<PAGE>
As filed with the Securities and Exchange Commission on November 3, 1998
Registration No. 333-_________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
-------------------------------------
RICHMOND COUNTY FINANCIAL CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 6036 06-1498455
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
1214 CASTLETON AVENUE
STATEN ISLAND, NEW YORK 10310
(718) 448-2800
(Address, including Zip Code and Telephone Number,
including Area Code, of Registrant's Principle Executive Offices)
MICHAEL F. MANZULLI
CHIEF EXECUTIVE OFFICER
1214 CASTLETON AVENUE
STATEN ISLAND, NEW YORK 10310
(718) 448-2800
(Name, Address, including Zip Code and Telephone Number,
including Area Code, of Agent for Service)
------------------------------------------------------
COPIES TO:
DOUGLAS P. FAUCETTE, ESQ.
MARC P. LEVY, ESQ.
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
------------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVENESS OF
THIS REGISTRATION STATEMENT AND THE SATISFACTION OR WAIVER OF ALL OTHER
CONDITIONS TO THE MERGER DESCRIBED IN THE
JOINT PROXY STATEMENT/PROSPECTUS.
If the securities being registered on this form are to be 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(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. [_]
-------------------------------------------------
Calculation of Registration Fee
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Proposed Proposed
Maximum Maximum
Title of Each Amount Offering Aggregate Amount of
Class of Securities Being To Be Price Offering Registration
Registered Registered(1) Per Share(2) Price (2) Fee (2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $0.01 per
share ("Common Stock") 10,041,277 N/A $143,150,359 $39,796
- ------------------------------------------------------------------------------------
</TABLE>
(1) Represents the estimated maximum number of shares of common stock, par value
$.01 per share, issuable by Richmond County Financial Corp. ("Richmond
County") upon consummation of the acquisition of Bayonne Bancshares, Inc.
("Bayonne") by Richmond County.
(2) The registration fee has been computed pursuant to Rules 457(f)(1) and
457(c) under the Securities Act of 1933, as amended, based on the average of
the high and low prices for shares of common stock of Bayonne reported on
the Nasdaq National Market of the Nasdaq Stock Market on October 30, 1998,
($14.969) and the estimated maximum number of such shares (9,563,121),
including shares issuable upon the exercise of outstanding stock options,
that may be exchanged for the securities being registered.
----------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OR
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
RICHMOND COUNTY FINANCIAL CORP.'S COMMON STOCK IS LISTED ON THE NASDAQ
NATIONAL MARKET OF THE NASDAQ STOCK MARKET AND IS TRADED UNDER THE SYMBOL"RCBK".
<PAGE>
[RICHMOND COUNTY FINANCIAL CORP. LETTERHEAD]
___________, 199__
Dear Richmond County Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Richmond County Financial Corp. ("Richmond County") which will be held on
_________, _________ __, 199__ at ____ a.m., local time at ____________________,
__________________, ______________, New York _____ (the "Richmond County
Meeting").
At the Richmond County Meeting, you will be asked to consider and vote upon
a proposal to approve and adopt an Amended and Restated Agreement and Plan of
Merger, amended and restated as of October 14, 1998 (the "Bayonne Merger
Agreement"), by and between Richmond County and Bayonne Bancshares, Inc.
("Bayonne") pursuant to which Bayonne will be merged with and into Richmond
County (the "Bayonne Merger"), with Richmond County surviving the merger. It is
intended that as soon as practicable following the Bayonne Merger, First Savings
Bank of New Jersey, SLA ("First Savings"), a New Jersey State-chartered savings
bank and a wholly owned subsidiary of Bayonne, and Richmond County Savings Bank
("Richmond County Savings"), a New York State-chartered savings bank and a
wholly owned subsidiary of Richmond County also will merge (the "Bayonne Bank
Merger"), with Richmond County Savings surviving the Bayonne Bank Merger.
Upon consummation of the Bayonne Merger, each share of the common stock of
Bayonne will be converted into and exchangeable for 1.05 shares of Richmond
County common stock plus cash in lieu of any fractional share interest. The
exchange ratio is subject to adjustment in certain circumstances. The exchange
of Richmond common stock for Bayonne common stock is intended to qualify as tax
free to Bayonne stockholders for federal income tax purposes.
The investment banking firm of Tucker Anthony Incorporated has issued a
written opinion to your Board of Directors that, as of the date hereof, the
exchange ratio is fair to Richmond County's stockholders from a financial point
of view. The written opinion of Tucker Anthony is reproduced in full as ANNEX C
to the accompanying Joint Proxy Statement/Prospectus, and Richmond County's
stockholders are urged to read carefully such opinion in its entirety.
Consummation of the Bayonne Merger is subject to certain conditions,
including the approval of the Bayonne Merger Agreement by the holders of
Richmond County common stock and holders of Bayonne common stock and the
approval of the Bayonne Merger by various bank regulatory agencies.
THE BOARD OF DIRECTORS OF EACH OF RICHMOND COUNTY AND BAYONNE HAVE
UNANIMOUSLY APPROVED THE BAYONNE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF
RICHMOND COUNTY BELIEVES THAT THE BAYONNE MERGER AGREEMENT IS IN THE BEST
INTERESTS OF RICHMOND COUNTY AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS
THAT YOU VOTE "FOR" APPROVAL AND ADOPTION OF THE BAYONNE MERGER AGREEMENT.
Specific information regarding the Richmond County Meeting is contained in
the enclosed Notice of Special Meeting of Stockholders and Joint Proxy
Statement/Prospectus. Please read these materials carefully.
In an unrelated transaction, Richmond County is also in the process of
acquiring Ironbound Bankcorp, NJ (the "Ironbound Merger"). Information
concerning the Ironbound Merger is also included in
<PAGE>
the Joint Proxy Statement/Prospectus. THE IRONBOUND MERGER DOES NOT REQUIRE
APPROVAL OF RICHMOND COUNTY STOCKHOLDERS, AND THE BAYONNE MERGER IS NOT
CONTINGENT UPON THE CONSUMMATION OF THE IRONBOUND MERGER, NOR IS THE IRONBOUND
MERGER CONTINGENT UPON THE CONSUMMATION OF THE BAYONNE MERGER.
IT IS VERY IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE RICHMOND
COUNTY MEETING, WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON. THE AFFIRMATIVE
VOTE OF A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF RICHMOND COUNTY
IS REQUIRED FOR APPROVAL OF THE BAYONNE MERGER AGREEMENT. A FAILURE TO VOTE FOR
APPROVAL OF THE BAYONNE MERGER AGREEMENT WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE BAYONNE MERGER 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 RICHMOND COUNTY
MEETING. IF YOU ATTEND THE RICHMOND COUNTY MEETING, YOU MAY REVOKE THE PROXY
GIVEN ON SUCH FORM AND VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY
RETURNED YOUR FORM OF PROXY. 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 RICHMOND COUNTY MEETING. EXAMPLES
- -------------------------------------------------------------------------------
OF SUCH DOCUMENTATION INCLUDE A BROKER'S STATEMENT, LETTER OR OTHER DOCUMENT
- ----------------------------------------------------------------------------
CONFIRMING YOUR OWNERSHIP OF SHARES OF RICHMOND COUNTY.
- ------------------------------------------------------
On behalf of the Board of Directors and the employees of Richmond County
Financial Corp. and Richmond County Savings Bank, I thank you for your support
and urge you to vote "FOR" the Bayonne Merger Agreement.
Sincerely,
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
<PAGE>
[BAYONNE BANCSHARES, INC. LETTERHEAD]
___________, 199_
Dear Bayonne Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Bayonne Bancshares, Inc. ("Bayonne"), which will be held on ____________,
__________ __, 199__ at ____ a.m., local time, at the ______________,
________________, ________, New Jersey _____ (the "Bayonne Meeting").
At the Bayonne Meeting, you will be asked to consider and vote upon a
proposal to approve an Amended and Restated Agreement and Plan of Merger,
amended and restated as of October 14, 1998 (the "Bayonne Merger Agreement"), by
and between Richmond County Financial Corp. ("Richmond County") and Bayonne.
The Bayonne Merger Agreement provides that Bayonne will be merged with and into
Richmond County (the "Bayonne Merger"), with Richmond County surviving the
merger. It is intended that, as soon as practicable following the Bayonne
Merger, Bayonne's wholly owned subsidiary, First Savings Bank of New Jersey,
SLA, ("First Savings"), will merge with and into Richmond County's wholly owned
subsidiary, Richmond County Savings Bank ("Richmond County Savings"), with
Richmond County Savings surviving the Bayonne Bank Merger.
Upon consummation of the Bayonne Merger, each share of the common stock of
Bayonne will be converted into 1.05 shares of Richmond County common stock plus
cash in lieu of any fractional share interest. The exchange ratio is subject to
adjustment in certain circumstances. The exchange of Richmond County common
stock for Bayonne common stock is intended to qualify as tax free to Bayonne
stockholders for federal income tax purposes.
The investment banking firm of Sandler O'Neill & Partners, L.P. ("Sandler
O'Neill") has issued a written opinion to your Board of Directors that, as of
the date hereof, the exchange ratio is fair to Bayonne's stockholders from a
financial point of view. The written opinion of Sandler O'Neill is reproduced
in full as ANNEX D to the accompanying Joint Proxy Statement/Prospectus, and
Bayonne's stockholders are urged to read carefully such opinion in its entirety.
In addition to voting on the Bayonne Merger, you will be asked to vote for
the election of two directors to serve until completion of the Bayonne Merger
or, if the Bayonne Merger is not completed, for three-year terms and until their
successors shall have been elected and qualified, and for the ratification of
the appointment of KPMG Peat Marwick LLP as independent auditors of Bayonne for
the fiscal year ending March 31, 1999.
Consummation of the Bayonne Merger is subject to certain conditions,
including the approval of the Bayonne Merger Agreement by the stockholders of
Bayonne and Richmond County, and the approval of the Bayonne Merger by various
bank regulatory agencies.
THE BOARD OF DIRECTORS OF EACH OF BAYONNE AND RICHMOND COUNTY HAS
UNANIMOUSLY APPROVED THE BAYONNE MERGER AGREEMENT. THE BOARD OF DIRECTORS OF
BAYONNE BELIEVES THAT THE BAYONNE MERGER AGREEMENT IS IN THE BEST INTERESTS OF
BAYONNE AND ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL AND ADOPTION OF THE BAYONNE MERGER AGREEMENT.
Specific information regarding the Bayonne Meeting is contained in the
enclosed Notice of Annual Meeting of Stockholders and Joint Proxy
Statement/Prospectus. Please read these materials carefully.
<PAGE>
IT IS VERY IMPORTANT THAT YOUR SHARES ARE REPRESENTED AT THE BAYONNE
MEETING, WHETHER OR NOT YOU PLAN TO ATTEND IN PERSON. THE AFFIRMATIVE VOTE OF A
MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF BAYONNE IS REQUIRED FOR
APPROVAL OF THE BAYONNE MERGER AGREEMENT. A FAILURE TO VOTE FOR APPROVAL OF THE
BAYONNE MERGER AGREEMENT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE BAYONNE
MERGER 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 BAYONNE MEETING. IF YOU ATTEND THE
BAYONNE MEETING, YOU MAY REVOKE THE PROXY GIVEN ON SUCH FORM AND VOTE IN PERSON
IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR FORM OF PROXY. 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 BAYONNE MEETING. EXAMPLES OF SUCH DOCUMENTATION INCLUDE A BROKER'S
- -----------------------------------------------------------------------
STATEMENT, LETTER OR OTHER DOCUMENT CONFIRMING YOUR OWNERSHIP OF SHARES OF
- --------------------------------------------------------------------------
BAYONNE.
- --------
On behalf of the Board of Directors of Bayonne Bancshares, Inc. and First
Savings Bank of New Jersey, SLA, I thank you for your support and urge you to
vote "FOR" the Bayonne Merger Agreement.
Sincerely,
Patrick F.X. Nilan
Chairman of the Board
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
1214 CASTLETON AVENUE
STATEN ISLAND, NEW YORK 10310
(718) 448-2800
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ___________ __, 199__
NOTICE IS HEREBY GIVEN that the Special Meeting of Stockholders of Richmond
County Financial Corp. ("Richmond County"), _______________, New York will be
held at the _______________________________, _____________________________,
_________, New York, _____ on __________ __, 199__ at __:__ a.m., local time,
(the "Richmond County Meeting") for the following purposes, all of which are
more completely set forth in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger, amended and restated as of
October 14, 1998, by and between Richmond County Financial Corp. and
Bayonne Bancshares, Inc. (the "Bayonne Merger Agreement"), pursuant to
which each share of common stock of Bayonne, par value $0.01 per share,
will be converted into the right to receive 1.05 shares of the common
stock of Richmond County, par value $0.01 per share, plus cash in lieu
of any fractional share interest (the "Bayonne Merger Consideration"),
subject to possible adjustment as set forth in the Bayonne Merger
Agreement.
2. To transact such other business as may properly come before the
Richmond County Meeting and any adjournment or postponement thereof.
Pursuant to Richmond County's Bylaws, the Board of Directors has fixed
__________ __, 199__ as the record date for the determination of stockholders
entitled to notice of and to vote at the Richmond County 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
Richmond County Meeting. A list of Richmond County stockholders entitled to
vote at the Richmond County Meeting will be available for examination for any
purpose germane to the Richmond County Meeting, during ordinary business hours,
at the principal executive offices of Richmond County located at 1214 Castleton
Avenue, Staten Island, New York 10310 for ten days prior to the Richmond County
Meeting and will also be available at the Richmond County Meeting.
In the event that there are not sufficient votes to approve the foregoing
proposal at the time of the Richmond County Meeting, the Richmond County Meeting
may be adjourned in order to permit further solicitation by Richmond County.
By Order of the Board of Directors
Thomas R. Cangemi
Senior Vice President and Corporate Secretary
Staten Island, New York
_______, 199__
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE THE BAYONNE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE RICHMOND COUNTY 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 RICHMOND COUNTY PRIOR TO THE
RICHMOND COUNTY MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY
BEARING A LATER DATE, OR BY ATTENDING THE RICHMOND COUNTY MEETING, FILING A
WRITTEN NOTICE OF REVOCATION WITH THE SECRETARY OF THE MEETING AND VOTING IN
PERSON.
<PAGE>
BAYONNE BANCSHARES, INC.
568 BROADWAY
BAYONNE, NEW JERSEY 07002
(201) 437-1000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON ___________ __, 199__
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Bayonne
Bancshares, Inc. ("Bayonne") will be held at ____________, ________________,
________, New Jersey on _________, ________ __, 199__ at __:__ a.m., local time,
(the "Bayonne Meeting") for the following purposes, all of which are more
completely set forth in the accompanying Joint Proxy Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt the Amended
and Restated Agreement and Plan of Merger, amended and restated as of
October 14, 1998, by and between Richmond County Financial Corp.
("Richmond County") and Bayonne (the "Bayonne Merger Agreement")
pursuant to which each share of common stock of Bayonne, par value
$0.01 per share, will be converted into the right to receive 1.05
shares of the common stock of Richmond County, par value $0.01 per
share, plus cash in lieu of any fractional share interest, subject to
possible adjustment as set forth in the Bayonne Merger Agreement.
2. The election of two directors to three-year terms of office each.
3. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of Bayonne for the fiscal year ending March 31,
1999.
4. To transact such other business as may properly come before the Bayonne
Meeting or any adjournment or postponement thereof.
Pursuant to Bayonne's Bylaws, the Board of Directors has fixed
_________________ ___, 199__ as the record date for the determination of
stockholders entitled to notice of and to vote at the Bayonne Meeting and any
adjournment or postponements thereof. Only stockholders of record at the close
of business on that date will be entitled to notice of and to vote at the
Bayonne Meeting. A list of Bayonne stockholders entitled to vote at the Bayonne
Meeting will be available for examination for any purpose germane to the Bayonne
Meeting, during ordinary business hours, at the principal executive offices of
Bayonne located at 568 Broadway, Bayonne, New Jersey 07002 for ten days prior to
the Bayonne Meeting and will also be available at the Bayonne Meeting.
In the event that there are not sufficient votes to approve any one or more
of the foregoing proposals at the time of the Bayonne Meeting, the Bayonne
Meeting may be adjourned in order to permit further solicitation by Bayonne.
By Order of the Board of Directors
Thomas Coughlin
Corporate Secretary
Bayonne, New Jersey
_______, 199__
<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE AND ADOPT THE BAYONNE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE BAYONNE 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 BAYONNE PRIOR TO THE BAYONNE
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE BAYONNE MEETING, FILING A WRITTEN NOTICE OF REVOCATION
WITH THE SECRETARY OF THE BAYONNE MEETING AND VOTING IN PERSON.
<PAGE>
JOINT PROXY STATEMENT OF
RICHMOND COUNTY FINANCIAL CORP.
AND BAYONNE BANCSHARES, INC.
---------------------
RICHMOND COUNTY FINANCIAL CORP.
PROSPECTUS
10,041,277 SHARES OF RICHMOND COUNTY FINANCIAL CORP. COMMON STOCK
---------------------
MERGER PROPOSED - YOUR VOTE IS VERY IMPORTANT
This Joint Proxy Statement/Prospectus relates to the proposed merger of
Bayonne Bancshares, Inc., a Delaware corporation ("Bayonne"), with and into
Richmond County Financial Corp., a Delaware corporation ("Richmond County"),
with Richmond County as the surviving corporation in the merger (the "Bayonne
Merger"), as contemplated by the Amended and Restated Agreement and Plan of
Merger, amended and restated as of October 14, 1998 (the "Bayonne Merger
Agreement"), by and between Richmond County and Bayonne. A copy of the Bayonne
Merger Agreement is attached as ANNEX A hereto, and is incorporated herein by
reference.
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Richmond County and Bayonne in connection with the solicitation
of proxies by the respective board of directors of Richmond County and Bayonne
for use at the special meeting of stockholders of Richmond County and the annual
meeting of stockholders of Bayonne and any postponements or adjournments
thereof. The Special Meeting of Stockholders of Richmond County is to be held
on ______, 199__ (the "Richmond County Meeting"). The Annual Meeting of
Stockholders of Bayonne is to be held on __________, 199__ (the "Bayonne
Meeting"). The Richmond County Meeting and Bayonne Meeting are collectively
referred to as the "Meetings." At the Meetings, Richmond County and Bayonne
stockholders will consider and vote on a proposal to approve and adopt the
Bayonne Merger Agreement.
In addition, Bayonne stockholders will consider and vote on proposals to
elect two directors to serve until completion of the Bayonne Merger or, if the
Bayonne Merger is not completed, for three-year terms and until their successors
shall have been elected and qualified, and to ratify the appointment of KPMG
Peat Marwick LLP as independent auditors of Bayonne for the fiscal year ending
March 31, 1999.
This Joint Proxy Statement/Prospectus also constitutes a prospectus for
Richmond County with respect to up to 10,041,277 shares, par value $0.01 per
share, of Richmond County common stock ("Richmond County Common Stock") issuable
to holders of common stock, par value $0.01 per share, of Bayonne ("Bayonne
Common Stock") in the Bayonne Merger.
Upon consummation of the Bayonne Merger, each outstanding share of Bayonne
Common Stock, with certain exceptions, will be converted into and exchangeable
for 1.05 shares of Richmond County Common Stock, subject to certain adjustments
(the "Bayonne Exchange Ratio"). Cash will be paid in lieu of the issuance of
fractional shares of Richmond County Common Stock (such cash, together with the
shares of Richmond County Common Stock to be received in the Bayonne Merger, is
collectively referred to as the "Bayonne Merger Consideration"). No stockholder
of Richmond County or Bayonne is entitled to appraisal rights in connection with
or as a result of the Bayonne Merger. See "THE BAYONNE MERGER -- No Appraisal
Rights." The closing price of Richmond County Common Stock on ________, 199__
was $_________
<PAGE>
per share. Richmond County Common Stock is listed on the Nasdaq National Market
of the Nasdaq Stock Market (the "Nasdaq National Market") under the symbol
"RCBK".
The Bayonne Exchange Ratio may be increased by Richmond County in the event
that Bayonne exercises its rights under the Bayonne Merger Agreement due to the
price of Richmond County Common Stock declining below certain levels established
by formulas set forth in the Bayonne Merger Agreement. See "THE BAYONNE
MERGER -- Price-Based Termination."
Because the market price of Richmond County Common Stock is subject to
fluctuations, the value of the shares of Richmond County Common Stock that
holders of Bayonne Common Stock will receive in the Bayonne Merger may increase
or decrease prior to and after the Bayonne Merger. See "MARKET PRICES AND
DIVIDEND INFORMATION." Upon consummation of the Bayonne Merger, the holders of
Bayonne Common Stock will own approximately 26.60% of the outstanding shares of
Richmond County Common Stock.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS JOINT PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS JOINT PROXY STATEMENT/PROSPECTUS 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, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
---------------------------
THE SHARES OF RICHMOND COUNTY COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, BANK INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY, NOR ARE THEY GUARANTEED BY ANY BANK OR BANK HOLDING
COMPANY.
----------------------------
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Richmond County and Bayonne on or
about ______________, 199__.
No persons have been authorized to give any information or to make any
representations other than those contained in this Joint Proxy
Statement/Prospectus or incorporated by reference herein in connection with the
solicitation of proxies or the offering of securities made hereby and, if given
or made, such information or representations must not be relied upon as having
been authorized by Richmond County or Bayonne. This Joint Proxy
Statement/Prospectus does not constitute an offer to sell, or a solicitation of
an offer to buy, any securities, or the solicitation of a proxy, in any
jurisdiction to or from any person to whom it is not lawful to make any such
offer or solicitation in such jurisdiction. Neither the delivery of this Joint
Proxy Statement/Prospectus nor any distribution of securities made hereunder
shall, under any circumstances, create an implication that there has been no
change in the affairs of Richmond County or Bayonne since the date of this Joint
Proxy Statement/Prospectus or that the information herein or the documents or
reports incorporated by reference herein are correct as of any time subsequent
to such date.
The date of this Joint Proxy Statement/Prospectus is ______________, 199__.
2
<PAGE>
JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WHERE YOU CAN FIND MORE INFORMATION..................................... 8
CAUTIONARY STATEMENT REGARDING FORWARD
LOOKING INFORMATION FOR RICHMOND COUNTY AND BAYONNE................. 9
SUMMARY................................................................. 10
The Companies....................................................... 10
Richmond County................................................. 10
Bayonne......................................................... 10
The Stockholder Meetings............................................ 10
Richmond County Stockholders.................................... 10
Bayonne Stockholders............................................ 10
Record Date; Vote Required.......................................... 11
Richmond County................................................. 11
Bayonne......................................................... 11
Our Reasons for the Bayonne Merger.................................. 11
Our Recommendations to Stockholders................................. 11
Richmond County Stockholders.................................... 11
Bayonne Stockholders............................................ 11
The Bayonne Merger.................................................. 11
Exchange of Bayonne Shares...................................... 12
Bayonne Stock Options........................................... 12
No Appraisal Rights of Richmond County Stockholders............. 12
No Appraisal Rights of Bayonne Stockholders..................... 12
Opinions of Richmond County's and Bayonne's Financial Advisors.. 12
Richmond County Stockholders................................ 12
Bayonne Stockholders........................................ 13
Interests of Bayonne Directors and Officers in the Bayonne
Merger that are Different From Your Interests as
Bayonne Stockholders........................................ 13
Employee Matters Relating to the Bayonne Merger................. 13
Effective Time of the Bayonne Merger............................ 13
What We Need to Do to Complete the Bayonne Merger............... 13
Regulatory Approvals Needed to Complete the Bayonne Merger...... 14
Termination of the Bayonne Merger Agreement..................... 14
Expenses of the Bayonne Merger.................................. 14
Waiver and Amendment............................................ 14
Accounting Treatment of the Bayonne Merger...................... 15
Bayonne Merger Stock Option Agreement........................... 15
Nasdaq National Market Listing...................................... 15
Certain Federal Income Tax Consequences of the Bayonne Merger....... 15
Differences in the Rights of Stockholders of Richmond County
and Bayonne..................................................... 15
The Ironbound Merger................................................ 16
Selected Historical Financial Data of
Richmond County and Bayonne..................................... 17
Selected Historical Unaudited Financial and Other Data.............. 18
</TABLE>
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<TABLE>
<S> <C>
Selected Historical Unaudited Financial And Other Data.............. 20
Unaudited Pro Forma Combined Selected
Financial Information........................................... 23
Selected Unaudited Pro Forma Financial Data
of Richmond County, Bayonne and Ironbound....................... 24
Comparative Per Share Data.......................................... 25
INDEX OF DEFINED TERMS.................................................. 26
THE COMPANIES........................................................... 29
Richmond County..................................................... 29
Bayonne............................................................. 29
MARKET PRICES AND DIVIDEND INFORMATION.................................. 30
THE MEETINGS............................................................ 31
MEETING OF RICHMOND COUNTY STOCKHOLDERS................................. 31
Date, Time and Place; Purpose of Meeting............................ 31
Record Date......................................................... 31
Proxies; Voting and Revocation of Proxies........................... 31
Vote Required; Principal Stockholders............................... 33
MEETING OF BAYONNE STOCKHOLDERS......................................... 34
Date, Time and Place; Purpose of Meeting............................ 34
Record Date......................................................... 34
Proxies; Voting and Revocation of Proxies........................... 34
Vote Required; Principal Stockholders............................... 35
BENEFICIAL OWNERSHIP OF RICHMOND COUNTY COMMON STOCK.................... 37
Principal Security Ownership........................................ 37
Directors and Executive Officers.................................... 38
BENEFICIAL OWNERSHIP OF BAYONNE COMMON STOCK............................ 39
Principal Security Ownership........................................ 39
Directors and Executive Officers.................................... 40
THE BAYONNE MERGER...................................................... 41
General............................................................. 41
Background of the Bayonne Merger.................................... 41
Evaluation of Amended and Restated Agreement and Plan of Merger..... 43
Recommendation of the Richmond County Board; Richmond County's
Reasons for the Merger.......................................... 44
Opinion of Richmond County's Financial Advisor...................... 45
Stock Trading Analysis.......................................... 47
Contribution Analysis........................................... 47
Pro Forma Merger Analysis....................................... 47
Analysis of Selected Acquisition Transactions................... 47
Analysis of Selected Publicly Traded Companies.................. 48
</TABLE>
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<TABLE>
<S> <C>
Recommendation of the Bayonne Board; Bayonne's Reasons for
the Merger...................................................... 50
Opinion of Bayonne's Financial Advisor.............................. 51
Summary of Proposal............................................. 52
Stock Trading History........................................... 53
Comparable Company Analysis..................................... 53
Analysis of Selected Merger Transactions........................ 53
Discounted Dividend Stream and Terminal Value Analysis.......... 54
Pro Forma Merger Analysis....................................... 54
Contribution Analysis........................................... 55
Exchange of Bayonne Shares.......................................... 56
Procedures for Exchange of Certificates............................. 58
Richmond County................................................. 58
Bayonne......................................................... 58
Interests of Directors and Officers in the Bayonne Merger that are
Different from Your Interests................................... 59
Existing Employment, Change in Control and Consulting Agreements.... 59
Vesting of Restricted Stock......................................... 59
Establishment of Divisional Board................................... 59
Appointment to Richmond County Board of Directors................... 59
New Employment Agreements........................................... 59
Bayonne Stock Options............................................... 60
Indemnification..................................................... 60
Management and Operations Following the Bayonne Merger.............. 60
Employee Matters.................................................... 61
Conditions to the Bayonne Merger.................................... 62
Regulatory Approvals Needed to Complete the Bayonne Merger.......... 65
Conduct of Business Pending the Bayonne Merger...................... 67
Representations and Warranties...................................... 70
Acquisition Proposals............................................... 71
Waiver and Amendment; Termination................................... 71
Price-Based Termination............................................. 73
Nasdaq National Market Listing...................................... 73
Anticipated Accounting Treatment.................................... 74
Certain Federal Income Tax Consequences of the Bayonne Merger....... 74
Resales of Richmond County Common Stock............................. 75
No Appraisal Rights................................................. 75
Expenses............................................................ 76
Bayonne Effective Time.............................................. 76
CERTAIN RELATED TRANSACTIONS............................................ 76
Bayonne Merger Stock Option Agreement............................... 76
Effect of the Bayonne Merger Stock Option Agreements................ 78
Bayonne Bank Merger Agreement....................................... 79
THE IRONBOUND MERGER.................................................... 79
CERTAIN BANKING REGULATORY CONSIDERATIONS............................... 79
General............................................................. 79
New York State Law.................................................. 80
</TABLE>
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<TABLE>
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FDIC Regulations.................................................... 81
Capital Requirements................................................ 81
Standards for Safety and Soundness.................................. 82
Real Estate Lending Standards....................................... 82
Dividend Limitations................................................ 83
Investment Activities............................................... 83
Prompt Corrective Regulatory Action................................. 83
Transactions with Affiliates........................................ 84
Enforcement......................................................... 85
Insurance of Deposit Accounts....................................... 85
Payment of FICO Bonds............................................... 86
Federal Reserve System.............................................. 86
Community Reinvestment Act.......................................... 86
New York State Regulation........................................... 86
Federal Regulation.................................................. 87
Holding Company Regulation.......................................... 87
Federal Regulation.................................................. 87
New York State Holding Company Regulation........................... 88
Interstate Banking and Branching.................................... 88
DESCRIPTION OF RICHMOND COUNTY CAPITAL STOCK............................ 89
General............................................................. 89
Common Stock........................................................ 89
Preferred Stock..................................................... 90
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS............................ 90
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS................................................ 91
ADDITIONAL MATTERS TO BE CONSIDERED AT THE BAYONNE MEETING.............. 96
Election of Directors............................................... 96
Information with Respect to the Nominees, Continuing Directors and
Executive Officers of Bayonne................................... 96
Compensation Committee Interlocks and Insider Participation......... 98
Directors' Compensation............................................. 98
Executive Compensation.............................................. 99
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS..................... 109
ADDITIONAL INFORMATION.................................................. 110
Stockholder Proposals............................................... 110
Notice of Business to be Conducted at a Bayonne Meeting............. 110
LEGAL MATTERS........................................................... 110
EXPERTS................................................................. 110
STOCKHOLDER PROPOSALS................................................... 111
</TABLE>
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INFORMATION NOT REQUIRED IN PROSPECTUS.................................. II-1
SIGNATURES.............................................................. II-8
EXHIBIT INDEX........................................................... II-10
</TABLE>
ANNEX A Amended and Restated Agreement and Plan of Merger, amended and restated
as of October 14, 1998, by and between Richmond County Financial Corp.
and Bayonne Bancshares, Inc.
ANNEX B Stock Option Agreement, dated as of July 19, 1998, by and between
Bayonne Bancshares, Inc. and Richmond County Financial Corp.
ANNEX C Opinion of Tucker Anthony Incorporated.
ANNEX D Opinion of Sandler O'Neill & Partners, L.P.
ANNEX E Financial Information Relating to Richmond County Financial Corp. for
the Fiscal Year Ended June 30, 1998 and the Quarter Ended September 30,
1998.
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WHERE YOU CAN FIND MORE INFORMATION
Richmond County and Bayonne file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). You may read and copy any reports, statements or other
information that the companies file at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
Richmond County and Bayonne public filings are also available to the public from
commercial document retrieval services and at the Internet World Wide Web site
maintained by the SEC at "http://www.sec.gov."
Richmond County has filed the Registration Statement to register with the
SEC the shares of Richmond County Common Stock to be issued to Bayonne
stockholders in the Bayonne Merger (the "Registration Statement"). This Joint
Proxy Statement/Prospectus is a part of the Registration Statement and
constitutes a Prospectus of Richmond County, a Proxy Statement of Richmond
County for the Richmond County Special Meeting and a Proxy Statement of Bayonne
for the Bayonne Annual Meeting.
As allowed by SEC rules, this Joint Proxy Statement/Prospectus does not
contain all the information that stockholders can find in the Registration
Statement or the exhibits to the Registration Statement.
The SEC allows Bayonne to "incorporate by reference" information into this
Joint Proxy Statement/Prospectus, which means that Bayonne can disclose
important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this Joint Proxy Statement/Prospectus, except for any information
superseded by information contained directly in the Joint Proxy
Statement/Prospectus. This Joint Proxy Statement/Prospectus incorporates by
reference the documents set forth below that Bayonne has previously filed with
the SEC. The documents contain important information about its financial
condition.
BAYONNE SEC FILINGS (FILE NO. 0-22499)
<TABLE>
<S> <C>
Annual Report on Form 10-K Year ended March 31, 1998
Quarterly Report on Form 10-Q Three months ended June 30, 1998
Quarterly Report on Form 10-Q Three months ended September 30, 1998
Current Report on Form 8-K Dated July 27, 1998
Current Report on Form 8-K/A Dated October 16, 1998
</TABLE>
Bayonne incorporates by reference additional documents that it might file
with the SEC between the date of this Joint Proxy Statement/Prospectus and the
date of its Annual Meeting. These include periodic reports, such as Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on
Form 8-K, as well as proxy statements. The Bayonne Annual Report on Form 10-K
for the Year Ended March 31, 1998 and the Form 10-Q for the Quarter Ended
September 30, 1998 are also being mailed along with the Proxy Statement to
Bayonne stockholders.
Bayonne has supplied all information contained or incorporated by reference
in this Joint Proxy Statement/Prospectus relating to Bayonne.
If you are a stockholder of Richmond County or Bayonne, as the case may be,
we may have sent you some of the documents incorporated by reference, but you
can obtain any of them through Richmond County or Bayonne, as the case may be,
or the SEC or the SEC's Internet World Wide Web site described above.
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THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT/PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO BAYONNE, TO
BAYONNE BANCSHARES, INC., 568 BROADWAY, BAYONNE, NEW JERSEY 07002, ATTENTION:
THOMAS COUGHLIN, CORPORATE SECRETARY, TELEPHONE NUMBER (201) 437-1000. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY
__________ __, 199__.
CAUTIONARY STATEMENT REGARDING FORWARD
LOOKING INFORMATION FOR RICHMOND COUNTY AND BAYONNE
This Joint Proxy Statement/Prospectus, the documents incorporated by
reference herein or any other written or oral statements made by or on behalf of
Richmond County and Bayonne may include forward-looking statements with respect
to the financial condition, results of operations and business of Richmond
County and Bayonne, based on management's belief and information currently
available to management. Such forward-looking statements are subject to risks,
uncertainties and assumptions. Actual results may vary materially from those
anticipated, estimated, projected or expected. Among, but not limited to, the
factors that may cause variations from such forward-looking statements are
fluctuations in the economy, especially in the market areas of Richmond County
and its proposed acquisition entities; changes in the interest rate environment;
Richmond County's ability to realize anticipated cost savings relating to
pending acquisitions; Richmond County's success in assimilating acquired
operations in Richmond County's culture, including its ability to instill
Richmond County's credit culture into acquired operations; the continued growth
of the markets in which Richmond County operates; and the enactment of
legislation impacting Richmond County. Readers are cautioned not to place undue
reliance on any forward-looking statements made by or on behalf of Richmond
County and Bayonne. Richmond County and Bayonne undertake no obligation to
update or revise any forward-looking statements. Additional information with
respect to factors that may cause the results to differ materially from those
contemplated by such forward-looking statements is included in Richmond County's
and Bayonne's current and subsequent filings with the SEC.
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Joint Proxy Statement/Prospectus and may not contain all the information
that is important to you. For a more detailed understanding of the Bayonne
Merger you should read the entire Joint Proxy Statement/Prospectus carefully.
Certain capitalized terms which are used but not defined in this summary are
defined elsewhere 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.
THE COMPANIES (PAGE __ )
RICHMOND COUNTY (PAGE ___). Richmond County is a savings and loan holding
company organized under the laws of the State of Delaware in 1997. Richmond
County's wholly owned subsidiary, Richmond County Savings Bank, operates 14
banking offices in the New York City Borough of Staten Island, one banking
office in the New York City Borough of Brooklyn, and one multi-family loan
processing center in Jericho, Long Island. Richmond County Savings Bank is a
New York State-chartered savings bank which has operated since 1886. Richmond
County Savings Bank's deposits are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation. At September 30, 1998, Richmond County
had total assets of $1.7 billion, deposits of $953.5 million and stockholders'
equity of $329.8 million. Richmond County's principal executive offices are
located at 1214 Castleton Avenue, Staten Island, New York 10310 and its
telephone number is (718) 448-2800.
For more information about Richmond County, see "THE COMPANIES -- Richmond
County" on page __ of this document and the financial information relating to
Richmond County, attached hereto as ANNEX E.
BAYONNE (PAGE ___). Bayonne is a savings and loan holding company
organized under the laws of the State of Delaware in 1997. Bayonne's wholly
owned subsidiary, First Savings Bank of New Jersey, SLA, operates four banking
offices and one financial center in Bayonne, New Jersey. First Savings Bank of
New Jersey, SLA is a New Jersey State-chartered savings and loan association
which has operated since 1889. The deposits of First Savings Bank of New
Jersey, SLA are insured by the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation. At September 30, 1998, Bayonne had total assets
of $672.7 million, deposits of $420.7 million and stockholders' equity of
$95.2 million. Bayonne's principal executive offices are located at 568
Broadway, Bayonne, New Jersey 07002 and its telephone number is (201) 437-1000.
For more information about Bayonne, see "THE COMPANIES -- Bayonne" on page
___ of this document and the 1998 Bayonne Form 10-K, which is incorporated
herein by reference and is further described in the section entitled "WHERE YOU
CAN FIND MORE INFORMATION ," found at page __ of this document. In addition,
the Bayonne Annual Report on Form 10-K for the Year Ended March 31, 1998 and the
Form 10-Q for the Quarter Ended September 30, 1998 are also being mailed along
with the Proxy Statement to Bayonne stockholders.
THE STOCKHOLDER MEETINGS (PAGE __)
RICHMOND COUNTY STOCKHOLDERS (PAGE ___). The Richmond County Meeting will
be held at _____ on ___________ __, 199__ at ________________,
_____________________________, _________, New York _____. At the Richmond County
Meeting, you will be asked to (i) approve and adopt the Bayonne Merger
Agreement, which is attached as ANNEX A to this Joint Proxy
Statement/Prospectus; and (ii) to act on any other matters submitted to a vote
at the Richmond County Meeting.
BAYONNE STOCKHOLDERS (PAGE ___). The Bayonne Meeting will be held at
__:__ a.m., on ___________ __, 199__ at ______________, ________________. At the
Bayonne Meeting, you will be asked to (i) approve and adopt the Bayonne Merger
Agreement; (ii) elect two directors; (iii) ratify the appointment of KPMG Peat
Marwick LLP as independent auditors of Bayonne for the fiscal year ending
March 31, 1999; and (iv) act on any other matters that may be submitted to a
vote at the Bayonne Meeting.
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RECORD DATE; VOTE REQUIRED (PAGE __)
RICHMOND COUNTY (PAGE ___). Only holders of record of Richmond County
Common Stock at the close of business on __________ __, 199__, can vote at the
Richmond County Meeting. In order to approve the Bayonne Merger, holders of a
majority of the outstanding shares of Richmond County Common Stock must vote in
its favor. As of the Richmond County Record Date, there were __________ shares
of Richmond County Common Stock outstanding and entitled to be voted at the
Richmond County Meeting. You can cast one vote for each share of Richmond
County Common Stock that you owned as of the Richmond County Record Date. You
can vote your shares by attending the Richmond County Meeting and voting in
person, or you can mark the enclosed proxy card with your vote, sign it and mail
it in the enclosed return envelope. You can revoke your proxy as late as the
date of the Richmond County Meeting either by sending in a new proxy or by
attending the meeting and voting in person.
BAYONNE (PAGE ___). Only holders of record of Bayonne Common Stock at the
close of business on ___________________, 199__ can vote at the Bayonne Meeting.
In order to approve the Bayonne Merger, holders of a majority of the outstanding
shares of Bayonne Common Stock must vote in its favor. As of the Bayonne Record
Date, there were _______ shares of Bayonne Common Stock outstanding that can be
voted at the Bayonne Meeting. You can cast one vote for each share of Bayonne
Common Stock that you owned as of the Bayonne Record Date. You can vote your
shares by attending the Bayonne Meeting and voting in person or you can mark the
enclosed proxy card with your vote, sign it and mail it in the enclosed return
envelope. You can revoke your proxy as late as the date of the Bayonne Meeting
either by sending in a new proxy or by attending the meeting and voting in
person.
OUR REASONS FOR THE BAYONNE MERGER (PAGE __)
Our companies are proposing to merge because we believe that by combining
them we can create a stronger and more diversified company that will provide
significant benefits to our stockholders and customers alike. For instance, the
larger size of our retail banking business should help us to reduce duplicate
costs. We also believe that by bringing our customers and banking products
together, we can do a better job of increasing our combined revenues than we
could if we did not merge. We believe that the merger will strengthen our
position as a competitor in the financial services business, which is rapidly
changing and growing more competitive. To review our reasons for the merger in
greater detail, as well as how we came to agree on the merger, please see
pages __ through __.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE __)
RICHMOND COUNTY STOCKHOLDERS (PAGE ___). The board of directors of
Richmond County believes that the Bayonne Merger is fair to and in the best
interests of Richmond County stockholders, and unanimously recommends that
Richmond County stockholders vote "FOR" the proposal to approve the merger.
BAYONNE STOCKHOLDERS (PAGE ___). The board of directors of Bayonne
believes that the Bayonne Merger is fair to and in the best interests of Bayonne
stockholders, and unanimously recommends that Bayonne stockholders vote "FOR"
the proposal to approve the merger.
THE BAYONNE MERGER (PAGE __)
As a result of the merger of Bayonne with and into Richmond County, Bayonne
stockholders will become stockholders of Richmond County. We have attached the
Bayonne Merger Agreement as ANNEX A. Please read the Bayonne Merger Agreement.
It is the legal document that governs the Bayonne Merger. We hope to complete
the Bayonne Merger in the first quarter of 1999. Immediately following the
completion of the Bayonne Merger, First Savings Bank of New Jersey, SLA and
Richmond County Savings Bank will also merge, with the surviving bank being
named Richmond County Savings Bank. The board of directors of Richmond County
and the board of directors of Bayonne have unanimously approved the Bayonne
Merger.
The original merger agreement was signed by Richmond County and Bayonne on
July 19, 1998. On October 14, 1998, the parties amended the original merger
agreement to provide that the
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Bayonne Merger be accounted for as a "purchase" accounting and to
reflect the termination of the Bayonne employee stock ownership plan.
EXCHANGE OF BAYONNE SHARES (PAGE ___). As a result of the Bayonne Merger,
each share of Bayonne Common Stock will automatically be converted into
1.05 shares of Richmond County Common Stock. The total number of shares you
receive will therefore be equal to 1.05 times the number of shares of Bayonne
Common Stock you own. Richmond County will not issue fractional shares. Instead,
you will receive the value of any fractional share in cash, based on the market
value of Richmond County Common Stock. Following the Bayonne Merger, you will be
entitled to exchange your shares of Bayonne Common Stock for shares of Richmond
County Common Stock by sending your Bayonne Common Stock share certificates and
a letter of transmittal that we will send to you. For more information on how
this exchange procedure works, see "_____________" on page __ of this document.
For example, if you owned ten shares of Bayonne Common Stock, after the Bayonne
Merger you will send in the letter of transmittal and your old Bayonne
certificates and in exchange you will receive ten shares of Richmond County
Common Stock and a check for the market value of one-half of a share.
Shares of Richmond County and Bayonne are quoted on the Nasdaq National
Market of the Nasdaq Stock Market. On October 13, 1998, the last trading day
before we announced the Bayonne Merger Agreement, Richmond Common Stock closed
at $12.25 per share and Bayonne Common Stock closed at $12.00 per share. On
________, Richmond County Common Stock closed at $____ per share and Bayonne
Common Stock closed at $_____ per share.
Based on the Bayonne Exchange Ratio in the Bayonne Merger, which is 1.05,
the market value of the consideration that Bayonne stockholders will receive in
the Bayonne Merger for each share of Bayonne Common Stock would be $12.86 based
on Richmond County's closing stock price on October 13, 1998, and $_____ based
on Richmond County's closing stock price on ______________. Of course, the
market price of Richmond County will continue to fluctuate prior to completion
of the Bayonne Merger. If the price of Richmond County Common Stock is less
than $15.41 and has declined more than 15% compared to a select group of its
peers during a certain time prior to the anticipated consummation of the Bayonne
Merger, Bayonne can terminate the Bayonne Merger Agreement unless Richmond
County elects to increase the number of shares of its stock to make up for this
price decline. Based on the market prices of the common stock of the companies
comprising the peer group index as of __________, 1998, Bayonne would not be
entitled to terminate the Bayonne Merger Agreement. You should obtain current
stock price quotations for Richmond County Common Stock and Bayonne Common
Stock. These quotations are available from your stock broker, in major
newspapers such as The Wall Street Journal and on the Internet.
BAYONNE STOCK OPTIONS (PAGE ___). Each outstanding and unexercised option
to purchase shares of Bayonne Common Stock will automatically become an option
to purchase Richmond County Common Stock, subject to adjustment of the number of
shares and the exercise price based on the Bayonne Exchange Ratio.
NO APPRAISAL RIGHTS OF RICHMOND COUNTY STOCKHOLDERS (PAGE ___). Delaware
law does not provide you with dissenter's appraisal rights in the Bayonne
Merger.
NO APPRAISAL RIGHTS OF BAYONNE STOCKHOLDERS (PAGE ___). Delaware law does
not provide you with dissenter's appraisal rights in the Bayonne Merger.
OPINIONS OF RICHMOND COUNTY'S AND BAYONNE'S FINANCIAL ADVISORS (PAGE __)
RICHMOND COUNTY STOCKHOLDERS (PAGE ___). Tucker Anthony
Incorporated has delivered to the Richmond Board of Directors its opinion that,
as of the date of this document, the Bayonne Exchange Ratio is fair to Richmond
County from a financial point of view. We have attached the opinion to this
document as ANNEX C. You should read it completely to understand the assumptions
made, matters considered and limitations of the review made by Tucker Anthony
Incorporated in providing this opinion.
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BAYONNE STOCKHOLDERS (PAGE ___). Sandler O'Neill & Partners, L.P.
has delivered to the Bayonne Board of Directors its opinion that, as of the date
of this document, the Bayonne Exchange Ratio is fair to the holders of Bayonne
Common Stock from a financial point of view. We have attached this opinion to
this document as ANNEX D. You should read it completely to understand the
assumptions made, matters considered and limitations of the review made by
Sandler O'Neill & Partners, L.P. in providing this opinion.
INTERESTS OF BAYONNE DIRECTORS AND OFFICERS IN THE BAYONNE MERGER THAT ARE
DIFFERENT FROM YOUR INTERESTS AS BAYONNE STOCKHOLDERS (PAGE ___). Some of
Bayonne's officers and directors have interests in the Bayonne Merger in
addition to or potentially different from their interests as stockholders of
Bayonne generally. These include, among other things, provisions in the Bayonne
Merger Agreement relating to indemnification, the payout of cash benefits under
existing employment agreements, and the acceleration of certain benefits and the
vesting of certain benefits under certain employee benefit plans. Mr. Michael A.
Nilan (currently the President, Chief Executive Officer and a director of
Bayonne) will become an officer of Richmond County Savings Bank. In addition,
Richmond County has agreed to increase its Board of Directors by one member and
to appoint Mr. Patrick F.X. Nilan (currently the Chairman of the Bayonne
Board of Directors) to fill that seat until the year 2000. Additionally,
Mr. Patrick F.X. Nilan's consulting agreement with Bayonne will also be
terminated after the Bayonne Merger, in return for which he will receive
$100,000. In addition, the current members of the Bayonne Board of Directors
willing to serve will be appointed by Richmond County to a divisional board of
directors, the function of which shall be to advise Richmond County with respect
to deposit and lending activities in Bayonne's market area and to maintain and
develop customer relationships. Each member of this divisional board shall
receive an annual retainer of $12,000 and $1,000 attendance fee for each board
meeting attended.
EMPLOYEE MATTERS RELATING TO THE BAYONNE MERGER (PAGE ___). The Bayonne
Merger Agreement provides for Bayonne and First Savings Bank of New Jersey, SLA
employees who continue to be employed by Richmond County or Richmond County
Savings Bank to participate in benefit plans maintained by Richmond County or
Richmond County Savings Bank and provides, in certain instances, more specific
provisions with respect to such participation and treatment of Bayonne and First
Savings Bank of New Jersey, SLA benefit plans following the Bayonne Merger.
EFFECTIVE TIME OF THE BAYONNE MERGER (PAGE ___). The Bayonne Merger will
become effective at the date and time when a "Certificate of Merger" is filed
with the Secretary of State of the State of Delaware. The Certificate of Merger
will be filed no later than 14 days after the date of the expiration of the last
applicable waiting period that relates to Bayonne securing approval from the
necessary governmental authorities, and all conditions to the Bayonne Merger are
satisfied or waived, or on another date as agreed to by Richmond County and
Bayonne.
WHAT WE NEED TO DO TO COMPLETE THE BAYONNE MERGER (PAGE ___). The
completion of the Bayonne Merger depends on a number of conditions being met.
In addition to the parties complying with the Bayonne Merger Agreement, these
include:
1. Approval of the Bayonne Merger Agreement by both the Richmond County
stockholders and the Bayonne stockholders.
2. Approval of the Bayonne Merger by certain federal and state regulatory
authorities.
3. Receipt by Richmond County and Bayonne of a legal opinion from their
respective tax counsel that, for United States federal income tax purposes,
Bayonne stockholders who exchange their shares for shares of Richmond
County Common Stock, will not recognize any gain or loss as a result of the
merger, except in connection with the payment of cash instead of fractional
shares. These opinions will be subject to various limitations and we
recommend that you read the fuller description of tax consequences provided
in this document beginning at page __.
4. Approval by the Nasdaq National Market of the Nasdaq Stock Market of the
listing of the shares of Richmond County Common Stock to be issued in
exchange for Bayonne Common Stock.
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5. The absence of any injunction or legal restraint blocking the merger or
government proceedings trying to block the merger.
Where the law permits, Richmond County could decide to complete the Bayonne
Merger even though one or more of these conditions has not been met. We cannot
be certain when (or if) the conditions to the Bayonne Merger will be satisfied
or waived, or that the Bayonne Merger will be completed.
REGULATORY APPROVALS NEEDED TO COMPLETE THE BAYONNE MERGER (PAGE ___).
Consummation of the Bayonne Merger and the related transactions, including the
merger of First Savings Bank of New Jersey, SLA with and into Richmond County
Savings Bank, are subject to the prior approvals of the Federal Deposit
Insurance Corporation, the Office of Thrift Supervision, the Superintendent of
Banks of New York State, and the Commissioner of the New Jersey Department of
Banking and Insurance. We have submitted separate applications for the Bayonne
Merger to these regulatory authorities.
As of the date of this document, we have not yet received the required
approvals. While we do not know of any reason why we would not be able to
obtain the necessary approvals in a timely manner, we cannot be certain when or
if we will receive them.
TERMINATION OF THE BAYONNE MERGER AGREEMENT (PAGE ___). Richmond County
and Bayonne can mutually agree at any time to terminate the Bayonne Merger
Agreement without completing the Bayonne Merger, even if the stockholders of
both their companies have approved it. Also, either Richmond County or Bayonne
can decide, without the consent of the other, to terminate the Bayonne Merger
Agreement if:
1. Any government agency denies an approval we need to complete the
merger, and that denial has become final and nonappealable, or if any
governmental entity issues a final, non-appealable order blocking the
merger.
2. The Bayonne Merger has not been completed by April 30, 1999, unless the
failure to complete the Bayonne Merger by that time is due to the
failure to obtain a governmental or regulatory approval, consent or
waiver, then by July 31, 1999.
3. One party breaches the Bayonne Merger Agreement (and does not correct
the breach promptly) in a way that would entitle the terminating party
to do so, as long as the party seeking to terminate the Bayonne Merger
Agreement has not materially breached the Bayonne Merger Agreement.
4. If Richmond County's and/or Bayonne's stockholders do not approve the
Bayonne Merger.
In addition, Bayonne may terminate the Bayonne Merger Agreement if the
price of Richmond County Common Stock is less than $15.41 and if the price of
Richmond County Common Stock has declined by more than 15% compared to a select
group of its peers during the 5 day period beginning on the date that the
parties have received the last consent, approval or waiver for the Bayonne
Merger to occur, and Richmond County decides not to increase the consideration
to be received by Bayonne stockholders.
EXPENSES OF THE BAYONNE MERGER (PAGE ___). Regardless of whether the
Bayonne Merger is completed, Richmond County and Bayonne will each pay their own
fees and expenses, except that Richmond County will pay the costs and expenses
that they have incurred in printing and mailing this document and the
registration fees to be paid to the Securities and Exchange Commission.
WAIVER AND AMENDMENT (PAGE ___). We can agree to amend the Bayonne
Merger, and each of the parties can waive their right to require the other party
to adhere to the terms and conditions of the Bayonne Merger Agreement, where the
law allows. However, the parties may not do so after their stockholders approve
the Bayonne Merger, if the
14
<PAGE>
amendment or waiver reduces or changes the consideration that will be received
by Bayonne stockholders, unless the affected stockholders approve the amendment
or waiver.
ACCOUNTING TREATMENT OF THE BAYONNE MERGER (PAGE ___). The Bayonne Merger
will be accounted for as a "purchase" transaction. This means that, for
accounting and financial reporting purposes, we will treat our companies as one
company beginning as of the date of the combination. Additionally under this
method of accounting, Richmond County will record the fair market value of
Bayonne's assets and liabilities, on its financial statements.
BAYONNE MERGER STOCK OPTION AGREEMENT (PAGE ___). At Richmond County's
request, Bayonne entered into a stock option agreement granting Richmond County
an option to purchase shares of Bayonne's Common Stock. The parties entered
into this agreement to increase the likelihood that the Bayonne Merger would be
completed. The stock option agreement could discourage other companies from
trying or proposing to combine with Bayonne before the Bayonne Merger is
completed.
The most shares that can be purchased if the option is exercised is 19.9%
of the total number of outstanding shares of Bayonne Common Stock. The purchase
price per share under the option agreement is set at $15.50.
Richmond County cannot exercise the option unless certain events occur.
These events include a business combination or acquisition transaction relating
to Bayonne and certain related activities (other than the merger Bayonne
proposed in this document) such as a merger or the sale of a substantial amount
of Bayonne's assets or stock. Neither Richmond County nor Bayonne know of any
event that has occurred as of the date of this document that would permit
Richmond County to exercise its option.
NASDAQ NATIONAL MARKET LISTING (PAGE ___). Richmond County Common Stock
is listed on the Nasdaq National Market of the Nasdaq Stock Market. Richmond
County has agreed to use its best efforts to cause the shares of Richmond County
Common Stock to be issued in the Bayonne Merger to be approved for quotation on
the Nasdaq National Market of the Nasdaq Stock Market. The obligation of each
of Richmond County and Bayonne to complete the Bayonne Merger is subject to the
listing of such shares on the Nasdaq National Market of the Nasdaq Stock Market
or on such other market on which shares of Richmond County Common Stock shall
then be trading.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE BAYONNE MERGER (PAGE ___)
We expect that the Bayonne Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. Consummation of the Bayonne Merger is conditioned upon receipt by
Richmond County of an opinion of its tax counsel and the receipt by Bayonne of
an opinion of its tax counsel, each dated as of the date a Certificate of Merger
is filed with the Secretary of State of the State of Delaware relating to the
Bayonne Merger, substantially to that effect. It is expected that neither
Richmond County nor Bayonne will recognize any gain or loss as a result of the
Bayonne Merger and no gain or loss will be recognized by holders of Bayonne
Common Stock as a result of their receipt of shares of Richmond County Common
Stock in the Bayonne Merger, except to the extent of any cash received in lieu
of a fractional share interest in Richmond County Common Stock.
DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS OF RICHMOND COUNTY AND BAYONNE
(PAGE ___)
After the Bayonne Merger is completed, Bayonne's stockholders automatically
will become stockholders of Richmond County and their rights as stockholders of
Richmond County will be governed by the Delaware General Corporation Law and by
Richmond County's Certificate of Incorporation and Bylaws. The rights of
stockholders of Richmond County, as defined in its Certificate of Incorporation
and Bylaws, do not materially differ from the rights of the stockholders of
Bayonne, as defined in its Certificate of Incorporation and Bylaws.
15
<PAGE>
THE IRONBOUND MERGER (PAGE __)
In a separate and unrelated transaction, Richmond County is also acquiring
Ironbound Bankcorp, NJ. Ironbound Bankcorp, NJ is a bank holding company
organized under the laws of the State of New Jersey in 1988. Ironbound's wholly
owned subsidiary, Ironbound Bank, is a New Jersey commercial bank that operates
three full service commercial banking offices in the New Jersey counties of
Union and Essex. Ironbound Bank has operated since 1988. Ironbound Bank's
deposits are insured by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation. At September 30, 1998, Ironbound had total assets of $115.3
million, deposits of $102.8 million, and stockholders' equity of $11.5 million.
Ironbound's principal offices are located at 36 Pacific Street at New York
Avenue, Newark, New Jersey 07105, and its telephone number is (973) 589-3800.
After the Ironbound Merger, Ironbound will be merged with and into Richmond
County, and Ironbound stockholders will become stockholders of Richmond County.
We hope to complete the Ironbound Merger in early 1999. Immediately following
the completion of the Ironbound Merger, Richmond County Savings and Ironbound
Bank will also merge. Richmond County Savings Bank will be the name of the
surviving bank, although the former offices of Ironbound Bank will operate under
the name "Ironbound Bank, a division of Richmond County Savings Bank." THE
BOARDS OF DIRECTORS OF RICHMOND COUNTY AND IRONBOUND HAVE UNANIMOUSLY APPROVED
THE IRONBOUND MERGER. THE IRONBOUND MERGER DOES NOT REQUIRE THE APPROVAL OF THE
RICHMOND COUNTY STOCKHOLDERS OR BAYONNE STOCKHOLDERS AND THE BAYONNE MERGER IS
NOT CONTINGENT UPON THE CONSUMMATION OF THE IRONBOUND MERGER, NOR IS THE
IRONBOUND MERGER CONTINGENT UPON THE CONSUMMATION OF THE BAYONNE MERGER.
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF
RICHMOND COUNTY AND BAYONNE
(UNAUDITED)
The following tables show summarized historical financial data for each
of us.
The information in the following tables is based on historical financial
information that we have presented in our prior Securities and Exchange
Commission filings. All of the summary financial information we provide in the
following tables should be read in connection with this historical financial
information and with the more detailed financial information we provide in this
document, which you can find beginning at page __. The historical financial
statements of Richmond County are included in the document attached as ANNEX E
to this document. The historical financial statements of Bayonne are
incorporated by reference into this document. See "WHERE YOU CAN FIND MORE
INFORMATION."
Because Richmond County's fiscal year ends on June 30 and Bayonne's fiscal
year ends on March 31, the financial data for Bayonne for the three months ended
September 30 have been presented to coincide with the fiscal reporting period
for Richmond County. Following the Bayonne Merger, the combined company's
fiscal year, like that of Richmond County, will end on June 30.
Richmond County was organized under Delaware law in September 1997.
Therefore, all financial information contained herein for periods prior to
December 31, 1997 relates solely to Richmond County Savings Bank. Richmond
County's audited annual historical financial statements were audited by Ernst &
Young LLP, independent certified public accountants, and Bayonne's audited
annual historical financial statements were audited by KPMG Peat Marwick LLP,
independent certified public accountants.
17
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
SELECTED HISTORICAL UNAUDITED FINANCIAL AND OTHER DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED JUNE 30,
----------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA:
Total assets.............................. $1,692,615 $1,023,780 $1,595,844 $993,370 $914,483 $851,751 $825,663
Federal funds sold........................ 4,200 4,000 26,000 6,000 20,000 18,000 17,500
Debt and equity securities, net/(1)/:
Available for sale.................... 237,956 40,764 238,890 19,706 21,659 607 --
Held to maturity...................... -- 187,469 -- 205,201 307,700 287,879 328,779
Mortgage-backed and mortgage related
securities, net/(1)/:
Available for sale.................... 593,714 76,286 604,304 27,398 1,394 1,683 --
Held to maturity...................... -- 147,737 -- 185,122 80,284 92,404 74,961
Loans receivable, net/(2)/................ 774,558 515,516 644,469 496,258 419,270 392,409 355,850
Federal Home Loan Bank of
New York stock.......................... 20,375 -- 15,550 -- -- -- --
Intangible assets......................... 1,130 1,447 1,209 1,527 1,802 2,115 2,428
Deposits.................................. 953,506 887,489 950,808 885,818 819,216 766,231 750,216
Borrowings................................ 400,000 25,639 306,000 -- -- -- --
Stockholders' equity...................... 329,826 104,253 328,595 100,865 89,901 81,166 73,550
SELECTED OPERATING DATA:
Interest income........................... 27,662 17,754 86,754 65,781 59,063 54,321 51,608
Interest expense.......................... 12,599 7,596 37,512 27,707 26,254 22,456 20,207
---------- ---------- ---------- -------- -------- -------- --------
Net interest income before
provision for possible
loan losses......................... 15,063 10,158 49,242 38,074 32,809 31,865 31,401
Provision for possible loan losses........ 750 450 2,200 1,080 1,600 600 859
---------- ---------- ---------- -------- -------- -------- --------
Net interest income after
provision for possible
loan losses......................... 14,313 9,708 47,042 36,994 31,209 31,265 30,542
---------- ---------- ---------- -------- -------- -------- --------
Non-interest income....................... 1,844 817 3,601 2,861 2,827 2,659 2,961
Non-interest expense/(3)/................. 7,632 4,955 44,046 19,667 18,503 18,139 17,287
---------- ---------- ---------- -------- -------- -------- --------
Income before income taxes and
cumulative effect of changes in
accounting principles................... 8,525 5,570 6,597 20,188 15,533 15,785 16,216
Provision for income taxes................ 3,171 2,717 2,071 9,463 6,803 6,919 7,305
---------- ---------- ---------- -------- -------- -------- --------
Income before cumulative effect of
changes in accounting principles........ 5,354 2,853 4,526 10,725 8,730 8,866 8,911
---------- ---------- ---------- -------- -------- -------- --------
Cumulative effect of changes in
accounting principles/(4)/.............. -- -- -- -- -- (1,316) 1,232
---------- ---------- ---------- -------- -------- -------- --------
Net income................................ $ 5,354 $ 2,853 $ 4,526 $ 10,725 $ 8,730 $ 7,550 $ 10,143
========== ========== ========== ======== ======== ======== ========
Basic and diluted income (loss) per
share since Conversion/(5)/.............. $ .22 N/A $ (0.16) N/A N/A N/A N/A
========== ==========
</TABLE>
(footnotes on next page)
18
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED JUNE 30,
----------------------- ----------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL RATIOS
AND OTHER DATA/(6)/:
Performance Ratios/(7)/:
Return on average assets............... 1.32% 1.13% 1.26% 1.13% 0.99% 0.91% 1.27%
Return on average stockholders' equity. 6.48 10.96 8.36 11.25 10.25 9.80 14.97
Average stockholders' equity to
average assets....................... 20.37 10.27 15.05 10.07 9.70 9.29 8.50
Stockholders' equity to total assets
at end of period..................... 19.49 10.18 20.59 10.15 9.83 9.53 8.91
Net interest rate spread/(8)/.......... 2.81 3.60 3.29 3.64 3.48 3.66 3.85
Net interest margin/(9)/............... 3.87 4.22 4.10 4.22 3.96 4.06 4.16
Average interest-earning assets to
average interest-bearing liabilities. 132.95 119.74 126.04 118.94 114.99 113.96 111.64
Total non-interest expense to
average assets/(10)/................. 1.88 1.94 1.93 1.99 2.07 2.15 2.13
Net interest income to operating
expenses............................. 197.37 205.01 201.09 193.59 177.32 175.67 181.65
Efficiency ratio/(11)/................. 44.68 44.43 45.75 46.08 51.04 51.63 49.40
Asset Quality Ratios:
Non-performing loans as a percent
of loans, net........................ 0.49% 0.84% 0.85% 0.78% 0.91% 0.76% 1.51%
Non-performing assets as a percent
of total assets...................... 0.24 0.50 0.37 0.46 0.48 0.39 0.71
Allowance for loan losses as a percent
of loans receivable, net............. 1.01 1.13 1.12 1.10 1.14 0.83 0.87
Allowance for loan losses as a percent
of total non-performing loans........ 208.59 135.08 131.50 141.09 125.55 109.35 57.64
Regulatory Capital Ratios and Other Data:
Leverage capital....................... 12.38 9.64% 12.81% 9.54% 9.65% 9.25% 8.60%
Total risk-based capital............... 22.49 18.52 24.81 18.91 19.20 18.33 16.23
Tier I capital......................... 21.60 17.63 23.87 17.98 18.33 17.92 15.71
Number of customer facilities.............. 14 13 13 13 13 13 13
</TABLE>
________________________
(1) Richmond County Savings Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115 ("SFAS No. 115"), "Accounting for Certain
Investments in Debt and Equity Securities," as of July 1, 1994, and
reclassified securities having a market value of $26 million from its held
to maturity portfolio to its available for sale portfolio in November 1995,
pursuant to the Financial Accounting Standards Board's ("FASB") Special
Report on implementation of SFAS No 115. In February 1998, Richmond County
transferred its entire securities held to maturity portfolio to its
securities available for sale portfolio as part of a balance sheet
restructuring initiative implemented at that time, primarily in connection
with a reassessment by Richmond County of its asset/liability management
strategy.
(2) Loans receivable, net, consist of gross loans receivable, less unamortized
discounts, plus deferred loan costs, less deferred loan fees and the
allowance for loan losses. The allowance for loan losses at September 30,
1998, 1997, and June 30, 1998, 1997, 1996, 1995 and 1994 were $7.9 million,
$5.9 million, $7.3 million, $5.5 million, $4.8 million, $3.3 million and
$3.1 million, respectively. Loan receivable, net, at June 30, 1996,
includes $1.2 million of loans held for sale.
(3) Includes the one-time non-recurring charge of $19.6 million ($11.2 million,
net of tax) for funding of the Richmond County Savings Foundation (the
"Foundation") at the time of Richmond County Savings Bank's mutual-to-stock
conversion (the "Conversion").
(4) Cumulative effect of changes in accounting principles reflects a charge,
net of tax, of $1.3 million for fiscal 1995, resulting from the adoption of
SFAS No. 106 ("SFAS No. 106"), "Employer's Accounting For Post-Retirement
Benefits Other than Pensions," and a credit to earnings of $1.2 million for
fiscal 1994, resulting from the adoption of SFAS No. 109 ("SFAS No. 109"),
"Accounting for Income Taxes."
(5) Pro forma earnings per share for fiscal year 1998, calculated as if
Richmond County Savings Bank had converted to stock form as of
July 1, 1997, was $0.19.
(6) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios and fiscal year 1998,
which is based on daily average balances, all ratios are based upon average
balances during the indicated period. Averages for the periods ended fiscal
1997, 1996, 1995 and 1994, utilize average month-end balances.
(7) All performance ratios for the year ended June 30, 1998, exclude the one-
time non-recurring charge of $19.6 million ($11.2 million net of tax) for
the funding of the Foundation at the time of the Conversion.
(8) The net interest margin spread represents the difference between the
weighted average yield on average interest-earning assets and the weighted
average cost of average interest-bearing liabilities.
(9) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(10) Total non-interest expense excludes the effect of amortization of goodwill.
The 1997 ratio excludes the one-time special assessment of $493,000 to
recapitalize the Savings Association Insurance Fund ("SAIF"). Including
the effects of the amortization of goodwill and funding of the Foundation,
total non-interest expense to average assets for the year ended
June 30, 1998 would be 3.52%.
(11) The efficiency ratio represents the ratio of non-interest expense,
excluding the effect of amortization of goodwill and the SAIF special
assessment, divided by the sum of net interest income and non-interest
income. Including the effects of the amortization of goodwill and the
contribution to the Foundation, the efficiency ratio for the year ended
June 30, 1998 would be 83.35%.
19
<PAGE>
BAYONNE BANCSHARES, INC.
SELECTED HISTORICAL UNAUDITED FINANCIAL AND OTHER DATA
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, MAY 31,
----------------------- ------------------------------------------- ------------
1998 1997 1998 1997 1996 1995 1994/(4)/
---------- ---------- ---------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA:
Total assets............................. $672,657 $609,053 $646,058 $577,004 $651,945 $512,126 $547,550
Cash and cash equivalents................ 3,047 14,221 16,617 15,472 11,791 6,111 47,839
Loan receivable, net:
Real estate............................ 278,802 203,262 208,723 207,262 198,658 197,240 172,552
Consumer............................... 29,987 28,558 26,742 28,362 25,370 21,314 16,428
-------- -------- -------- -------- -------- -------- --------
Total loans receivable, net/(1)/..... 308,789 231,820 235,465 235,624 224,028 218,554 188,980
U.S. Government and agency obligations,
net of valuation allowance/(2)/......... 88,208 76,931 77,446 76,489 101,729 148,062 146,806
Mortgage securities, net/(3)/............ 244,179 262,646 274,652 222,980 289,848 117,205 141,271
Deposits................................. 420,749 432,131 423,545 444,139 445,424 444,380 471,681
Borrowed funds........................... 147,022 75,489 115,380 75,598 151,334 15,032 --
Stockholders' equity..................... 95,152 95,161 98,649 48,079 49,519 46,625 34,066
</TABLE>
_______________________
(1) Excludes loans to joint ventures of First Savings Bank of New Jersey, SLA
subsidiaries.
(2) At September 30, 1998 and 1997, March 31, 1998, 1997, 1996 and 1995, and
May 31, 1994, $80.3 million, $61.1 million, $69.5 million, $67.6 million,
$92.6 million, $64.3 million and $64.1 million of such securities,
respectively, net of valuation allowance, were classified as available for
sale, and $7.9 million, $7.9 million, $7.9 million, $8.9 million,
$8.9 million, $83.7 million and $82.7 million, respectively, of such
securities were classified as held to maturity.
(3) Includes mortgage-backed securities and mutual funds that invest primarily
in mortgage-backed securities, net of valuation allowance. At March 31,
1998, 1997, 1996 and 1995, and May 31, 1994, all such securities were
classified as available for sale.
(4) At the time of First Savings' reorganization into the mutual holding
company structure in 1995 (the "1995 MHC Reorganization"), First Savings
Bank of New Jersey, SLA changed its fiscal year end from May 31, to
March 31.
(5) At June 30, 1998, Bayonne had total assets of $700.0 million, deposits of
$422.0 million and stockholders' equity of $96.0 million.
20
<PAGE>
<TABLE>
<CAPTION>
TEN
MONTHS YEAR
THREE MONTHS ENDED ENDED ENDED
SEPTEMBER 30, YEARS ENDED MARCH 31, MARCH 31, MAY 31,
----------------------- -------------------------------- --------- --------
1998 1997 1998 1997 1996 1995/(1)/ 1994
---------- ---------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED OPERATING DATA:
Total interest and dividend income....... $11,137 $10,293 $40,860 $41,126 $37,309 $28,431 $35,616
Total interest expense/(8)/.............. 6,735 6,429 24,872 27,469 23,842 15,831 20,795
------- ------- ------- ------- ------- ------- -------
Net interest income.................... 4,402 3,864 15,988 13,657 13,467 12,600 14,821
Provision for loan losses/(8)/........... 75 45 180 320 450 350 500
------- ------- ------- ------- ------- ------- -------
Net interest income after provision
for loan losses/(8)/................. 4,327 3,819 15,808 13,337 13,017 12,250 14,321
------- ------- ------- ------- ------- ------- -------
Other income (loss):
Loan fees and service charges.......... 69 63 238 294 307 285 428
Deposit fees........................... 159 147 611 576 327 256 305
Gain (loss) on sale of securities
available for sale, net/(2)/......... 197 (5) (5) (2,878) (2,217) (547) 262
Income from subsidiary................. 69 26 204 168 251 85 18
Gain (loss) on sale of real estate
acquired in settlement of loans...... (8) (1) (9) (92) (7) -- 62
Other.................................. 52 53 304 136 126 49 705
------- ------- ------- ------- ------- ------- -------
Total other income (loss)/(8)/....... 538 283 1,343 (1,796) (1,213) 128 1,780
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Compensation and employee benefits..... 1,588 1,476 5,619 7,184 5,821 4,674 4,735
Occupancy and equipment................ 310 311 1,179 1,201 1,211 1,000 1,035
Data processing service expense.......... 210 207 821 707 683 488 585
SAIF assessment/(3)/................... -- -- -- 2,895 -- -- --
Federal insurance premiums............. 134 142 569 974 1,163 990 1,210
Other.................................. 526 428 1,982 1,641 1,937 1,799 1,951
------- ------- ------- ------- ------- ------- -------
Total operating expenses............. 2,768 2,564 10,170 14,602 10,815 8,951 9,516
------- ------- ------- ------- ------- ------- -------
Income/(loss) before income tax
expenses and cumulative effect of
accounting changes..................... 2,097 1,538 6,981 (3,061) 989 3,427 6,585
Income tax expense....................... 776 569 2,602 154 374 1,236 2,247
------- ------- ------- ------- ------- ------- -------
Income/(loss) before cumulative effect
of accounting changes.................. 1,321 969 4,379 (3,215) 615 2,191 4,338
Cumulative effect of accounting changes:
Income taxes........................... -- -- -- -- -- -- 400
Postretirement benefits................ -- -- -- -- -- -- (1,216)
Investments............................ -- -- -- -- -- -- 471
------- ------- ------- ------- ------- ------- -------
Net income/(loss)/(8)/............... $ 1,321 $ 969 $ 4,379 $(3,215) $ 615 $ 2,191 $ 3,993
======= ======= ======= ======= ======= ======= =======
Basic earnings/(loss) per share.......... $ 0.15 $ 0.11 $ 0.49 $ (0.37) $ 0.07 N/A/(4)/ N/A/(4)/
======= ======= ======= ======= =======
Diluted earnings/(loss) per share........ $ 0.15 $ 0.11 $ 0.49 $ (0.37) $ 0.07 N/A/(4)/ N/A/(4)/
======= ======= ======= ======= =======
</TABLE>
(continued on next page)
21
<PAGE>
<TABLE>
<CAPTION>
TEN
AT OR FOR THE MONTHS YEAR
THREE MONTHS ENDED ENDED ENDED
SEPTEMBER 30,/(9)/ YEARS ENDED MARCH 31, MARCH 31, MAY 31,
----------------------- -------------------------------- --------- --------
1998 1997 1998 1997 1996 1995 1994
---------- ---------- ---------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA:
PERFORMANCE RATIOS:
Equity to assets at period end/(7)/...... 14.15% 15.62% 15.27% 8.33% 7.60% 9.10% 6.22%
Net interest rate spread (difference
between average yield on interest-
earning assets and average cost of
interest-bearing liabilities)/(7)/..... 2.05 2.12 2.18 1.99 2.16 2.92 2.52
Net interest margin (net interest
income as a percentage of average
interest-earning assets)/(7)/.......... 2.66 2.63 2.72 2.28 2.48 3.12 2.71
Return on average assets (net income
divided by average total assets)/(7)/.. 0.78 0.64 0.72 (0.52) 0.11 0.52 0.71
Return on average equity (net income
divided by average equity)/(7)/........ 5.53 6.85 5.82 (6.56) 1.20 7.06 10.22
Dividend payout ratio/(5)/............... 41.67% 38.64% 24.64% N/A/(4)/ 238.0% N/A/(4)/ N/A/(4)/
Stockholders' equity to average
assets ratio (average stockholders'
equity divided by average
total assets).......................... 14.04 9.30 12.39 7.90 9.08 7.30 6.92
Total other income to average
assets/(7)/............................ 0.32 0.19 0.22 (0.29) (0.21) 0.03 0.31
Total operating expenses to average
assets/(6)(7)/......................... 1.63 1.69 1.68 1.87 1.91 1.76 1.68
Net interest income to total operating
expense/(6)/........................... 1.59x 1.51x 1.57x 1.18x 1.25x 1.41x 1.56x
Net interest income after provision
for loan losses, to total operating
expense/(6)/........................... 1.56x 1.49x 1.55x 1.15x 1.20x 1.37x 1.51x
Average interest-earning assets to
average interest-bearing
liabilities/(7)/....................... 1.15x 1.12x 1.13x 1.06x 1.07x 1.05x 1.05x
ASSET QUALITY RATIOS:
Loans 90 days or more past due to
net loans.............................. 1.39% 2.77% 1.62% 2.38% 2.66% 2.55% 3.64%
Loans 90 days past due and other
nonperforming assets to total assets... 0.71% 1.05% 0.64% 1.08% 1.00% 1.29% 1.53%
Allowance for loan losses to loans
90 days past due and other
nonperforming assets................... 63.43% 50.56% 71.21% 50.66% 45.54% 40.62% 34.74%
Allowance for loan losses as a percent
of net loans receivable at end
of period.............................. 0.98% 1.40% 1.25% 1.34% 1.33% 1.22% 1.54%
REGULATORY CAPITAL RATIOS:
Tangible capital/(7)/.................... 12.24% 11.99% 12.01% 8.99% 8.48% 10.83% 6.22%
Core capital/(7)/........................ 12.24 11.99 12.01 8.99 8.48 10.83 6.22
Risk-based capital/(7)/.................. 27.30 34.67 33.85 25.31 26.10 32.21 20.61
NUMBER OF FULL-SERVICE OFFICES............. 4 4 4 4 4 4 4
</TABLE>
_________________
(1) At the time of the 1995 MHC Reorganization, First Savings Bank of New
Jersey, SLA changed its fiscal year end from May 31 to March 31.
(2) The loss on securities available for sale in 1997 and 1996 resulted from
the sale of investment securities as part of First Savings Bank of New
Jersey, SLA restructuring of its investment portfolio.
(3) Reflects the SAIF Special Assessment of $2.9 million as of September 30,
1996.
(4) Not applicable.
(5) Aggregate dividends per share divided by net income per share.
(6) Total operating expense does not include income tax expense, the provision
for loan losses or the SAIF Special Assessment.
(7) At June 30, 1998 Bayonne had an equity to assets ratio of 13.10%, a net
interest rate spread ratio of 2.00%, a net interest rate margin ratio of
2.61%, a return on average assets ratio of .67%, a return on average equity
ratio of 4.56%, a total other income to assets ratio of .19, a total
operating expenses to average assets ratio of 1.64%, an average interest-
earning assets to average interest-bearing liabilities ratio of 1.15x, a
tangible capital ratio of 11.42%, a core capital ratio of 11.42% and a
risk-based capital ratio of 25.9%.
(8) Net income for the three months ended June 30, 1998 was $1.1 million,
compared to $838,000 for the three months ended June 30, 1997. Net interest
income was $4.2 million for the quarter ended June 30, 1998 compared to
$3.6 million for the comparable prior year quarter. Non-interest income
totalled $311,000 for the three months ended June 30, 1998, compared to
$398,000 for the quarter ended June 30, 1997. Total interest expense was
$6.4 million for the three months ended June 30, 1998, compared to $6.3
million for the three months ended June 30, 1997. The provision for loan
losses totalled $50,000 for the three months ended June 30, 1998 as
compared to $45,000 for the prior year's three month period.
(9) Annualized where appropriate.
22
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED
FINANCIAL INFORMATION
The following tables set forth certain selected condensed financial
information for Richmond County and Bayonne on an unaudited pro forma combined
basis as if the Bayonne Merger had become effective as of the dates indicated in
the case of the balance sheet information presented, and as if the Bayonne
Merger had become effective at the beginning of the periods indicated in the
case of the income statement information presented (which we refer to as "pro
forma" information). In addition, because the Bayonne Merger and the Ironbound
Merger are expected to be completed during the same time period, the following
pro forma tables reflect the Bayonne Merger and the Ironbound Merger. The pro
forma information in the tables assumes that the Bayonne Merger and the
Ironbound Merger are accounted for using the purchase method of accounting.
The merger will be accounted for as a "purchase," which means that the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the time the companies are combined.
For a more detailed description of purchase accounting, see "THE BAYONNE
MERGER -- Anticipated Accounting Treatment."
