As filed with the Securities and Exchange Commission on November 3, 1999
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
TOMPKINS TRUSTCO, INC.
(Exact Name of Registrant as Specified in its Charter)
------------------------------------------------------
NEW YORK 6022 6-1482357
- --------------------------------------------------------------------------------
(State or Other (Primary Standard Industrial (I. R. S. Employer
Jurisdiction of Incorporation Classification Code Number)Identification Number)
Or Organization)
---------------------
P. O. Box 460
The Commons
Ithaca, New York 14851
(607) 273-3210
(Address, Including Zip Code And Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
------------------------------------------------------------------------
James J. Byrnes
President and
Chief Executive Officer
P. O. Box 460
The Commons
Ithaca, New York 14851
(607) 273-3210
(Name, Address, Including Zip Code And Telephone Number,
Including Area Code, Of Agent For Service)
------------------------------------------------------
COPIES TO:
Thomas E. Willet, Esq.
Timothy M. Horner, Esq. Edward J. Moses, Esq.
Harris Beach & Wilcox, LLP Mackenzie, Smith, Lewis, Michell & Hughes, LLP
119 East Seneca Street 101 South Salina Street
Ithaca, New York 14850 Syracuse, New York 13202
(607) 273-6444 (315) 474-7571
---------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
-------------------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
-------------------------------------------------
=================================================================================================================
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to be Offering Price per Aggregate Offering Amount of
Registered(1) Registered(2) Unit(2) Price(2) Registration Fee(2)
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $0.10 per share 2,383,580 Shares $29.75 $70,911,505 $18,220
=================================================================================================================
</TABLE>
- ----------------------------------
(1) Based upon an estimate of the maximum number of shares of common stock,
$1.00 par value of Letchworth Independent Bancshares Corporation which will
each be converted into 0.685 shares of common stock, $0.10 par value of
Tompkins Trustco, Inc. pursuant to the merger described herein.
(2) The registration fee has been computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based on the average of the high and
low prices for shares of common stock of Letchworth Independent Bancshares
Corporation reported on the NASDAQ Small Cap Market on October 29, 1999,
($19.75) and the maximum number of such shares (2,383,580) being
registered. The requested fee pursuant to Section 6(b) of the Securities
Act of 1933, as amended, ($18,220) has been reduced by the amount of the
fee previously paid to the Securities and Exchange Commission. Accordingly,
the net registration fee payable upon the filing of this Registration
Statement is $3,179.
--------------------------------------------
<PAGE>
TOMPKINS TRUSTCO, INC. LETCHWORTH INDEPENDENT
[GRAPHIC LOGO OMITTED] -------------------------
BANCSHARES CORPORATION
[GRAPHIC LOGO OMITTED]
IMPORTANT PROXY MATERIAL ENCLOSED
RELATING TO THE MERGER OF:
TOMPKINS TRUSTCO, INC.
AND
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
--------------------------------------------------------------
NEITHER THE SEC NOR ANY STATE SECURITIES REGULATOR HAS APPROVED THE TOMPKINS
COMMON SHARES TO BE ISSUED UNDER THIS DOCUMENT OR DETERMINED IF THIS DOCUMENT IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY
BANK OR NONBANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
Joint proxy statement/prospectus is dated as of November 8, 1999, and is first
being mailed to stockholders on or about November 11, 1999.
<PAGE>
THOMPSON TRUSTCO, INC.
[GRAPHIC LOGO OMITTED]
November 8, 1999
To the Holders of the Common Stock
of Tompkins Trustco, Inc.
Dear Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Tompkins Trustco, Inc. which will be held on Monday, December
20, 1999 at 10:00 a.m., New York time, at the Clarion University Hotel &
Conference Center, Ithaca, New York.
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Reorganization, dated as
of July 30, 1999, between Tompkins and Letchworth Independent Bancshares
Corporation. Pursuant to the Agreement, Letchworth will be merged with and into
Tompkins, with Tompkins as the surviving entity. Upon consummation of the
merger, Letchworth stockholders will receive 0.685 shares of Tompkins common
stock, subject to adjustments, for each share of Letchworth common stock they
own (plus cash in lieu of any fractional share interest in Tompkins common
stock).
Your board of directors believes that, among other benefits, the merger
will result in a combined company with expanded opportunities for profitable
growth and enhanced ability to compete successfully in the highly competitive
and rapidly changing financial services industry. Management strongly supports
this strategic combination between Letchworth and Tompkins, and I join with all
of the other members of the board in enthusiastically recommending that you vote
in favor of the merger.
As reported to you earlier, over the past two years our board has
considered strategic options to enhance the growth prospects for your company,
including potential bank acquisitions. We believe that this transaction with
Letchworth best meets the three criteria which I presented at our annual meeting
and described in my April 28th letter to you. These criteria are:
1. Enhance the capability of Tompkins County Trust Company to remain a
successful community bank.
2. Provide opportunity for growth without adding undue risk.
3. Strengthen our long-term stock value, thereby increasing our
ability to stay independent.
<PAGE>
Since the locations of The Mahopac National Bank and The Bank of
Castile are not immediately adjacent to our current marketing area, the purchase
provides enhanced growth opportunities with relatively little disruption to the
core strategy or operation of the Trust Company. We will continue to operate the
three banks under local management as community banks. Community banking is a
business that we understand and a core strength that we will continue to
emphasize. The acquisition does provide new areas to market our products and
services, thereby giving us significant opportunities for growth. This
significant enlargement of our potential market area is a major benefit to
Tompkins. The Bank of Castile and The Mahopac National Bank are very successful
and well managed community banks. Together, we will plan and then work closely
to improve the growth and profitability of Tompkins as a consolidated entity.
The enclosed joint proxy statement/prospectus describes in detail the
terms of the proposed Merger and related matters. A copy of the Agreement and
Plan of Reorganization is included as Annex A to the enclosed joint proxy
statement/prospectus. Also, the investment banking firm of Danielson Associates,
Inc. has issued a written opinion to your board of directors that, as of the
date of such opinion, the exchange ratio of 0.685 was fair to Tompkins'
stockholders from a financial point of view. The written opinion of Danielson
Associates, Inc. is reproduced in full as Annex D to the accompanying joint
proxy statement/prospectus. We urge you to read all of these materials
carefully.
It is very important that your shares be represented at the special
meeting. Approval of the merger will require the affirmative vote of the holders
of at least two-thirds of Tompkins' outstanding common stock. FAILURE TO RETURN
A PROPERLY EXECUTED PROXY CARD OR FAILURE TO VOTE AT THE SPECIAL MEETING WILL
HAVE THE SAME EFFECT AS A VOTE AGAINST THE AGREEMENT. THEREFORE, I URGE YOU TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE TO ASSURE THAT YOUR SHARES WILL BE VOTED AT THE
SPECIAL MEETING. Even if you plan to be present at the special meeting, we urge
you to complete, date, sign, and return the proxy card promptly in the enclosed
postage-paid envelope as soon as possible. If you decide to attend the special
meeting, you may vote your shares in person whether or not you have previously
submitted a proxy, if you so desire.
IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO
VOTE AT THE TOMPKINS MEETING. EXAMPLES OF SUCH DOCUMENTATION INCLUDE A BROKER'S
STATEMENT, LETTER OR OTHER DOCUMENT CONFIRMING YOUR OWNERSHIP OF SHARES OF
TOMPKINS COMMON STOCK.
Consummation of the merger is subject to certain conditions, including
the approval of the Agreement and Plan of Reorganization by the holders of
Tompkins common stock and the holders of Letchworth common stock, and the
approval of the merger by various bank regulatory agencies.
THE AGREEMENT AND PLAN OF REORGANIZATION HAS BEEN UNANIMOUSLY APPROVED
BY THE BOARD OF DIRECTORS OF EACH OF LETCHWORTH AND TOMPKINS. The Tompkins board
of directors believes that the terms of the agreement to be presented at the
special meeting, are fair to, and in the best interests of Tompkins and its
stockholders. We unanimously recommend that you vote for approval and adoption
of the Agreement and Plan of Reorganization and the merger contemplated by that
agreement.
Specific information regarding the Tompkins meeting is contained in the
enclosed Notice of Special Meeting and joint proxy statement/prospectus. Please
read these materials carefully.
<PAGE>
On behalf of the board of directors of Tompkins Trustco, Inc. and its
subsidiary, Tompkins County Trust Company, I thank you for your support and urge
you to vote FOR approval and adoption of the Agreement and Plan of
Reorganization.
If you have any questions regarding your vote on the merger and the
agreement, please call John E. Butler, Esq., our corporate secretary, at (607)
273-3210.
Sincerely,
/s/ JAMES J. BYRNES
-------------------------------------
Chairman of the Board,
President and Chief Executive Officer
<PAGE>
TOMPKINS TRUSTCO, INC.
P. O. BOX 460
THE COMMONS
ITHACA, NEW YORK 14851
(607) 273-3210
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 1999
NOTICE IS HEREBY GIVEN that a special meeting of Stockholders of
Tompkins Trustco, Inc., Ithaca, New York will be held at The Clarion University
Hotel and Conference Center, Ithaca, New York, on Monday, December 20, 1999, at
10:00 a.m. New York time for the following purposes, all of which are more
completely described in the accompanying joint proxy statement/prospectus:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated as of July 30, 1999, by and between
Letchworth Independent Bancshares Corporation and Tompkins Trustco, Inc. The
agreement provides for the merger of Letchworth with and into Tompkins, pursuant
to which each share of common stock of Letchworth, par value $1.00 per share,
will be converted into and exchangeable for 0.685 shares of the common stock of
Tompkins, par value $0.10 per share, plus cash in lieu of any fractional share
interest. Approval of the merger and the Agreement and Plan of Reorganization
will also constitute approval of the issuance of the required number of shares
of Tompkins common stock to be exchanged for Letchworth common stock, as
contemplated in the agreement. The exchange ratio of 0.685 may be increased by
Tompkins in the event Letchworth exercises its rights under the agreement to
deliver to Tompkins a notice to terminate the agreement if the price of the
Tompkins common stock is below certain levels established in the agreement,
which would require an increase in the number of Tompkins shares to be issued in
the transaction. A copy of the Agreement and Plan of Reorganization is included
as Annex A to the accompanying joint proxy statement/prospectus.
2. To transact such other business as may properly come before the
special meeting and any adjournment or postponement thereof.
Pursuant to Tompkins' bylaws, the board of directors has fixed October
31, 1999 as the record date for the determination of stockholders entitled to
notice of and to vote at the special meeting and any adjournment or postponement
thereof. Only stockholders of record at the close of business on that date will
be entitled to notice of and to vote at the special meeting.
In the event that there are not sufficient votes to approve the
foregoing proposal at the time of the special meeting, the meeting may be
adjourned in order to permit further solicitation of a vote of approval.
By Order of the Board of Directors
/s/ JOHN E. BUTLER
------------------------
John E. Butler, Esq.
Corporate Secretary
Ithaca, New York
November 8, 1999
THE TOMPKINS BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
PRE-ADDRESSED POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED PRIOR TO ITS
EXERCISE BY FILING WITH THE CORPORATE SECRETARY OF TOMPKINS PRIOR TO THE SPECIAL
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE SPECIAL MEETING, FILING A WRITTEN NOTICE OF REVOCATION
WITH THE SECRETARY OF THE MEETING AND VOTING IN PERSON.
<PAGE>
LETCHWORTH INDEPENDENT
----------------------
BANCSHARES CORPORATION
[GRAPHIC LOGO OMITTED]
November 8, 1999
To the Holders of the Common Stock of
Letchworth Independent Bancshares Corporation
Dear Stockholder:
You are cordially invited to attend a special meeting of the
stockholders of Letchworth Independent Bancshares Corporation which will be held
on Monday, December 20, 1999, at 10:00 a.m., New York time, at the Batavia Party
House, Route 5, Stafford, New York.
At the special meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Reorganization, dated as
of July 30, 1999, by and between Tompkins Trustco, Inc. and Letchworth. Pursuant
to the agreement, Letchworth will be merged with and into Tompkins, with
Tompkins continuing as the surviving entity. Upon consummation of the merger,
each share of common stock of Letchworth will be, subject to certain
adjustments, converted into and exchangeable for 0.685 shares of Tompkins common
stock plus cash in lieu of any fractional share interest in Tompkins common
stock.
Your board of directors believes that, among other benefits, the merger
will result in a combined company with expanded opportunities for profitable
growth and enhanced ability to compete successfully in the highly competitive
and evolving financial services industry. Management strongly supports this
strategic combination between Letchworth and Tompkins, and I join with all of
the other members of the board in enthusiastically recommending that you vote in
favor of the merger.
The enclosed joint proxy statement/prospectus describes in detail the
terms of the proposed merger and related matters. A copy of the Agreement and
Plan of Reorganization is included as Annex A to the enclosed joint proxy
statement/prospectus. Also, the investment banking firm of McConnell, Budd and
Downes, Inc. has issued a written opinion to your board of directors that, as of
the date of such opinion, the exchange ratio of 0.685 was fair to Letchworth's
stockholders from a financial point of view. The written opinion of McConnell,
Budd and Downes, Inc. is reproduced in full as Annex E to the accompanying joint
proxy statement/prospectus. We urge you to read all of these materials
carefully.
It is very important that your shares be represented at the special
meeting. Approval of the merger will require the affirmative vote of the holders
of at least two-thirds of Letchworth's outstanding common stock. FAILURE TO
RETURN A PROPERLY EXECUTED PROXY CARD OR FAILURE TO VOTE AT THE SPECIAL MEETING
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE AGREEMENT. THEREFORE, I URGE YOU
TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE TO ASSURE THAT YOUR SHARES WILL BE
VOTED AT THE SPECIAL MEETING. Even if you plan to be present at the special
meeting, we urge you to complete, date, sign, and return the proxy card promptly
in the enclosed postage-paid envelope as soon as possible. If you decide to
attend the special meeting, you may, if you so desire, vote your shares in
person whether or not you have previously submitted a proxy.
<PAGE>
IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN
NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO
BE ABLE TO VOTE AT THE SPECIAL MEETING. EXAMPLES OF SUCH DOCUMENTATION INCLUDE A
BROKER'S STATEMENT, LETTER OR OTHER DOCUMENT FROM THE RECORD HOLDER CONFIRMING
YOUR OWNERSHIP OF SHARES OF LETCHWORTH COMMON STOCK.
Consummation of the merger is subject to certain conditions, including
the approval of the Agreement and Plan of Reorganization by the holders of
Letchworth common stock, the approval of the Agreement and Plan of
Reorganization by the holders of Tompkins common stock, and the approval of the
merger by various bank regulatory agencies.
THE AGREEMENT AND PLAN OF REORGANIZATION HAS BEEN UNANIMOUSLY APPROVED
BY THE BOARD OF DIRECTORS OF EACH OF LETCHWORTH AND TOMPKINS. The board of
directors of Letchworth believes that the terms of the Agreement and Plan of
Reorganization to be presented at the Letchworth special meeting (WHICH INCLUDES
PROVISIONS THAT WILL ALLOW LETCHWORTH TO TERMINATE THE AGREEMENT IF THE PRICE OF
TOMPKINS COMMON STOCK IS BELOW CERTAIN LEVELS ESTABLISHED IN THE AGREEMENT), are
fair to, and in the best interests of Letchworth and its stockholders and
unanimously recommends that you vote for approval and adoption of the Agreement
and Plan of Reorganization and the transactions contemplated thereby.
Specific information regarding the special meeting is contained in the
enclosed Notice of special meeting and joint proxy statement/prospectus. Please
read these materials carefully.
On behalf of the board of directors of Letchworth Independent
Bancshares Corporation and its subsidiaries, The Bank of Castile and The Mahopac
National Bank, I thank you for your support and urge you to vote FOR approval
and adoption of the Agreement and Plan of Reorganization.
If you have any questions regarding your vote on the merger or the
agreement, please call me at (716) 493-2570 (Ext. 246).
Sincerely,
/s/ JAMES W. FULMER
------------------------------
James W. Fulmer,
President and Chief
Executive Officer
<PAGE>
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
P. O. BOX 129
50 NORTH MAIN STREET
CASTILE, NEW YORK 14427
(716) 493-2576
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 1999
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of
Letchworth Independent Bancshares Corporation, Castile, New York will be held at
the Batavia Party House, Route 5, Stafford, New York on Monday, December 20,
1999, at 10:00 a.m. New York time, for the following purposes, all of which are
more completely described in the accompanying joint proxy statement/prospectus:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization, dated as of July 30, 1999, by and between
Tompkins Trustco, Inc. and Letchworth. The agreement provides for the merger of
Letchworth with and into Tompkins, pursuant to which each share of common stock
of Letchworth, par value $1.00 per share, will be converted into and
exchangeable for 0.685 shares of the common stock of Tompkins, par value $0.10
per share, plus cash in lieu of any fractional share interest. The exchange
ratio of 0.685 may be increased by Tompkins in the event Letchworth exercises
its rights under the agreement to deliver to Tompkins a notice to terminate the
agreement if the price of the Tompkins common stock is below certain levels
established in the agreement. A copy of the Agreement and Plan of Reorganization
is included as Annex A to the accompanying joint proxy statement/prospectus.
2. To transact such other business as may properly come before the
Letchworth meeting or any adjournment or postponement thereof.
Pursuant to Letchworth's bylaws, the board of directors has fixed
October 31, 1999 as the record date for the determination of stockholders
entitled to notice of and to vote at the special meeting and any adjournment or
postponement thereof. Only stockholders of record at the close of business on
that date will be entitled to notice of and to vote at the special meeting.
ACTION TAKEN AT THE MEETING MAY ENTITLE STOCKHOLDERS FULFILLING THE REQUIREMENTS
OF SECTION 623 OF THE NEW YORK BUSINESS CORPORATION LAW, A COPY OF WHICH
ISATTACHED AS ANNEX H TO RECEIVE PAYMENT FOR THEIR SHARES.
In the event that there are not sufficient votes to approve the
foregoing proposals at the time of the special meeting, the special meeting may
be adjourned in order to permit further solicitation of a vote of approval.
By Order of the Board of Directors
/s/ PATRICK J. DALTON, ESQ.
----------------------------------------
Patrick J. Dalton, Esq.
Corporate Secretary
Castile, New York
November 8, 1999
LETCHWORTH'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR THE PROPOSAL TO APPROVE AND ADOPT THE AGREEMENT AND PLAN OF REORGANIZATION.
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE URGED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING
PRE-ADDRESSED POSTAGE-PAID ENVELOPE. YOUR PROXY MAY BE REVOKED PRIOR TO ITS
EXERCISE BY FILING WITH THE CORPORATE SECRETARY OF LETCHWORTH PRIOR TO THE
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE SPECIAL MEETING, FILING A WRITTEN NOTICE OF REVOCATION
WITH THE SECRETARY OF THE MEETING AND VOTING IN PERSON.
<PAGE>
TOMPKINS TRUSTCO, INC. LETCHWORTH INDEPENDENT
----------------------
BANCSHARES CORPORATION
[GRAPHIC LOGO OMITTED] [GRAPHIC LOGO OMITTED]
TOMPKINS TRUSTCO, INC.
AND
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
JOINT PROXY STATEMENT
---------------------
TOMPKINS TRUSTCO, INC. PROSPECTUS
2,383,580 SHARES
OF ITS
COMMON STOCK
---------------------
This joint proxy statement/prospectus relates to the proposed merger of
Letchworth Independent Bancshares Corporation, a New York corporation, with and
into Tompkins Trustco, Inc., a New York corporation, upon the terms and
conditions set forth in their Agreement and Plan of Reorganization, dated as of
July 30, 1999. This agreement is from time to time referred to in this joint
proxy statement/prospectus as the "merger agreement".
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The boards of directors of Tompkins and Letchworth have agreed on the
merger of their two companies. Pursuant to the merger agreement, Letchworth will
be merged into and become a part of Tompkins, which will continue its operations
as the "surviving" company. A copy of the agreement is attached as Annex A to,
and is incorporated by reference in, this joint proxy statement/prospectus.
In the merger, each outstanding share of Letchworth common stock will
be converted into 0.685 shares of common stock of the combined company, and each
share of Tompkins common stock will remain outstanding as a share of common
stock of the combined company. The market value of the consideration that
Letchworth stockholders will receive in the merger for each share of Letchworth
common stock would be $20.38, based on Tompkins' closing stock price on October
29, 1999.
TOMPKINS TRUSTCO, INC.'S COMMON STOCK IS LISTED ON THE AMERICAN STOCK
EXCHANGE AND IS TRADED UNDER THE SYMBOL "TMP."
It is our expectation that the merger will be a tax-free transaction
for Tompkins' stockholders and, except to the extent cash is received in lieu of
fractional shares of Tompkins common stock, Letchworth stockholders. After
completion of the merger, Tompkins stockholders and Letchworth stockholders will
own approximately 67.5% and 32.5%, respectively, of the combined company
(assuming the exchange ratio of 0.685 is not adjusted).
<PAGE>
Each company will hold a special meeting of stockholders to consider
and vote on the merger proposal and other matters. Whether or not you plan to
attend your company's special meeting, please take the time to vote by
completing and mailing the enclosed proxy card to the address indicated on the
card. If you sign, date and mail your proxy card without indicating how you want
to vote, your proxy will be counted as a vote FOR the merger and the
transactions contemplated by the merger agreement. If you do not return your
card, or if you do not instruct your broker how to vote any shares held for you
in "street name," the effect will be a vote against the merger. The places,
dates and times of the special meetings are as follows:
FOR TOMPKINS STOCKHOLDERS: FOR LETCHWORTH STOCKHOLDERS:
December 20, 1999 December 20, 1999
10:00 a.m., local time 10:00 a.m., local time
Clarion University Hotel Batavia Party House
& Conference Center Route 5
1 Sheraton Drive Stafford, New York
Ithaca, New York
We enthusiastically support this combination of two community banking
institutions and join with the other members of our boards of directors in
recommending that you vote in favor of the merger.
Since the market price of Tompkins common stock is subject to
fluctuation, the value of the shares of Tompkins common stock that Letchworth
stockholders will receive in the merger may increase or decrease prior to and
after the merger. See "Market Prices and Dividend Information."
Under specified circumstances as described in the joint proxy
statement/prospectus, Letchworth stockholders will be entitled to appraisal
rights in connection with or as a result of the merger. See "The Merger --
Appraisal Rights of Letchworth Stockholders."
This joint proxy statement/prospectus also constitutes the prospectus
used by Tompkins relating to the issuance of shares of Tompkins common stock
required to be issued to holders of Letchworth common stock pursuant to the
terms of the merger.
- ----------------------------
You should only rely on the information contained in this joint proxy
statement/prospectus. We have not authorized anyone to provide you with
information different from that contained in this joint proxy
statement/prospectus. Tompkins is offering shares of its common stock to current
stockholders of Letchworth in consideration for their Letchworth common stock
only in jurisdictions where the offer is permitted. The information contained in
this joint proxy statement/prospectus is accurate only as of the date of this
joint proxy statement/prospectus, regardless of the time of delivery of this
joint proxy statement/prospectus or of any issuance of Tompkins common stock as
the merger consideration.
All information contained in this joint proxy statement/prospectus
relating to Tompkins and its subsidiaries has been supplied by Tompkins and all
pro forma information was prepared by Tompkins. All information contained in
this joint proxy statement/prospectus relating to Letchworth and its
subsidiaries has been supplied by Letchworth.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE MEETINGS..................................................1
SUMMARY..................................................................................................3
The Companies...................................................................................3
The Stockholder Meetings .......................................................................4
Our Reasons and Recommendations for the Merger .................................................5
The Merger and the Merger Agreement ...........................................................6
Share Ownership of Management and Directors ....................................................9
The Merger Stock Option Agreement..............................................................10
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION........................................................11
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..................................................12
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION.............................................13
COMPARATIVE PRO FORMA PER SHARE DATA (UNAUDITED)........................................................15
PARTIES TO THE MERGER...................................................................................16
Tompkins ......................................................................................16
Letchworth.....................................................................................16
MEETING OF TOMPKINS STOCKHOLDERS........................................................................17
Date, Time and Place; Purpose of Meeting.......................................................17
Record Date....................................................................................17
Proxies; Voting and Revocation of Proxies......................................................17
Vote Required; Principal Stockholders..........................................................18
MEETING OF LETCHWORTH STOCKHOLDERS......................................................................19
Date, Time and Place; Purpose of Meeting.......................................................19
Record Date....................................................................................19
Proxies; Voting and Revocation of Proxies......................................................19
Vote Required; Principal Stockholders..........................................................21
THE MERGER .............................................................................................21
General .......................................................................................21
Exchange Ratio.................................................................................21
Background of the Merger.......................................................................22
Recommendation of the Tompkins Board; Tompkins' Reasons for the Merger.........................25
Opinion of Tompkins' Financial Advisor.........................................................26
Recommendation of the Letchworth Board; Letchworth's Reasons for the Merger....................30
Opinion of Letchworth's Financial Advisor......................................................32
Interests of Certain Persons in the Merger.....................................................39
Management and Operations Following the Merger.................................................40
Conditions to the Merger.......................................................................41
Regulatory Approvals Required for the Merger...................................................43
Conduct of Business Pending the Merger.........................................................44
Representations and Warranties.................................................................45
Solicitation Proposals.........................................................................46
Waiver and Amendment; Termination..............................................................46
Price-Based Termination........................................................................47
AMEX Listing...................................................................................48
Anticipated Accounting Treatment...............................................................48
Federal Income Tax Consequences of the Merger..................................................48
Resales of Tompkins Common Stock by Affiliates.................................................50
Appraisal Rights of Letchworth Stockholders....................................................50
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Expenses ......................................................................................52
Date of Merger.................................................................................52
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares...............89
Merger Stock Option Agreement..................................................................52
DESCRIPTION OF TOMPKINS CAPITAL STOCK...................................................................55
General .......................................................................................55
Common Stock...................................................................................56
COMPARISON OF RIGHTS OF STOCKHOLDERS....................................................................56
Authorized Common Stock .......................................................................56
Amendment of Bylaws ...........................................................................56
Annual and Special meetings of Stockholders....................................................57
Board of Directors.............................................................................57
Vacancies on the Board of Directors............................................................57
Removal of Directors...........................................................................58
Stockholder Election of Directors and Other Corporate Action...................................58
Fair Price Provisions..........................................................................58
Indemnification................................................................................58
MARKET PRICES AND DIVIDEND INFORMATION..................................................................59
COMPARATIVE PER SHARE DATA (UNAUDITED)..................................................................60
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.............................................61
WHERE YOU CAN FIND ADDITIONAL INFORMATION...............................................................69
LEGAL MATTERS...........................................................................................70
EXPERTS.................................................................................................70
STOCKHOLDER PROPOSALS ..................................................................................71
</TABLE>
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ANNEX A
Agreement and Plan of Reorganization, dated as of July 30, 1999, by and between
Tompkins Trustco, Inc. and Letchworth Independent Bancshares Corporation
ANNEX B
Stock Option Agreement, dated as of July 30, 1999, by and between Tompkins
Trustco, Inc. and Letchworth Independent Bancshares Corporation
ANNEX C
Voting Agreement, dated as of July 30, 1999, by and among Tompkins Trustco, Inc.
and the directors and certain stockholders of Letchworth Independent Bancshares
Corporation
ANNEX D
Opinion of Danielson Associates, Inc.
ANNEX E
Opinion of McConnell, Budd and Downes, Inc.
ANNEX F
Letchworth Independent Bancshares Corporation's Annual Report on Form 10-K for
the Year Ended December 31, 1998
ANNEX G
Letchworth Independent Bancshares Corporation's Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1999
ANNEX H
Section 623 of the New York Business Corporation Law
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QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE MEETINGS
Q: WHAT WILL HAPPEN TO OUTSTANDING SHARES OF TOMPKINS AND LETCHWORTH
COMMON STOCK?
A: Upon completion of the merger, each outstanding share of Letchworth
common stock will be converted into 0.685 of a share of Tompkins common
stock. Outstanding shares of Tompkins common stock will remain
outstanding with no change. After the merger, shares of Tompkins common
stock will represent the combined assets and business of Tompkins and
Letchworth.
Q: IS THIS MERGER TAXABLE?
A: Tompkins and Letchworth each expect the merger to be tax-free. We have
structured the merger so that our legal counsel will be able to deliver
opinions that neither Tompkins, Letchworth nor the Letchworth
stockholders should recognize any gain or loss for U.S. federal income
tax purposes in the merger, except with respect to any cash that
Letchworth stockholders will receive instead of fractional shares. In
addition, no gain or loss should be recognized by Tompkins stockholders
with respect to their Tompkins common stock as a result of the merger.
We describe the material federal income tax consequences of the
transaction in more detail on page 48. The tax consequences to you will
depend on the facts of your own situation. Please consult your tax
advisor for a full understanding of the tax consequences that the
merger will have on you.
Q: AM I ENTITLED TO APPRAISAL RIGHTS?
A: Holders of Letchworth common stock are entitled to appraisal rights in
connection with the merger. Because Tompkins shares will not be
converted, holders of Tompkins common stock are not entitled to
appraisal rights.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED ?
A: We expect to complete the merger late in the fourth quarter of 1999.
However, because the merger is subject to governmental approvals, we
cannot predict the exact timing.
Q: HOW DO I VOTE ?
A: Just mail your signed proxy card in the enclosed return envelope (or
follow the electronic voting instructions on your proxy card) as soon
as possible so that your shares may be represented at your
stockholder's meeting. In order to assure that your vote is counted,
please vote your proxy as instructed on your proxy card even if you
currently plan to attend the meeting in person. If you sign and send in
your proxy card and do not indicate how you want to vote, we will count
your proxy card as a vote in favor of the proposal submitted at your
stockholder's meeting.
Q: CAN I CHANGE MY VOTE ?
A: Yes. You can change your vote at any time prior to the special meeting
by submitting a later-dated signed proxy card or by attending the
meeting, filing a notice of revocation with the corporate secretary,
and voting in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY A BROKER, WILL THE BROKER
VOTE THE SHARES FOR ME ?
A: No. You must instruct your broker to vote your shares on your company's
proposal, following the directions provided to you by your broker. Your
failure to instruct your broker to vote on your company's proposal will
be the equivalent of voting against the merger.
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Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW ?
A: No. After we complete the merger, Tompkins will send instructions to
Letchworth stockholders whose shares are converted in the merger. These
instructions will explain how to exchange your Letchworth stock
certificates for Tompkins stock certificates. Tompkins stockholders
will keep their current stock certificates.
Q: WHO DO I CALL IF I HAVE QUESTIONS ABOUT THE MEETINGS OR THE MERGER ?
A: Tompkins stockholders may call John Butler at (607) 273-3210.
Letchworth stockholders may call James Fulmer at (716) 493-2570
(Extension 246).
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS SECTION HIGHLIGHTS ONLY SELECTED
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS AND MAY NOT CONTAIN ALL OF
THE INFORMATION IMPORTANT TO YOU. TO UNDERSTAND THE MERGER MORE FULLY AND FOR A
MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD READ THIS
ENTIRE DOCUMENT CAREFULLY, INCLUDING APPENDICES, AND THE DOCUMENTS TO WHICH WE
REFER TO IN THIS JOINT PROXY STATEMENT/PROSPECTUS. WE HAVE INCLUDED PAGE
REFERENCES PARENTHETICALLY TO DIRECT YOU TO A MORE COMPLETE DESCRIPTION OF THE
TOPICS PRESENTED IN THIS SUMMARY.
WE HAVE INCORPORATED BY REFERENCE CERTAIN INFORMATION PREVIOUSLY FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. A LIST OF THE DOCUMENTS THAT WE
HAVE INCORPORATED BY REFERENCE APPEARS ON PAGE 69 UNDER THE HEADING "WHERE YOU
CAN FIND MORE INFORMATION."
THE COMPANIES
TOMPKINS TRUSTCO, INC.
P.O. Box 460
The Commons
Ithaca, New York 14851
(607) 273-3210
Headquartered in Ithaca, New York, Tompkins Trustco, Inc. is the
publicly traded parent company of Tompkins County Trust Company. Tompkins was
organized under the laws of the State of New York in 1995, and is registered as
a single bank holding company with the Federal Reserve Board under the Bank
Holding Company Act of 1956. Tompkins County Trust Company is a commercial bank
chartered in New York State, where it has operated in the community of Ithaca,
New York and environs since 1836. It currently operates 13 full service banking
offices in the State of New York, Counties of Tompkins and Schuyler. Tompkins
County Trust Company's deposits are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation.
At June 30, 1999, Tompkins had total assets of $687 million, deposits
of $488 million and stockholders' equity of $62.4 million.
For more information about Tompkins, reference is made to "PARTIES TO
THE MERGER - Tompkins" and to the Tompkins Form 10-K for the fiscal year ended
December 31, 1998, which we have incorporated by reference into this joint proxy
statement/prospectus. Also, please see "Where You Can Find More Information."
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
P.O. Box 129
50 North Main Street
Castile, New York 14427
(716) 493-2576
Letchworth Independent Bancshares Corporation is the holding company
for The Bank of Castile, Castile, New York, and The Mahopac National Bank,
Mahopac, New York. The Bank of Castile is a wholly-owned subsidiary of
Letchworth and Letchworth is the principal stockholder of The Mahopac National
Bank. Letchworth holds approximately 70% of the common stock of Mahopac National
Bank, approximately 29% is owned by members of the Spain family and their
affiliates, and the remaining shares are held by two other stockholders.
Letchworth was incorporated under the laws of the State of New York in
1981, and is registered as a multiple bank holding company with the Federal
Reserve Board under the Bank Holding Company Act of 1956, as amended. The Bank
of Castile conducts its operations through its main office located in Castile,
New York,
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and at its eleven branch offices in towns situated in and around the areas
commonly known as the Letchworth State Park area and the Genesee Valley region
of New York State. The Bank of Castile recently opened its first branch office
in Monroe County. The Mahopac National Bank is located in Putnam County, New
York, and operates three bank branches in that county. The deposits of both The
Bank of Castile and The Mahopac National Bank are insured by the Federal Deposit
Insurance Corporation.
At June 30, 1999, Letchworth had total assets of $442 million, deposits
of $393 million and stockholders' equity of $34 million.
For more information about Letchworth, reference is made to "Parties to
the Merger -- Letchworth ," and to the Letchworth Form 10-K for the fiscal year
ended December 31, 1998, which is included in this joint proxy
statement/prospectus as Annex F, and the Letchworth Form 10-Q for the fiscal
quarter ended June 30, 1999, which is included as Annex G. Also, please see
"Where You Can Find More Information."
THE STOCKHOLDER MEETINGS
TOMPKINS STOCKHOLDERS
SPECIAL MEETING. The Tompkins special meeting will be held on Monday,
December 20, 1999, at 10:00 a.m. local time, at the Clarion University Hotel &
Conference Center, Sheraton Drive, Ithaca, New York, unless adjourned or
postponed. At this special meeting, Tompkins stockholders will be asked to:
1. adopt the Agreement and Plan of Reorganization between Tompkins
and Letchworth and approve the issuance of Tompkins common stock
in the merger; and
2. act on any other items that may be submitted to a vote at the
special meeting.
RECORD DATE. You can vote at the Tompkins special meeting if you owned
Tompkins common stock at the close of business on October 31, 1999. You can cast
one vote for each share of Tompkins common stock you owned at that time.
VOTE REQUIRED. The holders of at least two-thirds of the Tompkins
common stock entitled to vote at the Tompkins special meeting must approve the
merger.
PROXIES. You can vote your shares at the Tompkins special meeting by
marking the enclosed proxy card with your vote, signing it and mailing it in the
enclosed return envelope. You can revoke your proxy at any time before it is
voted either by sending to Tompkins a revocation notice or a new proxy or by
attending the Tompkins special meeting and voting in person. Simply attending
the Tompkins special meeting will not revoke your proxy.
LETCHWORTH STOCKHOLDERS
SPECIAL MEETING. The Letchworth special meeting will be held on Monday,
December 20, 1999, at 10:00 a.m., local time, at the Batavia Party House, Route
5, Stafford, New York, unless adjourned or postponed. At this special meeting,
Letchworth stockholders will be asked to:
1. adopt the Agreement and Plan of Reorganization; and
2. act on any other items that may be submitted to a vote at the
special meeting.
RECORD DATE. You can vote at the Letchworth special meeting if you
owned Letchworth common stock at the close of business on October 31, 1999. You
can cast one vote for each share of Letchworth common stock you owned at that
time.
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VOTE REQUIRED. Adoption of the merger agreement will require the
affirmative vote of two-thirds of the outstanding Letchworth common stock.
PROXIES. You can vote your shares at the Letchworth special meeting by
marking the enclosed proxy card with your vote, signing it and mailing it in the
enclosed return envelope. You can revoke your proxy at any time before it is
voted either by sending to Letchworth a revocation notice or a new proxy or by
attending the Letchworth special meeting and voting in person. Simply attending
the Letchworth special meeting will not revoke your proxy.
OUR REASONS AND RECOMMENDATIONS FOR THE MERGER (PAGE 25)
Tompkins believes that the merger will benefit the Tompkins
stockholders for several reasons, including the following:
o we believe that Letchworth has a strong financial and capital
position, is well managed, and operates successful commercial
banks. We believe that the combined company presents increased
capacity for future growth, will enjoy enhanced capital resources
necessary to make investments in technology and services, and
offers considerable potential for long-term strategic value to
Tompkins stockholders;
o the significant similarity between and the compatibility of
Tompkins' and Letchworth's business lines, cultures and management
philosophies, their commitments to the communities and customers
they each serve, and to their respective employees. These
attributes will facilitate the management of the combined company
and the integration of their strategies;
o the expectation that the combined institution will continue to
provide quality community banking
service to the communities and customers served;
o the belief that the significant increase in population to be served
presents important new opportunities for profitable growth for
Tompkins. These include enhanced opportunities for growth in
deposits, loans and fee income through delivery of new and enhanced
products to the markets served by The Bank of Castile and The
Mahopac National Bank; and
o the anticipated revenue enhancements, cost savings and efficiencies
(including reduction or elimination of certain operational and
administrative systems) available from the merger.
Tompkins' board of directors believes the merger is in its
stockholders' interests and unanimously recommends that Tompkins stockholders
vote "FOR" the proposal to approve the Agreement and Plan of Reorganization,
which will constitute approval of the merger and the related issuance of
Tompkins common stock.
Letchworth believes that the merger will benefit the Letchworth
stockholders for several reasons including the following:
o the Letchworth directors believe that the combined organization,
because of its size, geographic diversity, and enhanced earnings,
will be better positioned to attain long term stockholder value
than the current structure, while maintaining a strong community
bank presence within its markets;
o the directors believe that the enhanced size will allow for the
ongoing investment in technology that provides each bank the
ability to offer its customers the broader range of products and
services, which they expect;
o the merger will provide for increased lending capacity within the
combined company, allowing customers with larger credit needs to be
served internally; and
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o the Letchworth directors believe that the cost of being a public
company could be more easily borne by a larger company, and
leveraged more easily and profitability;
o the Letchworth directors believe that the stockholder
characteristics of both companies are substantially consistent,
allowing for a smoother integration process and the sharing of
common goals.
Letchworth's board of directors believes the merger is in its
stockholders' best interests and unanimously recommends that Letchworth
stockholders vote "FOR" the proposal to adopt the merger agreement.
You should note, however, that achieving these objectives is subject to
particular risks and uncertainties, including possible difficulties in combining
the operations of the two companies, in achieving anticipated cost savings and
other financial and operating benefits from the merger, and in the introduction
and acceptance of new products and services into Letchworth's market place.
Please see "Disclosure Regarding Forward-Looking Information." To review our
reasons for the merger in greater detail, as well as how we came to agree on the
merger, please see pages 22 through 38.
THE MERGER AND THE MERGER AGREEMENT (PAGE 21)
WE HAVE ATTACHED THE AGREEMENT AND PLAN OF REORGANIZATION TO THIS
DOCUMENT AS ANNEX A. PLEASE READ THE MERGER AGREEMENT CAREFULLY. IT IS THE LEGAL
DOCUMENT THAT GOVERNS THE MERGER.
WHAT LETCHWORTH STOCKHOLDERS WILL RECEIVE (PAGE 21).
As a result of the merger, Letchworth stockholders will receive, for
each share of Letchworth common stock, 0.685 of a share of Tompkins common
stock. This exchange ratio is subject to possible adjustment as described on
page 21. Tompkins will not issue any fractional shares. Letchworth stockholders
will receive a check for any fractional share in an amount equal to the share
fraction multiplied by the closing price of Tompkins common stock on the day
before we complete the merger.
For example, if you currently own 1,500 shares of Letchworth common
stock, after the merger you will receive 1,027 shares of Tompkins common stock
and a check for an amount equal to 0.50 multiplied by the closing price of one
share of Tompkins common stock on the day before we complete the merger. The
value of the stock that you will receive will fluctuate as the price of Tompkins
common stock changes.
On October 29, 1999, the latest practicable date prior to the mailing
of this document, the closing share price of Tompkins common stock as reported
on the American Stock Exchange was $29.75. Applying the 0.685 exchange ratio to
the Tompkins closing price on that date, each holder of Letchworth common stock
would be entitled to receive Tompkins common stock with a market value of
approximately $20.38 for each share of Letchworth common stock. The value of
Tompkins and Letchworth common stock, however, is likely to change between now
and completion of the merger. You should obtain current price quotes for
Tompkins and Letchworth common stock. Please see "Selected Consolidated
Historical and Pro Forma Financial Information" on page 12.
OWNERSHIP OF TOMPKINS AFTER THE MERGER
Tompkins will issue approximately 2.4 million shares of Tompkins common
stock to Letchworth stockholders in the merger. The shares of Tompkins common
stock to be issued to Letchworth stockholders in the merger will represent
approximately 32.5% of the outstanding Tompkins common stock after the merger.
This information is based on the number of Tompkins and Letchworth shares
outstanding on October 31, 1999 and does not take into account unallocated stock
options.
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BOARD OF DIRECTORS OF TOMPKINS AFTER THE MERGER
Following the merger, Tompkins's board of directors will have 11
members, consisting of eight current Tompkins directors plus three Letchworth
designees. The Letchworth designees to be appointed to the board of Tompkins are
James W. Fulmer, the president and chief executive officer of Letchworth, Craig
Yunker, a director of The Bank of Castile, and William D. Spain, Jr., a director
of Letchworth and Chairman of the Board of The Mahopac National Bank.
INTERESTS OF LETCHWORTH'S OFFICERS AND DIRECTORS IN THE MERGER (PAGE
40)
You should be aware that a number of Letchworth directors and executive
officers The Bank of Castile, and The Mahopac National Bank may have interests
in the merger that are different from, or in addition to, their interests as
stockholders. These interests exist because of the rights that these directors
and executive officers have under the terms of their benefit and compensation
plans and also, in the case of the executive officers, under the terms of
various agreements with Letchworth, The Bank of Castile, and The Mahopac
National Bank. These agreements provide certain executive officers with
severance benefits if their employment is terminated under specified
circumstances following the merger. Some plans provide for accelerated vesting
of stock options. These interests also arise from provisions of the merger
agreement relating to appointments to the Tompkins board, director and officer
indemnification and insurance, and employment arrangements and employee benefits
after the merger.
The members of Letchworth's board of directors knew about and
considered these additional interests when they approved the merger agreement.
OPINIONS OF FINANCIAL ADVISORS (PAGES 26 AND 32)
TOMPKINS. Among other factors considered in deciding to approve the
merger, the Tompkins board of directors received the opinion of its financial
advisor, Danielson Associates, Inc., to the effect that, as of the date of the
opinion, the exchange ratio was fair to the holders of Tompkins common stock
from a financial point of view. We have attached a copy of this opinion to this
joint proxy statement/prospectus as Appendix D. You should read this opinion
completely to understand the assumptions made, matters considered and
limitations of the review undertaken by Danielson in providing its opinion.
LETCHWORTH. Among other factors considered in deciding to approve the
merger, the Letchworth board of directors received the opinion of its financial
advisor, McConnell, Budd and Downes, Inc. that, as of July 30, 1999 (the date of
the Letchworth board's vote on the merger) and updated through the date of this
joint proxy statement/prospectus, the exchange ratio was fair to the holders of
Letchworth common stock from a financial point of view. We have attached a copy
of this opinion to this joint proxy statement/prospectus as Annex E. You should
read this opinion completely to understand the assumptions made, matters
considered and limitations of the review undertaken by McConnell, Budd in
providing its opinion.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (PAGE 48)
We have structured the merger in a manner so that Tompkins, Letchworth
and the holders of Letchworth common stock will not recognize any income, gain,
or loss for Federal tax purposes as a result of the merger, except for gain on
cash received by Letchworth stockholders for fractional shares
It is a condition to closing the merger that Tompkins and Letchworth
receive an opinion of Harris Beach & Wilcox LLP, Tompkins' legal counsel, that
the merger will be a tax-free reorganization for federal income tax purposes.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES THAT THE
MERGER WILL HAVE ON YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU
SHOULD CONSULT YOUR TAX ADVISORS FOR A COMPLETE DESCRIPTION OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
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ACCOUNTING TREATMENT (PAGE 48)
We expect the merger to qualify for "pooling-of-interests" accounting
treatment. This means we will treat our companies as if they had always been
combined for accounting and financial reporting purposes at their current book
values.
LETCHWORTH STOCKHOLDERS WILL HAVE APPRAISAL RIGHTS (PAGE 50)
Under Section 910 of the New York Business Corporation Law, holders of
Letchworth common stock who, prior to the applicable vote of stockholders on the
merger, properly file with Letchworth, a written notice of intention to dissent
will have the right to obtain a cash payment for the "fair value" of their
shares. In order to exercise such rights, a stockholder must comply with certain
procedural requirements set forth in Section 623 of the New York Business
Corporation Law, a description of which is provided in "Appraisal Rights of
Letchworth Stockholders" and the full text of which is attached to this joint
proxy statement/prospectus as Annex H. Such "fair value" would potentially be
determined in judicial proceedings, the result of which cannot be predicted.
Failure to take any of the steps required under Section 623 of the New York
Business Corporation Law on a timely basis may result in the loss of dissenters'
rights. Please see "Appraisal Rights of Letchworth Stockholders."
REGULATORY APPROVALS REQUIRED (PAGE 43)
The merger must be approved by the Board of Governors of the Federal
Reserve System, the New York Banking Board, the Office of the Comptroller of the
Currency and the Federal Deposit Insurance Corporation. We have filed all of the
required applications or notices with the Federal Reserve Board, the New York
Banking Board and these other regulatory authorities.
There can be no assurance that all regulatory approvals will be
obtained or the dates on which those approvals will be obtained. There can also
be no assurance that regulatory approvals received will not contain a condition
or requirement that causes the approvals to fail to satisfy the conditions set
forth in the merger agreement.
WHAT NEEDS TO BE DONE TO COMPLETE THE MERGER (PAGE 41)
The completion of the merger depends on a number of conditions being
met. In addition to compliance with the merger agreement, these conditions
include:
o approval of the Agreement and Plan of Reorganization, which will
constitute the approval of the merger and the issuance of Tompkins
common stock by Tompkins stockholders, and adoption of the merger
agreement by the stockholders of Tompkins and Letchworth;
o approval of the merger by federal and state regulatory authorities;
o receipt at the closing of the merger of an opinion regarding the
federal income tax consequences and accounting treatment of the
merger; and
o the absence of any injunction or legal restraint blocking the
merger or government proceeding preventing the completion of the
merger.
Tompkins or Letchworth could decide to complete the merger even though
one or more of the conditions in the merger agreement has not been met. We
cannot be certain when (or if) the conditions to the merger will be satisfied or
waived, or that the merger will be completed.
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TERMINATION OF THE MERGER AGREEMENT (PAGE 46)
We can mutually agree at any time to terminate the merger agreement
prior to completing the merger. In addition, either of us may terminate the
merger agreement if:
o we mutually agree to terminate the merger agreement before it
becomes effective;
o the other party breaches a material provision of the merger
agreement and does not cure the breach within 30 days;
o the merger has not been completed by June 30, 2000;
o a regulatory authority does not grant an approval needed to
complete the merger;
o Letchworth's stockholders do not adopt the merger agreement or
Tompkins' stockholders do not adopt the merger agreement; or
o other conditions to closing of the merger have not been satisfied.
Letchworth can also terminate the merger agreement if:
o Tompkins' average common stock price during a valuation period
prior to the anticipated closing date is less than $29.22 and the
decline in Tompkins' average common stock price is at least 15
percentage points more than the decline in the weighted average
stock price of all publicly traded banks, as set forth in the SNL
Bank Stock Index; provided that Tompkins may void such termination
by increasing the exchange ratio to a specified minimum; or
o Letchworth enters into a definitive agreement relating to its
acquisition based upon its board of directors' determination that
such action is consistent with its fiduciary duties; or
o Tompkins executes a definitive agreement relating to the
acquisition of Tompkins or its subsidiaries.
FEES ASSOCIATED WITH TERMINATION OF THE MERGER AGREEMENT (PAGE 46)
Letchworth must pay Tompkins a $3.0 million termination fee if it
enters into a definitive agreement with another party.
Tompkins must pay Letchworth $1.0 million a termination fee in the
event Letchworth terminates the merger agreement based upon Tompkins' execution
of a definitive agreement with a third party relating to the acquisition of
Tompkins.
SHARE OWNERSHIP OF MANAGEMENT DIRECTORS (PAGES 19 AND 21)
On October 31, 1999, the record date for the Tompkins special meeting,
directors and executive officers of Tompkins and their affiliates beneficially
owned 342,736 shares of Tompkins common stock, or approximately 7.0% of the
Tompkins shares outstanding on that date. The preceding numbers are inclusive of
the shares of Tompkins common stock, which may be acquired upon the exercise of
vested options under Tompkins' 1992 stock option plan. Of those shares, the
Tompkins directors and executive officers will be entitled to vote 249,609
shares at the Tompkins special meeting (approximately 5.2% of the outstanding
shares). These individuals have indicated that at the Tompkins special meeting
they intend to vote their shares in favor of the merger and the proposal to
issue Tompkins common stock in the merger.
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On October 31, 1999, the record date for the Letchworth special
meeting, directors and executive officers of Letchworth and their affiliates
beneficially owned 563,093 shares of Letchworth common stock, or approximately
16.4% of the Letchworth shares outstanding on that date. The preceding numbers
are inclusive of the shares of Letchworth common stock, which may be acquired
upon the exercise of vested options. Of those shares, Letchworth directors and
officers will be entitled to vote 533,093 shares at the Letchworth special
meeting (approximately 16.1% of the outstanding shares).
The Letchworth directors have entered into voting agreements with
Tompkins whereby they have agreed to vote at the Letchworth special meeting all
of the Letchworth common stock owned or controlled by them in favor of the
proposal to adopt the merger agreement. Letchworth believes its executive
officers intend to vote in favor of the proposal to adopt the merger agreement.
THE MERGER STOCK OPTION AGREEMENT (PAGE 52)
The stock option agreement, dated as of July 30, 1999, between Tompkins
and Letchworth, was a condition to Tompkins entering into the merger agreement.
Pursuant to the stock option agreement, Tompkins acquired an option to purchase
up to 689,737 shares of Letchworth common stock, which represents 19.9% of the
outstanding shares of Letchworth stock, without giving effect to the exercise of
the entire option. The exercise price of the option is $14.00 per share, subject
to adjustment under specified circumstances. The merger stock option may only be
exercised upon the occurrence of certain events (none of which has occurred).
Under certain circumstances, Letchworth may be required to repurchase the merger
stock option or the shares acquired upon exercise of the option. A copy of the
merger stock option agreement is attached as Annex B to this joint proxy
statement/prospectus. Please see "Certain Related Transactions -- Merger Stock
Option Agreement."
The merger stock option agreement is intended to increase the
likelihood that the merger will be consummated in accordance with the terms of
the merger agreement. Consequently, certain aspects of the merger stock option
agreement may have the effect of discouraging persons who might now, or prior to
the time of closing of the merger, be interested in acquiring all of or a
significant interest in Letchworth from considering or proposing such an
acquisition, even if such persons were prepared to pay a higher price per share
for Letchworth common stock than the price per share implicit in the exchange
ratio. The acquisition of Letchworth or an interest in Letchworth, or an
agreement to do either, could cause the merger stock option to become
exercisable. The existence of the merger stock option could significantly
increase the cost to a potential acquirer of acquiring Letchworth compared to
its cost had the merger stock option agreement not been entered into. Such
increased costs might discourage a potential acquirer from considering or
proposing an acquisition or might result in a potential acquirer proposing to
pay a lower per share price to acquire Letchworth than it might otherwise have
proposed to pay. The management of Letchworth believes that the exercise of the
merger stock option is likely to prohibit any acquirer of Letchworth from
accounting for the acquisition of Letchworth using the pooling-of-interests
accounting method for a period of two years. The inability to use the
pooling-of-interests accounting method also could discourage or preclude an
acquisition of Letchworth by other organizations during that period.
10
- --------------------------------------------------------------------------------
<PAGE>
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
This document, including information included or incorporated by
reference, contains forward-looking statements about Tompkins, Letchworth and
the combined company which we believe are within the meaning of the Private
Securities Litigation Reform Act of 1995. These forward-looking statements
include information in this document regarding the financial condition, results
of operations and business of Tompkins following the consummation of the merger.
They also include statements relating to the synergies, efficiencies, cost
savings and funding advantages that are expected to be realized from the merger
and the expected impact of the merger on Tompkins' financial performance and
earnings estimates for the combined company.
The sections of this document which contain forward-looking statements
include "Questions and Answers About the Merger and the Meetings, " "Summary,"
"Unaudited Pro Forma Combined Selected Financial Information", "The Merger --
Background of the merger," "The Merger - Recommendation of the Tompkins Board;
Tompkins' Reasons for the Merger," "The Merger -- Opinion of Tompkins' Financial
Advisor," "The Merger -- Opinion of Letchworth's Financial Advisor," "The Merger
- - Recommendation of the Letchworth Board; Letchworth's Reasons for the Merger,"
and "Unaudited Pro Forma Condensed Combined Financial Statements."
Forward-looking statements are also identified by words such as "believes,"
"anticipates," "estimates," "expects," "intends," "plans" or similar
expressions.
Forward-looking statements involve certain risks and uncertainties. You
should understand that the following important factors, in addition to those
discussed elsewhere in this document and in the documents which are incorporated
into this joint proxy statement/prospectus by reference, could affect the future
results of Tompkins and Letchworth, and of Tompkins after the merger and could
cause those results to differ materially from those expressed in our
forward-looking statements:
o expected cost savings from the merger may not be fully realized or
may not be realized within the
expected time frame;
o revenues following the merger may be lower than expected, or
withdrawals of customer deposits, operating costs, customer loss
and business disruption following the merger may be greater than
expected;
o costs or difficulties related to the integration of the businesses
of Tompkins and Letchworth may be greater than expected;
o changes in the interest rate environment may reduce margins more
than planned;
o general economic conditions, either nationally or regionally, may
be less favorable than expected, resulting in, among other things,
a deterioration in the credit quality of our loan assets;
o legislative or regulatory changes may adversely affect the business
in which we are engaged;
o the willingness of users to substitute our products and services
for competitors' products and services may be less than expected;
o competitive pressure in the banking industry, and in particular the
community banking market, may increase; and
o technological changes (including Year 2000 data systems compliance
issues) may be more difficult or expensive than anticipated.
Further information on other factors, which could affect the financial
results of Tompkins after the merger, is included in the documents filed with
the Securities and Exchange Commission and incorporated by reference into this
joint proxy statement/prospectus. Please see "Where You Can Find More
Information."
11
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth selected historical consolidated
financial data for Tompkins and Letchworth as of and for the five years ended
December 31, 1998 and the six-month period ended June 30, 1999. The selected
data presented in the tables under the caption "Selected Historical Financial
Data" for, and as of, each of the periods noted above are derived from
consolidated financial statements of Tompkins and Letchworth. The consolidated
financial statements as of December 31, 1998 and 1997 and for each of the years
in the three year period ended December 31, 1998, and the auditors' report
thereon, are incorporated by reference elsewhere in this joint proxy
statement/prospectus. The selected data presented in the tables for, and as of,
the six month period ended June 30, 1999 are derived from the unaudited
consolidated interim financial statements of Tompkins and Letchworth,
incorporated by reference elsewhere in this joint proxy statement/prospectus.
Please see "Where You Can Find More Information." This financial information
should be read in connection with the consolidated financial statements,
including the respective notes thereto and other financial information included
in documents incorporated by reference. Tompkins had no operations prior to
March 6, 1995 and, accordingly, the information provided below prior to that
date reflects only that of Tompkins County Trust Company, as its predecessor.
The financial information for the six month period ended June 30, 1999 for
Tompkins and Letchworth reflect, in the opinions of the management of Tompkins
and Letchworth, respectively, all adjustments necessary for a fair presentation
of such information and include only normal recurring items. Results for these
interim periods are not necessarily indicative of the results, which may be
expected for the full year or any other interim period. All per share amounts
have been adjusted as necessary to reflect stock splits and stock dividends.
TOMPKINS TRUSTCO, INC.
SELECTED HISTORICAL FINANCIAL DATA
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $686,863 $673,042 $626,907 $591,344 $536,992 $511,162
Deposits 487,749 492,792 476,700 427,367 370,631 345,776
Other Borrowings 45,005 45,005 27,005 15,005 12,000 12,000
Stockholders' Equity 62,433 64,023 57,243 52,613 55,090 47,817
Interest Income $24,119 $48,791 $46,812 $43,287 $40,204 $35,676
Interest Expense 9,970 20,560 20,182 17,916 16,526 12,911
Net Interest Income 14,149 28,231 26,630 25,371 23,678 22,765
Provision for Loan Losses 224 1,006 1,068 1,210 751 768
Net Securities Gains (Losses) 0 (72) (85) 0 0 121
Net Income 5,973 11,189 9,856 9,179 8,718 8,137
Basic Earnings Per Share $1.23 $2.31 $2.02 $1.76 $1.64 $1.53
Diluted Earnings Per Share 1.21 2.27 2.00 1.75 1.63 1.51
Dividends Declared Per Share 0.50 0.91 0.82 0.73 0.66 0.61
Return on Average Assets 1.77% 1.72% 1.61% 1.62% 1.67% 1.62%
Return on Average Stockholders' Equity 18.45% 18.51% 18.41% 16.82% 17.02% 17.20%
Stockholder's Equity to Average Assets 9.17% 9.80% 9.28% 9.29% 10.20% 9.49%
Dividend Payout Ratio 40.65% 39.61% 40.70% 41.54% 40.20% 39.70%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ------------------------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $442,353 $281,663 $259,939 $245,053 $233,494 $211,715
Deposits 392,737 240,852 217,205 208,282 204,075 187,458
Other Borrowings 7,753 3,968 7,812 8,145 3,507 2,936
Stockholders' Equity 33,994 33,629 31,760 25,806 22,826 19,803
Interest Income $11,416 $20,938 $19,453 $18,140 $17,878 $14,036
Interest Expense 4,231 8,811 8,053 7,443 7,611 5,232
Net Interest Income 7,185 12,127 11,400 10,697 10,267 8,804
Provision for Loan Losses 282 533 368 283 324 313
Net Securities Gains (Losses) 2 60 37 13 0 (21)
Net Income 1,888 3,313 3,136 2,870 2,657 2,256
Basic Earnings Per Share $0.58 $1.01 $1.10 $1.06 $1.01 $0.85
Diluted Earnings Per Share 0.57 0.99 1.00 0.97 0.95 0.83
Dividends Declared Per Share 0.18 0.32 0.27 0.22 0.18 0.16
Return on Average Assets 1.22% 1.22% 1.26% 1.22% 1.19% 1.19%
Return on Average Stockholders' Equity 11.05% 10.22% 11.22% 11.86% 12.36% 11.64%
Stockholders' Equity to Average Assets 10.15% 12.39% 12.77% 10.69% 10.19% 10.47%
Dividend Payout Ratio 31.81% 32.22% 24.03% 20.98% 18.23% 19.05
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
UNAUDITED PRO FORMA COMBINED
SELECTED FINANCIAL INFORMATION
The following table sets forth certain selected financial information
for Tompkins and Letchworth on an unaudited pro forma combined basis as if the
merger had become effective as of the dates indicated, in the case of the
consolidated statement of condition information presented, and as if the merger
had become effective at the beginning of the periods indicated, in the case of
the consolidated income statement information presented. The pro forma
information in the tables assumes that the merger is accounted for using the
pooling-of-interests method of accounting. Please see "The Merger -- Anticipated
Accounting Treatment." These tables should be read in conjunction with, and are
qualified in their entirety by, the historical consolidated financial
statements, including the notes thereto, of Tompkins and Letchworth incorporated
by reference herein and the more detailed pro forma financial information,
including the notes thereto, appearing elsewhere in this joint proxy
statement/prospectus. Certain Letchworth information has been reclassified to
conform to Tompkins financial information. Please see "Where You Can Find More
Information" and "Unaudited Pro Forma Condensed Combined Financial Statements."
The unaudited pro forma combined financial information set forth in the
following table does not reflect the potential cost savings and revenue
enhancement opportunities that could result from the merger or any other items
of income or expense which may result from Letchworth's purchase of 70% of
Mahopac on June 4, 1999. The unaudited pro forma combined selected financial
information is presented for informational purposes only and is not necessarily
indicative of the combined financial position or results of operations that
would have occurred if the merger had been consummated on the dates indicated,
or at the beginning of the periods indicated, or which may be obtained in the
future.
13
<PAGE>
TOMPKINS TRUSTCO, INC.
AND
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL
INFORMATION(1) (Dollar amounts in thousands,
except per share amounts)
<TABLE>
<CAPTION>
SIX YEAR ENDED DECEMBER 31,
ENDED --------------------------------------------------------------------------
JUNE 30, 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets $1,129,216 $ 954,705 $ 886,846 $ 836,397 $ 770,486 $ 722,877
Deposits 880,486 733,644 693,905 635,649 574,706 533,234
Other Borrowings 52,758 48,973 34,817 23,150 15,507 14,936
96,427 97,652 89,003 77,699 77,916 67,620
Stockholders' Equity
$ 35,535 $ 69,729 $ 66,265 $ 61,427 $ 58,082 $ 49,712
Interest Income
Interest Expense 14,201 29,371 28,235 25,359 24,137 18,143
Net Interest Income 21,334 40,358 38,030 36,068 33,945 31,569
Provision for Loan Losses 506 1,539 1,436 1,493 1,075 1,081
Net Securities Gains (Losses) 5 (12) (83) (1) 4 156
Net Income 7,861 14,502 12,992 12,049 11,375 10,393
Basic Earnings Per Share $ 1.11 $ 2.05 $ 1.91 $ 1.70 $ 1.60 $ 1.45
Diluted Earnings Per Share 1.09 2.01 1.84 1.66 1.56 1.44
Dividends Declared Per Share 0.43 0.78 0.70 0.62 0.56 0.51
Return on Average Assets 1.57% 1.57% 1.51% 1.50% 1.52% 1.50%
Return on Average Stockholders' Equity 16.08% 16.09% 15.95% 15.29% 15.63% 15.78%
Stockholders' Equity to Average Assets 9.49% 10.60% 10.32% 9.70% 10.44% 9.78%
Dividend Payout Ratio(2) 38.54% 37.91% 36.68% 36.64% 35.08% 35.22%
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) All per share amounts have been adjusted as necessary for stock
splits and stock dividends.
(2) Calculated by dividing the sum of the dividends paid by Tompkins
and Letchworth in each period by the pro forma net income for each
period as shown above.
14
<PAGE>
COMPARATIVE PRO FORMA PER SHARE DATA
(UNAUDITED)
The following table sets forth for Tompkins common stock and Letchworth
common stock certain historical, pro forma and pro forma equivalent per share
financial information. The pro forma and pro forma equivalent per share
information gives effect to the merger as if the merger had been effective at
the beginning of each of the periods presented. The pro forma data in the tables
assumes that the merger is accounted for using the pooling-of-interests method
of accounting. Please see "The Merger -- Anticipated Accounting Treatment." The
information presented herein is based on, and is qualified in its entirety by,
the historical financial statements, including the notes thereto, of Tompkins
and Letchworth incorporated by reference herein and the pro forma financial
information, including the notes thereto, appearing elsewhere in this joint
proxy statement/prospectus under the heading "Unaudited Pro Forma Condensed
Combined Financial Statements." The pro forma and equivalent pro forma per share
data in the following tables are presented for comparative purposes only and are
not necessarily indicative of what the combined financial position or results of
operations would have been had the merger been consummated during the periods or
as of the date for which such pro forma tables are presented. The Letchworth pro
forma equivalent per share amounts are calculated by multiplying the pro forma
combined amounts by the exchange ratio of 0.685.
<TABLE>
<CAPTION>
LETCHWORTH
PRO FORMA
TOMPKINS LETCHWORTH PRO FORMA EQUIVALENT
- -----------------------------------------------------------------------------------------------------------------
NET INCOME PER SHARE (DILUTED)
Year Ended:
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 $2.27 $0.99 $2.01 $1.38
December 31, 1997 2.00 1.00 1.84 1.26
December 31, 1996 1.75 0.97 1.66 1.14
Six Months Ended:
June 30, 1999 $1.21 $0.57 $1.09 $0.75
DIVIDENDS PER SHARE
Year Ended:
December 31, 1998 $0.91 $0.32 $0.78 $0.53
December 31, 1997 0.82 0.27 0.70 0.48
December 31, 1996 0.73 0.22 0.62 0.42
Six Months Ended:
June 30, 1999 $0.50 $0.18 $0.43 $0.29
BOOK VALUE PER SHARE
At December 31, 1998 $13.19 $10.18 $13.80 $9.45
At June 30, 1999 12.99 10.33 13.63 9.34
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE>
PARTIES TO THE MERGER
TOMPKINS
Tompkins is a single bank holding company incorporated under the laws
of the State of New York and registered with the Federal Reserve Board under the
Bank Holding Company Act of 1956, as amended. Tompkins' wholly owned subsidiary,
Tompkins County Trust Company, is a trust company chartered in New York State,
and has been in operation in the Tompkins County area since 1836.
At June 30, 1999, Tompkins had total assets of $687 million, deposits
of $488 million and stockholders' equity of $62.4 million. The principal offices
of Tompkins and Tompkins County Trust Company are located at The Commons,
Ithaca, New York 14851, and its telephone number is (607) 273-3210.
For more information about Tompkins, reference is made to the 1998
Tompkins Form 10-K, which is incorporated herein by reference. Please see "Where
You Can Find More Information."
LETCHWORTH
Letchworth is a multiple bank holding company organized under the laws
of the State of New York in 1989, Letchworth operates through two banking
subsidiaries: The Bank of Castile (wholly owned by Letchworth) and The Mahopac
National Bank (of which Letchworth is the principal stockholder, holding
approximately 70% of the outstanding capital stock). At June 30, 1999,
Letchworth had total assets of $442 million, deposits of $393 million and
stockholders' equity of $34 million. Letchworth's principal executive offices
are located at 50 North Main Street, Castile, New York 14427, and its telephone
number is (716) 493-2576.
The Bank of Castile is a commercial bank formed in 1869. It conducts
its operations through its main office located in Castile, New York, and at its
eleven branch offices in towns located in the Western New York region between
the cities of Buffalo and Rochester. Ten of these offices are situated
throughout the New York counties of Genesee, Livingston, Wyoming, and a branch
has been opened recently in southwestern Monroe County.
On June 4, 1999, Letchworth consummated the acquisition of a
controlling interest in The Mahopac National Bank. The Mahopac National Bank is
a national bank that operates three bank branches in Putnam County, New York,
and has recently received regulatory approval to open a fourth branch in
Brewster, New York, which is also within Putnam County. As a result of that
transaction, Letchworth now owns 1,491 shares, or approximately 70% of the
issued and outstanding shares of capital stock of Mahopac.
THE MAHOPAC OPTION. Prior to the investment by Letchworth, The Mahopac
National Bank was owned primarily by the members of three families, the
Costello, Ryder and Spain families. Letchworth entered into a written agreement
with the members of the Spain family to unify the ownership structure of Mahopac
National within two years. That agreement allows for the Spain family to
purchase all the shares of Mahopac National currently owned by Letchworth, or,
in the event that the Spain family fails to exercise its option, for Letchworth
to purchase all of the shares of Mahopac National owned by the Spain family. In
either case, the exercise price for each share of common stock will be equal to
90% of the "fair market value" of each share of common stock of Mahopac
National, as determined in accordance with the Mahopac stockholder agreement.
The intent of Letchworth, and also the stated intent of the Spain family, was
for Letchworth to acquire all of the shares of common stock owned by the Spain
family. If, for whatever reason, neither party is able or willing to buy out the
other, the terms of the Mahopac stockholder agreement require that Mahopac
National be sold in its entirety to a third party. All of the rights now held by
Letchworth in respect of Mahopac National, including rights under the Mahopac
stockholder agreement to purchase all of the shares of Mahopac National owned by
the Spain family, will be transferred to Tompkins upon consummation of the
merger. The expectation of both Letchworth and the Spain family, at the time of
entering into the Mahopac option, was for Letchworth to acquire all of the
shares of common stock owned by the Spain family.
16
<PAGE>
For more information about Letchworth, reference is made to the 1998
Letchworth Form 10-K, which is included as Annex F and the Letchworth Form 10-Q
for the second quarter of 1999, included as Annex G. Also, please see "Where You
Can Find More Information."
MEETING OF TOMPKINS STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
This joint proxy statement/prospectus is being furnished to
stockholders of Tompkins in connection with the solicitation of proxies by the
Tompkins board for use at the Tompkins special meeting to be held at the Clarion
University Hotel & Conference Center, 1 Sheraton Drive, Ithaca, New York, on
Monday, December 20, 1999, at 10:00 a.m. New York time. At the Tompkins special
meeting, the holders of Tompkins common stock will be asked to consider and vote
upon (i) a proposal to approve and adopt the Agreement and Plan of
Reorganization, which will constitute the approval of the merger and the related
issuance of Tompkins common stock; and (ii) such other matters as may properly
be brought before the Tompkins special meeting. The Agreement and Plan of
Reorganization is included as Annex A to this joint proxy statement/prospectus
THE TOMPKINS BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE
BEST INTERESTS OF, TOMPKINS AND ITS STOCKHOLDERS. THE TOMPKINS BOARD THEREFORE
UNANIMOUSLY RECOMMENDS THAT TOMPKINS' STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE AGREEMENT AND PLAN OF REORGANIZATION, WHICH WILL CONSTITUTE
APPROVAL OF THE MERGER AND THE RELATED ISSUANCE OF TOMPKINS COMMON STOCK.
Please see "The Merger -- Background of the Merger" and "--
Recommendation of the Tompkins Board; Tompkins' Reasons for the Merger."
RECORD DATE
The Tompkins board has fixed the close of business on October 31, 1999
as the Tompkins record date for the determination of the holders of Tompkins
common stock entitled to receive notice of and to vote at the Tompkins special
meeting. Only holders of record of Tompkins common stock at the close of
business on the Tompkins record date will be entitled to receive notice of and
to vote at the Tompkins special meeting. At the close of business on the
Tompkins record date, there were 4,775,565 shares of Tompkins common stock
outstanding and entitled to be voted at the Tompkins special meeting, which were
held by approximately 1,057 holders of record. The presence, in person or by
proxy, of the holders of at least a majority of the total number of outstanding
shares of Tompkins common stock entitled to vote at the Tompkins special meeting
is necessary to constitute a quorum thereat.
PROXIES; VOTING AND REVOCATION OF PROXIES
Each holder of shares of Tompkins common stock on the Tompkins record
date will be entitled to one vote for each share of Tompkins common stock held
of record on each matter to be voted upon at the Tompkins special meeting.
Tompkins intends to count shares of Tompkins common stock present in
person at its special meeting but not voted, and shares of Tompkins common stock
for which it has received proxies but with respect to which holders of shares
have abstained on any matter, as present at the Tompkins special meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business. Since the approval and adoption of the Agreement and Plan of
Reorganization and the transactions contemplated thereby, requires the
affirmative vote of the holders of at least two-thirds of the outstanding shares
of Tompkins common stock entitled to vote, each non-voting share and abstention
will have the effect of a vote AGAINST the approval and adoption of the
agreement and related transactions. In addition, brokers who hold shares in
street name for customers who are beneficial owners of such shares are
prohibited from giving a proxy to vote shares held for such customers on the
approval and adoption of the merger agreement without specific instructions from
such customers. Given that the
17
<PAGE>
approval and adoption of the merger agreement requires the affirmative vote of
the holders of at least two-thirds of the outstanding shares of Tompkins common
stock entitled to vote thereon, the failure of any such customers to provide
specific instructions to his or her broker with respect to his or her shares of
Tompkins common stock (a "broker non-vote") will have the effect of a vote
AGAINST the approval and adoption of the Agreement and Plan of Reorganization
and the transactions contemplated thereby.
All shares of Tompkins common stock which are entitled to be voted and
are represented at the Tompkins special meeting by properly executed proxies
received by Tompkins in time to be voted at the Tompkins special meeting, and
which are not revoked, will be voted in accordance with the instructions
indicated on such proxies. IF NO INSTRUCTIONS ARE GIVEN, SUCH PROXIES WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF REORGANIZATION AND
THE TRANSACTIONS CONTEMPLATED THEREBY.
If any other matters are properly presented for consideration at the
Tompkins special meeting including, among other things, a motion to adjourn or
postpone the Tompkins special meeting to another time and/or place for the
purpose of soliciting additional proxies or otherwise, the persons named in the
form of proxy enclosed herewith and acting thereunder will have discretionary
authority to vote on such matters in accordance with the best judgment of the
Tompkins board; provided, however, that such discretionary authority will only
be exercised to the extent allowable under applicable federal and state
securities and corporation laws. Tompkins does not have any knowledge of any
matters to be presented at the Tompkins meeting other than the matters set forth
above.
The presence of a stockholder at the Tompkins special meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may revoke
a proxy at any time prior to its exercise by (i) filing a written notice of
revocation bearing a later date than the date of the proxy with the corporate
secretary of Tompkins prior to the Tompkins special meeting; (ii) duly executing
a later-dated proxy relating to the same shares and delivering it to the
secretary of the Tompkins special meeting before the taking of the vote at the
Tompkins Meeting; or (iii) attending the Tompkins special meeting, filing a
written notice of revocation with the secretary of the Tompkins special meeting,
and voting in person. Any written notice of revocation or subsequently executed
proxy should be sent so as to be delivered to Tompkins Trustco, Inc., P.O. Box
460, The Commons, Ithaca, New York 14851, Attention: John E. Butler, Esq.,
corporate secretary, or hand delivered to Tompkins' corporate secretary at such
address on or before the day of the Tompkins meeting or to the inspector of
election of the Tompkins special meeting before the taking of the vote at the
Tompkins special meeting. IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO BE ADMITTED TO THE TOMPKINS SPECIAL MEETING AND TO
VOTE AT THE TOMPKINS SPECIAL MEETING. Examples of such documentation include a
broker's statement, letter or other document confirming your ownership of shares
of Tompkins common stock.
Tompkins will bear the cost of soliciting proxies from the holders of
Tompkins common stock. Proxies may be solicited personally, by telephone,
telegram or other means, by directors, officers and employees of Tompkins or its
subsidiaries, without additional compensation. Such directors, officers and
employees may, however, be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Tompkins will also request persons, firms and
corporations holding shares of Tompkins common stock in their names or in the
name of their nominees, which are beneficially owned by others, to forward proxy
materials to or obtain proxies from such beneficial owners, and will reimburse
such record holders for their reasonable expenses incurred in doing so.
TOMPKINS STOCKHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO TOMPKINS IN THE ENCLOSED
POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
VOTE REQUIRED; PRINCIPAL STOCKHOLDERS
The approval and adoption of the Agreement and Plan of Reorganization
by Tompkins stockholders will require the affirmative vote of at least
two-thirds of the outstanding shares of Tompkins common stock entitled to vote
at the Tompkins special meeting. Accordingly, a failure to return a properly
executed proxy card or to vote in person, or abstaining from voting, will have
the same effect as a vote AGAINST the Agreement and Plan of Reorganization and
the transactions contemplated thereby. Shares underlying broker non-votes will
not be
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counted as having been voted in person or by proxy at the Tompkins special
meeting and will have the same effect as a vote AGAINST the merger agreement.
SUCH STOCKHOLDER APPROVAL IS A CONDITION TO CONSUMMATION OF THE MERGER.
As of October 31, 1999, directors and executive officers of Tompkins
and their affiliates beneficially owned 342,736 shares of Tompkins common stock,
or approximately 7.0% of the outstanding shares of Tompkins common stock
(inclusive of shares which may be acquired upon the exercise of vested options
under the Tompkins Trustco, Inc. 1992 Stock Option Plan). As of the Tompkins
record date, such persons were entitled to vote 249,609 shares of Tompkins
common stock at the Tompkins special meeting (or approximately 5.2% of the
outstanding shares). All such persons have indicated their intent to vote or
direct the vote of all such shares FOR approval and adoption of the merger
agreement and the issuance of Tompkins stock as contemplated by the merger. As
of October 31, 1999, neither Letchworth, nor any of its subsidiaries, directors
or executive officers beneficially owned shares of Tompkins common stock.
MEETING OF LETCHWORTH STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
This joint proxy statement/prospectus is being furnished to
stockholders of Letchworth in connection with the solicitation of proxies by the
Letchworth board for use at the Letchworth meeting to be held on Monday,
December 20, 1999, at 10:00 a.m. New York time, at the Batavia Partyhouse, Route
5, Stafford, New York. At the Letchworth special meeting, the holders of
Letchworth common stock will be asked to consider and vote upon (i) a proposal
to approve and adopt the merger agreement, which is included as Annex A to this
joint proxy statement/prospectus, and the consummation of the transactions
contemplated thereby, which are more fully described herein; and (ii) such other
matters as may properly be brought before the Letchworth special meeting.
THE LETCHWORTH BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT ARE FAIR TO, AND IN THE
BEST INTERESTS OF, LETCHWORTH AND ITS STOCKHOLDERS, IN PART BECAUSE THE MERGER
AGREEMENT INCLUDES SAFEGUARDS THAT WILL ALLOW LETCHWORTH TO TERMINATE THE MERGER
AGREEMENT IF THE PRICE OF TOMPKINS COMMON STOCK IS BELOW CERTAIN LEVELS
ESTABLISHED IN THE AGREEMENT AND PLAN OF REORGANIZATION. THE LETCHWORTH BOARD
THEREFORE UNANIMOUSLY RECOMMENDS THAT LETCHWORTH STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE AGREEMENT AND PLAN OF REORGANIZATION AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
Please see "The Merger -- Background of the Merger" and "--
Recommendation of the Letchworth Board of Directors; Letchworth's Reasons for
the Merger."
RECORD DATE
The Letchworth board has fixed the close of business on October 31,
1999 as the Letchworth record date for the determination of the holders of
Letchworth common stock entitled to receive notice of and to vote at the
Letchworth special meeting. Only holders of record of Letchworth common stock at
the close of business on the Letchworth record date will be entitled to receive
notice of and to vote at the Letchworth special meeting. At the close of
business on the Letchworth Record Date, there were 3,373,269 shares of
Letchworth common stock outstanding and entitled to be voted at the Letchworth
meeting, which were held by approximately 725 holders of record. The presence,
in person or by proxy, of the holders of at least a majority of the total number
of outstanding shares of Letchworth common stock entitled to vote at the
Letchworth meeting is necessary to constitute a quorum thereat.
PROXIES; VOTING AND REVOCATION OF PROXIES
Each holder of Letchworth common stock on the Letchworth record date
will be entitled to one vote for each share of Letchworth common stock held of
record on each matter to be voted upon at the Letchworth meeting.
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Letchworth intends to count shares of Letchworth common stock present
in person at the Letchworth meeting but not voted, and shares of Letchworth
common stock for which it has received proxies but with respect to which holders
of shares have abstained on any matter, as present at the Letchworth meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business. Since the approval and adoption of the merger agreement requires
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of Letchworth common stock entitled to vote thereon, each such non-voting
share and abstention will have the effect of a vote AGAINST the approval and
adoption of the merger agreement. In addition, brokers who hold shares in street
name for customers who are beneficial owners of such shares are prohibited from
giving a proxy to vote shares held for such customers on the approval and
adoption of the merger agreement without specific instructions from such
customers. Given that the approval and adoption of the merger agreement requires
the affirmative vote of the holders of at least two-thirds of the outstanding
shares of Letchworth common stock entitled to vote thereon, the failure of any
such customers to provide specific instructions to his or her broker with
respect to his or her shares of Letchworth common stock (a "broker non-vote")
will have the effect of a vote AGAINST the approval and adoption of the merger
agreement.
All shares of Letchworth common stock which are entitled to be voted
and are represented at the Letchworth meeting by properly executed proxies
received by Letchworth in time to be voted at its special meeting, and which are
not revoked, will be voted in accordance with the instructions indicated on such
proxies. IF NO INSTRUCTIONS ARE GIVEN, PROPERLY EXECUTED PROXIES WILL BE VOTED
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
If any other matters are properly presented for consideration at the
Letchworth meeting, including, among other things, a motion to adjourn or
postpone the Letchworth meeting to another time and/or place for the purpose of
soliciting additional proxies or otherwise, the persons named in the form of
proxy enclosed herewith and acting thereunder will have discretionary authority
to vote on such matters in accordance with the best judgement of the Letchworth
board. Letchworth does not have any knowledge of any matters to be presented at
the Letchworth meeting other than the matters set forth above.
