and
shall cause the Trustee to distribute to the Award holder all property other
than Shares then being held in connection with the Shares being distributed.
(b) The Company's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Eligible Employee or
Beneficiary to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of applicable federal, state or local law. It may be provided that
any such representation shall become inoperative upon a registration of the
Shares or upon the occurrence of any other event eliminating the necessity of
such representation. The Company shall not be required to deliver any Shares
under the Plan prior to (i) the admission of such Shares to listing on any stock
exchange on which Shares may then be listed, or (ii) the completion of such
registration or other qualification under any state or federal law, rule or
regulation as the Committee shall determine to be necessary or advisable.
SECTION 6.4 TAXES.
The Company, the Committee or the Trustee shall have the right to
require any person entitled to receive Shares pursuant to an Award to pay the
amount of any tax which is required to be withheld with respect
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to such Shares, or, in lieu thereof, to retain, or to sell without notice, a
sufficient number of Shares to cover the amount required to be withheld.
ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in
part at any time by giving written notice of such suspension or termination to
the Committee; provided, however, that the Plan may not be terminated while
there are outstanding Awards that may thereafter become vested. Upon the
termination of the Plan, the Trustee shall make distributions from the Trust
Fund in such amounts and to such persons as the Committee may direct and shall
return the remaining assets of the Trust Fund, if any, to Tappan Zee Financial,
Inc.
SECTION 7.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at
any time; provided, however, that if the amendment or revision:
(a) materially increases the benefits or Awards which may be
granted under the Plan;
(b) materially increases the number of Shares which may be
issued under the Plan; or
(c) materially modifies the requirements as to eligibility to
receive Awards under the Plan;
such amendment or revision shall be subject to approval by the shareholders of
the Company.
SECTION 7.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS
REORGANIZATION.
(a) In the event of any merger, consolidation, or other
business reorganization (including but not limited to a Change of Control) in
which Tappan Zee Financial, Inc. is the surviving entity, and in the event of
any stock split, stock dividend or other event generally affecting the number of
Shares held by each person who is then a holder of record of Shares, the number
of Shares held in the Trust Fund, including Shares covered by Awards, shall be
adjusted to account for such event. Such adjustment shall be effected by
multiplying such number of Shares by an amount equal to the number of Shares
that would be owned after such event by a person who, immediately prior to such
event, was the holder of record of one Share; provided, however, that the
Committee may, in its discretion, establish another appropriate method of
adjustment.
(b) In the event of any merger, consolidation, or other
business reorganization (including but not limited to a Change of Control) in
which Tappan Zee Financial, Inc. is not the surviving entity, the Trustee shall
hold in the Trust Fund any money, stock, securities or other property received
by holders of record of Shares in connection with such merger, consolidation, or
other business reorganization. Any Award with respect to which Shares had been
allocated to an Eligible Employee shall be adjusted by allocating to the
Eligible Employee receiving such Award the amount of money, stock, securities or
other property received by the Trustee for the Shares allocated to such Eligible
Employee.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for
qualification under section 401(a) of the Code or to satisfy the definitional
requirements for an "employee benefit plan" under section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended. It is intended to be a
non-qualified incentive compensation program that is exempt from the regulatory
requirements of the Employee Retirement Income Security Act of 1974, as amended.
The Plan shall be construed and administered so as to effectuate this intent.
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SECTION 8.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of
the Plan nor any action of the Board or the Committee with respect to the Plan
shall be held or construed to confer upon any Eligible Employee any right to a
continuation of employment by the Company. The Company reserves the right to
dismiss any Eligible Employee or otherwise deal with any Eligible Employee to
the same extent as though the Plan had not been adopted.
SECTION 8.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular
may be read in the plural, words used in the plural may be read in the singular,
and words importing the masculine gender may read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 8.4 GOVERNING LAW.
The Plan shall be construed and enforced in accordance with
the laws of the State of New York without giving effect to the conflict of laws
principles thereof, except to the extent that such laws are preempted by the
federal laws of the United States of America.