Because Richmond County's fiscal year ends on June 30, Bayonne's fiscal
year ends on March 31, and Ironbound Bankcorp, NJ's ends on December 31, the
financial data for Bayonne and Ironbound Bankcorp, NJ for the three months ended
September 30 have been presented to coincide with the fiscal reporting period
for Richmond County. Following the Bayonne Merger, the combined company's
fiscal year, like that of Richmond County, will end on June 30.
When reviewing these tables, you should also read the historical financial
statements, including their notes, of Richmond County and Bayonne. The
historical financial statements of Richmond County are included in the document
attached as ANNEX E to this document. The historical financial statements of
Bayonne are incorporated by reference into this document. See "WHERE YOU CAN
FIND MORE INFORMATION" on page __ of this document. You should also read the
more detailed pro forma financial information, including their notes, that are
found on page ___ of this document.
This information is presented for informational purposes only. You should
not assume that Richmond County, Bayonne and Ironbound would have achieved the
combined pro forma results if they had actually been combined during the periods
shown.
There may be certain cost savings and/or revenue enhancements that will
result from the Bayonne Merger and the Ironbound Merger. Except as described in
Note __ found on page __ of this document, the information furnished in these
tables does not reflect either the cost savings or the revenue enhancements.
23
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
OF RICHMOND COUNTY, BAYONNE AND IRONBOUND
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
----------------------------------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
Total assets (end of period).................................. $2,522,691
Long term borrowings (end of period).......................... 548,582
Total stockholders' equity (end of period).................... 478,377
<CAPTION>
AT OR FOR THE
THREE MONTHS AT OR FOR THE YEAR
ENDED ENDED
SEPTEMBER 30, JUNE 30,
-------------- ------------------
1998 1998
-------------- ------------------
<S> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT
OF INCOME
Net interest income after provision for loan losses........... $ 19,809 $ 67,597
Net income.................................................... 6,378 8,049(1)
Earnings from per common share:
Basic....................................................... 0.18 0.23(1)
Diluted..................................................... 0.18 0.23(1)
Cash dividends declared per common share.................... 0.068 0.0127
</TABLE>
- -------------------------
(1) Includes a one-time non-recurring charge of $19.6 million ($11.2 million,
net of tax) for funding of the Foundation at the time of the Conversion.
24
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
We have summarized below the per share information of Richmond County and
Bayonne on a pro forma combined and pro forma equivalent basis. In addition, we
have included similar information relating to the Ironbound Merger. The
information set forth below is only a summary and you should read it in
conjunction with the historical financial statements and related notes contained
in the annual reports and other information that Richmond County and Bayonne
have either attached to this document or have filed with the SEC. See "WHERE YOU
CAN FIND MORE INFORMATION" on page __.
The information in the following table is based on the historical financial
information that we have presented in our prior Securities and Exchange
Commission filings.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
1998 1998
------------- ------------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE/(1)/:
Richmond County.............................................. 0.22 (0.16)(4)
Bayonne...................................................... 0.15 0.49
Richmond County pro forma (with Bayonne only)................ 0.18 0.21
Bayonne pro forma equivalent................................. 0.19 0.22
Bayonne pro forma equivalent with Ironbound.................. 0.19 0.24
DILUTED EARNINGS (LOSS) PER SHARE /(1)/:
Richmond County.............................................. 0.22 (0.16)(4)
Bayonne...................................................... 0.15 0.49
Richmond County pro forma (with Bayonne only)................ 0.18 0.21
Bayonne pro forma equivalent................................. 0.19 0.22
Bayonne pro forma equivalent with Ironbound.................. 0.19 0.24
CASH DIVIDENDS DECLARED PER SHARE/(2)/:
Richmond County.............................................. 0.070 0.110
Bayonne...................................................... 0.063 0.170
Richmond County pro forma (with Bayonne only)................ 0.070 0.110
Bayonne pro forma equivalent................................. 0.074 0.116
Bayonne pro forma equivalent with Ironbound.................. 0.074 0.116
BOOK VALUE PER SHARE AT PERIOD END/(3)/:
Richmond County.............................................. 12.48 12.44
Bayonne...................................................... 10.43 10.85
Richmond County pro forma (with Bayonne only)................ 12.58 N/A
Bayonne pro forma equivalent................................. 13.21 N/A
Bayonne pro forma equivalent with Ironbound.................. 12.78 N/A
TANGIBLE BOOK VALUE PER SHARE AT PERIOD END:
Richmond County.............................................. 12.44 12.39
Bayonne...................................................... 10.43 10.85
Richmond County pro forma (with Bayonne only)................ 11.78 N/A
Bayonne pro forma equivalent................................. 12.37 N/A
Bayonne pro forma equivalent with Ironbound.................. 12.16 N/A
</TABLE>
___________________________________
(1) The pro forma combined net income per share of Richmond County Common Stock
is based upon the combined historical net income for Richmond County and
Bayonne for the periods indicated divided by the average pro forma fully
diluted common share of the combined entities.
(2) Richmond County pro forma cash dividends per share represent historical
cash dividends declared by Richmond County and assumes no changes in cash
dividends declared per share. Bayonne pro forma equivalent cash dividends
per share represent such amounts multiplied by the Exchange Ratio of 1.05.
(3) Richmond County pro forma stated and tangible book value per share amounts
are based on the historical total stockholders' equity of the combined
entity divided by the total pro forma common shares of the combined entity
based on the Exchange Ratio of 1.05. The Bayonne pro forma equivalent
stated book value and tangible book value per share amounts are computed by
multiplying the Richmond County pro forma amounts by the Exchange Ratio of
1.05.
(4) Richmond converted to stock form on February 18, 1998, accordingly loss per
share for the fiscal year ended June 30, 1998 are presented on an
historical basis from February 18, 1998 (date of the Conversion) to June
30, 1998. Includes the one-time non-recurring charge of $19.6 million
($11.2 million, net of tax) for funding of the Foundation at the time of
the Conversion.
25
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"1995 MHC Reorganization"....................................... 19
"Acquisition Proposal".......................................... 81
"Acquisition Transaction"....................................... 75
"adequately capitalized"........................................ 88
"affiliate"..................................................... 79
"bank holding company".......................................... 92
"Bank Index".................................................... 56
"Bank Merger Act"............................................... 64
"Bayonne"....................................................... 1
"Bayonne 401(k) Plan"........................................... 65
"Bayonne 1995 RRP".............................................. 43
"Bayonne 1995 Stock Option Plan"................................ 39
"Bayonne Bank Merger"........................................... 45
"Bayonne Bank Merger Agreement"................................. 72
"Bayonne Board"................................................. 37
"Bayonne Common Stock".......................................... 1
"Bayonne Continuing Employee"................................... 64
"Bayonne Effective Date"........................................ 62
"Bayonne Effective Time"........................................ 33
"Bayonne Employment Agreements"................................. 65
"Bayonne Employee Plans"........................................ 65
"Bayonne ESOP".................................................. 42
"Bayonne ESOP Committee"........................................ 42
"Bayonne ESOP Trustee".......................................... 42
"Bayonne Exchange Ratio"........................................ 1
"Bayonne Incentive Plan"........................................ 39
"Bayonne Indemnified Party"..................................... 63
"Bayonne Limit"................................................. 37
"Bayonne Meeting"............................................... 1
"Bayonne Merger"................................................ 1
"Bayonne Merger Agreement"...................................... 1
"Bayonne Merger Consideration".................................. 1
"Bayonne Merger Stock Option"................................... 81
"Bayonne Merger Stock Option Agreement"......................... 75
"Bayonne Merger Stock Option Shares"............................ 81
"Bayonne MHC"................................................... 32
"Bayonne Option"................................................ 61
"Bayonne Record Date"........................................... 37
"beneficially own".............................................. 40
"BHC Act"....................................................... 91
"BIF"........................................................... 32
"broker non-vote"............................................... 35
"capital asset"................................................. 78
"CIC Agreements"................................................ 113
"Code".......................................................... 67
"Commissioner".................................................. 70
"Compensation Committee"........................................ 106
"Conversion".................................................... 19
"Costs"......................................................... 63
"covered transaction"........................................... 88
"CRA"........................................................... 54
"critically undercapitalized"................................... 88
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"Department of Justice"......................................... 70
"DGCL".......................................................... 64
"Directors' Awards"............................................. 105
"Dissenters' Shares"............................................ 61
"domestic building and loan association"........................ 92
"ERISA"......................................................... 40
"Exchange Act".................................................. 31
"Exchange Agent"................................................ 61
"Exchange Offer"................................................ 82
"Excluded Shares"............................................... 61
"Executive"..................................................... 112
"FASB".......................................................... 19
"FDI Act"....................................................... 87
"FDIC".......................................................... 32
"FDICIA"........................................................ 85
"Federal Reserve Act"........................................... 88
"FHLB".......................................................... 73
"FICO".......................................................... 90
"Final Index Price"............................................. 75
"First Savings"................................................. 32
"First Savings Common Stock".................................... 111
"Foundation".................................................... 19
"FRB"........................................................... 88
"GAAP".......................................................... 68
"Guidelines".................................................... 86
"Highly Valued Group"........................................... 56
"HOLA".......................................................... 70
"Index Group"................................................... 75
"Index Ratio"................................................... 75
"Initial Index Price"........................................... 75
"Initial Richmond County Market Value".......................... 74
"Initial Termination Date"...................................... 76
"Interstate Banking Act"........................................ 93
"Investment Group".............................................. 42
"Ironbound"..................................................... 83
"Ironbound Merger".............................................. 16
"Issuer Termination"............................................ 81
"investment power".............................................. 40
"Large Thrift Highly Valued Group".............................. 57
"Limit"......................................................... 34
"Limited Rights"................................................ 105
"Material Adverse Effect"....................................... 68
"Meetings"...................................................... 1
"Named Executive Officers"...................................... 41
"Nasdaq National Market"........................................ 1
"Nationwide Transactions"....................................... 56
"NYBB".......................................................... 84
"NYBD".......................................................... 84
"NYBL".......................................................... 69
"NYCRA"......................................................... 91
"opt in"........................................................ 93
"opt out"....................................................... 93
"OTS"........................................................... 70
"Peer Group".................................................... 57
"Plan Exchange Ratio"........................................... 111
"Pooling-of-interests".......................................... 27
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
"portfolio assets".............................................. 86
"Preliminary Purchase Event".................................... 82
"pro forma"..................................................... 23
"purchase"...................................................... 12
"Purchase Event"................................................ 81
"prudent person"................................................ 84
"QTL"........................................................... 92
"QTL Test"...................................................... 92
"qualified thrift investments".................................. 92
"Regional Group"................................................ 56
"Regional Transactions"......................................... 56
"Registration Statement"........................................ 7
"Richmond County"............................................... 1
"Richmond County Board"......................................... 34
"Richmond County Common Stock".................................. 1
"Richmond County Incentive Plan"................................ 36
"Richmond County Savings ESOP".................................. 40
"Richmond County Savings ESOP Committee"........................ 40
"Richmond County Savings ESOP Trustee".......................... 40
"Richmond County Market Value".................................. 74
"Richmond County Meeting"....................................... 1
"Richmond County Preferred Stock"............................... 94
"Richmond County Ratio"......................................... 74
"Richmond County Record Date"................................... 34
"Richmond County Savings"....................................... 32
"Richmond County Savings 401(k) Plan"........................... 65
"risk-based capital ratio"...................................... 85
"S&P Index"..................................................... 56
"SAIF".......................................................... 19
"Sandler O'Neill"............................................... 46
"Sandler O'Neill Agreement"..................................... 55
"Sandler O'Neill Fairness Opinion".............................. 55
"SEC"........................................................... 7
"Second-Step Conversion"........................................ 32
"Securities Act"................................................ 75
"Selected Market Transactions".................................. 51
"Selected U.S. Transactions".................................... 51
"Service"....................................................... 78
"SFAS".......................................................... 19
"SFAS No. 115".................................................. 18
"SFAS No. 106".................................................. 18
"SFAS No. 109".................................................. 18
"significantly undercapitalized"................................ 88
"Stock Awards".................................................. 105
"Stockholders".................................................. 100
"Superintendent"................................................ 69
"Superior Proposal"............................................. 75
"Tender Offer".................................................. 82
"Tier I"........................................................ 85
"Tier II"....................................................... 86
"Tucker Anthony"................................................ 47
"undercapitalized".............................................. 88
"Valuation Date"................................................ 61
"voting power".................................................. 40
"well capitalized".............................................. 88
</TABLE>
28
<PAGE>
THE COMPANIES
RICHMOND COUNTY
Richmond County is a savings and loan holding company organized under the
laws of the State of Delaware in 1997. Richmond County's wholly owned
subsidiary, Richmond County Savings Bank ("Richmond County Savings"), operates
14 banking offices in the New York City Borough of Staten Island, one banking
office in the New York City Borough of Brooklyn, and one multi-family loan
processing center in Jericho, Long Island. Richmond County Savings is a New
York State-chartered savings bank which has operated since 1886. Richmond
County Savings' deposits are insured by the Bank Insurance Fund ("BIF") of the
Federal Deposit Insurance Corporation ("FDIC").
At September 30, 1998, Richmond County had total assets of $1.7 billion,
deposits of $953.5 million and stockholders' equity of $329.8 million.
For more information about Richmond County, reference is made to the
financial information relating to Richmond County, which is attached hereto as
ANNEX E.
BAYONNE
Bayonne is a savings and loan holding company organized under the laws of
the State of Delaware in 1997. Bayonne's wholly owned subsidiary, First Savings
Bank of New Jersey, SLA ("First Savings"), operates four full service banking
offices and one financial center in Bayonne, New Jersey. First Savings is a New
Jersey savings association which has operated since 1889. First Savings'
deposits are insured by the SAIF.
In January 1995, First Savings reorganized from a New Jersey chartered
mutual savings and loan association into the federal mutual holding company form
of organization. In connection with the 1995 MHC Reorganization, First Savings
became a New Jersey chartered stock savings association and issued approximately
54% of its outstanding common stock to Bayonne Bankshares, M.H.C., a federal
mutual holding company ("Bayonne MHC"). First Savings sold the remaining shares
of outstanding common stock to certain members of the general public.
In August 1997, First Savings and Bayonne MHC completed a conversion and
reorganization from the mutual holding company to the stock holding company form
of organization (the "Second-Step Conversion"). Pursuant to the Second-Step
Conversion, First Savings formed Bayonne and as the result of a series of
corporate reorganizations became a wholly owned subsidiary of Bayonne. Bayonne
exchanged 2.933 shares of its common stock for each share of common stock of
First Savings held by public stockholders and sold an additional 4.8 million
shares of its common stock to certain members of the general public. The shares
of First Savings common stock held by Bayonne MHC were cancelled and the
separate corporate existence of Bayonne MHC was terminated.
At September 30, 1998, Bayonne had total assets of $672.7 million, deposits
of $420.7 million and stockholders' equity of $95.2 million.
For more information about Bayonne, reference is made to the 1998 Bayonne
Form 10-K, which is incorporated herein by reference. See "WHERE YOU CAN FIND
MORE INFORMATION."
29
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
Richmond County Common Stock is listed on the Nasdaq National Market under
the symbol "RCBK." Bayonne Common Stock is listed on the Nasdaq National Market
under the symbol "FSNJ."
The following table sets forth, for the calendar periods indicated, the
high and low prices per share for the Richmond County Common Stock and Bayonne
Common Stock as reported on the Nasdaq National Market and the quarterly cash
dividends declared by each company for the periods indicated. Richmond County
Common Stock began trading on the Nasdaq National Market on February 18, 1998.
After the Second-Step Conversion, the common stock of Bayonne began trading on
the Nasdaq National Market in August, 1997.
<TABLE>
<CAPTION>
RICHMOND COUNTY COMMON STOCK BAYONNE COMMON STOCK
---------------------------- ----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
------- ------- --------- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
1997
Quarter ended March 31.............. N/A N/A N/A $ 8.35 $ 7.16 $.0425
Quarter ended June 30............... N/A N/A N/A 9.21 7.93 .0425
Quarter ended September 30.......... N/A N/A N/A 13.06 9.20 .0425
Quarter ended December 31........... N/A N/A N/A 13.38 11.63 .0425
1998
Quarter ended March 31.............. $19.63 $15.68 $0.05 14.88 12.06 .0425
Quarter ended June 30............... 19.75 17.75 0.06 17.38 15.25 .0625
Quarter ended September 30.......... 18.69 11.88 0.07 17.13 10.00 .0625
Quarter ended December 31
(As of ________, 1998).........
</TABLE>
The following table sets forth the closing price per share of Richmond
County Common Stock, Bayonne Common Stock and the equivalent per share price for
Bayonne Common Stock giving effect to the Bayonne Merger on (i) October 13, 1998
the last business day preceding the public announcement of the amendments to the
Bayonne Merger Agreement and (ii) _________, 199_, the last practicable trading
day prior to the mailing of this Joint Proxy Statement/Prospectus. The
equivalent per share price of Bayonne Common Stock was computed by multiplying
the price of Richmond County Common Stock by the 1.05 Bayonne Exchange Ratio.
<TABLE>
<CAPTION>
EQUIVALENT PRICE PER
RICHMOND COUNTY BAYONNE SHARE OF
COMMON STOCK COMMON STOCK BAYONNE COMMON STOCK
----------------- ------------ --------------------
<S> <C> <C> <C>
October 13, 1998........ $12.25 $12.00 $12.86
________ __, 1998....... $_____ $_____ $_____
</TABLE>
You should obtain current market quotations for Richmond County Common
Stock and Bayonne Common Stock as the market price of Richmond County Common
Stock will continue to fluctuate between the date of this Joint Proxy
Statement/Prospectus and the date on which the Bayonne Merger is consummated and
thereafter. Because the number of shares of Richmond County Common Stock to be
received by Bayonne stockholders in the Bayonne Merger is fixed (subject to
possible increase in certain limited circumstances) and because the market price
of Richmond County Common Stock fluctuates, the value of the shares of Richmond
County Common Stock that holders of Bayonne Common Stock would receive in the
Bayonne Merger may increase or decrease prior to the Bayonne Merger. No
assurance can be given concerning the market price of Richmond County Common
Stock before or after the Bayonne effective time (the time specified in the
Certificate of Merger filed with the Delaware Secretary of State (the "Bayonne
Effective Time")). See "THE BAYONNE MERGER -- Exchange of Bayonne Shares" and
"-- Waiver and Amendment; Termination."
30
<PAGE>
THE MEETINGS
MEETING OF RICHMOND COUNTY STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Richmond County in connection with the solicitation of proxies by the Richmond
County Board of Directors (the "Richmond County Board") for use at the Richmond
County Meeting to be held at ________________________,
_____________________________, _________, New York _____, on ________,
___________ __, 199_ at _:__ a.m., local time. At the Richmond County Meeting,
the stockholders of Richmond County will be asked to consider and vote upon:
(i) a proposal to approve and adopt the Bayonne Merger 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 Richmond
County Meeting. A copy of the Bayonne Merger Agreement is attached as ANNEX A
hereto.
THE RICHMOND COUNTY BOARD HAS UNANIMOUSLY APPROVED THE BAYONNE MERGER
AGREEMENT AND HAS DETERMINED THAT THE TERMS OF THE BAYONNE MERGER AND THE
BAYONNE MERGER AGREEMENT ARE FAIR TO AND IN THE BEST INTERESTS OF RICHMOND
COUNTY AND ITS STOCKHOLDERS. THE RICHMOND COUNTY BOARD THEREFORE UNANIMOUSLY
RECOMMENDS THAT RICHMOND COUNTY'S STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION
OF THE BAYONNE MERGER AGREEMENT.
See "THE BAYONNE MERGER -- Background of the Bayonne Merger" and "--
Recommendation of the Richmond County Board; Richmond County's Reasons for the
Merger."
RECORD DATE
The Richmond County Board has fixed __________ __, 199_ as the Richmond
County Record Date (the "Richmond County Record Date") for the determination of
those Richmond County stockholders entitled to notice of and to vote at the
Richmond County Meeting. Only holders of record of Richmond County Common Stock
at the close of business on the Richmond County Record Date will be entitled to
notice of and to vote at the Richmond County Meeting. As of the Richmond County
Record Date, there were __________ shares of Richmond County Common Stock
outstanding and entitled to vote, which were held by approximately ____ holders
of record.
PROXIES; VOTING AND REVOCATION OF PROXIES
Each holder of record of shares of Richmond County Common Stock on the
Richmond County Record Date is entitled to cast one vote per share on the
proposal to approve and adopt the Bayonne Merger Agreement and on any other
matter properly submitted for the vote of the Richmond County stockholders at
the Richmond County Meeting.
Richmond County's Certificate of Incorporation provides that in no event
shall any record owner of any outstanding Richmond County Common Stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of the then outstanding shares of Common Stock (the "Limit") be
entitled or permitted to any vote in respect of the shares held in excess of the
Limit. Beneficial ownership is determined pursuant to Rule 13d-3 of the General
Rules and Regulations promulgated pursuant to the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and includes shares beneficially owned by
such person or any of his or her affiliates (as defined in the Certificate of
Incorporation), shares which such person or his or her affiliates have the right
to acquire pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options or otherwise
31
<PAGE>
and shares as to which such person and his or her affiliates have sole or shared
voting or investment power, but shall not include shares that are subject to a
publicly solicited revocable proxy and that are not otherwise deemed to be
beneficially owned by such person and his or her affiliates.
The presence, either in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Richmond County Common Stock
entitled to vote at the Richmond County Meeting is necessary to constitute a
quorum at the Richmond County Meeting.
Richmond County intends to count shares of Richmond County Common Stock
present in person at the Richmond County Meeting but not voted, and shares of
Richmond County 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
Richmond County Meeting for purposes of determining the presence or absence of a
quorum for the transaction of business. Since the approval and adoption of the
Bayonne Merger Agreement requires the affirmative vote of the holders of a
majority of the outstanding shares of Richmond County 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 Bayonne 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 Bayonne
Merger Agreement without specific instructions from such customers. Given that
the approval and adoption of the Bayonne Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares of
Richmond County 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 Richmond County Common Stock (a "broker non-vote") will
have the effect of a vote AGAINST the approval and adoption of the Bayonne
Merger Agreement.
All shares of Richmond County Common Stock which are entitled to be voted
and are represented at the Richmond County Meeting by properly executed proxies
received prior to or at the Richmond County Meeting, and which are not revoked,
will be voted in accordance with the instructions indicated on such proxies. If
no instructions are indicated, such proxies will be voted: (i) FOR approval and
adoption of the Bayonne Merger Agreement, and (ii) otherwise in the discretion
of the proxy holders as to any other matter which may come before the Richmond
County Meeting, including, among other things, a motion to adjourn or postpone
the Richmond County Meeting to another time and/or place, for the purpose of
soliciting additional proxies or otherwise; provided, however, that no proxy
which is voted against a proposal will be voted in favor of any adjournment or
postponement for the purpose of soliciting additional votes in favor of that
proposal.
If any other matters are properly presented for consideration at the
Richmond County Meeting, 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 their best judgment; provided, however, that such
discretionary authority will only be exercised to the extent allowable under
applicable federal and state securities and corporation laws. Richmond County
does not have any knowledge of any matters to be presented at the Richmond
County Meeting other than the matters set forth above.
Any proxy given by a Richmond County stockholder pursuant to this
solicitation may be revoked by the person giving it at any time before it is
voted by (i) delivering to the Corporate Secretary of Richmond County, at or
before the taking of the vote at the Richmond County Meeting, a written notice
of revocation bearing a later date than the date of the proxy; (ii) duly
executing a later-dated proxy relating to the same shares and delivering it to
the Corporate Secretary of Richmond County Meeting before the taking of the vote
at the Richmond County Meeting; or (iii) attending the Richmond County Meeting
and voting in person (although attendance at the meeting will not in and of
itself constitute revocation of the proxy). Any written notice of revocation or
subsequently executed proxy should be sent so as to be delivered to Richmond
County Financial Corp., 1214 Castleton Avenue, Staten Island, New York 10310,
Attention: Corporate Secretary, or hand delivered to Richmond County's Corporate
Secretary at such address on or before the day of the
32
<PAGE>
Richmond County Meeting or to the Inspector of Elections of the Richmond County
Meeting before the taking of the vote at the Richmond County 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 RICHMOND COUNTY MEETING.
- ------------------------------
Richmond County will bear all expenses of the solicitation of proxies from
the holders of Richmond County Common Stock. In addition to solicitation by use
of the mails, proxies may be solicited by directors, officers and employees of
Richmond County in person or by telephone, telegram or other means of
communication. Such directors, officers and employees will not be additionally
compensated, but may be reimbursed for reasonable out-of-pocket expenses in
connection with such solicitation. Richmond County has retained Kissel-Blake,
Inc., a proxy soliciting firm, to assist in such solicitation. The fee to be
paid to such firm is not expected to exceed $5,000, plus reasonable out-of-
pocket costs and expenses. Further, Richmond County will make arrangements with
brokerage firms and other custodians, nominees and fiduciaries to send proxy
materials to their principals and will reimburse such parties for their expenses
in doing so.
HOLDERS OF RICHMOND COUNTY COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO RICHMOND
COUNTY IN THE ENCLOSED POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
VOTE REQUIRED; PRINCIPAL STOCKHOLDERS
The approval and adoption of the Bayonne Merger Agreement by Richmond
County stockholders will require the affirmative vote of at least a majority of
the outstanding shares of Richmond County Common Stock entitled to vote at the
Richmond County Meeting. SUCH STOCKHOLDER APPROVAL IS A CONDITION TO
CONSUMMATION OF THE BAYONNE MERGER.
As of September 30, 1998, directors and executive officers of Richmond
County and their affiliates beneficially owned and were entitled to vote 282,317
shares of Richmond County Common Stock, or 1.10% of the outstanding Richmond
County Common Stock which may be voted at the Richmond County Meeting (exclusive
of shares which may be acquired upon the exercise of options under the Richmond
County Financial Corp. 1998 Stock-Based Incentive Plan (the "Richmond County
Incentive Plan")). Such persons have informed Richmond County that they intend
to vote or direct the vote of all such shares of Richmond County Common Stock
FOR approval of the Bayonne Merger Agreement. As of September 30, 1998,
Bayonne, its subsidiaries and the directors and executive officers of Bayonne
beneficially owned 900 shares of Richmond County Common Stock. See "CERTAIN
RELATED TRANSACTIONS -- Bayonne Merger Stock Option Agreement."
33
<PAGE>
MEETING OF BAYONNE STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
The Bayonne Meeting will be held on ___________ __, 199_, at _:__ a.m.,
local time, at _____________________, ________________, ________, New Jersey.
At the Bayonne Meeting, holders of Bayonne Common Stock will be asked to
consider and vote upon (i) a proposal to approve and adopt the Bayonne Merger
Agreement; (ii) the election of two directors of Bayonne to serve until
completion of the Bayonne Merger or, if the Bayonne Merger is not completed, for
three-year terms and until their successors shall have been elected and
qualified; (iii) the ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of Bayonne for the fiscal year ending March 31, 1999; and
(iv) such other matters as may properly be brought before the Bayonne Meeting.
See "THE BAYONNE MERGER -- Recommendation of the Bayonne Board; Bayonne's
Reasons for the Merger."
Additional information with respect to the election of directors and the
ratification of independent auditors is set forth under "ADDITIONAL MATTERS TO
BE CONSIDERED AT THE BAYONNE MEETING" in this Joint Proxy Statement/Prospectus.
RECORD DATE
The Bayonne Board of Directors (the "Bayonne Board") has fixed the close
of business on _________, 199_ as the Bayonne Record Date (the "Bayonne Record
Date") for the determination of the holders of Bayonne Common Stock entitled to
receive notice of and to vote at the Bayonne Meeting. Only holders of record of
Bayonne Common Stock at the close of business on the Bayonne Record Date are
entitled to receive notice of and to vote at the Bayonne Meeting. At the close
of business on the Bayonne Record Date, there were _________ shares of Bayonne
Common Stock outstanding and entitled to be voted at the Bayonne Meeting. The
presence, in person or by proxy, of the holders of at least a majority of the
total number of outstanding shares of Bayonne Common Stock entitled to vote at
the Bayonne Meeting is necessary to constitute a quorum thereat.
PROXIES; VOTING AND REVOCATION OF PROXIES
Each holder of Bayonne Common Stock on the Bayonne Record Date will be
entitled to one vote for each share of Bayonne Common Stock held of record
(except for shares held in excess of the Bayonne Limit, as defined below) on
each matter to be voted upon at the Bayonne Meeting. As provided in Bayonne's
Certificate of Incorporation, record holders of Bayonne Common Stock who
beneficially own in excess of 10% of the outstanding shares of Bayonne Common
Stock (the "Bayonne Limit") are not entitled to any vote with respect to the
shares held in excess of the Bayonne Limit. A person or entity is deemed to
beneficially own shares owned by an affiliate as well as persons acting in
concert with such person or entity. Bayonne's Certificate of Incorporation
authorizes the Bayonne Board (i) to make all determinations necessary to
implement and apply the Bayonne Limit, including determining whether persons or
entities are acting in concert, and (ii) to demand that any person who is
reasonably believed to beneficially own Bayonne Common Stock in excess of the
Bayonne Limit supply information to Bayonne to enable the Bayonne Board to
implement and apply the Bayonne Limit.
Shares of Bayonne Common Stock represented by properly executed proxies
received by Bayonne in time to be voted at the Bayonne Meeting and not
subsequently revoked prior to the vote at the Bayonne Meeting 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 BAYONNE MERGER AGREEMENT, FOR THE ELECTION OF THE NOMINEES FOR DIRECTOR
NAMED IN THIS JOINT PROXY
34
<PAGE>
STATEMENT/PROSPECTUS, AND FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS OF BAYONNE FOR THE FISCAL YEAR ENDING MARCH 31, 1999.
The presence of a stockholder at the Bayonne 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 with
the Corporate Secretary of Bayonne prior to the Bayonne Meeting, (ii) delivering
to the Corporate Secretary of Bayonne prior to the Bayonne Meeting a duly
executed proxy bearing a later date or (iii) attending the Bayonne Meeting,
filing a written notice of revocation with the secretary of the meeting and
voting in person. 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 BAYONNE MEETING. Examples of such documentation
- -------------------------------------------
include a broker's statement, letter or other document confirming your ownership
of shares of Bayonne Common Stock.
Bayonne will bear the cost of soliciting proxies from the holders of
Bayonne Common Stock. In addition to the solicitation of proxies by mail,
Kissel-Blake, Inc., a proxy solicitation firm, will assist Bayonne in soliciting
proxies for the Bayonne Meeting and will be paid a fee estimated to be $5,000,
plus out-of-pocket expenses. Proxies may also be solicited personally, by
telephone, facsimile or other means, by directors, officers and employees of
Bayonne or its subsidiaries, without additional compensation. Bayonne will also
request persons, firms and corporations holding shares of Bayonne 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.
HOLDERS OF BAYONNE COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT TO BAYONNE IN THE ENCLOSED
POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
VOTE REQUIRED; PRINCIPAL STOCKHOLDERS
The approval and adoption of the Bayonne Merger Agreement will require the
affirmative vote of the holders of a majority of the outstanding shares of
Bayonne Common Stock entitled to vote at the Bayonne Meeting. Accordingly,
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 Bayonne
Merger Agreement. Shares underlying broker non-votes or held in excess of the
Bayonne Limit will not be counted as having been voted in person or by proxy at
the Bayonne Meeting and will have the same effect as a vote AGAINST the Bayonne
Merger Agreement.
As to the election of directors, the proxy card being provided by the
Bayonne Board enables a stockholder to vote "FOR" the election of the nominees
proposed by the Bayonne Board, or to "WITHHOLD" authority to vote for one or
more of the nominees being proposed. Under Delaware law and Bayonne's Bylaws,
directors are elected by a plurality of votes cast, without regard to either
(i) broker non-votes, or (ii) proxies as to which authority to vote for one or
more of the nominees being proposed is withheld. Accordingly, the two nominees
receiving the most votes will be elected.
As to the ratification of KPMG Peat Marwick LLP as independent auditors of
Bayonne, the proxy card being provided by the Bayonne Board enables a
stockholder to check the appropriate box on the proxy card to (i) vote "FOR" the
item; (ii) vote "AGAINST" the item; or (iii) "ABSTAIN" from voting on such item.
Under Delaware law and Bayonne's Bylaws, the affirmative vote of the holders of
a majority of the shares of Bayonne Common Stock present, in person or by proxy,
at the Bayonne Meeting at which a quorum is present and entitled to vote on this
proposal is required to constitute stockholder approval of such proposal. Shares
as to which the "ABSTAIN" box has been selected on the proxy card with respect
to the proposal will be counted as present and entitled to vote and have the
effect of a vote against the matter. In contrast, shares
35
<PAGE>
underlying broker non-votes or in excess of the Bayonne Limit will not be
counted as present and entitled to vote or as votes cast on the item and have no
effect on the vote on the item.
As of September 30, 1998, directors and executive officers of Bayonne and
their affiliates beneficially owned and were entitled to vote 873,465 shares of
Bayonne Common Stock, or 9.58% of the outstanding Bayonne Common Stock which may
be voted at the Bayonne Meeting (exclusive of shares of Bayonne Common Stock
which may be acquired upon the exercise of options under the Bayonne Bancshares,
Inc. Amended and Restated 1995 Stock Option Plan (the "Bayonne 1995 Stock
Option Plan") and shares awarded, but that have not vested, under the Bayonne
Bancshares, Inc. 1998 Stock-Based Incentive Plan (the "Bayonne Incentive
Plan")). Such persons have indicated their intent to vote their shares in
favor of the approval and adoption of the Bayonne Merger Agreement. As of
September 30, 1998, Richmond County, its subsidiaries and the directors and
executive officers of Richmond County beneficially owned approximately 443,000
shares of Bayonne Common Stock. Additionally, Richmond County may also be deemed
to be the beneficial owner of 1,809,804 shares of Bayonne Common Stock issuable
pursuant to the Bayonne Merger Stock Option Agreement attached hereto as ANNEX
B. Pursuant to the Bayonne Merger Stock Option Agreement, Richmond County has
the right to exercise an option to purchase the aforesaid 1,809,804 shares upon
the occurrence of certain events (all of which are described in the Bayonne
Merger Stock Option Agreement), none of which has occurred as of the date
hereof. Richmond County has expressly disclaimed beneficial ownership of such
1,809,804 shares. See "CERTAIN RELATED TRANSACTIONS -- Bayonne Merger Stock
Option Agreement."
36
<PAGE>
BENEFICIAL OWNERSHIP OF RICHMOND COUNTY COMMON STOCK
PRINCIPAL SECURITY OWNERSHIP
Other than those persons listed below, Richmond County is not aware of any
person who is the beneficial owner of more than 5% of the outstanding shares of
Richmond County Common Stock as of September 30, 1998. For the purposes of the
following table and the table set forth under "-- Directors and Executive
Officers," in accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to "beneficially own" any shares of Richmond County Common Stock (i) over
which such person has, directly or indirectly, sole or shared voting or
investment power, or (ii) of which such person has the right to acquire
beneficial ownership, including the right to acquire beneficial ownership by the
exercise of stock options, within 60 days after September 30, 1998. As used
herein, "voting power" includes the power to vote, or direct the voting of, such
shares, and "investment power" includes the power to dispose, or direct the
disposition of, such shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL COMMON STOCK
OF SECURITY NAME AND ADDRESS OF BENEFICIAL OWNERS OWNERSHIP OUTSTANDING
- -------------- ------------------------------------- ---------- -------------
<S> <C> <C> <C>
Common Stock Richmond County Savings Bank 2,113,880/(1)/ 8.0%
Employee Stock Ownership Plan
(the "Richmond County Savings
ESOP")
1214 Castleton Avenue
Staten Island, New York 10310
Common Stock Richmond County Savings Foundation 1,957,300/(2)/ 7.4%
1214 Castleton Avenue
Staten Island, New York 10310
Common Stock Thomson, Horstmann & Bryant, Inc. 1,682,350/(3)/ 6.4%
Park 80 West, Plaza One
Saddle Brook, New Jersey 07663
</TABLE>
____________________________
(1) Shares of Richmond County Common Stock were acquired by the Richmond County
Savings ESOP pursuant to Richmond County Savings' Conversion. The Richmond
County Savings ESOP Committee (the "Richmond County Savings ESOP Committee")
administers the Richmond County Savings ESOP. Marine Midland Bank has been
appointed as the corporate trustee for the Richmond County Savings ESOP
("Richmond County Savings ESOP Trustee"). The Richmond County Savings ESOP
Trustee, subject to its fiduciary duty, must vote all allocated shares held
in the Richmond County Savings ESOP in accordance with the instructions of
the Richmond County Savings ESOP participants. As of September 30, 1998, no
shares had been allocated under the Richmond County Savings ESOP. With
respect to unallocated shares, such unallocated shares are required to be
voted by the Richmond County Savings ESOP Trustee in a manner calculated to
most accurately reflect the voting instructions received from Richmond
County Savings ESOP participants, so long as such vote is in accordance with
the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(2) The Foundation was established and funded by Richmond County in connection
with Richmond County Savings' Conversion with an amount of Richmond County's
Common Stock equal to 8.0% of the total amount of Richmond County Common
Stock sold in the Conversion. The Foundation is a Delaware non-stock
corporation and is dedicated to the promotion of charitable purposes within
the communities in which Richmond County Savings operates. The Foundation
is governed by a board of directors with eight members, all of whom are
directors of Richmond County or Richmond County Savings. Pursuant to the
terms of the contribution of Richmond County Common Stock, as mandated by
federal requirements, all shares of Richmond County Common Stock held by the
Foundation must be voted in the same ratio as all other shares of Richmond
County's Common Stock on all proposals considered by stockholders of
Richmond County.
(3) According to information disclosed on Schedule 13F, filed with the SEC on
July 27, 1998, as well as a Schedule 13F filed with the SEC in September
1998. Thomson, Horstmann & Bryant, Inc. is an investment adviser under
Section 203 of the Investment Advisers Act of 1940.
37
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the shares of
Richmond County Common Stock beneficially owned by each director of Richmond
County, by Richmond County's Chief Executive Officer and the next four most
highly paid executive officers (the "Named Executive Officers") of Richmond
County and by all directors and executive officers of Richmond County as a group
as of September 30, 1998. Except as otherwise indicated, each person and each
group shown in the table has sole voting and investment power with respect to
the shares of Richmond County Common Stock indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON STOCK
NAME TITLE OWNERSHIP/(1)(2)/ OUTSTANDING/(3)/
- ------------------------ ---------------------------------- ----------------- --------------------
<S> <C> <C> <C>
Michael F. Manzulli Chairman of the Board and Chief 27,225 *
Executive Officer
Anthony E. Burke President, Chief Operating Officer 14,425 *
and Director
Godfrey H. Carstens, Jr. Director 17,032 *
Robert S. Farrell Director 19,945 *
William C. Frederick Director 6,000 *
Maurice K. Shaw Director 6,326 *
James L. Kelley Director 13,640 *
T. Ronald Quinlan, Jr. Director 1,000 *
Thomas R. Cangemi Senior Vice President, Chief 27,175 *
Financial Officer and Secretary
John M. McKenna Executive Vice President 1,063 *
All directors and executive
officers as a group (23 persons) 282,317 1.10%
</TABLE>
________________________
* Represents less than 1% of outstanding Richmond County Common Stock.
(1) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting or dispositive power as to shares reported.
(2) Does not include options and awards intended to be granted pursuant to the
Richmond County Incentive Plan.
(3) Percentages with respect to each person or group of persons have been
calculated on the basis of 26,423,550 shares of Richmond County Common
Stock, the number of shares of Richmond County Common Stock outstanding as
of September 30, 1998.
38
<PAGE>
BENEFICIAL OWNERSHIP OF BAYONNE COMMON STOCK
PRINCIPAL SECURITY OWNERSHIP
Other than those persons listed below, Bayonne is not aware of any person who
is the beneficial owner of more than 5% of the outstanding shares of Bayonne
Common Stock as of September 30, 1998. For the purposes of the following table
and the table set forth under "-- Directors and Executive Officers," in
accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
"beneficially own" any shares of Bayonne Common Stock (i) over which such person
has, directly or indirectly, sole or shared voting or investment power, or
(ii) of which such person has the right to acquire beneficial ownership,
including the right to acquire beneficial ownership by the exercise of stock
options, within 60 days after September 30, 1998. As used herein, "voting
power" includes the power to vote, or direct the voting of, such shares, and
"investment power" includes the power to dispose, or direct the disposition of,
such shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL BENEFICIAL COMMON STOCK
OF SECURITY OWNERS OWNERSHIP OUTSTANDING/(1)/
- --------------- ------------------------------------- ---------------- ------------------
<S> <C> <C> <C>
Common Stock First Savings Bank of New Jersey, SLA 708,179/(1)/ 7.76%
Employee Stock Ownership Plan (the
"Bayonne ESOP")
568 Broadway
Bayonne, New Jersey 07002
Common Stock Jeffrey S. Halis 94,846/(2)(3)/ 1.04%
500 Park Avenue
Fifth Floor
New York, New York 10022
Common Stock Michael Lowenstein 431,151/(4)/ 4.73%
500 Park Avenue
Fifth Floor
New York, New York 10022
</TABLE>
________________________
(1) Shares of Common Stock were acquired by the Bayonne ESOP in the Second-Step
Conversion, which was consummated on August 22, 1997. The Bayonne ESOP
Committee (the "Bayonne ESOP Committee") administers the Bayonne ESOP.
First Security Trust Company has been appointed as the trustee for the
Bayonne ESOP (the "Bayonne ESOP Trustee"). The Bayonne ESOP Trustee,
subject to its fiduciary duty, must vote all allocated shares held in the
Bayonne ESOP in accordance with the instructions of the Bayonne ESOP
participants. At September 30, 1998, 191,186 shares had been allocated
under the Bayonne ESOP and 516,993 shares remain unallocated. Each
participant, however, will be deemed to have one share of Bayonne Common
Stock in the Bayonne ESOP allocated to such participant's account for the
purpose of providing voting instructions to the Bayonne ESOP Trustee. Under
the Bayonne ESOP, unallocated shares and allocated shares as to which voting
instructions are not given by participants are to be voted by the Bayonne
ESOP Trustee in a manner calculated to most accurately reflect the
instructions received from participants regarding the allocated stock so
long as such vote is in accordance with the fiduciary provisions of ERISA.
(2) Based on information disclosed in a Schedule 13D/A filed with the SEC on
June 9, 1998.
(3) The 431,151 shares reported in a Schedule 13D filed by Michael Lowenstein on
September 5, 1997 include shares owned by Tyndall Partners, L.P., Madison
Avenue Partners, L.P., Tyndall Institutional Partners, L.P., and Halo
International, Ltd. (collectively, the "Investment Group"). According to the
Schedule 13D filed on September 5, 1997, Michael Lowenstein possesses the
sole power to vote and dispose of the common stock held by the Investment
Group. However, Jeffrey S. Halis is a general partner of Halo Capital
Partners, L.P., which is the sole general partner of each member of the
Investment Group, and also serves as a member of Jemi Management, L.L.C.,
which serves as the investment manager for Halo International, Ltd.
(4) Based on information disclosed in a Schedule 13D filed with the SEC on
September 5, 1997. Mr. Lowenstein disclaims any interest in the shares
owned individually by Mr. Halis.
39
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information with respect to the shares of
Bayonne Common Stock beneficially owned by each director of Bayonne, by each
Named Executive Officer of Bayonne and by all directors and executive officers
of Bayonne as a group as of September 30, 1998. Except as otherwise indicated,
each person and each group shown in the table has sole voting and investment
power with respect to the shares of Bayonne Common Stock indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON STOCK
NAME TITLE/(1)/ OWNERSHIP/(1)(2)(3)(4)/ OUTSTANDING/(8)/
- ---------------------------- ---------------------------------- ------------------------ ----------------
<S> <C> <C> <C>
Patrick F.X. Nilan Chairman of the Board 295,416/(2)(3)(4)/ 3.24%
Michael A. Nilan President, Chief Executive 93,655/(4)(5)(6)/ 1.03%
Officer and Director
James F. Sisk Director 74,583/(2)(3)/ *
Patrick D. Conaghan Director 110,440/(2)(3)/ 1.21%
Frederick G. Whelpley Director 97,360/(2)(3)/ 1.07%
Joseph L. Wisniewski Director 94,966/(3)(4)/ 1.04%
Eugene V. Malinowski, C.P.A. Vice President and Chief Financial 43,497/(6)/ *
Officer
James E. Collins Vice President/Loan Officer 35,898/(5)(6)/ *
Donald Mindiak Treasurer 27,821/(5)(6)/ *
Thomas M. Coughlin, C.P.A. Corporate Secretary/Controller 15,048/(5)(6)/ *
All directors and executive 888,684/(7)/ 9.74%
officers as a group (10 persons)
</TABLE>
* Represents less than 1% of outstanding Bayonne Common Stock.
(1) Each person effectively exercises sole (or shares with spouse or other
immediate family member) voting or dispositive power as to shares reported
herein.
(2) Includes 3,983, 4,049 and 3,983 options awarded to Messrs. Conaghan,
Whelpley and Sisk, respectively, pursuant to the Bayonne 1995 Stock Option
Plan, that are currently exercisable or will become exercisable within 60
days of September 30, 1998. Upon consummation of the Second-Step Conversion,
Bayonne adopted the Bayonne 1995 Stock Option Plan and thereby agreed to
issue Bayonne Common Stock in accordance with the terms of such plan. The
adjusted exercise price of all of the options that have been awarded to date
pursuant to the Bayonne 1995 Stock Option Plan is $4.43.
(3) Includes 15,932, 3,184, 3,184 and 3,184 shares awarded to Messrs. Patrick
F.X. Nilan, Conaghan, Whelpley and Sisk, respectively, pursuant to the
Bayonne 1995 RRP Bancshares, Inc. Amended and Restated 1995 Recognition and
Retention Plan (the "Bayonne 1995 RRP") that have not vested. Includes 9,738
shares awarded to each of Messrs. Patrick F.X. Nilan, Wisniewski, Sisk,
Conaghan and Whelpley pursuant to the Bayonne Incentive Plan that have not
vested. Awards granted under the Bayonne 1995 RRP and the Bayonne Incentive
Plan vest in equal installments of 20% per year. Upon consummation of the
Second-Step Conversion, Bayonne adopted the Bayonne 1995 RRP and thereby
agreed to issue Bayonne Common Stock in accordance with the terms of such
plan. Each recipient has voting power as to the shares awarded.
(4) Includes 13,429, 7,901 and 10,029 shares allocated to Messrs. Patrick F.X.
Nilan, Joseph L. Wisniewski and Michael A. Nilan, respectively, pursuant to
the Bayonne ESOP for which each has sole voting power.
(5) Includes 6,069, 6,069, 6,069 and 4,957 options awarded to Messrs. Michael A.
Nilan, Collins, Mindiak and Coughlin pursuant to the Bayonne 1995 Stock
Option Plan that are currently exercisable or will become exercisable in 60
days.
(6) Includes 32,709 and 24,348 shares awarded to Mr. Michael A. Nilan under the
Bayonne 1995 RRP and the Bayonne Incentive Plan, respectively, 21,424 shares
awarded to Mr. Malinowski under the Bayonne Incentive Plan, and 3,344, 3,344
and 958 shares awarded to Messrs. Collins, Mindiak and Coughlin,
respectively, under the Bayonne 1995 RRP, that have not vested. Shares
awarded under the Bayonne 1995 RRP vest in equal annual installments of 20%
per year. Approximately 20% of the shares awarded to Messrs. Michael Nilan
and Malinowski, respectively, under the Bayonne Incentive Plan vest in equal
installments during the first and second years after April 27, 1998, the
date of grant. The remaining shares granted to Mr. Michael Nilan under the
Bayonne Incentive Plan vest subject to the attainment by Bayonne during
years three, four and five after the date of grant of certain performance
goals related to earnings per share and return on equity. Approximately 10%
of the shares awarded to Mr. Malinowski under the Bayonne Incentive Plan
vest in equal installments during years three, four and five after the date
of grant, while the remaining shares vest subject to the attainment by
Bayonne during years three, four and five after the date of grant of certain
performance goals relating to earnings per share and return on equity. Each
recipient has voting power as to the shares awarded.
(7) Includes 64,010 shares awarded under the Bayonne 1995 RRP as to which voting
may be directed. Includes 83,337 options awarded under the Bayonne 1995
Stock Option Plan that are currently exercisable or will become exercisable
in 60 days. Includes 208,248 shares of Bayonne Common Stock that may be
purchased pursuant to options awarded under the Bayonne Incentive Plan, none
of which are currently exerciseable.
(8) Percentages with respect to each person or group of persons have been
calculated on the basis of 9,119,526 shares of Bayonne Common Stock, the
number of shares of Bayonne Common Stock outstanding as of September 30,
1998.
40
<PAGE>
THE BAYONNE MERGER
The following information concerning the Bayonne Merger, insofar as it
relates to matters contained in the Bayonne Merger Agreement, describes the
material aspects of the Bayonne Merger but does not purport to be a complete
description and is qualified in its entirety by reference to the Bayonne Merger
Agreement which is incorporated herein by reference and attached hereto as ANNEX
A. Richmond County and Bayonne stockholders are urged to read carefully the
Bayonne Merger Agreement.
GENERAL
Pursuant to the terms of the Bayonne 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 Bayonne Merger Agreement by the requisite vote of the
stockholders of Richmond County and Bayonne, Bayonne will be merged with and
into Richmond County and Bayonne's stockholders will become stockholders of
Richmond County. Richmond County will be the surviving corporation in the
Bayonne Merger, and will continue its corporate existence under the laws of the
State of Delaware. Upon consummation of the Bayonne Merger, the separate
corporate existence of Bayonne will terminate.
In contemplation of the Bayonne Merger, First Savings, a New Jersey State-
chartered savings and loan association and wholly owned subsidiary of Bayonne
will merge with and into a Federal interim savings bank to be formed by Richmond
County Savings, a New York State-chartered savings bank and a wholly owned
subsidiary of Richmond County. The Federal interim savings bank will then merge
with and into Richmond County Savings, with the surviving bank being named
Richmond County Savings Bank (the "Bayonne Bank Merger"). See "CERTAIN RELATED
TRANSACTIONS -- Bayonne Bank Merger Agreement."
BACKGROUND OF THE BAYONNE MERGER
Since First Savings' conversion to the mutual holding company form of
organization in 1995, the board of directors of First Savings has considered
First Savings' future and how best to enhance value for shareholders given the
competitive position of First Savings in its market area, the growth prospects
of First Savings, the operating results of First Savings and the opportunity for
increasing earnings. In 1997, First Savings undertook a conversion from the
mutual holding company form of organization to the stock holding company form of
organization. The Second-Step Conversion was completed in August 1997, at which
time First Savings became a wholly owned subsidiary of Bayonne.
In February 1998, Richmond County Savings completed its mutual to stock
conversion and became a wholly-owned subsidiary of Richmond County. Richmond
County Savings converted to stock form because, among other reasons, it believed
that this form of organization provided greater ability to expand its operations
and market area through a variety of methods, including potential acquisitions
of other financial institutions. Shortly after the completion of its
conversion, Richmond County began purchasing shares of Bayonne Common Stock in
the open market. Such purchases were unknown to Bayonne at the time.
In March 1998, Bayonne held a special meeting of shareholders for the
purpose of obtaining approval of its Bayonne Incentive Plan. While the Bayonne
Incentive Plan was approved, there was significant opposition to the Plan,
including by certain significant Bayonne stockholders. In April 1998, one such
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stockholder notified Bayonne that he intended to nominate himself for election
as a director of Bayonne at Bayonne's next annual meeting of stockholders. This
shareholder later reiterated his intentions in June 1998.
In the following weeks, due in part to the Bayonne Board's continuing
obligations to its shareholders to attempt to enhance shareholder value and to
the potential proxy contest, the Bayonne Board and senior management considered
its strategic alternatives in light of an increasingly competitive market as
well as the continued consolidation of the banking industry. Strategic
alternatives considered by Bayonne included continued implementation of
Bayonne's business plan, acquisition of other financial institutions or the sale
of Bayonne to another financial institution. While the Bayonne Board believed
it could increase long-term shareholder value by pursuing its business plan,
senior management was authorized to explore the possibility of acquiring another
financial institution. In addition, the Bayonne Board authorized senior
management to explore strategic business combinations with other financial
institutions, particularly in light of the consideration paid in comparable
mergers in and around Bayonne's market area. Bayonne did contact a potential
acquisition target during this time, but discussions remained at a preliminary
stage and Bayonne subsequently terminated consideration of the acquisition.
Throughout this process, Bayonne utilized the services of Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill"), which provided financial advisory services
to Bayonne as well as a significant number of other financial institutions in
the New York metropolitan area. In June 1998, Bayonne learned that Richmond
County had accumulated a block of its common stock. Accordingly, Bayonne
desired to learn the intentions of Richmond County and requested Sandler O'Neill
to arrange a meeting between representatives of Richmond County and Michael A.
Nilan, the President of Bayonne. Sandler O'Neill had provided financial
advisory services for Richmond County as well as Bayonne and, therefore, had
relationships with the management of both companies. The meeting, which was the
first relating to a possible business combination, took place on June 25, 1998.
At the June 25th meeting, the President of Bayonne, the Chief Financial Officer
of Richmond County and a representative of Sandler O'Neill discussed the general
terms for a potential business combination between the two companies. Based on
the results of the June 25th meeting, on June 30, 1998, representatives of
Richmond County met with members of the Bayonne Board to reiterate their
interest in discussing the acquisition of Bayonne and a range of preliminary
values was presented by Richmond County to the Bayonne Board.
Having determined that Richmond County's proposal for a business
combination merited further consideration, in early July 1998 Bayonne requested
and received approval from the Office of Thrift Supervision (the "OTS") to
engage in discussions with Richmond County. Approval from the OTS was necessary
pursuant to customary conditions imposed in the OTS's approval of Bayonne's
Second-Step Conversion. Discussion concerning a potential business combination
continued in early July 1998 and, on July 10, 1998, Richmond County provided
Bayonne with an initial draft of a definitive merger agreement. Over the course
of the next week, representatives of Bayonne and Richmond County negotiated the
terms of the Bayonne Merger Agreement and conducted due diligence investigations
with respect to each other.
On July 17, 1998, the Bayonne Board, along with Sandler O'Neill and
Bayonne's legal counsel, reviewed the contents of the Bayonne Merger Agreement
together with its exhibits. Sandler O'Neill presented the Bayonne Board with a
financial analysis of both Bayonne and Richmond County, a description of the
market for merger transactions, and an analysis of the proposed merger. The
Bayonne Board also considered, among other things, Bayonne's strategic
alternatives and the impact of the proposed transaction on employees and
customers of First Savings. At the conclusion of this meeting, the Bayonne
Board authorized management to continue negotiations with Richmond County.
On July 19, 1998, the Bayonne Board reconvened to review the definitive
merger agreement. At this time the Bayonne Board received Sandler O'Neill's
written opinion that the Bayonne Exchange Ratio was
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fair to holders of Bayonne Common Stock from a financial point of view.
Thereafter, the Bayonne Board unanimously approved the Bayonne Merger Agreement.
On July 19, 1998, the Richmond County Board considered and approved, by
unanimous vote, the Bayonne Merger, the Bayonne Merger Agreement and the related
transactions. Presentations were made by both Tucker Anthony Incorporated
("Tucker Anthony") and Richmond County's legal counsel. At the special meeting,
members of Richmond County's senior management, together with its legal and
financial advisors, reviewed with the Richmond County 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, Tucker
Anthony delivered to the Richmond County Board its written opinion to the effect
that, as of such date, the Bayonne Exchange Ratio was fair to Richmond County
stockholders from a financial point of view.
The merger agreement entered into on July 19, 1998 required that Richmond
County would account for the Bayonne Merger as a "pooling-of-interests."
Subsequent to July 19, 1998, representatives of both Richmond County and
Bayonne, together with their respective financial and legal advisors and
Richmond County's independent auditors, determined that it would be preferable,
for financial and operational reasons, to account for the Bayonne Merger as a
"purchase." By utilizing purchase accounting, (i) Richmond County and Bayonne
would not be precluded from engaging in certain corporate transactions (such as
share repurchases) which may be inconsistent with pooling-of-interests
accounting, and (ii) Richmond would not be precluded following the Bayonne
Merger from engaging in share repurchases in a manner inconsistent with pooling-
of-interests accounting.
On October 14, 1998, the Richmond County Board and the Bayonne Board each
considered presentations by each company's respective management, legal
advisors and financial advisors regarding the possible amendment to the Bayonne
Merger Agreement. In addition, Richmond County considered a presentation by its
independent auditors as well. Richmond County's and Bayonne's financial advisors
each confirmed that the possible amendments to the Bayonne Merger Agreement did
not affect their opinion to their respective clients that, as of July 19, 1998,
the Bayonne Exchange Ratio was fair, from a financial point of view, to Richmond
County or Bayonne and their respective stockholders, as the case may be. The
Richmond County Board and the Bayonne Board each authorized its management to
take further action to cause the Bayonne Merger to be accounted for as a
purchase. On October 14, 1998, Richmond County and Bayonne formally amended the
original agreement
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entered into by the parties on July 19, 1998 to eliminate certain provisions
relating to pooling-of-interests accounting as a condition to the consummation
of the Bayonne Merger, to terminate the Bayonne ESOP at the consummation of the
Bayonne Merger and to condition the consummation of the Bayonne Merger to be
accounted for as a purchase accounting transaction.
RECOMMENDATION OF THE RICHMOND COUNTY BOARD; RICHMOND COUNTY'S REASONS FOR THE
MERGER
In reaching its decision to approve the Bayonne Merger Agreement, the
Richmond County Board consulted with its legal advisors regarding the legal
terms of the transaction and its obligations in consideration of the proposed
transaction, its financial advisors regarding the financial aspects and fairness
of the proposed transaction as well as with management of Richmond County, and
without assigning any relative or specific weights, considered a number of
factors, both from a short-term and a long-term perspective, including the
following:
(i) the Richmond County Board's familiarity with and review of Richmond
County's business, results of operations, financial condition,
competitive position and prospects, the nature of the industry in
which Richmond County operates, both on a historical and prospective
basis, and the potential growth, development, productivity and
profitability of Richmond County;
(ii) the current and prospective environment in which Richmond County
operates, including national and local economic conditions, the
competitive environment for thrifts and other financial institutions
generally, the trend toward consolidation in the financial services
industry and in the thrift industry and the likely effect of the
foregoing factors on Richmond County's potential growth,
development, productivity and profitability;
(iii) the Richmond County Board's review, based in part on presentations
by Richmond County's management and advisors, of Bayonne's business,
financial condition, results of operations and management, and the
performance of the Bayonne 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 Bayonne Merger and the respective contributions the parties
would bring to a combined institution;
(iv) the Richmond County Board's review of the historical and prospective
market prices of the Richmond County Common Stock and the Bayonne
Common Stock compared to the Bayonne Merger Consideration;
(v) a comparison of the consideration to be paid to Bayonne's
stockholders compared to that paid in other comparable thrift
mergers;
(vi) the Richmond County Board's review with its legal and financial
advisors of alternatives to the Bayonne Merger, including the
possibility of growing internally;
(vii) the Richmond County Board's belief that Bayonne has a strong
financial and capital position and that the combined company
presents a high long-term intrinsic value, substantial capacity for
future growth and considerable potential for long-term strategic
value to Richmond County stockholders;
(viii) the presentation by Tucker Anthony and the written opinion of
Tucker Anthony that the Bayonne Exchange Ratio is fair from a
financial point of view to Richmond County stockholders.
See "--Opinion of Richmond County's Financial Advisor";
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(ix) the significant similarity between and the compatibility of Richmond
County's and Bayonne's business lines, cultures and management
philosophies and their commitments to the communities and customers
they each serve and to their respective employees;
(x) the expectation that the combined institution will continue to
provide quality service to the communities and customers served by
both companies;
(xi) the review by the Richmond County Board with its legal and financial
advisors of the terms and conditions of the Bayonne Merger
Agreement, including the Bayonne Exchange Ratio, and the other
documents executed in connection with the Bayonne Merger;
(xii) the review by the Richmond County Board with its legal and financial
advisors of the terms and conditions of the Bayonne Merger Stock
Option Agreement;
(xiii) the Richmond County Board's recognition of the complementary nature
of the markets served and products offered by Richmond County and
Bayonne and the ability of Richmond County to extend its market area
to include that of Bayonne;
(xiv) a variety of factors affecting and relating to the overall strategic
focus of Richmond County including, without limitation,
opportunities for growth in deposits, assets and earnings,
(including ongoing potential acquisition opportunities) and
opportunities available to Richmond County in the market areas where
Bayonne conducts business;
(xv) the anticipated revenue enhancements, cost savings and efficiencies
available from the Bayonne Merger; and
(xvi) the expectation that the Bayonne Merger would be treated as a tax-
free reorganization for federal income tax purposes (see "-- Certain
Federal Income Tax Consequences of the Bayonne Merger" below).
The Richmond County Board did not assign any specific or relative weights
to the factors under consideration. The Richmond County Board believes that the
Bayonne Merger is fair to, and in the best interests of, Richmond County and its
stockholders. ACCORDINGLY, THE RICHMOND COUNTY BOARD UNANIMOUSLY RECOMMENDS
THAT RICHMOND COUNTY'S STOCKHOLDERS VOTE "FOR" APPROVAL OF THE BAYONNE MERGER
AGREEMENT.
OPINION OF RICHMOND COUNTY'S FINANCIAL ADVISOR
Tucker Anthony was retained by Richmond County in July 1998 for the purpose
of rendering a fairness opinion to the Richmond County Board in connection with
Richmond County's proposed acquisition of Bayonne. Richmond County selected
Tucker Anthony for a number of reasons, including its familiarity with Richmond
County and Bayonne and their respective businesses. Richmond County also
considered Tucker Anthony's experience and reputation in the area of valuation
and financial advisory work generally, and in relation to financial institutions
specifically. Tucker Anthony makes a market in Bayonne Common Stock. Tucker
Anthony is a nationally recognized investment banking firm and is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, leveraged buyouts, negotiated underwritings, private
placements and valuations for corporate and other purposes. From time to time,
Tucker Anthony and its affiliates may hold long or short positions in Bayonne
Common Stock.
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Tucker Anthony has rendered written opinions to the Richmond County Board
to the effect that, as of July 19, 1998 and as of the date of this Joint Proxy
Statement/Prospectus, the consideration to be paid to the holders of Bayonne
Common Stock in the Merger pursuant to the Bayonne Merger Agreement is fair,
from a financial point of view, to the holders of Richmond County Common Stock.
THE FULL TEXT OF THE FAIRNESS OPINION DATED AS OF THE DATE OF THIS JOINT PROXY
STATEMENT/PROSPECTUS, SETTING FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE REVIEW UNDERTAKEN BY TUCKER
ANTHONY, IS INCLUDED AS ANNEX C OF THIS JOINT PROXY STATEMENT/PROSPECTUS.
HOLDERS OF RICHMOND COUNTY COMMON STOCK ARE URGED TO READ THE FAIRNESS OPINION
IN ITS ENTIRETY. This opinion is directed to the Richmond County Board only and
does not constitute a recommendation to any holder of Richmond County Common
Stock as to how such shareholder should vote at the Richmond County Meeting.
Richmond County and Tucker Anthony have agreed in the engagement letter pursuant
to which Richmond County engaged Tucker Anthony that they do not believe any
person other than the Richmond County Board has the legal right to rely on the
opinion and, absent any controlling precedent, would resist any assertion
otherwise. The July 19, 1998 opinion is substantially identical to the opinion
attached hereto.
As compensation for its services as financial advisor, including issuance
of the opinions, Richmond County has agreed to pay Tucker Anthony a total of
$150,000, all of which has been paid as of the date hereof. Richmond County has
also agreed to reimburse Tucker Anthony for its out-of-pocket expenses and to
indemnify Tucker Anthony against certain liabilities arising out of its
services.
In arriving at its opinion dated as of the date hereof, Tucker Anthony,
among other things, reviewed the Bayonne Merger Agreement; reviewed the
Registration Statement on Form S-4, including this Joint Proxy
Statement/Prospectus; reviewed certain historical financial and other
information concerning Richmond County for the five fiscal years ended June 30,
1998 [and for the quarter ended September 30, 1998], including Richmond County's
reports on Forms 10-K and 10-Q; reviewed certain historical financial and other
information concerning Bayonne for the five fiscal years ended March 31, 1998
and for the [six months ended September 30, 1998], including Bayonne's reports
on Forms 10-K and 10-Q; held discussions with the senior management of Richmond
County and Bayonne with respect to their past and current financial performance,
financial condition and future prospects; reviewed certain internal financial
data, projections and other information of Richmond County and Bayonne including
financial projections approved by management; analyzed certain publicly
available information of other financial institutions that it deemed comparable
or otherwise relevant to its inquiry, and compared Richmond County and Bayonne
from a financial point of view with certain of these institutions; compared the
consideration to be paid by Richmond County pursuant to the Bayonne Merger
Agreement with the consideration paid by acquirors in other acquisitions of
financial institutions that it deemed comparable or otherwise relevant to its
inquiry; reviewed publicly available earnings estimates, historical trading
activity and ownership data of Richmond County Common Stock and Bayonne Common
Stock; and conducted such other financial studies, analyses and investigations
and reviewed such other information as it deemed appropriate to enable it to
render its opinion. In its review, it also took into account an assessment of
general economic, market and financial conditions and certain industry trends
and related matters. Tucker Anthony's opinions were necessarily based upon
conditions as they existed and could be evaluated on the date thereof and the
information made available to Tucker Anthony through the date hereof.
No limitations were imposed by the Boards of Directors of Richmond County
or Bayonne upon Tucker Anthony with respect to the investigations made or
procedures followed by Tucker Anthony in its review and analysis. In its review
and analysis and in arriving at its opinions, Tucker Anthony assumed and relied
upon the accuracy and completeness of all the financial information publicly
available or provided to it by Richmond County and Bayonne, and did not attempt
to verify any of such information. Tucker Anthony assumed (i) that the
financial projections of Richmond County and Bayonne provided to it with respect
to the results of operations likely to be achieved by each company were prepared
on a basis reflecting the best currently available estimates and judgments of
Richmond County's and Bayonne's management and
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advisors as to future financial performance and results, and (ii) that such
forecasts and estimates would be realized in the amounts and in the time periods
estimated. Tucker Anthony also assumed, without independent verification, that
the current and projected aggregate reserves for possible loan losses for
Richmond County and Bayonne were adequate to cover such losses. Tucker Anthony
did not make or obtain any independent evaluations or appraisals of any assets
or liabilities of Richmond County, Bayonne or any of their respective
subsidiaries nor did it verify any of Richmond County's or Bayonne's books or
records or review any individual loan credit files.
On July 19, 1998, Tucker Anthony made a presentation, and subsequently
rendered a written fairness opinion, to Richmond County's Board. Set forth
below is a summary of the main elements of the financial analyses performed by
Tucker Anthony in connection with rendering its written opinion of July 19,
1998. In connection with its opinion dated as of the date of this Joint Proxy
Statement/Prospectus, Tucker Anthony performed procedures to update certain
analyses and reviewed the assumptions on which such analyses were based and the
factors considered in connection therewith.
STOCK TRADING ANALYSIS. Tucker Anthony examined the historical trading
prices, volume and market pricing multiples of Richmond County Common Stock and
Bayonne Common Stock, and compared the historical trading prices of Richmond
County Common Stock and Bayonne Common Stock in relation to movements in certain
stock indices, specifically the Standard & Poor's Major Regional Bank Index and
the Standard and Poor's Savings & Loan Index, as well as to indices of other
selected publicly traded financial institutions. Specifically, the index of
other selected publicly traded financial institutions compared to Richmond
County Common Stock included Commonwealth Bancorp, Inc., Dime Community
Bancshares, Inc., Flushing Financial Corporation, Haven Bancorp, Inc., Ocean
Financial Corporation, Parkvale Financial Corporation, PennFed Financial
Services, Inc., Queens County Bancorp, Inc., Roslyn Bancorp, Inc., Staten
Island Bancorp, Inc., WSFS Financial Corporation and York Financial Corporation.
The index of other selected publicly traded financial institutions compared to
Bayonne Common Stock included ESB Financial Corporation, Fidelity Bancorp, Inc.,
First Bell Bancorp, Inc., First Keystone Financial, Inc., GA Financial, Inc.,
Harleysville Savings Bank, Little Falls Bancorp, Inc., Pamrapo Bancorp, Inc.,
Pulse Bancorp, Inc., Statewide Financial Corporation and TF Financial
Corporation. Tucker Anthony also compared financial data and financial ratios
for these two groups of financial institutions to Richmond County and Bayonne,
as detailed in the section "-- Analysis of Selected Publicly Traded Companies"
below.
CONTRIBUTION ANALYSIS. Tucker Anthony analyzed the contribution of each
of Richmond County and Bayonne to, among other things, the stockholders' equity
and after-tax net income of the pro forma combined company. This analysis
showed that, among other factors, Bayonne would have contributed 30.5%, 22.7%,
and 22.8% of the assets, stockholders' equity, and net income of the pro forma
combined company as of and for the 12 months ended June 30, 1998, respectively.
This is compared with a proposed ownership of 25.6% of the combined company to
be held by the holders of Bayonne Common Stock following the Bayonne Merger.
PRO FORMA MERGER ANALYSIS. Based on projections provided by Richmond
County, Tucker Anthony analyzed certain pro forma effects of the Bayonne Merger.
Assuming a price per share of Richmond County Common Stock of $18.13 (as of
July 17, 1998), this analysis indicated that, while the Bayonne Merger would be
modestly dilutive to tangible book value per share, the Bayonne Merger would be
accretive to earnings in the first full year following the close of the Bayonne
Merger. In this analysis Tucker Anthony assumed that Richmond County performed
in accordance with the earnings forecasts and expected synergies provided to
Tucker Anthony by Richmond County's senior management.
ANALYSIS OF SELECTED ACQUISITION TRANSACTIONS. Tucker Anthony reviewed
and performed analysis on 38 unassisted acquisitions of thrift institutions in
the New York and surrounding states (the "Selected Market Transactions") and 28
unassisted acquisitions of thrift institutions in the U.S. with a transaction
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size between $100 million and $250 million (the "Selected U.S. Transactions")
announced since January 1, 1997, comparing the target financial institutions'
capital structure and profitability to Bayonne's current results of operations
and financial condition. The Selected Market Transactions and Selected U.S.
Transactions were chosen because they represented merger and acquisition
transactions which involved target financial institutions exhibiting certain
characteristics -- including asset size, geographic proximity and business
risk -- similar to those exhibited by Bayonne. Excluding the highest and lowest
ratios, the target financial institutions involved in the Selected Market
Transactions and the Selected U.S. Transactions had an average return on assets
for the latest 12 months prior to announcement date of 0.89% and 0.93% and an
average return on equity for the latest 12 months prior to announcement date of
9.79% and 9.39%, respectively, as compared to 0.64% and 4.36%, respectively, for
Bayonne. Set forth below is a summary of the analysis with respect to the
Selected Market Transactions and the Selected U.S. Transactions.
<TABLE>
<CAPTION>
Selected Market Selected U.S.
Transactions Transactions
------------ --------------
Bayonne Offer Offer
Offer/(1)/ Median Percentile/(2)/ Median Percentile/(2)/
---------- ------ --------------- ------ ---------------
<S> <C> <C> <C> <C> <C>
Price/Trailing Twelve Months Earnings 26.8x 22.9x 72% 21.6x 67%
Price/Book Value 1.79x 2.14x 30% 1.97x 37%
Price/Adjusted Book Value(3) 2.47x 1.90x 70% 2.17x 69%
Premium to Market Price(4) 111% 111% 50% 111% 57%
</TABLE>
- ----------------
(1) Based upon value of $19.03 per share of Bayonne Common Stock (based on the
July 17, 1998 closing price of Richmond County Common Stock of $18.13). If
the value of the Richmond County Common Stock were based on its average
closing bid price per share of $18.45 during the fifteen trading day period
prior to the announcement of the Bayonne Merger, implying a value of $19.38
per share of Bayonne Common Stock, the corresponding multiples in the table
would be: price/trailing twelve months earnings of 27.3x; price/book value
of 1.82x; price/10% book value of 2.51x; and premium to market price of
113%.
(2) Position of the Richmond County offer in relation to percentile rankings of
the Selected Market Transactions and the Selected U.S. Transactions,
respectively.
(3) Because of the extraordinary nature of Bayonne's capital base relative to
most other financial institutions, Tucker Anthony also analyzed the terms
of the proposed transaction and the terms of the selected acquisition
transactions on an adjusted 10% book value basis. This analysis reviews
transaction statistics of premiums paid over a theoretical book value based
on adjusting the aggregate transaction value on a dollar-for-dollar basis
for differentials between actual book value and the theoretical book value
calculated at 10% of total assets.
(4) Premium to market price for Selected Market Transactions and the Selected
U.S. Transactions based on stock price one week prior to announcement;
market price for Bayonne of $17.13 per share reflects closing price on
July 17, 1998.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Tucker Anthony
compared selected financial data and financial ratios of Richmond County and
Bayonne to the corresponding data and ratios of certain publicly traded thrift
institutions located in New York, New Jersey and surrounding states with total
assets comparable to Richmond County and Bayonne, respectively. The thrift
institutions included in the comparison to Richmond County were: Commonwealth
Bancorp, Inc., Dime Community Bancshares, Inc., Flushing Financial Corporation,
Haven Bancorp, Inc., Ocwen Financial Corporation, Parkvale Financial
Corporation, PennFed Financial Services, Inc., Queens County Bancorp, Inc.,
Roslyn Bancorp, Inc., Staten Island Bancorp, Inc., WSFS Financial Corporation
and York Financial Corporation. The thrift institutions included in the
comparison to Bayonne were: ESB Financial Corporation, Fidelity Bancorp, Inc.,
First Bell Bancorp, Inc., First Keystone Financial, Inc., GA Financial, Inc.,
Harleysville Savings Bank, Little Falls Bancorp, Inc., Pamrapo Bancorp, Inc.,
Pulse Bancorp, Inc., Statewide Financial Corporation and TF Financial
Corporation. The selected thrifts, as groups, exhibited certain
characteristics -- including asset size, geographic proximity and business
risk -- similar to those exhibited by Richmond County and Bayonne, respectively.
The comparison of Richmond County to its selected thrift peer group showed
among other things that based on financial data as of June 30, 1998 for Richmond
County and March 31, 1998 for the selected
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thrift peer group: (i) the ratio of Richmond County's net loans to assets was
40.4% compared to an average of 59.7% for its peer group; (ii) the ratio of
Richmond County's loan loss reserves to non-performing assets was 124.2%
compared to 129.3% for its peer group; (iii) the ratio of Richmond County's non-
performing assets (including loans 90 days past due) to the sum of shareholders'
equity and loan loss reserves was 1.74% compared to an average of 7.70% for its
peer group; (iv) the ratio of Richmond County's equity to total assets was 20.6%
as compared to an average of 11.4% for its peer group; (v) the latest quarter
annualized return on assets for Richmond County was 1.42% compared to an average
of 1.06% for its peer group; (vi) the latest quarter annualized return on equity
for Richmond County was 6.74%, compared to an average of 10.50% for its peer
group; (vii) the ratio of Richmond County's market price to its book value per
common share was 147% compared to an average of 190% for its peer group;
(viii) the price/earnings ratio for the trailing 12 months earnings for Richmond
County was 30.5x, compared to an average of 20.3x for its peer group; and
(ix) the average latest quarter annualized dividend yield for Richmond County
was 1.3% as compared to 1.5% for its peer group.
The comparison of Bayonne to its selected thrift peer group showed among
other things that based on financial data as of June 30, 1998 for Bayonne and
March 31, 1998 for the selected thrift peer group: (i) the ratio of Bayonne's
net loans to assets was 45.4% compared to an average of 49.4% for its peer
group; (ii) the ratio of Bayonne's loan loss reserves to non-performing assets
was 75.7% compared to 153.2% for its peer group; (iii) the ratio of Bayonne's
non-performing assets to the sum of shareholders' equity and loan loss reserves
was 3.9% compared to an average of 5.8% for its peer group; (iv) the ratio of
Bayonne's equity to total assets was 13.8% as compared to an average of 9.3% for
its peer group; (v) the latest quarter annualized return on assets for Bayonne
was 0.61% compared to an average of 0.85% for its peer group; (vi) the latest
quarter annualized return on equity for Bayonne was 4.17%, compared to an
average of 9.46% for its peer group; (vii) the ratio of Bayonne's market price
to its book value per common share was 161% compared to an average of 162% for
its peer group; (viii) the price/earnings ratio for the trailing 12 months
earnings for Bayonne was 24.2x, compared to an average of 16.4x for its peer
group; and (ix) the average latest quarter annualized dividend yield for Bayonne
was 1.5% as compared to 2.0% for its peer group.
EVALUATION OF AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER. Tucker
Anthony was asked by Richmond County to review the financial implications of an
Amended and Restated Agreement and Plan of Merger for the Bayonne Merger
relative to the proposed accounting change as pertains to the holders of
Richmond County. Tucker Anthony updated its market and pro forma analyses
(incorporating certain additional financial information provided to Tucker
Anthony by Richmond County management) to evaluate the financial implications of
the proposed change in accounting treatment. On October 14, 1998, Tucker Anthony
made a presentation to the Richmond County Board in which it reviewed the
financial implications of purchase and pooling of interests accounting
treatments in connection with the proposed merger and updated the Richmond
County Board on current market conditions of financial institutions similar to
Richmond County and Bayonne as well as comparable merger and acquisition
activity that occurred subsequent to July 19, 1998. Among other observations,
Tucker Anthony noted that, according to financial information provided by
Richmond County management, the amount of goodwill that would result from
accounting for the Bayonne Merger utilizing the purchase method would be
approximately $23 million and would be amortized over 15 years. Pursuant to its
analysis, Tucker Anthony concluded and reported to the Richmond County Board
that accounting for the Bayonne Meeting utilizing the purchase method would not
change its opinion rendered July 19, 1998.
The foregoing is a summary of the main elements of the financial analyses
performed by Tucker Anthony, but it does not purport to be a complete
description of such analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
summary description. Accordingly, notwithstanding the separate factors
summarized above, Tucker Anthony believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors considered by
it, without considering all analyses and factors, or attempting to ascribe
relative weights to some or all of such analyses or factors, could create an
incomplete view of the evaluation process underlying Tucker Anthony's opinion.
In addition, Tucker Anthony may have used the various analyses for different
purposes and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Tucker Anthony's
view of the actual value of Bayonne to Richmond County. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given more weight than any other analyses.
In performing its analyses, Tucker Anthony made numerous assumptions with
respect to industry performance, general business and economic conditions, and
other matters, many of which are beyond the control of Richmond County and
Bayonne. The analyses performed by Tucker Anthony are not necessarily
indicative of actual values or actual future results, which may be significantly
more or less favorable than those suggested by such analyses. Such analyses
were prepared solely as a part of Tucker Anthony's analysis of the fairness,
from a financial point of view, to the holders of Richmond County Common Stock
of the consideration to be paid in the Bayonne Merger to the holders of Bayonne
Common Stock, and were provided to the Richmond County Board in connection
with the delivery of Tucker Anthony's opinion. The
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analyses do not purport to be appraisals or to reflect the prices at which
Richmond County or Bayonne might actually be sold or the prices at which any
securities may trade at the present time or at any time in the future. In
addition, as described above, Tucker Anthony's opinion is just one of the many
factors taken into consideration by Richmond County's Board (see "-- Background
of the Bayonne Merger" and "-- Recommendation of the Richmond County Board;
Richmond County's Reasons for the Merger."
RECOMMENDATION OF THE BAYONNE BOARD; BAYONNE'S REASONS FOR THE MERGER
The Bayonne Board believes that the terms of the Bayonne Merger Agreement,
which are the product of arm's length negotiations between representatives of
Bayonne and Richmond County, are fair and in the best interests of Bayonne and
its stockholders. In the course of reaching its determination, the Bayonne
Board consulted with legal counsel with respect to its legal duties, the terms
of the Bayonne Merger Agreement and the issues related thereto; with its
financial advisor with respect to the financial aspects and fairness of the
transaction from a financial point of view; and with senior management
regarding, among other things, operational matters.