The presence of a stockholder at the Letchworth meeting will not
automatically revoke such stockholder's proxy. However, a stockholder may revoke
a proxy at any time prior to its exercise by (i) filing a written notice of
revocation bearing a later date than the date of the proxy with the corporate
secretary of Letchworth prior to the Letchworth meeting, (ii) duly executing a
later-dated proxy relating to the same shares and delivering it to the Secretary
of the Letchworth meeting before the taking of the vote at the Letchworth
meeting or (iii) attending the Letchworth meeting, filing a written notice of
revocation with the secretary of the Letchworth meeting and voting in person.
Any written notice of revocation or subsequently executed proxy should be sent
so as to be delivered to Letchworth Independent Bancshares Corporation, 50 North
Main Street, P. O. Box 129, Castile, New York 14427, Attention: Patrick J.
Dalton, Esq., corporate secretary, or hand delivered to Letchworth's corporate
secretary at such address on or before the day of the Letchworth meeting or to
the inspector of election of the Letchworth meeting before the taking of the
vote at the Letchworth meeting. IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT
REGISTERED IN YOUR OWN NAME, YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR
RECORD HOLDER IN ORDER TO BE ADMITTED TO THE LETCHWORTH MEETING AND TO VOTE AT
THE LETCHWORTH MEETING. Examples of such documentation include a broker's
statement, letter or other document confirming your ownership of shares of
Letchworth common stock.
Letchworth will bear the cost of soliciting proxies from the holders of
Letchworth common stock. Proxies may be solicited personally, by telephone,
facsimile or other means, by directors, officers and employees of Letchworth or
its subsidiaries, without additional compensation. Such directors, officers and
employees may, however, be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Letchworth will also request persons, firms
and corporations holding shares of Letchworth common stock in their names or in
the name of their nominees, which are beneficially owned by others, to forward
proxy materials to and obtain proxies from such beneficial owners, and will
reimburse such record holders for their reasonable expenses incurred in doing
so.
LETCHWORTH STOCKHOLDERS ARE REQUESTED TO PROMPTLY COMPLETE, SIGN AND
DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO LETCHWORTH IN THE
ENCLOSED POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
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VOTE REQUIRED; PRINCIPAL STOCKHOLDERS
The approval and adoption of the merger agreement by Letchworth
stockholders will require the affirmative vote of at least two-thirds of the
outstanding shares of Letchworth common stock entitled to vote at the Letchworth
special meeting. Accordingly, a failure to return a properly executed proxy card
or to vote in person, or abstaining from voting, will have the same effect as a
vote AGAINST the merger agreement. Shares underlying broker non-votes will not
be counted as having been voted in person or by proxy at the Letchworth meeting
and will have the same effect as a vote AGAINST the merger agreement. SUCH
STOCKHOLDER APPROVAL IS A CONDITION TO CONSUMMATION OF THE MERGER.
As of October 31, 1999, directors and executive officers of Letchworth
and their affiliates beneficially owned 563,093 shares of Letchworth common
stock, or approximately 16.4% of the outstanding shares of Letchworth common
stock (inclusive of shares of Letchworth common stock which may be acquired upon
the exercise of vested options under the Letchworth Independent Bancshares
Corporation 1990 and 1998 Stock Option Plans). As of the Letchworth record date,
such persons were entitled to vote 533,093 shares of Letchworth common stock at
the Letchworth meeting (or approximately 16.1% of the outstanding shares). All
such persons have indicated their intent to vote or direct the vote of all such
shares FOR approval and adoption of the merger agreement. As of June 30, 1999,
Tompkins, its subsidiaries and the directors and executive officers of Tompkins
beneficially owned no shares of Letchworth common stock. Additionally, Tompkins
may also be deemed to be the beneficial owner of 689,737 shares of Letchworth
common stock issuable pursuant to the merger stock option agreement attached
hereto as Annex B. Pursuant to the merger stock option agreement, Tompkins has
the right to exercise an option to purchase the up to 689,737 shares upon the
occurrence of certain events (all of which are described in the merger stock
option agreement), none of which has occurred as of the date hereof. Tompkins
has expressly disclaimed beneficial ownership of such shares. Please see "The
Merger- Merger Stock Option Agreements."
THE MERGER
The following information concerning the merger, insofar as it relates
to matters contained in the merger agreement, describes the material terms and
conditions of the merger agreement but does not purport to be a complete
description and is qualified in its entirety by reference to the merger
agreement, which is incorporated herein by reference and attached hereto as
Annex A. Tompkins and Letchworth stockholders are urged to read carefully the
merger agreement in its entirety.
GENERAL
Pursuant to the terms of the merger agreement, subject to the
satisfaction or waiver (where permissible) of certain conditions, including,
among other things, the receipt of all necessary regulatory approvals and the
approval of the merger agreement by the requisite vote of the stockholders of
Tompkins and Letchworth, Letchworth will be merged with and into Tompkins and
Letchworth's stockholders will become stockholders of Tompkins. Tompkins will be
the surviving corporation in the merger, and will continue its corporate
existence under the laws of the State of New York. Upon consummation of the
merger, the separate corporate existence of Letchworth will terminate.
Immediately after the consummation of the merger, Tompkins will become
a multiple bank holding company as the sole stockholder of Tompkins County Trust
Company, the sole stockholder of The Bank of Castile and the majority
stockholder of The Mahopac National Bank.
EXCHANGE RATIO
At the date of the merger, each issued and outstanding share of
Letchworth common stock, except for treasury shares, will be converted into and
exchangeable for 0.685 shares of Tompkins common stock (I.E., the
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exchange ratio). The exchange ratio may be increased by Tompkins in the event
that Letchworth exercises its rights under the merger agreement to deliver to
Tompkins a notice to terminate the merger agreement if the price of the Tompkins
common stock is below certain levels established in the merger agreement. Please
see "The Merger -- Price-Based Termination." However, Tompkins is under no
obligation to increase the exchange ratio, and there can be no assurance that
Tompkins would elect to increase the exchange ratio if Letchworth were to
exercise such termination rights. Any such decision would be made by the
Tompkins board in light of all relevant facts and circumstances existing at such
time, including, without limitation, the advice of its financial and legal
advisors. If Tompkins elects to increase the exchange ratio as set forth in the
merger agreement, it must give Letchworth prompt notice of that election and
such increased exchange ratio, in which case no termination of the merger
agreement would occur.
Although Tompkins has the right in the limited circumstances described
above to increase the exchange ratio, under no circumstances may the exchange
ratio be increased above 0.85 nor may it be decreased below 0.685. The exchange
ratio was arrived at through arm's-length negotiations between Tompkins and
Letchworth. The merger agreement provides that, if Tompkins effects a stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares of Tompkins common stock, an appropriate adjustment to the
exchange ratio will be made.
It is expected that the market price of Tompkins common stock will
fluctuate between the date of this joint proxy statement/prospectus and the date
on which the merger is consummated, and thereafter. Because the number of shares
of Tompkins common stock to be received by Letchworth's stockholders in the
merger is fixed (subject to possible increase in the limited circumstances
described above) and because the market price of Tompkins common stock is
subject to fluctuation, the value of the shares of Tompkins common stock that
holders of Letchworth common stock receive in the merger may increase or
decrease prior to and after the merger. For further information concerning the
market prices of Tompkins common stock and Letchworth common stock, please see
"Market Prices and Dividend Information." No assurance can be given concerning
the market price of Tompkins common stock before or after the date of the
merger.
No fractional shares of Tompkins common stock will be issued in
connection with the merger. Tompkins will make a cash payment rounded to the
nearest cent, to each Letchworth stockholder who otherwise would be entitled to
receive a fractional share, in an amount equal to the fraction of the Tompkins
share multiplied by the closing price of Tompkins common stock on the American
Stock Exchange for the trading day immediately before the effective date of the
merger. Upon consummation of the merger, treasury shares held by Letchworth will
be canceled and retired and no payment will be made with respect thereto.
In addition on concluding the merger, each option to purchase
Letchworth common stock will be converted into options to purchase shares of
Tompkins common stock, pursuant to the exchange ratio. Each Letchworth option
will be deemed to constitute an option to acquire, on the same terms and
conditions as were applicable under such Letchworth option immediately prior to
the merger, the number of shares of Tompkins common stock equal to the product,
rounded to the nearest share, of the number of shares of Letchworth common stock
subject to the Letchworth option and the exchange ratio, at a price per share
equal to the exercise price per share of Letchworth common stock otherwise
purchasable pursuant to such Letchworth option divided by the exchange ratio,
rounded to the nearest cent.
BACKGROUND OF THE MERGER
As part of their ongoing responsibilities, the boards of directors of
Letchworth and Tompkins periodically review the strategic alternatives available
to them in advancing the business of their respective institutions. These
reviews often include meetings with legal counsel, investment bankers and other
investment advisers. In the course of such meetings the Letchworth board
directors and the Tompkins board of directors regularly consider, among other
items, strategic alternatives ranging from pursuing a course of continuing as an
independent institution and growing internally, possible acquisitions of smaller
financial institutions and various possible relationships with other financial
institutions generally.
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The management of Tompkins and Letchworth have known each other in a
business capacity for several years. In 1997, Tompkins County Trust Company and
The Bank of Castile entered into a "Trust Alliance" program under which Tompkins
County Trust Company provides services that enables The Bank of Castile to offer
trust and investment management services to its marketplace. This program
resulted in a strong working relationship between the organizations and mutual
respect. In forming its strategy for addressing merger trends in the banking
industry, and in particular, what would happen if Letchworth were to pursue a
strategy associated with its being acquired. Letchworth's management came to
consider Tompkins as a prospective candidate to acquire Letchworth.
On January 5, 1999, Mr. James J. Byrnes and Mr. James W. Fulmer, the
respective chief executive officers of Tompkins and Letchworth met in Ithaca,
New York, to discuss general business matters between the two institutions.
During the course of this meeting, the consideration of a more significant
alliance between the two banks was discussed on a very preliminary and informal
basis. This consideration led the parties to commence a second meeting. On
January 18, 1999, a meeting was held at the home of Mr. Byrnes in Ithaca, New
York. Representatives of McConnell, Budd were also asked to attend. At the
meeting, the possibility of forming a multi-bank holding company was discussed.
Letchworth indicated its strong desire to maintain The Bank of Castile and any
other bank it acquired, as locally managed community banks. A confidentiality
agreement between Letchworth and Tompkins was signed at this meeting. No
agreement between Tompkins and Letchworth was reached at the meeting, although
management of the two companies agreed to meet again for a more thorough
consideration of the issue.
On January 20, 1999, Letchworth and certain stockholders of the Mahopac
National Bank entered into an agreement pursuant to which Letchworth agreed to
acquire approximately 58% of the outstanding shares of Mahopac National's common
stock. At the same time, Letchworth commenced a tender offer to the remaining
shareholders of Mahopac National, pursuant to which Letchworth offered to
acquire all of the outstanding shares of common stock of Mahopac National. As a
result, Letchworth eventually acquired 70% of outstanding shares.
The chief executive officers of Letchworth and Tompkins met again on
February 3, 1999. At that time, the two companies further discussed the
possibilities of a relationship, but determined to defer further discussion for
several months. These discussions were renewed during the spring of 1999 and at
a meeting of the board of directors of Tompkins on April 13, 1999, Mr. Byrnes,
the Tompkins chief executive, presented information on the potential
acquisition. The Tompkins board also considered a report prepared by McConnell,
Budd pertaining to Letchworth, as well as a report prepared by Danielson
evaluating trends in the banking industry and, in particular, acquisition
possibilities in New York State. The Tompkins board then authorized its chief
executive to continue discussions with Letchworth's management.
Through April, May and June 1999, Tompkins' management internally
reviewed the business and financial implications of acquiring Letchworth and
forming a multi-bank holding company.
A conference call was held on June 25, 1999 among Mr. Byrnes, Mr.
Fulmer, Edward Moses, Esq. (Mackenzie Smith) and Michael Rasmussen (McConnell,
Budd) to further discuss possible transactions and, in particular, the pricing
terms. This was followed the next day by a meeting at Harris Beach in Rochester,
New York, with Mr. Byrnes, Mr. Fulmer, member of the Letchworth Board, Mr.
Rasmussen and Mr. Moses in attendance. Communications between the organizations
continued until, in early July, they began negotiation of an agreement for
Tompkins to merge with Letchworth.
On July 1, 1999, Mr. Byrnes, met with the directors of Letchworth and
The Bank of Castile to discuss long-term strategies of the respective companies.
The Letchworth board confirmed the company's interest in continuing discussions
with Tompkins. As negotiations proceeded satisfactorily, the two companies
agreed to expedite their respective due diligence investigations so that any
final agreement would not require provisions permitting termination based upon
results of subsequent investigations or comparable "due diligence"
contingencies.
Tompkins was represented by Harris Beach & Wilcox in these and
subsequent negotiations, and Letchworth was represented by Mackenzie Smith.
Special counsel retained for the transaction.
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On July 8, 1999, Mr. Fulmer visited Ithaca for further discussions with
several members of the Tompkins executive management, including Mr. Byrnes. On
July 15, 1999, Mr. Fulmer again visited Ithaca to meet with the management team
of Tompkins County Trust Company. Mr. Fulmer later joined eight members of the
Tompkins board of directors for dinner to introduce himself and to discuss the
merger directly with the board.
On July 20, 1999 the regular meeting of the board of directors of The
Bank of Castile was held and the merger was discussed at length in an executive
session. Although approval of The Bank of Castile board of directors is not
required to complete the merger, consistent with past practices Letchworth's
management determined to keep The Bank of Castile board informed throughout the
negotiations.
On July 22, 1999 the entire Letchworth board of directors traveled to
Mahopac, New York, to attend the regular monthly meeting of the board of Mahopac
National. Immediately following the Mahopac meeting, the Letchworth board
convened its own regular meeting, with the Mahopac board remaining in attendance
so that they could be informed of the merger between Letchworth and Tompkins. Ed
Moses, Letchworth's special counsel, along with Michael Rasmussen of McConnell,
Bud, also attended that meeting of the Letchworth board. A preliminary draft of
the merger agreement was reviewed in detail with the board of Letchworth.
McConnell, Budd then made a presentation of its view of the merger proposal and
discussed a basis for valuing the proposed transaction. Following a detailed
discussion of the merger proposal, the Letchworth board determined that the
prospective relationship with Tompkins would be beneficial to the Letchworth
stockholders. Letchworth's management was instructed to contact Mr. Byrnes to
discuss the negotiation of a definitive agreement. The parties then reached
agreement on a fixed exchange ratio of 0.685 shares of Tompkins common stock for
each share of Letchworth common stock.
At a special meeting of the board of directors of Letchworth held on
July 27, 1999, Letchworth's special counsel again reviewed with the board the
terms and conditions contained in a preliminary draft of the merger agreement,
including, among other things, pricing, termination, standard representations
and warranties, negative covenants, customary closing conditions and treatment
of Letchworth's employee benefit plans and arrangements. Letchworth's special
counsel also reviewed the terms and conditions of the merger stock option
agreement. Based upon Tompkins' proposal and the Letchworth board's review of
the draft merger agreement and related documents, the Letchworth board then
authorized management to continue negotiations with Tompkins in an effort to
obtain a mutually acceptable merger agreement on the proposed terms.
On July 29, 1999, a revised agreement between Tompkins and Letchworth
was delivered to the respective boards of the two companies for review and
approval. Meetings for each board were then called for the purpose of approving
or rejecting the merger agreement. At the Tompkins board meeting on the morning
of July 30, the Tompkins board considered and approved, by unanimous vote, the
merger agreement, the merger stock option agreement and the related
transactions. Presentations were made to the Tompkins board at the special
meeting by both Danielson and Tompkins' legal counsel, Harris Beach. Members of
Tompkins' senior management, together with its legal and financial advisors,
reviewed with the Tompkins board, among other things, the background of the
proposed transaction, the potential benefits of the transaction, including the
strategic rationale for the transaction, a summary of their due diligence
findings, financial and valuation analyses of the transaction and the terms of
the proposed agreements. In addition, Danielson delivered to the Tompkins board
its written opinion to the effect that, as of such date, the exchange ratio was
fair, from a financial point of view, to Tompkins' stockholders. A copy of the
final form of merger agreement was distributed to each director and, after
discussion with legal counsel as to the terms and conditions of the merger
agreement and the related documents, and based on the consideration of the
various factors discussed below under "-- Recommendation of the Tompkins Board;
Tompkins' Reasons for the Merger," the Tompkins board unanimously approved the
merger agreement, the merger stock option agreement and the related
transactions.
In the afternoon of July 30, 1999, the Letchworth board was presented
with McConnell, Budd's oral opinion that the exchange ratio was fair, from a
financial point of view, to Letchworth's stockholders. A copy of the final form
of merger agreement was distributed to each director and, after discussion with
legal counsel as to the terms and conditions of the merger agreement and the
related documents, and based on the consideration of
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the various factors discussed below under "-- Recommendation of the Letchworth
Board; Letchworth's Reasons for the Merger," the Letchworth board unanimously
approved the transaction and related agreements.
Following the conclusion of the meetings of their respective boards of
directors, Mr. Byrnes and Mr. Fulmer, the chief executive officers of Tompkins
and Letchworth, respectively, met in the evening of July 30, 1999, and executed
all of the agreements necessary for the transaction.
RECOMMENDATION OF THE TOMPKINS BOARD; TOMPKINS' REASONS FOR THE MERGER
The Tompkins board has unanimously approved the merger agreement and
has determined that the terms of the merger agreement and the transactions
contemplated thereby are fair to, and in the best interests of, Tompkins and its
stockholders. Accordingly, the Tompkins board unanimously recommends that the
stockholders of Tompkins vote FOR the approval and adoption of the merger
agreement.
In reaching its determination that the terms of the merger agreement
and the transactions contemplated thereby are fair to, and in the best interests
of, Tompkins and its stockholders, the Tompkins board considered, during the
course of its strategic deliberations, a number of factors, both from a
short-term and a long-term perspective, including, without limitation, the
following:
o the Tompkins board's familiarity with and review of Tompkins'
business, results of operations, financial condition, competitive
position and prospects, the nature of the industry in which
Tompkins operates, both on a historical and prospective basis, and
the potential growth, development, productivity and profitability
of Tompkins;
o the current and prospective environment in which Tompkins operates,
including national and local economic conditions, the competitive
environment for banks and other financial institutions generally,
the trend toward consolidation in the financial services industry
and in the bank industry and the likely effect of the foregoing
factors on Tompkins' potential growth, development, productivity
and profitability;
o the Tompkins board's review, based in part on presentations by
Tompkins' management and advisors, of Letchworth's business,
financial condition, results of operations and management, and the
performance of the Letchworth common stock on both a historical and
prospective basis, the strategic fit between the parties, the
enhanced opportunities for operating efficiencies and cost savings
that could result from the merger and the respective contributions
the parties (including experienced senior management and board
members and the ability to market products and services to an
increased customer base) would bring to a combined institution;
o the Tompkins board's review of the historical and prospective
market prices of the Tompkins common stock and the Letchworth
common stock compared to the merger consideration;
o a comparison of the consideration to be paid to Letchworth's
stockholders compared to that paid in other comparable bank
transactions;
o the Tompkins board's review with its legal and financial advisors
of strategic alternatives, including the possibility of growing
internally;
o the Tompkins board's belief that Letchworth has a strong financial
and capital position and that the combined company presents a high
long-term intrinsic value with substantial capacity for future
growth and will enjoy enhanced capital resources necessary to make
investments in technology and services and considerable potential
for long-term strategic value to Tompkins stockholders;
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o the presentation by Danielson and the written opinion of Danielson
that the exchange ratio is fair, from a financial point of view, to
Tompkins stockholders. Please see "-- Opinion of Tompkins'
Financial Advisor;"
o the significant similarity between and the compatibility of
Tompkins' and Letchworth's business lines, cultures and management
philosophies and their commitments to the communities and customers
they each serve and to their respective employees;
o the expectation that the combined institution will continue to
provide quality service to the communities and customers served by
both companies;
o the review by the Tompkins board with its legal and financial
advisors of the terms and conditions of the merger agreement,
including the exchange ratio;
o the review by the Tompkins board with its legal and financial
advisors of the terms and conditions of the merger stock option
agreement and the other documents executed in connection with the
merger agreement;
o the Tompkins board's recognition of the complementary nature of the
markets served and products offered by Tompkins and Letchworth;
o a variety of factors affecting and relating to the overall
strategic focus of Tompkins including, the creation of
opportunities for growth in deposits, assets and earnings and
opportunities available to Tompkins in the market areas where
Letchworth conducts business;
o the anticipated revenue enhancements, cost savings and efficiencies
(including reduction or elimination of certain operational and
administrative systems) available from the merger; and
the expectation that the merger would be treated as a tax-free
o reorganization for federal income tax purposes (see "-- Federal
Income Tax Consequences of the Merger" below) and accounted for as
a pooling-of-interests.
The foregoing discussion is not meant to be exhaustive, but is believed
to include all material factors considered by the Tompkins board. The Tompkins
board did not assign any specific or relative weights to the factors under
consideration. Rather, the board made its determination based on the total mix
of information available to it, and the judgment of individual directors may
have been influenced by a greater or lesser degree by different factors. The
Tompkins board believes that the terms of the merger agreement are fair to, and
in the best interests of, Tompkins and its stockholders. ACCORDINGLY, THE
TOMPKINS BOARD UNANIMOUSLY RECOMMENDS THAT TOMPKINS STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
OPINION OF TOMPKINS' FINANCIAL ADVISOR
Pursuant to a letter agreement dated as of July 16, 1999, Tompkins
retained Danielson as an independent financial advisor in connection with
Tompkins' consideration of a possible business combination with Letchworth.
Danielson is an experienced investment banking firm whose principal business
specialty is financial institutions. In the ordinary course of its investment
banking business, Danielson is regularly engaged in the valuation of such
businesses and their securities in connection with mergers and acquisitions and
other corporate transactions.
In connection with its consideration of the merger, the Tompkins board
requested Danielson to render its opinion as to the fairness of the exchange
ratio to the stockholders of Tompkins from a financial point of view. On July
30, 1999, Danielson delivered to the Tompkins board its written opinion that, as
of such date, the exchange ratio was fair to the holders of Tompkins common
stock from a financial point of view. Danielson has also
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delivered to the Tompkins board a written opinion dated the date of this joint
proxy statement/prospectus which is substantially identical to the July 30, 1999
opinion. THE FULL TEXT OF THE DANIELSON FAIRNESS OPINION, WHICH SETS FORTH THE
PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND
LIMITATIONS ON THE REVIEW UNDERTAKEN IN CONNECTION WITH RENDERING SUCH OPINION,
IS ATTACHED AS ANNEX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS
INCORPORATED HEREIN BY REFERENCE. THE DESCRIPTION OF THE OPINION SET FORTH
HEREIN IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO ANNEX D. TOMPKINS
STOCKHOLDERS ARE URGED TO READ THE DANIELSON FAIRNESS OPINION IN ITS ENTIRETY IN
CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED MERGER.
THE DANIELSON FAIRNESS OPINION WAS PROVIDED TO THE TOMPKINS BOARD FOR
ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE EXCHANGE RATIO TO THE TOMPKINS STOCKHOLDERS. IT DOES NOT ADDRESS
THE UNDERLYING BUSINESS DECISION OF TOMPKINS TO ENGAGE IN THE MERGER OR ANY
OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY
TOMPKINS STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE TOMPKINS
SPECIAL MEETING OF STOCKHOLDERS WITH RESPECT TO THE MERGER OR ANY OTHER MATTER
RELATED THERETO.
Tompkins retained Danielson to advise the Tompkins board of Directors
as to the "fair" sale value of Letchworth and the fairness to Tompkins
stockholders of the financial terms of the offer to acquire Letchworth.
Danielson is regularly engaged in the valuation of banks, bank holding
companies, and thrifts in the connection with mergers, acquisitions, and other
securities transactions, and has knowledge of, and experience with, New York
banking markets and banking organizations operating in those markets. Danielson
was selected by Tompkins because of its knowledge of, expertise with, and
reputation in, the financial services industry.
In such capacity, Danielson reviewed the merger agreement with respect
to the pricing and other terms and conditions of the merger, but the decision
relative to entering the business combination with Letchworth under the terms of
the merger agreement was ultimately made by the board of directors of Tompkins.
Danielson rendered its oral opinion to the Tompkins board of directors, which it
subsequently confirmed in writing, that as of the date of such opinion, the
financial terms of the Tompkins offer were "fair" to Tompkins and its
stockholders. No limitations were imposed by the Tompkins board of directors
upon Danielson with respect to the investigation made or procedures followed by
it in arriving at its opinion.
In arriving at its opinion, Danielson:
o reviewed certain business and financial information relating to
Tompkins and Letchworth including annual reports for the fiscal
year ended December 31, 1998, call report data from 1990 to 1999,
and Reports on Forms 10-K and 10-Q for 1998 and 1999;
o discussed the past and current operations, financial condition and
prospects of Tompkins with its senior executives;
o analyzed the pro forma impact of the merger on Tompkins earnings
per share, capitalization, and financial ratios;
o reviewed the reported prices and trading activity for the Tompkins
common stock and compared it to similar bank holding companies;
o reviewed and compared the financial terms with comparable
transactions, to the extent publicly available;
o reviewed the merger agreement and certain related documents; and
o considered such other factors as were deemed appropriate.
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Danielson did not obtain any independent appraisal of assets or
liabilities of Tompkins or Letchworth or their respective subsidiaries. Further,
Danielson did not independently verify the information provided by Tompkins or
Letchworth and assumed the accuracy and completeness of all such information.
In arriving at its opinion, Danielson performed a variety of financial
analyses. Danielson believes that its analyses must be considered as a whole and
that consideration of portions of such analyses could create an incomplete view
of Danielson's opinion. The preparation of a fairness opinion is a complex
process involving subjective judgements and is not necessarily susceptible to
partial analysis or summary description.
In its analyses, Danielson made certain assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which were beyond Tompkins' or Letchworth's control. Any estimates contained
in Danielson analyses are not necessarily indicative of the future results of
value, which may be significantly more or less favorable than such estimates.
Estimates of the value of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold.
The following is a summary of selected analyses considered by Danielson
in connection with its opinion letter.
PRO FORMA MERGER ANALYSIS. Danielson analyzed the changes in the amount
of earnings and book value represented by the issue of approximately $80 million
in Tompkins common stock for all of the outstanding shares of Letchworth common
stock. The analysis evaluated, among other things, possible dilution in earnings
and capital per share for Tompkins common stock.
COMPARABLE COMPANIES. To determine the "fair" value of the Tompkins
common stock to be exchanged for the common stock of Letchworth, Tompkins was
compared to eleven publicly-traded bank holding companies ("comparable banks" or
the "comparative group"). These comparable banks had assets in the $400 million
to $2 billion range, no extraordinary characteristics and were located in the
State of New York, excluding New York City.
SUMMARY AND DESCRIPTION OF COMPARABLE BANKS
ASSETS* HEADQUARTERS
------- ------------
(In mill.)
COMPARABLE BANKS**
Alliance $491 Cortland
Arrow 941 Glen Falls
BSB 1,949 Binghamton
Community 1,659 DeWitt
CNB 718 Canajoharie
First Long Island 538 Glen Head
Iroquois 568 Auburn
NBT 1,307 Norwich
Premier 1,529 Lagrangeville
State 755 New Hyde Park
Suffolk 911 Riverhead
*March 31, 1999.
**Publicly-traded with assets between $400 million and $2 billion in
New York, excluding New York City.
Source: SNL Securities LC, Charlottesville, Virginia.
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Danielson compared Tompkins' (a) stock price as of July 28, 1999 equal
to 14.8 times earnings and 256% of book, (b) dividend yield based on trailing
four quarters as of March 31, 1999 and stock price as of July 28, 1999 of 2.91%,
(c) equity as of March 31, 1999 of 9.54% of assets, (d) nonperforming assets
including loans 90 days past due as of March 31, 1999 equal to .18% of total
assets, (e) return on average assets during the trailing four quarters ended
March 31, 1999 of 1.74%, and (f) return on average equity during the same period
of 18.51%, with the medians for the comparable banks. The comparable medians
were (a) stock price equal to 13.5 times earnings and 182% of book, (b) dividend
yield of 3.17%, (c) capital of 8.10% of assets, (d) .49% of assets
nonperforming, (e) return on average assets of 1.14%, and (f) return on average
equity of 13.91%. Danielson also compared other income, expense and balance
sheet information of such companies with similar information about Tompkins.
TOMPKINS COMPARABLE BANKS SUMMARY
Tompkins Comparable Banks
Income Medians
Net income/Avg. Assets 1.74 % 1.14 %
Net oper. income*/Avg. Assets 2.94 2.16
Return on average equity 18.51 13.91
Balance Sheet
Equity/Assets 9.54 % 8.10 %
NPAs**/Assets .18 .49
Stock Price
Price/Earnings 14.8 X 13.5 X
Price/Book 256 % 182 %
Dividend yield 2.91 % 3.17 %
Payout ratio 41 % 40 %
Shares traded*** 1,060 3,475
*Net interest income plus noninterest income less operating expense.
**Nonperforming assets including loans 90 days past due and still accruing.
***Average daily volume 1999 through July 27, 1999.
Source: SNL Securities LC, Charlottesville, Virginia.
COMPARABLE TRANSACTION ANALYSIS. Danielson compared the consideration
to be paid in the merger to the latest twelve months earnings and equity capital
of Letchworth with earnings and capital multiples paid in acquisitions of banks
with assets of more than $100 million through July 28, 1999 in New England, New
Jersey, New York and Pennsylvania. Of these, the most applicable recent
transactions included Peoples Heritage's purchase of Banknorth, Chittenden's
acquisition of Vermont Financial, Banknorth's purchase of Evergreen, and M&T's
acquisition of FNB Rochester. At the time Danielson made its analysis, the
consideration to be paid in the merger was 241% of Letchworth's March 31, 1999
book value and 20.0 times Letchworth's earnings for the trailing four quarters
as of March 31, 1999. This compares to the median multiples of 279% of book
value and 23.6 times earnings for comparable acquisitions in New York.
DISCOUNTED DIVIDENDS ANALYSIS. Danielson applied a present value
calculation to Letchworth's estimated dividend stream under several growth and
earnings scenarios. This analysis considered, among other things, scenarios for
Letchworth as an independent institution and as part of another banking
organization. The projected dividend streams and terminal values, which were
based on a range of earnings multiples, were then discounted to present value
using discount rates based on assumptions regarding the rates of return required
by holders of prospective buyers of Letchworth common stock.
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OTHER ANALYSIS. In addition to performing the analyses summarized
above, Danielson also considered the general market for bank mergers, the
historical financial performance of Tompkins and Letchworth, the market
positions of both banks and the general economic conditions and prospects of
those banks.
No company or transaction used in this composite analysis is identical
to Tompkins or Letchworth. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather it involves complex consideration and
judgements concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values of
the company or companies to which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses and procedures performed by Danielson in the course
of arriving at its opinions. The full text of the opinion of Danielson, dated as
of July 30, 1999, which sets forth assumptions made and matters considered, is
attached as Annex D of this joint proxy statement/prospectus. Tompkins
stockholders are urged to read this opinion in its entirety. Danielson's opinion
is directed only to the "fairness" of the financial terms to Tompkins
stockholders of the proposed business combination with Letchworth and does not
constitute a recommendation to any Tompkins stockholder as to how such
stockholder should vote at the Tompkins special meeting.
Tompkins has paid Danielson an advisory fee equal to $15,000 for
rendering its fairness opinion. Tompkins has also reimbursed Danielson
approximately $1,100 for certain out-of-pocket expenses incurred in connection
with its engagement, and has agreed to indemnify Danielson and its affiliates
and their respective partners, directors, officers, employees, agents and
controlling persons against certain expenses and liabilities, including
liabilities under securities laws.
Danielson may provide other investment banking services to Tompkins in
the future and will receive compensation for such services. In the ordinary
course of its business, Danielson may actively trade the equity securities of
Tompkins and Letchworth and their respective affiliates for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
RECOMMENDATION OF THE LETCHWORTH BOARD; LETCHWORTH'S REASONS FOR THE MERGER
The Letchworth board of directors has unanimously approved the merger
agreement and has determined that the terms of the merger agreement and the
transactions contemplated thereby are fair to, and in the best interests of,
Letchworth and its stockholders, in part because the merger agreement includes
safeguards that will allow Letchworth to terminate the merger agreement if the
price of Tompkins common stock is below certain levels established in the merger
agreement. Accordingly, the Letchworth board unanimously recommends that
stockholders of Letchworth vote FOR the approval and adoption of the merger
agreement. The Letchworth board believes that the merger will enable the
stockholders of Letchworth to realize significant value on a tax-free basis. For
a discussion of Letchworth's present intention with respect to its right to
terminate the merger agreement, please see "-- Price-Based Termination."
In reaching its determination that the terms of the merger agreement
and the transactions contemplated thereby are fair to, and in the best interests
of ,Letchworth and its stockholders, the Letchworth board considered during the
course of its strategic deliberations a number of factors, both from a
short-term and a long-term perspective, including, without limitation, the
following (which are all the material factors that the Letchworth board
considered):
o the Letchworth board's familiarity with and review of Letchworth's
business, results of operations, financial condition, competitive
position and prospects, the nature of the industry in which
Letchworth operates, both on a historical and prospective basis,
and the potential growth, development, productivity and
profitability of Letchworth;
o the current and prospective environment in which Letchworth
operates, including national and local economic conditions, the
competitive environment for banks and other financial institutions
generally, the trend toward consolidation in the financial services
industry
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o and in the bank industry and the likely effect of the foregoing
factors on Letchworth's potential growth, development, productivity
and profitability;
o the Letchworth board's review, based in part on presentations by
Letchworth's management and advisors, of Tompkins' business,
financial condition, results of operations and management, and the
performance of the Tompkins common stock on both a historical and
prospective basis, the strategic fit between the parties, the
enhanced opportunities for operating efficiencies that could result
from the merger, the opportunities for enhanced revenues from the
combined banking practices of the institutions involved in the
transaction, and the respective contributions that each of the
parties would bring to a combined institution with respect to
market capitalization, balance sheet, last twelve months' net
income, and estimated 1999 net;
o the Letchworth board's review of the historical and prospective
market prices of the Letchworth common stock compared to the merger
consideration, and the expectation of the Letchworth board that the
merger will provide holders of Letchworth common stock with the
opportunity to receive a premium over the historical trading prices
for their shares and that the receipt of Tompkins common stock by
the Letchworth stockholders in the merger would be on a tax-free
basis for federal income tax purposes (except with respect to cash
received in lieu of fractional shares);
o a comparison of the consideration to be paid to Letchworth's
stockholders compared to that paid in other comparable bank
mergers;
o the Letchworth board's review with its legal and financial advisors
of alternatives to the merger, including its review of the option
of remaining independent and growing internally;
o the Letchworth board's belief that Tompkins has a strong financial
and capital position and that the Tompkins common stock to be
received by Letchworth's stockholders presents a high long-term
intrinsic value, substantial capacity for future growth and
considerable potential for long-term strategic value to such
stockholders;
o the presentation by McConnell, Budd and the opinion of McConnell,
Budd that the consideration to be received by Letchworth's
stockholders is fair from a financial point of view to such
stockholders. Please see "-- Opinion of Letchworth's Financial
Advisor;"
o the significant similarity between and the compatibility of
Tompkins' and Letchworth's business lines, cultures and management
philosophies and their commitments to the communities and customers
they each serve and to their respective employees;
o the expectation that the combined institution will continue to
provide quality service to the communities and customers served by
Letchworth;
o the review by the Letchworth board with its legal and financial
advisors of the terms and conditions of the merger agreement,
including the exchange ratio, the ability of Letchworth to
terminate the merger agreement under certain circumstances if the
value of the Tompkins common stock declines (see "-- Price-Based
Termination"), and the obligation of Tompkins to appoint to its
board three new directors as designated by the Letchworth board
(see "-- Interests of Certain Persons in the Merger"); and
o the review by the Letchworth board of directors with its legal and
financial advisors of the terms and conditions of the merger
agreement, including the exchange ratio, the merger stock option
agreement, and the other documents executed in connection with the
merger agreement.
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In view of the wide variety of material factors considered in
connection with its evaluation of the merger agreement, the Letchworth board did
not find it practical to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its
determination.
The Letchworth board believes that the terms of the merger agreement
are fair to, and in the best interests of, Letchworth and its stockholders.
ACCORDINGLY, THE LETCHWORTH BOARD UNANIMOUSLY RECOMMENDS THAT LETCHWORTH
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
OPINION OF LETCHWORTH'S FINANCIAL ADVISOR
McConnell, Budd has acted as financial advisor to Letchworth on a
contractual basis since February 9, 1998, in connection with Letchworth's
development and implementation of its strategic plan and has assisted Letchworth
in the evaluation of hypothetical affiliation opportunities with banks, thrifts
and other financial institutions since that date. With respect to the pending
transaction involving Tompkins, McConnell, Budd advised Letchworth during the
evaluation and negotiation process leading up to the execution of the merger
agreement and provided Letchworth with a number of analyses as to a range of
financially feasible exchange ratios that might be achieved in a hypothetical
transaction. Representatives of McConnell, Budd met with the board of directors
of Letchworth, that board's designated committees and/or individual members of
the executive management of Letchworth on eleven separate occasions during the
period from January 18, 1999 to July 30, 1999, in connection with the analysis
of Letchworth's strategic alternatives and the negotiation process. During the
negotiation process McConnell, Budd advised Letchworth and participated directly
in the negotiations.
Representatives of McConnell, Budd participated in the meeting of the
Letchworth board held on July 30, 1999, at which the Letchworth board approved
the merger agreement. The determination of the applicable exchange ratio was
arrived at in an arms-length negotiation between Tompkins and Letchworth. At
July 30, 1999, meeting, McConnell, Budd rendered its opinion to the effect that,
as of the date thereof, the exchange ratio was fair to the holders of Letchworth
common stock from a financial point of view. McConnell, Budd reconfirmed its
opinion, dated as of July 30, 1999, by delivering a written opinion to the
Letchworth board dated the date of this joint proxy statement/prospectus.
THE FULL TEXT OF THE MCCONNELL, BUDD OPINION, DATED THE DATE OF THIS
JOINT PROXY STATEMENT/PROSPECTUS, WHICH SETS FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS
ATTACHED AS ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED
HEREIN BY REFERENCE. THE MCCONNELL, BUDD OPINION, WHICH WAS PROVIDED TO THE
LETCHWORTH BOARD FOR ITS INFORMATION, IS DIRECTED ONLY TO THE FAIRNESS OF THE
EXCHANGE RATIO TO THE HOLDERS OF LETCHWORTH COMMON STOCK FROM A FINANCIAL POINT
OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY LETCHWORTH STOCKHOLDER
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE LETCHWORTH MEETING WITH RESPECT TO
THE MERGER AGREEMENT OR ANY OTHER MATTER RELATED THERETO. THE DESCRIPTION OF THE
MCCONNELL, BUDD OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO ANNEX E. LETCHWORTH STOCKHOLDERS ARE URGED TO READ THE MCCONNELL,
BUDD OPINION IN ITS ENTIRETY.
McConnell, Budd was retained based on its qualifications and experience
in the financial analysis of banking and thrift institutions generally, its
knowledge of the New York banking markets in particular, and of the Eastern
United States banking markets in general, as well as its experience with merger
and acquisition transactions involving banking institutions. As a part of its
investment banking business, which is focused exclusively on financial services
industry participants, McConnell, Budd is continually engaged in the valuation
of financial institutions and their securities in connection with its equity
brokerage business generally and mergers and acquisitions in particular. Members
of the corporate finance advisory group of McConnell, Budd have extensive
experience in advising financial institution clients on mergers and
acquisitions. In the ordinary course of its business as a NASD broker-dealer,
McConnell, Budd may, from time to time, purchase securities from or sell
securities to Letchworth or Tompkins, and as a market maker in securities,
McConnell, Budd may, from time to time, have a long or short position in, and
buy or sell debt or equity securities of Letchworth or Tompkins for its own
account or for the accounts of its customers. In addition, in the ordinary
course of business, the employees of McConnell, Budd may have direct or indirect
investments in the debt or equity securities of either or both Letchworth or
Tompkins.
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The opinion of McConnell, Budd is directed only to the exchange ratio
at which shares of Letchworth common stock may be exchanged for shares of
Tompkins common stock and does not constitute a recommendation to any holder of
Letchworth common stock as to how such holder should vote at the Letchworth
special meeting.
The full text of the opinion of McConnell, Budd, which sets forth
assumptions made, matters considered and limits on the review undertaken is
attached to this joint proxy statement/prospectus as Annex E. You are urged to
carefully read the McConnell, Budd opinion and this joint proxy
statement/prospectus in their entirety.
MATERIALS REVIEWED AND ANALYSES PERFORMED. In connection with the
rendering and updating of its opinion, McConnell, Budd reviewed the following
documents and considered the following subjects:
o the merger agreement detailing the pending transaction;
o the joint proxy statement/prospectus in substantially the form to
be mailed to Letchworth stockholders;
o Letchworth Annual Reports to stockholders for 1995, 1996, 1997 and
1998;
o Letchworth Annual Reports on Form 10-K for 1995, 1996, 1997 and
1998;
o related financial information for the four calendar years ended
December 31, 1995, 1996, 1997, and 1998 for Letchworth;
o Letchworth Quarterly Report on Form 10-Q and related unaudited
financial information for the first and second quarters of 1999;
o Letchworth's press release concerning unaudited results for the
first and second quarters of 1999 and calendar year 1998;
o Tompkins Annual Reports to Stockholders for 1995, 1996, 1997 and
1998;
o Tompkins Annual Reports on Form 10-K and related financial
information for the calendar years ended 1995, 1996, 1997 and 1998;
o Tompkins Quarterly Reports on Form 10-Q and related unaudited
financial information for the first and second quarters of 1999;
o Tompkins' press release concerning unaudited results for the first
and second quarters of 1999 and calendar year 1998;
o internal financial information and financial forecasts relating to
the business, earnings, cash flows, assets and prospects of the
respective companies furnished to McConnell, Budd by Letchworth and
Tompkins, respectively;
o discussions between McConnell, Budd and members of the senior
management of Letchworth concerning the past and current results of
operations of Letchworth, its current financial condition and
management's opinion of its future prospects;
o discussions between McConnell, Budd and members of the senior
management of Tompkins concerning the past and current results of
operations of Tompkins, its current financial condition and
management's opinion of its future prospects;
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o the historical record of reported prices, trading volume and
dividend payments for both Letchworth and Tompkins common stock;
o generally available information concerning the current state of and
future prospects for the economy of New York generally and the
relevant market areas for Letchworth and Tompkins in particular;
o specific merger analysis models developed and employed by
McConnell, Budd to evaluate potential business combinations of
financial institutions using both historical reported information
and projected information for both Letchworth and Tompkins and the
corresponding results;
o the reported financial terms of selected recent business
combinations of financial institutions for purposes of comparison
to the pending transaction; and
o such other studies and analyses as McConnell, Budd considered
appropriate under the circumstances associated with this particular
transaction.
The McConnell, Budd opinion takes into account its assessment of
general economic, market and financial conditions and its experience in other
transactions involving participants in the financial services industry, as well
as its experience in securities valuation and its knowledge of the banking
industry generally. For purposes of reaching its opinion, McConnell, Budd
assumed and relied upon the accuracy and completeness of the information
provided to it or made available by Letchworth and Tompkins and does not assume
any responsibility for the independent verification of such information. With
respect to financial forecasts made available to McConnell, Budd, it is assumed
by McConnell, Budd that they were prepared on a reasonable basis and reflect the
best currently available estimates and good faith judgments of the management of
Letchworth and Tompkins respectively, as to the future performance of Letchworth
and Tompkins. McConnell, Budd has also relied upon assurances from the
management of Letchworth and Tompkins that they were not aware of any facts or
of the omission of any facts that would make the information or financial
forecasts provided to McConnell, Budd incomplete or misleading. In the course of
rendering its opinion, McConnell, Budd did not complete any independent
valuation or appraisal of any of the assets or liabilities of either Letchworth
or Tompkins and was not provided with such valuations or appraisals from any
other source.
The following is a summary of the material analyses employed by
McConnell, Budd in connection with rendering its written opinion. Given that
such information is a summary, it does not purport to be a complete and
comprehensive description of all the analyses performed, or an enumeration of
every matter considered by McConnell, Budd in arriving at its opinion. The
preparation of a fairness opinion is a complicated process, involving a
determination as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances.
Therefore, such an opinion ordinarily is not readily susceptible to a summary
description. In arriving at its fairness opinion, McConnell, Budd did not
attribute any particular weight to any one specific analysis or factor
considered by it and made qualitative as well as quantitative judgments as to
the significance of each analysis and factor. Consequently, McConnell, Budd
believes that its analyses must be considered as a whole and feels that
attributing undue weight to any single analysis or factor considered could
create a misleading or incomplete view of the process leading to the formation
of its opinion. In its analyses, McConnell, Budd made certain assumptions with
respect to banking industry performance, general business and economic
conditions and other factors, many of which are beyond the control of management
of either Letchworth or Tompkins. Estimates that were referred to in the
analyses are not necessarily indicative of actual values or predictive of future
results or values, which may vary significantly from those set forth. In
addition, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses might actually be sold.
Accordingly, such analyses and estimates are inherently subject to uncertainty
and McConnell, Budd has not assumed responsibility for the accuracy of such
analyses or estimates.
SPECIFIC ACQUISITION ANALYSIS. McConnell, Budd employs a proprietary
analytical model to examine hypothetical transactions involving banking
companies. The model uses forecast earnings data, selected current period
balance sheet and income statement data, current market and trading information
and a number of assumptions as to interest rates for borrowed funds, the
opportunity costs of funds, discount rates, dividend streams, effective tax
rates, transaction structures (the alternative or combined uses of common
equity, cash, debt or other securities, to fund a transaction) and the projected
impact (if any) of any required deposit divestitures that might be necessary to
complete a given transaction in conjunction
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with obtaining regulatory approval. The model distinguishes between purchase and
pooling accounting treatments and inquires into the likely economic feasibility
of a given hypothetical transaction at a given price level or specified exchange
rate while employing a specified transaction structure. The model also permits
evaluation of various levels of potential non-interest expense savings which
might be achieved along with various potential implementation time tables for
such savings, as well as the possibility of revenue enhancement opportunities
which may arise in a given hypothetical transaction.
For the purposes of rendering its opinion with respect to this
transaction, McConnell, Budd evaluated an exchange ratio of 0.685 shares of
common stock of Tompkins in exchange for each share of Letchworth in a tax
deferred transaction conditioned on the receipt of pooling accounting treatment.
McConnell, Budd believes that the nominal earnings per share dilution on a pro
forma basis (before consideration of cost savings or potential revenue
enhancements and excluding non-recurring expenses) for Tompkins would
approximate 7.48% or $0.20 per share. The calculations suggest that this
transaction would be slightly dilutive (1.15%) to tangible book value per share
on a pro forma basis to Tompkins. The transaction would equate to a comparable
deposit premium of 13.17% and would result in an increase of dividend payments
to Letchworth stockholders (based on an annualization of the most recent regular
quarterly dividend payment to stockholders by Tompkins) of 90.28%. The pro forma
entity would continue to be more than adequately capitalized with a ratio of
tangible common equity to tangible assets of 8.11%, and an estimated tier one
capital ratio in excess of 13.00%. In order for the transaction to become
neutral to earnings per share from a dilution perspective, McConnell, Budd
estimates that it would be necessary to achieve a reduction in pre-tax
noninterest-expense of approximately $2.2 million which represents 15.5% of
current non-interest expenses for Letchworth of approximately $14 million.
Because the estimation of incremental amounts of recurring cost savings and the
exact timing of their realization is not possible for outside observers,
McConnell, Budd did not attempt to forecast the future quarter in which the
pending transaction will become either earnings neutral or accretive. However,
reductions in recurring non-interest expense and earnings improvements due to
the implementation of a more diverse product line are expected to be feasible
for the parties involved so that the merger transaction can be expected to
become accretive to pro forma earnings per share with the passage of time.
McConnell, Budd anticipates that this transaction will become accretive to
earnings per share of Tompkins in the year 2001.
EARNINGS PASS-THROUGH ANALYSIS. Earnings pass-through analysis is based
on a comparison of anticipated pro forma values to stand-alone values as of a
given point in time. For example, based on a Letchworth management internal
forecast of $1.42 in stand-alone earnings per share for 2000, one should query
what earnings would be associated with 0.685 shares of pro forma Tompkins common
stock. McConnell, Budd calculations suggest that with zero cost savings or
revenue enhancements and factoring out non-recurring and transaction expenses,
the earnings associated with 0.685 shares of Tompkins common stock would
represent a 26.57% increase over the earnings associated with one share of
Letchworth or approximately $1.79 per share. If one further assumes that exactly
enough cost savings and revenue enhancements can be achieved to render the
transaction earnings per share neutral, from a Tompkins perspective, the
earnings associated with 0.685 shares of Tompkins common stock would represent a
29.76% increase over the earnings associated with a single share of Letchworth
or approximately $2.69 per share. To the extent that more cost savings and/or
revenue enhancements are achievable, such earnings pass-through enhancement
could exceed 29.76%. McConnell, Budd is comfortable with an expectation that
cost savings and revenue enhancements in excess of the level necessary to render
this transaction earnings neutral to earnings per share for Tompkins are
reasonably achievable. The primary conclusion of this analysis is that a
Letchworth stockholder who exchanges their shares of Letchworth common stock for
Tompkins common stock at the exchange ratio of 0.685:1 will then hold a security
which will generate more earnings per share per future period, than the single
share of Letchworth common stock exchanged. The implication is that as long as
Tompkins trades at a price earnings ratio that is similar to the price earnings
ratio at which shares of Letchworth historically traded, or higher, the market
value of the 0.685 shares of Tompkins will exceed the market value of the
Letchworth share exchanged.
UPSTREAM ACQUISITION ANALYSIS. McConnell, Budd also completed an
analysis of the relative capacity of other financial service entities doing
business in New York to acquire Letchworth on economic terms, equal to or better
than, those proposed by Tompkins. McConnell, Budd also examined the theoretical
ability of such entities to employ a transaction structure with similar tax and
accounting implications as the structure proposed by Tompkins, (a "tax-free"
stock for stock exchange accounted for as a pooling of interests). This analysis
was based solely on publicly available information concerning such other
entities and no conversations were held with either the executives or
representatives of such entities. Starting with a universe of all logical
acquirers which, in McConnell, Budd's opinion, could theoretically
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have been interested in a possible acquisition of Letchworth, McConnell, Budd
narrowed the list down to eight entities for a more detailed analysis. In
examining the eight companies, the data employed was derived from publicly
available information as of June 30, 1999 and consensus estimates for future
period earnings per share obtained from Bloomberg Financial Markets (where
available). Factors considered included:
o pro forma earnings per share dilution;
o pro forma tangible book value dilution;
o a calculation of additional after-tax earnings necessary to render
a given transaction earnings per share neutral to the acquiring
entity;
o a calculation of the equivalent pre-tax reduction in
non-interest-expense which would be necessary to render a given
transaction earnings per share neutral to the acquirer;
o a value pass through analysis with respect to earnings, book value
and pro forma dividends per share; and
o the likely impact on trading liquidity versus existing liquidity
for Letchworth common stock.
As a result of their analysis, McConnell, Budd concluded that of the
eight entities considered, Tompkins would be able to complete a stock for stock
transaction at a given price, on a basis where the amount of required cost
savings to achieve earnings per share neutrality, expressed as a pre-tax
reduction in non-interest expense would be lower than such case for all but one
of the other entities. This is important since such a transaction contains the
highest potential for accretive results. The conclusion which McConnell, Budd
reached as a result of upstream analysis was that there was not an obvious
additional candidate which would be able or likely to offer consideration which
equaled or exceeded the initial indication of interest offered by Tompkins.
DISCOUNTED CASH FLOW ANALYSIS. McConnell, Budd reviewed a discounted
cash flow model which McConnell, Budd prepared based on projections provided by
the management of Letchworth. The model employed a projection of hypothetical
earnings for Letchworth on an independent stand-alone basis for calendar years
2000 through 2002. A similar exercise was completed for the hypothetical
combination of Letchworth and Tompkins for the same periods employing in the
case of Tompkins projections for Tompkins which were provided to McConnell, Budd
by Tompkins. As part of each exercise, a hypothetical dividend payout ratio
assumption, which depicted average annual payouts as a percentage of earnings,
was used to project dividend streams, which would be available to stockholders.
McConnell, Budd employed a range of possible future market trading
price/earnings ratios ranging from a minimum of 14 times earnings to a maximum
of 20 times earnings in order to project possible future trading values for a
share of either Letchworth common stock on an independent basis or an equivalent
amount of Tompkins common stock reflecting the exchange ratio. Given the model
time horizon and a range of discount rates of 12% to 14%, these assumptions
resulted in a range of present discounted values for a share of Letchworth
common stock on an independent basis. Such values ranged from $15.03 to $22.09
and include consideration of the present discounted value of the projected
stream of cash dividends, which might be received by a stockholder during the
cited period. The same exercise completed for the pro forma Tompkins generated a
range of present discounted values that ranged from $20.85 to $30.48. These
values represent the discounted present values of the sum of the future possible
trading values of the equivalent of one share of Letchworth common stock PLUS
the discounted value of the stream of cash dividends, which are projected to
have been received between the present and the future valuation date at the end
of 2002. In the event that there is no difference between the discounted cash
flow analyses represented by two alternatives one could be said to be
financially indifferent between alternatives. In each case reviewed, the full
range of present discounted values for the hypothetical combination of
Letchworth and Tompkins exceeded the full range of present discounted values for
Letchworth on a stand-alone basis by a margin in excess of 37%.
The point of such a discounted cash flow exercise is not to make a
precise estimate of where Letchworth on a stand-alone basis will be trading at a
precise point in the future. It is equally not an effort to predict, on a
precise basis, where the pro forma Tompkins will be trading at an exact point in
the future. McConnell, Budd recognized that with the large number of variables
involved including many which are beyond the control of management, that such
predictions with any degree of precision are well beyond the capability of
McConnell, Budd, Letchworth or Tompkins. Rather, the
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point of the exercise is to employ reasonable future point earnings estimates to
complete an analysis designed to test a hypothesis that the result of one given
course of action is likely to be better over time than another. In McConnell,
Budd's opinion, the results of the present discounted cash flow analysis
provides comfort that the stockholders of Letchworth are likely to be better off
as a result of completing the pending transaction with Tompkins than they would
likely be by remaining an independent financial institution.
It is important to note that the discount factors employed embody both
the concept of a time value of money and risk factors that reflect the
uncertainty of the forecasted cash flows and terminal price/earnings multiples.
Use of higher discount rates would result in lower discounted present values.
Conversely, use of lower discount rates would result in higher discounted
present values. McConnell, Budd advised the Letchworth board of directors that
although discounted cash flow analysis is a frequently used valuation
methodology, it relies on numerous assumptions, including discount rates,
terminal values, future earnings performance and asset growth rates, as well as
dividend payout ratios. The accurate specification of such assumptions for time
periods more than one year in the future is a very difficult process and
contains the possibility of inaccuracy despite McConnell, Budd's attempts to be
both accurate and conservative in their analysis. Consequently, any or all of
these assumptions may vary from actual future performance and results. Any
errors made in the selection of assumptions for such an exercise can interact
with one another and can lead to conclusions that may demonstrate little
resemblance to actual events.
OTHER FACTORS GIVEN CONSIDERATION. McConnell, Budd gave consideration
to a number of additional factors associated with the pending transaction which
it believes are favorable from the point of view of a Letchworth stockholder.
Completion of this merger will give the pro forma Tompkins access to potentially
lucrative banking markets located in areas of New York State which display
demographics which are equal to or superior to the market demographics
associated with many markets currently served by Tompkins. The pending
transaction will also increase market share of the pro forma Tompkins very
substantially. The sum of the enumerated market share improvements should be
beneficial to the ability of the pro forma company to compete in these
competitive banking markets. McConnell, Budd believes that the exchange ratio
negotiated reflects a reasonable share of ownership in the pro forma Tompkins
for Letchworth stockholders based on both a historical and a projected
contribution analysis. McConnell, Budd believes that the pro forma entity will
be a more visible financial institution in the regional financial markets and
with its common stock traded on the AMEX, may attract increased research
coverage and generate greater liquidity from a shares traded perspective than is
the case for Letchworth on a stand-alone basis. McConnell, Budd also believes
that Letchworth stockholders will encounter prospects for greater future annual
cash dividends based upon projected cost savings and the earnings growth
expectations of the combined entity than would have been the case for continued
independence.
ANALYSIS OF OTHER COMPARABLE TRANSACTIONS. McConnell, Budd did not
place emphasis on the analysis of comparable transactions as a valuation
methodology due to what it considers to be inherent limitations of the
application of the results to specific cases. McConnell, Budd believes that such
analysis fails to adequately take into consideration such factors as:
o material differences in the underlying capitalization of the
comparable institutions which are being acquired;
o differences in the historic earnings (or loss) patterns recorded by
the compared institutions which can depict a very different trend
than might be implied by examining only recent financial results;
o failure to exclude non-recurring profit or loss items from the last
twelve months' earnings streams of target companies which can
distort apparent earnings multiples;
o material differences in the form or forms of consideration used to
complete the transaction; and
o differences between the planned method of accounting for the
completed transaction;
o such less accessible factors as the relative population, business
and economic demographics of the acquired entities markets as
compared or contrasted to such factors for the markets in which
comparable companies are doing business.
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Of equal significance, comparable analysis rarely seems to take into
consideration the degree of facilities overlap between the acquirer's market and
that of the target or the absence of such overlap and the resulting cost savings
differentials between otherwise apparently comparable transactions. Comparable
analysis also frequently fails to incorporate the projected impact of deposit
divestitures that may be required by regulators in a given transaction and which
are completely absent in a so-called comparable transaction. McConnell, Budd
consequently believes that comparable analysis has serious inherent limitations
and should not be relied upon to any material extent by members of management,
the board of directors or stockholders in considering the presumed merits of a
pending transaction.
With these serious reservations in mind, McConnell, Budd nonetheless
examined statistics associated with fifteen transactions (excluding the subject
transaction) involving commercial banks. The following criteria was utilized to
create the sample:
o Acquired institutions are all commercial banks.
o Announced between January 1, 1999 and July 29, 1999.
o Announced deal value greater than $50 million and less than $100
million.
The following table depicts the fifteen transactions:
ACQUIRER / TARGET ANNOUNCED
----------------- ---------
First Security Corp./ Comstock Bancorp 01/13/1999
MidCity Finl Corp./ Damen Finl Corp. 02/23/1999
Associated Banc-Corp/ Riverside Acqstn Cp 03/10/1999
Carolina First Corp./ Citrus Bank 03/18/1999
Premier Bancshares/ Farmers & Mrchnts Bk 04/20/1999
Zions Bancorp/ Regency Bancorp 04/27/1999
Community Frst Bkshs/ Valley National Corp 05/10/1999
CVB Financial Corp./ Orange National Bncp 05/18/1999
City National Corp./ American Pacific 06/04/1999
Compass Bancshares Inc./Hartland Bank 06/17/1999
Hudson United / Southern Jersey Bancorp 06/29/1999
First Fed Fin. Corp./Professional Bancorp 06/28/1999
First M & F Corp./ Community Fed. Bancorp 07/08/1999
Regions Fin. Corp / Minden Bancshares Inc. 07/16/1999
Compass Bancshares Inc./Western Bancshares 07/26/1999
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The table which follows permits a comparison of the mean and median
values for two selected statistics arising from the list of 15 transactions
evaluated with the "comparable" statistics calculated for the transaction which
is described in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
"COMPARABLE" STATISTICS AS OF THE ANNOUNCEMENT DATE:
Announced transaction price/ Announced transaction price/
Compared Statistics Tangible Book Value Trailing 12 Months Earnings
------------------- ------------------- ---------------------------
<S> <C> <C>
Comparable mean 284.04% 22.26X
Comparable median 297.01% 21.56X
Tompkins/Letchworth 300.51% 21.83X
</TABLE>
Given the enumerated reservations concerning the problematic nature of
such superficial comparisons, McConnell, Budd is willing to supply the
information, but reluctant to draw conclusions based on such comparisons alone.
McConnell, Budd is inclined to place more weight on the other methods of
analysis summarized in this section than on comparable analysis regardless of
whether or not the apparent comparisons appear to be in favor of, or not in
favor of, a given pending transaction.
The fairness opinion received by Letchworth is dated as of the date of
this joint proxy statement/prospectus and is based on conditions in effect on
the date hereof. Accordingly, such opinion does not address the circumstances
that may exist after the date of this joint proxy statement/prospectus but
before the date the merger is consummated. In the event that Letchworth has the
right to terminate the merger agreement pursuant to the termination provisions
of the merger agreement, the Letchworth board intends to request another
fairness opinion prior to deciding whether to consummate the merger or to
terminate the merger agreement. If the Letchworth board requests another
fairness opinion as part of the process of evaluating Letchworth's termination
rights and receives or does not receive another fairness opinion, the Letchworth
board will consider the fairness opinion, or the lack thereof, and all other
relevant facts and circumstances then existing in determining whether the
termination of the merger agreement is in the best interests of Letchworth and
its stockholders.
For the services of McConnell, Budd as financial advisor to Letchworth
in connection with the merger, Letchworth has agreed to pay McConnell, Budd a
cash fee in the amount of $600,000. This fee is paid in three installments, as
follows: (1) $200,000 upon execution of the merger agreement; (2) $200,000 upon
the filing of the joint proxy statement/prospectus; and (3) $200,000 upon
closing of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Letchworth's management and the Letchworth board of
directors may be deemed to have certain interests in the merger that are in
addition to or potentially different from the interests of stockholders of
Letchworth generally. The Letchworth board was aware of these interests and
considered them, among other matters, in approving the merger agreement and the
transactions contemplated thereby.
EMPLOYMENT AGREEMENTS. Upon consummation of the merger, Tompkins will
assume by assignment the existing employment agreement between Letchworth and
Mr. Fulmer and, under that agreement, Mr. Fulmer will serve as president of
Tompkins. In addition, Mr. Fulmer will be named a member of the board of
directors of Tompkins. The agreement to assume Mr. Fulmer's employment contract
with Letchworth will not impose upon Tompkins any requirement to increase Mr.
Fulmer's compensation or otherwise modify the term of or benefits derived under
his existing employment agreement with Letchworth. Furthermore, the employment
agreements pertaining to the executives of The Bank of Castile and The Mahopac
National Bank will not be altered or amended in connection with the merger.
However, the consummation of the merger will result in a "change of control" for
certain purposes under those agreements. As a consequence, in the event that
these executives are terminated within two years of the effective date of the
merger, they will have enhanced rights to severance compensation.
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LETCHWORTH INDEPENDENT BANCSHARES CORPORATION 1990 INCENTIVE STOCK
OPTION PLAN AND 1998 STOCK OPTION PLAN (THE "OPTION PLANS"). Under the terms of
the merger agreement, all Letchworth options outstanding at the date of the
merger (representing options to purchase 120,110 shares of Letchworth common
stock, as of September 30, 1999) will automatically be converted into options to
purchase shares of Tompkins common stock, subject to the terms of the Letchworth
option plans and the individual award agreements issued thereunder. Under the
Letchworth option plans, all Letchworth options will become fully vested and
exercisable upon a "change in control", as defined in the option plans. The
number of substitute options and the exercise price thereof will be determined,
respectively, by multiplying the number of shares covered by, and dividing the
exercise price of, the Letchworth options by the exchange ratio applicable to
the merger (i.e., 0.685).
TOMPKINS BOARD OF DIRECTORS. Under the terms of the merger agreement,
Tompkins has agreed to permit the Letchworth board to select three individuals,
who are acceptable to Tompkins and are willing to so serve, to be elected or
appointed as directors of Tompkins at, or as promptly as practicable after, the
date of the merger. These new directors of Tompkins will receive fees and other
compensation, remuneration and benefits equal to the fees, compensation,
remuneration and benefits received by other members of the Tompkins board of
directors. The three individuals designated by the Letchworth board to become
members of the board of Tompkins are James W. Fulmer (president and chief
executive officer of Letchworth, a director of Letchworth, and a director of The
Bank of Castile), Craig Yunker (a director of Bank of Castile) and William D.
Spain, Jr. (a director of both Letchworth and Mahopac National, and chairman of
the board of Mahopac National).
INDEMNIFICATION AND INSURANCE. Tompkins has agreed in the merger
agreement that, from and after the effective date of the merger through the
sixth anniversary of the date of the merger, Tompkins will indemnify and hold
harmless each present and former director and officer of Letchworth or its
subsidiaries and each officer or employee of Letchworth or its subsidiaries who
is serving or has served as a director or trustee of another entity expressly at
Letchworth's request or direction against any costs or expenses (including
reasonable attorneys' fees), judgments, fines, losses, claims, damages or
liabilities incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of matters existing or occurring at or prior to the effective date of the
merger (including the transactions contemplated by the merger agreement,
including the entering into of the merger Stock option agreement), whether
asserted or claimed prior to, at or after the date of the merger, and to advance
any such costs to each indemnified party as they are from time to time incurred,
in each case to the fullest extent such indemnified party would have been
indemnified as a director, officer or employee of Letchworth and its
subsidiaries and as then permitted under applicable law.
Tompkins has also agreed in the merger agreement that, for a period of
six years after the date of the merger, it will cause to be maintained in effect
for Letchworth's and Bank of Castile's former directors and officers coverage
under Tompkins' and Tompkins County Trust Company's directors' and officers'
liability insurance policies no less advantageous to the beneficiaries thereof
than the current directors' and officers' liability insurance policies
maintained by Letchworth and Bank of Castile, subject to certain maximum cost
limits.
SHARE OWNERSHIP. As of October 31, 1999, directors and executive
officers of Letchworth, and/or The Bank of Castile and certain of their
affiliates owned an aggregate of 563,093 shares of Letchworth common stock
(inclusive of shares which could be acquired upon the exercise of vested and
unvested Letchworth options) for which they will receive shares of (or options
to acquire, as the case may be) Tompkins common stock pursuant to the merger.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Pursuant to the terms of the merger agreement, at the date of the
merger, Mr. Byrnes will continue to serve as Chairman of the Tompkins board and
chief executive officer of Tompkins; however, Mr. Fulmer, the current president
and chief executive of Letchworth will become a member of the board of Tompkins
and will assume the title of president of Tompkins. In addition, pursuant to the
merger agreement, the Tompkins board has agreed to appoint Mr. Fulmer and two
other individuals as new members of the Tompkins board. These two individuals,
Craig Yunker and William D. Spain, Jr. are members of the Bank of Castile and
Mahopac National boards of directors, respectively. The respective Boards of
Tompkins County Trust Company, Bank of Castile and Mahopac National will not be
affected by the merger of Tompkins and Letchworth.
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Tompkins has also agreed to assume the employment agreement between
Letchworth and its chief executive officer, James W. Fulmer, dated as of
September 12, 1989. Also, Tompkins will honor the employment agreement between
Bank of Castile and its President and Chief Executive Officer, Brenda Copeland,
as amended and restated as of January 1, 1991, and the employment agreements
between The Mahopac National Bank and its principal officers, Stephen E. Garner
(President and Chief Executive Officer), Stephen S. Romaine (Chief Financial
Officer) and Gerald J. Klein, Jr. (Senior Loan Officer), each as amended and
restated as of January 18, 1999. The employment agreements between The Mahopac
National Bank and its executive officers were renegotiated in connection with
Letchworth's acquisition of control of The Mahopac National Bank. The agreements
provide for the implementation of supplemental executive retirement plans, the
precise terms of which remain under discussion.
CONDITIONS TO THE MERGER
The respective obligations of Tompkins and Letchworth to effect the
merger are subject to the satisfaction of the following conditions at or prior
to the date of the merger:
o the merger agreement shall have been approved and adopted by the
requisite vote of each of Tompkins' and Letchworth's stockholders
in accordance with applicable laws and regulations;
o the requisite regulatory approvals and any necessary regulatory
consents and waivers with respect to the merger shall have been
obtained and shall remain in full force and effect, and all
statutory waiting periods shall have expired;
o neither Tompkins nor Letchworth shall be subject to any order,
decree or injunction of a court or agency of competent jurisdiction
which enjoins or prohibits the consummation of the merger or any
other transactions contemplated by the merger agreement;
o no statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental
authority which prohibits, restricts or makes illegal consummation
of the merger, or any other transactions contemplated by the merger
agreement;
o the Registration Statement shall have been declared effective by
the Securities and Exchange Commission and no proceedings shall be
pending or threatened by the Securities and Exchange Commission to
suspend the effectiveness of the Registration Statement, and all
required approvals by state securities or "blue sky" authorities
with respect to the transactions contemplated by the merger
agreement shall have been obtained;
o Tompkins and Letchworth shall have obtained the consent or approval
of each person whose consent or approval shall be required in
connection with the transactions contemplated by the merger
agreement under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument to which
Letchworth or its subsidiaries is a party or is otherwise bound,
except those of which failure to obtain would not, individually or
in the aggregate, have a material adverse effect on Letchworth
(after giving effect to the transactions contemplated by the merger
agreement) or upon the consummation of the transactions
contemplated by the merger agreement; and
o Tompkins shall have caused to be listed on the AMEX, subject only
to official notice of issuance, the shares of Tompkins common stock
to be issued by Tompkins in exchange for the shares of Letchworth
common stock.
o Tompkins and Letchworth shall have received an opinion of Harris
Beach & Wilcox, LLP, counsel to Tompkins, dated as of the effective
date, in form and substance customary in transactions of the type
contemplated by the merger agreement, and reasonably satisfactory
to Tompkins, substantially to the effect that on the basis of the
facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the Date
of the merger, the merger will be treated for federal income tax
purposes as a reorganization within the meaning of Section 368(a)
of the Code and that accordingly: no gain or loss will be
recognized by Tompkins or its subsidiaries, or by Letchworth or its
subsidiaries, as a result of the merger; and except to the extent
of any cash received in lieu of a fractional share interest in
Tompkins
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common stock, no gain or loss will be recognized by the
stockholders of Letchworth who exchange their Letchworth common
stock for Tompkins common stock pursuant to the merger.
The obligation of Tompkins to effect the merger is further subject to
the satisfaction, or waiver by Tompkins, of the following conditions:
o the obligations of Letchworth, required to be performed by it at or
prior to the date of the merger pursuant to the terms of the merger
agreement shall have been duly performed and complied with in all
material respects and the representations and warranties of
Letchworth contained in the merger agreement shall be true and
correct (subject to prior disclosure of any necessary qualification
of such representations and warranties and subject to the Material
Adverse Effect threshold defined below) as of July 30, 1999 and as
of the date of the merger as though made at and as of the date of
the merger (except as to any representation or warranty which
specifically relates to an earlier date), and Tompkins shall have
received a certificate to the foregoing effect signed by the chief
executive officer and the chief financial or principal accounting
officer of Letchworth;
o all action required to be taken by, or on the part of, Letchworth
to authorize the execution, delivery and performance of the merger
agreement and the consummation by Letchworth of the transactions
contemplated thereby shall have been duly and validly taken by the
board of directors and stockholders of Letchworth, as the case may
be, and Tompkins shall have received certified copies of the
resolutions evidencing such authorization;
o Letchworth shall have obtained the consent or approval of each
person (except for those the absence of which would not have a
material adverse effect on Letchworth, Tompkins or their respective
subsidiaries) whose consent or approval shall be required in order
to permit the succession by the surviving corporation pursuant to
the merger to any obligation, right or interest of Letchworth or
its subsidiaries under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or
instrument to which Letchworth or its subsidiaries is a party or is
otherwise bound, except those of which failure to obtain would not,
individually or in the aggregate, have a material adverse effect on
Tompkins (after giving effect to the consummation of the
transactions contemplated by the merger agreement) or upon the
consummation of the transactions contemplated by the merger
agreement;
o Tompkins shall have received a letter agreement from each
Letchworth affiliate agreeing: (a) to comply with Rule 145 of the
Securities Act; (b) to refrain from transferring shares as required
by the pooling-of-interests accounting rules; and (c) to be
present, in person or by proxy, and vote in favor of the merger
agreement at the Letchworth meeting; and
o Tompkins shall have received certificates (such certificates to be
dated as of a day as close as practicable to the closing date) from
appropriate authorities as to the corporate existence and good
standing of Letchworth and its subsidiaries;
o Tompkins shall have received from KPMG, LLP, letters dated no more
than five days prior (I) to the effective date of the registration
statement, and (ii) the closing date, wit h respect to certain
financial information regarding Letchworth; and
o Tompkins shall have received from KPMG, LLP, a letter in the form
customarily issued by such accountants in transactions of this
type, to the effect that the merger will qualify for pooling of
interest accounting treatment.
The merger agreement defines a "material adverse effect," when applied
to a party to the merger agreement, as an effect which is material and adverse
to the business, financial condition or results of operations of such party and
its subsidiaries taken as whole; provided, however, that any such effect
resulting from any (a) changes in banking or similar laws, rules or regulations
or generally accepted accounting principles or interpretations thereof that
apply to Tompkins and its subsidiaries and Letchworth and its subsidiaries, as
the case may be, (b) changes in the general level of market
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interest rates shall not be considered in determining if a material adverse
effect has occurred; or (c) acts or omissions of a party taken with the
permission of the other party in contemplation of the merger.
The obligation of Letchworth to effect the merger is further subject to
the satisfaction, or waiver by Letchworth, of the following conditions:
o the obligations of Tompkins required to be performed by it at or
prior to the date of the merger pursuant to the terms of the merger
agreement shall have been duly performed and complied with in all
material respects and the representations and warranties of
Tompkins contained in the merger agreement shall be true and
correct (subject to Tompkins' prior disclosure of any necessary
qualification of such representations and warranties and subject to
the material adverse effect threshold previously defined) as of
July 30, 1999 and as of the date of the merger as though made at
and as of the date of the merger (except as to any representation
or warranty which specifically relates to an earlier date), and
Letchworth shall have received a certificate to the foregoing
effect signed by the chief executive officer and the chief
financial or principal accounting officer of Tompkins;
o all action required to be taken by, or on the part of, Tompkins to
authorize the execution, delivery and performance of the merger
agreement and the consummation by Tompkins of the transactions
contemplated thereby shall have been duly and validly taken by the
board of directors and stockholders of Tompkins and Tompkins County
Trust Company, as the case may be, and Letchworth shall have
received certified copies of the resolutions evidencing such
authorization, as well as the opinion of Tompkins' counsel;
o Letchworth shall have received certificates (such certificates to
be dated as of a day as close as practicable to the closing date)
from appropriate authorities as to the corporate existence and good
standing of Tompkins and its subsidiaries; and
o Letchworth shall have received from Pricewaterhouse Coopers, LLP, a
letter dated not more than five days prior to (i) the effective
date of the registration statement and (ii) the closing date, with
respect to certain financial information.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the merger will be obtained or
whether all of the other conditions precedent to the merger will be satisfied or
waived by the party permitted to do so. Please see "--Regulatory Approvals
Required for the merger" below. If the merger is not effected on or before June
30, 2000, the merger agreement may be terminated by a vote of a majority of the
board of directors of either Tompkins or Letchworth unless the failure to effect
the merger by such date is due to the breach of the merger agreement by the
party seeking to terminate the merger agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
The merger is subject to the approval of the Board of Governors of the
Federal Reserve System pursuant to Section 3(a)(5) of the Bank Holding Company
Act, the Office of the Comptroller of Currency, and the Federal Deposit
Insurance Corporation. Tompkins submitted an application to the Federal Reserve
on September 30, 1999. In connection with the federal application process, the
Federal Reserve will forward a copy of the application to both the OCC and the
FDIC for comment.
The acquisition is also subject to the approval of the New York State
Banking Board pursuant to Section 142 of the New York State Banking Law.
Tompkins filed its state application with the New York State Banking Board on
September 16, 1999.
In considering whether to approve the merger, the Federal Reserve Board
and the New York State Banking Board consider whether the transaction is
consistent with adequate or sound banking; the competitive effects of the
transaction: and the public interest and the needs and convenience thereof. In
addition, the New York State Banking Board considers the banks' performances
under the New York State equivalent of the Federal Community Reinvestment Act.
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Tompkins is not aware of any governmental approvals or actions that are
required for consummation of the merger except as described above. Should any
such approval or action be required, it is presently contemplated that such
approval or action would be sought. The merger will not proceed in the absence
of the required approvals and there can be no assurance that such approvals will
be obtained. Further, if approved, there can be no assurance as to the date of
such approvals, or that such approvals will not be conditioned upon matters that
would cause Tompkins and Letchworth to abandon the merger.
The approval of any application merely implies satisfaction of
regulatory criteria for approval, which do not include a review of the merger
from the standpoint of the adequacy of the consideration that Letchworth
stockholders are to receive. Furthermore, regulatory approvals do not constitute
an endorsement or recommendation of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the merger agreement, during the period from the date of
the merger agreement to the date of the merger (except as otherwise provided in
the merger agreement or as required by law or regulation or by regulatory
authorities), Letchworth has agreed that neither it nor any of its subsidiaries
shall, without the prior consent of Tompkins, take certain actions, including
the following:
o carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted;
o in the case of Letchworth only, declare, set aside, make or pay any
dividend or other distribution in respect of its capital stock
other than its regular quarterly cash dividends on Letchworth
common stock in amounts not in excess of $.09 per share;
o issue any shares of its capital stock or permit any treasury shares
to become outstanding other than pursuant to the merger stock
option agreement or rights outstanding as at the date of the merger
agreement;
o incur any additional debt obligation or other obligation for
borrowed money other than in the ordinary course of business
consistent with past practice;
o issue, grant or authorize any rights or effect any
recapitalization, reclassification, stock dividend, stock split or
like change in capitalization, or redeem, repurchase or otherwise
acquire any shares of its capital stock except for trust account
shares and debt previously contracted shares, provided however,
that in order to fulfill such obligations, Letchworth shall acquire
the necessary shares of Letchworth common stock solely through open
market purchases or the use of treasury shares previously acquired
by Letchworth in open market purchases;
o amend its articles or certificate of incorporation or association
or bylaws; impose, or suffer the imposition, on any share of stock
of any Letchworth subsidiary held by Letchworth of any lien, charge
or encumbrance, or permit any such lien, charge or encumbrance to
exist;
o merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge
into it or consolidate with any other corporation, savings
association or bank; acquire control over any other firm, bank,
corporation, savings association or organization or create any
subsidiary;
o except in the ordinary course of business, waive or release any
material right or cancel or compromise any material debt or claim;
o liquidate or sell or dispose of any material assets or acquire any
material assets; make any material capital expenditure (for such
purposes, "material capital expenditure" means expenditures in
excess of $50,000 in any instance or $150,000 in the aggregate); or
establish new branches or other similar facilities, close existing
branches or similar facilities or enter into or modify any leases
or other contracts relating thereto;
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o increase the rate of compensation of, pay or agree to pay any bonus
to, or provide any other employee benefit or incentive to, any of
its directors, officers or employees except in a manner consistent
with past practice; enter into, modify or extend, or permit to be
renewed, any employment or severance contracts with any of its
present or former directors, officers or employees (except as may
be required by applicable law and except with respect to the
supplemental executive retirement plans to be entered into by and
between Letchworth and certain Mahopac National employees, provided
however, that Tompkins shall have the right to approve the terms
and conditions of those agreements prior to their execution, which
approval shall not be unreasonably withheld);
o change its lending, investment, asset/liability management or other
material banking policies in any material respect except as may be
required by changes in applicable law; make any loans or extend any
credit, except in the ordinary course of business consistent with
its lending policies and past practice;
o change its methods of accounting in effect at December 31, 1998,
except as required by changes in generally accepted accounting
principles concurred in by its independent certified public
accountants, or change any of its methods of reporting income and
deductions for federal income tax purposes from those employed in
the preparation of its federal income tax returns for the year
ended December 31, 1998, except as required by changes in law;
o authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or, except
to the extent legally required for the discharge of the fiduciary
duties of its board of directors, recommend or endorse any takeover
proposal, or participate in any discussions or negotiations, or
provide third parties with any nonpublic information, relating to
any such inquiry or proposal or otherwise facilitate any effort or
attempt to make or implement a takeover proposal; provided,
however, that Letchworth may communicate information about any such
takeover proposal to its stockholders if, in the judgment of
Letchworth's board of directors, after consultation with outside
legal counsel and financial advisor, such communication is
necessary in order to comply with its fiduciary duties to
Letchworth's stockholders required under applicable law. Letchworth
will take all actions necessary or advisable to inform the
appropriate individuals or entities referred to in the first
sentence hereof of the obligations undertaken herein. Letchworth
will notify Tompkins immediately if any such inquiries or takeover
proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated
or continued with, Letchworth, and Letchworth will promptly inform
Tompkins in writing of all of the relevant details with respect to
the foregoing. As used in the merger agreement, "takeover proposal"
means any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Letchworth or
any Letchworth subsidiary or any proposal or offer to acquire in
any manner 25% or more of the voting power of Letchworth, or 25% or
more of the assets of, Letchworth or any Letchworth subsidiary
other than the transactions contemplated or permitted by the merger
agreement or the merger stock option agreement; or
o agree to do any of the foregoing.