SECTION 8.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 8.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be
subject in any manner to anticipation, alienation or assignment, nor shall such
right be liable for or subject to debts, contracts, liabilities, engagements or
torts, except to the extent provided in a Qualified Domestic Relations Order.
SECTION 8.7 NOTICES.
Any communication required or permitted to be given under the
Plan, including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been given
at such time as it is personally delivered or 5 days after mailing if mailed,
postage prepaid, by registered or certified mail, return receipt requested,
addressed to such party at the address listed below, or at such other address as
one such party may by written notice specify to the other:
(a) If to the Stock Compensation Committee:
Tappan Zee Financial, Inc.
75 North Broadway
P.O. Box 187
Tarrytown, New York 10591
Attention: Corporate Secretary
(b) If to an Eligible Employee, to the Eligible Employee's
address as shown in the Company's personnel records.
SECTION 8.8 APPROVAL OF SHAREHOLDERS.
The Plan and all Awards granted hereunder shall be conditioned
on the approval of the Plan by the holders of a majority of the Shares of Tappan
Zee Financial, Inc. entitled to vote at an annual or special meeting of the
holders of Shares held no earlier than April 5, 1996. No Award under the Plan
shall be granted, nor shall any Shares be purchased or distributed, prior to
such approval.
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EXHIBIT D
RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS OF
TAPPAN ZEE FINANCIAL, INC.
ARTICLE I
PURPOSE
SECTION 1.1 GENERAL PURPOSE OF THE PLAN.
The purpose of the Plan is to promote the growth and profitability of
Tappan Zee Financial, Inc. and to provide Eligible Directors of Tappan Zee
Financial, Inc. with an incentive to achieve corporate objectives, to attract
and retain directors of outstanding competence and to provide such directors
with an equity interest in Tappan Zee Financial, Inc.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
SECTION 2.1 AWARD means a grant of Shares to an Eligible Director
pursuant to section 5.1.
SECTION 2.2 AWARD DATE means, with respect to a particular Award, the
date specified by the Committee in the notice of the Award issued to the
Eligible Director by the Committee, pursuant to section 5.1.
SECTION 2.3 BANK means Tarrytowns Bank, FSB, a federally chartered
stock savings bank, and any successor thereto.
SECTION 2.4 BENEFICIARY means the Person designated by an Eligible
[Director] pursuant to section 6.2, to receive distribution of any Shares
available for distribution to such Eligible Director, in the event such Eligible
Director dies prior to receiving distribution of such Shares.
SECTION 2.5 BOARD means the Board of Directors of Tappan Zee Financial,
Inc.
SECTION 2.6 CHANGE OF CONTROL means any of the following events:
(a) approval by the stockholders of Tappan Zee Financial, Inc. of a
transaction that would result in the reorganization, merger or consolidation of
Tappan Zee Financial, Inc. with one or more other persons, other than a
transaction following which:
(i) at least 51% of the equity ownership interests of the
entity resulting from such transaction are beneficially owned (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) in substantially the
same relative proportions by persons who, immediately prior to such transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) at least 51% of the outstanding equity ownership interests in
Tappan Zee Financial, Inc.; and
(ii) at least 51% of the securities entitled to vote generally
in the election of directors of the entity resulting from such transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) at least 51% of the securities
entitled to vote generally in the election of directors of Tappan Zee Financial,
Inc.;
(b) the acquisition of all or substantially all of the assets of Tappan
Zee Financial, Inc. or beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the outstanding securities
of Tappan Zee Financial, Inc. entitled to vote generally in the election of
directors by any person or by any persons acting in concert, or approval by the
stockholders of Tappan Zee Financial, Inc. of any transaction which would result
in such an acquisition;
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(c) a complete liquidation or dissolution of Tappan Zee Financial,
Inc., or approval by the stockholders of Tappan Zee Financial, Inc. of a plan
for such liquidation or dissolution;
(d) the occurrence of any event if, immediately following such event,
at least 50% of the members of the Board of Directors of Tappan Zee Financial,
Inc. do not belong to any of the following groups:
(i) individuals who were members of the Board of Directors of
Tappan Zee Financial, Inc. on the Effective Date of this Plan; or
(ii) individuals who first became members of the Board of
Directors of Tappan Zee Financial, Inc. after the Effective Date of this Plan
either:
(A) upon election to serve as a member of the Board
of Directors of Tappan Zee Financial, Inc. by affirmative vote of three-quarters
of the members of such Board, or of a nominating committee thereof, in office at
the time of such first election; or
(B) upon election by the stockholders of Tappan Zee
Financial, Inc. to serve as a member of the Board of Tappan Zee Financial, Inc.,
but only if nominated for election by affirmative vote of three-quarters of the
members of the Board of Directors of Tappan Zee Financial, Inc., or of a
nominating committee thereof, in office at the time of such first nomination;
provided, however, that such individual's election or nomination did
not result from an actual or threatened election contest (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or consents (within the meaning of
Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) other than by
or on behalf of the Board of Tappan Zee Financial, Inc.; or
(e) any event which would be described in section 2.6(a), (b), (c) or
(d) if the term "Bank" were substituted for the term "Tappan Zee Financial,
Inc." therein.