In reaching its determination to approve the Bayonne Merger Agreement, the
Bayonne Board considered the following:
(i) The Bayonne Board considered that Bayonne and Richmond County serve
contiguous market areas with similar communities and that the
expanded reach of the combined company would benefit existing
customers and make the combined company more attractive to potential
customers.
(ii) The Bayonne Board considered that Richmond County offers a broader
range of products and services and that the Merger would provide
Bayonne's customers with access to these products and services
without Bayonne having to undergo the expense of introducing them on
its own.
(iii) The Bayonne Board considered the strength of Richmond County's
management and the similarity of operating philosophies between the
companies.
(iv) The Bayonne Board considered that the resources of the charitable
foundation established by Richmond County in connection with the
conversion of Richmond County Savings would become available to
Bayonne's communities as a result of the Bayonne Merger.
(v) The Bayonne Board analyzed information with respect to the financial
condition, results of operations, cash flow, businesses and prospects
of Bayonne. In this regard, the Bayonne Board analyzed the options of
selling Bayonne or continuing on a stand-alone basis. The range of
values on a sale of control basis were determined to generally exceed
the present value of Bayonne shares on a stand-alone basis.
(vi) The Bayonne Board considered the written opinion of Sandler O'Neill
that, as of July 19, 1998, the consideration to be received by
holders of Bayonne Common Stock pursuant to the Bayonne Merger
Agreement was fair to Bayonne stockholders from a financial point of
view. The Bayonne Board also considered that Sandler O'Neill provides
financial advisory services to Richmond County. See "-- Opinion of
Bayonne's Financial Advisor."
(vii) The Bayonne Board considered the current operating environment,
including, but not limited to, the continued consolidation and
increasing competition in the banking and financial services
industries and the prospect for further changes in these industries.
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(viii) The Bayonne Board considered the other terms of the Bayonne
Merger Agreement and exhibits, including the opportunity for Bayonne
stockholders to receive shares of Richmond County Common Stock in a
tax free exchange.
(ix) The Bayonne Board considered the detailed financial analyses, pro
forma and other information with respect to Bayonne and Richmond
County discussed by Sandler O'Neill, as well as the Bayonne Board's
knowledge of Bayonne, Richmond County and their respective
businesses. In this regard, the latest publicly-available financial
and other information for Bayonne and Richmond County were analyzed,
including a comparison to publicly-available financial and other
information for other similar financial institutions.
(x) The Bayonne Board considered the likelihood of the merger and
related transactions being approved by the appropriate regulatory
authorities, including factors such as market share analyses,
Richmond County's Community Reinvestment Act ("CRA") rating at that
time and the estimated pro forma financial impact of the transaction
on Richmond County. See "-- Regulatory Approvals Needed to Complete
the Bayonne Merger."
(xi) The Bayonne Board considered the fact that the Bayonne Merger
Agreement prohibits Bayonne from initiating or encouraging
discussion with third parties relating to an alternative transaction
and that Richmond County required Bayonne to enter into the Bayonne
Merger Stock Option Agreement, and the fact that Richmond County
required such provisions as a condition to entering into the Bayonne
Merger Agreement.
(xii) The Bayonne Board considered that it did not solicit offers from
other possible acquirors or determine whether other institutions
would be interested in acquiring Bayonne and, if so, on what terms.
The Bayonne Board believed that a tax-free transaction pursuant to
which Bayonne stockholders receive shares of the acquiror would be
desired by most stockholders. The Bayonne Board determined that the
unique features of Richmond County, the financial analysis provided
by Sandler O'Neill, the pro forma review of the combined entity, and
the fact that there was no controlling stockholder of Richmond
County provided a reasonable basis for not seeking other offers
prior to recommending the proposed transaction to Bayonne
stockholders.
The foregoing discussion of the information and factors considered by the
Bayonne Board is not intended to be exhaustive, but constitutes all material
factors considered by the Bayonne Board. In reaching its determination to
approve and recommend the Bayonne Merger Agreement, the Bayonne Board did not
assign any relative or specific weights to the foregoing factors, and individual
directors may have weighed factors differently.
The Bayonne Board believes that the Bayonne Merger is in the best
interests of Bayonne and its stockholders. ACCORDINGLY, THE BAYONNE BOARD
UNANIMOUSLY RECOMMENDS THAT BAYONNE'S STOCKHOLDERS VOTE "FOR" APPROVAL AND
ADOPTION OF THE BAYONNE MERGER AGREEMENT.
OPINION OF BAYONNE'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated as of March 10, 1998 (the "Sandler
O'Neill Agreement"), Bayonne retained Sandler O'Neill as an independent
financial advisor in connection with Bayonne's general valuation analyses and
its consideration of possible business combinations with a second party.
Sandler O'Neill is a nationally recognized investment banking firm whose
principal business specialty is financial institutions. In the ordinary
course of its investment banking business, Sandler O'Neill is regularly
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engaged in the valuation of such banks and savings institutions, businesses and
their securities in connection with mergers and acquisitions and other
corporate transactions.
Pursuant to the terms of the Sandler O'Neill Agreement, Sandler O'Neill
acted as financial advisor to Bayonne in connection with the Bayonne Merger. In
connection therewith, the Bayonne Board requested Sandler O'Neill to render its
opinion as to the fairness of the Bayonne Exchange Ratio to the holders of
shares of Bayonne Common Stock from a financial point of view. On July 19,
1998, Sandler O'Neill delivered to the Bayonne Board its written opinion that,
as of such date, the Bayonne Exchange Ratio was fair to the holders of shares of
Bayonne Common Stock from a financial point of view. Sandler O'Neill has also
delivered to the Bayonne Board a written opinion dated the date of this Joint
Proxy Statement/Prospectus (the "Sandler O'Neill Fairness Opinion") which
reflects that the Bayonne Merger will be accounted for utilizing the purchase
method, but is substantially identical to the July 17, 1998 opinion. THE FULL
TEXT OF THE SANDLER O'NEILL 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. HOLDERS OF SHARES
OF BAYONNE COMMON STOCK ARE URGED TO READ THE SANDLER O'NEILL FAIRNESS OPINION
IN ITS ENTIRETY IN CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED BAYONNE
MERGER.
THE SANDLER O'NEILL FAIRNESS OPINION WAS PROVIDED TO THE BAYONNE BOARD FOR
ITS INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE BAYONNE EXCHANGE RATIO TO HOLDERS OF SHARES OF BAYONNE COMMON
STOCK. IT DOES NOT ADDRESS THE UNDERLYING BUSINESS DECISION OF BAYONNE TO
ENGAGE IN THE BAYONNE MERGER OR ANY OTHER ASPECT OF THE BAYONNE MERGER AND DOES
NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF SHARES OF BAYONNE COMMON STOCK
AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE BAYONNE MEETING WITH RESPECT TO
THE BAYONNE MERGER OR ANY OTHER MATTER RELATED THERETO.
In connection with rendering its July 17, 1998 opinion, Sandler O'Neill
performed a variety of financial analyses. The following is a summary of the
material analyses performed by Sandler O'Neill, but does not purport to be a
complete description of all the analyses underlying Sandler O'Neill's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to a partial analysis or summary
description. Sandler O'Neill believes that its analyses must be considered as a
whole and that selecting portions of such analyses and the factors considered
therein, without considering all factors and analyses, could create an
incomplete view of the analyses and processes underlying its opinion. In
performing its analyses, Sandler O'Neill made numerous assumptions with respect
to industry performance, business and economic conditions and various other
matters, many of which cannot be predicted and are beyond the control of
Bayonne, Richmond County and Sandler O'Neill. Any estimates contained in
Sandler O'Neill's analyses are not necessarily indicative of future results or
values, which may be significantly more or less favorable than such estimates.
Estimates on the values of companies do not purport to be appraisals or
necessarily reflect the prices at which companies or their securities may
actually be sold. Because such estimates are inherently subject to uncertainty,
neither Bayonne, Richmond County, nor Sandler O'Neill assumes responsibility for
their accuracy.
SUMMARY OF PROPOSAL. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of Richmond County Common Stock
on July 17, 1998 of $18.13 and the Bayonne Exchange Ratio of 1.05, Sandler
O'Neill calculated an implied transaction value per share of Bayonne Common
Stock of $19.03. Based upon such implied transaction value and Bayonne's
June 30, 1998 financial information, Sandler O'Neill calculated the price to
tangible book value and price to last 12 months' normalized earnings. This
analysis yielded a price to tangible book value multiple of 1.81x and a price to
last 12 months' earnings multiple of 27.6x.
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STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the
reported trading prices and volume of Bayonne Common Stock and Richmond County
Common Stock, and the relationship between the movements in the prices of
Bayonne Common Stock and Richmond County Common Stock, respectively, to
movements in certain stock indices, including the Standard & Poor's 500 Index
(the "S&P Index"), the Nasdaq Banking Index (the "Bank Index") and selected
composite peer groups of publicly traded savings institutions identified as
the Regional Group and Peer Group, respectively, below. During the period
August 27, 1997 through July 15, 1998, Bayonne Common Stock outperformed each of
the indices to which it was compared. During the period February 18, 1998
through July 15, 1998, Richmond County slightly underperformed the S&P Index
and outperformed each of the indices to which it was compared.
COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Bayonne and two different groups of savings institutions. The first group
consisted of Bayonne and the following 16 publicly traded regional savings
institutions (the "Regional Group"): Ambanc Holding Co., Inc., Carver Bancorp
Inc., ESB Financial Corporation, Fidelity Bancorp, Inc., First Bell Bancorp,
Inc., Flushing Financial Corporation, FMS Financial Corporation, GA Financial,
Inc., Lakeview Financial Corp., Northeast Pennsylvania Financial Corporation,
Parkvale Financial Corporation, Peoples Bancorp Inc., Progress Financial
Corporation, Raritan Bancorp Inc., Statewide Financial Corporation, and TF
Financial Corporation. Sandler O'Neill also compared Bayonne to a group of 14
publicly traded savings institutions which had a return on average equity (based
on last 12 months' earnings) of greater than 14.0% and a price to tangible book
value of greater than 170% (the "Highly Valued Group"). The Highly Valued Group
included the following institutions: American Bank Connecticut, CFSB Bancorp,
Inc., Coastal Financial Corporation, FMS Financial Corporation, Highland
Bancorp, Inc., Home Federal Bancorp, Lakeview Financial Corporation, MECH
Financial Inc., Metropolitan Financial Corp., MetroWest Bank, People's
Bancshares, Inc., First Mutual Savings Bank, Progress Financial Corporation, and
PVF Capital Corporation. The analysis compared publicly available financial
information for Bayonne and the median data for each of the Regional Group and
the Highly Valued Group as of and for each of the years ended December 31, 1993
through December 31, 1997 and as of and for the 12 months ended March 31, 1998.
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for
Richmond County and two different groups of savings institutions. The first
group consisted of Richmond County and the following 13 publicly traded savings
institutions (the "Peer Group"): Dime Community Bancshares Inc., ESB Financial
Corporation, First Source Bancorp, Inc., Flushing Financial Corporation, Haven
Bancorp, Inc., JSB Financial Inc., Ocean Financial Corporation, Parkvale
Financial Corporation, PennFed Financial Services, Inc., Peoples Bancorp Inc.,
Queens County Bancorp, Inc., WSFS Financial Corporation, and York Financial
Corporation. Sandler O'Neill also compared Richmond County to a group of nine
publicly traded savings institutions which had a return on average equity (based
on last 12 months' earnings) of greater than 14.5% and a price to tangible book
value of greater than 200% (the "Large Thrift Highly Valued Group"). The Large
Thrift Highly Valued Group was comprised of Anchor BanCorp Wisconsin, Andover
Bancorp Inc., CFSB Bancorp, Inc., D & N Financial Corporation, First Federal
Capital Corporation, Metropolitan Financial Corporation, Parkvale Financial
Corporation, People's Bancshares, Inc., and WSFS Financial Corporation. The
analysis compared publicly available financial information for Richmond County
and the median data for each of the Peer Group and the Large Thrift Highly
Valued Group as of and for each of the years ended December 31, 1993 through
December 31, 1997 and as of and for the 12 months ended March 31, 1998.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed 34
transactions announced from January 1, 1998 to July 15, 1998, involving publicly
traded savings institutions nationwide as acquired institutions with transaction
values greater than $15 million ("Nationwide Transactions"), and 11 transactions
announced from January 1, 1998 to July 15, 1998, involving public savings
institutions in the MidAtlantic
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Region (Maryland, New Jersey, New York, and Pennsylvania) as acquired
institutions with transaction values greater than $15 million ("Regional
Transactions"). Sandler O'Neill reviewed the ratios of transaction values to
last four quarters' earnings, transaction value to book value, transaction value
to tangible book value, tangible book premium to core deposits, transaction
value to total deposits and transaction value to total assets and computed high,
low, mean, and median ratios and premiums for the respective groups of
transactions. These multiples were applied to Bayonne's financial information
as of and for the 12 months ended March 31, 1998. Based upon the median
multiples for Nationwide Transactions, Sandler O'Neill derived an imputed range
of values per share of Bayonne Common Stock of $15.05 to $24.91. Based upon the
median multiples for Regional Transactions, Sandler O'Neill derived an imputed
range of values per share of Bayonne Common Stock of $15.00 to $22.26.
No company involved in the transactions included in the above analysis is
identical to Bayonne and no transaction included in the above analysis is
identical to the Bayonne Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Bayonne and Richmond County and the companies to which they are
being compared.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Bayonne through the year 2005 under various circumstances,
assuming Bayonne performed in accordance with the earnings forecasts of its
management and certain variations thereof. To approximate the terminal value of
Bayonne Common Stock at December 31, 2005, Sandler O'Neill applied price to
earnings multiples ranging from 12x to 27x and applied multiples of tangible
book value ranging from 100% to 350%. The dividend income streams and terminal
values were then discounted to present values using different discount rates
(ranging from 9% to 15%) chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of Bayonne Common
Stock. This analysis, assuming the current dividend payout ratio and
management's earnings forecasts, indicated an imputed range of values per share
of Bayonne Common Stock of between $6.77 and $18.62 when applying the price to
earnings multiples, and an imputed range of values per share of Bayonne Common
Stock of between $7.67 and $32.15 when applying multiples of tangible book
value. In connection with its analysis, Sandler O'Neill used sensitivity
analyses to consider the effects changes in the underlying assumptions
(including variations with respect to the growth rate of assets, net interest
spread, non-interest income, non-interest expenses and dividend payout ratio)
would have on the resulting present value and discussed these effects with the
Bayonne Board. Sandler O'Neill noted that the discounted dividend stream and
terminal value analysis is a widely used valuation methodology, but the results
of such methodology are highly dependent upon the numerous assumptions that must
be made, and the results thereof are not necessarily indicative of actual values
or actual future results.
PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro
forma effects of the Bayonne Merger through June 30, 2005, based upon the
Bayonne Exchange Ratio of 1.05, Bayonne's and Richmond County's current and
projected income statements and balance sheets, and assumptions regarding the
economic environment, accounting and tax treatment of the Bayonne Merger,
charges associated with the Bayonne Merger, operating efficiencies and other
adjustments discussed with senior managements of Bayonne and Richmond County.
Sandler O'Neill updated its analysis following the amendment and
restatement of the Bayonne Merger Agreement to reflect a change in the
assumption regarding the accounting treatment of the Bayonne Merger from a
pooling of interest to the purchase method. Based upon the Bayonne Exchange
Ratio of 1.05, Bayonne's and Richmond County's current and projected income
statements and balance sheets, and assumptions regarding the economic
environment, tax treatment of the Bayonne Merger, charges associated with the
Bayonne Merger, operating efficiencies and other adjustments discussed with
senior managements of Bayonne and Richmond County, including a projected
repurchase of 10% of the pro forma number of shares of Richmond County Common
Stock outstanding after giving effect to the Bayonne Merger, this analysis
indicated that the Bayonne Merger would be accretive to Richmond County's
earnings per share for all periods analyzed, and slightly dilutive to tangible
book value per share of Richmond County Common Stock in the first full fiscal
year following the Bayonne Merger and accretive for all subsequent periods
analyzed. This analysis also indicated that, from a Bayonne shareholder's
perspective, as compared to the projected stand-alone performance of Bayonne,
the Merger would be accretive to Bayonne's earnings per share and accretive to
tangible book value per share for all periods analyzed. The actual results
achieved by the combined company may vary from projected results and the
variations may be material.
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CONTRIBUTION ANALYSIS. Sandler O'Neill reviewed the relative
contributions to, among other things, total assets, total net loans, total
deposits, total borrowings, total equity, normalized last quarter annualized
net income and market capitalization to be made by Bayonne and Richmond County
to the combined institution based on data at and for the 12 months ended March
31, 1998. This analysis indicated that Bayonne's implied contribution was 30.6%
of total assets, 29.6% of total net loans, 31.3% of total deposits, 36.6% of
total borrowings, 23.4% of total equity, 27.1% of normalized latest quarter
annualized net income and 24.2% of market capitalization. On a fully diluted
basis, based upon the Bayonne Exchange Ratio of 1.05, holders of Bayonne Common
Stock would own approximately 25.9% of the outstanding shares of the combined
company.
In connection with rendering its July 17, 1998 opinion, Sandler O'Neill
reviewed, among other things: (i) the Bayonne Merger Agreement and exhibits
thereto; (ii) the Bayonne Merger Stock Option Agreement; (iii) certain publicly
available financial statements of Bayonne and other historical financial
information provided by Bayonne that Sandler O'Neill deemed relevant;
(iv) certain publicly available financial statements of Richmond County and
other historical financial information provided by Richmond County that Sandler
O'Neill deemed relevant; (v) certain financial analyses and forecasts of Bayonne
prepared by and reviewed with management of Bayonne and the views of senior
management of Bayonne regarding Bayonne's past and current business operations,
results thereof, financial condition and future prospects; (vi) certain
financial analyses and forecasts of Richmond County prepared by and reviewed
with management of Richmond County and the views of senior management of
Richmond County regarding Richmond County's past and current business
operations, results thereof, financial condition and future prospects; (vii) the
pro forma impact of the Bayonne Merger; (viii) the publicly reported historical
price and trading activity for Bayonne and Richmond County Common Stock,
including a comparison of certain financial and stock market information for
Bayonne and Richmond County with similar publicly available information for
certain other companies the securities of which are publicly traded; (ix) the
financial terms of recent business combinations in the savings institution
industry, to the extent publicly available; (x) the current market environment
generally and the banking environment in particular; and (xi) such other
information, financial studies, analyses and investigations and financial,
economic and market criteria as Sandler O'Neill considered relevant.
In connection with rendering the Sandler O'Neill Fairness Opinion, Sandler
O'Neill confirmed the appropriateness of its reliance on the analyses used to
render its July 17, 1998 opinion by performing procedures to update certain of
such analyses and by reviewing the assumptions upon which such analyses were
based and the factors considered in connection therewith. In performing such
procedures, Sandler O'Neill considered the impact on its analyses arising out of
the accounting for the Bayonne Merger through the purchase method.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon, without independent verification, the accuracy and completeness of all the
financial information, analyses and other information that was publicly
available or otherwise furnished to, reviewed by or discussed with it, and
Sandler O'Neill does not assume any responsibility or liability therefor.
Sandler O'Neill did not make an independent evaluation or appraisal of the
specific assets, the collateral securing assets or the liabilities (contingent
or otherwise) of Bayonne or Richmond County or any of their respective
subsidiaries, or the collectibility of any such assets, nor was it furnished
with any such evaluations or appraisals. Sandler O'Neill is not an expert in
the evaluation of allowances for loan losses and it has not made an independent
evaluation of the adequacy of the allowance for loan losses of Bayonne or
Richmond County, nor has it reviewed any individual credit files relating to
Bayonne or Richmond County. With Bayonne's consent, Sandler O'Neill has assumed
that the respective aggregate allowances for loan losses for both Bayonne and
Richmond County are adequate to cover such losses and will be adequate on a pro
forma basis for the combined entity. In addition, Sandler O'Neill has not
conducted any physical inspection of the properties or facilities of Bayonne or
Richmond County. With respect to all financial information and projections
reviewed with each company's management, Sandler O'Neill assumed that they had
been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of Bayonne and Richmond County and that
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such performances will be achieved. Sandler O'Neill expressed no opinion as to
such financial projections or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
such opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the
Bayonne Merger Agreement and all related agreements are true and correct, that
each party to such agreements will perform all of the covenants required to be
performed by such party under such agreements and that the conditions precedent
in the Bayonne Merger Agreement are not waived. Sandler O'Neill also assumed,
with Bayonne's consent, that there has been no material change in Bayonne's and
Richmond County's assets, financial condition, results of operations, business
or prospects since the date of the last publicly filed financial statements
available to them, that Bayonne and Richmond County will remain as going
concerns for all periods relevant to its analyses, and that the Bayonne Merger
will qualify as a tax-free reorganization for federal income tax purposes.
Under the Sandler O'Neill Agreement, Bayonne has agreed to pay Sandler
O'Neill a transaction fee in connection with the Bayonne Merger, a substantial
portion of which is contingent upon the consummation of the Bayonne Merger.
Under the terms of the Sandler O'Neill Agreement, Bayonne will pay Sandler
O'Neill a transaction fee equal to 2% of the aggregate purchase price up to $5.0
million, 1.5% of the aggregate purchase price in excess of $5.0 million but less
than $15 million, plus 1.0% of the aggregate purchase price in excess of $15
million. Based on the closing price of Bayonne Common Stock on _______________
(the last practicable date prior to the printing of this Joint Proxy Statement/
Prospectus), Bayonne would pay Sandler O'Neill a transaction fee of
approximately $__ __, of which approximately $___ has been paid and the
balance will be paid when the Bayonne Merger is consummated. Sandler O'Neill
has also received a fee of $50,000 for rendering its fairness opinion. Bayonne
has also agreed to reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify Sandler
O'Neill and its affiliates and their respective partners, directors, officers,
employees, agents, and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
Sandler O'Neill has in the past provided certain other financial services
to Bayonne and has received compensation for such services. Sandler O'Neill has
in the past provided and currently provides certain financial advisory services
to Richmond County and has received, and will receive, compensation for such
services. In addition, Sandler O'Neill may in the future provide investment
banking services to Richmond County and will receive compensation for such
services. In the ordinary course of its business, Sandler O'Neill may
purchase securities from and sell securities to Bayonne and Richmond County
and may actively trade the equity securities of Bayonne and Richmond County
and their respective affiliates for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities.
EXCHANGE OF BAYONNE SHARES
At the Bayonne Effective Time, each issued and outstanding share of Bayonne
Common Stock, except for Excluded Shares, as defined below, will be converted
into and exchangeable for 1.05 shares of Richmond County Common Stock. The
Bayonne Exchange Ratio may be increased by Richmond County in the event that
Bayonne exercises its rights under the Bayonne Merger Agreement to terminate the
Bayonne Merger Agreement due to the price of the Richmond County Common Stock
declining below certain levels established by formulas set forth in the Bayonne
Merger Agreement. See "-- Price-Based Termination." However, Richmond County
is under no obligation to increase the Bayonne Exchange Ratio, and there can
be no assurance that Richmond County would elect to increase the Bayonne
Exchange Ratio if Bayonne were to exercise such termination rights. Any such
decision would be made by the Richmond County Board in light of all relevant
facts and circumstances existing at such time, including, without limitation,
the advice of its financial advisor and legal counsel. If Richmond County
elects to increase the Bayonne Exchange
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Ratio as set forth in the Bayonne Merger Agreement, it must give Bayonne prompt
notice of that election and such increased Bayonne Exchange Ratio, in which case
no termination of the Bayonne Merger Agreement would occur.
Although Richmond County has the right in limited circumstances described
above to increase the Bayonne Exchange Ratio, under no circumstances may the
Bayonne Exchange Ratio be decreased. The Bayonne Exchange Ratio was arrived at
through arm's-length negotiations between Richmond County and Bayonne. The
Bayonne Merger Agreement provides that, if Richmond County effects a stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares of the Richmond County Common Stock, an appropriate
adjustment to the Bayonne Exchange Ratio will be made.
The market price of Richmond County Common Stock will fluctuate between the
date of this Joint Proxy Statement/Prospectus and the date on which the Bayonne
Merger is consummated and thereafter. Because the number of shares of Richmond
County Common Stock to be received by Bayonne's stockholders in the Bayonne
Merger is fixed (subject to possible increase in the limited circumstances
described above) and because the market price of the Richmond County Common
Stock is subject to fluctuation, the value of the shares of Richmond County
Common Stock that holders of Bayonne Common Stock would receive in the Bayonne
Merger may increase or decrease prior to and after the Bayonne Merger. For
further information concerning the market prices of Richmond County Common Stock
and Bayonne Common Stock, see "MARKET PRICES AND DIVIDEND INFORMATION." No
assurance can be given concerning the market price of Richmond County Common
Stock before or after the Bayonne Effective Time.
No fractional shares of Richmond County Common Stock will be issued in
connection with the Bayonne Merger. In lieu of the issuance of fractional
shares, Richmond County will make a cash payment, rounded to the nearest cent,
to each Bayonne stockholder who otherwise would be entitled to receive a
fractional share equal to the product of (i) the fractional portion which a
Bayonne stockholder would otherwise receive and (ii) the average of the daily
closing sales prices of a share of Richmond County Common Stock as reported on
the Nasdaq National Market for the 15 consecutive trading days immediately
preceding the Valuation Date. The "Valuation Date" means the day on which the
last required regulatory approval for the Bayonne Merger is obtained.
Upon consummation of the Bayonne Merger, Excluded Shares will be canceled,
retired and no payment will be made with respect thereto. "Excluded Shares"
means (i) shares, the holder of which, pursuant to any applicable law providing
for dissenters' or appraisal rights is entitled to receive payment in accordance
with the provisions of any such law, such holder to have only the rights
provided in any such law (the "Dissenters' Shares"); (ii) shares held directly
or indirectly by Richmond County (other than shares held in a fiduciary capacity
or in satisfaction of a debt previously contracted); (iii) shares held by
Bayonne as treasury stock; and (iv) unallocated shares held in the Bayonne 1995
RRP.
In addition, at the Bayonne Effective Time, each outstanding and
unexercised option to purchase shares of Bayonne Common Stock (other than the
Bayonne Merger Stock Option, as defined on page __), a "Bayonne Option," shall
be converted into an option to purchase shares of Richmond County Common Stock.
After the Bayonne Effective Time, each Bayonne Option will be deemed to
constitute an option to acquire, on the same terms and conditions as were
applicable under such Bayonne Option immediately prior to the Bayonne Effective
Time, the number of shares of Richmond County Common Stock equal to the product,
rounded to the nearest share, of the number of shares of Bayonne Common Stock
subject to the Bayonne Option and the Bayonne Exchange Ratio, at a price per
share equal to the exercise price per share of Bayonne Common Stock otherwise
purchasable pursuant to such Bayonne Option divided by the Bayonne Exchange
Ratio, rounded up to the nearest cent.
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PROCEDURES FOR EXCHANGE OF CERTIFICATES
RICHMOND COUNTY. Shares of Richmond County capital stock (including
Richmond County Common Stock) issued and outstanding immediately prior to the
Bayonne Effective Time will remain issued and outstanding and be unaffected by
the Bayonne 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 Bayonne Merger.
BAYONNE. As promptly as practicable after the Bayonne Effective Time, and
in no event more than five business days thereafter, a bank or trust company
selected by Richmond County and reasonably satisfactory to Bayonne, acting in
the capacity of exchange agent (the "Exchange Agent"), will mail to each former
holder of record of Bayonne Common Stock a form of letter of transmittal,
together with instructions for the exchange of such holder's certificates
representing shares of Bayonne Common Stock for certificates representing shares
of Richmond County Common Stock and cash in lieu of fractional shares.
HOLDERS OF BAYONNE COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL 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 Bayonne Common Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder of Bayonne
Common Stock surrendering such items a certificate or certificates representing
the number of shares of Richmond County 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 Bayonne certificate or certificates so surrendered will be canceled.
No dividend or other distribution declared after the Bayonne Effective Time
with respect to Richmond County Common Stock will be paid to the holder of any
unsurrendered Bayonne 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 Bayonne Effective Time, there will be no transfers on the stock
transfer books of Bayonne of shares of Bayonne Common Stock issued and
outstanding immediately prior to the Bayonne Effective Time. If certificates
representing shares of Bayonne Common Stock are presented for transfer after the
Bayonne Effective Time, they will be canceled and exchanged for certificates
representing shares of Richmond County Common Stock.
Neither the Exchange Agent, Richmond County nor Bayonne, or any other
person, will be liable to any former holder of Bayonne Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
If a certificate for Bayonne Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue the consideration properly payable in
accordance with the Bayonne Merger Agreement only 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.
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INTERESTS OF DIRECTORS AND OFFICERS IN THE BAYONNE MERGER THAT ARE DIFFERENT
FROM YOUR INTERESTS
Certain members of Bayonne's management and the Bayonne Board may be deemed
to have certain interests in the Bayonne Merger that are in addition to or
potentially different from the interests of stockholders of Bayonne generally.
The Bayonne Board was aware of these interests and considered them, among other
matters, in approving the Bayonne Merger Agreement and the transactions
contemplated thereby.
EXISTING EMPLOYMENT, CHANGE IN CONTROL AND CONSULTING AGREEMENTS. As a
consequence of the Bayonne Merger, Mr. Michael A. Nilan, President of Bayonne,
will receive a payment of approximately $150,000 in consideration of the
termination of his employment in such capacity and the termination of his
existing employment agreement with Bayonne. Following the Bayonne Merger,
Mr. Michael A. Nilan will be employed by Richmond County Savings under the terms
of the employment agreement described below. In addition, other senior officers
of Bayonne, including Eugene Malinowski, Bayonne's Chief Financial Officer, will
receive severance payments totalling, in the aggregate, approximately
$1.3 million in the event of their termination of employment in connection with
or following the consummation of the Bayonne Merger. These officers will also
be entitled to continued life, health and disability insurance coverage for
a 36-month period following their termination of employment. Mr. Patrick F.X.
Nilan's consulting agreement with Bayonne will be terminated after the Bayonne
Merger, in return for which he will receive $100,000.
VESTING OF RESTRICTED STOCK. Pursuant to the Bayonne 1995 RRP, grants of
restricted stock were made to directors and officers of Bayonne, with vesting of
such shares to occur over a period of years. Pursuant to the terms of the
Bayonne 1995 RRP, all unvested restricted shares of Bayonne Common Stock will
become vested upon a change in control of Bayonne. The Bayonne Merger will
constitute a change in control of Bayonne under the terms of the Plan. Officers
and directors of Bayonne currently hold 49,684 shares of unvested restricted
stock, which will be converted into shares of Richmond County Common Stock at
the Bayonne Exchange Ratio. The vesting of shares of restricted stock granted
under the Bayonne Incentive Plan will not be accelerated by the Bayonne Merger.
However, the Bayonne Incentive Plan and outstanding restricted awards thereunder
will be assumed by Richmond County.
ESTABLISHMENT OF DIVISIONAL BOARD. Richmond County will establish a
divisional board to advise Richmond County with respect to deposit and lending
activities in Bayonne's market area and to maintain and develop customer
relationships. Richmond County will appoint all of the members of the Bayonne
Board, as of the date of the Bayonne Merger Agreement, who wish to serve to the
divisional board and will maintain the divisional board until April 30, 2003 or
later, if so decided by the Richmond County Board. Each member of the
divisional board will receive an annual retainer of $12,000 and a $1,000
attendance fee for each meeting attended.
APPOINTMENT TO RICHMOND COUNTY BOARD OF DIRECTORS. Following the Bayonne
Effective Time, Richmond County will increase the Richmond County Board by one
member and appoint Patrick F.X. Nilan to fill the newly created vacancy.
Mr. Patrick F.X. Nilan's term will expire in 2000. For his services as a
member of the Richmond County Board, Mr. Patrick F.X. Nilan will receive the
customary Richmond County Board fees and retainers. Mr. Patrick F.X. Nilan
will not receive fees for service on the divisional board during his term on
the Richmond County Board.
NEW EMPLOYMENT AGREEMENTS. Following the Bayonne Merger, Mr. Michael A.
Nilan, the President of Bayonne, will enter into an employment agreement with
Richmond County Savings. Pursuant to Mr. Michael A. Nilan's employment
agreement, he will serve as a senior officer of Richmond County Savings for a
period of three years commencing on the Bayonne Effective Date. (The "Bayonne
Effective Date" is the date of filing, of such later date as specified in, the
Certificate of Merger.) Mr. Michael A. Nilan's initial
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base salary under the agreement will be $150,000 and Mr. Michael A. Nilan will
also receive a bonus of $150,000 upon his execution of the agreement. In
addition, Mr. Michael A. Nilan will receive certain payments in consideration of
his agreement not to compete with Richmond County during the term of his
agreement and as compensation for the loss of certain benefits Mr. Michael A.
Nilan would have received under Bayonne's retirement programs that will be
terminated in connection with the Bayonne Merger.
BAYONNE STOCK OPTIONS. At the Bayonne Effective Time of the Bayonne
Merger, Richmond County will assume each outstanding option to purchase shares
of Bayonne Common Stock under the Bayonne 1995 Stock Option Plan or the Bayonne
Incentive Plan in such manner that it is converted into an option to purchase
shares of Richmond County Common Stock, except that each option will be
exercisable for that number of shares of Richmond County Common Stock equal to
the number of shares of Bayonne Common Stock for which such option was
exercisable multiplied by 1.05, and the exercise price of such Bayonne option
will be equal to the exercise price of such option divided by 1.05. As of
September 30, 1998, the directors and executive officers of Bayonne held options
to purchase a total of 460,783 shares of Bayonne Common Stock. Such options
will continue to be exercisable in accordance with the terms of the plan under
which they were granted and the individual agreements relating to such options.
INDEMNIFICATION. Further, Richmond County has agreed as part of the
Bayonne Merger Agreement to indemnify and hold harmless each present and former
director, officer and employee of Bayonne and its subsidiaries and each officer
or employee of Bayonne and its subsidiaries that is serving or has served as a
director or trustee of another entity expressly at Bayonne's request or
direction (each, a "Bayonne Indemnified Party"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, amount paid in
settlement, losses, claims, damages or liabilities (collectively, "Costs")
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 Bayonne Effective Time
(including the transactions contemplated by the Bayonne Merger Agreement),
whether asserted or claimed prior to, at or after the Bayonne Effective Time.
Richmond County also agreed to advance any such Costs to each Bayonne
Indemnified Party as they are from time to time incurred, in each case to the
fullest extent such Bayonne Indemnified Party would have been indemnified as a
director, officer, or employee of Bayonne and its subsidiaries and as then
permitted under the Delaware General Corporation Law ("DGCL"). The
indemnification with which Richmond County will furnish Bayonne's officers,
directors and employees will last from the Bayonne Effective Date until the
sixth anniversary thereof.
Moreover, Richmond County will maintain Bayonne's existing directors and
officers' insurance policy (or provide a policy providing comparable coverage
and amounts on terms no less favorable to the persons currently covered by
Bayonne's existing policy, including Richmond County's existing policy if it
meets the foregoing standard) covering persons who are currently covered by such
insurance for a period of three years after the Bayonne Effective Date.
MANAGEMENT AND OPERATIONS FOLLOWING THE BAYONNE MERGER
Following the Bayonne Effective Time, Richmond County will increase the
Richmond County Board by one member and will appoint Mr. Patrick F.X. Nilan as
the nominee to fill the vacancy created by the increase. Mr. Patrick F.X.
Nilan's term as a member of the Richmond County Board will expire in the year
2000. For his services as a member of the Richmond County Board, Mr. Patrick
F.X. Nilan will be paid the customary Richmond County Board fee. In addition,
Richmond County will establish a divisional board to advise Richmond County with
respect to deposit and lending activities in Bayonne's market area and to
maintain and develop customer relationships.
Also following the Bayonne Merger, the parties intend, subject to
regulatory approval, to merge Richmond County Savings and First Savings, with
the surviving bank named Richmond County Savings
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Bank, pursuant to the Bayonne Bank Merger, and to consolidate their operations.
A merger integration committee, consisting of senior management members of
Richmond County and Bayonne, is in the process of establishing a definitive
plan, including a timetable, to achieve the cost reductions. Richmond County
expects to achieve significant consolidation efficiencies following the
consummation of the Bayonne Merger, although there can be no assurance that the
anticipated efficiencies will be achieved. The efficiencies are expected to be
achieved primarily through the elimination of duplicative compensation costs and
computer system costs.
EMPLOYEE MATTERS
Each person who is employed by First Savings immediately prior to the
Bayonne Effective Time and whose employment is not specifically terminated (a
"Bayonne Continuing Employee") shall, at the Bayonne Effective Time, become an
employee of Richmond County or Richmond County Savings, respectively, provided,
however:
(i) In no event shall any Bayonne Continuing Employees be officers of
Richmond County or Richmond County Savings, or have or exercise any
power or duty conferred upon such an officer, unless and until duly
elected or appointed to such position in accordance with the bylaws
of Richmond County or Richmond County Savings.
(ii) With the exception of Mr. Michael A. Nilan, with whom Richmond County
Savings will enter into an employment contract, all of Bayonne's
Continuing Employees who remain following the Bayonne Effective Date
shall be employed at the will of Richmond County or Richmond County
Savings and no contractual right to employment shall inure to such
employees because of TO THE RICHMOND the Bayonne Merger Agreement.
(iii) With the exception of Mr. Michael A. Nilan, no employee of
Bayonne will become a contractual employee of Richmond County or
Richmond County Savings unless such contract is in writing and
executed by the President and Chief Executive Officer of Richmond
County or Richmond County Savings.
(iv) As of the Bayonne Effective Time, each Bayonne Continuing Employee
who is a participant in the Financial Institutions Thrift Plan (the
"Bayonne 401(k) Plan") shall become fully vested in his or her
account balance in the Bayonne 401(k) Plan and the Bayonne 401(k)
Plan will, at the election of Richmond County, either be merged into
the Richmond County Savings Bank 401(k) Savings Plan in RSI
Retirement Trust (the "Richmond County Savings 401(k) Plan")
effective as of a date following the Bayonne Effective Time selected
by Richmond County Savings or terminated immediately prior to, on, or
after the Bayonne Effective Time. The determination as to whether the
Bayonne 401(k) Plan shall be terminated or merged into the Richmond
County Savings Bank 401(k) Plan shall be made by Richmond County
Savings. Effective as of the date of the merger of the Bayonne 401(k)
Plan into the Richmond County Savings 401(k) Plan, if applicable, or
the termination of the Bayonne 401(k) Plan (or the Bayonne Effective
Time, if subsequent to such termination), if applicable, Bayonne
Continuing Employees who are then participating in the Bayonne 401(k)
Plan shall become participants in the Richmond County Savings 401(k)
Plan.
(v) Richmond County agrees to honor existing employment agreements,
including the change in control provisions of such agreements between
Bayonne and First Savings and certain employees, stock option plans
and restricted stock plans, and other benefit plans (collectively,
"Bayonne Employment Agreements" or "Bayonne Employee Plans") and to
the payment of benefits by Bayonne as of the Bayonne Effective Time
or earlier as agreed
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to by Richmond County and Bayonne under such agreements and plans in
conformance with Bayonne's prior disclosure to Richmond County. To
the extent previously disclosed to, and agreed to by, Richmond
County, payments under the Bayonne Employment Agreements may be made
by Bayonne immediately prior to the Bayonne Effective Time.
(vi) Except as otherwise provided in paragraphs (iv) and (v) above,
appropriate steps shall be taken to terminate all Bayonne Employee
Plans as of the Bayonne Effective Time or as promptly as practical
thereafter. Except as provided in paragraph (iv), immediately
following the Bayonne Effective Time, each Bayonne Continuing
Employee shall be eligible to participate in Richmond County Employee
Plans (as defined in the Bayonne Merger Agreement), on the same basis
as any newly-hired employee of Richmond County or Richmond County
Savings (it being understood that inclusion of Bayonne Continuing
Employees in Richmond County Employee Plans may occur at different
times with respect to different plans); provided, however, that with
respect to each Richmond County Employee Plan, other than the
Richmond County ESOP and the Richmond County Savings 401(k) Plan, for
purposes of determining eligibility to participate, vesting, and
entitlement to benefits, service with Bayonne or First Savings shall
be treated as service with Richmond County or Richmond County
Savings; provided further, however, that such service shall not be
recognized to the extent such recognition would result in a
duplication of benefits. Such service shall also apply for purposes
of satisfying any waiting periods, evidence of insurability
requirements, or the application of any pre-existing condition
limitation with respect to any Richmond County or Richmond County
Savings welfare benefit plan. For purposes of determining eligibility
to participate, vesting, and entitlement to benefits (including
accrual of benefits) under the Richmond County ESOP or Richmond
County Savings 401(k) Plan, Bayonne Continuing Employees shall be
treated as newly-hired employees of Richmond County or Richmond
County Savings as of the Bayonne Effective Date and credit for
service shall begin accruing as of that date.
CONDITIONS TO THE BAYONNE MERGER
The respective obligations of Richmond County and Bayonne to effect the
Bayonne Merger are subject to the satisfaction of the following conditions at or
prior to the Bayonne Effective Time: (i) the Bayonne Merger Agreement shall have
been approved by the requisite vote of each of Richmond County's and Bayonne's
stockholders in accordance with applicable laws and regulations; (ii) the
requisite regulatory approvals and any necessary regulatory consents and waivers
with respect to the Bayonne Merger shall have been obtained and shall remain in
full force and effect, and all statutory waiting periods shall have expired; and
all other consents, waivers and approvals of any third parties which are
necessary to permit the consummation of the Bayonne Merger and any other
transactions contemplated by the Bayonne Merger Agreement shall have been
obtained or made except for those of which failure to obtain would not have a
Material Adverse Effect (as defined below) (a) on Richmond County and its
subsidiaries taken as a whole or (b) on Bayonne and its subsidiaries taken as a
whole. No such approval or consent shall have imposed any condition or
requirement that would so materially and adversely impact the economic or
business benefits to Richmond County or Bayonne of the Bayonne Merger
transactions that had such condition or requirement been known, such party would
not, in its reasonable judgment, have entered into the Bayonne Merger Agreement;
(iii) neither Richmond County nor Bayonne 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 Bayonne Merger, the Bayonne Bank Merger or any
other transactions contemplated by the Bayonne Merger Agreement; (iv) 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 Bayonne Merger, the Bayonne Bank
Merger or any other transactions contemplated by the Bayonne Merger Agreement;
(v) the Registration Statement shall have been declared effective by the
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SEC and no proceedings shall be pending or threatened by the SEC to suspend the
effectiveness of the Registration Statement; all required approvals by state
securities or "blue sky" authorities with respect to the transactions
contemplated by the Bayonne Merger Agreement shall have been obtained; and
(vii) Richmond County shall have caused to be listed on the Nasdaq National
Market, or on such other market on which shares of Richmond County Common Stock
shall then be trading, subject only to official notice of issuance, the shares
of Richmond County Common Stock to be issued by Richmond County in exchange for
the shares of Bayonne Common Stock.
The obligations of Richmond County to effect the Bayonne Merger are further
subject to the satisfaction, or waiver by Richmond County, of the following
conditions: (i) each of the obligations of Bayonne and First Savings,
respectively, required to be performed by it at or prior to the Bayonne
Effective Time pursuant to the terms of the Bayonne Merger Agreement shall have
been duly performed and complied with in all material respects and the
representations and warranties of Bayonne and First Savings contained in the
Bayonne Merger Agreement shall be true and correct (subject to Bayonne's and
First Savings' prior disclosure of any necessary qualification of such
representations and warranties and subject to the Material Adverse Effect
threshold defined below) as of July 19, 1998 and as of the Bayonne Effective
Time as though made at and as of the Bayonne Effective Time (except as to any
representation or warranty which specifically relates to an earlier date).
Richmond County shall have received a certificate to the foregoing effect signed
by the chief executive officer and the chief financial or principal accounting
officer of Bayonne; (ii) all action required to be taken by, or on the part of,
Bayonne and First Savings to authorize the execution, delivery and performance
of the Bayonne Merger Agreement and the consummation by Bayonne and First
Savings of the transactions contemplated thereby shall have been duly and
validly taken by the board of directors and stockholders of Bayonne or First
Savings, as the case may be, and Richmond County shall have received certified
copies of the resolutions evidencing such authorization; (iii) Bayonne 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 Bayonne, Richmond
County or their respective subsidiaries) whose consent or approval shall be
required in order to permit the succession by the surviving corporation pursuant
to the Bayonne Merger to any obligation, right or interest of Bayonne or its
subsidiaries under any loan or credit agreement, note, mortgage, indenture,
lease, license or other agreement or instrument to which Bayonne or its
subsidiaries is a party or is otherwise bound, except those for which failure to
obtain such consents and approvals would not, individually or in the aggregate,
have a Material Adverse Effect on Richmond County (after giving effect to the
consummation of the transactions contemplated by the Bayonne Merger Agreement)
or upon the consummation of the transactions contemplated by the Bayonne Merger
Agreement; (iv) Richmond County shall have received certificates (such
certificates to be dated as of a day as close as practicable to the closing date
of the Bayonne Merger) from appropriate authorities as to the corporate
existence and good standing of Bayonne and its subsidiaries; (v) Richmond County
shall have received an opinion of Muldoon, Murphy & Faucette, counsel to
Richmond County, dated as of the Bayonne Effective Date, in form and substance
customary in transactions of the type contemplated by the Bayonne Merger
Agreement, and reasonably satisfactory to Richmond County, 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
Bayonne Effective Time, the Bayonne Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code (the "Code") and that accordingly: (a) no gain or loss
will be recognized by Richmond County, Richmond County Savings, Bayonne or First
Savings as a result of the Bayonne Merger; (b) except to the extent of any cash
received in lieu of a fractional share interest in Richmond County Common Stock,
no gain or loss will be recognized by the stockholders of Bayonne who exchange
their Bayonne Common Stock for Richmond County Common Stock pursuant to the
Bayonne Merger; (c) the tax basis of Richmond County Common Stock received by
stockholders who exchange their Bayonne Common Stock for Richmond County Common
Stock in the Bayonne Merger will be the same as the tax basis of Bayonne Common
Stock surrendered pursuant to the Bayonne Merger, reduced by any amount
allocable to a fractional share interest for which cash is received; and (d) the
holding period of Richmond County Common Stock received by each
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stockholder in the Bayonne Merger will include the holding period of Bayonne
Common Stock exchanged therefor, provided that such stockholder held such
Bayonne Common Stock as a capital asset on the Bayonne Effective Date.
The Bayonne Merger Agreement defines a "Material Adverse Effect," when
applied to a party to the Bayonne Merger Agreement, as either (i) 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 laws, rules or
regulations or generally accepted accounting principles ("GAAP") or
interpretations thereof that apply to Richmond County and Richmond County
Savings and Bayonne and First Savings, as the case may be, or (b) changes in the
general level of market interest rates shall not be considered in determining if
a Material Adverse Effect has occurred; or (ii) the failure of certain
representations and warranties required by the Bayonne Merger Agreement to be
true and correct or true and correct in all material respects.
The obligations of Bayonne to effect the Bayonne Merger are further subject
to the satisfaction, or waiver by Bayonne, of the following conditions: (i) each
of the obligations of Richmond County and Richmond County Savings, respectively,
required to be performed by it at or prior to the Bayonne Effective Time
pursuant to the terms of the Bayonne Merger Agreement shall have been duly
performed and complied with in all material respects and the representations and
warranties of Richmond County and Richmond County Savings contained in the
Bayonne Merger Agreement shall be true and correct (subject to Richmond County's
and Richmond County Savings' prior disclosure of any necessary qualification of
such representations and warranties and subject to the Material Adverse Effect
threshold previously defined) as of July 19, 1998 and as of the Bayonne
Effective Time as though made at and as of the Bayonne Effective Time (except as
to any representation or warranty which specifically relates to an earlier
date), and Bayonne shall have received a certificate to the foregoing effect
signed by the chief executive officer and the chief financial or principal
accounting officer of Richmond County; (ii) all action required to be taken by,
or on the part of, Richmond County and Richmond County Savings to authorize the
execution, delivery and performance of the Bayonne Merger Agreement and the
consummation by Richmond County and Richmond County Savings of the transactions
contemplated hereby shall have been duly and validly taken by the board of
directors and stockholders of Richmond County and Richmond County Savings, as
the case may be, and Bayonne shall have received certified copies of the
resolutions evidencing such authorization; (iii) Richmond County shall have
obtained the consent or approval of each person whose consent or approval shall
be required in connection with the transactions contemplated hereby under any
loan or credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument to which Richmond County or its subsidiaries is a party
or is otherwise bound, except those for which failure to obtain such consents
and approvals would not, individually or in the aggregate, have a Material
Adverse Effect on Richmond County (after giving effect to the transactions
contemplated by the Bayonne Merger Agreement) or upon the consummation of the
transactions contemplated by the Bayonne Merger Agreement; (iv) Bayonne shall
have received certificates (such certificates to be dated as of a day as close
as practicable to the closing date of the Bayonne Merger) from appropriate
authorities as to the corporate existence and good standing of Richmond County
and its subsidiaries; (v) Bayonne shall have received an opinion from its
counsel, dated as of the Bayonne Effective Date, in form and substance
customary in transactions of the type contemplated by the Bayonne Merger
Agreement, and reasonably satisfactory to Bayonne, 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 as the
Bayonne Effective Time, the Bayonne 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: (a) no gain or loss will be recognized by Richmond
County, Richmond County Savings, Bayonne, or First Savings as a result of the
Bayonne Merger; (b) except to the extent of any cash received in lieu of
a fractional share interest in Richmond County Common Stock, no gain or loss
will be recognized by the stockholders of Bayonne who exchange their Bayonne
Common Stock for Richmond County Common Stock pursuant to the Bayonne Merger;
(c) the tax basis of Richmond County
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Common Stock received by stockholders who exchange their Bayonne Common Stock
for Richmond County Common Stock in the Bayonne Merger will be the same as the
tax basis of Bayonne Common Stock surrendered pursuant to the Bayonne Merger,
reduced by any amount allocable to a fractional share interest for which cash is
received and increased by any gain recognized on the exchange; (d) the holding
period of Richmond County Common Stock received by each stockholder in the
Bayonne Merger will include the holding period of Bayonne Common Stock exchanged
therefor, provided that such stockholder held such Bayonne Common Stock as a
capital asset on the Bayonne Effective Date; and (vi) Richmond County shall have
provided to the Exchange Agent (as defined in the Bayonne Merger Agreement)
(a) certificates representing at least the aggregate number of shares of
Richmond County Common Stock to be issued to the stockholders of Bayonne
pursuant to the terms of the Bayonne Merger Agreement, and (b) sufficient cash
to pay Bayonne stockholders their fractional share interest as provided in the
Bayonne Merger Agreement.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Bayonne Merger will be
obtained or whether all of the other conditions precedent to the Bayonne Merger
will be satisfied or waived by the party permitted to do so. See "-- Regulatory
Approvals Needed to Complete the Bayonne Merger" below. If the Bayonne Merger is
not effected on or before April 30, 1999 (provided that if, as of such date, all
necessary regulatory or governmental approvals, consents or waivers required to
consummate the Bayonne Merger shall not have been obtained but all other
conditions have been fulfilled, then on or before July 31, 1999), the Bayonne
Merger Agreement may be terminated by a vote of a majority of the board of
directors of either Richmond County or Bayonne unless the failure to effect the
Bayonne Merger by such date is due to the breach of the Bayonne Merger Agreement
by the party seeking to terminate the Bayonne Merger Agreement.
REGULATORY APPROVALS NEEDED TO COMPLETE THE BAYONNE MERGER
Consummation of the Bayonne Merger and the Bayonne Bank Merger are subject
to a number of regulatory approvals and consents. The Bayonne Bank Merger is
subject to the prior approval of the FDIC under the Bank Merger Act, 12 U.S.C.
Section 1828(c). In reviewing applications under the Bank Merger Act, the FDIC
must consider, among other factors, the financial and managerial resources and
future prospects of the existing and resulting institutions, and the convenience
and needs of the communities to be served. In addition, the FDIC may not
approve a transaction if it will result in a monopoly or be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the country may be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner be a restraint of
trade, unless the FDIC finds that the anti-competitive effects of the
transaction are clearly outweighed by the public interests and the probable
effect of the transaction on meeting the convenience and needs of the
communities to be served. In addition, as discussed below, a waiting period
of up to 30 days must be satisfied prior to consummation of the Bayonne Bank
Merger after FDIC approval. Richmond County filed an application with the
FDIC on ___________, 1998.
Further, pursuant to Section 601 of the New York State Banking Law (the
"NYBL"), the Bayonne Bank Merger is subject to the prior approval of the
Superintendent of Banks of New York State (the "Superintendent"). Richmond
County filed an application for approval of the Bayonne Bank Merger with the
Superintendent on ___________, 1998. In determining whether to approve the
application for the merger of Bayonne with and into Richmond County, the
Superintendent will consider, among other factors, whether the Bayonne Bank
Merger would be consistent with adequate or sound banking and would not result
in concentration of assets beyond limits consistent with effective competition,
and whether the Bayonne Bank Merger would result in such a lessening of
competition as to be injurious to the interest of the public or tend toward
monopoly. The Superintendent will also consider the public interest and the
needs and convenience thereof. Further, it is the policy of the State of New
York to ensure the safe and sound conduct of banking organizations, to conserve
assets of banking organizations, to prevent hoarding of money, to eliminate
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unsound and destructive competition among banking organizations, and to maintain
public confidence in the business of banking and protect the public interest and
the interests of depositors, creditors, and stockholders, and such factors will
be considered by the Superintendent in connection with Richmond County's
application.
A savings and loan holding company is prohibited under the Home Owners'
Loan Act, as amended ("HOLA") from acquiring, directly or indirectly, another
savings and loan holding company or a savings association without the prior
written approval of the Office of Thrift Supervision ("OTS"). Accordingly,
Richmond County has filed an application with the OTS for approval of the
Bayonne Merger. In evaluating applications by holding companies to acquire
savings institutions, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors. Like the FDIC, the OTS may
not approve any proposed acquisition if it will result in a monopoly or be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the savings and loan business in any part of the United States, or if
its effect in any part of the United States may be to substantially lessen
competition or to tend to create a monopoly or if it would in any other manner
be a restraint of trade, unless the OTS finds that the anti-competitive effects
of the transaction are clearly outweighed by the public interests and the
probable effect of the transaction on meeting the convenience and needs of the
communities to be served.
In order to consummate the Bayonne Bank Merger, First Savings will merge
with a Federal interim savings bank, which will then merge into Richmond County
Savings. The Merger of First Savings into the Federal interim savings
bank is subject to the approval of the OTS and the Commissioner of the New
Jersey Department of Banking and Insurance (the "Commissioner"). First Savings
will file applications with the OTS and the Commissioner to merge with
Federal interim savings bank.
Under the CRA, the FDIC and OTS must take into account the record of
performance of Richmond County Savings and First Savings in meeting the credit
needs of the entire community, including low- and moderate-income neighborhoods,
served by each institution. As part of the review process, the banking agencies
frequently receive comments and protests from community groups and others. See
"CERTAIN BANKING REGULATORY CONSIDERATIONS -- Community Reinvestment Act."
In addition, under federal law, prior to consummation of a merger, a period
of 30 days must expire following approval by the FDIC and OTS within which
period the United States Department of Justice ("Department of Justice") may
file objections to the Bayonne Merger under the federal antitrust laws. The
post-approval waiting period may be reduced by the FDIC or OTS to 15 days, with
the concurrence of the Department of Justice. The Department of Justice could
take such action under the antitrust laws as it deems necessary or desirable in
the public interest, including seeking to enjoin the Bayonne Merger unless
divestiture of an acceptable number of branches to a competitively suitable
purchaser could be made. While Richmond County believes that the likelihood of
such action by the Department of Justice is remote in this case, there can be no
assurance that the Department of Justice will not initiate such proceeding, or
that the Attorney General of the State of New York will not challenge the
Bayonne Merger, or if such proceeding is instituted or challenge is made, as to
the result thereof.
The Bayonne Merger and Bayonne Bank Merger cannot proceed in the absence of
the requisite regulatory approvals. See "-- Conditions to the Bayonne Merger"
and "-- Waiver and Amendment; Termination." There can be no assurance that such
regulatory approvals will be obtained, and if obtained, there can be no
assurance as to the date of any such approval. There can also be no assurance
that any such approvals will not contain a condition or requirement which causes
such approvals to fail to satisfy the condition set forth in the Bayonne Merger
Agreement and described below under "-- Conditions to the
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Bayonne Merger." There can likewise be no assurance that the Department of
Justice or the Attorney General of the State of New York will not challenge the
Bayonne Merger or, if such a challenge is made, as to the result thereof.
Richmond County is not aware of any other regulatory approvals that would
be required for consummation of the Bayonne Merger, except as described above.
Should any other approvals be required, it is presently contemplated that such
approvals would be sought. There can be no assurance that any other approvals,
if required, will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which do not include review of the Bayonne
Merger from the standpoint of the adequacy of the consideration to be received
by Bayonne stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the Bayonne Merger.
CONDUCT OF BUSINESS PENDING THE BAYONNE MERGER
Pursuant to the Bayonne Merger Agreement, Richmond County has agreed that,
during the period from the date of the Bayonne Merger Agreement to the Bayonne
Effective Time (except as expressly provided for in the Bayonne Merger Agreement
and except to the extent required by law or regulation or by regulatory
authorities), Richmond County and its subsidiaries will use commercially
reasonable efforts to: (i) conduct their business in the regular, ordinary and
usual course consistent with past practice; (ii) maintain and preserve intact
their business organization, properties, leases, employees and advantageous
business relationships and retain the services of their officers and key
employees; (iii) take no action which would materially adversely affect or delay
the ability of Richmond County or Bayonne to perform their respective covenants
and agreements on a timely basis under the Bayonne Merger Agreement; (iv) take
no action which would adversely affect or delay the ability of Richmond County,
Richmond County Savings, Bayonne or First Savings to obtain any necessary
approvals, consents or waivers of any governmental authority required for the
transactions contemplated by the Bayonne Merger Agreement or which would
reasonably be expected to result in any such approvals, consents or waivers
containing any material condition or restriction; and (v) take no action that
results in or is reasonably likely to have a Materially Adverse Effect on
Richmond County.
Pursuant to the Bayonne Merger Agreement, Bayonne has agreed that, during
the period from July 19, 1998 to the Bayonne Effective Time (except as expressly
provided in the Bayonne Merger Agreement and except to the extent required by
law or regulation or by regulatory authorities), Bayonne and its subsidiaries
will use commercially reasonable efforts to (i) conduct their business in the
regular, ordinary and usual course consistent with past practice; (ii) maintain
and preserve intact their business organization, properties, leases, employees
and advantageous business relationships and retain the services of their
officers and key employees; (iii) take no action that would materially adversely
affect or delay the ability of Richmond County or Bayonne to perform their
respective covenants and agreements on a timely basis under the Bayonne Merger
Agreement; (iv) take no action which would adversely effect or delay the ability
of Richmond County, Richmond County Savings, Bayonne or First Savings to obtain
any necessary approvals, consents or waivers of any governmental authority
required for the transactions contemplated by the Bayonne Merger Agreement or
which could reasonably be expected to result in any such approvals, consents or
waivers containing any material condition or restriction; and (v) take no action
that results in or is reasonably likely to have a Material Adverse Effect on
Bayonne or First Savings.
In addition, pursuant to the Bayonne Merger Agreement, during the period
from the date of the Bayonne Merger Agreement to the Bayonne Effective Time
(except as otherwise provided in the Bayonne Merger Agreement or as required by
law or regulation or by regulatory authorities), Bayonne has agreed that
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neither it nor any of its subsidiaries shall, without the prior consent of
Richmond County, which consent shall not be unreasonably withheld, take certain
actions, including the following:
(i) unless required by applicable law or regulation or regulatory
directive, change any provisions of the certificate of incorporation
or bylaws of Bayonne or the similar governing documents of its
subsidiaries;
(ii) issue any shares of capital stock or change the terms of any
outstanding stock options or warrants or issue, grant or sell any
option, warrant, call, commitment, stock appreciation right, right to
purchase or agreement of any character relating to the authorized or
issued capital stock of Bayonne except pursuant to the exercise of
stock options or warrants outstanding as of the date of the Bayonne
Merger Agreement;
(iii) other than regular quarterly dividends, make, declare or pay any
cash or stock dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of
its capital stock or any securities or obligations convertible into
or exchangeable for any shares of its capital stock. As promptly as
practicable following the date of the Bayonne Merger Agreement, the
Bayonne Board shall cause its regular quarterly dividend record dates
and payment dates to be the same as Richmond County's regular
quarterly dividend record dates and payments dates for Richmond
County Common Stock, and Bayonne shall not thereafter change its
regular dividend payment dates and record dates. Nothing in the
Bayonne Merger Agreement shall be construed to permit holders of
shares of Bayonne Common Stock to receive two dividends from either
Bayonne or from Bayonne and Richmond County in any one quarter.
Subject to applicable regulatory restrictions, if any, Bayonne may
pay a cash dividend that is, in the aggregate, sufficient to fund any
dividend by Bayonne permitted under the terms of the Bayonne Merger
Agreement;
(iv) other than in the ordinary course of business consistent with past
practice, (a) sell, transfer, mortgage, encumber or otherwise dispose
of any of its material properties, leases or assets to any
individual, corporation or other entity other than a direct or
indirect wholly owned subsidiary of Bayonne or (b) cancel, release or
assign any indebtedness of any such individual, corporation or other
entity;
(v) except to the extent required by law or as specifically provided for
elsewhere herein, increase in any manner the compensation or fringe
benefits of any of its employees or directors, other than general
increases in compensation for non-officer employees in the ordinary
course of business consistent with past practice that do not cause
the annualized compensation of any of Bayonne's non-officer employees
following such increase to exceed by more than 5% the total annual
compensation expenses of Bayonne with respect to such person for the
twelve month period ended March 31, 1998 and that do not cause the
annual rate of base salary of any of Bayonne's non-executive officer
employees to increase by more than 5% over such person's base salary
at March 31, 1998; pay, unless approved in advance by Richmond
County, any reasonable "stay in place" pay where necessary or
appropriate to retain key employees; pay any pension or retirement
allowance not required by any existing plan or agreement to any such
employees or directors, or become a party to, amend or commit itself
to fund or otherwise establish any trust or account related to any
Bayonne Employee Plan with or for the benefit of any employee or
director; voluntarily accelerate the vesting of any stock options or
other compensation or benefit; make any discretionary continuation to
any Bayonne Employee Plan; hire any employee with an annual total
compensation payment in excess of $35,000 or enter into any
employment contract; terminate or materially increase the costs to
Bayonne or any subsidiary of any employee plan;
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(vi) except as contemplated by the Bayonne Merger Agreement, change its
method of accounting as in effect at March 31, 1998, except as
required by changes in GAAP as concurred in by Bayonne's
independent auditors;
(vii) settle any claim, action or proceeding involving any liability of
Bayonne or any of its subsidiaries for money damages in excess of
$50,000 or impose material restrictions upon the operations of
Bayonne or any of its subsidiaries;
(viii) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial
portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to
acquire any assets, in each case which are material, individually or
in the aggregate, to Bayonne, except in satisfaction of debts
previously contracted;
(ix) except pursuant to commitments existing at July 19, 1998 which have
previously been disclosed to Richmond County, make any real estate
loans secured by undeveloped land or real estate located outside the
State of New Jersey (other than real estate secured by one-to-four
family homes) or make any construction loan (other than construction
loans secured by one-to-four family homes) outside the State of New
Jersey;
(x) establish or commit to the establishment of any new branch or other
office facilities other than those for which all regulatory
approvals have been obtained except as previously disclosed to
Richmond County;
(xi) other than in the ordinary course of business consistent with past
practice in individual amounts not to exceed $50,000 and other than
investments for Bayonne's portfolio made in accordance with the
Bayonne Merger Agreement, make any investment either by purchase of
stock or securities, contributions to capital, property transfers,
or purchase of any property or assets of any other individual,
corporation or other entity;
(xii) make any investment in any debt security, including mortgage-backed
and mortgage-related securities, other than US government and US
government agency securities with final maturities not greater than
five years, mortgage-backed or mortgage related securities which
would not be considered "high risk" securities pursuant to Thrift
Bulletin Number 52 issued by the OTS or securities of the Federal
Home Loan Bank ("FHLB"), in each case that are purchased in the
ordinary course of business consistent with past practice;
(xiii) enter into or terminate any contract or agreement, or make any
change in any of its leases or contracts, other than with respect to
those involving aggregate payments of less than, or the provision of
goods or services with a market value of less than, $20,000 per
annum and other than contracts or agreements specifically described
in the Bayonne Merger Agreement;
(xiv) make, renegotiate, renew, increase, extend or purchase any loan,
lease (credit equivalent), advance, credit enhancement or other
extension of credit, or make any commitment in respect of any of the
foregoing, except (a) in conformity with existing lending practices
in amounts not to exceed $500,000 to any individual borrower or
(b) loans or advances as to
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which Bayonne has a binding obligation to make such loan or
advances as of July 19, 1998 and a description of which has been
provided by Bayonne to Richmond County;
(xv) incur any additional borrowings beyond those disclosed to Richmond
County other than short-term (six months or less) FHLB borrowings
and reverse repurchase agreements consistent with past practice, or
pledge any of its assets to secure any borrowings other than as
required pursuant to the terms of borrowings of Bayonne or any of
its subsidiaries in effect as of July 19, 1998 or in connection
with borrowings or reverse repurchase agreements permitted under
the Bayonne Merger Agreement, provided, however, that deposits are
not deemed to be borrowings within the meaning of this paragraph;
(xvi) make any capital expenditures in excess of $20,000 per expenditure
from July 19, 1998 until the Bayonne Effective Date other than
pursuant to binding commitments existing on July 19, 1998
previously disclosed to Richmond County, other than expenditures
necessary to maintain existing assets in good repair or to make
payment of necessary taxes;
(xvii) organize, capitalize, lend to or otherwise invest in any
subsidiary (other than securities of the FHLB that are purchased in
the ordinary course of business consistent with past practice);
(xviii) elect to any senior executive office any person who is not a
member of the senior executive officer team of Bayonne as of July
19, 1998, or elect to the Bayonne Board any person who is not a
member of the Bayonne Board as of July 19, 1998; and
(xix) agree or make any commitment to take any action that is described
above.
At the request of Richmond County, Bayonne shall cause First Savings to
modify and change its loan, litigation or real estate valuation policies and
practices (including loan classifications and levels of reserves) and investment
and asset/liability management policies and practices after the date on which
all required regulatory approvals and stockholder approvals are received, and
after receipt of written confirmation from Richmond County that it is not aware
of any fact or circumstance that would prevent completion of the Bayonne Merger,
and no earlier than 30 days prior to the Bayonne Effective Time so as to be
consistent on a mutually satisfactory basis with those of Richmond County
Savings; provided, that such policies and procedures are not prohibited by GAAP
or any applicable laws and regulations.
REPRESENTATIONS AND WARRANTIES
Both Richmond County and Bayonne have made certain customary
representations and warranties relating to, among other things, the parties'
respective organization, authority relative to the Bayonne 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 Bayonne Merger Agreement attached hereto as ANNEX A and
incorporated by reference herein. Pursuant to the Bayonne Merger Agreement, it
is a condition to each party's obligation to consummate the Bayonne Merger that
the representations and warranties of the other party contained in the Bayonne
Merger Agreement be true and correct in all material respects as of the date of
the Bayonne Merger Agreement and as of the Bayonne Effective Time; 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
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of the party making such representations and warranties and its subsidiaries,
taken as a whole, as represented in the Bayonne Merger Agreement. See "--
Conditions to the Bayonne Merger."
ACQUISITION PROPOSALS
Bayonne has agreed not to, directly or indirectly, initiate, solicit or
knowingly encourage (including by way of furnishing non-public information or
assistance), or facilitate knowingly, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Acquisition Proposal (as defined below), or enter into or maintain or continue
discussions or negotiate with any person or entity in furtherance of such
inquiries or to obtain an Acquisition Proposal or agree to or endorse any
Acquisition Proposal, or authorize or permit any of its officers, directors or
employees or any of its subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by any of its
subsidiaries to take any such action. Bayonne shall notify Richmond County
orally (within one business day) and in writing (as promptly as practicable) of
all of the relevant details relating to all inquiries and proposals which it or
any of its subsidiaries or any such officer, director, employee, investment
banker, financial advisor, attorney, accountant or other representative may
receive relating to any of such matters and, if such inquiry or proposal is in
writing, Bayonne shall deliver to Richmond County a copy of such inquiry or
proposal promptly. However, the Bayonne Board may: (i) furnish information to,
or enter into discussions or negotiations with any person or entity that makes
an unsolicited written, bona fide proposal to acquire Bayonne pursuant to a
merger, consolidation, share exchange, business combination, tender or exchange
offer or other similar transaction, if, and only to the extent that, (a) the
Bayonne Board receives a written opinion from its independent financial advisor
that such proposal may be superior to the Bayonne Merger from a financial point-
of-view to Bayonne's stockholders, (b) the Bayonne Board, after consultation
with independent legal counsel, determines in good faith that such action is
necessary for the Bayonne Board to comply with its fiduciary duties to
stockholders under applicable law (such proposal that satisfies (a) and
(b) being referred to herein as a "Superior Proposal") and (c) prior to
furnishing such information to, or entering into discussions or negotiations
with, such person or entity, Bayonne (1) provides reasonable notice to Richmond
County to the effect that it is furnishing information to, or entering into
discussions or negotiations with another party, and (2) receives from such
person or entity an executed confidentiality agreement in reasonably customary
form; (ii) comply with Rule 14e-2 promulgated under the Exchange Act with regard
to a tender or exchange offer; or (iii) withdraw or modify its recommendation
and enter into a Superior Proposal if there exists a Superior Proposal and the
Bayonne Board, after consultation with independent legal counsel, determines in
good faith that such action is necessary for the Bayonne Board to comply with
its fiduciary duties to stockholders under applicable law. "Acquisition
Proposal" means any of the following (other than the transactions contemplated
under the Bayonne Merger Agreement) involving Bayonne or any of its
subsidiaries: (i) any merger, consolidation, share exchange, business
combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 15% or more of the assets of
Bayonne or First Savings, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock of Bayonne or the filing of a registration
statement under the Securities Act of 1933, as amended (the "Securities Act"),
in connection therewith; or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Bayonne Effective Time, any provision of the Bayonne Merger
Agreement may be: (i) waived in writing by the party benefitted by the
provision; or (ii) amended or modified at any time (including the structure of
the transaction) by an agreement in writing between the parties to the Bayonne
Merger Agreement except that, after the vote by the stockholders of Bayonne or
Richmond County, no amendment or modification may be made that would reduce the
Bayonne Merger Consideration or contravene any provision of the DGCL or the
federal banking laws, rules and regulations.
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The Bayonne Merger Agreement may be terminated at any time prior to the
Bayonne Effective Time, either before or after approval of the matters presented
in connection with the Bayonne Merger by the stockholders of both Richmond
County and Bayonne, as follows: (i) by the mutual consent of Richmond County and
Bayonne if the boards of directors of each so determines by vote of a majority
of the members of their entire respective boards; (ii) by either Richmond County
or Bayonne, if either of their respective boards of directors so determines by
vote of a majority of the members of their entire respective boards if the
stockholders of Richmond County or Bayonne do not approve the Bayonne Merger
Agreement; provided, however, that Richmond County or Bayonne will only be
-------- -------
entitled to terminate the Bayonne Merger Agreement if it has complied in all
material respects with its obligations to solicit the support of its respective
stockholders for the Bayonne Merger and have complied, in all material respects,
with its representations and warranties made in the Bayonne Merger Agreement;
(iii) by either Richmond County or Bayonne, if either (a) any approval, consent
or waiver of a governmental agency required to permit consummation of the
transactions contemplated by the Bayonne Merger Agreement shall have been denied
or (b) any governmental authority of competent jurisdiction shall have issued a
final, unappealable order enjoining or otherwise prohibiting consummation of the
transactions contemplated by the Bayonne Merger Agreement; (iv) by either
Richmond County or Bayonne, if its board of directors so determines by vote of
a majority of the members of its entire board, in the event that the Bayonne
Merger is not consummated by April 30, 1999 ("Initial Termination Date");
provided, that if, as of such date, all necessary regulatory or governmental
- --------
approvals, consents or waivers required to consummate the transactions
contemplated hereby shall not have been obtained but all other conditions to the
consummation of the Bayonne Merger (other than the delivery of executed
documents at the closing) shall be fulfilled, the Initial Termination Date shall
be extended to July 31, 1999, unless the failure to so consummate by such time
is due to the breach of any representation, warranty or covenant contained in
the Bayonne Merger Agreement by the party seeking to terminate; (v) by Richmond
County, if the Bayonne Board does not publicly recommend in the Joint Proxy
Statement/Prospectus that Bayonne's stockholders approve and adopt the Bayonne
Merger Agreement or if, after recommending in the Joint Proxy
Statement/Prospectus that stockholders approve and adopt the Bayonne Merger
Agreement, the Bayonne Board shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to Richmond County; (vi) by
Richmond County or Bayonne by written notice to the other party in the event
that there has occurred since July 19, 1998 an event, condition, change or
occurrence which, individually or in the aggregate, has had or could reasonably
be expected to result in a Material Adverse Effect on Richmond County or Bayonne
as the case may be; provided that each party shall have given the other 30
calendar days prior written notice of such termination, and such party shall not
have remedied such event, condition, change or occurrence by the end of such
30-day period; (vii) Richmond County or Bayonne (provided that the party seeking
termination is not then in material breach of any representation, warranty,
covenant or other agreement contained in the Bayonne Merger Agreement, in the
event of (a) a failure to perform or comply by the other party with any covenant
or agreement of such other party contained in the Bayonne Merger Agreement,
which failure or non-compliance is material in the context of the transactions
contemplated by the Bayonne Merger Agreement, or (b) subject to the Material
Adverse Effect threshold, any inaccuracies, omissions or breach in the
representations, warranties, covenants or agreements of the other party
contained in the Bayonne Merger Agreement, the circumstances as to which either
individually or in the aggregate have, or reasonably could be expected to have,
a Material Adverse Effect on such other party; in either case which has not been
or cannot be cured within 30 calendar days after written notice thereof is given
by the party seeking to terminate to such other party; (viii) by Bayonne, if the
Richmond County Board does not publicly recommend in the Joint Proxy
Statement/Prospectus that Richmond County's stockholders approve and adopt the
Bayonne Merger Agreement or if, after recommending in the Joint Proxy
Statement/Prospectus that stockholders approve and adopt the Bayonne Merger
Agreement, the Richmond County Board shall have withdrawn, modified or amended
such recommendation in any respect materially adverse to Bayonne; (ix) by
Bayonne, if the Bayonne Board reasonably determines that a proposal made by a
third party to acquire, directly or indirectly, including pursuant to a tender
offer, exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash and/or
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securities, more than 65% of the combined voting power of the shares of Bayonne
Common Stock then outstanding or all or substantially all of the assets of
Bayonne constitutes a Superior Proposal and that such proposal must be accepted;
provided, however, that prior to any such termination, Bayonne shall use its
reasonable efforts to negotiate in good faith with Richmond County to make such
adjustments in the terms and conditions of this agreement that would enable
Bayonne to proceed with the transactions contemplated herein; or (x) by Bayonne
as discussed below under "--Price-Based Termination."
PRICE-BASED TERMINATION
The Bayonne Merger Agreement provides that if the "Richmond County Market
Value" on the Valuation Date (see the definitions in the following paragraph for
the meanings for the capitalized terms in this paragraph which previously have
not been defined) is less than $15.41 (as adjusted to account for a stock
dividend, reclassification, split-up, combination, exchange of shares or other
similar transaction between July 19, 1998 and the Valuation Date), and the
"Richmond County Ratio" is less than the "Index Ratio," then Bayonne, during the
five-day period commencing on the Valuation Date, may terminate the Bayonne
Merger Agreement. However, no such termination will occur and the Bayonne
Merger Agreement will remain in effect if Richmond County agrees to increase the
Bayonne Exchange Ratio to equal the lesser of (a) a number equal to a fraction,
the numerator of which is 1.05 multiplied by the "Initial Richmond County Market
Value" multiplied by .85 and the denominator of which is the Richmond County
Market Value, and (b) a number equal to a fraction, the numerator of which is
the Index Ratio multiplied by 1.05 and the denominator of which is the Richmond
County Ratio.
The "Richmond County Market Value" means the average of the daily closing
sales prices of a share of Richmond County Common Stock, as reported on the
Nasdaq National Market for the 15 consecutive trading days immediately preceding
the Valuation Date. The "Richmond County Ratio" means the number obtained by
dividing the Richmond County Market Value on the Valuation Date by the "Initial
Richmond County Market Value." The "Initial Richmond County Market Value" means
the closing sales price of a share of Richmond County Common Stock, as reported
on the Nasdaq National Market, on July 17, 1998, the trading day immediately
preceding the public announcement of the Bayonne Merger Agreement (i.e.,
$18.125). The "Index Ratio" means the number obtained by dividing the "Final
Index Price" by the "Initial Index Price" and then subtracting 0.15. The "Final
Index Price" means the sum of the average of the daily closing sales prices of a
share of common stock of each of 14 financial institution holding companies
identified in the Bayonne Merger Agreement which continue to be publicly traded
and as to which there shall be not have been a publicly announced acquisition
transaction (the "Index Group"), multiplied by their respective weighted
percentages, as set forth in the Bayonne Merger Agreement, for the 15 trading
days ending on the Valuation Date. The "Initial Index Price" means the sum of
the per share closing prices of the common stock of each company comprising the
Index Group on July 17, 1998, multiplied by their respective weighted
percentages.
NASDAQ NATIONAL MARKET LISTING
The Richmond County Common Stock is listed on the Nasdaq National Market.
Richmond County has agreed to use reasonable efforts to cause the shares of
Richmond County Common Stock to be issued in the Bayonne Merger to be approved
for quotation on the Nasdaq National Market, subject to official notice of
issuance, prior to or at the Bayonne Effective Time. The obligations of the
parties to consummate the Bayonne Merger are subject to approval for quotation
on the Nasdaq National Market of such shares. See "-- Conditions to the Bayonne
Merger" above.
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ANTICIPATED ACCOUNTING TREATMENT
Under the Merger Agreement, as amended and restated, the Bayonne Merger
will be accounted for under the purchase method of accounting in accordance with
GAAP. Under this method of accounting, Richmond County and Bayonne will be
treated as one company as of the date of the combination, Richmond County will
record the fair market value of Bayonne's assets (both tangible and identifiable
intangible assets) less liabilities on its financial statements. Any difference
between purchase price and the fair value of the identifiable net assets is
recorded as goodwill. The income statements incorporate the recorded income of
Bayonne's operations beginning from the Bayonne Effective Date.
The unaudited pro forma condensed combined financial information contained
in this Joint Proxy Statement/Prospectus has been prepared using the purchase
accounting method to account for the Bayonne Merger. See "UNAUDITED PRO FORMA
CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE BAYONNE MERGER
The following is a discussion of the material Federal income tax
consequences of the Bayonne Merger to Richmond County, Bayonne and holders of
Bayonne Common Stock. The discussion is based upon the Code, Treasury
regulations, Internal Revenue Service (the "Service") rulings, and judicial and
administrative decisions in effect as of the date hereof, all of which are
subject to change at any time, possibly with retroactive effect. This
discussion assumes that Bayonne Common Stock is held as a "capital asset" within
the meaning of Section 1221 of the Code (i.e., property generally held for
investment). In addition, this discussion does not address all of the tax
consequences that may be relevant to a holder of Bayonne Common Stock in light
of his or her particular circumstances or to holders subject to special rules,
such as foreign persons, financial institutions, tax-exempt organizations,
dealers in securities or foreign currencies or insurance companies. The
opinions of counsel referred to in this section will be based on facts existing
at the Bayonne Effective Time, and in rendering such opinions, such counsel will
require and rely upon representations contained in certificates of officers of
Richmond County, Bayonne and others.