REPRESENTATIONS AND WARRANTIES
Both Tompkins and Letchworth have made certain customary
representations and warranties relating to, among other things, the parties'
respective organization, authority relative to the merger agreement,
capitalization, subsidiaries, required consents and approvals, taxes, employee
benefit plans, material contracts, litigation, compliance with applicable laws,
environmental matters, reliability of financial statements and the absence of
material adverse changes in the parties' businesses, financial condition or
results of operations. For detailed information on such representations and
warranties, see the merger agreement attached hereto as Annex A and incorporated
by reference herein. Pursuant to the merger agreement, it is a condition to each
party's obligation to consummate the merger that the representations and
warranties of the other party contained in the merger agreement be true and
correct in all material respects as of the date of the merger agreement and as
of the date of the merger; provided, however, that such representations and
warranties will be deemed to be true and correct in all material respects unless
the failure to be true and correct, individually or in the aggregate, represents
a material adverse change from the business, financial condition or results of
operations of the party making
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such representations and warranties and its subsidiaries, taken as a whole, as
represented in the merger agreement. Please see "-- Conditions to the Merger."
SOLICITATION PROPOSALS
Letchworth has agreed not to: (i) initiate, solicit or encourage,
directly or indirectly, any inquiries or the making of any takeover proposal or
(ii) engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating to a
take over proposal, or otherwise facilitate any effort or attempt to make or
implement a take over proposal (except as legally required for the discharge of
the fiduciary duties of Letchworth's Board of Directors). This restriction
applies to Letchworth and its subsidiaries, and their respective officers and
directors. Letchworth is required to notify Tompkins immediately if any such
negotiations or discussions are sought to be initiated or continued in respect
of any such take over proposal, together with the details identifying the
persons making such inquiry or proposal, requesting such information or seeking
such negotiations or discussions and the terms and conditions thereof.
WAIVER AND AMENDMENT; TERMINATION
Prior to the date of the merger, any provision of the merger agreement
may be waived by the party benefited by the provision or, subject to applicable
law, amended or modified (including the structure of the transaction) by an
agreement in writing approved by the parties; provided that, after the vote of
the stockholders of Tompkins and/or Letchworth, the merger agreement may not be
amended to reduce the merger consideration.
The merger agreement may be terminated at any time prior to the date of
the merger, either before or after approval of the merger agreement by the
stockholders of both Tompkins and Letchworth, as follows:
o by the mutual consent of Tompkins and Letchworth;
o by Letchworth, on one hand, or Tompkins, on the other hand, if the
other party has, in any material respect, breached any covenant or
agreement or representation or warranty contained in the merger
agreements and such breach has not been cured as permitted by the
merger agreements;
o by either party if the applications for regulatory approvals (see
"-Regulatory Approvals Required for the merger") have been denied,
or if a court or agency has issued an order prohibiting the merger;
o by either party if the stockholders of Tompkins or Letchworth do
not approve the merger;
o by either party if the closing has not occurred by the close of
business on June 30, 2000; and
o by Letchworth, upon the execution by Letchworth of a definitive
agreement relating to a "takeover proposal" provided that:
o Letchworth has complied with its obligations under the merger
agreements with respect to takeover proposals;
o the Letchworth board of directors has determined, after having
received the advice of its outside legal counsel and the
advice of its financial advisor, that such action is necessary
for the Letchworth board to act in a manner consistent with
its fiduciary duties under applicable law; AND
o concurrent with its notification of termination, Letchworth
pays $3 million to Tompkins;
o by Tompkins, if the Tompkins board of directors has determined that
such action is necessary for the Tompkins board to act in a manner
consistent with its fiduciary duties under applicable law; and
concurrent with its notification of termination, Tompkins pays $1
million to Letchworth;
o by Letchworth as discussed below under "-- Price-Based
Termination."
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PRICE-BASED TERMINATION
The merger agreement provides that if, during the period between July
30, 1999 and the Effective Date, the "Average Tompkins Stock Price" should fall
below $29.22 AND (ii) the "Average Tompkins Stock Price" has declined as a
percentage from the "Base Tompkins Stock Price" by more than 15% in excess of
the decline in a standard index for bank stocks, then Letchworth will have the
right to terminate the merger agreement upon five days notice to Tompkins (the
"Price-Based Termination Condition"). For purposes of the merger agreement, the
term "Average Tompkins Stock Price" means the average of the closing sale price
of one share of Tompkins common stock for ten consecutive full trading days on
AMEX. The term "Base Tompkins Stock Price" for such purpose means $34.38. The
standard bank stock index referenced by the merger agreement is the SNL Bank
Stock Index or All Publicly Traded Banks (the "SNL Index") as prepared by SNL
Securities, a nationally recognized investment analyst covering the banking
industry. In order for the Price-Based Termination Condition to be invoked, both
aspects of the condition must prevail. That is, both the price of Tompkins'
common stock must fall below $29.22 (on average, for ten consecutive trading
days) AND the comparative decline in the Tompkins common stock price must be at
least 15% greater than the general decline in the publicly traded stock of all
banks during the same period.
In the event Letchworth has the opportunity and elects to exercise its
right to terminate the merger agreement pursuant to the price-based termination
condition, Tompkins shall have an option to avoid such termination.
Notwithstanding Letchworth's exercise of the price-based termination condition,
Tompkins will have the option to proceed with the merger and the transactions
contemplated in the merger agreement by agreeing to amend the exchange ratio.
The amended exchange ratio which will be utilized in such circumstance will be
equal to the quotient obtained by dividing $23.00 by the Average Tompkins Stock
Price, determined based on the ten consecutive full trading days immediately
preceding the date Tompkins elects to amend the exchange ratio. In no event,
however, may the exchange ratio be amended to a ratio higher than 0.850 or lower
than 0.685. Tompkins' option to reinstate the merger agreement subject to an
amended exchange ratio must be exercised by written notice to Letchworth within
five business days of receipt by Tompkins of written notice of Letchworth's
intent to terminate pursuant to the price-based termination condition.
The financial information set forth in this joint proxy
statement/prospectus reflects an Exchange Ratio of 0.685 and does not reflect
any increased exchange ratio that may result if Letchworth exercises its right
to terminate the merger agreement under the price-based termination condition
and Tompkins elects to increase the Exchange Ratio so that the merger agreement
remains in full force and effect in accordance with its terms. To illustrate the
operation of the price-based termination condition, we have set out two
illustrations below:
ILLUSTRATION 1. For the purposes of this Illustration 1, assume that
the Average Tompkins Stock Price for a ten day period prior to the Effective
Date is $25.00 Further, assume that through the end of that period the SNL Index
had declined by 25%. Under these assumptions, Letchworth would not have the
right to terminate the merger agreement under the Price-Based Termination
Condition (although the Average Tompkins Stock Price is less than $29.22),
because the Average Tompkins Stock Price has NOT declined by a percentage which
is 15% more than the percentage decline of the SNL Index . The assumed decline
in the SNL Index is 25%. The percentage decline in the Average Tompkins Stock
Price (from the Base Tompkins Stock Price of $34.38) is 27.3%. Therefore, the
Average Tompkins Stock Price declined by a percentage only 2.3% greater than the
percentage decline in the SNL Index. The second part of the Price-Based
Termination Condition is not applicable and no right to terminate would exist.
ILLUSTRATION 2. For the purposes of this Illustration 2, assume that
the Average Tompkins Stock Price for a ten day period prior to the Effective
Date is $28.00 Further, assume that through the end of that period the SNL Index
had declined by 2.5%. Under these assumptions, Letchworth would have the right
to terminate the merger agreement under the Price-Based Termination Condition),
because the Average Tompkins Stock Price is less than $29.22 AND the Average
Tompkins Stock Price has declined by a percentage which is 15% more than the
percentage decline of the SNL Index . The assumed decline in the SNL Index is
2.5%. The percentage decline in the Average Tompkins Stock Price (from the Base
Tompkins Stock Price of $34.38) is 18.6%. Therefore, the Average Tompkins Stock
Price declined by a percentage 16.1% greater than the percentage decline in the
SNL Index. Both the first and the second part of the Price-Based Termination
Condition are applicable and the right to terminate would exist.
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If, under the assumptions of Illustration 2, Letchworth exercised its
termination rights under the Price-Based Termination Condition, the merger
agreement would be terminated within five days, unless Tompkins elected to
increase the exchange ratio in order to avoid termination of the merger
agreement. In the event that Tompkins made such election, the amended exchange
ratio applicable under these circumstances would be 0.821 (i.e., the quotient of
$23.00 divided by $28.00). However, Tompkins would be under no obligation to
adjust the Exchange Ratio and the decision to adjust the exchange ratio or
permit termination would be made in the discretion of the Tompkins board of
directors, subject to it analysis of the then applicable circumstances.
AMEX LISTING
The Tompkins common stock is listed on the AMEX. Tompkins has agreed to
use reasonable efforts to cause the shares of Tompkins common stock to be issued
in the merger to be approved for quotation on the AMEX, subject to official
notice of issuance, prior to or at the date of the merger. The obligations of
the parties to consummate the merger are subject to the listing of such shares
on the AMEX or on such other market on which shares of Tompkins common stock
shall then be trading. Please see "--Conditions to the Merger" above.
ANTICIPATED ACCOUNTING TREATMENT
The merger has been structured to qualify as a pooling-of-interests for
accounting and financial reporting purposes. Under this method of accounting,
the recorded amount of assets and liabilities of Tompkins and Letchworth will be
combined at the date of the merger and carried forward at their previously
recorded amounts and the stockholders' equity accounts of Tompkins and
Letchworth will be combined on Tompkins' consolidated statement of condition.
Income and other financial statements of Tompkins issued after the date of the
merger will be restated retroactively to reflect the consolidated operations of
Tompkins and Letchworth as if Tompkins and Letchworth have always been combined.
The merger agreement provides that a condition to each of Tompkins' and
Letchworth's obligation to consummate the merger is the receipt of a letter from
Tompkins' and Letchworth's independent accountants to the effect that the merger
qualifies for pooling-of-interests accounting treatment. Please see "--
Conditions to the Merger" above.
For information concerning certain restrictions to be imposed on the
transferability of Tompkins common stock to be received by affiliates of
Letchworth in order, among other things, to ensure the availability of pooling-
of-interests accounting treatment, see "-- Resales of Tompkins common stock by
Affiliates" below.
The unaudited pro forma condensed combined financial information
contained in this joint proxy statement/prospectus has been prepared using the
pooling-of-interests accounting method to account for the merger. Please see
"Unaudited Pro Forma Condensed Combined Financial Statements."
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
GENERAL. The following discussion summarizes the opinion of Harris
Beach & Wilcox, LLP as to the anticipated material federal income tax
consequences of the merger. We have filed this opinions with the SEC as an
exhibit to the registration statement related to this joint proxy
statement/prospectus. See "Where You Can Find More Information." This discussion
is based upon the Internal Revenue Code of 1986, the regulations adopted
thereunder, Internal Revenue Service rulings, and judicial and administrative
rulings in effect as of the date of this joint proxy statement/prospectus, all
of which are subject to change, possibly with retroactive effect. This
discussion does not address all aspects of federal income taxation that may be
relevant to a stockholder in light of the stockholder's particular circumstances
or to stockholders that are subject to special rules, such as stockholders who
are not citizens or residents of the United States, financial institutions,
tax-exempt organizations, insurance companies, dealers in securities,
stockholders who acquire their stock pursuant to the exercise of options or
similar derivative securities or otherwise as compensation, or stockholders who
hold their stock as part of a straddle or conversion transaction. This
discussion assumes that Letchworth stockholders hold their respective shares of
Letchworth stock as capital assets within the meaning of Section 1221 of the
Internal Revenue Code. This summary does not address state, local or foreign tax
consequences of the merger. This summary does not address the tax consequences
of the conversion of Letchworth stock options into options to purchase Tompkins
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common stock. Consequently, each Letchworth stockholder should consult his or
her own tax adviser as to the specific tax consequences of the merger to him or
her.
It is a condition to the obligations of Tompkins and Letchworth to
complete the merger that each receive a legal opinion that the merger
constitutes a tax-free reorganization, within the meaning of Section 368 of the
Internal Revenue Code, for federal income tax purposes. This legal opinion will
assume the absence of changes in the existing facts and will rely on
assumptions, representations and covenants made by Tompkins and Letchworth,
including those contained in certificates of officers of Tompkins and
Letchworth. If any of these factual assumptions, representations and covenants
are inaccurate, the tax consequences of the merger could differ from those
described in this joint proxy statement/prospectus. The opinions regarding the
tax-free nature of the merger neither bind the Internal Revenue Service nor
preclude the Internal Revenue Service from adopting a contrary position. Neither
Tompkins nor Letchworth intends to obtain a ruling from the Internal Revenue
Service with respect to the tax consequences of the merger.
In the opinion of Harris Beach & Wilcox, LLP, the merger will be
treated for federal income tax purposes as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code. The following discussion
assumes that the merger will be treated as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code.
FEDERAL INCOME TAX CONSEQUENCES TO TOMPKINS STOCKHOLDERS. Holders of
Tompkins common stock will not recognize any gain or loss for federal income tax
purposes as a result of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO LETCHWORTH STOCKHOLDERS. Except as
described below, holders of Letchworth common stock will (i) not recognize any
gain or loss for federal income tax purposes as a result of the exchange of
their shares of Letchworth common stock for Tompkins common stock in the merger,
except with respect to cash received in payment for a fractional share of
Tompkins common stock and (ii) have a tax basis in the Tompkins common stock
received in the merger equal to the tax basis of the Letchworth common stock
surrendered in connection with the merger, less any tax basis of the Letchworth
common stock surrendered that is allocable to a fractional share of Tompkins
common stock for which cash is received. The Letchworth stockholders' holding
period with respect to the Tompkins common stock received in the merger will
include the holding period of the Letchworth common stock surrendered in the
merger.
To the extent that a holder of shares of Letchworth common stock
receives cash instead of a fractional share of Tompkins common stock, the holder
will be treated as having received the fractional share of Tompkins common stock
and then as having received cash in redemption by Tompkins of the fractional
interest. Under the Internal Revenue Service's present advance ruling position,
since the cash is being distributed in lieu of fractional shares solely for
purposes of saving Tompkins the expense and inconvenience of issuing and
transferring fractional shares, and is not separately bargained-for
consideration, the cash received will be treated as having been received in part
or full payment in exchange for the fractional share of stock redeemed.
Accordingly, the holder will be required to recognize gain or loss for federal
income tax purposes, measured by the difference between the amount of cash
received and the portion of the tax basis of the holder's share of Letchworth
common stock allocable to such fractional share of Tompkins common stock. This
gain or loss will be a capital gain or loss and will be a long-term capital gain
or loss if the share of Letchworth common stock exchanged for the fractional
share of Tompkins common stock was held for more than one year at the completion
of the merger.
FEDERAL INCOME TAX CONSEQUENCES TO TOMPKINS AND LETCHWORTH. Neither
Tompkins nor Letchworth will recognize gain or loss for federal income tax
purposes as a result of the merger.
THIS DISCUSSION IS INTENDED TO PROVIDE ONLY A SUMMARY OF THE MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND IS NOT INTENDED TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER. WE DO NOT ADDRESS THE TAX CONSEQUENCES THAT MAY VARY
WITH OR ARE CONTINGENT UPON INDIVIDUAL CIRCUMSTANCES. MOREOVER, WE DO NOT
ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGER. ACCORDINGLY, WE STRONGLY URGE YOU TO CONSULT YOUR TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO YOU.
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Under the terms of the plan of reorganization, the conditions of the
merger, including receipt by each party of an opinion of counsel relating to tax
matters, may be waived by Tompkins or Letchworth, as applicable. Tompkins does
not currently intend to waive this condition. In the unlikely event that
Tompkins does waive this condition because the merger is taxable to Tompkins,
Tompkins will recirculate this joint proxy statement/prospectus to its
stockholders to disclose the waiver of this condition and the resulting risk to
Tompkins stockholders, including all material related disclosures, and would
resolicit proxies from its stockholders. Similarly, Letchworth does not
currently intend to waive this condition. In the unlikely event that Letchworth
does waive this condition because the merger is a taxable transaction to
Letchworth stockholders, Letchworth would recirculate this joint proxy
statement/prospectus to its stockholders to disclose the waiver of this
condition and the resulting risk to Letchworth stockholders, including all
material related disclosures, and would resolicit proxies from its stockholders.
RESALES OF TOMPKINS COMMON STOCK BY AFFILIATES
The shares of Tompkins common stock to be issued in the merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act except for shares issued to any Letchworth stockholder who may be
deemed to be an "affiliate" of Letchworth for purposes of Rule 145 under the
Securities Act. Affiliates of Letchworth may not sell their shares of Tompkins
common stock acquired in connection with the merger except pursuant to an
effective registration statement under the Securities Act covering such shares
or in compliance with Rule 145 or another applicable exemption from the
registration requirements of the Securities Act. This joint proxy
statement/prospectus does not cover any resales of Tompkins common stock
received in the merger by persons who may be deemed to be affiliates of
Letchworth. Persons who may be deemed to be affiliates of Letchworth generally
include individuals or entities that control, are controlled by or are under
common control with Letchworth, and may include certain officers and directors
as well as principal stockholders of Letchworth. The Securities and Exchange
Commission guidelines regarding qualifying for pooling-of-interests of
accounting treatment also limit sales by affiliates of the acquiring and
acquired company in a business combination. The Securities and Exchange
Commission guidelines indicate further that the pooling-of-interests method of
accounting will generally not be challenged on the basis of sales by affiliates
of the acquiring or acquired company if they do not dispose of any of the shares
of the corporation they own or shares of a corporation they receive in
connection with a merger during the period beginning 30 days before the
effective date of the merger and ending when financial results covering at least
30 days of post-merger operations of the combined entity have been published.
Tompkins and Letchworth have each obtained from each person who is an
affiliate (for purposes of Rule 145 of the Securities Act and for purposes of
qualifying the merger for pooling-of-interests accounting treatment) of such
party a written agreement intended to ensure compliance with the Securities Act
and preserve the ability to treat the merger as a pooling-of-interests.
APPRAISAL RIGHTS OF LETCHWORTH STOCKHOLDERS
Sections 623 and 910 of the New York Business Corporation Law provide
that if the merger is consummated, Letchworth stockholders who object to the
merger and who follow the procedures specified in Section 623 will have the
right to receive cash payment of the fair value of their shares. A copy of
Section 623 of the NYBCL is attached to this joint proxy statement/prospectus as
Annex H. THE EXPRESS PROCEDURES OF NEW YORK LAW MUST BE FOLLOWED PRECISELY; IF
THEY ARE NOT, STOCKHOLDERS MAY LOSE THEIR RIGHT TO DISSENT. As described more
fully below, such "fair value" would potentially be determined in judicial
proceedings, the result of which cannot be predicted. THERE CAN BE NO ASSURANCE
THAT STOCKHOLDERS EXERCISING DISSENTERS' RIGHTS OF APPRAISAL WILL RECEIVE
CONSIDERATION EQUAL TO OR GREATER THAN THE VALUE OF THE TOMPKINS COMMON STOCK TO
BE OWNED BY THEM FOLLOWING CONSUMMATION OF THE MERGER.
THE STATUTORY PROCEDURES OUTLINED BELOW ARE COMPLEX. STOCKHOLDERS
WISHING TO EXERCISE THEIR DISSENTERS' RIGHTS SHOULD CONSULT THEIR OWN LEGAL
ADVISORS.
Any Letchworth stockholder who is entitled to vote on the merger will
have the right to receive cash payment of the fair value of his or her shares
and the other rights and benefits provided in Section 623 if such stockholder
does not vote in favor of the merger and (before the applicable vote of
stockholders on the merger) files with Letchworth written objection to the
merger, including in that written objection notice of his or her election to
dissent, his or her name and residence address, the number of shares as to which
he or she dissents, and a demand for payment of the fair value of such shares if
the merger is consummated. A vote against the merger will not satisfy the
requirement of filing a written
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objection. Failure to vote against the merger will not waive a stockholder's
right to payment if the stockholder has filed a written objection and has not
voted in favor of the merger. If a stockholder abstains from voting on the
merger, this will not waive dissenter's rights so long as the appropriate
written objection to the merger is properly and timely filed. All notices of
election to dissent should be addressed to Letchworth, Attention: Corporate
Secretary, at P.O. Box 129, 50 North Main Street, Castile, New York 14427.
If an executed proxy is received but no direction is indicated as to
how such proxy is to be voted, the shares represented by such proxy will be
voted in favor of the merger. Accordingly, the submission of such an unmarked
proxy, unless revoked prior to its being voted, will serve to waive dissenter's
rights.
Within ten days after the date the merger is approved by the
stockholders of Letchworth, Letchworth will give written notice of such approval
by registered mail to each stockholder who filed written objection, except for
any stockholder who voted in favor of the merger. A Letchworth stockholder may
not dissent as to fewer than all of his or her shares, held by him or her of
record, that he or she owns beneficially. A nominee or fiduciary may not dissent
on behalf of any beneficial owner of shares as to fewer than all of said shares
of such owner held of record by such nominee or fiduciary.
Upon consummation of the merger, a dissenting stockholder will cease to
have any rights of a stockholder, except the right to be paid the fair value of
his or her dissenting shares. A stockholder's notice of election may be
withdrawn at any time prior to his or her acceptance in writing of an offer to
purchase his or her dissenting shares by Tompkins, but in no case may such
notice of election be withdrawn later than 60 days after the effective date
(unless the company does not make a timely offer) without the consent of
Tompkins. Within one month after the filing of the notice of election to
dissent, a dissenting stockholder must submit the certificates representing his
or her dissenting shares to Letchworth, or its transfer agent, which shall note
conspicuously on the certificates that such notice of election has been filed,
and will then return the certificates to the stockholder. Any stockholder who
fails to submit his or her certificates for such notation within 45 days from
the date of filing such notice of election to dissent will lose his or her
dissenter's rights unless a court, for good cause shown, otherwise directs.
Within 15 days after the expiration of the period within which
stockholders may file their notices of election to dissent, or within 15 days
after the effective date, whichever is later (but in no case later than 90 days
after the date of the applicable special meeting), Tompkins must make a written
offer by registered mail to each stockholder who has filed such notice of
election to pay for his or her dissenting shares at a specified price which the
company considers to be the fair value and, if the merger has been consummated,
must accompany such offer by advance payment to each stockholder who has
submitted his or her certificates of an amount equal to 80% of the amount of
such offer. Such offer must be made at the same price per share to all the
dissenting stockholders of Letchworth. If, within 30 days after the making of
such offer, Tompkins and any dissenting stockholders agree on the price to be
paid for dissenting shares, the balance of payment therefor must be made within
60 days after the making of such offer or the effective date, whichever is
later, and upon surrender of the certificates representing such shares.
If Tompkins fails to make such offer within the 15 day period described
above, or if it makes the offer and any dissenting stockholder fails to agree
within the period of 30 days thereafter upon the price to be paid for his or her
shares, the company is required within 20 days after the expiration of whichever
is the applicable of the two periods to institute a special proceeding in the
Supreme Court of the State of New York, County of Wyoming, to determine the
rights of dissenting stockholders and to fix the fair value of their dissenting
shares. If Tompkins fails to institute such proceeding within such 20 day
period, any dissenting stockholder may institute a proceeding for the same
purpose not later than 30 days after the expiration of such 20 day period. If
the dissenting stockholder does not institute such a proceeding within such 30
day period, his or her dissenter's rights are lost unless the court, for good
cause shown, otherwise directs.
During each proceeding, the court will determine whether each
dissenting stockholder is entitled to receive payment for his or her shares and,
if so, will fix the value of such shares as of the close of business on the day
prior to the applicable special meeting, taking into consideration the nature of
the merger transaction giving rise to the stockholder's right to receive payment
for his or her dissenting shares and other relevant factors. The court will also
award interest on such amount to be paid from the effective date of the merger
to the date of payment unless the court finds that a stockholder's refusal to
accept an offer for payment was arbitrary,
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vexatious, or otherwise not in good faith. Each party to such proceeding will
bear its own costs unless the court finds that such refusal by any stockholder
was arbitrary, vexatious, or otherwise not in good faith, in which case
Tompkins' costs will be assessed against such stockholder. The court, in its
discretion, may also apportion or assess any part of the dissenting
stockholder's costs against Tompkins if it finds that the fair value of the
shares determined materially exceeds the amount which the company offered to
pay, or that no offer or advance payment was made by the company, or that the
company failed to institute such special proceeding, or that the actions of the
company in complying with its obligations under Section 623 were arbitrary,
vexatious, or otherwise not in good faith. Within 60 days following the final
determination of the applicable proceeding, Tompkins shall pay to each
dissenting stockholder the amount found to be due him or her upon the
stockholder's surrender of all certificates representing dissenting shares.
The enforcement by a stockholder of his or her right to receive payment
for shares in accordance with Section 623 excludes the enforcement by such
stockholder of any other right to which he or she might otherwise be entitled by
virtue of his or her ownership of shares (unless such stockholder withdraws his
or her notice of election as provided in Section 623 or the merger is
abandoned), except that such stockholder will retain the right to bring or
maintain an appropriate action to obtain relief on the grounds that the merger
will be or is unlawful or fraudulent as to him or her.
Tompkins is a New York corporation whose common stock is listed on
AMEX, a national securities exchange and Tompkins shares are not being exchanged
in the merger. Under New York law, stockholders of Tompkins do not have any
right to an appraisal of the value of their shares of common stock in connection
with the merger.
EXPENSES
All costs and expenses incurred in connection with the merger
agreement, the merger stock option agreement and the transactions contemplated
thereby shall be paid by the party incurring such expense, except that Tompkins
and Letchworth shall share equally in the expenses incurred in connection with
printing and mailing this joint proxy statement/prospectus.
DATE OF MERGER
The merger will become effective at the date of the merger set forth in
the certificate of merger that will be filed with the Secretary of State of the
State of New York in accordance with applicable law. The certificate of merger
will be filed no later than five days following the date on which the expiration
of the last applicable waiting period in connection with notices to and
approvals of governmental authorities occurs and all conditions to the merger
are satisfied or waived, unless another date is agreed to in writing by Tompkins
and Letchworth. Please see "Conditions to the Merger." The closing of the
transactions contemplated by the merger agreement will take place on the date of
such filing. There can be no assurance that all regulatory approvals will be
obtained, and if obtained, there can be no assurance as to the date of any such
approval. There can likewise be no assurance that the Department of Justice or
the New York State Attorney General will not challenge the merger or, if such a
challenge is made, the result thereof. Please see "-- Regulatory Approvals
Required for the Merger."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
TOMPKINS. Shares of Tompkins capital stock (including Tompkins common
stock) issued and outstanding immediately prior to the Date of the merger will
remain issued and outstanding and be unaffected by the merger, and holders of
such stock will not be required to exchange the certificates representing such
stock or take any other action by reason of the consummation of the merger.
LETCHWORTH. As promptly as practicable after the date of the merger,
and in no event more than five business days thereafter, a bank or trust company
selected by Tompkins and reasonably satisfactory to Letchworth, acting in the
capacity of exchange agent, will mail to each former holder of record of
Letchworth common stock a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates representing shares
of Letchworth common stock for certificates representing shares of Tompkins
common stock and cash in lieu of fractional shares.
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LETCHWORTH STOCKHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE
AGENT, AND SHOULD NOT RETURN SUCH STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
Upon surrender to the exchange agent of one or more certificates
representing shares of Letchworth common stock, together with a properly
completed letter of transmittal, there will be issued and mailed to the holder
of Letchworth common stock surrendering such items a certificate or certificates
representing the number of shares of Tompkins common stock to which such holder
is entitled, if any, and, where applicable, a check for the amount representing
any fractional share determined in the manner described below, without interest.
The Letchworth certificate or certificates so surrendered will be canceled.
No dividend or other distribution declared after the date of the merger
with respect to Tompkins common stock will be paid to the holder of any
unsurrendered Letchworth certificate until the holder surrenders such
certificate, at which time the holder will be entitled to receive all previously
withheld dividends and distributions, without interest.
After the date of the merger, there will be no transfers on the stock
transfer books of Letchworth of shares of Letchworth common stock issued and
outstanding immediately prior to the date of the merger. If certificates
representing shares of Letchworth common stock are presented for transfer after
the date of the merger, they will be canceled and exchanged for certificates
representing shares of Tompkins common stock.
If a certificate for Letchworth common stock has been lost, stolen or
destroyed, the exchange agent will issue the consideration properly payable in
accordance with the merger agreement upon receipt of appropriate evidence as to
such loss, theft or destruction, appropriate evidence as to the ownership of
such certificate by the claimant, and appropriate and customary indemnification.
Neither the exchange agent, Tompkins nor Letchworth, or any other person, will
be liable to any former holder of Letchworth common stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
No fractional shares of Tompkins common stock will be issued in the
merger. Instead, the merger agreement provides that each holder of shares of
Letchworth common stock exchanged pursuant to the merger who would otherwise
have been entitled to receive a fraction of a share of Tompkins common stock
will receive, in lieu thereof, cash in an amount equal to such fractional part
of a share of Tompkins common stock multiplied by the closing stock price of
Tompkins on the day prior to the effective date of the merger. No such holder
will be entitled to dividends, voting rights or any other rights as a
stockholder in respect of any fractional share that such holder would otherwise
have been entitled to receive.
MERGER STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the merger
stock option agreement, which is attached hereto as Annex B. The following
summary is qualified in its entirety by reference to the merger stock option
agreement. Execution of the merger stock option agreement was a condition to the
parties entering into the merger agreement.
Concurrently with the execution of the merger agreement, Tompkins and
Letchworth entered into the merger stock option agreement. The merger stock
option agreement is designed to enhance the likelihood that the merger will be
successfully consummated in accordance with the terms contemplated by the merger
agreement and Tompkins insisted on such agreement for that reason. Pursuant to
the merger stock option agreement, Letchworth granted Tompkins the option to
purchase up to 689,737 authorized but unissued shares of Letchworth common stock
(representing approximately 19.9% of the issued and outstanding shares of
Letchworth common stock on July 30, 1999) at a price of $14.00 per share.
Provided that (i) Tompkins is not in material breach of the agreements
or covenants contained in the merger agreement or the merger stock option
agreement and (ii) no preliminary or permanent injunction or other order against
the delivery of the shares covered by the merger stock option issued by any
court of competent jurisdiction in the United States shall be in effect,
Tompkins may exercise the merger stock option, in whole or in part, at any time
and from time to time, following the occurrence of a purchase event (as defined
below); provided, however, that the merger stock option shall terminate and be
of no further force or effect upon the earliest to occur of (a) the date of the
merger, (b) termination of the merger agreement in accordance with the terms
thereof prior to the occurrence of a "Purchase Event" or a
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"Preliminary Purchase Event" (as defined below) other than a termination thereof
by Tompkins under certain circumstances (a "Default Termination"), (c) 18 months
after a Default Termination or (d) 18 months after termination of the merger
agreement (other than a Default Termination) following the occurrence of a
purchase event or a Preliminary Purchase Event; provided, however, that any
purchase of shares upon exercise of the merger stock option shall be subject to
compliance with applicable law.
For purposes of the merger stock option agreement, a "Purchase Event"
means any of the following events:
o Without Tompkins' prior written consent, Letchworth shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or Letchworth shall
have entered into an agreement with any person (other than Tompkins
or any subsidiary of Tompkins) to effect (a) a merger,
consolidation or similar transaction involving Letchworth or any of
its significant subsidiaries, (b) the disposition, by sale, lease,
exchange or otherwise, of assets or deposits of Letchworth or any
of its significant subsidiaries representing in either case 10% or
more of the consolidated assets or deposits of Letchworth and its
subsidiaries, other than in the ordinary course of business or (c)
the issuance, sale or other disposition by Letchworth of (including
by way of merger, consolidation, share exchange or any similar
transaction) securities representing 10% or more of the voting
power of Letchworth or any of its significant subsidiaries (each of
(a), (b) or (c), an "Acquisition Transaction"); or
o Any person (other than Tompkins or any subsidiary of Tompkins)
shall have acquired beneficial ownership (as such term is defined
in Rule 13d-3 under the Exchange Act) of, or the right to acquire
beneficial ownership of, or any "group" (as such term is defined in
Section 13(d)(3) of the Exchange Act), other than a group of which
Tompkins or any subsidiary of Tompkins is a member, shall have been
formed which beneficially owns, or has the right to acquire
beneficial ownership of, 10% or more of the voting power of
Letchworth or any of its significant subsidiaries.
For purposes of the merger stock option agreement, a "Preliminary
Purchase Event" means any of the following events:
o Any person (other than Tompkins or any subsidiary of Tompkins)
shall have commenced (as such term is defined in Rule 14d-2 under
the Exchange Act) or shall have filed a registration statement
under the Securities Act with respect to a tender offer or exchange
offer to purchase any shares of Letchworth common stock such that,
upon consummation of such offer, such person would own or control
10% or more of the then outstanding shares of Letchworth common
stock (such an offer being referred to herein as a "Tender Offer"
or an "Exchange Offer," respectively); or
o The stockholders of Letchworth shall not have approved the merger
agreement by the requisite vote at the Letchworth meeting, the
Letchworth meeting shall not have been held or shall have been
canceled prior to termination of the merger agreement or the
Letchworth board shall have withdrawn or modified in a manner
adverse to Tompkins the recommendation of the Letchworth board with
respect to the merger agreement, in each case after it shall have
been publicly announced that any person (other than Tompkins or any
subsidiary of Tompkins) shall have (a) made, or disclosed an
intention to make, a bona fide proposal to engage in an Acquisition
Transaction, or (b) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer; or
o Any person (other than Tompkins or any subsidiary of Tompkins)
shall have made a bona fide proposal to Letchworth or its
stockholders by public announcement, or written communication that
is or becomes the subject of public disclosure, to engage in an
Acquisition Transaction; or
o After a proposal is made by a third party to Letchworth or its
stockholders to engage in an Acquisition Transaction, or such third
party states its intention to Letchworth to make such a proposal if
the merger agreement terminates, and thereafter Letchworth shall
have breached any representation, warranty, covenant or agreement
contained in the merger agreement and such breach would entitle
Tompkins to terminate the merger agreement.
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Letchworth is required to notify Tompkins promptly in writing of the
occurrence of any Preliminary Purchase Event or Purchase Event of which it has
knowledge, it being understood that the giving of such notice by Letchworth
shall not be a condition to the right of Tompkins to exercise the merger stock
option.
As provided for in the merger stock option agreement, in the event
Holder (meaning the holder of the merger stock option from time to time, the
initial holder being Tompkins) wishes to exercise the merger stock option, it
shall send to Letchworth a written notice (the "Tompkins Merger Option Notice"),
the date of which is herein referred to as the "notice date," specifying (i) the
total number of merger stock option Shares it intends to purchase pursuant to
such exercise and (ii) a place and date not earlier than three business days nor
later than 45 business days from the notice date for the closing of such
purchase; provided, that the first Tompkins merger option notice shall be sent
to Letchworth within 180 days after the first Purchase Event of which Tompkins
has been notified. If prior notification to or approval of any regulatory
authority is required in connection with any such purchase, Letchworth shall
cooperate with Tompkins in the filing of the required notice of application for
approval and the obtaining of such approval, and the option closing shall occur
promptly following such regulatory approvals and any mandatory waiting periods.
Any exercise of the merger stock option shall be deemed to occur on the notice
date relating thereto.
The merger stock option agreement provides that Tompkins may require,
under certain circumstances, Letchworth to repurchase the merger stock option
and all the shares of Letchworth common stock purchased by Tompkins pursuant to
the merger stock option agreement on the terms and conditions set forth therein.
The merger stock option agreement is intended to increase the
likelihood that the merger will be consummated in accordance with the terms of
the merger agreement. Consequently, certain aspects of the merger stock option
agreement may have the effect of discouraging persons who might now or prior to
the date of the merger be interested in acquiring all of or a significant
interest in Letchworth from considering or proposing such an acquisition. The
acquisition of Letchworth or an interest therein, or an agreement to acquire all
or part of Letchworth, could cause the merger stock option to become
exercisable. The existence of the merger stock option agreement could
significantly increase the cost to a potential acquirer of acquiring Letchworth
compared to its cost had the merger stock option agreements not been entered
into. Such increased cost might discourage a potential acquirer from considering
or proposing an acquisition. Moreover, following consultation with Letchworth's
respective independent accountants, Letchworth's management believes that the
exercise of the merger stock option is likely to prohibit any acquirer from
accounting for any acquisition of either of the parties using the
pooling-of-interests accounting method for a period of two years following such
exercise. Accordingly, the existence of the merger stock option agreement may
deter significantly, or completely preclude, an acquisition of Letchworth by
certain other banking organizations. The Letchworth board took this factor into
account before approving the merger stock option agreement. Please see "The
Merger -- Recommendation of the Letchworth Board; Letchworth's Reasons for the
Merger."
DESCRIPTION OF TOMPKINS CAPITAL STOCK
GENERAL
The authorized capital stock of Tompkins consists of 15,000,000 shares
of Tompkins common stock par value $0.10 per share. As of October 31, 1999,
4,775,565 shares of Tompkins common stock (excluding 27,663 shares of treasury
stock) were issued and are outstanding. No preferred shares of Tompkins stock
have been authorized.
As of October 31, 1999, approximately 240,691 shares of Tompkins common
stock had been reserved for issuance pursuant to the Tompkins Stock Option Plan.
The following description contains a summary of all the material
features of the capital stock of Tompkins but does not purport to be complete
and is subject in all respects to the applicable provisions of the New York
Business Corporation Law and is qualified in its entirety by reference to the
certificate of incorporation of Tompkins.
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COMMON STOCK
The outstanding shares of Tompkins common stock are fully paid and
nonassessable. Holders of Tompkins common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the stockholders
and have no preemptive rights. Please see also "Meeting of Tompkins Stockholders
- -- Proxies; Voting and Revocation of Proxies" for additional limitations on the
voting rights of Tompkins common stock. Tompkins stockholders are not entitled
to cumulative voting rights with respect to the election of directors. The
Tompkins common stock is neither redeemable nor convertible into other
securities, and there are no sinking fund provisions.
Tompkins stockholders are entitled to dividends when and as declared by
the Tompkins board from funds legally available therefor and are entitled, in
the event of liquidation, to share ratably in all assets remaining after payment
of liabilities.
COMPARISON OF RIGHTS OF STOCKHOLDERS
GENERAL
At present, the Letchworth certificate of incorporation and bylaws
govern the rights of Letchworth stockholders. Upon the completion of the merger,
however, the rights of Letchworth stockholders will be governed by the Tompkins
certificate of incorporation and bylaws because Letchworth stockholders will
become Tompkins stockholders. New York law will continue to govern the rights of
Letchworth stockholders because both Letchworth and Tompkins are New York
corporations. The following discussion summarizes material differences between
the rights of Letchworth and Tompkins stockholders and does not contain a
complete description of all of the differences. This discussion is qualified in
its entirety by reference to New York law, Tompkins' certificate of
incorporation and bylaws and Letchworth's certificate of incorporation and
bylaws.
AUTHORIZED COMMON STOCK
Under its certificate of incorporation, Tompkins is authorized to issue
15,000,000 shares of Tompkins common stock, par value, $.10 per share, 4,766,648
of which were issued and outstanding and 27,663 of which were held in treasury,
as of October 31, 1999. Letchworth is authorized by its certificate of
incorporation to issue 5,000,000 shares of Letchworth common stock, par value
$1.00 per share, 3,318,324 shares of which were issued and outstanding and
100,805 shares of which were held in treasury as of October 31, 1999.
AMENDMENT OF BYLAWS
In general, under the NYBCL, a corporation's bylaws may be amended or
repealed by a majority of the votes cast by the holders of shares at the time
entitled to vote in the election of directors, or, if provided in the
certificate of incorporation or a stockholder adopted bylaw, by the Board of
Directors. Any bylaw adopted by the Board of Directors may be amended or
repealed by the stockholders. Tompkins certificate of incorporation provides
that its Board of Directors may adopt, alter, amend, rescind or repeal from time
to time any of the bylaws, provided that any such action may be altered, amended
or repealed by a majority vote of the stockholders entitled to vote thereon. The
vote of the majority of stockholders entitled to vote, however, is needed to
adopt, alter, rescind or repeal any bylaw pertaining to the number,
classification or removal of directors, call of special meetings of stockholders
and adoption, amendment or repeal of the bylaws. Letchworth's bylaws generally
may be amended, repealed or adopted by vote of the holders of the shares at the
time entitled to vote in the election of directors. Letchworth's bylaws may also
be amended, repealed or adopted by a majority vote of the Letchworth Board of
Directors, but any bylaw adopted by the Board of Directors may be amended by a
majority vote of the stockholders entitled to vote thereon.
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ANNUAL AND SPECIAL MEETINGS OF STOCKHOLDERS
Pursuant to Tompkins bylaws, the annual meeting of the stockholders is
to be held at such time and place as may be fixed by the board of directors and
stated in the notice. Tompkins bylaws provide that special meetings may be
called by the chairman of the board, the vice chairman of the board, the
president or by request of a majority of the stockholders, which written request
shall state the purpose or purposes of the meeting and matters proposed to be
acted upon. Annual and special meetings are to be held at the principal office
of Tompkins or at such other place as the board of directors may from time to
time determine. Written notice of the date, time and place of every special and
annual meeting of stockholders must be given either personally or by first class
mail to each stockholder at least 10 but not more than 50 days prior to the
meeting, and any notice of special meeting must also state the purpose for which
the meeting is called and by whom it is being called. Letchworth's bylaws
provide that the annual meeting of the stockholders is to be held at
Letchworth's principal office or at such place as the board authorizes. The
annual meeting is to be held on such day in February and at such time as may be
fixed by the board of directors in the notice of meeting. Letchworth's bylaws
provide that special meetings may be called by the board of directors or by the
president and shall be called by the secretary at the written request of a
majority of the board of directors or at the written request of the stockholders
owning a majority of the shares outstanding. The request must state the purpose
or purposes of the special meeting. Written notice of the date, time, place and
purpose or purposes for which the meeting is called must be given not less than
ten nor more than fifty days prior to the meeting, and notice of special
meetings must also identify by whom it was called.
BOARD OF DIRECTORS
The bylaws of Tompkins require that the Tompkins board consist of not
less than seven nor more than 19 directors, the exact number to be fixed by
resolution of the board of directors or, in the absence of such a resolution,
the number of directors last fixed by the board of directors. The Tompkins board
of directors is currently comprised of 14 directors. The Tompkins certificate of
incorporation and Tompkins' bylaws provide that the Tompkins board is to be
divided into three classes which shall be as nearly equal in number as possible.
Directors are elected by classes to three-year terms, so that approximately
one-third of the directors of Tompkins is elected at each annual meeting of the
stockholders. In addition, Tompkins' bylaws provide that the power to fill
vacancies is vested in the Tompkins board. The overall effect of such provisions
may be to prevent a person or entity from seeking to acquire control of Tompkins
through an increase in the number of directors on the Tompkins board and the
election of designated nominees to fill such newly created vacancies.
The bylaws of Letchworth provide that the number of directors shall
be fixed by resolution of the stockholders, but in no event shall there be less
than three directors, except that where all the shares of Letchworth are owned
by less than three stockholders, the number of directors may be less than three
but not less than the number of stockholders. The Letchworth board of directors
is currently comprised of five directors.
VACANCIES ON THE BOARD OF DIRECTORS
The NYBCL provides that newly created directorships resulting from an
increase in the number of directors and vacancies occurring on the board for any
reason, except the removal of directors without cause, may be filled by the vote
of the board, and if the number of directors remaining in office is less than a
quorum, by the vote of a majority of the directors then in office. The
certificate of incorporation or the bylaws may provide that such newly created
directorships or vacancies must be filled by the vote of stockholders and the
certificate of incorporation may impose greater requirements relating to the
quorum and vote of directors needed to fill such newly created directorships or
vacancies. Unless the certificate of incorporation or the specific provisions of
the bylaws adopted by the stockholders provide otherwise, vacancies occurring on
the board by reason of the removal of directors without cause may not be filled
by the board of directors and may only be filled by the stockholders. Tompkins'
bylaws provide that vacancies in the board of directors created for any reason
other than removal may be filled by affirmative vote of two-third of the
directors then in office. A director elected by the board of directors to fill a
vacancy shall hold office until the next meeting of the stockholders at which
the election of the directors is in the regular order of business and until his
successor has been elected appointed, and qualified. Letchworth's bylaws provide
that newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of the majority of the
directors then in office, although less than a quorum exists. Vacancies
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occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.
REMOVAL OF DIRECTORS
The NYBCL provides that any or all of the directors may be removed for
cause by a vote of the stockholders, and, if the certificate of incorporation or
the specific provision of a bylaw adopted by the stockholders provides,
directors may be removed for cause by action of the board of directors or
without cause by the vote of the stockholders. Pursuant to Tompkins's bylaws, at
any stockholders meeting duly called, any director may, by vote of the holders
of a majority of the shares entitled to vote in the election of directors, be
removed from office with cause. Letchworth's bylaws provide that any or all of
the directors may be removed for cause by vote of the stockholders or by action
of the board. Directors may be removed without cause only by vote of the
stockholders.
STOCKHOLDER ELECTION OF DIRECTORS AND OTHER CORPORATE ACTION
Tompkins' and Letchworth's bylaws provide that directors are to be
elected by plurality vote, whereas all other corporate actions taken by
stockholder vote are to be by majority vote, except as otherwise provided by law
or in the certificate of incorporation.
FAIR PRICE PROVISIONS
The certificates of incorporation of both Tompkins and Letchworth
contain fair price provisions. Tompkins fair price provision requires that
certain business combination transactions involving a 20% or more stockholder
(or such stockholder's affiliates) be authorized by the affirmative vote of not
less than 80% of the outstanding shares of Tompkins voting stock. Letchworth's
fair price provision requires that certain business combination transactions
involving a 10% or more stockholder (or such stockholder's affiliates) be
authorized by the affirmative vote of note less than 80% of the outstanding
shares of Letchworth voting stock.
INDEMNIFICATION
Under the NYBCL, a corporation may indemnify any person made, or
threatened to be made, a party to any action or proceeding except for
stockholder derivative suits, by reason of the fact that he or she was a
director or officer of the corporation, provided such director or officer acted
in good faith for a purpose which he or she reasonably believed to be in the
best interests of the corporation and, in criminal proceedings, in addition, had
no reasonable cause to believe his or her conduct was unlawful. In the case of
stockholder derivative suits, the corporation may indemnify any person who was a
director or officer of the corporation if he or she acted in good faith for a
purpose which he or she reasonably believed to be in the best interests of the
corporation, except that no indemnification may be made for (i) a threatened
action, or pending action which is settled or otherwise disposed of, or (ii) any
claim, issue or matter as to which such person had been adjudged to be liable to
the corporation, unless and only to the extent that the court in which the
action was brought or, if no action was brought, any court of competent
jurisdiction, determines upon application that, in view of all circumstances the
person is fairly and reasonably entitled to indemnity for such portion of the
settlement amount and expenses as the court deems proper.
Indemnification under the NYBCL is not exclusive of other
indemnification rights to which a director or officer may be entitled, whether
contained in the certificate of incorporation or bylaws, or when authorized by
such certificate of incorporation or bylaws (i) a resolution of stockholders or
directors, or (ii) an agreement providing for such indemnification, provided
that no indemnification may be made to or on behalf of any director or officer
if a judgment or other final adjudication adverse to the director or officer
establishes that his or her acts were committed in bad faith or were the result
of active and deliberate dishonesty and were material to the cause of action so
adjudicated, or that he or she personally gained a financial profit or other
advantage to which he or she was not legally entitled.
Tompkins's bylaws provide that it shall indemnify, including
advancement of expenses in defending litigation, its directors and officers to
the fullest extent permissible by law and as set forth in the certificate of
incorporation, the
58
<PAGE>
bylaws, a resolution of stockholders or directors or an agreement providing for
such indemnification. The bylaws authorize Tompkins and its directors and
officers to enter into such agreements. Tompkins' bylaws also authorize Tompkins
to indemnify its employees and agents to the fullest extent permitted by law.
Letchworth's bylaws provide that Letchworth may, by resolution of the board,
indemnify any person made, or threatened to be made, a party in any civil or
criminal action or proceeding by reason of the fact that he, his testator or
intestate is or was a director of officer of Letchworth.
Under the NYBCL, any person to whom such provisions in the NYBCL
regarding indemnification apply who has been successful on the merits or
otherwise in the defense of a civil or criminal action or proceeding is entitled
to indemnification. Except as provided in the preceding sentence, unless ordered
by a court pursuant to the NYBCL, indemnification under the NYBCL, the
certificate of incorporation, the bylaws, any resolution of stockholders or
directors, or any agreement, may be made only if authorized in the specific case
and after a finding that the director or officer met the requisite standards of
conduct (i) by the board acting by a quorum of disinterest directors or (ii) if
such quorum is not available, or even if available, if so directed by a quorum
of disinterested directors by either (A) the board upon the written opinion of
counsel or (B) by the stockholders.
MARKET PRICES AND DIVIDEND INFORMATION
Tompkins common stock is quoted on the AMEX under the symbol "TMP" and
Letchworth common stock is traded over the counter and quoted on the NASDAQ
Small Cap Market under the symbol "LEBC."
The following table sets forth, for the calendar periods indicated, the
high and low closing prices per share for Tompkins common stock, as reported on
the AMEX, and Letchworth common stock, as reported by the NASDAQ Small Cap
Market, and the quarterly cash dividends declared by each company for the
periods indicated. Tompkins' common stock began trading on the AMEX on February
3, 1997. All per share amounts have been adjusted as necessary to reflect stock
splits and stock dividends
QUARTERLY STOCK PRICE AND DIVIDEND INFORMATION
TOMPKINS LETCHWORTH
-------------------------- -------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
---- --- --------- ---- --- ---------
1997
First Quarter $ 23.17 $ 21.09 $ 0.20 $ 12.25 $ 10.25 $ 0.06
Second Quarter 23.83 21.42 0.20 12.42 11.50 0.07
Third Quarter 25.37 23.25 0.21 15.75 12.25 0.07
Fourth Quarter 28.83 25.42 0.21 17.00 13.33 0.07
1998
First Quarter $ 34.00 $ 28.50 $ 0.21 $ 19.50 $ 15.00 $ 0.08
Second Quarter 38.75 33.38 0.22 22.67 18.08 0.08
Third Quarter 40.75 32.00 0.23 20.50 13.50 0.08
Fourth Quarter 34.75 30.75 0.25 16.00 13.50 0.08
1999
First Quarter $ 35.88 $ 33.75 $ 0.25 $ 16.63 $ 13.00 $ 0.09
Second Quarter 34.25 31.75 0.25 14.75 12.75 0.09
- ---------------------
59
<PAGE>
COMPARATIVE PER SHARE DATA (UNAUDITED)
The following table sets forth the closing prices per share for
Tompkins common stock and Letchworth common stock and the equivalent per share
price for Letchworth common stock, giving effect to the merger, on (i) July 30,
1999, the last business day preceding public announcement of the proposed
merger; and (ii) October 29, 1999, the latest practicable trading day prior to
the mailing of this joint proxy statement/prospectus:
Stock Price at Stock Price at
July 30, 1999 October 29, 1999
------------------------------------------
Tompkins $34.75 $29.75
Letchworth $13.81 $19.63
Letchworth Equivalent $23.80 $20.38
The equivalent price per share of Letchworth common stock at each
specified date was determined by multiplying the closing sales price for a share
of Tompkins common stock on each specified date by the exchange ratio of 0.685.
As of the October 31, 1999 record date for voting at the Tompkins and
Letchworth special meetings, 4,775,565 outstanding shares of Tompkins common
stock were held by approximately 1,057 record owners and 3,373,269 outstanding
shares of Letchworth common stock were held by approximately 725 record owners.
Letchworth stockholders should obtain current market quotations for
Tompkins common stock. The market price of Tompkins common stock may fluctuate
between the date of this document and completion of the merger. Fluctuations in
the market price of Tompkins common stock will result in an increase or decrease
in the value of the Tompkins shares to be received by holders of Letchworth
common stock in the merger. The market value of the Tompkins shares at the time
of the merger will depend upon the market value of a share of Tompkins common
stock at that time. We cannot give you any assurance about the market price of
Tompkins common stock before or after the merger. Please see "The Merger
Agreement -- Consideration to be received in the merger."
Because the number of shares of Tompkins common stock to be received by
Letchworth stockholders in the merger is fixed (subject to possible increase in
certain limited circumstances) and because the market price of Tompkins common
stock is subject to fluctuation, the value of the shares of Tompkins common
stock that holders of Letchworth common stock will receive in the merger may
increase or decrease prior to and after the merger. No assurance can be given
concerning the market price of Tompkins common stock before or after the time of
the closing and effectiveness of the merger agreement. Please see "The Merger --
Exchange Ratio," "-- Waiver and Amendment; Termination," and "-- Price-Based
Termination."
Letchworth intends to declare and pay cash dividends on Letchworth
common stock on dates and with respect to record dates consistent with past
practice. However, with respect to the payment of its last dividend prior to
completion of the merger, Letchworth is required to coordinate such payment
with, and such payment is subject to the prior approval of, Tompkins to preclude
any duplication of dividend payments. Under the Merger Agreement, Letchworth may
not declare or pay any other dividends or make any other capital distribution
with respect to its capital stock without the prior written consent of Tompkins.
The Letchworth board is under no obligation to declare dividends on Letchworth
common stock.
The timing and amount of future dividends on Tompkins common stock will
depend upon earnings, cash requirements, Tompkins' financial condition and other
factors deemed relevant by the Tompkins board. Dividends may also be limited by
certain regulatory restrictions.
60
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements present the condensed financial position of Tompkins and Letchworth
as of June 30, 1999, assuming that the merger had occurred as of June 30, 1999,
after giving effect to certain pro forma adjustments described in the
accompanying notes. The unaudited pro forma condensed combined statement of
condition at June 30, 1999 reflects estimated non recurring charges of $1.8
million ($1.6 million after tax) that may be incurred related to transition
costs (investment banking, legal, accounting, and printing), data processing
arrangements and other costs incidental to the merger. An estimate of these
costs is included in note 2 to the unaudited pro forma condensed combined
financial statements. The Letchworth consolidated June 30, 1999 statement of
condition includes the effects of its 70.165% acquisition of Mahopac National,
consummated on June 4, 1999. The acquisition was accounted for under the
purchase method of accounting, and resulted in a core deposit intangible of $3.5
million and goodwill of $2.5 million. The following unaudited pro forma
condensed combined statements of income for the six months ended June 30, 1999
and years ended December 31, 1998, 1997, and 1996 present the combined
historical results of operations of Tompkins and Letchworth as if the merger had
been consummated as of the first day of the period presented. The accompanying
unaudited pro forma condensed combined statements of income for the six months
ended June 30, 1999 and the year ended December 31, 1998, were prepared assuming
the acquisition by Letchworth of Mahopac National had been consummated as of the
beginning of each respective period. The Mahopac National acquisition was
consummated on June 4, 1999 and, accordingly, the Mahopac National results of
operations subsequent to that date are included in the Letchworth operating
results, adjusted for the effects of the minority interest. Accordingly, the
Mahopac National statement of income information in the unaudited pro forma
condensed combined statement of income for the six months ended June 30, 1999
includes only five months of operating results of Mahopac National. Statement of
income information for the period from June 1, 1999 to June 4, 1999 would not
have a material effect on the pro forma data. Pro forma earnings per share and
weighted average common shares outstanding are based on the exchange ratio. Both
Tompkins and Letchworth's fiscal years end on December 31.
The unaudited pro forma condensed combined financial statements were
prepared giving effect to the merger on the pooling-of-interests accounting
method. Under this method of accounting, the recorded assets, liabilities,
stockholders' equity, income, and expense of Tompkins and Letchworth are
combined and reflected at their historical amounts, except as noted in the
accompanying notes. All adjustments necessary to arrive at a fair presentation
of the combined financial condition and results of operations of Tompkins and
Letchworth, in the opinion of the managements of the respective companies, have
been included and are of a normal recurring nature.
Tompkins expects to achieve certain merger benefits in the form of
operating expense reductions and revenue enhancements. The unaudited pro forma
condensed combined statements of income, which do not reflect any direct merger
costs (see note 2 to such financial statements) or potential operating expense
reductions or revenue enhancements that are expected to result from the merger,
may not be indicative of the results of future operations. No assurance can be
given with respect to the ultimate level of operating expense reductions or
revenue enhancements.
The unaudited pro forma condensed combined financial statements should
be read in conjunction with, and are qualified in their entirety by, the
historical consolidated financial statements and notes thereto of Tompkins and
Letchworth, which are incorporated by reference herein. Please see "Where You
Can Find More Information." The unaudited pro forma condensed combined financial
statements are presented for informational purposes only. These statements are
not necessarily indicative of the combined financial position and results of
operations that would have occurred if the merger had been consummated on June
30, 1999 or the beginning of the periods or that may be attained in the future.
61
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF CONDITION
(In thousands)
JUNE 30, 1999
Tompkins/
Pro forma Letchworth
Pooling Pro forma
Tompkins Letchworth Adjustments Combined
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash & noninterest bearing balances
due from banks $22,723 $14,812 $37,535
Federal funds sold -0- 13,350 13,350
Available-for-sale securities, at fair value 182,112 103,706 285,818
Held-to-maturity securities 31,084 2,331 33,415
Loans/leases net of unearned income 422,376 287,662 710,038
Less: Reserve for loan/lease losses 5,079 4,061 9,140
=============================================================================================================
NET LOANS/LEASES 417,297 283,601 700,898
Bank premises and equipment 7,355 13,381 20,736
Goodwill and core deposit premium 250 6,647 6,897
Accrued interest and other assets 26,042 4,525 205 (2) 30,772
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $686,863 $442,353 205 $1,129,421
=============================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Interest bearing:
Checking, savings and money market $217,656 $201,146 $418,802
Time 174,530 117,556 292,086
Noninterest bearing 95,563 74,035 169,598
- -------------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 487,749 392,737 880,486
Securities sold under agreements to repurchase and
Federal funds purchased 80,781 1,145 81,926
Other borrowings 45,005 7,753 52,758
Other liabilities 9,489 2,189 1,790 (2) 13,468
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 623,024 403,824 1,790 1,028,638
=============================================================================================================
Minority interest in consolidated subsidiaries 1,406 4,535 5,941
Stockholders' equity:
Common Stock 484 3,460 (3,230) (3) 714
Surplus 28,104 12,625 1,460 (3) 42,189
Undivided profits 36,908 19,961 (1,585) (2) 55,284
Accumulated other comprehensive (loss) income (2,347) 160 (2,187)
Treasury stock, at cost (537) (1,770) 1,770 (3) (537)
Deferred ISOP benefit expense (179) (442) (621)
- -------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 62,433 33,994 (1,585) 94,842
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $686,863 $442,353 205 $1,129,421
=============================================================================================================
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
62
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(In thousands except share and per share data)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Letchworth Tompkins/
Mahopac Pro forma and Mahopac Pro forma Letchworth
National Purchase Pro forma Pooling Pro forma
Letchworth Bank Adjustments Combined Tompkins Adjustments Combined
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $9,109 $3,283 2 (6) $12,394 $17,174 $29,568
Federal funds sold 422 284 706 70 776
Securities 1,884 853 (343) (5) 2,393 6,875 9,268
(1) (7)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 11,415 4,420 (342) 15,493 24,119 39,612
- -------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000
or more 955 158 1,113 2,506 3,619
Other deposits 3,116 1,057 (5) (8) 4,168 4,929 9,097
Federal funds purchased and securities -0- -0-
sold under agreements to repurchase 35 -0- 35 1,415 1,450
Other borrowings 125 -0- 125 1,120 1,245
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 4,231 1,215 (5) 5,441 9,970 15,411
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 7,184 3,205 (337) 10,052 14,149 24,201
- -------------------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 282 37 319 224 543
- -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 6,902 3,168 (337) 9,733 13,925 23,658
- -------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 11 -0- 11 2,219 (20) (4) 2,210
Service charges on deposit accounts 582 303 885 831 1,716
Credit card merchant income 10 -0- 10 1,252 1,262
Other service charges 115 98 213 999 1,212
Other operating income 169 173 342 482 824
Gain on sale of available-for-sale securities 2 -0- 2 -0- 2
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 889 574 1,463 5,783 (20) 7,226
- -------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 2,338 1,014 3,352 4,372 7,724
Pension and other employee benefits 475 225 700 1,184 1,884
Net occupancy expense of bank premises 248 133 (28) (9) 353 613 966
Furniture and fixture expense 480 144 624 561 1,185
Credit card operating expense 37 -0- 37 1,200 1,237
Amortization of goodwill and core deposit 70 -0- 295 (10) 365 50 415
premium
Other operating expense 1,430 619 2,049 2,674 (20) (4) 4,703
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 5,078 2,135 267 7,480 10,654 (20) 18,114
===============================================================================================================================
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 2,713 1,607 (604) 3,716 9,054 12,770
- -------------------------------------------------------------------------------------------------------------------------------
Minority interest in net income of subsidiaries 42 -0- 292 (11) 334 93 427
Income taxes 783 627 (220) (12) 1,190 2,988 4,178
NET INCOME $1,888 $980 (676) $2,192 $5,973 $8,165
===============================================================================================================================
BASIC EARNINGS PER SHARE 0.58 0.67 1.23 1.15
DILUTED EARNINGS PER SHARE 0.57 0.66 1.21 1.14
===============================================================================================================================
Weighted Average Shares Outstanding (Basic) 3,263,500 3,263,500 4,854,099 (1,028,003) (1)7,089,596
Dilutive Effect of Options 40,973 40,973 73,040 (12,906) (1) 101,107
- -------------------------------------------------------------------------------------------------------------------------------
Weighted Average Shares Outstanding (Diluted) 3,304,473 3,304,473 4,927,139 (1,040,909) 7,190,703
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
63
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(In thousands except share and per share data)
FOR THE YEAR ENDED DECEMBER 31, 1998
------------------------------------
Letchworth Tompkins/
Mahopac Pro forma and Mahopac Pro forma Letchworth
National Purchase Pro forma Pooling Pro forma
Letchworth Bank Adjustments Combined Tompkins Adjustments Combined
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans $16,350 $7,420 4 (6) $23,774 $34,228 $58,002
Federal funds sold 437 772 1,209 195 1,404
Securities 4,151 2,083 (824) (5) 5,408 14,368 19,776
(2) (7)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 20,938 10,275 (822) 30,391 48,791 79,182
- --------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000
or more 1,634 343 1,977 7,248
Other deposits 6,554 3,023 (11) (8) 9,566 10,300 19,866
Federal funds purchased and securities
sold under agreements to repurchase 137 -0- 137 2,973 3,110
Other borrowings 486 -0- 486 2,016 2,502
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 8,811 3,366 (11) 12,166 20,560 32,726
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 12,127 6,909 (811) 18,225 28,231 46,456
- --------------------------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 533 82 615 1,006 1,621
- --------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 11,594 6,827 (811) 17,610 27,225 44,835
- --------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 16 -0- 16 3,811 (18) (4) 3,809
Service charges on deposit accounts 1,081 688 1,769 1,641 3,410
Credit card merchant income 28 -0- 28 2,351 2,379
Other service charges 94 191 285 1,842 2,127
Other operating income 307 319 626 512 1,138
Gain (Loss) on sale of available-for-sale
securities 60 -0- 60 (72) (12)
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 1,586 1,198 2,784 10,085 (18) 12,851
OTHER EXPENSES
Salary and wages 3,916 2,322 6,238 8,578 14,816
Pension and other employee benefits 729 416 1,145 1,832 2,977
Net occupancy expense of bank premises 514 383 (67) (09) 830 1,325 2,155
Furniture and fixture expense 885 360 1,245 1,073 2,318
Credit card operating expense 65 -0- 65 2,146 2,211
Amortization of Goodwill and Core Deposit 140 -0- 772 (10) 912 100 1,012
Premium
Other operating expense 2,252 1,526 3,778 5,217 (18) (5) 8,977
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 8,501 5,007 705 14,213 20,271 (18) 34,446
- --------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 4,679 3,018 (1,516) 6,181 17,039 23,220
Minority interest in net income of subsidiaries -0- -0- 547 (11) 547 -0- 547
Income taxes 1,366 1,184 (555) (12) 1,995 5,850 7,845
7,845
NET INCOME $3,313 $1,834 $(1,508) $3,639 $11,189 $14,828
$3,639 $14,828
================================================================================================================================
BASIC EARNINGS PER SHARE 1.01 1.11 2.31 2.09
DILUTED EARNINGS PER SHARE 0.99 1.09 2.27 2.05
================================================================================================================================
Weighted Average Shares Outstanding (Basic) 3,266,509 3,266,509 4,843,654 (1,028,950)(1) 7,081,213
Dilutive Effect of Options 87,017 87,017 87,681 (27,410) (1) 147,288
Weighted Average Shares Outstanding (Diluted) 3,353,526 3,353,526 4,931,335 (1,056,360) 7,228,501
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
64
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(In thousands except share and per share data)
FOR THE YEAR ENDED DECEMBER 31, 1997
------------------------------------
Tompkins/
Pro forma Letchworth
Pooling Pro forma
Tompkins Letchworth Adjustments Combined
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $32,686 $14,610 $47,296
Deposits with other Banks -0- -0- -0-
Federal funds sold 263 285 548
Available-for-sale securities 11,919 2,073 13,992
Held-to-maturity securities 1,944 2,484 4,428
- --------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 46,812 19,452 66,264
- --------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000
or more 4,629 1,437 6,066
Other deposits 10,240 6,014 16,254
Federal funds purchased and securities -0-
sold under agreements to repurchase 4,233 107 4,340
Other borrowings 1,080 494 1,574
TOTAL INTEREST EXPENSE 20,182 8,052 28,234
- --------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 26,630 11,400 38,030
- --------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 1,068 368 1,436
- --------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 25,562 11,032 36,594
- --------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 3,159 -0- 3,159
Service charges on deposit accounts 1,755 974 2,729
Credit card merchant income 2,206 31 2,237
Other service charges 1,356 90 1,446
Other operating income 327 163 490
Gain (Loss) on sale of available-for-sale
securities (85) 37 (48)
- --------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 8,718 1,295 10,013
- --------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 8,107 3,383 11,490
Pension and other employee benefits 1,906 787 2,693
Net occupancy expense of bank premises 1,314 492 1,806
Furniture and fixture expense 1,114 776 1,890
Credit card operating expense 2,024 39 2,063
Other operating expense 4,692 2,227 6,919
- --------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 19,157 7,704 26,861
- --------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 15,123 4,623 19,746
- --------------------------------------------------------------------------------------------------------------
Income taxes 5,267 1,487 6,754
- --------------------------------------------------------------------------------------------------------------
NET INCOME $9,856 $3,136 $12,992
==============================================================================================================
BASIC EARNINGS PER SHARE 2.02 1.10 1.91
DILUTED EARNINGS PER SHARE 2.00 1.00 1.84
==============================================================================================================
Weighted Average Shares Outstanding (Basic) 4,867,089 2,838,660 (894,178) (1) 6,811,571
Dilutive Effect of Options 56,415 293,040 (92,308) (1) 257,147
Weighted Average Shares Outstanding (Diluted) 4,923,504 3,131,700 (986,486) 7,068,718
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
65
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(In thousands except share and per share data)
FOR THE YEAR ENDED DECEMBER 31, 1996
------------------------------------
Tompkins/
Pro forma Letchworth
Pooling Pro forma
Tompkins Letchworth Adjustments Combined
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $30,591 $13,204 $43,795
Deposits with other Banks 48 -0- 48
Federal funds sold 468 240 708
Available-for-sale securities 10,206 2,289 12,495
Held-to-maturity securities 1,974 2,407 4,381
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 43,287 18,140 61,427
- ------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits:
Time certificates of deposits of $100,000 or
more 2,363 643 3,006
Other deposits 9,776 6,464 16,240
Federal funds purchased and securities sold
under agreements to repurchase 4,831 108 4,939
Other borrowings 946 228 1,174
- ------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 17,916 7,443 25,359
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 25,371 10,697 36,068
- ------------------------------------------------------------------------------------------------------------
Less: Provision for loan/lease losses 1,210 283 1,493
- ------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
LOAN/LEASE LOSSES 24,161 10,414 34,575
- -------------------------------------------------------------------------------------------------------------
OTHER INCOME
Trust and investment services income 2,660 -0- 2,660
Service charges on deposit accounts 1,713 913 2,626
Credit card merchant income 1,892 27 1,919
Other service charges 1,318 91 1,409
Other operating income 218 125 343
Loss on available-for-sale securities -0- 13 13
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 7,801 1,169 8,970
- ------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Salary and wages 7,510 3,246 10,756
Pension and other employee benefits 1,759 815 2,574
Net occupancy expense of bank premises 1,337 506 1,843
Furniture and fixture expense 1,134 621 1,755
Credit card operating expense 1,751 39 1,790
Other operating expense 4,150 2,135 6,285
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 17,641 7,362 25,003
- ------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 14,321 4,221 18,542
- ------------------------------------------------------------------------------------------------------------
Income taxes 5,142 1,351 6,493
- ------------------------------------------------------------------------------------------------------------
NET INCOME $9,179 $2,870 $12,049
============================================================================================================
BASIC EARNINGS PER SHARE 1.76 1.06 1.70
DILUTED EARNINGS PER SHARE 1.75 0.97 1.66
============================================================================================================
Weighted Average Shares Outstanding (Basic) 5,228,348 2,697,351 (849,666) (1) 7,076,033
Dilutive Effect of Options 27,285 252,807 (79,634) (1) 200,458
Weighted Average Shares Outstanding (Diluted) 5,255,633 2,950,158 (929,300) 7,276,491
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited pro forma condensed combined financial
statements.
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TOMPKINS TRUSTCO, INC.
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) Pro forma earnings per common share (EPS) have been calculated based upon
the applicable weighted average number of shares of Tompkins plus the additional
number of shares of Tompkins assumed to be issued in the merger in exchange for
the weighted average outstanding shares of Letchworth common shares for each
applicable period based upon an exchange ratio of 0.685.
(2) The unaudited pro forma condensed combined statement of condition as of June
30, 1999, reflects anticipated merger and integration costs, which are presently
estimated to total approximately $1.8 million before taxes, and $1.6 million
after taxes. Anticipated merger and integration costs are not included in the
unaudited pro forma condensed combined statements of income for any period
presented. The following table provides details of the estimated range of merger
and integration costs by type:
<TABLE>
<CAPTION>
(Dollar amounts in thousands)
Estimated Estimated
Type of Cost Pre-tax Range After Tax Range
------------ ------------- ---------------
<S> <C> <C> <C> <C>
Transaction Costs, including investment
banking, legal, accounting and printing $1,155 - 1,280 $1,155 - 1,280
Costs to combine operations:
Data processing arrangements 320 - 360 195 - 215
Other costs incidental to the merger 135 - 150 85 - 90
----------------------------------------
TOTAL $1,610 - 1,790 $1,435 - 1,585
----------------------------------------
</TABLE>
The pro forma financial statements do not reflect potential expense reductions
or revenue enhancements expected to be realized subsequent to the consummation
of the merger.
(3) Entries to adjust capital accounts for the issuance of Tompkins shares at
0.685 exchange ratio, and adjust par value from $1.00 to $0.10. Letchworth
treasury shares are retired.
Authorized, issued, and outstanding share information at June 30, 1999
was as follows:
Tompkins/
Letchworth
Tompkins Letchworth Pro Forma
-------- ---------- ---------
Common:
Par Value $0.10 $1.00 $0.10
Authorized 15,000,000 5,000,000 15,000,000
Issued 4,844,687 3,459,924 7,214,735
Outstanding 4,816,382 3,359,119 7,117,379
(4) Adjustment to eliminate intercompany income and expense related to Tompkins'
servicing of Letchworth's trust accounts, beginning in January 1998.
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(5) The unaudited pro forma condensed combined financial information for the six
months ended June 30, 1999, and the year ended December 31, 1998, relating to
the purchase acquisition of 70.165% of Mahopac National, assumes a cash purchase
price for Mahopac National of approximately $14.5 million, is provided for by
the liquidation of available-for-sale securities. Accordingly, interest income
is reduced (assuming a pre-tax yield of 5.63%) by $824,000 for fiscal year ended
December 31, 1998, and by $343,000 for the year to date period ended June 30,
1999.
(6) Accretion of discount related to loans purchased by Letchworth from Mahopac
National using accelerated methods based upon estimated weighted average
maturities of the loans.
(7) Amortization of premium related to securities purchased by Letchworth from
Mahopac National using an accelerated method over the estimated weighted-average
remaining term of the securities.
(8) Amortization of fair value adjustment related to deposits purchased by
Letchworth from Mahopac National using an effective yield method over the
remaining terms to maturity of the deposits.
(9) Amortization of fair value adjustments related to premises and equipment
purchased by Letchworth from Mahopac National on a straight-line basis over the
estimated useful lives of the assets.
(10) Amortization of intangible assets created in the purchase of Mahopac
National. Amortization is on an accelerated basis for the core deposit premium
and on a straight-line basis for goodwill.
Five Months
Year Ended Ended
Estimated Life December 31, 1998 May 31, 1999
-------------- ----------------- ------------
Core deposit premium 10 $643,000 $242,000
Goodwill 20 129,000 53,000
-------- --------
Total $772,000 $295,000
(11) To recognize the minority interest expense equal to 29.835% of the
historical net earnings of Mahopac National.
(12) Income tax effect on pro forma adjustments is reflected using an expected
tax rate of 40% applied to net pre-tax effect of pro forma adjustments other
than nondeductible amortization of goodwill.
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WHERE YOU CAN FIND MORE INFORMATION
Tompkins has filed with the SEC a Registration Statement on Form S-4
under the Securities Act, registering the shares of Tompkins common stock to be
issued in the merger. This joint proxy statement/prospectus, which is part of
the registration statement, does not contain all of the information included in
the registration statement. Also, any statement made in this joint proxy
statement/prospectus concerning the contents of any contract, agreement or other
document is not necessarily complete. If we have filed any contract, agreement
or other document as an exhibit to the registration statement, you should read
the exhibit for a more complete understanding of the document or matter
involved. Tompkins and Letchworth are required to file periodic reports and
other information with the SEC under the Securities Exchange Act. Accordingly,
Tompkins and Letchworth file reports and other information with the SEC.
You may read a copy of the registration statement, including the
attached exhibits, and any reports, statements or other information that we
file, at the SEC's Public Reference Room at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549-1004, and at the SEC's Midwest Regional Office located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511 and its Northeast Regional Office located at 7 World Trade Center,
Suite 1300, New York, New York 10048. You can request copies of these documents
upon payment of a duplicating fee, by writing to the SEC at its principal office
at 450 Fifth Street, N.W., Washington, D.C. 20549-1004. Please call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. Tompkins' and Letchworth's SEC filings are also available to the public
on the SEC's internet site HTTP://WWW.SEC.GOV.
The SEC allows Tompkins and Letchworth to "incorporate by reference"
the information Tompkins and Letchworth have filed with it, which means that
Tompkins and Letchworth can disclose important information to you by referring
you to those documents. These incorporated documents contain important business
and financial information about Tompkins and Letchworth that may not be included
in or delivered with this joint proxy statement/prospectus. The information
incorporated by reference is considered to be part of this joint proxy
statement/prospectus, and later information filed with the SEC will update and
supersede this information. Tompkins incorporates by reference the documents
listed below and any future filings made with the SEC under Section 13(a),
13(c), 14 or 15(d) of the Securities Exchange Act prior to the consummation of
the merger:
o Tompkins Annual Report on Form 10-K for the fiscal year ended
December 31, 1998;
o Tompkins Quarterly Report on Form 10-Q for the quarter ended March
31, 1999;
o Tompkins Quarterly Report on Form 10-Q for the quarter ended June
30, 1999;
o Tompkins Current Report on Form 8-K, dated August 16, 1999;
o The description of Tompkins common stock set forth in Tompkins'
Registration Statement on Form 8-A filed by Tompkins on December
29, 1995 pursuant to Section 12 of the Exchange Act, including any
amendment or report filed for purposes of updating any such
description;
o The portions of Tompkins' Proxy Statement for the Annual Meeting of
Stockholders held on April 28, 1999 that have been incorporated by
reference in the 1998 Tompkins Form 10-K;
Letchworth incorporates by reference the documents listed below and any
future filings made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act prior to the expiration date of the merger:
o Letchworth's Quarterly Reports on Form 10-Q for the quarter ended
March 31, 1999;
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o Letchworth's Current Reports on Form 8-K, dated June 17, 1999 (as
amended) and August 13, 1999;
o The description of Letchworth's common stock set forth in
Letchworth's Registration Statement on Form S-18 filed by
Letchworth on September 2, 1989 pursuant to Section 12 of the
Exchange Act, including any amendment or report filed for purposes
of updating any such description; and
o The portions of Letchworth's Proxy Statement for the Annual Meeting
of Stockholders held on May 6, 1999 that have been incorporated by
reference in the 1998 Letchworth Form 10-K.
A copy of Letchworth's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998 and Letchworth's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 are included in this joint proxy
statement/prospectus as Annex F and Annex G, respectively.
LEGAL MATTERS
The validity of the shares of Tompkins common stock which will be
issued in the merger will be passed upon for Tompkins by Harris Beach & Wilcox
LLP, Rochester and Ithaca, New York. In addition, Harris Beach & Wilcox LLP,
will pass upon the tax-free nature of the merger for Tompkins. Certain legal
matters relating to the merger are being passed upon for Letchworth by the law
firm of Mackenzie Smith Lewis Michell & Hughes, LLP, Syracuse, New York, special
counsel to Letchworth. Patrick J. Dalton, a member of the law firm of Harris
Beach & Wilcox LLP, is a member of the board of directors of Letchworth and
serves as Letchworth's corporate secretary. Edward C. Hooks, also a member of
the law firm of Harris Beach & Wilcox LLP, is a member of the Board of Directors
of Tompkins. Various members of the law firm of Harris Beach & Wilcox LLP own
shares of the common stock of both Tompkins and Letchworth, in aggregate amounts
representing, in each case, less than 1% of the outstanding shares of the
respective companies.
EXPERTS
The consolidated financial statements of Tompkins and its subsidiary as
of December 31, 1998 and 1997, and for each of the years in the three-year
period ended December 31, 1998, incorporated by reference in the 1998 Tompkins
Form 10-K and incorporated by reference herein and in the registration statement
of which this joint proxy statement/prospectus is a part, have been so
incorporated by reference in reliance upon the report of KPMG LLP, independent
accountants, incorporated by reference in the 1998 Tompkins Annual Report on
Form 10-K and incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated financial statements of Letchworth and subsidiaries as
of December 31, 1998 and 1997, and for each of the years in the three-year
period ended December 31, 1998, incorporated by reference in the 1998 Letchworth
Form 10-K and incorporated by reference herein and in the Registration Statement
of which this joint proxy statement/prospectus is a part, have been so
incorporated by reference in reliance upon the report of PricewaterhouseCoopers
LLP, independent accountants, in the 1998 Letchworth Form 10-K, which is Annex F
to this joint proxy statement/prospectus, and upon the authority of said firm as
experts in accounting and auditing.
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STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the next
annual meeting of Tompkins must be received by Tompkins Trustco, Inc. at P.O.
Box 460, The Commons, Ithaca, New York 14851 no later than December 1, 1999 to
be eligible for inclusion in the proxy statement and form of proxy. Any such
proposal must comply with the rules and regulations of the SEC then in effect.
If the merger takes place, Letchworth will have no more annual
meetings. If the merger does not take place, any proposal of a stockholder to be
presented at the next annual meeting of Letchworth Independent Bancshares
Corporation, must be received by Letchworth Independent Bancshares Corporation
at P.O. Box 129, 50 North Main Street, Castile, New York 14427 no later than
November 30, 1999 to be eligible for inclusion in the proxy statement and form
of proxy. Any such proposal must comply with the rules and regulations of the
SEC then in effect.
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ANNEX A
Agreement and Plan of Reorganization, dated as of July 30, 1999, by and between
Tompkins Trustco, Inc. and Letchworth Independent Bancshares Corporation
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AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or
"Agreement") dated as of July 30, 1999, by and between Letchworth Independent
Bancshares Corporation ("Letchworth"), a New York corporation having its
principal executive offices at 50 North Main Street, Castile, New York and
Tompkins Trustco, Inc. ("Trustco"), a New York corporation having its principal
executive offices at 110 North Tioga Street, Ithaca, New York.