In no event, however, shall a Change of Control be deemed to have occurred as a
result of any acquisition of securities or assets of Tappan Zee Financial, Inc.,
the Bank, or a subsidiary of either of them, by Tappan Zee Financial, Inc., the
Bank, or a subsidiary of either of them, or by any employee benefit plan
maintained by any of them. For purposes of this section 2.6, the term "person"
shall have the meaning assigned to it under sections 13(d)(3) or 14(d)(2) of the
Exchange Act.
SECTION 2.7 CODE means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
SECTION 2.8 COMMITTEE means the Committee described in section 3.1.
SECTION 2.9 COMPANY means Tappan Zee Financial, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto, the Bank and any successor thereto and, with the prior
approval of the Board, and subject to such terms and conditions as may be
imposed by the Board, any other savings bank, savings and loan association,
bank, corporation, financial institution or other business organization or
institution.
SECTION 2.10 DISABILITY means a condition of total incapacity, mental
or physical, for further performance of duty with the Company which the
Committee shall have determined, on the basis of competent medical evidence, is
likely to be permanent.
SECTION 2.11 EFFECTIVE DATE means July 11, 1996.
SECTION 2.12 ELIGIBLE DIRECTOR means a member of the board of directors
of the Company who is not also an employee of the Company.
SECTION 2.13 ELIGIBLE DIRECTOR EMERITUS means a former member of the
board of directors or the Company who (a) has not received an Award under
section 5.1(a) and (b) is continuing to serve the Company in an advisory
capacity to its board of directors.
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SECTION 2.14 EXCHANGE ACT means the Securities Exchange Act of 1934, as
amended.
SECTION 2.15 PERSON means an individual, a corporation, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate, an
unincorporated organization and any other business organization or institution.
SECTION 2.16 PLAN means the Recognition and Retention Plan for Outside
Directors of Tappan Zee Financial, Inc., as amended from time to time.
SECTION 2.17 QUALIFIED DOMESTIC RELATIONS ORDER means a Domestic
Relations Order that: (a) clearly specifies (i) the name and last known mailing
address of the Award holder and of each person given rights under such Domestic
Relations Order, (ii) the amount or percentages of the Award holder's benefits
under this Plan to be paid to each person covered by such Domestic Relations
Order, (iii) the number of payments or the period to which such Domestic
Relations Order applies, and (iv) the name of this Plan; and (b) does not
require the payment of a benefit in a form or amount that is (i) not otherwise
provided for under the Plan, or (ii) inconsistent with a previous Qualified
Domestic Relations Order. For the purposes of this Plan, a "Domestic Relations
Order" means a judgment, decree or order (including the approval of a property
settlement) that is made pursuant to a state domestic relations or community
property law and relates to the provision of child support, alimony payments, or
marital property rights to a spouse, child or other dependent of an Award
holder.
SECTION 2.18 SHARE means a share of common stock of Tappan Zee
Financial, Inc., par value $.01 per share.