HOLDERS OF BAYONNE COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE BAYONNE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
It is a condition to the obligation of Richmond County and Bayonne to
consummate the Bayonne Merger that Richmond County and Bayonne each shall have
received an opinion of their respective counsel, dated as of the Bayonne
Effective Time, in form and substance customary in transactions of the type
contemplated by the Bayonne Merger Agreement and reasonably satisfactory to
Richmond County and Bayonne, respectively, to the effect that the Bayonne Merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly, for federal income tax purposes:
(i) no gain or loss will be recognized by Richmond County, Richmond County
Savings, Bayonne or First Savings as a result of the Bayonne Merger;
(ii) no gain or loss will be recognized by the stockholders of Bayonne who
exchange all of their Bayonne Common Stock solely for Richmond County
Common Stock pursuant to the Bayonne Merger (except with respect to
cash received in lieu of a fractional share interest in Richmond
County Common Stock);
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(iii) the tax basis of Richmond County Common Stock received by
stockholders who exchange their Bayonne Common Stock for Richmond
County Common Stock in the Bayonne Merger will be the same as the tax
basis of Bayonne Common Stock surrendered pursuant to the Bayonne
Merger, reduced by any amount allocable to a fractional share
interest for which cash is received; and increased by any gain
recognized on the exchange; and
(iv) the holding period of Richmond County Common Stock received by each
stockholder in the Bayonne Merger will include the holding period of
Bayonne Common Stock exchanged therefor, provided that such
stockholder held such Bayonne Common Stock as a capital asset on the
Bayonne Effective Date.
RESALES OF RICHMOND COUNTY COMMON STOCK
The shares of Richmond County Common Stock to be issued in the Bayonne
Merger will be registered under the Securities Act and will be freely
transferable under the Securities Act except for shares issued to any Bayonne
stockholder who may be deemed to be an "affiliate" of Bayonne for purposes of
Rule 145 under the Securities Act. Affiliates of Bayonne may not sell their
shares of Richmond County Common Stock acquired in connection with the Bayonne
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 Richmond
County Common Stock received in the Bayonne Merger by persons who may be deemed
to be affiliates of Bayonne. Persons who may be deemed to be affiliates of
Bayonne generally include individuals or entities that control, are controlled
by or are under common control with Bayonne, and may include certain officers
and directors as well as principal stockholders of Bayonne.
For purposes of Rule 145, Bayonne has obtained from each person who is an
affiliate of Bayonne and has delivered to Richmond County, a written agreement
intended to ensure compliance with the Securities Act.
NO APPRAISAL RIGHTS
Pursuant to Section 262(b) of the DGCL, the stockholders of a constituent
corporation in a merger generally are not entitled to appraisal rights if the
shares of stock they own are, as of the record date fixed to determine
stockholders entitled to notice of and to vote at the meeting to act upon the
agreement providing for such merger, either listed on a national securities
exchange or designated as a national market system security on the Nasdaq
National Market, or held of record by more than 2,000 stockholders. However,
stockholders that would otherwise not have appraisal rights pursuant to the
provisions described in the previous sentence are entitled to appraisal rights
if such stockholders are required by the terms of the merger to accept for their
stock anything except (i) shares of the corporation surviving the merger;
(ii) shares of stock which are either listed on a national securities exchange,
designated as a national market system security on the Nasdaq National Market or
held of record by more than 2,000 stockholders; or (iii) cash in lieu of
fractional shares of stock described in (i) and (ii) above or any combination
thereof. Bayonne stockholders are not entitled to appraisal rights generally
because the shares of Bayonne Common Stock are listed on the Nasdaq National
Market and such stockholders are not entitled to appraisal rights in connection
with the Bayonne Merger because the shares of Richmond County Common Stock to be
issued in the Bayonne Merger are shares of the surviving corporation in the
Bayonne Merger and will be listed on the Nasdaq National Market at the Bayonne
Effective Time, subject to official notice of issuance. In addition, there are
more than 2,000 holders of record of Richmond County Common Stock.
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EXPENSES
All costs and expenses incurred in connection with the Bayonne Merger
Agreement, the Bayonne Merger Stock Option Agreements and the transactions
contemplated thereby shall be paid by the party incurring such expense, except
that Richmond County shall bear the expenses incurred in connection with
printing and mailing this Joint Proxy Statement/Prospectus and filing fees
associated with the requisite registrations and approvals required to consummate
the Bayonne Merger.
BAYONNE EFFECTIVE TIME
The Bayonne Merger will become effective at the Bayonne Effective Time set
forth in the Certificate of Merger that will be filed with the Secretary of
State of the State of Delaware in accordance with applicable law. The
Certificate of Bayonne Merger will be filed no later than 14 days after
satisfaction or waiver of the latest to occur of certain conditions to the
Bayonne Merger as specified in the Bayonne Merger Agreement, unless another
date is agreed to in writing by Richmond County and Bayonne. See "-- Conditions
to the Bayonne Merger." The closing of the transactions contemplated by the
Bayonne Merger Agreement will take place on the date of such filing. It is
expected that a period of time will elapse between the Richmond County Meeting
and the Bayonne Meeting and the Bayonne Effective Time while the parties seek to
obtain the regulatory approvals required to consummate the Bayonne Merger.
There can be no assurance that such 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
Attorney General of the State of New York will not challenge the Bayonne Merger
or, if such a challenge is made, the result thereof. See "-- Regulatory
Approvals Needed to Complete the Bayonne Merger." The Bayonne Merger Agreement
may be terminated by either party if, among other reasons, the Bayonne Merger
has not been consummated on or before April 30, 1999 (provided that if, as of
such date, all necessary regulatory or governmental approvals, consents or
waivers required to consummate the Bayonne Merger shall not have been obtained
but all other conditions have been fulfilled, then July 31, 1999). See
"-- Waiver and Amendment; Termination."
CERTAIN RELATED TRANSACTIONS
BAYONNE MERGER STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the Bayonne Merger
Stock Option Agreement, which is attached hereto as ANNEX B. The following
summary is qualified in its entirety by reference to the Bayonne Merger Stock
Option Agreement. Execution of the Bayonne Merger Stock Option Agreement was a
condition to the parties entering into the Bayonne Merger Agreement.
Concurrently with the execution of the Bayonne Merger Agreement, Richmond
County and Bayonne entered into the Bayonne Merger Stock Option Agreement. The
Bayonne Merger Stock Option Agreement is designed to enhance the likelihood that
the Bayonne Merger will be successfully consummated in accordance with the terms
contemplated by the Bayonne Merger Agreement and Richmond County insisted on
such agreement for that reason. Pursuant to the Bayonne Merger Stock Option
Agreement, Bayonne granted Richmond County the option to purchase up to
1,809,804 authorized but unissued shares (the "Bayonne Merger Stock Option
Shares") of Bayonne Common Stock (representing approximately 19.9% of the issued
and outstanding shares of Bayonne Common Stock on July 19, 1998) at a price of
$15.50 per share, subject to adjustment in certain circumstances (the "Bayonne
Merger Stock Option").
Provided that (i) Richmond County is not in material breach of the
agreements or covenants contained in the Bayonne Merger Agreement or the Bayonne
Merger Stock Option Agreement and (ii) no
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preliminary or permanent injunction or other order against the delivery of the
shares covered by the Bayonne Merger Stock Option issued by any court of
competent jurisdiction in the United States shall be in effect, Richmond County
may exercise the Bayonne 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 Bayonne Merger Stock Option shall terminate
and be of no further force and effect upon the earliest to occur of (a) the
Bayonne Effective Time, (b) termination of the Bayonne Merger Agreement in
accordance with the terms thereof prior to the occurrence of a Purchase Event or
a Preliminary Purchase Event (as defined below) (an "Issuer Termination"),
(c) 12 months after the termination of the Bayonne Merger Agreement other than
pursuant to an Issuer Termination, (d) 12 months after the termination of the
Bayonne Merger Agreement by Richmond County in accordance with the terms of the
Bayonne Merger Agreement and (e) 12 months after the first occurrence of a
Purchase Event; provided, however, that any purchase of shares upon exercise of
the Bayonne Merger Stock Option shall be subject to compliance with applicable
law.
A "Purchase Event" means any of the following events:
(i) Without Richmond County's prior written consent, Bayonne shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Richmond County or any
subsidiary of Richmond County) to effect an Acquisition Transaction.
The term "Acquisition Transaction" shall mean (a) a merger,
consolidation or similar transaction involving Bayonne or any of its
significant subsidiaries, (b) the disposition by sale, lease, exchange
or otherwise, of assets or deposits of Bayonne or any of its
significant subsidiaries representing in either case 20% or more of
the consolidated assets or deposits of Bayonne and its subsidiaries,
or (c) the issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction)
securities representing 15% or more of the voting power of Bayonne or
any of its significant subsidiaries other than the issuance of Bayonne
Common Stock upon the exercise of outstanding options; or
(ii) any person (other than Richmond County or any subsidiary of Richmond
County) shall have acquired beneficial ownership (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act) of or the
right to acquire beneficial ownership of, or any "group" (as such term
is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of,
15% or more of the voting power of Bayonne or any of its significant
subsidiaries.
A "Preliminary Purchase Event" means any of the following events:
(i) any person (other than Richmond County or any subsidiary of Richmond
County) 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 Bayonne Common Stock such that, upon
consummation of such offer, such person would own or control 15% or
more of the then outstanding shares of Bayonne Common Stock (a "Tender
Offer" or an "Exchange Offer," respectively); or
(ii) the holders of Bayonne Common Stock shall not have approved the
Bayonne Merger Agreement at the Bayonne Meeting, the Bayonne Meeting
shall not have been held or shall have been cancelled prior to
termination of the Bayonne Merger Agreement, or the Bayonne Board
shall have withdrawn or modified in a manner adverse to Richmond
County the recommendation of the Bayonne Board with respect to the
Bayonne Merger Agreement, in each case after it shall have been
publicly announced that any person (other than Richmond
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County or any subsidiary of Richmond County) shall have (a) made or
disclosed an intention to make a 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
(iii) any person, other than Richmond County or any subsidiary of Richmond
County, shall have made a bona fide proposal to Bayonne 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
(iv) after a bone fide proposal is made by a third party to Bayonne or its
stockholders to engage in an Acquisition Transaction, Bayonne shall
have breached any covenant or obligation contained in the Bayonne
Merger Agreement and such breach would entitle Richmond County to
terminate the Bayonne Merger Agreement under the terms thereof
(without regard to the cure period provided for therein unless such
cure is promptly effected without jeopardizing consummation of the
Bayonne Merger and the Bayonne Bank Merger pursuant to the terms of
the Bayonne Merger Agreement; or
(v) any person other than Richmond County or any subsidiary of Richmond
County, other than in connection with a transaction to which Richmond
County has given its prior written consent, shall have filed an
application or notice with the OTS, or other federal or state bank
regulatory authority, for approval to engage in an Acquisition
Transaction.
Bayonne shall notify Richmond County 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 Bayonne shall not be a
condition to the right of Richmond County to exercise the Bayonne Merger Stock
Option.
EFFECT OF THE BAYONNE MERGER STOCK OPTION AGREEMENTS. The Bayonne Merger
Stock Option Agreement is intended to increase the likelihood that the Bayonne
Merger will be consummated in accordance with the terms of the Bayonne Merger
Agreement. Consequently, certain aspects of the Bayonne Merger Stock Option
Agreement may have the effect of discouraging persons who might now or prior to
the Bayonne Effective Time be interested in acquiring all of or a significant
interest in Bayonne from considering or proposing such an acquisition. The
acquisition of Bayonne or an interest therein, or an agreement to acquire all or
part of Bayonne, could cause the Bayonne Merger Stock Option to become
exercisable. The existence of the Bayonne Merger Stock Option Agreement could
significantly increase the cost to a potential acquiror of acquiring Bayonne
compared to its cost had the Bayonne Merger Stock Option Agreement not been
entered into. Such increased cost might discourage a potential acquiror from
considering or proposing an acquisition. Moreover, following consultation with
Bayonne's independent accountant, Bayonne's management believes that the
exercise of the Bayonne Merger Stock Option is likely to prohibit any acquiror
from accounting for an acquisition of Bayonne using the pooling-of-interests
accounting method for a period of two years following such exercise.
Accordingly, the existence of the Bayonne Merger Stock Option Agreement may
deter significantly, or completely preclude, an acquisition of Bayonne by
certain other banking organizations. The Bayonne Board took this factor into
account before approving the Bayonne Merger Stock Option Agreement. See "THE
BAYONNE MERGER -- Our Recommendation of the Bayonne Board; Bayonne's Reasons for
the Merger."
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BAYONNE BANK MERGER AGREEMENT
In connection with the Bayonne Merger, Richmond County Savings and First
Savings have entered into the Bayonne Bank Merger Agreement (the "Bayonne Bank
Merger Agreement") pursuant to which First Savings and Richmond County Savings
will merge, with Richmond County Savings Bank being the surviving bank. The
Bayonne Bank Merger Agreement may be terminated by mutual consent of the parties
at any time and will be terminated automatically in the event the Bayonne Merger
Agreement is terminated. In order to facilitate the Bayonne Bank Merger, First
Savings will merge with a Federal interim savings bank, which will then merge
with and into Richmond County Savings.
THE IRONBOUND MERGER
In a separate and unrelated transaction (the "Ironbound Merger"), Richmond
County is also acquiring Ironbound Bankcorp, NJ ("Ironbound"). Ironbound is a
bank holding company organized under the laws of the State of New Jersey in
1988. Ironbound's wholly owned subsidiary, Ironbound Bank ("Ironbound Bank"),
is a New Jersey State-chartered commercial bank that operates three commercial
banking offices in the New Jersey Counties of Union and Essex. Ironbound Bank
has operated since 1988. Ironbound's bank deposits are insured by the BIF. At
September 30, 1998, Ironbound had total assets of $115.3 million, deposits of
$102.8 million, and stockholders' equity of $11.5 million. Ironbound's
principal offices are located at 36 Pacific Street at New York Avenue, Newark,
New Jersey 07105, and its telephone number is (973) 589-3800. After the
Ironbound Merger, Ironbound will be merged with and into Richmond County, and
Ironbound stockholders will become stockholders of Richmond County. It is
intended that the Ironbound Merger will be completed in the first quarter of
1999. Immediately following the completion of the Ironbound Merger, Richmond
County Savings and Ironbound Bank will also merge. Richmond County Savings Bank
will be the name of the surviving bank. THE RICHMOND COUNTY BOARD HAS
UNANIMOUSLY APPROVED THE IRONBOUND MERGER. THE IRONBOUND MERGER DOES NOT
REQUIRE THE APPROVAL OF THE RICHMOND COUNTY STOCKHOLDERS.
CERTAIN BANKING REGULATORY CONSIDERATIONS
GENERAL
Richmond County Savings is a New York State-chartered stock savings bank
and its deposit accounts are insured up to applicable limits by the FDIC under
the BIF. Richmond County Savings is subject to extensive regulation by the
Superintendent and the New York Banking Board (the "NYBB" and collectively with
the Superintendent, the "NYBD"), as its chartering agency, and by the FDIC, as
the deposit insurer. Richmond County Savings must file reports with the NYBD
and the FDIC concerning its activities and financial condition, in addition to
obtaining regulatory approvals prior to entering into certain transactions such
as establishing branches and mergers with, or acquisitions of, other depository
institutions. There are periodic examinations by the NYBD and the FDIC to assess
Richmond County's compliance with various regulatory requirements and financial
condition. This regulation and supervision establishes a framework of
activities in which a savings bank can engage and is intended primarily for the
protection of the insurance fund and depositors. The regulatory structure also
gives the regulatory authorities extensive discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
regulation, whether by the NYBD, the FDIC or through legislation, could have a
material adverse impact on Richmond County and Richmond County Savings and their
operations and stockholders. Richmond County is also required to file certain
reports with,
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and otherwise comply with the rules and regulations, of the OTS and the NYBD.
Certain of the regulatory requirements applicable to Richmond County and to
Richmond County Savings are referred to below or elsewhere herein. This
description of the statutory provisions and regulations applicable to Richmond
County and Richmond County Savings does not purport to be complete, and is
qualified in its entirety by reference to such statutes and regulations.
NEW YORK STATE LAW
Richmond County Savings derives its lending, investment and other authority
primarily from the applicable provisions of NYBL and the regulations of the
NYBD, as limited by FDIC regulations. See "-- Investment Activities." Under
these laws and regulations, savings banks, including Richmond County Savings,
may invest in real estate mortgages, consumer and commercial loans, certain
types of debt securities, including certain corporate debt securities and
obligations of federal, state and local governments and agencies, certain types
of corporate equity securities and certain other assets. Under the statutory
authority for investing in equity securities, a savings bank may directly invest
up to 7.5% of its assets in certain corporate stock and may also invest up to
7.5% of its assets in certain mutual fund securities. Investment in the stock of
a single corporation is limited to the lesser of 2% of the outstanding stock of
such corporation or 1% of the savings bank's assets, except as set forth below.
Such equity securities must meet certain tests of financial performance. A
savings bank's lending powers are not subject to percentage of asset
limitations, although there are limits applicable to single borrowers. A
savings bank may also, pursuant to the "leeway" authority, make investments not
otherwise authorized under the NYBL. This authority permits investments not
otherwise authorized of up to 1% of the savings bank's assets in any single
investment, subject to certain restrictions, and to an aggregate limit for all
such investments of up to 5% of assets. Additionally, in lieu of investing in
such securities in accordance with and reliance upon the specific investment
authority set forth in the NYBL, savings banks are authorized to elect to invest
under a "prudent person" standard in a wider range of debt and equity securities
as compared to the types of investments permissible under such specific
investment authority. However, in the event a savings bank elects to utilize
the "prudent person" standard, it will be unable to avail itself of the other
provisions of the NYBL and regulations which set forth specific investment
authority. A New York State-chartered stock savings bank may also exercise
trust powers upon approval of the NYBD.
New York State-chartered savings banks may also invest in subsidiaries
under their service corporation investment power. A savings bank may use this
power to invest in corporations that engage in various activities authorized for
savings banks, plus any additional activities that may be authorized by the
NYBB. Investment by a savings bank in the stock, capital notes and debentures
of its service corporations is limited to 3% of the bank's assets, and such
investments, together with the bank's loans to its service corporations, may not
exceed 10% of the savings bank's assets.
The exercise by an FDIC insured New York State-chartered savings bank of
the lending and investment powers of a savings bank under the NYBL is limited by
FDIC regulations and other federal law and regulations. In particular, the
applicable provisions of the NYBL and regulations governing the investment
authority and activities of an FDIC insured state-chartered savings bank have
been effectively limited by the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") and the FDIC regulations issued pursuant
thereto. See "-- Investment Activities."
With certain limited exceptions, a New York State-chartered savings bank
may not make loans or extend unsecured credit for commercial, corporate or
business purposes (including lease financing) to a single borrower, the
aggregate amount of which would be in excess of 15% of the bank's net worth.
Richmond County Savings currently complies with all applicable loans-to-one-
borrower limitations.
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Under the NYBL, a New York State-chartered stock savings bank may declare
and pay dividends out of its net profits, unless there is an impairment of
capital, but approval of the Superintendent is required if the total of all
dividends declared in a calendar year would exceed the total of its net profits
for that year combined with its retained net profits of the preceding two years,
subject to certain adjustments.
Under the NYBL, the Superintendent may issue an order to a New York State-
chartered banking institution to appear and explain an apparent violation of
law, to discontinue unauthorized or unsafe practices and to keep prescribed
books and accounts. Upon a finding by the NYBB that any director, trustee or
officer of any banking organization has violated any law, or has continued
unauthorized or unsafe practices in conducting the business of the banking
organization after having been notified by the Superintendent to discontinue
such practices, such director, trustee or officer may be removed from office by
the NYBB after notice and an opportunity to be heard. The Superintendent also
may take possession of a banking organization under specified statutory
criteria. Richmond County Savings does not know of any past or current
practice, condition or violation that might lead to any proceeding by the
Superintendent or the NYBB against Richmond County Savings or any of its
trustees or officers.
FDIC REGULATIONS
CAPITAL REQUIREMENTS. The FDIC has adopted risk-based capital guidelines
to which Richmond County Savings is subject. The guidelines establish a
systematic analytical framework that makes regulatory capital requirements more
sensitive to differences in risk profiles among banking organizations. Richmond
County Savings is required to maintain minimum levels of regulatory capital in
relation to its regulatory risk-weighted assets. The ratio of such regulatory
capital to regulatory risk-weighted assets is referred to as the "risk-based
capital ratio." Risk-based capital ratios are determined by allocating assets
and specified off-balance sheet items to four risk-weighted categories ranging
from 0% to 100%, with higher levels of capital being required for the categories
considered as representing greater risk.
These guidelines divide a bank's capital into two tiers. The first tier
("Tier I") includes common equity, retained earnings, certain non-cumulative
perpetual preferred stock (excluding auction rate issues) and minority interests
in equity accounts of consolidated subsidiaries, less goodwill and other
intangible assets (except mortgage servicing rights and purchased credit card
relationships subject to certain limitations). Supplementary ("Tier II")
capital includes, among other items, cumulative perpetual and long-term limited-
life preferred stock, mandatory convertible securities, certain hybrid capital
instruments, term subordinated debt and the allowance for loan and lease losses,
subject to certain limitations, less required deductions. Banks are required to
maintain a total risk-based capital ratio of at least 8%, of which at least 4%
must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (ratio of Tier I capital to adjusted total average balance
of assets as specified in the regulations). These regulations provide for a
minimum Tier I leverage ratio of 3% for banks that meet certain specified
criteria, including that they have the highest examination rating and are not
experiencing or anticipating significant growth. All other banks are required to
maintain a Tier I leverage ratio of 3% plus an additional cushion of at least
100 to 200 basis points. The federal banking agencies, including the FDIC, have
established a uniform minimum Tier I leverage ratio of 4% for all but the
highest rated banks. The FDIC may, however, set higher leverage and risk-based
capital requirements on individual institutions when particular circumstances
warrant. Banks experiencing or anticipating significant growth are expected to
maintain capital ratios, including tangible capital positions, well above the
minimum levels.
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The following is a summary of Richmond County Savings' regulatory capital
ratios at September 30, 1998:
<TABLE>
<S> <C>
Tier I Risk-Based Capital................. 21.60%
Total Risked-Based Capital................ 22.49
Leverage Capital.......................... 12.38
</TABLE>
The following is a summary of First Savings' regulatory capital ratios at
September 30, 1998:
<TABLE>
<S> <C>
Tier I Risk-Based Capital................. 27.30%
Total Risked-Based Capital................ 28.45
Leverage Capital.......................... 12.24
</TABLE>
In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate risk
in assessing a bank's capital adequacy. According to the agencies, applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital. The agencies
also have issued a joint policy statement providing guidance on interest rate
risk management, including a discussion of the critical factors affecting the
agencies' evaluation of interest rate risk in connection with capital adequacy.
The agencies have determined not to proceed with a previously issued proposal to
develop a supervisory framework for measuring interest rate risk and an explicit
capital component for interest rate risk.
STANDARDS FOR SAFETY AND SOUNDNESS. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things, internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation; fees and benefits; and such
other operational and managerial standards as the agency deems appropriate. The
federal banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness (the "Guidelines") to implement
these safety and soundness standards. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the Federal Deposit
Insurance Act, as amended, ("FDI Act"). The final regulation establishes
deadlines for the submission and review of such safety and soundness compliance
plans.
REAL ESTATE LENDING STANDARDS. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction or improvements on real estate. The FDIC regulations
require each institution to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the institution and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying FDIC guidelines, which include loan-to-value limitations for the
different types of real estate loans. Institutions are also permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standard are justified.
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DIVIDEND LIMITATIONS. The FDIC has authority to use its enforcement
powers to prohibit a bank from paying dividends if, in its opinion, the payment
of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends by a bank that will result in the bank
failing to meet applicable minimum capital requirements on a pro forma basis.
Additionally, Richmond County Savings, as a subsidiary of a savings and loan
holding company, is required to provide the OTS with 30 days prior written
notice before declaring any dividend. The plan of conversion adopted by
Richmond County Savings' in connection with its conversion to stock form also
restricts the institution's payment of dividends in the event the dividend would
impair the liquidation account established in connection with the Conversion.
In addition, the liquidation account established by First Savings in connection
with its Second-Step Conversion may not be impaired by the payment of dividends.
Richmond County Savings is also subject to dividend declaration restrictions
imposed by New York State law. See "-- New York State Law."
INVESTMENT ACTIVITIES
Since the enactment of FDICIA, all insured state-chartered banks, including
savings banks and their subsidiaries, have generally been limited to activities
as principal and equity investments of the type and in the amount authorized for
national banks, notwithstanding state law. FDICIA and the FDIC regulations
thereunder permit certain exceptions to these limitations. For example, certain
state-chartered banks, such as Richmond County Savings, may, with FDIC approval,
continue to exercise state authority to invest in common or preferred stocks
listed on a national securities exchange or the Nasdaq National Market and in
the shares of an investment company registered under the Investment Company Act
of 1940, as amended. Such banks may also continue to sell savings bank life
insurance. In addition, the FDIC is authorized to permit such institutions to
engage in state authorized activities or investments that do not meet this
standard (other than non-subsidiary equity investments) for institutions that
meet all applicable capital requirements if it is determined that such
activities or investments do not pose a significant risk to the BIF. The FDIC
has recently proposed revisions to its regulations governing the procedures for
institutions seeking approval to engage in such activities or investments.
These proposed revisions would, among other things, streamline certain
application procedures for healthy banks and impose certain quantitative and
qualitative restrictions on a bank's dealings with its subsidiaries engaged in
activities not permitted for national bank subsidiaries. All non-subsidiary
equity investments, unless otherwise authorized or approved by the FDIC, must
have been divested by December 19, 1996, pursuant to a FDIC approved divestiture
plan unless such investments were grandfathered by the FDIC. Richmond County
Savings received grandfathering authority from the FDIC in February 1993 to
invest in listed stocks and/or registered shares subject to the maximum
permissible investment of 100% of Tier I capital, as specified by the FDIC's
regulations, or the maximum amount permitted by the NYBL, whichever is less.
Such grandfathering authority is subject to termination upon the FDIC's
determination that such investments pose a safety and soundness risk to Richmond
County Savings or in the event Richmond County Savings converts its charter,
other than a mutual to stock conversion, or undergoes a change in control. As
of September 30, 1998, Richmond County Savings had $47.2 million of securities
which were permissible under such grandfathering authority.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized."
The FDIC has adopted regulations to implement the prompt corrective action
legislation. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and is not subject to a
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regulatory order, agreement or directive to meet and maintain a specific capital
level for any capital measure. An institution is deemed to be "adequately
capitalized" if it has a total risk-based capital ratio of 8% or greater, a
Tier I risk-based capital ratio of 4% or greater, and generally a leverage ratio
of 4% or greater. An institution is deemed to be "undercapitalized" if it has a
total risk-based capital ratio of less than 8%, a Tier I risk-based capital
ratio of less than 4%, or generally a leverage ratio of less than 4%. An
institution is deemed to be "significantly undercapitalized" if it has a total
risk-based capital ratio of less than 6%, a Tier I risk-based capital ratio of
less than 3%, or a leverage ratio of less than 3%. An institution is deemed to
be "critically undercapitalized" if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institution in an
amount equal to the lesser of 5% of the bank's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" bank fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks are subject to one or more of a number of additional
restrictions, including but not limited to an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks or dismiss
directors or officers, and restrictions on interest rates paid on deposits,
compensation of executive officers and capital distributions by the parent
holding company. "Critically undercapitalized" institutions also may not,
beginning 60 days after becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit for a
highly leveraged transaction or enter into any material transaction outside the
ordinary course of business. In addition, "critically undercapitalized"
institutions are subject to appointment of a receiver or conservator.
Generally, subject to a narrow exception, the appointment of a receiver or
conservator is required for a "critically undercapitalized" institution within
270 days after it obtains such status.
TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve Act
(the "Federal Reserve Act"). An affiliate of a savings bank is any company or
entity that controls, is controlled by, or is under common control with the
savings bank, other than a nonbanking subsidiary of the bank. In a holding
company context, at a minimum, the parent holding company of a savings bank and
any companies which are controlled by such parent holding company are affiliates
of the savings bank. The Board of Governors of the Federal Reserve System (the
"FRB") has proposed regulations that would treat as an affiliate any subsidiary
of a savings bank that engages in activities not permissible for the parent
savings bank to engage in directly. Generally, Section 23A limits the extent to
which the savings bank or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such savings bank's capital
stock and surplus, and contains an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus. The
term "covered transaction" includes the making of loans or other extensions of
credit to an affiliate; the purchase of assets from an affiliate, the purchase
of, or an investment in, the securities of an affiliate; the acceptance of
securities of an affiliate as collateral for a loan or extension of credit to
any person; or issuance of a guarantee, acceptance, or letter of credit on
behalf of an affiliate. Section 23A also establishes specific collateral
requirements for loans or extensions of credit to, or guarantees, acceptances on
letters of credit issued on behalf of an affiliate. Section 23B requires that
covered transactions and a broad list of other specified transactions be on
terms substantially the same, or no less favorable, to the savings bank or its
subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to any director,
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executive officer and stockholder who controls, directly or indirectly, 10% or
more of voting securities of a savings bank, and certain related interests of
any of the foregoing, may not exceed, together with all other outstanding loans
to such persons and affiliated entities, the savings bank's total unimpaired
capital and unimpaired surplus. Section 22(h) also prohibits loans above amounts
prescribed by the appropriate federal banking agency to directors, executive
officers, and stockholders who control 10% or more of voting securities of a
stock savings bank, and their respective related interests, unless such loan is
approved in advance by a majority of the board of directors of the savings bank.
Any "interested" director may not participate in the voting. The loan amount
(which includes all other outstanding loans to such person) as to which such
prior board of director approval is required, is the greater of $25,000 or 5% of
capital and surplus or any loans over $500,000. Further, pursuant to Section
22(h), loans to directors, executive officers and principal stockholders must be
made on terms, including interest rates and collateral, substantially the same
as offered in comparable transactions to other persons, must involve no more
than the normal risk of repayment or present other unfavorable features, and
must be made using credit underwriting procedures that are not less stringent
than those applicable in comparable transactions with other persons, except for
extensions of credit made pursuant to a benefit or compensation program that is
widely available to the institution's employees and does not give preference to
insiders over other employees. Section 22(g) of the Federal Reserve Act places
additional limitations on loans to executive officers.
ENFORCEMENT
The FDIC has extensive enforcement authority over insured savings banks,
including Richmond County Savings. This enforcement authority includes, among
other things, the ability to assess civil money penalties, to issue cease and
desist orders and to remove directors and officers. In general, these
enforcement actions may be initiated in response to violations of laws and
regulations and to unsafe or unsound practices.
The FDIC has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for an
insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically undercapitalized."
For this purpose, "critically undercapitalized" means having a ratio of tangible
equity to total assets of less than 2%. See "-- Prompt Corrective Regulatory
Action." The FDIC may also appoint a conservator or receiver for an insured
state savings bank on the basis of the institution's financial condition or upon
the occurrence of certain events, including: (i) insolvency (whereby the assets
of the savings bank are less than its liabilities to depositors and others);
(ii) substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound condition
to transact business; (iv) likelihood that the savings bank will be unable to
meet the demands of its depositors or to pay its obligations in the normal
course of business; and (v) insufficient capital, or the incurring or likely
incurring of losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital without federal
assistance.
INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (i) well capitalized,
(ii) adequately capitalized or (iii) undercapitalized, and one of three
supervisory subcategories within each capital group. The supervisory subgroup to
which an institution is assigned is based on a supervisory evaluation provided
to the FDIC by the institution's primary federal regulator and additional
information which the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Deposits of Richmond County Savings are
presently insured by the BIF. Assessment rates
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for BIF deposits, exclusive of assessments for Financing Corporation ("FICO")
bonds described below, currently range from 0 basis points to 27 basis points,
and the FDIC has determined to retain such range of assessment rates for the
second half of 1998. The FDIC is authorized to raise the assessment rates in
certain circumstances, including to maintain or achieve the designated reserve
ratio of 1.25%, which requirement the BIF currently meets. The FDIC has
exercised its authority to raise rates in the past and may raise insurance
premiums in the future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of Richmond County Savings. In addition, recent
legislation requires BIF insured institutions like Richmond County Savings to
assist in the payment of FICO bonds.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. The
management of Richmond County Savings does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
PAYMENT OF FICO BONDS
Beginning on January 1, 1997, BIF deposits are also assessed for payments
on bonds issued by FICO, which were issued in the late 1980's to recapitalize
the predecessor SAIF. For the third quarter of 1998, the FICO assessment rates,
on an annual basis, are 1.22 basis points for BIF assessable deposits and 6.10
basis points for SAIF assessable deposits. Full pro rata sharing of the FICO
payments by BIF members will occur on the earlier of January 1, 2000 or the date
the BIF and SAIF are merged.
FEDERAL RESERVE SYSTEM
The FRB regulations require depository institutions to maintain non-
interest-earning reserves against their transaction accounts (primarily NOW and
regular checking accounts). The FRB regulations generally require that reserves
be maintained against aggregate transaction accounts as follows: for that
portion of transaction accounts aggregating $47.8 million or less (subject to
adjustment by the FRB) the reserve requirement is 3%; and for accounts greater
than $47.8 million, the reserve requirement is $1.4 million plus 10% (subject to
adjustment by the FRB between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustments by the FRB) are exempted
from the reserve requirements. Richmond County Savings is in compliance with
the foregoing requirements. Because required reserves must be maintained in the
form of either vault cash, a non-interest-bearing account at a Federal Reserve
Bank or a pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce Richmond County Savings' interest-earning assets.
COMMUNITY REINVESTMENT ACT
NEW YORK STATE REGULATION. Richmond County Savings is also subject to
provisions of the NYBL that impose continuing and affirmative obligations upon
banking institutions organized in New York State to serve the credit needs of
its local community ("NYCRA"), which are substantially similar to those imposed
by the CRA, as amended. Pursuant to the NYCRA, a bank must file copies of all
federal CRA reports with the NYBD. The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's application to engage
in certain transactions, including mergers, asset purchases and the
establishment of branch offices or automated teller machines, and provides that
such assessment may serve as a basis for the denial of any such application.
The New York regulations require a biennial assessment of a bank's compliance
with the NYCRA, utilizing a four-tiered rating system, and require the NYBD to
make available to the public such rating and a written summary of the results.
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FEDERAL REGULATION. Under the CRA, as implemented by FDIC regulations, a
savings bank has a continuing and affirmative obligation consistent with its
safe and sound operation to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the FDIC, in connection with its examination of a
savings institution, to assess the institution's record of meeting the credit
needs of its community and to take such record into account in its evaluation of
certain applications by such institution. The FDIC utilizes a four-tier
descriptive rating system in its CRA evaluations. Public disclosure is made of
such evaluations.
HOLDING COMPANY REGULATION
FEDERAL REGULATION. As a unitary savings and loan holding company,
Richmond County generally is not restricted under existing laws as to the types
of business activities in which it may engage. Upon any non-supervisory
acquisition by Richmond County of another savings association to be held as a
separate subsidiary, the Company would become a multiple savings and loan
holding company and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act of 1956, as amended (the
"BHC Act"), subject to the prior approval of the OTS, and to other activities
authorized by OTS regulations. Multiple savings and loan holding companies are
prohibited from acquiring or retaining, with certain exceptions, more than 5% of
the voting shares of a non-subsidiary holding company or other company engaged
in activities other than those permitted by the HOLA.
Recently enacted legislation provides that the BIF and the SAIF will merge
on January 1, 1999 if there are no more savings associations as of that date.
Several bills have been introduced in the current Congress that would eliminate
the federal thrift charter and the OTS. The bill that was passed by the House
of Representatives in May 1998 would subject unitary savings and loan holding
companies to the activities restrictions generally applicable to other
depository institution holding companies under the legislation and would not
require state savings banks, such as Richmond County Savings, to change their
charter. A grandfathering provision would allow existing unitary savings and
loan holding companies to continue to engage in activities permitted a unitary
savings and loan holding company under existing law and that grandfather could
be transferred to acquirers. Unless the grandfather date in the bill is
changed, Richmond County would qualify for the grandfather if the legislation is
enacted. Richmond County Savings in unable to predict whether the legislation
will be enacted or, given such uncertainty, determine the extent to which the
legislation, if enacted, would affect its business.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings association or holding company thereof or
from acquiring such an institution or company by merger, consolidation or
purchase of its assets, without prior written approval of the OTS. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
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In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the FRB),
Richmond County Savings must continue to qualify as a Qualified Thrift Lender
("QTL"). In order to qualify as a QTL, Richmond County Savings must maintain
compliance with a Qualified Thrift Lender Test ("QTL Test"). Under the QTL
Test, a savings institution is required to maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12
month period. A holding company of a savings institution that fails the QTL
test must either convert to a bank holding company and thereby become subject to
the regulation and supervision of the FRB or operate under certain
restrictions. As of June 30, 1998, Richmond County Savings maintained in excess
of 65% its portfolio assets in qualified thrift investments. Richmond County
Savings also met the QTL test in each of the prior 12 months and, therefore, met
the QTL test. Recent legislative amendments have broadened the scope of
"qualified thrift investments" that go toward meeting the QTL test to fully
include credit card loans, student loans and small business loans. A savings
association may also satisfy the QTL test by qualifying as a "domestic building
and loan association" as defined in the Code.
NEW YORK STATE HOLDING COMPANY REGULATION. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in New York State may be also subject to regulation under the NYBL. The term
"bank holding company," for the purposes of the NYBL, is defined generally to
include any person, company or trust that directly or indirectly either controls
the election of a majority of the directors or owns, controls or holds with
power to vote more than 10% of the voting stock of a bank holding company or, if
the company is a banking institution, another banking institution, or 10% or
more of the voting stock of each of two or more banking institutions, including
commercial banks and state savings banks and savings and loan associations
organized in stock form. In general, a holding company controlling, directly or
indirectly, only one banking institution will not be deemed to be a bank holding
company for the purposes of the NYBL. Under NYBL, the prior approval of the
NYBD is required before: (i) any action is taken that causes any company to
become a bank holding company; (ii) any action is taken that causes any banking
institution to become or to be merged or consolidated with a subsidiary of a
bank holding company; (iii) any bank holding company acquires direct or indirect
ownership or control of more than 5% of the voting stock of a banking
institution; (iv) any bank holding company or subsidiary thereof acquires all or
substantially all of the assets of a banking institution; or (v) any action is
taken that causes any bank holding company to merge or consolidate with another
bank holding company. Additionally, certain restrictions apply to New York State
bank holding companies regarding the acquisition of banking institutions which
have been chartered five years or less and are located in smaller communities.
Officers, directors and employees of New York State bank holding companies are
subject to limitations regarding their affiliation with securities underwriting
or brokerage firms and other bank holding companies and limitations regarding
loans obtained from its subsidiaries.
INTERSTATE BANKING AND BRANCHING
Richmond County, as a savings and loan holding company, is limited under
HOLA with respect to its acquisition of a savings association located in a state
other than New York. In general, a savings and loan holding company may not
acquire an additional savings association subsidiary that is located in a state
other than the home state of its first savings association subsidiary unless
such an interstate acquisition is permitted by the statutes of such other state.
Many states permit such interstate acquisitions if the statutes of the home
state of the acquiring savings and loan holding company satisfy various
reciprocity conditions. New York is one of a number of states that permit out-
of-state bank and savings and loan holding companies to acquire New York savings
banks and savings associations.
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In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The FRB may not approve an acquisition under the BHC Act that would result in
the acquiring holding company controlling more than 10% of the deposits in the
United States or more than 30% of the deposits in any particular state.
In the past, branching across state lines was not generally available to a
state bank such as Richmond County Savings. Out-of-state branches of savings
banks are authorized under the NYBL, but similar authority does not exist
generally under the laws of most other states. The Interstate Banking Act
permitted, beginning June 1, 1997, the responsible federal banking agencies to
approve merger transactions between banks located in different states,
regardless of whether the merger would be prohibited under the law of the two
states. The Interstate Banking Act also permitted a state to "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and permitted a
state to "opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation, beginning June 1, 1997, before that date. Accordingly,
the Interstate Banking Act, permits a bank, such as Richmond County Savings, to
acquire branches in a state other than New York unless the other state has opted
out of the Interstate Banking Act. The Interstate Banking Act also authorizes
de novo branching into another state if the host state enacts a law expressly
permitting out-of-state banks to establish such branches within its borders.
The Interstate Banking Act may facilitate the further consolidation of the
banking industry. The effect of the Interstate Banking Act on Richmond County
Savings, if any, is likely to occur as banking institutions, state legislators,
and bank regulators respond to the new federal regulatory structure. The states
will have to establish appropriate corporate law, tax and regulatory structures
to adjust to the growth of new interstate banks.
DESCRIPTION OF RICHMOND COUNTY CAPITAL STOCK
GENERAL
The authorized capital stock of Richmond County consists of 75,000,000
shares of Richmond County Common Stock and 5,000,000 shares of preferred stock,
par value $0.01 per share ("Richmond County Preferred Stock"), issuable in one
or more series with such terms and at such times and for such consideration as
the Richmond County Board determines. As of July 19, 1998, 26,423,550 shares of
Richmond County Common Stock and no shares of Richmond County Preferred Stock
had been issued.
As of September 30, 1998, 3,699,297 shares of Richmond County Common Stock
had been reserved for issuance pursuant to the Richmond County Incentive Plan.
The following description contains a summary of all the material features
of the capital stock of Richmond County but does not purport to be complete and
is subject in all respects to the applicable provisions of the DGCL.
COMMON STOCK
The outstanding shares of Richmond County Common Stock are fully paid and
nonassessable. Except as discussed below, holders of Richmond County 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. Holders
of Richmond County Common Stock are not entitled to cumulative voting rights
with respect to the
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election of directors. The Richmond County Common Stock is neither redeemable
nor convertible into other securities, and there are no sinking fund provisions.
As provided in Richmond County's Certificate of Incorporation, for voting
purposes, holders of Richmond County Common Stock who beneficially own in excess
of 10% of the outstanding shares of Richmond County Common Stock (the "Limit")
are not entitled to any vote in respect of the shares held in excess of the
Limit and are not treated as outstanding for voting purposes. A person or
entity is deemed to beneficially own shares owned by an affiliate of, as well as
by persons acting in concert with, such person or entity. Richmond County's
Certificate of Incorporation authorizes the Richmond County Board (i) to make
all determinations necessary to implement and apply the Limit, including
determining whether persons or entities are acting in concert, and (ii) to
demand that any person who is reasonably believed to beneficially own stock in
excess of the Limit to supply information to Richmond County to enable the
Richmond County Board to implement and apply the Limit.
Subject to the preferences applicable to any shares of Richmond County
Preferred Stock outstanding at the time, holders of Richmond County Common Stock
are entitled to dividends when and as declared by the Richmond County 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.
Richmond County's Certificate of Incorporation and Bylaws provide that the
Richmond County 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 Richmond County
are elected at each special meeting of the stockholders. In addition, Richmond
County's Bylaws provide that the power to fill vacancies is vested in the
Richmond County Board. The overall effect of such provisions may be to prevent
a person or entity from seeking to acquire control of Richmond County through an
increase in the number of directors on the Richmond County Board and the
election of designated nominees to fill such newly created vacancies.
PREFERRED STOCK
Richmond County Preferred Stock may be issued with such designations,
powers, preferences and rights as the Richmond County Board may from time to
time determine. The Richmond County Board can, without stockholder approval,
issue Richmond County Preferred Stock with voting, dividend, liquidation and
conversion rights which could dilute the voting strength of the holders of the
Richmond County Common Stock and may assist management in impeding an unfriendly
takeover or attempted change in control. Richmond County presently does not have
plans to issue Richmond County Preferred Stock.
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
Richmond County and Bayonne are both Delaware corporations subject to
the provisions of the DGCL. If the Bayonne Merger is consummated, the holders
of Bayonne Common Stock, whose rights are currently protected by the DGCL and
governed under the Bayonne Certificate of Incorporation and the Bayonne Bylaws
will, at the Bayonne Effective Time, become stockholders of Richmond County and
continue to have rights protected by DGCL Law but governed under the Richmond
County Certificate of Incorporation and Richmond County Bylaws. There are no
material differences between the rights of the holders of Bayonne Common Stock
and the rights of holders of Richmond County Common Stock. Copies of such
governing instruments of Richmond County and Bayonne are available, without
charge, to any person, including any beneficial owner, to whom this Joint Proxy
Statement/Prospectus is delivered, on written or oral request, in the case of
documents relating to Richmond County, to Richmond County Financial Corp.,
1214 Castleton Avenue, Staten Island, New York 10310, Attention: Thomas R.
Cangemi, telephone number (718) 448-2800, and in the case of Bayonne, by
following the instructions listed under "WHERE YOU CAN FIND MORE INFORMATION."
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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following statements set forth certain selected condensed financial
information for Richmond County and Bayonne and Ironbound, on an unaudited pro
forma condensed combined consolidated basis giving effect to the Bayonne Merger
and Ironbound Merger applying the purchase method of accounting. The pro forma
condensed statements of income reflecting the Bayonne Merger and Ironbound
Merger assume the acquisitions of Bayonne and Ironbound were consummated on the
first day of each of the periods presented. Due to Richmond County, Bayonne and
Ironbound having different fiscal year ends, the pro forma condensed statement
of income for the year ended June 30, 1998 reflects the combination of each
entities fiscal year end with Richmond County's June 30 year end.
The unaudited pro forma condensed balance sheet presents the combined
financial position of Richmond County and Bayonne as of September 30, 1998. The
unaudited pro forma condensed balance sheet reflects (i) the acquisition of
Bayonne and the acquisition of Ironbound applying the purchase method of
accounting; and (ii) certain adjustments that are directly attributable to the
Bayonne Merger and the Ironbound Merger, including allocation of the purchase
price for both mergers. The pro forma condensed balance sheet assumes that the
acquisition of Bayonne and the acquisition of Ironbound were consummated as of
September 30, 1998.
The unaudited pro forma condensed financial statements have been prepared
based upon currently available information and assumptions deemed appropriate by
management of Richmond County, Bayonne and Ironbound. This pro forma
information may not be indicative of what actual results would have been, nor
does such data purport to represent the combined financial results of Richmond
County, Bayonne and Ironbound for future periods.
There may be certain costs savings and/or revenue enhancements that will
result from the Bayonne Merger and the Ironbound Merger; the information
furnished in the Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements does not reflect either the cost savings or the revenue enhancements
that may or may not be achieved.
91
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
BAYONNE BANCSHARES, INC.
IRONBOUND BANKCORP, NJ
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
(UNAUDITED)
AT SEPTEMBER 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RICHMOND
COUNTY/
RICHMOND PRO FORMA BAYONNE
COUNTY BAYONNE ADJUSTMENTS PRO FORMA
---------- -------- -------------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks........................ $ 22,764 $ 3,042 $ (4,862)/(2)/ $ 25,025
4,081 /(3)/
Federal funds sold............................. 4,200 5 4,205
Securities held-to-maturity.................... -- 11,708 220 /(3)/ 11,928
Securities available for sale, net............. 831,670 324,457 1,156,127
Loans receivable:
Real estate mortgage loans................. 765,799 278,719 (804)/(3)/ 1,043,714
Other loans................................ 16,679 33,105 49,784
Less allowance for loan losses............. (7,920) (3,035) (10,955)
---------- -------- -------- ---------
Total loans receivable, net.................... 774,558 308,789 (804) 1,082,543
Federal Home Loan Bank of
New York stock................................ 20,375 10,511 30,886
Banking premises and equipment, net............ 13,530 5,524 881 /(3)/ 19,935
Accrued interest receivable.................... 11,514 3,901 15,415
Excess of cost over fair value of net
assets acquired and other intangibles......... -- -- 28,560 /(4)/ 28,560
Other real estate owned........................ 340 501 841
Other assets................................... 13,664 4,219 17,883
---------- -------- -------- ----------
Total assets............................... $1,692,615 $672,657 $ 28,076 $2,393,348
========== ======== ======== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Liabilities:
Deposits................................... $ 953,506 $420,749 $ (906)(3) $1,373,349
Borrowings................................. 400,000 146,750 1,832 /(3)/ 548,582
Accrued expenses and other liabilities..... 9,283 10,006 (380)/(3)/ 18,675
(234)/(3)/
---------- -------- ------------ ----------
Total liabilities........................ 1,362,789 577,505 312 1,940,606
Stockholders' equity:
Preferred stock............................ -- -- --
Common stock............................... 264 91 (91)/(8)/ 360
96 /(2)/
Additional paid-in-capital................. 254,288 60,995 (60,995)/(8)/ 379,928
125,640 /(2)/
Retained earnings-substantially
restricted................................ 107,529 44,999 (44,999)/(8)/ 107,529
Unallocated common stock held
by the ESOP............................... (33,274) (4,081) 4,081 /(8)/ (33,274)
Unamortized Management Retention
Plan shares............................... -- (2,987) 2,987 /(8)/ (2,820)
Treasury stock............................. -- -- 2,820 /(3)/ --
Comprehensive income:
Unrealized gain (loss) on
securities available-for-sale,
net of taxes........................... 1,019 (3,865) 3,865 /(8)/ 1,019
---------- -------- -------- ----------
Total stockholders' equity............. 329,826 95,152 27,764 452,742
Total liabilities and stockholders'
equity.................................... $1,692,615 $672,657 $ 28,076 $2,393,348
========== ======== ======== ==========
<CAPTION>
ALL COMBINED
PRO FORMA TRANSACTIONS
IRONBOUND ADJUSTMENTS PRO FORMA
--------- -------------- ------------
<S> <C> <C> <C>
ASSETS:
Cash and due from banks........................ $ 4,070 $(2,030)/(5)/ $ 27,064
Federal funds sold............................. 12,318 16,523
Securities held-to-maturity.................... 43,129 92 /(6)/ 55,149
Securities available for sale, net............. 10,718 1,166,845
Loans receivable:
Real estate mortgage loans................. 38,467 (250)/(6)/ 1,081,931
Other loans................................ 3,335 53,119
Less allowance for loan losses............. (857) (11,812)
-------- ------- ----------
Total loans receivable, net.................... 40,945 (250) 1,123,238
Federal Home Loan Bank of
New York stock................................ -- 30,886
Banking premises and equipment, net............ 2,601 100 /(6)/ 22,636
Accrued interest receivable.................... 785 16,200
Excess of cost over fair value of net
assets acquired and other intangibles...... -- 16,130 /(7)/ 44,690
Other real estate owned........................ 149 990
Other assets................................... 587 18,470
-------- ------- ----------
Total assets............................... $115,302 $14,041 $2,522,691
======== ======= ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
Liabilities:
Deposits................................... $102,828 $ (69)/(6)/ $1,476,108
Borrowings................................. -- 548,582
Accrued expenses and other liabilities..... 945 4 /(6)/ 19,624
--
-------- ------- ----------
Total liabilities........................ 103,773 (65) 2,044,314
Stockholders' equity:
Preferred stock............................ -- --
Common stock............................... 5,213 (5,213)/(8)/ 374
14 /(5)/
Additional paid-in-capital................. 4,301 (4,301)/(8)/ 405,549
25,621 /(5)/
Retained earnings-substantially
restricted................................ 2,631 (2,631)/(8)/ 107,529
Unallocated common stock held
by the ESOP............................... -- (33,274)
Unamortized MRP shares..................... -- (2,820)
--
Treasury stock............................. (672) 672 /(8)/ --
Comprehensive income:
Unrealized gain (loss) on
securities available-for-sale,
net of taxes........................... 56 (56)/(8)/ 1,019
-------- ------- ----------
Total stockholders' equity................. 11,529 14,106 478,377
Total liabilities and stockholders'
equity.................................... $115,302 $14,041 $2,522,691
======== ======= ==========
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS."
92
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
BAYONNE BANCSHARES, INC.
IRONBOUND BANKCORP, NJ
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RICHMOND PRO FORMA
COUNTY BAYONNE ADJUSTMENTS
------------ ----------- -----------
<S> <C> <C> <C>
Interest income....................... $ 27,662 $ 11,137 $ (2)/(9)/
Interest expense...................... 12,599 6,735 58 /(9)/
----------- ----------- -----
Net interest income................... 15,063 4,402 (60)
Provision for loan losses............. 750 75 --
----------- ----------- -----
Net interest income after
provision for loan losses............ 14,313 4,327 (60)
Non-interest income................... 1,844 538 --
Non-interest expense.................. 7,632 2,768 476 /(4)/ /(11)/
----------- ----------- -----
Income before income taxes............ 8,525 2,097 (535)
Provision for income taxes............ 3,171 776 (18)
----------- ----------- -----
Net income............................ $ 5,354 $ 1,321 $(518)
=========== =========== =====
Weighted average shares outstanding:
Basic................................. 24,362,800 9,041,000
Diluted............................... 24,362,800 9,174,637
Earnings per share....................
Basic................................. $ 0.22 $ 0.15
Diluted............................... $ 0.22 $ 0.15
</TABLE>
<TABLE>
<CAPTION>
RICHMOND
COUNTY/ ALL COMBINED
BAYONNE PRO FORMA TRANSACTIONS
PRO FORMA IRONBOUND ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Interest income....................... $ 38,797 $ 1,950 $ (28)/(10)/ $ 40,719
Interest expense...................... 19,391 697 (2)/(10)/ 20,086
----------- ---------- ----- -----------
Net interest income................... 19,406 1,253 (26) 20,633
Provision for loan losses............. 825 -- -- 825
----------- ---------- ----- -----------
Net interest income after
provision for loan losses............ 18,581 1,253 (26) 19,808
Non-interest income................... 2,382 172 -- 2,554
Non-interest expense.................. 10,876 902 269 /(7)//(11)/ 12,047
----------- ---------- ----- -----------
Income before income taxes............ 10,087 523 (295) 10,315
Provision for income taxes............ 3,929/(12)/ 186 (178) 3,937/(12)/
----------- ---------- ----- -----------
Net income............................ $ 6,158 $ 337 $(117) $ 6,378
=========== ========== ===== ===========
Weighted average shares outstanding:
Basic................................. 33,938,302 997,158 35,384,181
Diluted............................... 34,078,621 1,031,527 35,558,889
Earnings per share....................
Basic................................. $ 0.18 $ 0.34 $ 0.18
Diluted............................... $ 0.18 $ 0.34 $ 0.18
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS."
93
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
BAYONNE BANCSHARES, INC.
IRONBOUND BANKCORP, NJ
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
RICHMOND ALL
COUNTY/ COMBINED
RICHMOND PRO FORMA BAYONNE PRO FORMA TRANSACTIONS
COUNTY BAYONNE ADJUSTMENTS PRO FORMA IRONBOUND ADJUSTMENTS PRO FORMA
-------- ------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income.................. $86,754 $40,860 $ (9)/(9)/ $127,605 $7,695 $ (110)/(10)/ $135,190
Interest expense................. 37,512 24,872 229 /(9)/ 62,613 2,610 (9)/(10)/ 65,214
------- ------- ------- -------- ------ ------- --------
Net interest income.............. 49,242 15,988 (238) 64,992 5,085 (101) 69,976
Provision for loan losses........ 2,200 180 -- 2,380 -- -- 2,380
------- ------- ------- -------- ------ ------- --------
Net interest income after
provision for loan losses....... 47,042 15,808 (238) 62,612 5,085 (101) 67,596
Non-interest income.............. 3,601 1,343 -- 4,944 723 -- 5,667
Contribution to the Foundation... 19,558 -- -- 19,558 -- -- 19,558
Non-interest expense............. 24,488 10,170 1,904 36,562 3,843 1,075 41,480
------- ------- ------- -------- ------ ------- --------
Income before income taxes....... 6,597 6,981 (2,142) 11,436 1,965 (1,176) 12,225
Provision (benefit) for income
taxes........................... 2,071 2,602 (484) 4,189/(12)/ 705 (717) 4,177/(12)/
------- ------- ------- -------- ------ ------- --------
Net income....................... $ 4,526 $ 4,379 $(1,658) $ 7,247 $1,260 $ (459) $ 8,048
======= ======= ======= ======== ====== ======= ========
Weighted average shares
outstanding:
Basic.......................... 24,328,143 8,865,966 33,903,645 1,035,461 35,349,524
Diluted........................ 24,328,143 8,963,512 34,006,069 1,058,163 35,474,650
Earnings (loss) per share:
Basic.......................... $ (0.16) $ 0.49 $ 0.21 $ 1.22 $ 0.23
Diluted........................ $ (0.16) $ 0.49 $ 0.21 $ 1.19 $ 0.23
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS."
94
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
BAYONNE BANCSHARES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
(1) Basis of Presentation
The Unaudited Pro Forma Condensed Combined Consolidated Statement of
Financial Condition as of September 30, 1998 has been prepared as if the Bayonne
Merger and the Ironbound Merger had been consummated on that date. The Unaudited
Pro Forma Condensed Combined Consolidated Statement of Income for the fiscal
year ended June 30, 1998 and the three months ended September 30, 1998 were
prepared as if the Bayonne Merger and the Ironbound Merger had been consummated
on July 1, 1997. The Unaudited Pro Forma Combined Condensed Consolidated
Financial Statements are based on the historical financial statements of
Richmond County, Bayonne and Ironbound after giving effect to the Bayonne Merger
and the Ironbound Merger under the purchase method of accounting and the
assumptions and adjustments in the notes that follow.
Assumptions relating to the pro forma adjustments set forth in the
Unaudited Pro Forma Condensed Combined Consolidated Financial Statements are
summarized as follows:
(i) Estimated fair values -- Estimated fair values for securities
held-to-maturity, loans, deposits and borrowings were obtained from
Bayonne's 1998 Annual Report to Shareholders -- Footnote number 15 of
"Notes to Consolidated Financial Statements" -- Fair Value of Financial
Instruments and Ironbound's 1997 Annual Report to Shareholders -- Footnote
number 11 of "Notes to Consolidated Financial Statements" -- Fair Value of
Financial Instruments. The resulting net discount/premium on securities
held-to-maturity and loans, respectively, for purposes of these pro forma
financial statements, is being accreted/amortized to interest income on a
straight-line basis over four and ten years, respectively. The actual
discount/premium will be accreted/amortized to interest income to produce a
constant yield to maturity. The resulting net premium and discount on
deposits and borrowings, respectively, is being amortized/accreted into
interest expense on a straight-line basis over their remaining estimated
lives of five years.
(2) The cost to acquire Bayonne has been allocated as described in the table
below:
<TABLE>
<CAPTION>
<S> <C>
Value of Richmond County Common Stock issued to acquire Bayonne Common Stock
(assumes 9,119,526 shares of Bayonne Common Stock multiplied by 1.05 and the
price per share of $13.131, the closing average price of Richmond County Common
Stock for the five day period before and after the announcement of the Amended and
Restated Bayonne Merger Agreement)............................................................ $125,736
Acquisition -- related costs:
Transaction costs incurred by Richmond County.................................................. 2,700
Severance and other payouts to Bayonne employees, net of tax................................... 2,162
-----------------
Total -- acquisition related costs............................................................... 4,862
-----------------
Total costs.................................................................................... $130,598
=================
</TABLE>
95
<PAGE>
(3) Purchase accounting adjustments recorded for the Bayonne transaction were
as follows:
<TABLE>
<CAPTION>
<S> <C>
Bayonne net assets-historical at September 30, 1998........................................................ $95,152
Adjustments to Bayonne's statement of condition:
Termination of the Bayonne ESOP (Payoff of intercompany loan payable)............................... 4,081
Termination of the Bayonne ESOP (Payoff of loan payable with third party)........................... 380
Merging of the Bayonne 1995 RRP shares into the Richmond County Management Retention Plan Trust..... 2,820
Fair value adjustments:
Securities held-to-maturity......................................................................... 220
Loans receivable.................................................................................... (804)
Premises and equipment, net......................................................................... 881
Deposits............................................................................................ 906
Borrowings.......................................................................................... (1,832)
---------
Subtotal -- net fair value adjustments.................................................................. (629)
Tax effects of fair value adjustments at 37.2%.......................................................... 234
---------
Total net adjustments to net assets acquired............................................................ 6,886
---------
Net assets acquired..................................................................................... $102,038
=========
</TABLE>
(4) Excess of cost over fair value of net assets acquired for the Bayonne
Merger was calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Total cost............................................................................................ $130,598
Net assets acquired................................................................................... (102,038)
-----------
Total excess of cost over fair value of net assets acquired
generated from the Bayonne Merger............................................................... $ 28,560
===========
</TABLE>
(5) The cost to acquire Ironbound has been allocated as described in the
table below:
<TABLE>
<CAPTION>
<S> <C>
Value of Richmond County Common Stock issued to acquire Ironbound Common Stock........................ $25,635
(assumes 997,158 shares of Ironbound Common Stock multiplied by 1.45
and the price per share of $17.73, the closing average price of
Richmond County Common Stock for the five day period before and after the
announcement of the Ironbound Merger)
Acquisition -- related costs:
Transaction costs incurred by Richmond.......................................................... 675
Severance and other payouts to Ironbound employees.............................................. 1,356
----------
Total acquisition -- related costs.................................................................... 2,031
----------
Total costs..................................................................................... $27,666
==========
</TABLE>
(6) Purchase accounting adjustments recorded for the Ironbound Merger were
as follows:
<TABLE>
<CAPTION>
<S> <C>
Ironbound net assets-historical at September 30, 1998................................................. $11,529
Fair value adjustments:
Securities held-to-maturity...................................................................... 92
Loans receivable................................................................................. (250)
Premises and equipment, net...................................................................... 100
Deposits......................................................................................... 69
---------
Subtotal -- net fair value adjustments................................................................ 11
Tax effects of fair value adjustments at 37.2%........................................................ (4)
--------
Total net adjustments to net assets acquired.......................................................... 7
--------
Net assets acquired................................................................................... $11,536
========
</TABLE>
96
<PAGE>
(7) Excess of cost over fair value of net assets acquired for the Ironbound
Merger was calculated as follows:
<TABLE>
<CAPTION>
<S> <C>
Total cost.............................................................................. $ 27,666
Net assets acquired..................................................................... (11,536)
---------------
Total excess of cost over fair value of net assets acquired
Generated from the Ironbound acquisition.......................................... $ 16,130
===============
</TABLE>
(8) Purchase accounting adjustments to eliminate Bayonne's and Ironbound's
stockholders' equity accounts.
(9) Pro forma adjustments to interest income and interest expense were
calculated for the Bayonne Merger as follows:
<TABLE>
<CAPTION>
For The For The
Fiscal Year Ended Three Months Ended
June 30, 1998 September 30, 1998
--------------- ---------------
<S> <C> <C>
Reduction in interest income for cash utilized
for transaction costs (based on an
average annual rate of 5.49%)................................. $ (34) $ (8)
Amortization of premium on securities (4 years)................... (55) (14)
Accretion of discount on loans (10 years)......................... 80 20
--------------- ---------------
Total net adjustment to
interest income......................................... $ (9) $ (2)
=============== ===============
Amortization of premium on fixed assets (20 years)................ $ 44 $ 11
Accretion of discount on deposits (5 years)....................... (181) (45)
Amortization of premium on borrowings (5 years)................... 366 92
--------------- ---------------
Total net adjustment to
interest expense........................................ $ 229 $ 58
=============== ===============
</TABLE>
(10) Pro forma adjustments to interest income and interest expense were
calculated for the Ironbound Merger as follows:
<TABLE>
<CAPTION>
For The For The
Fiscal Year Ended Three Months Ended
June 30, 1998 September 30, 1998
--------------- ---------------
<S> <C> <C>
Reduction in interest income for cash utilized
for transaction costs (based on an
average annual rate of 5.49%).............................. $(112) $(28)
Amortization of premium on securities (4 years)................ (23) (6)
Accretion of discount on loans (10 years)...................... 25 6
--------------- ---------------
Total net adjustment to
interest income...................................... $(110) $(28)
=============== ===============
Amortization of premium on fixed assets (20 years)............. $ 5 $ 1
Accretion of discount on deposits (5 years).................... (14) (3)
--------------- ---------------
Total net adjustment to
interest expense..................................... $ (9) $ (2)
=============== ===============
</TABLE>
(11) The amortization of the excess of cost over the fair value of net assets
acquired for the Bayonne Merger and Ironbound Merger transactions is
assumed straight-line over a period of fifteen years.
(12) Income tax expense was calculated using Richmond County's actual three
months ended September 30, 1998 and fiscal year ended June 30, 1998
effective tax rates of 37.2%, and 31.4%, respectively, adjusted for the
non-deductability of the amortization charge of the excess of cost over
the fair value of net assets acquired.
97
<PAGE>
(13) Basic earnings per share is calculated by dividing net income since the
Conversion on February 18, 1998 by the weighted average number of common
shares outstanding. Diluted earnings per common share is circulated using
the same method as basic earnings per common share, but reflects potential
dilution of common stock equivalents. Basic and diluted weighted average
number of common and common stock equivalents utilized for the calculation
of earnings per share for the periods presented were calculated using
Richmond County's historical weighted average common and common stock
equivalents plus 9,575,502 and 1,445,879, and common stock equivalents,
when dilutive, issued to Bayonne and Ironbound stockholders, respectively,
under the terms of the Bayonne Merger and the Ironbound Merger.
(14) The following table summarizes the estimated impact of the amortization and
accretion of the purchase accounting adjustments made in connection with
the Bayonne Merger and Ironbound Merger on Richmond County's results of
operations for the five years:
<TABLE>
<CAPTION>
Projected Future Excess of Cost
Amounts For The Over Fair Value Net Net Decrease
Fiscal Years Ended of Net Assets (Accretion) In Income
June 30, Acquired Amortization Before Taxes
------------------ --------------- ------------ ------------
<S> <C> <C> <C>
1999 $ 2,979 $ 193 $ 3,172
2000 2,979 193 3,172
2001 2,979 193 3,172
2002 2,979 193 3,172
2003 2,979 115 3,094
2004 and thereafter 29,796 (1,505) 28,291
------- ------- -------
$44,691 $ (618) $44,073
======= ======= =======
</TABLE>
98
<PAGE>
ADDITIONAL MATTERS TO BE CONSIDERED AT THE BAYONNE MEETING
ELECTION OF DIRECTORS
The Bayonne Board currently consists of six directors and is divided into
three classes. Each of the six members of the Bayonne Board also presently
serves as a director of First Savings. Mr. Sam P. Lamparello, who served as a
director of both Bayonne and First Savings, passed away in February 1998. The
Bayonne Board subsequently reduced the size of the Bayonne Board from seven to
six members. Directors are elected for staggered terms of three years each,
with the term of office of only one of the three classes of directors expiring
each year. Directors serve until their successors are elected and qualified.
The two nominees proposed for election at the Bayonne Meeting are Patrick F.X.
Nilan and Joseph L. Wisniewski. No person being nominated as a director is
being proposed for election pursuant to any agreement or understanding between
any such person and Bayonne.
In the event that any such nominee is unable to serve, or declines to serve
for any reason, it is intended that the proxies will be voted for the election
of such other person as may be designated by the present Bayonne Board. The
Bayonne Board has no reason to believe that any of the persons named will be
unable or unwilling to serve. UNLESS AUTHORITY TO VOTE FOR THE NOMINEES IS
WITHHELD, IT IS INTENDED THAT THE SHARES REPRESENTED BY THE ENCLOSED PROXY CARD,
IF EXECUTED AND RETURNED, WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
PROPOSED BY THE BAYONNE BOARD.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
NOMINEES NAMED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
INFORMATION WITH RESPECT TO THE NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS OF BAYONNE
The following table sets forth, as of the Bayonne Record Date, the names of
the nominees and continuing directors of Bayonne, as defined below; their ages;
a brief description of their recent business experience, including present
occupations and employment; certain directorships held by each; the year in
which each became a director and the year in which their terms (or in the case
of the nominees, their proposed terms) as director of Bayonne expire. The table
also sets forth the amount of Bayonne Common Stock and the percent thereof
beneficially owned by each director and all directors and executive officers as
a group as of the Bayonne Record Date.
99
<PAGE>
<TABLE>
<CAPTION>
NAME AND PRINCIPAL EXPIRATION OF
OCCUPATION AT PRESENT DIRECTOR TERM AS
AND FOR PAST FIVE YEARS AGE SINCE/(1)/ DIRECTOR
- ----------------------- --- ---------- -------------
NOMINEES
<S> <C> <C> <C>
Patrick F.X. Nilan/(2)/ 68 1963 2001
Chairman of the Board of Bayonne and First Savings.
Mr. Nilan served as President and Chief Executive Officer
of First Savings until his retirement in June 1997.
Joseph L. Wisniewski 67 1967 2001
Retired Senior Vice President of First Savings.
Mr. Wisniewski was employed by First Savings in various
capacities from 1956 until his retirement in August 1996.
CONTINUING DIRECTORS
James F. Sisk 59 1983 2000
Mr. Sisk was the Public Safety Director of the City of
Bayonne until June 1998. He served as the Chief of Police
of the City of Bayonne until 1996.
Patrick D. Conaghan 61 1986 1999
Partner in the law firm of Conaghan & Conaghan.
Frederick G. Whelpley 77 1973 1999
Retired Chief Executive Officer of Bayonne Hospital.
Michael A. Nilan/(2)/ 34 1997 1999
President and Chief Executive Officer of Bayonne since
February 1997 and First Savings since July 1997.
Mr. Nilan was employed by First Savings in various
capacities prior to assuming the positions of President and
Chief Executive Officer of Bayonne and First Savings.
NAMED EXECUTIVE OFFICERS
WHO ARE NOT DIRECTORS
Eugene V. Malinowski, C.P.A. 58 -- --
Vice President and Chief Financial Officer of Bayonne and
First Savings. Prior to joining First Savings, Mr.
Malinowski was Vice President, Chief Operating Officer
and Chief Financial Officer of a telephone reseller, and
prior to that was Executive Vice President and Chief
Financial Officer of a commercial bank.
Directors and executive officers as a Group (10 persons) -- -- --
</TABLE>
______________________________
(1) Includes years of service as a Director of First Savings.
(2) Patrick F.X. Nilan is the father of Michael A. Nilan.
100
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Michael A. Nilan, President and Chief Executive Officer of Bayonne and First
Savings, participated in deliberations of the Compensation Committee of the
Bayonne Board concerning executive officer compensation during the past fiscal
year. Additionally, Patrick F.X. Nilan, who retired as President and Chief
Executive Officer of First Savings during fiscal 1998, also participated in
deliberations concerning executive officer compensation. Neither Michael A.
Nilan nor Patrick F.X. Nilan participated in deliberations concerning their own
individual compensation for fiscal 1998.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. In connection with the Second-Step Conversion, and as a
result of the transition to operating as a publicly owned company, the Bayonne
Board determined to restructure the compensation of directors to emphasize
stock-based incentives and reduce the reliance on cash-based compensation.
Accordingly, in 1997, the Bayonne Board reduced the quarterly retainer for non-
employee directors by 50% and the fees paid to non-employee directors for each
meeting attended by 33 1/3%. Non-employee directors presently receive $1,000
for each board of directors meeting attended, plus a $3,000 retainer each
quarter. The Chairman of the Board receives $1,330 for each board of directors
meeting attended, plus a quarterly retainer of $3,750. Non-employee directors
serving on the Asset/Liability Committee and the Audit Committee are paid $250
for each meeting attended, and non-employee directors serving on the Security
and Investment Committee are paid $500 monthly.
In 1987, First Savings, prior to its reorganization into the mutual holding
company form of organization, entered into annuity compensation agreements with
each of First Savings' current directors. First Savings paid all of its
obligations under the agreements in 1987, and therefore, the agreements do not
represent a current expense for First Savings. Pursuant to the agreements,
First Savings currently pays each outside director an annual benefit of $16,000.
The payments will continue to be made over the lifetime of each outside director
with no fewer than 120 monthly payments, which commenced in 1992, to be made to
each director or his beneficiary, and are in addition to other fees received by
directors. These agreements are fully funded by Presidential Life Insurance
Company and First Savings is a mere conduit for payments to each outside
director.
CONSULTING AGREEMENT. Bayonne and Patrick F.X. Nilan entered into a three
year consulting agreement subsequent to Mr. Nilan's retirement as President and
Chief Executive Officer of First Savings. Pursuant to the agreement, Mr. Nilan
will provide advice with respect to all areas in which Bayonne or First Savings
does business and in which Mr. Nilan has special knowledge, skill and expertise,
utilize his business and industry contacts to assist with the implementation of
First Savings' business plan, represent Bayonne and First Savings at civic and
community functions, and advise Bayonne and First Savings on strategic planning
matters, government affairs, industry trends and economic factors affecting
First Savings' business and future prospects. Mr. Nilan is paid a fee of
$100,000 annually for his services.
INCENTIVE PLAN. Bayonne's stockholders approved the Bayonne Incentive Plan
under which all directors of Bayonne and First Savings are eligible to receive
stock-based compensation awards. Under the Bayonne Incentive Plan, each outside
director of Bayonne and First Savings was granted non-statutory stock options to
purchase 24,346 shares of Bayonne Common Stock (with "Limited Rights" as
defined below), and awards of 9,738 shares of Bayonne Common Stock ("Stock
Awards") (collectively, the "Directors' Awards") on April 27, 1998, which vest
in five equal installments commencing April 27, 1999. The Limited Rights
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<PAGE>
provide, in the event of a change in control, a lump sum cash payment equal to
the difference between the exercise price of the related option and the fair
market value of the shares of Bayonne Common Stock subject to the option on the
date of exercise, less any applicable tax withholding. The non-statutory stock
option awards vest in five equal annual installments commencing on April 27,
1999, and have an exercise price of $16.31. All options granted under the
Bayonne Incentive Plan expire ten years from the date of grant. In the event an
outside director ceases service due to death or disability, all Directors'
Awards will immediately vest or become exercisable and all stock options will
remain exercisable for a period of three years.
EXECUTIVE COMPENSATION
The report of the Compensation Committee of Bayonne (the "Compensation
Committee") and the stock performance graph shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act or the Exchange Act, except
as to the extent that Bayonne specifically incorporates this information by
reference, and shall not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. Under rules
established by the SEC, Bayonne is required to provide certain data and
information in regard to the compensation and benefits provided to Bayonne's
Chief Executive Officer and other executive officers of Bayonne for the fiscal
year ended March 31, 1998. The disclosure requirements for the Chief Executive
Officer and other executive officers include a report explaining the rationale
and considerations that led to fundamental compensation decisions affecting
those individuals.
The following policies and procedures were utilized to determine executive
compensation levels for fiscal 1998. As a result of the Second-Step Conversion
and other operational changes, subjective qualitative measures were more heavily
relied upon by the Compensation Committee than quantitative measures.
COMPENSATION POLICIES AND PROCEDURES. The Compensation Committee consists
of the entire Bayonne Board. The Compensation Committee is responsible for
administering the compensation and benefit programs for the executive officers
and employees of Bayonne and First Savings and to make recommendations regarding
the amount and composition of compensation paid to the executive officers,
including the President and Chief Executive Officer. Members of the
Compensation Committee who are employees of Bayonne or First Savings, however,
do not participate in the Compensation Committee's determination of their own
compensation package.
The Compensation Committee's goal is to establish executive compensation
policies that:
. Link the interests of management and stockholders;
. Link executive compensation with the long-term performance of Bayonne
and its subsidiaries;
. Attract, retain and reward highly qualified and productive persons;
. Link compensation to individual performance; and
. Establish compensation levels that are internally equitable and
externally competitive with comparable financial institutions.
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The compensation program developed by the Compensation Committee to achieve
these goals consists primarily of (i) a base salary; (ii) an annual bonus; and
(iii) stock-based compensation. In addition, executive officers participate in
other benefit plans available to all employees, including a retirement plan, the
Bayonne ESOP, and the Bayonne 401(k) Plan.
As a result of the Second-Step Conversion of First Savings into the stock
holding company structure, the Compensation Committee revised the executive
compensation policies to reflect the status of Bayonne as a public company. The
Compensation Committee believes that the compensation policies it has
established contributed to the success of Bayonne in making the transition to a
publicly owned company, as well as to the increase in net income and earnings
per share, recorded by Bayonne for the year ended March 31, 1998.
BASE SALARY. The Compensation Committee annually reviews and evaluates base
salary for all executive officers, and in conducting such reviews places primary
consideration upon First Savings' overall objectives and performance, peer group
comparisons and individual performance. In addition, salary levels reflect an
individual officer's responsibilities and experience and the Compensation
Committee's evaluation of competitive marketplace conditions.
Salary levels recommended by the Compensation Committee are intended to be
consistent and competitive with the practices of comparable financial
institutions and each executive's level of responsibility. The Compensation
Committee generally utilizes internal and/or external surveys of compensation
paid to executive officers performing similar duties for depository institutions
and their holding companies with particular focus on the level of compensation
paid by comparable institutions in the metropolitan New York region. For the
fiscal year ended March 31, 1998, the Compensation Committee utilized an
internal survey prepared by an independent compensation consultant.
Although the Compensation Committee's recommendations are discretionary and
no specific formula is used for decision making, salary determinations reflect
the overall performance of Bayonne and First Savings and the performance of the
individual executive officer. In addition, for the fiscal year ended March 31,
1998, the Compensation Committee gave consideration to the adjustments required
to be made by each executive officer in response to the transition of Bayonne to
a publicly owned entity in determining the appropriate salary levels.
ANNUAL INCENTIVES. In determining annual bonus awards, the Compensation
Committee considers the entire compensation package of each executive officer.
Although all determinations by the Compensation Committee regarding bonuses paid
to executive officers are discretionary and no specific formula is used for
awarding bonuses, the primary factors considered by the Compensation Committee
include the profitability of Bayonne and First Savings, the level of
responsibility of each executive officer and their contribution to the financial
performance of Bayonne and First Savings. No particular weighting of the
factors considered by the Compensation Committee is used to calculate bonuses.
STOCK-BASED COMPENSATION. Bayonne maintains stock benefit plans, discussed
in more detail below, for the purpose of providing long-term incentives to its
employees, including executive officers, through the award of stock options and
restricted stock awards. The Compensation Committee believes that stock options
and restricted stock awards align the interests of management with stockholders
because the executive officers receive value if the market value of the Bayonne
Common Stock increases. Under Bayonne's stock option plans, the exercise price
of options granted to executive officers is equal to or greater
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than the market value of the Bayonne Common Stock on the date of grant.
Therefore, the options have value only to the extent the share price of the
Bayonne Common Stock increases. Furthermore, although the Compensation Committee
has discretion to determine the terms of options and stock awards granted to
executive officers and other employees of Bayonne and First Savings, options and
stock awards granted under Bayonne's plans typically vest in equal annual
installments over a period of five years, which provides incentives to
management to maximize both short-term and long-term stockholder value. The
Compensation Committee considered past awards of stock options and restricted
stock awards, as well as possible future awards, in determining the overall
compensation package of each executive officer.
BAYONNE 1995 STOCK OPTION PLAN. During the fiscal year ended March 31,
1996, First Savings adopted the Bayonne 1995 Stock Option Plan, which was
subsequently adopted by Bayonne. Subsequent to the adoption of the Bayonne 1995
Stock Option Plan, all of the executive officers of First Savings received
grants of options to purchase shares of First Savings Common Stock, which
options commenced vesting in equal annual installments of 20% on August 9, 1996.
Upon consummation of the Second-Step Conversion, Bayonne adopted the Bayonne
1995 Stock Option Plan and each option to purchase First Savings Common Stock
under such plan was exchanged for 2.933 options to purchase Bayonne Common
Stock. The Compensation Committee did not make any additional awards under the
Bayonne 1995 Stock Option Plan during fiscal 1998.
BAYONNE 1995 RRP. First Savings adopted the Bayonne 1995 RRP and made
awards of restricted stock to all of the executive officers of First Savings in
July 1995. The awards commenced vesting in equal annual installments of 20% on
July 28, 1996. Upon consummation of the Second-Step Conversion, Bayonne adopted
the Bayonne 1995 RRP, and all previously awarded, but unvested shares of First
Savings Common Stock and any shares that had not yet been awarded were converted
into 2.933 shares of Bayonne Common Stock. The Compensation Committee did not
make any additional awards under the Bayonne 1995 RRP during fiscal 1998.
