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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-68965
LOGO OF IRONBOUND BANKCORP, NJ
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Richmond County Financial Corp. and Ironbound
Bankcorp, NJ have agreed on a merger of Richmond County and Ironbound. The
combined company will be an effective competitor on many fronts in its New York
and New Jersey market areas, with total assets approaching $2.4 billion,
deposits of approximately $1.5 billion and stockholders' equity of approximately
$435 million. We are convinced that this merger will position our two companies
to grow and flourish as the financial services business evolves and
consolidates. As a result of the merger, each share of Ironbound common stock
that you hold will be converted automatically into the right to receive 1.45
shares of common stock of Richmond County subject to possible adjustment under
certain circumstances. As of January 29, 1999, this was worth about $23.02 for
each share of Ironbound common stock.
We cannot complete the merger unless the Ironbound stockholders approve it.
Ironbound will hold a meeting of its stockholders to vote on this merger
proposal. YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the
Ironbound stockholder meeting, please take the time to vote by completing and
mailing the enclosed proxy card to us. If you sign, date and mail your proxy
card without indicating how you want to vote, your proxy will be counted as a
vote in favor of the merger. Not returning your card or not instructing your
broker how to vote any shares held for you in "street name" will have the same
effect as a vote against the merger.
The date, time and place of the Ironbound meeting is as follows:
IRONBOUND BANKCORP, NJ
February 25, 1999, 9:30 a.m., local time
The Sheraton Hotel - Newark Airport
128 Frontage Road
Newark, New Jersey 07114
This document provides you with detailed information about the Ironbound meeting
and the proposed merger. You can also get information about Richmond County
from publicly available documents that Richmond County has filed with the
Securities and Exchange Commission. Information about Ironbound has been
included with this document. We encourage you to read this entire document
carefully.
We strongly support this combination of our companies and enthusiastically
recommend that you vote in favor of the merger.
/s/ Edward Cruz
---------------
Edward Cruz
Chairman of the Board
Ironbound Bankcorp, NJ
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK OR NONBANK SUBSIDIARY OF ANY OF THE
PARTIES, AND THEY ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND OR ANY GOVERNMENTAL AGENCY.
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RICHMOND COUNTY'S COMMON STOCK IS TRADED ON THE NATIONAL MARKET SYSTEM OF THE
NASDAQ STOCK MARKET. THE TRADING SYMBOL FOR RICHMOND COUNTY COMMON STOCK IS
"RCBK."
PROXY STATEMENT/PROSPECTUS DATED FEBRUARY 3, 1999
AND FIRST MAILED TO STOCKHOLDERS ON OR ABOUT FEBRUARY 8, 1999
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IRONBOUND BANKCORP, NJ
36 PACIFIC STREET AT NEW YORK AVENUE
NEWARK, NEW JERSEY 07105
(973) 589-3800
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 25, 1999
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Ironbound
Bankcorp, NJ ("Ironbound") will be held at The Sheraton Hotel - Newark Airport,
128 Frontage Road, Newark, New Jersey 07114 on Thursday, February 25, 1999 at
9:30 a.m., local time, (the "Ironbound Meeting") for the following purposes, all
of which are more completely set forth in the accompanying Proxy
Statement/Prospectus:
1. To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, (the "Ironbound Merger Agreement"), dated as of July
17, 1998 by and between Richmond County Financial Corp. ("Richmond
County") and Ironbound. The Ironbound Merger Agreement provides for the
merger of Ironbound with and into Richmond County (the "Ironbound
Merger"), pursuant to which each share of common stock of Ironbound, par
value $5.00 per share, will be converted into the right to receive 1.45
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 Ironbound Merger Agreement.
2. To transact such other business as may properly come before the
Ironbound Meeting or any adjournment or postponement thereof.
Pursuant to Ironbound's Bylaws, the board of directors of Ironbound has
fixed January 29, 1999 as the record date for the determination of stockholders
entitled to notice of and to vote at the Ironbound 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 Ironbound Meeting.
A list of Ironbound stockholders entitled to vote at the Ironbound Meeting will
be available for examination for any purpose germane to the Ironbound Meeting,
during ordinary business hours, at the principal executive offices of Ironbound
located at 36 Pacific Street at New York Avenue, Newark, New Jersey 07105 for
ten days prior to the Ironbound Meeting and will also be available at the
Ironbound Meeting.
In the event that there are not sufficient votes to approve the foregoing
proposal at the time of the Ironbound Meeting, the Ironbound Meeting may be
adjourned in order to permit further solicitation by Ironbound.
By Order of the Board of Directors
/s/ Thomas R. Lupo
------------------
Thomas R. Lupo
Corporate Secretary
Newark, New Jersey
February 3, 1999
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE
PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
WHETHER OR NOT YOU PLAN TO ATTEND THE IRONBOUND 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 IRONBOUND PRIOR TO THE IRONBOUND
MEETING A WRITTEN NOTICE OF REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE, OR BY ATTENDING THE IRONBOUND MEETING, FILING A WRITTEN NOTICE OF
REVOCATION WITH THE SECRETARY OF THE IRONBOUND MEETING AND VOTING IN PERSON.
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PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
Page
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SUMMARY..................................................... 1
The Companies.......................................... 1
Richmond County Financial Corp.................... 1
Ironbound Bankcorp, NJ............................ 1
The Stockholders' Meeting.............................. 1
Who Can Vote At the Meeting; What Vote is Required for
Approval of the Merger Agreement.................. 1
The Ironbound Merger................................... 1
General........................................... 1
Ironbound Stockholders Will Receive 1.45 Shares
of Richmond County Common Stock For Each
Ironbound Share They Own......................... 2
Tax-Free Transaction for Ironbound Stockholders........ 2
You Do Not Have Appraisal Rights in the Merger......... 3
Ironbound Stockholders............................ 3
Accounting Treatment of the Merger..................... 3
Interests of Ironbound's Directors and Officers in the
Merger that Are Different
From Your Interests................................... 3
Richmond County's and Ironbound's Differences in the
Rights of Stockholders................................ 3
Our Reasons for the Merger............................. 4
Our Recommendations to Stockholders.................... 4
The Transaction is Fair to Stockholders According to
Ironbound's Financial Advisor......................... 4
Stock Options.......................................... 4
Management and Operations after the Merger............. 4
What We Need to do to Complete the Merger.............. 4
Terminating the Agreement; Who Pays for What........... 5
Waiving and Amending Provisions of the Agreement....... 6
Ironbound Merger Stock Option Agreement................ 6
The Bayonne Merger..................................... 6
SELECTED HISTORICAL FINANCIAL DATA OF
RICHMOND COUNTY AND IRONBOUND.......................... 7
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION. 13
COMPARATIVE PER SHARE DATA.................................. 15
THE COMPANIES............................................... 17
Richmond County........................................ 17
Ironbound.............................................. 17
WHERE YOU CAN FIND MORE INFORMATION......................... 17
FORWARD-LOOKING STATEMENTS.................................. 19
MARKET PRICES AND DIVIDEND INFORMATION...................... 20
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MEETING OF IRONBOUND STOCKHOLDERS........................... 21
Date, Time and Place; Purpose of Meeting............... 21
Who Can Vote on Matters Addressed in This Document..... 21
Proxies; Voting and Revocation of Proxies.............. 22
Vote Required; Principal Stockholders.................. 23
BENEFICIAL OWNERSHIP OF IRONBOUND COMMON STOCK.............. 24
THE IRONBOUND MERGER........................................ 26
General................................................ 26
Background of the Merger............................... 26
Recommendation of the Ironbound Board; Ironbound's
Reasons for the Merger................................ 27
The Transaction is Fair to Stockholders According to
Ironbound's Financial
Advisor........................................... 28
Stock Trading History............................. 30
Contribution Analysis............................. 31
Comparable Company Analysis....................... 31
Analysis of Selected Merger Transactions.......... 32
Impact Analysis................................... 32
Discounted Cash Flow Analysis..................... 33
Remaining Independent Scenario.................... 33
Material Projections Shared Between the Companies in
Negotiating the Merger Agreement ................. 33
Ironbound Stockholders Will Receive 1.45 Shares of
Richmond County Common Stock for Each Ironbound
Share............................................ 35
Procedures for Exchanging Your Stock Certificates...... 36
Interests of Ironbound's Directors and Officers in the
Ironbound Merger that Are
Different From Your Interests..................... 36
Existing Change in Control Agreements............. 36
Vesting of Stock Options.......................... 37
New Employment Agreements......................... 37
Establishment of Divisional Board................. 37
Sale of Ironbound Building........................ 37
Protection of Ironbound Directors and Officers
Against Claims................................... 38
Management and Operations Following the Merger......... 38
Employee Matters....................................... 38
Conditions to the Merger............................... 39
Regulatory Approvals Needed to Complete the Merger..... 41
Conduct of Business Pending the Merger................. 42
Representations and Warranties Made by Richmond County
and Ironbound in the Merger Agreement................. 45
What Happens if a Third Party Offers to Buy Ironbound.. 45
Waiving and Amending Provisions in, or Terminating,
the Merger Agreement.................................. 46
Price-Based Termination of the Merger Agreement........ 47
Nasdaq National Market Listing......................... 47
Accounting Treatment of the Merger..................... 47
Tax-Free Transaction for Ironbound Stockholders........ 47
Selling the Richmond County Stock You Receive in the
Merger................................................ 48
You Do Not Have Appraisal Rights in the Merger......... 48
Who Pays for What...................................... 49
When Will the Merger be Completed...................... 49
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CERTAIN RELATED TRANSACTIONS................................ 49
Ironbound Merger Stock Option Agreement................ 49
Bank Merger Agreement.................................. 50
THE BAYONNE MERGER.......................................... 51
REGULATION AND SUPERVISION.................................. 51
General................................................ 51
New York State Law..................................... 51
FDIC Regulations....................................... 52
Investment Activities.................................. 54
Transactions with Companies or Entities that Control
Savings Banks......................................... 54
The FDIC's Enforcement Authority....................... 55
Insurance of Deposit Accounts.......................... 55
Payment of Financing Corporation Bonds................. 56
The Federal Reserve System............................. 56
Community Reinvestment Act............................. 56
Holding Company Regulation............................. 57
Interstate Banking and Branching....................... 59
DESCRIPTION OF RICHMOND COUNTY CAPITAL STOCK................ 60
General................................................ 60
Common Stock........................................... 60
Preferred Stock........................................ 61
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS................ 61
General................................................ 61
Number of Members of the Board of Directors............ 61
Election of the Board of Directors..................... 62
Pre-emptive Rights..................................... 62
Voting Rights.......................................... 62
Removal of Directors from the Board of Directors....... 62
Special Meetings of the Stockholders................... 63
Annual Meeting of Stockholders......................... 63
Organization........................................... 63
Conduct of Business at a Stockholders' Meeting......... 63
Availability of a List of the Company's Stockholders... 64
Amendment to Bylaws.................................... 64
Merger or Business Combinations that the Company Might
Enter Into............................................ 64
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS................................... 66
LEGAL MATTERS............................................... 74
EXPERTS..................................................... 74
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ANNEX A Agreement and Plan of Merger, dated as of July 17, 1998, by and
between Richmond County Financial Corp. and Ironbound Bankcorp, NJ
ANNEX B Stock Option Agreement, dated as of July 17, 1998, by and between
Ironbound Bankcorp, NJ and Richmond County Financial Corp.
ANNEX C Opinion of Ostrowski & Company, Inc.
ANNEX D Financial Information Relating to Ironbound Bankcorp, NJ
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SUMMARY
This brief summary highlights selected information from the prospectus. It
does not contain all of the information that is important to you. You should
carefully read the entire prospectus and the other documents to which this
document refers you to fully understand the merger. See "Where You Can Find
More Information" on page 17.
THE COMPANIES (PAGE 17)
RICHMOND COUNTY FINANCIAL CORP.
1214 Castleton Avenue
Staten Island, New York 10310
(718) 448-2800
Richmond County is a savings and loan holding company organized under the laws
of the State of Delaware in 1997. We operate Richmond County Savings Bank, which
has 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. 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.
IRONBOUND BANKCORP, NJ
36 Pacific Street
Newark, New Jersey 07105
(937) 589-3800
Ironbound Bankcorp, NJ is a New Jersey bank holding company. We operate
Ironbound Bank. Ironbound Bank is a commercial bank that operates three branches
in the New Jersey counties of Union and Essex. At September 30, 1998, Ironbound
had total assets of $115.2 million, deposits of $102.8 million, and
stockholders' equity of $11.5 million. The Ironbound merger does not require
the approval of the Richmond County stockholders.
THE STOCKHOLDERS' MEETING (PAGE 21)
The Ironbound Bankcorp, NJ special meeting will be held on February 25, 1999 at
9:30 a.m., local time, at The Sheraton Hotel - Newark Airport, 128 Frontage
Road, Newark, New Jersey 07114. At the Ironbound special meeting, you will be
asked:
1. to approve the merger of our company with Richmond County; and
2. to act on any other items that may be submitted to a vote at the special
meeting.
WHO CAN VOTE AT THE MEETING; WHAT VOTE IS REQUIRED FOR APPROVAL OF THE MERGER
AGREEMENT (PAGE 21)
You can vote at the meeting of Ironbound stockholders if you owned Ironbound
common stock at the close of business on January 29,1999. You will be able to
cast one vote for each share of Ironbound common stock you owned at that time.
In order to approve the merger, the holders of a majority of the outstanding
shares of Ironbound common stock must vote in its favor. You can vote your
shares by attending the Ironbound meeting and voting in person, or by mailing
the enclosed proxy card. You can revoke your proxy as late as the date of the
meeting either by sending in a new proxy, or by changing your vote by attending
the meeting and voting in person.
THE IRONBOUND MERGER (PAGE 26)
We have attached the agreement and plan of merger to this document as Annex A.
Please read the agreement. It is the legal document that governs the merger.
GENERAL
We propose a combination in which Ironbound will merge with and into Richmond
County. The resulting company will be named "Richmond County Financial Corp."
We hope to complete this merger by the end of the first quarter of 1999.
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IRONBOUND STOCKHOLDERS WILL RECEIVE 1.45 SHARES OF RICHMOND COUNTY COMMON STOCK
FOR EACH IRONBOUND SHARE THEY OWN (PAGE 35)
As an Ironbound stockholder, each of your shares of Ironbound common stock will
automatically become exchangeable for 1.45 shares of Richmond County common
stock. The total number of shares you receive will therefore be equal to 1.45
times the number of shares of Ironbound common stock you own. Richmond County
will not issue fractional shares. Instead, you will receive the value of any
fractional share in cash. You will have to surrender your Ironbound stock
certificates to receive new certificates for Richmond County stock. We will
send you written instructions after we have completed the merger. For more
information on how this exchange procedure works, see "Procedures for Exchanging
Your Stock Certificates" on page 36 of this document.
For example, if you owned ten shares of Ironbound common stock, after the merger
you will send in the letter of transmittal and your old Ironbound certificates
and in exchange you will receive 14 shares of the Richmond County common stock
and a check for the market value of one-half of a share of Richmond County
common stock. Shares of Richmond County are quoted on the National Market
System of the Nasdaq Stock Market. On July 16, 1998, the last trading day
before we announced the merger, Richmond County common stock closed at $18.313
per share. Ironbound common stock is traded very infrequently on the over-the-
counter market, or on a private basis. The latest trade of Ironbound common
stock prior to the announcement of the merger of which management is aware was
on July 15, 1998 at $19.00 per share. On January 29, 1999, Richmond County
common stock closed at $15.875 per share.
Based on the exchange ratio in the merger, which is 1.45, the market value of
the consideration that Ironbound stockholders will receive in the merger for
each share of Ironbound common stock would be about $23.02 based on Richmond
County's closingstock price of $15.875 on January 29, 1999. If during a period
of time prior to the closing of the merger, the price of Richmond County common
stock is less than $15.945 but equal to or greater than $14.00 per share, the
merger exchange ratio will be adjusted so that the value to be received for each
share of Ironbound common stock is $23.12. If during a period of time prior to
the closing of the merger, the price of Richmond County common stock is less
than $14.00, Ironbound may terminate the transaction, proceed with the merger as
structured, or attempt to renegotiate the exchange ratio. A vote in favor of
the agreement authorizes the Ironbound board of directors to exercise its
discretion in such event, without any further action by the Ironbound
stockholders. The market price of Richmond County will continue to fluctuate
prior to and after completion of the Merger. You should obtain current stock
price quotations for Richmond County common stock. Such quotations are
available from your stock broker, in major newspapers such as The Wall Street
Journal and on the Internet.
TAX-FREE TRANSACTION FOR IRONBOUND STOCKHOLDERS (PAGE 47)
For United States federal income tax purposes, your exchange of shares of
Ironbound common stock for shares of Richmond County common stock generally will
not cause you to recognize any gain or loss. You will, however, have to
recognize gain in connection with any cash received instead of fractional
shares.
Our obligation to complete the merger depends on our receipt of legal opinions
about the federal income tax treatment of our companies and our stockholders.
We have received these tax opinions, which will be updated at the completion of
the merger. These opinions will not bind the Internal Revenue Service, which
could take a different view. YOU SHOULD CONSULT YOUR OWN TAX ADVISOR FOR A FULL
UNDERSTANDING OF THE MERGER'S TAX CONSEQUENCES THAT ARE PARTICULAR TO YOU.
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YOU DO NOT HAVE APPRAISAL RIGHTS IN THE MERGER (PAGE 48)
Ironbound Stockholders. New Jersey law does not provide you with dissenters'
appraisal rights in the merger. This means that if you are not satisfied with
what you are receiving as consideration in the merger, you are not legally
---
entitled to have the value of your interest independently determined and receive
payment based on that valuation.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 47)
We will account for the merger as a "purchase." 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 Ironbound's
assets, less liabilities, on its financial statements. Because the purchase
price is greater than the fair market value of Ironbound's net assets, Richmond
County will record an asset called "goodwill" of approximately $16.1 million.
Richmond County will write off this goodwill as an expense over the next 15
years, reducing net income during that period. The Bayonne merger, discussed
later, will create additional goodwill of approximately $28.6 million, which
will also be written off over 15 years.
Interests of Ironbound's Directors and Officers in the Merger that Are Different
From Your Interests (page 36)
Some of our directors and officers have interests in the merger that are
different from, or in addition to, their interests as stockholders in Ironbound.
The members of our board of directors knew about these additional interests, and
considered them, when they approved the agreement and the merger. These include
provisions in the merger agreement relating to protection against claims, the
payout of cash payments under existing employment agreements and payment or
entitlement of or to benefits under employee benefit plans sooner than if the
merger had not happened. Forexample, 74,800 shares of unvested restricted
Ironbound common stock, for which these people would have waited longer to have,
will be converted into approximately 108,460 shares of Richmond County common
stock. Richmond County will also enter into employment agreements with Michael
J. Gagliardi and Thomas Lupo, currently the President and Chief Executive
Officer and Executive Vice President, respectively, of Ironbound. Under these
agreements, Mr. Gagliardi will be employed as an executive vice president of
Richmond County Savings Bank and will earn a salary of $160,000. The term of
Mr. Gagliardi's employment agreement is three years. Mr. Lupo will be employed
as a senior vice president of Richmond County Savings Bank and will receive an
annual salary of $125,000. The term of Mr. Lupo's employment agreement is three
years. In addition, Richmond County will appoint the current members of the
board of directors of Ironbound willing to serve to an advisory board of
directors. This board will advise Richmond County with respect to deposit and
lending activities in Ironbound's market area and will maintain and develop
customer relationships. Each non-employee member of this divisional board
(except the chairman of such board) will receive an annual retainer of $5,000,
as well as a $750 fee for each board meeting attended. The chairman of the
divisional board will receive an annual retainer of $10,000, as well as a $750
fee for each board meeting attended.
The members of our boards of directors knew about these additional interests,
and considered them, when they approved the agreement and the merger.
RICHMOND COUNTY'S AND IRONBOUND'S DIFFERENCES IN THE RIGHTS OF STOCKHOLDERS
(PAGE 61)
After the merger is completed, Ironbound'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
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rights of stockholders of Richmond County, as defined in its Certificate of
Incorporation and bylaws, differ from the rights of the stockholders of
Ironbound, as defined in its Certificate of Incorporation and bylaws, with
respect to certain matters, including among others, pre-emptive rights, voting
right limitations, and the removal of members of the board of directors.
OUR REASONS FOR THE MERGER (PAGE 27)
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. We 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. While no assurances can be made, we expect to achieve cost savings
and additional revenue opportunities in the merger that should have a beneficial
effect on our earnings per share. To review our reasons for the merger in
greater detail, as well as how we came to agree on the merger, please see pages
26 through 33.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGE 27)
The board of directors of Ironbound believes that the merger is fair to you and
in your best interests, and unanimously recommends that you vote "FOR" the
proposal to approve the merger.
THE TRANSACTION IS FAIR TO STOCKHOLDERS ACCORDING TO IRONBOUND'S FINANCIAL
ADVISOR (PAGE 28)
Ostrowski & Company, Inc. has delivered to the Ironbound board of directors its
opinion that, as of the date of this document, the Ironbound merger agreement is
fair to the holders of Ironbound common stock from a financial point of view.
We have attached this opinion to thisdocument as Annex C. You should read it
completely to understand the procedures followed, assumptions made, matters
considered, qualifications and limitations on the review made by Ostrowski &
Company, Inc. in providing this opinion.
STOCK OPTIONS (PAGE 35)
Upon completion of the merger, each option to acquire Ironbound common stock
granted under Ironbound's stock option plans that is outstanding and unexercised
immediately before completing the merger will become the right to receive shares
of Richmond County common stock. The value of each Ironbound option is equal to
the per share price of Richmond County common stock on July 17, 1998, multiplied
by the Ironbound exchange ratio, less the exercise price of the options.
MANAGEMENT AND OPERATIONS AFTER THE MERGER (PAGE 38)
The Richmond County board of directors will not change as a result of the
merger. The members of Ironbound's board of directors who are willing to serve
will serve on a divisional board after the merger.
WHAT WE NEED TO DO TO COMPLETE THE MERGER (PAGE 39)
The completion of the merger depends on a number of conditions being met. In
addition to the parties complying with the agreement, these include:
1. Approval of the agreement by the Ironbound stockholders.
2. The merger must be approved by the Board of Governors of the Federal
Reserve System and the Bank Merger must be approved by the Federal Deposit
Insurance Corporation, the Superintendent of Banks of New York State, and
the Commissioner of the New Jersey Department of Banking and Insurance.
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We have filed, or soon will file, all of the required applications or
notices with 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 get them.
3. Receipt by Richmond County and Ironbound of a legal opinion from their
respective tax counsel that, for United States federal income tax purposes,
Ironbound 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 47.
4. Approval by the National Market System of the Nasdaq Stock Market of the
listing of the shares of Richmond County common stock to be issued in
exchange for Ironbound common stock.
5. The absence of any injunction or legal restraint blocking the merger or
government proceedings trying to block the merger.
6. Receipt by Richmond County of letters from Ironbound "affiliates,"
including Ironbound's officers and directors, restricting their trading in
shares of Richmond County stock and agreeing to vote in favor of the merger
at the Ironbound special meeting. As of the date of this document, this
condition has been satisfied.
7. The purchase by Ironbound of its executive offices, subject to the terms
agreed to by Ironbound and Richmond County. As of the date of this
document, this condition has been satisfied.
Where the law permits, Richmond County and Ironbound could decide to complete
the merger even though one or more of these conditions has not been met. We
cannot be certain when or if the conditions to the merger will be satisfied or
waived, or that the merger will be completed.
TERMINATING THE AGREEMENT; WHO PAYS FOR WHAT (PAGES 46 AND 49)
We can agree at any time to terminate the agreement without completing the
merger, even if the stockholders of both our companies have approved it. Also,
either of us can decide, without the consent of the other, to terminate the
agreement if:
1. any government agency denies an approval we need to complete the merger, or
if any government authority issues an order blocking the merger;
2. we do not complete the merger by April 30, 1999, unless the failure to
complete the merger by that time is due to the breach of any
representation, warranty or covenant contained in the agreement by the
party seeking to terminate;
3. one party breaches the agreement in a way that would entitle the other to
terminate the merger, as long as the party seeking to terminate the
agreement has not also violated the agreement;
4. Ironbound's stockholders do not approve the merger;
5. by Ironbound, if the price of Richmond County common stock is less than
$14.00 during the five-day period
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beginning on the date that the parties have received the last consent,
approval or waiver for the merger to occur;
6. by Richmond County, if the Ironbound board of directors does not recommend
or withdraws, modifies or amends its recommendation to Ironbound's
stockholders to approve the merger; or
7. the occurrence of an event that has resulted or will result in a materially
negative effect on either party and the breaching party does not promptly
remedy the situation.
Regardless of whether the merger is completed, we will each pay our own fees and
expenses.
WAIVING AND AMENDING PROVISIONS OF THE AGREEMENT (PAGE 46)
We can agree to amend the agreement, and each of us can waive our right to
require the other party to adhere to the terms and conditions of the agreement,
where the law allows. However, we may not do so after our stockholders approve
the agreement if the amendment or waiver reduces or changes the consideration
that will be received by Ironbound stockholders. In those cases the
stockholders impacted by the change would have to approve the amendment or
waiver.
IRONBOUND MERGER STOCK OPTION AGREEMENT (PAGE 49)
At the request of Richmond County, Ironbound entered into a stock option
agreement granting Richmond County an option to purchase 198,664 shares of
Ironbound common stock.
Richmond County cannot exercise its option unless certain events occur. These
events include the merger of Ironbound or the sale of a substantial amount of
its assets to a third party unrelated to Richmond County. We do not know of any
event that has occurred as of the date of this document that would permit
Richmond County to exercise its option. Ironbound granted the option to increase
thelikelihood that we would complete the merger. The option agreement could
discourage other companies from trying or proposing to combine with Ironbound
before we complete the merger.
The most shares that can be purchased if the option is exercised is 19.9% of the
total number of outstanding shares of Ironbound common stock. The purchase
price per share under the option agreement is $20.00 per share.