WITNESSETH
WHEREAS, the parties hereto desire that Letchworth shall be acquired by
Trustco through the merger ("Merger") of Letchworth with and into Trustco, with
Trustco as the surviving corporation ("Surviving Corporation") pursuant to an
Agreement and Plan of Merger substantially in the form attached hereto as ANNEX
A ("Plan of Merger"); and
WHEREAS, Trustco desires to operate three separate banking
subsidiaries; and
WHEREAS, upon consummation of the Merger, Trustco presently intends to
operate Tompkins County Trust Company ("TCTC Bank"), a New York-chartered bank
and a wholly owned subsidiary of Trustco, The Bank of Castile ("The Bank of
Castile"), a New York-chartered bank and a wholly owned subsidiary of
Letchworth, and The Mahopac National Bank ("Mahopac Bank"), a national banking
association and a subsidiary of Letchworth, as three separate banking
subsidiaries; and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1. "Affiliate" shall mean with respect to a specified person, a
person that directly or indirectly through one or more intermediaries, controls
or is controlled by, or is under common control with, the person specified.
1.2 "AMEX" shall mean the American Stock Exchange.
1.3 "Bank Holding Company Act" shall mean the Bank Holding Company Act
of 1956, as amended.
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1.4 "Banking Board" shall mean the New York State Banking Board.
1.5 "The Bank of Castile" is defined in the recitals hereto.
1.6 "Claim" is defined in Section 4.13(a) hereof.
1.7 "Closing Date" shall mean the date specified pursuant to Section
4.9 hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.9 "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.10 "Confidentiality Agreement" is defined in Section 4.5 hereof.
1.11 "Danielson" is defined in Section 3.19 hereof.
1.12 "Effective Date" shall mean the date specified pursuant to Section
4.9 hereof as the effective date of the Merger.
1.13 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.14 "ERISA Affiliate" is defined in Section 2.14 and Section 3.13
hereof.
1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.16 "FDIA" shall mean the Federal Deposit Insurance Act.
1.17 "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.18 "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.19 "Indemnified Parties" is defined in Section 4.13(a) hereof.
1.20 "Insurance Amount" is defined in Section 4.13(c) hereof.
1.21 "Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned,
know-how licenses, trade names,
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common law and other trademarks, service marks, licenses of trademarks, trade
names and/or service marks, trademark registrations and applications, service
mark registrations and applications and copyright registrations and
applications.
1.22 "Letchworth" is defined in the preamble of this Agreement.
1.23 "Letchworth Common Stock" is defined in Section 2.1 hereof.
1.24 "Letchworth Employees" is defined in Section 4.11(a) hereof.
1.25 "Letchworth Financial Statements" shall mean (i) the consolidated
balance sheets of Letchworth as of March 31, 1999 and as of December 31, 1998
and 1997 and the related consolidated statements of income, cash flows and
changes in stockholders' equity (including related notes, if any) for the three
months ended March 31, 1999 and each of the three years ended December 31, 1998,
1997 and 1996, respectively, as filed by Letchworth in SEC Documents and (ii)
the consolidated balance sheets of Letchworth and related consolidated
statements of income, cash flows and changes in stockholders' equity (including
related notes, if any) as filed by Letchworth in SEC Documents with respect to
periods ended subsequent to March 31, 1999.
1.26 "Letchworth Plan" is defined in Section 2.14(a) hereof.
1.27 "Mahopac Bank" is defined in the recitals hereto.
1.28 "Mahopac Shareholders" means, collectively, W.D. Spain and Sons
Limited Partnership, William D. Spain, Jr., C. Compton Spain, Michael H. Spain
and William D. Spain.
1.29 "Material Adverse Effect" shall mean, with respect to Letchworth
or Trustco, as the case may be, a material adverse effect on the business,
results of operations or financial condition of such party and any Subsidiary of
the party taken as a whole or a material adverse effect on such party's ability
to consummate the transactions contemplated hereby; provided, however, that in
determining whether a Material Adverse Effect has occurred there shall be
excluded any effect on the referenced party the cause of which is (i) any change
in banking or similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (ii) any change
in generally accepted accounting principles or regulatory accounting
requirements applicable to banks, thrifts or their holding companies generally
and (iii) any action or omission of Letchworth or Trustco or any Subsidiary of
either of them taken with the prior written consent of Trustco or Letchworth, as
applicable, in contemplation of the Merger.
1.30 "McConnell, Budd & Downes, Inc." is defined in Section 2.19
hereof.
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1.31 "Merger" is defined in the recitals hereto.
1.32 "OCC" shall mean the Office of the Comptroller of Currency.
1.33 "Option Agreement" shall mean the Stock Option Agreement dated of
even date herewith between Letchworth and Trustco pursuant to which Letchworth
will grant Trustco the right to purchase certain shares of Letchworth Common
Stock.
1.34 "Plan of Merger" is defined in the recitals hereto.
1.35 "Previously Disclosed" shall mean disclosed in a writing by either
party in (i) an SEC Document filed with the SEC after December 31, 1997 and
before the date hereof or (ii) a disclosure schedule (the "Disclosure Schedule")
dated of even date herewith from the party making such disclosure and delivered
to the other party prior to the execution of this Agreement. Any information
disclosed by one party to the other for any purpose hereunder shall be deemed to
be disclosed for all purposes hereunder. The inclusion of any matter in
information Previously Disclosed shall not be deemed an admission or otherwise
to imply that any such matter is material for purposes of this Agreement.
1.36 "Proxy Statement" shall mean the proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
stockholders of Letchworth and Trustco to solicit their votes in connection with
this Agreement and the Plan of Merger.
1.37 "Registration Statement" shall mean the registration statement to
be filed by Trustco with respect to the Trustco Common Stock to be issued in
connection with the Merger as declared effective by the Commission under the
Securities Act.
1.38 "Reorganization Agreement" is defined in the recitals hereto.
1.39 "Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock, and stock appreciation rights,
performance units and other similar stock-based rights whether they obligate the
issuer thereof to issue stock or other securities or to pay cash.
1.40 "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.41 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.42 "Securities Laws" shall mean the Securities Act; the Exchange Act;
the Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as
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amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
1.43 "Subsidiary" or "Subsidiaries" shall mean with respect to any
party, any bank, corporation, partnership or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes.
1.44 "Surviving Corporation" is defined in the recitals hereto.
1.45 "takeover proposal" is defined in Section 4.7(b)(13) hereof.
1.46 "Trustco" is defined in the preamble of this Agreement.
1.47 "TCTC Bank" is defined in the preamble of this Agreement.
1.48 "Trustco Common Stock" is defined in Section 3.1 hereof.
1.49 "Trustco Financial Statements" shall mean (i) the consolidated
balance sheets of Trustco as of March 31, 1999 and as of December 31, 1998 and
1997 and the related consolidated statements of income, cash flows and changes
in stockholders' equity (including related notes, if any) for the three months
ended March 31, 1999 and each of the three years ended December 31, 1998, 1997
and 1996, respectively, as filed by Trustco in SEC Documents and (ii) the
consolidated balance sheets of Trustco and related consolidated statements of
income, cash flows and changes in stockholders' equity (including related notes,
if any) as filed by Trustco in SEC Documents as of dates or with respect to
periods ended subsequent to March 31, 1999.
1.50 "Trustco Plan" is defined in Section 3.13 hereof.
1.51 "Voting Agreements" shall mean the Voting Agreements dated of even
date herewith between Trustco and the director/stockholders of Letchworth
pursuant to which such director/stockholders agree to vote their shares of
Letchworth Common Stock in favor of this Reorganization Agreement, the Plan of
Merger and the Option Agreement.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF LETCHWORTH
Letchworth hereby represents and warrants to Trustco as follows:
2.1. CAPITAL STRUCTURE OF LETCHWORTH
The authorized capital stock of Letchworth consists of 5,000,000 shares
of common stock, par value $1.00 per share ("Letchworth Common Stock"), of
which, as of the date hereof, 3,466,016 shares are issued and outstanding and
86,847 shares are held in treasury. As of the date hereof, no shares of
Letchworth Common Stock are reserved for issuance, except that (i) 300,000
shares of Letchworth Common Stock are reserved for issuance upon the exercise of
stock options heretofore granted pursuant to Letchworth's 1990 Stock Option Plan
(the "Letchworth 1990 Stock Option Plan"), (ii) 500,000 shares of Letchworth
Common Stock are reserved for issuance upon the exercise of stock options
heretofore granted pursuant to Letchworth's 1998 Stock Option Plan (the
"Letchworth 1998 Stock Option Plan") and (iii) 689,737 shares of Letchworth
Common Stock are reserved for issuance pursuant to the Option Agreement.
SCHEDULE 2.1 hereto sets forth all currently outstanding options for the
purchase of Letchworth Common Stock, the number of shares of Letchworth Common
Stock subject to such options, whether such options are vested or unvested, the
vesting schedule for unvested options and the vesting or other treatment of all
unvested options in the event of a change of control of Letchworth. All
outstanding shares of Letchworth Common Stock have been duly authorized and
validly issued and are fully paid and nonassessable. Letchworth does not have
and is not bound by any Rights which are authorized, issued or outstanding with
respect to the capital stock of Letchworth except (i) for the Option Agreement,
(ii) as Previously Disclosed, (iii) the Shareholder Agreement defined in Section
2.3 below and (iv) as set forth above. None of the shares of Letchworth's
capital stock has been issued in violation of the preemptive rights of any
person.
2.2. ORGANIZATION, STANDING AND AUTHORITY OF LETCHWORTH
Letchworth is a duly organized corporation, validly existing and in
good standing under the laws of New York with full corporate power and authority
to carry on its business as now conducted and is duly licensed or qualified to
do business in the states of the United States and foreign jurisdictions where
its ownership or leasing of property or the conduct of its business requires
such qualification, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Letchworth. Letchworth is registered
as a bank holding company under the Bank Holding Company Act.
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2.3. OWNERSHIP OF LETCHWORTH SUBSIDIARIES; CAPITAL STRUCTURE OF
LETCHWORTH SUBSIDIARIES
Except as Previously Disclosed, as of the date hereof, Letchworth does
not own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation, bank or other organization except
the Letchworth Subsidiaries as Previously Disclosed; and, with respect to
Mahopac Bank, Letchworth owns 1,491 shares of common stock of Mahopac Bank,
constituting 70.16% of all of the outstanding capital stock of Mahopac Bank,
and, subject to the terms of a Shareholder Agreement dated as of October 16,
1998 (the "Shareholder Agreement"), Letchworth has the right to acquire all of
the outstanding capital stock of Mahopac Bank owned by the Mahopac Shareholders
(628 shares of common stock of Mahopac Bank. The Shareholder Agreement has not
been modified, amended or otherwise altered, and is in full force and is
enforceable by Letchworth against the parties thereto and nothing in this
Agreement, the Plan of Merger or Option Agreement, or the execution hereof, or
the performance by Letchworth or any Letchworth Subsidiary of their respective
obligations hereunder or under the Plan of Merger and/or Option Agreement, shall
in any way violate, conflict with or otherwise breach any of the terms or
provisions of the Shareholder Agreement or otherwise cause such agreement to
become unenforceable or in any way modified or amended. Except as Previously
Disclosed, the outstanding shares of capital stock or other equity interests of
each Letchworth Subsidiary have been duly authorized and validly issued and are
fully paid and (except as provided by applicable law) nonassessable and all such
shares or equity interests are directly or indirectly owned by Letchworth free
and clear of all liens, claims and encumbrances. No Letchworth Subsidiary has or
is bound by any Rights which are authorized, issued or outstanding with respect
to the capital stock or other equity interests of any Letchworth Subsidiary and,
except as Previously Disclosed, there are no agreements, understandings or
commitments relating to the right of Letchworth to vote or to dispose of said
shares. None of the shares of capital stock or other equity interests of any
Letchworth Subsidiary has been issued in violation of the preemptive rights of
any person.
2.4. ORGANIZATION, STANDING AND AUTHORITY OF LETCHWORTH SUBSIDIARIES
Each Letchworth Subsidiary is a duly organized corporation, banking
association or other organization, validly existing and in good standing under
applicable laws. Each Letchworth Subsidiary (i) has full power and authority to
carry on its business as now conducted, and (ii) is duly licensed or qualified
to do business in the states of the United States and foreign jurisdictions
where its ownership or leasing of property or the conduct of its business
requires such licensing or qualification, except where failure to be so licensed
or qualified would not have a Material Adverse Effect on Letchworth. Each
Letchworth Subsidiary has all federal, state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted, except where the failure to
be so
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authorized would not have a Material Adverse Effect on Letchworth. The Bank of
Castile and Mahopac Bank are each members in good standing of the Federal Home
Loan Bank of New York and each owns the requisite amount of shares therein.
Except as Previously Disclosed, all eligible deposits issued by The Bank of
Castile and Mahopac Bank are insured by the FDIC through the Bank Insurance Fund
to the full extent permitted under applicable law.
2.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Letchworth has all requisite corporate power and authority to
enter into and perform all of its obligations under this Reorganization
Agreement, the Plan of Merger and the Option Agreement. The execution and
delivery of this Reorganization Agreement, the Plan of Merger and the Option
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Letchworth, except that the affirmative vote
of the holders of 66 2/3% of the outstanding shares of Letchworth Common Stock
entitled to vote thereon is required to adopt the Plan of Merger pursuant to the
New York Business Corporation Law and Letchworth's certificate of incorporation,
as amended, and Letchworth's by-laws, each as in effect on the date of this
Reorganization Agreement. The Board of Directors of Letchworth has directed that
this Reorganization Agreement and the Plan of Merger be submitted to
Letchworth's stockholders for approval at a special meeting to be held as soon
as practicable.
(b) Assuming the accuracy of the representation contained in Section
3.5(b) hereof, this Reorganization Agreement and the Plan of Merger constitute
legal, valid and binding obligations of Letchworth, enforceable against it in
accordance with their respective terms, subject as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(c) Except as Previously Disclosed, neither the execution and delivery
of this Reorganization Agreement, the Plan of Merger or the Option Agreement,
nor consummation of the transactions contemplated hereby or thereby, nor
compliance by Letchworth with any of the provisions hereof or thereof shall (i)
conflict with or result in a breach of any provision of the articles or
certificate of incorporation or association, charter or bylaws of Letchworth or
any Letchworth Subsidiary, (ii) assuming the consents and approvals contemplated
by Section 4.3 hereof and the consents and approvals which are Previously
Disclosed are duly obtained, constitute or result in a breach of any term,
condition or provision of, or constitute a default under, or give rise to any
right of termination, cancellation or acceleration with respect to, or result in
the creation of any lien, charge or encumbrance upon any property or asset of
Letchworth or any Letchworth Subsidiary pursuant to, any note, bond, mortgage,
indenture, license, agreement or other instrument or obligation, or (iii)
assuming the consents and approvals contemplated by Section 4.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained, violate
any order, writ, injunction, decree, statute, rule or regulation
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applicable to Letchworth or any Letchworth Subsidiary, except (in the case of
clauses (ii) and (iii) above) for such violations, rights, conflicts, breaches,
creations or defaults which, either individually or in the aggregate, would not
have a Material Adverse Effect on Letchworth.
(d) Other than as contemplated by Section 4.3 hereof and except as
Previously Disclosed, no consent, approval or authorization of, or declaration,
notice, filing or registration with, any governmental or regulatory authority,
or any other person, is required to be made or obtained by Letchworth or any
Letchworth Subsidiary on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement and the Plan of Merger or
the consummation of the transactions contemplated hereby or thereby. Neither
Letchworth nor any Letchworth Subsidiary is aware of any reason why the
conditions set forth in Section 5.1(b) of this Reorganization Agreement will not
be satisfied without undue delay and without the imposition of any condition or
requirement of the type referred to in the provisions thereof.
2.6. SEC DOCUMENTS; REGULATORY FILINGS
Letchworth has timely filed all SEC Documents required by the
Securities Laws and all reports and notices with The Nasdaq Stock Market
("Nasdaq") required to be filed by the Nasdaq Marketplace Rules and the Exchange
Act (collectively, the "Nasdaq Reports"). The SEC Documents and the Nasdaq
Reports are true, complete and correct as of their respective dates, in all
material respects, and neither any SEC Documents nor any Nasdaq Reports contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
Letchworth and each Letchworth Subsidiary has filed all reports required by
statute or regulation to be filed with any federal or state bank regulatory
agency, except where the failure to so file would not have a Material Adverse
Effect on Letchworth, and such reports were prepared in accordance with the
applicable statutes, regulations and instructions in existence as of the date of
filing of such reports in all material respects, and none of the reports contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein not misleading.
2.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The Letchworth Financial Statements filed by Letchworth in SEC
Documents prior to the date of this Agreement fairly present in all material
respects, and the Letchworth Financial Statements filed by Letchworth after the
date of this Agreement will fairly present in all material respects the
consolidated financial position of Letchworth and its consolidated Subsidiaries
as of the dates indicated and the consolidated results of operations, changes in
stockholders' equity and cash flows of Letchworth and its consolidated
Subsidiaries for the periods then ended and each such financial statement has
been or will be, as the case may be, prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The books and
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records of Letchworth and each Letchworth Subsidiary fairly reflect in all
material respects the transactions to which it is a party or by which its
properties are subject or bound. Such books and records have been properly kept
and maintained and are in compliance with all applicable legal and accounting
requirements in all material respects. The minute books of Letchworth and each
Letchworth Subsidiary contain records which are accurate in all material
respects of all corporate actions of each of their respective stockholders and
board of directors (including committees of their respective board of
directors).
2.8. MATERIAL ADVERSE CHANGE
Except as Previously Disclosed, Letchworth has not, on a consolidated
basis, suffered any change in its financial condition, results of operations or
business since December 31, 1998 which individually or in the aggregate with any
other such changes would constitute a Material Adverse Effect with respect to
Letchworth.
2.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither Letchworth nor any Letchworth Subsidiary has any liability
(contingent or otherwise), excluding contractually assumed contingencies, that
is material to Letchworth on a consolidated basis, or that, when combined with
all similar liabilities, would be material to Letchworth on a consolidated
basis, except as Previously Disclosed, as disclosed in the Letchworth Financial
Statements filed with the SEC prior to the date hereof and except for
liabilities incurred in the ordinary course of business subsequent to March 31,
1999.
2.10.PROPERTIES
Except as Previously Disclosed, Letchworth and the Letchworth
Subsidiaries have good and marketable title free and clear of all liens,
encumbrances, charges, defaults or equitable interests to all of the properties
and assets, real and personal, which, individually or in the aggregate, are
material to the business of Letchworth and its Subsidiaries taken as a whole,
and which are reflected on the Letchworth Financial Statements as of March 31,
1999 or acquired after such date, except (i) liens for taxes not yet due and
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent and (iv) dispositions and encumbrances for adequate consideration in the
ordinary course of business. All leases pursuant to which Letchworth or any
Letchworth Subsidiary, as lessee, leases real and personal property which,
individually or in the aggregate, are material to the business of Letchworth and
its Subsidiaries taken as a whole are valid and enforceable in accordance with
their respective terms except where the failure of such lease or leases to be
valid and enforceable would not, individually or in the aggregate, have a
Material Adverse Effect on Letchworth.
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2.11.LOANS
Each loan reflected as an asset in the Letchworth Financial Statements
(i) is evidenced by notes, agreements or other evidences of indebtedness which
are true, genuine and what they purport to be, (ii) to the extent secured, has
been secured by valid liens and security interests which have been perfected,
and (iii) is the legal, valid and binding obligation of the obligor named
therein, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent conveyance and other laws of general applicability
relating to or affecting creditors' rights and to general equity principles, in
each case other than loans as to which the failure to satisfy the foregoing
standards would not have a Material Adverse Effect on Letchworth.
2.12.ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the Letchworth Financial
Statements, as of their respective dates, is, to the best of Letchworth's
knowledge, adequate in all material respects to provide for possible or specific
losses, net of recoveries relating to loans previously charged off and on loans
outstanding, and (b) is, to the best of Letchworth's knowledge, in all material
respects consistent with the requirements of generally accepted accounting
principles to provide for the reasonably anticipated losses with respect to
Letchworth's loan portfolio based upon information reasonably available at the
time.
2.13.TAX MATTERS
(a) Except as Previously Disclosed, Letchworth and each Letchworth
Subsidiary have timely filed federal income tax returns for each year through
December 31, 1998 and have timely filed, or caused to be filed, all other
federal, state, local and foreign tax returns (including, without limitation,
estimated tax returns, returns required under Sections 1441-1446 and 6031-6060
of the Code and the regulations thereunder and any comparable state, foreign and
local laws, any other information returns, withholding tax returns, FICA and
FUTA returns and back up withholding returns required under Section 3406 of the
Code and any comparable state, foreign and local laws) required to be filed with
respect to Letchworth or any Letchworth Subsidiary, except where the failure to
file timely such federal income and other tax returns would not, in the
aggregate, have a Material Adverse Effect on Letchworth. All taxes due in
respect of the periods covered by such tax returns have been paid or adequate
reserves have been established for the payment of such taxes and such reserves
are reflected on the Letchworth Financial Statements, except where any such
failure to pay or establish adequate reserves would not, in the aggregate, have
a Material Adverse Effect on Letchworth and, as of the Closing Date, all taxes
due in respect of any subsequent periods (or portions thereof) ending on or
prior to the Closing Date will have been paid or adequate reserves will have
been established for the payment thereof, except where any such failure to pay
or establish adequate reserves would not, in the aggregate, have a Material
Adverse Effect on Letchworth. Except as Previously Disclosed,
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no material (i) audit examination, (ii) deficiency, or (iii) refund litigation
with respect to such returns or periods has been proposed, asserted or assessed
or is pending. Neither Letchworth nor any Letchworth Subsidiary will have any
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established except where such liability would not have a Material
Adverse Effect on Letchworth.
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by Letchworth and each Letchworth Subsidiary are complete and
accurate in all material respects. Neither Letchworth nor any Letchworth
Subsidiary is delinquent in the payment of any material tax, assessment or
governmental charge, and, except as Previously Disclosed, none of them has
requested any extension of time within which to file any tax returns in respect
of any fiscal year or portion thereof which have not since been filed. Except as
Previously Disclosed, no material deficiencies for any tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
otherwise) against Letchworth or any Letchworth Subsidiary which have not been
settled and paid. Except as Previously Disclosed, there are currently no
agreements in effect with respect to Letchworth or any Letchworth Subsidiary to
extend the period of limitations for the assessment or collection of any tax.
(c) Except as Previously Disclosed, neither the transactions
contemplated hereby nor the termination of the employment of any employees of
Letchworth or any Letchworth Subsidiary prior to or following consummation of
the transactions contemplated hereby could result in Letchworth or any
Letchworth Subsidiary making or being required to make any "excess parachute
payment" as that term is defined in Section 280G of the Code.
(d) Except as Previously Disclosed, neither Letchworth nor any
Letchworth Subsidiary is a party to any agreement providing for the allocation
or sharing of, or indemnification for, taxes.
(e) Except as Previously Disclosed, neither Letchworth nor any
Letchworth Subsidiary is required to include in income any adjustment in any
taxable period ending after the date hereof pursuant to Section 481(a) of the
Code.
(f) Except as Previously Disclosed, neither Letchworth nor any
Letchworth Subsidiary has entered into any agreement with any taxing authority
that will bind Trustco or an affiliate thereof after the Closing Date.
(g) For purposes of this Section 2.13, references to Letchworth and
any Letchworth Subsidiary shall include predecessors thereof.
2.14.EMPLOYEE BENEFIT PLANS
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(a) SCHEDULE 2.14(A) hereto sets forth a true and complete list of (a)
each employment agreement or change in control agreement (whether written or
oral) Letchworth or any Letchworth Subsidiary has entered into with any
employee, director or officer of Letchworth or a Letchworth Subsidiary and (b)
each Letchworth Plan. For purposes of this Reorganization Agreement, the term
"Letchworth Plan" means each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, medical, life or
other insurance, profit-sharing, or pension plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by Letchworth or by any trade or business, whether or not
incorporated, that together with Letchworth or any of the Letchworth
Subsidiaries would be deemed a "single employer" under Section 414 of the Code
(an "ERISA Affiliate") for the benefit of any employee or director or former
employee or former director of Letchworth or any ERISA Affiliate of Letchworth.
(b) With respect to each of the Letchworth Plans, Letchworth has made
available to Trustco true and complete copies of each of the following
documents: (a) the Letchworth Plan and related documents (including all
amendments thereto); (b) the most recent annual reports, financial statements,
and actuarial reports, if any; (c) the most recent summary plan description,
together with each summary of material modifications, required under ERISA with
respect to such Letchworth Plan; and (d) the most recent determination letter
received from the IRS with respect to each Letchworth Plan that is intended to
be qualified under the Code.
(c) No liability under Title IV of ERISA has been incurred by
Letchworth or any ERISA Affiliate of Letchworth since the effective date of
ERISA that has not been satisfied in full, and no condition exists that presents
a material risk to Letchworth or any ERISA Affiliate of Letchworth of incurring
a liability under such Title, other than liability for premium payments to the
Pension Benefit Guaranty Corporation, which premiums have been or will be paid
when due.
(d) Neither Letchworth nor any ERISA Affiliate of Letchworth, nor any
of the Letchworth Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a prohibited transaction (within the
meaning of Section 406 of ERISA and Section 4975 of the Code) in connection with
which Letchworth or any ERISA Affiliate of Letchworth could, either directly or
indirectly, incur a material liability or cost.
(e) Full payment has been made, or will be made in accordance with
Section 404(a)(6) of the Code, of all amounts that Letchworth or any ERISA
Affiliate of Letchworth is required to pay under Section 412 of the Code or
under the terms of the Letchworth Plans.
(f) Except as Previously Disclosed, there has been no material adverse
change in the funded status of any Letchworth Plan that is subject to Title IV
of ERISA since the date of the information relating to such funded status
contained in the most recent Letchworth Form 10-K
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filed with the SEC. No reportable event under Section 4043 of ERISA has occurred
or will occur with respect to any Letchworth Plan on or before the Closing Date
other than any reportable event occurring by reason of the transactions
contemplated by this Agreement or a reportable event for which the requirement
of notice to the PBGC has been waived.
(g) Except as Previously Disclosed, none of the Letchworth Plans is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
a "multiple employer welfare arrangement," as such term is defined in Section
3(40) of ERISA, or a single employer plan that has two or more contributing
sponsors, at least two of whom are not under common control, within the meaning
of Section 4063(a) of ERISA.
(h) A favorable determination letter has been issued by the Internal
Revenue Service with respect to the each of the Letchworth Plans that is
intended to be "qualified" within the meaning of Section 401(a) of the Code to
the effect that such plan is so qualified and each such Letchworth Plan
satisfies the requirements of Section 401(a) of the Code in all material
respects. Each of the Letchworth Plans that is intended to satisfy the
requirements of Section 125 or 501(c)(9) of the Code satisfies such requirements
in all material respects. Each of the Letchworth Plans has been operated and
administered in all material respects in accordance with its terms and
applicable laws, including but not limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the
knowledge of Letchworth, threatened or anticipated (other than routine claims
for benefits) against any Letchworth Plan, the assets of any Letchworth Plan or
against Letchworth or any ERISA Affiliate of Letchworth with respect to any
Letchworth Plan. There is no judgment, decree, injunction, rule or order of any
court, governmental body, commission, agency or arbitrator outstanding against
or in favor of any Letchworth Plan or any fiduciary thereof (other than rules of
general applicability). There are no pending or threatened audits, examinations
or investigations by any governmental body, commission or agency involving any
Letchworth Plan.
(j) Except as Previously Disclosed, the consummation of the
transactions contemplated by this Agreement will not (i) entitle any current or
former employee or director of Letchworth or any ERISA Affiliate of Letchworth
to severance pay, unemployment compensation or any similar payment, (ii)
accelerate the time of payment or vesting, or increase the amount, of any
compensation due to any such current or former employee or director, (iii) renew
or extend the term of any agreement regarding compensation for any such current
or former employee or director, or (iv) result in a "change in control" or the
occurrence of any other event specified in the agreements identified on SCHEDULE
2.14(A) which would entitle any party to such agreements to any payment
thereunder.
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2.15.CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither Letchworth nor any
Letchworth Subsidiary is a party to, or is bound by, (i) any material contract
as defined in Item 601(b)(10) of Regulation S-K of the SEC or any other material
contract or similar arrangement whether or not made in the ordinary course of
business (other than loans or loan commitments and funding transactions in the
ordinary course of business of any Letchworth Subsidiary) or any agreement
restricting the nature or geographic scope of its business activities in any
material respect, (ii) any agreement, indenture or other instrument relating to
the borrowing of money by Letchworth or any Letchworth Subsidiary or the
guarantee by Letchworth or any Letchworth Subsidiary of any such obligation,
other than instruments relating to transactions entered into in the customary
course, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant who was formerly a director or executive officer or
the employment, election, retention in office or severance of any present or
former director or officer, or (iv) any contract, agreement or understanding
with a labor union, in each case whether written or oral.
(b) Except as Previously Disclosed, neither Letchworth nor any
Letchworth Subsidiary is in default under any material agreement, commitment,
arrangement, lease, insurance policy or other instrument whether entered into in
the ordinary course of business or otherwise and whether written or oral, and
there has not occurred any event that, with the lapse of time or giving of
notice or both, would constitute such a default, except for such defaults which
would not, individually or in the aggregate, have a Material Adverse Effect on
Letchworth.
2.16.LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or
proceedings instituted, pending or, to the knowledge of Letchworth or any
Letchworth Subsidiary, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against Letchworth or any Letchworth Subsidiary or
against any asset, interest or right of Letchworth or any Letchworth Subsidiary
as to which there is a reasonable probability of an unfavorable outcome and
which, if such an unfavorable outcome was rendered, would, individually or in
the aggregate, have a Material Adverse Effect on Letchworth. To the knowledge of
Letchworth or any Letchworth Subsidiary, there are no actual or threatened
actions, suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability in
connection therewith as to which there is a reasonable probability of an
unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on
Letchworth. There are no actions, suits or proceedings instituted, pending or,
to the knowledge of Letchworth or any Letchworth Subsidiary, threatened (or
unasserted but considered probable of assertion and which if asserted would be
reasonably expected to have an unfavorable outcome) against any present or
former director or officer of Letchworth or any Letchworth Subsidiary, that
might give rise to a claim for indemnification and
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that (i) has a reasonable probability of an unfavorable outcome and (ii) in the
event of an unfavorable outcome, would, individually or in the aggregate, have a
Material Adverse Effect on Letchworth.
2.17.COMPLIANCE WITH LAWS
Except as Previously Disclosed, Letchworth and each Letchworth
Subsidiary is in compliance in all material respects with all statutes and
regulations applicable to the conduct of its business, and neither Letchworth
nor any Letchworth Subsidiary has received notification from any agency or
department of federal, state or local government (i) asserting a material
violation of any such statute or regulation, (ii) threatening to revoke any
license, franchise, permit or government authorization or (iii) restricting or
in any way limiting its operations, except for such noncompliance, violations,
revocations and restrictions which would not, individually or in the aggregate,
have a Material Adverse Effect on Letchworth. Neither Letchworth nor any
Letchworth Subsidiary is subject to any regulatory or supervisory cease and
desist order, agreement, directive, memorandum of understanding or commitment
which could be reasonably anticipated to have a Material Adverse Effect on
Letchworth, and none of them has received any communication requesting that they
enter into any of the foregoing.
2.18.LABOR MATTERS
With respect to their employees, neither Letchworth nor any Letchworth
Subsidiary is a party to any labor agreement with any labor organization, group
or association and has not engaged in any unfair labor practice. Since January
1, 1999 and prior to the date hereof, Letchworth and the Letchworth Subsidiaries
have not experienced any attempt by organized labor or its representatives to
make Letchworth or any Letchworth Subsidiary conform to demands of organized
labor relating to their employees or to enter into a binding agreement with
organized labor that would cover the employees of Letchworth or any Letchworth
Subsidiary. There is no unfair labor practice charge or other complaint by any
employee or former employee of Letchworth or any Letchworth Subsidiary against
any of them pending before any governmental agency arising out of Letchworth's
or such Letchworth Subsidiary's activities, which charge or complaint (i) has a
reasonable probability of an unfavorable outcome and (ii) in the event of an
unfavorable outcome would, individually or in the aggregate, have a Material
Adverse Effect on Letchworth; there is no labor strike or labor disturbance
pending or threatened against any of them; and neither Letchworth nor any
Letchworth Subsidiary has experienced a work stoppage or other labor difficulty
since January 1, 1999.
2.19.BROKERS AND FINDERS
Neither Letchworth nor any Letchworth Subsidiary, nor any of their
respective officers, directors or employees, has employed any broker, finder or
financial advisor or incurred any
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liability for any fees or commissions in connection with the transactions
contemplated herein or the Plan of Merger, except for Letchworth's retention of
McConnell, Budd & Downes, Inc. to perform certain financial advisory services as
Previously Disclosed. Prior to the execution and delivery of this Agreement,
McConnell, Budd & Downes, Inc. has delivered to the Board of Directors of
Letchworth an opinion that the Exchange Ratio is fair from a financial point of
view to the stockholders of Letchworth.
2.20.INSURANCE
Letchworth and the Letchworth Subsidiaries each currently maintains
insurance in amounts considered by Letchworth and any Letchworth Subsidiary as
applicable, to be reasonably necessary for their operations. Neither Letchworth
nor any Letchworth Subsidiary has received any notice of a material premium
increase or cancellation with respect to any of its insurance policies or bonds,
and within the last three years, neither Letchworth nor any Letchworth
Subsidiary has been refused any insurance coverage sought or applied for, and
Letchworth has no reason to believe that existing insurance coverage cannot be
renewed as and when the same shall expire, upon terms and conditions as
favorable as those presently in effect, other than possible increases in
premiums or unavailability in coverage that have not resulted from any
extraordinary loss experience of Letchworth or any Letchworth Subsidiary.
SCHEDULE 2.20 hereto sets forth all currently outstanding claims against
Letchworth or any Letchworth Subsidiary under any insurance policy. Except as
Previously Disclosed, the deposits of The Bank of Castile and Mahopac Bank are
insured by the FDIC in accordance with the FDIA, and The Bank of Castile and
Mahopac Bank have paid all assessments and filed all reports required by the
FDIA.
2.21.ENVIRONMENTAL LIABILITY
Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary has received any written notice of any legal, administrative,
arbitral or other proceeding, claim or action and, to the knowledge of
Letchworth and the Letchworth Subsidiaries, there is no governmental
investigation of any nature ongoing, in each case that could reasonably be
expected to result in the imposition, on Letchworth or any Letchworth Subsidiary
of any liability arising under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, which liability would have a Material Adverse Effect on Letchworth;
except as Previously Disclosed, there are no facts or circumstances which could
reasonably be expected to form the basis for any such proceeding, claim, action
or governmental investigation that would impose any such liability; and neither
Letchworth nor any Letchworth Subsidiary is subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
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2.22.ADMINISTRATION OF TRUST ACCOUNTS
To the best of Letchworth's knowledge, each Letchworth Subsidiary has
properly administered all common trust funds and collective investment funds and
all accounts for which it acts as a fiduciary or agent, including but not
limited to accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable state and federal law and
regulation and common law, except where the failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect on Letchworth.
Neither Letchworth, any Letchworth Subsidiary, nor any director, officer or
employee of Letchworth or any Letchworth Subsidiary acting on behalf of
Letchworth or a Letchworth Subsidiary, has committed any breach of trust with
respect to any such common trust fund or collective investment fund or fiduciary
or agency account, and the accountings for each such common trust fund or
collective investment fund or fiduciary or agency account are true and correct
in all material respects and accurately reflect the assets of such common trust
fund or collective investment fund or fiduciary or agency account, except for
such breaches and failures to be true, correct and accurate which would not,
individually or in the aggregate, have a Material Adverse Effect on Letchworth.
2.23.INTELLECTUAL PROPERTY
Except as Previously Disclosed, Letchworth or a Letchworth Subsidiary
owns the entire right, title and interest in and to, or has valid licenses or
otherwise has the required legal rights with respect to, all of the Intellectual
Property necessary in all material respects to conduct the business and
operations of Letchworth and the Letchworth Subsidiaries as presently conducted,
except where the failure to do so would not, individually or in the aggregate,
have a Material Adverse Effect on Letchworth. None of such Intellectual Property
is subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment, which order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment would have a
Material Adverse Effect on Letchworth. Except as Previously Disclosed, upon
consummation of the transactions contemplated by this Reorganization Agreement
Trustco and the Trustco Subsidiaries will be entitled to continue to use all
such Intellectual Property without the payment of any fees, licenses or other
payments (other than ongoing payments required under license agreements for
software used by Letchworth or the Letchworth Subsidiaries in Previously
Disclosed amounts consistent with past practice).
2.24.ANTI-TAKEOVER PROVISIONS
No "Business Combination," "Moratorium," "Control Share" or other state
anti-takeover statute or regulation, (i) applies to the Merger, the Voting
Agreements or the Option Agreement, (ii) prohibits or restricts the ability of
Letchworth or any Letchworth Subsidiary to perform their respective obligations
under this Reorganization Agreement, or their respective ability to
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consummate the transactions contemplated hereby, (iii) would have the effect of
invalidating or voiding this Reorganization Agreement, any of the Voting
Agreements, or the Option Agreement, or any provision hereof or thereof, or (iv)
would subject Trustco or any Trustco Subsidiary to any material impediment or
condition in connection with the exercise of any of its rights under this
Reorganization Agreement, any of the Voting Agreements or the Option Agreement.
2.25.INSIDER INTERESTS
All outstanding loans and other contractual arrangements (including
deposit relationships) between Letchworth or any Letchworth Subsidiary and any
officer, director or employee of Letchworth or any Letchworth Subsidiary conform
to the applicable rules and regulations and requirements of all applicable
regulatory agencies which were in effect when such loans and other contractual
arrangements were entered into. Except as set forth in SCHEDULE 2.25, no
officer, director or employee of Letchworth or any Letchworth Subsidiary has any
material interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Letchworth or any Letchworth
Subsidiary.
2.26.REGISTRATION OBLIGATIONS
Except as set forth in SCHEDULE 2.26, neither Letchworth nor any
Letchworth Subsidiaries are under any obligation, contingent or otherwise, which
will survive the Merger by reason of any agreement to register any of its
securities under any of the Securities Laws.
2.27.CERTAIN INFORMATION
When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up to
and including the time of the Letchworth stockholders' meeting and the Trustco
stockholders' meeting to vote upon the Merger, such Registration Statement and
all amendments or supplements thereto, with respect to all information set forth
therein furnished by Letchworth relating to Letchworth and the Letchworth
Subsidiaries, (i) shall comply in all material respects with the applicable
provisions of the Securities Laws, and (ii) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading. All information concerning Letchworth and its directors, officers,
stockholders and any Subsidiaries included (or submitted for inclusion) in any
application and furnished by it pursuant to Section 4.3 of this Agreement shall
be true, correct and complete in all material respects.
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2.28.YEAR 2000
The computer software operated by Letchworth and any Letchworth
Subsidiary which is material to the conduct of the business of Letchworth and
any Letchworth Subsidiary is capable of providing or is being adapted to provide
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such software records, stores,
processes and presents such calendar dates falling on or before December 31,
1999, and such software and Letchworth and any Letchworth Subsidiary are
otherwise in compliance with all relevant Regulatory Authority guidance and
requirements relating to the Year 2000 computer issues including the statements
of the Federal Financial Institutions Examination Council, dated May 5, 1997,
entitled "Year 2000 Project Management Awareness," and December 1997, entitled
"Safety and Soundness Guidelines Concerning the Year 2000 Business Risk." The
costs of the adaptations referred to in this clause will not have a Material
Adverse Effect on Letchworth.
2.29.TAX TREATMENT
As of the date of this Reorganization Agreement, Letchworth knows of no
reason relating to it or any of the Letchworth Subsidiaries which would
reasonably cause it to believe that the Merger will not qualify as tax free
reorganization under Section 368(a) of the Code.
2.30.POOLING OF INTERESTS
Neither Letchworth nor any Letchworth Subsidiary knows of any reason
(after consultation with its independent accountants) which would reasonably
cause it to believe that the Merger will not qualify as a pooling of interests
for financial accounting purposes.
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF TRUSTCO
Trustco hereby represents and warrants to Letchworth as follows:
3.1. CAPITAL STRUCTURE OF TRUSTCO
The authorized capital stock of Trustco consists of 15,000,000 shares
of common stock, par value $0.10 per share ("Trustco Common Stock"), of which,
as of the date hereof, 4,807,774 shares were issued and outstanding and 27,996
shares were held in treasury. As of the date hereof, no shares of Trustco Common
Stock are reserved for issuance, except that 254,100 shares of Trustco Common
Stock and 240,000 shares of Trustco Common Stock are reserved for issuance upon
the exercise of stock options heretofore granted pursuant to Trustco's 1992
Stock Option Plan and 1998 Stock Option Plan, respectively. All outstanding
shares of Trustco capital stock have been duly authorized and validly issued and
are fully paid and (except as provided by applicable law) nonassessable. None of
the shares of Trustco's capital stock has been issued in violation of the
preemptive rights of any person. The shares of Trustco Common Stock to be issued
in connection with the Merger have been duly authorized and, when issued in
accordance with the terms of this Reorganization Agreement and the Plan of
Merger, will be validly issued, fully paid, (except as provided by applicable
law) nonassessable and free and clear of any preemptive rights. Except as
Previously Disclosed and as set forth above, Trustco does not have and is not
bound by any Rights which are authorized, issued or outstanding with respect to
the capital stock of Trustco.
3.2. ORGANIZATION, STANDING AND AUTHORITY OF TRUSTCO
Trustco is a duly organized corporation, validly existing and in good
standing under the laws of New York, with full corporate power and authority to
carry on its business as now conducted and is duly licensed or qualified to do
business in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on Trustco. Trustco is registered as a bank
holding company under the Bank Holding Company Act.
3.3. OWNERSHIP OF TRUSTCO SUBSIDIARIES; CAPITAL STRUCTURE OF TRUSTCO
SUBSIDIARIES
Trustco has no Subsidiary other than those disclosed in its Annual
Report on Form 10-K for the year ended December 31, 1998 or any Subsidiary that
is not a significant subsidiary under the SEC's Regulation S-X. Except as
Previously Disclosed, the outstanding shares of capital stock of the Trustco
Subsidiaries have been duly authorized and validly issued and are fully paid and
(except as provided in 12 U.S.C. Section 55 or Section 114 of the New York
Banking Law)
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nonassessable and all such shares are directly or indirectly owned by Trustco
free and clear of all liens, claims and encumbrances. No Trustco Subsidiary has
or is bound by any Rights which are authorized, issued or outstanding with
respect to the capital stock of any Trustco Subsidiary and, except as Previously
Disclosed, there are no agreements, understandings or commitments relating to
the right of Trustco to vote or to dispose of said shares. None of the shares of
capital stock of any Trustco Subsidiary has been issued in violation of the
preemptive rights of any person.
3.4. ORGANIZATION, STANDING AND AUTHORITY OF TRUSTCO SUBSIDIARIES
Each Trustco Subsidiary is a duly organized corporation or banking
corporation, validly existing and in good standing under applicable laws. Each
Trustco Subsidiary (i) has full power and authority to carry on its business as
now conducted, and (ii) is duly licensed or qualified to do business in the
states of the United States and foreign jurisdictions where its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification and where failure to be licensed or qualified would have a
Material Adverse Effect on Trustco. Each Trustco Subsidiary has all federal,
state, local and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, except where the failure to be so authorized would not have a
Material Adverse Effect on Trustco. TCTC Bank is a member in good standing of
the Federal Home Loan Bank of New York and owns the requisite amount of shares
therein. Except as Previously Disclosed, all eligible deposits issued by TCTC
Bank are insured by the FDIC through the Bank Insurance Fund to the full extent
permitted under applicable law.
3.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Trustco has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement and
the Plan of Merger. The execution and delivery of this Reorganization Agreement
and the Plan of Merger and the consummation of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Trustco, except that the
affirmative vote of the holders of 66 2/3% of the outstanding shares of Trustco
Common Stock entitled to vote thereon is required to approve the Plan of Merger
pursuant to the New York Business Corporation Law and Trustco's certificate of
incorporation, as amended, and Trustco's by-laws, each as in effect on the date
of this Reorganization Agreement. The Board of Directors of Trustco has directed
that this Reorganization Agreement and Plan of Merger be submitted to Trustco's
stockholders for approval at a special meeting to be held as soon as
practicable.
(b) Assuming the accuracy of the representation contained in Section
2.5(b) hereof, this Reorganization Agreement and the Plan of Merger constitute
legal, valid and binding
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obligations of Trustco enforceable against it in accordance with their
respective terms subject, as to enforceability, to bankruptcy, insolvency and
other laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
(c) Except as Previously Disclosed, neither the execution and delivery
of this Reorganization Agreement or the Plan of Merger, nor consummation of the
transactions contemplated hereby or thereby, nor compliance by Trustco with any
of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the articles or certificate of incorporation or
association, charter or bylaws of Trustco or any Trustco Subsidiary, (ii)
assuming the consents and approvals contemplated by Section 4.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of Trustco or any Trustco
Subsidiary pursuant to, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation, or (iii) assuming the consents and approvals
contemplated by Section 4.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Trustco or any Trustco
Subsidiary, except (in the case of clauses (ii) and (iii) above) for such
violations, rights, conflicts, breaches, creations or defaults which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Trustco.
(d) Except for approvals specified in Section 4.3 hereof, except as
Previously Disclosed and except as expressly referred to in this Reorganization
Agreement, no consent, approval or authorization of, or declaration, notice,
filing or registration with, any governmental or regulatory authority, or any
other person, is required to be made or obtained by Trustco or any Trustco
Subsidiary on or prior to the Closing Date in connection with the execution,
delivery and performance of this Reorganization Agreement and the Plan of Merger
or the consummation of the transactions contemplated hereby or thereby. Neither
Trustco nor any of the Trustco Subsidiaries is aware of any reason why the
conditions set forth in Section 5.1(b) of this Reorganization Agreement will not
be satisfied without undue delay and without the imposition of any condition or
requirement of the type referred to in the provisions thereof.
3.6. SEC DOCUMENTS; REGULATORY FILINGS
Trustco has timely filed all SEC Documents required by the Securities
Laws and all reports and notices with AMEX required to be filed by the AMEX
rules and regulations and the Exchange Act (collectively, the "AMEX Reports").
The SEC Documents and the AMEX Reports are true, complete and correct as of
their respective dates, in all material respects, and neither any SEC Documents
nor any AMEX Reports contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein
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not misleading. Trustco and each of the Trustco Subsidiaries has filed all
reports required by statute or regulation to be filed with any federal or state
bank regulatory agency, except where the failure to so file would not have a
Material Adverse Effect on Trustco, and such reports were prepared in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports in all material respects, and none of the
reports contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements contained therein not
misleading.
3.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The Trustco Financial Statements filed by Trustco in SEC Documents
prior to the date of this Agreement fairly present in all material respects, and
the Trustco Financial Statements filed by Trustco in SEC Documents after the
date of the Agreement will fairly present in all material respects the
consolidated financial position of Trustco and its consolidated Subsidiaries as
of the dates indicated and the consolidated results of operations, changes in
stockholders' equity and cash flows of Trustco and its consolidated Subsidiaries
for the periods then ended and each such financial statement has been or will
be, as the case may be, prepared in conformity with generally accepted
accounting principles applied on a consistent basis. The books and records of
Trustco and each Trustco Subsidiary fairly reflect in all material respects the
transactions to which it is a party or by which its properties are subject or
bound. Such books and records have been properly kept and maintained and are in
compliance in all material respects with all applicable legal and accounting
requirements. The minute books of Trustco and the Trustco Subsidiaries contain
records which are accurate in all material respects of all corporate actions of
each of their respective stockholders and board of directors (including
committees of each of their respective board of directors).
3.8. MATERIAL ADVERSE CHANGE
Except as Previously Disclosed, Trustco has not, on a consolidated
basis, suffered any change in its financial condition, results of operations or
business since December 31, 1998 which individually or in the aggregate with any
other such changes would constitute a Material Adverse Effect with respect to
Trustco.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither Trustco nor any Trustco Subsidiary has any liability
(contingent or otherwise), excluding contractually assumed contingencies, that
is material to Trustco on a consolidated basis, or that, when combined with all
similar liabilities, would be material to Trustco on a consolidated basis,
except as Previously Disclosed, as disclosed in the Trustco Financial Statements
filed with the SEC prior to the date hereof and except for liabilities incurred
in the ordinary course of business subsequent to March 31, 1999.
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3.10.PROPERTIES
Except as Previously Disclosed, Trustco and the Trustco Subsidiaries
have good and marketable title free and clear of all liens, encumbrances,
charges, defaults or equitable interests to all of the properties and assets,
real and personal, which, individually or in the aggregate, are material to the
business of Trustco and its Subsidiaries taken as a whole, and which are
reflected on the Trustco Financial Statements as of March 31, 1999 or acquired
after such date, except (i) liens for taxes not yet due and payable, (ii)
pledges to secure deposits and other liens incurred in the ordinary course of
banking business, (iii) such imperfections of title, easements and encumbrances,
if any, as are not material in character, amount or extent and (iv) dispositions
and encumbrances for adequate consideration in the ordinary course of business.
All leases pursuant to which Trustco or any Trustco Subsidiary, as lessee,
leases real and personal property which, individually or in the aggregate, are
material to the business of Trustco and its Subsidiaries taken as a whole are
valid and enforceable in accordance with their respective terms except where the
failure of such lease or leases to be valid and enforceable would not,
individually or in the aggregate, have a Material Adverse Effect on Trustco.
3.11.LOANS
Each loan reflected as an asset in the Trustco Financial Statements (i)
is evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on Trustco.
3.12.ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the Trustco Financial
Statements, as of their respective dates, is, to the best of Trustco's
knowledge, adequate in all material respects to provide for possible or specific
losses, net of recoveries relating to loans previously charged off and on loans
outstanding, and (b) is, to the best of Trustco's knowledge, in all material
respects consistent with the requirements of generally accepted accounting
principles to provide for the reasonably anticipated losses with respect to
Trustco's loan portfolio based upon information reasonably available at the
time.
3.13. EMPLOYEE BENEFIT PLANS
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Each of the Trustco Plans complies in all material respects with the
requirements of applicable law, including ERISA and the Code. For purposes of
this Reorganization Agreement, the term "Trustco Plan" means each bonus,
incentive compensation, severance pay, medical or other insurance program,
retirement plan, or other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to by Trustco or any trade or
business, whether or not incorporated, that together with Trustco or any of the
Trustco Subsidiaries would be deemed a "single employer" under Section 414 of
the Code (an "ERISA Affiliate") or under which Trustco or any ERISA Affiliate of
Trustco has any liability or obligation. No liability under Title IV of ERISA
has been incurred by Trustco or any ERISA Affiliate of Trustco that has not been
satisfied in full, and no condition exists that presents a material risk to
Trustco or any ERISA Affiliate of Trustco incurring any liability under such
Title, other than liability for premium payments to the Pension Benefit Guaranty
Corporation, which premiums have been or will be paid when due. Full payment has
been made, or will be made in accordance with Section 404(a)(6) of the Code of
all amounts that Trustco or any ERISA Affiliate is required to pay under Section
412 of the Code or under the terms of the Trustco Plans, and no accumulated
funding deficiency (within the meaning of Section 412 of the Code) exists with
respect to any Trustco Plan. There has been no material adverse change in the
funded status of any Trustco Plan that is subject to Title IV of ERISA since the
date of the information relating to such funded status contained in the most
recent Trustco Form 10-K filed with the SEC.
3.14.CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither Trustco nor any Trustco
Subsidiary is a party to, or is bound by, (i) any material contract as defined
in Item 601(b)(10) of Regulation S-K of the SEC or any other material contract
or similar arrangement whether or not made in the ordinary course of business
(other than loans or loan commitments and funding transactions in the ordinary
course of business of any Trustco Subsidiary) or any agreement restricting the
nature or geographic scope of its business activities in any material respect,
or (ii) any agreement, indenture or other instrument relating to the borrowing
of money by Trustco or any Trustco Subsidiary or the guarantee by Trustco or any
Trustco Subsidiary of any such obligation, other than instruments relating to
transactions entered into in the customary course.
(b) Except as Previously Disclosed, neither Trustco nor any Trustco
Subsidiary is in default under any material agreement, commitment, arrangement,
lease, insurance policy or other instrument whether entered into in the ordinary
course of business or otherwise and whether written or oral, and there has not
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default, except for such defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on Trustco.
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3.15.LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or
proceedings instituted, pending or, to the knowledge of Trustco, threatened (or
unasserted but considered probable of assertion and which if asserted would have
at least a reasonable probability of an unfavorable outcome) against Trustco or
any Trustco Subsidiary or against any asset, interest or right of Trustco or any
Trustco Subsidiary as to which there is a reasonable probability of an
unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on
Trustco. To the knowledge of Trustco, there are no actual or threatened actions,
suits or proceedings which present a claim to restrain or prohibit the
transactions contemplated herein or to impose any material liability in
connection therewith as to which there is a reasonable probability of an
unfavorable outcome and which, if such an unfavorable outcome was rendered,
would, individually or in the aggregate, have a Material Adverse Effect on
Trustco.
3.16.COMPLIANCE WITH LAWS
Except as Previously Disclosed, each of Trustco and the Trustco
Subsidiaries is in compliance in all material respects with all statutes and
regulations applicable to the conduct of its business, and none of them has
received notification from any agency or department of federal, state or local
government (i) asserting a material violation of any such statute or regulation,
(ii) threatening to revoke any license, franchise, permit or government
authorization or (iii) restricting or in any way limiting its operations, except
for such noncompliance, violations, revocations and restrictions which would
not, individually or in the aggregate, have a Material Adverse Effect on
Trustco. None of Trustco or any Trustco Subsidiary is subject to any regulatory
or supervisory cease and desist order, agreement, directive, memorandum of
understanding or commitment which could be reasonably anticipated to have a
Material Adverse Effect on Trustco, and none of them has received any
communication requesting that they enter into any of the foregoing.
3.17.LABOR MATTERS
With respect to their employees, neither Trustco nor any Trustco
Subsidiary is a party to any labor agreement with any labor organization, group
or association and has not engaged in any unfair labor practice. Since January
1, 1999 and prior to the date hereof, Trustco and the Trustco Subsidiaries have
not experienced any attempt by organized labor or its representatives to make
Trustco or any Trustco Subsidiary conform to demands of organized labor relating
to their employees or to enter into a binding agreement with organized labor
that would cover the employees of Trustco or any Trustco Subsidiary. There is no
unfair labor practice charge or other complaint by any employee or former
employee of Trustco or any Trustco Subsidiary against any of them pending before
any governmental agency arising out of Trustco's or such Trustco Subsidiary's
activities, which charge or complaint (i) has a reasonable probability of an
unfavorable outcome and (ii) in the event of an unfavorable outcome would,
individually or in
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the aggregate, have a Material Adverse Effect on Trustco; there is no labor
strike or labor disturbance pending or threatened against any of them; and
neither Trustco nor any Trustco Subsidiary has experienced a work stoppage or
other labor difficulty since January 1, 1999.
3.18.TAX MATTERS
(a) Trustco and each Trustco Subsidiary have timely filed federal
income tax returns for each year through December 31, 1998 and have timely
filed, or caused to be filed, all other federal, state, local and foreign tax
returns (including, without limitation, estimated tax returns, returns required
under Sections 1441-1446 and 6031-6060 of the Code and the regulations
thereunder and any comparable state, foreign and local laws, any other
information returns, withholding tax returns, FICA and FUTA returns and back up
withholding returns required under Section 3406 of the Code and any comparable
state, foreign and local laws) required to be filed with respect to Trustco or
any Trustco Subsidiary, except where the failure to file timely such federal
income and other tax returns would not, in the aggregate, have a Material
Adverse Effect on Trustco. All taxes due in respect of the periods covered by
such tax returns have been paid or adequate reserves have been established for
the payment of such taxes, except where any such failure to pay or establish
adequate reserves would not, in the aggregate, have a Material Adverse Effect on
Trustco and, as of the Closing Date, all taxes due in respect of any subsequent
periods (or portions thereof) ending on or prior to the Closing Date will have
been paid or adequate reserves will have been established for the payment
thereof, except where any such failure to pay or establish adequate reserves
would not, in the aggregate, have a Material Adverse Effect on Trustco. Except
as Previously Disclosed, no material (i) audit examination, (ii) deficiency, or
(iii) refund litigation with respect to such returns or periods has been
proposed or asserted or is pending. Neither Trustco nor any Trustco Subsidiary
will have any material liability for any such taxes in excess of the amounts so
paid or reserves or accruals so established.
(b) All federal, state and local (and, if applicable, foreign) tax
returns filed by Trustco and each Trustco Subsidiary are complete and accurate
in all material respects. Neither Trustco nor any Trustco Subsidiary is
delinquent in the payment of any material tax, assessment or governmental
charge, and, except as Previously Disclosed, none of them has requested any
extension of time within which to file any tax returns in respect of any fiscal
year or portion thereof which have not since been filed. Except as Previously
Disclosed, no material deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed (tentatively or otherwise)
against Trustco or any Trustco Subsidiary which have not been settled, paid or
accrued.
(c) Except as Previously Disclosed, neither Trustco nor any Trustco
Subsidiary is required to include in income any adjustment in any taxable period
ending after the date hereof
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pursuant to Section 481(a) of the Code other than any adjustment for which it
already has made an accrual.
(d) For purposes of this Section 3.18, references to Trustco and any
Trustco Subsidiary shall include predecessors thereof.
3.19.BROKERS AND FINDERS
Neither Trustco nor any Trustco Subsidiary, nor any of their respective
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated herein or the Plan of Merger, except for Trustco's
retention of Danielson & Company to perform certain financial advisory services
as Previously Disclosed. Prior to the execution and delivery of this
Reorganization Agreement, Danielson & Company has delivered to the Board of
Directors of Trustco an opinion that the Merger Consideration is fair to the
stockholders of Trustco from a financial point of view.
3.20.INSURANCE
Trustco and the Trustco Subsidiaries each currently maintains insurance
in amounts considered by Trustco and any Trustco Subsidiary as applicable, to be
reasonably necessary for their operations. Neither Trustco nor any Trustco
Subsidiary has received any notice of a material premium increase or
cancellation with respect to any of its insurance policies or bonds, and within
the last three years, neither Trustco nor any Trustco Subsidiary has been
refused any insurance coverage sought or applied for, and Trustco has no reason
to believe that existing insurance coverage cannot be renewed as and when the
same shall expire, upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums or unavailability in coverage
that have not resulted from any extraordinary loss experience of Trustco or any
Trustco Subsidiary. Except as Previously Disclosed, the deposits of TCTC Bank
are insured by the FDIC in accordance with the FDIA, and TCTC Bank have paid all
assessments and filed all reports required by the FDIA.
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3.21.ENVIRONMENTAL LIABILITY
Neither Trustco nor any Trustco Subsidiary has received any written
notice of any legal, administrative, arbitral or other proceeding, claim or
action and, to the knowledge of Trustco and the Trustco Subsidiaries, there is
no governmental investigation of any nature ongoing, in each case that could
reasonably be expected to result in the imposition, on Trustco or any Trustco
Subsidiary of any liability arising under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, which liability would have a Material Adverse Effect on
Trustco; except as Previously Disclosed, there are no facts or circumstances
which could reasonably be expected to form the basis for any such proceeding,
claim, action or governmental investigation that would impose any such
liability; and neither Trustco nor any Trustco Subsidiary is subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
3.22.ADMINISTRATION OF TRUST ACCOUNTS
To the best of Trustco's knowledge, each Trustco Subsidiary has
properly administered all common trust funds and collective investment funds and
all accounts for which it acts as a fiduciary or agent, including but not
limited to accounts for which it serves as a trustee, agent, custodian, personal
representative, guardian, conservator or investment advisor, in accordance with
the terms of the governing documents and applicable state and federal law and
regulation and common law, except where the failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect on Trustco.
Neither Trustco, any Trustco Subsidiary, nor any director, officer or employee
of Trustco or any Trustco Subsidiary acting on behalf of Trustco or a Trustco
Subsidiary, has committed any breach of trust with respect to any such common
trust fund or collective investment fund or fiduciary or agency account, and the
accountings for each such common trust fund or collective investment fund or
fiduciary or agency account are true and correct in all material respects and
accurately reflect the assets of such common trust fund or collective investment
fund or fiduciary or agency account, except for such breaches and failures to be
true, correct and accurate which would not, individually or in the aggregate,
have a Material Adverse Effect on Trustco.
3.23.INTELLECTUAL PROPERTY
Except as Previously Disclosed, Trustco or a Trustco Subsidiary owns
the entire right, title and interest in and to, or has valid licenses or
otherwise has the required legal rights with respect to, all of the Intellectual
Property necessary in all material respects to conduct the business and
operations of Trustco and the Trustco Subsidiaries as presently conducted,
except
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where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Trustco. None of such Intellectual Property is
subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment, which order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment would have a
Material Adverse Effect on Trustco.
3.24.INSIDER INTERESTS
All outstanding loans and other contractual arrangements (including
deposit relationships) between Trustco or any Trustco Subsidiary and any
officer, director or employee of Trustco or any Trustco Subsidiary conform to
the applicable rules and regulations and requirements of all applicable
regulatory agencies which were in effect when such loans and other contractual
arrangements were entered into. Except as set forth in SCHEDULE 3.24, no
officer, director or employee of Trustco or any Trustco Subsidiary has any
material interest in any property, real or personal, tangible or intangible,
used in or pertaining to the business of Trustco or any Trustco Subsidiary.
3.25.CERTAIN INFORMATION
When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up to
and including the time of the Letchworth Stockholders' Meeting and the Trustco
Stockholders' Meeting (each as defined in Section 4.1 hereof) to vote upon the
Merger, such Registration Statement and all amendments or supplements thereto,
with respect to all information set forth therein furnished by Trustco relating
to Trustco and the Trustco Subsidiaries, (i) shall comply in all material
respects with the applicable provisions of the Securities Laws, and (ii) shall
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements contained
therein not misleading. All information concerning Trustco and its directors,
officers, stockholders and any Subsidiaries included (or submitted for
inclusion) in any application and furnished by it pursuant to Section 4.3 of
this Agreement shall be true, correct and complete in all material respects.
3.26.YEAR 2000
The computer software operated by Trustco or any Trustco Subsidiary
which is material to the conduct of Trustco's or any Trustco Subsidiary's
business is capable of providing or is being adapted to provide uninterrupted
millennium functionality to record, store, process and present calendar dates
falling on or after January 1, 2000 in substantially the same manner and with
the same functionality as such software records, stores, processes and presents
such calendar dates falling on or before December 31, 1999, and such software
and Trustco or any Trustco Subsidiary is otherwise in compliance with all
relevant Regulatory Authority guidance
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and requirements relating to the Year 2000 computer issues including the
statements of the Federal Financial Institutions Examination Council, dated May
5, 1997, entitled "Year 2000 Project Management Awareness," and December 1997,
entitled "Safety and Soundness Guidelines Concerning the Year 2000 Business
Risk." The costs of the adaptations referred to in this clause will not have a
Material Adverse Effect on Trustco.
3.27.TAX TREATMENT
As of the date of this Agreement, Trustco knows of no reason relating
to it or any of the Trustco Subsidiaries which would reasonably cause it to
believe that the Merger will not qualify as a tax-free reorganization under
Section 368(a) of the Code.
3.28.MERGER CONSIDERATION
Trustco has unissued shares of Trustco Common Stock and shares of
Trustco Common Stock held in its treasury that are not reserved for any other
purpose sufficient to provide the Stock Consideration, as such term is defined
in the Plan of Merger.
3.29.POOLING OF INTERESTS
Neither Trustco nor any Trustco Subsidiary knows of any reason (after
consultation with its independent accounts) which would reasonably cause it to
believe that the Merger will not qualify as a pooling of interests for financial
accounting purposes.
ARTICLE 4. COVENANTS
4.1. STOCKHOLDERS' MEETING
4.1.1Letchworth shall call a meeting of its stockholders (the
"Letchworth Stockholders' Meeting") as soon as practicable after the
Registration Statement is declared effective by the SEC for the purposes of
voting upon this Reorganization Agreement, Plan of Merger, the Option Agreement
and taking such other actions as may be necessary so as to consummate the
transactions contemplated hereby and thereby and shall schedule such meeting
based on consultation with Trustco. Except to the extent legally required for
the discharge by Letchworth's Board of Directors of their fiduciary duties, as
determined by such board of directors after having received the advise of legal
counsel to Letchworth and the advice of Letchworth's financial advisor, after
the receipt by Letchworth of a takeover proposal (as defined in Section
4.7(13)), Letchworth's Board of Directors shall recommend to its stockholders'
that at the Letchworth Stockholders' Meeting its stockholders approve this
Reorganization Agreement and the Option Agreement and vote in favor of and
approve the Merger and adopt the Plan of Merger.
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4.1.2Trustco shall call a meeting of its stockholders (the "Trustco
Stockholders' Meeting") as soon as practicable after the Registration Statement
is declared effective by the SEC for the purposes of voting upon this
Reorganization Agreement and Plan of Merger and taking such other actions as may
be necessary so as to consummate the transactions contemplated hereby and
thereby. Trustco shall schedule the Trustco Stockholders' Meeting based on
consultation with Letchworth. Except to the extent legally required for the
discharge by Trustco's Board of Directors of their fiduciary duties as
determined by such board of directors after consultation with Trustco's legal
counsel, Trustco's Board of Directors shall recommend to its stockholders' that
at the Trustco Stockholders' Meeting its stockholders approve this
Reorganization Agreement and vote in favor of and approve the Merger and adopt
the Plan of Merger.
4.2. PROXY STATEMENT; REGISTRATION STATEMENT
As promptly as practicable after the date hereof, Trustco and
Letchworth shall cooperate in the preparation of the Proxy Statement to be
mailed to the stockholders of Letchworth and Trustco in connection with this
Reorganization Agreement and the transactions contemplated hereby and to be
filed by Trustco as part of the Registration Statement. Trustco will advise
Letchworth, promptly after it receives notice thereof, of the time when the
Registration Statement or any post-effective amendment thereto has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order, of the suspension of qualification of the Trustco Common Stock
issuable in connection with the Merger for offering or sale in any jurisdiction,
or the initiation or threat of any proceeding for any such purpose, or of any
request by the SEC for the amendment or supplement of the Registration Statement
or for additional information. Trustco shall take all actions necessary to
register or qualify the shares of Trustco Common Stock to be issued in the
Merger pursuant to all applicable state "blue sky" or securities laws and shall
maintain such registrations or qualifications in effect for all purposes hereof.
Trustco shall apply for approval to list the shares of Trustco Common Stock to
be issued in the Merger on the AMEX, subject to official notice of issuance,
prior to the Effective Date.
4.3. APPLICATIONS
As promptly as practicable after the date hereof, and after a
reasonable opportunity for review by counsel to Letchworth, Trustco shall submit
any requisite applications for prior approval of, and notices with respect to,
the transactions contemplated herein and in the Plan of Merger (i) to the
Federal Reserve Board pursuant to Section 3 of the Bank Holding Company Act and
the Bank Merger Act, (ii) to the OCC pursuant to 12 C.F.R. Section 5.33(g)(3),
and (iii) to the New York Banking Board pursuant to Section 142 of the New York
Banking Law, and the regulations promulgated thereunder, and each of the parties
hereto shall, and they shall cause their respective subsidiaries to, submit any
applications, notices or other filings to any other state
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or federal government agency, department or body the approval of which is
required for consummation of the Merger.
4.4. BEST EFFORTS
(a) Subject to the terms and conditions of this Reorganization
Agreement, Trustco and Letchworth shall each use its reasonable best efforts in
good faith, and each of them shall cause its Subsidiaries to use their
reasonable best efforts in good faith, to (i) furnish such information as may be
required in connection with the preparation of the documents referred to in
Sections 4.2 and 4.3 above, and (ii) take or cause to be taken all action
necessary or desirable on its part so as to permit consummation of the Merger at
the earliest possible date, including, without limitation, (1) obtaining the
consent or approval of each individual, partnership, corporation, association or
other business or professional entity whose consent or approval is required for
consummation of the transactions contemplated hereby, provided that neither
Letchworth nor any Letchworth Subsidiary shall agree to make any payments or
modifications to agreements in connection therewith without the prior written
consent of Trustco, which consent shall not be unreasonably withheld and (2)
requesting the delivery of appropriate opinions, consents and letters from its
counsel, investment advisors and independent auditors. Subject to the terms and
conditions of this Reorganization Agreement, no party hereto shall take or fail
to take, or cause or permit its Subsidiaries to take or fail to take, or to the
best of its ability permit to be taken or omitted to be taken by any third
persons, any action that would substantially impair the prospects of completing
the Merger pursuant to this Reorganization Agreement and the Plan of Merger,
that would materially delay such completion, that would adversely affect the
qualification of the Merger as a reorganization within the meaning of Section
368(a) of the Code or that would adversely affect the qualification of the
Merger for pooling of interests accounting treatment under generally accepted
accounting principles; provided that nothing herein contained shall preclude
Trustco from exercising its rights under the Option Agreement. In the event that
either party has taken any action, whether before, on or after the date hereof,
that would adversely affect such qualification, each party shall take such
action as the other party my reasonably request to cure such effect to the
extent curable without a Material Adverse Effect on either of the parties.
(b) Letchworth shall give prompt notice to Trustco, and Trustco shall
give prompt notice to Letchworth, of (i) the occurrence, or failure to occur, of
any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Closing Date and (ii) any material failure of Letchworth or Trustco, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder, and each party shall use all
reasonable efforts to remedy such failure.
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(c) From the date of this Agreement through the Effective Date,
Letchworth shall, and shall cause the Letchworth Subsidiaries to, provide such
assistance to Trustco as shall be reasonably necessary to assist Trustco in
converting and transferring as soon as practicable after the Effective Date all
information concerning the loans, deposits and other assets and liabilities of
Letchworth and the Letchworth Subsidiaries into Trustco's own data processing
system. After execution of this Agreement, Letchworth shall provide Trustco with
computer file instructions with respect to the information in its data
processing system regarding the loans, deposits and the other assets and
liabilities of Letchworth and the Letchworth Subsidiaries, together with
operational procedures designed to implement the transfer of such information to
Trustco. After execution of this Reorganization Agreement, Letchworth and
Trustco shall each designate an individual to serve as liaison concerning the
transfer of data processing information and other similar operational matters
and to consult as to whether and when Letchworth will proceed with its pending
data processing conversion.
(d) Each party shall provide and shall request its auditors to provide
the other party with such historical financial information regarding it (and
related audit reports and consents) as the other party may reasonably request
for securities disclosure purposes.
4.5. INVESTIGATION AND CONFIDENTIALITY
(a) Letchworth and Trustco each will keep the other advised of all
material developments relevant to its business and to the consummation of the
transactions contemplated herein and in the Plan of Merger. Trustco and
Letchworth each may make or cause to be made such investigation of the financial
and legal condition of the other as such party reasonably deems necessary or
advisable in connection with the transactions contemplated herein and in the
Plan of Merger, provided, however, that such investigation shall be reasonably
related to such transactions and shall not interfere unnecessarily with normal
operations. Trustco and Letchworth agree to furnish the other and the other's
advisors with such financial data and other information with respect to its
business and properties as such other party shall from time to time reasonably
request. No investigation pursuant to this Section 4.5 shall affect or be deemed
to modify any representation or warranty made by, or the conditions to the
obligations to consummate the Merger of, any party hereto.
(b) Letchworth and Trustco shall, and shall cause their respective
Subsidiaries and each of their respective directors, officers, attorneys and
advisors to, maintain the confidentiality of all information obtained in such
investigation which is not otherwise publicly disclosed by the other parties,
said undertaking with respect to confidentiality to survive any termination of
this Reorganization Agreement pursuant to Section 6.1 hereof. Letchworth and
Trustco shall hold all information furnished by the other party or any of such
party's Subsidiaries or representatives pursuant to this Section 4.5 in
confidence to the extent required by, and in accordance with, the provisions of
the confidentiality agreement executed between Letchworth and Trustco in January
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1999 (the "Confidentiality Agreement"). In the event of termination of this
Agreement each party shall return to the furnishing party or destroy and certify
the destruction of all information previously furnished in connection with the
transactions contemplated by this Agreement.
4.6. PRESS RELEASES
Letchworth and Trustco shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement and the
Plan of Merger or the transactions contemplated hereby or thereby, and shall
consult each other as to the form and substance of other public disclosures
related thereto, provided, however, that nothing contained herein shall prohibit
any party, following notification to the other parties, from making any
disclosure which is required by applicable law or AMEX or NASDAQ rules.
4.7. ACTIONS PENDING THE MERGER
(a) Prior to the Closing Date, and except as otherwise provided for by
this Reorganization Agreement, the Plan of Merger, the Option Agreement, or
consented to or approved by Trustco, Letchworth shall, and shall cause each of
the Letchworth Subsidiaries to, use its reasonable best efforts to preserve its
properties, business and relationships with customers, employees and other
persons.
(b) Prior to the Closing Date, Letchworth shall not, and shall not
permit any of the Letchworth Subsidiaries to, except with the prior written
consent of Trustco or except as Previously Disclosed or expressly contemplated
or permitted by this Agreement, the Plan of Merger, or the Option Agreement:
(1) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) in the case of Letchworth only, declare, set aside, make or
pay any dividend or other distribution in respect of its capital stock other
than its regular quarterly cash dividends on Letchworth Common Stock in amounts
not in excess of $.09 per share;
(3) issue any shares of its capital stock or permit any treasury
shares to become outstanding other than pursuant to the Option Agreement or
Rights outstanding at the date hereof;
(4) incur any additional debt obligation or other obligation
for borrowed money other than in the ordinary course of business consistent with
past practice;
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(5) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization, or redeem, repurchase or otherwise acquire any shares of its
capital stock except for Trust Account Shares and debt previously contracted
shares ("DPC Shares"); provided however, that in order to fulfill such
obligations, Letchworth shall acquire the necessary shares of Letchworth Common
Stock solely through open market purchases or the use of treasury shares
previously acquired by Letchworth in open market purchases;
(6) amend its articles or certificate of incorporation or
association or bylaws; impose, or suffer the imposition, on any share of stock
of any Letchworth Subsidiary held by Letchworth of any lien, charge or
encumbrance, or permit any such lien, charge or encumbrance to exist;
(7) merge with any other corporation, savings association or
bank or permit any other corporation, savings association or bank to merge into
it or consolidate with any other corporation, savings association or bank;
acquire control over any other firm, bank, corporation, savings association or
organization or create any Subsidiary;
(8) except in the ordinary course of business, waive or
release any material right or cancel or compromise any material debt or claim;
(9) liquidate or sell or dispose of any material assets or
acquire any material assets; make any material capital expenditure (for purposes
of this subsection (b)(9) of Section 4.7 "material capital expenditure" shall
mean expenditures in excess of $50,000 in any instance or $150,000 in the
aggregate); or establish new branches or other similar facilities, close
existing branches or similar facilities or enter into or modify any leases or
other contracts relating thereto;
(10)increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except in a manner consistent with past
practice; enter into, modify or extend, or permit to be renewed, any employment
or severance contracts with any of its present or former directors, officers or
employees (except as may be required by applicable law and except with respect
to the executive supplemental income agreements to be entered into by and
between Letchworth and the individuals identified in SCHEDULE 4.7(B)(10);
provided however, that Trustco shall have the right to approve the terms and
conditions of the executive supplemental income agreements prior to their
execution, which approval shall not be unreasonably withheld);
(11)change its lending, investment, asset/liability management or
other material banking policies in any material respect except as may be
required by changes in applicable law; make any loans or extend any credit,
except in the ordinary course of business consistent with its lending policies
and past practice;
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(12)change its methods of accounting in effect at December 31,
1998, except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any of
its methods of reporting income and deductions for federal income tax purposes
from those employed in the preparation of its federal income tax returns for the
year ended December 31, 1998, except as required by changes in law;
(13)authorize or permit any of its officers, directors, employees
or agents to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or, except to the extent legally required for the
discharge of the fiduciary duties of its Board of Directors, recommend or
endorse any takeover proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic information, relating
to any such inquiry or proposal or otherwise facilitate any effort or attempt to
make or implement a takeover proposal; provided, however, that Letchworth may
communicate information about any such takeover proposal to its stockholders if,
in the judgment of Letchworth's Board of Directors, after consultation with
outside legal counsel and financial advisor, such communication is necessary in
order to comply with its fiduciary duties to Letchworth's stockholders required
under applicable law. Letchworth will take all actions necessary or advisable to
inform the appropriate individuals or entities referred to in the first sentence
hereof of the obligations undertaken herein. Letchworth will notify Trustco
immediately if any such inquiries or takeover proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, Letchworth, and Letchworth will
promptly inform Trustco in writing of all of the relevant details with respect
to the foregoing. As used in this Agreement, "takeover proposal" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving Letchworth or any Letchworth Subsidiary or any proposal or
offer to acquire in any manner 25% or more of the voting power of Letchworth, or
25% or more of the assets of, Letchworth or any Letchworth Subsidiary other than
the transactions contemplated or permitted by this Reorganization Agreement, the
Plan of Merger and the Option Agreement; or
(14)agree to do any of the foregoing.
4.8. CERTAIN POLICIES
Prior to the Effective Date, Letchworth shall, consistent with
generally accepted accounting principles and on a basis mutually satisfactory to
it and Trustco, modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications and levels of reserves)
so as to be applied on a basis that is consistent with that of Trustco;
provided, however, that Letchworth shall not be obligated to take any such
action pursuant to this Section 4.8 unless and until (i) Trustco irrevocably
acknowledges to Letchworth in writing that all conditions to its obligation to
consummate the Merger have been satisfied and (ii) Trustco irrevocably waives in
writing any and all rights that it may have to terminate this
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Reorganization Agreement and Plan of Merger.
4.9. CLOSING; ARTICLES OF MERGER
The transactions contemplated by this Reorganization Agreement and the
Plan of Merger shall be consummated at a closing to be held at the offices of
the law firm of Harris Beach & Wilcox, LLP, 130 East Main Street, Rochester, New
York on the first business day following satisfaction of the conditions to
consummation of the Merger set forth in Article 5 hereof (other than such
conditions relating to the actions to be taken at the Closing) or such later
date as may be agreed upon by the parties hereto. In connection with such
Closing Trustco and Letchworth shall execute the Certificate of Merger
substantially in the form attached hereto as ANNEX B ("Certificate of Merger")
and shall cause the Certificate of Merger to be delivered to the New York
Department of State in accordance with Section 904(a) of the New York Business
Corporation Law. The Merger shall be effective at the time and on the date the
Certificate of Merger is filed by the New York Department of State (the
"Effective Date").
4.10.AFFILIATES
Letchworth and Trustco shall cooperate and use their best efforts to
identify those persons who may be deemed to be "affiliates" of Letchworth within
the meaning of Rule 145 promulgated by the Commission under the Securities Act.
Letchworth shall use its best efforts to cause each person so identified to
deliver to Trustco, no later than 30 days prior to the Effective Date, a written
Affiliate Agreement substantially in the form attached hereto as ANNEX C.
4.11.LETCHWORTH EMPLOYEES; DIRECTORS AND MANAGEMENT
(a) On or after the Effective Date, to the extent permitted by
applicable law, all persons who are employed by Letchworth and/or any of the
Letchworth Subsidiaries on such date (collectively "Letchworth Employees") shall
continue to participate in the Letchworth Plans. This Section 4.11(a) shall not
be construed (i) to limit Letchworth's ability to terminate any Letchworth Plan
at the request of Trustco prior to or on the Effective Date, (ii) to limit
Trustco's ability to terminate or amend any Letchworth Plan after the Effective
Date or (iii) to limit Trustco's ability to merge any Letchworth Plan with and
into a Trustco Plan. All Letchworth Employees who become participants in a
Trustco Plan shall, for purposes of determining eligibility for and vesting of
such employee benefits only (and not for pension benefit accrual purposes) and,
if applicable and permitted under the Trustco Plan(s), for purposes of
satisfying any waiting periods concerning "preexisting conditions" and the
satisfaction of any "copayment" or deductible requirements, be given credit for
service with Letchworth or a Letchworth Subsidiary or any predecessor thereto
prior to the Effective Date. Trustco presently intends that the employee
benefits made available after the Effective Date to Letchworth
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Employees who participate in the Letchworth Plans will, when taken as a whole,
remain comparable to those available under the Letchworth Plans in affect as of
the date of this Agreement. This Section 4.11(a) shall not be construed (i) to
limit the ability of Trustco and its Affiliates to terminate the employment of
any employee or to review employee benefit programs (including any employee
benefit programs included in a Letchworth Plan or a Trustco Plan) from time to
time and to make such changes as they deem appropriate or (ii) to require
Trustco or its affiliates to provide employees or former employees of Letchworth
or any of its Subsidiaries with post-retirement medical benefits more favorable
than those provided under the Letchworth Plan or, in the case of a terminated or
merged Letchworth Plan, more favorable than those provided to new hires at
Trustco. No provision of this Section 4.11(a) shall create any third party
beneficiary rights to any employee or former employee of Letchworth or a
Letchworth Subsidiary (including any beneficiary or dependent thereof) in
respect of continued employment (or resumed employment) or any other matter.