BAYONNE INCENTIVE PLAN. Due in part to Bayonne's transition to a publicly
owned company and the desire of the Bayonne Board to link executive compensation
to the performance of the Bayonne Common Stock, the Bayonne Board adopted the
Bayonne Incentive Plan, which the stockholders approved on March 27, 1998.
Pursuant to the Bayonne Incentive Plan, executive officers and other employees
of Bayonne and First Savings are eligible to receive grants of stock options to
purchase shares of Bayonne Common Stock (with Limited Rights) and Stock Awards.
Subject to certain adjustments to prevent dilution of stock options and Stock
Awards granted to participants, the maximum number of shares reserved for
purchase pursuant to the exercise of options and option-related Awards that may
be granted under the Bayonne Incentive Plan is 486,919 shares. The maximum
number of the shares reserved for Stock Awards is 194,768 shares.
A committee of non-employee directors of Bayonne makes awards under the
Bayonne Incentive Plan and determines the terms of all awards. Options granted
may be intended to qualify as incentive stock options under Section 422 of the
Code. Incentive stock options afford tax benefits to the recipient upon
compliance with certain conditions set forth in the Code and do not result in
tax deductions for Bayonne. The Limited Rights provide, in the event of a
change in control, a lump sum cash payment equal to the difference between the
exercise price of the related option and the fair market value of the shares of
Bayonne Common Stock subject to the option on the date of exercise, less any
applicable tax withholding. In no event may options be exercised more than ten
years from the date of grant. The committee of outside directors that
administers the Bayonne Incentive Plan may condition the vesting of options and
Stock Awards granted under the plan on the attainment of predetermined
performance goals.
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No awards were made under the Bayonne Incentive Plan during fiscal 1998.
Prior to granting awards under the Bayonne Incentive Plan, Bayonne retained an
independent compensation consultant to review the current compensation of
executive officers and to make recommendations as to awards to such officers
under the Incentive Plan. Following review and consideration of the
compensation consultant's report, the committee determined on April 27, 1998, to
grant both stock options and stock awards pursuant to the Bayonne Incentive Plan
to certain executive officers of Bayonne and First Savings. All of the stock
options and stock awards initially granted will vest in equal annual
installments of 20% commencing on April 27, 1999.
CHIEF EXECUTIVE OFFICER. Michael A. Nilan entered into an employment
agreement with First Savings during fiscal 1998 that provides for a base salary
of $150,000. In addition, Mr. Nilan was paid a bonus of $2,000 for fiscal 1998
and participated in the benefit plans available to all officers and employees of
Bayonne and First Savings. No specific formula was used in connection with the
Compensation Committee's decisions regarding Mr. Nilan's base salary, bonus and
other compensation, nor did the Compensation Committee set specified
compensation levels based on the achievement of particular quantifiable
objectives or financial goals of Bayonne and First Savings. Rather, the
Compensation Committee considered the overall financial performance of Bayonne
and First Savings, the responsibilities and experience of Mr. Nilan and the
individual contributions made by Mr. Nilan. Specifically, the factors
considered by the Compensation Committee in determining Michael A. Nilan's
overall compensation package included:
. The profits recorded by Bayonne and First Savings for fiscal year
1998;
. The increase in the market value of Bayonne's Common Stock;
. The successful implementation of Bayonne's strategic business plan and
the continued operation of First Savings in a safe and sound manner;
. Actions taken by Michael A. Nilan to facilitate the transition of
Bayonne to a publicly owned entity; and
. Michael A. Nilan's active participation on behalf of Bayonne and First
Savings in civic and community events.
THE COMPENSATION COMMITTEE
Patrick F.X. Nilan
Joseph L. Wisniewski
James F. Sisk
Patrick D. Conaghan
Frederick G. Whelpley
Michael A. Nilan
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STOCK PERFORMANCE GRAPH
The following graph shows a comparison of total stockholder return on
Bayonne's Common Stock, based on the market price of the Bayonne Common Stock
with the cumulative total return of companies in The Nasdaq Market Index and the
Nasdaq Stock Bank for the period beginning on January 9, 1995, the day Bayonne's
Common Stock began trading, through June 30, 1998. The data was supplied by
Media General Financial Services.
COMPARATIVE FIVE-YEAR TOTAL RETURNS
BAYONNE BANCSHARES, INC., NASDAQ MARKET INDEX AND MG GROUP INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
Bayonne Nasdaq Nasdaq
Measurement Period Bancshares, Stock Market
(Fiscal Year Covered) Inc. Bank Index
- --------------------- --------------- --------- ----------
<S> <C> <C> <C>
Measurement Pt-01/09/1995 $100.00 $100.00 $100.00
FYE 12/29/1995 $159.98 $143.09 $129.71
FYE 12/31/1996 $220.48 $183.09 $161.18
FYE 12/31/1997 $132.21 $309.26 $197.16
FYE 03/31/1998 $147.03 $325.04 $231.07
FYE 06/30/1998 $156.11 $319.76 $237.04
</TABLE>
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SUMMARY COMPENSATION TABLE. The following table shows, for the year ended
March 31, 1998, the cash compensation paid, as well as certain other
compensation paid or accrued for that year to the Named Executive Officers of
Bayonne and First Savings in fiscal year 1998. No other executive officer of
Bayonne or First Savings earned and/or received salary and bonus in excess of
$100,000 in fiscal year 1998.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION/(1)/ AWARDS PAYOUTS
--------------------------------------- -------------------------- -------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITIONS YEAR ($)/(1)/ ($) ($) ($)/(2)/ (#)/(3)/ ($) ($)
- ------------------- ------- -------------- --------- ------------ ------------ -------------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael A. Nilan/(5)/....... 1998 $ 150,000 $ 2,000 -- -- -- -- $82,229/(4)/
President and Chief 1997 99,000 5,000 -- -- -- -- 36,354
Executive Officer
Patrick F.X. Nilan/(6)/..... 1998 $ 217,625 $ --- -- -- -- -- $98,229/(4)/
Chairman of Bayonne and 1997 470,000 37,500 -- -- -- -- 82,008
First Savings; former 1996 432,597 75,000 -- 176,540 33,950 -- 38,203
President and
Chief Executive Officer
of First Savings
Eugene V. Malinowski........ 1998 $ 116,000 $ 12,000 -- -- -- -- $ --
Vice President and Chief
Financial Officer
</TABLE>
- ----------------------------------------
(1) Includes compensation deferred at the election of the officer pursuant to
the Bayonne 401(k) Plan. Salary for Patrick F.X. Nilan includes $106,250
received for services as President and Chief Executive Officer of First
Savings through June 30, 1997, $36,375 in directors fees, and $75,000 in
fees for services as a consultant to Bayonne and First Savings.
(2) Messrs. Michael A. and Patrick F.X. Nilan were awarded 2,852 and 13,580
shares of First Savings Common Stock (the "First Savings Common Stock"),
respectively, pursuant to the Bayonne 1995 RRP. The awards were granted on
July 28, 1995, and had a fair market value of $13.00, based upon the closing
price per share of First Savings Common Stock on the date of grant. Awards
granted under the Bayonne 1995 RRP vest in equal installments at a rate of
20% per year commencing on July 28, 1996, unless otherwise determined by the
Bayonne Board. Awards will be 100% vested upon termination of employment
due to death, disability or following a change in control. Upon
consummation of the Second-Step Conversion, Bayonne adopted the Bayonne 1995
RRP as a plan of Bayonne and issued Bayonne Common Stock in lieu of First
Savings Common Stock to the Bayonne 1995 RRP in accordance with its terms.
As of the effective date of the Second-Step Conversion, rights outstanding
under the Plan were assumed by Bayonne and constitute rights only for shares
of Bayonne Common Stock, with each such right being for a number of shares
of Bayonne Common Stock equal to the number of shares of First Savings
Common Stock that were available thereunder immediately prior to such
effective date multiplied by the exchange ratio of 2.933 (the "Plan Exchange
Ratio"). The price of each right has been adjusted to reflect the Plan
Exchange Ratio so that the aggregate purchase price of the right is
unaffected, but there is no change in the other terms and conditions of the
rights. Accordingly, at March 31, 1998, the number of shares awarded to
Messrs. Michael A. and Patrick F.X. Nilan pursuant to the Bayonne 1995 RRP,
as adjusted for the Second-Step Conversion, was 8,365 and 39,830,
respectively, with a market value of $124,429 and $592,471, respectively,
based upon the closing price of the Bayonne Common Stock on that date of
$14.875 per share.
(3) Messrs. Michael A. and Patrick F.X. Nilan were awarded options to purchase
3,449 and 33,950 shares of First Savings Common Stock, respectively, on
August 9, 1995 pursuant to the Bayonne 1995 Stock Option Plan. Pursuant to
the Bayonne 1995 Stock Option Plan, options commenced vesting in five equal
annual installments on August 9, 1996, with an exercise price of $13.00.
Upon consummation of the Second-Step Conversion, Bayonne adopted the Bayonne
1995 Stock Option Plan and agreed to issue shares of its Common Stock in
lieu of First Savings Common Stock in accordance with the terms of such
plan. Accordingly, the number of options awarded to Messrs. Michael A. and
Patrick F.X. Nilan pursuant to the Bayonne 1995 Stock Option Plan, as
adjusted for the Second-Step Conversion, was 10,115 and 99,575,
respectively. The adjusted exercise price of the options is $4.43. All of
the options awarded to Patrick F.X. Nilan immediately vested upon his
retirement on June 30, 1997.
(4) Includes $16,000 received by Patrick F.X. Nilan pursuant to First Savings
annuity compensation agreements. Includes the value of 10,029 and 13,429
shares allocated to Michael A. Nilan and Patrick F.X. Nilan, respectively,
pursuant to the Bayonne ESOP as of March 31, 1998. Does not include amounts
contributed by First Savings pursuant to First Savings' noncontributory
defined benefit plan, First Savings' nonqualified supplemental executive
retirement income-deferred compensation agreements, automobile insurance on
personal vehicles used in lieu of automobiles supplied by First Savings, nor
reimbursement of mileage while on company business.
(5) Michael A. Nilan was appointed President and Chief Executive Officer of
Bayonne on February 6, 1997.
(6) Patrick F.X. Nilan retired from the positions of President and Chief
Executive Officer of First Savings effective June 30, 1997. He continues to
serve as Chairman of the Boards of Bayonne and First Savings. Effective
July 1, 1997, Michael A. Nilan was appointed President and Chief Executive
Officer of First Savings.
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EMPLOYMENT AGREEMENTS. Subsequent to the Second-Step Conversion, Bayonne
and First Savings entered into employment agreements with Mr. Michael A. Nilan
(the "Executive"). The employment agreements are intended to ensure that
Bayonne and First Savings will be able to maintain a stable and competent
management base after the Second-Step Conversion.
The employment agreements, as amended and restated, provide for a three-
year term for the Executive. First Savings' employment agreement provides that,
commencing on the first anniversary date and continuing each anniversary date
thereafter, the board of directors of First Savings will review the agreements
and the Executive's performance for purposes of determining whether to extend
the agreement with First Savings for an additional year, such that the new term
would be the same as the original term. The Bayonne employment agreement
automatically extends daily, such that the new term is the same as the original
term unless written notice of non-renewal is given by the Bayonne Board after
conducting a performance evaluation of the Executive. The base salary for the
Executive under the employment agreements is $150,000. In addition to the base
salary, the employment agreements provide for, among other things, participation
in stock benefit plans and other fringe benefits applicable to executive
personnel. The employment agreements provide for termination by Bayonne or
First Savings for cause, as defined in the agreements, at any time. In the
event Bayonne or First Savings chooses to terminate the Executive's employment
for reasons other than for cause, or in the event of the Executive's resignation
from Bayonne or First Savings upon: (i) failure to re-elect the Executive to
his current offices; (ii) a material change in the Executive's functions, duties
or responsibilities; (iii) a relocation of the Executive's principal place of
employment by more than 25 miles; (iv) liquidation or dissolution of Bayonne or
First Savings; or (v) a breach of the agreement by Bayonne or First Savings, the
Executive or, in the event of death, his beneficiary, is entitled to receive the
remaining base salary payments due to the Executive and the contributions that
would have been made on the Executive's behalf to any employee benefit plans of
Bayonne or First Savings during the remaining term of the agreements. Bayonne
or First Savings will also continue and pay for the Executive's life, health and
disability coverage for the remaining term of the employment agreements.
The employment agreements provide for severance payments in the event of a
change in control. If voluntary or involuntary termination follows a "change in
control" of Bayonne or First Savings, as defined in the employment agreements,
the Executive or, in the event of death, his beneficiary, will be entitled to a
payment equal to the greater of: (i) the payments due for the remaining term of
the agreement; or (ii) a severance payment equal to three times the average of
the five preceding taxable years' compensation. Bayonne and First Savings would
also continue the Executive's life, health, and disability coverage for 36
months.
Payments to the Executive under First Savings' employment agreement will be
guaranteed by Bayonne in the event that payments or benefits are not paid by
First Savings. Payments under the Bayonne employment agreement will be made by
Bayonne. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the employment
agreements will be paid by Bayonne or First Savings if the Executive is
successful on the merits pursuant to a legal judgment, arbitration or
settlement. The employment agreements also provide that Bayonne and First
Savings will indemnify the Executive to the fullest extent allowable under
federal and Delaware law, respectively. In the event of a change in control of
Bayonne or First Savings, the total amount of payments that would be due under
the employment agreements, based solely on cash compensation paid to Mr. Michael
A. Nilan over the past three fiscal years and excluding any benefits under any
employee benefit plan that may be payable, would be approximately $237,000. The
Bayonne Merger constitutes a change in control under the terms of the employment
agreements.
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CHANGE IN CONTROL AGREEMENTS. Subsequent to the Second-Step Conversion,
First Savings entered into change in control agreements with three executive
officers of First Savings and Bayonne entered into change in control agreements
with Mr. Malinowski and another executive officer (collectively, the "CIC
Agreements"). Such agreements have terms of three years. The CIC Agreements
provide that commencing on the first anniversary date and continuing on each
anniversary thereafter, First Savings' CIC Agreements may be renewed by the
Bayonne Board for an additional year while the term of Bayonne's CIC Agreements
are extended on a daily basis unless written notice of non-renewal is given by
the Bayonne Board. The CIC Agreements with Bayonne also provide that in the
event voluntary or involuntary termination follows a change in control of First
Savings or Bayonne, the officer is entitled to receive a severance payment equal
to three times the officer's average annual compensation for the five years
preceding termination, depending on the term of the officers' CIC Agreement.
First Savings' CIC Agreements have a similar change in control provision;
however, the officer would only be entitled to receive a severance payment under
one agreement. Bayonne and First Savings will also continue, and pay for, the
officer's life, health and disability coverage for 36 months following
termination. Payments to the officer under First Savings' CIC Agreements will
be guaranteed by Bayonne in the event that payments or benefits are not paid by
First Savings. In the event of a change in control of First Savings or Bayonne,
the total payments that would be due under the CIC Agreements, based solely on
the cash compensation paid to the officers covered by the CIC Agreements over
the past three fiscal years and excluding any benefits under any employee
benefit plan that may be payable, would be approximately $886,000 million. The
Bayonne Merger constitutes a change in control under the terms of the CIC
Agreements.
RETIREMENT PLAN. First Savings maintains a retirement plan pursuant to
which all employees age 21 or older who have worked at First Savings for a
period of six months are eligible to accrue benefits. First Savings annually
contributes an amount to the retirement plan necessary to satisfy the
actuarially determined minimum funding requirements in accordance with the
ERISA. The retirement plan operates on a plan year beginning December 15 each
year. Immediately following the execution of the Bayonne Merger Agreement,
Bayonne took all appropriate steps to "freeze" benefit accruals under the
retirement plan.
At the normal retirement age of 65 (or the fifth anniversary of plan
participation, if later), the plan is designed to provide a life annuity
guaranteed for ten years. The retirement benefit provided is an amount equal to
2% of a participant's average monthly salary, multiplied by the total number of
years of service from the date of employment to normal retirement date. This
amount is reduced by approximately .63% of average monthly salary up to the
covered compensation wage base (as defined in the retirement plan) multiplied by
the total number of years of service (up to a maximum of 35 years).
Notwithstanding the above formula, the retirement plan will pay a minimum
monthly benefit equal to 2% of monthly salary, times years of service up to ten
years of service. Retirement benefits are also payable upon retirement due to
early and late retirement, disability or death. A reduced benefit is payable
upon early retirement at or after age 55 and the completion of ten years of
service with First Savings. Upon termination of employment other than as
specified above, a participant is eligible to receive his vested accrued benefit
as a retirement annuity commencing on such participant's normal date. Benefits
are payable in various annuity forms with the normal form being an annuity for
the participant's life, with a minimum guarantee of payments for five years. For
the plan year ended December 14, 1998, First Savings made a contribution to the
retirement plan of $259,000.
The following table indicates the annual retirement benefit that would be
payable under the retirement plan upon retirement at age 65 in calendar year
1997, expressed in the form of a life annuity with
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a five year guaranteed payment for the final average salary and benefit service
classification specified below. Benefits payable under the retirement plan are
not subject to a deduction for social security or other amounts.
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
------------------------------------------------------------------------------------------------------
HIGH 5 YEAR FINAL
AVERAGE
EARNINGS/(1)/ 5 10 15 20 25 30 35 40
- ----------------- -------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 2,000 $ 4,000 $ 4,125 $ 5,500 $ 6,875 $ 8,250 $ 9,625 $ 11,625
$ 40,000 4,000 8,000 9,188 12,250 15,313 18,375 21,438 25,438
$ 60,000 6,000 12,000 15,188 20,250 25,313 30,375 35,438 41,438
$ 80,000 8,000 16,000 21,188 28,250 35,313 42,375 49,438 57,438
$100,000 10,000 20,000 27,188 36,250 45,313 54,375 63,438 73,438
$150,000 15,000 30,000 42,188 56,250 70,313 84,375 98,438 113,438
$152,000 /(2)/ 15,200 30,400 42,788 57,050 71,313 85,575 99,838 115,038
$152,000 /(2)/ 15,200 30,400 42,788 57,050 71,313 85,575 99,838 115,038
</TABLE>
- -----------------------
(1) High five-year average monthly earnings means the average of a participant's
monthly earnings in the five consecutive years yielding the highest such
average while a participant in the retirement plan. For participants with
less than five years of service, it is the average of monthly earnings for
all complete calendar years of participation.
(2) Limited due to maximum earnings limits under Section 401(a)(17) of the Code.
As of December 14, 1997, officers Michael A. Nilan, Patrick F.X. Nilan and
Eugene V. Malinowski had 11, 37 and one year of credit service, respectively,
and accrued benefits under the retirement plan equal to annual retirement
benefits of $16,061, $149,436 and $0, respectively. Mr. Patrick F.X. Nilan
retired from First Savings on June 30, 1997 and received a lump sum benefit
payment of $1.6 million under the retirement plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME-DEFERRED COMPENSATION AGREEMENTS.
First Savings has previously maintained supplemental executive retirement
agreements for certain executives of First Savings and their beneficiaries whose
benefits from the tax-qualified defined benefit plan maintained by First Savings
were reduced by reason of (i) the annual limitation on benefits and
contributions imposed by Section 415 of the Code and (ii) the limitation imposed
by Section 401(a)(17) of the Code with respect to compensation that can be taken
into consideration in the determination of benefits. The lump sum payments
represented the present value of the executives' accrued annual benefits under
the supplemental executive retirement agreements based on a current actuarial
valuation. First Savings determined that paying the participants in a lump sum
would benefit First Savings over time by saving the annual accruals that would
otherwise be required to fund the supplemental executive retirement agreements.
First Savings has discontinued this plan.
110
<PAGE>
OPTION EXERCISES AND YEAR-END VALUE. Set forth below is certain
information concerning exercised and unexercisable options during the fiscal
year ended March 31, 1998 for the Named Executive Officers.
<TABLE>
<CAPTION>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT FISCAL THE-MONEY OPTIONS AT
SHARES YEAR-END/(1)/ FISCAL YEAR-END/(2)/
ACQUIRED ------------------------- -------------------------
UPON VALUE
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Michael A. Nilan.................. - - 4,046/6,069 $42,260/$63,390
Patrick F.X. Nilan................ 62,391 $518,762/(3)/ 37,184/0 $ 388,387/$0
Eugene V. Malinowski.............. - - -/- -/-
</TABLE>
- ------------------------------
(1) Represents the number of options of Bayonne Common Stock held as of
March 31, 1998.
(2) Equals the difference between the $4.43 exercise price of such options and
the aggregate fair market value of the shares of Bayonne Common Stock that
would be received upon exercise, assuming such exercise occurred on March
31, 1998, at which date the last sale of the Bayonne Common Stock, as quoted
on the Nasdaq National Market, was at $14.875 per share.
(3) The market price of the Bayonne Common Stock on September 30, 1997, the date
Mr. Patrick F.X. Nilan exercised 42,476 options, was $12.625, and the market
price of the Bayonne Common Stock on February 10, 1998, the date
Mr. Patrick F.X. Nilan exercised 19,915 options, was $13.00.
TRANSACTIONS WITH CERTAIN RELATED PERSONS. All loans made by First
Savings to its directors and executive officers are made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more than
the normal risk of collectibility or present other unfavorable features. First
Savings is permitted to offer loans to executive officers and directors on terms
not available to the public, but available to other employees, in accordance
with recently modified federal regulations. Under First Savings's existing
policy, any loan to an executive officer or director, must be approved, in
advance, by a majority of the disinterested members of the Bayonne Board.
111
<PAGE>
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Bayonne's independent auditors for the fiscal year ended March 31, 1998
were KPMG Peat Marwick LLP. The Bayonne Board has reappointed KPMG Peat Marwick
LLP to continue as independent auditors for First Savings and Bayonne for the
year ending March 31, 1999, subject to ratification of such appointment by the
stockholders.
Representatives of KPMG Peat Marwick LLP will be present at the Bayonne
Meeting. They will be given an opportunity to make a statement if they desire
to do so and will be available to respond to appropriate questions from
stockholders present at the Bayonne Meeting.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY
CARD WILL BE VOTED FOR RATIFICATION OF THE APPOINTMENT OF KPMG PEAT MARWICK LLP
AS THE INDEPENDENT AUDITORS OF BAYONNE.
THE BAYONNE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT AUDITORS OF BAYONNE.
112
<PAGE>
ADDITIONAL INFORMATION
STOCKHOLDER PROPOSALS
To be considered for inclusion in Bayonne's proxy statement and form of
proxy relating to the 1999 Bayonne Meeting of Stockholders, which will be held
if the Merger is not completed, a stockholder proposal must be received by the
Corporate Secretary of Bayonne at the address set forth on the first page of
this Joint Proxy Statement/Prospectus not later than _____ __, 1999. Any such
proposal will be subject to 17 C.F.R. (S) 240.14a-8 of the Rules and Regulations
under the Exchange Act.
NOTICE OF BUSINESS TO BE CONDUCTED AT A BAYONNE MEETING
The Bylaws of Bayonne set forth the procedures by which a stockholder may
properly bring business before a meeting of stockholders. The Bylaws of Bayonne
provide an advance notice procedure for a stockholder to properly bring business
before an annual meeting. The stockholder must give written advance notice to
the Secretary of Bayonne not less than 90 days before the date originally fixed
for such meeting; provided, however, that in the event that less than 100 days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the tenth day following the date on which
Bayonne's notice to stockholders of the annual meeting date was mailed or such
public disclosure was made. The advance notice by stockholders must include the
stockholder's name and address, as they appear on Bayonne's record of
stockholders, a brief description of the proposed business, the reason for
conducting such business at the annual meeting, the class and number of shares
of Bayonne's capital stock that are beneficially owned by such stockholder and
any material interest of such stockholder in the proposed business. In the case
of nominations to the Bayonne Board, certain information regarding the nominee
must be provided. Nothing in this paragraph shall be deemed to require Bayonne
to include in its proxy statement or the proxy relating to any annual meeting
any stockholder proposal which does not meet all of the requirements for
inclusion established by the SEC in effect at the time such proposal is
received.
LEGAL MATTERS
The validity of the shares of Richmond County Common Stock which will be
issued in the Bayonne Merger will be passed upon for Richmond County by Muldoon,
Murphy & Faucette, Washington, D.C. In addition, Muldoon, Murphy & Faucette,
Washington, D.C., will pass upon the tax-free nature of the Bayonne Merger for
Richmond County and __________________________________ will pass on the tax-
free nature of the Bayonne Merger for Bayonne.
EXPERTS
The consolidated financial statements of Richmond County and subsidiary as
of June 30, 1998 and 1997, and for each of the years in the three-year period
ended June 30, 1998, attached hereto as ANNEX E 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 Ernst & Young LLP,
independent public accountants, attached hereto as ANNEX E, and upon the
authority of said firm as experts in accounting and auditing.
113
<PAGE>
The consolidated financial statements of Bayonne and subsidiaries as of
March 31, 1998 and 1997, and for each of the years in the three-year period
ended March 31, 1998 incorporated by reference in the 1998 Bayonne 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 Peat Marwick LLP, independent
public accountants, incorporated by reference in the 1998 Bayonne Form 10-K and
incorporate by reference herein, and upon the authority of said firm as experts
in accounting and auditing.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the 1999
Annual Meeting of Richmond County must be received by Richmond County Financial
Corp. at 1214 Castleton Avenue, Staten Island, New York 10310 no later than
________________ to be eligible for inclusion in the proxy statement and form of
proxy. Any such proposal shall be subject to 17 C.F.R. (S)240.14a-8 promulgated
by the SEC under the Exchange Act.
114
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL"), inter alia,
empowers a Delaware corporation to indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
by reason of the fact that such person is or was a director, officer, employee
or agent of another corporation or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. Similar indemnity is authorized for such person against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of any such threatened, pending or completed action or
suit if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the corporation, and provided
further that (unless a court of competent jurisdiction otherwise provides) such
person shall not have been adjudged liable to the corporation. Any such
indemnification may be made only as adjudged liable to the corporation. Any
such indemnification may be made only as authorized in each specific case upon a
determination by the stockholders or disinterested directors or by independent
legal counsel in a written opinion that indemnification is proper because the
indemnitee has met the applicable standard of conduct.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation or enterprise,
as a director, officer, employee or agent of another corporation or enterprise,
against any liability asserted against him, and incurred by him in any such
capacity, or arising out of his status as such, whether or not the corporation
would otherwise have the power to indemnify him under Section 145.
The Registrant has also entered into employment agreements with certain
executive officers, which agreements require that the Registrant maintain a
directors' and officers' liability policy for the benefit of such officers and
that the Registrant will indemnify such officers to the fullest extent permitted
by law.
In addition, pursuant to the Bayonne 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 Bayonne or its direct or indirect subsidiaries, and each
officer or employee of Bayonne or its direct or indirect subsidiaries who is
serving or has served as a director or trustee of another entity expressly at
Bayonne's request or direction, with respect to matters existing or occurring
prior to the effective time of the Bayonne Merger. The Registrant has also
agreed in the Bayonne Merger Agreement to maintain for a period of three years
following the effective time of the Bayonne Merger the directors' and officers'
liability insurance coverage maintained by Bayonne (or substantially equivalent
coverage under substitute policies) with respect to any claims arising out of
any actions or omissions occurring prior to the effective time of the Bayonne
Merger.
In accordance with the DGCL (being Chapter 1 of Title 8 of the Delaware
Code), Articles 10 and 11 of the Registrant's Certificate of Incorporation
provide as follows:
<PAGE>
TENTH:
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a Director or
an Officer of the Corporation or is or was serving at the request of the
Corporation as a Director, Officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a Director, Officer, employee or agent or in any other
capacity while serving as a Director, Officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or
may hereafter be amended (but, in the case amendment, only to the extent
that such amendment permits the Corporation to provide broader
indemnification rights than such law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss
(including attorneys' fees, judgment, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered
by such indemnitee in connection therewith; provided, however, that, except
as provided in Section C hereof with respect to proceedings to enforce
rights to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof) initiated by
such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter and "advancement of expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an advancement of
expenses incurred by an indemnitee in his or her capacity as a Director or
Officer (and not in any other capacity in which service was or is rendered
by such indemnitee, including, without limitation, service to an employee
benefit plan) shall be made only upon delivery to the Corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such
indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right
to appeal (hereinafter a "final adjudication") that such indemnitee is not
entitled to be indemnified for such expenses under this Section or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in Section A and B of this Article TENTH shall be contract rights
and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid
in full by the Corporation within sixty days after a written claim has been
received by the Corporation, except in the case of a claim for an
advancement of expenses, in which case the applicable period shall be
twenty days, the indemnitee may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by
the indemnitee to enforce a right to indemnification hereunder (but not in
a suit brought by the indemnitee to enforce a right to an advancement of
expenses) it shall be a defense that, and (ii) in any suit by the
Corporation to recover an advancement of expenses pursuant to the terms of
an undertaking the Corporation shall be entitled to recover such expenses
upon a final
II-2
<PAGE>
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article TENTH or otherwise shall be on
the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, the
Corporation's Certificate of Incorporation, Bylaws, agreement, vote of
stockholders or Disinterested Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any Director, Officer, employee or agent of the Corporation or
subsidiary or Affiliate or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether
or not the Corporation would have the power to indemnify such person
against such expense, liability or loss under the Delaware General
Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
the Board of Directors, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Corporation to the
fullest extent of the provisions of this Article TENTH with respect to the
indemnification and advancement of expenses of Directors and Officers of
the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a Director, except for liability: (i) for any breach of the Director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the Director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders
of the Corporation shall not adversely affect any right or protection of a
Director of the Corporation existing at the time of such repeal or modification.
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<PAGE>
Item 21. Exhibits and Financial Statement, Schedules.
(a) Exhibits.
2.1 Amended and Restated Agreement and Plan of Merger, amended and
restated as of October 14, 1998, by and between Richmond County
Financial Corp. and Bayonne Bancshares, Inc. is included as ANNEX A to
the Joint Proxy Statement/Prospectus which is part of this
Registration Statement.
3.1 Certificate of Incorporation of Richmond County Financial Corp. (1).
3.2 Bylaws of Richmond County Financial Corp. (1).
4.1 Richmond County Financial Corp. Specimen Stock Certificate (1).
5.1 Form of Opinion of Muldoon, Murphy & Faucette regarding legality.
8.1 Form of Opinion of Muldoon, Murphy & Faucette regarding tax matters.
8.2 Form of Opinion of Bayonne's Tax Counsel.*
10.1 Stock Option Agreement, dated as of July 19, 1998, by and between
Bayonne Bancshares, Inc. and Richmond County Financial Corp. is
included as ANNEX B to the Joint Proxy Statement/Prospectus which is
part of this Registration Statement.
10.2 Form of Employment Agreement between Richmond County Savings Bank and
certain executive officers and Form of Employment Agreement between
Richmond County Financial Corp. and certain executive officers (1).
10.3 Form of Change in Control Agreement between Richmond County Savings
Bank and certain executive officers and Form of Change in Control
Agreement between Richmond County Financial Corp. and certain
executive officers (1).
10.4 Richmond County Savings Bank Employee Severance Compensation Plan (1).
10.5 Management's Supplemental Executive Retirement Plan (1).
10.6 Employee Stock Ownership Plan and Trust (1).
10.7 Richmond County Financial Corp. 1998 Stock-Based Incentive Plan (2).
11.0 Statement Re: Computation of Per Share Earnings (3).
23.1 Consent of Muldoon, Murphy & Faucette (included in Exhibit 5.1
hereto).
23.2 Consent of Muldoon, Murphy & Faucette (included in Exhibit 8.1
hereto).
23.3 Consent of Bayonne's Tax Counsel.*
II-4
<PAGE>
23.4 Consent of Ernst & Young LLP, Independent Auditors for Richmond County
Financial Corp.
23.5 Consent of KPMG Peat Marwick LLP, Independent Auditors for Bayonne
Bancshares, Inc.
23.6 Consent of Tucker Anthony Incorporated.
23.7 Consent of Sandler O'Neill & Partners, L.P.
24.1 Powers of Attorney (see the signature page to this Form S-4
Registration Statement).
27.0 Financial Data Schedule.
99.1 Opinion of Tucker Anthony Incorporated is included as ANNEX C to the
Joint Proxy Statement/Prospectus which is part of this Registration
Statement.
99.2 Opinion of Sandler O'Neill & Partners, L.P. is included as ANNEX D to
the Joint Proxy Statement/Prospectus which is part of this
Registration Statement.
99.3 Consent of Person to be Named as Director of Richmond County Financial
Corp.
99.4 Richmond County Financial Corp. Proxy Card
99.5 Bayonne Bancshares, Inc. Proxy Card
--------------------
* To be filed by amendment.
(1) Incorporated by reference into this document from the Exhibits filed
with the Registration Statement on Form S-1 and any amendments
thereto, Registration No. 333-37009 filed with the SEC on October 2,
1997.
(2) Incorporated by reference into this document from the Appendix to the
Proxy Statement for the Annual Meeting of Stockholders held on
September 28, 1998, filed with the SEC on August 28, 1998.
(3) Incorporated by reference into this document from Richmond County's
Annual Report for the year ended June 30, 1998, filed with the SEC on
August 27, 1998.
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;
(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 SEC pursuant to Rule 424(b)
(Section 230.424(b) of this chapter) if, in the aggregate, the
changes in volume and
II-5
<PAGE>
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 , 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 , each filing of the Registrant's annual report pursuant to section
13(a) or section 15(d) of the Exchange Act (and, where applicable, each
filing of an employee benefit plan's annual report pursuant to section
15(d) of the Exchange Act) 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 , 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 and is used in connection with an offering
of securities subject to Rule 415 of the Securities Act , 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 , 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 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 SEC 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
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<PAGE>
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 Item 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.
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act , each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of
the Exchange Act (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Exchange Act) 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.
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<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 Borough of Staten Island, State
of New York, on November 3, 1998.
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
-----------------------
Michael F. Manzulli
Chairman of the Board 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, 1998.
We, the undersigned officers and directors of Richmond County
Financial Corp. hereby severally and individually constitute and appoint
Michael F. Manzulli, 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.
NAME TITLE
---- -----
/s/ Michael F. Manzulli Chairman of the Board and
- ----------------------- Chief Executive Officer (principal
Michael F. Manzulli executive officer)
/s/ Anthony E. Burke President, Chief Operating Officer
- ----------------------- and Director
Anthony E. Burke
/s/ Thomas R. Cangemi Senior Vice President, Chief Financial
- ----------------------- Officer, Treasurer and Secretary
Thomas R. Cangemi (principal financial and accounting officer)
<PAGE>
/s/ Godfrey H. Carstens, Jr. Director
- ----------------------------
Godfrey H. Carstens, Jr.
/s/ Robert S. Farrell Director
- ----------------------------
Robert S. Farrell
/s/ William C. Frederick Director
- ----------------------------
William C. Frederick, M.D.
/s/ James L. Kelley Director
- ----------------------------
James L. Kelley
/s/ T. Ronald Quinlan, Jr. Director
- ----------------------------
T. Ronald Quinlan, Jr.
/s/ Maurice K. Shaw Director
- ----------------------------
Maurice K. Shaw
<PAGE>
EXHIBIT INDEX
2.1 Amended and Restated Agreement and Plan of Merger, amended and
restated as of October 14, 1998, by and between Richmond County
Financial Corp. and Bayonne Bancshares, Inc. is included as ANNEX A to
the Joint Proxy Statement/Prospectus which is part of this
Registration Statement.
3.1 Certificate of Incorporation of Richmond County Financial Corp. (1).
3.2 Bylaws of Richmond County Financial Corp. (1).
4.1 Richmond County Financial Corp. Specimen Stock Certificate (1).
5.1 Form of Opinion of Muldoon, Murphy & Faucette regarding legality.
8.1 Form of Opinion of Muldoon, Murphy & Faucette regarding tax matters.
8.2 Form of Opinion of Bayonne's Tax Counsel.*
10.1 Stock Option Agreement, dated as of July 19, 1998, by and between
Bayonne Bancshares, Inc. and Richmond County Financial Corp. is
included as ANNEX B to the Joint Proxy Statement/Prospectus which is
part of this Registration Statement.
10.2 Form of Employment Agreement between Richmond County Savings Bank and
certain executive officers and Form of Employment Agreement between
Richmond County Financial Corp. and certain executive officers (1).
10.3 Form of Change in Control Agreement between Richmond County Savings
Bank and certain executive officers and Form of Change in Control
Agreement between Richmond County Financial Corp. and certain
executive officers (1).
10.4 Richmond County Savings Bank Employee Severance Compensation Plan (1).
10.5 Management's Supplemental Executive Retirement Plan (1).
10.6 Employee Stock Ownership Plan and Trust (1).
10.7 Richmond County Financial Corp. 1998 Stock-Based Incentive Plan (2).
11.0 Statement Re: Computation of Per Share Earnings (3).
23.1 Consent of Muldoon, Murphy & Faucette (included in Exhibit 5.1
hereto).
23.2 Consent of Muldoon, Murphy & Faucette (included in Exhibit 8.1
hereto).
23.3 Consent of Bayonne's Tax Counsel.*
<PAGE>
23.4 Consent of Ernst & Young LLP, Independent Auditors for Richmond County
Financial Corp.
23.5 Consent of KPMG Peat Marwick LLP, Independent Auditors for Bayonne
Bancshares, Inc.
23.6 Consent of Tucker Anthony Incorporated.
23.7 Consent of Sandler O'Neill & Partners, L.P.
24.1 Powers of Attorney (see the signature page to this Form S-4
Registration Statement).
27.0 Financial Data Schedule
99.1 Opinion of Tucker Anthony Incorporated is included as ANNEX C to the
Joint Proxy Statement/Prospectus which is part of this Registration
Statement.
99.2 Opinion of Sandler O'Neill & Partners, L.P. is included as ANNEX D to
the Joint Proxy Statement/Prospectus which is part of this
Registration Statement.
99.3 Consent of Person to be Named as Director of Richmond County Financial
Corp.
99.4 Richmond County Financial Corp. Proxy Card
99.5 Bayonne Bancshares, Inc. Proxy Card
--------------------
* To be filed by amendment.
(1) Incorporated by reference into this document from the Exhibits filed
with the Registration Statement on Form S-1 and any amendments
thereto, Registration No. 333-37009 filed with the SEC on October 2,
1997.
(2) Incorporated by reference into this document from the Appendix to the
Proxy Statement for the Annual Meeting of Stockholders held on
September 28, 1998, filed with the SEC on August 28, 1998.
(3) Incorporated by reference into this document from Richmond County's
Annual Report for the year ended June 30, 1998, filed with the SEC on
August 27, 1998.
<PAGE>
ANNEX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AS OF OCTOBER 14, 1998
BY AND BETWEEN
RICHMOND COUNTY FINANCIAL CORP.
AND
BAYONNE BANCSHARES, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Introductory Statement 4
ARTICLE I
THE MERGER .................................................................................. 5
----------
Section 1.1. Structure of the Merger ................................................. 5
-----------------------
Section 1.2. Effect on Outstanding Shares of Bayonne Common Stock .................... 5
----------------------------------------------------
Section 1.3. Exchange Procedures ..................................................... 6
-------------------
Section 1.4. Stock Options ........................................................... 8
-------------
Section 1.5. Bank Merger ............................................................. 9
-----------
Section 1.6. Directors of RCFC after Effective Time .................................. 9
--------------------------------------
Section 1.7. Alternative Structure ................................................... 9
---------------------
Section 1.8. Certificate of Incorporation and Bylaws of the Surviving Corporation .... 9
--------------------------------------------------------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES .............................................................. 10
------------------------------
Section 2.1. Disclosure Letters ...................................................... 10
------------------
Section 2.2. Standards ............................................................... 10
---------
Section 2.3. Representations and Warranties of Bayonne ............................... 11
-----------------------------------------
Section 2.4. Representations and Warranties of RCFC .................................. 26
--------------------------------------
ARTICLE III
CONDUCT PENDING THE MERGER .................................................................. 38
--------------------------
Section 3.1. Conduct of Bayonne's Business Prior to the Effective Time ............... 38
---------------------------------------------------------
Section 3.2. Forbearance by Bayonne .................................................. 39
----------------------
Section 3.3. Conduct of RCFC's Business Prior to the Effective Time .................. 42
------------------------------------------------------
ARTICLE IV
COVENANTS ................................................................................... 42
---------
Section 4.1. Acquisition Proposals ................................................... 42
---------------------
Section 4.2. Certain Policies of Bayonne ............................................. 44
---------------------------
Section 4.3. Access and Information .................................................. 44
----------------------
Section 4.4. Certain Filings, Consents and Arrangements .............................. 45
------------------------------------------
Section 4.5. Antitakeover Provisions ................................................. 46
-----------------------
Section 4.6. Additional Agreements ................................................... 46
---------------------
Section 4.7. Publicity ............................................................... 46
---------
Section 4.8. Stockholders Meetings ................................................... 46
---------------------
Section 4.9. Proxy Statements; Comfort Letters ....................................... 47
---------------------------------
Section 4.10. Registration of RCFC Common Stock ....................................... 47
---------------------------------
Section 4.11. Affiliate Letters ....................................................... 48
-----------------
Section 4.12. Notification of Certain Matters ......................................... 48
-------------------------------
Section 4.13. Employees, Directors and Officers ....................................... 49
---------------------------------
Section 4.14. Indemnification ......................................................... 50
---------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Section 4.15. Pooling and Tax-Free Reorganization Treatment ........................... 52
---------------------------------------------
Section 4.16. Divisional Board ........................................................ 52
----------------
ARTICLE V
CONDITIONS TO CONSUMMATION .................................................................. 53
--------------------------
Section 5.1. Conditions to Each Party's Obligations .................................. 53
--------------------------------------
Section 5.2. Conditions to the Obligations of RCFC and RCFC Bank ..................... 54
---------------------------------------------------
Section 5.3. Conditions to the Obligations of Bayonne and First Savings .............. 56
----------------------------------------------------------
ARTICLE VI
TERMINATION ................................................................................. 57
-----------
Section 6.1. Termination ............................................................. 57
-----------
Section 6.2. Effect of Termination ................................................... 61
---------------------
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME .................................................. 61
------------------------------------------
Section 7.1. Effective Date and Effective Time ....................................... 61
---------------------------------
Section 7.2. Deliveries at the Closing ............................................... 61
-------------------------
ARTICLE VIII
CERTAIN OTHER MATTERS ....................................................................... 61
---------------------
Section 8.1. Certain Definitions; Interpretation ..................................... 61
-----------------------------------
Section 8.2. Survival ................................................................ 62
--------
Section 8.3. Waiver; Amendment ....................................................... 62
-----------------
Section 8.4. Counterparts ............................................................ 62
------------
Section 8.5. Governing Law ........................................................... 62
-------------
Section 8.6. Expenses ................................................................ 62
--------
Section 8.7. Notices ................................................................. 63
-------
Section 8.8. Entire Agreement; etc ................................................... 64
---------------------
Section 8.9. Assignment .............................................................. 64
----------
</TABLE>
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<PAGE>
AMENDED AND RESTATED
--------------------
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, amended
and restated as of the 14th day of October, 1998 ("Agreement"), by and between
Richmond County Financial Corp., a Delaware corporation ("RCFC"), and Bayonne
Bancshares, Inc., a Delaware corporation ("Bayonne").
INTRODUCTORY STATEMENT
The Board of Directors of each of RCFC and Bayonne (i) has determined
that this Agreement and the business combination and related transactions
contemplated hereby are in the best interests of RCFC and Bayonne, respectively,
and in the best long-term interests of their respective stockholders, (ii) has
determined that this Agreement and the transactions contemplated hereby are
consistent with, and in furtherance of, its respective business strategies and
(iii) has approved, at meetings of each of such Boards of Directors, this
Agreement.
Concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to RCFC's willingness to enter into this Agreement,
RCFC and Bayonne have entered into a stock option agreement (the "Option
Agreement"), pursuant to which Bayonne has granted to RCFC an option to purchase
shares of Bayonne's common stock, par value $0.01 per share ("Bayonne Common
Stock"), upon the terms and conditions therein contained; and Bayonne will use
its best efforts to have certain executive officers and directors of Bayonne,
within twenty-one days of the date of this Agreement, execute in favor of RCFC a
Letter Agreement in the form annexed as Exhibit A.
The parties hereto intend that the Merger as defined herein shall
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended ("Code"), for federal income tax
purposes, and that the Merger shall be accounted for as a purchase business
combination for accounting purposes.
RCFC and Bayonne desire to make certain representations, warranties
and agreements in connection with the business combination and related
transactions provided for herein and to prescribe various conditions to such
transactions.
In consideration of their mutual promises and obligations hereunder,
the parties hereto adopt and make this Agreement and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
A-4
<PAGE>
ARTICLE I
THE MERGER
----------
Section 1.1. Structure of the Merger. On the Effective Date (as
-----------------------
defined in Section 7.1), Bayonne will merge with and into RCFC ("Merger"), with
RCFC being the surviving entity, pursuant to the provisions of, and with the
effect provided in, the Delaware General Corporation Law ("DGCL"). Upon
consummation of the Merger, the separate corporate existence of Bayonne shall
cease. RCFC shall continue to be governed by the laws of the State of Delaware
and its name and separate corporate existence, with all of its rights,
privileges, immunities, powers and franchises, shall continue unaffected by the
Merger. From and after the Effective Time, RCFC shall possess all of the
properties and rights and subject to all of the liabilities and obligations of
Bayonne, all as more fully described in the DGCL.
Section 1.2. Effect on Outstanding Shares of Bayonne Common Stock.
----------------------------------------------------
(a) By virtue of the Merger, automatically and without any action on
the part of the holder thereof, each share of Bayonne Common Stock issued and
outstanding at the Effective Time (as defined in Section 7.1), other than (i)
shares the holder of which (the "Dissenting Shareholders") pursuant to any
applicable law providing for dissenters' or appraisal rights is entitled to
receive payment in accordance with the provisions of any such law, such holder
to have only the rights provided in any such law (the "Dissenters' Shares"),
(ii) shares held directly or indirectly by RCFC (other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted), (iii)
shares held by Bayonne as treasury stock and (iv) unallocated shares held in the
Amended and Restated Bayonne Bancshares, Inc. 1995 Recognition and Retention
Plan ("Bayonne RRP") (such shares referred to in clauses (i), (ii), (iii) and
(iv) being referred to herein as the "Excluded Shares") shall become and be
converted into the right to receive 1.05 shares of RCFC Common Stock (the
"Exchange Ratio"); provided, however, that, notwithstanding any other provision
hereof, no fraction of a share of RCFC Common Stock and no certificates or scrip
therefor will be issued in the Merger; instead, RCFC shall pay to each holder of
Bayonne Common Stock who would otherwise be entitled to a fraction of a share of
RCFC Common Stock an amount in cash, rounded to the nearest cent, determined by
multiplying such fraction by the RCFC Market Value (as defined herein)
(collectively, the "Merger Consideration").
(b) As used herein, "RCFC Market Value" shall be the average of the
closing sales price on that day, as reported on the National Market System of
The Nasdaq Stock Market, Inc. ("Nasdaq National Market"), for the 15 consecutive
trading days immediately preceding the day on which the last of the required
regulatory approvals, as contemplated by Section 5.1(b), is obtained (such date
being referred to herein as the "Valuation Date").
(c) If, between the date of this Agreement and the Effective Time,
the outstanding shares of RCFC Common Stock shall have been changed into a
different number of shares or into a different class by reason of any stock
dividend, subdivision, reclassification,
A-5
<PAGE>
recapitalization, split, combination or exchange of shares (each, a "Stock
Adjustment"), the Merger Consideration shall be adjusted correspondingly to the
extent appropriate to reflect the Stock Adjustment.
(d) As of the Effective Time, each Excluded Share, other than
Dissenters' Shares, shall be cancelled and retired and shall cease to exist, and
no exchange or payment shall be made with respect thereto. All shares of RCFC
Common Stock and RCFC Preferred Stock (as defined in Section 2.4(b)) that are
held by Bayonne, if any, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, shall become treasury stock of
RCFC.
Section 1.3. Exchange Procedures.
-------------------
(a) Appropriate transmittal materials ("Letter of Transmittal") shall
be mailed as soon as reasonably practicable after the Effective Time, and in no
event later than 5 business days thereafter, to each holder of record of Bayonne
Common Stock as of the Effective Time. A Letter of Transmittal will be deemed
properly completed only if accompanied by certificates representing all shares
of Bayonne Common Stock to be converted thereby.
(b) At and after the Effective Time, each certificate ("Bayonne
Certificate") previously representing shares of Bayonne Common Stock (except as
specifically set forth in Section 1.2) shall represent only the right to receive
the Merger Consideration.
(c) Prior to the Effective Time, RCFC shall deposit, or shall cause
to be deposited, with such bank or trust company that is selected by RCFC and is
reasonably acceptable to Bayonne to act as exchange agent ("Exchange Agent"),
for the benefit of the holders of shares of Bayonne Common Stock, for exchange
in accordance with this Section 1.3, an estimated amount of cash sufficient to
pay the aggregate amount of cash in lieu of fractional shares to be paid
pursuant to Section 1.2, and RCFC shall reserve for issuance with its Transfer
Agent and Registrar a sufficient number of shares of RCFC Common Stock to
provide for payment of the Merger Consideration. On the Closing Date, RCFC shall
have granted the Exchange Agent the requisite power and authority to effect for
and on behalf of RCFC the issuance of the number of shares of RCFC Common Stock
issuable in the share exchange.
(d) The Letter of Transmittal shall (i) specify that delivery shall
be effected, and risk of loss and title to the Bayonne Certificates shall pass,
only upon delivery of the Bayonne Certificates to the Exchange Agent, (ii) be in
a form and contain any other provisions as RCFC may reasonably determine and
(iii) include instructions for use in effecting the surrender of the Bayonne
Certificates in exchange for the Merger Consideration. Upon the proper surrender
of the Bayonne Certificates to the Exchange Agent, together with a properly
completed and duly executed Letter of Transmittal, the holder of such Bayonne
Certificates shall be entitled to receive in exchange therefor (m) a certificate
representing that number of whole shares of RCFC Common Stock that such holder
has the right to receive pursuant to Section 1.2 and (n) a
A-6
<PAGE>
check in the amount equal to the cash in lieu of fractional shares, if any, that
such holder has the right to receive pursuant to Section 1.2 and any dividends
or other distributions to which such holder is entitled pursuant to this Section
1.3. Bayonne Certificates so surrendered shall forthwith be cancelled. As soon
as practicable, but no later than 10 business days following receipt of the
properly completed Letter of Transmittal and any necessary accompanying
documentation, the Exchange Agent shall distribute RCFC Common Stock and cash as
provided herein. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of RCFC Common Stock held by
it from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such shares
for the account of the persons entitled thereto. If there is a transfer of
ownership of any shares of Bayonne Common Stock not registered in the transfer
records of Bayonne, the Merger Consideration shall be issued to the transferee
thereof if the Bayonne Certificates representing such Bayonne Common Stock are
presented to the Exchange Agent, accompanied by all documents required, in the
reasonable judgment of RCFC and the Exchange Agent, (x) to evidence and effect
such transfer and (y) to evidence that any applicable stock transfer taxes have
been paid.
(e) No dividends or other distributions declared or made after the
Effective Time with respect to RCFC Common Stock shall be remitted to any person
entitled to receive shares of RCFC Common Stock hereunder until such person
surrenders his or her Bayonne Certificates in accordance with this Section 1.3.
Upon the surrender of such person's Bayonne Certificates, such person shall be
entitled to receive any dividends or other distributions, without interest
thereon, which theretofore had become payable with respect to shares of RCFC
Common Stock represented by such person's Bayonne Certificates.
(f) From and after the Effective Time there shall be no transfers on
the stock transfer records of Bayonne of any shares of Bayonne Common Stock.
If, after the Effective Time, Bayonne Certificates are presented to RCFC, they
shall be cancelled and exchanged for the Merger Consideration deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Section 1.3.
(g) Any portion of the aggregate amount of cash to be paid in lieu of
fractional shares pursuant to Section 1.2, any dividends or other distributions
to be paid pursuant to this Section 1.3 or any proceeds from any investments
thereof that remains unclaimed by the stockholders of Bayonne for 6 months after
the Effective Time shall be repaid by the Exchange Agent to RCFC upon the
written request of RCFC. After such request is made, any stockholders of Bayonne
who have not theretofore complied with this Section 1.3 shall look only to RCFC
for the Merger Consideration deliverable in respect of each share of Bayonne
Common Stock such stockholder holds, as determined pursuant to Section 1.2 of
this Agreement, without any interest thereon. If outstanding Bayonne
Certificates are not surrendered prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent permitted by any abandoned property,
escheat or other applicable laws, become the property of RCFC (and, to the
extent not in its possession,
A-7
<PAGE>
shall be paid over to it), free and clear of all claims or interest of any
person previously entitled to such claims. Notwithstanding the foregoing,
neither the Exchange Agent nor any party to this Agreement (or any affiliate
thereof) shall be liable to any former holder of Bayonne Common Stock for any
amount delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(h) RCFC and the Exchange Agent shall be entitled to rely upon
Bayonne's stock transfer books to establish the identity of those persons
entitled to receive the Merger Consideration, which books shall be conclusive
with respect thereto. In the event of a dispute with respect to ownership of
stock represented by any Bayonne Certificate, RCFC and the Exchange Agent shall
be entitled to deposit any Merger Consideration represented thereby in escrow
with an independent third party and thereafter be relieved with respect to any
claims thereto.
(i) If any Bayonne Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Bayonne Certificate to be lost, stolen or destroyed and, if required by the
Exchange Agent, the posting by such person of a bond in such amount as the
Exchange Agent may direct as indemnity against any claim that may be made
against it with respect to such Bayonne Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Bayonne Certificate the
Merger Consideration deliverable in respect thereof pursuant to Section 1.2.
Section 1.4. Stock Options.
-------------
(a) At the Effective Time, by virtue of the Merger, and without any
action on the part of any holder of an option, each option to acquire shares of
Bayonne Common Stock granted pursuant to either the 1995 Stock Option Plan or
the 1998 Stock-Based Incentive Plan (a "Bayonne Option") that is then
outstanding and unexercised shall be converted into and become an option to
acquire RCFC Common Stock on the same terms and conditions as are in effect with
respect to the Bayonne Option immediately prior to the Effective Time, except
that (i) the number of shares of RCFC Common Stock subject to such Bayonne
Option shall be equal to the number of shares of Bayonne Common Stock subject to
such Bayonne Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, the product being rounded, if necessary, up or down to the
nearest whole share, and (ii) the per share exercise price of the option shall
be adjusted by dividing the per share exercise price of the Bayonne Option by
the Exchange Ratio, and rounding up to the nearest cent. It is intended that
the foregoing assumption shall be effected in a manner which is consistent with
the requirements of Section 424 of the Internal Revenue Code of 1986, as
amended, as to any Bayonne Option that is an incentive stock option.
Section 1.5. Bank Merger. Concurrently with or as soon as
-----------
practicable after the execution and delivery of this Agreement, Richmond County
Savings Bank ("RCFC Bank"), a wholly-owned subsidiary of RCFC, and First Savings
Bank of New Jersey, SLA ("First Savings"), a wholly-owned subsidiary of Bayonne,
shall enter into the Plan of Bank Merger, in
A-8
<PAGE>
the form attached hereto as Exhibit B, pursuant to which the Bank Merger will be
effected. The parties hereto intend that the Bank Merger shall become effective
on the Effective Date. The Plan of Bank Merger shall provide that the directors
of RCFC Bank as the surviving entity of the Bank Merger shall be all of the
directors of RCFC Bank serving immediately prior to the Bank Merger.
Section 1.6. Directors of RCFC after Effective Time. At the
--------------------------------------
Effective Time, the directors of RCFC shall consist of (a) the directors of RCFC
serving immediately prior to the Effective Time and (b) one additional person
who shall become a director of RCFC in accordance with Section 4.13. Other than
as provided in Section 4.13, no director of Bayonne shall become a director of
RCFC.
Section 1.7. Alternative Structure. Notwithstanding anything to the
---------------------
contrary contained in this Agreement, prior to the Effective Time, RCFC may
specify that the structure of the transactions contemplated hereby be revised
and the parties shall enter into such alternative transactions as RCFC may
determine to effect the purposes of this Agreement; provided, however, that such
revised structure shall not (i) adversely affect the tax effects or alter or
change the amount or kind of the Merger Consideration or the treatment of
Bayonne Options or the economic benefits of the transactions contemplated hereby
to the holders of Bayonne Common Stock, (ii) diminish the benefits to be
received by the directors, officers or employees of Bayonne or First Savings as
set forth in or as contemplated by this Agreement, and (iii) materially impede
or delay the receipt of any approval referred to in this Agreement (as defined
in Section 7.1). This Agreement and any related documents shall be appropriately
amended in order to reflect any such revised structure.
Section 1.8. Certificate of Incorporation and Bylaws of the
----------------------------------------------
Surviving Corporation. The Certificate of Incorporation and Bylaws of RCFC in
- ---------------------
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws of the surviving corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1. Disclosure Letters. On or prior to the execution and
------------------
delivery of this Agreement, Bayonne and RCFC each shall have delivered to the
other a letter (each, its "Disclosure Letter") setting forth, among other
things, facts, circumstances and events the disclosure of which is required or
appropriate in relation to any or all of their respective representations and
warranties (and making specific reference to the Section of this Agreement to
which they relate), other than Section 2.3(g) and Section 2.4(g); provided, that
(a) no such fact, circumstance or event is required to be set forth in the
Disclosure Letter as an exception to a representation or warranty if its absence
is not reasonably likely to result in the related
A-9
<PAGE>
representation or warranty being deemed untrue or incorrect under the standards
established by Section 2.2 and (b) the mere inclusion of a fact, circumstance or
event in a Disclosure Letter shall not be deemed an admission by a party that
such item represents a material exception or that such item is reasonably likely
to result in a Material Adverse Effect (as defined in Section 2.2(b)).
Section 2.2. Standards.
---------
(a) No representation or warranty of Bayonne or RCFC contained in
Sections 2.3 or 2.4, respectively, shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, on
account of the existence of any fact, circumstance or event unless, as a direct
or indirect consequence of such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any paragraph of Sections 2.3 or 2.4, as applicable, there is reasonably likely
to exist a Material Adverse Effect. Bayonne's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue or
breached as a result of effects arising solely from actions taken in connection
with this Agreement or in compliance with a written request of RCFC.
(b) As used in this Agreement, the term "Material Adverse Effect"
means either (i) an effect which is material and adverse to the business,
financial condition or results of operations of Bayonne or RCFC, as the context
may dictate, and its Subsidiaries (as defined herein) taken as a whole;
provided, however, that any such effect resulting from any (A) changes in laws,
rules or regulations or generally accepted accounting principles or regulatory
accounting requirements or interpretations thereof that apply to both RCFC and
RCFC Bank and Bayonne and First Savings, as the case may be, or to similarly
situated financial and/or depository institutions or (B) changes in economic
conditions affecting financial institutions generally, including but not limited
to, changes in the general level of market interest rates shall not be
considered in determining if a Material Adverse Effect has occurred; or (ii) the
failure of (x) a representation or warranty contained in Section 2.3(a)(i) and
(iv), Section 2.3(c), Section 2.3(g)(iii), Sections 2.4(a)(i) and (iv), Section
2.4(c), Section 2.4(g)(iii) or Section 2.4(l) to be true and correct in all
material respects or (y) a representation or warranty contained in the last
sentence of each of Section 2.3(e) or Section 2.4(e), the second sentence of
each of Section 2.3(f)(i) or Section 2.4(f)(i) and the first two sentences of
each of Section 2.3(aa) or Section 2.4(x) to be true and correct in all material
respects.
(c) For purposes of this Agreement, "knowledge" shall mean, with
respect to a party hereto, actual knowledge of the members of the Board of
Directors of that party or any officer of that party with the title ranking not
less than senior vice president.
Section 2.3. Representations and Warranties of Bayonne. Subject to
-----------------------------------------
Sections 2.1 and 2.2, Bayonne represents and warrants to RCFC that, except as
disclosed in Bayonne's Disclosure Letter:
A-10
<PAGE>
(a) Organization. (i) Bayonne is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and is duly registered as a savings and loan holding company under the Home
Owners' Loan Act, as amended ("HOLA") . First Savings is a stock savings
association duly organized, validly existing and in good standing under the laws
of the State of New Jersey. Each Subsidiary (as defined below) of First Savings
is a corporation, limited liability company or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of Bayonne and its Subsidiaries has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. As used in this Agreement,
unless the context requires otherwise, the term "Subsidiary" when used with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes or which is controlled, directly or indirectly, by
such party.
(ii) Each of Bayonne and its Subsidiaries has the requisite
corporate power and authority, and is duly qualified and is in good standing, to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary.
(iii) Bayonne's Disclosure Letter sets forth all of Bayonne's
Subsidiaries and all entities (whether corporations, partnerships or similar
organizations), including the corresponding percentage ownership, in which
Bayonne owns, directly or indirectly, 5% or more of the ownership interests as
of the date of this Agreement and indicates for each of Bayonne's Subsidiaries,
as of such date, its jurisdiction of organization and the jurisdiction(s)
wherein it is qualified to do business. All such Subsidiaries and ownership
interests are in compliance with all applicable laws, rules and regulations
relating to direct investments in equity ownership interests. Bayonne owns,
either directly or indirectly, all of the outstanding capital stock of each of
its Subsidiaries. No Subsidiary of Bayonne other than First Savings is an
"insured depository institution" as defined in the Federal Deposit Insurance
Act, as amended ("FDIA"), and the applicable regulations thereunder. All of the
shares of capital stock of each of the Subsidiaries held by Bayonne or any of
its other Subsidiaries are fully paid, nonassessable and not subject to any
preemptive rights and are owned by Bayonne or a Subsidiary of Bayonne free and
clear of any claims, liens, encumbrances or restrictions (other than those
imposed by applicable federal and state securities laws), and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(iv) The deposits of First Savings are insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC") to the extent provided in the FDIA.
(b) Capital Structure. (i) The authorized capital stock of Bayonne
-----------------
consists of 22,000,000 shares of Bayonne Common Stock and 2,000,000 shares of
preferred stock, par value $.01 per share ("Bayonne Preferred Stock"). As of
the date of this Agreement:
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<PAGE>
(A) 9,094,495 shares of Bayonne Common Stock were issued and outstanding, (B) no
shares of Bayonne Preferred Stock were issued and outstanding, (C) no shares of
Bayonne Common Stock were reserved for issuance, except that 945,085 shares of
Bayonne Common Stock were reserved for issuance pursuant to the Bayonne Option
Plans, (D) no shares of Bayonne Preferred Stock were reserved for issuance and
(E) 194,768 shares of Bayonne Common Stock were held by Bayonne in its treasury
or by its Subsidiaries. The authorized capital stock of First Savings consists
of 20,000,000 shares of common stock, par value $.10 per share, and 10,000,000
shares of preferred stock, par value $.10 per share. As of the date of this
Agreement, 1,000 shares of such common stock were outstanding, no shares of such
preferred stock were outstanding and all outstanding shares of such common stock
were, and as of the Effective Time will be, owned by Bayonne. All outstanding
shares of capital stock of Bayonne and First Savings are duly authorized and
validly issued, fully paid and nonassessable and not subject to any preemptive
rights and, with respect to shares held by Bayonne in its treasury or by its
Subsidiaries, are free and clear of all liens, claims, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities laws) and there are no agreements or understandings with respect to
the voting or disposition of any such shares. Bayonne's Disclosure Letter sets
forth a complete and accurate list of all options to purchase Bayonne Common
Stock that have been granted pursuant to the Bayonne Option Plans and all
restricted stock grants under the Bayonne RRP, including the dates of grant,
exercise prices, dates of vesting, dates of termination and shares subject to
each grant.
(ii) No bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which stockholders may vote ("Voting Debt")
of Bayonne are issued or outstanding.
(iii) As of the date of this Agreement, except for this
Agreement, the Option Agreement and the Bayonne Option Plans, neither Bayonne
nor any of its Subsidiaries has or is bound by any outstanding options,
warrants, calls, rights, convertible securities, commitments or agreements of
any character obligating Bayonne or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, any additional shares of capital
stock of Bayonne or any of its Subsidiaries or obligating Bayonne or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, convertible security, commitment or agreement. As of the date hereof,
there are no outstanding contractual obligations of Bayonne or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of Bayonne or any of its Subsidiaries.
(c) Authority. Each of Bayonne and First Savings has all requisite
---------
corporate power and authority to enter into this Agreement and the Plan of Bank
Merger, respectively, and, subject to approval of this Agreement by the
requisite vote of Bayonne's stockholders and receipt of all required regulatory
or governmental approvals, as contemplated by Section 5.1(b) of this Agreement,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the Bank Plan of Merger, and, subject to the approval of
this Agreement by Bayonne's stockholders, the consummation of the transactions
contemplated hereby, have been
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duly authorized by all necessary corporate actions on the part of Bayonne and
First Savings. This Agreement has been duly executed and delivered by Bayonne
and constitutes a valid and binding obligation of Bayonne, enforceable in
accordance with its terms subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, whether applied in a court
of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote
--------------------------------------
of a majority of the outstanding shares of Bayonne Common Stock entitled to vote
on this Agreement is the only vote of the stockholders of Bayonne required for
approval of this Agreement and the consummation of the Merger and the related
transactions contemplated hereby. Bayonne has received the written opinion of
Sandler O'Neill & Partners, L.P. to the effect that, as of the date hereof, the
Exchange Ratio to be received by Bayonne's stockholders is fair, from a
financial point of view, to such stockholders.
(e) No Violations. The execution, delivery and performance of this
-------------
Agreement and Option Agreement by Bayonne do not, and the consummation of the
transactions contemplated hereby will not, constitute (i) assuming receipt of
all Requisite Regulatory Approvals (as defined below) and requisite stockholder
approvals, a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Bayonne or any of its Subsidiaries, or to
which Bayonne or any of its Subsidiaries (or any of their respective properties)
is subject, (ii) a breach or violation of, or a default under, the certificate
of incorporation or bylaws of Bayonne or the similar organizational documents of
any of its Subsidiaries or (iii) a breach or violation of, or a default under
(or an event which, with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of Bayonne or
any of its Subsidiaries, under, any of the terms, conditions or provisions of
any note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which Bayonne or any of its Subsidiaries is a party,
or to which any of their respective properties or assets may be subject; and the
consummation by Bayonne and First Savings of the transactions (including the
Bank Merger) contemplated hereby (exclusive of the effect of any changes
effected pursuant to Section 1.7) will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (x) the
approval of the holders of a majority of the outstanding shares of Bayonne
Common Stock entitled to vote, (y) the approval of the Office of Thrift
Supervision ("OTS") under HOLA, and (z) the approval of the New Jersey
Department of Banking (the "NJBD") and the approval of the appropriate
regulatory authority under Section 18(c) of the FDIA. As of the date hereof,
the executive officers of Bayonne know of no reason pertaining to Bayonne why
any of the approvals referred to in this Section 2.3(e) should not be obtained
without the imposition of any material condition or restriction described in the
proviso to Section 5.1(b).
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<PAGE>
(f) Reports. (i) As of their respective dates, none of the reports
-------
or other statements filed by Bayonne or First Savings on or subsequent to March
31, 1998 with the FDIC or the Securities and Exchange Commission ("SEC")
(collectively, "Bayonne's Reports"), contained, or will contain, any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. Each
of the financial statements of Bayonne included in Bayonne's Reports complied as
to form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP")(except as may be indicated in the
notes thereto or, in the case of the unaudited financial statements, as
permitted by the SEC). Each of the consolidated statements of condition
contained or incorporated by reference in Bayonne's Reports (including in each
case any related notes and schedules) and each of the consolidated statements of
operations, consolidated statements of cash flows and consolidated statements of
changes in stockholders' equity, contained or incorporated by reference in
Bayonne's Reports (including in each case any related notes and schedules)
fairly presented, or will fairly present, as the case may be (A) the financial
position of the entity or entities to which it relates as of its date, and (B)
the results of operations, stockholders' equity and cash flows, as the case may
be, of the entity or entities to which it relates for the periods set forth
therein (subject, in the case of unaudited interim statements, to normal year-
end audit adjustments that are not material in amount or effect), in each case
in accordance with GAAP, except as may be noted therein. Bayonne has made
available to RCFC a true and complete copy of each of Bayonne's Reports filed
with the SEC since March 31, 1998.
(ii) Bayonne and each of its Subsidiaries have each timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
March 31, 1995 with (A) the NJBD, (B) the FDIC, (C) the OTS, (D) the National
Association of Securities Dealers, Inc. ("NASD"), (E) the SEC and (F) any other
self-regulatory organization ("SRO"), and, to Bayonne's knowledge, have paid all
fees and assessments due and payable in connection therewith.
(g) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Bayonne's Reports filed on or prior to the date of this Agreement, since March
31, 1998, (i) Bayonne and its Subsidiaries have not incurred any liability,
except in the ordinary course of their business consistent with past practice,
(ii) Bayonne and its Subsidiaries have conducted their respective businesses
only in the ordinary and usual course of such businesses and (iii) there has not
been any Material Adverse Effect with respect to Bayonne.
(h) Absence of Claims. Except as set forth in Bayonne's Disclosure
-----------------
Letter, no litigation, proceeding, controversy, claim or action before any court
or governmental agency is pending against Bayonne or any of its Subsidiaries
and, to the best of Bayonne's knowledge, no such litigation, proceeding,
controversy, claim or action has been threatened.
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<PAGE>
(i) Absence of Regulatory Actions. Neither Bayonne nor any of its
-----------------------------
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or any commitment letter or similar
undertaking to, or is subject to any action, proceeding, order or directive by,
or is a recipient of any extraordinary supervisory letter from any federal or
state governmental authority charged with the supervision or regulation of
depository institutions or depository institution holding companies or engaged
in the insurance of bank and/or savings and loan deposits ("Government
Regulators"), or has adopted any board resolutions at the request of any
Government Regulator, nor has it been advised by any Government Regulator that
it is contemplating issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar undertaking.
(j) Taxes. All federal, state, local and foreign tax returns
-----
required to be filed by or on behalf of Bayonne or any of its Subsidiaries have
been timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by Bayonne or any of
its Subsidiaries have been paid in full or adequate provision has been made for
any such taxes on Bayonne's balance sheet (in accordance with GAAP). For
purposes of this Section 2.3(j), the term "taxes" shall include all income,
franchise, gross receipts, real and personal property, real property transfer
and gains, wage and employment taxes. As of the date of this Agreement, there is
no audit examination, deficiency assessment, tax investigation or refund
litigation with respect to any taxes of Bayonne or any of its Subsidiaries, and
no claim has been made by any authority in a jurisdiction where Bayonne or any
of its Subsidiaries do not file tax returns that Bayonne or any such Subsidiary
is subject to taxation in that jurisdiction. All taxes, interest, additions and
penalties due with respect to completed and settled examinations or concluded
litigation relating to Bayonne or any of its Subsidiaries have been paid in full
or adequate provision has been made for any such taxes on Bayonne's balance
sheet (in accordance with GAAP). Bayonne and its Subsidiaries have not executed
an extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. Bayonne and each
of its Subsidiaries has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and Bayonne
and each of its Subsidiaries has timely complied with all applicable information
reporting requirements under Part III, Subchapter A of Chapter 61 of the Code
and similar applicable state and local information reporting requirements.
Neither Bayonne nor any of its Subsidiaries (i) has made an election under
Section 341(f) of the Code, (ii) has issued or assumed any obligation under
Section 279 of the Code, any high yield discount obligation as described in
Section 163(i) of the Code or any registration-required obligation within the
meaning of Section 163(f)(2) of the Code that is not in registered form or (iii)
is or has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.
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<PAGE>
(k) Agreements. (i) Except for the Option Agreement and
----------
arrangements made in the ordinary course of business, and except as set forth in
Bayonne's Disclosure Letter, Bayonne and its Subsidiaries are not bound by any
material contract (as defined in Item 601(b)(10) of Regulation S-K) to be
performed after the date hereof that has not been filed with or incorporated by
reference in Bayonne's Report. Except as disclosed in Bayonne's Disclosure
Letter, neither Bayonne nor any of its Subsidiaries is a party to an oral or
written (A) consulting agreement (other than data processing, software
programming and licensing contracts entered into in the ordinary course of
business) not terminable on 60 days' or less notice, (B) agreement with any
executive officer or other key employee of Bayonne or any of its Subsidiaries
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Bayonne or any of its
Subsidiaries of the nature contemplated by this Agreement or the Option
Agreement, (C) agreement with respect to any employee or director of Bayonne or
any of its Subsidiaries providing any term of employment or compensation
guarantee extending for a period longer than 60 days or for the payment of in
excess of $30,000 per annum, (D) agreement or plan, including any stock option
plan, phantom stock or stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting or payment of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
Option Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement or the
Option Agreement or (E) agreement containing covenants that limit the ability of
Bayonne or any of its Subsidiaries to compete in any line of business or with
any person, or that involve any restriction on the geographic area in which, or
method by which, Bayonne (including any successor thereof) or any of its
Subsidiaries may carry on its business (other than as may be required by law or
any regulatory agency).
(ii) Neither Bayonne nor any of its Subsidiaries is in default
under or in violation of any provision of any note, bond, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement to which it is a party
or by which it is bound or to which any of its respective properties or assets
is subject.
(iii) Bayonne and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses, and neither Bayonne nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others. Each
of Bayonne and its Subsidiaries has performed all the obligations required to be
performed by it and are not in default under any contact, agreement, arrangement
or commitment relating to any of the foregoing.
(l) Labor Matters. Neither Bayonne nor any of its Subsidiaries is or
-------------
has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is Bayonne or any
of its Subsidiaries the subject of any proceeding asserting that
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it has committed an unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike, other labor dispute or organizational
effort involving Bayonne or any of its Subsidiaries pending or, to Bayonne's
knowledge, threatened. Bayonne and its Subsidiaries are in compliance with
applicable laws regarding employment of employees and retention of independent
contractors and are in compliance with applicable employment tax laws.
(m) Employee Benefit Plans. Bayonne's Disclosure Letter contains a
----------------------
complete and accurate list of all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance, severance and other
benefit plans, contracts, agreements and arrangements, including, but not
limited to, "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), incentive and
welfare policies, contracts, plans and arrangements and all trust agreements
related thereto with respect to any present or former directors, officers or
other employees of Bayonne or any of its Subsidiaries (hereinafter collectively
referred to as the "Bayonne Employee Plans"). All of the Bayonne Employee Plans
comply in all material respects with all applicable requirements of ERISA, the
Code and other applicable laws; there has occurred no "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code) which is likely
to result in the imposition of any penalties or taxes under Section 502(i) of
ERISA or Section 4975 of the Code upon Bayonne or any of its Subsidiaries.
Neither Bayonne nor any of its Subsidiaries has provided, or is required to
provide, security to any Bayonne Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Neither Bayonne,
its Subsidiaries, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
Each Bayonne Employee Plan that is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) and which is intended to be qualified under
Section 401(a) of the Code (a "Bayonne Qualified Plan") has received a favorable
determination letter from the Internal Revenue Service ("IRS"), and Bayonne and
its Subsidiaries are not aware of any circumstances likely to result in
revocation of any such favorable determination letter. There is no pending or,
to Bayonne's knowledge, threatened litigation, administrative action or
proceeding relating to any Bayonne Employee Plan. There has been no
announcement or commitment by Bayonne or any of its Subsidiaries to create an
additional Bayonne Employee Plan, or to amend any Bayonne Employee Plan, except
for amendments required by applicable law which do not materially increase the
cost of such Bayonne Employee Plan; and, except as specifically identified in
Bayonne's Disclosure Letter, Bayonne and its Subsidiaries do not have any
obligations for post-retirement or post-employment benefits under any Bayonne
Employee Plan that cannot be amended or terminated upon 60 days' notice or less
without incurring any liability thereunder, except for coverage required by Part
6 of Title I of ERISA or Section 4980B of the Code, or similar state laws, the
cost of which is borne by the insured individuals. With respect to Bayonne or
any of its Subsidiaries, for the Employee Plans listed in Bayonne's Disclosure
Letter, the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment or series of
payments by Bayonne or any of its Subsidiaries to any person which is an "excess
parachute
A-17
<PAGE>
payment" (as defined in Section 280G of the Code), increase or secure (by way of
a trust or other vehicle) any benefits payable under any Bayonne Employee Plan
or accelerate the time of payment or vesting of any such benefit. With respect
to each Bayonne Employee Plan, Bayonne has supplied to RCFC a true and correct
copy of (A) the annual report on the applicable form of the Form 5500 series
filed with the IRS for the most recent three plan years, if required to be
filed, (B) such Bayonne Employee Plan, including amendments thereto, (C) each
trust agreement, insurance contract or other funding arrangement relating to
such Bayonne Employee Plan, including amendments thereto, (D) the most recent
summary plan description and summary of material modifications thereto for such
Bayonne Employee Plan, if the Bayonne Employee Plan is subject to Title I of
ERISA, and (E) the most recent determination letter issued by the IRS if such
Employee Plan is a Qualified Plan.
(n) Title to Assets. Bayonne and each of its Subsidiaries has good
---------------
and marketable title to its properties and assets (including any intellectual
property asset such as any trademark, service mark, tradename or copyright) and
property acquired in a judicial foreclosure proceeding or by way of a deed in
lieu of foreclosure or similar transfer, other than property as to which it is
lessee, in which case the related lease is valid and in full force and effect.
Each lease pursuant to which Bayonne or any of its Subsidiaries is lessor is
valid and in full force and effect and no lessee under any such lease is in
default or in violation of any provisions of any such lease. All material
tangible properties of Bayonne and each of its Subsidiaries are in a good state
of maintenance and repair, conform with all applicable ordinances, regulations
and zoning laws and are considered by Bayonne to be adequate for the current
business of Bayonne and its Subsidiaries.
(o) Compliance with Laws. Bayonne and each of its Subsidiaries has
--------------------
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, all federal, state,
local and foreign governmental or regulatory bodies that are required in order
to permit it to carry on its business as it is presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and, to the best knowledge of Bayonne, no suspension or
cancellation of any of them is threatened. Since the date of its incorporation,
the corporate affairs of Bayonne have not been conducted in violation of any
law, ordinance, regulation, order, writ, rule, decree or approval of any federal
or state regulatory authority having jurisdiction over insured depositary
institutions or their holding companies, the SEC, the NASD or any other SRO
(each, a "Governmental Entity"). The businesses of Bayonne and its Subsidiaries
are not being conducted in violation of any law, ordinance, regulation, order,
writ, rule, decree or condition to approval of any Governmental Entity.
(p) Fees. Other than financial advisory services performed for
----
Bayonne by Sandler O'Neill & Partners, L.P., neither Bayonne nor any of its
Subsidiaries, nor any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
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<PAGE>
broker or finder has acted directly or indirectly for Bayonne or any of its
Subsidiaries in connection with this Agreement or the transactions contemplated
hereby.
(q) Environmental Matters. (i) With respect to Bayonne and each
---------------------
of its Subsidiaries:
(A) Each of Bayonne and its Subsidiaries, the Participation
Facilities (as defined herein), and, to Bayonne's knowledge, the Loan Properties
(as defined herein) are, and have been, in substantial compliance with, and are
not liable under, all Environmental Laws (as defined herein);
(B) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
Bayonne's knowledge, threatened, before any court, governmental agency or board
or other forum against it or any of its Subsidiaries or any Participation
Facility (x) for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence of or
release (as defined herein) into the environment of any Hazardous Material (as
defined herein), whether or not occurring at or on a site owned, leased or
operated by it or any of its Subsidiaries or any Participation Facility;
(C) To Bayonne's knowledge, there is no suit, claim, action,
demand, executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum relating to or against any Loan Property (or Bayonne or any of
its Subsidiaries in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by a Loan Property;
(D) To Bayonne's knowledge, the properties currently owned or
operated by Bayonne or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law;
(E) Neither Bayonne nor any of its Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or request
for information from any federal, state, local or foreign governmental entity or
any third party indicating that it may be in violation of, or liable under, any
Environmental Law;
(F) To Bayonne's knowledge, there are no underground storage
tanks on, in or under any properties owned or operated by Bayonne or any of its
Subsidiaries or any Participation Facility and no underground storage tanks have
been closed or removed from any
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<PAGE>
properties owned or operated by Bayonne or any of its Subsidiaries or any
Participation Facility; and
(G) To Bayonne's knowledge, during the period of (l) Bayonne's
or any of its Subsidiaries' ownership or operation of any of their respective
current properties or (m) Bayonne's or any of its Subsidiaries' participation in
the management of any Participation Facility, there has been no contamination by
or release of Hazardous Materials in, on, under or affecting such properties. To
Bayonne's knowledge, prior to the period of (x) Bayonne's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties or (y) Bayonne's or any of its Subsidiaries' participation in the
management of any Participation Facility, there was no contamination by or
release of Hazardous Material in, on, under or affecting such properties.