SECTION 2.19 TRUST means the legal relationship created by the Trust
Agreement pursuant to which the Trustee holds the Trust Fund in trust. The Trust
may be referred to as the "Restricted Stock Plan Trust for Directors of Tappan
Zee Financial, Inc."
SECTION 2.20 TRUST AGREEMENT means the agreement between Tappan Zee
Financial, Inc. and the Trustee therein named or its successor pursuant to which
the Trust Fund shall be held in trust.
SECTION 2.21 TRUST FUND means the corpus (consisting of contributions
paid over to the Trustee, and investments thereof), and all earnings,
appreciations or additions thereof and thereto, held by the Trustee under the
Trust Agreement in accordance with the Plan, less any depreciation thereof and
any payments made therefrom pursuant to the Plan.
SECTION 2.22 TRUSTEE means the Trustee of the Trust Fund from time to
time in office. The Trustee shall serve as Trustee until it is removed or
resigns from office and is replaced by a successor Trustee or Trustees appointed
by Tappan Zee Financial, Inc.
ARTICLE III
ADMINISTRATION
SECTION 3.1 COMMITTEE.
The Plan shall be administered by the Compensation Committee of the
Board.
SECTION 3.2 COMMITTEE ACTION.
The Committee shall hold such meetings, and may make such
administrative rules and regulations, as it may deem proper. A majority of the
members of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meeting at which a quorum is
present, as well as actions taken pursuant to the unanimous written consent of
all of the members of the Committee without holding a meeting, shall be deemed
to be actions of the Committee. All actions of the Committee shall be final and
conclusive and shall be binding upon the Company and all other interested
parties. Any Person dealing with the Committee shall be fully protected in
relying upon any written notice, instruction, direction or other communication
signed by the secretary of the Committee and one member of the Committee, by two
members of the Committee or by a representative of the Committee authorized to
sign the same in its behalf.
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SECTION 3.3 COMMITTEE RESPONSIBILITIES.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed by the Board, the Committee shall be responsible for the overall
management and administration of the Plan and shall have such authority as shall
be necessary or appropriate in order to carry out its responsibilities,
including, without limitation, the authority:
(a) to interpret and construe the Plan, and to determine all questions
that may arise under the Plan as to eligibility for Awards under the Plan, the
amount of Shares, if any, to be granted pursuant to an Award, and the terms and
conditions of such Award;
(b) to adopt rules and regulations and to prescribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of
the Plan that it may deem necessary or appropriate.
ARTICLE IV
THE TRUST FUND
SECTION 4.1 CONTRIBUTIONS.
Tappan Zee Financial, Inc. shall contribute, or cause to be
contributed, to the Trust, from time to time, such amounts of money or property
as shall be determined by the Board, in its discretion. No contributions by
Eligible Directors shall be permitted.
SECTION 4.2 THE TRUST FUND.
The Trust Fund shall be held and invested under the Trust Agreement
with the Trustee. The provisions of the Trust Agreement shall include provisions
conferring powers on the Trustee as to investment, control and disbursement of
the Trust Fund, and such other provisions not inconsistent with the Plan as may
be prescribed by or under the authority of the Board. No bond or security shall
be required of any Trustee at any time in office.
SECTION 4.3 INVESTMENTS.
The Trustee shall invest the Trust Fund in Shares and in such other
investments as may be permitted under the Trust Agreement, including savings
accounts, time or other interest bearing deposits in or other interest bearing
obligations of the Company, in such proportions as shall be determined by the
Committee; provided, however, that in no event shall the Trust Fund be used to
purchase more than Nineteen Thousand Four Hundred and Forty (19,440) Shares.
Notwithstanding the immediately preceding sentence, the Trustee may temporarily
invest the Trust Fund in short-term obligations of, or guaranteed by, the U.S.
Government or an agency thereof, or the Trustee may retain the Trust Fund
uninvested or may sell assets of the Trust Fund to provide amounts required for
purposes of the Plan.
ARTICLE V
AWARDS
SECTION 5.1 IN GENERAL.