THE BAYONNE MERGER (PAGE 51)
In a separate and unrelated transaction, Richmond County is also acquiring
Bayonne Bancshares, Inc. Bayonne is a savings and loan holding company
organized under the laws of the State of Delaware in 1997. It operates First
Savings Bank of New Jersey, SLA, which has four banking offices and one
financial center in Bayonne, New Jersey. At September 30, 1998, Bayonne had
total assets of $672.7 million, deposits of $420.7 million and stockholders'
equity of $95.2 million. The Bayonne Merger does not require the approval of
Ironbound stockholders.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF
RICHMOND COUNTY AND IRONBOUND
(UNAUDITED)
The following tables show summarized historical financial data for each of
Richmond County and Ironbound. The information in the following tables is based
on historical financial information that Richmond County has presented in its
prior SEC filings and that Ironbound has presented in its prior regulatory
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 66. The historical financial statements of
Ironbound are included in the document attached as Annex D to this document. The
historical financial statements of Richmond County are incorporated by reference
into this document. Richmond County's audited historical financial statements
were audited by Ernst & Young LLP, independent certified public accountants, and
Ironbound's December 31, 1997 and December 31, 1996 audited historical financial
statements were audited by Deloitte & Touche LLP, independent auditors.
Richmond County's unaudited financial statements for the three months ended
September 30, 1998 and 1997 and Ironbound's unaudited financial statements for
the nine months ended September 30, 1998 and 1997 include normal, recurring
adjustments necessary to fairly present the data for such period. The unaudited
data is not necessarily indicative of expected results of a full year's
operation.
Because Richmond County's fiscal year ends on June 30 and Ironbound's
fiscal year ends on December 31, the financial data for Ironbound for the nine
months ended September 30 have been presented to coincide with the fiscal
reporting period for Richmond County. Following the Ironbound 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 Richmond County financial information contained herein for
periods prior to December 31, 1997 relates solely to Richmond County Savings
Bank. Ironbound was organized in July 1997. Therefore, all Ironbound financial
information for periods prior to September 30, 1997 relates to Ironbound Bank.
7
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
SELECTED HISTORICAL UNAUDITED FINANCIAL AND OTHER DATA
(In thousands, except per share amounts)
Richmond County's consolidated selected historical unaudited financial and
other data has three sections: selected consolidated financial condition data,
selected consolidated operating data and selected consolidated financial ratios
and other data.
On July 1, 1994, the Bank adopted Statement of Financial Accounting
Standards ("SFAS") No. 115 ("SFAS No. 115") "Accounting for Certain Investments
in Debt and Equity Securities." Under SFAS No. 115, all affected debt and
equity securities must be classified as held-to-maturity, trading, or available-
for-sale. Classification is important because it affects the carrying amount of
the security, as well as the timing of gain or loss recognition in the income
statement.
In November 1995, Richmond County Savings reclassified securities having a
market value of $26 million from its held-to-maturity portfolio to its
available-for-sale portfolio. In February 1998, in connection with its
reassessment of its asset/liability management strategy, implemented at that
time, Richmond County transferred its entire held-to-maturity portfolio to its
available-for-sale portfolio.
At the time of its conversion on February 18, 1998 from a mutual savings
bank to a stock form of ownership, Richmond County Savings formed the Richmond
County Savings Foundation. As a result, Richmond County contributed 1,957,300
shares of its common stock valued at $19.6 million ($11.2 million net of tax).
The effect of this one-time non-recurring charge was an increase in non-interest
expense of $19.6 million for the year ended June 30, 1998.
Basic earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during
the period. Diluted earnings per share includes the effect of all potential
common shares (such as stock options) that were dilutive and outstanding during
the period. For the three months ended September 30, 1998 basic and diluted
earnings per share were $0.22. At June 30, 1998, Richmond County reported basic
and diluted loss per share of $0.16. The loss per share reflected the
operations of Richmond County from date of conversion, February 18, 1998,
through June 30, 1998, and included the non-recurring charge relating to the
foundation. On a pro forma basis, had Richmond County Savings converted as of
July 1, 1997, basic and diluted earnings per share, for the year ended June 30,
1998, would have been $0.19. Basic and diluted earnings per share is not
applicable to years prior to July 1, 1997, as Richmond County had no outstanding
shares prior to February 18, 1998.
8
<PAGE>
<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 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:
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:
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......... 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 -- -- -- --
Total 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.......... 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 (1)............... -- -- -- -- -- (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
the Conversion.............. $.22 N/A $(0.16) N/A N/A N/A N/A
========== ==========
(footnotes on next page)
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEARS 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 (2):
Performance Ratios (3):
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 (4)............. 2.81 3.60 3.29 3.64 3.48 3.66 3.85
Net interest margin (5).................. 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 (6)..................... 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 (7)..................... 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) 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."
(2) 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.
(3) 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 Richmond County Savings Foundation at the time of
Richmond County Savings' conversion.
(4) 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.
(5) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(6) 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. 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%.
(7) The efficiency ratio represents the ratio of non-interest expense, excluding
the effect of amortization of goodwill and the Savings Association Insurance
Fund's 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 Richmond County Savings Foundation, the
efficiency ratio for the year ended June 30, 1998 would be 83.35%.
10
<PAGE>
IRONBOUND BANKCORP, NJ
SELECTED HISTORICAL FINANCIAL AND OTHER DATA
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
(UNAUDITED)
AT SEPTEMBER 30, AT DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED
FINANCIAL DATA:
Total assets............................... $115,172 $108,859 $112,213 $106,356 $89,656 $88,962 $86,035
Investment securities available for sale... 11,216 11,105 13,910 12,505 18,591 11,088 13,980
Investment securities held-to-maturity..... 42,632 44,533 42,093 46,617 33,437 41,041 33,718
Loans net.................................. 40,945 37,812 37,873 34,973 28,143 26,415 27,321
Deposits................................... 102,828 97,321 100,711 95,238 79,666 79,785 77,109
Total stockholders' equity................. 11,530 10,861 10,844 10,289 9,613 8,595 8,364
</TABLE>
<TABLE>
<CAPTION>
FOR THE
NINE MONTHS
ENDED
SEPTEMBER 30, FOR THE YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income......................... $5,785 $5,770 $7,695 $6,953 $6,081 $5,500 $5,557
Interest expense........................ 2,070 1,937 2,610 2,238 1,778 1,568 1,764
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income..................... 3,715 3,833 5,085 4,715 4,303 3,932 3,793
Provision (credit) for possible
loan losses.......................... (190) -- -- -- 105 190 625
Net interest income after provision ---------- ---------- ---------- ---------- ---------- ---------- ----------
(credit) for possible loan losses.... 3,905 3,883 5,085 4,715 4,198 3,742 3,168
Non-interest income:
Fees and other charges, net and
other income......................... 508 545 707 692 691 634 513
Net gains (losses) on sales of
securities and whole loans........... -- 16 16 (3) 48 6 470
Non-interest expense.................... 2,889 2,898 3,843 3,924 3,895 4,082 3,746
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before provision for
income taxes......................... 1,524 1,496 1,965 1,480 1,042 320 405
Provision for income taxes (1).......... 541 540 704 633 219 -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............................. $ 983 $ 956 $1,261 $ 847 $ 823 $ 320 $ 405
========== ========== ========== ========== ========== ========== ==========
Basic net income per share.............. $ 0.99 $ 0.92 $ 1.22 $ 0.81 $0.79 $ 0.31 $ 0.41
Net income earnings per share
assuming dilution.................... $ 0.95 $ 0.90 $ 1.19 $ 0.80 $0.79 $ 0.31 $ 0.41
Cash dividends paid per common share.... $ 0.15 $ 0.15 $ 0.20 $ 0.10 $ -- $ -- $ --
</TABLE>
- --------------
(1) There was no provision for income taxes in the years ended December 31, 1994
and 1993 due to reductions in the deferred tax valuation allowance after the
utilization of net operating loss carryovers during these years.
11
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
RATIOS AND OTHER DATA:
Return on average assets (1) (5)............ 1.17% 1.16% 1.14% 0.85% 0.92% 0.36% 0.48%
Return on average stockholders'............. 11.77 11.91 11.68 8.50 9.00 3.70 4.96
equity (2) (5)
Stockholders' equity to total assets........ 10.00 9.97 9.66 9.67 10.72 9.66 9.72
Average stockholders' equity to average..... 9.96 9.74 9.79 9.69 10.68 9.69 9.62
assets at end of period (6)
Net interest rate spread (5)(7)............. 3.93 4.27 4.22 4.41 4.63 4.39 4.41
Net interest margin (5)..................... 4.71 4.95 4.90 5.05 5.20 4.80 4.84
Operating expenses to average assets (5).... 3.43 3.52 3.49 3.67 4.38 4.64 4.42
Net interest income to operating............ 1.30 1.33 1.32 1.20 1.10 0.97 1.01
expenses (5)
Efficiency ratio (3) (5).................... 67.41 65.53 65.75 72.47 77.24 88.85 78.43
Dividend payout ratio (4) (5)............... 15.21% 16.26% 16.31% 11.96% -- -- --
</TABLE>
- ------------
(1) Return on average assets is calculated by dividing the net income by the
average outstanding assets.
(2) Return on average stockholders' equity is calculated by dividing net income
by average stockholders' equity. The September 30, 1998 and 1997 ratios are
annualized.
(3) Efficiency ratio is calculated by dividing non-interest expense by net
interest income on a taxable equivalent plus non-interest income. The
September 30, 1998 and 1997 ratios are annualized.
(4) Dividend payout ratio is calculated by dividing cash dividends by net
income. September 30, 1998 and 1997 ratios are annualized.
(5) The September 30, 1998 and 1997 ratios are annualized.
(6) 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.
(7) The net interest margin represents net interest income as a percent of
average interest-earning assets.
12
<PAGE>
UNAUDITED PRO FORMA COMBINED SELECTED
FINANCIAL INFORMATION
The following unaudited pro forma combined selected financial information
combine Richmond County's historical results with Ironbound's historical results
as if the Ironbound merger had become effective as of the dates indicated in the
case of the balance sheet information presented, and as if the Ironbound 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 Ironbound merger and the Bayonne merger
are expected to be completed during the same time period, the following pro
forma tables reflect the Ironbound merger and the Bayonne merger. The pro forma
---
information in the tables assumes that the Ironbound merger and the Bayonne
merger are accounted for using the purchase method of accounting. For
information regarding unaudited pro forma condensed combined consolidated data,
please see page 66.
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.
The excess purchase price over the fair value of the assets and liabilities is
recorded as goodwill. For a more detailed description of purchase accounting,
see "THE IRONBOUND MERGER--Accounting Treatment of the Merger."
Because Richmond County's fiscal year ends on June 30, Ironbound's fiscal
year ends on December 31, and Bayonne Bancshares, Inc.'s fiscal year ends on
March 31, the financial data for Ironbound and Bayonne Bancshares, Inc. for the
three months ended September 30 have been presented to coincide with the fiscal
reporting period for Richmond County. Following the Ironbound 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 Ironbound. The
historical financial statements of Richmond County are incorporated by reference
into this document. See "WHERE YOU CAN FIND MORE INFORMATION" on page 17 of
this document. The historical financial statements of Ironbound are attached as
Annex D to this document. You should also read the more detailed pro forma
financial information, including their notes, that are found on page 66 of this
document.
This information is presented for informational purposes only. You should
not assume that Richmond County, Ironbound and Bayonne 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 Ironbound merger and the Bayonne merger. The information
furnished in these tables does not reflect either the cost savings or the
revenue enhancements.
13
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
OF RICHMOND COUNTY, BAYONNE AND IRONBOUND
AT
SEPTEMBER 30,
1998
---------------
PRO FORMA CONDENSED COMBINED BALANCE SHEET
Total assets............................. $2,522,691
Long term borrowings..................... 548,582
Total stockholders' equity............... 478,377
<TABLE>
<CAPTION>
AT OR FOR THE AT OR FOR
THREE MONTHS THE YEAR
ENDED ENDED
SEPTEMBER 30, JUNE 30,
1998 1998
--------------------- --------------
Pro Forma Condensed Combined Statement (In thousands, except per share data)
of Income
<S> <C> <C>
Net interest income after provision for loan losses.. $19,807 $67,596
Net income........................................... 6,377 8,048(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 $ 0.127
</TABLE>
- -------------
(1) Includes a one-time non-recurring charge of $19.6 million ($11.2
million, net of tax) for funding of the Richmond County Savings
Foundation at the time of the Richmond County Savings' conversion.
14
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
We have summarized below the per share information of Richmond County and
Ironbound on a pro forma combined and pro forma equivalent basis, also giving
effect to the Bayonne merger. You can use this table to understand how the
Ironbound merger and the Bayonne merger would have affected Richmond County's
earnings, dividends and book value, all on a per share basis, if the mergers had
taken effect on the first day of the period described below. The first item
listed in each category gives you historical information relating to Richmond
County. 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
Ironbound have referred to or attached to this document. See "WHERE YOU CAN
FIND MORE INFORMATION" on page 17.
The information in the following table is based on the historical financial
information that we have presented in our prior Securities and Exchange
Commission or regulatory filings.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
1998 1998 (4)
--------------- ------------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE (1):
Richmond County.............................................................. $ 0.22 $ (0.16)(5)
Ironbound.................................................................... 0.34 1.22
Richmond County pro forma (Richmond County, Bayonne and Ironbound combined).. 0.18 0.23
Ironbound pro forma equivalent............................................... 0.26 0.33
DILUTED EARNINGS (LOSS) PER SHARE (1):
Richmond County.............................................................. $ 0.22 $ (0.16)(5)
Ironbound.................................................................... 0.33 1.19
Richmond County pro forma (Richmond County, Bayonne and Ironbound combined).. 0.18 0.23
Ironbound pro forma equivalent............................................... 0.26 0.33
CASH DIVIDENDS DECLARED PER SHARE (2):
Richmond County.............................................................. $0.070 $ 0.110
Ironbound.................................................................... 0.050 0.200
Richmond County pro forma (Richmond County, Bayonne and Ironbound combined).. 0.070 0.110
Ironbound pro forma equivalent............................................... 0.102 0.160
BOOK VALUE PER SHARE AT PERIOD END (3):
Stated:
Richmond County.............................................................. $12.48 $ 12.44
Ironbound.................................................................... 11.56 11.28
Richmond County pro forma (Richmond County, Bayonne and Ironbound combined).. 12.58 N/A
Ironbound pro forma equivalent............................................... 18.24 N/A
Tangible:
Richmond County.............................................................. $12.44 $ 12.39
Ironbound.................................................................... 11.56 11.28
Richmond County pro forma (Richmond County, Bayonne and Ironbound combined).. 11.72 N/A
Ironbound pro forma equivalent............................................... 17.00 N/A
(footnotes on next page)
</TABLE>
15
<PAGE>
____________
(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,
Bayonne and Ironbound 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. Ironbound pro forma equivalent cash dividends
per share represent such amounts multiplied by the exchange ratio of 1.45.
(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 1.45. The Ironbound 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
1.45.
(4) The year ended December 31, 1997 was used for Ironbound.
(5) Richmond County converted to stock form on February 18, 1998, accordingly,
earnings per share for the fiscal year ended June 30, 1998 are presented on
an historical basis from February 18, 1998 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 Richmond County Savings Foundation at the time of
Richmond County Savings' conversion.
16
<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 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 of the FDIC.
At September 30, 1998, Richmond County Savings 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 1998
Richmond County Form 10-K and the Richmond County Form 10-Q for the period ended
September 30, 1998. See "WHERE YOU CAN FIND MORE INFORMATION."
IRONBOUND
Ironbound is a bank holding company organized under the laws of the State
of New Jersey in 1997. Ironbound's wholly owned subsidiary, 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 Bank's deposits are insured by the FDIC
through the Bank Insurance Fund of the FDIC.
At September 30, 1998, Ironbound had total assets of $115.2 million,
deposits of $102.8 million, and stockholders' equity of $11.5 million.
For more information about Ironbound, reference is made to the financial
information relating to Ironbound, which is attached hereto as Annex D.
WHERE YOU CAN FIND MORE INFORMATION
Richmond County files annual, quarterly and current reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that the
company files 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's public
filings are also available to the public from commercial document retrieval
services and at the Internet World Wide Website maintained by the SEC at
"http://www.sec.gov."
Richmond County has filed a registration statement to register with the SEC
the shares of Richmond County common stock to be issued to Ironbound
stockholders in the Ironbound merger. This prospectus is a part of the
registration statement and constitutes a prospectus of Richmond County, and a
proxy statement of Ironbound for the Ironbound meeting.
17
<PAGE>
The SEC allows Richmond County to "incorporate by reference" information
into this document, which means that Richmond County 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
document, except for any information superseded by information contained
directly in this document. This document incorporates by reference the other
documents which are listed below that Richmond County has previously filed with
the SEC. The documents contain important information about its financial
condition.
RICHMOND COUNTY SEC FILINGS (FILE NO. 0-23271)
Registration Statement on Form 8-A Dated October 27, 1997
Quarterly Report on Form 10-Q Three months ended March 31, 1998
Annual Report on Form 10-K Year ended June 30, 1998
Quarterly Report on Form 10-Q Three months ended September 30, 1998
Amended Quarterly Report on Form 10-Q/A Three months ended September 30, 1998
Current Report on Form 8-K Dated July 27, 1998
Current Report on Form 8-K Dated October 16, 1998
Richmond County incorporates by reference additional documents that it
might file with the SEC between the date of this document and the date of the
Ironbound 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.
Richmond County has supplied all information contained or incorporated by
reference in this document relating to Richmond County.
Ironbound has supplied all information contained or incorporated by
reference in this document relating to Ironbound.
Documents incorporated by reference are available from Richmond County
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this document. Stockholders of Ironbound may obtain
documents incorporated by reference in this document by requesting them in
writing or by telephone from Richmond County at the following address:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Attention: Thomas R. Cangemi, Corporate Secretary
Telephone No. (718) 448-2800
If you would like to request documents from Richmond County, please do so
by February 16, 1999 to receive them before the Ironbound meeting. If you
request any incorporated documents from us we will mail them to you by first-
class mail, or other equally prompt means, within one business day of our
receipt of your request.
You should rely only on the information contained or incorporated by
reference in this document to vote your shares at the Ironbound meeting.
Richmond County and Ironbound have not authorized anyone to provide you with
information that is different from what is contained in this document. This
document is dated February 3, 1999. You should not assume that the information
contained in this document is accurate as of any date other than that date, and
neither the mailing of this document to
18
<PAGE>
stockholders nor the issuance of Richmond County's securities in the merger
shall create any implication to the contrary.
We have not authorized anyone to give any information or make any
representation about the merger or our companies that is different from, or in
addition to, that contained in this document or in any of the materials that
we've incorporated into this document. Therefore, if anyone does give you
information of this sort, you should not rely on it. If you are in a
jurisdiction where offers to exchange or sell, or solicitations of offers to
exchange or purchase, the securities offered by this document or the
solicitation of proxies is unlawful, or if you are a person to whom it is
unlawful to direct these types of activities, then the offer presented in this
document does not extend to you. The information contained in this document
speaks only as of the date of this document unless the information specifically
indicates that another date applies.
FORWARD-LOOKING STATEMENTS
This document, the documents incorporated by reference in this document or
the documents attached to it, or any other written or oral statements made by,
or on behalf of, Richmond County may include forward-looking statements with
respect to the financial condition, results of operations and business of
Richmond County, 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. 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 current and subsequent filings with the SEC.
19
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
Richmond County common stock is listed on the National Market System of the
Nasdaq Stock market under the symbol "RCBK." There is no established trading
market for Ironbound common stock.
The following table lists the high and low prices per share for Richmond
County common stock as reported on the Nasdaq National Market, and the bid
prices per share for Ironbound common stock, as traded over-the-counter or in
private trades, 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.
<TABLE>
<CAPTION>
RICHMOND COUNTY
COMMON STOCK IRONBOUND 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 $12.75 $11.50 $0.05
Quarter ended June 30........ N/A N/A N/A 14.00 13.25 0.05
Quarter ended September 30... N/A N/A N/A 14.75 14.00 0.05
Quarter ended December 31.... N/A N/A N/A 14.75 14.50 0.05
1998
Quarter ended March 31....... $19.63 $15.68 $0.05 $14.75 $14.75 $0.05
Quarter ended June 30........ 19.75 17.75 0.06 15.75 15.00 0.05
Quarter ended September 30... 18.69 11.88 0.07 19.00 15.75 0.05
Quarter ended December 31.... 17.13 11.31 0.08 19.00 18.00 0.05
1999
Quarter ended March 31
(As of January 29, 1999).. $16.44 $15.00 N/A(1) $18.00 $17.00 N/A
</TABLE>
_______________
(1) As of January 29, 1999, neither Richmond County nor Ironbound had declared
their dividends for the first calendar quarter of 1999.
The following table shows the closing price per share of Richmond County
common stock, and the equivalent per share price for Ironbound common stock
giving effect to the merger on (i) July 16, 1998, which is the last business day
preceding the public announcement of the proposed merger; and (ii) January 29,
1999, which is the last practicable trading day prior to the mailing of this
document. The equivalent per share price of Ironbound common stock was computed
by multiplying the price of Richmond County common stock by the 1.45 Ironbound
exchange ratio:
<TABLE>
<CAPTION>
EQUIVALENT
PRICE PER
RICHMOND COUNTY IRONBOUND SHARE OF
COMMON STOCK COMMON STOCK IRONBOUND STOCK
--------------- ------------ ---------------
<S> <C> <C> <C>
July 16, 1998............... $18.313 $19.00 $26.550
January 29, 1999............ $15.875 $17.00 $23.019(1)
</TABLE>
___________________________
(1) If Richmond County's common stock price is less than $15.945 but equal to or
greater than $14.00 per share during a period of time prior to the closing
of the merger, the merger exchange ratio will be adjusted so that the value
to be received for each share of Ironbound common stock is $23.12.
20
<PAGE>
There is no established trading market for Ironbound common stock. Trading
in Ironbound common stock is limited and sporadic. The absence of an
established market may affect the prices at which Ironbound's shares are traded.
The last known trade of Ironbound common stock prior to the announcement of the
proposed agreement occurred on July 15, 1998, at a price of $19.00 per share.
You should obtain current market quotations for Richmond County common
stock as the market price of Richmond County common stock will fluctuate between
the date of this document and the date on which the merger is completed, and
thereafter. Because the number of shares of Richmond County common stock that
Ironbound stockholders will receive is generally fixed and because the market
price of Richmond County common stock fluctuates, the value of the shares of
Richmond County common stock that Ironbound stockholders would receive may
increase or decrease prior to and after the merger. See "THE IRONBOUND MERGER--
Ironbound Stockholders Will Receive 1.45 Shares of Richmond County Common Stock
For Each Ironbound Share" and "--Waiving and Amending Provisions in, or
Terminating, the Merger Agreement."
MEETING OF IRONBOUND STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
The Ironbound meeting will be held at The Sheraton Hotel - Newark Airport,
128 Frontage Road, Newark, New Jersey 07114 on February 25, 1999, at 9:30 a.m.,
local time. At the meeting, Ironbound stockholders will be asked to vote upon:
. a proposal to approve and adopt the merger agreement; and
. other matters brought before the meeting.
A copy of the merger agreement is attached as Annex A.
THE IRONBOUND BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE TERMS OF THE MERGER AND THE MERGER AGREEMENT ARE FAIR TO,
AND IN THE BEST INTERESTS OF, IRONBOUND AND ITS STOCKHOLDERS. THE IRONBOUND
BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT IRONBOUND'S STOCKHOLDERS VOTE "FOR"
APPROVAL AND ADOPTION OF THE IRONBOUND MERGER AGREEMENT.
See "THE IRONBOUND MERGER--Background of the Merger," "--Recommendation of
the Ironbound Board; Reasons for the Merger."
WHO CAN VOTE ON MATTERS ADDRESSED IN THIS DOCUMENT
The Ironbound board has fixed the close of business on January 29, 1999 as
the Ironbound record date for determining which stockholders are entitled to
notice of and to vote at the meeting. Only holders of record of Ironbound
common stock at the close of business on the record date will be entitled to
notice and to vote. As of the record date, there were 997,158 shares of
Ironbound common stock outstanding and entitled to be voted at the Ironbound
meeting, which were held by approximately 211 holders of record. The presence,
in person or by proxy, of the holders of at least a majority of the total number
of outstanding shares of Ironbound common stock entitled to vote at the meeting
is necessary to constitute a quorum.
21
<PAGE>
PROXIES; VOTING AND REVOCATION OF PROXIES
Each record holder of Ironbound common stock on the record date is entitled
to cast one vote per share of stock owned.
Ironbound intends to count shares of Ironbound common stock present in
person at the Ironbound meeting but not voted, and shares of Ironbound 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 Ironbound meeting for
purposes of determining the presence or absence of a quorum for the transaction
of business. Because the approval and adoption of the merger requires the
affirmative vote of the holders of a majority of the outstanding shares of
Ironbound common stock entitled to vote thereon, each non-voting share and
abstention will have the effect of a vote against the approval and adoption of
the merger. In addition, brokers who hold shares in street name for customers
who are or may be considered to be owners of such shares are prohibited from
giving a proxy to vote shares held for such customers on the approval and
adoption of the merger without specific instructions from such customers. Given
that the approval and adoption of the merger requires a majority vote, the
failure to provide specific instructions to a broker with respect to shares (a
"broker non-vote") will be counted against the merger agreement.
All shares of Ironbound common stock represented at the meeting by properly
executed proxies received by Ironbound in time to be voted at the meeting, and
which are not revoked, will be voted in accordance with the instructions
indicated on such proxies. If no instructions are given, such proxies will be
voted:
. "FOR" approval and adoption of the merger agreement; and
. in the discretion of the proxy holders on any other matter voted on.
This includes a motion to adjourn or postpone the meeting to solicit
additional proxies. However, no proxy voted against a proposal will be
voted in favor of any adjournment or postponement to solicit
additional votes in favor of that proposal.