(ii) The following definitions apply for purposes of this
Section 2.3(r) and Section 2.4(r): (w) "Loan Property" means any property in
which the applicable party (or a Subsidiary of it) holds a security interest,
and, where required by the context, includes the owner or operator of such
property, but only with respect to such property; (x) "Participation Facility"
means any facility in which the applicable party (or a Subsidiary of it)
participates in the management (including all property held as trustee or in any
other fiduciary capacity) and, where required by the context, includes the owner
or operator of such property, but only with respect to such property; (y)
"Environmental Law" means (i) any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, directive, executive or administrative order,
judgment, decree, injunction, legal requirement or agreement with any
governmental entity relating to (A) the protection, preservation or restoration
of the environment (which includes, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, structures, soil, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety as it relates to Hazardous Materials, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect. The term
Environmental Law includes all federal, state and local laws, rules, regulations
or requirements relating to the protection of the environment or health and
safety, including, without limitation, (i) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control
Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including, but not limited to,
the Hazardous and Solid Waste Amendments thereto and Subtitle I relating to
underground storage tanks), the Federal Solid Waste Disposal and the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970 as it relates to
Hazardous Materials, the Federal Hazardous Substances Transportation Act, the
Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act,
the Endangered Species Act, the National Environmental Policy Act, the Rivers
and Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law,
each as amended and as now
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<PAGE>
or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; and (z) "Hazardous Material"
means any substance (whether solid, liquid or gas) which is or could be
detrimental to human health or safety or to the environment, currently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or petroleum, or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
(r) Loan Portfolio; Allowance; Asset Quality. (i) With respect to
----------------------------------------
each loan owned by Bayonne or its Subsidiaries in whole or in part (each, a
"Loan"), to Bayonne's knowledge:
(A) the note and the related security documents are each legal,
valid and binding obligations of the maker or obligor thereof, enforceable
against such maker or obligor in accordance with their terms;
(B) neither Bayonne nor any of its Subsidiaries, nor any prior
holder of a Loan, has modified the note or any of the related security documents
in any material respect or satisfied, canceled or subordinated the note or any
of the related security documents except as otherwise disclosed by documents in
the applicable Loan file;
(C) Bayonne or a Subsidiary is the sole holder of legal and
beneficial title to each Loan (or Bayonne's applicable participation interest,
as applicable), except as otherwise referenced on the books and records of
Bayonne;
(D) the note and the related security documents, copies of which
are included in the Loan files, are true and correct copies of the documents
they purport to be and have not been suspended, amended, modified, canceled or
otherwise changed except as otherwise disclosed by documents in the applicable
Loan file;
(E) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property that serves as security for a Loan,
except as otherwise referenced on the books and records of Bayonne;
(F) there is no litigation or proceeding pending or threatened
relating to the property that serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan; and
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<PAGE>
(G) with respect to a Loan held in the form of a participation,
the participation documentation is legal, valid, binding and enforceable.
(ii) The allowance for possible losses reflected in Bayonne's
audited statement of condition at March 31, 1998 was, and the allowance for
possible losses shown on the balance sheets in Bayonne's Reports for periods
ending after December 31, 1997 will, in the opinion of management, be adequate,
as of the dates thereof, under generally accepted accounting principles
applicable to stock savings associations consistently applied.
(iii) Bayonne's Disclosure Letter sets forth by category the
amounts of all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of Bayonne and its Subsidiaries
that have been classified (whether regulatory or internal) as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import, and Bayonne and
its Subsidiaries shall promptly after the end of any month inform RCFC of any
such classification arrived at any time after the date hereof. The other real
estate owned ("OREO") or words of similar import included in any non-performing
assets of Bayonne or any of its Subsidiaries is carried net of reserves at the
lower of cost or fair value, less estimated selling costs, based on current
independent appraisals or evaluations or current management appraisals or
evaluations; provided, however, that "current" shall mean within the past 12
months.
(s) Deposits. None of the deposits of Bayonne or any of its
--------
Subsidiaries is a "brokered" deposit, except as disclosed in Bayonne's
Disclosure Letter.
(t) [RESERVED]
(u) Antitakeover Provisions Inapplicable. Bayonne and its
------------------------------------
Subsidiaries have taken all actions required to exempt Bayonne, the Agreement,
the Merger and the Option Agreement from any provisions of an antitakeover
nature in their organization certificates and bylaws, and the provisions of any
federal or state "antitakeover," "fair price," "moratorium," "control share
acquisition" or similar laws or regulations.
(v) Material Interests of Certain Persons. Except as disclosed in
-------------------------------------
Bayonne's Disclosure Letter, no officer or director of Bayonne, or any
"associate" (as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended ("Exchange Act")) of any such officer or director, has
any material interest in any material contract or property (real or personal),
tangible or intangible, used in or pertaining to the business of Bayonne or any
of its Subsidiaries. No such interest has been created or modified since the
date of completion of the last regulatory examination of Bayonne or its
Subsidiaries.
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<PAGE>
(w) Insurance. In the opinion of management, Bayonne and its
---------
Subsidiaries are presently insured, and since December 31, 1995, have been
insured, for amounts deemed reasonable by management with, to Bayonne's
knowledge, financially sound insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by Bayonne and its Subsidiaries are in full force and effect, Bayonne
and its Subsidiaries are not in default thereunder and all material claims
thereunder have been filed in due and timely fashion.
(x) Investment Securities; Borrowings. (i) Except for investments
---------------------------------
in Federal Home Loan Bank ("FHLB") Stock, pledges to secure FHLB borrowings, and
reverse repurchase agreements entered into in arms-length transactions pursuant
to normal commercial terms and conditions and entered into in the ordinary
course of business and restrictions that exist for securities to be classified
as "held to maturity," none of the investments reflected in the consolidated
balance sheet of Bayonne for the year ended March 31, 1998, and none of the
investment securities held by it or any of its Subsidiaries since March 31,
1998, is subject to any restriction (contractual or statutory) that would
materially impair the ability of the entity holding such investment freely to
dispose of such investment at any time.
(ii) Except as set forth in Bayonne's Disclosure Letter, Bayonne
nor any Subsidiary is a party to or has agreed to enter into an exchange-traded
or over-the-counter equity, interest rate, foreign exchange or other swap,
forward, future, option, cap, floor or collar or any other contract that is a
derivative contract (including various combinations thereof) (each, a
"Derivatives Contract") or owns securities that (A) are referred to generically
as "structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes.
(iii) Set forth in Bayonne's Disclosure Letter is a true and
complete list of Bayonne's borrowed funds (excluding deposit accounts) as of the
date hereof.
(y) Indemnification. Except as provided in Bayonne's Employment
---------------
Agreements or the organization certificate or bylaws of Bayonne and its
Subsidiaries, neither Bayonne nor any Subsidiary is a party to any
indemnification agreement with any of its present or future directors, officers,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of Bayonne (a "Covered Person"), and,
to the best knowledge of Bayonne, there are no claims for which any Covered
Person would be entitled to indemnification under the organization certificate
or bylaws of Bayonne or any of its Subsidiaries, under any applicable law or
regulation or under any indemnification agreement.
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<PAGE>
(z) Books and Records. The books and records of Bayonne and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect in all
material respects the substance of events and transactions that should be
included therein.
(aa) Corporate Documents. Bayonne has delivered to RCFC true and
-------------------
complete copies of its certificate of incorporation and bylaws and of First
Savings's organization certificate and bylaws. The minute books of Bayonne and
First Savings constitute a complete and correct record of all actions taken by
their respective boards of directors (and each committee thereof) and their
stockholders. The minute books of each of Bayonne's Subsidiaries constitutes a
complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of each such
Subsidiary.
(bb) Tax Treatment of the Merger. As of the date hereof, Bayonne has
---------------------------
no knowledge of any fact or circumstance relating to it that would prevent the
transactions contemplated by this Agreement from qualifying as a tax-free
reorganization under the Code.
(cc) Beneficial Ownership of RCFC Common Stock. As of the date
-----------------------------------------
hereof, Bayonne beneficially owns no shares of RCFC Common Stock and does not
have any option, warrant or right of any kind to acquire the beneficial
ownership of any shares of RCFC Common Stock.
(dd) Year 2000 Matters. Bayonne has completed a review of its
-----------------
computer systems to identify systems that could be affected by the "Year 2000"
issue and reasonably believes it has identified all such Year 2000 problems.
Bayonne's management has developed and commenced implementation of a plan which
is designed to complete any required initial changes to its computer systems and
to complete testing of those changes by December 31, 1998. Between the date of
this Agreement and the Effective Time, Bayonne shall use commercially
practicable efforts to implement and/or continue to undertake such plan. Year
2000 issues have not had, and are not reasonably expected to have, a Material
Adverse Effect on Bayonne and its Subsidiaries, taken as a whole.
(ee) Registration Statement. The information regarding Bayonne to be
----------------------
supplied by Bayonne for inclusion in (i) the Registration Statement on Form S-4
and/or such other form(s) as may be appropriate to be filed under the Securities
Act of 1933, as amended ("Securities Act"), with the SEC by RCFC for the purpose
of, among other things, registering the RCFC Common Stock to be issued to
Bayonne's stockholders in the Merger (as amended or supplemented from time to
time, the "Registration Statement"), or (ii) the proxy statement to be filed
with the SEC by RCFC and Bayonne under the Exchange Act and distributed in
connection with Bayonne's meeting of stockholders and RCFC's meeting of
stockholders to vote upon this Agreement (as amended or supplemented from time
to time, the "Proxy Statement," and together with the prospectus included in the
Registration Statement, as amended or supplemented from time to time, the "Proxy
Statement-Prospectus") will not, at the time such Registration Statement
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<PAGE>
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
(ff) Community Reinvestment Act ("CRA") Compliance. First Savings is
---------------------------------------------
in material compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and First Savings currently has a CRA rating
of satisfactory or better. To Bayonne's knowledge, there is no fact or
circumstance or set of facts or circumstances that would cause First Savings to
fail to comply with such provisions or cause the CRA rating of First Savings to
fall below satisfactory.
Section 2.4. Representations and Warranties of RCFC. Subject to
--------------------------------------
Sections 2.1 and 2.2, RCFC represents and warrants to Bayonne that, except as
specifically disclosed in RCFC's Disclosure Letter:
(a) Organization. (i) RCFC is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and is duly registered as a savings and loan holding company under HOLA. RCFC
Bank is a stock savings bank duly organized, validly existing and in good
standing under the laws of the State of New York. Each Subsidiary of RCFC Bank
is a corporation, limited liability company or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of RCFC and its Subsidiaries has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
(ii) RCFC and each of its Subsidiaries has the requisite
corporate power and authority, and is duly qualified and is in good standing, to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary.
(iii) RCFC's Disclosure Letter sets forth all of RCFC's
Subsidiaries and all entities (whether corporations, partnerships or similar
organizations), including the corresponding percentage ownership, in which RCFC
owns, directly or indirectly, 5% or more of the ownership interests as of the
date of this Agreement and indicates for each of RCFC's Subsidiaries, as of such
date, its jurisdiction of organization and the jurisdiction(s) wherein it is
qualified to do business. All such Subsidiaries and ownership interests are in
compliance with all applicable laws, rules and regulations relating to direct
investments in equity ownership interests. RCFC owns, either directly or
indirectly, all of the outstanding capital stock of each of its Subsidiaries.
No Subsidiary of RCFC other than RCFC Bank is an "insured depository
institution" as defined in the FDIA and the applicable regulations thereunder.
All of the shares of capital stock of each of the Subsidiaries held by RCFC or
any of its other Subsidiaries are fully paid, nonassessable and not subject to
any preemptive rights and are owned by RCFC or a Subsidiary of RCFC free and
clear of any claims, liens, encumbrances or restrictions (other than
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<PAGE>
those imposed by applicable federal and state securities laws) and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(iv) The deposits of RCFC Bank are insured by the Bank Insurance
Fund ("BIF") of the FDIC and the SAIF of the FDIC to the extent provided in the
FDIA.
(b) Capital Structure. (i) The authorized capital stock of RCFC
-----------------
consists of 75,000,000 shares of RCFC Common Stock and 5,000,000 shares of
preferred stock, par value $.01 per share ("RCFC Preferred Stock"). As of the
date of this Agreement, (A) 26,423,600 shares of RCFC Common Stock were issued
and outstanding, (B) no shares of RCFC Preferred Stock were outstanding, (C) no
shares of RCFC Common Stock were reserved for issuance, except that 2,642,360
shares of RCFC Common Stock were reserved for issuance pursuant to the RCFC 1998
Stock-Based Incentive Plan and (D) no shares of RCFC Common Stock were held by
RCFC in its treasury or by its Subsidiaries. The authorized capital stock of
RCFC Bank consists of 75,000,000 shares of common stock, par value $.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per share. As of
the date of this Agreement, 1,000 shares of such common stock were outstanding,
no shares of such preferred stock were outstanding and all outstanding shares of
such common stock were, and as of the Effective Time will be, owned by RCFC.
All outstanding shares of capital stock of RCFC and RCFC Bank are validly
issued, fully paid and nonassessable and not subject to any preemptive rights
and, with respect to shares held by RCFC in its treasury or by its Subsidiaries,
are free and clear of all liens, encumbrances or restrictions (other than those
imposed by applicable federal or state securities laws) and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(ii) No Voting Debt of RCFC is issued or outstanding.
(iii) As of the date of this Agreement, except for this
Agreement and as set forth in RCFC's Disclosure Letter, neither RCFC nor any of
its Subsidiaries has or is bound by any outstanding options, warrants, calls,
rights, convertible securities, commitments or agreements of any character
obligating RCFC or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, any additional shares of capital stock of RCFC
or any of its Subsidiaries or obligating RCFC or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call, right, convertible
security, commitment or agreement. As of the date hereof, there are no
outstanding contractual obligations of RCFC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of RCFC or
any of its Subsidiaries.
(c) Authority. Each of RCFC and RCFC Bank has the requisite
---------
corporate power and authority to enter into this Agreement, the Option Agreement
and the Plan of Bank Merger, respectively and, subject to approval of this
Agreement, by the requisite vote of RCFC's stockholders and receipt of all
required regulatory or governmental approvals, as contemplated by Section 5.1(b)
of this Agreement, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Option Agreement, and, subject
to the approval of this Agreement by RCFC's stockholders, the consummation of
the transactions contemplated
A-26
<PAGE>
hereby, have been duly authorized by all necessary corporate actions on the part
of RCFC and RCFC Bank. This Agreement and the Option Agreement have been duly
executed and delivered by RCFC and constitutes a valid and binding obligations
of RCFC, enforceable in accordance with its terms subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity,
whether applied in a court of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote of
--------------------------------------
a majority of the outstanding shares of RCFC Common Stock entitled to vote on
this Agreement is the only vote of the stockholders of RCFC required for
approval of the Agreement and the consummation of the Merger and the related
transactions contemplated hereby. RCFC has received the opinion of Tucker
Anthony Incorporated, to the effect that, as of the date hereof, the Exchange
Ratio is fair, from a financial point of view, to RCFC's stockholders.
(e) No Violations. The execution, delivery and performance of this
-------------
Agreement by RCFC does not, and the consummation of the transactions
contemplated hereby will not, constitute (i) assuming receipt of all Requisite
Regulatory Approvals and requisite stockholder approvals, a breach or violation
of, or a default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument of
RCFC or any of its Subsidiaries, or to which RCFC or any of its Subsidiaries (or
any of their respective properties) is subject, (ii) a breach or violation of,
or a default under, the certificate of incorporation or bylaws of RCFC or the
similar organizational documents of any of its Subsidiaries or (iii) a breach or
violation of, or a default under (or an event which, with due notice or lapse of
time or both, would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of RCFC or any of its Subsidiaries, under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which RCFC or any
of its Subsidiaries is a party, or to which any of their respective properties
or assets may be subject; and the consummation of the transactions (including
the Bank Merger) contemplated hereby (exclusive of the effect of any changes
effected pursuant to Section 1.7) will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (x) the
approval of the holders of a majority of the outstanding shares of RCFC Common
Stock, (y) the approval of the Banking Board of the State of New York ("Banking
Board") under Section 143-b of the Banking Law of the Sate of New York ("Banking
Law"), the approval of the Superintendent of Banks of the State of New York (the
"Superintendent") under Section 601 of the Banking Law and any other requirement
of the Banking Board or the Superintendent, the approval of the OTS, under HOLA,
the approval of the NJBD and the approval of the appropriate regulatory
authority under Section 18(c) of the FDIC (collectively, the "Requisite
Regulatory Approvals") and (z) such approvals, consents or waivers as are
required under the federal and state securities or "blue sky" laws in connection
with the transactions contemplated by this Agreement. As of the date hereof,
the executive officers of
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<PAGE>
RCFC know of no reason pertaining to RCFC why any of the approvals referred to
in this Section 2.4(e) should not be obtained without the imposition of any
material condition or restriction described in the proviso to Section 5.1(b).
(f) Reports. (i) As of their respective dates, none of the reports
-------
or other statements filed by RCFC or RCFC Bank on or subsequent to December 31,
1997, with the FDIC or the SEC (collectively, "RCFC's Reports"), contained, or
will contain, any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements of RCFC included in
RCFC's Reports complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto and
have been prepared in accordance with GAAP (except as may be indicated in the
notes thereto or, in the case of unaudited financial statements, as permitted by
Form 10-Q of the SEC). Each of the consolidated statements of condition
contained or incorporated by reference in RCFC's Reports (including in each case
any related notes and schedules) and each of the statements of operations,
consolidated statements of cash flows and consolidated statements of changes in
stockholders' equity, contained or incorporated by reference in RCFC's Reports
(including in each case any related notes and schedules) fairly presented, or
will fairly present, as the case may be, (A) the financial position of the
entity or entities to which it relates as of its date, and (B) the results of
operations, stockholders' equity and cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with GAAP, except as may be noted therein. RCFC has made available
to Bayonne a true and complete copy of each of RCFC's Reports filed with the SEC
since December 31, 1997.
(ii) RCFC and each of its Subsidiaries have each timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1993 with (A) the FDIC, (B) the SEC, (C) the NASD, (D) the NYBD and
(E) any other SRO, and, to RCFC's knowledge, have paid all fees and assessments
due and payable in connection therewith.
(g) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
RCFC's Reports filed on or prior to the date of this Agreement, since December
31, 1997, (i) RCFC and its Subsidiaries have not incurred any liability, except
in the ordinary course of their business consistent with past practice, (ii)
RCFC and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses and (iii) there has not been any
Material Adverse Effect with respect to RCFC.
(h) Absence of Claims. Except as set forth in RCFC's Disclosure
-----------------
Letter, no litigation, proceeding, controversy, claim or action before any court
or governmental agency is
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<PAGE>
pending against RCFC or any of its Subsidiaries, and, to the best of RCFC's
knowledge, no such litigation, proceeding, controversy, claim or action has been
threatened.
(i) Absence of Regulatory Actions. Neither RCFC nor any of its
-----------------------------
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or any commitment letter or similar written
undertaking to, or is subject to any action, proceeding, order or directive by,
or is a recipient of any extraordinary supervisory letter from any Government
Regulator, or has adopted any board resolutions at the request of any Government
Regulator, nor has it been advised by any Governmental Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar written undertaking.
(j) Taxes. All federal, state, local and foreign tax returns
-----
required to be filed by or on behalf of RCFC or any of its Subsidiaries have
been timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by RCFC or any of its
Subsidiaries have been paid in full or adequate provision has been made for any
such taxes on RCFC's balance sheet (in accordance with GAAP). For purposes of
this Section 2.4(j), the term "taxes" shall include all income, franchise, gross
receipts, real and personal property, real property transfer and gains, wage and
employment taxes. As of the date of this Agreement, there is no audit
examination, deficiency assessment, tax investigation or refund litigation with
respect to any taxes of RCFC or any of its Subsidiaries, and no claim has been
made by any authority in a jurisdiction where RCFC or any of its Subsidiaries do
not file tax returns that RCFC or any such Subsidiary is subject to taxation in
that jurisdiction. All taxes, interest, additions and penalties due with respect
to completed and settled examinations or concluded litigation relating to RCFC
or any of its Subsidiaries have been paid in full or adequate provision has been
made for any such taxes on RCFC's balance sheet (in accordance with GAAP).
Except as set forth in RCFC's Disclosure Letter, RCFC and its Subsidiaries have
not executed an extension or waiver of any statute of limitations on the
assessment or collection of any material tax due that is currently in effect.
RCFC and each of its Subsidiaries has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party,
and RCFC and each of its Subsidiaries has timely complied with all applicable
information reporting requirements under Part III, Subchapter A of Chapter 61 of
the Code and similar applicable state and local information reporting
requirements. Neither RCFC nor any of its Subsidiaries (i) has made an election
under Section 341(f) of the Code, (ii) has issued or assumed any obligation
under Section 279 of the Code, any high yield discount obligation as described
in Section 163(i) of the Code or any registration-required obligation within the
meaning of Section 163(f)(2) of the Code that is not in registered form or
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<PAGE>
(iii) is or has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code.
(k) Agreements. (i) Except for arrangements made in the ordinary
----------
course of business, and except as set forth in RCFC's Disclosure Letter, RCFC
and its Subsidiaries are not bound by any material contract (as defined in Item
601(b)(10) of Regulation S-K) to be performed after the date hereof that has not
been filed with or incorporated by reference in RCFC's Reports. Except as
disclosed in RCFC's Reports filed prior to the date of this Agreement, neither
RCFC nor any of its Subsidiaries is a party to an oral or written (A) consulting
agreement (other than data processing, software programming and licensing
contracts entered into in the ordinary course of business) not terminable on 60
days' or less notice, (B) agreement with any executive officer or other key
employee of RCFC or any of its Subsidiaries the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving RCFC or any of its Subsidiaries of the nature
contemplated by this Agreement, (C) agreement with respect to any employee or
director of RCFC or any of its Subsidiaries providing any term of employment or
compensation guarantee extending for a period longer than 60 days or for the
payment of in excess of $100,000 per annum, (D) agreement or plan, including any
stock option plan, phantom stock or stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting or payment of the benefits of which will be
accelerated, by the occurrence of a transaction involving RCFC or any of its
Subsidiaries of the nature contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of a transaction of the
nature contemplated by this Agreement or (E) agreement containing covenants that
limit the ability of RCFC or any of its Subsidiaries to compete in any line of
business or with any person, or that involve any restriction on the geographic
area in which, or method by which, RCFC (including any successor thereof) or any
of its Subsidiaries may carry on its business (other than as may be required by
law or any regulatory agency).
(ii) Neither RCFC nor any of its Subsidiaries is in default
under or in violation of any provision of any note, bond, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement to which it is a party
or by which it is bound or to which any of its respective properties or assets
is subject.
(iii) RCFC and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses, and neither RCFC nor any of its Subsidiaries has received any notice
of conflict with respect thereto that asserts the right of others. Each of RCFC
and its Subsidiaries has performed all the obligations required to be performed
by it and are not in default under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
(l) RCFC Common Stock. The shares of RCFC Common Stock to be issued
-----------------
pursuant to this Agreement, when issued in accordance with the terms of this
Agreement, will be
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<PAGE>
duly authorized, validly issued, fully paid and non-assessable and subject to no
preemptive rights.
(m) Labor Matters. Neither RCFC nor any of its Subsidiaries is or
-------------
has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is RCFC or any of
its Subsidiaries the subject of any proceeding asserting that it has committed
an unfair labor practice or seeking to compel RCFC or any of its Subsidiaries to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike, other labor dispute or organizational effort involving
RCFC or any of its Subsidiaries pending or, to RCFC's knowledge, threatened.
RCFC and its Subsidiaries are in compliance with applicable laws regarding
employment of employees and retention of independent contractors and are in
compliance with applicable employment tax laws.
(n) Employee Benefit Plans. RCFC's Disclosure Letter contains a
----------------------
complete and accurate list of all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance, severance and other
benefit plans, contracts, agreements and arrangements, including, but not
limited to, "employee benefit plans," as defined in Section 3(3) of ERISA,
incentive and welfare policies, contracts, plans and arrangements and all trust
agreements related thereto with respect to any present or former directors,
officers or other employees of RCFC or any of its Subsidiaries (hereinafter
referred to collectively as the "RCFC Employee Plans"). All of the RCFC
Employee Plans comply in all material respects with all applicable requirements
of ERISA, the Code and other applicable laws; there has occurred no "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
which is likely to result in the imposition of any penalties or taxes under
Section 502(i) of ERISA or Section 4975 of the Code upon RCFC or any of its
Subsidiaries. No liability to the PBGC has been or is expected by RCFC or any
of its Subsidiaries to be incurred with respect to any RCFC Employee Plan which
is subject to Title IV of ERISA ("RCFC Pension Plan"), or with respect to any
"single-employer plan" (as defined in Section 4001(a) of ERISA) currently or
formerly maintained by RCFC or any entity which is considered one employer with
RCFC under Section 4001(b)(1) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). No RCFC Pension Plan had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, as of the last day of
the end of the most recent plan year ending prior to the date hereof; the fair
market value of the assets of each RCFC Pension Plan exceeds the present value
of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under
such RCFC Pension Plan as of the end of the most recent plan year with respect
to the respective RCFC Pension Plan ending prior to the date hereof, calculated
on the basis of the actuarial assumptions used in the most recent actuarial
valuation for such RCFC Pension Plan as of the date hereof; and no notice of a
"reportable event" (as defined in Section 4043 of ERISA) for which the 30-day
reporting requirement has not been waived has been required to be filed for any
RCFC Pension Plan within the 12-month period ending on the date hereof. Neither
RCFC nor any of its Subsidiaries has provided, or is required to provide,
security to any RCFC Pension Plan or to any single-employer plan of an
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ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Neither RCFC, its
Subsidiaries, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
Each RCFC Employee Plan that is an "employee pension benefit plan" (as defined
in Section 3(2) of ERISA) and which is intended to be qualified under Section
401(a) of the Code (an "RCFC Qualified Plan") has received a favorable
determination letter from the IRS, and RCFC and its Subsidiaries are not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. Each RCFC Qualified Plan that is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the Code) has satisfied all
of the applicable requirements of Sections 409 and 4975(e)(7) of the Code and
the regulations thereunder in all respects and any assets of any such RCFC
Qualified Plan that are not allocated to participants' individual accounts are
pledged as security for, and may be applied to satisfy, any securities
acquisition indebtedness. There is no pending or, to RCFC's knowledge,
threatened litigation, administrative action or proceeding relating to any RCFC
Employee Plan. There has been no announcement or commitment by RCFC or any of
its Subsidiaries to create an additional RCFC Employee Plan, or to amend any
RCFC Employee Plan, except for amendments required by applicable law which do
not materially increase the cost of such RCFC Employee Plan; and, except as
specifically identified in RCFC's Disclosure Letter, RCFC and its Subsidiaries
do not have any obligations for post-retirement or post-employment benefits
under any RCFC Employee Plan that cannot be amended or terminated upon 60 days'
notice or less without incurring any liability thereunder, except for coverage
required by Part 6 of Title I of ERISA or Section 4980B of the Code, or similar
state laws, the cost of which is borne by the insured individuals. With respect
to RCFC or any of its Subsidiaries, for the Employee Plans listed in RCFC's
Disclosure Letter, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
payment or series of payments by RCFC or any of its Subsidiaries to any person
which is an "excess parachute payment" (as defined in Section 280G of the Code),
increase or secure (by way of a trust or other vehicle) any benefits payable
under any RCFC Employee Plan or accelerate the time of payment or vesting of any
such benefit. With respect to each RCFC Employee Plan, RCFC has supplied to
Bayonne a true and correct copy of (A) the annual report on the applicable form
of the Form 5500 series filed with the IRS for the most recent three plan years,
if required to be filed, (B) such RCFC Employee Plan, including amendments
thereto, (C) each trust agreement, insurance contract or other funding
arrangement relating to such RCFC Employee Plan, including amendments thereto,
(D) the most recent summary plan description and summary of material
modifications thereto for such RCFC Employee Plan, if the RCFC Employee Plan is
subject to Title I of ERISA, (E) the most recent actuarial report or valuation
if such RCFC Employee Plan is an RCFC Pension Plan and any subsequent changes to
the actuarial assumptions contained therein and (F) the most recent
determination letter issued by the IRS if such RCFC Employee Plan is a Qualified
Plan.
(o) Title to Assets. RCFC and each of its Subsidiaries has good and
---------------
marketable title to its properties and assets (including any intellectual
property asset such as any trademark, service mark, tradename or copyright) and
property acquired in a judicial foreclosure proceeding or by way of a deed in
lieu of foreclosure or similar transfer, other than property as to
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which it is lessee, in which case the related lease is valid and in full force
and effect. Each lease pursuant to which RCFC or any of its Subsidiaries is
lessor is valid and in full force and effect and no lessee under any such lease
is in default or in violation of any provisions of any such lease. All material
tangible properties of RCFC and each of its Subsidiaries are in a good state of
maintenance and repair, conform with all applicable ordinances, regulations and
zoning laws and are considered by RCFC to be adequate for the current business
of RCFC and its Subsidiaries.
(p) Compliance with Laws. RCFC and each of its Subsidiaries has all
--------------------
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, all federal, state, local
and foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as it is presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and, to the best knowledge of RCFC, no suspension or
cancellation of any of them is threatened. Since the date of its incorporation,
the corporate affairs of RCFC have not been conducted in violation of any law,
ordinance, regulation, order, writ, rule, decree or approval of any Governmental
Entity. The businesses of RCFC and its Subsidiaries are not being conducted in
violation of any law, ordinance, regulation, order, writ, rule, decree or
condition to approval of any Governmental Entity. The businesses of RCFC and
its Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, order, writ, rule, decree or condition to approve of any Government
Entity.
(q) Fees. Other than the financial advisory services performed for
----
RCFC by Tucker Anthony Incorporated pursuant to an agreement with RCFC dated
July 19, 1998, a true and complete copy of which has been previously delivered
to Bayonne, neither RCFC nor any of its Subsidiaries, nor any of their
respective officers, directors, employees or agents, has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for RCFC or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
(r) Environmental Matters. With respect to RCFC and each of its
---------------------
Subsidiaries:
(i) Each of RCFC and its Subsidiaries, the Participation
Facilities and, to RCFC's knowledge, the Loan Properties are, and have been, in
substantial compliance with, and are not liable under, all Environmental Laws;
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
RCFC's knowledge, threatened, before any court, governmental agency or board or
other forum against it or any of its Subsidiaries or any Participation Facility
(x) for alleged noncompliance (including by any predecessor) with, or liability
under, any Environmental Law or (y) relating to the presence of or release into
the environment of any Hazardous Material, whether or not occurring at or on a
site owned, leased or operated by it or any of its Subsidiaries or any
Participation Facility;
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<PAGE>
(iii) To RCFC's knowledge, there is no suit, claim, action,
demand, executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum relating to or against any Loan Property (or RCFC or any of its
Subsidiaries in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by a Loan Property;
(iv) To RCFC's knowledge, the properties currently owned or
operated by RCFC or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law;
(v) Neither RCFC nor any of its Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or request
for information from any federal, state, local or foreign governmental entity or
any third party indicating that it may be in violation of, or liable under, any
Environmental Law;
(vi) To RCFC's knowledge, there are no underground storage tanks
on, in or under any properties owned or operated by RCFC or any of its
Subsidiaries or any Participation Facility and no underground storage tanks have
been closed or removed from any properties owned or operated by RCFC or any of
its Subsidiaries or any Participation Facility; and
(vii) To RCFC's knowledge, during the period of (l) RCFC's or
any of its Subsidiaries' ownership or operation of any of their respective
current properties or (m) RCFC's or any of its Subsidiaries' participation in
the management of any Participation Facility, there has been no contamination by
or release of Hazardous Materials in, on, under or affecting such properties.
To RCFC's knowledge, prior to the period of (x) RCFC's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties or (y) RCFC's or any of its Subsidiaries' participation in the
management of any Participation Facility, there was no contamination by or
release of Hazardous Material in, on, under or affecting such property,
Participation Facility or Loan Property.
(s) Loan Portfolio; Allowance; Asset Quality. (i) With respect to
----------------------------------------
each Loan owned by RCFC or its Subsidiaries in whole or in part, to RCFC's best
knowledge:
(A) the note and the related security documents are each legal,
valid and binding obligations of the maker or obligor thereof, enforceable
against such maker or obligor in accordance with their terms;
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<PAGE>
(B) neither RCFC nor any of its Subsidiaries nor any prior
holder of a Loan has modified the note or any of the related security documents
in any material respect or satisfied, canceled or subordinated the note or any
of the related security documents except as otherwise disclosed by documents in
the applicable Loan file;
(C) RCFC or a Subsidiary is the sole holder of legal and
beneficial title to each Loan (or RCFC Bank's applicable participation interest,
as applicable); except as otherwise referenced on the books and records of RCFC;
(D) the note and the related security documents, copies of which
are included in the Loan files, are true and correct copies of the documents
they purport to be and have not been suspended, amended, modified, canceled or
otherwise changed except as otherwise disclosed by documents in the applicable
Loan file;
(E) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property that serves as security for a Loan;
except as otherwise referenced on the books and records of RCFC;
(F) there is no litigation or proceeding pending or threatened
relating to the property that serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan; and
(G) with respect to a Loan held in the form of a participation,
the participation documentation is legal, valid, binding and enforceable.
(ii) The allowance for possible losses reflected in RCFC Bank's
audited statement of condition at June 30, 1997 was, and the allowance for
possible losses shown on the balance sheets in RCFC's Reports for periods ending
after June 30, 1997 will, in the opinion of management, be adequate, as of the
dates thereof, under generally accepted accounting principles applicable to
stock savings associations consistently applied.
(iii) RCFC's Disclosure Letter sets forth by category the
amounts of all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of RCFC and its Subsidiaries
that have been classified (whether regulatory or internal) as "Other Loans
Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss,"
"Classified," "Criticized," "Credit Risk Assets," "Concerned Loans" (in the
latter two cases, to the extent available) or words of similar import, and RCFC
and its Subsidiaries shall promptly after the end of any month inform Bayonne of
any such classification arrived at any time after the date hereof. The OREO or
words of similar import included in any non-performing assets of RCFC or any of
its Subsidiaries is carried net of reserves at the lower of cost or fair value,
less estimated selling costs, based on current independent appraisals or
evaluations or current management appraisals or evaluations; provided, however,
that "current" shall mean within the past 12 months.
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<PAGE>
(t) [RESERVED]
(u) Investment Securities; Borrowing. (i) Except for investments in
--------------------------------
FHLB Stock and pledges to secure FHLB borrowings and reverse repurchase
agreements entered into in arms-length transactions pursuant to normal
commercial terms and conditions and entered into in the ordinary course of
business and restrictions that exist for securities to be classified as "held to
maturity," none of the investments reflected in the consolidated balance sheet
of RCFC included in RCFC's Report on Form 10-K for the year ended December 31,
1997, and none of the investment securities held by it or any of its
Subsidiaries since December 31, 1997 is subject to any restriction (contractual
or statutory) that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time.
(ii) Except as set forth in RCFC's Disclosure Letter, neither
RCFC nor any Subsidiary is a party to or has agreed to enter into any
Derivatives Contract or owns securities that (A) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other
instruments legally purchased or entered into in the ordinary course of
business, consistent with safe and sound banking practices and regulatory
guidance, and listed (as of the date hereof) in RCFC's Disclosure Letter or
disclosed in RCFC's Report filed on or prior to the date hereof.
(iii) Set forth in RCFC's Disclosure Letter is a true and
complete list of RCFC's borrowed funds (excluding deposit accounts) as of the
date hereof.
(v) Registration Statement. The information regarding RCFC to be
----------------------
supplied by RCFC for inclusion in (i) the Registration Statement, (ii) the Proxy
Statement or (iii) any other documents to be filed with any Regulatory Authority
in connection with the transactions contemplated hereby will not, at the time
such Registration Statement becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. All documents that
RCFC is responsible for filing in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law.
(w) Books and Records. The books and records of RCFC and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal
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<PAGE>
and accounting requirements and reflect in all material respects the substance
of events and transactions that should be included therein.
(x) Corporate Documents. RCFC has delivered to Bayonne true and
-------------------
complete copies of its organization certificate and bylaws and of RCFC Bank's
organization certificate and bylaws. The minute books of RCFC and RCFC Bank
constitute a complete and correct record of all actions taken by their
respective boards of directors (and each committee thereof) and their
stockholders. The minute books of each of RCFC's Subsidiaries constitutes a
complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of each such
Subsidiary.
(y) Beneficial Ownership of Bayonne Common Stock. As of the date
--------------------------------------------
hereof, RCFC beneficially owns 442,500 shares of Bayonne Common Stock and, other
than as contemplated by the Option Agreement, does not have any option, warrant
or right of any kind to acquire the beneficial ownership of any shares of
Bayonne Common Stock.
(z) Tax Treatment of the Merger. As of the date hereof, RCFC has no
---------------------------
knowledge of any fact or circumstance relating to it that would prevent the
transactions contemplated by this Agreement from qualifying as a tax-free
reorganization under the Code.
(aa) Year 2000 Matters. RCFC has completed a review of its computer
-----------------
systems to identify systems that could be affected by the "Year 2000" issue and
reasonably believes it has identified all Year 2000 problems. RCFC's management
has developed and commenced implementation of a plan which is designed to
complete any required initial changes to its computer systems and to complete
testing of those changes by December 31, 1998. Between the date of this
Agreement and the Effective Time, RCFC shall use commercially practicable
efforts to implement and/or continue to undertake such plan. Year 2000 issues
have not had, and are not reasonably expected to have, a Material Adverse Effect
on RCFC and its Subsidiaries, taken as a whole.
(bb) Community Reinvestment Act ("CRA") Compliance. RCFC Bank is in
---------------------------------------------
material compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and RCFC Bank currently has a CRA rating of
satisfactory or better. To RCFC's knowledge, there is no fact or circumstance
or set of facts or circumstances that would cause RCFC Bank to fail to comply
with such provisions or cause the CRA rating of RCFC Bank to fall below
satisfactory.
ARTICLE III
CONDUCT PENDING THE MERGER
--------------------------
Section 3.1. Conduct of Bayonne's Business Prior to the Effective
----------------------------------------------------
Time. Except as expressly provided in this Agreement, during the period from
- ----
the date of this Agreement to the Effective Time, Bayonne shall, and shall cause
its Subsidiaries to, use
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<PAGE>
commercially reasonable efforts to (i) conduct its business in the regular,
ordinary and usual course consistent with past practice; (ii) maintain and
preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers and
key employees, (iii) take no action which would adversely affect or delay the
ability of Bayonne or RCFC to perform their respective covenants and agreements
on a timely basis under this Agreement, (iv) take no action which would
adversely affect or delay the ability of Bayonne, First Savings, RCFC or RCFC
Bank to obtain any necessary approvals, consents or waivers of any governmental
authority required for the transactions contemplated hereby or which would
reasonably be expected to result in any such approvals, consents or waivers
containing any material condition or restriction, and (v) take no action that
results in or is reasonably likely to have a Material Adverse Effect on Bayonne
or First Savings.
Section 3.2. Forbearance by Bayonne. Without limiting the covenants
----------------------
set forth in Section 3.1 hereof, except as otherwise provided in this Agreement
and except to the extent required by law or regulation or any Government
Regulators, during the period from the date of this Agreement to the Effective
Time, Bayonne shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of RCFC, which consent shall not be unreasonably
withheld:
(a) unless required by applicable law or regulation or regulatory
directive, change any provisions of the certificate of incorporation or bylaws
of Bayonne or the similar governing documents of its Subsidiaries;
(b) issue any shares of capital stock or change the terms of any
outstanding stock options or warrants or issue, grant or sell any option,
warrant, call, commitment, stock appreciation right, right to purchase or
agreement of any character relating to the authorized or issued capital stock of
Bayonne except pursuant to the exercise of stock options or warrants outstanding
as of the date of this Agreement;
(c) other than regular quarterly dividends, make, declare or pay any
cash or stock dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock. As promptly as practicable following the date of
this Agreement, the Board of Directors of Bayonne shall cause its regular
quarterly dividend record dates and payment dates to be the same as RCFC's
regular quarterly dividend record dates and payments dates for RCFC Common
Stock, and Bayonne shall not thereafter change its regular dividend payment
dates and record dates. Nothing contained in this Section 3.2(c) or in any
other Section of this Agreement shall be construed to permit holders of shares
of Bayonne Common Stock to receive two dividends from either Bayonne or from
Bayonne and RCFC in any one quarter. Subject to applicable regulatory
restrictions, if any, First Savings may pay a cash dividend that is, in the
aggregate, sufficient to fund any dividend by Bayonne permitted hereunder;
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<PAGE>
(d) other than in the ordinary course of business consistent with
past practice, (i) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties, leases or assets to any individual, corporation
or other entity other than a direct or indirect wholly owned Subsidiary of
Bayonne or (ii) cancel, release or assign any indebtedness of any such
individual, corporation or other entity;
(e) except to the extent required by law or as specifically provided
for elsewhere herein, increase in any manner the compensation or fringe benefits
of any of its employees or directors, other than general increases in
compensation for non-executive officer employees in the ordinary course of
business consistent with past practice that do not cause the annualized
compensation of any of Bayonne's non-executive officer employees following such
increase to exceed by more than 5% the total annual compensation expenses of
Bayonne with respect to such person for the twelve-month period ended March 31,
1998 and that do not cause the annual rate of base salary of any of Bayonne's
non-executive officer employees to increase by more than 5% over such person's
base salary at March 31, 1998; pay, unless approved in advance by RCFC, any
reasonable "stay in place" pay where necessary or appropriate to retain key
employees; pay any pension or retirement allowance not required by any existing
plan or agreement to any such employees or directors, or become a party to,
amend or commit itself to fund or otherwise establish any trust or account
related to any Bayonne Employee Plan (as defined in Section 2.3(m)) with or for
the benefit of any employee or director; voluntarily accelerate the vesting of
any stock options or other compensation or benefit; make any discretionary
continuation to any Employee Plan; hire any employee with an annual total
compensation payment in excess of $35,000 or enter into any employment contract;
terminate or materially increase the costs to Bayonne or any Subsidiary of any
Employee Plan;
(f) except as contemplated by Section 4.2, change its method of
accounting as in effect at March 31, 1998, except as required by changes in GAAP
as concurred in by Bayonne's independent auditors;
(g) settle any claim, action or proceeding involving any liability of
Bayonne or any of its Subsidiaries for money damages in excess of $50,000 or
impose material restrictions upon the operations of Bayonne or any of its
Subsidiaries;
(h) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, in each case which are material,
individually or in the aggregate, to Bayonne, except in satisfaction of debts
previously contracted;
(i) except pursuant to commitments existing at the date hereof which
have previously been disclosed to RCFC, make any real estate loans secured by
undeveloped land or real estate located outside the State of New Jersey (other
than real estate secured by one-to-four
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<PAGE>
family homes) or make any construction loan (other than construction loans
secured by one-to-four family homes) outside the State of New Jersey;
(j) establish or commit to the establishment of any new branch or
other office facilities other than those for which all regulatory approvals have
been obtained except as disclosed in the Bayonne Disclosure Schedule;
(k) [RESERVED];
(l) other than in the ordinary course of business consistent with
past practice in individual amounts not to exceed $50,000 and other than
investments for Bayonne's portfolio made in accordance with Section 3.2(m), make
any investment either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets of any other
individual, corporation or other entity;
(m) make any investment in any debt security, including mortgage-
backed and mortgage-related securities, other than US government and US
government agency securities with final maturities not greater than five years,
mortgage-backed or mortgage related securities which would not be considered
"high risk" securities pursuant to Thrift Bulletin Number 52 issued by the OTS
or securities of the FHLB, in each case that are purchased in the ordinary
course of business consistent with past practice;
(n) enter into or terminate any contract or agreement, or make any
change in any of its leases or contracts, other than with respect to those
involving aggregate payments of less than, or the provision of goods or services
with a market value of less than, $20,000 per annum and other than contracts or
agreements covered by Section 3.2(g);
(o) make, renegotiate, renew, increase, extend or purchase any
(i) loan, lease (credit equivalent), advance, credit enhancement or other
extension of credit, or make any commitment in respect of any of the foregoing,
except (A) in conformity with existing lending practices in amounts not to
exceed $500,000 to any individual borrower or (B) loans or advances as to which
Bayonne has a binding obligation to make such loan or advances as of the date
hereof and a description of which has been provided by Bayonne in the Bayonne
Disclosure Schedule;
(p) incur any additional borrowings beyond those set forth in the
Bayonne Disclosures Schedule other than short-term (six months or less) FHLB
borrowings and reverse repurchase agreements consistent with past practice, or
pledge any of its assets to secure any borrowings other than as required
pursuant to the terms of borrowings of Bayonne or any Subsidiary in effect at
the date hereof or in connection with borrowings or reverse repurchase
agreements permitted hereunder. Deposits shall not be deemed to be borrowings
within the meaning of this paragraph;
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<PAGE>
(q) make any capital expenditures in excess of $20,000 per
expenditure from the date of this Agreement until the Effective Date other than
pursuant to binding commitments existing on the date hereof disclosed in the
Bayonne Disclosure Schedule, other than expenditures necessary to maintain
existing assets in good repair or to make payment of necessary taxes;
(r) organize, capitalize, lend to or otherwise invest in any
subsidiary (other than securities of the FHLB that are purchased in the ordinary
course of business consistent with past practice);
(s) elect to any senior executive office any person who is not a
member of the senior executive officer team of Bayonne as of the date of this
Agreement or elect to the Board of Directors of Bayonne any person who is not a
member of the Board of Directors of Bayonne;
(t) agree or make any commitment to take any action that is
prohibited by this Section 3.2.
In the event that RCFC does not respond in writing to Bayonne within
3 business days of receipt by RCFC of a written request for Bayonne to engage in
any of the actions for which RCFC's prior written consent is required pursuant
to this Section 3.2, RCFC shall be deemed to have consented to such action. Any
request by Bayonne or response thereto by RCFC shall be made in accordance with
the notice provisions of Section 8.7, shall note that it is a request pursuant
to this Section 3.2 and shall state that a failure to respond within 3 business
days shall constitute consent.
Section 3.3. Conduct of RCFC's Business Prior to the Effective Time.
------------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, RCFC shall, and shall cause its
Subsidiaries to, use commercially reasonable efforts to (i) conduct its
business in the regular, ordinary and usual course consistent with past
practice; (ii) maintain and preserve intact its business organization,
properties, leases, employees and advantageous business relationships and retain
the services of its officers and key employees; (iii) take no action which would
materially adversely affect or delay the ability of Bayonne or RCFC to perform
their respective covenants and agreements on a timely basis under this
Agreement, (iv) take no action which would adversely affect or delay the ability
of Bayonne, RCFC, First Savings or RCFC Bank to obtain any necessary approvals,
consents or waivers of any governmental authority required for the transactions
contemplated hereby or which would reasonably be expected to result in any such
approvals, consents or waivers containing any material condition or restriction,
and (v) take no action that results in or is reasonably likely to have a
Material Adverse Effect on RCFC.
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ARTICLE IV
COVENANTS
---------
Section 4.1. Acquisition Proposals. From and after the date hereof
---------------------
until the termination of this Agreement, neither Bayonne or First Savings, nor
any of their respective officers, directors, employees, representatives, agents
or affiliates (including, without limitation, any investment banker, attorney or
accountant retained by Bayonne or any of its Subsidiaries), will, directly or
indirectly, initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or facilitate knowingly, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal (as defined below), or enter into
or maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal or agree to
or endorse any Acquisition Proposal, or authorize or permit any of its officers,
directors or employees or any of its Subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by any
of its Subsidiaries to take any such action, and Bayonne shall notify RCFC
orally (within 1 business day) and in writing (as promptly as practicable) of
such inquiries and proposals which it or any of its subsidiaries or any such
officer, director, employee, investment banker, financial advisor, attorney,
accountant or other representative may receive relating to any of such matters
and if such inquiry or proposal is in writing, Bayonne shall deliver to RCFC a
copy of such inquiry or proposal promptly; provided, however, that nothing
contained in this Section 4.1 shall prohibit the Board of Directors of Bayonne
from (i) furnishing information to, or entering into discussions or negotiations
with any, person or entity that makes an unsolicited written, bona fide proposal
to acquire Bayonne pursuant to a merger, consolidation, share exchange, business
combination, tender or exchange offer or other similar transaction, if, and only
to the extent that, (A) the Board of Directors of Bayonne receives a written
opinion from its independent financial advisor that such proposal may be
superior to the Merger from a financial point-of-view to Bayonne's stockholders,
(B) the Board of Directors of Bayonne, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Board of
Directors of Bayonne to comply with its fiduciary duties to stockholders under
applicable law (such proposal that satisfies (A) and (B) being referred to
herein as a "Superior Proposal") and (C) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
Bayonne (x) provides reasonable notice to RCFC to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
another partyand (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, (ii) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a tender or exchange
offer or (iii) failing to make or withdrawing or modifying its recommendation
and entering into a Superior Proposal if there exists a Superior Proposal and
the Board of Directors of Bayonne, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Board of
Directors of Bayonne to comply with its fiduciary duties to stockholders under
applicable law. For purposes of this Agreement, "Acquisition Proposal" shall
mean any of the following (other than the transactions contemplated hereunder)
involving Bayonne or any of its Subsidiaries: (i) any merger, consolidation,
share exchange, business
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combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 15% or more of the assets of
Bayonne or First Savings, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock of Bayonne or the filing of a registration
statement under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
Section 4.2. Certain Policies of Bayonne.
---------------------------
(a) At the request of RCFC, Bayonne shall cause First Savings to
modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) and investment
and asset/liability management policies and practices after the date on which
all Requisite Regulatory Approvals and stockholder approvals are received, and
after receipt of written confirmation from RCFC that it is not aware of any fact
or circumstance that would prevent completion of the Merger, and prior to the
Effective Time so as to be consistent on a mutually satisfactory basis with
those of RCFC Bank; provided, however, that Bayonne shall not be required to
take such action more than 30 days prior to the Effective Date; and provided,
further, that such policies and procedures are not prohibited by GAAP or any
applicable laws and regulations.
(b) Bayonne's representations, warranties and covenants contained in
this Agreement shall not be deemed to be untrue or breached in any respect for
any purpose as a consequence of any modifications or changes undertaken solely
on account of this Section 4.2. RCFC agrees to hold harmless, indemnify and
defend Bayonne and its Subsidiaries, and their respective directors, officers
and employees, for any loss, claim, liability or other damage caused by or
resulting from compliance with this Section 4.2.
Section 4.3. Access and Information.
----------------------
(a) Upon reasonable notice, Bayonne and RCFC shall (and shall cause
their respective Subsidiaries to) afford to the other and their respective
representatives (including, without limitation, directors, officers and
employees of such party and its affiliates and counsel, accountants and other
professionals retained by such party) such reasonable access during normal
business hours throughout the period prior to the Effective Time to the books,
records (including, without limitation, tax returns and work papers of
independent auditors), properties, personnel and to such other information as
either party may reasonably request; provided, however, that no investigation
pursuant to this Section 4.3 shall affect or be deemed to modify any
representation or warranty made herein. In furtherance, and not in limitation
of the foregoing, Bayonne shall make available to RCFC all information necessary
or appropriate for the preparation and filing of all real property and real
estate transfer tax returns and reports required by reason of the Merger or the
Bank Merger. RCFC and Bayonne will not, and will cause their respective
representatives not to, use any information obtained pursuant to this
Section 4.3 for any purpose unrelated to the
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consummation of the transactions contemplated by this Agreement. Subject to the
requirements of applicable law, each of RCFC and Bayonne will keep confidential,
and will cause their respective representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.3 unless such
information (i) was already known to such party or an affiliate of such party,
other than pursuant to a confidentiality agreement or other confidential
relationship, (ii) becomes available to such party or an affiliate of such party
from other sources not known by such party to be bound by a confidentiality
agreement or other obligation of secrecy, (iii) is disclosed with the prior
written approval of the other party or (iv) is or becomes readily ascertainable
from published information or trade sources. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of documents
or extracts thereof containing information and data as to another party hereto
(or an affiliate of any party hereto) to be returned to the party that furnished
the same.
(b) During the period of time beginning on the day application
materials for the Bank Merger are initially filed with the OTS, the FDIC, the
NYBD and the NJBD and continuing to the Effective Time, including weekends and
holidays, Bayonne shall cause First Savings to provide RCFC, RCFC Bank and their
authorized agents and representatives full access to First Savings's offices
after normal business hours for the purpose of installing necessary wiring and
equipment to be utilized by RCFC Bank after the Effective Time; provided, that:
(i) reasonable advance notice of each entry shall be given to
First Savings and First Savings approves of each entry, which approval shall not
be unreasonably withheld;
(ii) First Savings shall have the right to have its employees or
contractors present to inspect the work being done;
(iii) to the extent practicable, such work shall be done in a
manner that will not interfere with First Savings's business conducted at any
affected branch offices;
(iv) all such work shall be done in compliance with all
applicable laws and government regulations, and RCFC Bank shall be responsible
for the procurement, at RCFC Bank's expense, of all required governmental or
administrative permits and approvals;
(v) RCFC Bank shall maintain appropriate insurance satisfactory
to First Savings in connection with any work done by RCFC Bank's agents and
representatives pursuant to this Section 4.3;
(vi) RCFC Bank shall reimburse First Savings for any material
out-of-pocket costs or expenses incurred by First Savings in connection with
this undertaking; and
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(vii) in the event this Agreement is terminated in accordance
with Article VI hereof, RCFC Bank, within a reasonable time period and at its
sole cost and expense, will restore such offices to their condition prior to the
commencement of any such installation.
Section 4.4. Certain Filings, Consents and Arrangements. RCFC
------------------------------------------
shall (a) as soon as practicable and in cooperation with Bayonne (and in any
event within 45 days after the date hereof) make, or cause to be made, any
filings and applications and provide any notices required to be filed or
provided in order to obtain all approvals, consents and waivers of governmental
authorities and third parties necessary or appropriate for the consummation of
the transactions contemplated hereby; (b) cooperate with one another in promptly
(i) determining what filings and notices are required to be made or approvals,
consents or waivers are required to be obtained under any relevant federal or
state law or regulation or under any relevant agreement or other document and
(ii) making any such filings and notices, furnishing information required in
connection therewith and seeking timely to obtain any such approvals, consents
or waivers; and (c) deliver to the other copies of the publicly available
portions of all such filings, notices and applications prior to filing.
Section 4.5. Antitakeover Provisions. Bayonne and its Subsidiaries
-----------------------
shall take all steps required by any relevant federal or state law or regulation
or under any relevant agreement or other document to exempt or continue to
exempt RCFC, the Agreement, the Merger, the Bank Merger and the Option Agreement
from any provisions of an antitakeover nature in Bayonne's or its Subsidiaries'
organization certificates and bylaws and the provisions of any federal or state
antitakeover laws.
Section 4.6. Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including the Bank
Merger, as expeditiously as possible, including using efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable governmental entities, effecting all necessary
registrations, applications and filings (including, without limitation, filings
under any applicable state securities laws) and obtaining any required
contractual consents and regulatory approvals.
Section 4.7. Publicity. The initial press release announcing this
---------
Agreement shall be a joint press release and thereafter Bayonne and RCFC shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the Merger and any other transaction contemplated
hereby and in making any filings with any governmental entity or with any
national securities exchange with respect thereto.
Section 4.8. Stockholders Meetings. RCFC and Bayonne shall take
---------------------
all action necessary, in accordance with applicable law and their respective
corporate documents, to
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convene a meeting of their respective stockholders (each, a "Stockholder
Meeting") as promptly as practicable for the purpose of considering and voting
on approval and adoption of the transactions provided for in this Agreement.
Except to the extent legally required for the discharge by the Board of
Directors of its fiduciary duties as advised by such Board's counsel, the Board
of Directors of each of RCFC and Bayonne shall (a) recommend at its Stockholder
Meeting that the stockholders vote in favor of and approve the transactions
provided for in this Agreement and (b) use its best efforts to solicit such
approvals. RCFC and Bayonne, in consultation with each other, shall each employ
professional proxy solicitors to assist in contacting stockholders in connection
with soliciting favorable votes on the Merger. RCFC and Bayonne shall coordinate
and cooperate with respect to the timing of their respective stockholders
meetings.
Section 4.9. Proxy Statements; Comfort Letters. (i) As soon as
---------------------------------
practicable after the date hereof, RCFC shall, in cooperation with Bayonne,
prepare a Proxy Statement-Prospectus for the purpose of taking stockholder
action on the Merger and this Agreement and subject to the provisions of Section
4.4, file the Proxy Statement-Prospectus with the SEC, respond to comments of
the staff of the SEC and, promptly after the Registration Statement is declared
effective by the SEC, mail the Proxy Statement-Prospectus to the respective
holders of record (as of the applicable record date) of shares of voting stock
of each of Bayonne and RCFC. RCFC and Bayonne each represents and covenants to
the other that the Proxy Statement-Prospectus, and any amendment or supplement
thereto, with respect to the information pertaining to it or its Subsidiaries at
the date of mailing to its stockholders and the date of its Stockholder Meeting
will be in compliance with the Exchange Act and all relevant rules and
regulations of the SEC.
(ii) RCFC shall use its reasonable best efforts to cause Ernst &
Young LLP, its independent public accounting firm, to deliver to Bayonne, and
Bayonne shall use its reasonable best efforts to cause KPMG Peat Marwick LLP,
its independent public accounting firm, to deliver to RCFC and to its officers
and directors who sign the Registration Statement for this transaction, a
"comfort letter" or "agreed upon procedures" letter, in the form customarily
issued by such accountants at such time in transactions of this type, dated
(a) the date of the mailing of the Proxy Statement-Prospectus for the
Stockholders Meeting of Bayonne and the date of mailing of the Proxy Statement
for the Stockholders meeting of RCFC, respectively, and (b) a date not earlier
than fourteen days preceding the date of the Closing (as defined in
Section 7.1).
Section 4.10. Registration of RCFC Common Stock.
---------------------------------
(a) RCFC shall, as promptly as practicable following the preparation
thereof, file the Registration Statement in which the Proxy Statement-Prospectus
will be included (including any pre-effective or post-effective amendments or
supplements thereto) with the SEC under the Securities Act in connection with
the transactions contemplated by this Agreement, and RCFC and Bayonne shall use
all reasonable efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing. RCFC
will advise
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Bayonne promptly after RCFC receives notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
shares of capital stock issuable pursuant to the Registration Statement, 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. RCFC will provide Bayonne with as many copies of such
Registration Statement and all amendments thereto promptly upon the filing
thereof as Bayonne may reasonably request.
(b) RCFC shall use its best efforts to obtain, prior to the effective
date of the Registration Statement, all necessary state securities laws or "blue
sky" permits and approvals required to carry out the transactions contemplated
by this Agreement.
(c) RCFC shall use its best efforts to list, prior to the Effective
Time, on the Nasdaq National Market, or on such other exchange as RCFC Common
Stock shall then be trading, subject only to official notice of issuance, the
shares of RCFC Common Stock to be issued by RCFC in exchange for the shares of
Bayonne Common Stock.
Section 4.11. Affiliate Letters. Promptly, but in any event within
-----------------
7 days after the execution and delivery of this Agreement, Bayonne shall deliver
to RCFC a letter identifying all persons who, to the knowledge of Bayonne, may
be deemed to be "affiliates" of Bayonne under Rule 145 of the Securities Act,
including, without limitation, all directors and executive officers of Bayonne.
Within 21 days after delivery of such letter, Bayonne shall use its best efforts
to deliver executed letter agreements, each substantially in the form attached
hereto as Exhibit A, executed by each such person so identified as an affiliate
of Bayonne agreeing to comply with Rule 145.
Section 4.12. Notification of Certain Matters. Each party shall
-------------------------------
give prompt notice to the others of: (a) any event or notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by it or any of its Subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time, under
any contract material to the financial condition, properties, businesses or
results of operations of each party and its Subsidiaries taken as a whole to
which each party or any Subsidiary is a party or is subject; and (b) any event,
condition, change or occurrence which individually or in the aggregate has, or
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in a Material Adverse Event. Each of Bayonne and
RCFC shall give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with any of the transactions contemplated by
this Agreement.
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Section 4.13. Employees, Directors and Officers.
---------------------------------
(a) All persons who are employees of First Savings immediately prior
to the Effective Time ("Bayonne's Employees") and whose employment is not
specifically terminated at or prior to the Effective Time (a "Continuing
Employee") shall, at the Effective Time, become employees of RCFC or RCFC Bank,
respectively; provided, however, that in no event shall any of Bayonne's
Employees be officers of RCFC or RCFC Bank, or have or exercise any power or
duty conferred upon such an officer, unless and until duly elected or appointed
to such position in accordance with the bylaws of RCFC or RCFC Bank. Subject to
paragraph (e) of this Section 4.13, all of Bayonne's Employees who remain
following the Effective Date shall be employed at the will of RCFC or RCFC Bank
and no contractual right to employment shall inure to such employees because of
this Agreement. Except as provided in paragraph (e) of this Section 4.13, no
employee of Bayonne will become a contractual employee of RCFC or RCFC Bank
unless such contract is in writing and executed by the President or Chief
Executive Officer of RCFC or RCFC Bank.
(b) Except as otherwise provided in paragraphs (c), (f) and (g) of
this Section 4.13, appropriate steps shall be taken to terminate all Bayonne
Employee Plans as of the Effective Time or as promptly as practical thereafter.
Except as provided in paragraph (c) of this Section 4.13, immediately following
the Effective Time, each Continuing Employee shall be eligible to participate in
RCFC Employee Plans, on the same basis as any newly-hired employee of RCFC or
RCFC Bank (it being understood that inclusion of Continuing Employees in RCFC
Employee Plans may occur at different times with respect to different plans);
provided, however, that with respect to each RCFC Employee Plan, other than the
Richmond County Savings Bank Employee Stock Ownership Plan (the "RCFC Bank
ESOP") and the Retirement Plan of Richmond County Savings Bank in RSI Trust (the
"RCFC Bank Retirement Plan"), for purposes of determining eligibility to
participate, vesting, and entitlement to benefits, service with Bayonne or First
Savings shall be treated as service with RCFC or RCFC Bank; provided further
however, that such service shall not be recognized to the extent such
recognition would result in a duplication of benefits. Such service shall also
apply for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitation with
respect to any RCFC or RCFC Bank welfare benefit plan. For purposes of
determining eligibility to participate, vesting, and entitlement to benefits
(including accrual of benefits) under the RCFC Bank ESOP or RCFC Bank Retirement
Plan, Continuing Employees shall be treated as newly-hired employees of RCFC or
RCFC Bank as of the Effective Date and credit for service shall begin accruing
as of that date.
(c) As of the Effective Time, each Bayonne Employee who is a
participant in the Bayonne 401(k) Plan (the "Bayonne 401(k) Plan") shall become
fully vested in his or her account balance in the Bayonne 401(k) Plan and the
Bayonne 401(k) Plan will either be merged into the Richmond County Savings Bank
401(k) Savings Plan (the "RCFC Bank 401(k) Plan") effective as of a date
following the Effective Time selected by RCFC Bank or, if so elected by RCFC
Bank, terminated immediately prior to, on, or after the Effective Time. The
determination
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as to whether the Bayonne Savings Plan shall be terminated or merged into the
RCFC Bank 401(k) Plan shall be made by RCFC Bank. Effective as of the date of
the merger of the Bayonne 401(k) Plan into the RCFC 401(k) Plan, if applicable,
or the termination of the Bayonne 401(k) Plan (or the Effective Time, if
subsequent to such termination), if applicable, Bayonne Employees who are then
participating in the Bayonne 401(k) Plan shall become participants in the RCFC
Bank 401(k) Plan.
(d) RCFC agrees to honor existing employment agreements, including
the change in control provisions of such agreements, between Bayonne and First
Savings and certain employees, stock option plans and restricted stock plans,
and other benefit plans as set forth in Bayonne's Disclosure Letter
(collectively "Employment Agreements") and to the payment of benefits by Bayonne
as of the Effective Time or earlier as agreed to by Bayonne and RCFC under such
agreements and plans as described in the Bayonne Disclosure Schedule. Payments
under the Employment Agreements may be made by Bayonne if so agreed to by RCFC.
(e) At the Effective Time, RCFC Bank shall enter into an employment
agreement with Michael A. Nilan, substantially in the form attached hereto as
Exhibit D.
(f) Prior to the Effective Time, Bayonne shall terminate the Bayonne
ESOP by proper action of the Board of Directors of Bayonne. As soon as
administratively practicable after the Effective Time and subject to such
conditions as may be necessary to qualify the Merger as a tax-free
reorganization, the ESOP shall convert to cash a sufficient number of shares of
RCFC Common Stock as may be received by the ESOP with respect to unallocated
shares of Bayonne Common Stock held by the ESOP at the Effective Time and apply
such cash to the repayment in full of the outstanding ESOP indebtedness. Any
surplus of RCFC Common Stock remaining after repayment of such indebtedness
shall be allocated as investment earnings of the ESOP to the accounts of ESOP
participants (and, if required, to the accounts of former participants or their
beneficiaries) in proportion to their account balances in a manner consistent
with the terms of the ESOP Plan document.
(g) Immediately following execution of this Agreement, Bayonne shall
take all appropriate steps necessary to "freeze" benefit accruals under the tax-
qualified defined benefit plan sponsored by Bayonne.
(h) RCFC shall cause its Board of Directors to be increased by one
member and shall appoint Patrick F.X. Nilan as the nominee to fill such vacancy
on RCFC's Board of Directors created by such increase. The term for Mr. Patrick
F.X. Nilan shall expire in the year 2000 and he shall receive only RCFC Board
fees and no Divisional Board fees during this term.
(i) Immediately upon execution of this Agreement, the Board of
Directors of Bayonne shall provide notice to Patrick F.X. Nilan of termination
of the consulting agreement between Bayonne and Patrick F.X. Nilan. Such notice
of termination shall be effective as of the Effective Date. Consideration to be
paid pursuant to the termination of the consulting agreement is to be made as
disclosed in the Bayonne Disclosure Letter.
(j) Upon request, Bayonne shall supply RCFC with all documentation
regarding all actions taken in accordance with this Section 4.13.
Section 4.14. Indemnification.
---------------
(a) From and after the Effective Time through the sixth anniversary
of the Effective Date, RCFC (and any successor) agrees to indemnify and hold
harmless each present and former director, officer and employee of Bayonne and
its Subsidiaries and each officer or employee of Bayonne and its Subsidiaries
that is serving or has served as a director or trustee of
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another entity expressly at Bayonne's request or direction (each, an
"Indemnified Party"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, amount paid in settlement, losses, claims,
damages or liabilities (collectively, "Costs") 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 Time (including the transactions contemplated by this
Agreement), whether asserted or claimed prior to, at or after the Effective
Time, 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 Bayonne and
its Subsidiaries and as then permitted under the DGCL.
(b) Any Indemnified Party wishing to claim indemnification under
Section 4.14(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify RCFC thereof, but the failure to so notify
shall not relieve RCFC of any liability it may have hereunder to such
Indemnified Party if such failure does not materially and substantially
prejudice the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation, (i) RCFC shall have the right to assume the defense
thereof with counsel reasonably acceptable to the Indemnified Party and RCFC
shall not be liable to such Indemnified Party for any legal expenses of other
counsel subsequently incurred by such Indemnified Party in connection with the
defense thereof, except that if RCFC does not elect to assume such defense
within a reasonable time or counsel for the Indemnified Party at any time
advises that there are issues which raise conflicts of interest between RCFC and
the Indemnified Party (and counsel for RCFC does not disagree), the Indemnified
Party may retain counsel satisfactory to such Indemnified Party, and RCFC shall
remain responsible for the reasonable fees and expenses of such counsel as set
forth above, to be paid promptly as statements therefor are received; provided,
however, that RCFC shall be obligated pursuant to this paragraph (b) to pay for
only one firm of counsel for all Indemnified Parties in any one jurisdiction
with respect to any given claim, action, suit, proceeding or investigation
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest; (ii) the Indemnified Party will reasonably
cooperate in the defense of any such matter; and (iii) RCFC shall not be liable
for any settlement effected by an Indemnified Party without its prior written
consent, which consent may not be withheld unless such settlement is
unreasonable in light of such claims, actions, suits, proceedings or
investigations against, or defenses available to, such Indemnified Party.
(c) RCFC shall pay all reasonable Costs, including attorneys' fees,
that may be incurred by any Indemnified Party in successfully enforcing the
indemnity and other obligations provided for in this Section 4.14 to the fullest
extent permitted under the DGCL. The rights of each Indemnified Party hereunder
shall be in addition to any other rights such Indemnified Party may have under
applicable law.
(d) RCFC shall maintain Bayonne's existing directors and officers'
insurance policy (or provide a policy providing comparable coverage and amounts
on terms no less favorable to the persons currently covered by Bayonne's
existing policy, including RCFC's
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existing policy if its meets the foregoing standard) covering persons who are
currently covered by such insurance for a period of 3 years after the effective
date.
(e) In the event RCFC or any of its successors or assigns
(i) consolidates with or merges into any other person or entity 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 or entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and assigns of
RCFC assume the obligations set forth in this Section 4.14.
(f) The provisions of this Section 4.14 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
representatives.
Section 4.15. Tax-Free Reorganization Treatment. Prior to the
----------------------------------
Effective Time, neither RCFC nor Bayonne shall intentionally take, fail to take,
or cause to be taken or not taken, or cause or permit any of their respective
Subsidiaries to take, fail to take, or cause to be taken or not taken, any
action within its control that would disqualify the Merger as a reorganization
within the meaning of Section 368(a) of the Code. Subsequent to the Effective
Time, RCFC shall not take any action within its control that would disqualify
the Merger as a reorganization under the Code.
Section 4.16. Divisional Board. RCFC shall, promptly following the
----------------
Effective Time, cause all of the members of Bayonne's Board of Directors as of
the date of this Agreement, who are willing to so serve, to be elected to or
appointed as members of RCFC's divisional board ("Divisional Board"), the
function of which shall be to advise RCFC with respect to deposit and lending
activities in Bayonne's market area and to maintain and develop customer
relationships. The members of the Board who are willing to so serve shall be
elected to serve a term not to exceed April 30, 2003. Beginning immediately
after the Effective Time, each member of the Divisional Board shall receive an
annual retainer fee of $12,000 and a $1,000 attendance fee for each board
meeting attended. Each member of the Divisional Board shall be prohibited from
competing with RCFC for the duration of the term for which they were elected or
appointed. Such Divisional Board annual retainer fee shall be payable in
quarterly installments or in one lump sum at any time in advance at the option
of RCFC. The responsibilities and obligations of members of the Divisional
Board shall be determined by RCFC. Service on the Divisional Board shall be
deemed to constitute service for purposes of the vesting provisions of the
Bayonne Option Plans and the Bayonne RRP. In the event RCFC or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity 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 or entity, then, and in each such
case, to the extent necessary, proper provision shall be made so that the
successors and assigns of RCFC assume the obligations set forth in this
Section 4.16.
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<PAGE>
ARTICLE V
CONDITIONS TO CONSUMMATION
--------------------------
Section 5.1. Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the Merger, the Bank Merger and any other
transactions contemplated by this Agreement shall be subject to the satisfaction
of the following conditions:
(a) this Agreement shall have been approved by the requisite vote of
Bayonne's and RCFC's stockholders in accordance with applicable laws and
regulations;
(b) the Requisite Regulatory Approvals and any waivers with respect
to this Agreement and the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect, and all statutory waiting
periods shall have expired; and all other consents, waivers and approvals of any
third parties which are necessary to permit the consummation of the Merger and
the other transactions contemplated hereby shall have been obtained or made
except for those the failure to obtain would not have a Material Adverse Effect
(i) on Bayonne and its Subsidiaries taken as a whole or (ii) on RCFC and its
Subsidiaries taken as a whole. No such approval or consent shall have imposed
any condition or requirement that would so materially and adversely impact the
economic or business benefits to RCFC or Bayonne of the transactions
contemplated hereby that, had such condition or requirement been known, such
party would not, in its reasonable judgment, have entered into this Agreement.
(c) no party 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 Merger, the Bank Merger or any other
transactions contemplated by this Agreement;
(d) 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, the Bank
Merger or any other transactions contemplated by this Agreement;
(e) the Registration Statement shall have been declared effective by
the SEC and no proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; RCFC shall have received all
required approvals by state securities or "blue sky" authorities with respect to
the transactions contemplated by this Agreement; and
(f) [RESERVED]
(g) [RESERVED]
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<PAGE>
(h) RCFC shall have caused to be listed on the Nasdaq National
Market, or on such other market on which shares of RCFC Common Stock shall then
be trading, subject only to official notice of issuance, the shares of RCFC
Common Stock to be issued by RCFC in exchange for the shares of Bayonne Common
Stock.
Section 5.2. Conditions to the Obligations of RCFC and RCFC Bank.
---------------------------------------------------
The obligations of RCFC and RCFC Bank to effect the Merger, the Bank Merger and
any other transactions contemplated by this Agreement shall be further subject
to the satisfaction of the following additional conditions, any one or more of
which may be waived by RCFC:
(a) each of the obligations of Bayonne and First Savings,
respectively, required to be performed by it at or prior to the Closing pursuant
to the terms of this Agreement shall have been duly performed and complied with
in all material respects and the representations and warranties of Bayonne and
First Savings contained in this Agreement shall be true and correct, subject to
Sections 2.1 and 2.2, as of the date of this Agreement and as of the Effective
Time as though made at and as of the Effective Time (except as to any
representation or warranty which specifically relates to an earlier date). RCFC
shall have received a certificate to the foregoing effect signed by the chief
executive officer and the chief financial or principal accounting officer of
Bayonne;
(b) all action required to be taken by, or on the part of, Bayonne
and First Savings to authorize the execution, delivery and performance of this
Agreement and the consummation by Bayonne and First Savings of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors and stockholders of Bayonne or First Savings, as the case may be, and
RCFC shall have received certified copies of the resolutions evidencing such
authorization;
(c) Bayonne shall have obtained the consent or approval of each
person (other than the governmental approvals or consents referred to in Section
5.1(b)) 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 Bayonne or its Subsidiaries under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument to which Bayonne or its Subsidiaries is a party or is otherwise
bound, except those for which failure to obtain such consents and approvals
would not, individually or in the aggregate, have a Material Adverse Effect on
RCFC (after giving effect to the consummation of the transactions contemplated
hereby) or upon the consummation of the transactions contemplated hereby.
(d) RCFC 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 Bayonne and its
Subsidiaries;
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<PAGE>
(e) RCFC shall have received an opinion of Muldoon, Murphy &
Faucette, counsel to RCFC, dated as of the Effective Date, in form and substance
customary in transactions of the type contemplated hereby, and reasonably
satisfactory to RCFC, 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 Effective Time, 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:
(i) No gain or loss will be recognized by RCFC, RCFC Bank,
Bayonne or First Savings as a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a
fractional share interest in RCFC Common Stock, no gain or loss will be
recognized by the stockholders of Bayonne who exchange their Bayonne Common
Stock for RCFC Common Stock pursuant to the Merger;
(iii) The tax basis of RCFC Common Stock received by
stockholders who exchange their Bayonne Common Stock for RCFC Common Stock in
the Merger will be the same as the tax basis of Bayonne Common Stock surrendered
pursuant to the Merger, reduced by any amount allocable to a fractional share
interest for which cash is received and increased by any gain recognized on the
exchange; and
(iv) The holding period of RCFC Common Stock received by each
stockholder in the Merger will include the holding period of Bayonne Common
Stock exchanged therefor, provided that such stockholder held such Bayonne
Common Stock as a capital asset on the Effective Date.
Such opinion may be based on, in addition to the review of such
matters of fact and law as Muldoon, Murphy & Faucette considers appropriate,
(x) representations made at the request of Muldoon, Murphy & Faucette by RCFC,
RCFC Bank, Bayonne, First Savings, stockholders of RCFC or Bayonne, or any
combination of such persons and (y) certificates provided at the request of
Muldoon, Murphy & Faucette by officers of RCFC, RCFC Bank, Bayonne, First
Savings and other appropriate persons.
Section 5.3. Conditions to the Obligations of Bayonne and First
--------------------------------------------------
Savings. The obligations of Bayonne and First Savings to effect the Merger, the
- -------
Bank Merger and any other transactions contemplated by this Agreement shall be
further subject to the satisfaction of the following additional conditions, any
one or more of which may be waived by Bayonne:
(a) each of the obligations of RCFC and RCFC Bank, respectively,
required to be performed by it at or prior to the Closing pursuant to the terms
of this Agreement shall have been duly performed and complied with in all
material respects and the representations and warranties of RCFC and RCFC Bank
contained in this Agreement shall be true and correct, subject to Sections 2.1
and 2.2, as of the date of this Agreement and as of the Effective Time as
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<PAGE>
though made at and as of the Effective Time (except as to any representation or
warranty which specifically relates to an earlier date). Bayonne shall have
received a certificate to the foregoing effect signed by the chief executive
officer and the chief financial or principal accounting officer of RCFC;
(b) all action required to be taken by, or on the part of, RCFC and
RCFC Bank to authorize the execution, delivery and performance of this Agreement
and the consummation by RCFC and RCFC Bank of the transactions contemplated
hereby shall have been duly and validly taken by the Board of Directors and
stockholders of RCFC or RCFC Bank, as the case may be, and Bayonne shall have
received certified copies of the resolutions evidencing such authorization;
(c) RCFC shall have obtained the consent or approval of each person
(other than the governmental approvals or consents referred to in Section
5.1(b)) whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument to which
RCFC or its Subsidiaries is a party or is otherwise bound, except those for
which failure to obtain such consents and approvals would not, individually or
in the aggregate, have a Material Adverse Effect on RCFC (after giving effect to
the transactions contemplated hereby) or upon the consummation of the
transactions contemplated hereby.
(d) Bayonne 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 RCFC and its
Subsidiaries;
(e) Bayonne shall have received an opinion of Breyer & Aguggia LLP,
counsel to Bayonne, dated as of the Effective Date, in form and substance
customary in transactions of the type contemplated hereby, and reasonably
satisfactory to Bayonne, 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 Effective Time, 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:
(i) No gain or loss will be recognized by RCFC, RCFC Bank,
Bayonne or First Savings as a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a
fractional share interest in RCFC Common Stock, no gain or loss will be
recognized by the stockholders of Bayonne who exchange their Bayonne Common
Stock for RCFC Common Stock pursuant to the Merger;
(iii) The tax basis of RCFC Common Stock received by
stockholders who exchange their Bayonne Common Stock for RCFC Common Stock in
the Merger will be the same as the tax basis of Bayonne Common Stock surrendered
pursuant to the Merger,
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<PAGE>
reduced by any amount allocable to a fractional share interest for which cash is
received and increased by any gain recognized on the exchange; and
(iv) The holding period of RCFC Common Stock received by each
stockholder in the Merger will include the holding period of Bayonne Common
Stock exchanged therefor, provided that such stockholder held such Bayonne
Common Stock as a capital asset on the Effective Date.
(f) RCFC shall have provided to the Exchange Agent (i) certificates
representing at least the aggregate number of shares of RCFC Common Stock to be
issued to the shareholders of Bayonne pursuant to the terms hereof, and (ii)
sufficient cash to pay Bayonne shareholders their fractional share interest as
provided herein.
Such opinion may be based on, in addition to the review of such
matters of fact and law as Breyer & Aguggia, LLP considers appropriate, (x)
representations made at the request of Breyer & Aguggia LLP by RCFC, RCFC Bank,
Bayonne, First Savings, stockholders of RCFC or Bayonne, or any combination of
such persons and (y) certificates provided at the request of Breyer & Aguggia
LLP by officers of RCFC, RCFC Bank, Bayonne and other appropriate persons.