(a) On the Effective Date, each Person who is then an Eligible Director
(other than an Eligible Director Emeritus) shall be granted an Award of Three
Thousand Two Hundred and Forty (3,240) Shares. A Person who becomes an Eligible
Director subsequent to the Effective Date shall be granted, on the 15th day of
the month following the month in which such individual becomes an Eligible
Director (or, if such date is not a business day, the first business day
thereafter), an Award of Three Thousand Two Hundred and Forty (3,240) Shares. No
Eligible Director shall be granted more than one Award pursuant to this section
5.1(a).
(b) On the Effective Date, each person who is then an Eligible Director
Emeritus shall be granted an Award of One Thousand and Eighty (1,080) Shares.
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(c) Notwithstanding sections 5.1(a) and 5.1(b), in the event that, as
of the first business day of any calendar month, the number of available Shares
is less than the total number of Shares with respect to which Awards would be
granted under sections 5.1(a) and (b) during such month, each Eligible Director
scheduled to receive an Award during such month shall be granted an Award for
the number of whole Shares determined by multiplying (i) the number of Shares
with respect to which the Eligible Director would have been granted an Award on
such date by (ii) a fraction, the numerator of which is the number of Shares
that are then available and the denominator of which is the total number of
Shares that would have to have been available in order to grant all of the
Awards that would otherwise have been granted under sections 5.1(a) and (b)
during such month, and rounding to the nearest whole Share; provided, however,
that if rounding will require more Shares to be available than provided in
section 4.3, then the amount determined pursuant to this section 5.1(c) will be
calculated by rounding down to the lesser whole number.
(d) Any Award granted under this section 5.1 shall be evidenced by a
written notice issued by the Committee to the Eligible Director, which notice
shall:
(i) specify the number of Shares covered by the Award;
(ii) specify the Award Date;
(iii) specify the dates on which such Shares shall become available for
distribution to the Eligible Director, in accordance with section 6.1; and
(iv) contain such other terms and conditions not inconsistent with the
Plan as the Board may, in its discretion, prescribe.
SECTION 5.2 SHARE ALLOCATIONS.
Upon the grant of an Award to an Eligible Director, the Committee shall
notify the Trustee of the Award and of the number of Shares subject to the
Award. Thereafter, until such time as the Shares subject to such Award become
vested or are forfeited, the books and records of the Trustee shall reflect that
such number of Shares are being held for the benefit of the Award recipient.
SECTION 5.3 DIVIDEND RIGHTS.
(a) Any cash dividends or distributions declared and paid with respect
to Shares in the Trust Fund that are, as of the record date for such dividend,
allocated to an Eligible Director in connection with an Award shall be promptly
paid to such Eligible Director. Any stock dividends declared and paid with
respect to Shares that are not, as of the record date for such dividend,
allocated to any Eligible Director shall, at the direction of the Committee, be
held in the Trust or used to pay the administrative expenses of the Plan,
including any compensation due to the Trustee.
(b) Any dividends or distributions declared and paid with respect to
Shares in property other than cash shall be held in the Trust Fund. If, as of
the record date for such dividend or distribution, the Shares with respect to
which it is paid are allocated to an Eligible Director in connection with an
Award, the property so distributed shall be similarly allocated such Eligible
Director in connection with such Award and shall be held for distribution or
forfeiture in accordance with the terms and conditions of the Award.
SECTION 5.4 VOTING RIGHTS.
(a) Each Eligible Director to whom an Award has been made that is not
fully vested shall have the right to direct the manner in which all voting
rights appurtenant to the Shares related to such Award will be exercised while
such Shares are held in the Trust Fund. Such a direction shall be given by
completing and filing, with the inspector of elections, the Trustee or such
other person who shall be independent of the Company as the Committee shall
designate in the direction, a written direction in the form and manner
prescribed by the Committee. If no such direction is given by an Eligible
Director, then the voting rights appurtenant to the Shares allocated to him
shall not be exercised.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all voting rights appurtenant to such
Shares shall be exercised by the Trustee in such manner as the
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Committee shall direct to reflect the voting directions given by Eligible
Directors with respect to Shares allocated in connection with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to each
Eligible Director, all annual reports, proxy materials and other information
furnished by Tappan Zee Financial, Inc., or by any proxy solicitor, to the
holders of Shares.