If any other matters are voted on at the meeting, the persons named in the
proxy will have authority to vote on the matters at their discretion. Ironbound
does not know of any other matters to be presented at the meeting.
Ironbound stockholders who grant their proxy can revoke the proxy before it
is voted by:
. filing a written notice of revocation with the Corporate Secretary of
Ironbound prior to the meeting;
. executing a later-dated proxy relating to the same shares and
delivering it to the Corporate Secretary of Ironbound prior to the
meeting; or
. attending the meeting, filing a written notice of revocation with the
secretary of the meeting and voting in person.
22
<PAGE>
Any written notice of revocation or subsequently executed proxy should be
delivered to Ironbound Bankcorp, NJ, 36 Pacific Street at New York Avenue,
Newark, New Jersey 07105, Attention: Corporate Secretary, or hand delivered to
Ironbound's Corporate Secretary at that address on or before the day of the
meeting or to the Inspector of Elections of the meeting before the taking of the
vote. 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 AND TO VOTE AT THE MEETING. Examples of such documentation
- -----------------------------------------
include a broker's statement, letter or other document confirming your ownership
of shares of Ironbound common stock.
Ironbound will pay for the soliciting of proxies from its stockholders.
Proxies may be solicited by mail, personally, by telephone, facsimile or other
means, by directors, officers and employees of Ironbound or its subsidiaries.
Directors, officers and employees who solicit proxies may be reimbursed for
reasonable out-of-pocket expenses. Ironbound will also request persons, firms
and corporations holding shares of Ironbound 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 IRONBOUND COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO IRONBOUND IN THE
ENCLOSED POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
Vote Required; Principal Stockholders
The approval and adoption of the merger agreement will require the
affirmative vote of the holders of at least a majority of the outstanding shares
of common stock entitled to vote at the meeting. Failure to return a properly
executed proxy card or to vote in person, or abstaining from voting, will have
the same effect as a vote against the merger agreement. Shares underlying
broker non-votes will not be counted as having been voted in person or by proxy
at the meeting and will have the same effect as a vote against the merger
agreement. Stockholder approval is a condition to closing the merger.
As of September 30, 1998, directors and executive officers of Ironbound,
and persons closely associated with them, may be considered to have owned and
were entitled to vote 421,055 shares of common stock. This equals 42.09% of the
outstanding common stock that may be voted at the meeting. This does not include
shares of common stock which may be acquired through stock options under the
Ironbound 1994 Stock Option Plan, the Ironbound Bankcorp, NJ 1998 Stock Option
Plan for Employees/Active Officers of the Company's Wholly owned Subsidiary,
Ironbound Bank and the Ironbound Bankcorp, NJ 1998 Stock Option Plan for Non-
Employee Directors. These persons have agreed to vote or direct the vote of all
of their shares "FOR" approval and adoption of the merger agreement. In
addition, as of September 30, 1998, Richmond County may be deemed to be the
owner of 198,434 shares of Ironbound common stock issuable under the merger
Stock Option Agreement. Under its terms, Richmond County has the right to
exercise an option to purchase the 198,434 shares if certain events occur, none
of which has occurred. Richmond County has expressly disclaimed any ownership
interest in the 198,434 shares. See "CERTAIN RELATED TRANSACTIONS--Ironbound
Merger Stock Option Agreement."
23
<PAGE>
BENEFICIAL OWNERSHIP OF IRONBOUND COMMON STOCK
The following table provides information about the shares of Ironbound
common stock that may be considered to be owned by each director and executive
officer of Ironbound, and by all directors and executive officers of Ironbound
as a group as of September 30, 1998. People may be considered to own any shares
of common stock (1) over which he or she has, directly or indirectly, sole or
shared voting or investing power, or (2) of which he or she has the right to
acquire ownership, including the right to acquire ownership by the exercise of
stock options, within 60 days after September 30, 1998.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF COMMON
BENEFICIAL STOCK
TITLE OF CLASS OF SECURITY NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- --------------------------- ------------------------------------ ----------------- ------------
<S> <C> <C> <C>
Common Stock Edward Cruz 91,450/(1)(2)/ 9.17%
Cruz Plaza
Holmdel, NJ 07733
Common Stock Evaristo Cruz 93,121/(1)(3)/ 9.34%
Cruz Plaza
Holmdel, NJ 07733
Common Stock Lino A. DeAlmeida, Jr. 27,500 2.76%
29 State Highway 34,
Suite 203
Colts Neck, NJ 07722
Common Stock S. Thomas Gagliano 13,889/(8)/ 1.39%
78 Apple Street
Tinton Falls, NJ 07724
Common Stock Michael J. Gagliardi 34,500/(7)(9)/ 3.39%
36 Pacific Street
Newark, NJ 07105
Common Stock Jose Lopez, Jr. 36,462/(4)/ 3.66%
844 McCarter Highway
Newark, NJ 07102
Common Stock Thomas Lupo 34,000/(5)(7)(9)/ 3.34%
36 Pacific Street
Newark, NJ 07105
Common Stock Anthony J. Marques 62,931/(6)/ 6.31%
Route 611 and Ferry Road
Danboro, PA 18916
Common Stock Licinio Neves 27,202 2.73%
103 Main Street
Woodbridge, NJ 07095
All directors and 421,055 42.09%
executive officers
as a group (9 persons)
(footnotes on next page)
</TABLE>
24
<PAGE>
________________________
(1) E.E. Cruz & Company, Inc. is the registered owner of 53,092 shares of common
stock. Mr. Edward Cruz and Mr. Evaristo Cruz have agreed to divide these
shares equally (26,546 shares each) which is reflected in the above
schedule.
(2) Excludes 4,231 shares held by Mr. Edward Cruz' children of which Mr. Cruz
disclaims beneficial ownership and includes 1,358 shares held by Mr. Cruz'
wife of which he disclaims beneficial ownership.
(3) Excludes 1,156 shares held by Mr. Evaristo Cruz' children of which Mr. Cruz
disclaims beneficial ownership.
(4) Includes 1,734 shares held by Mr. Lopez' children and excludes 2,000 shares
held in trust for Mr. Lopez' children with a third party as trustee.
(5) Includes 1,400 shares held by Pende Investors, an investment partnership in
which Mr. Lupo has a 20% partnership interest and for which he votes all
shares held, 1,000 shares held in trust for Mr. Lupo's son and 2,000 shares
held in Mr. Lupo's Individual Retirement Account.
(6) Includes 57,881 shares held by Mr. Marques' father over which Mr. Marques
has voting power.
(7) Includes 19,500 shares for Mr. Gagliardi and 19,500 shares for Mr. Lupo
which are exercisable under Ironbound Bank's stock option plan.
(8) Includes 5,787 shares held by Mr. Gagliano's former wife over which Mr.
Gagliano has voting power.
(9) Includes 39,000 stock option shares which are exercisable (19,500 shares
each) by Mr. Gagliardi and Mr. Lupo.
25
<PAGE>
THE IRONBOUND MERGER
The following information relates to matters contained in the merger
agreement. It describes the material aspects of the merger but is not a
complete description of the merger agreement. The merger agreement is attached
as Annex A. Ironbound stockholders are urged to read the merger agreement
carefully.
GENERAL
Ironbound will be merged with and into Richmond County and Ironbound's
stockholders will become stockholders of Richmond County. Richmond County will
be the surviving corporation in the merger, and will continue its corporate
existence under Delaware law. After the merger, the separate corporate
existence of Ironbound will terminate. The merger is subject to the
satisfaction of certain conditions, including receipt of all necessary
regulatory approvals and the approval of Ironbound's stockholders.
As part of the merger, Ironbound Bank will merge into Richmond County
Savings. The surviving bank will be Richmond County Savings. It is the intent
of Richmond County Savings to operate the offices of Ironbound Bank as a
separate operational division of Richmond County Savings. See "CERTAIN RELATED
TRANSACTIONS--Bank Merger Agreement."
BACKGROUND OF THE MERGER
INITIAL MEETINGS BETWEEN THE PARTIES.
The first contacts between Ironbound and Richmond County occurred in April,
1998 at the executive management level. Messrs. Manzulli (Chairman of the Board
and Chief Executive Officer of Richmond County) and Gagliardi (President and
Chief Executive Officer of Ironbound) were known to each other as executive
officers of financial institutions in the New York metropolitan area and through
their involvement in various industry trade organizations. On April 7th,
Messrs. Gagliardi and Lupo (Executive Vice President of Ironbound) had a
luncheon meeting with Mr. Manzulli in response to a telephone call from Mr.
Manzulli. At this meeting, only a general discussion regarding, among other
things, their respective banking companies, industry trends and business
strategies took place. Following this meeting and as a result of subsequent
telephone conversations between Mr. Manzulli and Mr. Gagliardi, a meeting was
held on April 29th among Messrs. Manzulli and Burke (President of Richmond
County) and Messrs. Gagliardi, Lupo and Edward Cruz (Chairman of the Board of
Ironbound) for the purpose of discussing a possible affiliation between
Ironbound and Richmond County.
NEGOTIATING THE MERGER AGREEMENT.
The April meetings and discussions were reported to the Executive Committee
and the Ironbound board at the regularly scheduled meetings held in May. The
Ironbound board authorized management and the Chairman to continue discussions
with Richmond County. In June, confidentiality agreements were entered into
between the companies, and thereafter, the companies began exchanging financial
and other information regarding each other. On June 16th, a meeting between
Messrs. Gagliardi, Lupo and Cruz of Ironbound and Messrs. Manzulli and Burke was
held at Richmond County's offices, at which a preliminary term sheet for a
possible merger of Ironbound into Richmond County was reviewed. The term sheet
provided for an exchange of 1.38 shares of Richmond County common stock for each
share of Ironbound common stock, and outlined a provision whereby Ironbound
could terminate the agreement if the price of Richmond County common stock
declined to a certain level and declined by more than a selected peer group of
stocks. Messrs. Manzulli and Burke were invited to,
26
<PAGE>
and did, attend the regularly scheduled meeting of the Ironbound board on June
17th for the purpose of presenting their proposal and responding to questions
from the Ironbound board. After the presentation from Richmond County, the
Ironbound board scheduled a special meeting for June 23rd to review the Richmond
County proposal further, and the Ironbound board authorized the firm of
Ostrowski & Company, Inc. to attend the special board meeting as financial
advisor to Ironbound.
At the June 23rd special meeting of the Ironbound board, Ostrowski &
Company, Inc. reviewed the financial terms of the Richmond County proposal with
the Ironbound board and responded to various questions. A merger committee of
the Ironbound board was appointed to continue negotiations with Richmond County
in consultation with Ostrowski & Company, Inc., and the committee was authorized
to retain special counsel for Ironbound in connection with a possible merger
transaction with Richmond County. At a July 2nd special meeting, the Ironbound
board met with its financial advisor and legal counsel and reviewed the terms of
a draft merger agreement that had been provided by counsel to Richmond County,
including the proposed exchange ratio, stock option agreement and related
documents. Ostrowski & Company, Inc. presented a financial and valuation
analysis of the proposal, and indicated that negotiations had resulted in a
likely exchange ratio of 1.45 shares of Richmond County common stock for each
share of Ironbound common stock. A special meeting was again held on July 8th,
at which time counsel reviewed changes that had been made to the merger
agreement and Ostrowski & Company, Inc. further reviewed the financial aspects
of the transaction. A special meeting of the Ironbound board was scheduled for
July 15th to receive the report of the due diligence review conducted by
Ironbound's legal and financial advisors, review a final copy of the merger
agreement and if acceptable, to approve the transaction. On July 15th the legal
and financial advisors reported favorably as to their due diligence review of
Richmond County and reviewed with the Ironbound board the terms and conditions
of the proposed merger and related merger agreement, including the merger stock
option agreement. It was noted that the definitive agreement was revised, at
Ironbound's request, to delete any reference to an index in connection with the
Richmond County common stock price at which Ironbound may terminate the
agreement. Ostrowski & Company, Inc. summarized its financial and valuation
analyses of the proposed merger and provided its opinion that the terms of the
merger agreement are fair from a financial point of view to the Ironbound
stockholders. After conclusion of the review and discussion, a vote was taken
and the Ironbound board unanimously approved the merger agreement and authorized
the Chairman or the President to execute the merger agreement and related
documents on behalf of Ironbound.
RECOMMENDATION OF THE IRONBOUND BOARD; IRONBOUND'S REASONS FOR THE MERGER
Ironbound's board has determined that the merger and the merger agreement
are fair to, and in the best interests of, Ironbound and its stockholders. In
reaching this determination, the Ironbound board consulted with its financial
advisor with respect to the financial aspects and fairness of the transaction.
In arriving at its determination, the Ironbound board also considered a number
of factors including, but not limited to, the following which include all
material factors considered by the Ironbound board:
(1) Information concerning the businesses, earnings, operations, financial
condition and prospects of Ironbound and Richmond County, both
individually and as combined;
(2) The financial advice rendered by Ostrowski & Company, Inc., as
financial advisor to Ironbound, that the terms of the merger agreement
are fair, from a financial standpoint, to the Ironbound stockholders.
(See "--The Transaction is Fair to Stockholders According to
Ironbound's Financial Advisor");
(3) The terms of the merger agreement, the Ironbound Merger Stock Option
agreement and the other documents executed in connection with the
merger;
27
<PAGE>
(4) The tax-free nature of the transaction to Ironbound's stockholders for
Federal income tax purposes;
(5) The historical trading prices for Ironbound common stock and Richmond
County common stock;
(6) Published analysts' reports concerning the value of Richmond County
common stock;
(7) The anticipated cost savings and efficiencies available to the
combined entity;
(8) The current and prospective economic, competitive and regulatory
environment facing each institution and other financial institutions;
(9) The results of the due diligence investigations of Richmond County,
including an assessment of credit policies, asset quality, interest
rate risk, litigation, adequacy of loan loss reserves and the status
of Richmond County's preparations to be Year 2000 compliant;
(10) Ironbound's strategic alternatives to the merger, including the
continued operation of Ironbound Bank as an independent community
bank; and
(11) The terms of the merger agreement, including the provision which
allows Ironbound to terminate the merger agreement if the Richmond
County market value is less than $14.00.
The Ironbound board also took into account that the Ironbound stockholders
would have the opportunity to participate in the future growth of Richmond
County by obtaining Richmond County common stock in the merger and to receive
dividends. The Ironbound board determined that, based on many factors, the
merger will result in a stronger and more effective competitor in the rapidly
changing marketplace for banking services and will allow the combined entity to
take advantage of opportunities that might not be available to Ironbound on its
own. In reaching their determination to approve and recommend the Ironbound
merger, the Ironbound board did not assign any specific or relative values to
any of the foregoing factors, and individual directors may have given differing
value to different factors.
THE TRANSACTION IS FAIR TO STOCKHOLDERS ACCORDING TO IRONBOUND'S FINANCIAL
ADVISOR
Ostrowski & Company, Inc. was retained by Ironbound as its financial
advisor to provide, among other services, advice and assistance relating to the
evaluation and execution of mergers and acquisitions. Ironbound selected
Ostrowski & Company, Inc. on the basis of its in-depth knowledge of the bank and
thrift industry; the qualifications, experience and reputation of its personnel
in the banking and investment communities; as well as its experience in the
valuation of bank and thrift institutions and their securities in connection
with mergers and acquisitions and other corporate transactions.
As part of the advisory services described above, the Ironbound board
requested Ostrowski & Company, Inc.'s opinion as to the fairness, from a
financial point of view, of the terms of the merger agreement to the holders of
Ironbound common stock. Under the merger agreement, Ironbound will be acquired
by Richmond County through the merger of Ironbound with and into Richmond
County. The merger agreement provides that each outstanding share of Ironbound
common stock will be converted into the right to receive 1.45 shares of Richmond
County common stock. However, no fraction of a share of Richmond County common
stock will be issued in the merger. Instead Richmond County will pay each
holder of Ironbound common stock cash for fractional shares. The cash payment
will be
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determined by multiplying the fractional interest by Richmond County's market
value as defined on page 35. The exchange ratio is subject to adjustment if
Richmond County's market value is less than $15.945 but greater than or equal to
$14.00. The adjustment is equal to the number of shares of Richmond County
common stock obtained by dividing $23.12 per share by the Richmond County market
value. If the Richmond County market value is less than $14.00, Ironbound may
elect to terminate the merger agreement. On July 15, 1998, Ostrowski & Company,
Inc. delivered its opinion to the Ironbound board that, as of such that date,
the terms of the merger agreement are fair from a financial point of view, to
the Ironbound stockholders.
THE FULL TEXT OF OSTROWSKI & COMPANY, INC.'S FAIRNESS OPINION IS ATTACHED
AS ANNEX C TO THIS DOCUMENT. THIS DESCRIPTION OF THE FAIRNESS OPINION IS ONLY A
SUMMARY OF THE OPINION. HOLDERS OF IRONBOUND COMMON STOCK ARE URGED TO READ THE
OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF THE REVIEW UNDERTAKEN
BY OSTROWSKI & COMPANY, INC. IN ARRIVING AT ITS OPINION. OSTROWSKI & COMPANY,
INC.'S OPINION IS DIRECTED SOLELY TO THE FAIRNESS, FROM A FINANCIAL POINT OF
VIEW, OF THE TERMS OF THE MERGER AGREEMENT. IT IS NOT A RECOMMENDATION TO THE
IRONBOUND BOARD OR TO THE HOLDERS OF IRONBOUND COMMON STOCK WITH RESPECT TO ANY
VOTE AT THE MEETING.
In connection with providing this opinion, Ostrowski & Company, Inc.
examined and relied upon, among other things:
(1) the draft merger agreement dated July 15, 1998 as well as additional
required terms to be incorporated into the agreement;
(2) annual reports to stockholders, proxy statements and related audited
financial statements for Ironbound for each of the three fiscal years
ended December 31, 1995, 1996 and 1997;
(3) unaudited interim financial reports for Ironbound, including those for
the quarters ended March 31, 1998 and June 30, 1998;
(4) other financial information for Ironbound, including pro forma
financial statements and management's estimates relating to, among
other things, earnings, asset quality, loan delinquencies and capital;
(5) audited financial statements for Richmond County Savings for each of
the two fiscal years ended June 30, 1996 and 1997;
(6) the Richmond County prospectus dated December 16, 1997, certain
unaudited interim financial reports for Richmond County for the
quarters ended September 30, 1997, December 31, 1997, March 31, 1998
and June 30, 1998;
(7) other financial information for Richmond County, including pro forma
financial statements and management's estimates relating to, among
other things, earnings, asset quality, loan delinquencies and capital;
(8) discussions with executive management of Ironbound and Richmond County
concerning historical financial performance and condition, market and
economic conditions, future business prospects and financial forecasts;
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(9) comparable financial, operating and market data for the banking
industry and select peer groups;
(10) comparisons of the terms of the merger agreement with other bank and
thrift merger and acquisition transactions; and
(11) such financial and other information that Ostrowski & Company, Inc.
considered relevant.
In preparing its opinion, Ostrowski & Company, Inc. relied upon the
accuracy, completeness and fair presentation of all information supplied or
otherwise made available to them by, or on behalf of, Ironbound and Richmond
County. Ostrowski & Company, Inc. has not independently verified such
information or undertaken an independent evaluation or appraisal of the assets
or liabilities of Ironbound or Richmond County, nor was Ostrowski & Company,
Inc. furnished any such evaluations or appraisals. With respect to forecasts of
expected future financial performance, Ostrowski & Company, Inc. has been
advised that they reflect the best currently available estimates and judgement
of the executive management of Ironbound and Richmond County. Ostrowski &
Company, Inc.'s opinion is necessarily based upon the information available to
them and the market, economic and other conditions, as they exist and can be
evaluated, as of the date of the opinion.
In connection with providing its fairness opinion to the Ironbound board,
Ostrowski & Company, Inc. performed a variety of financial analyses. The
following is a summary of the material terms of such analyses but is not a
complete description of Ostrowski & Company, Inc.'s analyses or presentations to
the Ironbound board. The preparation of a fairness opinion is a complex process
involving subjective judgments and does not necessarily lend itself to partial
analyses or summary description. Ostrowski & Company, Inc. 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 the processes
underlying Ostrowski & Company, Inc.'s opinion.
In performing its analyses, Ostrowski & Company, Inc. made numerous
assumptions with respect to industry performance, and business and economic
conditions, many of which may be more or less favorable than actual results.
Estimates of values of companies do not purport to be appraisals or necessarily
reflect the prices at which companies or their securities may actually be sold.
No company or transaction utilized in Ostrowski & Company, Inc.'s analyses was
identical to Ironbound or Richmond County or to the terms of the merger
agreement. Because such estimates are inherently subject to uncertainty,
Ostrowski & Company, Inc. assumes no responsibility for their accuracy.
STOCK TRADING HISTORY. Ostrowski & Company, Inc. examined the quarterly
trading pricing trends for community banks and thrifts headquartered in
Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island and Vermont (collectively, the "Northeast"), from the
first quarter 1997 through the second quarter 1998. During that time period,
the average quarterly price/earnings ratio for the Northeast community bank
stock was between 14.6 times and 20.7 times last 12 months earnings ("LTM
earnings"), with a low of 14.6 times LTM earnings for the first quarter of 1997
and a high of 21.4 times LTM earnings for the first quarter of 1998. The
quarterly average price/earnings ratio for the Northeast community thrift stocks
traded between 16.8 times and 19.2 times LTM earnings over the same time period.
The lowest quarterly average multiple for thrift stocks was 16.8 times LTM
earnings for the first quarter of 1997 and the highest was 21.7 times LTM
earnings for the third quarter of 1997.
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The quarterly average of the Northeast community bank stock prices measured
against book value for the same time period generally traded between 178 percent
and 249 percent of book value, with a low of 178 percent for the first quarter
1997 and a high of 264 percent for the first quarter of 1998. The quarterly
average for the Northeast community thrift stocks over the same time period
traded between 134 percent and 181 percent of book value. The lowest value was
134 percent for the first quarter of 1997; and the highest value was 195 percent
for the first quarter of 1998.
Richmond County completed its conversion from a New York State-chartered
mutual bank to a New York State-chartered stock institution, with the concurrent
formation of a holding company, on February 18, 1998. Consequently, comparable
historical trading data comparisons for Richmond County were not made.
Ironbound stock is relatively closely held, with the board of directors and
executive management holding approximately 38% of the outstanding shares of
Ironbound common stock. Ironbound common stock is not listed on any exchange
and trades infrequently. Therefore, comparable trading market data for
Ironbound does not exist.
CONTRIBUTION ANALYSIS. Ostrowski & Company, Inc. prepared a contribution
analysis showing the percentage contributed by Ironbound to the combined company
on a pro forma basis of assets and deposits at June 30, 1998. This analysis
showed that Ironbound stockholders would contribute 6.6% of pro forma
consolidated assets, 9.6% of pro forma consolidated deposits and 3.2% of
consolidated pro forma equity. Net income contributions were considered based
upon six months ended June 30,1998 results annualized for Ironbound and year end
results of Richmond County, adjusted only for the elimination of its $19.6
million contribution to the Richmond County Savings Foundation. Based on these
results, Ironbound contributes 7.7% to consolidated pro forma earnings.
Ironbound stockholders would receive approximately 5.27% of the pro forma
ownership of the combined company assuming Richmond County's market price is at
least $15.945.
COMPARABLE COMPANY ANALYSIS. Ostrowski & Company, Inc. compared the
financial condition and operating performance of Ironbound with a peer group of
the Nasdaq National Market and exchange listed financial institutions
headquartered in the Northeast with assets between $50 and $150 million.
Ironbound reported a return on average assets of 1.15%, and return on average
equity of 11.76%, based on six months ended June 30, 1998 results annualized,
and an equity to assets ratio of 9.79% as of June 30, 1998. Based on trailing
12 months earnings per share as of March 31, 1998, the peer group averaged a
return on average assets of 0.79%, an average return on average equity of 8.32%
and an average equity to assets ratio of 10.04% as of March 31, 1998. Ironbound
reported a somewhat higher return on assets, return on equity and a higher
equity to asset ratio than its peer group. Trading comparisons were not made
for Ironbound common stock due to its closely held nature.
Ostrowski & Company, Inc. compared the financial condition and operating
performance of Richmond County with a peer group of Nasdaq National Market and
exchange-listed banks and thrifts headquartered in the Northeast with assets
between $1.1 billion and $1.5 billion. Richmond County reported a return of
average assets of 0.98% and a return on average equity of 4.74%, based on June
30, 1998 year end results, adjusted for the elimination of its $19.6 million
contribution to the Foundation, and an equity to assets ratio of 20.59% as of
June 30, 1998; the peer group had an average return on average assets of 1.04%,
an average return on average equity of 12.40% and an average equity to assets
ratio of 8.43%. Richmond County reported operating performance lower than the
peer group, with a much higher equity to assets ratio.
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Ostrowski & Company, Inc. also compared the trading performance of Richmond
County with this peer group. At July 14, 1998, Richmond County's common stock
price was $18.38, or 28.7 times earnings for the 12 months ended June 30, 1998
and 148% of reported June 30, 1998 book value, compared to the peer group
averages for these same measures of 19.1 times trailing 12 months earnings for
the 12 months ended March 31, 1998, and 219% of reported March 31, 1998 book
value. Richmond County's trading performance was above its peers on an earnings
multiple basis but lower than its peers on a book value basis.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Ostrowski & Company, Inc.
reviewed certain financial data, as of the date of the announcement, for
acquisitions of commercial banks and thrifts in the Northeast announced between
January 1997 and June 1998. Ostrowski & Company, Inc. also reviewed
acquisitions of commercial banks and thrifts in New Jersey between January 1997
and July 13, 1998. Ostrowski & Company, Inc. calculated the average multiple of
price to target's earnings for trailing 12 months, the average percentage of
price to book value and the average premium, which is the price in excess of
reported equity, as a percentage of deposits, on a quarterly basis beginning
January 1, 1997 through June 30, 1998. A value of $26.64 per share of Ironbound
common stock for the Richmond County proposal was utilized for the following
comparisons based upon the July 14, 1998 closing price for Richmond County
common stock of $18.38 and an exchange ratio of 1.45. The calculations for
transactions announced in the second quarter of 1998 resulted in the following
comparisons:
. price as a multiple to earnings for the Northeast banks 22.9 times, the
Northeast thrifts 27.5 times, and New Jersey transactions 36.1 times,
compared with the value of the Richmond County's proposal of 20.9 times
Ironbound's 1998 earnings estimate;
. price as a percentage of book value for the Northeast banks 246%, the
Northeast thrifts of 260%, and New Jersey transactions of 315%,
compared with the value of the Richmond County proposal of 240% of
Ironbound's stockholders' equity; and
. premium as a percentage of deposits for the Northeast banks of 21.1%,
the Northeast thrifts of 23.7%, and New Jersey transactions of 24.6%,
compared with the value of the Richmond County's proposal of a premium
of 15.5% of Ironbound's deposits.