ARTICLE VI
TERMINATION
-----------
Section 6.1. Termination. This Agreement may be terminated, and
-----------
the Merger abandoned, at or prior to the Effective Date, either before or after
any requisite stockholder approval:
(a) by the mutual consent of RCFC and Bayonne in a written
instrument, if the Board of Directors of each so determines by vote of a
majority of the members of its entire Board; or
(b) by RCFC or Bayonne, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of the
failure of the stockholders of Bayonne or RCFC to approve the Agreement at its
Stockholder Meeting called to consider such approval; provided, however, that
Bayonne or RCFC, as the case may be, shall only be entitled to terminate the
Agreement pursuant to this clause if it has complied in all material respects
with its obligations under Section 4.8; or
(c) by RCFC or Bayonne, by written notice to the other party, if
either (i) any approval, consent or waiver of a governmental agency required to
permit consummation of the transactions contemplated hereby shall have been
denied or (ii) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement; or
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<PAGE>
(d) by RCFC or Bayonne, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by April 30, 1999 ("Initial Termination Date");
provided, that if, as of such date, all necessary regulatory or governmental
approvals, consents or waivers required to consummate the transactions
contemplated hereby shall not have been obtained but all other conditions to the
consummation of the Merger (other than the delivery of executed documents at the
Closing) shall be fulfilled, the Initial Termination Date shall be extended to
July 31, 1999, unless the failure to so consummate by such time is due to the
breach of any representation, warranty or covenant contained in this Agreement
by the party seeking to terminate; or
(e) by RCFC, if the Board of Directors of Bayonne does not publicly
recommend in the Proxy Statement that Bayonne's stockholders approve and adopt
this Agreement or if, after recommending in the Proxy that stockholders approve
and adopt this Agreement, the Board of Directors of Bayonne shall have
withdrawn, modified or amended such recommendation in any respect materially
adverse to RCFC; or
(f) by RCFC or Bayonne by written notice to the other party in the
event that there has occurred since the date of this Agreement an event,
condition, change or occurrence which, individually or in the aggregate, has had
or could reasonably be expected to result in a Material Adverse Effect on
Bayonne or RCFC as the case may be; provided that each party shall have given
the other 30 calendar days prior written notice of such termination, and such
party shall not have remedied such event, condition, change or occurrence by the
end of such 30-day period;
(g) by Bayonne, if its Board of Directors so determines by the
requisite vote of members of its entire board, at any time during the 5-day
period commencing with the Valuation Date, if both of the following conditions
are satisfied:
(i) Richmond Market Value is less than $15.41, adjusted as
indicated in the last sentence of this Section 6.1(g); and
(ii) (A) the number obtained by dividing Richmond Market Value on
such Valuation Date by the Initial RCFC Market Value (the "Richmond
Ratio") is less than (B) the number obtained by dividing the Final
Index Price by the Initial Index Price and subtracting 0.15 from the
quotient in this clause (ii)(B) (the "Index Ratio");
subject, however, to the following three sentences: (1) if Bayonne elects to
exercise its termination right pursuant to this Section 6.1(g), it shall give
prompt written notice to Richmond (provided, further, that such notice of
election to terminate may be withdrawn at any time during the 5-day period); (2)
for a period of 7 days commencing with its receipt of such notice, RCFC shall
have the option to increase the consideration to be received by the holders of
Bayonne
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Common Stock hereunder, by adjusting the Exchange Ratio to equal the lesser of
(x) a number equal to a fraction, the numerator of which is 1.05 multiplied by
the Initial RCFC Market Value multiplied by .85 and the denominator of which is
the Richmond Market Value, and (y) a number equal to a fraction, the numerator
of which is the Index Ratio multiplied by 1.05 and the denominator of which is
Richmond Ratio; and (3) if RCFC so elects it shall give prompt written notice to
Bayonne of such election and the adjusted Merger Consideration, whereupon no
termination shall have occurred pursuant to this Section 6.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as the
Merger Consideration shall have been so adjusted).
For purposes of this Section 6.1(g), the following terms shall have the
meanings indicated below:
"Final Index Price" means the sum of the Final Prices for each company
comprising the Index Group multiplied by the applicable weighting.
"Final Price," with respect to any company being a member of the Index
Group, means the average of the daily closing sales prices of a share of
common stock of such company, as reported on the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the period of 15 trading days ending on the
Valuation Date, adjusted as indicated in the last sentence of this Section
6.1(g).
"Index Group" means the 14 financial institution holding companies
listed below, the common stock of all of which are publicly traded and as
to which there have not been any publicly announced proposal at any time
during the period beginning on the date of this Agreement and ending on the
Valuation Date for any such company to be acquired. In the event that the
common stock of any such company ceases to be publicly traded or a proposal
to acquire any such company is announced at any time during the period
beginning on the date of this Agreement and ending on the Valuation Date,
such company shall be removed from the Index Group, and the weights
attributed to the remaining companies shall be adjusted proportionately for
purposes of determining the Final Index Price and the Initial Index Price.
The 14 financial institution holding companies and the weights attributed
to them are as follows:
<TABLE>
<CAPTION>
Holding Company Weighting
--------------- ---------
<S> <C>
GreenPoint Financial Corp. 27.71%
Astoria Financial Corp. 11.20%
Independence Community Bank Corp. 9.97%
Staten Island Bancorp, Inc. 8.14%
Webster Financial Corp. 7.16%
St. Paul Bancorp, Inc. 6.61%
Queens County Bancorp, Inc. 5.13%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Holding Company Weighting
--------------- ---------
<S> <C>
Bay View Capital Corp. 4.96%
JSB Financial, Inc. 4.52%
MAF Bancorp 4.24%
Anchor BanCorp Wisconsin 3.03%
InterWest Bancorp 2.88%
Reliance Bancorp, Inc. 2.76%
Haven Bancorp, Inc. 1.69%
</TABLE>
"Initial Index Price" means the sum of each per share closing price of
the common stock of each company comprising the Index Group multiplied by
the applicable weighting, as such prices are reported on the consolidated
transactions reporting system for the market or exchange on which such
common stock is principally traded on the trading day immediately preceding
the public announcement of this Agreement.
"Initial RCFC Market Value" means the closing sales price of RCFC
Common Stock, as reported on the Nasdaq National Market, on the trading day
immediately preceding the public announcement of this Agreement, adjusted
as indicated in the last Section 6.1(e).
"Richmond Market Value" shall have the meaning set forth in Section
1.2(c) hereof.
"Valuation Date" means the Valuation Date, as defined in Section
1.2(c) hereof.
If RCFC or any company belonging to the Index Group declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the date of this Agreement and the
Valuation Date, the prices for the common stock of such company shall be
appropriately adjusted, in the manner specified in Section 1.2(b) of this
Agreement, for the purposes of applying this Section 6.1(g).
(h) by RCFC or Bayonne (provided that the party seeking termination
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein), in the event of (i) a failure to perform or
comply by the other party with any covenant or agreement of such other party
contained in this Agreement, which failure or non-compliance is material in the
context of the transactions contemplated by this Agreement, or (ii) subject to
Section 2.2(b), any inaccuracies, omissions or breach in the representations,
warranties, covenants or agreements of the other party contained in this
Agreement the circumstances as to which either individually or in the aggregate
have, or reasonably could be expected to have, a Material Adverse Effect on such
other party; in either case which has not been or cannot be cured within 30
calendar days after written notice thereof is given by the party seeking to
terminate to such other party.
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(i) by Bayonne, if the Board of Directors of RCFC does not publicly
recommend in the Proxy Statement-Prospectus that RCFC's stockholders approve and
adopt this Agreement or if, after recommending in the Proxy Statement-Prospectus
that stockholders approve and adopt this Agreement, the Board of Directors of
RCFC shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to Bayonne.
(j) by Bayonne, if the Board of Directors of Bayonne reasonably
determines that a proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 65% of the combined voting power of the shares of Bayonne Common Stock
then outstanding or all or substantially all of the assets of Bayonne
constitutes a Superior Proposal and that such proposal must be accepted;
provided, however, that prior to any such termination, Bayonne shall use its
reasonable efforts to negotiate in good faith with RCFC to make such adjustments
in the terms and conditions of this agreement a would enable Bayonne to proceed
with the transactions contemplated herein.
Section 6.2. Effect of Termination. In the event of termination of
---------------------
this Agreement by either RCFC or Bayonne as provided in Section 6.1, this
Agreement shall forthwith become void and have no effect except (i) Sections
4.3(a), 8.6 and 8.7, shall survive any termination of this Agreement, (ii) that
notwithstanding anything to the contrary contained in this Agreement, no party
shall be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
------------------------------------------
Section 7.1. Effective Date and Effective Time. The closing of the
---------------------------------
transactions contemplated hereby ("Closing") shall take place at the offices of
Muldoon, Murphy & Faucette, 5101 Wisconsin Ave. N.W., Washington, D.C. 20016,
unless another place is agreed to by RCFC and Bayonne, on a date ("Closing
Date") that is no later than 14 days following the date on which the expiration
of the last applicable waiting period in connection with notices to and
approvals of governmental authorities shall occur and all conditions to the
consummation of this Agreement are satisfied or waived, or on such other date as
may be agreed to by the parties. Prior to the Closing Date, RCFC and Bayonne
shall execute a Certificate of Merger in accordance with all appropriate legal
requirements, which shall be filed as required by law on the Closing Date, and
the Merger provided for therein shall become effective upon such filing or on
such date as may be specified in such Certificate of Merger. The date of such
filing or such later effective date as specified in the Certificate of Merger is
herein referred to as the "Effective Date." The "Effective Time" of the Merger
shall be as set forth in the Certificate of Merger.
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Section 7.2. Deliveries at the Closing. Subject to the provisions
-------------------------
of Articles V and VI, on the Closing Date there shall be delivered to RCFC and
Bayonne the documents and instruments required to be delivered under Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
---------------------
Section 8.1. Certain Definitions; Interpretation. As used in this
-----------------------------------
Agreement, the following terms shall have the meanings indicated:
"material" means material to RCFC or Bayonne (as the case may be) and
its respective Subsidiaries, taken as a whole.
"person" includes an individual, corporation, limited liability
company, partnership, association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of, Exhibit or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for ease of reference only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation." Any singular term in this Agreement
shall be deemed to include the plural, and any plural term the singular. Any
reference to gender in this Agreement shall be deemed to include any other
gender.
Section 8.2. Survival. Only those agreements and covenants of the
--------
parties that are by their terms applicable in whole or in part after the
Effective Time, including Sections 4.3(a), 4.13, 4.14, 4.15, 4.16 and 8.6 of
this Agreement, shall survive the Effective Time. All other representations,
warranties, agreements and covenants shall be deemed to be conditions of the
Agreement and shall not survive the Effective Time.
Section 8.3. Waiver; Amendment. Prior to the Effective Time, any
-----------------
provision of this Agreement may be: (i) waived in writing by the party
benefitted by the provision or (ii) amended or modified at any time (including
the structure of the transaction) by an agreement in writing between the parties
hereto except that, after the vote by the stockholders of Bayonne or RCFC, no
amendment or modification may be made that would reduce the amount or alter or
change the kind of consideration to be received by holders of Bayonne Common
Stock or contravene any provision of the DGCL or the federal banking laws, rules
and regulations.
Section 8.4. Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
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Section 8.5. Governing Law. This Agreement shall be governed by,
-------------
and interpreted in accordance with, the laws of the State of New York, without
regard to conflicts of laws principles.
Section 8.6. Expenses. Each party hereto will bear all expenses
--------
incurred by it in connection with this Agreement and the transactions
contemplated hereby; provided, however, that RCFC shall pay all printing and
mailing expenses and filing fees associated with the registrations and approvals
required hereunder.
Section 8.7. Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, overnight courier or
facsimile transmission (confirmed in writing) to such party at its address or
facsimile number set forth below or such other address or facsimile transmission
as such party may specify by notice (in accordance with this provision) to the
other party hereto.
If to Bayonne, to:
Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-2912
Attention: Patrick F.X. Nilan
Chairman of the Board
With copies to:
Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-5958
Attention: Thomas M. Coughlin
Corporate Secretary
and
Paul M. Aguggia, Esq.
Breyer & Aguggia LLP
1300 I Street, N.W., Suite 470 East
Washington, DC 20005
Facsimile: (201) (737-7979)
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If to RCFC, to:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
With copies to:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Thomas R. Cangemi
Senior Vice President, Chief Financial
Officer and Secretary
and
Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
Section 8.8. Entire Agreement; etc. This Agreement, together with
---------------------
the Plan of Bank Merger, Option Agreement and the Disclosure Letters, represents
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made. All terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Except for Section 4.13, 4.14 and
4.16, which confer rights on the parties described therein, nothing in this
Agreement is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 8.9. Assignment. This Agreement may not be assigned by
----------
either party hereto without the written consent of the other party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the 14th day of October,
1998.
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
-----------------------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
BAYONNE BANCSHARES, INC.
By: /s/ Patrick F.X. Nilan
--------------------------------------
Patrick F.X. Nilan
Chairman of the Board
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 19, 1998 (the "Agreement"), by and
between Bayonne Bancshares, Inc., a Delaware corporation ("Issuer"), and
Richmond County Financial Corp., a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of July 19, 1998 (the "Plan"), providing for, among other
things, the merger of Issuer with and into Grantee, with Grantee as the
surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the Plan,
Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee
the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Plan.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 1,809,804 shares (as adjusted as set forth herein, the "Option
Shares", which shall include the Option Shares before and after any transfer of
such Option Shares) of common stock, par value $0.01 per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
equal to $15.50.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder (as defined below), as applicable,
shall not be in material breach of the agreements or covenants contained in this
Agreement or the Plan, and (ii) no preliminary or permanent injunction or other
order against the delivery of shares covered by the Option issued by any court
of competent jurisdiction in the United States shall be in effect, the Holder
may exercise the Option, in whole or in part, at any time and from time to time
following the occurrence of a Purchase Event (as hereinafter defined); PROVIDED
that the Option shall terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time, (B) termination of the Plan by
Issuer in accordance with the terms thereof prior to the occurrence of a
Purchase Event or a Preliminary Purchase Event (as hereinafter defined) (an
"Issuer Termination"), (C) 12 months after the termination of the Plan by Issuer
other than pursuant to an Issuer Termination, (D) 12 months after the
termination of the Plan by Grantee in
<PAGE>
accordance with the terms thereof, and (E) 12 months after the first occurrence
of a Purchase Event; PROVIDED, HOWEVER, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Home Owners' Loan Act, as amended (the
"HOLA"); provided, further, however, that if the option cannot be exercised on
any day because of an 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 the tenth
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. The term "Holder" shall mean the
holder or holders of the Option from time to time, and which initially is
Grantee.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
an Acquisition Transaction. As used herein, the term "Acquisition
Transaction" shall mean (A) a merger, consolidation or similar transaction
involving Issuer or any of its significant subsidiaries, (B) the
disposition, by sale, lease, exchange or otherwise, of assets or deposits
of Issuer or any of its significant subsidiaries representing in either
case 20% or more of the consolidated assets or deposits of Issuer and its
subsidiaries, or (C) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities representing 15% or more of the voting power of Issuer or any of
its significant subsidiaries other than the issuance of Issuer Common Stock
upon the exercise of outstanding options; or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, 15% or more of the voting power
of Issuer or any of its significant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee) 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
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 15% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a "Tender Offer" or
an "Exchange Offer," respectively); or
B-2
<PAGE>
(ii) the holders of Issuer Common Stock shall not have approved the
Plan at the Meeting, the Meeting shall not have been held or shall have
been canceled prior to termination of the Plan, or Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the Plan,
in each case after it shall have been publicly announced that any person
(other than Grantee or any subsidiary of Grantee) shall have (A) made or
disclosed an intention to make a 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
(iii) any person, other than Grantee or any subsidiary of Grantee,
shall have made a bona fide proposal to Issuer 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
(iv) after a bona fide proposal is made by a third party to Issuer or
its stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Plan and such breach
would entitle Grantee to terminate the Plan under Section 6.1(h) thereof
(without regard to the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the Mergers pursuant
to the terms of the Plan); or
(v) any person, other than Grantee or any subsidiary of Grantee, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Office
of Thrift Supervision (the "OTS"), or other federal or state bank
regulatory authority, for approval to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event (in either case, a "Triggering
Event"), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of 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 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"); PROVIDED,
HOWEVER, if any required application for listing such shares on the Nasdaq
National Market has not been approved by the date so specified, such date shall
be extended for a period not to exceed 21 days from the
B-3
<PAGE>
Notice Date. If prior notification to or approval of the OTS or any other
regulatory authority is required in connection with such purchase, Issuer shall
cooperate with the Holder in the filing of the required notice or application
for approval and the obtaining of such approval and the Closing shall occur
immediately following such regulatory approvals (and any mandatory waiting
periods). Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to the Issuer at the address of the Issuer specified in subsection (f) of
Section 11 hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in subsection (a) of
this Section 4, (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no preemptive rights, and (B)
if the Option is exercised in part only, an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall
deliver to Issuer a letter agreeing that Holder shall not offer to sell or
otherwise dispose of such Option Shares in violation of applicable federal and
state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF JULY 19, 1998. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT
BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Holder shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
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<PAGE>
(d) Upon the giving by Holder to Issuer of the written notice of exercise
of the Option provided for under subsection (e) of Section 3 hereof, the tender
of the applicable purchase price in immediately available funds and the tender
of this Agreement to Issuer, Holder shall be deemed to be the holder of record
of the shares of Issuer Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Issuer Common Stock shall not then
be actually delivered to Holder. Issuer 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, issuance and delivery of stock
certificates under this Section in the name of Holder or its assignee,
transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Issuer 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
Issuer, (iii) promptly to take all action as may from time to time be required
(including (A) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (S)18a and regulations promulgated
thereunder and (B) in the event, under the HOLA, or the Change in Bank Control
Act of 1978, as amended, or a state banking law, prior approval of or notice to
the OTS or to any state regulatory authority is necessary before the Option may
be exercised, cooperating fully with Holder in preparing such applications or
notices and providing such information to the OTS or such state regulatory
authority as they may require) in order to permit Holder to exercise the Option
and Issuer duly and effectively to issue shares of the Issuer Common Stock
pursuant hereto, and (iv) promptly to take all action provided herein to protect
the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents
and warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) Due Authorization. Issuer 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 Issuer. This Agreement has been duly executed
and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and other
----------------
action to authorize and reserve and to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock necessary
for Holder to exercise the Option, and Issuer will take all necessary corporate
action to
B-5
<PAGE>
authorize and reserve for issuance all additional shares of Issuer Common Stock
or other securities which may be issued pursuant to Section 7 upon exercise of
the Option. The shares of Issuer Common Stock to be issued upon due exercise of
the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable pursuant to Section 7, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid and nonassessable, and
shall be delivered free and clear of all liens, claims, charges and encumbrances
of any kind or nature whatsoever, including any preemptive rights of any
stockholder of Issuer.
(c) No Violations. The execution, delivery and performance of this
-------------
Agreement does not and will not, and the consummation by Issuer of any of the
transactions contemplated hereby will not, constitute or result in (i) a breach
or violation of, or a default under, its Certificate of Incorporation or By-
Laws, or the comparable governing instruments of any of its subsidiaries, or
(ii) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment, degree,
order, award or governmental or non-governmental permit or license to which it
or any of its subsidiaries is subject, that would, in any case, give any other
person the ability to prevent or enjoin Issuer's performance under this
Agreement in any material respect.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
and warrants to Issuer that:
(a) Due Authorization. Grantee 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 Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase not for Distribution. This Option is not being, and any
-----------------------------
Option Shares or other securities acquired by Grantee 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.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record
B-6
<PAGE>
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this subsection (a), upon exercise of any
option to purchase Issuer Common Stock outstanding on the date hereof or upon
conversion into Issuer Common Stock of any convertible security of Issuer
outstanding on the date hereof), the number of shares of Issuer Common Stock
subject to the Option shall be adjusted so that, after such issuance, it,
together with any shares of Issuer Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Issuer Common Stock then issued
and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option. No provision of this Section 7 shall be deemed to affect
or change, or constitute authorization for any violation of, any of the
covenants or representations in the Plan.
(b) In the event that Issuer shall enter in an agreement (i) to consolidate
with or merge into any person, other than Grantee or one of its subsidiaries,
and shall not be the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any person, other than Grantee or one of its
subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Holder, of either (x) the Acquiring Corporation (as
hereinafter defined), (y) any person that controls the Acquiring Corporation, or
(z) in the case of a merger described in clause (ii), Issuer (such person being
referred to as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided, that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Holder. Substitute Option Issuer shall also enter
into an agreement with Holder in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of Substitute Option
per share of Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Option Price multiplied by a fraction in which the numerator is
the number of shares of Issuer Common Stock for which the Option was theretofore
exercisable and the denominator is
B-7
<PAGE>
the number of shares of the Substitute Common Stock for which the Substitute
Option is exercisable.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all
of Issuer's assets (or a substantial part of the assets of its
subsidiaries taken as a whole).
(2) "Substitute Common Stock" shall mean the common stock issued by
Substitute Option Issuer upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the highest of (x) the price per share
of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made, (y) the price per share of Issuer Common Stock
to be paid by any third party pursuant to an agreement with Issuer,
and (z) the highest per share closing price for shares of Issuer
Common Stock within the six-month period immediately preceding the
consolidation, merger, or sale in question. In the event that a Tender
Offer or an Exchange Offer is made for Issuer Common Stock or an
agreement is entered into for a merger or consolidation involving
consideration other than cash, the value of the securities or other
property issuable or deliverable in exchange for Issuer Common Stock
shall be determined by a nationally recognized investment banking firm
selected by Holder or Owner, as the case may be (and if there are both
a Holder and an Owner, the Holder).
(4) "Average Price" shall mean the average closing price per share of
Substitute Common Stock for the one year immediately preceding the
consolidation, merger, or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by Issuer,
the person merging into Issuer or by any company which controls such
person, as Holder may elect.
B-8
<PAGE>
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this subsection (f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this subsection (f) over (ii) the value of the Substitute
Option after giving effect to the limitation in the first sentence of this
subsection (f). This difference in value shall be determined by a nationally-
recognized investment banking firm selected by Holder.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the holders of the other
shares of common stock issued by Substitute Option Issuer are not entitled to
exercise any rights by reason of the issuance or exercise of the Substitute
Option and the shares of Substitute Common Stock are otherwise in no way
distinguishable from or have lesser economic value (other than any dimunition in
value resulting from the fact that the Substitute Common Stock are restricted
securities, as defined in Rule 144 under the Securities Act) than other shares
of common stock issued by Substitute Option Issuer).
8. REGISTRATION RIGHTS.
(a) Demand Registration Rights. Issuer shall, subject to the conditions
--------------------------
of subparagraph (c) below, if requested by any Holder or Owner, as applicable,
including Grantee and any permitted transferee ("Selling Shareholder"), as
expeditiously as possible prepare and file a registration statement under the
Securities Act if such registration is necessary in order to permit the sale or
other disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by or are issuable to the Selling Shareholder
upon exercise of the Option in accordance with the intended method of sale or
other disposition stated by the Selling Shareholder in such request, including
without limitation a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use its best efforts
to qualify such shares or other securities for sale under any applicable state
securities laws. Grantee shall have the right to demand no more than two
registrations pursuant to this paragraph. If requested by Grantee in connection
with any such registration, Issuer and Grantee shall provide each other with
representatives, warranties, indemnities and other agreements customarily given
in connection with such registration. If requested by Grantee in connection with
any such registration, Issuer and Grantee shall become party to any underwriting
agreement relating to the sale of the Option Shares, but only to the extent of
obligating themselves in respect of representations, warranties, indemnities and
other agreement customarily included in such underwriting agreements.
B-9
<PAGE>
(b) Additional Registration Rights. If Issuer at any time after the
------------------------------
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to the
Selling Shareholders of its intention to do so and, upon the written request of
any Selling Shareholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of Issuer Common Stock
intended to be included in such underwritten public offering by the Selling
Shareholder), Issuer will cause all such shares for which a Selling Shareholder
requests participation in such registration, to be so registered and included in
such underwritten public offering; PROVIDED, HOWEVER, that Issuer may elect to
not cause any such shares to be so registered (i) if the underwriters in good
faith object for valid business reasons, or (ii) in the case of a registration
solely to implement an employee benefit plan or a registration filed on Form S-
4; PROVIDED, FURTHER, HOWEVER, that such election pursuant to (i) may only be
made two times. If some but not all the shares of Issuer Common Stock, with
respect to which Issuer shall have received requests for registration pursuant
to this subsection (b) shall be excluded from such registration, Issuer shall
make appropriate allocation of shares to be registered among the Selling
Shareholders desiring to register their shares pro rata in the proportion that
the number of shares requested to be registered by each such Selling Shareholder
bears to the total number of shares requested to be registered by all such
Selling Shareholders then desiring to have Issuer Common Stock registered for
sale.
(c) Conditions to Required Registration. Issuer shall use all reasonable
-----------------------------------
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective,
PROVIDED, HOWEVER, that Issuer may delay any registration of Option Shares
required pursuant to subparagraph (a) above for a period not exceeding 180 days
provided Issuer shall in good faith determine that any such registration would
adversely affect an offering or contemplated offering of other securities by
Issuer, and Issuer shall not be required to register Option Shares under the
Securities Act pursuant to subsection (a) above:
(i) prior to the earliest of (a) termination of the Plan pursuant to
Section 6.1 thereof, (b) failure to obtain the requisite stockholder
approval pursuant to Section 4.8 of the Plan, and (c) a Purchase Event or a
Preliminary Purchase Event;
(ii) on more than one occasion during any calendar year;
(iii) within 90 days after the effective date of a registration
referred to in subsection (b) above pursuant to which the Selling
Shareholder or Selling Shareholders concerned were afforded the opportunity
to register such shares under the Securities Act and such shares were
registered as requested; and
(iv) unless a request therefor is made to Issuer by Selling
Shareholders that hold at least 25% or more of the aggregate number of
Option Shares (including shares of Issuer Common Stock issuable upon
exercise of the Option) then outstanding.
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<PAGE>
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares, PROVIDED, HOWEVER, that Issuer shall not
be required to consent to general jurisdiction or qualify to do business in any
state where it is not otherwise required to so consent to such jurisdiction or
to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such payments,
--------
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses, including the reasonable fees and expenses of one
counsel to the holders whose Option Shares are being registered, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subsection (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subsection (a) or (b)
above.
(e) Indemnification. In connection with any registration under Section
---------------
8(a) or 8(b) of this Agreement, Issuer hereby indemnifies the Selling
Shareholders, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such Selling Shareholders, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement that was
included by issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this Section 8(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or
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<PAGE>
reimbursement may be sought against any indemnifying party under this Section
8(e), such indemnified party shall notify the indemnifying party in writing of
the commencement of such action, but the failure so to notify the indemnifying
party shall not relieve it of any liability which it may otherwise have to any
indemnified party under this Section 8(e). In case notice of commencement of any
such action shall be given to the indemnifying party as above provided, the
indemnifying party shall be entitled to participate in and, to the extent it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel satisfactory to
the indemnified party, or (iii) the indemnified party has been advised by
counsel that one or more legal defenses may be available to the indemnifying
party that may be contrary to the interest of the indemnified party, in which
case the indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such counsel.
No indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 8(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the Selling Shareholders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the Selling Shareholders, and
the underwriters in connection with the statements or omissions which resulted
in such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim; provided, however, that in no case shall any Selling Shareholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any holder to
indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to Section 8(a) or 8(b) of
this Agreement, Issuer and each Selling Shareholder (other than Grantee) shall
enter into an agreement containing the indemnification provisions of Section
8(e) of this Agreement.
B-12
<PAGE>
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
-----------------------
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Shareholders
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144A. Issuer shall at its expense provide the Selling Shareholders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the rules of
any stock exchange.
(g) Issuer Taxes. Issuer will pay all stamp taxes in connection with the
------------
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all such
taxes.
9. QUOTATION; LISTING. If Issuer Common Stock or any other securities to
be acquired in connection with the exercise of the Option are then authorized
for quotation or trading or listing on the Nasdaq National Market or any
securities exchange, Issuer, upon the request of Holder, will promptly file an
application, if required, to authorize for quotation or trading or listing the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the Nasdaq National Market or such other securities exchange
and will use its best efforts to obtain approval, if required, of such quotation
or listing as soon as practicable.
10. DIVISION OF OPTION. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. MISCELLANEOUS.
(a) Expenses. 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.
B-13
<PAGE>
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
--------------------
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement: no Third-party Beneficiary; Severability. This
----------------------------------------------------------
Agreement, together with the Plan and the other documents and instruments
referred to herein and therein, between Grantee and Issuer (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties hereto
(other than any transferees of the Option Shares or any permitted transferee of
this Agreement pursuant to subsection (h) of this Section 11 and other than
indemnified parties under subsection (e) of Section 8) any rights or remedies
hereunder. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or a federal or state regulatory
agency to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of 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 Option does
not permit Holder or Owner to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Section 3 (as
adjusted pursuant to Section 7), it is the express intention of Issuer to allow
Holder or Owner to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are
--------------------
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer, to: Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-2912
Attention: Patrick F.X. Nilan
Chairman of the Board
B-14
<PAGE>
With copies to: Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-5958
Attention: Thomas M. Coughlin
Corporate Secretary
and Paul M. Aguggia, Esq.
Breyer & Aguggia LLP
1300 I Street, N.W., Suite 470 East
Washington, DC 20005
Facsimile: (201) (737-7979)
If to Grantee, to: Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
With copies to: Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Thomas R. Cangemi
Senior Vice President, Chief Financial
Officer and Secretary
and Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
(g) Counterparts. This Agreement and any amendments hereto may be executed
------------
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
----------
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Holder may
B-15
<PAGE>
assign this Agreement to a wholly-owned subsidiary of Holder and Holder may
assign its rights hereunder in whole or in part after the occurrence of a
Purchase Event. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by the
------------------
Holder, Issuer and the Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
--------------------
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
BAYONNE BANCSHARES, INC.
By: /s/ Patrick F.X. Nilan
-----------------------------------------------
NAME: Patrick F.X. Nilan
TITLE: Chairman of the Board
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
-----------------------------------------------
NAME: Michael F. Manzulli
TITLE: Chairman of the Board and
Chief Executive Officer
B-16
<PAGE>
ANNEX C
_________ __, 1998
Board of Directors
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, NY 10310-1702
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Richmond County Financial Corp. (the "Company") common
stock (the "Company Common Stock"), par value $0.01, of the consideration to be
paid by the Company to the holders of Bayonne Bancshares, Inc. ("Bayonne")
common stock (the "Seller Common Stock"), par value $0.10 per share, pursuant to
the Agreement and Plan of Merger (the "Agreement") by and between the Company
and Seller. At the Effective Time, as defined in the Agreement, each share of
Seller Common Stock held by Bayonne's shareholders shall be converted into the
right to receive 1.05 shares of Company Common Stock.
Tucker Anthony Incorporated ("Tucker Anthony") as part of its investment banking
business is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. In the ordinary course of our business, we may actively trade the
securities of both the Company and Bayonne for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
In arriving at our opinion, we have among other things:
(i) Reviewed the Agreement and Plan of Merger dated July 19, 1998;
(ii) Reviewed the Amended and Restated Agreement and Plan of Merger dated
October 14, 1998;
(iii) Reviewed certain historical financial and other information concerning the
Company for the five fiscal years ended June 30, 1998 [and for the
quarter ended September 30, 1998];
(iv) Reviewed certain historical financial and other information concerning
Bayonne for the five fiscal years ended March 31, 1998 and for the
[six months ended September 30, 1998];
(v) Held discussions with the senior management of the Company and Bayonne
with respect to their past and current financial performance, financial
condition and future prospects;
<PAGE>
Board of Directors
October __, 1998
Page 2
(vi) Reviewed certain internal financial data, projections and other
information of the Company and Bayonne, including financial projections
approved by management;
(vii) Analyzed certain publicly available information of other financial
institutions that we deemed comparable or otherwise relevant to our
inquiry, and compared the Company and Bayonne from a financial point of
view with certain of these institutions;
(viii) Compared the consideration to be paid by the Company pursuant to the
Agreement with the consideration paid in other acquisitions of financial
institutions that we deemed comparable or otherwise relevant to our
inquiry;
(ix) Reviewed publicly available earnings estimates, historical trading
activity and ownership data of both the Company's and Bayonne's common
stocks and considered the prospects for dividends and price movement in
each; and
(x) Considered such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable us to
render our opinion. In our review, we have also taken into account an
assessment of general economic, market and financial conditions and
certain industry trends and related matters.
In our review and analysis and in arriving at our opinion we have assumed and
relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by the Company and Bayonne and have not
attempted to verify any of such information. We have assumed that (i) the
financial projections of the Company and Bayonne provided to us with respect to
the results of operations likely to be achieved by each company have been
prepared on a basis reflecting the best currently available estimates and
judgments of the Company's and Bayonne's management and advisors as to future
financial performance and results and (ii) that such forecasts and estimates
will be realized in the amounts and in the time periods currently estimated. We
have also assumed, without independent verification, that the current and
projected aggregate reserves for possible loan losses for the Company and
Bayonne are adequate to cover such losses. We did not make or obtain any
independent evaluations or appraisals of any assets or liabilities of the
Company, Bayonne or any of their respective subsidiaries nor did we verify any
of the Company's or Bayonne's books or records or review any individual loan
credit files.
Our opinion is necessarily based upon market, economic and other conditions as
they exist and can be evaluated as of the date of this letter.
This opinion is being furnished for the use and benefit of the Board of
Directors of the Company and is not a recommendation to shareholders. The
Company and Tucker Anthony have agreed that they
<PAGE>
Board of Directors
October __, 1998
Page 3
do not believe any person other than the Board has the legal right to rely on
the opinion and, absent any controlling precedent, would resist any assertion
otherwise.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof the consideration to be paid by the Company pursuant to the Agreement is
fair to the Company's stockholders from a financial point of view.
Very truly yours,
Tucker Anthony Incorporated
<PAGE>
ANNEX D
________________, 1998
Board of Directors
Bayonne Bancshares, Inc.
586 Broadway
Bayonne, NJ 07002
Gentlemen:
Bayonne Bancshares, Inc. ("Bayonne") and Richmond County Financial Corp.
("Richmond County") have entered into an Amended and Restated Agreement and Plan
of Merger, dated as of October 14, 1998 (the "Agreement"), pursuant to which
Bayonne will be merged with and into Richmond County (the "Merger"). Upon
consummation of the Merger, each share of Bayonne common stock, par value $.01
per share, issued and outstanding immediately prior to the effective time of the
Merger (the "Bayonne Shares"), other than certain shares specified in the
Agreement, will be converted into the right to receive 1.05 shares (the
"Exchange Ratio") of Richmond County common stock, par value $.01 per share.
The terms and conditions of the Merger are more fully set forth in the
Agreement. You have requested our opinion as to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of Bayonne Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated July 19, 1998, by and between Bayonne and Richmond County; (iii) certain
publicly available financial statements of Bayonne and other historical
financial information provided by Bayonne that we deemed relevant; (iv) certain
publicly available financial statements of Richmond County and other historical
financial information provided by Richmond County that we deemed relevant;
(v) certain financial analyses and forecasts of Bayonne prepared by and reviewed
with management of Bayonne and the views of senior management of Bayonne
regarding Bayonne's past and current business, operations, results thereof,
financial condition and future prospects; (vi) certain financial analyses and
forecasts of Richmond County prepared by and reviewed with management of
Richmond County and the views of senior management of Richmond County regarding
Richmond County's past and current business, operations, results thereof,
financial condition and future prospects; (vii) the pro forma impact of the
Merger; (viii) the publicly reported historical price and trading activity for
Bayonne's and Richmond County's common stock, including a comparison of
<PAGE>
Board of Directors
Bayonne Bancshares, Inc.
________________, 1998
Page 2
certain financial and stock market information for Bayonne and Richmond County
with similar publicly available information for certain other companies the
securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant. In connection with our engagement, we were not asked to,
and did not, solicit indications of interest in a potential transaction from
other third parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We
did not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Bayonne or Richmond County or any of their subsidiaries, or the collectibility
of any such assets, nor have we been furnished with any such evaluations or
appraisals. With respect to the financial projections reviewed with management,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of Bayonne and Richmond County
and that such performances will be achieved, and we express no opinion as to
such financial projections or the assumptions on which they are based. We have
also assumed that there has been no material change in Bayonne's or Richmond
County's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that Bayonne
and Richmond County will remain as going concerns for all periods relevant to
our analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that the conditions precedent in the Agreement
are not waived and that the Merger will qualify as a tax-free reorganization for
federal income tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Richmond County common
stock will be when issued to Bayonne's shareholders pursuant to the Agreement or
the prices at which Bayonne's or Richmond County's common stock will trade at
any time.
<PAGE>
Board of Directors
Bayonne Bancshares, Inc.
_______________, 1998
Page 3
We have acted as Bayonne's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Bayonne and have received compensation for such
services. As we have previously advised you, in the past we have also provided,
and expect to continue to provide, certain investment banking services for
Richmond County and have received, and will receive, compensation for such
services.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to Bayonne and Richmond County. We may also
actively trade the equity securities of Bayonne and Richmond County for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
Our opinion is directed to the Board of Directors of Bayonne in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder of Bayonne as to how such stockholder should vote at any meeting
of stockholders called to consider and vote upon the Merger. Our opinion is not
to be quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion as an
annex to Bayonne's and Richmond County's Joint Proxy Statement/Prospectus dated
the date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of Bayonne Shares.
Very truly yours,
Sandler O'Neill & Partners, L.P.
<PAGE>
ANNEX E
FINANCIAL INFORMATION
REGARDING
RICHMOND COUNTY FINANCIAL CORP.
<PAGE>
RICHMOND COUNTY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Richmond County Financial Corp. (the "Company") was incorporated in September
1997, and is the holding company for Richmond County Savings Bank and its
subsidiaries (the "Bank"). On July 31, 1997, the Board of Trustees of the Bank
unanimously adopted a Plan of Conversion, whereby the Bank would convert from a
New York State chartered mutual bank to a New York State chartered stock
institution with the concurrent formation of the Company (the "Conversion").
The Conversion was completed on February 18, 1998, with the issuance by the
Company of 24,466,250 shares of common stock, at a price of $10.00 per share, in
an initial public offering. The Company received gross proceeds from the
Conversion of $244.7 million, before the reduction from gross proceeds of
$9.8 million for estimated conversion related expenses. The Company used
$117.4 million, or 50% of the net proceeds, to purchase all of the outstanding
stock of the Bank.
Concurrent with the completion of the Conversion, an additional 1,957,300 shares
of authorized but unissued shares of common stock were contributed by the
Company to the Richmond County Savings Foundation (the "Foundation"), a private
foundation dedicated to charitable purposes within the communities the Bank
serves. The Company recorded a one-time charge of $19.6 million, the full
amount of the contribution made to the Foundation, and a corresponding deferred
tax benefit of $8.4 million, in the third quarter ended March 31,1998. The
contribution to the Foundation is expected to be fully tax deductible, subject
to an annual limitation based upon the Company's annual taxable income.
Additionally, in connection with the Conversion, the Bank implemented the
Employee Stock Ownership Plan ("ESOP"), a tax-qualified plan designed to invest
primarily in the Company's common stock. Subsequent to the Conversion, the ESOP
purchased, through a $34.6 million loan from the Company, 8%, or 2,113,884
shares of common stock in the open market.
The Company's results of operations depend primarily on its net interest income,
which is the difference between interest income on interest-earning assets,
which principally consist of loans, mortgage-backed and mortgage-related
securities and investment securities, and interest expense on interest-bearing
liabilities, which principally consist of deposits and borrowings. Net interest
income is determined by an institution's interest rate spread (i.e., the
difference between yields earned on its interest-earning assets and the rates
paid on its interest-bearing liabilities) and the relative amount of interest-
earning assets to interest-bearing liabilities. Results of operations are also
affected by the Company's provision for possible loan losses, the level of its
non-interest income, including service fees and related income. The Company's
non-interest expense principally consists of compensation and benefits,
occupancy and equipment expense, advertising expense, federal deposit insurance
premiums and other expenses. Results of operations are also significantly
affected by general economic and competitive conditions, particularly changes in
interest rates, governmental policies and actions by regulatory authorities.
The Company had no operations prior to February 18, 1998, and, accordingly, the
results of operations prior to that date reflect only those of the Bank.
E-1
<PAGE>
ACQUISITIONS
On July 19, 1998, the Company and Bayonne Bancshares, Inc. ("Bayonne") entered
into a definitive agreement pursuant to which Bayonne, the holding company of
First Savings Bank of New Jersey, SLA, a New Jersey chartered savings and loan
association, with four full service banking offices located in Bayonne, New
Jersey, will merge with and into the Company. Under the terms of the agreement,
the Company will issue 1.05 shares of its common stock for each outstanding
share of common stock of Bayonne. The total transaction value is estimated to
be $173.0 million. As of June 30, 1998 (unaudited), total assets of Bayonne
were $700.3 million, deposits were $421.7 million and total stockholders' equity
was $96.0 million. The merger is subject to the approval of the shareholders of
each company, as well as certain regulatory approvals. The merger is expected
to be completed in the first quarter of calendar year 1999, and will be
accounted for as a purchase.
On July 17, 1998, the Company and Ironbound Bankcorp, NJ ("Ironbound") entered
into a definitive agreement pursuant to which Ironbound, the holding company of
Ironbound Bank, a New Jersey chartered commercial bank, with three full service
commercial banking offices located in the New Jersey counties of Union and
Essex, will merge with and into the Company. Under the terms of the agreement,
the Company will issue 1.45 shares of its common stock for each outstanding
common share of Ironbound. The total transaction value is estimated to be
$26.5 million. As of June 30, 1998 (unaudited), total assets of Ironbound were
$113.7 million, deposits were $107.8 million and total stockholders' equity was
$11.3 million. The merger is subject to the approval of Ironbound shareholders,
as well as certain regulatory approvals. The merger is expected to be completed
in the first quarter of calendar year 1999, and will be accounted for as a
purchase.
MANAGEMENT STRATEGY
The Bank's operating strategy emphasizes customer service and convenience, and
the Bank attributes the loyalty of its customer base to its commitment to
maintaining customer satisfaction, as well as its proactive involvement in the
communities that it serves. The Bank attempts to set itself apart from its
larger competitors by providing the type of personalized service not generally
available from larger banks, while offering a greater variety of products and
services than is typically available from smaller, local depository
institutions.
The Bank's historical operating strategy has concentrated on maintaining
profitability and asset quality by primarily investing in one-to-four family
mortgage loans and in U.S. Government and agency debt securities, as well as
debt and equity securities of corporate issuers. In the past few years, the
Bank has pursued a strategy, in conjunction with its traditional thrift lending
and securities investment strategy, of focusing on small and medium-sized retail
businesses as both lending and deposit customers by emphasizing the origination
of commercial real estate, construction and commercial loans, as well as
increasing the marketing of its business checking accounts and other business-
related services. In this regard, the Bank hired additional lending personnel
who have commercial real estate and commercial lending experience in the Bank's
primary market area. The Bank has placed increased emphasis on the origination
of multifamily loans and in April 1998, the Bank established a multifamily
lending department, staffed by personnel experienced in the multifamily lending
business. In addition, the Bank is increasing the merchant services it
provides, such as merchant credit card processing, letters of credit, sweep
accounts and increased night depository services. The Bank intends to continue
this strategy, maintaining its traditional focus of investing in residential
mortgage loans and soliciting deposits from
E-2
<PAGE>
individuals in its primary market area, while strengthening the Bank's position
as a provider of loans and financial services to the local business community.
The Bank's current operating strategy consists primarily of: (i) investing
primarily in one- to four-family, multifamily and to a lesser extent, commercial
real estate, construction and development, commercial and other loans and in
investment-grade securities; (ii) attempting to increase its position as a
lender to businesses operating in its primary market area, as well as other
areas within the New York City metropolitan area, by offering its commercial
loan and deposit products to small and medium-sized businesses; (iii) increasing
the yield and estimated average life of its securities investments by
emphasizing the purchase of government agency and privately issued mortgage-
backed and mortgage-related securities with estimated average lives of three to
seven years and de-emphasizing its investment in U.S. Treasury obligations and
corporate and other debt securities; (iv) maintaining a low cost of funds by
attracting and retaining core deposits by providing enhanced customer service;
(v) attempting to attract new deposit customers by competitively pricing
certificate of deposit products and offering a greater variety of durations of
such certificates; (vi) developing wholesale borrowing sources, such as Federal
Home Loan Bank of New York ("FHLBNY") advances, repurchase agreements and
brokered certificates of deposit, as additional means of funding asset growth;
and (vii) managing its interest rate risk by originating or purchasing
adjustable-rate loans and from time to time, selling fixed-rate loans with
maturities of more than 15 years.
The Bank has recently begun to place a greater level of emphasis on the
utilization of borrowed funds to fund asset growth. In this regard, at June 30,
1998, the Bank had total borrowings of $306.0 million, all of which were in the
form of FHLBNY advances. The Bank may continue to increase such emphasis, which
may result in an increase in the Bank's average cost of funds.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-earning
assets and expense on interest-bearing liabilities. Net interest income depends
on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rates earned or paid on them.
E-3
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the years ended June 30, 1998, 1997 and 1996. The
average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown and reflect annualized yields and costs.
Average balances are derived from average monthly balances, with the exception
of fiscal 1998, which is based on daily average balances. The yields and costs
include fees, which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30,
----------------------------------------------------------------------------------------
1998 1997 1996
---------------------------- ---------------------------- ----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
--------- -------- ------- --------- -------- ------- --------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets/(1)/:
Debt and equity securities........ $ 230,067 $14,645 6.37% $271,721 $16,754 6.17% $304,133 $17,873 5.88%
Mortgage-backed and mortgage-
related securities, net.......... 350,398 23,622 6.74 142,330 9,588 6.74 84,270 5,402 6.41
Real estate loans, net/(2)//(3)/.. 522,136 41,562 7.96 441,221 35,165 7.97 377,565 30,902 8.18
Commercial loans, net/(2)/........ 7,030 717 10.20 6,490 617 9.51 6,007 620 10.32
Consumer and student loans........ 22,770 2,096 9.21 23,388 2,286 9.77 22,566 2,285 10.13
Other interest-earning assets..... 69,577 4,112 5.91 17,505 1,371 7.83 33,667 1,981 5.88
---------- ------- -------- ------- -------- -------
Total interest-earning
assets........................ 1,201,978 86,754 7.22 902,655 65,781 7.29 824,208 59,063 7.13
------- ------ ------- ------ ------- ------
Non-interest-earning assets........ 48,284 43,845 50,080
---------- -------- --------
Total assets................... $1,250,262 $946,500 $878,288
========== ======== ========
LIABILITIES AND NET WORTH:
Interest-bearing liabilities:
Money market savings accounts..... $ 39,075 $ 1,353 3.46% $ 37,552 $ 1,308 3.48% $ 28,430 $ 987 3.47%
Savings accounts.................. 445,057 12,146 2.73 432,162 11,823 2.74 430,500 11,841 2.75
NOW accounts...................... 19,089 446 2.34 15,652 370 2.36 14,602 354 2.42
Certificates of deposit........... 314,106 16,894 5.38 273,546 14,206 5.19 246,697 13,072 5.30
---------- ------- -------- ------- -------- -------
Total deposits................... 817,327 30,839 3.77 758,912 27,707 3.65 720,229 26,254 3.65
------- -------
Borrowed funds.................... 103,424 5,778 5.59 -- -- -- -- -- --
-------
Non-depository stock
subscriptions.................... 32,914 895 2.72 -- -- -- -- -- --
---------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities................... 953,665 37,512 3.93 758,912 27,707 3.65 720,229 26,254 3.65
------- ------ ------- ------ ------- ------
Non-interest-bearing liabilities... 108,412 92,254 72,872
---------- -------- --------
Total liabilities.............. 1,062,077 851,166 793,101
Stockholders' equity............... 188,185 95,334 85,187
---------- -------- --------
Total liabilities and
stockholders' equity.......... $1,250,262 $946,500 $878,288
========== ======== ========
Net interest income/interest
rate spread/(4)/.................. $49,242 3.29% $38,074 3.64% $32,809 3.48%
======= ====== ======= ====== ======= ======
Net interest margin/(5)/........... 4.10% 4.22% 3.96%
====== ====== ======
Ratio of interest-earning assets to
interest-bearing liabilities...... 126.04% 118.94% 114.99%
====== ====== ======
</TABLE>
_________________________________
(1) Includes related assets available for sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan cost and fees, deferred mortgage interest,
unamortized discounts net and includes loans held for sale and non-
performing loans.
(3) Real estate loans, net includes one- to four-family, multifamily,
commercial real estate, construction and development and home equity loans.
(4) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
E-4
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Company's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change.
The changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
JUNE 30, 1998 JUNE 30, 1997
COMPARED TO COMPARED TO
YEAR ENDED YEAR ENDED
JUNE 30, 1997 JUNE 30, 1996
------------------------------- -------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
-------------------- --------------------
DUE TO DUE TO
VOLUME RATE NET VOLUME RATE NET
---------- -------- --------- ---------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Debt and equity securities............... $(2,568) $ 459 $(2,109) $(1,905) $ 786 $(1,119)
Mortgage-backed securities and
mortgage-related securities, net........ 14,016 18 14,034 3,722 464 4,186
Real estate loans, net................... 6,449 (52) 6,397 5,210 (947) 4,263
Commercial loans, net.................... 51 49 100 50 (53) (3)
Consumer and student loans............... (60) (130) (190) 83 (82) 1
Other interest-earning assets............ 4,078 (1,337) 2,741 (951) 341 (610)
------- ------- ------- ------- ----- -------
Total interest-earning assets.......... 21,966 (993) 20,973 6,209 509 6,718
------- ------- ------- ------- ----- -------
Interest-bearing liabilities:
Money market savings accounts............ 53 (8) 45 317 4 321
Savings accounts......................... 353 (30) 323 46 (64) (18)
NOW accounts............................. 81 (5) 76 25 (9) 16
Certificates of deposit.................. 2,106 582 2,688 1,423 (289) 1,134
Borrowings............................... 5,778 -- 5,778 -- -- --
Non-depository stock subscriptions....... 895 -- 895 -- -- --
------- ------- ------- ------- ----- -------
Total interest-bearing liabilities..... 9,266 539 9,805 1,811 (358) 1,453
------- ------- ------- ------- ----- -------
Net change in net interest income......... $12,700 $(1,532) $11,168 $ 4,398 $ 867 $ 5,265
======= ======= ======= ======= ===== =======
</TABLE>
CHANGES IN FINANCIAL CONDITION
Total assets increased by $602.5 million, or 60.6%, from $993.4 million at
June 30, 1997, to $1.6 billion at June 30, 1998. The increase in overall assets
was primarily due to an increase of $405.8 million in investment and mortgage-
backed and mortgage-related securities, an increase in net loans of
$148.2 million, or 29.9%, and an increase in federal funds sold of
$20.0 million. These increases were primarily due to $234.9 million of net
proceeds received in the Conversion, $306.0 million of advances received from
the FHLBNY and a net increase in overall deposits of $65.0 million.
As part of its efforts to manage the Bank's asset/liability strategy in an
environment experiencing above normal prepayment risk and market sensitivity to
potential changes in market interest rates, in the third quarter of fiscal 1998,
the Company designated substantially all of its investment securities and its
mortgage-backed and mortgage-related securities as available for sale. The Bank
transferred
E-5
<PAGE>
$149.2 million of investment securities and $123.9 million of mortgage-backed
and mortgage-related securities from the held to maturity category to the
available for sale category. Subsequent to the transfer, approximately
$38.0 million of investment securities available for sale and $16.7 million of
mortgage-backed and mortgage-related securities available for sale were sold and
a net loss of $144,000 was realized. Management believes that the flexibility of
the available for sale portfolio will assist the Company in evaluating market
opportunities while managing the Bank's exposure to interest rate risk and asset
sensitivity.
Mortgage-backed and mortgage-related securities increased by $391.8 million, or
184.4%, from $212.5 million at June 30, 1997, to $604.3 million at June 30,
1998. Investment securities at June 30, 1998, totaled $238.9 million, an
increase of $14.0 million, or 6.2%, compared to $224.9 million at June 30, 1997.
Net loans receivable increased $148.2 million, or 29.9%, to $644.5 million at
June 30, 1998, compared to $496.3 million at June 30, 1997. This increase was
due primarily to originations of $193.3 million and whole loan purchases of
$38.6 million, offset by scheduled amortization and prepayments of
$83.1 million.
Total liabilities at June 30, 1998, were $1.3 billion, an increase of
$374.7 million, or 42.0%, from $892.5 million at June 30, 1997. Total deposits
increased by $65.0 million, or 7.3%, from $885.8 million at June 30, 1997, to
$950.8 million at June 30, 1998. The Bank's "core" deposits increased by
$37.7 million, or 6.4%, at June 30, 1998, to $625.5 million, from $587.8 million
at June 30, 1997. The increase in the Bank's "core" deposits was primarily
attributable a $28.7 million increase in demand deposits. The Bank also
experienced an increase of $27.3 million, or 9.2%, in certificates of deposit
from $298.1 million at June 30, 1997, to $325.3 million at June 30, 1998. The
increase in certificates of deposit was primarily attributable to additional
certificate of deposit products and related marketing of such deposit products.
Additionally, the Bank continues to place a greater level of emphasis on the
utilization of borrowed funds to fund asset growth. In this regard, at June 30,
1998, the Bank had total borrowings of $306.0 million, all of which were in the
form of advances from the FHLBNY. The Bank had no borrowings at June 30, 1997.
The Bank may continue to increase such emphasis, which may result in an increase
in the Bank's overall cost of funds. The Bank's current strategy is to invest
such borrowed funds primarily in mortgage-backed and mortgage-related
securities. This strategy is intended to incrementally increase net interest
income, although it may have the effect of incrementally decreasing net interest
rate spread.
Total stockholders' equity increased by $227.7 million to $328.6 million at
June 30, 1998, from $100.9 million at June 30, 1997. The increase was primarily
attributable to net conversion proceeds received of $234.9 million, offset in
part by the funding of the Bank's ESOP. Subsequent to the Conversion, the ESOP
purchased 2,113,884 shares of the Company's stock with loan proceeds of
$34.6 million received from the Company.
NON-PERFORMING ASSETS
Non-performing loans totaled $5.5 million, or 0.9% of total loans at June 30,
1998, as compared to $3.9 million, or 0.8% of total loans, at June 30, 1997. At
June 30, 1998, the Bank's real estate owned net, consisted of foreclosed assets
totaling $322,000 which at such date was comprised of two one- to four-family
properties and one mixed use commercial property.
E-6
<PAGE>
At June 30, 1998, the Bank had $2.5 million of assets designated as
"Substandard", consisting of nine loans; $38,000, consisting of 14 consumer
loans classified as "Doubtful"; and $5,000, consisting of four consumer loans
classified as "Loss". At June 30, 1998, the Bank had $3.0 million of assets
designated as "Special Mention", consisting of 23 loans which were designated
"Special Mention", due to past loan delinquencies.
Non-accrual loans totaled $5.5 million as of June 30, 1998, which included
25 one- to four-family loans, with an aggregate balance of $33 million. One non-
accrual loan is a $1.1 million commercial mortgage on a mixed-use property in
Staten Island, New York. The loan is secured by the property, which was last
appraised in December 1996, for $1.4 million.
Prior to July 1, 1997, it was the Bank's policy to generally cease accruing
interest on all commercial real estate, construction and commercial loans
90 days or more past due, on all consumer loans 120 days or more past due, and
on all one- to four-family residential mortgage loans 180 days or more past due.
Effective July 1, 1997, the Bank revised this policy such that it does not
accrue interest on any loans, including one- to four-family loans secured by
real estate, which are more than 90 days delinquent as to principal and interest
unless, in the opinion of management, collection is probable.
ALLOWANCE FOR LOAN LOSSES
For the year ended June 30, 1998, the Company's loan loss provision was
$2.2 million as compared to $1.1 for the prior year's period. The Company's
allowance for loan losses totaled $7.3 million at June 30, 1998, and
$5.5 million at June 30, 1997, which represents a ratio of allowance for loan
losses to non-performing loans and to total loans of 131.5% and 1.1%,
respectively, and 141.1% and 1.1%, respectively. The Company continues to
increase its overall loan loss reserves after analyzing non-performing loans, as
well as the need to increase its general valuation allowances due to the
increase in lending of all loan products. Management believes the allowance for
loan losses at June 30, 1998, is adequate and sufficient reserves are presently
maintained to cover potential losses. For the years ended June 30, 1998 and
1997, the Company experienced net charge-offs of $394,000 and $406,000,
respectively.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1998 AND
JUNE 30, 1997
General. The Company reported net income of $4.5 million for the fiscal year
ended June 30, 1998, as compared to the $10.7 million reported in fiscal 1997.
Pro-forma earnings per share for the fiscal year ended June 30, 1998, calculated
as if the Bank had converted to stock form as of July 1, 1997, was $0.19.
Historical loss per share for the fiscal year ended June 30, 1998 since the
Conversion, was $0.16. Per share amounts are not applicable to the 1997
results, due to the fact that the Bank was a mutual institution prior to the
Conversion.
The results of operations for the fiscal year ended June 30, 1998, reflect a
non-recurring contribution relating to the funding of the Richmond County
Savings Foundation (the "Foundation"). Excluding the effect of this
contribution, net income was $15.7 million for the fiscal year ended June 30,
1998, an increase of $5.0 million, or 46.7% from the $10.7 million reported for
the fiscal year ended June 30, 1997. At the close of the Conversion, the
Company funded the Foundation with a contribution of 1,957,300 shares of common
stock, resulting in a one-time, non-recurring charge of $19.6 million
($11.2 million after tax). The Foundation is dedicated to charitable purposes
in the communities served by the Bank.
E-7
<PAGE>
Interest Income. The Company reported total interest income of $86.8 million
for the fiscal year ended June 30, 1998, representing an increase of
$21.0 million, or 31.9%, as compared to the same period in 1997. The increase in
interest income was attributable primarily to the growth in average interest-
earning assets of $299.3 million, offset in part by a 7 basis point decrease in
the average yield on interest-earning assets. The overall increase in the level
of interest-earning assets was primarily the result of utilizing the net
conversion proceeds and an increase in borrowed funds to fund growth in the
mortgage loan and securities portfolios. Interest income was also positively
affected by non-depository stock subscriptions received as a result of the
Conversion, which were invested primarily in overnight funds prior to its
completion. The substantial liquidity position was maintained due to the
offering of the Company's common stock and the return of approximately
$236.9 million in non-depository stock subscription funds.
Interest income on loans increased $6.3 million, or 16.6%, to $44.4 million for
the fiscal year ended June 30, 1998, as compared to the $38.1 million reported
for the comparable period in 1997. This increase was the result of growth in
the average balance of real estate loans outstanding, due primarily to increased
originations of one- to four-family, commercial real estate loans and the
purchase of $38.6 million of multifamily loans. The average yield on the
overall loan portfolio remained relatively constant at 8.04% for the fiscal year
ended June 30, 1998, as compared to 8.08% for the same period in fiscal 1997.
Interest income on debt and equity securities decreased $2.1 million, or 12.6%,
from $16.8 million for the fiscal year ended June 30, 1997, to $14.6 million for
the same period in fiscal 1998. This decrease is attributable primarily to
management's recent restructuring of its securities portfolio, resulting in a
$41.7 million decrease in the average balance of such securities, offset in part
by a 20 basis point increase in the average yield.
Interest income on mortgage-backed and mortgage-related securities increased
$14.0 million, or 146.4%, from $9.6 million for the fiscal year ended June 30,
1997, to $23.6 million for the fiscal year ended June 30, 1998. This increase
was due primarily to an increase in the average balance of mortgage-backed and
mortgage-related securities of $208.1 million, resulting from the restructuring
of the securities portfolio, the investment of net conversion proceeds and the
investment of borrowed funds. The increase in such securities reflects
management's recent revision of its securities investment strategy, whereby it
has decreased its emphasis on debt securities by investing funds from the
maturity and sale of debt securities, as well as proceeds from the Conversion
and borrowed funds into mortgage-backed and mortgage-related securities. The
yield on the mortgage-backed and mortgage-related securities remained constant
at 6.74% for the fiscal years ended June 30, 1998 and 1997.
Interest Expense. Interest expense increased $9.8 million, or 35.4%, from
$27.7 million for the fiscal year ended June 30, 1997, to $37.5 million for the
fiscal year ended June 30, 1998. Interest expense on deposits increased
$4.0 million, or 14.5%, from $27.7 million for the fiscal year ended June 30,
1997, to $31.7 million for the fiscal year ended June 30, 1998. The increase
reflects a $91.3 million increase in the average balance of interest-bearing
deposits, primarily attributable to a $40.6 million increase in the average
balance of certificates of deposit and a $12.9 million increase in the average
balance of savings deposit accounts. This increase is attributable to the Bank's
strategy of attracting more certificates of deposit through additional
certificate of deposit products and related marketing of commercial deposit
accounts. Additionally, the Bank realized a one time $895,000 expense relating
to interest paid on non-depository stock subscription funds received in
connection with the Conversion.
E-8
<PAGE>
Interest expense on borrowed funds was $5.8 million for the fiscal year ended
June 30, 1998. The Bank continues to place a greater level of emphasis on the
utilization of borrowed funds to fund asset growth and to leverage the Bank's
capital position to improve returns on equity. For the fiscal year ended
June 30, 1997, the Bank had no borrowings outstanding. The Bank may continue to
increase such emphasis on borrowed funds, which may result in an increase in the
Bank's overall cost of funds. The Bank's current strategy is to invest such
borrowed funds primarily in mortgage-backed and mortgage-related securities.
This strategy is intended to incrementally increase net interest income,
although it may have the effect of incrementally decreasing net interest rate
spread. Consequently, the average cost of the Bank's interest-bearing
liabilities increased from 3.65% for the fiscal year ended June 30, 1997, to
3.93% for the fiscal year ended June 30, 1998.
Provision for Loan Losses. The Bank's provision for loan losses was
$2.2 million for the fiscal year ended June 30, 1998, as compared to
$1.1 million reported in fiscal 1997. The provision for fiscal 1998 was based on
management's evaluation of its loan portfolio and real estate market conditions.
In particular, management considered the continued growth in the portfolio, as
well as the increase in its non-performing loans. Management believes, based
upon information currently available, that its allowance for loan losses is
adequate to cover future loan losses. To the extent the Bank increases its
investment in multifamily loans, commercial real estate, commercial and other
loans, which entail higher risk than one- to four-family loans, the Bank may
decide to increase its allowance for loan losses through additional loan loss
provisions, which may adversely affect net income. In addition, if general
economic conditions and real estate values within the Bank's primary lending
area decline, the level of non-performing loans may increase, resulting in
larger provisions for loan losses which, in turn, would also adversely affect
net income.
Non-Interest Income. Non-interest income is comprised primarily of fee income
and gains and losses from the sale of securities and loans. Exclusive of net
securities gains and losses, non-interest income for the fiscal year ended
June 30, 1998, increased $470,000, or 15.8%, to $3.4 million. The increased
level of non-interest income is due primarily to an overall increase in deposit
fee income. Net gain on sales of securities and loans for the fiscal year ended
June 30, 1998, was $163,000, as compared to net losses on the sale of securities
and loans of $107,000 in fiscal 1997.
Non-Interest Expense. Non-interest expense, excluding the contribution to the
Foundation, totaled $24.5 million for the fiscal year ended June 30, 1998, an
increase of $4.8 million, or 24.5%, as compared to $19.7 million reported for
the same period in fiscal 1997. The increased level of non-interest expense was
attributable primarily to increases in compensation and employee benefits,
including senior management additions, compensation costs associated with the
establishment of the Bank's new Multifamily Lending Division, the addition of
the ESOP and increased professional fees. The Bank incurred additional
professional fees associated with the formation of Richmond County Capital
Corporation, a subsidiary of the Bank formed for the purpose of establishing a
REIT. The Bank expects that compensation and employee benefits expense may
continue to increase, primarily as a result of the adoption of various employee
benefit plans, compensation adjustments adopted in connection with the
Conversion and the establishment of the Bank's new Multifamily Lending Division.
In addition, the Bank expects non-interest expense to increase in future periods
as a result of the Bank's intention to open a public accommodation office and
the opening of two new full-service branches in fiscal 1999.
Income taxes. The Company's effective consolidated tax rate for the fiscal year
ended June 30, 1998, was 31.4% as compared to 46.9% reported for the comparable
period in 1997. The fiscal year ended
E-9
<PAGE>
June 30, 1998 rate includes the effect of funding the Foundation. Excluding the
effect of the Foundation, the Company's effective tax rate was 40.5%.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED JUNE 30, 1997 AND
JUNE 30, 1996.
General. Net income for fiscal 1997 increased by $2.0 million, or 22.9%, from
$8.7 million for fiscal 1996 to $10.7 million for fiscal 1997. The increase was
due primarily to an increase in net interest income which resulted from an
increase in the average balance of interest-earning assets and a higher weighted
average yield on its securities portfolio, offset, in part, by increases in non-
interest expenses, including the one-time SAIF special assessment and increased
compensation and advertising costs.
Interest Income. Interest income amounted to $65.8 million for fiscal 1997,
representing an increase of $6.7 million from fiscal 1996. The increase was the
result of a $74.4 million increase in average interest-earning assets and a
16 basis point increase in the yield on interest-earning assets. The increase in
average interest-earning assets was due primarily to an increase in one- to
four-family loans due to the introduction of the Bank's use of mortgage brokers
and increased marketing efforts. The increase in the average interest rate on
interest-earning assets, which increased from 7.13% to 7.29%, was due primarily
to the reallocation of interest-earning assets from lower-yielding U.S.
Government securities to higher-yielding mortgage-backed and mortgage-related
securities. This was partially offset by a 24 basis point decline in the yield
on real estate loans, net, due primarily to the repricing of adjustable-rate
loans in a lower interest rate environment. Interest income on mortgage-backed
and mortgage-related securities increased $4.2 million, or 77.5%, from
$5.4 million for fiscal 1996 to $9.6 million for fiscal 1997. This increase was
due primarily to an increase in the average balance of mortgage-backed and
mortgage-related securities of $58.1 million, which resulted from the
restructuring of the securities portfolio and the investment of excess funds not
utilized for loan demand in mortgage-backed and mortgage-related securities. The
yield on the mortgage-backed and mortgage-related securities portfolio increased
by 33 basis points due to the higher rate environment for new purchases and the
repricing of adjustable-rate securities purchased in prior periods. Interest
income on debt and equity securities decreased $1.1 million, or 6.3%, due to
management's restructuring of its securities portfolio resulting in a
$32.4 million decrease in the average balance of such securities offset, in
part, by the increased yield on such securities.
Interest income on loans increased $4.3 million, from $33.8 million for fiscal
1996, to $38.1 million for fiscal 1997. The increase in interest income on
loans was a result of growth in the average balance of one- to four-family loans
outstanding, partially offset by a 24 basis point decrease in the average yield
on loans, which occurred due to a repricing of adjustable rate loans in a lower
interest rate environment. The increase in the average balance of loans was due
primarily to an increase in residential one- to four-family loans, resulting
primarily from the investment of funds resulting from the growth in deposits.
Interest Expense. Interest expense increased $1.5 million, or 5.5%, from
$26.3 million for fiscal 1996 to $27.7 million for fiscal 1997. This increase
reflects a $38.7 million increase in the average balance of interest-bearing
liabilities. The increase in average interest-bearing liabilities was primarily
attributable to an increase in the average balance of certificates of deposits
and money market savings accounts, which increased as a result of the Bank's
strategy of attracting more certificates of deposits through additional
certificate of deposit products, competitive pricing of such products, and
related marketing of commercial deposit accounts. The average cost of the
Bank's interest-bearing liabilities remained relatively stable at 3.65% for
fiscal 1997 and for fiscal 1996.
E-10
<PAGE>
Provision for Loan Losses. The Bank's provision for loan losses was
$1.1 million for fiscal 1997, as compared to $1.6 million for fiscal 1996. The
1997 provision was based on management's evaluation of its loan portfolio and
real estate market conditions. In particular, management considered the
continued growth in the portfolio, as well as the decrease in its non-performing
loans. The Bank's non-performing loans as a percentage of total loans improved
from 0.91% at June 30, 1996, to 0.78% at June 30, 1997. At June 30, 1997, the
Bank's allowance for loan losses as a percentage of total non-performing loans
was 141.1%, as compared to 125.6% at June 30, 1996. At June 30, 1997, the Bank's
allowance for loan losses as a percentage of loans receivable, net, was 1.10%,
as compared to 1.14% at June 30, 1996. To the extent the Bank increases its
investment in commercial real estate, commercial and other loans, which entail
higher risk than one- to four-family loans, the Bank may determine to increase
its allowance for loan losses through additional loan loss provisions, which may
adversely affect net income.
Non-Interest Income. Non-interest income is composed of fee income and profits
from the sale of securities and loans. Total non-interest income for fiscal
1997 increased $34,000, or 1.2%, to $2.9 million. Fee income increased
$245,000, or 9.0%, from $2.7 million for fiscal 1996 to $3.0 million for fiscal
1997, due to an increase in the Bank's deposit accounts. Net gains/losses on
sales of securities and loans changed from a net gain of $42,000 for fiscal
1996, to a net loss of $107,000 for fiscal 1997, primarily as a result of the
Bank's sale of lower-yielding U.S. Treasury and corporate obligations.
Non-Interest Expense. Non-interest expense increased by $1.2 million, or 6.3%,
from $18.5 million for fiscal 1996, to $19.7 million for fiscal 1997, primarily
due to the one-time SAIF special assessment and an increase in compensation and
employee benefits. Compensation and employee benefits increased by $589,000, or
6.4%, from $9.3 million for fiscal 1996, to $9.9 million for fiscal 1997,
primarily as a result of the retention of new personnel in various areas of the
Bank's operations and normal salary increases. Deposit insurance premiums
increased $373,000, or 148.6%, from $251,000 for fiscal 1996, to $624,000 for
fiscal 1997, due to the increase in average deposits from $720.2 million for
fiscal 1996, to $758.9 million for fiscal 1997. In addition, the Bank paid a
one-time special assessment to the SAIF of $493,000 in October 1996, based on
the amount of SAIF-insured deposits the Bank maintains. Advertising and
promotion expense increased $183,000, or 28.9%, from $634,000 for fiscal 1996,
to $817,000 for fiscal 1997, primarily as a result of the Bank's special
anniversary promotion throughout October 1996 and additional marketing of the
Bank's loan and deposit products. The Bank expects that compensation and
employee benefits expense may increase after the Conversion, primarily as a
result of the adoption of various employee benefit plans and compensation
adjustments contemplated in connection with the Conversion. In addition, the
Bank expects non-interest expense to increase in future periods as a result of
the Bank's intention to open a public accommodation office during 1998. The
Bank is also considering opening two new full-service branches in 1998, although
no assurances can be made in this regard. If the Bank were to open two new
branches, non-interest expenses would be expected to increase further in future
periods.
Income Taxes. Total income tax expense was $9.5 million for fiscal 1997, as
compared to $6.8 million for fiscal 1996. The increase was due primarily to an
increase in pre-tax income for 1997. The effective tax rate was 46.9% for
fiscal 1997, as compared to 43.8% for fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from the principal
and interest payments on loans, mortgage-backed and mortgage-related and
investment securities, and to a significantly lesser
E-11
<PAGE>
extent, proceeds from the sale of fixed-rate mortgage loans to the secondary
market. While maturities and scheduled amortization of loans and securities are
predictable sources of funds, deposit outflows, mortgage prepayments and
mortgage loan sales are greatly influenced by general interest rates, economic
conditions and competition.
The primary investing activities of the Bank are the origination of residential
one- to four-family, multifamily and, to a lesser extent, commercial real
estate, construction and development, and other loans and the purchase of
mortgage-backed and mortgage-related and investment securities. During the
fiscal years ended June 30, 1998 and 1997, the Bank's loan originations totaled
$193.3 million and $137.3 million, respectively. Purchases of mortgage-backed,
mortgage-related and investment securities totaled $781.3 million and
$195.4 million for the fiscal years ended June 30,1998 and 1997, respectively.
These activities were funded primarily by deposit growth and principal
repayments and prepayments on loans, mortgage-backed and mortgage-related
securities and investment securities, and advances from the FHLBNY and the net
proceeds received from the Conversion. As of June 30, 1998, the Bank experienced
a net increase in total deposits of $65.0 million, or 7.3%, to $950.8 million as
compared to the $885.8 million at June 30, 1997. Deposit flows are affected by
the level of interest rates, the interest rates and products offered by local
competitors and the Bank and other factors.
The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. In the event
the Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through repurchase agreements and
advances from the FHLBNY. The Bank has recently begun to place a greater level
of emphasis on the utilization of borrowed funds to fund asset growth. In this
regard, at June 30, 1998, the Bank had total borrowings of $306.0 million, all
of which were in the form of advances from the FHLBNY. The Bank may continue to
increase such emphasis, which may result in an increase in the Bank's average
cost of funds.
Loan commitments totaled $150.8 million at June 30, 1998, and were comprised of
$19.1 million in multifamily loan commitments, $66.1 million in one- to four-
family loan commitments, $6.9 million in commercial real estate loan
commitments, $39.6 million in construction loan commitments, $5.8 million in
commercial loan commitments, $10.1 million in home equity loan commitments and
$3.2 million in consumer loan commitments. In addition, management estimates
that an increased level of loan commitments will arise as a result of the recent
formation of the Bank's Multifamily Lending Division, established in the fourth
quarter of fiscal 1998.
Management of the Bank anticipates that it will have sufficient funds available
to meet its current loan commitments. Certificates of deposit that are
scheduled to mature in less than one year from June 30, 1998, totaled
$234.6 million. Based upon past experience and the Bank's current pricing
strategy, management believes that a significant portion of such deposits will
remain with the Bank.
At June 30, 1998, the Bank exceeded all of its regulatory capital requirements
with a leverage capital level of $185.0 million, or 12.81% of adjusted assets,
which is above the required level of $31.0 million, or 4.0% of adjusted assets
and risk-based capital of $192.3 million, or 24.8% of adjusted assets, which is
above the required level of $62.0 million, or 8.0%.
The Company's most liquid assets are cash, due from banks and federal funds
sold. The levels of these assets are dependent on the Company's operating,
financing, lending and investing activities during any given period. At
June 30, 1998, cash and due from banks (unrestricted) and federal funds sold
totaled $57.9 million, or 3.6% of total assets.
E-12
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and notes presented herein, have been
prepared in accordance with Generally Accepted Accounting Principles ("GAAP"),
which require the measurement of financial position and operating results in
terms of historical dollar amounts without considering the changes in the
relative purchasing power of money over time due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Bank are
monetary in nature. As a result, interest rates have a greater impact on the
Bank's performance than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the same extent as the
price of goods and services.
THE YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed without considering the impact of the
upcoming change in the century. If not corrected, many computer applications
could fail or create erroneous results by or at the year 2000. The Company
primarily utilizes a third party vendor and such vendor's proprietary software
to process transactions and maintain its electronic data. The third party data
processing vendor is modifying, upgrading or replacing its computer software
applications and systems as necessary to permit correct recording of year dates
for 2000 and later years. The vendor has engaged a consultant to review its
year 2000 issues and has implemented a year 2000 compliance program. It has
also initiated a compliance testing program to ensure that all changes are
adequately tested. Management will be participating in the testing of systems
during calendar 1998 and management is also developing appropriate contingency
plans to deal with problems as they may arise.
The Company does not expect that the cost of its year 2000 compliance program
will be material to its financial condition or results of operations and
believes that it will be able to satisfy such compliance program by the end of
calendar 1998 without any material disruption in its operations. Although the
Company has requested status information from its major suppliers and software
vendors, in the event that any significant vendor does not timely achieve year
2000 compliance, the Company's business or operations could be adversely
affected.
PRIVATE SECURITIES LITIGATION REFORM ACT SAFE HARBOR STATEMENT
In addition to historical information, this Annex includes certain forward
looking statements based on current management expectations. The Company's
actual results could differ materially from those management expectations.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions,
legislative and regulatory changes, monetary and fiscal policies of the federal
government, changes in tax policies, rates and regulations of federal, state and
local tax authorities, changes in interest rates, deposit flows, the cost of
funds, demand for loan products, demand for financial services, competition,
changes in the quality or composition of the Company's loan and investment
portfolios, changes in accounting principles, policies or guidelines, and other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices.
E-13
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
For discussion regarding the impact of new accounting standards, refer to Note 1
of Notes to Consolidated Financial Statements.
ASSET AND LIABILITY MANAGEMENT AND THE MANAGEMENT OF INTEREST RATE RISK
GENERAL
The principal objective of the Company's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Company's seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company's
Board of Directors reviews the Company's interest rate risk position at least
quarterly. The Company's Asset/Liability Committee is comprised of the
Company's senior management, under the direction of the Board of Directors, with
senior management responsible for reviewing, with the Board of Directors, its
activities and strategies, the effect of those strategies on the Company's net
interest margin, the market value of the portfolio and the effect that changes
in the interest rates will have on the Company's portfolio and the Company's
exposure limits.
DISCUSSION OF MARKET RISK
As a financial institution, the Company's primary component of market risk is
interest rate volatility. Fluctuations in interest rates will ultimately impact
both the level of income and expense recorded on a large portion of the
Company's assets and liabilities, and the market value of all interest-earning
assets, other than those which possess a short term to maturity. All
significant interest rate risk management procedures are performed at the
Company level.
Based upon the Company's nature of operations, the Company is not subject to
foreign currency exchange or commodity price risk. The Company's real estate
loan portfolio, concentrated primarily within the New York metropolitan area, is
subject to risks associated with the local economy. The Company does not own
any trading assets.
In prior years, the Company has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of fixed-rate
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans and consumer loans consisting primarily of home equity
loans and lines of credit; (2) selling fixed-rate mortgage loans with terms of
more than fifteen years without recourse and on a servicing retained basis; and
(3) investing in short term and, to a lesser extent, adjustable rate securities
which may generally bear lower yields as compared to longer term investments,
but which better position the Company for increases in market interest rates.
The Company currently does not participate in hedging programs, interest rate
swaps or other activities involving the use of off-balance sheet derivative
financial instruments.
Over the past year, the Company has begun to emphasize investment in mortgage-
backed and mortgage-related securities with estimated average lives of three to
seven years and to de-emphasize investment in U.S. Treasury securities,
corporate and other debt securities. As a result, at June 30, 1998,
E-14
<PAGE>
mortgage-backed and mortgage-related securities and investment securities
totaled 71.7% and 28.3% of total securities, respectively, as compared to 48.6%
and 51.4%, respectively, at June 30, 1997. The weighted average life of the
Company's securities portfolio increased to 7.5 years at June 30, 1998 from 3.3
years at June 30, 1997. This strategy has been accomplished primarily by
investing funds from the maturities and sales of U.S. Treasury obligations and
other debt securities into mortgage-backed and mortgage-related securities,
primarily government agency pass-throughs and privately issued Collateralized
Mortgage Obligations ("CMOs"). This strategy has, in part, resulted in the
increase in the average yield of the Company's securities portfolio. It has also
resulted in an increase in the weighted average life of such portfolio, which
could increase the Company's exposure to interest rate risk in a period of
rising interest rates. In pursuing this strategy, the Company considered the
relative stability of its core deposits.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. At June 30,
1998, the Company's one-year gap position, the difference between the amount of
interest-earning assets maturing or repricing within one year and interest-
bearing liabilities maturing or repricing within one year, was $127.3 million,
representing a one-year interest sensitivity gap as a percentage of total assets
of 8.0%. Accordingly, during a period of rising interest rates, the Company,
having a positive gap position, would be in a better position to invest in
higher yielding assets which, consequently, may result in the yield on its
assets increasing at a pace more closely matching the increase in the cost of
its interest-bearing liabilities than if it had a negative gap. During a period
of falling interest rates, an institution with a positive gap would tend to have
its assets repricing at a faster rate than one with a negative gap which,
consequently, may tend to restrain the growth of its net interest income or
result in a decrease in interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at June 30, 1998, which are anticipated
by the Company, based upon certain assumptions, to reprice or mature in each of
the future time periods shown (the "GAP Table"). Except as stated below, the
amount of assets and liabilities shown which reprice or mature during a
particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
June 30, 1998, on the basis of contractual maturities, anticipated prepayments,
and scheduled rate adjustments within a three month period and subsequent
selected time intervals. For loans on residential properties, adjustable-rate
loans, and fixed-rate loans, prepayment rates were assumed to range from 6% to
18% annually. Mortgage-backed and mortgage-related securities were assumed to
prepay at rates between 8% and 30% annually. Savings and NOW accounts were
assumed to decay at 10%, 5%, 5%, 40%, 20%, 20% and 0%, and money market savings
accounts were assumed to decay at 25%, 15%, 10%, 50%, 0%, 0% and 0%, for the
periods of three months or less, three to six months, six to 12 months, one to
three years, three to five years, five to ten years and more than ten years,
respectively. These assumptions are generally based on the Federal Deposit
Insurance Corporation's (the "FDIC") deposit decay guidelines and the Bank's
historical experience. Prepayment and deposit decay rates can have a
significant impact on the Company's estimated gap. While the Company believes
such assumptions to be reasonable, there can be no assurance that assumed
prepayment rates and decay rates will approximate actual future loan prepayment
and deposit withdrawal activity.