SECTION 5.5 TENDER OFFERS.
(a) Each Eligible Director to whom an Award has been made that is not
fully vested shall have the right to direct, with respect to the Shares related
to such Award, the manner of response to any tender offer, exchange offer or
other offer made to the holders of Shares. Such a direction shall be given by
completing and filing, with the inspector of elections, the Trustee or such
other person who shall be independent of the Company as the Committee shall
designate in the direction, a written direction in the form and manner
prescribed by the Committee. If no such direction is given by an Eligible
Director, then the Shares shall not be tendered or exchanged.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all responses to tender, exchange and
other offers appurtenant to such Shares shall be given by the Trustee in such
manner as the Committee shall direct to reflect the responses given by Eligible
Directors with respect to Shares allocated in connection with their Awards.
(c) The Committee shall furnish, or cause to be furnished, to each
Eligible Director, all information furnished by the offeror to the holders of
Shares.
SECTION 5.6 LIMITATIONS ON AWARDS.
(a) Notwithstanding anything in the Plan to the contrary:
(i) No Award shall be granted under the Plan prior to the date on which
the Plan is approved by the holders of a majority of the Shares of outstanding
on such date and eligible to vote upon the proposal to approve the Plan;
(ii) each Award granted prior to October 5, 1996 shall become vested
and distributable as follows:
(A) prior to the first anniversary of the date on
which the Award is granted, the Award shall not be exercisable;
(B) on the first anniversary of the date on which the
Award is granted, the Award will be vested as to twenty percent (20%) of the
Shares subject to the Award when granted;
(C) on the second anniversary of the date on which
the Award is granted, the Award will be vested as to an additional twenty
percent (20%) of the Shares subject to the Award when granted;
(D) on the third anniversary of the date on which the
Award is granted, the Award will be vested as to an additional twenty percent
(20%) of the Shares subject to the Award when granted;
(E) on the fourth anniversary of the date on which
the Award is granted, the Award will be vested as to an additional twenty
percent (20%) of the Shares subject to the Award when granted; and
(F) on the fifth anniversary of the date on which the
Award is granted, the Award will be vested as to an additional twenty percent
(20%) of the Shares subject to the Award when granted;
provided, however, that such an Award shall become fully vested on the date
of the Award holder's death or Disability.
(b) An Award by its terms shall not be transferable by the Eligible
Director other than by will or by the laws of descent and distribution, and the
Shares granted pursuant to such Award shall be distributable,
D-6
<PAGE> 73
during the lifetime of the Recipient, only to the Recipient, except to the
extent provided otherwise pursuant to the terms of a Qualified Domestic
Relations Order.
ARTICLE VI
VESTING AND DISTRIBUTION OF SHARES
SECTION 6.1 VESTING OF SHARES.
The Shares subject to each Award granted under the Plan shall become
vested as follows: (i) twenty percent (20%) of such Shares shall become vested
upon the first anniversary of the Award Date; (ii) 20% of such Shares shall
become vested upon the second anniversary of the Award Date; (iii) 20% of such
Shares shall become vested upon the third anniversary of the Award Date; (iv)
20% of such Shares shall become vested upon the fourth anniversary of the Award
Date; and (v) 20% of such Shares shall become vested upon the fifth anniversary
of the Award Date; provided, however, that the Eligible Director has remained a
director of the Company during the entire period commencing with the Award Date
and ending on the applicable anniversary of the Award Date; and provided,
further, an Award shall become 100% vested upon the death or Disability of the
Award recipient.
SECTION 6.2 DESIGNATION OF BENEFICIARY.