(b) Trustco agrees to honor the employee agreements identified on
SCHEDULE 4.11(B) (the "Continuing Employment Agreements"), such that James W.
Fulmer shall remain chairman of the board of directors of The Bank of Castile
and Ms. Brenda L. Copeland shall remain president and chief executive officer of
The Bank of Castile. With respect to the Continuing Employment Agreements, the
provisions of this Section 4.11(b) are intended to be for the benefit of and
shall be enforceable by, those individuals who are parties to such agreements
and their respective heirs and representatives. Notwithstanding anything to
contrary herein, Trustco agrees that the Continuing Employment Agreement of Mr.
James W. Fulmer may be amended by Trustco for the sole and limited purposes of
permitting the assignment of such agreement from The Bank of Castile to Trustco,
identifying Mr. Fulmer as the President of Trustco, and describing the duties
associated with such position.
(c) From and after the Effective Date, the Letchworth Employees shall
be eligible to participate in the Trustco 1998 Stock Option Plan subject to the
terms and conditions of such plan, including but not limited to requirements of
eligibility thereunder.
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4.12 BOARD OF DIRECTORS OF TRUSTCO
From and after the Effective Date, Trustco's Board of Directors shall
take all requisite action to elect as directors of Trustco as of the Effective
Date James W. Fulmer, William D. Spain Jr. and Craig Yunker.
4.13 INDEMNIFICATION
(a) From and after the Effective Date, Trustco shall indemnify, defend
and hold harmless each person who is now, or who has been at any time prior to
the date of this Agreement or who becomes prior to the Effective Date, a
director or officer of Letchworth (the "Indemnified Parties") against all
losses, claims, damages, costs, expenses (including attorneys' fees),
liabilities or judgments or amounts that are paid in settlement (which
settlement shall require the prior written consent of Trustco, which consent
shall not be unreasonably withheld) of or in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal or administrative
(each, a "Claim"), in which an Indemnified Party is, or is threatened to be
made, a party or witness in whole or in part on or arising in whole or in part
out of, or pertaining to (i) the fact that such person is or was a director or
officer of Letchworth or any Letchworth Subsidiary or (ii) this Agreement, the
Plan of Merger, the Option Agreement or any of the transactions contemplated
hereby, regardless of whether such Claim is asserted or claimed before, or at or
after, the Effective Date, to the fullest extent permitted under applicable
state or federal law in effect as of the date hereof. Any Indemnified Party
wishing to claim indemnification under this Section 4.13(a), upon learning of
any Claim, shall promptly notify Trustco (but the failure to so notify Trustco
shall not relieve it from any liability which it may have under this Section
4.13(a), except to the extent such failure materially prejudices Trustco). In
the event of any such Claim (whether arising before or after the Effective
Date), (1) Trustco shall have the right to assume the defense thereof (in which
event the Indemnified Parties will cooperate in the defense of any such matter)
and upon such assumption Trustco shall not be liable to any Indemnified Party
for any legal expenses of other counsel or any other expenses subsequently
incurred by any Indemnified Party in connection with the defense thereof, except
that if Trustco elects not to assume such defense, or counsel for the
Indemnified Parties reasonably advises the Indemnified Parties that there are
issues which raise conflicts of interest between Trustco and the Indemnified
Parties, the Indemnified Parties may retain counsel reasonably satisfactory to
them, and Trustco shall pay the reasonable fees and expenses of such counsel for
the Indemnified Parties, (2) Trustco shall be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties, (3)
Trustco shall not be liable for any settlement effected without its prior
written consent (which consent shall not be unreasonably withheld) and (4)
Trustco shall have no obligation hereunder to any Indemnified Party when and if
a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such
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Indemnified Party in the manner contemplated hereby is prohibited by applicable
law. Trustco's obligations under this Section 4.13(a) continue in full force and
effect for a period of six years from the Effective Date, provided, however,
that all rights to indemnification in respect of any Claim asserted or made
within such period shall continue until the final disposition of the Claim.
(b) Trustco agrees that all rights to indemnification and all
limitations on liability existing in favor of the directors, officers and
employees of Letchworth and any Letchworth Subsidiary (the "Covered Parties") as
provided in their respective certificates of incorporation, by-laws or similar
governing documents as in effect as of the date of this Reorganization Agreement
with respect to matters occurring prior to the Effective Date shall survive the
Merger and shall continue in full force and effect, and shall be honored by such
entities or their respective successors as if they were the indemnifying party
hereunder, without any amendment thereto, for a period of six years from the
Effective Date; provided, however, that all rights to indemnification in respect
of any Claim asserted or made within such period shall continue until the final
disposition of the Claim; provided, further, however, that nothing contained in
this Section 4.13(b) shall be deemed to preclude the liquidation, consolidation
or merger of Letchworth or any Letchworth Subsidiary, in which case all of such
rights to indemnification and limitations on liability shall be deemed to so
survive and continue notwithstanding any such liquidation, consolidation or
merger.
(c) Trustco, from and after the Effective Date will use its best
efforts directly or indirectly to cause the persons who served as directors or
officers of Letchworth on or before the Effective Date to be covered by
Letchworth's existing directors' and officers' liability insurance policy
(provided that Trustco may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are not less
advantageous than such policy) but in no event shall any insured person be
entitled under this Section 4.13(c) to insurance coverage more favorable than
that provided to him or her in such capacities at the date hereof with respect
to acts or omissions resulting from their service as such on or prior to the
Effective Date. Such insurance coverage, if reasonably available at a reasonable
cost relative to the coverage obtained, shall commence on the Effective Date and
will be provided for a period of no less than six years after the Effective
Date; provided, however, that in no event shall Trustco be required to expend
more than the current amount expended by Letchworth (the "Insurance Amount") to
maintain or procure insurance coverage pursuant hereto and further provided that
the Insurance Amount shall be deemed reasonable for purposes of this Section
4.13(c). Letchworth agrees to renew any such existing insurance or to purchase
any "discovery period" insurance provided for thereunder at Trustco's request.
(d) In the event Trustco or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision
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shall be made so that the successors and assigns of Trustco assume the
obligations set forth in this section.
(e) The provisions of Section 4.13(a), (b) and (c) are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party and
their respective heirs and representatives.
4.14.INTENTIONALLY OMITTED
4.15.DIVIDENDS
After the date of this Agreement, each of Trustco and Letchworth shall
coordinate with the other for the declaration of any dividends in respect of
Trustco Common Stock and Letchworth Common Stock and the record dates and
payment dates relating thereto, it being the intention of the parties hereto
that holders of Trustco Common Stock or Letchworth Common Stock shall not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their shares of Trustco Common Stock and/or Letchworth
Common Stock and any shares of Trustco Common Stock any such holder receives in
exchange therefor in the Merger.
4.16.ADVISORS TO THE BOARD
Unless prohibited by applicable law, promptly following the Effective
Date, Trustco shall cause C.L. Van Arsdale and Michael Spain to be appointed as
advisors to Trustco's Board of Directors to serve in such capacity until such
time as Trustco's Board of Directors shall determine. It is anticipated that the
advisors' function will be to, among other things, advise Trustco's Board of
Directors on deposit and lending activities in The Bank of Castile's and Mahopac
Bank's market areas. Each advisor shall be paid meeting attendance fees of $250;
provided, however, that notwithstanding anything else in this Section 4.16, no
attendance fees shall be paid for meetings not actually attended.
ARTICLE 5. CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT - TRUSTCO AND LETCHWORTH
The respective obligations of the parties to effect the Merger shall be
subject to satisfaction or waiver of the following conditions at or prior to the
Closing Date:
(a) All corporate action necessary to authorize the execution,
delivery and performance of this Reorganization Agreement and the Plan of Merger
and consummation of the transactions contemplated hereby and thereby shall have
been duly and validly taken, and the
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stockholders of Letchworth and Trustco shall have approved this Reorganization
Agreement and voted in favor of the Merger and shall have adopted the Plan of
Merger;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Reorganization Agreement and the Plan of Merger, all notice
periods and waiting periods required after the granting of any such approvals
shall have passed and all conditions contained in any such approval required to
have been satisfied prior to consummation of such transactions shall have been
satisfied, provided, however, that no such approval shall have imposed any
condition or requirement which, in the reasonable opinion of the Board of
Directors of Trustco or Letchworth so materially and adversely affects the
anticipated economic and business benefits to Trustco or Letchworth,
respectively, of the transactions contemplated by this Agreement as to render
consummation of such transactions inadvisable;
(c) The Registration Statement (including any post-effective amendment
thereto) shall be effective under the Securities Act, and no proceeding shall be
pending, or to the knowledge of Trustco, threatened by the Commission to suspend
the effectiveness of such Registration Statement, and Trustco shall have
received all state securities or "Blue Sky" permits or other authorizations, or
confirmations as to the availability of an exemption from registration
requirements as may be necessary;
(d) To the extent that any lease, license, loan, financing agreement
or other contract or agreement to which Letchworth or any Letchworth Subsidiary
is a party requires the consent of or waiver from the other party thereto as a
result of the transactions contemplated by this Agreement, such consent or
waiver shall have been obtained, unless the failure to obtain such consents or
waivers, individually or in the aggregate, would not have a Material Adverse
Effect on Letchworth;
(e) None of the parties hereto shall be subject to any order, decree
or injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the transactions contemplated by this
Reorganization Agreement and the Plan of Merger and there shall be no action or
proceeding by or before any such court or agency that, in the judgment of
Letchworth or Trustco, with the advice of their respective counsel, shall
present a bona fide claim to restrain, prohibit or invalidate the transactions
contemplated hereby;
(f) The shares of Trustco Common Stock that may be issued in the
Merger shall have been approved for listing on AMEX, subject to official notice
of issuance; and
(g) Trustco and Letchworth shall have received an opinion of Harris
Beach & Wilcox, LLP, in form and substance which is customary in transactions of
the nature contemplated by this Agreement, dated as of the Effective Date,
substantially to the effect that,
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on the basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing on the Effective Date, the
Merger shall be treated for federal income tax purposes as a reorganization or
part of a reorganization within the meaning of Section 368(a) of the Code, and
that, provided the Merger is such a reorganization, the exchange of Letchworth
Common Stock to the extent exchanged for Trustco Common Stock will not give rise
to recognition of gain or loss for federal income tax purposes to the
stockholders of Letchworth, except to the extent that cash is received in lieu
of fractional share interests of Trustco Common Stock, and the Merger will not
give rise to recognition of gain or loss for federal income tax purposes to
Trustco. In rendering the opinion described in this subsection (g), Harris Beach
& Wilcox, LLP will rely on representations and facts as provided by Trustco and
Letchworth, including without limitation the standard representations set forth
in Revenue Procedure 86-42, 1986-2 C.B. 722.
5.2. CONDITIONS PRECEDENT - LETCHWORTH
The obligations of Letchworth to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by Letchworth pursuant to Section 6.4 hereof:
(a) The representations and warranties of Trustco set forth in Article
3 hereof shall be true and correct in all material respects as of the date of
this Reorganization Agreement and as of the Closing Date as though made on and
as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by Letchworth; provided, however, that (i) in determining whether
or not the condition contained in this paragraph (a) shall be satisfied, no
effect shall be given to any exceptions in such representations and warranties
relating to materiality or Material Adverse Effect and (ii) the condition
contained in this paragraph (a) shall be deemed to be satisfied unless the
failure of such representations and warranties to be so true and correct
constitute, individually or in the aggregate, a Material Adverse Effect on
Trustco;
(b) Trustco shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger to be performed or complied with at or prior to
the Closing Date;
(c) Trustco shall have delivered to Letchworth a certificate, dated
the Closing Date and signed by its Chairman, CEO, Executive Vice President or
Senior Vice President to the effect that the conditions set forth in paragraphs
(a) and (b) of this section have been satisfied;
(d) Letchworth shall have received from PricewaterhouseCoopers, L.L.P.
letters dated not more than five days prior to (i) the effective date of the
Registration Statement and (ii) the Closing Date, with respect to certain
financial information regarding Trustco, each in form and substance which is
customary in transactions of the nature contemplated by this Agreement;
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(e) Within five days of mailing the Prospectus/Proxy Statement,
Letchworth shall have received, if requested by Letchworth, an opinion from
McConnell, Budd & Downes, Inc. to the effect that the Exchange Ratio is fair
from a financial point of view to the stockholders of Letchworth; and
(f) Letchworth shall have received an opinion of Harris Beach &
Wilcox, LLP counsel to Trustco, dated as of the Closing Date, in a form mutually
acceptable to the parties related to the representations in Section 3.5(a).
5.3. CONDITIONS PRECEDENT - TRUSTCO
The obligations of Trustco to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by Trustco pursuant to Section 6.4 hereof:
(a) The representations and warranties of Letchworth set forth in
Article 2 hereof shall be true and correct in all material respects as of the
date of this Reorganization Agreement and as of the Closing Date as though made
on and as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by Trustco; provided, however, that (i) in determining whether or
not the condition contained in this paragraph (a) shall be satisfied, no effect
shall be given to any exceptions in such representations and warranties relating
to materiality or Material Adverse Effect and (ii) the condition contained in
this paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on Letchworth;
(b) Letchworth shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger to be performed or complied with at or prior to
the Closing Date;
(c) Letchworth shall have delivered to Trustco a certificate, dated
the Closing Date and signed by its Chairman, President and Chief Executive
Officer or any Executive Vice President to the effect that the conditions set
forth in paragraphs (a) and (b) of this section have been satisfied;
(d) Trustco shall have received from KPMG, L.L.P. letters dated not
more than five days prior to (i) the effective date of the Registration
Statement and (ii) the Closing Date, with
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respect to certain financial information regarding Letchworth, each in form and
substance which is customary in transactions of the nature contemplated by this
Agreement;
(e) Trustco shall have received from KPMG, L.L.P. a letter, in the
form then customarily issued by such accountants in transactions of this type,
to the effect that the Merger will qualify for pooling of interests accounting
treatment;
(f) Simultaneous with the execution and delivery of this Agreement,
(i) the directors of Letchworth who are stockholders of Letchworth shall have
executed and delivered to Trustco Voting Agreements substantially in the form
attached as ANNEX D and (ii) the Option Agreement shall be executed and
delivered by Letchworth to Trustco; and
(g) Trustco shall have received an opinion of Mackenzie, Smith, Lewis,
Michell & Hughes, LLP counsel to Letchworth, dated as of the Closing Date, in a
form mutually acceptable to the parties related to the representations in
Section 2.5(a).
ARTICLE 6. TERMINATION, WAIVER AND AMENDMENT
6.1. TERMINATION
This Reorganization Agreement and the Plan of Merger may be terminated,
either before or after approval by the stockholders of Letchworth and Trustco:
(a) At any time on or prior to the Effective Date, by the mutual
consent in writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by Trustco in
writing, if Letchworth has, or by Letchworth in writing, if Trustco has, in any
material respect, breached (i) any covenant or agreement contained herein or in
the Plan of Merger or (ii) any representation or warranty contained herein, and
in either case if (x) such breach has not been cured by the earlier of 30 days
after the date on which written notice of such breach is given to the party
committing such breach or the Closing Date and (y) such breach would entitle the
non-breaching party not to consummate the transactions contemplated hereby under
Article V hereof;
(c) At any time, by any party hereto in writing, if the applications
for prior approval referred to in Section 4.3 hereof have been denied, and the
time period for appeals and requests for reconsideration has run, or if any
governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger;
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(d) At any time, by any party hereto in writing, if the stockholders
of Letchworth or the stockholders of Trustco do not approve the transactions
contemplated herein at the special meetings duly called for that purpose;
(e) By any party hereto in writing, if the Closing Date has not
occurred by the close of business on June 30, 2000 unless the failure of the
Closing to occur by such date shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe the covenants and agreements
set forth herein; or
(f) By Letchworth, upon the execution by Letchworth of a definitive
agreement relating to a takeover proposal (as defined in Section 4.7(b)(13)),
provided that (i) Letchworth shall have complied with its obligations under
Section 4.7(b)(13) hereof, (ii) the Board of Directors of Letchworth shall have
determined, after having received the advice of legal counsel to Letchworth and
the advice of Letchworth's financial advisor, that such action is necessary for
the Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law and (iii) concurrent with its notification of termination,
Letchworth will wire to an account designated by Trustco $3.0 million in
immediately available funds.
(g) Subject to Trustco's rights hereunder, by Letchworth, in writing,
if (i) the Average Trustco Stock Price (as hereinafter defined) is less than
$29.22 AND (ii) the Average Trustco Stock Price has declined as a percentage
from the Base Trustco Stock Price (as hereinafter defined) by more than 15% in
excess of the total Percentage Decline in the SNL Bank Stock Index (for All
Publicly Traded Banks). The "Average Trustco Stock Price" means the average
(rounded down to the nearest whole cent) of the closing sale price of one share
of Trustco Common Stock on AMEX for 10 consecutive full trading days (after the
date of this Reorganization Agreement and prior to the Effective Date). The
"Base Trustco Stock Price" means $34.38. The "Percentage Decline in the SNL Bank
Stock Index" means the difference, expressed as a percentage, of the SNL Bank
Stock Index, between the day prior to the execution of this Reorganization
Agreement and the last full trading day included in that computation of the
Average Trustco Stock Price which reflected an Average Trustco Stock Price of
less than $29.22. The foregoing right of termination notwithstanding, in the
event Letchworth exercises its right to terminate pursuant to this Section
6.1(g), Trustco shall have the option to proceed with the Merger and the
transactions contemplated in this Agreement by agreeing to the "amended Exchange
Ratio". The "amended Exchange Ratio" shall be the quotient obtained by dividing
$23.00 by the Average Trustco Stock Price, determined based on the 10
consecutive full trading days immediately preceding the date Trustco shall have
exercised its option; provided, however, that in no event shall Trustco have the
right to exercise its option if the amended Exchange Ratio is greater than .85.
Trustco's option to accept the amended Exchange Ratio and proceed with the
Merger and the transactions contemplated by this Agreement shall be exercised by
written notice to Letchworth within 5 business days of receipt by Trustco of
written notice of Letchworth's intent to terminate pursuant to this subsection
(g).
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(h) By Letchworth in writing, upon the execution by Trustco of a
definitive agreement relating to a takeover proposal (as herein defined); and,
in the event of a termination by Letchworth pursuant to this subsection (h) of
Section 6.1, Trustco will pay Letchworth $1.0 million in immediately available
funds. For purposes of this subsection (h) of Section 6.1, the term "takeover
proposal" shall mean any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Trustco or any Trustco
Subsidiary or any proposal or offer to acquire in any manner 25% or more of the
voting power of Trustco or 25% or more of the assets of Trustco or any Trustco
Subsidiary.
6.2. EFFECT OF TERMINATION
In the event this Reorganization Agreement and the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Reorganization Agreement and the
Plan of Merger shall become void and have no effect, except that (i) the
provisions relating to confidentiality and expenses set forth in Sections 4.5
and 7.1 hereof, respectively, shall survive any such termination and (ii) a
termination pursuant to Section 6.1(b)(i) or (b)(ii) shall not relieve the
breaching party from liability for an uncured willful breach of such covenant or
agreement or representation or warranty giving rise to such termination.
6.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive
Trustco or Letchworth (or any director, officer or controlling person thereof)
of any defense in law or equity which otherwise would be available against the
claims of any person, including, without limitation, any stockholder or former
stockholder of either Trustco or Letchworth, the aforesaid representations,
warranties and covenants being material inducements to the consummation by
Trustco and Letchworth of the transactions contemplated herein.
6.4. WAIVER
Except with respect to any required stockholder or regulatory approval,
Trustco and Letchworth, respectively, by written instrument signed by an
executive officer of such party, may at any time (whether before or after
approval of this Reorganization Agreement and the Plan of Merger by the
stockholders of Trustco and Letchworth) extend the time for the performance of
any of the obligations or other acts of Letchworth, on the one hand, or Trustco,
on the other hand, and may waive (i) any inaccuracies of such parties in the
representations or warranties contained in this Agreement, the Plan of Merger or
any document delivered pursuant hereto or
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thereto, (ii) compliance with any of the covenants, undertakings or agreements
of such parties, or satisfaction of any of the conditions precedent to its
obligations, contained herein or in the Plan of Merger or (iii) the performance
by such parties of any of its obligations set out herein or therein; provided,
however, that no such waiver executed after approval of this Reorganization
Agreement and the Plan of Merger by the stockholders of Trustco or Letchworth
shall change the number of shares of Trustco Common Stock into which each share
of Letchworth Common Stock shall be converted pursuant to the Merger.
6.5. AMENDMENT OR SUPPLEMENT
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time only by mutual agreement of the parties hereto or
thereto. Any such amendment or supplement must be in writing and approved by
their respective boards of directors and/or officers authorized thereby and
shall be subject to the proviso in Section 6.4 hereto.
ARTICLE 7. MISCELLANEOUS
7.1. EXPENSES
Each party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that Trustco shall pay ____% and Letchworth
shall pay ____% of all printing and mailing costs and filing fees associated
with the Registration Statement and the Proxy Statement.
7.2. AGREEMENT
This Reorganization Agreement, the Plan of Merger and the Option
Agreement contain the entire agreement between the parties with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein or therein and the Confidentiality Agreements.
Notwithstanding any provision of any of the aforementioned agreements, the
parties agree that, subject to the limitations set forth in Section 4.4(a)
relating to acts or omissions that would adversely affect the qualification of
the Merger for pooling of interests, Trustco may purchase Letchworth Common
Stock in open market or negotiated transactions prior to the Effective Date, not
to exceed 5% of the outstanding Letchworth Common Stock and subject to any
applicable legal restrictions. The terms and conditions of this Reorganization
Agreement and the Plan of Merger shall inure to the benefit of and be binding
upon the parties hereto and thereto and their respective successors. Except as
specifically set forth herein, or in the Plan of Merger, nothing in this
Reorganization Agreement or the Plan of Merger, expressed
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or implied, is intended to confer upon any party, other than the parties hereto
and thereto, and their respective successors, any rights, remedies, obligations
or liabilities. This Reorganization Agreement and the Plan of Merger, taken
together, shall constitute a plan of reorganization within the meaning of
Section 368 of the Code.
7.3. NO ASSIGNMENT
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
7.4. NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to Letchworth:
Letchworth Independent Bancshares Corporation, 50 North Main Street,
Castile, New York 14427, ATTENTION: Mr. James W. Fulmer, President and Chief
Executive Officer, Facsimile No: (716) 493-5792.
With a required copy to:
Mackenzie, Smith, Lewis, Michell & Hughes, LLP, 101 South Salina
Street, Suite 600, Syracuse, New York 13202, ATTENTION: Edward Moses, Esquire,
Facsimile No. (315) 474-4216.
If to Trustco:
Tompkins Trustco, Inc., 110 North Tioga Street, Ithaca, New York 14850,
ATTENTION: James J. Byrnes, President and Chief Executive Officer, Facsimile No.
(607) 257-6177.
With a required copy to:
Harris Beach & Wilcox, LLP, 130 East Main Street, Rochester, New York
14604, ATTENTION: Thomas E. Willett, Esquire, Facsimile No. (716) 232-6925. 7.5.
CAPTIONS
The captions contained in this Reorganization Agreement are for
reference purposes only and are not part of this Reorganization Agreement.
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7.6. COUNTERPARTS
This Reorganization Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.7. GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in counterparts
by their duly authorized officers and their corporate seal to be hereunto
affixed and attested by their officers thereunto duly authorized, all as of the
day and year first above written.
TOMPKINS TRUSTCO, INC.
Attest: By: /s/ JAMES J. BYRNES
------------------ ----------------------------------
James J. Byrnes, President and
Chief Executive Officer
(SEAL)
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
Attest: By: /s/ JAMES W. FULMER
------------------ ----------------------------------
James W. Fulmer, President and
Chief Executive Officer
(SEAL)
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ANNEX A
AGREEMENT AND PLAN OF MERGER OF LETCHWORTH INDEPENDENT BANCSHARES
CORPORATION WITH AND INTO TOMPKINS TRUSTCO, INC.
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of July 30,
1999 by and between Letchworth Independent Bancshares Corporation, a New York
corporation having its principal executive offices at 50 North Main Street,
Castile, New York ("Letchworth") and Tompkins Trustco, Inc., a New York
corporation having its principal executive offices at 110 North Tioga Street,
Ithaca, New York ("Trustco").
WITNESSETH
WHEREAS, the respective Boards of Directors of Letchworth and Trustco
deem the merger of Letchworth with and into Trustco, under and pursuant to the
terms and conditions herein set forth or referred to, desirable and in the best
interests of the respective corporations and their respective shareholders, and
the respective Boards of Directors of Letchworth and Trustco have adopted
resolutions approving this Plan of Merger and an Agreement and Plan of
Reorganization dated of even date herewith ("Reorganization Agreement"); and
WHEREAS, the parties hereto desire that Letchworth shall be acquired by
Trustco through the merger of Letchworth with and into Trustco, with Trustco as
the surviving corporation, subject to the terms and conditions of this Plan of
Merger and the Reorganization Agreement; and
WHEREAS, the parties hereto intend that the Merger shall qualify as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended ("Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
ARTICLE I. MERGER
Subject to the terms and conditions of this Plan of Merger, at the
Effective Time (as hereinafter defined), Letchworth shall be merged with and
into Trustco, pursuant to the provisions of, and with the effect provided in the
New York Business Corporation Law ("BCL") (said transaction being hereinafter
referred to as the "Merger"). At the Effective Time, the separate existence of
Letchworth shall cease and Trustco, as the surviving entity, shall continue
unaffected and unimpaired by the Merger (Trustco as existing at and after the
Effective Time being hereinafter sometimes referred to as the "Surviving
Corporation").
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ARTICLE II. CERTIFICATE OF INCORPORATION AND BY-LAWS
The Certificate of Incorporation and the Bylaws of Trustco in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, in each case until
amended in accordance with applicable law.
ARTICLE III. BOARD OF DIRECTORS
Subject to the provisions of Section 4.12 of the Reorganization
Agreement, the directors and officers of Trustco immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
each to hold office in accordance with the Certificate of Incorporation and
Bylaws of the Surviving Corporation.
ARTICLE IV. CAPITAL
At the Effective Time, all of the shares of Trustco Common Stock issued
and outstanding immediately prior to the Effective Time shall remain outstanding
and unchanged by virtue of the Merger and, together with the Trustco Common
Stock comprising the Stock Consideration (as defined in Section 1 of Article V
below) shall constitute all of the issued and outstanding shares of capital
stock of the Surviving Corporation.
ARTICLE V. CONVERSION AND EXCHANGE OF LETCHWORTH SHARES;
FRACTIONAL SHARE INTERESTS
1. At the Effective Time, each share of the common stock of
Letchworth, par value $1.00 per share ("Letchworth Common Stock"), issued and
outstanding immediately prior to the Effective Time (except as provided in
Section 2 of this Article V, and subject to Sections 5 and 7 of this Article V),
shall, by virtue of the Merger, automatically and without any action on the part
of the holder thereof, become and be converted into 0.685 shares (the "Exchange
Ratio") of common stock, par value $0.10 per share, of Trustco ("Trustco Common
Stock") (the "Stock Consideration"). The Stock Consideration is sometimes
referred to herein as the "Merger Consideration."
2. (a) At the Effective Time, all shares of Letchworth Common Stock
held in the treasury of Letchworth or owned beneficially by any Subsidiary of
Letchworth other than in a fiduciary capacity ("Trust Account Shares") or in
connection with a debt previously contracted ("DPC Shares") and all shares of
Letchworth Common Stock owned by Trustco or owned beneficially by any subsidiary
of Trustco other than Trust Account Shares and DPC Shares shall be canceled and
no cash, stock or other property shall be delivered in exchange therefor.
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(b) Notwithstanding any other provision contained in this Plan
of Merger, no shares of Letchworth Common Stock that are issued and outstanding
as of the Effective Time and that are held by a stockholder who has properly
exercised his or her appraisal rights (any such shares being referred to herein
as "Dissenting Shares") under applicable law shall be converted into the right
to receive the Merger Consideration as provided in Section 1 of this Article V
unless and until the holder shall have failed to perfect, or shall have
effectively withdrawn or lost, his or her right to dissent from the Merger under
applicable law and to receive such consideration as may be determined to be due
with respect to such Dissenting Shares pursuant to and subject to the
requirements of applicable law. If any holder of Dissenting Shares shall have so
failed to perfect or effectively withdrawn or lost such holder's right to
dissent from the Merger, each of such holder's shares of Letchworth Common Stock
shall thereupon be deemed to have been converted into and to have become, as of
the Effective Time, the right to receive the Stock Consideration.
3. (a) The holders of certificates representing shares of Letchworth
Common Stock ("Certificates") shall cease to have any rights as stockholders of
Letchworth, except such rights, if any, as they may have pursuant to the BCL.
Except as provided above, until Certificates representing shares of Letchworth
Common Stock are surrendered for exchange, the Certificates shall, after the
Effective Time, represent for all purposes only the right to receive the number
of whole shares of Trustco Common Stock into which such shares of Letchworth
Common Stock shall have been converted by the Merger as provided above and the
right to receive the cash value of any fraction of a share of Trustco Common
Stock as provided below.
(b) Prior to the Effective Time, the Board of Directors of
Trustco shall reserve for issuance a sufficient number of shares of Trustco
Common Stock for the purpose of issuing its shares to the stockholders of
Letchworth in accordance herewith.
(c) As soon as is reasonably practicable after the Effective
Time, holders of record of Certificates formerly representing shares of
Letchworth Common Stock shall be instructed to tender such Certificates to
Trustco, or at the election of Trustco, to an independent exchange agent to be
selected by Trustco (the "Exchange Agent") pursuant to a letter of transmittal
that Trustco shall deliver or cause to be delivered to such holders. Such letter
of transmittal shall specify that delivery shall be effected, and risk of loss
and title to Certificates shall pass, only upon acceptance of such Certificates
by Trustco or the Exchange Agent. After the Effective Time, each holder of a
Certificate that properly surrendered such Certificate to Trustco or the
Exchange Agent, together with a properly completed letter of transmittal, duly
executed, will, upon acceptance thereof by Trustco or the Exchange Agent, be
entitled to the Merger Consideration payable in respect of the shares
represented thereby, and the Certificates so surrendered shall forthwith be
canceled.
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(d) Trustco or the Exchange Agent shall accept Certificates
upon compliance with such reasonable terms and conditions as Trustco or the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with customary exchange practices. Certificates shall be appropriately endorsed
or accompanied by such instruments of transfer as Trustco or the Exchange Agent
may reasonably require. Each outstanding Certificate shall until duly
surrendered to Trustco or the Exchange Agent be deemed to evidence the right to
receive the Merger Consideration.
(e) Trustco shall not be obligated to deliver the Merger
Consideration to any holder of Letchworth Common Stock until such holder
surrenders the Certificates as provided herein. No dividends declared will be
remitted to any person entitled to receive Trustco Common Stock under this
Agreement until such person surrenders the Certificate representing the right to
receive such Trustco Common Stock, at which time such dividends on whole shares
of Trustco Common Stock with a record date on or after the Effective Time shall
be remitted to such person, without interest and less any taxes that may have
been imposed thereon. Certificates surrendered for exchange by any person
constituting an "affiliate" of Letchworth for purposes of Rule 145 under the
Securities Act of 1933 and the rules and regulations thereunder (the "Securities
Act") shall not be exchanged for Certificates representing Trustco common stock
until Trustco has received a written agreement from such person as specified in
Section 4.10 of the Reorganization Agreement. Neither the Exchange Agent nor any
party to this Agreement nor any Affiliate thereof shall be liable to any holder
of Letchworth Common Stock represented by any Certificate for any consideration
paid to a public official pursuant to applicable abandoned property, escheat or
similar laws. Trustco and the Exchange Agent shall be entitled to rely upon the
stock transfer books of Letchworth to establish the identity of those persons
entitled to receive consideration specified in this Plan of Merger, which books
shall be conclusive with respect thereto. In the event of a dispute with respect
to ownership of stock represented by any Certificate, Trustco or the Exchange
Agent shall be entitled to deposit any consideration in respect thereof in
escrow with an independent third party and thereafter be relieved with respect
to any claims thereto.
(f) If the Merger Consideration is to be issued to a person
other than a person in whose name a surrendered Certificate is registered, it
shall be a condition of issuance that the Surrendered Certificate shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such issuance shall pay to Trustco or the Exchange Agent in advance
any required transfer or other taxes or establish to the satisfaction of Trustco
or the Exchange Agent that such tax has been paid or is not applicable.
4. At the Effective Time, the stock transfer books of Letchworth
shall be closed and no transfer of Letchworth Common Stock shall thereafter be
made or recognized. If, after the Effective Time, Certificates representing such
shares are presented for transfer to the
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Exchange Agent, they shall be canceled and exchanged for the Merger
Consideration as provided in this Article V.
5. In the event that prior to the Effective Time, the outstanding
shares of Trustco Common Stock shall have been increased, decreased or changed
into or exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in Trustco's capitalization, then an appropriate and
proportionate adjustment shall be made to the Stock Consideration (including the
Exchange Ratio) and the formulas contained in Section 6 of this Article V.
6. At the Effective Time, each option granted by Letchworth to
purchase shares of Letchworth Common Stock which is outstanding and unexercised
immediately prior to the Effective Time shall be assumed by Trustco and each
such option shall continue to be outstanding, but shall represent an option to
purchase shares of Trustco Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the 1990 and
1998 Stock Option Plans of Letchworth):
(i) the number of shares of Trustco Common Stock to be subject
to the continuing option shall be equal to the product of the number of shares
of Letchworth Common Stock subject to the original option and the Exchange
Ratio, provided that any fractional share of Trustco Common Stock resulting from
such multiplication shall be rounded down to the nearest share; and
(ii)the exercise price per share of Trustco Common Stock
under the continuing options shall be equal to the exercise price per share of
Letchworth Common Stock under the original option divided by the Exchange Ratio,
provided that such exercise price shall be rounded to the nearest cent.
It is intended that the foregoing assumption shall be undertaken
consistent with and in a manner that will not constitute a "modification" under
Section 424 of the Code as to any option which is an "incentive stock option."
7. Notwithstanding any other provision hereof, each holder of shares
of Letchworth Common Stock who would otherwise have been entitled to receive
pursuant to this Article V a fraction of a share of Trustco Common Stock (after
taking into account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash in an amount equal to such fraction of a share of Trustco
Common Stock multiplied by the market value (as defined below) of Trustco Common
Stock. The "market value" of Trustco Common Stock shall be the closing price of
the Trustco Common Stock on the American Stock Exchange -- Composite
Transactions List (as reported by THE WALL STREET JOURNAL or, if not reported
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therein, another comparable authoritative source) for the trading day
immediately preceding the date on which the Effective Time occurs. No such
holder shall be entitled to dividends, voting rights or any other shareholder
right in respect of such fractional share.
8. In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Trustco,
the posting by such person of a bond in such amount as Trustco may reasonably
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Trustco Common Stock constituting
the Stock Consideration and cash in lieu of fractional shares deliverable in
respect thereof pursuant to this Plan of Merger.
ARTICLE VI. EFFECTIVE TIME OF THE MERGER
A certificate of merger evidencing the transactions contemplated herein
shall be delivered to the New York Department of State for filing as provided in
the Reorganization Agreement. The Merger shall be effective at the time the
Certificate of Merger is filed by the New York Department of State (such date
and time being herein referred to as the "Effective Time").
ARTICLE VII. CONDITIONS PRECEDENT
The obligations of Letchworth and Trustco to effect the Merger as
herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in Article V of the Reorganization Agreement.
ARTICLE VIII. TERMINATION
Anything contained in the Plan of Merger to the contrary
notwithstanding, and notwithstanding adoption hereof by the shareholders of
Letchworth and Trustco, this Plan of Merger may be terminated and the Merger
abandoned as provided in the Reorganization Agreement.
ARTICLE IX. MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at any time
prior to the Effective Time by mutual agreement of Letchworth and Trustco. Any
such amendment or supplement must be in writing and approved by their respective
Boards of Directors and/or by
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officers authorized thereby and shall be subject to the proviso in Section 6.4
of the Reorganization Agreement.
2. Any notice or other communication required or permitted under this
Plan of Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in
accordance with the laws of New York applicable to the internal affairs of
Trustco and Letchworth.
5. This Plan of Merger, taken together with the Reorganization
Agreement, shall constitute a plan of reorganization within the meaning of
Section 368 of the Code.
6. Capitalized terms used in this Plan of Merger and not defined
herein shall have the meanings assigned thereto in the Reorganization Agreement.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Plan of Merger to be executed in counterparts by their
duly authorized officers and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
Attest: By: /s/ JAMES W. FULMER
--------------------- --------------------------------
James W. Fulmer, President &
Chief Executive Officer
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
---------------------------------
James J. Byrnes, President &
Chief Executive Officer
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ANNEX B
Stock Option Agreement, dated as of July 30, 1999, by and between Tompkins
Trustco, Inc. and Letchworth Independent Bancshares Corporation
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STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of July 30, 1999, between Letchworth
Independent Bancshares Corporation ("Letchworth"), a New York corporation, and
Tompkins Trustco, Inc. ("Trustco"), a New York corporation.
WITNESSETH:
WHEREAS, Letchworth and Trustco have entered into an Agreement and Plan
of Reorganization of even date herewith (the "Reorganization Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"), and will enter into an Agreement and
Plan of Merger to be dated as of the date of this Agreement (the "Plan of
Merger," and, together with the Reorganization Agreement, the "Merger
Agreements"); and
WHEREAS, as a condition to Trustco's entering into the Merger
Agreements and in consideration therefor, Letchworth has agreed to grant Trustco
the Option (as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein and in the Merger Agreements, the
parties hereto agree as follows:
1. GRANT.
(a) Letchworth hereby grants to Trustco an unconditional,
irrevocable option (the "Option") to purchase, subject to the terms hereof, up
to 689,737 fully paid and nonassessable shares of Letchworth's Common Stock, par
value $1.00 per share ("Common Stock" or "Letchworth Common Stock"), at a price
of $14.00 per share (the "Option Price"); PROVIDED, HOWEVER, that in no event
shall the number of shares of Common Stock for which this Option is exercisable
exceed 19.9% of the Letchworth's issued and outstanding shares of Common Stock
without giving effect to any shares subject to or issued pursuant to the Option.
The number of shares of Common Stock that may be received upon the exercise of
the Option and the Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock
are either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement or as permitted under the terms
of the Merger Agreements) or (ii) redeemed, repurchased, retired or otherwise
cease to be outstanding after the date of this Agreement, the number of shares
of Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued
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pursuant to the Option. Nothing contained in this Section 1(b) or elsewhere in
this Agreement shall be deemed to authorize Letchworth or Trustco to breach any
provision of the Merger Agreements.
2. EXERCISE OF OPTION
(a) The Holder (as herein defined) may exercise the Option, in
whole or part, at any time or from time to time if a Purchase Event (as defined
below) shall have occurred prior to the occurrence of an Exercise Termination
Event (as hereinafter defined); PROVIDED, that the Holder shall have sent the
written notice of such exercise (as provided in subsection (d) of this Section
2), AND FURTHER PROVIDED, that, (i) if the Option cannot be exercised on such
day because of any injunction, order or similar restraint issued by a court of
competent jurisdiction, the period during which the Option may be exercised
shall be extended so that the Option shall expire no earlier than on the 30th
business day after such injunction, order or restraint shall have been dissolved
or when such injunction, order or restraint shall have become permanent and no
longer subject to appeal, as the case may be, and (ii) any such exercise shall
be subject to compliance with applicable provisions of law. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time (as
defined in the Plan of Merger) of the Merger; (ii) the termination of the Merger
Agreements pursuant to Section 6.1(b)(h) of the Reorganization Agreement; (iii)
the passage of 12 months after the termination of the Merger Agreements in
accordance with the provisions thereof if such termination occurs prior to the
occurrence of a Purchase Event, except a termination by Trustco pursuant to
Section 6.1(b)(i) of the Reorganization Agreement (unless the breach by
Letchworth giving rise to such right of termination is non-volitional) or a
termination by Letchworth pursuant to Section 6.1(f) of the Reorganization
Agreement; or (iv) the passage of 18 months after termination of the Merger
Agreements if such termination follows the occurrence of a Purchase Event, or is
a termination by Trustco pursuant to Section 6.1(b)(i) of the Reorganization
Agreement (unless the breach by Letchworth giving rise to such right of
termination is non-volitional) or is a termination by Letchworth pursuant to
Section 6.1(f) of the Reorganization Agreement. The term "Holder" shall mean the
holder or holders of the Option as provided in Section 9 hereof. Notwithstanding
anything to the contrary contained in this Agreement, the Option may not be
exercised (nor may Trustco's rights under Section 9 hereof be exercised) at any
time when Trustco shall be in willful breach of any of its covenants or
agreements contained in the Reorganization Agreement under circumstances that
would entitle Letchworth to terminate the Merger Agreements and such breach has
not been cured.
(b) As used herein, a "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Letchworth or any of the Letchworth Subsidiaries,
without having received Trustco's prior written consent, shall have entered
into, authorized, recommended, proposed or publicly announced its intention to
enter into, authorize, recommend, or propose an agreement, arrangement or
understanding with any person (the term "person" for purposes of this
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Agreement having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Securities Exchange Act of 1934, as amended (the "1934 Act"), and the
rules and regulations thereunder), other than Trustco or any Trustco
Subsidiaries, to (x) effect a merger or consolidation, or similar transaction
involving Letchworth or any of the Letchworth Subsidiaries (other than internal
mergers, reorganizing actions, consolidations or dissolutions involving only
existing Letchworth Subsidiaries), (y) purchase, lease or otherwise acquire or
assume all or a substantial portion of the assets or deposits of Letchworth or
any Letchworth Subsidiary, or (z) purchase or otherwise acquire (including by
way of merger, consolidation, share exchange or any similar transaction)
beneficial ownership (as herein defined) of securities representing 10% or more
of the voting power of Letchworth or any of the Letchworth Subsidiaries (any one
of the transactions described in subsections (x), (y) and (z) above being
referred to herein as an "Acquisition Transaction");
(ii) Any person (other than Trustco or a Trustco Subsidiary)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the voting power of Letchworth (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the 1934 Act, and the rules and regulations thereunder);
(iii) Any person (other than Trustco or a Trustco Subsidiary)
shall have commenced (as such term is defined under the rules and regulations of
the SEC), or shall have filed or publicly disseminated a registration statement
or similar disclosure statement with respect to, a tender offer or exchange
offer to purchase any shares of Letchworth Common Stock such that, upon
consummation of such offer, such person would own or control 10% or more of the
voting power of Letchworth (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer," respectively);
(iv) (A) the holders of Letchworth Common Stock shall not
have approved the Merger Agreements and the transactions contemplated thereby,
at the meeting of such stockholders held for the purpose of voting on such
agreement, (B) such meeting shall not have been held or shall have been canceled
prior to termination of the Merger Agreements, or (C) the Board of Directors of
Letchworth shall have publicly withdrawn or modified, or publicly announced its
intent to withdraw or modify, in any manner adverse to Trustco, its
recommendation that the stockholders of Letchworth approve the transactions
contemplated by the Merger Agreements, in each case after it shall have been
publicly announced that any person other than Trustco or any Trustco Subsidiary
shall have (x) made, or disclosed an intention to make, a proposal to engage in
an Acquisition Transaction, (y) commenced a Tender Offer, or filed or publicly
disseminated a registration statement or similar disclosure statement with
respect to an Exchange Offer, or (z) filed an application (or given a notice),
whether in draft or final form, under any federal or state banking laws seeking
regulatory approval to engage in an Acquisition Transaction; or
(v) After an overture is made by a third party to Letchworth
or its stockholders to engage in an Acquisition Transaction, Letchworth shall
have breached any
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covenant or obligation contained in the Reorganization Agreement and such breach
(x) would entitle Trustco to terminate the Merger Agreements and (y) shall not
have been cured prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event
under this Section 2(b) is undertaken or effected, then all such transactions
shall give rise only to one Purchase Event, which Purchase Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
(c) Letchworth shall notify Trustco promptly in writing of the
occurrence of any Purchase Event, it being understood that the giving of such
notice by Letchworth shall not be a condition to the right of the Holder to
exercise the Option.
(d) In the event the Holder is entitled to and wishes to
exercise the Option, it shall deliver to Letchworth a written notice (the date
of which being herein referred to as the "Notice Date") specifying (i) the total
number of shares of Letchworth Common Stock it will purchase pursuant to such
exercise and (ii) a place and date not earlier than three business days nor
later than 60 business days from the Notice Date for the closing of such
purchase (the "Closing Date"); PROVIDED, that if prior notification to or
approval of the Federal Reserve Board or any other regulatory agency is required
in connection with such purchase, the Holder shall promptly file the required
notice or application for approval and shall expeditiously process the same and
the period of time that otherwise would run pursuant to this sentence shall run
instead from the date on which any required notification periods have expired or
been terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the Option shall be deemed
to occur on the Notice Date relating thereto.
(e) At the closing referred to in subsection (d) of this Section
2, the Holder shall pay to Letchworth the aggregate purchase price for the
shares of Common Stock purchased pursuant to the exercise of the Option in
immediately available funds by wire transfer to a bank account designated by
Letchworth, PROVIDED that failure or refusal of Letchworth to designate such a
bank account shall not preclude the Holder from exercising the Option.
(f) At such closing, simultaneously with the delivery of
immediately available funds as provided in subsection (f) of this Section 2,
Letchworth shall deliver to the Holder a certificate or certificates
representing the number of shares of Common Stock purchased by the Holder and,
if the Option should be exercised in part only, a new Option evidencing the
rights of the Holder thereof to purchase the balance of the shares purchasable
hereunder, and the Holder shall deliver to Letchworth a copy of this Agreement
and a letter agreeing that the Holder will not offer to sell or otherwise
dispose of such shares in violation of applicable law or the provisions of this
Agreement.
(g) Certificates for Letchworth Common Stock delivered at a
closing hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
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"The transfer of the shares represented by this
certificate is subject to certain provisions of an
agreement between the registered holder hereof and
Letchworth and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of
such agreement is on file at the principal office of
Letchworth and will be provided to the holder hereof
without charge upon receipt by Letchworth of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Letchworth a copy of a
letter from the staff of the SEC, or an opinion of counsel, in form and
substance reasonably satisfactory to Letchworth, to the effect that such legend
is not required for purposes of the 1933 Act; (ii) the reference to the
provisions to this Agreement in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied.
(h) Upon the giving by the Holder to Letchworth of the written
notice of exercise of the Option provided for under subsection (d) of this
Section 2 and the tender of the applicable purchase price in immediately
available funds, the Holder shall be deemed to be the holder of record of the
shares of Common Stock issuable upon such exercise, notwithstanding that the
stock transfer books of Letchworth shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Holder. Letchworth shall pay all expenses, and any and all United States
federal, state and local taxes and other charges that may be payable in
connection with the preparation, issue and delivery of stock certificates under
this Section 2 in the name of the Holder or its assignee, transferee or
designee.
3. LETCHWORTH'S UNDERTAKINGS.
Letchworth agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Letchworth;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. ss.18a and regulations promulgated
thereunder and (y) in the event, under federal or state banking law, prior
approval of or notice to the Federal Reserve Board or any other federal or state
regulatory authority is necessary before the Option may be
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exercised, cooperating fully with Trustco in preparing such applications or
notices and providing such information to the Federal Reserve Board or such
other federal or state regulatory authority as they may require) in order to
permit the Holder to exercise the Option and Letchworth duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
4. ADJUSTMENT/ANTI-DILUTION.
In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 4. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreements, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Letchworth's obligations hereunder.
5. REGISTRATION RIGHTS
Upon the occurrence of a Purchase Event that occurs prior to an
Exercise Termination Event, Letchworth shall, at the request of Trustco (whether
on its own behalf or on behalf of any subsequent Holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a registration statement under the 1933 Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Trustco. Letchworth will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. The registrations effected
under this Section 5 shall be at Letchworth's expense except for underwriting
commissions and the fees and disbursements of Trustco's counsel attributable to
the registration of such Letchworth Common Stock. In no event shall Trustco have
the right to demand more than two registrations. The filing of any registration
statement hereunder may be delayed for such period of time as may reasonably be
required to facilitate any public distribution by Letchworth of Letchworth
Common Stock. Each such Holder shall provide all information reasonably
requested by Letchworth for inclusion in any registration statement to be filed
hereunder. If requested by any such Holder in connection with such registration,
Letchworth shall become a party to any underwriting agreement
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relating to the sale of such shares, but only to the extent of obligating itself
in respect of representations, warranties, indemnities and other agreements
customarily included in underwriting agreements for parties similarly situated.
Upon receiving any request under this Section 5, Letchworth agrees to send a
copy thereof to any other person known to Letchworth to be entitled to
registration rights under this Section 5, in each case by promptly mailing the
same, postage prepaid, to the address of record of the persons entitled to
receive such copies.
6. SURVIVAL
The periods for exercise of certain rights under Sections 2, 5, 9 and
11 shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
7. REPRESENTATIONS AND WARRANTIES OF LETCHWORTH
Letchworth hereby represents and warrants to Trustco as follows:
(a) Letchworth has full corporate power and authority to execute
and deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Letchworth and no other corporate proceedings on the part
of Letchworth are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Letchworth.
(b) Letchworth has taken all necessary corporate action to
authorize and reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with its terms
will have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time and from time to time issuable hereunder, and all such shares, upon
issuance pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
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8. REPRESENTATIONS AND WARRANTIES OF TRUSTCO
Trustco hereby represents and warrants to Letchworth that:
(a) Trustco has all requisite corporate power and authority to
enter into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Trustco. This Agreement has been duly executed and delivered by Trustco.
(b) The Option is not being, and any shares of Common Stock or
other securities acquired by Trustco upon exercise of the Option will not be,
acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
9. ASSIGNMENT.
Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that, in the event a Purchase Event shall have occurred and be continuing,
Trustco may assign, in whole or in part, its rights and obligations hereunder;
provided, however, that to the extent required by applicable regulatory
authorities, Trustco may not assign its rights under the Option except in (i) a
widely dispersed public distribution, (ii) a private placement in which no one
party acquires the right to purchase 2% or more of the voting shares of
Letchworth, (iii) an assignment to a single party (E.G., A BROKER OR INVESTMENT
BANKER) for the purpose of conducting a widely dispersed public distribution on
Trustco's behalf, or (iv) any other manner approved by applicable regulatory
authorities.
10. APPROVALS AND CONSENTS.
Each of Trustco and Letchworth will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Market upon
official notice of issuance and applying to the Federal Reserve Board, for
approval to acquire the shares issuable hereunder, but Trustco shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it deems
appropriate to do so.
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11. REPURCHASE RIGHT.
(a) Upon the occurrence of a Repurchase Event (as herein
defined) that occurs prior to an Exercise Termination Event, (i) at the request
of any Holder, Letchworth (or any successor entity thereof) shall repurchase the
Option from the Holder at a price (the "Option Repurchase Price") equal to the
amount by which (A) the market/offer price (as defined below) exceeds (B) the
Option Price, multiplied by the number of shares for which this Option may then
be exercised, and (ii) at the request of any owner of Option Shares from time to
time (the "Owner"), Letchworth shall repurchase such number of the Option Shares
from such Owner as the Owner shall designate at a price per share ("Option Share
Repurchase Price") equal to the greater of (A) the market/offer price and (B)
the average option price per share paid by the Owner for the Option Shares so
designated. The term "market/offer price" shall mean the highest of (w) the
price per share of the Common Stock at which a tender offer or exchange offer
therefor has been made, (x) the price per share of the Common Stock to be paid
by any person, other than Trustco or a Trustco Subsidiary, pursuant to an
agreement with Letchworth, (y) the highest closing mean of the "bid" and the
"ask" price per share of Letchworth Common Stock reported by the Nasdaq, the
automated quotation system of the National Association of Securities Dealers,
Inc., within the six month period immediately preceding the required repurchase
of Options or Option Shares, as the case may be, or (z) in the event of a sale
of all or substantially all of Letchworth's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Letchworth as determined by a nationally recognized investment banking firm
selected by a majority in the interest of the Holders or the Owners, as the case
may be, and reasonably acceptable to Letchworth, divided by the number of shares
of Common Stock of Issuer outstanding at the time of such sale. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by a
majority in interest of the Holders or the Owners, as the case may be, and
reasonably acceptable to Letchworth. As used in this Section 11, a "Repurchase
Event" shall mean a Purchase Event, except for this purpose the percentage in,
clause (z) of subsection 2(b)(i), subsection 2(b)(ii) and 2(b)(iii) shall be
25%, and the payment required by this Section 11 shall be due and payable only
upon consummation of the events described in subsections (i), (ii) or (iii) of
Section 2(b) of this Agreement.
(b) Each Holder and Owner, as the case may be, may exercise its
right to require Letchworth to repurchase the Option and any Option Shares
pursuant to this Section 11 by surrendering for such purpose to Letchworth, at
its principal office, a copy of this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating that
such Holder or Owner elects to require Letchworth to repurchase this Option
and/or Option Shares in accordance with the provisions of this Section 11. As
promptly as practicable, and in any event within ten (10) business days after
the surrender of the Option and/or certificates representing Option Shares and
the receipt of such notice or notices relating thereto, Letchworth shall deliver
or cause to be delivered to each Holder the Option Repurchase Price and/or to
each
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Owner the Option Share Repurchase Price therefor or the portion thereof that
Letchworth is not then prohibited under applicable law and regulation from so
delivering.
(c) To the extent that Letchworth is prohibited under applicable
law or regulation, or as a consequence of administrative policy, or as a result
of a written agreement or other binding obligation with a governmental or
regulatory body or agency, from repurchasing the Option and/or the Option Shares
in full, Letchworth shall immediately so notify each Holder and/or each Owner
and thereafter deliver or cause to be delivered, from time to time, to such
Holder and/or Owner, as appropriate, the portion of the Option Repurchase Price
and the Option Share Repurchase Price, respectively, that it is no longer
prohibited from delivering, within ten (10) business days after the date on
which Letchworth is no longer so prohibited; PROVIDED, HOWEVER, that if
Letchworth at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 11 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to any
Holder and/or Owner, as appropriate, the Option Repurchase Price and the Option
Share Repurchase Price, respectively, in part or in full (and Letchworth hereby
undertakes to use its best efforts to receive any required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), such Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon Letchworth shall promptly (i) deliver to such
Holder and/or Owner, as appropriate, that portion of the Option Purchase Price
or the Option Share Repurchase Price that Letchworth is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to such Holder, a new
Stock Option Agreement evidencing the right of such Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Stock Option Agreement was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option Repurchase
Price, or (B) to such Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing.
12. REMEDIES.
The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through injunctive or other equitable relief. This provision is without
prejudice to any other rights that either party hereto may have against the
other party for any failure to performs its obligations under this Agreement.
13. SEVERABILITY.
If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained
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in this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire the full number of
shares of Common Stock provided in Section 1(a) hereof (as adjusted pursuant to
Section 1(b) or 4 hereof), it is the express intention of Letchworth to allow
the Holder to acquire such lesser number of shares as may be permissible,
without any amendment or modification hereof.
14. NOTICE.
All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex (confirmed receipt obtained), or by
registered or certified mail (postage prepaid, return receipt requested) at the
respective addresses of the parties set forth in the Reorganization Agreement.
15. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
16. COUNTERPART SIGNATURES.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
17. EXPENSES.
Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
18. ENTIRE AGREEMENT.
Except as otherwise expressly provided herein or in the Merger
Agreements, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their
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respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein.
19. DEFINITIONS.
Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreements.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
By: /s/ JAMES W. FULMER
-----------------------------------
James W. Fulmer, President and
Chief Executive Officer
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
-----------------------------------
James J. Byrnes, President and
Chief Executive Officer
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ANNEX C
Voting Agreement, dated as of July 30, 1999, by and among Tompkins Trustco, Inc.
and the directors and certain stockholders of Letchworth.
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VOTING AGREEMENT
This Voting Agreement dated as of July 30, 1999 is entered into between
Tompkins Trustco, Inc.("Trustco"), and the undersigned director and stockholder
("Stockholder") of Letchworth Independent Bancshares Corporation ("Letchworth").
W I T N E S S E T H:
WHEREAS, Letchworth and Trustco have entered into an Agreement and Plan
of Reorganization of even date herewith (the "Reorganization Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Voting Agreement (the "Voting Agreement"), and will enter into an Agreement and
Plan of Merger to be dated as of the date of this Voting Agreement (the "Plan of
Merger," and, together with the Reorganization Agreement, the "Merger
Agreements"); and
WHEREAS, the Merger Agreements contemplate the merger of Letchworth
with and into Trustco (the "Merger") pursuant to which the outstanding common
stock of Letchworth ("Letchworth Common Stock") will be exchanged for common
stock of Trustco; and
WHEREAS, Trustco is willing to expend the substantial time, effort and
expense necessary to implement the Merger only if Stockholder enters into this
Voting Agreement; and
WHEREAS, the Stockholder believes that the Merger is in his or her best
interest and the best interest of Letchworth;
NOW, THEREFORE, in consideration of the premises, Stockholder hereby
agrees as follows:
1. VOTING AGREEMENT - Stockholder shall vote, or cause to be voted,
all of the shares of Letchworth Common Stock he or she now or hereafter owns and
over which he or she now has, or prior to the record date for voting at the
Meeting (as hereinafter defined) acquires, voting control in favor of the Merger
at the meeting of stockholders of Letchworth to be called for the purpose of
approving the Merger (the "Meeting").
2. NO COMPETING TRANSACTION - Stockholder shall not vote any of his
or her shares of Letchworth Common Stock in favor of any other merger or sale of
all or substantially all the assets of Letchworth to any person other than
Trustco or its affiliates until closing of the Merger, termination of the Merger
Agreements or abandonment of the Merger by the mutual agreement of Letchworth
and Trustco, whichever comes first.
3. TRANSFERS SUBJECT TO AGREEMENT - Except with respect to open
market transactions and transactions pursuant to pre-existing pledge agreements,
Stockholder shall not transfer any of his or her shares of Letchworth Common
Stock unless the transferee, prior to such transfer, executes a voting agreement
with respect to the transferred shares substantially to the effect of this
Voting Agreement and reasonably satisfactory to Trustco.
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4. NO OWNERSHIP INTEREST - Nothing contained in this Voting Agreement
shall be deemed to vest in Trustco any direct or indirect ownership or incidents
of ownership of or with respect to the shares of Letchworth Common Stock. All
rights, ownership and economic benefits of and relating to the shares of
Letchworth Common Stock subject to this Voting Agreement shall remain and belong
to Stockholder and Trustco shall have no authority to manage, direct,
superintend, restrict, regulate, govern or administer any of the policies or
operations of Letchworth or exercise any power or authority to direct
Stockholder in the voting of any of his or her of Letchworth Common Stock,
except as otherwise expressly provided herein.
5. DOCUMENTS DELIVERED - Stockholder acknowledges having reviewed the
Merger Agreements and its attachments and that all reports, proxy statements and
other information with respect to Trustco as filed with the Securities and
Exchange Commission (the "Commission") were, prior to his or her execution of
this Voting Agreement, available for inspection and copying at the Offices of
the Commission and that Trustco delivered the following such documents to
Letchworth:
(a) Trustco's Annual Report on Form 10-K for the year ended
December 31, 1998;
(b) Trustco's proxy statement for its 1999 Annual Meeting of
Stockholders; and
(c) Trustco's Annual Report to Stockholders for the year ended
December 31, 1998.
6. AMENDMENT AND MODIFICATION - This Voting Agreement may be amended,
modified or supplemented at any time by the written approval of such amendment,
modification or supplement by Stockholder and Trustco.
7. ENTIRE AGREEMENT - This Voting Agreement evidences the entire
agreement among the parties hereto with respect to the matters provided for
herein. This Voting Agreement supersedes any agreements among Trustco and the
Stockholder concerning the subject matter contained herein.
8. DEFINITIONS. - Capitalized terms used in this Voting Agreement and
not defined herein shall have the meanings assigned thereto in the Merger
Agreements.
9. SEVERABILITY - The parties agree that if any provision of this
Voting Agreement shall under any circumstances be deemed invalid or inoperative,
this Voting Agreement shall be construed with the invalid or inoperative
provisions deleted and the rights and obligations of the parties shall be
construed and enforced accordingly.
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10. COUNTERPARTS - This Voting Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11. GOVERNING LAW - This Voting Agreement shall be governed by the
internal laws of the State of New York.
12. HEADINGS. The headings for the paragraphs of this Voting Agreement
are inserted for convenience only and shall not constitute a part hereof or
affect the meaning or interpretation of this Voting Agreement.
13. TERMINATION - This Voting Agreement shall terminate upon the
consummation of the Merger, termination of the Merger Agreements or abandonment
of the Merger by the mutual agreement of Letchworth and Trustco, whichever comes
first.
14. SUCCESSORS - This Voting Agreement shall be binding upon and inure
to the benefit of Trustco and its successors, and Stockholder and his or her
executor, personal representative, administrator, heirs, legatees, guardian and
other legal representatives. This Voting Agreement shall survive the death or
incapacity of Stockholder. This Voting Agreement may be assigned by Trustco only
to an affiliate of Trustco.
TOMPKINS TRUSTCO, INC.
By:
------------------------------
Authorized Officer
----------------,"Stockholder"
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ANNEX D
Opinion of Danielson Associates, Inc.
<PAGE>
OPINION OF TOMPKINS TRUSTCO, INC.'S FINANCIAL ADVISOR:
November 3, 1999
The Board of Directors
Tompkins Trustco, Inc.
P.O. Box 460
The Commons
Ithaca, New York 14851
The Board of Directors:
Tompkins retained Danielson Associates, Inc. ("Danielson Associates")
to advise the Tompkins Board of Directors as to the "fair" sale value of
Letchworth and the fairness to Tompkins' shareholders of the financial terms of
the offer to acquire Letchworth. Danielson Associates is regularly engaged in
the valuation of banks, bank holding companies, and thrifts in the connection
with mergers, acquisitions, and other securities transactions; and has knowledge
of, and experience with, New York banking markets and banking organizations
operating in those markets. Danielson Associates was selected by Tompkins
because of its knowledge of, expertise with, and reputation in the financial
services industry.
In such capacity, Danielson Associates reviewed the Merger Agreement
with respect to the pricing and other terms and conditions of the Merger, but
the decision relative to entering the business combination with Letchworth under
the terms of the merger agreement was ultimately made by the Board of Directors
of Tompkins. Danielson Associates rendered its oral opinion to the Tompkins
Board of Directors, which it subsequently confirmed in writing, that as of the
date of such opinion, the financial terms of the Tompkins offer were "fair" to
Tompkins and its shareholders. No limitations were imposed by the Tompkins Board
of Directors upon Danielson Associates with respect to the investigation made or
procedures followed by it in arriving at its opinion.
In arriving at its opinion, Danielson Associates (a) reviewed certain
business and financial information relating to Tompkins and Letchworth including
annual reports for the fiscal year ended December 31, 1998; call report data
from 1990 to 1999; and SEC 10K and 10Q reports for 1998 and 1999; (b) discussed
the past and current operations, financial condition and prospects of Tompkins
with its senior executives; (c) analyzed the pro forma impact of the merger on
Tompkins earnings per share, capitalization, and financial ratios; (d) reviewed
the reported prices and trading activity for the Tompkins Common Stock and
compared it to similar bank holding companies; (e) reviewed and compared the
financial terms, to the extent publicly available, with comparable transactions;
(f) reviewed the Merger Agreement and certain related documents; and (g)
considered such other factors as were deemed appropriate.
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Danielson Associates did not obtain any independent appraisal of assets
or liabilities of Tompkins or Letchworth or their respective subsidiaries.
Further, Danielson Associates did not independently verify the information
provided by Tompkins or Letchworth and assumed the accuracy and completeness of
all such information.
In arriving at its opinion, Danielson Associates performed a variety of
financial analyses. Danielson Associates believes that its analyses must be
considered as a whole and that consideration of portions of such analyses could
create an incomplete view of Danielson Associates' opinion. The preparation of a
fairness opinion is a complex process involving subjective judgements and is not
necessarily susceptible to partial analysis or summary description.
In its analyses, Danielson Associates made certain assumptions with
respect to industry performance, business and economic conditions, and other
matters, many of which were beyond Tompkins' or Letchworth's control. Any
estimates contained in Danielson Associates analyses are not necessarily
indicative of the future results of value, which may be significantly more or
less favorable than such estimates. Estimates of the value of companies do not
purport to be appraisals or necessarily reflect the prices at which companies or
their securities may actually be sold.
The following is a summary of selected analyses considered by Danielson
Associates in connection with its opinion letter.
PRO FORMA MERGER ANALYSES
Danielson Associates analyzed the changes in the amount of earnings and
book value represented by the issue of about $80 million in Tompkins' common
stock for all of the outstanding shares of Letchworth Common Stock. The analysis
evaluated, among other things, possible dilution in earnings and capital per
share for Tompkins Common Stock.
COMPARABLE COMPANIES
To determine the "fair" value of the Tompkins common stock to be
exchanged for the common stock of Letchworth, Tompkins was compared to eleven
publicly-traded bank holding companies ("comparable banks" or the "comparative
group"). These comparable banks had assets in the $400 million to $2 billion
range, no extraordinary characteristics and were located in the state of New
York, excluding New York City.
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SUMMARY AND DESCRIPTION OF COMPARABLE BANKS
Assets*
Comparable Banks** (In Mill.) Headquarters
------------------ ---------- ------------
Alliance $491 Cortland
Arrow 941 Glen Falls
BSB 1,949 Binghamton
Community 1,659 DeWitt
CNB 718 Canajoharie
First Long Island 538 Glen Head
Iroquois 568 Auburn
NBT 1,307 Norwich
Premier 1,529 Lagrangeville
State 755 New Hyde Park
Suffolk 911 Riverhead
* March 31, 1999.
** Publicly-traded with assets between $400 million and $2 billion in New York,
excluding New York City.
Source: SNL Securities LC, Charlottesville, Virginia.
Danielson Associates compared Tompkin's (a) stock price as of July 28,
1999 equal to 14.8 times earnings and 256% of book, (b) dividend yield based on
trailing four quarters as of March 31, 1999 and stock price as of July 28, 1999
of 2.91%, (c) equity as of March 31, 1999 of 9.54% of assets, (d) nonperforming
assets including loans 90 days past due as of March 31, 1999 equal to .18% of
total assets, (e) return on average assets during the trailing four quarters
ended March 31, 1999 of 1.74% and (f) return on average equity during the same
period of 18.51%, with the medians for the comparable banks. The comparable
medians were (a) stock price equal to 13.5 times earnings and 182% of book, (b)
dividend yield of 3.17%, (c) capital of 8.10% of assets, (d) .49% of assets
nonperforming, (e) return on average assets of 1.14% and (f) return on average
equity of 13.91%. Danielson Associates also compared other income, expense and
balance sheet information of such companies with similar information about
Tompkins.
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TOMPKINS - COMPARABLE BANKS SUMMARY
Comparable Banks
Tompkins Medians
-------- ----------------
Income
------
Net income/Avg. Assets 1.74% 1.14%
Net oper. income*/Avg. Assets 2.94 2.16
Return on average equity 18.51 13.91
Balance Sheet
-------------
Equity/Assets 9.54% 8.10%
NPAs**/Assets .18 .49
Stock Price
-----------
Price/Earnings 14.8X 13.5X
Price/Book 256% 182%
Dividend yield 2.91% 3.17%
Payout ratio 41% 40%
Shares traded*** 1,060 3,475
*Net interest income plus noninterest income less operating expense.
**Nonperforming assets including loans 90 days past due and still accruing.
***Average daily volume 1999 through July 27, 1999.
Source: SNL Securities LC, Charlottesville, Virginia.
COMPARABLE TRANSACTION ANALYSIS
Danielson Associates compared the consideration to be paid in the
merger to the latest twelve months earnings and equity capital of Letchworth
with earnings and capital multiples paid in acquisitions of banks with assets of
more than $100 million through July 28, 1999 in New England, New Jersey, New
York and Pennsylvania. Of these, the most applicable recent transactions
included Peoples Heritage's purchase of Banknorth, Chittenden's acquisition of
Vermont Financial, Banknorth's purchase of Evergreen, and M&T's acquisition of
FNB Rochester. At the time Danielson Associates made its analysis, the
consideration to be paid in the merger was 241% of Letchworth's March 31, 1999
book value and 20.0 times Letchworth's earnings for the trailing four quarters
as of March 31, 1999. This compares to the median multiples of 279% of book
value and 23.6 times earnings for comparable acquisitions in New York.
DISCOUNTED DIVIDENDS ANALYSIS
Danielson Associates applied a present value calculation to
Letchworth's estimated dividend stream under several growth and earnings
scenarios. This analysis considered, among other things, scenarios for
Letchworth as an independent institution and as part of another banking
organization. The projected dividend streams and terminal values, which were
based on a range of earnings multiples, were then discounted to present value
using discount rates based on assumptions regarding the rates of return required
by holders of prospective buyers of Letchworth common stock.
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OTHER ANALYSIS
In addition to performing the analyses summarized above, Danielson
Associates also considered the general market for bank mergers, the historical
financial performance of Tompkins and Letchworth, the market positions of both
banks and the general economic conditions and prospects of those banks.
No company or transaction used in this composite analysis is identical
to Tompkins or Letchworth. Accordingly, an analyses of the results of the
foregoing is not mathematical; rather it involves complex consideration and
judgements concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values of
the company or companies to which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses and procedures performed by Danielson Associates in
the course of arriving at its opinions. In payment for its services as the
financial advisor to Tompkins, Danielson Associates is to be paid an estimated
fee of about $16,000.
The full text of the opinion of Danielson Associates dated as of July
30, 1999, which sets forth assumptions made and matters considered, is attached
hereto as Annex E to this Proxy Statement/Prospectus. Tompkins shareholders are
urged to read this opinion in its entirety. Danielson Associates' opinion is
directed only to the "fairness" of the financial terms to Tompkins' shareholders
of the proposed business combination with Letchworth and does not constitute a
recommendation to any Tompkins shareholder as to how such shareholder should
vote at the Shareholders Meeting.
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ANNEX E
Opinion of McConnell, Budd and Downes, Inc.
<PAGE>
November 3, 1999
The Board of Directors
Letchworth Independent Bancshares Corporation
50 North Main Street
Castile, New York 14427
The Board of Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the stockholders of' Letchworth Independent Bancshares
Corporation ("LETCHWORTH") of the exchange ratio governing the exchange of
shares of the common stock of LETCHWORTH for shares of common stock of Tompkins
Trustco, Inc. ("TOMPKINS") in connection with the proposed acquisition of
LETCHWORTH by TRUSTCO pursuant to an Agreement and Plan of Merger (the "Merger
Agreement') dated July 30, 1999 by and between LETCHWORTH and TOMPKINS. Pursuant
to the Merger Agreement, LETCHWORTH will merge with and into TOMPKINS, with
TOMPKINS being the surviving corporation.
As is more specifically set forth in the Merger Agreement, upon
consummation of the merger, each outstanding share of LETCHWORTH common stock,
except for shares held by TOMPKINS and its subsidiaries or by LETCHWORTH and its
subsidiaries (in both cases, other than shares held in a fiduciary capacity or
as a result of debts previously contracted), will be converted into and
exchangeable for 0.685 shares of TOMPKINS common stock. The exchange ratio
referenced is a fixed exchange ratio and consequently the market value of the
consideration to be received by LETCHWORTH stockholders will fluctuate with
changes in TOMPKINS' stock price. The Merger Agreement may be terminated under
certain conditions prior to the effective time of the merger by the Board of
Directors of either party based on defined criteria.
McConnell, Budd & Downes, Inc., as part of its investment banking
business, is regularly engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, negotiated underwritings, private placements,
competitive bidding processes, market making as a NASD market maker, secondary
distributions of listed securities and valuations for corporate, estate and
other purposes. Our experience and familiarity with LETCHWORTH includes having
worked as a financial advisor to LETCHWORTH since February 9, 1998 on a
contractual basis and specifically includes our participation in the process and
negotiations leading up to the proposed merger with TOMPKINS. In the course of
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our role as financial advisor to LETCHWORTH in connection with the merger, we
have received fees for our services and will receive additional fees contingent
on the occurrence of certain defined events. While the payment of all or a
significant portion of fees related to financial advisory services provided in
connection with arm's-length mergers and other business combination transactions
upon consummation of such transactions, as is the case with this transaction,
might be viewed as giving such financial advisors a financial interest in the
successful completion of such transactions, such compensation arrangements are
standard and customary for transactions of the size and type of this
transaction.
In arriving at our opinion, we have reviewed the Merger Agreement. We
have also reviewed publicly available business, financial and shareholder
information relating to LETCHWORTH and its subsidiaries and certain publicly
available financial and shareholder information relating to TOMPKINS.
In connection with the foregoing, we have (i) reviewed LETCHWORTH's
Annual Reports to Stockholders, Annual Reports on Form 10-K and related
financial information for the four calendar years ended December 31, 1998 and
LETCHWORTH's Quarterly Report on Form 10-Q and related unaudited financial
information for the first and second quarters of 1999; (ii) reviewed TOMPKINS'
Annual Reports to Stockholders, Annual Reports on Form 10-K and related
financial information for the four calendar years ended December 31, 1998 and
TOMPKINS' Quarterly Report on Form 10-Q and related unaudited financial
information for the first and second quarters of 1999; (iii) reviewed certain
internal financial information and financial forecasts, relating to the
business, earnings, cash flows, assets and prospects of the respective companies
furnished to McConnell, Budd & Downes, Inc. by LETCHWORTH and TOMPKINS,
respectively; (iv) held discussions with members of the senior management and
board of LETCHWORTH concerning the past and current results of operations of
LETCHWORTH, its current financial condition and management's opinion of its
future prospects; (v) held discussions with members of senior management of
TOMPKINS concerning the past and current results of operations of TOMPKINS, its
current financial condition and management's opinion of its future prospects;
(vi) reviewed the historical record of reported prices, trading volume and
dividend payments for both LETCHWORTH and TOMPKINS common stock; (vii)
considered the current state of and future prospects for the economy of New York
generally and the relevant market areas for LETCHWORTH and TOMPKINS in
particular; (viii) reviewed specific merger analysis models employed by
McConnell, Budd & Downes, Inc. to evaluate potential business combinations of
financial institutions; (ix) reviewed the reported financial terms of selected
recent business combinations in the banking industry; and (x) performed such
other studies and analyses as McConnell, Budd & Downes, Inc. considered
appropriate under the circumstances associated with this particular transaction.
In the course of our review and analysis we considered, among other
things, such topics as the historical and projected future contributions of
recurring earnings by the parties, the anticipated future earnings per share
results for the parties on both a combined and stand-alone basis, the potential
to realize significant recurring operating expense reductions and the impact
thereof on projected future earnings per share, the relative capitalization and
capital adequacy of each of the parties, the availability of non-interest income
to each of the parties, the relative asset quality and apparent adequacy of the
reserve for loan losses for each of the parties. We also considered the
composition of deposits and the composition of the loan portfolio of each of
LETCHWORTH and TOMPKINS. In addition, we considered the historical trading
range, trading pattern and relative market liquidity of the common shares of
each of the parties. In the conduct of our review and analysis we have relied
upon and assumed, without independent verification, the accuracy and
completeness of the financial information provided to us by LETCHWORTH and
TOMPKINS and or otherwise publicly obtainable. In reaching our opinion we have
not assumed any responsibility for the independent verification of such
information or any independent valuation or appraisal of any of the assets or
the liabilities of either LETCHWORTH or TOMPKINS, nor have we obtained from any
other source, any current appraisals of the assets or liabilities of either
LETCHWORTH or TOMPKINS. We have also relied on the management of LETCHWORTH and
TOMPKINS as to the reasonableness of various financial and operating forecasts
and of the assumptions on which they are based, which were provided to us for
use in our analyses.
2
<PAGE>
In the course of rendering this opinion, which is being rendered prior
to the receipt of certain required regulatory approvals necessary before
consummation of the merger, we assume that no conditions will be imposed by any
regulatory agency in connection with its approval of the merger that will have a
material adverse effect on the results of operations, the financial condition or
the prospects of TOMPKINS following consummation of the merger.
Based upon and subject to the foregoing, it is our opinion, that as of
the date of this letter, the exchange ratio is fair to the stockholders of
LETCHWORTH from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
3
<PAGE>
ANNEX F
Letchworth Independent Bancshares Corporation's Annual Report on Form 10-K for
the Year Ended December 31, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-18533
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
- --------------------------------------------------------------------------------
(Name of Small Business Registrant in Its Charter)
New York 16-1168175
- ------------------------------------- ---------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification Number)
50 North Main Street, Castile, New York 14427
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(716) 493-2577
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
Check whether the Registrant: (1) filed all 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.
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. [X]
The aggregate market value of the shares of Registrant's voting stock
held by non-affiliates of Registrant as of March 26, 1999 was $42,015,024, based
upon the average "Bid" and "Ask" price of Registrant's common stock on said
date.
The number of shares outstanding of Registrant's common stock as of
March 16, 1999 was 3,391,650 shares.
Documents Incorporated by Reference
None
1
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
GENERAL
Letchworth Independent Bancshares Corporation is a bank holding company
incorporated under the laws of the State of New York in 1981 (the "Company").
The Company has only one banking subsidiary, The Bank of Castile, a commercial
bank formed in 1869 and incorporated under the laws of the State of New York in
1917 (the "Bank"). The Bank is a full service, community-oriented, commercial
bank which offers a full range of commercial banking and consumer banking
services to businesses and individuals. During 1997, the Bank was approved by
its regulators to amend its charter to allow it to offer trust and investment
services.
MARKET AREA
The Bank conducts its operations through its main office located in
Castile, New York, and at its ten(10) branch offices in towns situated in and
around the areas commonly known as the Letchworth State Park area and the
Genesee Valley region of New York State. Specifically, the Bank has branch
offices in the Towns of Arcade, Avon, Batavia, Caledonia, Gainesville, Geneseo,
LeRoy, Perry, York(Retsof), and Warsaw in addition to its main office in
Castile. In July, 1997, the Bank purchased a 9,600 square foot, one-story
building in Geneseo, New York. The exterior of the building was renovated as was
one-half of the interior for use as the Bank's eleventh branch office, which
opened on January 5, 1998. On December 2, 1994, the Bank purchased the Caledonia
and Avon offices of The Chase Manhattan Bank (National Association) ("Chase
Manhattan"). Chase Manhattan's Avon office was combined with the Bank's existing
Avon office and the Caledonia office became the 9th branch of the Bank. The
Bank's primary market includes the counties of Livingston, Wyoming, and Genesee.
In addition, adjoining sections of the surrounding counties of Cattaraugus,
Allegany, Monroe, and Erie are also serviced. The Bank continues to place
emphasis on the Route 5 Corridor just south of Monroe County and the City of
Rochester.
BANKING SERVICES
The Bank is engaged in the general commercial banking business and
provides a full scope of loan and deposit services related thereto. All of the
deposit accounts offered by the Bank are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000 per depositor. The Bank also
offers a wide range of retail services including checking, savings, and money
market accounts, as well as various types of time deposit instruments. Mortgage
lending activities include a variety of commercial, industrial and residential
loans secured by real estate and the Bank's installment loan department makes
direct auto, home improvement, and personal loans to individuals. The Bank also
offers safety deposit box services at all of its branches. The Bank has been
approved by the appropriate regulatory authorities to alter its charter to allow
the Bank to offer trust and investment services. These services are provided to
the Bank's customers pursuant to a relationship with Tompkins County Trust
Company. In the fourth quarter of 1997, a trust officer was hired and customer
relationships are presently being developed with assistance from Tompkins County
Trust Company of Ithaca, New York. Tompkins County Trust Company has over 100
years of experience in providing trust services to its customers and is highly
regarded.
In addition, beginning in 1992, the Bank, through an arrangement with
Circuit Agency, Inc., an affiliate of the New York State Bankers Association,
enabled annuity products to be offered to its customers.
All of the Bank's lending is in its market area and approximately
twenty percent (20%) of its loans are concentrated in the farming and
agricultural or related industries. The Bank has no foreign loans. No other
single industry or group of related industries are responsible for a significant
portion of the Bank's loans. The Bank has no material concentrations of deposits
from any single customer or group of customers, nor does it rely on foreign
sources of funds or brokered deposits. The Bank does not utilize off-balance
sheet derivative instruments.
2
<PAGE>
COMPETITION
Management believes that the Company is a prominent financial
institution in its market area. Although the Bank faces competition for deposits
from other bank and non-bank financial institutions, the Bank has been able to
compete effectively for deposits because of its image in the community as a
community-oriented bank and the loyalty of its local customers. The Bank has
emphasized personalized banking services and the advantage of local
decision-making in its banking business, and this emphasis appears to have been
well received by the public in the Bank's market area.
The Bank competes for deposits principally by offering depositors a
wide variety of deposit programs, convenient branch locations and hours,
tax-deferred retirement programs, and other services, as well as providing the
personalized services and local decision-making noted above. The Bank also
utilizes local advertising to attract deposits.