The proposed pricing, on a price as a multiple to earnings basis, price as
a percentage of book value basis and premium as a percentage of deposits basis,
based on the exchange value of $26.64 calculated as described above, was below
the averages of the selected merger transactions announced in the second quarter
of 1998.
IMPACT ANALYSIS. Ostrowski & Company, Inc. analyzed the changes in the
amount of earnings per share and book value represented by the issuance of 1.45
shares of Richmond County common stock for each share of Ironbound fully
converted common stock, or $26.64 per share based on the July 14, 1998 closing
price for Richmond County common stock of $18.38. The analyses considered,
among other things, the impact on diluted earnings per share and book value per
share of Ironbound. The analysis was based upon reported June 30, 1998 balance
sheet data for Ironbound and Richmond County and the six months ended June 30,
1998 operating results annualized for Ironbound and the 12 months ended June 30,
1998 operating results for Richmond County, adjusted only for the elimination of
its $19.6 million contribution to the Richmond County Savings Foundation.
Ostrowski & Company, Inc. also analyzed certain per share values for fully
converted Ironbound common stock on an independent basis as well as the
equivalent values based on the 1.45 per share exchange ratio, as proposed in the
merger, and the July 14, 1998 closing price for Richmond County common stock of
$18.38. The respective estimated equivalent 1998 annual earnings per equivalent
share of Ironbound common stock was $0.95 or 26% lower than Ironbound's
estimated 1998 earnings per
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share. Book value per equivalent share of Ironbound common stock as of June 30,
1998, was $17.65 and 63% higher than Ironbound's book value per share as of the
same date. The annual cash dividends for each equivalent share of Ironbound
common stock was $0.29. Ironbound currently pays an annual cash dividend of
$0.20 per share.
DISCOUNTED CASH FLOW ANALYSIS. Ostrowski & Company, Inc. performed an
analysis which estimated the future cash flows to Ironbound stockholders over a
three year period under various circumstances, assuming Ironbound performed in
accordance with the earnings forecasts of its management. To approximate the
terminal value of Ironbound common stock at the end of the three-year period,
Ostrowski & Company, Inc. applied price to earnings multiples ranging from 20.0
times to 26.0 times, which resulted in values that equated to percentages of
book value ranging from 255% to 332% The terminal values were then discounted to
present values using discount rates ranging from 10.0% to 17.5%, chosen to
reflect assumptions regarding rates of return and risk premiums required by
holders or prospective holders of Ironbound common stock. This analysis
indicated a range of present values per share of $21.52 to $36.35.
In connection with its analysis, Ostrowski & Company, Inc. considered and
discussed with the Ironbound board how the present value analysis would be
affected by changes in the underlying assumptions. Ostrowski & Company, Inc.
noted that the discounted cash flow analysis is a widely used valuation
methodology, but 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 future results.
REMAINING INDEPENDENT SCENARIO. Ostrowski & Company, Inc. discussed with
Ironbound's management and board of directors the various expenses associated
with remaining as an independent company while achieving acceptable stockholder
returns. In order to survive independently in a highly competitive market,
Ironbound would have to broaden its product and service offerings to attract and
retain customers. This strategy would require a near-term investment in
Ironbound through the attraction and retention of additional qualified
professionals and a substantial investment in technology. Moreover, the
potential benefit of new products and services is long-term with no certainty as
to the degree of success and Ironbound's operating performance could suffer in
the short-term with adverse implications to stockholder value.
Ironbound has agreed to pay Ostrowski & Company, Inc. up to $70,000 for
advisory services in connection with the merger, including rendering a written
opinion as to the fairness of the proposed transaction from a financial point of
view, to holders of Ironbound common stock. Ironbound has made payments
totaling $45,000 as of the mailing of this document. Ironbound has also agreed
to reimburse Ostrowski & Company, Inc. for its reasonable out-of-pocket
expenses, including legal fees, incurred in connection with its engagement.
Ironbound will also protect Ostrowski & Company, Inc. and its affiliates and
their respective directors, officers, employees, agents and controlling persons
against certain expenses and liabilities.
MATERIAL PROJECTIONS SHARED BETWEEN THE COMPANIES IN NEGOTIATING THE MERGER
AGREEMENT
In evaluating a possible transaction involving Ironbound, Ironbound
prepared nonpublic estimates reflecting management's views as to the possible
future performance of Ironbound. These estimates were based on assumptions
relating to the interest rate environment, loan portfolio growth, asset growth
and deposit growth which management believed to be reasonable at the time.
Management's belief as to the reasonableness of its estimates and of the
assumptions underlying the estimates is based upon the use of industry data,
management's history of operations of Ironbound and the significant time and
resources management devoted to developing such estimates. The following are
the material estimates prepared by Ironbound's management and furnished to
Richmond County while
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the parties were negotiating the merger agreement. All of the following
estimates exclude gains on sales of investments and non-recurring items.
IRONBOUND'S PROJECTIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 (DOLLARS IN
THOUSANDS)
Net Interest Income............ $5,978
Non-Interest Income............ 795
Non-Interest Expense........... 4,531
Net Income..................... 1,430
Earnings Per Share............. 1.40
Book Value Per Share........... 12.99
Tangible Book Value Per Share.. 12.99
Dividends Per Share............ 0.38
Similarly, Richmond County prepared certain nonpublic estimates reflecting
management's views as to the possible future performance of Richmond County.
These estimates were based on assumptions which management believed to be
reasonable at the time. Management's belief as to the reasonableness of its
estimates and of the assumptions underlying such estimates is based upon the use
of industry data, management's history of operations of Richmond County and the
significant time and resources management devoted to developing the estimates.
The following is a summary of the material estimates prepared by Richmond
County's management and furnished to Ironbound while the parties were
negotiating the merger agreement.
RICHMOND COUNTY'S PROJECTIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1999 (DOLLARS
IN THOUSANDS)
Net Interest Income............ $70,588
Non-Interest Income............ 3,632
Non-Interest Expense........... 34,391
Net Income..................... 22,664
Earnings Per Share............. 0.92
Book Value Per Share........... 12.48
Tangible Book Value Per Share.. 12.44
Dividends Per Share............ 0.21
The estimates were not prepared with a view to public disclosure or
compliance with published guidelines established by the SEC or the American
Institute of Certified Public Accountants regarding projections. They are
included in this document solely because the parties furnished them to each
other during the merger negotiations. Neither party's independent auditors
assume any responsibility for the accuracy of the information. In addition,
because the estimates are inherently subject to significant economic and
competitive uncertainties and contingencies beyond each company's control, there
can be no assurance that the estimates will be realized. Actual results may be
higher or lower than those estimated. Neither party's auditor nor any other
independent accountants has compiled, examined or performed any procedures with
respect to the estimates, nor have they expressed any opinion or any other form
of assurance on the information or its achievability, and assume no
responsibility for, and disclaim any association with, the foregoing prospective
financial information.
The estimates do not give effect to the merger and should be read together
with the Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements.
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IRONBOUND STOCKHOLDERS WILL RECEIVE 1.45 SHARES OF RICHMOND COUNTY COMMON STOCK
FOR EACH IRONBOUND SHARE
Upon completion of the merger, each share of Ironbound common stock will be
converted into the right to receive 1.45 shares of Richmond County common stock.
However, certain shares will not be so converted. These shares include those
held directly or indirectly by Richmond County and those held by Ironbound as
treasury stock. They do not include shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted. Upon completion of the merger,
these shares will be canceled and retired and no payment will be made for them.
If the Richmond County market value is less than $15.945 but equal to or
greater than $14.00, the exchange ratio will be increased so that the value of
the consideration at the "valuation date" to be paid for each share of common
stock to be converted to Richmond County common stock (and cash instead of
fractional shares) is $23.12. The "Richmond County market value" is the average
of the closing sales prices of Richmond County stock for the 15 consecutive
trading days immediately preceding the day that is the valuation date.
"Valuation date" means the latest of:
------
. the day of expiration of the last waiting period with respect to any
of the required regulatory approvals;
. the day on which the last of the required regulatory approvals is
obtained; and
. the day on which the last of the required stockholder approvals has
been obtained.
Although Richmond County may be required to increase the exchange ratio,
under no circumstances may the exchange ratio be decreased. The exchange ratio
was arrived at through arm's-length negotiations between Richmond County and
Ironbound. The merger agreement provides that, if Richmond County effects a
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares of Richmond County common stock, an
appropriate adjustment to the exchange ratio will be made.
The market price of Richmond County common stock will always fluctuate.
Because the number of shares of Richmond County common stock to be received by
Ironbound's stockholders in the merger is fixed, subject to possible increase
described above, and because the market price of the Richmond County common
stock will fluctuate, the value of the shares of Richmond County common stock
that Ironbound stockholders would receive in the merger may increase or decrease
prior to and after the merger. For further information concerning the market
prices of Richmond County common stock and Ironbound common stock, see "MARKET
PRICES AND DIVIDEND INFORMATION." No assurance can be given as to what the
market price of Richmond County common stock will do before or after the merger
closes.
Other than the option Richmond County may have to exercise under the
Ironbound merger stock option agreement, each outstanding and unexercised option
to purchase shares of Ironbound common stock will be converted into the right to
receive shares of Richmond County common stock. The number of shares to be
received in exchange for options equals the product of: the exchange ratio and
18.125, less the exercise price of the options, multiplied by the number of
options held.
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PROCEDURES FOR EXCHANGING YOUR STOCK CERTIFICATES
RICHMOND COUNTY. Shares of Richmond County common stock issued and
outstanding immediately prior to the completion of the merger will remain issued
and outstanding and be unaffected by the merger.
IRONBOUND. Within five business days after the completion of the merger, a
bank or trust company selected by Richmond County and reasonably satisfactory to
Ironbound will mail to each former holder of record of Ironbound common stock a
letter with instructions on how to exchange Ironbound stock certificates for
Richmond County stock certificates, and cash for fractional shares.
HOLDERS OF IRONBOUND COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM THE
DESIGNATED AGENT, AND SHOULD NOT RETURN SUCH STOCK CERTIFICATES WITH THE
ENCLOSED PROXY.
After you mail in these materials to the designated agent, your Richmond
County stock certificates and, where applicable, a check for your fractional
shares, will be mailed back to you. The Ironbound certificates you surrender
will be canceled.
As an Ironbound stockholder, you will receive Richmond County dividends or
other distributions declared after the completion of the merger only if you
surrendered your Ironbound stock certificates. Only then will you be entitled to
receive all previously withheld dividends and distributions, without interest.
After the completion of the merger, there will be no transfers of Ironbound
common stock issued and outstanding immediately prior to the completion of the
merger. Ironbound stock certificates presented for transfer after the
completion of the merger will be canceled and exchanged for Richmond County
stock certificates.
If your Ironbound stock certificates have been lost, stolen or destroyed,
you will have to prove your ownership of these certificates and that they were
lost, stolen or destroyed before you receive any consideration for your shares.
The designated agent will send you instructions on how to provide such evidence.
INTERESTS OF IRONBOUND'S DIRECTORS AND OFFICERS IN THE IRONBOUND MERGER THAT ARE
DIFFERENT FROM YOUR INTERESTS
Some members of Ironbound's management and the Ironbound board may have
interests in the merger that are in addition to, or different from the interests
of stockholders. The Ironbound board was aware of these interests and
considered them in approving the merger agreement.
EXISTING CHANGE IN CONTROL AGREEMENTS. Ironbound is a party to change in
control agreements with its two executive officers, Michael J. Gagliardi, the
President and Chief Executive Officer, and Thomas Lupo, the Executive Vice
President and Chief Lending Officer of Ironbound. Mr. Gagliardi is 58 years old
and has been the President, Chief Executive Officer and a director of Ironbound
since its inception in 1997, and President, Chief Executive Officer and a
director of Ironbound Bank since 1994. Mr. Lupo is 47 years old. He has been
the Executive Vice President and a director of Ironbound since its inception in
1997 and Executive Vice President and Chief Lending Officer of Ironbound Bank
since 1994. The change in control agreements provide for a payment to each of
these executive officers of one year's base salary upon a change in control of
Ironbound. Mr. Gagliardi's and Mr. Lupo's annual base salaries for 1999 are
$150,700 and $120,000, respectively. Richmond County has agreed to honor these
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agreements, provided that the payments will be made by Ironbound immediately
prior to the completion of the merger.
VESTING OF STOCK OPTIONS. In addition, Messrs. Gagliardi and Lupo are
recipients of stock options under Ironbound plans. Under one of these plans,
each of the two executive officers was granted 24,804 options. Twenty thousand
of these options have vested with respect to each officer. The remaining 4,804
options will vest on the officer's next succeeding anniversary of his date of
employment. On April 22, 1998, Mr. Gagliardi and Mr. Lupo also received options
to purchase an additional 3,500 shares of Ironbound common stock.
Directors Edward Cruz and Evaristo Cruz each received 12,500 options,
director Jose Lopez received 8,000 options, and directors Lino A. DeAlmeida,
Jr., S. Thomas Gagliano, Anthony J. Marques, and Licinio Neves each received
6,000 options to purchase Ironbound common stock. These awards are scheduled to
vest in the recipients in equal installments over a three year period beginning
one year from the date of grant.
As a result of the merger, all outstanding options under the Ironbound
stock option plans, whether vested or unvested, will be converted automatically
into the right to receive Richmond County common stock as described above.
NEW EMPLOYMENT AGREEMENTS. At the completion of the merger, Richmond
County Savings will enter into employment agreements with Messrs. Gagliardi and
Lupo, each of which will have a three year term that can be extended on each
anniversary of the date of the agreement for an additional year. In accordance
with the agreements, Mr. Gagliardi will be employed as an executive vice
president of Richmond County Savings at an annual salary of $160,000. Mr. Lupo
will be employed as a senior vice president of Richmond County Savings at an
annual salary of $125,000. In addition to annual salary, they will be entitled
to other benefits as are provided uniformly to full-time employees of Richmond
County Savings and will be eligible to participate in or receive benefits under
any employee benefit plans. These include cash incentive or bonus plans
established for similarly situated employees, or supplemental retirement plans,
stock or option plans, made available in the future to key employees of Richmond
County Savings.
ESTABLISHMENT OF DIVISIONAL BOARD. No members of the Ironbound board will
be appointed to the Richmond County or Richmond County Savings boards. Richmond
County will, however, appoint the current members of the Ironbound board,
willing to serve, to a three year term on a divisional board of directors. The
divisional board will advise Richmond County with respect to deposit and lending
activities in Ironbound's market area and will maintain and develop customer
relationships. Each non-employee member of this divisional board, other than
the chairman of such board, will receive an annual retainer of $5,000 and $750
fee for each board meeting attended. The chairman of the divisional board will
receive an annual retainer of $10,000 and a $750 fee for each board meeting
attended. Each member of the divisional board will be prohibited from competing
directly with Richmond County for the duration of the term for which they were
elected or appointed. Richmond County has also agreed to appoint Edward Cruz to
the board of directors of the Richmond County Savings Foundation.
SALE OF IRONBOUND BUILDING. Prior to entering into the merger agreement,
Ironbound entered into an agreement to purchase its main office complex from
Pacific Urban Renewal, Inc., a real estate company owned by two of Ironbound's
board members, Edward and Evaristo Cruz, and a former board member, Anthony
Marques, Sr. Mr. Marques' son, Anthony Marques, Jr., also serves on the
Ironbound board. The agreed upon purchase price for the building is $1,850,000,
supported by an appraisal. Richmond County had conditioned the closing of the
merger on the sale of the main office complex to Ironbound, or an Ironbound
subsidiary. This condition was satisfied in October, 1998.
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PROTECTION OF IRONBOUND DIRECTORS AND OFFICERS AGAINST CLAIMS. Richmond
County has agreed to protect each present and former director and officer of
Ironbound and its subsidiaries and each officer or employee of Ironbound and its
subsidiaries that is serving or has served as a director or trustee of another
entity at Ironbound's request or direction. This protection relates to any
costs or expenses, judgments, claims, damages or liabilities incurred in
connection with any claim, action, suit, proceeding or investigation arising out
of matters existing or occurring at or prior to the completion of the merger
(including the transactions contemplated by the merger agreement). In this
connection, Richmond County also agreed to advance any such costs to each of
these persons as they are incurred, in each case to the fullest extent they
would have been protected by Ironbound and its subsidiaries and as then
permitted under applicable law. The protection with which Richmond County will
furnish Ironbound's officers, directors and employees will last for three years
after the completion of the merger.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
The Richmond County board will not change as a result of the merger.
However, the merger agreement furnishes Ironbound's officers and directors with
different rights from their rights as stockholders, relating to protection, the
payout of cash payments under existing employment agreements, the acceleration
of certain benefits and the vesting of certain benefits under certain employee
benefit plans. Additionally, Richmond County will enter into employment
agreements with Messrs. Gagliardi and Lupo as described above. Further,
Richmond County will appoint the current members of the Ironbound board willing
to serve, to a divisional board of directors as described above.
Also, following the merger the parties intend, subject to regulatory
approval, to merge Richmond County Savings and Ironbound Bank and consolidate
their operations. The surviving bank will be named Richmond County Savings
Bank. Richmond County Savings intends, subject to applicable statutes,
regulations or regulatory conditions, to operate the former offices of Ironbound
Bank as a separate operational division of Richmond County Savings.
EMPLOYEE MATTERS
Each Ironbound or Ironbound Bank employee whose employment is not
specifically terminated will become an employee of Richmond County or Richmond
County Savings. However:
(1) Ironbound's continuing employees will not be, or act as, officers of
Richmond County or Richmond County Savings unless elected or appointed
to that position by Richmond County or Richmond County Savings.
(2) With the exception of Messrs. Michael J. Gagliardi and Thomas Lupo,
Ironbound's continuing employees who remain following the merger will
be at will employees of Richmond County or Richmond County Savings.
(3) Each of Ironbound's continuing employees who is a participant in the
Ironbound Bank 401(k) Plan will become fully vested in his or her
account balance in the Ironbound Bank 401(k) Plan. The Ironbound Bank
401(k) Plan will either be merged into the Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust following or, terminated
immediately prior to, on, or after the completion of the merger. This
determination will be made by Richmond County Savings. Ironbound's
employees participating in the Ironbound Bank Retirement Savings Plan
will become participants in the Richmond County Savings 401(k) Plan.
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(4) Richmond County will honor existing employment agreements, including
the change in control provisions of such agreements between Ironbound
and Ironbound Bank and certain employees and stock option plans, and
other benefit plans. Richmond County will also honor the payment of
benefits by Ironbound under such agreements and plans to the extent
these obligations have been previously disclosed to Richmond County.
Payments under the Ironbound employment agreements may be made by
Ironbound immediately prior to the completion of the merger.
(5) Except as otherwise provided in paragraphs (3) and (4) above,
appropriate steps shall be taken to terminate all Ironbound employee
plans around the time the merger closes. Except as provided in
paragraph (3), each Ironbound continuing employee will be eligible to
participate in Richmond County employee plans, on the same basis as any
newly-hired employee of Richmond County or Richmond County Savings.
However, with respect to each Richmond County employee plan other than
the Richmond County Savings Bank Employee Stock Ownership Plan, for
determining eligibility to participate, vesting, and entitlement to
benefits, service with Ironbound or Ironbound Bank will be treated as
service with Richmond County or Richmond County Savings. Service will
not be recognized to the extent it would result in a duplication of
benefits. For purposes of the Richmond County Savings ESOP, Ironbound
continuing employees will be treated as newly-hired employees of
Richmond County or Richmond County Savings, and credit for service will
begin accruing as of the completion of the merger.
CONDITIONS TO THE MERGER
The obligations of Richmond County and Ironbound to close the merger are
conditioned on the following being satisfied at or prior to the completion of
the merger:
(1) Ironbound's stockholders must have approved the merger agreement;
(2) the requisite regulatory approvals, regulatory consents and waivers
must be obtained;
(3) all statutory waiting periods must have expired;
(4) all necessary material third party consents, waivers or approvals must
be obtained or made;
(5) no approvals or waivers will contain any term or condition that will
have a material adverse effect on Richmond County, Ironbound or their
subsidiaries;
(6) no party to the merger will be subject to any order, decree or
injunction that prohibits closing any of the merger's transactions;
(7) no statute, rule or regulation will prohibit completion of the merger's
transactions;
(8) the registration statement will have been declared effective by the SEC
and the SEC will not be taking actions to stop the merger from
proceeding;
(9) all required approvals by state securities or "blue sky" authorities
will have been obtained;
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(10) Richmond County will have received a letter of agreement from each
Ironbound affiliate agreeing to comply with Rule 145 of the Securities
Act of 1933, as amended, and to be present and vote in favor of the
merger at the meeting; and
(11) Richmond County will issue its shares in exchange for the shares of
Ironbound common stock. Those shares will be listed on the Nasdaq
National Market.
The obligations of Richmond County and Ironbound to complete the merger are
also conditioned on the following:
(1) all parties will have performed their respective obligations under the
merger agreement;
(2) subject to prior disclosure of any necessary qualifications, the
representations and warranties made by the parties in the merger
agreement will be materially true when the merger closes. Each party
will furnish the other with a certificate attesting to this fact;
(3) each party's stockholders and/or boards will have taken all actions
they are required to take under the merger agreement. Each will furnish
the other with appropriate corporate records reflecting this fact;
(4) Richmond County and Ironbound will have obtained consents or approvals
to permit Richmond County to assume Ironbound's contracts, leases and
other agreements;
(5) Richmond County and Ironbound will have received certificates from
appropriate authorities as to the corporate existence and good standing
of one another and their respective subsidiaries;
(6) Richmond County and Ironbound will have received an opinion from their
respective counsel, dated as of the completion of the merger, that the
merger will be treated for federal income tax purposes as a
reorganization within the meaning of the Internal Revenue Code and that
accordingly:
(a) no gain or loss will be recognized by Richmond County, Richmond
County Savings, Ironbound or Ironbound Bank as a result of the
merger;
(b) besides cash received for fractional shares, no gain or loss will
be recognized by Ironbound's stockholders who exchange their
Ironbound common stock for Richmond County common stock;
(c) the tax basis of stock received by Ironbound's stockholders in the
merger will be the same as the tax basis of their Ironbound common
stock. This tax basis will be 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
(d) the holding period of Richmond County common stock received by
each Ironbound stockholder will include the holding period of
their Ironbound common stock. However, the stockholder must have
first held their Ironbound common stock as a capital asset at the
merger's conclusion.
The parties have received these opinions, which will be updated after the
completion of the merger.
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We cannot guarantee when, or whether, the regulatory consents and approvals
necessary to complete the merger will be obtained or whether all of the other
conditions to the merger will be satisfied or waived by the party permitted to
do so. See "--Regulatory Approvals Needed to Complete the Merger" below. If
the merger is not completed on or before April 30, 1999, the merger agreement
may be terminated by a vote of a majority of the board of directors of either
Richmond County or Ironbound. However, failure to complete the merger by this
time cannot be due to the breach of any representation, warranty or covenant by
the party seeking to terminate.
REGULATORY APPROVALS NEEDED TO COMPLETE THE MERGER
Completion of the merger and the bank merger is subject to a number of
regulatory approvals and consents. The bank merger is subject to the prior
approval of the FDIC under the Bank Merger Act. 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 otherwise be anticompetitive. In addition, as discussed below, a waiting
period of 15 to 30 days must be satisfied prior to completion of the bank merger
after FDIC approval. Richmond County filed an application with the FDIC on
December 16, 1998.
Further, under the New York State Banking Law, the bank merger is subject
to the prior approval of the Superintendent of Banks. Richmond County filed an
application for approval of the bank merger with the Superintendent on December
16, 1998. In determining whether to approve the application for the merger of
Ironbound Bank with and into Richmond County Savings, the Superintendent will
consider, among other factors, whether the bank merger would be consistent with
adequate or sound banking and would not result in concentration of assets beyond
limits consistent with effective competition. 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, 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.
The merger is subject to the approval of the Board of Governors of the
Federal Reserve System or the Federal Reserve Bank of New York, or the waiver by
the Federal Reserve Bank of such requirement. Richmond County filed a request
for a waiver from this application requirement, as the Federal Reserve System
will have no continuing jurisdiction over the merged company and the transaction
is being reviewed by other banking agencies. The Federal Reserve Bank granted
the waiver request on January 13, 1999.
The merger and the bank merger are also subject to the prior approval of
the Commissioner of the New Jersey Department of Banking and Insurance. In
determining whether to approve the merger, the Commissioner must consider
whether the merger:
. would be detrimental to the safety and soundness of Ironbound and
Ironbound Bank;
. would result in an undue concentration of resources or a substantial
reduction in competition in New Jersey; or
. would have a significantly adverse impact on the convenience and needs
of the communities served by Ironbound Bank.
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The Commissioner will not withhold approval of the bank merger unless the
Commissioner finds that the bank merger agreement contains provisions that are
not in conformance with New Jersey law or that the bank merger will not be in
the public interest.