An Eligible Director who has received an Award may designate a
Beneficiary to receive any undistributed Shares that are, or become, available
for distribution on, or after, the date of his death. Such designation (and any
change or revocation of such designation) shall be made in writing in the form
and manner prescribed by the Committee. In the event that the Beneficiary
designated by an Eligible Director dies prior to the Eligible Director, or in
the event that no Beneficiary has been designated, any undistributed Shares that
are, or become, available for distribution on, or after, the Eligible Director's
death shall be paid to the executor or administrator of the Eligible Director's
estate, or if no such executor or administrator is appointed within such time as
the Committee, in its sole discretion, shall deem reasonable, to such one or
more of the spouse and descendants and blood relatives of such deceased person
as the Committee may select.
SECTION 6.3 MANNER OF DISTRIBUTION.
(a) As soon as practicable following the date any Shares granted
pursuant to an Award become vested pursuant to section 6.1, the Committee shall
take such actions as are necessary to cause the transfer of record ownership of
the Shares that have become vested from the Trustee to the Award holder and
shall cause the Trustee to distribute to the Award holder all property other
than Shares then being held in connection with the Shares being distributed.
(b) The Company's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Eligible Director or
Beneficiary to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of applicable federal, state or local law. It may be provided that
any such representation shall become inoperative upon a registration of the
Shares or upon the occurrence of any other event eliminating the necessity of
such representation. The Company shall not be required to deliver any Shares
under the Plan prior to (i) the admission of such Shares to listing on any stock
exchange on which Shares may then be listed, or (ii) the completion of such
registration or other qualification under any state or federal law, rule or
regulation as the Committee shall determine to be necessary or advisable.
SECTION 6.4 TAXES.
The Company, the Committee or the Trustee shall have the right to
require any person entitled to receive Shares pursuant to an Award to pay the
amount of any tax which is required to be withheld with respect to such Shares,
or, in lieu thereof, to retain, or to sell without notice, a sufficient number
of Shares to cover the amount required to be withheld.
D-7
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ARTICLE VII
AMENDMENT AND TERMINATION
SECTION 7.1 TERMINATION.
The Board may suspend or terminate the Plan in whole or in part at any
time by giving written notice of such suspension or termination to the
Committee; provided, however, that the Plan may not be terminated while there
are outstanding Awards that may thereafter become vested. Upon the termination
of the Plan, the Trustee shall make distributions from the Trust Fund in such
amounts and to such persons as the Committee may direct and shall return the
remaining assets of the Trust Fund, if any, to Tappan Zee Financial, Inc.
SECTION 7.2 AMENDMENT.
The Board may amend or revise the Plan in whole or in part at any time;
provided, however, that if the amendment or revision:
(a) materially increases the benefits or Awards which may be granted
under the Plan;
(b) materially increases the number of Shares which may be issued under
the Plan; or
(c) materially modifies the requirements as to eligibility to receive
Awards under the Plan;
such amendment or revision shall be subject to approval by the shareholders of
the Company.
SECTION 7.3 ADJUSTMENTS IN THE EVENT OF A BUSINESS REORGANIZATION.
(a) In the event of any merger, consolidation, or other business
reorganization (including but not limited to a Change of Control) in which
Tappan Zee Financial, Inc. is the surviving entity, and in the event of any
stock split, stock dividend or other event generally affecting the number of
Shares held by each person who is then a holder of record of Shares, the number
of Shares held in the Trust Fund, including Shares covered by Awards, shall be
adjusted to account for such event. Such adjustment shall be effected by
multiplying such number of Shares by an amount equal to the number of Shares
that would be owned after such event by a person who, immediately prior to such
event, was the holder of record of one Share; provided, however, that the
Committee may, in its discretion, establish another appropriate method of
adjustment.
(b) In the event of any merger, consolidation, or other business
reorganization (including but not limited to a Change of Control) in which
Tappan Zee Financial, Inc. is not the surviving entity, the Trustee shall hold
in the Trust Fund any money, stock, securities or other property received by
holders of record of Shares in connection with such merger, consolidation, or
other business reorganization. Any Award with respect to which Shares had been
allocated to an Eligible Director shall be adjusted by allocating to the
Eligible Director receiving such Award the amount of money, stock, securities or
other property received by the Trustee for the Shares allocated to such Eligible
Director.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 STATUS AS AN EMPLOYEE BENEFIT PLAN.