In addition, the Bank is a major provider of mortgage loans in its
market area. Although the Bank faces competition for real estate loans from
mortgage banking companies, savings banks, savings and loans associations, other
commercial banks, insurance companies and other institutional lenders,
management believes that the Bank's image in the community as a local bank gives
the Bank a substantial competitive advantage. Factors which affect competition
include the general availability of lendable funds and credit, general and local
economic conditions, current interest rate levels and mobility in the mortgage
markets.
REGULATION
The Company is a bank holding company subject to the provisions of the
Bank Holding Company Act of 1956, as amended (the "Act"). As a bank holding
company, the Company is required to file annual reports and such additional
information as may be required by the Federal Reserve Board pursuant to the Act.
The Federal Reserve Board has the authority to examine the Company and its
subsidiaries.
The Bank is a stock form commercial bank chartered under the laws of
the State of New York, and its deposits are insured by the FDIC. As such, the
Bank is subject to the regulation, examination and supervision of the Banking
Department of the State of New York and the FDIC. Such supervision and
regulation, intended primarily for the protection of depositors, restricts or
prohibits certain activities and neither the Company nor the Bank may enter into
certain transactions without meeting applicable regulatory tests, or without
notification to or prior approval of certain regulatory agencies. Although the
Bank is not a member of the Federal Reserve System, it is also subject to
Federal Reserve Board regulations that require it to maintain certain reserves
against its transaction accounts (primarily checking and NOW accounts).
PERSONNEL
As of December 31, 1998, the Company and its subsidiaries had 113
full-time employees and 51 part-time employees. The employees are not
represented by any collective bargaining unit, and the Company's management and
the Bank's management considers its relationship with its employees to be good.
STATISTICAL DISCLOSURE
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY; INTEREST
RATES AND INTEREST DIFFERENTIAL
3
<PAGE>
The following table reflects the components of the Company's average
assets, liabilities and shareholders' equity, interest income earned and
interest expense paid, average rates earned and paid, and the net interest
margin for the years ended December 31, 1998, 1997, and 1996, respectively.
<TABLE>
<CAPTION>
December 31, 1998
-----------------------------
ASSETS
Average Average
Interest-earning assets Balance Interest Yield
------------ ------------ -------
<S> <C> <C> <C>
Loans
Loans (1) $172,437,000 $ 16,349,568 9.48%
Less allowance for
possible loan losses (2,171,000)
------------
Net Loans 170,266,000
Investment securities
Taxable 42,186,000 2,632,681 6.24
Tax-exempt 31,508,000 1,518,300 4.82
------------ -----------
Total investment
securities 73,694,000 4,150,981 5.63
Other interest-earning assets -- -- --
Federal funds sold 8,338,000 437,218 5.24
------------ -----------
Total interest-
earning assets (2) 252,298,000 20,937,767 8.30
Cash and due from banks 8,504,000
Premises and equipment, net 6,504,000
Accrued interest receivable 1,873,000
Other assets 2,204,000
------------
Total assets $271,383,000
------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing demand deposits $ 31,231,000 $ 339,592 1.09%
Savings deposits 35,528,000 820,624 2.31
Money market deposits 14,304,000 478,070 3.34
Certificates of deposit 116,981,000 6,550,105 5.60
------------ -----------
Total interest-bearing deposits 198,044,000 8,188,391 4.13
Federal funds purchased 108,000 6,092 5.64
Securities sold under agreement
to repurchase 2,395,000 130,831 5.46
Advances from Federal Home Loan
Bank and Other 7,332,000 485,800 6.63
------------ -----------
Total interest-bearing liabilities 207,879,000 8,811,114 4.24
Demand deposits 31,682,000
Bank loan on ESOP 73,000
Other liabilities 2,050,000
Shareholders' equity 29,699,000
------------
Total liabilities and
shareholders' equity $271,383,000
Net interest income 12,126,653
Net interest spread 4.06%
------------
Net interest margin (3) 4.81%
-----------
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
----------------------------
ASSETS
Average Average
Interest-earning assets Balance Interest Yield
------------- ----------- -------
<S> <C> <C> <C>
Loans
Loans (1) $150,225,000 $14,610,342 9.73%
Less allowance for
possible loan losses (1,913,000)
------------
Net Loans 148,312,000
Investment securities
Taxable 43,768,918 3,254,623 7.44
Tax-exempt 33,861,814 1,302,147 3.85
------------- -----------
Total investment
securities 77,630,732 4,556,770 5.87
Other interest-earning assets -- --
Federal funds sold 5,230,000 285,446 5.46
------------- -----------
Total interest-
earning assets (2) 231,172,732 19,452,558 8.41
Cash and due from banks 7,655,000
Premises and equipment, net 5,882,000
Accrued interest receivable 1,708,000
Other assets 2,373,056
Total assets $ 248,790,788
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing demand deposits $ 30,109,000 $ 355,277 1.18%
Savings deposits 34,760,000 858,113 2.47
Money market deposits 11,909,000 387,591 3.25
Certificates of deposit 106,996,000 5,850,673 5.47
------------- -----------
Total interest-bearing deposits 183,774,000 7,451,654 4.05
Federal funds purchased 123,000 7,213 5.86
Securities sold under agreement
to repurchase 1,837,000 99,485 5.42
Advances from Federal Home Loan
Bank and Other 7,863,000 494,253 6.29
------------- -----------
Total interest-bearing liabilities 193,597,000 8,052,605 4.15
Demand deposits 25,242,302
Bank loan on ESOP 388,814
Other liabilities 1,611,475
Shareholders' equity 27,951,197
-------------
Total liabilities and
shareholders' equity $ 248,790,788
Net interest income 11,399,953
Net interest spread 4.26%
-----
Net interest margin (3) 4.93%
-----
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------
ASSETS
Average Average
Interest-earning assets Balance Interest Yield
-------------------------------------------------
<S> <C> <C> <C>
Loans
Loans (1) $ 135,755,218 $13,203,737 9.73%
Less allowance for
possible loan losses (1,753,720)
-------------
Net Loans 134,001,498
Investment securities
Taxable 55,895,608 3,530,028 6.32
Tax-exempt 22,296,911 1,116,078 5.01
------------- -----------
Total investment
securities 78,192,519 4,646,106 5.94
Other interest-earning assets 792,892 50,552 6.38
Federal funds sold 4,467,158 239,712 5.37
------------- -----------
Total interest-
earning assets (2) 217,454,067 18,140,107 8.34
Cash and due from banks 7,814,223
Premises and equipment, net 5,168,999
Accrued interest receivable 1,793,965
Other assets 2,445,885
-------------
Total assets $ 234,677,139
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Interest-bearing demand deposits $ 29,025,668 $ 378,156 1.30%
Savings deposits 36,536,619 931,735 2.55
Money market deposits 11,545,345 289,357 2.51
Certificates of deposit 102,699,682 5,507,889 5.36
------------- -----------
Total interest-bearing deposits 179,807,314 7,107,137 3.95
Federal funds purchased 107,514 6,131
Securities sold under agreement
to repurchase 1,942,414 101,920 5.25
Advances from Federal Home Loan
Bank and Other 3,306,449 228,209 6.90
Total interest-bearing liabilities 185,163,691 7,443,397 4.02
Demand deposits 23,213,560
Other liabilities 2,090,407
Shareholders' equity 24,209,481
-------------
Total liabilities and
shareholders' equity $ 234,677,139
Net interest income 10,696,710
Net interest spread 4.32%
----
Net interest margin (3) 4.92%
----
</TABLE>
(1) Average loans include non-accrual loans. Interest on loans includes loan
fees of $239,545, $224,688, and $231,243 in fiscal 1998, 1997, and 1996,
respectively.
(2) Interest income on a portion of the Company's loans and investment
securities is exempt from income tax. If income from these assets had been
adjusted to a level comparable to fully taxable income before application of
income taxes, the interest income and average rate would have been as follows:
6
<PAGE>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
------------------ ------------------ ----------------
Average Average Average
Interest Rate Interest Rate Interest Rate
-------- ------- -------- ------- -------- -------
Loans................ $16,353,293 9.48% $14,615,067 9.73% $13,213,553 9.73%
Investment securities-
Tax exempt......... 2,300,455 7.30% 1,972,949 5.83% 1,691,027 7.48%
The tax rate used to develop this taxable equivalent adjustment is the
federal statutory rate of 34%. The tax-equivalent adjustments do not give effect
to the disallowance for federal income tax purposes of interest expense related
to certain tax exempt assets, nor do they reflect any benefit of interest being
exempt from state income taxes, the effect of which would be insignificant.
(3) Net interest margin represents net interest income divided by total average
interest-earning assets.
RATE/VOLUME VARIANCE ANALYSIS
The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volumes and changes in
interest rates for the Company for the years ended December 31, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/
1998 Compared to 1997 Volume Rate Volume Net
(1) (2) (3) Change
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue Earned On:
Loans .............................. $ 2,161,228 $ (375,563) $ (46,439) $1,739,226
----------- ----------- ----------- -----------
Investment securities
Taxable .......................... (117,769) (525,227) 21,054 (621,942)
Tax-exempt ....................... (90,622) 325,460 (21,685) 216,153
----------- ----------- ----------- -----------
Total investment
securities ................... (208,391) (196,767) (631) (405,789)
Other interest-earning
assets ........................... -- -- -- --
Federal funds sold ................. 169,697 (11,506) (6,419) 151,772
----------- ----------- ----------- -----------
Total interest-earning
assets ....................... 2,122,533 (583,836) (53,489) 1,485,209
----------- ----------- ----------- -----------
Interest Paid On:
Interest-bearing demand
deposits ....................... 13,240 (27,098) (1,827) (15,685)
Savings deposits ................. 18,970 (128,612) 72,153 (37,489)
Money market deposits ............ 546,180 (2,279,015) 2,432,267 699,432
Certificates of
deposit ........................ 77,838 279,862 (267,220) 90,479
Federal funds purchased .......... (879) (271) 29 (1,121)
Securities sold under
agreement to repurchase......... 30,244 735 368 31,346
Advances from Federal
Home Loan Bank ................. (33,400) 26,734 (1,787) (8,453)
----------- ----------- ----------- -----------
Total interest-bearing
liabilities ................ 652,191 (2,127,665) 2,233,983 758,509
----------- ----------- ----------- -----------
Net Interest Income............... $ 1,470,343 $ 1,543,829 $(2,287,472) $ 726,700
----------- ----------- ----------- -----------
</TABLE>
- ----------
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the average rate during the prior period.
(2) The rate variance reflects the change in the average rate multiplied by the
average balance outstanding during the prior period.
(3) The rate/volume variance reflects the change in average rate multiplied by
the change in the average balance outstanding
7
<PAGE>
The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volumes and changes in
interest rates for the Company for the years ended December 31, 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/
1997 Compared to 1996 Volume Rate Volume Net
(1) (2) (3) Change
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue Earned On:
Loans ........................ $ 1,407,910 $ 0 $ (1,035) $1,046,605
----------- ----------- ----------- -----------
Investment securities
Taxable .................... (816,518) 634,911 (144,351) (325,958)
Tax-exempt ................. 579,402 (258,644) (134,688) 186,070
----------- ----------- ----------- -----------
Total investment
securities ............. (237,116) 376,267 (279,039) (139,888)
Other interest-earning
assets ..................... -- -- -- --
Federal funds sold ........... 40,965 4,020 749 45,734
----------- ----------- ----------- -----------
Total interest-earning
assets ................. 1,211,759 380,287 (279,595) 1,312,451
----------- ----------- ----------- -----------
Interest Paid On:
Interest-bearing demand
deposits ................. 14,083 (34,831) (2,132) (22,880)
Savings deposits ........... (45,304) (29,229) 911 (73,622)
Money market deposits ...... 9,128 85,436 3,671 98,235
Certificates of deposit .... 230,283 112,970 (469) 342,784
Federal funds purchased .... 6,300 (5,218) 1,082
Securities sold under
agreement to repurchase... (5,534) 3,302 (203) (2,435)
Advances from Federal
Home Loan Bank ........... 314,402 (20,169) (28,189) 266,044
----------- ----------- ----------- -----------
Total interest-bearing
liabilities .......... 517,058 123,779 (31,629) 609,208
----------- ----------- ----------- -----------
Net Interest Income ........ $ 694,701 $ 256,508 $ (247,966) $ 703,243
----------- ----------- ----------- -----------
</TABLE>
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the average rate during the prior period.
(2) The rate variance reflects the change in the average rate multiplied by the
average balance outstanding during the prior period.
(3) The rate/volume variance reflects the change in average rate multiplied by
the change in the average balance outstanding
8
<PAGE>
The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volumes and changes in
interest rates for the Company for the years ended December 31, 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
Change
Change Change Due to
Due to Due to Rate/
1996 Compared to 1995 Volume Rate Volume Net
(1) (2) (3) Change
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue Earned On:
Loans ........................ $ 1,009,479 $ (541,023) $ (53,416) $ 415,040
----------- ----------- ----------- -----------
Investment securities
Taxable .................... 36,966 (60,853) (1,840) (25,727)
Tax-exempt ................. 48,163 (19,217) (1,199) 27,747
----------- ----------- ----------- -----------
Total investment
securities ............. 85,129 (80,070) (3,039) 2,020
Other interest-earning
assets ..................... 12,580 (7,654) (2,059) 2,867
Federal funds sold ........... (129,897) (40,500) 13,006 (157,391)
----------- ----------- ----------- -----------
Total interest-earning
assets ................. 977,291 (669,247) (45,508) 262,536
----------- ----------- ----------- -----------
Interest Paid On:
Interest-bearing demand
deposits ................. 49,866 (136,686) (14,614) (101,434)
Savings deposits ........... (3,622) (153,966) (705) (158,293)
Money market deposits ...... (12,321) (31,174) 342 (43,153)
Certificates of
deposit .................. 145,527 (50,005) 2,367 97,889
Federal funds purchased .... 6,131 6,131
Securities sold under
agreement to repurchase... 44,209 (5,006) (3,443) 35,760
Advances from Federal
Home Loan Bank ........... 31,037 (30,915) (3,986) (3,864)
----------- ----------- ----------- -----------
Total interest-bearing
liabilities .......... 254,696 (407,752) (13,908) (166,964)
----------- ----------- ----------- -----------
Net Interest Income ........ $ 722,595 $ (261,495) $ (31,600) $ 429,500
----------- ----------- ----------- -----------
</TABLE>
- ----------
(1) The volume variance reflects the change in the average balance outstanding
multiplied by the average rate during the prior period.
(2) The rate variance reflects the change in the average rate multiplied by the
average balance outstanding during the prior period.
(3) The rate/volume variance reflects the change in average rate multiplied by
the change in the average balance outstanding.
9
<PAGE>
INVESTMENT PORTFOLIO
The following table summarizes the carrying values of the Company's
investment securities portfolio at the dates indicated. Investment securities
held to maturity are stated at cost, adjusted on a straight-line basis for
amortization of premiums and accretion of discounts. Investment securities
available for sale are carried at estimated market value.
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
-----------------------------------------------------------------------
Held to Available Held to Available Held to Available
Maturity for Sale Maturity for Sale Maturity for Sale
-------- -------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities
and U.S. Government
corporation and
agencies........... $ -0- 14,087,865 $12,168,400 $15,186,700 $12,465,800 $26,923,000
State and political
subdivision
obligations ....... -0- 33,876,508 25,853,700 4,923,200 25,039,300 505,200
Mortgage-backed
securities ........ -0- 17,290,641 6,220,200 14,246,600 5,463,600 8,677,000
-------- ----------- ----------- ----------- ----------- -----------
Total securities..... $ -0- $65,255,014 $44,242,300 $34,356,500 $42,968,700 $36,105,200
</TABLE>
The following table presents the book value of all investment
securities of a single issuer, excluding securities of the United States
Government and its agencies, whose aggregate carrying value at December 31, 1998
exceeded ten percent (10%) of consolidated shareholders' equity:
Estimated
Carrying Market
Value Value
----------- -----------
Federal Home Loan Mortgage Corp. CMO $ 9,175,179 $ 9,224,987
Federal National Mortgage Association 5,685,922 5,747,950
At December 31, 1998, the estimated market value of the investment
portfolio was more than the amortized cost by $1,852,760 for the available for
sale category.
10
<PAGE>
The accounts and maturities of debt securities available for sale at
December 31, 1998, and the weighted average yields of such securities, are shown
below:
<TABLE>
<CAPTION>
Available for Sale:
Under 1-5 5-1 Over
December 31, 1998 1 year years years 10 years Total
------ ----- ----- -------- -----
<S> <C> <C> <C> <C> <C>
U.S. Treasury
securities and
obligations of
U.S. Government
corporations and
agencies
Carrying value ....... $ 9,833,485 $ 4,254,380 $ 0 0 $ 13,743,617
Average tax
equivalent
yield(1) ........... 6.33% 7.05% 0.00% 0.00% 6.71%
State and
political
subdivisions
Carrying value ........ 4,389,493 8,485,781 16,129,024 4,872,210 33,876,508
Average tax
equivalent yield(1). 6.52% 7.19% 7.43% 7.10% 7.21%
--------- --------- ---------- --------- ----------
Total carrying
value excluding
mortgage-backed
securities and
FHLB stock ........... $ 14,222,978 $ 12,740,161 $ 16,129,024 $ 4,872,210 $ 47,620,125
Average tax
equivalent
yield excluding
mortgage-backed
securities and
FHLB stock ........... 6.39% 7.14% 7.43% 7.10% 7.07%
Mortgage-backed
securities ............ $ 622,862 $ 4,468,901 $ 3,591,375 $ 8,607,503 $ 17,290,641
Carrying Value
Average tax
equivalent
yield ................ 5.86% 6.40% 6.88% 6.39% 6.48%
--------- --------- ---------- --------- ----------
Total carrying
value ................ $ 14,845,840 $ 17,209,062 $ 19,720,399 $ 13,479,713 $ 65,255,014
Average
tax equivalent
yield ................ 6.85% 7.13% 7.68% 7.01% 7.21%
</TABLE>
(1) Rates of tax-exempt securities are shown assuming a 34% federal statutory
tax rate. The actual average yield on tax-exempt securities was 4.69%
11
<PAGE>
LOAN PORTFOLIO
The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Agricultural loans............... $ 35,707,279 $ 31,563,146 $ 29,025,726 $ 25,168,552 $ 22,091,563
Commercial and
industrial loans .............. 38,201,766 33,616,025 28,118,416 23,317,057 19,670,283
Residential Real Estate loans ... 53,638,439 49,158,726 45,656,220 41,120,730 40,353,744
Commercial Real Estate loans .... 39,948,496 35,046,889 33,852,371 33,917,880 27,971,189
Consumer loans .................. 19,340,354 10,587,246 9,643,508 9,954,869 11,280,962
------------ ------------ ------------ ------------ ------------
Total loans.................... $186,836,334 $159,972,032 $146,296,241 $133,479,088 $121,367,741
</TABLE>
POTENTIAL PROBLEM LOANS
Potential problem loans consist of loans which are generally secured
and not currently considered nonperforming, but where information about possible
credit problems has caused management to have doubts as to the ability of such
borrowers to comply with present repayment terms. As of December 31, 1998, the
Company considers $2,745,300 to be potentially problem loans. Historically,
however, only a very small portion of those loans have resulted in actual losses
for the Company.
NON-PERFORMING LOANS
The following table summarizes the Company's non-performing loans at
the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Non-accruing loans............. $ 468,300 $ 727,100 $ 492,000 $ 450,500 $ 254,800
Accruing loans past due
90 days or more............. 389,600 97,500 371,800 291,200 215,600
Renegotiated loans............. -0- -0- -0- -0- -0-
</TABLE>
For each period shown the gross interest income that would have been
recorded in such period if the loans had been current in accordance with their
original terms, and the amount of interest income on those loans that was
included in such period's net income, was negligible.
Interest on loans is accrued from the date an advance is made. The
performance of loans other than real estate and installment loans is evaluated
primarily on the basis of a review of each customer's financial position and
relationship over a period of time and the judgment of senior lending officers
as to the ability of borrowers to conduct a financially healthy business and to
meet the repayment terms of the loan. If there is reasonable doubt as to the
repayment of a loan in accordance with the agreed upon terms, even though the
financial condition of the borrower or the collateral may be sufficient
ultimately to reduce or satisfy the obligation, the loan may be placed on a
non-accrual basis pending the sale of any of the collateral or the determination
that other sources of repayment exist. When a loan is placed on a non-accrual
basis all previously accrued but unpaid interest is reversed and charged against
current income. Interest income is thereafter recognized only when payments are
received.
12
<PAGE>
Loans, including impaired loans, are placed on non-accrual status in
accordance with policies established by management. Loans, other than consumer
loans, are generally transferred to non-accrual status when principal or
interest payments become ninety days past due. Any accrued but uncollected
interest previously recorded on such loans is reversed in the current period and
interest income is subsequently recognized only when actually collected. Past
due consumer loans are generally fully reserved or charged-off when they reach a
90-day delinquency status. Loans are returned to accrual status when management
determines that the circumstances have improved to the extent that both
principal and interest are deemed collectible and there has been a sustained
period of repayment performance. The Company may continue to accrue interest on
loans past due ninety days or more which are well secured and in the process of
collection.
Loans, principally residential real estate loans, are periodically sold
without recourse and servicing is generally retained. Gains and losses on sales
of loans are recognized at the time of settlement and are determined by the
difference between net sales proceeds and the carrying value of the loans sold.
Fees related to the servicing of loans for benefit of others are determined on
the basis of loans serviced and are recorded as income when payments are
received.
The average balance of impaired loans during 1998 was approximately
$441,500. At December 31, 1998, the balance of impaired loans and related
reserve against that balance was $262,200 and $90,400, respectively. Interest
income recognized on impaired loans and interest income recognized on a cash
basis was not significant.
Residential mortgage loans are placed on non-accrual status when they
become 90 days past due, and the collection efforts of the Bank continue in
accordance with the Bank's collection policies and procedures.
Lending officers are responsible for the ongoing review and
administration of each particular loan. As such, they make the initial
identification of loans which may present some difficulty in collection, or
where circumstances indicate that the probability of loss exists. The
responsibilities of the lending officers include the initial collection effort
on a delinquent loan. Unless other arrangements are made with the lending
officer and approved by the Board of Directors of the Bank, any loan
deficiencies more than 90 days past due are generally charged-off. Senior
management is informed of the status of delinquent and problem loans weekly. The
Board of Directors and senior management reviews the current allowance for
possible loan losses monthly, and senior management makes the final
determination as to loan charge-offs.
13
<PAGE>
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for loan losses represents management's determination as
to the amount necessary to be transferred to the allowance for loan losses to
bring it to a level which is considered adequate in relationship to the risk of
losses inherent in the loan portfolio. While it is the Company's policy to
charge-off in the current period those loans in which a loss is considered
probable, there also exists the risk of losses which cannot be quantified
precisely or attributed to particular loans or classes of loans. Because this
risk is continually changing in response to factors beyond the control of the
Company, such as the state of the economy, management's judgment as to the
adequacy of the allowance for loan losses is necessarily approximate and
imprecise.
In assessing adequacy, management relies on its ongoing review of the
loan portfolio, which is undertaken both to ascertain whether there are probable
losses which must be charged-off and to assess the risk characteristics of the
portfolio in the aggregate. This review takes into consideration management's
evaluation of individual loans, past loan loss experience, the assessment of
prevailing and anticipated economic conditions, the estimated value of
collateral and other relevant factors. It is management's ongoing policy to
maintain a conservative approach as to the establishment of an adequate
allowance for loan losses.
In evaluating the allowance, management also considers the Bank's loan
loss experience, the amount of past due, non-performing and impaired loans
current and anticipated economic conditions, lender requirements and other
appropriate information.
14
<PAGE>
The allowance for loan losses is maintained as a general reserve
without any internal allocation to the specific loan classes of the loan
portfolio. Based on a historical four-year average of gross charge-offs,
however, the allowance for loan losses would be allocated by management to
specific loan classes as follows:
December 31, 1998
-------------------------------------------
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
-------------------------------------------
Domestic Loans (1)
Agricultural loans...... $ 41,575 1.76% 19.11%
Commercial and
industrial loans ...... 749,805 31.54 20.45
Residential & Commercial
Real Estate loans .... 145,218 6.11 50.09
Consumer loans ......... 1,440,521 60.59 10.35
------------ ------ ------
Totals ................. $ 2,377,300 100.00% 100.00%
December 31, 1997
-------------------------------------------
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
-------------------------------------------
Domestic Loans (1)
Agricultural loans...... $ 44,726 2.21% 19.73%
Commercial and
industrial loans....... 669,521 33.00 21.01
Residential & Commercial
Real Estate loans..... 148,088 7.30 52.64
Consumer loans.......... 1,166,265 57.49 6.62
------------ ------ ------
Totals $ 2,028,600 100.00% 100.00%
December 31, 1996
-------------------------------------------
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
-------------------------------------------
Domestic Loans (1)
Agricultural loans...... $ 10,12 .55% 19.84%
Commercial and
industrial loans....... 549,782 29.86 19.22
Residential & Commercial
Real Estate loans..... 66,836 3.63 54.35
Consumer loans.......... 1,214,455 65.96 6.59
------------ ------ ------
Totals $ 1,841,200 100.00% 100.00%
December 31, 1995
-------------------------------------------
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
-------------------------------------------
Domestic Loans (1)
Agricultural loans...... $ 37,930 2.21% 18.9%
Commercial and
industrial loans....... 357,334 20.82 17.5
Residential & Commercial
Real Estate loans..... 44,408 2.59 56.2
Consumer loans.......... 1,276,628 74.38 7.4
------------ ----- -----
Totals $ 1,716,300 100.0% 100.0%
December 31, 1994
-------------------------------------------
Percent of Percent of
Allowance in Loans in
Category to Category to
Amount Total Allowance Total Loans
-------------------------------------------
Domestic Loans (1)
Agricultural loans...... $ 44,738 2.90% 18.2%
Commercial and
industrial loans....... 301,104 19.70 16.2
Residential & Commercial
Real Estate loans..... 38,023 2.50 56.3
Consumer loans.......... 1,143,035 74.90 9.3
------------ ----- -----
Totals $ 1,526,900 100.0% 100.0%
- ----------
(1) The Company had no foreign loans.
15
<PAGE>
The following table sets forth certain information with respect to the
Company's loans and the allowance for loan losses.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $ 2,028,600 $ 1,841,200 $ 1,716,300 $ 1,526,900 $ 1,448,000
Charge-offs:
Agricultural loans................ 0 0 0 (1,573) (2,534)
Commercial and industrial loans... (144,216) (92,470) (77,378) (69,607) (47,816)
Real estate mortgages............. (24,821) (24,606) (25,621) 0 0
Consumer loans.................... (62,075) (99,204) (82,600) (145,435) (238,642)
------------ ----------- ----------- ----------- -----------
(231,112) (216,280) (185,599) (216,615) (288,992)
Recoveries:
Agricultural loans................ 0 0 654 1,404 3,815
Commercial and industrial loans... 19,802 17,091 3,435 8,035 6,069
Real estate mortgages............. 3,145 0 0 0 0
Consumer loans.................... 24,298 18,424 23,900 72,213 45,283
------------ ----------- ----------- ----------- -----------
47,245 35,515 27,989 81,652 55,167
------------ ----------- ----------- ----------- -----------
Net charge-offs..................... (183,867) (180,765) (157,610) (134,963) (233,825)
Additions charged to operations..... 532,567 368,165 282,510 324,363 312,725
------------ ----------- ----------- ----------- -----------
Balance at end of period............ $ 2,377,300 $ 2,028,600 $ 1,841,200 $ 1,716,300 $ 1,526,900
------------ ----------- ----------- ----------- -----------
Ratio of net charge-offs during
the period to average loans
outstanding during the period..... .11% 0.12% 0.12% 0.11% 0.20%
</TABLE>
Net loans charged-off in 1998 totaled $183,867, or 0.11% of average
loans. The reserve for loan losses equaled 1.27% of the total loan portfolio at
December 31, 1998, compared to 1.27% at December 31, 1997. Management believes
that the allowance for loan losses of $2,377,300 at December 31, 1998 was
adequate to absorb anticipated risk in the portfolio based upon the Company's
historical experience.
All segments of the Company's loan portfolio are subject to continuous
quality evaluation. In the opinion of the management of the Company, there are
no credit risks relating to the loan portfolio, other than what is already
disclosed in this document, and the allowance for loan losses is adequate to
absorb anticipated loan losses in the present loan portfolio of the Company. It
must be emphasized, however, that the determination of allowance for loan losses
using the Company's procedures and methods rests upon various judgments and
assumptions about future economic conditions and other factors affecting loans.
In addition, management reviews overall portfolio quality through an analysis of
current levels and trends and charge-offs, delinquency and non-accruing loan
data and reviews the overall banking environment. These reviews are of necessity
dependent upon estimates, appraisals and judgments, which may change quickly
because of changing economic conditions and the Company's perception as to how
these factors may affect the financial condition of debtors.
16
<PAGE>
RATE SENSITIVITY OF LOANS
Presented below is a table which sets forth the maturity of the
Company's loans as of December 31, 1998.
<TABLE>
<CAPTION>
Maturities at December 31, 1998
-----------------------------------------------------------
One Year
One Year Through After
or Less 5 Years 5 Years Total
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Agricultural loans.............. $17,523,444 $ 5,650,750 $ 12,533,085 $ 35,707,279
Commercial and
industrial loans............... 14,817,511 8,748,039 14,636,216 38,201,766
Residential Real Estate
loans ......................... 1,917,228 8,799,447 42,921,764 53,638,439
Commercial Real Estate
loans ......................... 4,405,721 3,725,614 31,817,161 39,948,496
Consumer loans .................. 521,925 17,750,292 1,068,137 19,340,354
----------- ------------ ------------ ------------
Total loans................... $39,185,829 $ 44,674,142 102,976,363 $186,836,334
Percentage to total ............. 20.97% 23.91% 55.12% 100.00%
</TABLE>
The following table sets forth the various maturity dates of the
above-mentioned loans with pre-determined interest rates and floating or
adjustable interest rates.
<TABLE>
<CAPTION>
Maturities at December 31, 1998
-------------------------------------------------------------------
One Year
One Year Through After
or Less 5 Years 5 Years Total %
----------- ------------ ------------ ------------ -----
<S> <C> <C> <C> <C>
Loans with pre-determined
interest rates......... $ 5,732,269 $ 33,596,074 $ 61,559,645 $100,887,988 54.00
Loans with floating or
adjustable interest rates 33,453,560 11,078,068 41,417,168 85,948,696 46.00
----------- ------------ ------------ ------------ -----
Totals................... $39,185,829 $ 44,674,142 $102,976,363 $186,836,684 100.00
</TABLE>
The Company ensures safety of depositor funds and relative balances
between interest rate sensitive assets and liabilities through its
Asset/Liability Committee, which actively monitors the maturity and repricing
characteristics of interest rate sensitive assets and liabilities on an ongoing
basis.
17
<PAGE>
DEPOSITS
The following table sets forth the average amount of, and the average
rates paid on, major deposit categories for the years ended December 31, 1998,
1997, and 1996, respectively.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1998 1997 1996
---------------- ----------------- ------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits...... $ 31,682,000 -- $ 25,242,302 -- $ 23,213,560 --
Interest bearing
demand deposits...... 31,231,000 1.09% 30,109,000 1.18% 29,025,668 1.30%
Savings deposits...... 35,528,000 2.31% 34,760,000 2.47 36,536,619 2.55
Money market
deposits............ 14,304,000 3.34% 11,909,000 3.25 11,545,345 2.51
Certificates of
deposit.............. 116,981,000 5.60% 106,996,000 5.47 102,699,682 5.36
----------- ---- ----------- ---- ----------- ----
Total Deposits...... $229,726,000 $209,016,302 $210,020,874
</TABLE>
The following table sets forth the amount of time certificates of
deposit of $100,000 or more of the Bank as of December 31, 1998 for various
dates of maturity.
December 31, 1998 - Time Certificates of Deposit $100,000 or More
Three months or less...................... $14,071,057
Three months through six months........... 9,710,534
Six months through twelve months.......... 3,611,782
Over twelve months........................ 4,011,454
-----------
Totals............................... $31,404,827
RETURN ON EQUITY AND ASSETS
The following table sets forth selected financial ratios of the Company
on a consolidated basis for the periods indicated.
For the Year Ended December 31,
1998 1997 1996
----- ----- -----
Return on average assets.......... 1.22% 1.26% 1.22%
Return on average equity.......... 10.22 11.22 11.86
Dividends declared to net income 32.22 24.61 20.98
Loans to deposits................. 77.57 73.65 70.51
Loans to deposits and securities
sold under agreement to
repurchase...................... 77.19 73.09 69.93
Non-performing loans to total
loans........................... .37 .41 .59
Net charge-offs to average
total loans..................... .11 .12 .12
Allowance for possible loan
losses to loans at year-end..... 1.27 1.27 1.26
Average shareholders' equity
to average total assets......... 10.94 11.23 10.32%
18
<PAGE>
SHORT-TERM BORROWINGS
The following table sets forth the average amount of, and the average
rates paid on securities sold under agreement to repurchase for the years ended
December 31, 1998, 1997, and 1996, respectively.
Year Ended December 31,
1998 1997 1996
----------------- ----------------- ------------------
Average Average Average Average Average Average
------- ------- ------- ------- ------- -------
Securities sold
under agreement
to repurchase.... $2,395,000 5.46 $1,837,000 5.42 $1,942,414 5.25
ITEM 2 - PROPERTIES
The following table sets forth the location of the Bank's offices, as
well as certain information related to those offices, as of December 31, 1998:
Location of Office Owned or Leased
------------------ ---------------
50 North Main Street
Castile, New York......... Owned
263 East Main Street
Avon, New York............ Owned
1 Main Street
Gainesville, New York..... Owned
102 North Center Street
Perry, New York........... Owned
2727 Genesee Street
Retsof, New York.......... Leased *
445 North Main Street
Warsaw, New York.......... Owned
129 North Center Street
Perry, New York........... Owned *
29 Main Street
LeRoy, New York........... Owned
604 West Main Street
Arcade, New York.......... Owned
408 East Main Street
Batavia, New York......... Owned
3155 State Street
Caledonia, New York....... Owned
11 South Street
Geneseo, New York........ Owned
- ----------
* These branch offices branch offices are located on land which is being
leased through 2004 and 2090, respectively. These lease agreements contain
various renewal and purchase options at maturity.
Each of the foregoing properties is in generally good condition and is
appropriate for its intended uses.
19
<PAGE>
Future minimum rentals under these leases are: 1999-2003, $9,600 per
year. Total rental expense was approximately $10,300 in 1998 and $16,400 in 1997
and $23,000 in 1996.
All owned offices are in the name of the Bank. Prior to March 10, 1995,
two (2) offices were owned by Southern Wyoming Realty Corp., a wholly-owned
subsidiary of the Bank. Effective March 10, 1995, Southern Wyoming Realty Corp.
was dissolved and all of its assets were transferred and conveyed to the Bank.
For information relating to the Company's investment policies, see
"Item 1- Description of Business -- Statistical Disclosure" of this Annual
Report on Form 10-K.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not presently involved in any legal proceedings which
management or counsel to the Company believe to be material to its financial
condition or results of operations. As the nature of the Bank's business
involves the collection of loans and the enforcement and validity of security
interests, mortgages and liens, the Bank is plaintiff or defendant in various
legal proceedings which may be considered as arising in the ordinary course of
its business. In the opinion of management of the Bank, after consultation with
its counsel handling all such litigation, there are no legal proceedings now
pending by or against the Bank the outcome of which might have a material effect
on the Bank's business, business prospects or financial position.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
On January 3, 1994, the Company listed its common stock on the National
Association of Securities Dealers Quotation System (NASDAQ) Small Cap Market.
Although the market for the Company's common stock has become more active since
the initial listing, as with many stocks of companies such as the Company,
trading remains limited. At the Annual Meeting of Shareholders on May 7, 1998,
the shareholders of the Company approved an amendment to the Certificate of
Incorporation for the Company and a corresponding 3-for-1 stock split pursuant
to which each issued and outstanding share of common stock split became
effective on June 8, 1998.
20
<PAGE>
As of March 16, 1999, the "Bid" and "Ask" price of the Company's common
stock was $14.00 and $14.50 per share, respectively, as reported on the NASDAQ
Small Cap Market. The market price for the Company's common stock is reflected
daily on the NASDAQ Small Cap Market under the symbol LEBC. These quotations, as
well as quotations set forth in the following table, represent inter-dealer
quotations without adjustment for retail mark-ups, mark-downs, or commissions,
and may not necessarily represent actual quotations. First Albany Corporation,
Ryan, Beck & Company, McConnell, Budd and Downes, and Tucker Anthony, Inc. all
make a market in the Company's common stock. All shareholders who own their
stock in their individual names are eligible to participate in the Company's
Dividend Reinvestment Plan which was introduced in November 1991 and 37% of
those eligible participate. The following table sets forth the quarterly high
and low "Bid" quotations, after giving effect to a 3-for-1 stock split that was
implemented on June 8, 1998, for the years ended December 31, 1998 and 1997,
respectively:
Quarterly Data 1998 1997
Bid Price 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
------------------------------ ------------------------------
High $16.00 $20.50 $22.67 $19.50 $17.00 $15.75 $12.42 $12.25
Low $13.63 $13.50 $18.08 $15.00 $13.33 $12.25 $11.50 $10.25
The Company declared dividends of $.32 per share to its shareholders
during the year ended December 31, 1998. In 1997, the Company declared annual
dividends of $.27 per share (after giving effect to the above referenced stock
split). Although the Board of Directors of the Company has declared its
intention to continue the payment of cash dividends on the Company's common
stock, no assurance can be given that any dividends will be declared or, if
declared, what the amount of the dividends will be or whether such dividends,
once declared, will continue. As a bank holding company, the Company's ability
to pay dividends is primarily a function of the dividend payments it receives
from the Bank, which are subject to certain limitations. See Note 19 of "Notes
to Consolidated Financial Statements" included in this Annual Report on Form
10-K on pages 58 - 60 . In determining the amount of such dividends to be paid
by the Company, if any, the Board of Directors will consider such factors as the
earnings and financial condition of the Company, as well as regulatory
requirements and the Bank's need to retain capital to support its growth.
21
<PAGE>
ITEM 6 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE PURPOSE OF THIS SECTION IS TO FOCUS ON RELEVANT BUSINESS EVENTS AND
INFORMATION PROVIDED IN THIS ANNUAL REPORT. FOR A FULL UNDERSTANDING OF THIS
DISCUSSION, REFERENCE SHOULD BE MADE TO THE CONSOLIDATED FINANCIAL STATEMENTS,
AND NOTES THERETO, AND THE CONSOLIDATED FINANCIAL HIGHLIGHTS HEREIN. THE
PRECEDING FINANCIAL STATEMENTS WERE AUDITED BY PRICEWATERHOUSECOOPERS LLP, BUT
HAVE NEITHER BEEN AUDITED NOR APPROVED BY THE FDIC.
Letchworth Independent Bancshares Corporation (the "Company") is a bank
holding company with one subsidiary, The Bank of Castile (the Bank). The Bank is
a full-service, community oriented, commercial bank that offers a full range of
commercial and consumer banking services to municipalities, businesses and
individuals. During 1997, the Bank also began offering trust and investment
services to its customers.
The Bank conducts its operations through its main office located in
Castile, New York, and at its ten (10) branch offices in towns situated in and
around the areas commonly known as the Letchworth State Park and the Genesee
Valley regions of New York State. Specifically, the Bank has branch offices in
the towns of Arcade, Avon, Batavia, Caledonia, Gainesville, Geneseo, LeRoy,
Perry, York (Retsof), and Warsaw.
The Company's strategic plan calls for the continued growth of its
banking franchise through the acquisition of additional offices in similar
communities and/or the opening of new offices in the current market area or
adjoining areas to include suburban Rochester and Buffalo. The Company will also
be alert to related business opportunities that would allow for diversification
of its existing franchise. In January of 1999, the Company announced its
intention to purchase between 58 and 66% of the outstanding shares of The
Mahopac National Bank, located in Putnam County, New York, pending regulatory
and shareholder approval. The Mahopac National Bank has three branches and ended
the year 1998 with $148.4 million in assets. The purchase price was $9,700 per
share, or slightly less than one and one-half times the Mahopac Bank's book
value and will be paid for in cash. Arrangements have been made for the
potential purchase of the remainder of the shares within an 18- to 24-month
period.
The Company's market area has remained reasonably healthy. As evidenced
by the following chart, the average annual unemployment rate has remained
relatively constant in Livingston and Genesee counties, while increasing
somewhat in Wyoming County.
GENESEE LIVINGSTON WYOMING
1998 5.5% 4.8% 8.2%
1997 5.4% 4.6% 6.6%
1996 5.1% 5.3% 6.4%
Several new companies have relocated or expanded in the three county
area during the past year. However, a large manufacturer in Perry curtailed its
operations during 1998, and the continual uncertainty about many major Rochester
and Buffalo employers are cause for concern.
FINANCIAL CONDITION
1998 COMPARED WITH 1997
The total assets of the Company as of December 31, 1998, increased by
$21.8 million to $281.7 million, representing an 8.36% increase from the $259.9
million figure as of December 31, 1997. This growth in total assets occurred
primarily in the Bank's loan portfolio, which increased by 16.79% or $26.9
million.
22
<PAGE>
The Company's commercial real estate loans increased to $39.9 million
at year-end 1998, up from $35.0 million at year-end 1997. Commercial and
industrial loan volume increased by $4.6 million to $38.2 million at year-end
1998, representing an increase of 13.64% from the year ended December 31, 1997.
In the view of management, the growth in commercial and industrial loans is at
least partially due to the business development efforts of the Company's calling
officers and a continuing change in strategic focus of larger competing
institutions away from this type of lending. This is also the primary reason for
the $4.1 million, or 13.13%, increase in our agricultural loan portfolio, which
consists primarily of loans to larger dairy farms and selected cash-crop farms.
Although deregulation in the dairy industry has and will continue to produce
volatile milk prices, the agricultural customers included in the Bank's
portfolio have generally shown continued solid profitability in spite of this
volatility.
The consumer loan portfolio increased by $8.8 million, or 82.68%, to
$19.3 million at December 31, 1998. The increase in volumes in the consumer loan
area is primarily due to the first full year of operation of an indirect
automobile lending program, which offers new and used automobile loans through a
network of selected local auto dealers. The indirect portfolio grew to $8.8
million at year-end 1998
The Company's residential real estate loans, including home equity
lines of credit, increased by $4.5 million, or 9.11%, to $53.6 million at
December 31, 1998. This increase resulted, in part, from the retention in our
portfolio of many of the fifteen-year, fixed rate mortgage originations. The
volume of home equity lines of credit remained steady at $10.1 million at
year-end 1998, when compared to the prior year. These loans are priced in an
adjustable manner tied to the New York Prime rate and reprice quarterly, and
have been subject to fierce marketplace competition.
The Company's allowance for loan losses at December 31, 1998 is $2.4
million, or 1.27% of the net loans outstanding. This reflects a $532,567
addition to the provision for possible loan losses and $183,476 in net
charge-offs during the year 1998. The Company's allowance for loan losses is
determined after a detailed analysis of the overall credit quality of the
portfolio, as well as the types of loans in that portfolio. The percentage has
been increased slightly from the 1997 level due to the growth of the indirect
automobile loan portfolio, which is expected to have a higher level of
charge-offs.
The Company carried a higher level of "one-day funds" during 1998
because the interest rate available on this type of investment was more
advantageous than alternative longer term investments. As a result of the change
in accounting standard, the Company transferred its entire investment securities
portfolio from the "held to maturity" to the "available for sale" portfolio,
providing increased flexibility to Company management. Since unrealized gains or
losses in the "available for sale" portfolio are accounted for differently than
the "held to maturity" portfolio, this contributed to a significant increase of
$952,073 in unrealized gains or losses in securities in the shareholders equity
section.
The Bank's premises and equipment decreased less than $0.1 million,
since no major building or renovation projects were undertaken during 1998.
During 1999, several technology upgrades are being considered, as well as some
additional plans to renovate a branch office and create additional
administrative space
Total deposit growth in 1998 was $23.6 million, or 10.89%, increasing
to $240.9 million at December 31, 1998. Changes during the year, by category,
were as follows: an increase of $4.3 million in noninterest bearing deposits; an
increase of $2.7 million in savings deposits; a $2.3 million increase in NOW
accounts; a decrease of $1.2 million in certificates of deposit under $100,000;
and an increase of $10.4 million in certificates of deposit greater than
$100,000. At year-end 1998, the Bank also had $1.2 million in securities sold
under agreements to repurchase, down from $1.7 million at year-end 1997. The
increase in certificates of deposit greater than $100,000 is related to
municipal activity.
23
<PAGE>
Noninterest bearing deposits increased to $36.4 million at year-end
1998, a 13.56% increase when compared to year-end 1997. The Geneseo office
opened in January of 1998 and at year end had $5.1 million in total deposits.
The remaining growth in total bank deposits detailed above was internally
generated. Average noninterest-bearing deposits increased from $25.2 million for
the year ended 1997 to $32.1 million for the year ended 1998. Average
noninterest-bearing deposits as a percentage of total average deposits increased
from 12.08% at year-end 1997 to 13.24% at year-end 1998, as a result of the
increased commercial lending activity.
Borrowings from the Federal Home Loan Bank at December 31, 1997,
totaled $7.8 million. Principal payments totaling $5.3 million were made
throughout the year, while an additional advance of $1.5 million was taken,
leaving a balance outstanding of $4.0 million at December 31, 1998. The advance
of $1.5 million as advanced on December 31, 1998, matures on December 31, 1999,
and carries an interest rate of 5.25%.
The Company's shareholders' equity increased to $33.6 million at
year-end 1998, up 5.89% from the $31.8 million figure at year-end 1997. The
change in equity was primarily affected during 1998 by the retention of 67.78%
of 1998 earnings and the repurchase of 86,847 treasury shares at a total cost of
$1,553,933.
RESULTS FROM OPERATIONS
Net income increased to $3.3 million for 1998 from $3.1 million in 1997
and $2.9 million in 1996, primarily due to growth in the net interest income and
other operating income offset somewhat by increases in operating expenses.
Despite the 5.64% increase in net income for 1998, basic earnings per share
decreased from $1.10 in 1997 to $1.01 in 1998, and diluted earnings per share
decreased from $1.00 to $.99, primarily due to the conversion of warrants in
December of 1997. During 1997, 164,700 of outstanding warrants were redeemed for
one share of common stock at $23 each, bringing in additional capital of
$3,788,100. Basic earnings per share were $1.06 for 1996 increasing to $1.10 in
1997, while diluted earnings per share were $.97 for 1996 increasing to $1.00
for 1997. This reflects more constant level of shares outstanding during those
periods and increased net income.
The yield on the Company's interest-earning assets was 8.30% for the
year ended December 31, 1998, an decrease of 11 basis points from the yield of
8.41 % for the year ended December 31, 1997, and 4 basis points from the yield
of 8.34% for the year ended December 31, 1996. During these same periods, the
rate for total interest-bearing liabilities increased for the year ended
December 31, 1997 and 1996, respectively to 4.24% from 4.16% and 4.02%. As a
result, the net interest spread decreased slightly to 4.06% for the year ended
December 31, 1998, from 4.26% for 1997 and 4.32% for 1996. The net interest
margin of 4.81% decreased slightly in 1998 compared to 4.93% in 1997 and 4.92%
in 1996.
The provision for loan losses increased to $532,567 in 1998 from
$368,165 in 1997 and $282,510 in 1996, due primarily to growth in the loan
portfolio. As previously discussed, management provides for loan losses based on
its determination of the appropriate allowance for loan losses.
The Company's other operating income for the year ended December 31,
1998, increased by $290,669 or 22.44% from the prior year, which had increased
by $126,085 or $10.78% from 1996. The increases for both 1998 and 1997 resulted
primarily from increased service charges and an increase in the number of
transaction deposit accounts.
24
<PAGE>
The Company's other operating expenses increased to $8.5 million in
1998, up 10.35% from $7.7 million for 1997, which was up 4.65% from $7.4 million
in 1996. The increase from 1997 to 1998 is the result of a number of factors,
including: a) a $474,921 or 11.39% increase in salaries and benefits primarily
due to normal annual salary adjustments, a full year of staffing for the new
Geneseo office and the new trust and investment department, the hiring of
several additional key employees in various administrative areas, and an
increase in the ESOP related expense due to accounting related adjustments; b) a
$109,371 or 14.09% increase in equipment expense primarily related to a full
year's depreciation on the imaging and power proof system, the automated
telephone banking system, and the furniture and fixtures related to the Geneseo
office; c) a $173,911 or 8.88% increase in other operating expenses due
primarily to increases in customer volumes, various specific software programs
and their related maintenance programs purchased in order to improve efficiency,
provide improved customer service and aid with compliance to current
regulations.
The increase from 1996 to 1997 was affected primarily by: a) a $109,203
or 2.69% increase in salaries and employee benefits, which accounts primarily
for the normal annual increases for employees; b) a 24.92% increase of $154,807
in equipment expense reflecting primarily the initial year of the new imaging
and power proof equipment; c) a $225,707 or 13.03% increase in other operating
expenses, which includes a significant increase in costs to service a growing
customer base as well as enhanced marketing costs d). These increases were
partially offset by a decrease of $155,706 or 81.92% in FDIC insurance premiums,
which were reduced for all "well capitalized" banks.
The provision for income taxes amounted to $1,365,903 for 1998, down
from $1,487,000 in 1997. The Company's effective tax rate decreased to 29.2% in
1998 from 32.2% in 1997 as a result of increased tax-exempt interest income. The
income tax provision for 1996 was $1,351,000 for an effective rate of 32.0%.
IMPACT OF THE YEAR 2000
The Year 2000 issue concerns the potential impact of historic computer
software code that only utilizes two digits to represent the calendar year (e.g.
"98" for "1998"). Software so developed, and not corrected, could produce
inaccurate or unpredictable results commencing upon January 1, 2000, when
current and future dates present a lower two digit year number than dates in the
prior century. The Company, similar to most financial services providers, is
significantly subject to the potential impact of the Year 2000 issue due to the
nature of financial information. Potential impacts to the Company may arise from
software, computer hardware, and other equipment both within the Company's
direct control and outside of the Company's ownership, yet with which the
Company electronically or operationally interfaces. Financial institution
regulators have intensively focused upon Year 2000 exposures, issuing guidance
concerning the responsibilities of senior management and directors. Year 2000
testing and certification is being addressed as a key safety and soundness issue
in conjunction with regulatory exams.
In May 1997, the Federal Financial Institutions Examination Council
("FFIEC") issued an interagency statement to the chief executive officers of all
federally supervised financial institutions regarding Year 2000 project
management awareness. The FFIEC has highly prioritized Year 2000 compliance in
order to avoid major disruptions to the operations of financial institutions and
the country's financial systems. The FFIEC statement provides guidance to
financial institutions, providers of data services, and all examining personnel
of the federal banking agencies regarding the Year 2000 issue. The federal
banking agencies have been conducting Year 2000 compliance examinations, and the
failure to implement an adequate Year 2000 program can be identified as an
unsafe and unsound banking practice.
25
<PAGE>
The Board of Directors assigned responsibility for the Year 2000
project to the standing Risk Committee with the Vice President, Manager of
Information Services as coordinator. Furthermore, the five-step approach
recommended by the FFIEC was adopted as the project guideline: 1. Awareness; 2.
Assessment; 3. Renovation; 4. Validation; and 5. Implementation
The first two stages were substantially completed during the third
quarter of 1997. The second phase included the identification of all processes,
hardware and software, as well as interdependencies impacting operations. An
inventory of these items was assembled, priorities established and resources
allocated to complete the necessary modifications to minimize the Company's
exposure.
Because the Company does not have any "in house" programming, but
instead uses the services of outside software packages, the renovation stage
became more of a monitoring project to ensure that the systems we use are
compliant. The following major systems were upgraded to Year 2000 compliant
versions: Core Processing System (May 21, 1998); Direct Deposit/Automated
Clearing House (ACH) (August 27, 1997); Item Processing System (October 9,
1998).
All identified mission critical processes were ready by December 31,
1998, except that an additional upgrade to the ACH program provided by New York
Automated Clearing House was not available until February 3, 1999. This has been
received and installed.
During the validation stage, each system is being tested to determine
if it correctly processes data for the thirteen dates that have been identified
by the regulators as crucial. The core processing system and item processing
system have thus far been successfully tested through the March 31, 2000, test
date. The remainder of the test dates for all the other mission critical items
will be completed by March 31, 1999. Validations for the non-critical processes
are scheduled to be completed by June 30, 1999.
The validation stage and the implementation stage overlap for the
Company, since it uses the services of outside software packages. All of the
mission critical software has been installed and is operating in the Bank's
systems, and continues to be tested as part of the implementation process.
The Company has initiated formal communications with all of its
significant suppliers, utility providers, and customers to determine the extent
to which the Company is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. The Company is requesting that third party vendors
represent their products and services to be Year 2000 compliant and that they
have a program to test for that compliance. However, the response of certain
third parties is beyond the control of the Company. The Company has developed
contingency plans to address anticipated worst case scenarios. Contingency plans
may include increasing liquidity levels, adjusting facility shutdown and
start-up schedules, and other appropriate measures. Once developed, contingency
plans and related cost estimates will be continually refined as additional
information becomes available. At this time the Company cannot, however,
estimate the additional cost, if any, that might develop from such contingency
plans. The Company is prepared to curtail credit availability to customers
identified as having material exposure to the Year 2000 issue. However, the
Company's ability to exercise such curtailment may be limited by various
factors, including existing legal agreements and potential concerns regarding
lender liability.
26
<PAGE>
The Company's total Year 2000 estimated project cost, which is based
upon currently available information, includes expenses for the review and
testing of third parties, including government entities. However, there can be
no guarantee that the hardware, software, and systems of such third parties will
be without unfavorable Year 2000 issues and therefore not present a material
adverse impact upon the Company.
Year 2000 compliance costs incurred during fiscal 1998 totaled
approximately $25,500, the majority of which was related to external consulting.
This figure does not include the implicit costs associated with the reallocation
of internal staff hours to Year 2000 project-related efforts. At this time,
management estimates additional Year 2000 compliance costs, which are expenses
on a current period basis, at approximately $187,900. This estimate does not
include normal ongoing costs for computer hardware (including ATM's) and
software that would be replaced in the next year in conjunction with the
Company's ongoing programs for updating its delivery infrastructure. The Year
2000 project cost estimate may change as the Company progresses in its Year 2000
program and conducts further testing concerning third parties. At this time, no
significant projects have been delayed as a result of the Company's Year 2000
effort.
Despite the Company's activities in regard to the Year 2000 issue,
there can be no assurance that partial or total systems interruptions or the
costs necessary to update hardware and software would not have a material
adverse effect upon the Company's business, financial condition, results of
operations, and business prospects.
Recovery under existing insurance policies would be available depending
upon the circumstances of a Year 2000 related event and the type of facility
involved. Generally, no recovery would be available in the event of an orderly
shutdown that does not result in damage to the facility. Potential recoveries in
the event of facility damage, including business interruption, however, would be
subject to deductibles.
The Company presently believes that the Year 2000 issue will not pose
significant operational problems or have significant impact on its financial
condition, results of operations or cash flows. However, if the third party
modification plans are not completed and tested on a timely basis, the Year 2000
issue may have a material impact on the operations of the Company.
The Company has taken a proactive approach to increase Year 2000
compliance of its commercial customers. At a recent seminar held for the Bank's
commercial customers, a representative from the Federal Reserve Bank
specifically addressed the Year 2000 compliance issue. Additionally a series of
letters regarding Year 2000 compliance were mailed to all commercial customers.
RATE SENSITIVITY AND FUNDS LIQUIDITY MANAGEMENT
MARKET RISK MANAGEMENT
The Company's management recognizes that taking measured risk is
necessary to effectively manage the daily operations and to maximize shareholder
value. Management policy, strategy, measuring and controlling interest rate risk
is the primary market risk and the responsibility of the Asset/Liability
Committee. The Committee Chairman is an outside director and other members
include the Chairman of the Board of Directors, the President, the Chief
Financial Officer, and certain other senior level managers.
27
<PAGE>
INTEREST-RATE SENSITIVITY ON AFTER-TAX EARNINGS:
The Company deploys several analytical approaches to monitor and manage
interest-rate risk and cash flow impact, including income simulation and
interest sensitivity (gap) analyses. The primary analytical tool to assess the
direction and magnitude of changes in net-interest income resulting from changes
in interest rates is the Olson Interest Sensitivity Model This is used to
estimate the effect of those changes on after-tax earnings in a 12 months period
Key assumptions in the model include prepayment speeds on mortgage-related
assets; changes in market conditions, loan volumes and pricing; deposit
sensitivity; and management's financial capital plans. The Company has no
derivative financial instruments and does not maintain a trading portfolio.
Sensitivity of fee income to market interest-rate levels, such as those related
to cash management service products and mortgage servicing, are included. The
model incorporates management assumptions about the level of interest rate or
balance changes on indeterminate-maturity deposit products (savings, money
market, NOW, and demand deposits) for a given level of market rate changes.
These assumptions have been developed through a combination of historical
analysis and future expected pricing behavior. The assumptions will vary with
direction and velocity of interest rate changes.
Floating and fixed rate securities and loans are categorized according
to their repricing opportunities. Fixed rate loans are categorized according to
their contractual payment schedules. Additionally, changes in prepayment
behavior of the residential mortgage portfolio in various rate environments are
captured using industry estimates of prepayment speeds for various coupon
segments of the portfolio. Fixed rate securities reflect recent payment speed
assumptions, which are derived from independent pricing services. Also, the
impact of planned growth is factored into the simulation model.
The applied assumption are inherently uncertain and, as a result, the
model cannot precisely estimate net-interest income or precisely predict the
impact of higher or lower interest rates on net-interest income. Actual results
will differ from simulated results due to timing, magnitude, and frequency of
interest-rate changes, and fluctuation in market conditions and management
strategies, among other factors. The Company's objective is to limit the
exposure to annual earnings at risk from a 100 basis point immediate and
sustained parallel change in interest rates. Management believes, in the current
interest rate environment, an annual impact of 100 basis point shift is a
reasonable simulation. Based upon the simulation, as of December 31, 1998, the
Company had the following estimated earnings sensitivity profile:
After-tax earnings change:
+100 basis points -100 basis points
+$466,000 $(523,000)
Inherent within interest-rate risk assessment are areas of specific exposure
that the Company monitors closely and routinely. The following are particular
risks that would necessitate varying management strategies:
o Municipal interest rates due to the Company's concentration
o New York Prime Rate due to a large segment of commercial and home equity
loan indices
o Intermediate-term U.S. interest rates due to the Company's investment in
15-year residential mortgage loans for a small portion of its portfolio
Company management continues to build historical databases and evaluate
the effectiveness and veracity of its model and simulations to increase
awareness of inherent risks. Simulation and evaluation of interest rate risk is
a dynamic and integrated process.
LIQUIDITY
The Asset/Liability Committee also is responsible for ensuring that the
Company maintains adequate liquidity and safety of depositor funds.
28
<PAGE>
Liquidity is provided by the Company's investment portfolio, including
the federal funds position, which averaged 30.21% and 33.31% of average total
assets in 1998 and 1997, respectively. The investment portfolio had a weighted
average maturity of 48 months in 1998 versus a 41-month average maturity in
1997, with $14.7 million of the investment portfolio maturing in one year or
less. The size of the investment portfolio decreased modestly during 1998, as
more of the Company's funding was allocated to the fed funds sold in
anticipation of the acquisition of the Mahopac National Bank.
The purchase or sale of federal funds provides daily liquidity with
various institutions. During 1998, the Bank was a seller of federal funds with
average daily sales of $8.3 million. Although employed for only 14 days during
1998, the Bank also has the ability to borrow from the Federal Reserve Bank of
New York, a correspondent bank, or the Federal Home Loan Bank (the "FHLB").
Membership in the FHLB system allows the Bank to borrow periodically on a
short-term or long-term basis at preferred rates. At December 31, 1998, the Bank
had borrowings of $3,968,283 on a long-term basis from the FHLB to fund the
Employee Stock Ownership Plan (ESOP) and for other purposes Included in the
total borrowing is $1.5 million borrowed in December 1998 with a fixed rate and
a one-year term. The proceeds from these advances have been invested in longer
term, tax-exempt municipal bonds and collateralized mortgage obligations to help
lower the Bank's asset sensitivity position. The overall liquidity of the
Company is supplemented by its core deposits that, as previously noted, have
grown both in volume and in percentage of total deposits.
The Bank also had secondary market loan sales and loan participations
with other institutions totaling $1.7 million in various commercial,
agricultural and residential mortgage loans during 1998. Management expects to
continue such sales from time to time.
CAPITAL
The Company's overall capital level as of December 31, 1998, was at a
record level, well in excess of regulatory guidelines. The Company's Tier 1 and
Total Capital ratios were 17.84% and 19.10%, respectively. The significant
increase in capital during 1998 is due in large part to the exercise of the
warrants. This activity raised a total of $3.8 million during 1997. During 1997
and 1998, the Company purchased $.4 million and $1.6 million, respectively, in
common stock and warrants from the previously announced stock re-purchase plan.
MEASURES OF PERFORMANCE
Various measures of performance are available to analyze any bank's safety,
soundness, and financial health. The Consolidated Financial Highlights section
of this Annual Report details common measures such as return on assets, return
on equity, and earnings per share. Other indicators are as follows:
1. Banks measure how they have covered other operating expenses with
noninterest or fee income. In 1998, 1997, and 1996, the Company covered 18.65%,
16.81%, and 15.88%, respectively, of such operating expenses with noninterest
income or fees.
2. The capital ratio measures the ending capital of a bank as a percentage of
its ending assets. The ratio reflects a bank's ability to support deposit growth
and provide a reserve for any potential future deterioration in asset quality.
At year-end 1998, the capital ratio of the Company was 11.94%, down from 12.22%
at year-end 1997. This change primarily is a result of the repurchase of
approximately $1.6 million in outstanding stock
3. The loan-to-deposit ratio is a secondary measure of liquidity. The Bank's
loan-to-deposit ratio increased to 77.57% at year-end 1998 from 73.65% in 1997.
This ratio is under the 80% ceiling set forth in the Company's strategic plan
and indicates that the Bank maintains adequate liquidity and is actively serving
the credit needs of its community. The ratio was clearly affected by the larger
increase in the loan volume, compared to the increase in deposits during 1998.
29
<PAGE>
4. Asset quality is a critical measure of any bank's potential for continued
performance. The net loan charge-offs of the Bank were $183,956, $180,765, and
$157,610, for years ended December 31, 1998, 1997, and 1996, respectively.
During 1998, 1997, and 1996, the ratio of net charge-offs to average loans
outstanding was .11%, .12% and .12%, respectively, which are very low
percentages when compared with our peer group. In 1998, net loan losses were
spread among the commercial and industrial, real estate, and consumer loan
categories, with no losses in the agricultural loan category.
5. The allowance for possible loan losses as a percentage of total loans
outstanding remained constant at 1.27% for the year-end 1998 and 1997. As a
result of the growth of the loan portfolio and the charge-offs during 1998 and
1997, $532,567 and $368,114, respectively, were charged to the provision for
loan losses. The Company uses three factors to assess the adequacy of the
allowance for possible loan losses. They are: an internal loan classification
report, regulatory loan classifications, and historical loan losses. Based on
these factors, the allowance for loan losses is considered to be adequate.
6. With the category of non-performing loans defined as non-accruing loans plus
accruing loans past due 90 days or more, the Company had $857,900 in
non-performing loans at year-end 1998, or .46% of total loans, and $824,600 in
non-performing loans at year-end 1997, or 0.52% of total loans. This compares
very favorably with peer group banks.
BANK FACILITIES AND SERVICES
In July 1997, the Bank purchased a 9,600-square-foot, one-story,
building in downtown Geneseo New York. The exterior of the building was
renovated, as was one-half of the interior for use as the Bank's 11th branch
office, which opened on January 5, 1998. The interior was designed to function
as a financial center and includes the Bank's new trust and investment
department. The other half of the building is leased to the U.S. Postal Service.
The Company has joined with five other area community banks by
investing in Cephas Capital Partners, LLC, a small business investment
corporation. Cephas makes loans commonly known as "mezzanine" financing to
present bank customers and others. The venture has broadened the Bank's service
offerings and, to date, has met the modest profit expectations.
The Bank applied for and was granted trust powers during 1997.
Presently the Bank has a full-time trust officer and an assistant working
closely with Tompkins County Trust Company of Ithaca, New York, to provide a
full range of trust and investment services to existing and new customers. The
Bank currently has $12 million under management.
MARKET FOR THE COMMON STOCK
The market price for the Company's common stock is reflected on the
National Association of Securities Dealers Automated Quotation System (NASDAQ)
Small Cap Market under the symbol LEBC. The Company's warrants expired on
December 31, 1997, and are no longer valued. Ryan, Beck & Company; McConnell,
Budd, and Downes; Tucker Anthony, Inc.; and First Albany Corporation, all make a
market in the Company's common stock. However, trading in the Company's common
stock is limited, and therefore, no assurance can be given that an active or
liquid market for the common stock does or will exist. Presently, there are more
than 1,000 holders of the Company's securities. All shareholders who own the
stock in their own name are eligible to participate in the Company's Dividend
Reinvestment Plan, which was introduced in November of 1991 and has many
participants.
30
<PAGE>
On February 19, 1999, the closing Bid/Asked price for the Company's
common stock as quoted on the NASDAQ Small Cap Market was $15.50/$14.875. These
quotations represent inter-dealer quotations without adjustment for retail
mark-ups, markdowns or commissions, and may not necessarily represent actual
transactions. The price is basically similar to what it was one year ago after
having increased to a price of $22 in July of 1998. This is a pattern followed
by many smaller cap companies, particularly community banks, which have not
benefited from the fourth quarter rebound enjoyed by many of the larger cap
stocks. We continue to be pleased with the increased trading volume that the
Company's stock enjoyed this year and believe that this increasing activity will
have a positive long-term benefit to the Company.
During 1998, the Company declared four quarter dividends totaling $.32
per share of common stock. This represents an increase of $.05 or 18.52%, over
the amount declared in 1997. As explained in Note 19 of the Consolidated
Financial Statements, the Company's ability to declare dividends is restricted
by law and related restrictions as to the amount of funds that can be
transferred from the Bank to the parent company.
PERFORMANCE SUMMARY
The Company's return on average shareholders' equity was 10.22%,
compared to 11.22% and 11.86% for 1997 and 1996, respectively. The decrease from
1996 is attributable to the substantial increase in capital from the exercise of
warrants that expired in December 31, 1997. The Company's return on averages
assets was 1.22% in 1998 compared to 1.26% in 1997 and 1.22% in 1996
31
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
PRICEWATERHOUSECOOPERS LLP
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Letchworth Independent Bancshares Corporation
In our opinion, the accompanying consolidated statement of condition and the
related consolidated statements of income, changes in shareholders' equity and
cash flows present fairly, in all material respects, the financial position of
Letchworth Independent Bancshares Corporation and its subsidiary at December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Buffalo, New York
January 22, 1999
32
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31,
1998 1997
------------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 10,647,917 $ 10,863,023
Federal funds sold 9,250,000 1,550,000
Investment securities:
Available for sale 65,255,014 34,356,500
Held to maturity
(market value of $44,242,300 at December 31, 1997) -- 43,109,322
Other
(market value: $2,083,501 in 1998: $1,702,331 in 1997) 2,083,501 1,702,331
Loans, net of allowance for loan losses of $2,377,300
and $2,028,600, respectively 184,459,034 157,943,432
Accrued interest receivable 1,731,499 1,740,101
Premises and equipment, net 6,344,049 6,419,871
Other assets 1,891,872 2,254,116
------------- -------------
TOTAL ASSETS $ 281,662,886 $ 259,938,696
============= =============
LIABILITIES AND SHAREHOLDERS EQUITY:
Deposits:
Noninterest bearing $ 36,432,791 $ 32,083,730
Interest bearing 204,419,241 185,121,594
------------- -------------
TOTAL DEPOSITS 240,852,032 217,205,324
Securities sold under agreements to repurchase 1,198,294 1,673,911
Accrued interest payable 1,158,630 810,382
Accrued taxes and other liabilities 856,636 677,005
Advances from Federal Home Loan Bank 3,968,283 7,812,302
------------- -------------
TOTAL LIABILITIES 248,033,875 228,178,924
------------- -------------
Commitments and contingent liabilities -- --
Shareholders' equity:
Common stock, $1.00 par value, 5,000,000
shares authorized, 3,390,650 and 1,124,852
shares issued, respectively 3,390,650 1,124,852
Capital surplus 12,347,915 14,436,634
Retained earnings 18,673,887 16,428,534
Unearned employee stock ownership plan shares (490,654) (539,320)
Accumulated other comprehensive income 1,261,145 309,072
Treasury stock at cost (1,553,933) --
TOTAL SHAREHOLDERS' EQUITY 33,629,011 31,759,772
------------- -------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 281,662,886 $ 259,938,696
============= =============
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $16,349,568 $14,610,342 $13,203,737
Interest and dividends on investment securities-
Taxable 2,632,681 3,254,623 3,580,580
Exempt from federal income taxes 1,518,300 1,302,147 1,116,078
Interest on federal funds sold 437,218 285,446 239,712
----------- ----------- -----------
TOTAL INTEREST INCOME 20,937,767 19,452,558 18,140,107
Interest expense on deposits and advances 8,811,114 8,052,605 7,443,397
----------- ----------- -----------
Net interest income 12,126,653 11,399,953 10,696,710
Provision for loan losses 532,567 368,165 282,510
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 11,594,086 11,031,788 10,414,200
----------- ----------- -----------
OTHER OPERATING INCOME:
Service charges on deposit accounts 1,081,239 974,291 913,667
Other charges and fees 138,434 89,961 90,925
Net gain on sales of loans and investment securities 71,679 39,906 26,767
Other operating income 294,491 191,016 137,730
----------- ----------- -----------
TOTAL OTHER OPERATING INCOME 1,585,843 1,295,174 1,169,089
----------- ----------- -----------
OTHER OPERATING EXPENSE:
Salaries and employee benefits 4,644,958 4,170,037 4,060,834
Equipment expense 885,402 776,031 621,224
Occupancy expense 513,960 491,843 505,532
Printing and supplies 286,872 274,459 252,491
FDIC assessment 38,783 34,371 190,077
Other operating expenses 2,131,408 1,957,497 1,731,790
----------- ----------- -----------
TOTAL OTHER OPERATING EXPENSE 8,501,383 7,704,238 7,361,948
----------- ----------- -----------
Income before income taxes 4,678,546 4,622,724 4,221,341
Provision for income taxes 1,365,903 1,487,000 1,351,000
----------- ----------- -----------
NET INCOME $ 3,312,643 $ 3,135,724 $ 2,870,341
=========== =========== ===========
Basic earnings per share $ 1.01 $ 1.10 $ 1.06
Diluted earnings per share $ .99 $ 1.00 $ .97
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Unearned
employee Accumulated
Stock other Treasury Total
Common Capital Retained ownership comprehensive stock Shareholders'
stock Surplus earnings plan shares income at cost equity
---------- ----------- ----------- ----------- ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $899,970 $10,206,024 $ 11,778,164 $ (365,678) $ 307,400 $ -- $22,825,880
Comprehensive income:
Net Income 2,870,341 2,870,341
Other comprehensive income,
net of tax:
Unrealized loss on investment
securities, net of
reclassification adjustment (144,531) (144,531)
-----------
2,725,810
Exercise of stock options and warrants 39,416 667,024 706,440
ESOP shares committed to be released 37,072 112,583 149,655
Cash dividends declared ($.22 per share) (602,191) (602,191)
---------- ----------- ------------ --------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 929,386 10,910,120 14,046,314 (252,095) 162,869 -- 25,805,594
Comprehensive income:
Net Income 3,135,724 3,135,724
Other comprehensive income,
net of tax:
Unrealized loss on investment
securities, net of
reclassification adjustment 146,203 146,206
-----------
3,281,927
Exercise of stock options and warrants 185,466 3,914,124 4,099,590
Repurchse of warrants (429,500) (429,500)
ESOP shares committed to be released 41,890 59,925 101,815
Additional shares purchsed by ESOP (346,150) (346,150)
Cash dividends declared ($.27 per share) (753,504) (753,504)
---------- ----------- ------------ --------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 1,124,852 14,436,634 16,428,534 (539,320) 309,072 -- 31,759,772
Comprehensive income:
Net Income 3,312,643 3,312,643
Other comprehensive income,
net of tax:
Unrealized loss on investment
securities, net of
reclassification adjustment 153,314 153,314
Cumulative effect of change in
accounting principle 798,759 798,759
-----------
4,264,716
Exercise of stock options and warrants 13,894 80,057 93,951
Purchase of treasury stock (1,553,933) (1,553,933)
ESOP shares committed to be released 83,128 48,666 131,794
Three-for-onestock split 2,251,904 (2,251,904) --
Cash dividends declared ($.32 per share) (1,067,289) (1,067,289)
---------- ----------- ------------ --------- ---------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 $3,390,650 $12,347,915 $ 18,673,888 $(490,654) $1,261,145 $(1,553,933) $33,629,011
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended December 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,312,643 $ 3,135,724 $ 2,870,341
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 1,070,299 936,294 890,391
Provision for possible loan losses 532,567 368,165 282,510
ESOP compensation expense 131,794 101,815 149,655
Gain on sale of investments (60,352) (36,850) (12,924)
Gain on sale of loans (11,327) (3,056) (13,843)
Deferred tax (benefit) provision (119,864) 93,400 7,200
Decrease (increase) in interest receivable 233,025 8,602 (23,860)
Decrease (increase) in other assets (44,635) (194,133) (48,140)
Increase (decrease) in interest payable 348,248 102,002 (38,971)
Increase in accrued taxes
and other liabilities 108,495 267,817 626,465
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 5,276,470 $ 4,747,318 $ 4,945,709
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available
for sale $ 5,256,297 $ 4,028,594 $ 4,519,219
Proceeds from calls and maturities of securities
Held to maturity 9,200,886 7,574,377 10,038,268
Available for sale 13,708,484 10,632,975 3,491,312
Proceeds from sale of loans 1,686,773 1,006,133 1,281,775
Purchases of securities
Held to maturity -- (7,224,304) (10,440,504)
Available for sale (14,707,254) (14,321,819) (4,258,207)
Other (381,170) (442,731) (468,700)
Net increase in loans (28,723,615) (14,859,633) (14,242,695)
Expenditures for capital assets (631,778) (1,426,058) (1,198,118)
------------ ------------ ------------
NET CASH USED IN BY INVESTING ACTIVITIES $(14,591,377) $(15,032,466) $(11,277,650)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in savings, NOW, money market
and non-interest bearing deposits $ 14,382,563 $ 3,122,614 $ 4,928,493
Net increase (decrease) in time deposits 9,264,145 5,800,688 (1,509,657)
Net increase (decrease) in securities sold under
agreements to repurchase (475,617) (28,818) (65,255)
Proceeds from borrowings 1,500,000 5,000,000 5,000,000
Repayment of borrowings (5,344,019) (5,332,495) (362,223)
Exercise of stock options and warrants 93,951 3,753,440 706,440
Repurchase of warrants -- (429,500) --
Purchase of treasury stock (1,553,933) -- --
Cash dividends paid (1,067,289) (753,504) (602,191)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 16,799,801 $ 11,132,425 $ 8,095,607
------------ ------------ ------------
Net decrease in cash and cash equivalents $ 7,484,894 $ 847,277 $ 1,763,666
Cash and cash equivalents, beginning of year 12,413,023 11,565,746 9,802,080
------------ ------------ ------------
Cash and cash equivalents, end of year $ 19,897,917 $ 12,413,023 $ 11,565,746
============ ============ ============
Interest paid $ 8,462,865 $ 7,950,603 $ 7,482,368
============ ============ ============
Income taxes paid $ 1,328,806 $ 1,113,003 $ 1,617,000
============ ============ ============
</TABLE>
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF OPERATIONS
Letchworth Independent Bancshares Corporation (the "Company") is a bank
holding company headquartered in Castile, New York. Through its subsidiary, The
Bank of Castile (the "Bank"), the Company primarily engages in the business of
community banking in the Genesee Valley region of Western New York.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and the Bank. All significant intercompany accounts and transactions
have been eliminated.
The accounting policies of the Company conform with generally accepted
accounting principles and prevailing practices within the banking industry. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Certain prior year balances have been reclassified to conform with the
current year presentation.
STATEMENT OF CASH FLOWS
For purposes of preparing the statement of cash flows, the Company
defines cash and cash equivalents as cash and due from banks and federal funds
sold.
INVESTMENT SECURITIES
Debt securities for which the Company has the positive intent and
ability to hold to maturity are reported at amortized cost. Amortization of
premiums and accretion of discounts are recognized in interest income using the
interest method over the period to maturity.
Securities available for sale consist of debt and marketable equity
securities not classified as securities held to maturity and are stated at
estimated fair value. Unrealized gains and losses on securities available for
sale are reported as a separate component of other comprehensive income, net of
tax, until realized. Amortization of premiums and accretion of discounts are
recognized in interest income using the interest method over the period to
maturity. Gains and losses on the sale of securities available for sale are
determined using the specific-identification method.
Effective July 1, 1998, the Company early adopted Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Standard requires that an entity
recognizes all derivative instruments as either assets or liabilities in the
Statement of Condition and measure those instruments at fair value. The Company
held no derivative instruments encompassed by SFAS No. 133 at any time during
the three years in the period ended December 31, 1998. As permitted by SFAS No.
133, at the time of adoption the Company reclassified investment securities with
an amortized cost of $36,988,091 and an estimated fair value of $38,162,736 from
held to maturity to available for sale. The cumulative effect of this change in
accounting principle has been shown as a component of other comprehensive income
in the Statement of Changes in Shareholders' Equity.
37
<PAGE>
Other securities consist of capital stock of Federal Home Loan Bank of
New York and other non-marketable equity securities and are reported at cost.
LOANS
Loans generally are reported at their outstanding principal balance
adjusted for any charge-offs, the allowance for loan losses, and any deferred
fees or costs on originated loans. Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment to the yield
over the life of the related loan. Loans held for sale are reported at the lower
of cost or fair market value.
Loans, other than consumer loans, are generally transferred to
nonaccrual status when principal or interest payments become 90 days past due.
Any accrued but uncollected interest previously recorded on such loans is
reversed in the current period. Past due consumer loans are generally fully
reserved or charged-off when they reach a 90-day delinquency status. Loans are
returned to accrual status when management determines that the circumstances
have improved to the extent that both principal and interest are collectible and
there has been a sustained period of repayment performance in accordance with
the contractual terms of the loan.
While a loan is classified as nonaccrual and the future collectibility
of the recorded loan balance is doubtful, collections of interest and principal
are generally applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may be
recognized on a cash basis. In the case where a nonaccrual loan had been
partially charged-off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount are
recorded as recoveries to the allowance for loan losses until prior charge-offs
have been fully recovered.
For all loans except large groups of smaller-balance homogenous loans,
which are collectively evaluated, a loan is considered impaired when, based on
current information and events, it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan. When a
loan is identified as impaired, accrual of interest ceases and any amounts that
are recorded as receivable are reversed out of interest income.
The Company measures its impaired loans by using the fair value of the
collateral if the loan is collateral-dependent and the present value of the
expected future cash flows, discounted at the loan's effective interest rate, if
the loan is not collateral-dependent. The difference between the recorded value
of the impaired loan and the fair value of the loan is defined as the impairment
allowance. Impairment allowances are considered by the Company in determining
the overall adequacy of the allowance for credit losses.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic evaluation
of the adequacy of the allowance is based on the Company's past loan experience,
known and inherent risks in the portfolio, adverse situations that may affect
the borrower's ability to repay, the estimated value of any underlying
collateral, and current economic conditions.
PREMISES AND EQUIPMENT
Land is carried at cost. Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed on the
straightline basis over the estimated useful lives of the related assets,
generally ranging from three to 40 years. Amortization of leasehold improvements
is computed on a straightline basis over the term of the lease. Maintenance,
repairs and minor improvements are charged to operating expense as incurred.
Major improvements are capitalized.
38
<PAGE>
GOODWILL AND CORE DEPOSIT INTANGIBLE
The excess of the cost of acquired entities or operations over the fair
value of identifiable assets acquired less liabilities assumed is recorded as
goodwill. All of the Company's goodwill and core deposit intangibles are being
amortized on a straight-line basis over ten years. The Company periodically
assesses whether events or changes in circumstances indicate that the carrying
amount of goodwill and core deposit intangibles may be impaired. Impairment is
measured using estimates of future cash flows or earnings potential of the
operations acquired.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the provisions
of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock
Issued to Employees," which require compensation cost to be recognized based on
the difference, if any, between the quoted market price of the stock on the
grant date and the amount an employee must pay to acquire the stock. The Company
presents the pro forma compensation expense calculated in accordance with
Statement of Financial Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" in Note 9. For purposes of this calculation, pro forma
compensation expense is recognized over the vesting period of the option,
generally nine years.