Under the Community Reinvestment Act of 1977, the FDIC and the Federal
Reserve System must take into account the record of performance of Richmond
County Savings and Ironbound Bank 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 "REGULATION
AND SUPERVISION--Community Reinvestment Act." Richmond County Savings and
Ironbound Bank each received a "Satisfactory" rating during their last
respective federal and state Community Reinvestment Act examinations.
In addition, a period of 15 to 30 days must expire following approval by
the FDIC and the Federal Reserve System, within which period the United States
Department of Justice may file objections to the merger under the federal
antitrust laws. 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
merger, or if such proceeding is instituted or challenge is made, as to the
result thereof.
The merger and the bank merger cannot proceed in the absence of the
requisite regulatory approvals. See "--Conditions to the Merger" and "--Waiving
and Amending Provisions in, or Terminating, the Merger Agreement." 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 that causes such approvals to fail to satisfy the condition set
forth in the merger agreement and described above under "--Conditions to the
Merger." There can likewise be no assurance that the Department of Justice or
the Attorney General of the State New York will not challenge the merger or, if
such a challenge is made, as to the result of the challenge.
Richmond County is not aware of any other regulatory approvals that would
be required for completion of the 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 does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by
Ironbound stockholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Except as expressly provided for in the merger agreement and except to the
extent required by law or by regulatory authorities, Richmond County and
Ironbound have agreed that, during the period from July 17, 1998 to the
completion of the merger, Richmond County and Ironbound and their respective
subsidiaries will use commercially reasonable efforts to:
. conduct their business in the regular, ordinary and usual course
consistent with past practice;
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. maintain and preserve intact their business organization, properties,
leases, employees and advantageous business relationships and retain
the services of their officers and key employees;
. take no action which would materially adversely affect or delay the
ability of Richmond County or Ironbound to perform their respective
covenants and agreements on a timely basis under the merger agreement;
. take no action which would adversely affect, delay, or materially
condition the ability of Richmond County, Richmond County Savings,
Ironbound or Ironbound Bank to obtain any necessary approvals,
consents or waivers of any governmental authority required for the
transactions contemplated by the merger agreement; and
. take no action that results in or is reasonably likely to have a
materially adverse effect on Richmond County or Richmond County
Savings.
A party is materially adversely effected by (1) an event whose effect is
material and adverse to the business, financial condition or results of
operations of such party and its subsidiaries taken as whole. However, any such
effect resulting from any changes in laws or generally accepted accounting
principles ("GAAP"), or interpretations thereof, or changes in the general level
of market interest rates, will not be considered in determining if a material
adverse effect has occurred; or (2) the failure of certain representations and
warranties required to be true.
Further, except as otherwise provided in the merger agreement, during the
period from July 17, 1998 to the completion of the merger, Ironbound has agreed
that neither it nor any of its subsidiaries will take certain actions unless
permitted to by Richmond County or required to by law. These include:
(1) changing their governing documents;
(2) issuing any shares of capital stock, changing the terms of any
outstanding stock options or warrants, issuing, granting or selling any
option, warrant, call, or commitment relating to the authorized or
issued capital stock of Ironbound. This restriction does not apply to
the exercise of stock options or warrants outstanding as of July 17,
1998;
(3) declaring or paying any dividend or distribution, or acquiring any
shares of its capital stock or any securities or obligations
convertible into its capital stock. Ironbound will also change its
regular quarterly dividend record dates and payment dates so that they
are the same as Richmond County's;
(4) Ironbound's stockholders cannot receive two dividends from either
Ironbound or from Ironbound and Richmond County in any one quarter;
(5) other than in the ordinary course of business consistent with past
practice:
(a) disposing of any of its material properties, leases or assets to
anyone other than to its wholly owned subsidiary of Ironbound;
or
(b) cancelling, releasing or assigning any indebtedness;
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(6) unless required by law or as specifically provided for in the merger
agreement, increasing the compensation or fringe benefits of any of
its employees or directors, other than general increases for non-
officer employees in the ordinary course of business consistent with
past practice. Any such increase cannot cause more than a 5% increase
in the total annual compensation expenses of such person for the 12-
month period ended March 31, 1998. Additionally, any increase must not
cause the annual rate of such individual's compensation to increase by
more than 10% of that person's compensation at March 31, 1998.
Further, Ironbound cannot make payments to retain key employees. It
also cannot pay or agree to pay any pension or retirement allowance
not required to be paid by any existing plan or agreement to any such
employees or directors;
(7) voluntarily accelerating the vesting of any stock options or other
compensation, making discretionary continuations to any Ironbound
employee plan, hiring any employee with an annual total compensation
of more than $35,000. The merger agreement also prevents Ironbound
from entering into any employment contracts, or terminating or
materially increasing the costs to Ironbound or any subsidiary of any
employee plan;
(8) except as contemplated by the merger agreement, changing its method of
accounting as in effect at December 31, 1997;
(9) settling any claim of Ironbound or any of its subsidiaries for in
excess of $25,000 or imposing material restrictions on the operations
of Ironbound or any of its subsidiaries;
(10) acquiring or agreeing to acquire any business, or any business assets
which are material to Ironbound, except to satisfy debts previously
contracted;
(11) except for those loans existing at July 17, 1998 which were previously
disclosed to Richmond County, and real estate or construction loans
secured by one- to four-family homes, making any real estate loans
secured by undeveloped land or real estate located outside of New
Jersey;
(12) unless in the ordinary course of business consistent with past
practice or as agreed to in the merger agreement, making any
investment of more than $50,000 in any entity;
(13) investing in any debt security other than United States Government and
United States 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 under
OTS mandates or securities of the Federal Home Loan Bank. Any debt
security that is purchased must be done so in the ordinary course of
business consistent with past practice;
(14) entering into contracts that require annual payments of more than
$20,000. This restriction does not apply to exceptions specifically
described in the merger agreement;
(15) making, granting or purchasing any loan, or making any commitment to
lend in excess of $500,000 to any individual borrower, unless the loan
is fully secured by real estate or liquid collateral and conforms in
all material respects with Ironbound's existing loan policy. Ironbound
Bank is also permitted to renew currently outstanding loans in
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amounts above $500,000 provided that the loan has a satisfactory
payment history and the renewal is not in excess of the original loan
principal amount;
(16) incurring any additional borrowings beyond those disclosed to Richmond
County. This restriction does not apply to Federal Home Loan Bank
borrowings of six months or less and reverse repurchase agreements
consistent with past practice. Ironbound is also restricted from
pledging any of its assets to secure any borrowings other than as
required as of July 17, 1998 as permitted under the merger agreement;
(17) making any capital expenditures in excess of $50,000 other than under
binding commitments existing on July 17, 1998 that have been
previously disclosed to Richmond County. This restriction does not
apply to expenditures necessary to maintain existing assets in good
repair or to make payment of necessary taxes;
(18) other than securities of the Federal Home Loan Bank that are purchased
in the ordinary course of business consistent with past practice,
organizing, capitalizing, lending to, or otherwise investing in, any
subsidiary, or investing in or acquiring any equity or voting interest
in any firm, corporation or business enterprise;
(19) electing to the Ironbound board or to any office any person who is not
a member of the Ironbound board or an officer of Ironbound as of July
17, 1998;
(20) accepting any proposed deposits by any municipality or government
agency the terms of which exceed 90 days; or
(21) agreeing or making any commitment to take any action that is describe
above.
At Richmond County's request, Ironbound will cause Ironbound Bank to modify
and change its loan, litigation or real estate valuation policies and practices
and investment and asset/liability management policies and practices. This will
occur 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 anything that would prevent completion of the
merger. It will not occur earlier than five business days prior to the
---
completion of the merger.
REPRESENTATIONS AND WARRANTIES MADE BY RICHMOND COUNTY AND IRONBOUND IN THE
MERGER AGREEMENT
Both Richmond County and Ironbound have made certain customary
representations and warranties relating to their businesses. For detailed
information on these representations and warranties, please refer to the merger
agreement attached as Annex A. The representations and warranties must be true
in all material respects through the completion of the merger unless the change
does not have a material negative impact on the party's business, financial
condition or results of operations. See "--Conditions to the Merger."
WHAT HAPPENS IF A THIRD PARTY OFFERS TO BUY IRONBOUND
Ironbound has agreed not to seek to have an outside third party try to buy
a material interest in Ironbound or its subsidiaries. Generally, an offer to
buy at least 15% of Ironbound's assets, at least 10% of Ironbound's stock, or a
public announcement by Ironbound to enter into an agreement to do this, would
violate this covenant.
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However, the Ironbound board may generally enter into discussions or
negotiations with anyone who makes an unsolicited, written bona fide proposal to
acquire Ironbound that is deemed to be a financially superior proposal to that
of Richmond County. A proposal of this nature is one about which Ironbound's
financial advisors opine in writing is superior to this merger from a financial
point of view to Ironbound's stockholders. For the Ironbound board to enter
into negotiations on a superior proposal, it would also have to first determine
that it was their fiduciary duty to enter into such negotiations.
If Ironbound does enter into negotiations with a third party regarding a
superior proposal, it has to furnish Richmond County with notice of its intended
actions and enter into a confidentiality agreement with the third party.
The Ironbound board may also withdraw or modify its recommendation for the
merger and enter into a superior proposal if, after consulting with independent
legal counsel, the board determines in good faith that such action is necessary
for it to comply with its fiduciary duties to stockholders.
WAIVING AND AMENDING PROVISIONS IN, OR TERMINATING, THE MERGER AGREEMENT
Prior to the completion of the merger, any provision of the merger
agreement may be waived, amended or modified by the parties. However, after the
vote by the stockholders of Ironbound, no amendment or modification may be made
that would reduce the consideration to be received by Ironbound's stockholders
under the terms of the merger.
The merger agreement may also be terminated at or prior to the completion
of the merger, either before or after approval of the matters presented in
connection with the merger by the stockholders of Ironbound by:
(1) the mutual consent of both boards;
(2) either party's board if the stockholders of Ironbound do not approve
the merger agreement;
(3) either party, if a governmental approval, consent or waiver has been
denied or a governmental authority has prohibited the merger or part of
the merger from being completed;
(4) either party's board if, the merger is not completed by April 30, 1999.
However, the failure to complete the merger by April 30, 1999 cannot be
due to the breach of any representation, warranty or covenant contained
in the merger agreement by the party seeking to terminate;
(5) either party, if there has occurred an event since July 17, 1998, that
has or will have a material adverse effect on the other party. Each
party must give the other 30 calendar days to cure the adverse effect
of the event;
(6) either party if the other has failed to perform a material obligation,
or if the other party has materially and incurably breached a covenant,
condition or representation of the merger agreement;
(7) Richmond County, if the Ironbound board does not publicly recommend in
the proxy statement that Ironbound's stockholders approve and adopt the
merger agreement. Richmond County could also terminate if, after
recommending in this document that
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Ironbound stockholders approve and adopt the merger agreement, the
Ironbound board withdraws, modifies or amends its recommendation in any
respect materially adverse to Richmond County; or
(8) Ironbound, as discussed below under "--Price-Based Termination of the
Merger Agreement."
PRICE-BASED TERMINATION OF THE MERGER AGREEMENT
The merger agreement provides that if the average of the daily closing
sales price of Richmond County stock for the 15 consecutive trading days
immediately preceding the day on which the last regulatory approval is obtained
is less than $14.00, then Ironbound may terminate the merger agreement, proceed
with the merger as structured, or attempt to renegotiate the exchange ratio
during the five day period beginning with the day on which the last regulatory
approval is obtained.
NASDAQ NATIONAL MARKET LISTING
Richmond County 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 merger to be approved for quotation on the
Nasdaq National Market, prior to or at the completion of the merger. The
obligations of the parties to complete the merger are subject to approval for
quotation on the Nasdaq National Market of such shares. See "--Conditions to
the Merger" above.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for under the purchase method of accounting in
accordance with GAAP. This means that Richmond County and Ironbound will be
treated as one company as of the date of the combination and Richmond County
will record the fair market value of Ironbound's 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 Ironbound's operations beginning at the
completion of the merger.
The unaudited pro forma condensed combined consolidated financial
information contained in this document has been prepared using the purchase
accounting method to account for the merger. See "Unaudited Pro Forma Condensed
Combined Consolidated Financial Statements."
TAX-FREE TRANSACTION FOR IRONBOUND STOCKHOLDERS
The following is a discussion of the material federal income tax
consequences of the merger to Richmond County, Ironbound and holders of
Ironbound common stock. The discussion is based upon the Internal Revenue Code,
Treasury regulations, Internal Revenue Service rulings, and judicial and
administrative decisions in effect as of the date of this document. This
discussion assumes that the Ironbound common stock is generally held for
investment. In addition, this discussion does not address all of the tax
consequences that may be relevant to a holder of Ironbound 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 completion of the merger. In rendering their opinions, counsel will
require and rely upon representations contained in certificates of officers of
Richmond County, Ironbound and others.
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HOLDERS OF IRONBOUND COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO
THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER.
It is a condition to each of the party's obligation to complete the merger
that the parties each will have received an opinion of their respective counsel,
dated as of the completion of the merger and that the merger will be treated as
a reorganization within the Internal Revenue Code. We have already received
opinions to this effect, and these opinions will be updated when we complete the
merger. If either party waives the requirement of receiving a tax opinion and
there is a material change in tax consequences to Ironbound stockholders, you
will be notified of such an event and given the opportunity to confirm or change
your vote. Because the merger will be treated as a reorganization:
. none of the companies involved in the merger will recognize a gain or
a loss;
. no stockholders of Ironbound will recognize a gain or a loss for
exchanging their Ironbound shares for Richmond County shares, except
for cash received for fractional shares; and
. Ironbound stockholders will not have their individual tax basis or
holding periods affected by exchanging their Ironbound shares for
Richmond County shares, except to the extent cash is received for
fractional shares.
SELLING THE RICHMOND COUNTY STOCK YOU RECEIVE IN THE MERGER
The shares of Richmond County common stock to be issued in the merger will
be registered under the Securities Act of 1933 and will be freely transferable
under the Securities Act of 1933, except for shares issued to any Ironbound
stockholder who may be deemed to control Ironbound, such as an executive
officer, director or someone who owns a significant amount of the Company's
stock. These controlling persons may not sell their shares of Richmond County
common stock acquired in connection with the merger, except under an effective
registration statement under the Securities Act of 1933 covering such shares or
in compliance with another applicable exemption from the registration
requirements of the Securities Act of 1933. This document does not cover any
resales of Richmond County common stock received in the merger by persons who
may be deemed to be controlling persons of Ironbound. Ironbound has obtained
from each person who is a controlling person of Ironbound and has delivered to
Richmond County, a written agreement intended to ensure compliance with the
Securities Act of 1933.
YOU DO NOT HAVE APPRAISAL RIGHTS IN THE MERGER
Under New Jersey law, 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, either listed on a national securities
exchange or held of record by more than 1,000 stockholders. They are also not
entitled to appraisal rights if they will receive cash, shares, or other
securities which, upon the completion of the merger, will either be listed on a
national securities exchange or held of record by at least 1,000 stockholders.
Ironbound stockholders are not entitled to appraisal rights in connection with
the merger because the shares of Richmond County common stock they will receive
in the merger are held by more than 1,000 stockholders of record.
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WHO PAYS FOR WHAT
All costs and expenses incurred in connection with the merger will be paid
by the party incurring the expense.
WHEN WILL THE MERGER BE COMPLETED
The merger will become effective at the time set forth in the certificate
of merger that will be filed with the Secretary of State of the State of
Delaware. The certificate of merger will be filed no later than five business
days after satisfaction or waiver of the latest to occur of certain conditions
to the merger, unless another date is agreed to in writing by Richmond County
and Ironbound. See "--Conditions to the Merger." The closing of the
transactions contemplated by the merger agreement will take place on the date of
such filing. It is expected that a period of time will elapse between the
meeting and the completion of the merger while the parties seek to obtain the
regulatory approvals required to complete the 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 merger or, if such a challenge is made, the
result of the challenge. See "--Regulatory Approvals Needed to Complete the
Merger." The merger agreement may be terminated by either party if, among other
reasons, the merger has not been completed on or before April 30, 1999 unless
failure to complete the merger by that time is due to the breach of any
representation, warranty or covenant by the party seeking to terminate. See "--
Waiving and Amending Provisions in, or Terminating, the Merger Agreement."
CERTAIN RELATED TRANSACTIONS
IRONBOUND MERGER STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the Ironbound
Merger Stock Option Agreement, which is attached to this document as Annex B.
The following summary is qualified in its entirety by reference to the merger
stock option agreement. Execution of the merger stock option agreement was a
condition to the parties entering into the merger agreement.
Concurrently with the execution of the merger agreement, Richmond County
and Ironbound entered into the merger stock option agreement. The merger stock
option agreement is designed to enhance the likelihood that the merger will be
successfully completed. Richmond County insisted on the agreement for that
reason. Under the merger stock option agreement, Ironbound granted Richmond
County the option to purchase up to 198,664 authorized but unissued shares of
Ironbound common stock. This represents approximately 19.9% of the issued and
outstanding shares of Ironbound common stock on July 17, 1998. The option price
of $20.00 per share is subject to adjustment in certain circumstances.
Richmond County may exercise the option granted under the merger stock
option agreement, in whole or part, if a triggering event occurs prior to the
occurrence of an exercise termination event. An event that triggers or may
trigger this option essentially occurs if Ironbound or Ironbound Bank enters
into an agreement, or has recommended to its stockholders or publicly announced
an intention to merge with or sell to a third party a material amount of its
stock or assets.
A triggering event can also occur if Ironbound's stockholders do not
approve the merger, the Ironbound meeting is not held or the Ironbound board
withdraws its support for the merger, and any of these things occur after a
---
third party discloses an intention to buy a material interest in Ironbound or
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Ironbound Bank. Further, a triggering event can occur if a third party makes a
legitimate proposal to buy a material interest in Ironbound or its subsidiaries
after which Ironbound breaches an obligation under the merger agreement. A
triggering event can also occur if a third party files an application or notice
with a federal or state regulatory authority for approval to merge with
Ironbound or Ironbound Bank, followed by the purchase of 25% or more of
Ironbound's outstanding stock.
However, the merger stock option agreement will terminate upon the earliest
of:
. the completion of the merger;
. termination of the merger agreement prior to the occurrence of a
triggering event; or
. 12 months after the termination of the merger agreement if the
termination follows a triggering event.
Ironbound must notify Richmond County promptly in writing of the occurrence
of a triggering event.
EFFECT OF THE IRONBOUND MERGER STOCK OPTION AGREEMENT. The merger stock
option agreement is intended to increase the likelihood that the merger will be
completed. Consequently, certain aspects of the merger stock option agreement
may have the effect of discouraging persons who might now or prior to the
completion of the merger be interested in acquiring all of or a significant
interest in Ironbound from considering or proposing such an acquisition. The
acquisition of Ironbound or an interest therein, or an agreement to acquire all
or part of Ironbound, could cause the option granted under the merger stock
option agreement to become exercisable. The existence of the merger stock
option agreement could significantly increase the cost to a potential acquiror
of acquiring Ironbound compared to its cost had the 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 Ironbound's independent accountant, Ironbound's
management believes that the exercise of the option granted under the merger
stock option agreement is likely to prohibit any acquiror from accounting for an
acquisition of Ironbound using the pooling-of-interests accounting method for a
period of two years following such exercise. Accordingly, the existence of the
merger stock option agreement may deter significantly, or completely prevent an
acquisition of Ironbound by certain other banking organizations. The Ironbound
board took this factor into account before approving the merger stock option
agreement. See "SUMMARY--Our Recommendations to the Ironbound Stockholders" and
"--Our Reasons for the Merger."
BANK MERGER AGREEMENT
In connection with the merger, Richmond County Savings and Ironbound Bank
have entered into the bank merger agreement under which Ironbound Bank and
Richmond County Savings will merge, with Richmond County Savings being the
surviving bank. It is the intention of Richmond County Savings, subject to
applicable statutes, regulations or regulatory conditions, to operate the former
offices of Ironbound Bank as a separate operational division of Richmond County
Savings. The bank merger agreement may be terminated by mutual consent of the
parties at any time and will be terminated automatically in the event the merger
agreement is terminated.
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THE BAYONNE MERGER
In a separate and unrelated transaction, Richmond County is also acquiring
Bayonne Bancshares, Inc. Bayonne is a savings and loan holding company
organized under the laws of the State of Delaware in 1997. Under the Bayonne
merger, Richmond County will issue 1.05 shares of its common stock for each
share of Bayonne common stock. It is expected that following the merger and the
Bayonne merger, approximately 36,850,000 shares of Richmond County common stock
will be outstanding, based on the 25,192,550 shares of Richmond County common
stock outstanding as of January 29, 1999. Bayonne's wholly owned subsidiary,
First Savings Bank of New Jersey, SLA, is a New Jersey State-chartered savings
and loan association that operates four banking offices and one financial center
in Bayonne, New Jersey. First Savings has operated since 1889. The deposits of
First Savings are insured by the Savings Association Insurance Fund. 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
offices are located at 568 Broadway, Bayonne, New Jersey 07002 and its telephone
number is (201) 437-1000. After the Bayonne merger, Bayonne will be merged with
and into Richmond County, and Bayonne stockholders will become stockholders of
Richmond County. It is intended that the Bayonne merger will be completed in
the first quarter of 1999. Immediately following the completion of the Bayonne
merger, Richmond County Savings and First Savings will also merge. Richmond
County Savings will be the name of the surviving bank. THE BOARDS OF DIRECTORS
OF RICHMOND COUNTY AND BAYONNE HAVE UNANIMOUSLY APPROVED THE BAYONNE MERGER.
THE BAYONNE MERGER REQUIRES THE APPROVALS OF RICHMOND COUNTY'S STOCKHOLDERS AND
BAYONNE'S STOCKHOLDERS. THE COMPLETION OF THE IRONBOUND MERGER IS NOT DEPENDENT
UPON THE COMPLETION OF THE BAYONNE MERGER.
REGULATION AND SUPERVISION
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 Bank Insurance Fund. Richmond County Savings is subject to extensive
regulation by the New York Banking Department, as its chartering agency, and by
the FDIC, as the deposit insurer. Richmond County Savings must file reports
with the New York Banking Department and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as establishing branches and mergers
with, or acquisitions of, other depository institutions. There are periodic
examinations by the New York Banking Department and the FDIC to assess Richmond
County's compliance with various regulatory requirements and financial
condition. 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 New York Banking Law and the
regulations of the New York Banking Board and the Superintendent, 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
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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 New York
Banking Law. 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 New
York Banking Law, savings banks are authorized to elect to invest under a
"prudent person" standard in a wider range of debt and equity securities as
compared to the types of investments permissible under such specific investment
authority. However, in the event a savings bank elects to utilize the "prudent
person" standard, it will be unable to avail itself of the other provisions of
the New York Banking Law 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 New York Banking Board and the Superintendent.
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 New
York Banking Board. 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 New York Banking
Law is limited by FDIC regulations and other federal law and regulations. In
particular, the applicable provisions of the New York Banking Law 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 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.
Under the New York Banking Law, 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. However, 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.
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
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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. Tier I generally excludes auction note issues, mortgage
servicing rights and purchased credit card 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. The minimum Tier I leverage ratio is the 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.
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 Risk-Based Capital... 22.49%
Leverage Capital........... 12.38%
</TABLE>
The following is a summary of Ironbound Bank's regulatory capital ratios at
September 30, 1998:
<TABLE>
<S> <C>
Tier I Risk-Based Capital.. 20.78%
Total Risk-Based Capital... 21.57%
Leverage Capital........... 9.52%
</TABLE>
REAL ESTATE LENDING STANDARDS. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (1) are secured by real estate or (2) 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. 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 the Federal Deposit Insurance Corporation
Improvement Act of 1991, 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. The Federal Deposit Insurance
Corporation Improvement Act of 1991 and the FDIC regulations 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 Bank Insurance Fund. 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 New York Banking Law, 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.
TRANSACTIONS WITH COMPANIES OR ENTITIES THAT CONTROL SAVINGS BANKS
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of 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 Federal Reserve System has proposed regulations that would treat as an
affiliate any subsidiary of a savings bank that engages in activities not
permissible for
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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, 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
director who has an interest in the outcome of whether the loan is granted 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.
THE FDIC'S ENFORCEMENT AUTHORITY
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 also has authority
under federal law to appoint a conservator or receiver for an insured savings
bank under certain circumstances.
INSURANCE OF DEPOSIT ACCOUNTS
An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned by the FDIC. Deposits of Richmond
County Savings are presently insured by the Bank Insurance Fund. Assessment
rates for Bank Insurance Fund deposits, exclusive of assessments for Financing
Corporation 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
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designated reserve ratio of 1.25%, which requirement the Bank Insurance Fund
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 Bank Insurance Fund insured
institutions like Richmond County Savings to assist in the payment of Financing
Corporation bonds.
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 FINANCING CORPORATION BONDS
Bank Insurance Fund deposits are also assessed for payments on bonds issued
by the Financing Corporation, which were issued in the late 1980's to
recapitalize the predecessor Savings Association Insurance Fund. For the third
quarter of 1998, the Financing Corporation assessment rates, on an annual basis,
are 1.22 basis points for Bank Insurance Fund-assessable deposits and 6.10 basis
points for Savings Association Insurance Fund-assessable deposits. Full pro
rata sharing of the Financing Corporation payments by Bank Insurance Fund
members will occur on the earlier of January 1, 2000 or the date the Bank
Insurance Fund and the Savings Association Insurance Fund are merged.
THE FEDERAL RESERVE SYSTEM
The Federal Reserve System regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve System
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 Federal Reserve
System) 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 Federal Reserve System 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 Federal Reserve
System) 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 System or a pass-through account as defined by the Federal
Reserve System, the effect of this reserve requirement is to reduce Richmond
County Savings' interest-earning assets.
COMMUNITY REINVESTMENT ACT
Federal Regulation. Under the Community Reinvestment Act, 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
Community Reinvestment Act 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 Community
Reinvestment Act. The Community Reinvestment Act 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
Community Reinvestment Act evaluations. Public disclosure is made of such
evaluations.