E-15
<PAGE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
--------------------------------------------------------------------------------------
3 MORE THAN MORE THAN MORE THAN MORE THAN MORE THAN
MONTHS 3 MONTHS TO 6 MONTHS TO 1 YEAR TO 3 YEARS TO 5 YEARS TO MORE THAN
OR LESS 6 MONTHS 1 YEAR 3 YEARS 5 YEARS 10 YEARS 10 YEARS TOTAL
-------- ----------- ----------- --------- ---------- ---------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Debt and equity
securities(2)................ $ 58,624 $ 7,841 $ 24,875 $ 21,646 $ 20,074 $ 36,507 $ 69,323 $ 238,890
Mortgage-backed and
mortgage-related
securities(2)................ 56,371 55,600 82,935 154,220 57,943 143,484 53,751 604,304
Real estate loans, net(3)(4).. 52,495 43,604 85,766 170,682 99,934 106,236 59,087 617,804
Commercial loans(3)........... 1,450 1,110 2,213 2,010 -- -- -- 6,783
Consumer and student
loans(4)..................... 2,887 2,283 4,526 4,271 2,431 2,672 2,554 21,624
Other interest-earning
assets....................... 32,424 -- -- -- -- -- -- 32,424
FHLBNY stock.................. -- -- -- -- -- -- 15,550 15,550
-------- -------- -------- -------- -------- -------- -------- ----------
Total interest-earning
assets..................... $204,251 $110,438 $200,315 $352,829 $180,382 $288,899 $200,265 $1,537,379
======== ======== ======== ======== ======== ======== ======== ==========
Interest-bearing liabilities:
Money market savings
accounts..................... $ 9,685 $ 5,811 $ 3,874 $ 19,371 $ -- $ -- $ -- $ 38,741
NOW accounts.................. 1,973 987 987 7,893 3,946 3,946 -- 19,732
Savings accounts.............. 44,343 22,172 22,172 177,373 88,687 88,687 -- 443,434
Certificates of deposit....... 69,936 71,269 93,453 70,891 19,099 700 -- 325,348
Borrowings.................... 6,000 -- 35,000 115,000 150,000 -- -- 306,000
-------- -------- -------- -------- -------- -------- -------- ----------
Total interest-bearing
liabilities................ 131,937 100,239 155,486 390,528 261,732 93,333 -- 1,133,255
-------- -------- -------- -------- -------- -------- -------- ----------
Interest sensitivity gap(5)... $ 72,314 $ 10,199 $ 44,829 $(37,699) $(81,350) $195,566 $200,265
======== ======== ======== ======== ======== ======== ========
Cumulative interest
sensitivity gap.............. $ 72,314 $ 82,513 $127,342 $ 89,643 $ 8,293 $203,859 $404,124
======== ======== ======== ======== ======== ======== ========
Cumulative interest
sensitivity gap as a
percentage of total assets... 4.53% 5.17% 7.98% 5.62% 0.52% 12.77% 25.32%
Cumulative interest
sensitivity gap as a
percentage of total
interest-earning assets...... 4.70 5.37 8.28 5.83 0.54 13.26 26.29
Cumulative net interest-
earning assets as a
percentage of cumulative
interest-bearing liabilities. 154.81 135.54 132.85 111.52 100.80 117.99 135.66
</TABLE>
_____________________________
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Debt and equity and mortgage-backed and mortgage-related securities are
shown at carrying value. Equity securities primarily consist of callable
preferred stock, the maturities of which have been assumed to be the date
on which they are initially callable.
(3) For purposes of the gap analysis, real estate loans, commercial loans, and
consumer/installment loans are shown excluding adjustments for allowance
for loan losses and unearned fees of $7.3 million and ($224,000),
respectively.
(4) For purposes of the gap analysis, non-performing loans are not included.
(5) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
Certain shortcomings are inherent in the method of analysis presented in the GAP
Table. For example, although certain assets and liabilities may have similar
maturities or periods to repricing, they may react in different degrees to
changes in market interest rates. Also, the interest rates on certain types of
assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features, which restrict changes in interest rates both on a short-term basis
and over the life of the asset. Further, in the event of changes in interest
rates, prepayment and early withdrawal levels would likely deviate significantly
from those assumed in calculating the table. Finally, the ability of many
borrowers to service their adjustable-rate loans may decrease in the event of an
interest rate increase.
E-16
<PAGE>
Net Portfolio Value. The Bank's interest rate sensitivity is also monitored by
management through the use of a Net Portfolio Value Mode, which generates
estimates of the change in the Bank's net portfolio value ("NPV") over a range
of interest rate scenarios. NPV is the present value of expected cash flows
from assets, liabilities, and off-balance sheet contracts. The NPV ratio, under
any interest rate scenario, is defined as the NPV in that scenario divided by
the market value of assets in the same scenario. The model assumes estimated
loan prepayment rates, reinvestment rates and deposit decay rates similar to the
assumptions utilized for the GAP Table. The Sensitivity Measure is the decline
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates,
whichever produces a larger decline. The higher an institution's Sensitivity
Ratio, the greater its exposure to interest rate risk is considered to be. The
following NPV Table sets forth the Bank's NPV as of June 30, 1998.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES ------------------------------ ---------------------
IN BASIS POINTS % %
(RATE SHOCK) AMOUNT $ CHANGE CHANGE NPV RATIO CHANGE
--------------- -------- ---------- -------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $121,684 $(108,906) (47.2)% 9.37% (37.91)%
300 157,681 (72,909) (31.6) 11.56 (23.39)
200 188,537 (42,053) (18.2) 13.83 (8.35)
100 214,271 (16,319) (7.1) 14.46 (4.17)
Static 230,590 -- -- 15.09 --
(100) 214,003 (16,587) (7.2) 13.76 (8.81)
(200) 187,209 (43,381) (18.8) 11.90 (21.14)
(300) 171,255 (59,335) (25.7) 10.75 (28.76)
(400) 160,861 (69,729) (30.2) 9.96 (33.99)
</TABLE>
As of June 30, 1998, the Bank's NPV was $230.6 million, or 15.09% of the market
value of assets. Following a 200 basis point increase in interest rates, the
Bank's "post shock" NPV was $188.5 million, or 13.83% of the market value of
assets. The change in the NPV ratio or the Bank's Sensitivity Measure was
negative 1.26%.
As is the case with the GAP Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV Table presented assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Also, the model does not take into account the
Bank's business or strategic plans. Accordingly, although the NPV Table
provides an indication of the Bank's interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a
precise forecast of the effect of changes in market interest rates on the Bank's
net interest income and may differ from actual results.
E-17
<PAGE>
Report of Independent Auditors
The Board of Directors
Richmond County Financial Corp.
We have audited the accompanying consolidated statements of financial condition
of Richmond County Financial Corp. (the "Company") as of June 30, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1998. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at June 30, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
June 30, 1998 in conformity with generally accepted accounting principles.
Ernst & Young LLP
August 6, 1998
New York, New York
E-18
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
JUNE 30
----------------------
1998 1997
---------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks.................................. $ 31,884 $ 26,543
Federal funds sold....................................... 26,000 6,000
Securities held to maturity:
Investment securities.................................. - 205,201
Mortgage-backed and mortgage-related securities........ - 185,122
Securities available for sale:
Investment securities.................................. 238,890 19,706
Mortgage-backed and mortgage-related securities........ 604,304 27,398
Loans receivable:
Real estate mortgage loans............................. 623,293 471,601
Other loans............................................ 28,452 30,127
Less allowance for loan losses......................... (7,276) (5,470)
---------- --------
Total loans receivable, net.............................. 644,469 496,258
FHLBNY stock............................................. 15,550 -
Banking premises and equipment, net...................... 13,094 12,058
Accrued interest receivable.............................. 9,827 8,268
Other real estate owned.................................. 322 662
Net deferred tax assets.................................. 8,708 2,942
Other assets............................................. 2,796 3,212
---------- --------
Total assets......................................... $1,595,844 $993,370
========== ========
LIABILITY AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits........................................ $ 121,646 $ 92,959
Savings, NOW & Money market accounts................... 501,906 493,506
Certificates of deposit................................ 325,348 298,066
Escrow accounts........................................ 1,908 1,287
---------- --------
Total deposits....................................... 950,808 885,818
Borrowings from the Federal Home Loan Bank............. 306,000 -
Accrued expenses and other liabilities................. 10,441 6,687
---------- --------
Total liabilities.................................... 1,267,249 892,505
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued................................. - -
Common stock, $.01 par value, 75,000,000 shares
authorized; 26,423,550 shares issued and outstanding.... 264 -
Additional paid-in-capital............................... 254,307 -
Retained earnings-substantially restricted............... 103,760 100,555
Unallocated common stock held by ESOP.................... (33,706) -
Net unrealized gain on securities available for sale,
net of tax.............................................. 3,970 310
---------- --------
Total stockholders' equity........................... 328,595 100,865
Total liabilities and stockholders' equity............... $1,595,844 $993,370
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
E-19
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-----------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME
Loans................................................. $44,375 $38,068 $33,807
Debt & equity securities.............................. 14,645 16,754 17,873
Mortgage-backed and mortgage-related securities....... 23,622 9,588 5,402
Federal funds sold.................................... 3,822 961 1,570
Other................................................. 290 410 411
------- ------- -------
Total interest income............................... 86,754 65,781 59,063
------- ------- -------
INTEREST EXPENSE
Deposits.............................................. 31,734 27,707 26,254
Securities sold under repurchase agreements........... 1,059 - -
Borrowed funds........................................ 4,719 - -
------- ------- -------
Total interest expense.............................. 37,512 27,707 26,254
------- ------- -------
Net interest income................................. 49,242 38,074 32,809
Provision for loan losses............................. 2,200 1,080 1,600
------- ------- -------
Net interest income after provision for
loan losses........................................ 47,042 36,994 31,209
------- ------- -------
NON-INTEREST INCOME
Fee income............................................ 3,397 2,962 2,717
Net gain (loss) on sales of securities
and loans............................................ 163 (107) 42
Other................................................. 41 6 68
------- ------- -------
Total non-interest income........................... 3,601 2,861 2,827
------- ------- -------
NON-INTEREST EXPENSES
Salaries and employee benefits........................ 12,929 9,850 9,261
Occupancy costs....................................... 3,181 3,063 3,029
Computer service fees................................. 2,743 2,511 2,440
Advertising........................................... 1,135 817 634
Amortization of deposit premium....................... 313 313 313
FDIC insurance premiums............................... 154 624 251
Contribution to Richmond County Savings
Foundation (the "Foundation")........................ 19,558 - -
Other................................................. 4,033 2,489 2,575
------- ------- -------
Total non-interest expenses......................... 44,046 19,667 18,503
------- ------- -------
Income before income taxes.............................. 6,597 20,188 15,533
Provision for income taxes.............................. 2,071 9,463 6,803
------- ------- -------
NET INCOME.......................................... $ 4,526 $10,725 $ 8,730
======= ======= =======
LOSS PER SHARE SINCE CONVERSION
Basic............................................... $(0.16) N/A N/A
Diluted............................................. $(0.16) N/A N/A
</TABLE>
See accompanying notes to consolidated financial statements.
E-20
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1997 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK (PAR VALUE)
Issuance of 24,466,250 shares of $.01 par value
common stock............................................... $ 245 $ - $ -
Issuance of 1,957,300 shares of $.01 par value
common stock to the Foundation............................. 19 - -
-------- -------- --------
Balance at end of period..................................... 264 - -
-------- -------- --------
ADDITIONAL PAID-IN-CAPITAL
Issuance of 24,466,250 shares common stock in initial
public offering at $10.00 per share, net of conversion
related expenses........................................... 234,644 - -
Issuance of 1,957,300 shares common stock at $10.00
per share to the Foundation................................ 19,553 - -
Excess of ESOP compensation cost measured using
fair value of stock over related cost...................... 110 - -
-------- -------- --------
Balance at end of period..................................... 254,307 - -
-------- -------- --------
RETAINED EARNINGS-SUBSTANTIALLY RESTRICTED
Balance at beginning of period............................... 100,555 89,830 81,100
Net income................................................... 4,526 10,725 8,730
Cash dividends paid on common stock ($.05 per share)......... (1,321) - -
-------- -------- --------
Balance at end of period..................................... 103,760 100,555 89,830
-------- -------- --------
UNALLOCATED COMMON STOCK HELD BY ESOP
Open market purchases of the Company's common stock
by ESOP trustee............................................ (34,571) - -
Allocation from shares purchased............................. 865 - -
-------- -------- --------
Balance at end of period..................................... (33,706) - -
-------- -------- --------
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, NET OF TAX
Balance at beginning of period............................... 310 71 67
Change in unrealized gain on securities available for sale,
net of tax................................................. 3,660 239 4
-------- -------- --------
Balance at end of period..................................... 3,970 310 71
-------- -------- --------
Total stockholders' equity................................... $328,595 $100,865 $ 89,901
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
E-21
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------------
1998 1997 1996
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................................... $ 4,526 $ 10,725 $ 8,730
Adjustments to reconcile net income to net cash provided by
operating activities:
Contribution of the Company's common stock
to the RCS Foundation............................................. 19,553 - -
Employee Stock Ownership Plan expense.............................. 975 - -
Depreciation of bank premises and equipment........................ 848 928 750
Amortization of deposit premium.................................... 313 313 313
Amortization of deferred fees, net................................. (446) (479) (580)
Amortization of investment premiums,
net accretion of discount......................................... 482 1,039 2,769
Provision for loan losses.......................................... 2,220 1,080 1,600
Earned discounts on loans purchased................................ (158) (158) (158)
Net realized (gains) losses on sales of securities and loans....... (30) 103 (100)
Net realized (gains) losses on sales of other real estate owned.... (133) 4 58
Decrease (increase) in receivable from broker...................... - 7,531 (7,531)
(Increase) decrease in net deferred tax assets..................... (5,766) 36 (450)
(Increase) decrease in accrued interest receivable................. (1,559) 944 (575)
Increase in accrued expenses and other liabilities................. 3,754 1,321 1,013
Decrease (increase) in other assets................................ 416 (782) 8,387
--------- --------- ---------
Net cash provided by operating activities...................... 24,975 22,605 14,226
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in loans receivable, net.................................. (114,373) (79,002) (38,316)
Loan purchases..................................................... (38,616) (910) -
Proceeds from sales of loans....................................... - 2,004 9,972
Investment securities held to maturity:
Maturities and redemptions....................................... 55,972 127,005 107,658
Purchases........................................................ - (17,611) (150,256)
Investment securities available for sale:
Sales and redemptions............................................ 108,936 11,938 10
Purchases........................................................ (173,260) (17,678) (1,064)
Mortgage-backed and mortgage-related securities held to maturity:
Maturities and redemptions....................................... 29,237 3,609 -
Principal collected.............................................. 31,987 25,315 21,305
Purchases........................................................ - (133,668) (15,197)
Mortgage-backed and mortgage-related securities available for sale:
Sales and redemptions............................................ 69,074 - 5,940
Principal collected.............................................. 86,073 479 410
Purchases........................................................ (608,059) (26,478) -
Purchases of FHLBNY stock.......................................... (15,550) - -
Net additions to banking premises and equipment.................... (1,884) (1,418) (1,897)
Proceeds from sales of other real estate owned..................... 823 479 396
--------- --------- ---------
Net cash used in investing activities.......................... (569,640) (105,936) (61,039)
</TABLE>
See accompanying notes to consolidated financial statements.
E-22
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------------
1998 1997 1996
--------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits...................................... 64,369 66,603 53,866
Increase (decrease) in escrow accounts........................ 621 (1) (881)
Increase in borrowings funds.................................. 306,000 - -
Net proceeds of common stock issuance......................... 234,908 - -
Loan to ESOP for open market purchase of common stock......... (34,571) - -
Cash dividends paid on common stock........................... (1,321) - -
-------- -------- -------
Net cash provided by financing activities................. 570,006 66,602 52,985
Net increase (decrease) in cash and cash equivalents.......... 25,341 (16,729) 6,172
Cash and cash equivalents at beginning of the year............ 32,543 49,272 43,100
-------- -------- -------
Cash and cash equivalents at end of the year.................. $ 57,884 $ 32,543 $49,272
======== ======== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest on deposits and borrowed funds................... $ 35,609 $ 27,707 $26,254
Income taxes.............................................. 6,949 8,733 7,080
NON-CASH INVESTING ACTIVITIES:
Additions to other real estate owned, net................. $ 350 $ 673 $ 608
Transfer of securities from held to maturity to
available for sale....................................... 273,127 - -
Net increase in unrealized gains on available for sale
investments.............................................. 6,179 449 9
</TABLE>
See accompanying notes to consolidated financial statements.
E-23
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
Richmond County Financial Corp. (the "Company") was organized under Delaware law
as the savings and loan holding company for Richmond County Savings Bank and its
subsidiaries (the "Bank") in connection with the Bank's conversion form a New
York State chartered mutual savings bank to a New York State chartered stock
savings bank on February 18, 1998 (the "Conversion"). See note 2 for a further
discussion of the Conversion.
The Company's business consists primarily of the business activities of the
Bank. The Bank operates twelve branches in the borough of Staten Island and one
branch in the borough of Brooklyn, in the City of New York. The Bank's
activities include attracting deposits from the general public and originating
secured residential, multifamily and commercial real estate loans. The Bank
also provides other financial services to customers primarily within this
region. The Bank's primary revenues are derived from these banking activities
and its portfolios of investment and mortgage-backed and mortgage-related
securities. The Bank is subject to competition from other financial
institutions. Deposits at the Bank are insured up to applicable limits by the
Bank Insurance Fund (BIF) of the Federal Deposit Insurance Corporation (FDIC).
The Bank is subject to regulation by the Federal Deposit Insurance Corporation
and the New York State Banking Department.
The following is a description of the significant accounting policies followed
by the Company and its wholly-owned subsidiary. The policies conform to
generally accepted accounting principles and to general practice within the
banking industry:
(A) PRINCIPLES OF CONSOLIDATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles ("GAAP") and include the accounts of
the Company and its wholly-owned subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.
(B) USE OF ESTIMATES
The preparation of financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from the estimates.
(C) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company defines cash and cash
equivalents as cash and due from banks (including restricted cash), federal
funds sold and time deposits with original maturities of three months or less.
(D) SECURITIES HELD TO MATURITY
Investment securities and mortgage-backed and mortgage-related securities, for
which the Company has the positive intent and ability to hold to maturity, are
stated at cost, adjusted for amortization of
E-24
<PAGE>
premiums and discounts, which are recognized as adjustments to interest income
over the life of the security, so as to provide a level yield.
(E) SECURITIES AVAILABLE FOR SALE
Investment securities and mortgage-backed and mortgage-related securities, not
classified as trading nor as held to maturity, are classified as available for
sale and are carried at fair value. Unrealized gains or losses on securities
available for sale are included as a separate component of stockholders' equity,
net of applicable income taxes. Gains and losses on the disposition of
securities available for sale are recognized using the specific identification
method.
(F) LOANS RECEIVABLE
Loans receivable are stated at unpaid principal balances, less unearned
discounts and net deferred origination and commitment fees. Loan origination
and commitment fees and certain direct costs incurred in connection with loan
originations are deferred and amortized to income over the life of the related
loans as an adjustment to yield. Loans held for sale are stated at the lower of
cost or market value.
The Company does not accrue interest on loans that are more than ninety days
delinquent as to principal or interest unless, in the opinion of management,
collection is probable, with the exception of single-family-home loans secured
by real estate, where accrual is discontinued after six months. Any accrued but
unpaid interest previously recorded on these loans is reversed against current
period interest income. Effective July 1, 1997, the Bank revised this policy
such that it does not accrue interest on any loans, including single-family
loans secured by real estate, which are more than ninety days delinquent as to
principal or interest unless, in the opinion of management, collection is
probable. The effect of this change in policy was immaterial.
(G) ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's periodic review and
evaluation of the loan portfolio and the potential for loss in light of the
current composition of the loan portfolio, current and prospective economic
conditions, and other relevant factors.
Assessing the adequacy of the allowance for loan losses is inherently subjective
as it requires making material estimates, including the amount and timing of
future cash flows expected to be received on impaired loans, which may be
susceptible to significant change. In the opinion of management, the allowance,
when taken as a whole, is adequate to absorb estimated loan losses inherent in
the Company's entire portfolio.
(H) BANKING PREMISES AND EQUIPMENT
Banking premises and equipment are recorded at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives (3 to 20
years) on a straight-line basis. Leasehold improvements are amortized over the
lives of the respective leases or the service lives of the improvements,
whichever is shorter.
Expenditures for improvements and major renewals are capitalized, while the cost
of ordinary maintenance, repairs and minor improvements is charged to
operations.
E-25
<PAGE>
(I) OTHER REAL ESTATE OWNED
Other real estate owned, consisting of properties acquired through foreclosure,
is carried at the lower of carrying amount or fair value less cost to sell.
(J) INCOME TAXES
The Company uses the liability method to account for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured at currently enacted income tax rates applicable to the period in which
they are expected to be realized or settled. As changes in tax laws or rates
are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
(K) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income since Conversion
by the weighted average number of common shares outstanding. Diluted earnings
per common share is calculated using the same method as basic earning per common
share, but reflects potential dilution of common stock equivalents. There were
no dilutive common stock equivalents for the fiscal year ended June 30, 1998.
For the fiscal year ended June 30, 1998, the weighted average number of shares
of common stock outstanding was 24,328,143. For the fiscal year ended June 30,
1998, such shares have been reduced, in accordance with the provisions of the
American Institute of Certified Public Accountants ("AICPA") Statement of
Position 93-6, "Employers' Accounting for Employee Stock Option Plans", by the
weighted average number of unallocated shares of common stock held by the Bank's
Employees' Stock Ownership Plan (the "ESOP"). Net loss since Conversion was
$4.0 million.
(L) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for
reporting and displaying comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. SFAS No. 130 requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement, and (b) display the accumulated balance of other comprehensive income
separately from net worth and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Adoption of this statement is not expected to have a material effect on the
Company's consolidated financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS No. 131 requires disclosures for each
segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly basis.
It also requires geographic data by country, as opposed to broader geographic
regions as permitted under current standards. SFAS No. 131 is effective for
fiscal year beginning after December 15, 1997, with earlier application
permitted.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging
E-26
<PAGE>
Activities." SFAS No. 133 standardizes the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under SFAS No. 133, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The accounting
for changes in the fair value (i.e. gains or losses) of a derivative instrument
depends on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If certain conditions are
met, entities may elect to designate a derivative instrument as a hedge of
exposures to changes in fair values, cash flows or foreign currencies. If the
hedged exposure is a fair value exposure, the gain or loss on the derivative
instrument is recognized in earnings in the period of change together with the
offsetting loss or gain on the hedged item attributable to the risk being
hedged. If the hedged exposure is a cash flow exposure, the effective portion of
the gain or loss on the derivative instrument is reported initially as a
component of the other comprehensive income (outside earnings) and subsequently
reclassified into earnings when the forecasted transaction affects earnings. Any
amounts excluded from the assessment of hedge effectiveness as well as the
ineffective portion of the gain or loss is reported in earnings immediately.
Accounting for foreign currency hedges is similar to the accounting for fair
value and cash flow hedges. If the derivative instrument is not designated as a
hedge, the gain or loss is recognized in earnings in the period of change.
SFAS No. 133 is effective for the financial statements issued for periods
beginning after June 15, 1999. The Company is currently evaluating the effects
of SFAS No. 133.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
2. CONVERSION TO STOCK FORM OF OWNERSHIP
On July 31, 1997, the Board of Trustees of the Bank unanimously adopted a Plan
of Conversion whereby the Bank would convert from a New York State chartered
mutual bank to a New York State chartered stock institution with the concurrent
formation of a holding company, Richmond County Financial Corp. (the
"Conversion").
The Conversion was completed on February 18, 1998, with the issuance by the
Company of 24,466,250 shares of common stock, at a price of $10.00 per share, in
an initial public offering. The Company received gross proceeds from the
Conversion of $244.7 million, before the reduction from gross proceeds of
$9.8 million for estimated conversion related expenses. The Company used
$117.4 million, or 50% of the net proceeds, to purchase all of the outstanding
stock of the Bank.
Concurrent with the completion of the Conversion, an additional 1,957,300 shares
of authorized but unissued shares of common stock were contributed by the
Company to the Richmond County Savings Foundation (the "Foundation"), a private
foundation dedicated to charitable purposes within the Bank's communities that
it serves. The Company recorded a one-time charge of $19.6 million, the full
amount of the contribution made to the Foundation and a corresponding deferred
tax benefit of $8.4 million fiscal 1998. The contribution to the Foundation
will be fully tax deductible, subject to an annual limitation based upon the
Company's annual taxable income. In connection with the Conversion, the Bank
implemented the ESOP. Subsequent to the Conversion, the ESOP purchased, through
a $34.6 million loan from the Company, 8%, or 2,113,884 shares of the Company's
common stock in the open market.
E-27
<PAGE>
The Bank established, in accordance with the requirements of the OTS, a
liquidation account for $102.8 million, equal to its retained earnings as of the
date of the latest consolidated statement of financial condition appearing in
the final prospectus. The liquidation account is maintained for the benefit of
eligible pre-Conversion account holders who continue to maintain their account
at the Bank after the date of Conversion. The liquidation account will be
reduced annually to the extent that eligible account holders have reduced their
qualifying deposits as of each anniversary date. Subsequent increases will not
restore an eligible account holder's interest in the liquidation account. In
the event of a complete liquidation, each eligible account holder will be
entitled, under New York State Law, to receive a distribution from the
liquidation account in an amount equal to their current adjusted account
balances for all such depositors then holding qualifying deposits in the Bank.
In addition, the Company may not declare or pay cash dividends on or repurchase
any of its shares of common stock if the effect thereof would cause
stockholders' equity to be reduced below applicable regulatory capital
maintenance requirements or if such declaration and payment would otherwise
violate regulatory requirements.
3. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
As part of its efforts to manage the Company's asset/liability strategy in an
environment experiencing above normal repayment risk and market sensitivity to
potential changes in market interest rates, in February 1998, as part of a
balance sheet restructuring initiative, the Bank transferred its entire held to
maturity portfolio to its securities available for sale portfolio. As a result,
at June 30, 1998, the Company had no securities in held to maturity.
The amortized cost of investment securities and mortgage-backed and mortgage-
related securities and their related estimated fair values at June 30, 1998 and
1997, are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies..................... $ 33,444 $ 266 $ (6) $ 33,664
Corporate and other debt obligations............. 146,869 2,069 (59) 148,880
-------- ------ ----- --------
$180,313 $2,295 $ (65) $182,544
======== ====== ===== ========
Marketable equity securities:
Preferred........................................ $ 27,146 $1,303 $ (1) $ 28,448
Common........................................... 24,786 2,861 (591) 27,056
Mutual Funds..................................... 605 237 - 842
-------- ------ ----- --------
$ 52,537 $4,401 $(592) $ 56,346
======== ====== ====== ========
Mortgage-backed and mortgage-related securities:
Federal Home Loan Mortgage Corporation ("FHLMC")
Pass-Through Certificates........................ $ 96,970 $ 547 $(155) $ 97,362
Government National Mortgage Association ("GNMA")
Pass-Through Certificates........................ 185,098 307 (382) 185,023
Private Issuer Pass-Through Certificates........... 18,143 65 - 18,208
Federal National Mortgage Association ("FNMA")
Pass-Through Certificates........................ 76,616 82 (247) 76,451
FNMA Real Estate Mortgage Investment Conduits...... 39,165 14 (54) 39,125
Private Issuer Real Estate Mortgage
Investment Conduits.............................. 187,587 584 (36) 188,135
-------- ------ ----- --------
$603,579 $1,599 $(874) $604,304
======== ====== ===== ========
</TABLE>
E-28
<PAGE>
3. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
AVAILABLE FOR SALE COST GAINS LOSSES FAIR VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Marketable equity securities:
Preferred........................................ $ 14,027 $ 132 $ (1) $ 14,158
Common........................................... 3,578 305 (69) 3,814
Mutual Funds..................................... 1,629 105 - 1,734
-------- ------ ----- --------
$ 19,234 $ 542 $ (70) $ 19,706
======== ====== ===== ========
Mortgage-backed and mortgage-related securities:
GNMA Pass-Through Certificates..................... $ 11,710 $ 151 $ (37) $ 11,824
FHLMC Real Estate Mortgage Investment Conduits..... 4,693 - (7) 4,686
Private Issuer Real Estate Mortgage
Investment Conduits.............................. 10,881 19 (12) 10,888
-------- ------ ----- --------
$ 27,284 $ 170 $ (56) $ 27,398
======== ====== ===== ========
<CAPTION>
JUNE 30, 1997
------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
HELD TO MATURITY COST GAINS LOSSES FAIR VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies..................... $ 92,215 $ 394 $(272) $ 92,337
Corporate and other debt obligations............. 112,986 443 (404) 113,025
-------- ------ ----- --------
$205,201 $ 837 $(676) $205,362
======== ====== ===== ========
Mortgage-backed and mortgage-related securities:
FHLMC Pass-Through Certificates.................... $ 82,237 $1,534 $(187) $ 83,584
Private Issuer Pass-Through Certificates........... 3,276 5 - 3,281
FHLMC Real Estate Mortgage Investment Conduits..... 32,248 130 (42) 32,336
Private Issuer Real Estate Mortgage
Investment Conduits.............................. 67,361 179 (148) 67,392
-------- ------ ----- --------
$185,122 $1,848 $(377) $186,593
======== ====== ===== ========
</TABLE>
E-29
<PAGE>
3. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE (CONTINUED)
The amortized cost and estimated fair values of investment and mortgage-backed
and mortgage-related securities available for sale by contractual maturity at
June 30, 1998 are as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
---------------------------------------------------------
MORTGAGE-BACKED AND MORTGAGE-
INVESTMENT SECURITIES RELATED SECURITIES
---------------------- -------------------------------
AMORTIZED ESTIMATED AMORTIZED ESTIMATED
COST FAIR VALUE COST FAIR VALUE
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Year ended June 30:
1999 $ 14,742 $ 14,784 $ - $ -
2000-2003 31,659 32,049 9,932 10,013
2004-2009 10,424 10,496 57,197 57,108
2010 and thereafter 176,025 181,561 536,450 537,183
-------- -------- --------- ---------
$232,850 $238,890 $ 603,579 $ 604,304
======== ======== ========= =========
</TABLE>
Sales and redemptions of investment securities from the available for sale
portfolio during the year ended June 30, are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
---------------------------
1998 1997 1996
-------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales and redemptions... $178,010 $11,938 $5,950
Gross gains........................... 317 40 19
Gross losses.......................... 287 24 -
</TABLE>
4. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1998 1997
--------- --------
(IN THOUSANDS)
<S> <C> <C>
One- to four-family mortgage loans........................... $470,385 $394,588
Multifamily mortgage loans................................... 50,491 2,705
Commercial real estate mortgage loans........................ 55,416 40,713
Construction and development loans, principally residential.. 31,297 18,343
Home equity loans............................................ 15,379 16,729
-------- --------
622,968 473,078
Plus (less) unearned discounts............................... 325 (1,477)
-------- --------
Total real estate mortgage loans............................. 623,293 471,601
Consumer and student loans................................... 21,770 23,589
Commercial loans............................................. 6,783 6,662
-------- --------
28,553 30,251
Less net deferred origination and commitment fees............ (101) (124)
-------- --------
Total other loans............................................ 28,452 30,127
Less allowance for loan losses............................... (7,276) (5,470)
-------- --------
Total loans receivable, net.................................. $644,469 $496,258
======== ========
</TABLE>
E-30
<PAGE>
4. LOANS RECEIVABLE (CONTINUED)
Included in real estate mortgage loans are $20.8 million and $1.3 million of
mortgages serviced by third parties as of June 30, 1998 and 1997, respectively.
The Bank sells real estate mortgage loans to the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") and
the State of New York Mortgage Association ("SONYMA"). These loans are then
serviced by the Bank under agreements which specify a servicing fee based on a
percentage of the outstanding principal balances. At June 30, 1998, 1997 and
1996, the total loans serviced for the above totaled $45.3 million,
$50.1 million, and $49.5 million, respectively, and are not included in the
consolidated financial statements.
Loans on nonaccrual status totaled $5.5 million, $2.7 million and $2.8 million
at June 30, 1998, 1997, and 1996, respectively. If interest on the nonaccrual
loans had been accrued, such income would have been $0.5 million, $0.3 million
and $0.2 million, respectively.
A summary of the changes in the allowance for loan losses for the years ended
June 30, 1998, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
------------------------
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of year....... $5,470 $4,796 $3,275
Provision charged to operations.. 2,200 1,080 1,600
Charge offs, net of recoveries... (394) (406) (79)
------ ------ ------
Balance at end of year............. $7,276 $5,470 $4,796
====== ====== ======
</TABLE>
5. BANKING PREMISES AND EQUIPMENT
Banking premises and equipment at June 30, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Land............................................ $ 2,850 $ 2,850
Banking houses and improvements................. 7,059 6,742
Leasehold improvements.......................... 3,117 2,847
Furniture, fixtures and equipment............... 5,132 3,836
Automobiles..................................... 40 40
------- -------
18,198 16,314
(5,104) (4,256)
------- -------
Less accumulated depreciation and amortization.. $13,094 $12,058
======= =======
</TABLE>
E-31
<PAGE>
6. DEPOSITS
At June 30, 1998 and 1997, deposits consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------------ --------------------
AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE
-------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Certificates of deposit................ $325,348 5.38% $298,066 5.37%
Savings................................ 443,433 2.74 437,694 2.78
Money market demand accounts........... 38,741 3.47 37,782 3.45
Non-interest bearing demand deposits... 121,646 - 92,959 --
NOW accounts........................... 19,732 2.26 18,030 2.26
-------- --------
$948,900 $884,531
======== ========
</TABLE>
Contractual maturities of certificates of deposit accounts at June 30, 1998 are
as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------------------
CERTIFICATES
OF $100,000 ALL OTHER TOTAL
OR MORE CERTIFICATES CERTIFICATES
--------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ending June 30:
1999 $23,791 $210,856 $234,647
2000 5,474 42,119 47,593
2001 2,861 20,446 23,307
2002 3,442 9,672 13,114
2003 and thereafter - 6,687 6,687
------- -------- --------
$35,568 $289,780 $325,348
======= ======== ========
<CAPTION>
JUNE 30, 1997
----------------------------------------
CERTIFICATES
OF $100,000 ALL OTHER TOTAL
OR MORE CERTIFICATES CERTIFICATES
----------- ------------- ------------
(IN THOUSANDS)
Year ending June 30:
<S> <C> <C> <C>
1999 $17,551 $191,526 $209,077
2000 5,837 53,741 59,578
2001 200 6,529 6,729
2002 792 4,237 5,029
2003 and thereafter 3,061 14,592 17,653
------- -------- --------
$27,441 $270,625 $298,066
======= ======== ========
</TABLE>
E-32
<PAGE>
7. BORROWINGS
Advances received from the FHLBNY as of June 30, 1998, consist of the following:
<TABLE>
<CAPTION>
June 30, 1998
- -------------------------------------------------------
Weighted
Maturity Date Call Date Average Rate 1998
- --------------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
1998* 6.13% $ 6,000
2003 1999 5.03 35,000
2008 2000 5.06 20,000
2008 2001 5.22 95,000
2008 2003 5.48 150,000
----------- ----------
5.33% $306,000
=========== ==========
</TABLE>
The advances received were under the FHLBNY's convertible advance program, which
grants the FHLBNY the option to call the advance after an initial lock-out
period of 1, 2, 3 or 5 years and quarterly thereafter, until maturity. The
convertible advances are collateralized by mortgage-backed securities with a
carrying value of approximately $338.6 million. The Bank had no borrowings at
June 30, 1997.
* FHLBNY overnight line of credit advance. Rate is based on the Federal Funds
rate at time of takedown plus 12.5 basis points. Principal and interest is due
on the next succeeding business day.
8. INCOME TAXES
Significant components of the Bank's deferred tax assets and liabilities as of
June 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
June 30,
----------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 3,152 $2,576
Deferred loan fees 20 338
Book over tax amortization 287 262
Non-accrual interest income 471 370
Postretirement benefits 1,621 1,660
Richmond County Savings Foundation 7,420 -
------- ------
Gross deferred tax assets 12,971 5,206
Deferred tax liabilities:
Tax bad debt reserves 754 1,159
Tax over book depreciation 399 426
Prepaid pension expense 315 402
Discount accretion - 1
Securities available for sale 2,795 276
------- ------
Gross deferred tax liabilities 4,263 2,264
------- ------
Net deferred tax assets $ 8,708 $2,942
======= ======
</TABLE>
In view of the Bank's current and projected future earnings trend, management
believes that it is more likely than not that the entire net deferred tax assets
will be utilized. Accordingly, no valuation allowance was deemed necessary for
the net deferred tax assets for the years ended June 30, 1998 and 1997.
E-33
<PAGE>
8. INCOME TAXES (CONTINUED)
Significant components of the provision (benefit) for income taxes attributable
to continuing operations for the years ended June 30, 1998, 1997 and 1996, are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------
1998 1997 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........... $ 7,583 $6,278 $4,526
State and local... 2,773 3,361 2,732
------- ------ ------
10,356 9,639 7,258
Deferred:
Federal........... (5,997) (106) (275)
State and local... (2,288) (70) (180)
------- ------ ------
(8,258) (176) (455)
------- ------ ------
$ 2,071 $9,463 $6,803
======= ====== ======
</TABLE>
The table below presents a reconciliation between the reported tax provision and
the tax provision computed by applying the statutory federal income tax rate
(35% for the years ended June 30, 1998, 1997 and 1996) to income before
provision for income taxes:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1998 1997 1996
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income tax provision at statutory rates... $2,309 $7,066 $5,437
Increase (reduction) in tax resulting from:
State and local taxes net of
Federal income tax effect..................... 315 2,139 1,659
Other........................................... (553) 258 (293)
------ ------ ------
$2,071 $9,463 $6,803
====== ====== ======
</TABLE>
For federal income tax purposes, prior to 1996, if certain definitional tests
and other conditions were met, the Bank was allowed a special bad debt deduction
in determining its taxable income. The deduction was based on either specified
experience formulas or a percentage of taxable income. Federal tax legislation
enacted during 1996, repealed the special bad debt deduction provisions. As a
result, a large thrift institution, such as the Bank, is required to use the
specific charge-off method in computing its federal bad debt deduction for tax
years beginning after December 31, 1995. However, New York State enacted
legislation which, among other things, would permit a large thrift institution,
such as the Bank, to continue to use the bad debt reserve method for both New
York State and New York City tax purposes.
The 1996 federal tax legislation also provided that a large thrift institution,
such as the Bank, is required to recapture the excess of its tax bad debt
reserves at December 31, 1995, over the balance of such reserves as of
December 31, 1987, (the "base year"), whether the additions were made under the
percentage of the taxable income method or the experience method. The Bank will
be required to recapture its excess bad debt reserves, for which deferred taxes
have been recognized, over a six-year period on a straight-line basis beginning
in calendar year 1998. The base year reserve will remain
E-34
<PAGE>
subject to recapture in the case of certain excess distributions to and
redemptions of shareholders or if the Bank ceases to be a bank. The New York
State legislation provides that the recapture of excess bad debt reserves is not
required for either New York State or New York City tax purposes.
At June 30, 1998, the base year bad debt reserve for federal income tax purposes
was approximately $9.6 million, for which deferred taxes are not required to be
recognized. Bad debt reserves maintained for New York State and New York City
tax purposes as of June 30, 1998, for which deferred taxes are not required to
be recognized, amounted to approximately $40 million. Accordingly, deferred tax
liabilities of approximately $8.0 million have not been recognized as of June
30, 1998.
9. EMPLOYEE BENEFIT PLANS
Defined Benefit Plan
The Bank, through its participation in the RSI Retirement Trust, contributes to
a pension plan covering substantially all of its full-time employees. The
pension plan benefit formula is based upon years of service and average
compensation over the final years of service. The Bank's policy is to make
quarterly contributions to the plan equal to the amount necessary to satisfy the
funding requirements of ERISA. Plan assets are principally invested in pooled
investment funds in the RSI Retirement Trust, which is a registered investment
company.
The following table sets forth the funded status of the Bank's defined benefit
plan for the years ended June 30, 1998 and 1997, in accordance with Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions":
<TABLE>
<CAPTION>
1998 1997
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation............................. $ 8,466 $ 6,640
Nonvested benefits.................................... 141 266
-------- -------
Accumulated benefit obligation.......................... $ 8,607 $ 6,906
======== =======
Plan assets at fair value............................... $ 12,955 $10,852
Projected benefit obligation............................ (10,232) (8,569)
-------- -------
Plan assets in excess of projected benefit obligation... 2,723 2,283
Unrecognized (gain)..................................... (2,298) (1,619)
Unrecognized transition (asset)......................... (40) (76)
Unrecognized past service liability..................... (23) (25)
-------- -------
Prepaid pension asset included in other assets.......... $ 362 $ 563
======== =======
</TABLE>
The expected long-term rate of return on plan assets for plan years 1998 and
1997, was 8.00%. The rate of increase in future compensation levels was 6.00%
and 5.50% for plan years 1998 and 1997, respectively. The weighted-average
discount rate was 8.00% and 7.75% for plan years 1998 and 1997, respectively.
E-35
<PAGE>
Pension expense for the years ended June 30, 1998, 1997 and 1996, includes the
following components:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost.................... $ 478 $ 427 $ 453
Interest cost................... 671 606 614
Actual return on plan assets.... (854) (770) (773)
Net amortization and deferrals.. (94) (48) (38)
----- ----- -----
Net pension expense.......... $ 201 $ 215 $ 256
===== ===== =====
</TABLE>
DEFINED CONTRIBUTION PLAN
The Bank also provides a 401(k) Savings Plan open to salaried employees meeting
certain eligibility requirements. Participants contribute 2% to 9% of pre-tax
compensation. The Bank makes matching contributions in an amount equal to 50%
of an employee's contributions, up to 6%. Participants may invest in any or all
of six investment funds, which are managed by the 401(k) Plan's trustee, RSI
Retirement Trust.
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
EMPLOYEE STOCK OWNERSHIP PLAN
In connection with the Conversion, the Bank implemented an ESOP, a tax-qualified
plan designed to invest primarily in the Company's common stock. The ESOP will
provide eligible employees with the opportunity to receive a Bank-funded
retirement benefit based primarily on the value of the common stock. All
eligible employees of the Bank and its affiliates, including the Company, as of
the effective date of the Conversion, may participate in the ESOP. Subsequent
to the Conversion, all eligible employees of the Bank and its affiliates,
including the Company, may participate in the ESOP upon the age of 21 and the
completion of one year of service. Subsequent to the Conversion, the ESOP
purchased, through a $34.6 million loan from the Company, 8%, or 2,113,884
shares of common stock in the open market. The term of the ESOP loan will be 20
years and will be primarily repaid with contributions from the Bank to the ESOP.
As of June 30, 1998, the loan from the Company had an outstanding balance of
$34.2 million and an interest rate of 8.50%.
Under the terms of the ESOP, the Bank makes contributions to the ESOP sufficient
to cover all payments of principal and interest as they become due. Shares
purchased with the loan proceeds are held in a suspense account by the trustee
of the Plan for future allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account are
allocated among participants on the basis of compensation as described in the
Plan. The number of shares released to participants will be determined based
upon the percentage of principal and interest payments made during the calendar
year divided by the total remaining principal and interest payments including
the current year's payment. Participants will vest in the shares allocated to
their respective accounts over a period not to exceed 6 years. Any forfeited
shares are allocated to the then remaining participants in the same proportions
as contributions. For the year ended June 30, 1998, 52,848 shares were
committed to be released and 2,061,036 shares remain unallocated. No shares had
been specifically allocated as of June 30, 1998. The Company recognizes
compensation expense attributable to its ESOP over the year, based upon the
estimated number of ESOP shares to be allocated each December 31st. The amount
of compensation expense recorded is equal to the estimate of shares to be
allocated by the ESOP multiplied
E-36
<PAGE>
by the average fair value of the underlying shares during the period. For the
fiscal year ended June 30, 1998, compensation expense attributable to the ESOP
was $975,000.
The trustee for the ESOP must vote all allocated shares held in the ESOP trust
in accordance with the instructions of the participants. Unallocated shares
held by the ESOP trust are voted by the trustee in a manner calculated to most
accurately reflect the results of the allocated ESOP shares voted, subject to
the requirements of the Employee Retirement Income Security Act of 1974, as
amended (ERISA).
POSTRETIREMENT BENEFIT PLAN
The Bank provides postretirement medical and life insurance benefits for
eligible retired employees.
Effective July 1, 1994, the Bank adopted SFAS No. 106, "Employer's Accounting
for Postretirement Benefits Other Than Pensions." The Bank uses actuarial-basis
accrual accounting for all employer provided postretirement benefits other than
pensions. This requires the recognition of a transition obligation for the
difference between the accumulated postretirement benefit obligation and the
liability currently recognized on the statement of financial condition. Upon
adoption of SFAS No. 106, the Bank immediately recognized its entire net
transition obligation by recording a charge of $2.5 million ($1.3 million on an
after-tax basis) as the cumulative effect of this change in accounting
principle.
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in the
Bank's consolidated statements of financial condition at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $(1,163) $(1,205)
Fully eligible active plan participants................... (309) (300)
Other active plan participants............................ (1,821) (1,471)
Unrecognized net actuarial gain........................... (200) (498)
Unrecognized prior service cost........................... (85) --
------- -------
Accrued postretirement benefit cost included in accrued and
other liabilities......................................... $(3,578) $(3,294)
</TABLE>
The Bank's postretirement benefits expense for the years ended June 30, 1998,
1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest cost.............. $ 240 $ 201 $ 190
Service cost............... 158 120 120
Amortization............... (9) (20) (16)
----- ----- -----
$ 389 $ 301 $ 294
===== ===== =====
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 10.5% for the initial
year and is assumed to decrease gradually to 6% in 2003, with 1.0% annual
decreases thereafter. The health care cost trend rate assumption has a
significant
E-37
<PAGE>
effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation at June 30, 1998 by $414,000
(12.6%). The increase in the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1998, would be
$56,000 (14.3%).
The weighted-average discount rate at June 30, 1998 and 1997, was 8.0%. The
rate of increase in future compensation levels at June 30, 1998 and 1997, was
5.5%.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Bank conducts a portion of its banking operations in leased facilities under
noncancellable operating leases expiring at various periods through 2003 and
thereafter. These leases contain renewal options and certain of the leases
provide for increases based upon various escalation clauses. Rent expense was
$460,300, $353,600 and $339,700 for the fiscal year ended June 30, 1998, 1997
and 1996, respectively.
The future minimum lease payments under such operating leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
---------------
(IN THOUSANDS)
<S> <C>
Years ended June 30:
1999 $ 1,997
2000 877
2001 877
2002 764
2003 and thereafter 6,997
-------
$11,512
</TABLE>
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LITIGATION
The Bank is a defendant in legal actions arising in the ordinary course of
business. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from such actions will not materially
affect the Bank's consolidated financial position.
LOAN COMMITMENTS
There were outstanding commitments to make loans at June 30, 1998 and 1997, of
$150.8 million and $47.5 million, respectively. Loan commitments have credit
risk essentially the same as that involved in extending loans to customers and
are subject to the Bank's normal credit policy. These commitments are not
reflected in the accompanying consolidated statements of financial condition.
Management expects that all loan originations will be funded from existing
liquidity and normal monthly cash flow.
11. REGULATORY REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for
E-38
<PAGE>
prompt corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier I capital to risk-weighted assets, and Tier I capital to average
assets (all as defined in the regulations). Management believes, as of June 30,
1998, that the Bank meets all capital adequacy requirements to which it is
subject.
Based on its regulatory capital ratios at June 30, 1998, the Bank is categorized
as "well capitalized" under the regulatory framework for prompt corrective
action. To be categorized as "well capitalized" the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. The Bank's actual capital amounts and ratios are also presented in
the table.
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
CAPITALIZED UNDER PROMPT
MINIMUM FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------- ------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ------- ----------- --------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998:
Total Capital (to Risk Weighted Assets) $192,271 24.81% $62,004 8.00% $77,505 10.00%
Tier I Capital (to Risk Weighted Assets) 184,995 23.87 31,002 4.00 46,503 6.00
Tier I Capital (to Average Assets) 184,995 12.81 31,002 4.00 38,753 5.00
As of June 30, 1998:
Total Capital (to Risk Weighted Assets) 98,704 18.91 41,764 8.00 52,205 10.00
Tier I Capital (to Risk Weighted Assets) 93,857 17.98 20,882 4.00 31,323 6.00
Tier I Capital (to Average Assets) 93,857 9.54 20,882 4.00 26,103 5.00
</TABLE>
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, the timing of future
cash flows, and the discount rate.
Because assumptions are inherently subjective in nature, the estimated fair
values cannot be substantiated by comparison to independent market quotes, and,
in many cases, the estimated fair values would not necessarily be realized in an
immediate sale or settlement of the instrument. The disclosure requirements of
SFAS No. 107 exclude certain financial instruments and all nonfinancial
instruments. Accordingly, the aggregate fair value amounts presented do not
represent management's estimation of the underlying value of the Company.
E-39
<PAGE>
The carrying values and estimated fair values of the Company's material
financial instruments as of June 30, 1998 and 1997, are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1998 JUNE 30, 1997
------------------- ------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ------- ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks............................ $ 31,884 $ 31,884 $ 26,543 $ 26,543
Federal funds sold................................. 26,000 26,000 6,000 6,000
Securities held to maturity:
Investment securities............................. -- -- 205,201 205,362
Mortgage-backed and mortgage-related securities... -- -- 185,122 186,593
Securities available for sale:
Investment securities............................. 238,890 238,890 19,706 19,706
Mortgage-backed and mortgage-related securities... 604,304 604,304 27,398 27,398
Real estate mortgage loans receivable.............. 623,293 623,056 471,601 472,868
Other loans receivable............................. 28,452 28,526 30,127 30,089
Financial liabilities:
Deposits........................................... 950,808 939,162 885,818 839,578
Borrowings......................................... 306,000 305,558 -- --
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair values of financial instruments:
Cash and Due from Banks and Federal Funds Sold: Carrying amounts approximate
fair value, since these instruments are either payable on demand or have short-
term maturities.
Securities Held to Maturity and Securities Available for Sale: The estimated
fair values of securities held to maturity and securities available for sale are
based on independent dealer quotations and quoted market prices.
Real Estate Mortgage Loans and Other Loans Receivable: The estimated fair values
of real estate mortgage loans and other loans receivable are based on discounted
cash flow calculations that apply interest rates currently being offered by the
Bank for loans with similar remaining maturities to a schedule of aggregated
expected monthly maturities.
Deposits: The estimated fair values of deposits are based on discounted cash
flow calculations that apply interest rates currently being offered by the Bank
for deposits with similar remaining maturities to a schedule of aggregated
expected monthly maturities.
Borrowings: The estimated fair value of borrowed funds is based on the
discounted value of contractual cash flows using interest rates currently in
effect for borrowings with similar maturities and collateral requirements.
13. SUBSEQUENT EVENTS
PENDING ACQUISITIONS
On July 20, 1998, the Company and Bayonne Bancshares, Inc. ("Bayonne") entered
into a definitive agreement pursuant to which Bayonne, the holding company of
First Savings Bank of New Jersey, SLA, a New Jersey chartered savings and loan
association, with four full service banking offices located in Bayonne, New
Jersey, will merge with and into the Company. Under the terms of the agreement,
the
E-40
<PAGE>
Company will issue 1.05 shares of its common stock for each outstanding share of
common stock of Bayonne. The total transaction value is estimated to be $173.0
million. As of June 30, 1998 (unaudited), total assets of Bayonne were $700.3
million, deposits were $421.7 million and total stockholders' equity was $96.0
million. The merger is subject to the approval of the shareholders of each
company, as well as certain regulatory approvals. The merger is expected to be
completed in the first quarter of calendar year 1999, and will be accounted for
as a purchase.
On July 17, 1998, the Company and Ironbound Bankcorp, NJ ("Ironbound") entered
into a definitive agreement pursuant to which Ironbound, the holding company of
Ironbound Bank, a New Jersey chartered commercial bank, with three full service
commercial banking offices located in the New Jersey counties of Union and
Essex, will merge with and into the Company. Under the terms of the agreement,
the Company will issue 1.45 shares of its common stock for each outstanding
common share of Ironbound. The total transaction value is estimated to be
$26.5 million. As of June 30, 1998 (unaudited), total assets of Ironbound were
$113.7 million, deposits were $107.8 million and total stockholders' equity was
$11.3 million. The merger is subject to the approval of Ironbound shareholders,
as well as certain regulatory approvals. The merger is expected to be completed
in the first quarter of calendar year 1999, and will be accounted for as a
purchase.
14. PARENT-ONLY FINANCIAL INFORMATION
The earnings of the Bank are recognized by Richmond County Financial Corp. (the
"Holding Company") using the equity method of accounting. Accordingly,
undistributed earnings of the Bank are recorded as increases in the Holding
Company's investment in the Bank. The following are the condensed financial
statements of the Holding Company as of, and for the year ended, June 30, 1998
(although the Holding Company did not commence operations until the Conversion
on February 18, 1998, the full year results have been presented).
The Condensed Statement of Financial Condition as of June 30, 1998 is as
follows, in thousands:
<TABLE>
<S> <C>
Assets:
Cash and cash equivalents.......................... $ 30,124
Securities available for sale:
Investment securities............................. 15,233
Mortgage-backed and mortgage-related securities... 38,885
Investment in subsidiary........................... 202,188
ESOP loan receivable............................... 34,231
Other assets....................................... 8,072
--------
Total assets..................................... $328,733
========
Liabilities and stockholders' equity:
Liabilities........................................ $ 138
Total stockholders' equity......................... 328,595
--------
Total liabilities and stockholders' equity....... $328,733
========
</TABLE>
E-41
<PAGE>
14. PARENT-ONLY FINANCIAL INFORMATION (CONTINUED)
The Condensed Statement of Operations for the year ended June 30, 1998, is as
follows, in thousands:
<TABLE>
<S> <C>
Investment income................................................................... $ 886
Other interest income............................................................... 745
Interest income - ESOP loan receivable.............................................. 1,064
Gain or sale of investments......................................................... 14
--------
2,709
Contribution to the Foundation...................................................... (19,553)
Other expenses...................................................................... (221)
--------
Loss before income taxes and equity
in undistributed earnings of subsidiary........................................... (17,065)
Income tax benefit.................................................................. 7,763
--------
Loss before equity in undistributed
earnings of subsidiary............................................................ (9,302)
Equity in undistributed earnings of subsidiary...................................... 13,828
--------
Net income.......................................................................... $ 4,526
========
</TABLE>
The Condensed Statement of Cash Flows for the year ended June 30, 1998, is as
follows, in thousands:
<TABLE>
<S> <C>
Operating activities:
Net income......................................................................... $ 4,526
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Equity in the undistributed earnings of subsidiary............................. (13,828)
Charitable contribution of common stock........................................ 19,553
Increase in other assets....................................................... (8,072)
Amortization of premium, net of discount accretion............................. 18
Gain on sale of equity investments............................................. (14)
Increase in liabilities........................................................ 138
---------
Net cash provided by operating activities.................................... 2,321
Investing activities:
Purchases of equity investments available for sale................................. (6,358)
Purchases of callable preferred stock available for sale........................... (9,551)
Purchases of mortgage-backed and mortgage-related securities available for sale.... (40,451)
Proceeds from sales of equity investments.......................................... 688
Prepayments of mortgage-backed and mortgage-related securities available for sale.. 1,563
Investment in subsidiary........................................................... (117,444)
Funding of ESOP loan receivable, net of payments................................... (34,231)
---------
Net cash used in investing activities........................................ (205,784)
Financing activities:
Net proceeds of common stock issuance.............................................. 234,908
Cash dividends paid on common stock................................................ (1,321)
---------
Net cash provided by financing activities.................................... 233,587
Net increase in cash and cash equivalents.......................................... 30,124
---------
Cash and cash equivalents at beginning of year..................................... --
Cash and cash equivalents at end of year........................................... $ 30,124
</TABLE>
E-42
<PAGE>
EXHIBIT 5.1
[MULDOON, MURPHY & FAUCETTE LETTERHEAD]
__________, 1998
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Re: Richmond County Financial Corp.
Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as special counsel for Richmond County Financial Corp., a
Delaware corporation ("Richmond County") and, at the request of Richmond County,
have examined the registration statement on Form S-4 (the "Registration
Statement"), filed by Richmond County with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act") on October __, 1998, and the regulations promulgated thereunder. All
capitalized terms not otherwise defined herein are defined herein as in the
Registration Statement.
The Registration Statement relates to, among other things, the registration
under the Act of ___________ shares, subject to adjustment, of common stock,
$0.01 par value per share, of Richmond County (the "Merger Shares"), into which
certain shares of common stock, $0.01 par value per share of Bayonne Bancshares,
Inc., a Delaware corporation ("Bayonne"), will be converted
<PAGE>
Richmond County Financial Corp.
__________, 1998
Page 2
pursuant to an Agreement and Plan of Merger dated as of July 19, 1998 (the
"Merger Agreement") by and between Bayonne and Richmond County and certain
related instruments and agreements described in the Registration Statement that
were executed, or are to be executed, in connection with the Merger Agreement
(the "Related Instruments"). In rendering the opinion set forth below, we do not
express any opinion concerning law other than the federal law of the United
States and the corporate law of the State of Delaware.
It is our understanding that upon consummation of the Merger, among other
things, (i) Bayonne will merge with and into Richmond County, with Richmond
County as the surviving corporation, succeeding to all of the assets and
liabilities of Bayonne (the "Merger"); (ii) subject to certain exceptions, each
outstanding share of common stock, $.01 par value per share, of Bayonne (the
"Bayonne Common Stock"), will be converted and exchangeable for 1.05 Merger
Shares (the "Exchange Ratio") plus cash in lieu of fractional shares; and (iii)
the Exchange Ratio may be increased by Richmond County in the event Bayonne
exercises its rights under the Merger Agreement to deliver to Richmond County a
notice to terminate the Merger Agreement due to the price of the Richmond County
Common Stock declining below certain levels established by formulas set forth in
the Merger Agreement.
<PAGE>
Richmond County Financial Corp.
__________, 1998
Page 3
In addition, each option granted by Bayonne to purchase Bayonne Common
Stock which is outstanding and unexercised immediately prior to the consummation
of the Merger shall be converted automatically into an option to purchase shares
of Merger Shares in an amount equal to the product of the number of shares of
Bayonne Common Stock subject to the original option and the Exchange Ratio,
provided that any fractional Merger Shares resulting from such multiplication
shall be rounded to the nearest whole share; and the exercise price per share of
Merger Shares under the new option shall be equal to the exercise price per
share of Bayonne Common Stock under the original option divided by the Exchange
Ratio, provided that such exercise price shall be rounded up to the nearest
whole cent.
In the preparation of this opinion, we have examined originals or copies
identified to our satisfaction of (i) the Certificate of Incorporation of
Richmond County, as filed with the State of Delaware; (ii) the By-laws of
Richmond County; (iii) certain minutes of Richmond County made available to us
by officers of Richmond County; (iv) certain certificates from officers of
Richmond County as to certain factual matters material to the opinion expressed
below; (v) the Certificate of Incorporation of Bayonne as filed with the
Secretary of State of the State of Delaware; (vi) the By-laws of Bayonne; (vii)
certain minutes of Bayonne made available to us by officers of Bayonne; (viii)
certain certificates from officers of Bayonne as to certain factual matters
material to the opinion expressed below; (ix) the representations of Richmond
County and Bayonne contained in the Merger
<PAGE>
Richmond County Financial Corp.
__________, 1998
Page 4
Agreement and the Registration Statement; and (x) the Registration Statement,
including the exhibits thereto. We have also examined originals or copies of
such documents, corporate records, certificates of public officials and other
instruments, and have conducted such other investigations of law and fact, as we
have deemed necessary or advisable for purposes of our opinion.
In our examinations, we have assumed, without investigation, the
genuineness of all signatures, the authenticity of all documents and instruments
submitted to us as originals, the conformity to the originals of all documents
and instruments submitted to us as certified or conformed copies and the
authenticity of the originals of such copies, the correctness of all
certificates, and the accuracy and completeness of all records, documents,
instruments and materials made available to us by Richmond County and Bayonne.
In addition, in rendering this opinion we have assumed, without
investigation, (i) that the Merger Shares will be offered and the shares of
Bayonne Common Stock will be exchanged in the manner and on the terms identified
or referred to in the Registration Statement; (ii) that all conditions to the
Merger have been, or will be, met; (iii) that the Merger will be consummated in
accordance with the terms of the Registration Statement, the Merger Agreement
and the Related Instruments; (iv) the Registration Statement becomes and remains
effective under the Act and fully complies with all of the requirements of the
Act and the Securities Exchange Act of 1934, as amended (the
<PAGE>
Richmond County Financial Corp.
__________, 1998
Page 5
"Exchange Act"), and the regulations promulgated thereunder, during all relevant
periods; (v) the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement, and the delivery procedures with respect thereto,
fulfill all requirements of the Act, the Exchange Act, and all applicable
regulations promulgated under the Act and the Exchange Act, throughout all
relevant periods; (vi) compliance with all federal and state securities laws
throughout all relevant periods; (vii) the Merger has become effective under
applicable state law; and (viii) the Merger Shares are issued and delivered in
the manner referred to in the Merger Agreement and the Registration Statement,
upon consummation of the Merger. We have also relied, without independent
investigation, upon the representations and warranties of the parties to the
Merger Agreement set forth in the Merger Agreement.
Our opinion is limited to the matters set forth herein and we express no
opinion other than as expressly set forth herein. Our opinion is expressed as
of the date hereof and is based on laws currently in effect. Accordingly, the
conclusions set forth in this opinion are subject to change in the event that
any laws should change or be enacted in the future. We are under no obligation
to update this opinion or to otherwise communicate with you in the event of any
such change. This opinion is given solely for the benefit of Richmond County
and Bayonne and may not be relied upon by any other person or entity, nor quoted
in whole or in part, or otherwise referred to in any document without our
express written consent.
<PAGE>
Richmond County Financial Corp.
__________, 1998
Page 6
Based upon and subject to the foregoing, it is our opinion that, upon
effectiveness of the Registration Statement and approval of the issuance of the
Merger Shares by Richmond County shareholders, the issuance of the Merger Shares
in accordance with the terms of the Merger Agreement will have been duly
authorized and, when the Merger Shares are issued in accordance with the terms
of the Merger Agreement and the Registration Statement, the Merger Shares will
be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our Firm under the caption "Legal
Matters" in the Joint Proxy Statement/Prospectus forming a part of the
Registration Statement. In giving such consent we do not hereby admit that we
are experts or otherwise within the category of persons whose consent is
required under Section 7 of the Act or the rules or regulations of the
Securities and Exchange Commission thereunder.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 8.1
[MULDOON, MURPHY & FAUCETTE LETTERHEAD]
[FORM OF FEDERAL TAX OPINION]
_____________, 1998
Board of Directors
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Re: Federal Income Tax Consequences of Merger of Bayonne Bancshares, Inc.
with and into Richmond County Financial Corp. (the "Merger")
To the Members of the Board of Directors:
You have requested an opinion regarding certain federal tax consequences of
a proposed transaction involving the merger of Bayonne Bancshares, Inc., a
holding company organized under the laws of the State of Delaware and duly
registered as a savings and loan holding company under the Home Owners' Loan
Act, as amended ("HOLA") ("Bayonne") with and into Richmond County Financial
Corp. ("RCFC"), a holding company organized under the laws of the State of
Delaware and duly registered as a savings and loan holding company under HOLA.
The Merger will be effected pursuant to the Amended and Restated Agreement and
Plan of Merger, amended and restated as of October 14, 1998, by and between RCFC
and Bayonne (the "Merger Agreement"). The Merger and related transactions are
described in the Merger Agreement and in the Joint Proxy Statement/Prospectus
(the "Proxy Statement") included in RCFC's Registration Statement on Form S-4
filed with the Securities and Exchange Commission in connection with the Merger
(the "Registration Statement"). All capitalized terms used but not defined in
this letter shall have the meanings set forth in the Merger Agreement or the
Proxy Statement.
Under the Merger Agreement, at the Effective Time, Bayonne shall be merged
with and into RCFC (the "Merger") and the separate existence of Bayonne shall
cease. RCFC shall be the surviving corporation in the Merger and shall continue
its corporate existence under the laws of Delaware. By virtue of the Merger,
automatically and without any action on the part of the holder thereof, each
share of Bayonne's common stock (the "Bayonne Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive that number of shares of the common stock of RCFC (the "RCFC
Common Stock") determined under the formula set out in the Merger Agreement,
subject to the payment of cash in lieu of fractional shares.
<PAGE>
Board of Directors
___________________, 1998 DRAFT
Page 2
Our opinion is provided solely with respect to certain federal income tax
consequences of the Merger. This opinion is being delivered at your request and
pursuant to Sections 5.2(e) of the Merger Agreement.
In connection with the opinions expressed herein, we have examined and
relied upon originals, or copies certified or otherwise identified to our
satisfaction, of the Merger Agreement and the Proxy Statement, and of such
corporate records of the parties to the Merger as we have deemed appropriate.
We have also received and relied upon, without independent verification, certain
factual representations of Bayonne concerning Bayonne itself as well as the
transaction ("Representations"); we have received and relied upon, without
independent verification, certain factual representations of RCFC concerning the
transaction and certain post-Merger plans ("Representations"); copies of these
Representations are attached as exhibits to this letter. We have assumed that
such Representations are true and that the parties to the Merger will act in
accordance with the Merger Agreement. We have assumed that all daily operations
of RCFC will be conducted in a manner wholly consistent with all Representations
provided by RCFC. In addition, we have made such investigations of law as we
have deemed appropriate to form a basis for the opinions expressed below.
We will rely upon the accuracy of the Representations and the statements of
facts contained in the examined documents, particularly the Merger Agreement.
We have also assumed the authenticity of all signatures, the legal capacity of
all natural persons and the conformity to the originals of all documents
submitted to us as copies. Each capitalized term used herein, unless otherwise
defined, has the meaning set forth in the Merger Agreement. We have assumed
that the Merger will be consummated strictly in accordance with the terms of the
Merger Agreement and that the Merger will qualify as a merger under applicable
law.
The Merger Agreement and the Joint Proxy Statement contain a detailed
description of the Merger. These documents as well as the Representations to be
provided by Bayonne and RCFC are incorporated in this letter as part of the
statement of the facts.
LIMITATIONS ON OPINION
The opinions expressed herein are rendered only with respect to the issues
specified herein. We express no opinion with respect to any other federal, state
or local tax or other legal aspect of the transaction. If any of the above
referenced facts or Representations are not true, correct and complete in all
material respects, our opinion could be subject to change. In issuing our
opinion, we are relying on the provisions of the Internal Revenue Code of 1986,
as amended (the "Code") and
<PAGE>
Board of Directors
___________________, 1998 DRAFT
Page 3
regulations issued thereunder which are cited herein. All such provisions are
subject to change, which change can be retroactive in effect. Any such change
could have an effect on the validity of our opinions. We assume no obligation
to revise or supplement this opinion if any subsequent change were to occur.
The opinions contained herein are not binding on the Internal Revenue
Service ("IRS") or any court. No assurance can be given that the IRS will not
take a different view of these transactions and that view may be ultimately
sustained by a court. It is our understanding that neither party to the Merger
intends to request a ruling from the IRS concerning the Merger.
FEDERAL TAX OPINION
Based on and subject to the foregoing, the facts referenced in this
opinion, the Representations referred to and attached as exhibits to this
opinion, and subject to the limitations referenced herein, it is our opinion
that for federal income tax purposes, under the current law:
(1) The Merger will constitute a tax-free reorganization under Section
368(a)(1)(A) of the Code and RCFC and Bayonne will each be a party to
the reorganization.
(2) No gain or loss will be recognized by RCFC, Richmond County Savings
Bank, Bayonne or First Savings Bank of New Jersey, SLA as a result of
the Merger.
(3) No gain or loss will be recognized by the stockholders of Bayonne who
exchange all of their Bayonne Common Stock solely for RCFC Common Stock
pursuant to the Merger, except to the extent of any cash received in
lieu of a fractional share interest in RCFC Common Stock.
(4) The tax basis of the RCFC Common Stock received by shareholders who
exchange their Bayonne Common Stock for RCFC Common Stock pursuant to
the Merger will be the same as the tax basis of the Bayonne Common
Stock surrendered in exchange therefor, reduced by any amount allocable
to a fractional share interest for which cash is received and increased
by any gain recognized on the exchange.
(5) The holding period of RCFC Common Stock received by each stockholder in
the Merger will include the holding period of Bayonne Common Stock
exchanged therefor, provided that such stockholder held such Bayonne
Common Stock as a capital asset on the Effective Date.
<PAGE>
Board of Directors
___________________, 1998 DRAFT
Page 4
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 of RCFC filed in connection with the Merger
and to the references to us under the headings "SUMMARY -- Certain Federal
Income Tax Considerations" and "THE MERGER -- Certain Federal Income Tax
Considerations" in the Joint Proxy Statement/Prospectus on Bayonne and RCFC. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section of the Securities Act of 1933.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 23.4
Consent of Ernst & Young LLP
Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated August 6, 1998, included in the Joint Proxy
Statement/Prospectus of Richmond County Financial Corp. that is made a part of
the Registration Statement for the registration of 10,041,277 shares of its
common stock.
/s/ Ernst & Young LLP
--------------------------
Ernst & Young LLP
New York, New York
November 3, 1998
<PAGE>
EXHIBIT 23.5
INDEPENDENT ACCOUNTANT'S CONSENT
The Board of Directors
Bayonne Bancshares, Inc.:
We consent to the incorporation by reference into the registration statement on
Form S-4 of Richmond County Financial Corp. of our report dated April 27, 1998,
with respect to the consolidated statements of financial condition of Bayonne
Bancshares, Inc. and subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years in the three-year period ended March 31, 1998, which report
appears in the Form 10-K of Bayonne Bancshares, Inc., incorporated by reference
into the registration statement on Form S-4 of Richmond County Financial Corp.,
dated October 30, 1998 and to the reference to our Firm under the heading
"Experts" in the registration statement.
/s/ KPMG Peat Marwick LLP
-----------------------------
KPMG Peat Marwick LLP
Short Hills, New Jersey
November 3, 1998
<PAGE>
EXHIBIT 23.6
November 3, 1998
Members of the Board of Directors
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Members of the Board:
We hereby consent to the reference to the opinion of our Firm under the
heading "The Merger -- Opinion of Financial Advisors" and to the inclusion of
the foregoing opinion in the Registration Statement of Richmond County Financial
Corp. on Form S-4 to be filed with the Securities and Exchange Commission in
connection with the proposed merger of Bayonne Bancshares, Inc., with Richmond
County Financial Corp. 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.
Very truly yours,
TUCKER ANTHONY INCORPORATED
by: /s/ Gregory W. Benning
------------------------
Gregory W. Benning
Managing Director
<PAGE>
EXHIBIT 23.7
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Bayonne Bancshares, Inc. (the "Company") as an Annex to the Joint
Proxy Statement/Prospectus relating to the proposed merger of the Company with
and into Richmond County Financial Corp. contained in the Registration Statement
on Form S-4 as filed with the Securities and Exchange Commission on the date
hereof, and to the references to our firm and such opinion in such Joint Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Act"), or the rules and regulations of
the Securities and Exchange Commission thereunder (the "Regulations"), nor do we
admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Act or the
Regulations.
/s/ Sandler O'Neill & Partners, L.P.
-------------------------------------
Sandler O'Neill & Partners, L.P.
November 3, 1998
<PAGE>
EXHIBIT 99.3
CONSENT OF DIRECTOR DESIGNATED
TO SERVE ON THE BOARD OF DIRECTORS OF
RICHMOND COUNTY FINANCIAL CORP.
The undersigned hereby consents, pursuant to Rule 438 under the Securities
Act of 1933, as amended, to the reference to him under the captions "Summary --
Interest of Bayonne Directors and Officers in the Merger that are Different from
Your Interests as Bayonne Stockholders" and "The Merger -- Interest of Bayonne
Directors and Officers in the Merger that are Different From Your Interests" in
the Joint Proxy Statement/Prospectus constituting part of Richmond County
Financial Corp.'s Registration Statement on Form S-4.
/s/ Patrick F.X. Nilan
-------------------------
Patrick F.X. Nilan
Dated: November 3, 1998
<PAGE>
EXHIBIT 99.4
REVOCABLE PROXY
RICHMOND COUNTY FINANCIAL CORP.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF RICHMOND COUNTY FINANCIAL CORP.
FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON
________________, 1998.
The undersigned shareholder of Richmond County Financial Corp. (the
"Company") hereby appoints the Board of Directors of the Company or any
successors thereto as proxies, each of them with full power of substitution, to
attend and act as proxy for the undersigned and to cast all votes which the
undersigned stockholder is entitled to cast at the special meeting of the
stockholders of the Company to be held at __:00 a.m., local time on ___________,
1998, at the _____________________________________________, and any and all
adjournments and postponements thereof (the "Special Meeting"), with all powers
which the undersigned would possess if personally present (i) as designated
below with respect to the matters set forth below and described in the
accompanying Joint Proxy Statement/Prospectus, the receipt of which is hereby
acknowledged, and (ii) in their discretion with respect to any other business
that may properly come before the Special Meeting. The undersigned stockholder
hereby revokes any proxy or proxies heretofore given.
This proxy will be voted in the manner directed by the undersigned
stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED (1) FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT (AS DEFINED HEREIN) AND (2) IN THE
DISCRETION OF THE PROXIES AS TO ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE
THE SPECIAL MEETING.
(CONTINUED--TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
1. Approval and adoption of the Amended and Restated Agreement and Plan
of Merger, amended and restated as of October 14, 1998, by and between
the Richmond County Financial Corp. and Bayonne Bancshares, Inc.
pursuant to which, among other things, Bayonne Bancshares, Inc. will
merge with and into Richmond County Financial Corp.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Special Meeting or any
adjournment or postponement thereof. As of the date of the Special
Meeting, management of the Company is not aware of any such other
business.
<PAGE>
This proxy may be revoked prior to the time it is voted by delivering to
the secretary of the Company either a written revocation or a proxy bearing a
later date or by appearing at the Special Meeting and voting in person. The
undersigned hereby acknowledges receipt of the Notice of the Special Meeting of
Shareholders and the Joint Proxy Statement/Prospectus, dated _____, 1998, for
the Special Meeting.
Dated: ___________________
Signature: _______________
Signature: _______________
Title: ___________________
(Please date and sign here exactly as name appears
at left. When signing as attorney, administrator,
trustee or guardian, give full title as such; and
when stock has been issued in the name of two or
more persons, all should sign.)
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE DATE,
SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE
<PAGE>
EXHIBIT 99.5
REVOCABLE PROXY
BAYONNE BANCSHARES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF BAYONNE BANCSHARES, INC.
FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON
________________, 1998.
The undersigned shareholder of Bayonne Bancshares, Inc. (the "Company")
hereby appoints the Board of Directors of the Company or any successors thereto
as proxies, each of them with full power of substitution, to attend and act as
proxy for the undersigned and to cast all votes which the undersigned
stockholder is entitled to cast at the annual meeting of the stockholders of the
Company to be held at __:00 a.m., local time on ___________, 1998, at the
_____________________________________________, and any and all adjournments and
postponements thereof (the "Annual Meeting"), with all powers which the
undersigned would possess if personally present (i) as designated below with
respect to the matters set forth below and described in the accompanying Joint
Proxy Statement/Prospectus, the receipt of which is hereby acknowledged, and
(ii) in their discretion with respect to any other business that may properly
come before the Annual Meeting. The undersigned stockholder hereby revokes any
proxy or proxies heretofore given.
This proxy will be voted in the manner directed by the undersigned
stockholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED (1) FOR APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT (AS DEFINED HEREIN), (2) FOR THE ELECTION
OF TWO DIRECTORS TO THREE-YEAR TERMS OF OFFICE EACH, (3) FOR THE RATIFICATION OF
THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS OF THE COMPANY
FOR THE FISCAL YEAR ENDING MARCH 31, 1999 AND (4) IN THE DISCRETION OF THE
PROXIES AS TO ALL OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL
MEETING.
(CONTINUED--TO BE SIGNED AND DATED ON REVERSE SIDE)
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE LISTED PROPOSALS,
INCLUDING A VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT .
1. Approval and adoption of the Amended and Restated Agreement and Plan
of Merger, amended and restated as of October 14, 1998, by and between
the RCF Corp. and Bayonne Bancshares, Inc. pursuant to which, among
other things, Bayonne Bancshares, Inc. will merge with and into RCF
Corp.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. The election as directors of all nominees listed to three-year terms
(except as marked to the contrary below):
FOR WITHHOLD FOR ALL EXCEPT
[ ] [ ] [ ]
INSTRUCTION: To withhold authority to vote for any individual
nominee, mark "For All Except" and write that nominees name in the
space provided below.
_____________________________________________
3. The ratification of the appointment of KPMG Peat Marwick LLP as
independent auditors of the Company for the fiscal year ending
March 31, 1999.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Annual Meeting or any
adjournment or postponement thereof. As of the date of the Annual
Meeting, management of the Company is not aware of any such other
business.
<PAGE>
This proxy may be revoked prior to the time it is voted by delivering to
the secretary of the Company either a written revocation or a proxy bearing a
later date or by appearing at the Annual Meeting and voting in person. The
undersigned hereby acknowledges receipt of the Notice of the Annual Meeting of
Shareholders and the Joint Proxy Statement/Prospectus, dated _____, 1998, for
the Annual Meeting.
Dated: ___________________
Signature: _______________
Signature: _______________
Title: ___________________
(Please date and sign here exactly as name appears
at left. When signing as attorney, administrator,
trustee or guardian, give full title as such; and
when stock has been issued in the name of two or
more persons, all should sign.)
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE DATE,
SIGN AND RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 18,762
<INT-BEARING-DEPOSITS> 4,002
<FED-FUNDS-SOLD> 4,200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 831,670
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 782,478
<ALLOWANCE> 7,920
<TOTAL-ASSETS> 1,692,615
<DEPOSITS> 953,506
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,283
<LONG-TERM> 400,000
0
0
<COMMON> 264
<OTHER-SE> 329,562
<TOTAL-LIABILITIES-AND-EQUITY> 1,692,615
<INTEREST-LOAN> 13,728
<INTEREST-INVEST> 13,269
<INTEREST-OTHER> 665
<INTEREST-TOTAL> 27,662
<INTEREST-DEPOSIT> 7,970
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<CHANGES> 0
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<EPS-PRIMARY> .88
<EPS-DILUTED> .88
<YIELD-ACTUAL> 7.08
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<ALLOWANCE-UNALLOCATED> 3,472
</TABLE>