INCOME TAXES
The Company accounts for income taxes using the asset and liability
approach, which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of temporary differences between the
carrying amounts and the tax basis of such assets and liabilities. This method
utilizes enacted statutory tax rates in effect for the year in which the
temporary differences are expected to reverse and gives immediate effect to
changes in income tax rates upon enactment. Deferred tax assets are recognized,
net of any valuation allowances, for deductible temporary differences and tax
credit carryforwards.
EARNINGS PER SHARE
Basic earnings per share excludes dilution and is computed by dividing
income available to common shareholders by the weighted-average number of common
shares outstanding for the period. Employee Stock Ownership Plan shares not
committed to be released are not considered outstanding for purposes of this
calculation. Diluted earnings per share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the Company.
STOCK SPLIT
On May 7, 1998, the shareholders approved an increase in the allowable
outstanding shares of common stock to 5,000,000 shares and a three-for-one stock
split effective for shareholders of record on May 8, 1998. The stock split was
recorded by a transfer of $2,251,904 from capital surplus to common stock,
representing $1.00 par value for each additional share issued. All per share
data has been retroactively restated to reflect the split.
NOTE 2 - ACQUISITION:
In January 1999, the Company entered into an agreement to acquire a
majority interest in The Mahopac National Bank (Mahopac), headquartered in
Mahopac, New York. Mahopac has three branch offices in Putnam County and had
approximately $148 million of assets at December 31, 1998. The Company expects
to purchase between 58% and 70% of the outstanding common shares of Mahopac at
an expected purchase price between $12.0 million and $14.5 million. The
shareholder
39
<PAGE>
agreement includes a provision that grants the Company the right to acquire
substantially all of the remaining outstanding shares of Mahopac, if the
Company's shares of Mahopac have not been previously acquired by the remaining
shareholders. The merger, which will be accounted for as a purchase, is subject
to the approval of the shareholders of Mahopac and the appropriate bank
regulators and is expected to be completed in May 1999.
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANKS:
The Federal Reserve Board requires banks to maintain certain minimum
cash balances consisting of vault cash and deposits in the Federal Reserve Bank.
The amount of such reserves is based on percentages of certain deposit types and
totaled $1,598,000 and $2,515,000 at December 31, 1998 and 1997, respectively.
NOTE 4 - INVESTMENT SECURITIES:
The amortized cost and estimated market value of securities available
for sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $13,742,386 $ 346,126 $ (647) $ 14,087,865
State and political subdivision obligations 32,486,465 1,414,614 (24,571) 33,876,508
Mortgage-backed securities 17,173,404 161,538 (44,301) 17,290,641
----------- ---------- ---------- ------------
TOTAL 63,402,255 1,922,278 (69,519) 65,255,014
=========== ========== ========== ============
DECEMBER 31, 1997
U.S. Treasury securities and obligations of
U.S. government corporations and agencies 14,920,070 270,302 (3,672) 15,186,700
State and political subdivision obligations 4,812,298 112,351 (1,449) 4,923,200
Mortgage-backed securities 14,163,181 98,359 (14,940) 14,246,600
----------- ---------- ---------- ------------
TOTAL $33,895,549 $ 481,012 $ (20,061) $ 34,356,500
=========== ========== ========== ============
</TABLE>
The amortized cost and estimated market value of securities held to maturity are
as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 11,958,264 $ 210,724 $ (588) $ 12,168,400
State and political subdivision obligations 24,961,440 895,029 (2,769) 25,853,700
Mortgage-backed securities 6,189,618 35,303 (4,721) 6,220,200
------------ ---------- ------ ------------
TOTAL $ 43,109,322 $1,141,056 (8,078) $ 44,242,300
============ ========== ====== ============
</TABLE>
The market values of securities are estimated utilizing independent
pricing services and are based on available market data. The market values of
state and political subdivision obligations that are not actively traded are
determined by independent pricing services based on market transactions in
comparable securities and various relationships between securities.
40
<PAGE>
The amortized cost and estimated market value of debt securities at
December 31, 1998, by contractual maturity, are shown below. Actual maturities
may differ from contractual maturities because borrowers may have the right to
call or prepay obligations.
AVAILABLE FOR SALE
-----------------------------
ESTIMATED
AMORTIZED MARKET
COST VALUE
------------ ------------
Due within one year $ 14,739,654 $ 14,845,840
Due after one year through five years 16,651,369 17,209,062
Due after five years through ten years 18,748,905 19,720,399
Due after ten years 13,262,326 13,479,713
------------ ------------
TOTAL SECURITIES $ 63,402,254 $ 65,255,014
============ ============
Investments originating from the Federal Home Loan Mortgage Corporation
and the Federal National Mortgage Association each exceeded 10% of shareholders'
equity as of December 31, 1998. The total amortized cost and market value of
securities pledged to secure public deposits, as required by law, was
$40,439,900 and $41,649,400, respectively, at December 31, 1998.
NOTE 5 - LOANS:
Loans consisted of the following:
DECEMBER 31,
------------------------------
1998 1997
------------- -------------
Residential real estate $ 53,638,439 $ 49,158,726
Commercial real estate 39,948,496 35,046,889
Commercial and industrial loans 38,201,766 33,616,025
Agricultural loans 35,707,279 31,563,146
Consumer loans 19,340,354 10,587,246
------------- -------------
186,836,334 159,972,032
Allowance for loan losses (2,377,300) (2,028,600)
------------- -------------
TOTAL LOANS $ 184,459,034 $ 157,943,432
============= =============
Included in residential real estate loans are $15,347,038 and
$8,843,953 of loans held for sale at December 31, 1998 and 1997, respectively.
Loans serviced for others, principally residential real estate loans, amounting
to $10,147,104 and $11,161,100 at December 31, 1998 and 1997, respectively, are
not included in the consolidated financial statements.
Impaired loans totaled $262,200 and $576,000 at December 31, 1998 and
1997, respectively. The total allowance for loan losses related to these loans
was $90,400, $73,700 and $120,700 at December 31 of 1998, 1997 and 1996,
respectively. The average recorded investment in impaired loans during 1998,
1997 and 1996 was $441,500, $436,800 and $409,900, respectively. Nonaccrual
loans totaled $468,300 and $727,100 at December 31, 1998 and 1997, respectively.
Accruing loans past due 90 days or more totaled $389,600 and $97,500 at December
31, 1998 and 1997, respectively. Interest income that would have been earned on
nonaccrual loans as of December 31, 1998 and 1997 and 1996, would have been
$52,382, $26,355 and $42,477, respectively. Interest income that was recognized
on these nonaccrual loans for 1998, 1997 and 1996 was not significant.
41
<PAGE>
The Company does not have reportable operating segments as defined by
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." A summary of revenues by loan products consists of the following:
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
----------- ----------- -----------
Residential real estate $ 4,210,550 $ 4,017,130 $ 3,767,700
Commercial real estate 3,838,940 3,299,020 3,155,050
Commercial and industrial loans 3,688,390 3,169,650 2,590,400
Agricultural loans 2,869,500 2,589,500 2,209,000
Consumer loans 1,742,208 1,535,042 1,470,587
----------- ----------- -----------
TOTAL REVENUE $16,349,588 $14,610,342 $13,203,737
=========== =========== ===========
As discussed in Note 16, the Company's customers are located primarily
in the counties of Genesee, Wyoming and Livingston in New York State. There are
no transactions with a single customer that in the aggregate result in revenues
that exceed ten percent of consolidated total revenues.
An analysis of changes in the allowance for possible loan losses is as
follows:
Year ended December 31,
--------------------------------------------
1998 1997 1996
----------- ----------- -----------
Balance, beginning of year $ 2,028,600 $ 1,841,200 $ 1,716,300
Provision expense 532,567 368,165 282,510
Charge-offs (231,112) (216,280) (185,599)
Recoveries 47,245 35,515 27,989
----------- ----------- -----------
BALANCE, END OF YEAR $ 2,377,300 $ 2,028,600 $ 1,841,200
=========== =========== ===========
NOTE 6 PREMISES AND EQUIPMENT:
Premises and equipment, net of accumulated depreciation and
amortization, consisted of the following:
December 31,
-------------------------
1998 1997
----------- ----------
Land and improvements $ 341,182 $ 320,976
Premises 5,326,295 5,005,423
Furniture, Fixtures and equipment 4,473,873 4,193,163
Leasehold improvements 176,070 176,070
----------- ----------
$10,317,420 $9,695,632
Accumulated depreciation and amortization (3,973,371) (3,275,761)
----------- ----------
NET BOOK VALUE $ 6,344,049 $6,419,871
=========== ==========
Depreciation and amortization expense relating to premises and equipment was
approximately $707,600 in 1998, $649,200 in 1997 and $547,500 in 1996.
42
<PAGE>
NOTE 7 DEPOSITS:
Deposits consisted of the following:
December 31,
--------------------------------
1998 1997
------------ ------------
Noninterest bearing demand deposits $ 36,432,791 $ 32,083,730
Negotiable order of withdrawal deposits 32,806,269 30,538,409
Savings deposits 37,210,480 34,559,819
Money market deposits 16,619,819 11,504,838
Certificates of deposit less than $100,000 86,377,846 87,528,729
Certificates of deposit $100,000 or greater 31,404,827 20,989,799
------------ ------------
TOTAL DEPOSITS $240,852,032 $217,205,324
============ ============
At December 31,1998, the scheduled maturities of certificates of
deposit in 1999, 2000, 2001, 2002 and 2003 and thereafter are as follows:
$91,461,311, $19,016,831, $5,598,674, $442,265 and $1,263,592, respectively.
NOTE 8 - BORROWINGS:
At December 31, 1998, the Company had advances, secured by residential
mortgage loans, from the Federal Home Loan Bank of New York of $3,968,283.
Advances from the Federal Home Loan Bank of New York averaged approximately
$7,332,000 during 1998, and the maximum amount outstanding at any month-end
during 1998 was $7,720,010. The borrowings have fixed rates of interest ranging
from 5.25% to 7.97%, with a weighted average interest rate of 6.51%, and mature
at various dates through 2005. Principal repayments required in 1999, 2000,
2001, 2002, 2003 and thereafter are as follows: $1,866,431, $312,728, $342,437,
$368,235, $395,993 and $682,459 respectively. At December 31, 1998, the Company
has an available line of credit with the Federal Home Loan Bank of New York of
$26,342,400. There is no amount outstanding on this line at December 31, 1998.
There are no significant commitment fees associated with this line. Securities
sold under agreements to repurchase averaged approximately $2,395,000 during
1998, and $1,837,000 during 1997. The maximum amount outstanding at any
month-end during 1998 was $5,819,874.
NOTE 9 - SHAREHOLDERS' EQUITY:
The Company has 300,000 shares reserved for issuance under its fixed
stock option plan. The options may be granted at prices not less than the fair
market value at the date of grant, vest over periods up to nine years, and
expire no later than ten years after the date of grant. There were no options
granted in 1998 and 1997 and 17,000 options granted in 1996. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model. The options granted during 1996 were valued using the
following assumptions: a risk-free interest rate of 6.49%; an expected life of
seven years; expected volatility of 14.98%; and an expected dividend yield of
2.62%.
43
<PAGE>
The Company has not recognized any compensation cost associated with
the granting of options. Had the Company recognized compensation cost associated
with these options, net income and earnings per share would have been as
follows:
Year ended December 31,
1998 1997 1996
----------- ----------- -----------
Pro forma:
Net income $ 3,299,060 $ 3,122,141 $ 2,864,681
Basic earnings per share $ 1.01 $ 1.10 $ 1.06
Diluted earnings per share $ .98 $ 1.00 $ .97
A summary of the status of the Company's stock option plan as of
December 31, 1998, 1997 and 1996, and changes during the years ending on those
dates is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- -------------------- ---------------------
Weighted Weighted Weighted
average average average
exercise exercise exercise
Shares price Shares price Shares price
--------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 50,726 $ 20 71,492 $ 18 81,258 $ 15
Granted 17,000 $ 29
Three-for-one stock split 101,452 $ 7
Exercised (15,794) $ 6 (20,766) $ 15 (25,016) $ 15
Forfeited (1,750) $ 5
--------- ----- ------- ----- -------- -----
Outstanding at year end 136,384 $ 7 50,726 $ 20 71,492 $ 18
========= ===== ======= ===== ======== =====
Options exercisable at year end 73,611 $ 5 16,924 $ 16 27,864 $ 15
========= ===== ======= ===== ======== =====
Fair value of options granted during
the year 7.99
========= ===== ======= ===== ======== =====
</TABLE>
At December 31, 1998, there are 87,934 options outstanding with an
exercise price of $5 and a remaining contractual life of one year, and 48,450
options outstanding with an exercise price of $9.67 and a remaining contractual
life of seven years.
During 1993, the Company sold 200,000 shares of its common stock with
attached warrants to purchase an additional 200,000 shares. The warrants were
exercisable at $23.00 per share and expired on December 31, 1997. Warrants for
164,700 shares and 14,400 shares were exercised during 1997 and 1996,
respectively. The total number of warrants exercised was $182,623.
NOTE 10 EMPLOYEE BENEFIT PLANS:
The Company has a noncontributory defined benefit pension plan covering
substantially all employees. Benefits are based on 1% of career average annual
compensation multiplied by the number of years of service, up to 40 years. The
Company's funding policy is to contribute annually an amount, based on actuarial
computations, which would satisfy the Internal Revenue Service's funding
standards.
44
<PAGE>
Net pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Service cost $ 93,518 $ 87,056 $ 83,041
Interest cost on projected benefit obligation 105,666 95,691 86,718
------------- ------------- -------------
Expected return on plan assets (125,824) (111,534) (99,995)
Amortization of unrecognized transition obligation (7,073) (7,073) (7,073)
Amortization of prior service cost (28) (28) (28)
============= ============= =============
NET PENSION EXPENSE $ 66,259 $ 64,112 $ 62,663
</TABLE>
The funded status of the plan was as follows:
--------------------------
PENSION BENEFITS
--------------------------
1998 1997
----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,521,386 $ 1,381,795
Service cost 93,518 87,056
Interest cost 105,666 95,691
Actuarial loss 172,393 17,446
Benefits paid (67,907) (60,602)
----------- -----------
Benefit obligation at end of year 1,825,056 1,521,386
----------- -----------
Change in plan assets:
Fair value of plan assets at beginning of year 1,650,678 1,467,525
Actual return on plan assets 103,961 243,755
Benefits paid (67,907) (60,602)
----------- -----------
Fair value of plan assets at end of year 1,686,732 1,650,678
----------- -----------
Funded status (138,324) 129,292
Unrecognized net actuarial loss (gain) 42,818 (151,438)
Unrecognized prior service cost (294) (322)
Unrecognized initial net obligation (26,876) (33,949)
----------- -----------
Accrued benefit cost (122,676) (56,417)
=========== ===========
The projected benefit obligation at December 31, 1998 and 1997, was
determined using a discount rate of 6.50% and 7.00%, respectively, and an
assumed average rate of increase in future compensation levels of 5.50%. The
expected long-term rate of return on plan assets was 7.75%. The plan assets
consist primarily of fixed income securities. The unrecognized net transition
asset as of January 1, 1989, is being amortized over the remaining service lives
of the participants at that date, which approximates 14 years.
The Company also has an executive supplemental income plan which
provides for specified deferred compensation benefits payable to certain
officers in the event of death, disability or retirement. The liability relating
to this plan was approximately $210,000 and $225,000 at December 31, 1998 and
1997, respectively, and was determined using a discount rate of 7.50% and an
assumed rate of increase in future compensation of 3%. There were charges to
income related to this plan in 1998 and 1997 of approximately $10,600 and
$34,700, respectively. The Company is both owner and beneficiary of a life
insurance policy on the life of each participant, the proceeds from which can be
used to fund the after-tax cost of the promised benefits. The cash surrender
value of such life insurance policies was approximately $570,000 and $562,000 as
of December 31, 1998 and 1997, respectively.
45
<PAGE>
The Company sponsors an internally leveraged employee stock ownership
plan ("ESOP") that covers all employees with one year of service, who work at
least 1,000 hours per year and who have attained the age of 21. The Company has
financed the purchase of ESOP shares with borrowings from the Bank, which in
turn borrows the amount from the Federal Home Loan Bank of New York. The Company
makes annual contributions to the ESOP equal to the ESOP's debt service. As the
debt is repaid, shares are released from collateral and allocated to active
employees, based on the proportion of debt service paid in the year.
The Company accounts for its ESOP in accordance with Statement of
Position 93-6, "Employers' Accounting for Employee Stock Ownership Plans."
Accordingly, the debt of the ESOP is recorded as debt and the shares pledged as
collateral are reported as unearned ESOP shares in the consolidated statement of
condition. As shares are released from collateral, the Company recognizes
compensation expense equal to the current market price of the shares, and the
shares become outstanding for earnings per share computations. Dividends on
allocated ESOP shares are recorded as a reduction of retained earnings;
dividends on unallocated ESOP shares are available for debt service. ESOP
compensation expense was approximately $131,800, $101,800 and $149,700 for the
years ended December 31, 1998, 1997 and 1996, respectively. The ESOP shares at
December 31,1998, have been adjusted for the three-for-one stock split discussed
in Note 1. The ESOP shares are as follows:
DECEMBER 31,
-------------------------
1998 1997
----------- ------------
Released and allocated shares $ 170,298 $ 58,759
Unreleased shares 62,793 23,547
TOTAL ESOP SHARES 233,091 82,306
----------- ------------
Fair value of unreleased shares $ 1,004,688 $ 1,130,256
=========== ============
NOTE 11 INCOME TAXES:
The components of the provision for income taxes are as follows:
Year ended December 31,
-----------------------------------------------
1998 1997 1996
----------- ----------- -----------
Current:
Federal $ 1,064,584 $ 1,055,800 $ 1,021,500
State 421,183 337,800 322,300
----------- ----------- -----------
Total 1,485,767 1,393,600 1,343,800
=========== =========== ===========
Deferred:
Federal (93,681) 71,700 6,000
State (26,183) 21,700 1,200
----------- ----------- -----------
(119,864) 93,400 7,200
----------- ----------- -----------
Total $ 1,365,903 $ 1,487,000 $ 1,351,000
=========== =========== ===========
46
<PAGE>
The components of deferred tax assets and liabilities are as follows:
December 31,
-----------------------
1998 1997
--------- ---------
Deferred tax assets:
Allowance for loan losses $ 716,900 $ 643,100
Deferred compensation 84,300 90,000
Unrealized gains recognized for tax purposes 73,900 59,200
Deferred loan origination fees and costs 28,000 38,100
Pension 38,400 22,800
Other 43,500 9,800
--------- ---------
Total 985,000 863,000
--------- ---------
Deferred tax liabilities:
Depreciation 445,400 443,000
Unrealized investment gains 611,000 151,900
--------- ---------
Total 1,056,400 594,900
--------- ---------
NET DEFERRED TAX (LIABILITY) ASSET $ (71,400) $ 268,100
========= =========
The Company believes that it is more likely than not that the net
deferred tax asset will be realized through future taxable earnings.
The provision for income taxes is different from that which would be
obtained by applying the statutory federal income tax rate to income before
taxes. The items causing this difference are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------------------------
% of % of % of
pretax pretax pretax
Amount income Amount income Amount income
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Expected tax at federal statutory rates $ 1,590,706 34.0% $ 1,571,700 34.0% $1,435,000 34.0%
Increases (decreases) resulting from:
Tax exempt interest (446,416) (9.5) (384,300) (8.3) (331,000) (7.8)
State income taxes, net of federal benefit 260,700 5.6 237,300 5.1 214,000 5.0
Other, net (39,087) (0.8) 62,300 1.4 33,000 0.8
----------- ---- ----------- ---- ---------- ----
Provision for income taxes 1,365,903 29.3 1,487,000 32.2% 1,351,000 32.0%
=========== ==== =========== ==== ========== ====
</TABLE>
NOTE 12 - EARNINGS PER SHARE:
The calculations of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996
-------------- ------------- ------------
<S> <C> <C> <C>
Income available to common shareholders $ 3,312,643 $ 3,135,724 $ 2,870,341
BASIC EARNINGS PER SHARE
Weighted average shares outstanding 3,266,509 2,838,660 2,697,351
Basic earnings per share $ 1.01 $ 1.10 $ 1.06
-------------- ------------- ------------
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 3,266,509 2,838,660 2,697,351
Dilutive effect of:
Warrants 68 187,212 135,483
Stock options 86,949 105,828 117,324
Adjusted weighted average shares
outstanding 3,353,526 3,131,700 2,950,158
Diluted earnings per share $ .99 $ 1.00 $ .97
</TABLE>
47
<PAGE>
NOTE 13 - COMPREHENSIVE INCOME:
The Company adopted SFAS No. 130, "Reporting Comprehensive Income," in
the first quarter of 1998. SFAS No. 130 establishes standards for reporting and
displaying comprehensive income and its components. Financial statements
presented for periods prior to 1998 are required to be reclassified to reflect
application of the provision of SFAS No. 130. The following table sets forth the
components of other comprehensive income.
YEAR ENDED
DECEMBER 31, 1998
BEFORE TAX INCOME
AMOUNT TAXES NET
------------- ----------- ------------
Unrealized gains
on securities
Unrealized holding
gains ............ $ 277,515 $ (82,859) $ 194,656
Less:
Reclassification
adjustment for
gains realized
in net income .... (60,352) 19,010 (41,342)
------------- ----------- ------------
Net unrealized
gains ............... $ 217,163 $ (63,849) $ 153,314
============= =========== ============
Cumulative effect of
change in accounting
principle ........... $ 1,174,645 $ (375,886) $ 798,759
============= =========== ============
YEAR ENDED
DECEMBER 31, 1997
BEFORE TAX INCOME
AMOUNT TAXES NET
------------- ----------- ------------
Unrealized gains
on securities
Unrealized holding
gains ........... $ 225,999 $ (53,633) $ 172,366
Less:
Reclassification
adjustment for
gains realized
in net income ... (36,850) 10,687 (26,163)
------------- ----------- ------------
Net unrealized
gains .............. $ 189,149 $ (42,946) $ 146,203
============= =========== ============
YEAR ENDED
DECEMBER 31, 1996
BEFORE TAX INCOME
AMOUNT TAXES NET
------------- ----------- ------------
Unrealized losses
on securities:
Unrealized holding
gains ........... $ (230,387) $ 94,645 $ (135,742)
Less:
Reclassification
adjustment for
gains realized
in net income ... (12,924) 4,135 (8,789)
------------- ----------- ------------
Net unrealized
losses ............. $ (243,311) 98,780 (144,531)
============= =========== ============
48
<PAGE>
NOTE 14 RELATED PARTY TRANSACTIONS:
The Company has entered into transactions with its executive officers,
directors, principal shareholders, and companies in which such individuals have
10% or more ownership (related parties). It is the Company's policy that all
related party transactions are conducted at "arms- length" and all loans and
commitments included in such transactions are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other customers.
The aggregate amount of loans to such related parties at December 31,
1998, was $7,472,861. During 1998, new loans and increases in existing loans to
such related parties amounted to $18,262,814 and principal repayments amounted
to $17,254,653. At December 31, 1998, there were approximately $874,904 in
deposits from such related parties.
NOTE 15 COMMITMENTS AND CONTINGENT LIABILITIES:
The Company operates one branch office under a noncancellable lease
agreement which expires in 2002. Two other branch offices are located on land
which is being leased through 2004 and 2090, respectively. These lease
agreements contain various renewal and purchase options at maturity.
Future minimum rentals under these leases are: 1999-2003, $9,600 per
year. Total rental expense was approximately $10,300 in 1998 and $16,400 in 1997
and $23,000 in 1996.
NOTE 16 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS
OF CREDIT RISK:
The Company is party to financial instruments with off-balance sheet
risk in the normal course of business in order to meet the financing needs of
its customers. These financial instruments include commitments to extend credit
and standby letters of credit which involve, to varying degrees, elements of
credit, interest rate or liquidity risk in excess of the amount recognized in
the consolidated statement of condition. The Company's exposure to credit loss
in the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit is represented by
the contractual amounts of those instruments. The Company has experienced
minimal credit losses to date on its financial instruments with off-balance
sheet risk.
The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments. The Company
controls the credit risk of off-balance sheet instruments through credit
approvals, limits and monitoring procedures, and management evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained is based on management's credit evaluation of the customer.
Commitments to extend credit, which generally have fixed expiration
dates or other termination clauses, are legally binding agreements to lend to a
customer (as long as there is no violation of any condition established in the
contract). At December 31, 1998, the Company's total commitments to extend
credit approximated $40,094,237. Since a portion of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future liquidity requirements.
The Company has identified certain credit risk concentrations in
relation to its on- and off-balance sheet financial instruments. Credit risk is
defined as the possibility that a loss may occur from the failure of another
party to perform according to the terms of the contract. A credit risk
concentration results when the Company has a significant credit exposure to an
individual or a group engaged in similar activities or affected similarly by
economic conditions.
The Company's customers are located primarily in the counties of
Genesee, Wyoming and Livingston in New York State. As Note 5 to the consolidated
financial statements indicates, approximately 19% of the Company's outstanding
loans are commercial loans to customers who are directly involved in the
agriculture industry, primarily dairy farmers. In addition, there are other
commercial and industrial loans, real estate loans and consumer loans
outstanding to customers who are indirectly related to the agriculture industry.
49
<PAGE>
NOTE 17 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
CASH AND SHORT-TERM INSTRUMENTS
For those short-term instruments, the carrying amount represents an
estimate of fair value.
LOAN RECEIVABLES
The fair value of loans is determined by utilizing a discounted cash
flow model which considers scheduled maturities, repricing characteristics,
prepayment assumptions and interest cash flows.
DEPOSIT LIABILITIES
The fair value of demand deposits, savings accounts, and certain money
market deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is determined by utilizing a
discounted cash flow model which considers scheduled maturities, repricing
characteristics and interest cash flows.
BORROWINGS
A discounted cash flow model utilizing rates currently available to the
bank for debt with similar terms and remaining maturities is used to estimate
fair value of existing debt.
COMMITMENTS TO EXTEND CREDIT
Fees charged for commitments to extend credit and stand-by letters of
credit are not significant and are offset by associated credit risk with respect
to certain amounts expected to be funded. Accordingly, the fair value of the
financial instruments is immaterial.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------ ----------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------------- -------------- -------------- ---------------
Financial assets:
<S> <C> <C> <C> <C>
Cash and due from banks $ 10,647,917 $ 10,647,917 $ 10,863,023 $ 10,863,023
Federal funds sold 9,250,000 9,250,000 1,550,000 1,550,000
Investment securities 67,338,515 67,338,515 79,168,153 80,301,131
Loans, net of allowance
for possible loan losses 184,459,034 189,172,000 157,943,432 158,960,000
Financial liabilities:
Deposits 240,852,032 241,686,032 217,205,324 217,395,300
Securities sold under
agreements to repurchase 1,198,294 1,198,294 1,673,911 1,673,911
Advances from the Federal
Home Loan Bank 3,968,283 4,804,000 7,812,302 7,812,302
</TABLE>
The reported fair values of financial instruments are based on a
variety of factors. Accordingly, the fair values may not represent actual values
of the financial instruments that could have been realized as of year-end or
that will be realized in the future.
50
<PAGE>
NOTE 18 - REGULATORY MATTERS:
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory (and possibly additional
discretionary) actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative measures
of the Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital amounts
and classification are subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1998, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Company as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as well
capitalized the Company must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. The Company's
actual capital amounts and ratios are also presented in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
--------------------------------------------------------------------------------
AMOUNT RATIO (3)AMOUNT (3)RATIO (3)AMOUNT RATIO
------------- ------- ----------- -------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1998:
Total capital (to risk
weighted assets):
The Company $ 34,127,000 19.10% $ 14,304,480 8.00% $ N/A
The Bank 32,107,000 17.69% 14,525,600 8.00% 18,157,000 10.00%
Tier I Capital (to risk
weighted assets):
The Company 31,881,000 17.84% 7,152,240 4.00% N/A
The Bank 29,837,000 16.44% 7,262,800 4.00% 10,894,200 6.00%
Tier I Capital
(to average assets):
The Company 31,881,000 11.26% 8,495,500 3.00% N/A
The Bank 29,837,000 11.03% 8,113,230 3.00% 13,522,050 5.00%
AS OF DECEMBER 31, 1997:
Total capital (to risk
weighted assets):
The Company $ 33,135,000 21.29% $ 12,451,040 8.00% N/A
The Bank 29,093,000 18.69% 12,465,760 8.00% $ 15,582,200 10.00%
Tier I Capital (to risk
weighted assets):
The Company 31,190,000 20.04% 6,225,520 4.00% N/A
The Bank 27,064,000 17.39% 6,232,880 4.00% 9,349,320 6.00%
Tier I Capital (to
average assets):
The Company 31,190,000 12.18% 7,680,420 3.00% N/A
The Bank 27,064,000 10.57% 7,690,590 3.00% 12,817,650 5.00%
</TABLE>
NOTE 19 CONDENSED FINANCIAL INFORMATION:
The Company's principal asset is its investment in the Bank. The Bank
is restricted by law and related regulations as to the amount of funds that can
be transferred to the Company. Under such restrictions, approval from regulatory
agencies is required for the declaration of dividends in any year that exceed
the total of net income of the subsidiary in the current year, plus retained net
income for the preceding two years. At December 31, 1998, the Bank could declare
dividends of approximately $8,358,727 without prior approval from regulatory
agencies.
51
<PAGE>
Condensed financial information of the Company follows:
STATEMENT OF CONDITION
DECEMBER 31,
----------------------------
1998 1997
------------ ------------
ASSETS
Cash and due from bank - The Bank of Castile $ 1,439,488 $ 3,826,493
Investment in The Bank of Castile 30,487,434 27,657,967
Other assets 995,193 590,750
------------ ------------
TOTAL ASSETS $ 32,922,115 $ 32,075,210
============ ============
LIABILITIES AND SHAREHOLDERS 'EQUITY
Accrued expenses $ 46,626 $ 4,475
Employee stock ownership plan loan payable 490,654 539,320
------------ ------------
TOTAL LIABILITIES 537,280 543,795
Common stock 3,390,650 1,124,852
Capital surplus 12,347,915 14,436,634
Retained earnings 18,673,888 16,428,534
Unearned employee stock ownership plan shares (490,654) (539,320)
Accumulated other comprehensive income 16,969 80,715
Treasury stock at cost (1,553,933) --
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 32,384,835 31,531,415
------------ ------------
Total Liabilities and Shareholders' Equity $ 32,922,115 $ 32,075,210
============ ============
<TABLE>
<CAPTION>
STATEMENT OF INCOME
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Dividends received - The Bank of Castile $ 800,458 $ 771,691 $ 602,192
Dividend and other income 23,708 1,979 --
---------- ---------- ----------
TOTAL INCOME 824,166 773,670 602,192
Operating expenses 340,990 273,495 294,155
---------- ---------- ----------
Income before equity in undistributed income
of subsidiary 483,176 500,175 308,037
Equity in undistributed income of
subsidiary - The Bank of Castile 2,829,467 2,635,549 2,562,304
---------- ---------- ----------
NET INCOME $3,312,643 $3,135,724 $2,870,341
========== ========== ==========
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,312,643 $ 3,135,724 $ 2,870,341
Adjustments to reconcile net income to
net cash provided by operating activities -
ESOP compensation expense 131,794 101,815 149,655
Equity in income of subsidiary (3,629,925) (3,407,240) (3,164,496)
Other (426,038) (497,257) (12,778)
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (611,526) (666,958) (157,278)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Dividends received The Bank of Castile 800,458 771,691 602,192
----------- ----------- -----------
NET CASH PROVIDED BY INVESTING
ACTIVITIES 800,458 771,691 602,192
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid (1,067,289) (753,504) (602,191)
Payment of current borrowings (48,666) (59,925) (112,583)
Proceeds from exercise of options and warrants 93,951 4,099,590 706,440
Purchases of treasury stock (1,553,933) -- --
Repurchase of warrants -- (429,500) --
----------- ----------- -----------
NET CASH (USED IN)PROVIDED BY
FINANCING ACTIVITIES (2,575,937) 2,856,661 (8,334)
----------- ----------- -----------
Net increase in cash and due from banks (2,387,005) 2,961,394 436,580
Cash and due from banks, beginning of year 3,826,493 865,099 428,519
----------- ----------- -----------
Cash and due from banks, end of year $ 1,439,488 $ 3,826,493 $ 865,099
=========== =========== ===========
</TABLE>
53
<PAGE>
ITEM 8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9 - DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS OF THE REGISTRANT
In accordance with the Bylaws of the Company, three (3) classes of
directors are elected in three (3) staggered three-year terms. Each director so
elected serves for a term of three (3) years and until his successor is duly
elected and qualified.
Executive officers serve until the next annual meeting of directors and
until their successors are appointed and qualified.
Set forth below is certain information regarding the executive officers
and directors of the Company as of March 26, 1999.
Positions
Held With
Name Age the Company Address
James H. Van Arsdale, III 78 Chairman of the 71 Park Road East
Board of Directors Castile, NY 14427
James W. Fulmer 47 President, Chief 38 Wolcott Street
Executive Officer, LeRoy, NY 14482
and Director
Charles L. Van Arsdale 75 Director 5136 Park Road West
Castile, NY 14427
Stanley J. Harmon* 78 Secretary and 4845 Luther Road
Director Silver Springs, NY 14550
Patrick J. Dalton 40 Director 2 Shrewsbury Lane
Fairport NY 14450
Thomas J. Sykes 52 Treasurer 11 Cambric Circle
Pittsford NY 14534
- ----------
*Mr. Harmon, whose term expires at the annual meeting, has notified the
Company that he does not want to be considered for re-election to the Board of
Directors
James W. Fulmer also serves as a director of the Bank. The principal
occupation or employment of each director and each executive officer of the
Company and the year in which each such director became a director of the
Company and/or the Bank is set forth below.
54
<PAGE>
Mr. James H. Van Arsdale, III, a director of the Company since 1981,
was named Chairman of the Board of Directors of the Company in 1981. Prior to
that time, Mr. Van Arsdale performed various managerial functions for the Bank
and held various executive offices of the Bank. He was the Chairman of the Board
of Directors of the Bank until 1992 when he retired. Mr. Van Arsdale had also
been a director of the Bank since 1948. Mr. Van Arsdale is the brother of Mr.
Charles L. Van Arsdale.
Mr. James W. Fulmer has served as the President and Chief Executive
Officer of the Company since January 1, 1991, and as the Chief Executive Officer
of the Bank since January, 1996. Before joining the Company as the Executive
Vice President in December, 1988, Mr. Fulmer held various executive positions
with Fleet Bank of New York (formerly known as Security New York State
Corporation and Norstar Bank) for approximately twelve (12) years and with the
Genesee Valley Penny Saver for approximately one year. Mr. Fulmer has served as
a director of the Bank since 1988 and as Vice Chairman of the Board of Directors
of the Bank since 1991. Effective May 1, 1992, he assumed the position of
Chairman of the Board of Directors of the Bank, and he currently serves as a
member of the Board of Directors of the Cherry Valley Cooperative Insurance
Company, Catholic Health System of WNY, Genesee Mercy Healthcare, the Genesee
County Industrial Development Agency, and is secretary of the Independent
Bankers Association of New York State. He is also a member of the Board of
Directors of the New York State Bankers Association and Monroe Abstract & Title
Corporation.
Mr. Charles L. Van Arsdale was the President of the Company from the
date of its incorporation in 1981 until December 31, 1990. In addition, Mr. Van
Arsdale was a director of the Bank from 1949 until his retirement in 1996. Prior
to 1981, Mr. Van Arsdale performed several managerial functions for the Bank and
held various executive offices of the Bank. Mr. Van Arsdale is the brother of
Mr. James H. Van Arsdale, III.
Mr. Stanley J. Harmon, the Secretary of the Company since 1981, is a
retired funeral director. Mr. Harmon also served as a director of the Bank from
1960 until April 30, 1993. As set forth above, Mr. Harmon has informed the
Company that he does not want to stand for re-election to the Board of Directors
of the Company.
Mr. Patrick J. Dalton has been a director of the Company since May 7,
1998. Mr. Dalton has been partner in the law firm of Harris Beach & Wilcox, LLP
located in Rochester, New York since 1994 and has been a member of the
Management Committee of the firm since July,1997.
Mr. Thomas J.Sykes, Treasurer of the Company since September 1998, is
also the Chief Financial Officer for the Company and the Bank. Prior to joining
the Company, Mr Sykes was the Chief Financial Officer/Controller for Brainerd
Manufacturing Company, Inc. and had held eariler executive ranking positions at
First National Bank of Memphis, Lincoln First Bank of Rochester and Rochester
Community Savings Bank. Mr. Sykes graduated from Ohio University, Athens, Ohio
with a B.S. and a M.B.A. from Memphis State University.
55
<PAGE>
The following table sets forth the names and ages of the principal
officers and directors of the Bank and their current positions with the Bank.
Name Age Position
James W. Fulmer 47 Chief Executive Officer,
Chairman of the Board of
Directors, and Director
Robert L. Brass 61 Director
Joseph G. Bucci 55 Director
Brenda L. Copeland 47 President and Director
Thomas E. Cushing 48 Director
Gary D. Gates 62 Director
Benjamin C. Mancuso, Jr. 65 Director
John McClurg 37 Director
Craig Yunker 47 Director
- ----------
James W. Fulmer also serves as a director of the Company. The principal
occupation or employment of all other directors and principal officers of the
Bank and the year in which each such director and principal officer of the Bank
became a director or principal officer of the Bank, as the case may be, is set
forth below.
Mr. Robert L. Brass, a director of the Bank since 1992, is President of
L.R. Brass, Inc., a retail food market.
Mr. Joseph G. Bucci, a director of the Bank since 1986, is a
self-employed real estate agent.
Ms. Brenda L. Copeland became the President of the Bank on January 1,
1991. In addition, she has served as a director of the Bank since 1988, and has
been employed by the Bank since 1971.
Mr. Thomas E. Cushing, a director since 1989, is the Vice President,
Secretary and Treasurer of J.O. Cook, Inc.
Mr. Gary D. Gates, a director since 1986, is the President of Gary's TV
and Appliance, Inc.
Mr. Benjamin C. Mancuso, Jr., a director since 1992, is President of
Charles Mancuso and Son, Inc., a family-owned holding company.
Mr. Craig Yunker, a director of the Bank since 1991, is a partner in CY
Farms.
John McClurg, a director since 1995, is President and owner of McClurg
Chrysler-Plymouth, Inc. and McClurg Chevrolet-Pontiac-Oldsmobile, Inc., two
automobile dealerships located in Perry, New York.
56
<PAGE>
ITEM 10 - EXECUTIVE COMPENSATION
The following tables show, for the years ended December 31, 1998, 1997,
and 1996, respectively, the total cash compensation paid by the Company and the
Bank to executive officers who received total annual salary and bonus in excess
of $100,000 and to the Chief Executive Officer of the Company.
SUMMARY COMPENSATION TABLE
Annual Compensation
Other Annual
Name and Compensation(2)
Principal Position Year Salary($)(1) Bonus($) ($)
- ------------------ ----- ----------- -------- ---------------
James W. Fulmer 1998 $160,561 $21,500 $9,012
President, CEO 1997 $141,463 $20,000 $ 0
& Director of 1996 $128,015 $17,500 $8,345
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland 1998 $129,047 $17,500 None
President of 1997 $113,211 $15,000 None
the Bank 1996 $105,601 $13,000 None
Long Term Compensation
Awards
Long Term
Restricted Options Incentive All Other
Name and Stock Award(s) SARs Payout Compensation(3)
Principal Position Year ($) (#) ($) ($)
- ------------------ ---- ------------- --------- --------- --------------
James W. Fulmer 1998 None None None $ 9,941
President, CEO 1997 None None None 16,087
& Director of 1996 None None None 7,349
the Company, and
Chairman of the
Board of the Bank
Brenda L. Copeland 1998 None None None $ 9,210
President of the 1997 None None None 16,477
Bank 1996 None None None 6,042
- ----------
(1) Includes matching contributions under the Company's 401(k) plan in an amount
equal to $4,166.33, $3,680.30, and $3,290.3, respectively, for James W. Fulmer,
and $3,365.87, $2,999.04, and $2,790.00, respectively, for Ms. Brenda L.
Copeland, for the years ended December 31, 1998, 1997, and 1996, respectively,
as well as director's fees and certain fringe benefits such as automobiles and
group term life insurance.
(2) The amounts disclosed represent the Company's contribution pursuant to the
Executive Supplemental Income Agreements executed by and between the Company and
Mr. Fulmer. See "Executive Compensation - Benefits --Executive Supplemental
Income Agreements."
(3) The amounts disclosed represent the portion of Company's contribution to the
Employee Stock Ownership Plan ("ESOP") allocated to Mr. Fulmer and Ms. Copeland,
respectively.
57
<PAGE>
During 1998, all directors of the Company received an amount equal to
$4,800 per year. During 1998, the Board of Directors of the Company met six (6)
times, and all of the directors attended 75% or more of the meetings.
During 1998, the directors of the Bank each received an annual retainer
of $9,000 in lieu of meeting attendance fees. During 1998, the Board of
Directors of the Bank met fourteen (14) times. Two (2) of the members of the
Board of Directors of the Bank entered into a certain Deferred Compensation
Agreement relating to all amounts received from the Bank during the period from
1986 until 1990. Under these agreements, all fees earned as a director during
that period are deferred until such director's death or retirement from the
Board of Directors of the Bank. Payments of the fees so deferred, as well as all
earnings on such deferred amounts, are then paid to such director or his
beneficiary, as the case may be, in one hundred twenty (120) equal monthly
installments. The Bank does not currently intend to offer such agreements to
other members of its Board of Directors.
In addition, during 1998, one designated director of the Board of
Directors of the Bank received a weekly fee of $150 for his services in
connection with the Bank's Loan Committee. Members of the Examining Committee
also receive a quarterly fee of $150 in lieu of meeting attendance fees.
Employment Contracts
On January 1, 1991, James W. Fulmer began to serve as the President and
Chief Executive Officer of the Company in accordance with his employment
agreement dated September 12, 1989, as amended, effective January 1, 1991.
Subsequently, on May 1, 1992, Mr. Fulmer became the Chairman of the Board of
Directors of the Bank. Pursuant to the terms of the agreement, as amended, each
year the term of Mr. Fulmer's employment agreement is automatically extended for
an additional year so that the term of the employment agreement is always three
(3) years. In the event that the Company terminates the employment agreement
without cause, the Company is required to pay Mr. Fulmer, as severance pay, his
annual compensation plus all fringe benefits for a period of three (3) years
from the date of such termination. In addition, in the event of such termination
without cause or the sale, merger, or substantial reorganization of the Company
or the Bank, all of Mr. Fulmer's options to purchase common stock shall become
immediately exercisable. See "Executive Compensation - Benefits -- Stock Option
Plan."
58
<PAGE>
Effective January 1, 1991, the Company entered into an amended
employment agreement with Ms. Brenda L. Copeland whereby Ms. Copeland agreed to
serve as the President of the Bank or in any other capacity that the Board of
Directors of the Company or the Bank may reasonably request. Each year the term
of Ms. Copeland's employment agreement is automatically extended for an
additional year so that the term of the employment agreement is always three (3)
years. In the event that the Company terminates the employment agreement without
cause, the Company is required to pay Ms. Copeland, as severance pay, her annual
compensation plus all fringe benefits for a period of eighteen (18) months from
the date of such termination. In addition, in the event that the Company
terminates the employment agreement as a result of a change of "control" of the
Company, the Company is required to pay Ms. Copeland, as severance pay, her
annual compensation plus all fringe benefits for a period of three (3) years
from the date of such termination. For purposes of the employment agreement, the
term "control" is defined as the possession of the power to elect a majority of
the members of the Board of Directors of the Company through the ownership of
voting securities in the Company.
Benefits
EMPLOYEE STOCK OWNERSHIP PLAN. In 1986, the Board of Directors of the
Company adopted the Employee Stock Ownership Plan ("ESOP"), effective as of
January 1, 1986. Employees eligible to participate in the ESOP are all employees
who have met the eligibility requirements on the effective date of adoption of
the ESOP, and any employees hired subsequent to that date who have completed one
year of service, work at least 1,000 hours per year, and have attained the age
of 21 years. Contributions to the ESOP are discretionary, as determined by the
Board of Directors of the Bank. All funds contributed are received, held,
invested and reinvested by the ESOP trustee. Although the trustee may invest the
funds contributed to the ESOP in such prudent investments as the trustee deems
desirable, substantially all the trust funds are invested in the common stock of
the Company.
Each participant is entitled to direct the trustee as to the exercise
of any voting rights attributable to the shares of common stock allocated to
such participant and if the trustee receives no voting instructions, the shares
of common stock are not voted. All common stock of the ESOP not allocated to the
plan participants is voted by the trustee in its sole discretion. The ESOP also
contains provisions permitting the ESOP to borrow funds to purchase common stock
and on June 16, 1986, the ESOP borrowed $500,000 pursuant to a certain loan and
pledge agreement with two (2) unaffiliated banks. The proceeds of the loan were
used to purchase approximately 48,000 newly issued shares of common stock, after
giving effect to a 6-for-1 stock split of the Company, with such shares pledged
as security for the payment of principal and interest as provided in the
above-mentioned agreement. All amounts due and owing under this loan have been
satisfied.
59
<PAGE>
In November of 1990, the Company borrowed $185,500 on behalf of the
ESOP pursuant to a loan and pledge agreement with an unaffiliated bank. The loan
proceeds were used to purchase 14,000 shares of the Company's outstanding stock,
with such shares pledged as security for the payment of principal and interest
as provided in said agreement. In November of 1993, the Company borrowed
$301,000 on behalf of the ESOP to purchase 15,050 shares of the Company's common
stock and 15,050 warrants to purchase additional shares of common stock as part
of the public offering. All amounts due and owing under these loans were
subsequently refinanced with the Bank (with appropriate collateral granted to
the Bank), which in turn, borrowed the funds from the Federal Home Loan Bank
under an existing accommodation. In 1995, the Company borrowed $140,511 on
behalf of the ESOP to purchase 5,500 shares of common stock. During 1997, the
ESOP exercised its warrants and purchased 15,050 shares of common stock from the
Company for an amount equal to $346,150.
Upon an ESOP participant's retirement, disability or death, as those
terms are defined in the ESOP, the participant shall be fully vested in all
amounts allocated to such participant under the ESOP, as well as such
participant's share in the allocation of all contributions made by the Company
during the "Plan Year" (as that term is defined in the ESOP) in which such
retirement, disability or death occurs. In the event a participant's service
terminates for any reason other than retirement, disability or death, such
participant's account becomes vested based upon the number of years of "Credited
Service" of such participant (as that term is defined in the ESOP) in accordance
with the following schedule, as amended so as to comply with the requirements of
the Tax Reform Act of 1986, as amended (the "1986 Act"):
Credited Service Vested Percentage
---------------- -----------------
Less than three years 0%
Three years 30%
Four years 40%
Five years 100%
Compensation expense related to the ESOP amounted to $131,800 ,
$101,800, and $149,700, for the years ended December 31, 1998, 1997, and 1996,
respectively. See Note 10 to "Notes to Consolidated Financial Statements"
included in this Annual Report on Form 10-K on pages 49-51.
DEFINED BENEFIT PENSION PLAN. The Company maintains a defined benefit
pension plan for the benefit of all employees covered under the Company's prior
pension plan and any other employees with at least six (6) months of service who
work at least 1,000 hours per year and have attained the age of 21 years.
Amounts contributed to the pension plan for each covered employee by the Company
are determined on an actuarial basis. The discount rate used in determining the
actuarial present value of accumulated benefits was 6.50% and 7.00% at December
31, 1998 and at December 31, 1997, respectively. See Note 10 to "Notes to
Consolidated Financial Statements" included in this Annual Report on Form 10-K
on pages 49-51.
60
<PAGE>
Under the plan, a participant is eligible for the "Normal Retirement
Pension Benefits" upon attainment of age 65 years. Vested employees who
terminate before attaining age 65 may elect optional early retirement benefits
(at reduced levels).
The following table sets forth the current regular vesting schedule for
participants under the plan, as amended so as to comply with the requirements of
the 1986 Act:
Years of Service Vested Percentage
---------------- -----------------
Less than three years 0%
Three years 20%
Four years 40%
Five years 60%
Six years 80%
Seven years 100%
An employee's "Normal Retirement Pension" benefit under the plan is an
amount (payable monthly in the form of a life only annuity) equal to the product
of 1% of such employee's "Average Compensation" and such employee's years of
"Benefit Accrual Service" (not to exceed forty (40) years), as those terms are
defined in the plan. The following table sets forth the annual Normal Retirement
Pension benefit at age 65 to an employee covered by the plan for each of the
following Average Compensation amounts and periods of Benefit Accrual Service
with the Company.
Normal Retirement Pension Benefit
for Years of Benefit Accrual Service
Average
Compensation 15 Years 20 Years 25 Years 30 Years 35 Years 40 Years
- --------------------- -------- -------- -------- -------- --------
$15,000 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 5,250 $ 6,000
$30,000 $ 4,500 $ 6,000 $ 7,500 $ 9,000 $10,500 $12,000
$45,000 $ 6,750 $ 9,000 $11,250 $13,500 $15,750 $18,000
$60,000 $ 9,000 $12,000 $15,000` $18,000 $21,000 $24,000
$75,000 $11,250 $15,000 $18,750 $22,500 $26,250 $30,000
The pension plan also provides for certain disability retirement
benefits and death benefits as well as optional forms of payment of benefits
which a covered employee may elect. The benefits provided for under the plan are
in addition to and separate from the benefits available to the participants
under the Social Security Act.
The pension plan was adopted in 1986, to be effective as of January 1,
1986, the date in which the Company terminated its former defined benefit
pension plan. There were no contributions made in 1998 1997, or 1996.
61
<PAGE>
401(K) PLAN. The Bank maintains a qualified 401(k) plan, entitled "The
Bank of Castile Salary Savings Plan", to encourage the accumulation of savings
for retirement or other purposes. Employees of the Bank who have attained the
age of 20-1/2 years are eligible to join the plan following the completion of
three (3) months of service.
Under the terms of the plan, participants may elect to contribute from
1% to 6% of their eligible salary and the Bank contributes an amount equal to
50% of this participant contribution for employees. Employees may elect to
contribute up to an additional 9% of eligible salary without any matching Bank
contribution.
All amounts contributed into the plan are invested with Tompkins County
Trust, with its principal office located at The Commons, P.O.Box 460, Ithaca,
New York,14851. Pursuant to the plan, contributions by and for employees are
held in trust by the Bank.
Participants are immediately fully vested in all contributions to the
plan. Withdrawals of contributions are subject to limitations and generally not
permitted, except in the event of hardship, until termination of employment, or
the participant's attainment of "Normal Retirement Age", as that term is defined
in the plan. During 1998, the Company contributed a total of $4,166.33 as a
matching contribution for James W. Fulmer, and $3,365.87 as a matching
contribution for Brenda L. Copeland, which amounts are included in the Summary
Compensation Table set forth on pages 64-65 of this Annual Report on Form 10-K.
EXECUTIVE SUPPLEMENTAL INCOME AGREEMENTS. The Bank has also entered
into certain executive supplemental income agreements which provide for
specified deferred compensation benefits payable to certain highly compensated
officers and members of a select management group of the Bank in the event of
death, disability or retirement. The Board of Directors, in its sole discretion,
determines who is eligible to participate in this arrangement. Although the Bank
is not under any obligation whatsoever to fund its obligations under the
above-mentioned agreements, the Bank is both the owner and beneficiary of a life
insurance policy on the life of each participant, the proceeds from which can be
used to fund the after-tax cost of the promised benefits. Charges to income
related to these agreements were approximately $10,600, $34,700, and $42,500 for
the years ended December 31, 1998, 1997, and 1996, respectively.
Under these agreements, a participant who has reached "Normal
Retirement Age," as that term is defined in the agreements, and has attained
twenty (20) continuous years of service with the Bank (including periods of
disability and authorized leaves of absence) receives an annual amount equal to
the difference between (i) 75% of such officer's average "Annual Compensation,"
as that term is defined in the agreements, during his final five (5) calendar
years of employment with the Bank, and (ii) the sum of all social security
benefits paid to such officer and any amounts paid to such officer under the
Company's defined benefit pension plan. Participants may retire after age 55
with the approval of the Board of Directors and in the event that there has been
a buy-out, merger, or substantial change in ownership of the Bank, an officer
may retire at any time after attaining the age of 55 years without approval of
the Board of Directors. In either case, the benefits available on early
retirement are equal to the benefits available at "Normal Retirement Age,"
actuarially reduced. The agreements also contain certain provisions for the
payment of pre-"Normal Retirement Age" death benefits.
62
<PAGE>
STOCK OPTION PLAN. At the Annual Meeting of Shareholders of the Company
on April 26, 1990, the shareholders approved the Letchworth Independent
Bancshares Corporation Stock Option Plan of 1990 (the "Option Plan"). At the
Annual Meeting of Shareholders of the Company on May 7, 1998, the shareholders
approved the Letchworth Independent Bancshares Corporation Stock Option Plan of
1998 (the "1998 Plan"). The purpose of the Option Plan and the 1998 Plan are to
increase the incentive and to encourage the continued employment and services of
key employees of the Company and the Bank by facilitating their purchase of a
stock interest in the Company. Management believes that the implementation of
the Option Plan and the 1998 Plan are in the best interests of the Company and
its shareholders since it will enhance the Company's ability to continue to
attract and retain qualified directors, officers and other key employees.
Under the 1998 Plan the Board of Directors may grant incentive stock
options as well as options that do not qualify as incentive stock options
("non-statutory stock options"). The Board of Directors determines the
individuals to receive grants and the number of shares to be awarded, subject to
certain federal tax regulations in the case of incentive stock options granted
under the 1998 Plan. The 1998 Plan provides that the exercise price under each
incentive stock option shall be no less than 100% of the "Fair Market Value" (as
defined in the 1998 Plan) of the common stock on the date the option is granted.
The exercise price for each non-statutory stock option granted under the 1998
Plan is the price established by the Board of Directors of the Company, which
normally is expected to be no less than 100% of the "Fair Market Value" (as
defined in the 1998 Plan) on the date the option is granted. No additional
options will be granted under the Option Plan.
On December 1, 1998, the Company issued options to acquire 10,000
shares of its common stock at a purchase price of $15.00 per share. No other
options were granted during 1998 under the 1998 Plan or under the Option Plan.
As of December 31, 1998, 153,140 stock options have been exercised
under the Option Plan, 8,298 of which were exercised in 1998. During 1998, no
options were exercised by James W. Fulmer or Brenda L. Copeland, and no options
were exercised under the 1998 Plan. To date, and Mr. Fulmer and Ms. Copeland
have exercised a total of 20,000 options and 16,800 options, respectively. The
following table shows the aggregate number of options outstanding as of March
26,1999 for each of James W. Fulmer and Brenda L. Copeland, and for all
executive officers as a group.
Number of Options Average Per
Outstanding* Share Price**
----------------- -------------
James W. Fulmer 40,728 $ 5.00
Brenda L. Copeland 25,146 $ 5.00
All Executive
Officers as a Group 65,874 $ 5.00***
- ----------
*After giving effect to the 3-for-1 stock split discussed above.
** This price represents the "Fair Market Value," as that term is defined in the
Option Plan, of the common stock of the Company on the date that the options
were granted, after giving effect to the 3-for-1 stock split described above.
*** This price represents a weighted average of the exercise price of all
options currently outstanding to all executive officers of the Company.
63
<PAGE>
The following table shows the number of options exercised, and the
value of the "in-the-money" options exercised, by each of Mr. Fulmer and Ms.
Copeland during 1998, as well as the breakdown between options granted to James
W. Fulmer and Brenda L. Copeland that were exercisable and unexercisable as of
December 31, 1998, and the potential value of "in-the-money" options, both
exercisable and unexercisable, as of December 31, 1998. "In-the-money" options
are those options where the fair market value of the Company's common stock as
of the close of the fiscal year was in excess of the exercise price established
on the grant date. This value is only realized by the executive when the option
is exercised and will fluctuate with changes in the price for the Company's
common stock after the close of the fiscal year.
<TABLE>
<CAPTION>
Shares No. of Unexercised Value of "In-the-Money"
Acquired Value Options at Unexercised Options at
on Exercise Realized* December 31, 1998 December 31, 1998
Name (Exercisable/ (Exercisable/
Unexercisable) Unexercisable)**
- ----------------- ----------- --------- ------------------ -----------------------
<S> <C> <C> <C> <C> <C>
James W. Fulmer 0 N/A 40,728/ 0 $448,008/ $0
Brenda L. Copeland 0 N/A 25,146/ 0 $276,606/ 0
</TABLE>
* Represents the value of "in-the money" options on that date that the options
were exercised by Mr. Fulmer and Ms. Copeland during 1998.
** Assumes that the "Bid" price of $16.00 at December 31, 1998 represents a
reasonable valuation of the Company's common stock.
No assurances can be given relating to the dilutive effect that the
Option Plan or the 1998 Plan or options granted thereunder may have on the
outstanding common stock.
ITEM 11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based upon information made available to the Company, the following
table sets forth certain information as of March 26, 1999, with respect to the
beneficial ownership of common stock by the only persons or entities known to
the Company to be the beneficial owner of more than 5% of the Company's
64
<PAGE>
outstanding common stock, each director of the Company, and as to all executive
officers and directors as a group:
Amount and
Nature of Percent of
Beneficial Common Stock
Name and Address Ownership(1) Outstanding (2)
- ---------------- ------------ ---------------
Charles L. Van Arsdale 180,210 (3) 5.21%
5136 Park Road West
Castile, NY 14427
James H. Van Arsdale, III 86,249 (4) 2.49%
71 Park Road East
Castile, NY 14427
James W. Fulmer 88,695 (5) 2.56%
38 Wolcott Street
LeRoy, New York 14482
Brenda L. Copeland 95,588 (6) 2.76%
130 South Main Street
Gainesville, New York 14066
Patrick J. Dalton 1,500 .04%
4 North Lyon Street
Batavia, New York 14020
Stanley J. Harmon 24,982 (7) 0.72%
Luther Road
Silver Springs, New York 14550
Letchworth Independent
Bancshares Corporation Employee
Stock Ownership Plan
50 North Main Street 248,124 (8) 7.18%
Castile, New York 14427
Executive officers and
directors, as a group
(6 persons) 477,224 (9) 13.80%
(1) Except for the shares of common stock beneficially owned by the Letchworth
Independent Bancshares Corporation Employee Stock Ownership Plan (the "ESOP"),
all such shares are owned with sole investment and voting power.
(2) These percentages have been calculated based upon 3,457,524 shares of the
Company's common stock outstanding, which amount includes the shares of common
stock that Mr. Fulmer and Ms. Copeland have the right to acquire pursuant to the
exercise of certain options granted under the Option Plan that are exercisable
within sixty (60) days of the date of this Annual Report on Form 10-K.
(3) Includes 56,004 shares of common stock owned by Mr. Van Arsdale's wife.
(4) Includes 11,553 shares of common stock owned by Mr. Van Arsdale's wife.
(5) Includes 40,728 shares of common stock that Mr. Fulmer has the right to
acquire by the exercise of certain stock options granted under the Option Plan
that are exercisable within sixty (60) days of the date of this Annual Report on
Form 10-K, as well as 10,083 shares of common stock allocated to Mr. Fulmer
under the ESOP and 945 shares of common stock owned by Mr. Fulmer's wife.
65
<PAGE>
(6) Includes 25,146 shares of common stock that Ms. Copeland has the right to
acquire by the exercise of certain stock options granted under the Option Plan
that are exercisable within sixty (60) days of the date of this Annual Report on
Form 10-K, as well as 1,741 shares of common stock that Ms. Copeland has or
would have voting control as custodian under the New York Uniform Gift to Minors
Act, 11,254 shares of common stock allocated to Ms. Copeland under the ESOP, and
696 shares of common stock owned by Ms.
Copeland's husband.
(7) Includes 13,785 shares of common stock owned by Mr. Harmon's wife and 3,403
shares of common stock owned by the Harmon Family Charitable Remainder Trust.
(8) Includes the shares of common stock allocated to Mr. Fulmer and Ms. Copeland
in accordance with footnotes (5), (6), and (7) above. The participants in the
ESOP have the sole power to vote shares and dispositive powers for shares which
have been allocated to participant accounts. Only 62,793 shares of common stock
in the ESOP have not been allocated to participant accounts. See "Item 11 -
Executive Compensation -- Benefits --- Employee Stock Ownership Plan."
(9) Includes all of the shares of common stock referenced in footnotes (3),(4),
(5), (6), and (7) above.
ITEM 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain of the directors and officers of the Company and the Bank,
members of their families and companies or firms with which they are associated,
were customers of and had banking transactions with the Bank in the ordinary
course of business during 1998. All loans and commitments to loan included in
such transactions were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with other persons and, in the opinion of management, did not
involve more than a normal risk of collectibility or present other unfavorable
features. None of such loans outstanding to directors or officers of the
Company, members of their families or companies or firms with which directors or
officers of the Company are associated were non-performing as of December 31,
1998. Total loans outstanding to all directors and executive officers of the
Company and the Bank amounted to $7,472,861 at December 31, 1998.
66
<PAGE>
ITEM 13 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements and Report of Independent Accountants:
The following financial statements and accountant's report are
included in this Annual Report on Form 10-K on the following pages:
Page
Report of Independent Accountants......... 36
Consolidated Statement of Condition
as of December 31, 1998 and 1997.......... 37
Consolidated Statement of Income for
the Years Ended December 31, 1998, 1997
and 1996.................................. 38
Consolidated Statement of Changes in
Shareholders' Equity for the Years Ended
December 31, 1998, 1997, and 1996........ 39
Consolidated Statement of Cash Flows
for the Years Ended December 31, 1998 and
1997 and 1996............................. 40
Notes to Consolidated Financial
Statements................................ 41-60
(2) Financial Statement Schedules:
All financial statement schedules have been omitted as they are not
applicable, not required, or the information is included in the Consolidated
Financial Statements or the Notes thereto.
(3) Exhibits:
3(a) Certificate of Incorporation of Registrant filed by the
New York Department of State on July 1981, incorporated
by reference to the Registrant's Registration Statement
on Form S-18 (Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and wherein such
Exhibit is designated Exhibit
67
<PAGE>
3(b) Certificate of Amendment to Certificate of
Incorporation of Registrant filed by the New York
Department of State on July 26, 1989, incorporated by
reference to the Registrant's Registration Statement on
Form S-18 (Reg. No.33-31149-NY), filed with the
Commission on September 2, 1989, and wherein such
Exhibit is designated Exhibit 3(b).
3(c) Certificate of Amendment to Certificate of
Incorporation of Registrant filed by the New York
Department of State on May 2, 1990, incorporated by
reference to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1990 and filed with
the Commission on August 9, 1990, and wherein such
Exhibit is designated Exhibit 4(b).
3(d) Certificate of Amendment to Certificate of
Incorporation of Registrant filed by the New York
Department of State on May 13, 1998, incorporated by
the reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998 and
filed with the Commission on November 12, 1998, wherein
such Exhibit is designated Exhibit 3(d).
3(e) Bylaws of Registrant, as amended by the stockholders of
the Registrant at a special meeting of stockholders on
July 11, 1989,incorporated by reference to the
Registrant's Registration Statement on Form S-18 (Reg.
No. 33-31149-NY), filed with the Commission on
September 2, 1989, and wherein such Exhibit is
designated Exhibit 3(c).
4(a) Form of Common Stock Certificate of Registrant,
incorporated by reference to the Registrant's Amendment
No. 1 to Form S-18 Registration Statement (Reg. No.
33-31149-NY), filed with the Commission on October 31,
1989, and wherein such Exhibit is designate Exhibit 4.
68
<PAGE>
4(b) Letchworth Independent Bancshares Corporation Stock
Option Plan of 1990 and form of Stock Option Agreement,
incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1990
and filed with the Commission on August 9, 1990, and
wherein such Exhibit is designated Exhibit 19.
10(a) Employment Agreement, dated September 12, 1989, by and
between Registrant and James W. Fulmer, incorporated by
reference to the Registrant's Amendment No. 1 to Form
S-18 Registration Statement (Reg. No. 33-31149-NY),
filed with the Commission on October 31, 1989, and
wherein such Exhibit is designated Exhibit 10(a).
10(b) Employment Agreement, dated as of January 1,1991, by
and between Registrant and Brenda L.Copeland,
incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1991, filed with the Commission on March 30, 1992, and
wherein such Exhibit is designated Exhibit 10(b).
10(c) Employee Stock Ownership Plan of Registrant,
incorporated by reference to the Registrant's
Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2,
1989, and wherein such Exhibit is designated Exhibit
10(c).
10(d) Defined Benefit Pension Plan of Registrant,
incorporated by reference to the Registrant's
Registration Statement on Form S-18 (Reg.
No.33-31149-NY), filed with the Commission on September
2, 1989, and wherein such Exhibit is designated Exhibit
10(d).
10(e) Form of Executive Supplemental Income Agreement, as
amended, incorporated by reference to the Registrant's
Annual Report on Form 10-K for the year ended December
31, 1991 and filed with the Commission on March 30,
1992, and where in such Exhibit is designated Exhibit
19.
69
<PAGE>
10(f) Form of Director Deferred Compensation Agreement,
incorporated by reference to the Registrant's
Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2,
1989, and wherein such Exhibit is designated Exhibit
10(f).
10(g) Loan and Pledge Agreement, dated June 16, 1986, by and
between Employee Stock Ownership Trust of Registrant
and Salamanca Trust Company, incorporated by reference
to the Registrant's Registration Statement on Form S-18
(Reg. No. 33-31149-NY), filed with the Commission on
September 2, 1989, and wherein such Exhibit is
designated Exhibit 10(g).
10(h) Loan and Pledge Agreement, dated June 16, 1986, by and
between Employee Stock Ownership Trust of Registrant
and Community National Bank, incorporated by reference
to the Registrant's Registration Statement on Form S-18
(Reg. No. 33-31149-NY), filed with the Commission on
September 2, 1989, and wherein such Exhibit is
designated Exhibit 10(h).
10(i) Lease Agreement, dated March 1, 1982, by and between
Registrant and Herald Ford, Inc., incorporated by
reference to the Registrant's Registration Statement on
Form S-18 (Reg. No. 33-31149-NY), filed with the
Commission on September 2, 1989, and wherein such
Exhibit is designated Exhibit 10(i).
10(j) Lease Agreement, dated April 12, 1982, and an Addendum
thereto, dated January 25, 1973, by and between
Registrant and 15 South Center Street, Inc.,
incorporated by reference to the Registrant's
Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2,
1989, and wherein such Exhibit is designated Exhibit
10(j).
10(k) Lease Agreement, dated August 1, 1974, by and between
The Citizen Bank, Attica and Fred Glickstein, which
Lease Agreement was assumed by Registrant on December
7, 1984,incorporated by reference to the Registrant's
Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2,
1989, and wherein such Exhibit is designated Exhibit
10(k).
10(l) Salary Savings Plan (401(k) Plan) of Registrant,
incorporated by reference to the Registrant's Amendment
No. 1 to Form S-18 Registration Statement (Reg. No.
33-31149-NY), filed with the Commission on October 31,
1989, and wherein such Exhibit is designated Exhibit
10(l).
70
<PAGE>
10(m) Loan Agreement, dated November 6, 1990, by and between
Registrant and Alden State Bank, incorporated by
reference to the Registrant's Annual Report on Form
10-K for the year-ended December 31, 1990 and filed
with the Commission on April 1, 1991, and wherein such
Exhibit is designated Exhibit 10(m).
10(n) Sales Contract, dated September 10, 1991, by and
between John Piraino, Jr. ("Piraino") and the Bank,
incorporated by reference to the Registrant's Annual
Report on Form 10-K for the year ended December 31,
1992 and filed with the Commission on March 30, 1992,
and wherein such Exhibit is designated Exhibit 10(n).
10(o) Indenture of Lease, dated September 10, 1991,by and
between Piraino and the Bank, incorporated by reference
to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992 and filed with the
Commission on March 30, 1992, and wherein such Exhibit
is designated Exhibit 10(o).
10(p) Purchase and Assumption Agreement, dated as of January
10, 1991, by and between the Registrant, The Bank of
Castile, and Anchor Savings Bank FSB, incorporated by
reference to the Registrant's Report on Form 8 amending
the Registrant's Current Report on Form 8-K dated
January 31, 1992, and which Form 8 was filed with the
Commission on April 3, 1992, and wherein such Exhibit
is designated Exhibit 10(a).
10(q) Sales Contract, dated as of January 10, 1991,by and
between The Bank of Castile and Anchor Savings Bank
FSB, incorporated by referenced to the Registrant's
Report on Form 8 amending the Registrant's Current
Report on Form 8-K dated January 31, 1992, and which
Form 8 was filed with the Commission on April 3, 1992,
and wherein such Exhibit is designated Exhibit 10(b).
10(r) Purchase and Assumption Agreement, dated as of May 11,
1994, by and between The Bank of Castile and The Chase
Manhattan Bank (National Association), incorporated by
reference to the Registrant's Report on Form 8-K, dated
December 12, 1994, and which Form 8-K was filed with
the Commission on December 19, 1994, and wherein such
Exhibit is designated Exhibit 2.1.
71
<PAGE>
10(s) Sales Contract, dated as of May 11, 1994, by and
between The Bank of Castile and The Chase Manhattan
Bank (National Association), incorporated by reference
to the Registrant's Report on Form 8-K, dated December
12, 1994, and which Form 8-K was filed with the
Commission on December 19, 1994, and wherein such
Exhibit is designated Exhibit 2.2.
11 Computation of Earnings Per Share for the year ended
December 31, 1998.
13 Annual Report to Shareholders of Registrant for the
year ended December 31, 1998, incorporated by
reference.
21 Subsidiaries of Registrant.
23 Consent of Price Waterhouse LLP for the Annual Report
on Form 10-K for the fiscal year ended December 31,
1998.
24 Power of Attorney, included with the Signature Page of
this Annual Report on Form 10-K.
(b) Reports on Form 8-K. The Company did not file any Current Reports on Form
8-K during the fiscal year ended December 31, 1998.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant has duly caused this Annual Report on Form 10-KSB to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 26, 1999 LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
By: /s/ JAMES W. FULMER
-------------------------------
James W. Fulmer, President
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints JAMES W. FULMER his true and lawful
attorney-in-fact and agent with full power of substitution and re-substitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments to this Annual Report on Form 10-KSB, and to file the same,
with all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue thereof.
72
<PAGE>
In accordance with the Securities Exchange Act of 1934, this Annual
Report on Form 10-K has been signed below on March 26, 1999 by the following
persons on behalf of the Registrant and in the capacities indicated.
Signatures Title
/s/ JAMES W. FULMER President, Chief Executive
- -------------------------------- Officer and Director
James W. Fulmer
/s/ CHARLES L. VAN ARSDALE Director
- --------------------------------
Charles L. Van Arsdale
/s/ JAMES H. VAN ARSDALE, III Chairman of the Board
- -------------------------------- of Directors
James H. Van Arsdale, III
/s/ STANLEY J. HARMON Secretary and Director
- --------------------------------
Stanley J. Harmon
/s/ THOMAS J. SYKES Treasurer and Chief
- -------------------------------- Financial Officer
Thomas J. Sykes
/s/ PATRICK J. DALTON Director
- --------------------------------
Patrick J. Dalton
73
<PAGE>
ANNEX G
Letchworth Independent Bancshares Corporation's Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 1999
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
( ) 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: 0-18533
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 16-1168175
- ------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
50 NORTH MAIN STREET BOX 129 CASTILE NY 14427
--------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 493-2576
Registrant's telephone number, including area code)
------------------------------------------------------------
(Former name, address, fiscal year, if changed)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) 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.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF AUGUST 5, 1999
Common Stock, $1.00 per share 3,468,974 shares
Transitional Small Business Disclosure Format (Check One):
[ ] YES [X] NO
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
INDEX
Page
PART I Financial Information
Item 1. Financial Statements
Consolidated Statement of Condition (Unaudited) June 30,
1999 and December 31, 1998 3
Consolidated Statement of Income (Unaudited) Three and
Six Months Ended June 30, 1999 and 1998 4
Consolidated Statement of Comprehensive Income
(Unaudited)Three and Six Months Ended June 30, 1999 and
1998 5
Consolidated Statement of Cash Flows (Unaudited) Six
Months Ended June 30,1999 and 1998 6
Notes to Consolidated Financial Information 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8K 24
Signatures 26
Exhibit 10(a) 52 Pages
Exhibit 10(b) 7 Pages
Exhibit 10(c) 12 Pages
Exhibit 11 1 Page
Exhibit 27 1 Page
Exhibit 99 3 Pages
2
<PAGE>
<TABLE>
<CAPTION>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
ASSETS:
<S> <C> <C>
Cash and due from banks $ 14,812,220 $ 10,647,917
Federal funds sold 13,350,000 9,250,000
Investment securities:
Available for sale 100,815,521 65,255,014
Held to maturity 2,330,514 --
Other securities 2,890,759 2,083,501
Loans, net of allowance for loan losses of
$4,061,202 and $2,377,300, respectively 283,600,691 184,459,034
Accrued interest receivable 2,590,877 1,731,499
Premises and equipment, net 13,380,742 6,344,049
Other Assets 8,581,635 1,891,872
------------- -------------
TOTAL ASSETS $ 442,352,959 $ 281,662,886
============= =============
LIABILITIES AND SHAREHOLDERS EQUITY:
Deposits:
Noninterest bearing $ 74,034,601 $ 36,432,791
Interest bearing 318,701,899 204,419,241
------------- -------------
TOTAL DEPOSITS 392,736,500 240,852,032
Securities sold under agreement to repurchase 1,145,581 1,198,294
Accrued interest payable 887,514 1,158,630
Accrued taxes and other liabilities 1,301,286 856,636
Advances from Federal Home Loan Bank 7,752,741 3,968,283
------------- -------------
TOTAL LIABILITIES 403,823,622 248,033,875
------------- -------------
Minority Interest in Subsidiary 4,535,140 --
Shareholders' equity
Common stock, $1.00 par value, 5,000,000
shares authorized, 3,391,650 and 3,390,650
shares issued, respectively 3,459,924 3,390,650
Capital surplus 12,625,011 12,347,915
Retained earnings 19,961,301 18,673,888
Unearned employee stock ownership plan shares (441,988) (490,654)
Accumulated other comprehensive income 160,098 1,261,145
Treasury stock at cost, 100,847 and 86,847
shares, respectively (1,770,149) (1,553,933)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY 33,994,197 33,629,011
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY $ 442,352,959 $ 281,662,886
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
<TABLE>
<CAPTION>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
Three Months Ended Six Month Ended
June 30, June 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $ 4,909,169 $ 4,070,471 $ 9,109,483 $ 7,920,593
Interest on investment securities
Taxable 562,788 703,582 1,040,201 1,502,107
Tax-exempt 443,691 383,790 844,229 779,048
Interest on federal funds sold 261,910 44,221 421,625 100,478
----------- ----------- ----------- -----------
Total interest income 6,177,558 5,202,064 11,415,538 10,302,226
Interest expense on deposits and advances 2,256,630 2,204,750 4,230,985 4,367,999
----------- ----------- ----------- -----------
Net interest income 3,920,928 2,997,314 7,184,553 5,934,227
Provision for loan losses 165,547 124,998 281,966 256,420
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 3,755,381 2,872,316 6,902,587 5,677,807
----------- ----------- ----------- -----------
Other operating income:
Service charges on deposit accounts 329,517 268,780 581,984 541,710
Other charges and fees 72,733 40,232 115,039 56,950
Net gain (loss) on sales of loans
and investment securities 3,057 (522) 4,549 20,905
Other operating income 91,732 62,903 187,051 111,650
----------- ----------- ----------- -----------
Total other operating income 497,039 371,393 888,623 731,215
----------- ----------- ----------- -----------
Other operating expenses:
Salaries and employee benefits 1,595,518 1,099,427 2,812,962 2,197,890
Equipment expense 256,541 129,538 480,048 467,589
Occupancy expense 109,480 74,364 247,933 264,488
Printing and supplies 71,402 234,738 138,116 140,553
FDIC assessment 11,354 9,758 21,771 19,752
Minority interest in Subsidiary net income 42,492 -- 42,492 --
Other operating expenses 825,347 602,601 1,376,932 1,087,191
----------- ----------- ----------- -----------
Total other operating expense 2,912,134 2,150,426 5,120,254 4,177,463
Income before income taxes 1,340,286 1,093,283 2,670,956 2,231,559
Provision for income taxes 417,896 319,400 782,899 657,400
----------- ----------- ----------- -----------
Net Income $ 922,390 $ 773,883 $ 1,888,057 $ 1,574,159
=========== =========== =========== ===========
Basic earnings per share $ 0.28 $ 0.24 $ 0.58 $ 0.48
Diluted earnings per share $ 0.28 $ 0.23 $ 0.57 $ 0.46
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
<TABLE>
<CAPTION>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income $ 922,390 $ 773,883 $ 1,888,057 $ 1,574,159
Other comprehensive loss, net of tax:
Unrealized losses on securities:
Unrealized holding losses
arising during period (882,950) (26,683) (1,100,325) (23,461)
Less: reclassification adjustments
for losses included in net
income (722) 669 (722) (10,656)
----------- ----------- ----------- -----------
Other comprehensive loss, net of tax (883,672) (26,014) (1,101,047) (34,117)
----------- ----------- ----------- -----------
Comprehensive income $ 38,718 $ 747,869 $ 787,010 $ 1,540,042
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statement
5
<PAGE>
<TABLE>
<CAPTION>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,888,057 $ 1,574,159
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 601,997 429,890
Provision for possible loan losses 281,966 256,420
Minority interest income 42,492 --
ESOP compensation expense 48,666 77,333
Gain on sale of investments (722) (17,334)
Gain on sale of loans (3,827) (3,571)
Decrease (increase) in interest receivable 79,279 (130,229)
Decrease (increase) in other assets 284,674 (130,246)
(Decrease) increase in interest payable (556,210) 166,010
(Decrease) increase in accrued taxes
and other liabilities (268,827) 214,919
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,397,545 $ 2,437,351
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities-available
for sale $ 2,999,375 $ 1,670,119
Proceeds from calls and maturities of securities:
Held to Maturity -- 7,914,119
Available for sale 5,304,452 5,626,450
Purchases of securities:
Held to maturity -- (2,042,351)
Available for sale (8,960,455) (7,922,925)
Cash acquired, net of acquisition cost 4,126,017 --
Proceeds from sale of loans 948,553 478,392
Net increase in loans (11,425,690) (13,376,970)
Expenditures for capital assets (408,396) (470,729)
------------ ------------
NET CASH PROVIDED USED IN INVESTING ACTIVITIES $ (7,416,144) $ (8,123,895)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, NOW
accounts and money market accounts $ 7,671,346 $ 36,619
Net increase in time deposits 2,350,302 6,467,736
Net (decrease)increase in securities sold under
agreements to repurchase (52,713) 49,002
Current FHLB borrowings 4,000,000 --
Repayment FHLB borrowings (215,543) (204,500)
Exercise of options and warrants 346,370 78,670
Purchase of treasury stock (216,216) (1,356,321)
Dividends paid (600,644) (537,147)
------------ ------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES $ 13,282,902 $ 4,534,059
------------ ------------
Net increase (decrease) in cash and cash equivalents $ 8,264,303 $ (1,152,485)
Cash and cash equivalents, beginning of year 19,897,917 12,413,023
------------ ------------
Cash and cash equivalents, end of quarter $ 28,162,220 $ 11,260,538
============ ============
Interest paid $ 4,787,195 $ 4,201,989
Income taxes paid $ 1,503,000 $ 520,000
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
JUNE 30, 1999
NOTE 1 BASIS OF PRESENTATION
The unaudited interim financial information includes the accounts of Letchworth
Independent Bancshares Corporation ("Letchworth", "the Company" or "Registrant")
and its subsidiaries, The Bank of Castile and The Mahopac National Bank
("Mahopac"). The financial information has been prepared in accordance with the
Summary of Significant Accounting Policies as outlined in Letchworth's Form 10-K
for the year ended December 31, 1998 and, in the opinion of management contains
all adjustments necessary to present fairly Letchworth's financial position as
of June 30, 1999 and December 31, 1998, the results of its operations for the
three and six month periods ended June 30, 1999 and 1998, respectively, and its
cash flows for the six month periods ended June 30, 1999 and 1998, respectively.
The accounting policies of Letchworth conform with generally accepted accounting
principles and prevailing practices within the banking industry. The preparation
of financial information in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
information and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
These notes should be read in conjunction with the notes to the consolidated
financial statements incorporated in the Letchworth 1998 Annual Report and Form
10-K.
NOTE 2 MERGER AGREEMENT WITH TOMPKINS TRUSTCO, INC.