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NEW YORK STATE REGULATION. Richmond County Savings is also subject to
provisions of the New York Banking Law that impose continuing and affirmative
obligations upon banking institutions organized in New York State to serve the
credit needs of its local community, which are substantially similar to those
imposed by the Federal Community Reinvestment Act. Pursuant to the New York
Community Reinvestment Act, a bank must file copies of all federal Community
Reinvestment Act reports with the New York Banking Board and the Superintendent.
The New York Community Reinvestment Act also requires the Superintendent to
consider a bank's New York Community Reinvestment Act 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 New York Community Reinvestment Act, utilizing a
four-tiered rating system, and require the New York Banking Board and the
Superintendent to make available to the public such rating and a written summary
of the results.
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, Richmond County 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 Home Owners' Loan Act, as
amended 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, 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 Home Owners'
Loan Act, as amended.
Recently enacted legislation provides that the Bank Insurance Fund and the
Savings Association Insurance Fund would have merged on January 1, 1999 if there
were no more savings associations as of that date. Several bills were
introduced in Congress that would have eliminated the federal thrift charter and
the OTS but no such legislation was enacted in 1998. Richmond County Savings is
unable to predict whether legislation on this matter will be enacted or, given
such uncertainty, determine the extent to which the legislation, if enacted,
would affect its business.
The Home Owners' Loan Act, as amended, 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: (1) interstate supervisory acquisitions by savings
and loan holding companies, and (2) 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, 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." "Portfolio assets" are total assets
less (1) specified liquid assets up to 20% of total assets; (2) intangibles,
including goodwill; and (3) the value of property used to conduct business.
"Qualified thrift investments" are primarily residential mortgages and related
investments.
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 Federal Reserve System or operate under
certain restrictions. As of June 30, 1998, Richmond County Savings maintained
in excess of 65% of 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 Internal Revenue 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 New York Banking
Law. The term "bank holding company," for the purposes of the New York Banking
Law, is defined generally to include any person, company or trust that directly
or indirectly either controls the election of a majority of the directors or
owns, controls or holds with power to vote more than 10% of the voting stock of
a bank holding company or, if the company is a banking institution, another
banking institution, or 10% or more of the voting stock of each of two or more
banking institutions, 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 New York
Banking Law. Under New York Banking Law, the prior approval of the New York
Banking Board and the Superintendent is required before:
(1) any action is taken that causes any company to become a bank holding
company;
(2) any action is taken that causes any banking institution to merge or
consolidate with a subsidiary of a bank holding company;
(3) any bank holding company acquires ownership or control of more than 5%
of the voting stock of a banking institution;
(4) any bank holding company or subsidiary acquires all or substantially
all of the assets of a banking institution; or
(5) any action is taken that causes any bank holding company to merge or
consolidate with another bank holding company. Additionally, certain
restrictions apply to New York State bank holding companies regarding
the acquisition of banking institutions which have been chartered five
years or less and are located in smaller communities. Officers,
directors and employees of New York State bank holding companies are
subject to limitations regarding their affiliation with securities
underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries.
58
<PAGE>
INTERSTATE BANKING AND BRANCHING
Richmond County, as a savings and loan holding company, is limited under
the Home Owners' Loan Act, as amended, 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, including New
Jersey, 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.
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, which was enacted on September 29, 1994,
permits approval under the Bank Holding Company Act of 1956, as amended, 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 Federal Reserve System may not approve an acquisition
under the Bank Holding Company Act, as amended, 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 New York Banking Law, 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. New Jersey has not 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.
59
<PAGE>
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, 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 17, 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 stock 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 Delaware General
Corporation Laws.
COMMON STOCK
The outstanding shares of Richmond County common stock are fully paid and
nonassessable. Except as discussed below, holders of 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 pre-emptive rights. Holders of common stock are
not entitled to cumulative voting rights with respect to the election of
directors. The 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 common stock who are deemed to own in excess of 10% of the
outstanding shares of common stock 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 Richmond County's Certificate of Incorporation authorized
the board of directors (1) to make all determinations necessary to implement and
apply the limit, including determining whether persons or entities are acting in
concert, and (2) to demand that any person who is reasonably considered to 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 of Richmond County preferred stock, holders of
Richmond County common stock are entitled to dividends declared by the Richmond
County board. In the event of liquidation, common stockholders are entitled 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 are to 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.
60
<PAGE>
PREFERRED STOCK
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 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 preferred
stock.
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS
GENERAL
Richmond County is a Delaware corporation subject to the provisions of
Delaware General Corporation Laws. Ironbound is a New Jersey corporation
subject to New Jersey law. If the Ironbound merger is consummated, the holders
of Ironbound common stock, whose rights are currently protected by New Jersey
law and governed under the Ironbound Certificate of Incorporation and the
Ironbound bylaws will, at the completion of the merger, become stockholders of
Richmond County whose rights will be protected by Delaware law governed under
the Richmond County Certificate of Incorporation and Richmond County bylaws.
The material differences between the rights of the holders of Ironbound common
stock and the rights of holders of Richmond County common stock under Delaware
law and New Jersey law, respectively, and as described in the respective
company's certificates of incorporation and bylaws, are summarized below.
Except for the provisions described below, the Richmond County Certificate of
Incorporation and the Richmond County bylaws are substantially equivalent to the
Ironbound Certificate of Incorporation and the Ironbound bylaws. Except for the
distinctions between Delaware law and New Jersey law noted below, Ironbound's
rights as stockholders under Delaware law will be substantially equivalent to
their rights under New Jersey law.
The following summary is not a complete statement of the differences
affecting the rights of holders of Richmond County common stock and Ironbound
common stock under Delaware law and their respective certificates of
incorporation and bylaws. This summary contains a list of the material
differences but is not meant to be relied upon as an exhaustive list or a
detailed description of the provisions discussed and is qualified in its
entirety by reference to the governing corporate instruments of Richmond County
and Ironbound.
Copies of such governing documents of Richmond County and Ironbound are
available, without charge, to any person to whom this document is delivered, on
written or oral request. In the case of documents relating to Richmond County,
please follow the instructions under "WHERE YOU CAN FIND MORE INFORMATION." In
the case of Ironbound, requests should be made to Ironbound Bankcorp, NJ, 36
Pacific Street at New York Avenue, Newark, New Jersey 07105, Attention:
Corporate Secretary, telephone number (973) 589-3800.
NUMBER OF MEMBERS OF THE BOARD OF DIRECTORS
RICHMOND COUNTY. Richmond County's bylaws do not provide for a minimum nor
a maximum number of members that must or may serve on the Richmond County board.
The number of members of the Richmond County board shall be the number so
designated by the Richmond County board. In the absence of such designation,
the number of the members of the Richmond County board shall be eight.
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<PAGE>
IRONBOUND. Ironbound's bylaws provide that there shall be not less than
five and no more than 25 members on the Ironbound board who are stockholders of
record. When Ironbound was formed, its board had nine members.
ELECTION OF THE BOARD OF DIRECTORS
RICHMOND COUNTY. Under the Richmond County bylaws, the Richmond County
directors are divided into three classes. Each year, the term of one of the
three classes expires. The term of the first class expired at the annual
meeting of stockholders held on September 29, 1998. The term of the second
class expires at the annual meeting of stockholders on September 29, 1999. The
term of the third class expires at the annual meeting of stockholders on
September 29, 2000. Replacement directors for those directors whose term
expires are elected at the Richmond County annual stockholders' meeting.
Directors elected at each annual stockholders' meeting to succeed those
directors whose terms have expired will be elected for a term of office that
expires at the third succeeding annual stockholders' meeting after their
election. Directors must be nominated in accordance with the notice
requirements noted below under "Conduct of Business at a Stockholders' Meeting."
IRONBOUND. Under the Ironbound bylaws, Ironbound directors are elected for
one year terms at each annual stockholders' meeting. Additionally, between
annual meetings, the Ironbound board may increase the number of Ironbound
directors by up to two directors and may appoint persons to fill those board
seats. There are no nomination procedures specified in the Ironbound bylaws.
PRE-EMPTIVE RIGHTS
RICHMOND COUNTY. Richmond County stockholders are not afforded any pre-
emptive rights.
IRONBOUND. Pursuant to the Ironbound Certificate of Incorporation, each
share of Ironbound common stock has pre-emptive rights. Pre-emptive rights
entitle stockholders to maintain their proportionate ownership interest by
purchasing a proportionate share of any new stock issues.
VOTING RIGHTS
RICHMOND COUNTY. The Richmond County Certificate of Incorporation provides
that in no event shall any record owner of any outstanding Richmond County
common stock which is deemed to be owned, directly or indirectly, by a person
who is deemed to own in excess of 10% of the then-outstanding shares of common
stock be entitled or permitted to any vote in respect of the shares held in
excess of the limit as described on page 60.
IRONBOUND. Stockholders of Ironbound have no corresponding voting rights
limit.
REMOVAL OF DIRECTORS FROM THE BOARD OF DIRECTORS
RICHMOND COUNTY. The Richmond County Certificate of Incorporation provides
that, subject to the rights of holders of any series of preferred stock then-
outstanding, any director, or the entire Richmond County board, may be removed
from office at any time for cause, and only by the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of Richmond County capital stock entitled to vote in the election of
directors.
IRONBOUND. The Ironbound Certificate of Incorporation does not contain a
corresponding provision. However, the Ironbound bylaws require an affirmative
vote of at least two-thirds of the entire Ironbound board to remove an Ironbound
director.
62
<PAGE>
SPECIAL MEETINGS OF THE STOCKHOLDERS
RICHMOND COUNTY. The Richmond County bylaws provide that, subject to the
rights of the holders of any class or series of preferred stock, special
meetings of stockholders may be called only by a resolution adopted by a
majority of the total number of directors which Richmond County would have if
there were no vacancies on the Richmond County board.
IRONBOUND. The Ironbound bylaws provide that a special meeting of the
Ironbound stockholders may be called when ordered by the Chairman, the
President, by at least two-thirds of the entire Ironbound board, or by
stockholders holding, in the aggregate, at least fifty percent of the
outstanding shares of Ironbound common stock.
DELAWARE. Under Delaware law, special meeting of stockholders may be
called by the board of directors or those persons authorized in the company's
certificate of incorporation or bylaws.
NEW JERSEY. Under New Jersey law, a special meeting of stockholders may be
called by the president or the board, or by such other officers, directors or
stockholders as provided in the bylaws. However, upon the application of at
least 10% of the stockholders entitled to vote, the Superior Court may for good
cause shown order a special meeting of stockholders.
ANNUAL MEETING OF STOCKHOLDERS
RICHMOND COUNTY. Each Richmond County annual meeting of stockholders shall
take place within 13 months of the prior annual meeting.
IRONBOUND. Each Ironbound annual meeting is required to be held on the
fourth Wednesday in April. In the event such date falls on a legal holiday,
then the annual meeting shall be held on the following business day.
ORGANIZATION
RICHMOND COUNTY. The Richmond County board shall designate a person to
preside over the Richmond County annual meeting of stockholders. In the absence
of such a designation, the Chairman of the Richmond County board shall preside
over the Richmond County annual meeting of stockholders. In the Chairman's
absence, the holders of a majority of shares of Richmond County common stock
present at the meeting shall choose who presides over the meeting.
IRONBOUND. The Chairman of the Ironbound board shall preside over the
Ironbound annual meeting of stockholders. In the Chairman's absence, the Vice-
Chairman or the President and Chief Executive Officer will preside. In their
absence, the directors will select another member of the Ironbound board to
preside.
CONDUCT OF BUSINESS AT A STOCKHOLDERS' MEETING
RICHMOND COUNTY. The Richmond County bylaws require the chairman of the
meeting to determine the order of business and the procedures to be followed at
the meeting. The Richmond County bylaws also require that the date and time of
the opening and closing of the polls for each matter upon which the stockholders
will vote at the meeting be announced at the meeting. In order for business to
be brought before a meeting, the business must relate to matters appropriate for
stockholder action and must be timely delivered to Richmond County in accordance
with the notice requirements articulated in the Richmond County bylaws. To be
timely, the notice must be delivered to Richmond County not less than
63
<PAGE>
90 days before the annual meeting if less than 100 days notice of the meeting
was furnished to stockholders. Notice must be received not later than the close
of business on the tenth day following the day on which the notice was mailed,
in order for it to be considered timely.
IRONBOUND. The Ironbound bylaws do not require that the annual meeting's
chairman determine the order of business or the procedures to be followed at the
meeting. Moreover, the Ironbound bylaws do not require that the date and time
of the opening and closing of the polls for each matter upon which the
stockholders will vote at the meeting must be announced. The Ironbound notice
requirements are similar to the Richmond County notice requirements, except that
notice must be delivered to Ironbound not less than 60 days nor more than 90
days prior to the date of the meeting.
AVAILABILITY OF A LIST OF THE COMPANY'S STOCKHOLDERS
RICHMOND COUNTY. Delaware law and the Richmond County bylaws require that
a stockholders' list be available for examination by Richmond County
stockholders during ordinary business hours for a period of at least ten
business days prior to, and at, the Richmond County stockholders' meetings.
IRONBOUND. In conformity with New Jersey law, the Ironbound bylaws require
that a complete stockholders' list be present and available for examination at
the Ironbound stockholders' meeting.
AMENDMENT TO BYLAWS
RICHMOND COUNTY. The Richmond County Certificate of Incorporation and
bylaws provide that the bylaws may be amended by a majority vote of the Richmond
County board or by at least 80% of the voting power of all the then-outstanding
shares of voting stock.
IRONBOUND. The Ironbound bylaws provide that, subject to alteration or
repeal by the Ironbound stockholders at any meeting, the Ironbound bylaws may be
amended by an affirmative vote of at least two-thirds of the members of the
Ironbound board.
DELAWARE. Stockholders have the power to make, alter or repeal a company's
bylaws. The company may also give that power to the board of directors by so
providing in its certificate of incorporation.
NEW JERSEY. The board of directors has the power to make, alter and repeal
a company's bylaws unless the certificate of incorporation reserves the power
for the stockholders.
MERGER OR BUSINESS COMBINATIONS THAT THE COMPANY MIGHT ENTER INTO
RICHMOND COUNTY. The Richmond County Certificate of Incorporation requires
that any merger or business combination of Richmond County or any of its
subsidiaries with an interested stockholder or any other corporation that is or
would be an affiliate of an interested stockholder, requires the affirmative
vote of at least 80% of the voting power of the then-outstanding stock of
Richmond County entitled to vote.
IRONBOUND. Neither the Ironbound Certificate of Incorporation nor the
Ironbound bylaws contains a corresponding provision.
DELAWARE. Delaware law prohibits a corporation from engaging in a merger
or consolidation with the corporation of an interested stockholder for three
years following the date that the person became an interested stockholder
unless:
64
<PAGE>
. the board of directors approved either the disposition of assets or the
transaction that made the stockholder become an interested stockholder;
. the interested stockholder purchased at least 85% of the outstanding
voting shares in the transaction with which the interested stockholder
became an interested stockholder. The shares owned by persons who are
both officers and directors of the company and shares in employee stock
plans do not count towards the number of outstanding shares; or
. the disposition is approved by a two-thirds vote on disinterested
stockholders.
NEW JERSEY. New Jersey law prohibits a corporation from engaging in a
merger or consolidation with the corporation of an interested stockholder for
three years following the date that the person became an interested stockholder
unless:
. the board of directors approved either the disposition of assets prior
to the stockholder becoming an interested stockholder;
. the disposition is approved by a two-thirds vote of disinterested
stockholders; or
. the disposition meets criteria certain pricing criteria.
65
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following statements contain selected condensed financial information
for Richmond County, Bayonne and Ironbound, on an unaudited pro forma condensed
combined consolidated basis giving effect to the Bayonne merger and the
Ironbound merger applying the purchase method of accounting. The pro forma
condensed statements of income reflecting the Bayonne merger and the Ironbound
merger assume the acquisitions of Bayonne and Ironbound were completed 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
entity's most recent fiscal year end with Richmond County's June 30 fiscal year
end.
The unaudited pro forma condensed balance sheet presents the combined
financial position of Richmond County, Bayonne and Ironbound as of September 30,
1998. The unaudited pro forma condensed balance sheet reflects (1) the
acquisition of Bayonne and the acquisition of Ironbound applying the purchase
method of accounting; and (2) 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 Ironbound were completed 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 cost savings and/or revenue enhancements that will
result from the Bayonne merger and the Ironbound merger. The information
furnished in the statements does not reflect either the expected cost savings or
the revenue enhancements that may or may not be achieved.
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<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 IRONBOUND
---------- -------- -------------- ---------- --------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and due from banks. $ 22,764 $ 3,042 $ (4,862)/(2)/ $ 25,025 $ 4,070
4,081/(3)/
Federal funds sold...... 4,200 5 4,205 12,318
Securities
held-to-maturity....... -- 11,708 220/(3)/ 11,928 42,632
Securities available
for sale, net.......... 831,670 324,457 1,156,127 11,216
Loans receivable:
Real estate mortgage
loans............... 765,799 278,719 (804)/(3)/ 1,043,714 38,467
Other loans.......... 16,679 33,105 49,784 3,335
Less allowance for
loan losses......... (7,920) (3,035) (10,955) (857)
---------- -------- ---------- --------
Total loans receivable,
net.................... 774,558 308,789 (804) 1,082,543 40,945
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 2,630
Accrued interest
receivable............. 11,514 3,901 15,415 785
Excess of cost over
fair value of net
assets acquired and
other intangibles... -- -- 28,560/(4)/ 28,560 --
Other real estate owned. 340 501 841 149
Other assets............ 13,664 4,219 17,883 427
---------- -------- -------- ---------- --------
Total assets......... $1,692,615 $672,657 $ 28,076 $2,393,348 $115,172
========== ======== ======== ========== ========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Liabilities:
Deposits............. $ 953,506 $420,749 $ (906)/(3)/ $1,373,349 $102,828
Borrowings........... 400,000 146,750 1,832/(3)/ 548,582 --
Accrued expenses and
other liabilities... 9,283 10,006 (380)/(3)/ 18,675 815
(234)/(3)/
-------- ---------- --------
Total liabilities. 1,362,789 577,505 312 1,940,606 103,643
Stockholders' equity:
Preferred stock...... -- -- -- --
Common stock......... 264 91 (91)/(8)/ 360 5,213
96/(2)/ --
Additional
paid-in-capital..... 254,288 60,995 (60,995)/(8)/ 379,928 4,301
125,640/(2)/
Retained earnings -
substantially
restricted.......... 107,529 44,999 (44,999)/(8)/ 107,529 2,631
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) --
(2,820)/(3)/ --
Treasury stock....... -- -- -- (672)
Comprehensive income:
Unrealized gain (loss)
on securities
available-for-sale,
net of taxes........ 1,019 (3,865) 3,865/(8)/ 1,019 56
---------- -------- -------- ---------- --------
Total stockholders'
equity.............. 329,826 95,152 27,764 452,742 11,529
Total liabilities
and stockholders'
equity........... $1,692,615 $672,657 $ 28,076 $2,393,348 $115,172
========== ======== ======== ========== ========
<CAPTION>
----------------------------------
All
Combined
Pro Forma Transactions
Adjustments Pro Forma
----------- ------------
<S> <C> <C>
ASSETS:
Cash and due from banks. $ (2,031)/(5)/ $ 27,064
Federal funds sold...... 16,523
Securities
held-to-maturity....... 92/(6)/ 55,149
Securities available
for sale, net.......... 1,166,845
Loans receivable:
Real estate mortgage
loans............... (250)/(6)/ 1,081,931
Other loans.......... 53,119
Less allowance for
loan losses......... (11,812)
----------
Total loans receivable,
net.................... (250) 1,123,238
Federal Home Loan Bank
of New York stock...... 30,886
Banking premises and
equipment, net......... 100/(6)/ 22,665
Accrued interest
receivable............. 16,200
Excess of cost over
fair value of net
assets acquired and
other intangibles... 16,130/(7)/ 44,690
Other real estate owned. 990
Other assets............ 18,311
---------- ----------
Total assets......... $ 14,041 $2,522,561
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Liabilities:
Deposits............. $ (69)/(6)/ $1,476,108
Borrowings........... 548,582
Accrued expenses and
other liabilities... 4/(6)/ 19,494
--
------------- ----------
Total liabilities. (65) 2,044,184
Stockholders' equity:
Preferred stock...... --
Common stock......... (5,213)/(8)/ 374
14/(5)/
Additional
paid-in-capital..... (4,301)/(8)/ 405,549
25,621/(5)/
Retained earnings -
substantially
restricted.......... (2,631)/(8)/ 107,529
Unallocated common
stock held by the
ESOP................ (33,274)
Unamortized
Management Retention
Plan shares....... (2,820)
--
Treasury stock....... 672/(8)/ --
Comprehensive income:
Unrealized gain (loss)
on securities
available-for-sale,
net of taxes........ (56)/(8)/ 1,019
------------- ----------
Total stockholders'
equity.............. 14,106 478,377
Total liabilities
and stockholders'
equity........... $ 14,041 $2,522,561
============= ==========
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS."
67
<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
COUNTY/
RICHMOND PRO FORMA BAYONNE
COUNTY BAYONNE ADJUSTMENTS PRO FORMA IRONBOUND
----------- ---------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Interest income............... $ 27,662 $ 11,137 (2)/(9)/ $ 38,797 $ 1,950
Interest expense.............. 12,599 6,735 58/(9)/ 19,392 697
----------- ---------- ------------- ------------ ----------
Net interest income........... 15,063 4,402 (60) 19,405 1,253
Provision for loan losses..... 750 75 -- 825 --
----------- ---------- ------------- ------------ ----------
Net interest income after
provision for loan losses.. 14,313 4,327 (60) 18,580 1,253
Non-interest income........... 1,844 538 -- 2,382 172
Non-interest expense.......... 7,632 2,768 476/(4)//(11)/ 10,876 902
----------- ---------- ------------- ------------ ----------
Income before income taxes.... 8,525 2,097 (536) 10,086 523
Provision for income taxes.... 3,171 776 (18) 3,929/(12)/ 186
----------- ---------- ------------- ------------ ----------
Net income.................... $ 5,354 $ 1,321 $ (518) $ 6,157 $ 337
=========== ========== ============= ============ ==========
Weighted average shares
outstanding:
Basic...................... 24,362,800 9,041,000 33,938,302 997,158
Diluted.................... 24,362,800 9,174,637 34,078,621 1,031,527
Earnings per share:
Basic...................... $0.22 $0.15 $0.18 $ 0.34
Diluted.................... $0.22 $0.15 $0.18 $ 0.34
<CAPTION>
-------------------------------------------
ALL COMBINED
PRO FORMA TRANSACTIONS
ADJUSTMENTS PRO FORMA
--------------- ------------
<S> <C> <C>
Interest income............... $ (28)/(10)/ $ 40,719
Interest expense.............. (2)/(10)/ 20,087
--------------- ------------
Net interest income........... (26) 20,632
Provision for loan losses..... -- 825
--------------- ------------
Net interest income after
provision for loan losses.. (26) 19,807
Non-interest income........... -- 2,554
Non-interest expense.......... 269/(7)//(11)/ 12,047
--------------- ------------
Income before income taxes.... (295) 10,314
Provision for income taxes.... (178) 3,937/(12)/
--------------- ------------
Net income.................... $ (117) $ 6,377
=============== ============
Weighted average shares
outstanding:
Basic...................... 35,384,181
Diluted.................... 35,558,869
Earnings per share:
Basic...................... $0.18
Diluted.................... $0.18
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS."
68
<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
COUNTY/
RICHMOND PRO FORMA BAYONNE
COUNTY BAYONNE ADJUSTMENTS PRO FORMA IRONBOUND
----------- ---------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Interest income....................... $ 86,754 $ 40,860 $ (9)/(9)/ $ 127,605 $ 7,695
Interest expense...................... 37,512 24,872 229/(9)/ 62,613 2,610
----------- ---------- --------- ------------ ----------
Net interest income................... 49,242 15,988 (238) 64,992 5,085
Provision for loan losses............. 2,200 180 -- 2,380 --
----------- ---------- --------- ------------ ----------
Net interest income after
provision for loan losses.......... 47,042 15,808 (238) 62,612 5,085
Non-interest income................... 3,601 1,343 -- 4,944 723
Contribution to the Foundation........ 19,558 -- -- 19,558 --
Non-interest expense.................. 24,488 10,170 1,904 36,562 3,843
----------- ---------- --------- ------------ ----------
Income before income taxes............ 6,597 6,981 (2,142) 11,436 1,965
Provision (benefit) for
income taxes....................... 2,071 2,602 (484) 4,189/(12)/ 704
----------- ---------- --------- ------------ ----------
Net income............................ $ 4,526 $ 4,379 $ (1,658) $ 7,247 $ 1,261
=========== ========== ========= ============ ==========
Weighted average shares outstanding:
Basic.............................. 24,328,143 8,865,966 33,903,645 1,035,461
Diluted............................ 24,328,143 8,963,512 34,006,069 1,058,163
Earnings (loss) per share:
Basic.............................. $(0.16) $0.49 $0.21 $ 1.22
Diluted............................ $(0.16) $0.49 $0.21 $ 1.19
<CAPTION>
---------------------------------------
ALL
COMBINED
PRO FORMA TRANSACTIONS
ADJUSTMENTS PRO FORMA
------------ -------------
<S> <C> <C>
Interest income....................... $ (110)/(10)/ $ 135,190
Interest expense...................... (9)/(10)/ 65,214
------------ -------------
Net interest income................... (101) 69,976
Provision for loan losses............. -- 2,380
------------ -------------
Net interest income after
provision for loan losses.......... (101) 67,596
Non-interest income................... -- 5,667
Contribution to the Foundation........ -- 19,558
Non-interest expense.................. 1,075 41,480
------------ -------------
Income before income taxes............ (1,176) 12,225
Provision (benefit) for
income taxes....................... (717) 4,177/(12)/
------------ -------------
Net income............................ $ (459) $ 8,048
============ =============
Weighted average shares outstanding:
Basic.............................. 35,349,524
Diluted............................ 35,474,650
Earnings (loss) per share:
Basic.............................. $0.23
Diluted............................ $0.23
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS."