This Plan is not intended to satisfy the requirements for qualification
under section 401(a) of the Code or to satisfy the definitional requirements for
an "employee benefit plan" under section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended. It is intended to be a non-qualified incentive
compensation program that is exempt from the regulatory requirements of the
Employee Retirement Income Security Act of 1974, as amended. The Plan shall be
construed and administered so as to effectuate this intent.
SECTION 8.2 NO RIGHT TO CONTINUED EMPLOYMENT.
Neither the establishment of the Plan nor any provisions of the Plan
nor any action of the Board or the Committee with respect to the Plan shall be
held or construed to confer upon any Eligible Director any right to a
continuation of service by the Company. The Company reserves the right to
dismiss any Eligible Director or otherwise deal with any Eligible Director to
the same extent as though the Plan had not been adopted.
D-8
<PAGE> 75
SECTION 8.3 CONSTRUCTION OF LANGUAGE.
Whenever appropriate in the Plan, words used in the singular may be
read in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may read as referring equally to the
feminine or the neuter. Any reference to an Article or section number shall
refer to an Article or section of this Plan unless otherwise indicated.
SECTION 8.4 GOVERNING LAW.
The Plan shall be construed and enforced in accordance with the laws of
the State of New York without giving effect to the conflict of laws principles
thereof, except to the extent that such laws are preempted by the federal laws
of the United States of America.
SECTION 8.5 HEADINGS.
The headings of Articles and sections are included solely for
convenience of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
SECTION 8.6 NON-ALIENATION OF BENEFITS.
The right to receive a benefit under the Plan shall not be subject in
any manner to anticipation, alienation or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities, engagements or torts,
except to the extent provided in a Qualified Domestic Relations Order.
SECTION 8.7 NOTICES.
Any communication required or permitted to be given under the Plan,
including any notice, direction, designation, comment, instruction, objection or
waiver, shall be in writing and shall be deemed to have been given at such time
as it is personally delivered or 5 days after mailing if mailed, postage
prepaid, by registered or certified mail, return receipt requested, addressed to
such party at the address listed below, or at such other address as one such
party may by written notice specify to the other:
(a) If to the Stock Compensation Committee:
Tappan Zee Financial, Inc.
75 North Broadway
P.O. Box 187
Tarrytown, New York 10591
Attention: Corporate Secretary
(b) If to an Eligible Director, to the Eligible Director's address as
shown in the Company's personnel records.
SECTION 8.8 APPROVAL OF SHAREHOLDERS.
The Plan and all Awards granted hereunder shall be conditioned on the
approval of the Plan by the holders of a majority of the Shares of Tappan Zee
Financial, Inc. entitled to vote at an annual or special meeting of the holders
of Shares held no earlier than April 5, 1996. No Award under the Plan shall be
granted, nor shall any Shares be purchased or distributed, prior to such
approval.
D-9
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated condensed statements of financial condition and the consolidated
condensed statement of income and is qualified in it entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
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<FED-FUNDS-SOLD> 5,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 41,544
<INVESTMENTS-CARRYING> 9,436
<INVESTMENTS-MARKET> 9,596
<LOANS> 51,174
<ALLOWANCE> 654
<TOTAL-ASSETS> 114,790
<DEPOSITS> 89,908
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,522
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 22,344
<TOTAL-LIABILITIES-AND-EQUITY> 114,790
<INTEREST-LOAN> 4,465
<INTEREST-INVEST> 2,387
<INTEREST-OTHER> 772
<INTEREST-TOTAL> 7,624
<INTEREST-DEPOSIT> 4,002
<INTEREST-EXPENSE> 4,002
<INTEREST-INCOME-NET> 3,622
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 88
<EXPENSE-OTHER> 2,297
<INCOME-PRETAX> 1,446
<INCOME-PRE-EXTRAORDINARY> 1,446
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 837
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 3.59
<LOANS-NON> 982
<LOANS-PAST> 650
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 650
<CHARGE-OFFS> 86
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