On July 30, 1999, the Registrant entered into an Agreement and Plan of
Reorganization (the "Agreement") with Tompkins TrustCo, Inc. ("Tompkins"),
pursuant to which, subject to regulatory and shareholder approval, the
Registrant will be merged with and into Tompkins. Pursuant to the terms and
conditions of the Agreement, each shareholder of the Registrant will receive
.685 shares of common stock of Tompkins for each share of common stock of the
Registrant owned by the shareholder. It is currently anticipated that the
transaction will be consummated in December, 1999, or during the first quarter
of 2000. In connection with the Agreement, the Registrant granted Tompkins an
option, exercisable under certain circumstances, to purchase an aggregate of
689,737 newly issued shares of common stock, par value $1.00 per share, of the
Registrant. The transaction is expected to be accounted for as a pooling of
interest.
7
<PAGE>
NOTE 3 ACQUISITION OF THE MAHOPAC NATIONAL BANK
On June 4, 1999, Letchworth consummated the acquisition of a controlling
interest in Mahopac, a national banking organization with its principal office
located in Mahopac, New York. As a result, Letchworth now owns 1,491 shares, or
70.165%, of the issued and outstanding shares of capital stock of Mahopac. The
total purchase price for the transaction was $14,634,524.
Acquired assets, loans and deposits of Mahopac on June 4, 1999 totaled
approximately $158.4 million, $90.5 million and $141.8 million, respectively.
The transaction has been accounted for as a purchase and, accordingly operations
acquired from Mahopac have been included in Letchworth's financial results since
the acquisition date. In connection with the acquisition, Letchworth recorded
approximately $2.5 million of goodwill and $3.5 million of core deposit
intangible. The goodwill is being amortized on a straight-line basis over twenty
years and the core deposit intangible is being amortized on an accelerated basis
over ten years.
Presented below is certain pro forma information as if Mahopac had been acquired
on January 1, 1998. These results combine the historical results of Mahopac into
Letchworth's Consolidated Statement of Income and, while certain adjustments
were made for the estimated impact of purchase accounting adjustments and other
acquisition-related activity, they are not necessarily indicative of what would
have occurred had the acquisition taken place at that time.
Pro forma
Six Months Ended June 30,
1999 1998
(in thousands, except per share)
Interest Income $15,424 $15,027
Other Income 1,463 1,283
Net income 2,115 1,692
Diluted earnings per common share $ .64 $ . 50
8
<PAGE>
NOTE 4 INVESTMENT SECURITIES
The amortized cost and approximate market value of investment securities are as
follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------------- ----------------------------
Amortized Cost Market Value Amortized Cost Market Value
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 24,916,873 24,952,088 $ 13,742,386 $ 14,087,865
State and political subdivision obligations 45,764,935 46,022,795 32,486,465 33,876,508
Mortgage-Backed Securities 29,530,779 29,333,800 17,173,404 17,290,641
Corporate Securities 513,205 506,839 -- --
------------ ------------ ------------ ------------
100,725,790 100,815,521 $ 63,402,255 $ 65,255,014
------------ ------------ ------------ ------------
June 30, 1999 December 31, 1998
---------------------------- ----------------------------
Amortized Cost Market Value Amortized Cost Market Value
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
HELD TO MATURITY
State and political subdivision
obligations 2,330,514 2,330,077 -- --
------------ ------------ ------------ ------------
2,330,514 2,330,077 -- --
------------ ------------ ------------ ------------
</TABLE>
9
<PAGE>
NOTE 5 LOANS
LOANS CONSIST OF THE FOLLOWING:
June-30 December-31
1999 1998
------------ ------------
Residential real estate $108,520,446 $ 53,638,439
Commercial real estate 70,703,676 39,948,496
Commercial and industrial loans 48,106,667 38,201,766
Agricultural loans 31,168,670 35,707,279
Consumer loans 29,162,434 19,340,354
------------ ------------
$287,661,893 $186,836,334
------------ ------------
An analysis of changes in the allowance for possible loan losses is as follows:
June 30, June 30,
1999 1998
----------- -----------
Balance, beginning of year $ 2,377,300 $ 2,028,600
Allowance acquired from Mahopac 1,510,938 --
Provision Expense 281,966 256,420
Chargeoffs (146,157) (109,471)
Recoveries 37,155 19,023
----------- -----------
Balance, end of period $ 4,061,202 $ 2,194,572
The following table summarized the Company's non-performing loans at the dates
indicated.
June 30,
1999 1998
--------- -------
Non-accruing loans 1,028,000 753,823
Accruing loans past due 90 days or more 587,066 85,061
Renegotiated loans 0 0
The average balance of impaired loans during the first six months of 1999 was
approximately $151,221, as compared to $623,651 for the first six months of
1998. At June 30, 1999, the balance of impaired loans and related reserve
against that balance was $137,237 and $45,379, respectively. At June 30, 1998,
the balance of impaired loans and related reserve against the balance was
$591,003 and $114,512, respectively. Interest income recognized on impaired
loans and interest income recognized on a cash basis was not significant
NOTE 6 EARNINGS PER SHARE
The calculations of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Quarter ended Six Month Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income available to common shareholders $ 922,390 $ 773,883 $1,888,057 $1,574,159
BASIC EARNINGS PER SHARE
Weighted average shares outstanding 3,288,681 3,289,564 3,263,500 3,287,355
Basic earnings per share $ 0.28 $ 0.24 $ 0.58 $ 0.48
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE
Weighted average shares outstanding 3,288,681 3,289,564 3,263,500 3,287,355
Dilitive effect of:
Stock options 26,954 94,603 40,973 99,379
Adjusted weighted average shares
outstanding 3,315,635 3,384,167 3,304,473 3,386,832
Diluted earnings per share $ 0.28 $ 0.23 $ 0.57 $ 0.46
========== ========== ========== ==========
</TABLE>
10
<PAGE>
NOTE 7 COMPREHENSIVE INCOME
Letchworth has chosen to disclose comprehensive income in a separate statement,
in which the components of comprehensive income are displayed net of income
taxes. The following table sets forth the related tax effects allocated to each
element of comprehensive income for the three and six months ended June 30, 1999
and 1998:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Six Months Ended June 30, 1999
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains on securities:
Unrealized holding gains
arising during period (1,489,903) 606,953 (882,950) (1,762,306) 661,981 (1,100,325)
Less: reclassification
adjustment for gains
realized in net income (722) -- (722) (722) -- (722)
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized gain (1,490,625) 606,953 (883,672) (1,763,028) 661,981 (1,101,047)
---------- ---------- ---------- ---------- ---------- ----------
Other comprehensive income (1,490,625) 606,953 (883,672) (1,763,028) 661,981 (1,101,047)
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Six Months Ended June 30, 1998
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Unrealized losses on securities:
Unrealized holding losses
arising during period (78,303) 51,620 (26,683) (38,163) 14,702 (23,461)
Less: reclassification
adjustment for losses
realized in net income 1,963 (1,294) 669 (17,334) 6,678 (10,656)
---------- ---------- ---------- ---------- ---------- ----------
Net unrealized loss (76,340) 50,326 (26,014) (55,497) 21,380 (34,117)
---------- ---------- ---------- ---------- ---------- ----------
Other comprehensive loss (76,340) 50,326 (26,014) (55,497) 21,380 (34,117)
---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
The following table sets forth the components of accumulated other comprehensive
income for the six months ended June 30, 1999 and 1998:
Six Months Ended
June 30,
1999 1998
----------- ---------
Beginning balance $ 1,261,145 $ 309,072
Unrealized losses on securities, net (1,101,047) (34,117)
----------- ---------
Ending balance $ 160,098 $ 274,955
----------- ---------
NOTE 8 "DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION"
With the Mahopac acquisition on June 4, 1999, Letchworth now has two reportable
segments as prescribed by Statement of Financial Accounting Standards ("SFAS")
No.131, "Disclosures About Segments of an Enterprise and Related Information".
In accordance with the provision of SFAS No.131, reportable segments have been
determined based upon Letchworth's two operating subsidiaries, The Bank of
Castile and Mahopac.
Up until June 4, 1999, substantially all the Company's revenue and net income
was derived from The Bank of Castile. Since the Company's acquisition of a
70.165% interest in Mahopac, this new segment has contributed $1,020,271 in
total revenue and $44,577 in net income. At June 30, 1999, total assets of The
Bank of Castile and Mahopac were $276.6 million and $161.3 million,
respectively. The Bank of Castile had $266.1 million in assets at June 30, 1998.
11
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
MANAGEMENT DISCUSSION AND ANALYSIS
June 30, 1999
MAHOPAC TRANSACTION
On June 4, 1999, the Company consummated the acquisition of a controlling
interest in The Mahopac National Bank ("Mahopac"). A national banking
organization headquartered in Putnam County, New York. Mahopac currently
operates three offices and is scheduled to open a fourth in Brewster, New York.
As a result, Letchworth now owns 1,491 shares, or 70.165% of the issued and
outstanding shares of capital stock of Mahopac. The total purchase price paid by
Letchworth in connection with the acquisition was an amount equal to $14,462,700
based upon a sales price of $9,700 for each share of common stock purchased.
Mahopac was owned primarily by the members of two families, the Costello/Ryder
family and the Spain family. The Company entered into a written agreement (the
"Shareholder Agreement") with the members of the Spain family to unify the
ownership structure of Mahopac within two years. To unify the ownership
structure, the Shareholder Agreement allows for the Spain family to purchase all
the shares of Mahopac owned by the Company,(the "Spain Option") or in the event
that the Spain family fails to exercise the Spain Option, for the Company to
purchase all of the shares of Mahopac owned by the Spain family. In either case
the exercise price for each share of common stock is equal to 90 percent of the
"fair marker value" of each share of common stock of Mahopac, as determined in
accordance with the Shareholder Agreement. The intent of the Company, and also
the stated intent of the Spain family, is for the Company to acquire all of the
shares of common stock owned by the Spain Family at that time. If, for whatever
reason, neither party is able or willing to buy out the other, the terms of the
Shareholder Agreement require that Mahopac be sold in its entirety to a third
party.
Management believes that the Mahopac transaction gives the Company greater
opportunity for future growth than if Letchworth remained exclusively in Western
New York. Putnam County is the fastest growing county in New York and has the
highest median income in the state.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As result of the acquisition of Mahopac, Letchworth's total assets were $442.4
million as of June 30, 1999, an increase of $160.7 million, or 57.05%, above
total assets at December 31, 1998.
The overall investment portfolio increased $38.7 million or 57.47% from December
31, 1998, levels to $106.0 million. The additional $45.0 million of Mahopac
investments, negated the $6.3 million decline in The Bank of Castile portfolio.
The Bank of Castile's portfolio declined due to cumulative maturities and sales
since year end to maintain adequate liquidity to fund the purchase of the
controlling interest in Mahopac. The change in other securities was negligible.
Net loans outstanding as of June 30, 1999 were $283.6 million, which represented
an increase of $99.1 million, or 53.75%, over total loans at December 31, 1998.
Net loans outstanding is net of loans sold and the allowance for loan losses.
The primary reason for higher loan balances was the $90.4 million of loans
obtained on June 4, 1999 in the Mahopac acquisition, including approximately
$48.2 million of residential mortgage loans, $24.2 million of commercial real
estate loans, $8.1 million of commercial loans, $5.9 million of construction
loans and $3.9 million of consumer loans.
12
<PAGE>
Nonaccrual loans totaled $1,028,000 as of June 30, 1999, compared to $753,823 as
of June 30, 1998. Approximately $636 thousand of this increase was attributable
to the Mahopac transaction. While this represents an increase, the Company is
aggressive in identifying and dealing with problem loan situations. Further,
management believes that the loan loss allowance is adequate to cover any
expected losses. "Potential problem loans" consist of loans which are generally
secured and not currently considered nonperforming, but where information about
possible credit problems has caused management to have doubts as to the ability
of such borrowers to comply with present payment terms. As of June 30, 1999, the
Company considers $3,295,256 to be "potentially problem loans", which represents
an increase of $1,198,240 when compared to the $2,097,016 figure on June 30,
1998. Most of this increase, $1.2 million , is due to the Mahopac acquisition.
Net premises and equipment for the six month period ended June 30, 1999,
increased to $13.4 million. Virtually all of the $7.0 million increase was due
to the Mahopac acquisition. The purchase had a similar impact on the other
assets; $6.4 million of the $7.3 million increase for the six month period was
attributable to Mahopac, including goodwill of $2.5 million and core deposit
intangible of $3.5 million.
Total deposits as of June 30, 1999 were $392.7 million, which represented a
increase of $151.9 million, or 63.06%, from total deposits as of December 31,
1998. Of this amount, $145.4 million was attributable to the Mahopac
transaction. Interest-bearing deposits increased by $114.3 million since the end
of 1998, to $318.7 million at June 30, 1999. Approximately $107.8 million of
this increase was attributable to the Mahopac transaction. In addition,
noninterest bearing deposits increased to $74.0 million at June 30, 1999, a
$37.6 million increase from the amount at December 31, 1998. Virtually all of
this increase for noninterest bearing deposit balances came as a result of the
Mahopac acquisition.
At June 30,1999, Letchworth had advances, secured by residential mortgage loans,
from the Federal Home Loan Bank of New York of $7,752,741. The entire $3.8
million increase from December 31, 1998 was due entirely to The Bank of Castile
replacing $3.5 million in FHLB advances which had matured in December 31, 1998.
These proceeds were used to increase the investment portfolio's income and
reduce interest rate risk.
The Company's shareholders' equity increased to $34.0 million, an increase of
1.09%, or $.4 million, from December 31, 1998. The increase in shareholders
equity is primarily attributed to the year-to-date earnings less dividends paid
to shareholders.
Federal regulators generally require banking institutions to maintain "core
capital", that is, "Tier 1" and "total capital" ratios of at least 4% and 8%
respectively, of risk adjusted total assets. In addition to the risk-based
measures, Federal bank regulators have also implemented a minimum "leverage"
ratio guideline of 4% of the quarterly average of total assets. Under regulatory
guidelines, unrealized gains or losses on investment securities classified as
available for sale are not recognized in determining regulatory capital. The
Company has historically maintained capital ratios in excess of minimum
regulatory guidelines largely through a high rate of internal capital
generation.
13
<PAGE>
June 30, 1999 June 30, 1998 Minimum
Tier 1 Capital Ratio 11.77% 18.57% 4.00%
Total Capital Ratio 13.02% 19.82% 8.00%
Tier 1 Leverage Ratio 7.44% 11.52% 4.00%
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THREE
MONTHS ENDED JUNE 30, 1998
Net income of $922,390 for the three months ended June 30, 1999 represents an
increase of 148,507, or 19.19%, over the $773,883 earned during the same period
ended June 30, 1998. Diluted earnings per share was $.28 for the three months
ended June 30, 1999. (See Exhibit 11 of this Quarterly Report on Form 10-Q).
This was an increase from the $.23 per share for the same period in 1998.
Net interest income was $3.9 million for the three months ended June 30, 1999,
up 30.81% from the $3.0 million earned during the three months ended June 30,
1998. The addition of Mahopac contributed approximately $670.3 thousand of the
increase in net interest income during the second quarter of 1999. Reduced
interest expense on deposits and advances at The Bank of Castile contributed
most of the remaining increase in net interest income.
The provision for possible loan losses, the charge to earnings for potential
credit losses associated with lending activities, was $165,547 for the three
months ended June 30, 1999, up 32.44% from the $124,998 provision recorded
during the three months ended June 30, 1998. This increase in the provision for
loan losses in 1999 was due to increased loan volume and an increase in
charge-offs compared with 1998. Gross charge-offs were $99,115 in the second
quarter of 1999, compared to $23,560 for the same period last year. Management
conducts a periodic evaluation which assigns risk weights for individual loans
and different classes of loan groups in determining the adequacy of the reserve.
Regulatory examination, historical gross loans, an assessment of economic
conditions and other relevant factors are used in this analysis. Management of
the Company believes this analysis indicates that the level of the loan loss
reserve is adequate to absorb any potential losses inherent in the loan
portfolio at June 30, 1999. The allowance for possible loan losses of the
Company at June 30, 1999 was $4,061,202 or 1.41% of total loans, and is up
70.84%, or $1,683,952, from the allowance at December 31, 1998 the increase is
due primarily to the $1.5 million allowance acquired from Mahopac.
Other operating income for the three month period ended June 30, 1999 was
$497,038, compared to $371,393 for the same period in 1998. This increase is
partially attributed to revisions made in deposit fees and service charges, as
well as $101.8 thousand in other income attributable to the acquisition of a
controlling interest in Mahopac.
14
<PAGE>
Other operating expense for the three month period ended June 30, 1999 was
$2,869,641, an increase of $719,215, or 33.45%, over the $2,150,426 recorded for
the same period in the prior year. Mahopac's other operating expense accounted
for $532.0 thousand, or 69.8%, of the increase. Goodwill and core deposit
amortization, as well as minority interest, in Mahopac, further increased other
operating expenses by approximately $106.7 thousand. Several new staff positions
at The Bank of Castile , as well as an increase in the ESOP and pension
expenses, also contributed to the increase.
The provision for income taxes increased from $319,400 to $417,896 for the three
months ended June 30, 1998 and 1999, respectively. Letchworth's effective tax
rate increased slightly from 29.2% to 30.2% due mainly to the impact of the
Mahopac transaction.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS
ENDED JUNE 30, 1998
Net income of $1,888,057 for the six months ended June 30, 1999 represents an
increase of $313,898, or 19.94%, over the $1,574,159 earned during the same
period ended June 30, 1998. Diluted earnings per share was $.57 for the six
months ended June 30, 1999. (See Exhibit 11 of this Quarterly Report on Form
10-Q). This represents an increase from the $.46 per share figure for the same
period in 1998.
Net interest income was $7.2 million for the six months ended June 30, 1999, up
21.07% from the $5.9 million earned during the six months ended June 30, 1998.
Mahopac contributed $670.3 thousand of this increase. Increased income on loans
and reduced interest expense on deposits at the Bank of Castile contributed most
of the remaining increase in net interest income.
The provision for loan losses, the charge to earnings for potential credit
losses associated with lending activities, was $281,966 for the six months ended
June 30, 1999, up 9.96% from the $256,420 provision recorded during the six
months ended June 30, 1998. This increase in the provision for loan losses in
1999 was due to increased loan volume and an increase in charge-offs compared
with 1998. Gross charge-offs were $146,157 in the first six month period of
1999, as compared to $109,471 for the same period last year.
Other operating income for the six month period ended June 30,1999, was $888,623
compared to $731,215 for the same period in 1998. Of the $157.4 thousand
increase, Mahopac contributed $101.8 thousand. Increases in ATM surcharges and
other interchange income fees contributed most of the growth to this area.
15
<PAGE>
Other operating expense for the six month period ended June 30, 1999, was
$5,120,254, which represented an increase of $940.3 thousand or 22.55% over the
$4,177,463 recorded for the same period in the prior year. While Mahopac
contributed $574.6 thousand of this increase, The Bank of Castile accounted for
the other $368.2 thousand. Additional new staffing, normal annual salary
adjustments and bonus accruals accounted for approximately $170.3 thousand of
its increase. Increased pension, health insurance and other benefits costs
contributed another $53.1 thousand. Approximately $109.8 thousand of additional
expense was concentrated in debit card expense, NYCE charges, consulting fees
and incentive fees for new indirect loan program.
The provision for income taxes was $782,899 for the six months ended June 30,
1999, up 19.09% from the $657,400 for the six months ended June 30, 1998.
Letchworth's effective tax rate dropped slightly from 29.5% for the six months
ended June 30, 1998, to 28.9% for the six months ended June 30, 1999. This
decrease was primarily due to increased tax exempt interest income.
Interest Rate Sensitivity
The Company realizes income principally from the differential or spread between
the interest earned on loans, investments and other interest-earning assets and
the interest paid on deposits and borrowings. Loan volumes and yields, as well
as the volume of and rates on investments, deposits and borrowings, are affected
by market interest rates. Additionally, because of the terms and conditions of
many of our loan documents and deposit accounts, a change in interest rates
could also affect the duration of the loan portfolio and/or the deposit base,
which could alter our sensitivity to future changes in interest rates. As a
result, significant shifts up or down in interest rates could affect the
accuracy of previous made forward-looking statements. Based on model
simulations, a rising interest rate environment results in higher net income for
the Company. Conversely, decreasing rates result in declined earnings.
16
<PAGE>
IMPACT OF THE YEAR 2000
The Year 2000 issue concerns the potential impact of historic computer software
code that only utilizes two digits to represent the calendar year (e.g. "99" for
"1999"). Software so developed, and not corrected, could produce inaccurate or
unpredictable results commencing upon January 1, 2000, when current and future
dates present a lower two digit year number than dates in the prior century. The
Company, similar to most financial services providers, is significantly subject
to the potential impact of the Year 2000 issue due to the nature of financial
information. Potential impacts to the Company may arise from software, computer
hardware, and other equipment both within the Company's direct control and
outside of the Company's ownership, yet with which the Company electronically or
operationally interfaces. Financial institution regulators have intensively
focused upon Year 2000 exposures, issuing guidance concerning the
responsibilities of senior management and directors. Year 2000 testing and
certification is being addressed as a key safety and soundness issue in
conjunction with regulatory exams.
In May 1997, the Federal Financial Institutions Examination Council ("FFIEC")
issued an interagency statement to the chief executive officers of all federally
supervised financial institutions regarding Year 2000 project management
awareness. The FFIEC has highly prioritized Year 2000 compliance in order to
avoid major disruptions to the operations of financial institutions and the
country's financial systems. The FFIEC statement provides guidance to financial
institutions, providers of data services, and all examining personnel of the
federal banking agencies regarding the Year 2000 issue. The federal banking
agencies have been conducting Year 2000 compliance examinations, and the failure
to implement an adequate Year 2000 program can be identified as an unsafe and
unsound banking practice.
The Board of Directors of The Bank of Castile assigned responsibility for the
Year 2000 project to the standing Risk Committee with the Vice President,
Manager of Information Services as coordinator. At Mahopac, project
responsibility was assigned to a year 2000 Committee which is made up of The
Chief Financial Officer, Vice President of Deposit Operations and The MIS
Technology Department Manager. Furthermore, the five-step approach recommended
by the FFIEC was adopted as the project guideline: 1. Awareness; 2. Assessment;
3. Renovation; 4. Validation; and 5. Implementation.
The awareness and assessment first two stages were substantially completed
during the third and fourth quarter of 1997 by The Bank of Castile and Mahopac,
respectively. The second phase included the identification of all processes,
hardware and software, as well as interdependencies impacting operations. An
inventory of these items was assembled, priorities established and resources
allocated to complete the necessary modifications to minimize the Company's
exposure.
Because the Company does not have any "in house" programming, but instead uses
the services of outside software packages, the renovation stage became more of a
monitoring project to ensure that the systems used are compliant. In the view of
management, all identified mission critical processes are currently Year 2000
ready at both The Bank of Castile and Mahopac.
During the validation stage, each system is being tested to determine if it
correctly processes data for the thirteen dates that have been identified by the
regulators as crucial. The core processing system and item processing systems
have been successfully tested for all test dates. The test dates for all mission
critical items was completed by March 31, 1999. Validations for the non-critical
processes were substantially completed, except for minor items, by June 30,
1999.
The validation and the implementation stages overlapped for the Company, since
it uses the services of outside software packages. All of the mission critical
software has been installed and is operating in the Bank's systems. During the
validation stage each system was tested to determine if it correctly processed
data for up to fifteen different future dates. If any new systems or upgrades
are installed, manufacturer's guarantees of Year 2000 compatibility are
mandatory and additional testing will be performed.
The Company, The Bank of Castile and Mahopac have initiated formal
communications with all of its significant suppliers, utility providers, and
customers to determine the extent to which the Company, The Bank of Castile or
Mahopac are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company and its subsidiaries is requesting that third
party vendors represent their products and services to be Year 2000 compliant
and that they have a program to test for that compliance. However, the response
of certain third parties is beyond the control of the Company.
17
<PAGE>
The Company has developed a business continuation contingency plan to address
anticipated worst case scenarios which are beyond our control that may disrupt
normal operations. A walk through test of various scenarios, as well as, outside
party validation were used to evaluate the contingency plans for both The Bank
of Castile and Mahopac, respectively, without necessitating change. The
contingency plan and related cost estimates will be continually refined as
additional information becomes available. At this time, however the Company
cannot estimate the additional cost, if any, that might develop from such
refinements. The Company is prepared to curtail credit availability to customers
identified as having material exposure to the Year 2000 issue. However, the
Company's ability to exercise such curtailment may be limited by various
factors, including existing legal agreements and potential concerns regarding
lender liability.
There can be no assurance, however, that the hardware, software, and systems of
third parties will not cause Year 2000 issues nor that if any such issues arise
that they will not have a material adverse impact upon the Company.
Year 2000 compliance costs incurred during the first half of 1999 totaled
approximately $129,200, the majority of which was related to equipment and
software. This figure does not include the implicit costs associated with the
reallocation of internal staff hours to Year 2000 project-related efforts. At
this time, management estimates additional Year 2000 cash compliance costs, at
approximately $98,900 for upgrades already implemented. This estimate does not
include normal ongoing costs for computer hardware (including ATM's) and
software that would be replaced in the next year in conjunction with the
Company's ongoing programs for updating its delivery infrastructure. The Year
2000 project cost estimate may change as the Company progresses in its Year 2000
program and conducts further testing concerning third parties. At this time, no
significant projects have been delayed as a result of the Company's Year 2000
effort. Mahopac has not incurred any costs related to Year 2000 since its
affiliation this June and, furthermore, expects any further costs would be
minimal.
Despite the Company's activities in regard to the Year 2000 issue at all its
operating units, there can be no assurance that partial or total systems
interruptions or the costs necessary to update hardware and software would not
have a material adverse effect upon the Company's business, financial condition,
results of operations, and business prospects.
Recovery under existing insurance policies may be available depending upon the
circumstances of a Year 2000 related event and the type of facility involved.
Generally, no recovery would be available in the event of an orderly shutdown
that does not result in damage to the facility, and any potential recoveries in
the event of facility damage, including business interruption, would be subject
to deductibles and location.
Since all systems have been successfully tested for compliance, the Company
presently believes that the Year 2000 issue will not pose significant
operational problems or have significant impact on its financial condition,
results of operations or cash flows for either Letchworth, The Bank of Castile,
or Mahopac.
The Company has assumed a proactive approach to increase Year 2000 awareness and
compliance. In addition to multiple statements forwarded to all customers, the
Company has also have trained its loan officers to discuss Year 2000 issues with
its borrowers. The information is used in loan review process to evaluate risk
ratings and loan loss reserves. Major depositors are also being contacted
directly to determine their readiness. On going customer awareness programs are
planned throughout the balance of 1999 at both The Bank of Castile and Mahopac.
18
<PAGE>
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Shareholders of the Company which was held on May 6,
1999, James H. Van Arsdale III was re-elected as a director of the Company for a
term of three (3) years, and William D. Spain, Jr. was elected as a director of
the Company for a term of three (3) years. In addition, the shareholders of the
Company elected PricewaterhouseCoopers LLP as independent accountants of the
Company for the year ending December 31, 1999. Of the total 3,391,650 shares of
common stock outstanding and eligible to vote at the Annual Meeting, 2,592,363
shares of common stock were voted as follows:
1. ELECTION OF DIRECTORS:
NOMINEE FOR WITHHELD AUTHORITY
WILLIAM H. VAN ARSDALE III 2,583,608 8,755
WILLIAM D. SPAIN, JR. 2,583,608 8,755
2. PROPOSAL TO APPROVE SELECTION OF PRICEWATERHOUSECOOPERS LLP,
FOR AGAINST ABSTAIN
2,576,913 7,526 7,925
19
<PAGE>
ITEM 5. OTHER INFORMATION
On July 30, 1999, the Registrant entered into an Agreement and Plan of
Reorganization (the "Agreement") with Tompkins TrustCo, Inc. ("Tompkins"),
pursuant to which, subject to regulatory and shareholder approval, the
Registrant will be merged with and into Tompkins. Pursuant to the terms and
conditions of the Agreement, each shareholder of the Registrant will receive
.685 shares of common stock of Tompkins for each share of common stock of the
Registrant owned by the shareholder. It is currently anticipated that the
transaction will be consummated in December, 1999, or during the first quarter
of 2000. In connection with the Agreement, the Registrant granted Tompkins an
option, exercisable under certain circumstances, to purchase an aggregate of
689,737 newly issued shares of common stock, par value $1.00 per share, of the
Registrant. The terms and conditions of the Agreement, the Agreement and Plan of
Merger, and Stock Option Agreement are annexed to this Form 10-Q as Exhibits
10(a), 10(b), and 10(c), respectively, and the terms and conditions thereof are
hereby incorporated herein by reference. In addition, Tompkins and the
Registrant issued a joint Press Release on August 2, 1999, describing the
execution of the Agreement and the transaction contemplated thereby. A copy of
the Press Release is annexed to this Form 10-Q as Exhibit 99 and incorporated
herein by reference.
Regulatory approval was obtained from the New York State Banking Department on
May 24, 1999, to open a new branch office in the Town of Chili, New York at 3262
Chili Avenue. A mobile banking unit opened during July 1999 to service this
market while construction a permanent building structure which is anticipated to
be completed during the fourth quarter 1999. This will be the Company's 12th
branch and is existing contiguous to our existing LeRoy and Avon branch market
areas.
On July 12, 1999, Castile Funding Corporation, a wholly owned subsidiary of The
Bank of Castile, was incorporated in New York State under Section 402 of the
Business Corporation Law. Castile Funding Corporation ("CFC") was formed to
qualify as a real estate investment trust as defined in Section 856 of the
Internal Revenue Service Code of 1986, as amended from time to time (the
"Code"), that is "domestically controlled" for purposes of Section 897(h) of the
Code (a "REIT"). In connection therewith, The Bank of Castile capitalized CFC
with selected assets held in its portfolio, including $44.3 million of one to
four family fixed rate and adjustable rate mortgage loans, and $10.1 million of
commercial loans.
On July 12, 1999, Mahopac Funding Corporation, a wholly owned subsidiary of The
Mahopac National Bank, was incorporated in New York State under Section 402 of
the Business Corporation Law. Mahopac Funding Corporation ("MFC") was formed to
qualify as a real estate investment trust as defined in Section 856 of the
Internal Revenue Service Code of 1986, as amended from time to time (the
"Code"), that is "domestically controlled" for purposes of Section 897(h) of the
Code (a "REIT"). In connection therewith, The Mahopac National Bank capitalized
MFC with selected assets held in its portfolio, including $44.29 million of one
to four family fixed rate and adjustable rate mortgage loans.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
3(a) Certificate of Incorporation of Registrant filed by the New York Department
of State on July 17, 1981, incorporated by reference to the Registrant's
Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed with the
commission on September 2, 1989 and wherein such Exhibit is designed Exhibit
3(a).
3(b) Certificate of Amendment of Certificate of Incorporation of Registrant
filed by the New York Department of State on July 26, 1989, incorporated by
reference to the Registrant's Registration Statement on Form S-18 (Reg. No.
33-31149-NY), filed with the Commission on September 2, 1989, and wherein such
Exhibit is designated Exhibit 3(b).
3(c) Certificate of Amendment of Certificate of Incorporation of Registrant
filed by the New York Department of State on May 2, 1990, incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990 and filed with the Commission on August 9, 1990, and wherein
such Exhibit is designed Exhibit (4)b.
3(d) Certificate of Amendment of Certificate of Incorporation of Registrant
filed by the New York Department of State on May 15,1998, incorporated by
reference to the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1998, and filed with the commission on August 13, 1998, and
wherein such exhibit is designated Exhibit 3(d).
3(e) Bylaws of Registrant, as amended by the stockholders of the Registrant at a
special meeting of stockholders on July 11, 1989, incorporated by reference to
the Registrant's Registration Statement on From S-18 (Reg. No. 33-31149-NY),
filed with the Commission on September 2, 1989 and wherein such Exhibit is
designated Exhibit 3(c).
4(a) Form of Common Stock Certificate of Registrant, incorporated by reference
to the Registrant's Amendment No. 1 to Form s-18 Registration Statement (Reg.
No. 33-31149-NY), filed with the Commission on October 31, 1989, and wherein
such Exhibit is designated Exhibit 4.
4(b) Letchworth Independent Bancshares Corporation Stock Option Plan of 1990 and
form of Stock Option Agreement, incorporated by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1990 and filed with
the Commission on August 9, 1990, and wherein such Exhibit is designated Exhibit
4.
21
<PAGE>
4(c) Letchworth Independent Bancshares Corporation Stock Option Plan of 1998,
and form of Stock option Agreement, incorporated by reference to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998 and filed with the Commission on November 11, 1998, and wherein such
Exhibit is designated Exhibit 4(c).
10(a) Agreement and Plan of Reorganization, dated as of July 30,1999, by and
between Registrant and Tompkins TrustCo, Inc.
10(b) Agreement and Plan of Merger of Registrant with and into Tompkins TrustCo,
Inc., dated as of July 30, 1999, by and between Registrant and Tompkins TrustCo,
Inc.
10(c) Stock Option Agreement, dated as of July 30, 1999, by and between
Registrant and Tompkins TrustCo, Inc.
11 Computation of Basic and Diluted Earnings Per Share for the quarter and
six months ended June 30, 1999 is presented on Exhibit 11 of this Report on Form
10-Q.
(b). The Registrant filed a Current Report on Form 8-K on June 17, 1999, in
connection with its acquisition of a controlling interest in The Mahopac
National Bank. The requisite financial statements and pro forma financial
information required on the Form 8-K was filed on August 13, 1999, by an
amendment to the Form 8-K.
99 Press Release regarding Agreement and Plan of Reorganization, dated as of
July 30, 1999, by and between Registrant and Tompkins TrustCo, Inc.
22
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
Date 8/16/99 /s/ JAMES W. FULMER
----------------------------------------
James W. Fulmer
President & Chief Executive Officer
Date 8/16/99 /s/ THOMAS J. SYKES
----------------------------------------
Thomas J. Sykes
Treasurer & Chief Financial Officer
<PAGE>
ANNEX H
Section 623 of the New York Business Corporation Law
<PAGE>
SS.623. PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE PAYMENT FOR SHARES.
(a) A shareholder intending to enforce his right under a section
of this chapter to receive payment for his shares if the proposed corporate
action referred to therein is taken shall file with the corporation, before the
meeting of shareholders at which the action is submitted to a vote, or at such
meeting but before the vote, written objection to the action. The objection
shall include a notice of his election to dissent, his name and residence
address, the number and classes of shares as to which he dissents and a demand
for payment of the fair value of his shares if the action is taken. Such
objection is not required from any shareholder to whom the corporation did not
give notice of such meeting in accordance with this chapter or where the
proposed action is authorized by written consent of shareholders without a
meeting.
(b) Within ten days after the shareholders' authorization date,
which term as used in this section means the date on which the shareholders'
vote authorizing such action was taken, or the date on which such consent
without a meeting was obtained from the requisite shareholders, the corporation
shall give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection was
not required, excepting any shareholder who voted for or consented in writing to
the proposed action and who thereby is deemed to have elected not to enforce his
right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares. Any
shareholder who elects to dissent from a merger under section 905 (Merger of
subsidiary corporation) or paragraph (c) of section 907 (Merger or consolidation
of domestic and foreign corporations) or from a share exchange under paragraph
(g) of section 913 (Share exchanges) shall file a written notice of such
election to dissent within twenty days after the giving to him of a copy of the
plan of merger or exchange or an outline of the material features thereof under
section 905 or 913.
(d) A shareholder may not dissent as to less than all of the
shares, as to which he has a right to dissent, held by him of record, that he
owns beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such nominee
or fiduciary.
(e) Upon consummation of the corporation action, the shareholder
shall cease to have any of the rights of a shareholder except the right to be
paid the fair value of his shares and any other rights under this section. A
notice of election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer is
made. Upon expiration of such time, withdrawal of a notice of election shall
require the written consent of the corporation. In order to be effective,
withdrawal of a notice of election must be accompanied by the return to the
corporation of any advance payment made to the shareholder as provided in
paragraph (g). If a notice of election is withdrawn, or the corporate action is
rescinded, or a court shall determine that the shareholder is not entitled to
receive payment for his shares, or the shareholder shall otherwise lose his
dissenters' rights, he shall not have the right to receive payment for his
shares and he shall be reinstated to all his rights as a shareholder as of the
consummation of the corporate action, including any intervening preemptive
rights and the right to payment of any intervening dividend or other
distribution or, if any such rights have expired or any such dividend or
distribution other than in cash has been completed, in lieu thereof, at the
election of the corporation, the fair value thereof in cash as determined by the
board as of the time of such expiration or completion, but without prejudice
otherwise to any corporate proceedings that may have been taken in the interim.
(f) At the time of filing the notice of election to dissent or
within one month thereafter the shareholder of shares represented by
certificates shall submit the certificates representing his shares to the
corporation, or
<PAGE>
to its transfer agent, which shall forthwith note conspicuously thereon that a
notice of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder of
shares represented by certificates who fails to submit his certificates for such
notation as herein specified shall, at the option of the corporation exercised
by written notice to him within forty-five days from the date of filing of such
notice of election to dissent, lose his dissenter's rights unless a court, for
good cause shown, shall otherwise direct. Upon transfer of a certificate bearing
such notation, each new certificate issued therefor shall bear a similar
notation together with the name of the original dissenting holder of the shares
and a transferee shall acquire no rights in the corporation except those which
the original dissenting shareholder had at the time of transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent, or within
fifteen days after the proposed corporate action is consummated, whichever is
later (but in no case later than ninety days from the shareholders'
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of election to pay
for his shares at a specified price which the corporation considers to be their
fair value. Such offer shall be accompanied by a statement setting forth the
aggregate number of shares with respect to which notices of election to dissent
have been received and the aggregate number of holders of such shares. If the
corporate action has been consummated, such offer shall also be accompanied by
(1) advance payment to each such shareholder who has submitted the certificates
representing his shares to the corporation, as provided in paragraph (f), of an
amount equal to eighty percent of the amount of such offer, or (2) as to each
shareholder who has not yet submitted his certificates a statement that advance
payment to him of an amount equal to eighty percent of the amount of such offer
will be made by the corporation promptly upon submission of his certificates. If
the corporate action has not been consummated at the time of the making of the
offer, such advance payment or statement as to advance payment shall be sent to
each shareholder entitled thereto forthwith upon consummation of the corporation
action. Every advance payment or statement as to advance payment shall include
advice to the shareholder to the effect that acceptance of such payment does not
constitute a waiver of any dissenters' rights. If the corporate action has not
been consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the making
of such offer, and a profit and loss statement or statements for not less than a
twelve month period ended on the date of such balance sheet or, if the
corporation was not in existence throughout such twelve month period, for the
portion thereof during which it was in existence. Notwithstanding the foregoing,
the corporation shall not be required to furnish a balance sheet or profit and
loss statement or statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if in connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were furnished
with a proxy or information statement, which included financial statements,
pursuant to Regulation 14A or Regulation 14C of the United States Securities and
Exchange Commission. If within thirty days after the making of such offer, the
corporation making the offer and any shareholder agree upon the price to be paid
for his shares, payment thereof shall be made within sixty days after the making
of such offer or the consummation of the proposed corporate action, whichever is
later, upon the surrender of the certificates for any such shares represented by
certificates.
(h) The following procedure shall apply if the corporation fails
to make such offer within such period of fifteen days, or if it makes the offer
and any dissenting shareholder or shareholders fail to agree with it within the
period of thirty days thereafter upon the price to be paid for their shares:
(1) The corporation shall, within twenty days after the
expiration of whichever is applicable of the two periods last mentioned,
institute a special proceeding in the supreme court in the judicial district in
which the office of the corporation is located to determine the rights of
dissenting shareholders and to fix the fair value of their shares. If, on the
case of merger of consolidation, the surviving or new corporation is a foreign
corporation without an office in this state, such proceeding shall be brought in
the county where the office of the domestic corporation, whose shares are to be
valued, was located.
<PAGE>
(2) If the corporation fails to institute such proceeding
within such period of twenty days, any dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the expiration
of such twenty day period. If such proceeding is not instituted within such
thirty day period, all dissenter's rights shall be lost unless the supreme
court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as
provided in paragraph (g), have agreed with the corporation upon the price to be
paid for their shares, shall be made parties to such proceeding, which shall
have the effect of an action quasi in rem against their shares. The corporation
shall serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and exclusive.
(4) The court shall determine whether each dissenting
shareholder, as to whom the corporation requests the court to make such
determination, is entitled to receive payment for his shares. If the corporation
does not request any such determination or if the court finds that any
dissenting shareholder is so entitled, it shall proceed to fix the value of the
shares, which, for the purposes of this section, shall be the fair value as of
the close of business on the day prior to the shareholders' authorization date.
In fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts and
methods then customary in the relevant securities and financial markets for
determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or by
any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be entered against
the corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at
such rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of interest, the
court shall consider all relevant factors, including the rate of interest which
the corporation would have had to pay to borrow money during the pendency of the
proceeding. If the court finds that the refusal of any shareholder to accept the
corporate offer of payment for his shares was arbitrary, vexatious or otherwise
not in good faith, no interest shall be allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred by
the corporation against any or all of the dissenting shareholders who are
parties to the proceeding, including any who have withdrawn their notices of
election as provided in paragraph (e), if the court finds that their refusal to
accept the corporate offer was arbitrary, vexatious or otherwise not in good
faith. The court may, in its discretion, apportion and assess all or any part of
the costs, expenses and fees incurred by any or all of the dissenting
shareholders who are parties to the proceeding against the corporation if the
court finds any of the following: (A) that the fair value of the shares as
determined materially exceeds the amount which the corporation offered to pay;
(B) that no offer or required advance payment was made by the corporation; (C)
that the corporation failed to institute the special proceeding within the
period specified therefor; or (D) that the action of the corporation in
complying with its obligations as provided in this section was arbitrary,
vexatious or otherwise not in good faith. In making any determination as
provided in clause (A), the court may consider the dollar amount or the
percentage, or both, by which the fair value of the shares as determined exceeds
the corporate offer.
<PAGE>
(8) Within sixty days after final determination of the
proceeding, the corporation shall pay to each dissenting shareholder the amount
found to be due him, upon surrender of the certificates for any such shares
represented by certificates.
(i) Shares acquired by the corporation upon the payment of the
agreed value therefor or of the amount due under the final order, as provided in
this section, shall become treasury shares or be cancelled as provided in
section 515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under
this section at a time when the corporation is insolvent or when such payment
would make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such
event be deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the
corporation and, if it is liquidated, be subordinated to the rights of creditors
of the corporation, but have rights superior to the non-dissenting shareholders,
and if it is not liquidated, retain his right to be paid for his shares, which
right the corporation shall be obliged to satisfy when the restrictions of this
paragraph do not apply.
(3) The dissenting shareholder shall exercise such option
under subparagraph (1) or (2) by written notice filed with the corporation
within thirty days after the corporation has given him written notice that
payment for his shares cannot be made because of the restrictions of this
paragraph. If the dissenting shareholder fails to exercise such option as
provided, the corporation shall exercise the option by written notice given to
him within twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive
payment for his shares in the manner provided herein shall exclude the
enforcement by such shareholder of any other right to which he might otherwise
be entitled by virtue of share ownership, except as provided in paragraph (e),
and except that this section shall not exclude the right of such shareholder to
bring or maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section,
any notice to be given by a corporation to a shareholder under this section
shall be given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations
except as provided in subparagraph (e)(2) of section 907 (Merger or
consolidation of domestic and foreign corporations).
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
NEW YORK BUSINESS CORPORATION LAW. Under the New York Business
Corporation Law ("NYBCL"), a corporation may indemnify its directors and
officers who are made, or threatened to be made, a party to any action or
proceeding, except for stockholder derivative suits, if such director or officer
acted in good faith, for a purpose which he or she reasonably believed to be in
or, in the case of service to another corporation or enterprise, not opposed to,
the best interests of the corporation, and, in criminal proceedings, had no
reasonable cause to believe his or her conduct was unlawful. In the case of
stockholder derivative suits, the corporation may indemnify a director or
officer if he or she acted in good faith for a purpose which he or she
reasonably believed to be in or, in the case of service to another corporation
or enterprise, not opposed to the best interests of the corporation, except that
no indemnification may be made in respect of (i) a threatened action, or a
pending action which is settled or otherwise disposed of, or (ii) any claim,
issue or matter as to which such person has been adjudged to be liable to the
corporation, unless and only to the extent that the court in which the action
was brought, or, if no action was brought, any court of competent jurisdiction,
determines upon application that, in view of all the circumstances of the case,
the person is fairly and reasonably entitled to indemnity for such portion of
the settlement amount and expenses as the court deems proper.
Any person who has been successful on the merits or otherwise in the
defense of a civil or criminal action or proceeding will be entitled to
indemnification. Except as provided in the preceding sentence, unless ordered by
a court pursuant to the NYBCL, any indemnification under the NYBCL pursuant to
the above paragraph may be made only if authorized in the specific case and
after a finding that the director or officer met the requisite standard of
conduct by (i) the disinterested directors if a quorum is available, (ii) the
board upon the written opinion of independent legal counsel or (iii) the
stockholders.
The indemnification described above under the NYBCL is not exclusive of
other indemnification rights to which a director or officer may be entitled,
whether contained in the certificate of incorporation or bylaws or when
authorized by (i) such certificate of incorporation or bylaws; (ii) a resolution
of stockholders, (iii) a resolution of directors or (iv) an agreement providing
for such indemnification, provided that no indemnification may be made to or on
behalf of any director or officer if a judgment or other final adjudication
adverse to the director or officer establishes that his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantage to which he or
she was not legally entitled.
II-1
<PAGE>
The foregoing statement is qualified in its entirety by reference to
Sections 715, 717, 721 through 725 of the NYBCL.
TOMPKINS' CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Tompkins provide that Tompkins shall, to the fullest
extent permitted by the NYBCL, indemnify any person who was or is made or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he or she is or was a director, officer or employee of
the registrant or of any of its subsidiaries. The Bylaws also provide that in
all situations in which indemnification is not mandatory as described in the
preceding sentence, the Tompkins may, to the fullest extent permitted by the
NYBCL, indemnify any person whom it is empowered to indemnify pursuant to the
NYBCL.
THE MERGER AGREEMENT. In addition, pursuant to the merger agreement,
the Registrant has agreed that, for a period of six years following the
effective time of the merger, the Registrant will indemnify and hold harmless
each present and former director and officer of Letchworth or its direct or
indirect subsidiaries, and each officer or employee of Letchworth or its direct
or indirect subsidiaries who is serving or has served as a director or trustee
of another entity expressly at Letchworth's request or direction, with respect
to matters existing or occurring at or prior to the effective time of the
merger, whether asserted or claimed prior to, at or after the effective time.
The Registrant has also agreed in the merger agreement to maintain, for a period
of six years following the effective time of the merger, the directors' and
officers' liability insurance coverage maintained by Letchworth (or
substantially equivalent coverage under substitute policies) with respect to any
claims arising out of any actions or omissions occurring at or prior to the
effective time of the merger.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Reorganization, dated as of
July 30, 1999, by and between Tompkins Trustco, Inc.
and Letchworth Independent Bancshares Corporation
(included as Annex A to the joint proxy
statement/prospectus which is part of this
Registration Statement)
3.1 Certificate of Incorporation of Tompkins Trustco,
Inc.
3.2 Bylaws of Tompkins Trustco, Inc.
4.1 Tompkins Trustco, Inc. Specimen Stock Certificate
5.1 Opinion of Harris Beach & Wilcox LLP regarding
legality.
8.1 Opinion of Harris Beach & Wilcox LLP regarding tax
matters.
II-2
<PAGE>
10.1 Stock Option Agreement, dated as of July 30, 1999, by
and between Letchworth Corp. and Tompkins Trustco,
Inc. (included as Annex B to the joint proxy
statement/prospectus which is part of this
Registration Statement)
10.2 The Voting Agreement, dated as of July 30, 1999, by
and between Tompkins Trustco, Inc. and Letchworth
Independent Bancshares Corporation ( included as
Annex C to the joint proxy statement/ prospectus
which is part of this Registration Statement)
10.3 Tompkins Trustco, Inc.'s 1992 Stock Option Plan
10.4 Tompkins Trustco, Inc.'s 1996 Stock Retainer Plan for
Non-Employee Directors
10.5 Tompkins Trustco, Inc.'s Director Deferred
Compensation Agreement
10.6 Tompkins Trustco, Inc.'s Deferred Compensation Plan
for Senior Officers
10.7 Supplemental Executive Retirement Agreement between
Tompkins Trustco, Inc. and James J. Byrnes
10.8 Severance Agreement between Tompkins Trustco, Inc.
and James J. Byrnes
10.9 Tompkins Trustco, Inc. Investment and Stock Ownership
Plan
10.10 Employment Agreement by and among Letchworth
Independent Bancshares Corporation, The Bank of
Castile and James W. Fulmer
10.11 Form of Assignment of Employment Agreement between
Letchworth Independent Bancshares, Inc. and James W.
Fulmer
10.12 Employment Agreement by and among Letchworth
Independent Bancshares Corporation, The Bank of
Castile and Brenda L. Copeland
10.13 Letchworth Independent Bancshares Corporation Stock
Option Plan of 1990 and form of Stock Option
Agreement
10.14 Letchworth Independent Bancshares Corporation Stock
Option Plan of 1998 and form of Stock Option
Agreement
10.15 Letchworth Independent Bancshares Corporation's
Employee Stock Ownership Plan
10.16 Letchworth Independent Bancshares Corporation's
Defined Benefit Pension Plan
II-3
<PAGE>
10.17 Form of Letchworth Independent Bancshares
Corporation's Executive Supplemental Income
Agreement, as amended
10.18 Form of Letchworth Independent Bancshares
Corporation's Director Deferred Compensation
Agreement
10.19 Shareholder Agreement, dated as of October 16, 1998,
by and among Letchworth Independent Bancshares
Corporation and various Spain family shareholders of
the Mahopac National Bank
11.1 Statement Re: Computation of Per Share Earnings.
21.1 Subsidiaries of the Registrant
23.1 Consent of Harris Beach & Wilcox LLP (included in
Exhibit 8.1 hereto).
23.2 Consent of KPMG LLP, Independent Auditors for
Tompkins Trustco, Inc.
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Auditors for Letchworth Independent Bancshares
Corporation
23.4 Consent of McConnell, Budd and Downes, Inc.
23.5 Consent of Danielson & Associates, Inc.
24.1 Powers of Attorney (see the signature page to this
Form S-4 Registration Statement).
99.1 Opinion of Danielson & Associates, Inc. is included
as Annex D to the joint proxy statement/prospectus
which is part of this Registration Statement.
99.2 Opinion of McConnell, Budd and Downes, Inc. is
included as Annex E to the joint proxy
statement/prospectus which is part of this
Registration Statement.
99.3 Consent of James W. Fulmer, Craig Yunker and William
D. Spain, Jr. to be named as Directors of Tompkins
Trustco, Inc.
99.4 Form of Proxy - Tompkins Trustco, Inc.
99.5 Form of Proxy - Letchworth Independent Bancshares
Corporation
99.6 Supplemental Letter to Letchworth Independent
Bancshares Corporation Shareholders
(b) Financial Statement Schedules.
None.
II-4
<PAGE>
(c) Item 4(b) Information.
None.
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of this Registration
Statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) ((S) 230. 424(b) of this chapter) if, in the
aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of
Registration fee" table in the effective Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the Registration Statement or any material change to
such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section
II-5
<PAGE>
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c)(1) The undersigned Registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder, through
use of a prospectus which is a part of this Registration Statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c) of the Securities Act of 1933, the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(c)(2) The undersigned Registrant hereby undertakes: that every
prospectus (i) that is filed pursuant to the paragraph immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an offering of securities
subject to Rule 415 of the Securities Act of 1933, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(e) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
II-6
<PAGE>
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(g) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Ithaca, State of New York,
on November 3, 1999.
TOMPKINS TRUSTCO, INC.
By: /s/ JAMES J. BYRNES
---------------------
James J. Byrnes
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on November 3, 1999.
We, the undersigned officers and directors of Tompkins Trustco, Inc.
hereby severally and individually constitute and appoint James J. Byrnes,
Richard D. Farr and John E. Butler, and each of them the true and lawful
attorney and agent (with full power of substitution and resubstitution in each
case) of each of us, to execute in the name, place and stead of each of us
(individually and in any capacity stated below) any and all amendments to this
Registration Statement and all instruments necessary or advisable in connection
therewith and to file the same with the Securities and Exchange Commission, said
attorney and agent to have power to act and to have full power and authority to
do and perform in the name and on behalf of each of the undersigned every act
whatsoever necessary or advisable to be done in the premises as fully and to all
intents and purposes as any of the undersigned might or could do in person and
we hereby ratify and confirm our signatures as they may be signed by or said
attorney and agent to any and all such amendments and instruments.
SIGNATURE TITLE
/s/ JAMES J. BYRNES Director, Chairman of the Board,
- -------------------------- President and Chief Executive Officer
James J. Byrnes (Principal Executive Officer)
/s/ RICHARD D. FARR Senior Vice President,
- -------------------------- Chief Financial Officer
Richard D. Farr (Principal Financial Officer)
/s/ BONNIE H. HOWELL Director
- --------------------------
Bonnie H. Howell
/s/ JOHN E. ALEXANDER Director
- --------------------------
John E. Alexander
/s/ REEDER D. GATES Director
- --------------------------
Reeder D. Gates
II-8
<PAGE>
/s/ WILLIAM W. GRISWOLD Director
- ---------------------------
William W. Griswold
- -------------------------- Director
Carl E. Haynes
/s/ EDWARD C. HOOKS Director
- ---------------------------
Edward C. Hooks
/s/ ROBERT T. HORN, JR Director
- ---------------------------
Robert T. Horn, Jr.
/s/ LUCINDA A. NOBLE Director
- ---------------------------
Lucinda A. Noble
/s/ HUNTER R. RAWLINGS, III Director
- ---------------------------
Hunter R. Rawlings, III
/s/ THOMAS R. SALM
- -------------------------- Director
Thomas R. Salm
- -------------------------- Director
Michael D. Shay
/S/ PEGGY R. WILLIAMS Director
- --------------------------
Peggy R. Williams
II-9
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization, dated as of
July 30, 1999, by and between Tompkins Trustco, Inc.
and Letchworth Independent Bancshares Corporation
(included as Annex A to the joint proxy
statement/prospectus which is part of this
Registration Statement)
3.1 Certificate of Incorporation of Tompkins Trustco,
Inc. (1)
3.2 Bylaws of Tompkins Trustco, Inc. (1)
4.1 Tompkins Trustco, Inc. Specimen Stock Certificate (1)
5.1 Opinion of Harris Beach & Wilcox LLP regarding
legality
8.1 Opinion of Harris Beach & Wilcox LLP regarding tax
matters
10.1 Stock Option Agreement, dated as of July 30, 1999, by
and between Letchworth Corp. and Tompkins Trustco,
Inc. (included as Annex B to the joint proxy
statement/prospectus which is part of this
Registration Statement)
10.2 The Voting Agreement, dated as of July 30, 1999, by
and between Tompkins Trustco, Inc. and Letchworth
Independent Bancshares Corporation (included as Annex
C to the joint proxy statement/ prospectus which is
part of this Registration Statement)
10.3 Tompkins Trustco, Inc.'s 1992 Stock Option Plan (1)
10.4 Tompkins Trustco, Inc.'s 1996 Stock Retainer Plan for
Non-Employee Directors (1) 10.5 Tompkins Trustco,
Inc.'s Director Deferred Compensation Agreement (1)
10.6 Tompkins Trustco, Inc.'s Deferred Compensation
Plan for Senior Officers (1) 10.7 Supplemental
Executive Retirement Agreement between Tompkins
Trustco, Inc. and James J. Byrnes (1) 10.8 Severance
Agreement between Tompkins Trustco, Inc. and James J.
Byrnes (1)
10.9 Tompkins Trustco, Inc. Investment and Stock Ownership
Plan. (2)
10.10 Employment Agreement by and among Letchworth
Independent Bancshares Corporation, The Bank of
Castile and James W. Fulmer (3)
II-10
<PAGE>
10.11 Form of Assignment of Employment Agreement between
Letchworth Independent Bancshares, Inc. and James W.
Fulmer
10.12 Employment Agreement by and among Letchworth
Independent Bancshares Corporation, The Bank of
Castile and Brenda L. Copeland (4)
10.13 Letchworth Independent Bancshares Corporation Stock
Option Plan of 1990 and form of Stock Option
Agreement (5)
10.14 Letchworth Independent Bancshares Corporation Stock
Option Plan of 1998 and form of Stock Option
Agreement (6)
10.15 Letchworth Independent Bancshares Corporation's
Employee Stock Ownership Plan (2)
10.16 Letchworth Independent Bancshares Corporation's
Defined Benefit Pension Plan (2)
10.17 Form of Letchworth Independent Bancshares
Corporation's Executive Supplemental Income
Agreement, as amended (4)
10.18 Form of Letchworth Independent Bancshares
Corporation's Director Deferred Compensation
Agreement (3)
10.19 Shareholder Agreement, dated as of October 16, 1998,
by and among Letchworth Independent Bancshares
Corporation and various Spain family shareholders of
the Mahopac National Bank (7)
11.1 Statement Re: Computation of Per Share Earnings (8)
21.1 Subsidiaries of the Registrant (8)
23.1 Consent of Harris Beach & Wilcox LLP (included in
Exhibit 8.1 hereto).
23.2 Consent of KPMG LLP, Independent Auditors for
Tompkins Trustco, Inc.
23.3 Consent of PricewaterhouseCoopers LLP, Independent
Auditors for Letchworth Independent Bancshares
Corporation
23.4 Consent of McConnell, Budd and Downes, Inc.
23.5 Consent of Danielson & Associates, Inc.
24.1 Powers of Attorney (see the signature page to this
Form S-4 Registration Statement).
II-11
<PAGE>
99.1 Opinion of Danielson & Associates, Inc. is included
as Annex D to the joint proxy statement/prospectus
which is part of this Registration Statement.
99.2 Opinion of McConnell, Budd and Downes, Inc. is
included as Annex E to the joint proxy
statement/prospectus which is part of this
Registration Statement.
99.3 Consent of James W. Fulmer, Craig Yunker and William
D. Spain, Jr. to be named as Directors of Tompkins
Trustco, Inc
99.4 Form of Proxy - Tompkins Trustco, Inc.
99.5 Form of Proxy - Letchworth Independent Bancshares
Corporation
99.6 Supplemental Letter to Letchworth Independent
Bancshares Corporation Shareholders
- ---------------------------------------
(1) Incorporated by reference to Tompkins Trustco, Inc.'s
Registration Statement on Form 8-A, filed with the Commission on
December 29, 1995.
(2) Incorporated by reference to Tompkins Trustco, Inc.'s
Registration Statement on Form S-8, filed with the Commission on
January 5, 1996.
(3) Incorporated by reference to Letchworth Independent
Bancshares Corporation's Registration Statement on Form S-18, filed
with the Commission on October 31, 1989.
(4) Incorporated by reference to Letchworth Independent
Bancshares Corporation's Annual Report on Form 10-K for the year ended
December 31, 1991, filed with the Commission on March 30, 1992.
(5) Incorporated by reference to Letchworth Independent
Bancshares Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990, filed with the Commission on August 9, 1990.
(6) Incorporated by reference to Letchworth Independent
Bancshares Corporation's Quarterly Report on Form 10-QSB for the
quarter ended September 30, 1998, filed with the Commission on November
11, 1998.
(7) Incorporated by reference to Letchworth Independent
Bancshares Corporation's Current Report on Form 8-K, filed with the
Commission on June 17, 1999.
(8) Incorporated by reference to Tompkins Trustco, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1998, filed
with the Commission on March 29, 1999.
II-12
EXHIBIT 5.1
HARRIS
BEACH &
WILCOX
A LIMITED LIABILITY PARTNERSHIP
ATTORNEYS AT LAW
THE GRANITE BUILDING
130 EAST MAIN STREET
ROCHESTER, N.Y. 14604-1687
(716) 232-4440
November 4, 1999
Tompkins Trustco, Inc.
The Commons
Ithaca, New York 14850
Re: TOMPKINS TRUSTCO, INC.
REGISTRATION STATEMENT ON FORM S-4
Gentlemen:
You have requested our opinion in connection with a Registration
Statement on Form S-4 (the "Registration Statement") filed by Tompkins Trustco,
Inc. (the "Company") with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Act"), in connection with the Company's
shares of Common Stock (the "Shares"),) that may be issued in connection with
the transactions contemplated by the Agreement and Plan of Reorganization dated
July 30, 1999 between the Company and Letchworth Independent Bancshares (the
Merger Agreement). Capitalized terms, unless otherwise defined herein, shall
have the meanings set forth in the Registration Statement.
In connection with this opinion, we have examined the Registration
Statement, the Certificate of Incorporation of the Company, the Bylaws of the
Company, Certificates of Public Officials and Officers of the Company and such
other documents and records as we have deemed necessary or appropriate for
purposes of our opinion.
Based on the foregoing, and subject to the qualifications and
assumptions referred to herein, we are of the opinion that the Shares will be,
upon issuance by the Company in the manner set forth in the Merger Agreement,
legally issued, fully paid and non-assessable.
<PAGE>
We have assumed the genuineness of all signatures, the authenticity of
all documents submitted to us as originals, the conformity to the original
documents of all documents submitted to us as copies, and the truth of all facts
recited in all relevant documents.
The opinions set forth above are limited to the laws of the state of
New York and the federal laws of the United States.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the prospectus included in the Registration Statement. In
giving this consent, we do not admit that we are within the category of persons
whose consent is required under Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
HARRIS BEACH & WILCOX, LLP
By:/s/ THOMAS E. WILLETT
-------------------------------
Thomas E. Willett
Member of the Firm
EXHIBIT 8.1
HARRIS
BEACH &
WILCOX
A LIMITED LIABILITY PARTNERSHIP
ATTORNEYS AT LAW
THE GRANITE BUILDING
130 EAST MAIN STREET
ROCHESTER, N.Y. 14604-1687
(716) 232-4440
November 4, 1999
Board of Directors
Tompkins Trustco, Inc.
110 North Tioga Street
Ithaca, New York 14850
Re: CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Dear Ladies and Gentlemen:
We have acted as counsel to Tompkins Trustco, Inc. ("Tompkins") in
connection with the merger (the "Merger") of Letchworth Independent Bancshares
Corporation ("Letchworth") with and into Tompkins pursuant to the Agreement and
Plan of Reorganization dated as of July 30, 1999 (the "Plan of Reorganization").
You have requested that we provide an opinion regarding the treatment of the
Merger under the Internal Revenue Code of 1986, as amended (the "Code").
In providing this opinion, we have relied on (i) the description of the
transaction as set forth in the Plan of Reorganization and the exhibits thereto,
(ii) the description of the transactions as set forth in the joint proxy
statement/prospectus (the "joint proxy statement/prospectus") and the exhibits
thereto, and (iii) representations provided by Tompkins and Letchworth
concerning certain facts relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that:
(i) the summaries of Federal income tax consequences set forth in
the joint proxy statement/prospectus under the heading
"Summary - The Merger and the Merger Agreement - Material
Federal Income Tax Consequences of the Merger" and "The Merger
- Federal Income Tax Consequences of the Merger" are accurate
in all material aspects as to matters of law and legal
conclusions,
<PAGE>
(ii) the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a)(1)(A) of
the Code, and
(iii) as a result of the Merger, no gain or loss will be recognized
by a holder of Letchworth common stock who receives solely
Tompkins common stock (except for cash received in lieu of
fractional shares) in exchange for all of his or her shares of
Letchworth common stock.
This opinion is based on current provisions of the Code, the Treasury
regulations promulgated thereunder, and the interpretation of the Code and such
regulations by the courts and the Internal Revenue Service, as they are in
effect and exist as of the date of this opinion. It should be noted that
statutes, regulations, judicial decisions and administrative interpretations are
subject to change at any time and, in some circumstances, with retroactive
effect. A material change that is made after the date hereof and any of the
foregoing bases for our opinion could adversely affect our conclusion.
We hereby consent to the filing of this opinion as an exhibit of the
joint proxy statement/prospectus and to all references to this firm under the
headings "Summary - Material Federal Income Tax Consequences of the Merger" and
"Federal Income Tax Consequences of the Merger" in the joint proxy
statement/prospectus.
Sincerely,
HARRIS BEACH & WILCOX, LLP
By: /s/ HUGH R. THOMAS
------------------------------
Hugh R. Thomas
Member of the Firm
EXHIBIT 10.11
TOMPKINS TRUSTCO, INC.,
a New York corporation
--------------
FORM OF ASSIGNMENT OF
EMPLOYMENT AGREEMENT
Pursuant to resolution of the respective Boards of Directors of the
undersigned corporations, Tompkins Trustco, Inc. ("Tompkins") and Letchworth
Independent Bancshares Corporation ("Letchworth"), and in consideration of value
received, Letchworth does hereby convey, assign and transfer to Tompkins all of
the rights, benefits, obligations and responsibilities of Letchworth pursuant to
that certain Employment Agreement by and between Letchworth and James W. Fulmer,
its president and chief executive officer, dated as of September 12, 1989 (the
"Fulmer Employment Agreement").
Tompkins hereby assumes all of Letchworth's duties and obligations
under, and agrees to be bound by, the terms of the Fulmer Employment Agreement.
This assignment is acknowledged, approved and consented to by each of
the undersigned parties, and all objections to such assignment, whether based on
contractual or other obligations of, and restrictions upon, the parties are
hereby waived.
Dated: ___________________, 1999
"TOMPKINS" "LETCHWORTH"
Tompkins Trustco, Inc. Letchworth Independent Bancshares Corporation
By: ---------------------------- -------------------------------
James J. Byrnes, Patrick J. Dalton,
Chief Executive Officer Secretary
ACKNOWLEDGED AND CONFIRMED:
---------------------------
James W. Fulmer
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Tompkins Trustco, Inc.:
We consent to the incorporation by reference in the Joint Proxy
Statement/Prospectus and the Registration Statement on Form S-4 of Tompkins
Trustco, Inc. (the Company) (formerly Tompkins County Trustco, Inc.) of our
report dated January 22, 1999, relating to the consolidated statements of
condition of the Company as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in shareholders' equity and
comprehensive income, and cash flows for each of the years in the three year
period ended December 31, 1998, which report has been incorporated by reference
in the December 31, 1998 annual report on Form 10-K of the Company.
/s/ KPMG LLP
-------------------------------
November 2, 1999
Syracuse, New York
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Tompkins Trustco, Inc., of our report dated January 22, 1999 relating to the
financial statements of Letchworth Independent Bancshares Corporation, which
appears in such Registration Statement. We also consent to the reference to us
under the heading "Experts" in such Registration Statement.
/s/ PRICEWATERHOUSECOOPERS LLP
- ------------------------------
PricewaterhouseCoopers LLP
Buffalo, New York
November 1, 1999
EXHIBIT 23.4
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the inclusion of the Opinion of McConnell, Budd &
Downes, Inc. in Appendix E to this Registration Statement No. 333-_____ on Form
S-4 of Tompkins Trustco, Inc. ("Trustco") and Joint Proxy Statement of Trustco
and Letchworth Independent Bancshares Corporation ("Letchworth") to be filed
with the Securities and Exchange Commission in connection with the proposed
Consolidation of Trustco and Letchworth and to the references to the work
completed by our firm as financial advisor to Letchworth, therein. In giving
such consent, we do not thereby admit that we come within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the Securities and Exchange Commission
thereunder, nor do we thereby admit that we are experts with respect to any part
of such Registration Statement within the meaning of the term "expert" as used
in the Securities Act of 1933 as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ MCCONNELL, BUDD & DOWNES, INC.
- ----------------------------------
McConnell, Budd & Downes, Inc.
November 2, 1999
EXHIBIT 23.5
CONSENT OF DANIELSON ASSOCIATES INC.
We hereby consent to the use of our firm's name in the Form S-4
Registration Statement of Tompkins Trustco, Inc. relating to the registration of
shares of Tompkins common stock to be issued in connection with the proposed
acquisition of Letchworth Independent Bancshares Corporation. We also consent to
the inclusion of our opinion letter as an Appendix to the Joint Proxy
Statement/Prospectus included as part of the Form S-4 Registration Statement,
and to the references to our opinion included in the Joint Proxy
Statement/Prospectus.
DANIELSON ASSOCIATES INC.
By: /s/ JON D. HOLTAWAY
------------------------------
Jon D. Holtaway
Senior Vice President
Date: November 4, 1999
EXHIBIT 99.3
CONSENT
Pursuant to Rule 438 of the General Rules and Regulations
under the Securities Act of 1933, I hereby consent to being named in the Joint
Proxy Statement\Prospectus included in the Registration Statement on Form S-4 to
which this consent is an exhibit and confirm my consent to serve in such
capacity.
By: /s/ JAMES W. FULMER Dated: NOVEMBER 3, 1999
------------------------- ---------------------
James W. Fulmer
By: /s/ CRAIG YUNKER Dated: NOVEMBER 3, 1999
------------------------- ---------------------
Craig Yunker
By: /s/ WILLIAM D. SPAIN, JR Dated: NOVEMBER 3, 1999
------------------------- ---------------------
William D. Spain, Jr.
EXHIBIT 99.4
PLEASE DETACH HERE
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o BEFORE RETURNING IT IN THE ENCLOSED ENVELOPE o
CONTROL NUMBER FOR
TELEPHONE OR INTERNET VOTING
VOTE BY TELEPHONE AND INTERNET
<TABLE>
24 HOURS A DAY, 7 DAYS A WEEK TOMPKINS TRUSTCO, INC.
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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HTTPS://PROXY.SHAREHOLDER.COM/TMP Mark, sign and date your 800-479-4522
Use the Internet to vote your proxy. proxy card and return it in Use any touch-tone telephone to
Have your proxy card in hand when you the postage-paid envelope we vote your proxy. Have your proxy
access the website. You will be have provided. Make sure the card in hand when you call. You
prompted to enter your control number, pre-printed address shows will be prompted to enter your
located in the box below, to create an through the envelope window. control number, located in the
electronic ballot. Do not mail additional cards box below, and then follow the
in the return simple directions. Your telephone
envelope. The return or Internet vote authorizes the
envelopes are mechanically named proxies to vote your shares
opened and additional cards in the same manner as if you
may be accidentally marked, signed and returned the
destroyed. proxy card. If you have submitted
your proxy by telephone or the
Internet there is no need for you to
mail back your proxy.
- --------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
DETACH PROXY CARD HERE IF YOU ARE NOT VOTING BY TELEPHONE OR INTERNET
A. To adopt the Agreement and Plan of Reorganization dated as of July 30, 1999
between the Company and Letchworth Independent Bancshares Corporation pursuant
to which Letchworth will be merged into the Company, which will be the surviving
corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
B. Transaction of such other business as may properly come before the meeting or
any adjournment(s), postponement(s), continuation(s),or rescheduling(s) thereof.
CHANGE OF ADDRESS AND
OR COMMENTS MARK HERE [ ]
Please sign exactly as name or names appear on this proxy. When signing as
attorney, executor, administrator, trustee, custodian, guardian or corporate
officer, give full title. If more than one trustee, all should sign.
Date___________________________________, 1999
____________________________________________________________
Signature of Stockholder
____________________________________________________________
Signature, if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
VOTES MUST BE INDICATED
(X) IN BLACK OR BLUE INK. X
<PAGE>
TOMPKINS TRUSTCO, INC.
SPECIAL MEETING OF STOCKHOLDERS
MONDAY, DECEMBER 20, 1999
YOUR VOTING CARD IS ATTACHED BELOW.
You may vote by E-mail, by telephone or by conventional mail.
Please read the other side of this card carefully for instructions.
However you decide to vote, your representation at the
Special Meeting of Stockholders is important to Tompkins Trustco, Inc.
DETACH HERE UNLESS YOU ARE VOTING BY TELEPHONE OR E-MAIL
TOMPKINS TRUSTCO, INC. PROXY/VOTING INSTRUCTION CARD
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF TOMPKINS TRUSTCO,
INC. FOR THE SPECIAL MEETING ON DECEMBER 20, 1999
The undersigned stockholder of TOMPKINS TRUSTCO, INC. (the "Company") hereby
appoints JoAnn H. Beischer and Linda M. Carlton, or either of them, as proxy of
the undersigned, with full power of substitution and revocation, to vote all
shares of Common Stock of the Company standing in his or her name on the books
of the Company at the Special Meeting of Stockholders to be held at 10:00 a.m.
in the Grand Ballroom of the Clarion University Hotel & Conference Center,
Ithaca, NY 14850, on December 20, 1999, or at any adjournment thereof, with all
the powers which the undersigned would possess if personally present, as
designated on the reverse side. The undersigned hereby instructs the said
proxies (i) to vote in accordance with the instructions indicated on the reverse
side, BUT IF NO INSTRUCTION IS GIVEN ON THE REVERSE SIDE, TO VOTE "FOR" THE
APPROVAL OF THE AGREEMENT AND PLAN OF REORGANIZATION, and (ii) to vote in their
discretion with respect to such other matters (including matters incident to the
conduct of the meeting), as may properly come before the meeting. The
undersigned hereby acknowledge receipt of the Notice of Meeting and Proxy
Statement dated, November 8, 1999 relating to the Special Meeting of
Stockholders to be dated December 20,1999.
Comments: _________________________________
TOMPKINS TRUSTCO, INC.
P.O. BOX 11289
NEW YORK, N.Y. 10203-0289
If you have written in the above space, please mark the comments notification
box on the reverse side.
(Continued and to be signed and dated on reverse side.)
EXHIBIT 99.5
PROXY
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
Proxy Solicited by the Board of Directors
For Special Meeting of Stockholders - December 20, 1999
The undersigned stockholder of Letchworth Independent Bancshares
Corporation (the "Company") hereby appoints Gregg McAllister and Carolyn Bauers,
or either of them, as attorneys, agents, and proxies of the undersigned with
full power of substitution and each of them to vote in the name and on behalf of
the undersigned at the Special Meeting of Stockholders of the Company to be held
on December 20, 1999, at 10:00 a.m., at the Batavia Party House, Route 5,
Stafford, New York 14143, and all adjournments thereof, all the shares of Common
Stock of the Company that the undersigned would be entitled to vote if
personally present, with the powers the undersigned would possess if personally
present. A majority of the proxies or substitutes present at the Special Meeting
may exercise all powers granted hereby.
The shares represented by this Proxy will be voted as specified on the
reverse hereof, but if no specification is made, this Proxy will be voted FOR
approval of the proposal. The proxies may vote in their discretion as to other
matters which may come before the Special Meeting.
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE
ENCLOSED POSTPAID ENVELOPE. THIS WILL SAVE YOUR COMPANY THE COST OF A FOLLOW-UP
SOLICITATION.
Please complete and sign on reverse side
- --------------------------------------------------------------------------------
Fold and Detach Here
Dear Stockholder(s):
Enclosed you will find material relative to the Company's Special
Meeting of Stockholders to be held on Monday, December 20, 1999. The Notice of
the Special Meeting and the Proxy Statement describe the formal business to be
transacted at the Special Meeting, as summarized on the attached proxy card.
Whether or not you expect to attend the Special Meeting, please
complete and return promptly the attached proxy card in the accompanying
envelope, which requires no postage if mailed in the United States. As a
stockholder, please remember that your vote is important to us.
As has been our tradition, lunch will be served immediately after the
Meeting. We look forward to seeing you there.
Sincerely,
/s/ JAMES W. FULMER
- -----------------------
James W. Fulmer
President and
Chief Executive Officer
<PAGE>
Please mark your vote as indicated in this example:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE
AGREEMENT AND PLAN OF REORGANIZATION
Proposal to Approve and Adopt the Agreement and Plan or Reorganization, dated as
of July 30, 1999, between Tompkins Trustco, Inc. and Letchworth Independent
Bancshares Corporation.
For Against Abstain
[ ] [ ] [ ]
Do you plan to attend the meeting
and be our guest for lunch after
the meeting?
[ ] Yes [ ] No
Signature(s) should agree with
stenciled name(s) on label. When
signing as attorney, guardian,
executor, administrator or trustee,
please give title. If the signor is
a corporation, please give the full
corporate name and sign by a duly
authorized officer, showing the
officer's title. EACH joint owner
is requested to sign.
Dated:___________________,1999
(Please insert date)
-----------------------------------
(Signature)
----------------------------------
(Joint Owners Signature)
FOLD AND DETACH HERE
- --------------------------------------------------------------------------------
EXHIBIT 99.6
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
Dear Shareholder,
I want to personally offer to you, our valued shareholders, more
information about the announced merger of Letchworth Independent Bancshares
Corporation and Tompkins Trustco, Inc., and TO ENCOURAGE YOU TO VOTE IN FAVOR OF
THIS PROPOSAL. Accompanying this letter is plenty of detailed information about
the merger. However, I want to share some things from my perspective about why I
view this as an exciting opportunity for your Company.
Forming successful partnerships is essential in business. As I have
shared with you for several years, we have evaluated various opportunities for
your Company, seeking ones that appeared to be both financially sound for you,
our investors, and that would enable the Company to maintain our commitment to
community banking, our customers and our employees.
We have long admired the Tompkins County Trust Company, which has been
serving its customers in the Ithaca area for more than 160 years. Their
achievements were recognized in June when U.S. BANKER magazine ranked them fifth
in the nation among mid-sized banks. Tompkins County Trust Company has
consistently rated in the top 10% in this survey over the past eight years. They
have been a leader in developing non-interest income in a community-banking
environment, especially through their Trust and Investment Department. That is
one of the reasons we chose to partner with them more than a year ago when The
Bank of Castile started offering trust and investment services.
From a financial standpoint, Tompkins Trustco, Inc., the parent company
of Tompkins County Trust Company, is very sound. For the nine months ended
September 30, 1999, Tompkins Trustco's diluted earnings per share rose by 11%
over the 1998 figure for the same period, to $1.88. Net income of $9.2 million
was also up 11% over 1998 for the same period. Tompkins Trustco's total return
on assets of 1.80% and return on average equity of 19.2% were again at very high
levels when compared to the banking industry as a whole.
Tompkins Trustco paid dividends of $0.91 per share during 1998, and has
paid a total of $0.76 per share for the first three quarters of 1999. By way of
comparison, Letchworth Bancshares paid $0.32 per share during 1998, and a total
of $0.27 per share for the first three quarters of 1999.
Aside from the impressive financial numbers, the people of the Tompkins
organization demonstrate the commitment to community that has been a hallmark of
The Bank of Castile and Letchworth Bancshares for 130 years. Tompkins' mission
statement is "to be an independent, profitable, and socially responsible
community bank." From my years of interacting with Tompkins representatives at
various levels, I know those are not just words, but they reflect the core of
the way Tompkins does business. They walk the walk, not just talk the talk. That
is the type of organization I, personally, want to be affiliated with. They
share the community values we maintain and have successfully developed the
business culture that supports those values. An alliance of our organizations
seemed like a great fit. As we investigated the possible relationship over the
last several months, the merger made even more sense.
<PAGE>
For those of you with long-standing relationships with The Bank of
Castile and The Mahopac National Bank, this merger should strengthen those
organizations by providing a stronger corporate parent that continues to be
dedicated to the concepts of local decision making and high-quality customer
service. After the merger, the combined assets of the holding company will be
approximately $1.1 billion. With the exception of some additional products and
services, The Bank of Castile and Mahopac National Bank customers should see
little impact. The three banks will be owned by a single parent company, but
will continue to operate as three separately chartered banks serving their
distinct market areas under the direction of their respective boards of
directors.
There are many examples of multibank holding companies, including some
of our local competition, who are successful as community banks. By creating a
strategic partnership with a company like Tompkins Trustco, we help to solidify
our future as a community bank.
While each bank will maintain its separate identity, there are some
efficiencies we can realize by combining our strengths. As small banks, for
example, we are challenged to pay the high costs of technology, while customers
continue to increase their expectations for these types of services. The merger
will allow the banks to share some of those significant costs, which will
enhance our ability to meet customer expectations and to achieve better returns
in the future.
From an organizational standpoint, Tompkins Trustco will reconfigure
its Board of Directors to 11 members. It is planned for me to join that board
and be named President of the organization. Two other members of the Letchworth
organization, Craig Yunker, a director of The Bank of Castile, and William Spain
Jr., Chairman of the Board of Directors of The Mahopac National Bank and a
current member of the Letchworth Board, are expected to be named to the Tompkins
Trustco Board. James J. Byrnes will continue his role as the Chairman and Chief
Executive Officer of Tompkins Trustco.
The merger will be accomplished through a tax-free, stock-for-stock
exchange. You will receive 0.685 shares of Tompkins stock for each share of
Letchworth common stock that you own. The transaction must be approved by
shareholders of both companies and regulatory agencies. The meeting for
Letchworth Independent Bancshares shareholders will be at 10 a.m. on Monday,
December 20, 1999, at The Batavia Party House. It will include our usual format
with a business meeting followed by lunch. I urge you to attend to ask
questions.
More importantly, I hope you will fill out the enclosed proxy and vote
in favor of the proposed transaction prior to the meeting. IF YOU FAIL TO
RESPOND, YOU ARE COUNTED AS "NO."
As always, I welcome your comments and questions. Please feel free to
call me.
Sincerely,
/s/ JAMES W. FULMER
- -----------------------
Janes W. Fulmer
President and
Chief Executive Officer
P.S. Your vote is very important. Please take the time to fill out your proxy
and return it today. Thank you.