69
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
BAYONNE BANCSHARES, INC.
IRONBOUND BANKCORP, NJ
NOTES TO UNAUDITED PRO FORMA CONDENSED
COMBINED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The Unaudited Pro Forma Condensed Combined Consolidated Financial
Statements as of September 30, 1998 has been prepared as if the Ironbound merger
and the Bayonne 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 Ironbound merger and the Bayonne merger had been consummated on July
1, 1997. The Unaudited Pro Forma Condensed Combined Financial Statements are
based on the historical financial statements of Richmond County, Ironbound and
Bayonne after giving effect to the Ironbound merger and the Bayonne 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:
Estimated fair values -- Estimated fair values for securities held-to-
maturity, loans, deposits and borrowings were obtained from Bayonne's 1998
Annual Report to Stockholders -- Footnote number 15 of "Notes to
Consolidated Financial Statements" -- Fair Value of Financial Instruments
and Ironbound's 1997 Annual Report to Stockholders -- Footnote 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 the remaining estimated
lives of five years.
(2) The cost to acquire Bayonne has been allocated as described in the table
below:
<TABLE>
<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 amendments to the 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>
70
<PAGE>
(3) Purchase accounting adjustments recorded for the Bayonne transaction
were as follows:
<TABLE>
<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 Bayonne's recognition and retention plan
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......................... 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 merger
was calculated as follows:
<TABLE>
<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 merger.............................. $ 28,560
=========
</TABLE>
(5) The cost to acquire Ironbound has been allocated as described in the
table below:
<TABLE>
<S> <C>
Value of Richmond County common stock issued to acquire Ironbound
common stock (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 merger).................................. $25,635
Acquisition - related costs:
Transaction costs incurred by Richmond County.................................... 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>
<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>
71
<PAGE>
(7) Excess of cost over fair value of net assets acquired for the Ironbound
merger was calculated as follows:
<TABLE>
<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 merger................... $ 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 THREE MONTHS
ENDED ENDED
JUNE 30, SEPTEMBER 30,
1998 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 fixed assets (20 years).. (55) (14)
Accretion of discount on loans (10 years).......... 80 20
----- -----
Total net adjustments 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 adjustments 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 THREE MONTHS
ENDED ENDED
JUNE 30, SEPTEMBER 30,
1998 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 fixed assets (4 years)... (23) (6)
Accretion of discount on loans (10 years).......... 25 6
----- ----
Total net adjustments 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 adjustments to
interest expense.......................... $ (9) $ (2)
===== ====
</TABLE>
72
<PAGE>
(11) The amortization of the excess of cost over the fair value of net assets
acquired for the Bayonne merger and Ironbound merger is assumed straight-
line over a period of 15 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-
deductibility of the amortization charge of the excess of cost over fair
value of net assets acquired.
(13) Basic earnings per share is calculated by dividing net income since the
Richmond County Savings' conversion on February 18, 1998 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. Basic
and diluted weighted average number of common stock 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 stock 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 years indicated:
<TABLE>
<CAPTION>
EXCESS OF COST NET
PROJECTED FUTURE OVER FAIR DECREASE
AMOUNTS FOR THE VALUE NET IN INCOME
FISCAL YEARS ENDED OF NET ASSETS (ACCRETION) BEFORE
JUNE 30, ACQUIRED AMORTIZATION 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>
73
<PAGE>
LEGAL MATTERS
The validity of the shares of Richmond County common stock which will be
issued in the mergers will be passed upon for Richmond County by Muldoon, Murphy
& Faucette LLP, Washington, D.C. In addition, Muldoon, Murphy & Faucette LLP,
Washington, D.C., will pass upon the tax-free nature of the Ironbound merger for
Richmond County. Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C.
will pass upon the tax-free nature of the Ironbound merger for Ironbound.
EXPERTS
The consolidated financial statements of Richmond County Financial Corp.
and subsidiary as of June 30, 1998 and 1997, and for each of the years in the
three-year period ended June 30, 1998, incorporated by reference in the 1998
Richmond County Form 10-K and incorporated by reference herein, and in the
registration statement of which this document is a part, have been so
incorporated by reference in reliance upon the report of Ernst & Young LLP,
independent public accountants and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Ironbound Bankcorp, NJ and
Subsidiary as of December 31, 1997 and 1996, and for each of the years in the
two-year period ended December 31, 1997, included in the registration statement
of which this document is a part, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
74
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AGREEMENT AND PLAN OF MERGER, dated as of the 17th day of
July, 1998 ("Agreement"), by and between Richmond County Financial Corp., a
Delaware corporation ("RCFC"), and Ironbound Bankcorp, NJ, a New Jersey
corporation ("Ironbound").
INTRODUCTORY STATEMENT
The Board of Directors of each of RCFC and Ironbound (i) has
determined that this Agreement and the business combination and related
transactions contemplated hereby are in the best interests of RCFC and
Ironbound, 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 Ironbound have entered into a stock option agreement (the "Option
Agreement"), pursuant to which Ironbound has granted to RCFC an option to
purchase shares of Ironbound's common stock, par value $5.00 per share
("Ironbound Common Stock"), upon the terms and conditions therein contained; and
certain officers and directors of Ironbound will each, within fourteen 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 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 pooling-of-interests for accounting purposes.
RCFC and Ironbound 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), Ironbound 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. Upon consummation
of the Merger, the separate corporate existence of Ironbound 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.
Section 1.2. Effect on Outstanding Shares of Ironbound Common Stock.
------------------------------------------------------
(a) By virtue of the Merger, automatically and without any action on
the part of the holder thereof, each share of Ironbound 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), and
(iii) shares held by Ironbound as treasury stock (such shares referred to in
clauses (i), (ii) and (iii) being referred to herein as the "Excluded Shares")
shall become and be converted into the right to receive 1.45 shares of RCFC
Common Stock (the "Exchange Ratio") (subject to Section 7.3); 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 Ironbound 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 (collectively, the "Merger Consideration").
(b) As used in Sections 1.2(a), 6.1(g) and 7.3, "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 that
is the latest of (i) the day of expiration of the last waiting period with
respect to any of the required regulatory approvals, as contemplated by Section
5.1(b), (ii) the day on which the last of the required regulatory approvals, as
contemplated by Section 5.1(b), is obtained and (iii) the day on which the last
of the required stockholder approvals have been obtained (such date being
referred to herein as the "Valuation Date").
(c) In the event that, between the date hereof and prior to the
Effective Time, the outstanding shares of RCFC Common Stock shall have been
increased, decreased or changed into or exchanged for a different number or kind
of shares or securities by reorganization,
A-5
<PAGE>
recapitalization, reclassification, stock split or other like changes in the
capitalization of RCFC, or if a stock dividend is declared on RCFC Common Stock
with a record date (as to a stock split, the pay date) within such period, then
an appropriate and proportionate adjustment shall be made in the number and kind
of shares of RCFC Common Stock to be thereafter delivered pursuant to this
Agreement, and the Exchange Ratio set forth in Section 1.2 of this Article I, so
that each stockholder of Ironbound shall be entitled to receive such number of
shares of RCFC Common Stock or other securities as such stockholder would have
received pursuant to such reorganization, recapitalization, reclassification,
stock split, exchange of shares or readjustment or other like changes in the
capitalization of RCFC, or as a result of a stock dividend on RCFC Common Stock,
had the record (or pay) date therefor been immediately following the Effective
Time.
(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 (as defined in Section 2.4(b)) that are held by Ironbound, 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") in a
form satisfactory to RCFC and Ironbound, 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 Ironbound 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 Ironbound Common Stock
to be converted thereby.
(b) At and after the Effective Time, each certificate ("Ironbound
Certificate") previously representing shares of Ironbound 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 Ironbound to act as exchange agent ("Exchange Agent"),
for the benefit of the holders of shares of Ironbound 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 Effective Time, 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.
A-6
<PAGE>
(d) The Letter of Transmittal shall (i) specify that delivery shall be
effected, and risk of loss and title to the Ironbound Certificates shall pass,
only upon delivery of the Ironbound 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 Ironbound
Certificates in exchange for the Merger Consideration. Upon the proper
surrender of the Ironbound Certificates to the Exchange Agent, together with a
properly completed and duly executed Letter of Transmittal, the holder of such
Ironbound 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 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. Ironbound Certificates so surrendered shall forthwith be cancelled. As
soon as practicable, but no later than five (5) 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 Ironbound Common Stock not registered in the transfer
records of Ironbound, the Merger Consideration shall be issued to the transferee
thereof if the Ironbound Certificates representing such Ironbound 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 Ironbound Certificates in accordance with this Section
1.3. Upon the surrender of such person's Ironbound 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 Ironbound Certificates.
(f) From and after the Effective Time there shall be no transfers on
the stock transfer records of Ironbound of any shares of Ironbound Common Stock.
If, after the Effective Time, Ironbound 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
A-7
<PAGE>
stockholders of Ironbound for six 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 Ironbound 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 Ironbound Common Stock
such stockholder holds, as determined pursuant to Section 1.2 of this Agreement,
without any interest thereon. If outstanding Ironbound 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, 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,
none of RCFC, RCFC Bank, the Exchange Agent or any other person shall be liable
to any former holder of Ironbound 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
Ironbound'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 Ironbound 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 Ironbound Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Ironbound 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 Ironbound Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Ironbound Certificate the
Merger Consideration deliverable in respect thereof pursuant to Section 1.2.
Section 1.4. Stock Options.
-------------
(a) Options to purchase shares of Ironbound Common Stock that have
been issued by Ironbound and are outstanding at the Effective Time (each, a
"Ironbound Option") pursuant to the Ironbound 1994 Stock Option Plan, the
Ironbound Bankcorp, NJ 1998 Stock Option Plan for Employees/Active Officers of
the Company's Wholly Owned Subsidiary, Ironbound Bank and the Ironbound
Bankcorp, NJ 1998 Stock Option Plan for Non-Employee Directors (collectively,
the "Ironbound Option Plans") shall be converted automatically into the right to
receive such number of shares (rounded to the nearest whole share) of RCFC
Common Stock as is equal in value (the RCFC Common Stock value shall be
determined as of the date hereof) to the amount equal to: the product of
(A) the Exchange Ratio and (B) the number of shares of Ironbound Common Stock
issuable upon exercise of the Ironbound Options
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immediately prior to the Effective Time multiplied by the spread between the
market price (as determined as of the date hereof) and the exercise price for
each Ironbound Option; provided however, that Section 1.4 shall be further
modified if and to the extent necessary to enable the Merger to qualify for
pooling-of-interests accounting treatment. Prior to the Effective Time, RCFC
shall take, or cause to be taken, all necessary action to effect the intent of
the provisions set forth in this Section 1.4. RCFC, or at the option of RCFC,
Ironbound, shall make such payment at the Effective Time to each individual
provided that the individual delivers to RCFC his written acceptance, in a form
acceptable to RCFC, of such payment as full and complete consideration for the
cancellation of each Ironbound option held by him.
(b) Ironbound shall agree that any grants of options to purchase Ironbound
Common Stock, automatic or otherwise, made under the Ironbound Option Plans
shall be null and void ab initio, following the payment of the Stock Options in
-- ------
accordance with 1.4(a) above.
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 Ironbound
Bank, a wholly-owned subsidiary of Ironbound, shall enter into the Plan of Bank
Merger, in the form attached hereto as Exhibit C, 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 and that it is the intent of RCFC Bank, subject to applicable statutes,
regulations or regulatory conditions, to operate the offices of Ironbound Bank
as a separate operational division of RCFC Bank.
Section 1.6. Directors of RCFC after Effective Time. At the
--------------------------------------
Effective Time, the directors of RCFC shall consist of the directors of RCFC
serving immediately prior to the Effective Time.
Section 1.7. Alternative Structure. RCFC may at any time prior to
---------------------
the Effective Time change the method of effecting the Merger and the Bank Merger
or any part thereof if and to the extent it deems such change to be necessary,
appropriate or desirable; provided, however, that no such change shall (i) alter
or change the Merger Consideration issued to holders of Ironbound Common stock
as provided for in the Agreement, (ii) adversely affect the tax treatment of
Ironbound's stockholders as a result of receiving the Merger Consideration or
the Company Merger qualifying for "pooling-of-interests" accounting treatment,
(iii) materially impeded or delay consummation of the Merger, (iv) result in any
representation or warranty of any party set forth in this Agreement becoming
incorrect in any material respect, or (v) diminish the benefits (including the
establishment of the Divisional Board) to be received by the directors, officers
or employees of Ironbound as set forth in the Agreement or in any other
agreements between the parties made in connection with this Agreement.
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Section 1.8. Dissenters' Rights.
------------------
(a) Any Dissenting Stockholder who shall be entitled to dissenters'
rights with respect to his or her Dissenters' Shares, as provided in Section
14A:11-1 of the New Jersey Statutes Annotated ("NJSA") shall not be entitled to
the Merger Consideration, unless and until the holder thereof shall have failed
to perfect or shall have effectively withdrawn or lost such holder's right to
dissent from the Merger under such law, and shall be entitled to receive only
the payment to the extent provided for therein with respect to such Dissenters'
Shares.
(b) Ironbound shall (i) give RCFC prompt written notice of the receipt
of any notice from a stockholder purporting to exercise any dissenters' rights,
(ii) not settle nor offer to settle any demand for payment without the prior
written consent of RCFC and (iii) not waive any failure to comply strictly with
any procedural requirements of the NJSA.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1. Disclosure Letters. On or prior to the execution and
------------------
delivery of this Agreement, Ironbound 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 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 Ironbound 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. Ironbound'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 compliance
with a written request of RCFC.
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(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 Ironbound or RCFC, as the
context may dictate, and its Subsidiaries 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 interpretations
thereof that apply to both RCFC and RCFC Bank and Ironbound and Ironbound Bank,
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 (x) a representation or warranty contained in
Section 2.3(a)(i) and (iv), Section 2.3(c), Section 2.3(d), 2.3(g)(iii),
2.4(a)(i) and (iv), Section 2.4(c), 2.4(g)(iii) or 2.4(l) to be true and correct
or (y) a representation or warranty contained in the last sentence of each of
Section 2.3(e) or 2.4(e), the second sentence of each of 2.3(f)(i) or 2.4(f)(i)
and the first two sentences of each of Section 2.3(aa) or 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, its counsel or any officer of that party with the title
ranking not less than senior vice president.
Section 2.3. Representations and Warranties of Ironbound. Subject
-------------------------------------------
to Sections 2.1 and 2.2, Ironbound represents and warrants to RCFC that, except
as disclosed in Ironbound's Disclosure Letter:
(a) Organization. (i) Ironbound is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of New Jersey
and is duly registered as a bank holding company under the Bank Holding Company
Act of 1956, as amended ("BHCA"). Ironbound Bank is a stock commercial bank duly
organized, validly existing and in good standing under the laws of the State of
New Jersey. Each Subsidiary (as defined below) of Ironbound 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 Ironbound and its Subsidiaries has all
requisite 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 Ironbound 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) Ironbound's Disclosure Letter sets forth all of Ironbound's
Subsidiaries and all entities (whether corporations, partnerships or similar
organizations),
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including the corresponding percentage ownership, in which Ironbound owns,
directly or indirectly, 5% or more of the ownership interests as of the date of
this Agreement and indicates for each of Ironbound'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. Ironbound owns, either directly or
indirectly, all of the outstanding capital stock of each of its Subsidiaries.
No Subsidiary of Ironbound other than Ironbound Bank 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 Ironbound or any of its other
Subsidiaries are fully paid, nonassessable and not subject to any preemptive
rights and are owned by Ironbound or a Subsidiary of Ironbound 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 Ironbound Bank are insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation ("FDIC") to
the extent provided in the FDIA.
(b) Capital Structure. (i) The authorized capital stock of
-----------------
Ironbound consists of 4,000,000 shares of Ironbound Common Stock, par value
$5.00 per share. As of the date of this Agreement: (A) 998,315 shares of
Ironbound Common Stock were issued and outstanding, (B) no shares of Ironbound
Common Stock were reserved for issuance, except that 117,908 shares of Ironbound
Common Stock were reserved for issuance pursuant to the Ironbound Option Plans
and (C) 45,505 shares of Ironbound Common Stock were held by Ironbound in its
treasury or by its Subsidiaries. The authorized capital stock of Ironbound Bank
consists of 4,000,000 shares of common stock, par value $5.00 per share. As of
the date of the Agreement, 100 shares of such common stock were outstanding, no
shares of preferred stock were outstanding and all outstanding shares of such
common stock were, and as of the Effective Time will be, owned by Ironbound.
All outstanding shares of capital stock of Ironbound and Ironbound Bank are duly
authorized and validly issued, fully paid and nonassessable and not subject to
any preemptive rights and, with respect to shares held by Ironbound 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. Ironbound's Disclosure
Letter sets forth a complete and accurate list of all options to purchase
Ironbound Common Stock that have been granted pursuant to the Ironbound Option
Plans and all restricted stock grants under the Ironbound 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
Ironbound are issued or outstanding.
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(iii) As of the date of this Agreement, except for this Agreement
and the Ironbound Option Plans, neither Ironbound 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 Ironbound 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 Ironbound or any of
its Subsidiaries or obligating Ironbound 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 Ironbound or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of Ironbound
or any of its Subsidiaries.
(c) Authority. Each of Ironbound and Ironbound Bank 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 Ironbound'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, subject to the approval of this Agreement
by Ironbound's stockholders, the consummation of the transactions contemplated
hereby, have been duly authorized by all necessary corporate actions on the part
of Ironbound and Ironbound Bank. This Agreement has been duly executed and
delivered by Ironbound and constitutes a valid and binding obligation of
Ironbound, 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 votes cast by holders of Ironbound Common Stock entitled to vote
on this Agreement is the only vote of the stockholders of Ironbound required for
approval of this Agreement and the consummation of the Merger and the related
transactions contemplated hereby. Ironbound has received the written opinion of
Ostrowski & Company, Inc. to the effect that, as of the date hereof, the
Exchange Ratio to be received by Ironbound'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 Ironbound 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 Ironbound or any of its Subsidiaries, or
to which Ironbound 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 Ironbound 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
A-13
<PAGE>
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 Ironbound 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 Ironbound 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 votes cast by holders of
Ironbound Common Stock entitled to vote, (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 State of New York ("Banking Law"), the approval of the Superintendent
of Banks of the State of New York ("Superintendent") under Section 601 of the
Banking Law and any other requirement of the Banking Board or the
Superintendent, the approval of the Board of Governors of the Federal Reserve
System ("FRB") under the BHCA, if necessary (or the receipt of a waiver of such
requirement), the approval of the Office of Thrift Supervision ("OTS") under the
Home Owners' Loan Act, as amended ("HOLA"), 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 (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 Ironbound know of no reason pertaining to
Ironbound 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).
(f) Reports. (i) As of their respective dates, none of the reports
-------
or other statements filed by Ironbound or Ironbound Bank on or subsequent to
December 31, 1997 with the FRB, the FDIC (collectively, "Ironbound'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 Ironbound
included in Ironbound's Reports complied as to form, as of their respective
dates of filing with the FDIC, in all material respects with applicable
accounting requirements and with the published rules and regulations of the FDIC
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 FDIC or the
FRB). Each of the consolidated statements of condition contained or
incorporated by reference in Ironbound'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 each of the consolidated statements of operations,
consolidated statements of cash flows and
A-14
<PAGE>
consolidated statements of changes in stockholders' equity, contained or
incorporated by reference in Ironbound's Reports (including in each case any
related notes and schedules), 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. Ironbound has made available to RCFC a true and complete copy of
each of Ironbound's Report filed with the FRB and FDIC since December 31, 1997.
(ii) Ironbound 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 NJBD, (B) the FDIC and (C) the FRB, and have paid
all fees and assessments due and payable in connection therewith.
(g) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Ironbound's Reports filed on or prior to the date of this Agreement, since
December 31, 1997, (i) Ironbound and its Subsidiaries have not incurred any
liability, except in the ordinary course of their business consistent with past
practice, (ii) Ironbound 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 Ironbound.
(h) Absence of Claims. Except as set forth in Ironbound's Disclosure
-----------------
Letter, no litigation, proceeding, controversy, claim or action before any court
or governmental agency is pending against Ironbound or any of its Subsidiaries
and, to the best of Ironbound's knowledge, no such litigation, proceeding,
controversy, claim or action has been threatened.
(i) Absence of Regulatory Actions. Neither Ironbound 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 Regulators, 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 Ironbound 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
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<PAGE>
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 Ironbound or any of its Subsidiaries have been paid in full or
adequate provision has been made for any such taxes on Ironbound'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 Ironbound or any
of its Subsidiaries, and no claim has been made by any authority in a
jurisdiction where Ironbound or any of its Subsidiaries do not file tax returns
that Ironbound 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 Ironbound
or any of its Subsidiaries have been paid in full or adequate provision has been
made for any such taxes on Ironbound's balance sheet (in accordance with GAAP).
Except as set forth in Ironbound's Disclosure Letter, Ironbound 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. Ironbound 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 Ironbound 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 Ironbound 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.
(k) Agreements. (i) Except for the Option Agreement and
----------
arrangements made in the ordinary course of business, and except as set forth in
Ironbound's Disclosure Letter, Ironbound 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 Ironbound's Reports. Except as disclosed in Ironbound's Disclosure
Letter, neither Ironbound 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 Ironbound 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 Ironbound 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 Ironbound
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
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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 Ironbound 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,
Ironbound (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 Ironbound 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) Ironbound 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 Ironbound nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others. Each
of Ironbound 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 Ironbound 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 Ironbound or
any of its Subsidiaries the subject of any proceeding asserting that 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 Ironbound or any of its Subsidiaries pending or, to Ironbound's
knowledge, threatened. Ironbound 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. Ironbound'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 Ironbound or any of its
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Subsidiaries (hereinafter collectively referred to as the "Ironbound Employee
Plans"). Neither Ironbound nor any affiliate with which it would be aggregated
by reason of Section 414 of the Code, maintains, sponsors or participates in, or
has ever maintained, sponsored, or participated in, an "employee stock ownership
plan" (within the meaning of Section 407(d)(6) of ERISA and Sections 409 and
4975(e)(7) of the Code or employee pension benefit plan (other than the
[Ironbound 401(k) Plan] that is or was subject to any provision of ERISA or the
Code. All of the Ironbound 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 Ironbound or any of its Subsidiaries. Neither Ironbound nor any of its
Subsidiaries has provided, or is required to provide, security to any Ironbound
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant to
Section 401(a)(29) of the Code. Neither Ironbound, 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 Ironbound 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
"Ironbound Qualified Plan") has received a favorable determination letter from
the Internal Revenue Service ("IRS"), and Ironbound 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 Ironbound's knowledge,
threatened litigation, administrative action or proceeding relating to any
Ironbound Employee Plan. There has been no announcement or commitment by
Ironbound or any of its Subsidiaries to create an additional Ironbound Employee
Plan, or to amend any Ironbound Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such Ironbound
Employee Plan; and, except as specifically identified in Ironbound's Disclosure
Letter, Ironbound and its Subsidiaries do not have any obligations for post-
retirement or post-employment benefits under any Ironbound 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 Ironbound or any of its
Subsidiaries, for the Employee Plans listed in Ironbound'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 Ironbound 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
Ironbound Employee Plan or accelerate the time of payment or vesting of any such
benefit. With respect to each Ironbound Employee Plan, Ironbound 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 Ironbound Employee Plan, including amendments
thereto, (C) each trust agreement, insurance contract or other funding
arrangement relating to such Ironbound Employee Plan, including amendments
thereto, (D) the most recent summary plan description and summary of material
modifications thereto for such Ironbound Employee Plan, if the Ironbound
Employee Plan is subject to Title I
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<PAGE>
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. Ironbound 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 Ironbound 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 Ironbound 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 Ironbound to be adequate for
the current business of Ironbound and its Subsidiaries.
(o) Compliance with Laws. Ironbound 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 Ironbound, no suspension or
cancellation of any of them is threatened. Since the date of its incorporation,
the corporate affairs of Ironbound 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 Securities and Exchange Commission
(the "SEC"), the NASD or any other SRO (each, a "Governmental Entity"). The
businesses of Ironbound 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
----
Ironbound by Ostrowski & Company, Inc. pursuant to an agreement dated June 19,
1998, a true and complete copy of which has been previously delivered to RCFC,
neither Ironbound 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 Ironbound or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
(q) Environmental Matters. (i) With respect to Ironbound and each
---------------------
of its Subsidiaries:
(A) Each of Ironbound and its Subsidiaries, the Participation
Facilities (as defined herein), and, to Ironbound's knowledge, the Loan
Properties (as defined herein) are,
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<PAGE>
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
Ironbound'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 Ironbound'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 Ironbound 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 Ironbound's knowledge, the properties currently owned or
operated by Ironbound 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 Ironbound 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 Ironbound's knowledge, there are no underground storage tanks
on, in or under any properties owned or operated by Ironbound 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 Ironbound
or any of its Subsidiaries or any Participation Facility; and
(G) To Ironbound's knowledge, during the period of (l) Ironbound's or
any of its Subsidiaries' ownership or operation of any of their respective
current properties or (m) Ironbound'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 Ironbound's knowledge, prior to the period of (x) Ironbound's or
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<PAGE>
any of its Subsidiaries' ownership or operation of any of their respective
current properties or (y) Ironbound'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 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
A-21
<PAGE>
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 Ironbound or its Subsidiaries in whole or in part (each, a
"Loan"), to the best knowledge of Ironbound:
(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 Ironbound 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) Ironbound or a Subsidiary is the sole holder of legal and
beneficial title to each Loan (or Ironbound's applicable participation interest,
as applicable), except as otherwise referenced on the books and records of
Ironbound;
(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 Ironbound;
(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 Ironbound's
audited statement of condition at December 31, 1997 was, and the allowance for
possible losses shown on the balance sheets in Ironbound's Reports for periods
ending after December 31, 1997 will be,
A-22
<PAGE>
adequate, as of the dates thereof, under generally accepted accounting
principles applicable to stock banks consistently applied.
(iii) Ironbound'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 Ironbound and its
Subsidiaries that have been classified (whether regulatory or internal) as
"Special Mention," "Substandard," "Doubtful," "Loss" or words of similar import,
and Ironbound 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") included in any non-performing
assets of Ironbound 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 Ironbound or any of its
--------
Subsidiaries is a "brokered" deposit.
(t) Accounting Matters. Neither Ironbound nor any of its Subsidiaries
------------------
or, to the best of its knowledge, any of its other affiliates has, through the
date hereof, taken or agreed to take any action that would prevent RCFC from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests, and Ironbound has no knowledge of any fact or circumstance
that would prevent such accounting treatment.
(u) Antitakeover Provisions Inapplicable. Ironbound and its
------------------------------------
Subsidiaries have taken all actions required to exempt Ironbound, 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
-------------------------------------
Ironbound's Proxy Statement for its 1998 Annual Meeting of Stockholders or in
Ironbound's Disclosure Letter, no officer or director of Ironbound, 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 Ironbound or
any of its Subsidiaries. No such interest has been created or modified since
the date of the last regulatory examination of Ironbound or its Subsidiaries.
(w) Insurance. Ironbound and its Subsidiaries are presently insured,
---------
and since December 31, 1995, have been insured, for reasonable amounts with
financially sound and reputable 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 Ironbound and its Subsidiaries are in full force and effect,
A-23
<PAGE>
Ironbound 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) None of the investments
---------------------------------
reflected in the consolidated balance sheet of Ironbound 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 Ironbound's Disclosure Letter, neither
Ironbound 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 Ironbound's Disclosure Letter is a true
and complete list of Ironbound's borrowed funds (excluding deposit accounts) as
of the date hereof.
(y) Indemnification. Except as provided in Ironbound's Disclosure
---------------
Letter, applicable New Jersey law, Ironbound's Employment Agreements or the
organization certificate or bylaws of Ironbound and its Subsidiaries, neither
Ironbound 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 Ironbound (a "Covered Person"), and, except as set forth in
Ironbound's Disclosure Letter, to the best knowledge of Ironbound, there are no
claims for which any Covered Person would be entitled to indemnification under
the organization certificate or bylaws of Ironbound or any of its Subsidiaries,
under any applicable law or regulation or under any indemnification agreement.
(z) Books and Records. The books and records of Ironbound 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. Ironbound has delivered to RCFC true and
-------------------
complete copies of its certificate of incorporation and bylaws and of Ironbound
Bank's organization certificate and bylaws. The minute books of Ironbound and
Ironbound 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
A-24
<PAGE>
Ironbound'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, Ironbound
---------------------------
has no knowledge of any fact or circumstance 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, Ironbound 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. Ironbound 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.
Ironbound's management has developed and commenced implementation of a plan to
respond to this issue 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, Ironbound
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 Ironbound or its Subsidiaries.
(ee) Registration Statement. The information regarding Ironbound to
----------------------
be supplied by Ironbound 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 Ironbound's stockholders in the Merger (as amended or supplemented
from time to time, the "Registration Statement"), or (ii) the proxy statement to
be distributed by Ironbound in connection with Ironbound'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 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.
Section 2.4. Representations and Warranties of RCFC. Subject to
--------------------------------------
Sections 2.1 and 2.2, RCFC represents and warrants to Ironbound 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
A-25
<PAGE>
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 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 Subsidiary, as of the 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 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 BIF and the Savings
Association Insurance Fund 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
A-26
<PAGE>
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 the Option 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 and the Plan of Bank
Merger, respectively, and subject to the 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, subject to the approval of this Agreement by RCFC's
stockholders, the consummation of the transactions contemplated hereby, have
been duly authorized by all necessary corporate actions on the part of RCFC and
RCFC Bank. This Agreement has been duly executed and delivered by RCFC and
constitutes a valid and binding obligation 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) Fairness Opinion. RCFC has received the opinion of Sandler
----------------
O'Neill & Partner, L.P., 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
A-27
<PAGE>
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 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 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 SEC, the Superintendent, the FDIC and the OTS (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 Report 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) 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 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), 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 Ironbound a true and complete copy of
each of RCFC's Report filed with the SEC since December 31, 1997.
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<PAGE>
(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 OTS, (B) the SEC, (C) the NASD and (D) any other
SRO, and 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 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
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<PAGE>
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 (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 Report. Except as
disclosed in RCFC's Report 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 any of the transactions contemplated by this
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 (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).
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<PAGE>
(ii) Except as set forth in RCFC's Disclosure Letter, 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 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
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<PAGE>
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 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
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<PAGE>
respect to each RCFC Employee Plan, RCFC has supplied to Ironbound 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 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.
(q) Fees. Other than the financial advisory services performed for
----
RCFC by Sandler O'Neill & Partners, L.P. pursuant to an agreement dated July 10,
1998, a true and complete copy of which has been previously delivered to
Ironbound, 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.
A-33
<PAGE>
(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;
(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,
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<PAGE>
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 the best
knowledge of RCFC:
(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 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, 1998 will be adequate,
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<PAGE>
as of the dates thereof, under generally accepted accounting principles
applicable to stock savings banks 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 Ironbound
of any such classification arrived at any time after the date hereof. The OREO
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.
(t) Accounting Matters. Neither RCFC nor any of its Subsidiaries or,
------------------
to the best of its knowledge, any of its other affiliates has, through the date
hereof, taken or agreed to take any action that would prevent RCFC from
accounting for the business combination to be effected by the Merger as a
pooling-of-interests, and RCFC has no knowledge of any fact or circumstance that
would prevent such accounting treatment.
(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 balance sheet of RCFC Bank
for the year ended June 30, 1997, and none of the investment securities held by
RCFC or any of its Subsidiaries since June 30, 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.
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<PAGE>
(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 or (ii) the
Proxy Statement 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.
(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 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 Ironbound 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 Ironbound Common Stock. As of the date
----------------------------------------------
hereof, RCFC beneficially owns no shares of Ironbound 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
Ironbound Common Stock.
(z) Tax Treatment of the Merger. As of the date hereof, RCFC has no
---------------------------
knowledge of any fact or circumstance 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 or its Subsidiaries.
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<PAGE>
(bb) Deposits. None of the deposits of RCFC or any of its Subsidiaries is a
--------
"brokered deposit."
ARTICLE III
CONDUCT PENDING THE MERGER
--------------------------
Section 3.1. Conduct of Ironbound'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, Ironbound 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
adversely affect or delay the ability of Ironbound 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 Ironbound,
Ironbound Bank, 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 Ironbound or Ironbound Bank.
Section 3.2. Forbearance by Ironbound. 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, Ironbound 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) change any provisions of the certificate of incorporation or
bylaws of Ironbound 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
Ironbound except pursuant to the exercise of stock options or warrants
outstanding as of the date of this Agreement in the ordinary course of business
and consistent with past practice;
(c) 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, other than
the $0.05 regular quarterly cash dividend payable by Ironbound. As promptly as
practicable following the date of this Agreement, the Board of Directors of
Ironbound shall cause its regular quarterly dividend record dates and payment
dates to be the
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same as RCFC's regular quarterly dividend record dates and payments dates for
RCFC Common Stock, and Ironbound 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 Ironbound Common Stock to receive two dividends from either
Ironbound or from Ironbound and RCFC in any one quarter. Subject to applicable
regulatory restrictions, if any, Ironbound Bank may pay a cash dividend that is,
in the aggregate, sufficient to fund any dividend by Ironbound permitted
hereunder;
(d) other than in the ordinary course of business consistent with past
practice and pursuant to policies currently in effect, 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 Ironbound or cancel, release or assign any
indebtedness of any such individual, corporation or other entity, except
pursuant to contracts or agreements in force at the date of this Agreement and
which have been disclosed to RCFC;
(e) except to the extent required by law or as disclosed in Section
3.2(e) of Ironbound's Disclosure Letter or 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 Ironbound's
non-officer employees following such increase to exceed by more than 5% the
total annual compensation expenses of Ironbound with respect to such person for
the twelve month period ended March 31, 1998 and other than promotions of non-
officer employees as a result of enhanced job classification and duties, made in
the ordinary course of business which results in an increase in the compensation
thereof so long as such increase does not cause the annual rate of such
individual's compensation to increase by more than 10% of such person's
compensation 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 Ironbound 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 increase the costs to Ironbound or any Subsidiary of any Employee
Plan;
(f) except as contemplated by Section 4.2, change its method of
accounting as in effect at June 30, 1997, except as required by changes in GAAP
as concurred in by Ironbound's independent auditors;
(g) settle any claim, action or proceeding involving any liability of
Ironbound or any of its Subsidiaries for money damages in excess of $25,000 or
impose material restrictions upon the operations of Ironbound or any of its
Subsidiaries;
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(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 Ironbound, 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 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 Ironbound Disclosure Schedule;
(k) take any action that would prevent or impede the Merger from
qualifying (A) for pooling-of-interests accounting treatment, or (B) as a tax-
free reorganization under the Code;
(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 Ironbound'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(o);
(o) settle any claim, action or proceeding involving any liability of
Ironbound or any of its Subsidiaries for money damages in excess of $25,000 or
material restrictions upon the operations of Ironbound or any of its
Subsidiaries;
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(p) make, grant or purchase any loan or commitment to lend in excess
of $500,000 to any individual borrower, unless such loan is fully secured by
real estate or liquid collateral and conforms in all material respects with the
Bank's existing loan policy. The Bank is also permitted to renew currently
outstanding loans or amounts above $500,000 provided the loan has a satisfactory
payment history and the renewal is not in excess of the original loan principal
amount.
(q) incur any additional borrowings beyond those set forth in the
Ironbound 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 Ironbound 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;
(r) make any capital expenditures in excess of $50,000 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 Ironbound
Disclosure Schedule, other than expenditures necessary to maintain existing
assets in good repair or to make payment of necessary taxes;
(s) organize, capitalize, lend to or otherwise invest in any
Subsidiary, or invest in or acquire any equity or voting interest in any firm,
corporation or business enterprise (other than securities of the FHLB that are
purchased in the ordinary course of business consistent with past practice);
(t) elect to the Board of Directors of Ironbound or, except as
disclosed in Ironbound's Disclosure Letter, to any office any person who is not
a member of the Board of Directors of Ironbound or an officer of Ironbound as of
the date of this Agreement;
(u) accept any proposed deposits by any municipality or government
agency the terms of which exceed 90 days; or
(v) 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 Ironbound within
three business days of receipt by RCFC of a written request for Ironbound 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 Ironbound 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 three business days shall constitute consent.
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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 Ironbound 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 Ironbound, RCFC, Ironbound Bank 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.
ARTICLE IV
COVENANTS
---------
Section 4.1. Acquisition Proposals. From and after the date hereof
---------------------
until the termination of this Agreement, neither Ironbound or Ironbound Bank,
nor any of their respective officers, directors, employees, representatives,
agents or affiliates (including, without limitation, any investment banker,
attorney or accountant retained by Ironbound 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
Ironbound shall notify RCFC 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, Ironbound 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 Ironbound 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 Ironbound 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 Ironbound receives a written
opinion from its independent financial advisor that such proposal may be
superior to the Merger from a
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financial point-of-view to Ironbound's stockholders, (B) the Board of Directors
of Ironbound, after consultation with and based upon the written advice of
independent legal counsel, determines in good faith that such action is
necessary for the Board of Directors of Ironbound 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, Ironbound (x) provides reasonable notice to RCFC to
the effect that it is furnishing information to, or entering into discussions or
negotiations with, such person or entity and (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 Ironbound, after consultation
with and based upon the written advice of independent legal counsel, determines
in good faith that such action is necessary for the Board of Directors of
Ironbound 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
Ironbound 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 10% or more
of the assets of Ironbound or Ironbound Bank, 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 Ironbound 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 Ironbound.
-----------------------------
(a) At the request of RCFC, Ironbound shall cause Ironbound Bank 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 Ironbound shall not be required to
take such action more than five business 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) Ironbound'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 Ironbound and its Subsidiaries, and their
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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, Ironbound 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, Ironbound 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 Ironbound 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 consummation of the transactions
contemplated by this Agreement. Subject to the requirements of applicable law,
each of RCFC and Ironbound 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 (but in no event earlier than 30 days prior to the Effective
Time) and continuing to the Effective Time, including weekends and holidays,
Ironbound shall cause Ironbound Bank to provide RCFC, RCFC Bank and their
authorized agents and representatives full access to Ironbound Bank's offices
after normal business hours for the purpose of installing necessary wiring and
equipment (at RCFC's expense) to be utilized by RCFC Bank after the Effective
Time; provided, that:
(i) reasonable advance notice of each entry shall be given to
Ironbound Bank and Ironbound Bank approves of each entry, which approval shall
not be unreasonably withheld;
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(ii) Ironbound Bank 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 Ironbound Bank'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
Ironbound Bank in connection with any work done by RCFC Bank's agents and
representatives pursuant to this Section 4.3;
(vi) RCFC Bank shall reimburse Ironbound Bank for any material out-of-
pocket costs or expenses incurred by Ironbound Bank in connection with this
undertaking; and
(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 and
------------------------------------------
Ironbound shall (a) as soon as practicable (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 promptly after they are filed.
Section 4.5. Antitakeover Provisions. Ironbound 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 (i) 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 Ironbound's or
its Subsidiaries' organization certificates and bylaws and the provisions of any
federal or state antitakeover laws, and (ii) upon the request of RCFC, to assist
in any challenge to the applicability to the Agreement, the Merger, the Bank
Merger or the Option Agreement of any federal or state antitakeover laws.
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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 Ironbound 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 Meeting. Ironbound shall take all action
--------------------
necessary, in accordance with applicable law and its corporate documents, to
convene a meeting of its stockholders (the "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 in writing by such Board's counsel, the Board of Directors of
Ironbound 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.
Section 4.9. Proxy Statements; Comfort Letters. (i) As soon as
---------------------------------
practicable after the date hereof, RCFC and Ironbound shall cooperate with
respect to the preparation of a Proxy Statement-Prospectus for the purpose of
taking stockholder action on the Merger and this Agreement and file the Proxy
Statement-Prospectus with the SEC and the FDIC, respond to comments of the staff
of the SEC and the FDIC and, promptly after the Registration Statement is
declared effective by the SEC and the FDIC, 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 Ironbound and RCFC. RCFC and Ironbound 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 and the FDIC and will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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(ii) RCFC shall cause Ernst & Young LLP, its independent public
accounting firm, to deliver to Ironbound, and Ironbound shall cause Deloitte &
Touche 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 Ironbound and the date of mailing of the Proxy
Statement for the Stockholders meeting of RCFC, respectively, and (b) a date not
earlier than five business 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 (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 Ironbound 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 Ironbound 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
Ironbound with as many copies of such Registration Statement and all amendments
thereto promptly upon the filing thereof as Ironbound 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
Ironbound Common Stock.
Section 4.11. Affiliate Letters. Promptly, but in any event within
-----------------
two weeks after the execution and delivery of this Agreement, Ironbound shall
deliver to RCFC a letter identifying all persons who, to the knowledge of
Ironbound, may be deemed to be "affiliates" of Ironbound under Rule 145 of the
Securities Act and the pooling-of-interests accounting rules, including, without
limitation, all directors and executive officers of Ironbound. Within two weeks
after delivery of such letter, Ironbound shall 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 Ironbound agreeing
(i) to comply with Rule 145, (ii) to refrain from transferring
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shares as required by the pooling-of-interests accounting rules and (iii) to be
present in person or by proxy and vote in favor of the Merger at Ironbound
Stockholders Meeting. Within two weeks after the date hereof, RCFC shall cause
its directors and executive officers to enter into letter agreements, in the
form attached hereto as Exhibit C, with RCFC concerning the pooling-of-interests
accounting rules.
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 Ironbound 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.
Section 4.13. Employees, Directors and Officers.
---------------------------------
(a) All persons who are employees of Ironbound Bank immediately prior
to the Effective Time (Ironbound'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 Ironbound'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. All of
Ironbound's Employees who remain following the Effective Date shall be employed
at the will of RCFC or RCFC Bank. No contractual right to employment shall
inure to such employees because of this Agreement. Subject to paragraph (e) of
this Section 4.13, no employee of Ironbound 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 provided in paragraph (c) of this Section 4.13,
appropriate steps shall be taken to terminate all Ironbound 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 and subject as are applicable to any newly-hired
employee of RCFC or RCFC Bank (it being understood that inclusion of Continuing
Employee 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
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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 Ironbound or Ironbound Bank 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 Ironbound Employee who is a
participant in the Ironbound 401(k) Plan (the "Ironbound 401(k) Plan") shall
become fully vested in his or her account balance in the Ironbound 401(k) Plan
and the Ironbound 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 as to whether the Ironbound 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 Ironbound 401(k) Plan into the RCFC 401(k)
Plan or the termination of the Ironbound 401(k) Plan (or the Effective Time, if
subsequent to such termination), Ironbound Employees who are then participating
in the Ironbound 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 Ironbound and Ironbound
Bank and certain employees, stock option plans and restricted stock plans, and
other benefit plans as described in Section 4.13 (collectively "Employment
Agreements") and to the payment of benefits by Ironbound as of the Effective
Time or earlier as agreed to by Ironbound and RCFC under such agreements and
plans as such amounts are calculated and disclosed on Disclosure Schedule
4.13(d). Payments under the Employment Agreements shall be made by Ironbound,
as set forth in the Ironbound Disclosure Letter, immediately prior to the
Effective Time .
(e) At the Effective Time, RCFC Bank shall enter into an employment
agreement with Michael J. Gagliardi and Thomas Lupo, substantially in the form
attached hereto as Exhibit D.
Section 4.14. Indemnification; Directors' and Officers' Insurance.
---------------------------------------------------
(a) From and after the Effective Time through the third anniversary of
the Effective Date, RCFC agrees to indemnify and hold harmless each present and
former director and officer of Ironbound and its Subsidiaries and each officer
or employee of Ironbound and its
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<PAGE>
Subsidiaries that is serving or has served as a director or trustee of another
entity expressly at Ironbound's request or direction (each, an "Indemnified
Party"), against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, 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 Ironbound and its Subsidiaries and as then
permitted under applicable law.
(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 applicable law. The rights of each Indemnified Party
hereunder shall be in addition to any other rights such Indemnified Party may
have under applicable law.
Section 4.15. Tax-Free Reorganization Treatment. Prior to the
---------------------------------
Effective Time, neither RCFC nor Ironbound shall intentionally take, fail to
take, or cause to be taken or not
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<PAGE>
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 pooling-of-
interests for accounting purposes or as a reorganization under the Code.
Section 4.16. Savings and Loan Holding Company Structure. If
------------------------------------------
requested by RCFC in order to facilitate the transactions contemplated in this
Agreement and assuming all other material conditions have been met, Ironbound
will take such steps as are necessary to become a savings and loan holding
company pursuant to HOLA, assuming Ironbound so qualifies.
Section 4.17. Divisional Board. RCFC shall, promptly following the
----------------
Effective Time, cause all of the members of Ironbound'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 Ironbound's divisional board ("Divisional Board"), the
function of which shall be to advise RCFC with respect to deposit and lending
activities in Ironbound'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 of three years. Beginning immediately after the
Effective Time, each non-employee member of the Divisional Board (except the
Chairman of the Divisional Board) shall receive an annual retainer fee of
$5,000, plus an attendance fee of $750 for each Divisional Board meeting
attended, and the Chairman of the Divisional Board shall receive an annual
retainer fee of $10,000 plus an attendance fee of $750 for each Divisional Board
meeting attended, and each non-employee member of the Divisional Board shall be
prohibited from competing directly 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.
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
Ironbound's stockholders in accordance with applicable laws and regulations;
(b) the Requisite Regulatory Approvals and any necessary regulatory
consents and 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
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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
Ironbound and its Subsidiaries taken as a whole or (ii) on RCFC and its
Subsidiaries taken as a whole. None of the approvals or waivers referred to
herein shall contain any term or condition which would have a Material Adverse
Effect on (x) Ironbound and its Subsidiaries taken as a whole or (y) RCFC and
its Subsidiaries taken as a whole;
(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; all required approvals by state
securities or "blue sky" authorities with respect to the transactions
contemplated by this Agreement shall have been obtained;
(f) [Reserved]
(g) RCFC shall have received the letter agreement referred to in
Section 4.11 from each affiliate of Ironbound; and
(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 Ironbound 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 Ironbound and Ironbound 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 Ironbound and
Ironbound 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 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
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<PAGE>
foregoing effect signed by the chief executive officer and the chief financial
or principal accounting officer of Ironbound;
(b) all action required to be taken by, or on the part of, Ironbound
and Ironbound Bank to authorize the execution, delivery and performance of this
Agreement and the consummation by Ironbound and Ironbound Bank of the
transactions contemplated hereby shall have been duly and validly taken by the
Board of Directors and stockholders of Ironbound or Ironbound Bank, as the case
may be, and RCFC shall have received certified copies of the resolutions
evidencing such authorization;
(c) Ironbound 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 Ironbound or its Subsidiaries under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument to which Ironbound 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 Ironbound and its
Subsidiaries;
(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,
Ironbound or Ironbound Bank 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 Ironbound who exchange their Ironbound
Common Stock for RCFC Common Stock pursuant to the Merger;
(iii) The tax basis of RCFC Common Stock received by
stockholders who exchange their Ironbound Common Stock for RCFC Common Stock
in the Merger will
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<PAGE>
be the same as the tax basis of Ironbound 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 Ironbound Common
Stock exchanged therefor, provided that such stockholder held such Ironbound
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, Ironbound, Ironbound Bank, stockholders of RCFC or Ironbound, or any
combination of such persons and (y) certificates provided at the request of
Muldoon, Murphy & Faucette by officers of RCFC, RCFC Bank. Ironbound, Ironbound
Bank and other appropriate persons.
(f) The consummation of the sale of Ironbound's executive office is
completed subject to terms disclosed in Ironbound's Disclosure Letter.
Section 5.3. Conditions to the Obligations of Ironbound and
----------------------------------------------
Ironbound Bank. The obligations of Ironbound and Ironbound 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 Ironbound:
(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 though
made at and as of the Effective Time (except as to any representation or
warranty which specifically relates to an earlier date). Ironbound 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 Ironbound 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
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<PAGE>
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) Ironbound 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) Ironbound shall have received an opinion of Luse Lehman Gorman
Pomerenk & Schick, P.C., counsel to Ironbound, dated as of the Effective Date,
in form and substance customary in transactions of the type contemplated hereby,
and reasonably satisfactory to Ironbound, 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,
Ironbound or Ironbound Bank 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 Ironbound who exchange their Ironbound
Common Stock for RCFC Common Stock pursuant to the Merger;
(iii) The tax basis of RCFC Common Stock received by
stockholders who exchange their Ironbound Common Stock for RCFC Common Stock in
the Merger will be the same as the tax basis of Ironbound 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 Ironbound Common
Stock exchanged therefor, provided that such stockholder held such Ironbound
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 Luse Lehman Gorman Pomerenk & Schick, P.C. considers
appropriate, (x) representations made at the request of Luse Lehman Gorman
Pomerenk & Schick, P.C. by RCFC, RCFC Bank, Ironbound, Ironbound Bank,
stockholders of RCFC or Ironbound, or any combination of such persons and (y)
certificates provided at the request of
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<PAGE>
Luse Lehman Gorman Pomerenk & Schick, P.C. by officers of RCFC, RCFC Bank,
Ironbound 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
its approval by the stockholders of Ironbound.
(a) by the mutual consent of RCFC and Ironbound 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;
(b) by RCFC or Ironbound, 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 Ironbound to approve the Agreement at its
Stockholder Meeting called to consider such approval;
(c) by RCFC or Ironbound, 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;
(d) by RCFC or Ironbound, 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"); 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 Ironbound does not publicly
recommend in the Proxy Statement that Ironbound'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 Ironbound shall have
withdrawn, modified or amended such recommendation in any respect materially
adverse to RCFC; or
(f) by RCFC by written notice to Ironbound, or by Ironbound by written
notice to RCFC 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 Ironbound or RCFC, as the case
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<PAGE>
may be; provided that one party shall have given the other thirty (30) calendar
days prior written notice of such termination, and the breaching party shall not
have remedied such event, condition, change or occurrence by the end of such
thirty-day period;
(g) by Ironbound, if its board of directors so determines by the
requisite vote of members of its entire board, at any time during the five-day
period commencing with the Valuation Date, in accordance with (i) below:
(i) if RCFC Market Value is less than $14.00, adjusted as
indicated in the last sentence of this Section 6.1(g).
If RCFC 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(c) of this Agreement, for the purposes of
applying this Section 6.1(g); or
(h) by RCFC or Ironbound (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
Sections 2.2(a) and (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.
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
Richmond County Financial Corp., 1214 Castleton Avenue, Staten Island, New York
10310, unless another place is agreed to by RCFC and Ironbound, on a date
("Closing Date") that is no later than five business 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 Ironbound shall execute a Certificate of Merger in accordance with all
appropriate legal requirements, which shall be filed as required by
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<PAGE>
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.
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
Ironbound the documents and instruments required to be delivered under Article
V.
Section 7.3. Adjustment of Exchange Ratio. If RCFC Market Value is
----------------------------
less than $15.945, but equal to or greater than $14.00, adjusted as indicated in
the last sentence of Section 6.1(g), the Exchange Ratio shall be adjusted such
that the value of the consideration (valued at the Valuation Date) to be paid in
respect of each share of Ironbound Common Stock to be converted into RCFC Common
Stock and cash in lieu of fractional shares upon consummation of the Merger is
$23.12.
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 Ironbound (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, 4.16, 4.17, 4.19 and 8.6
of this Agreement, shall survive the Effective Time.
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<PAGE>
All other representations, warranties, agreements and covenants shall be deemed
to be conditions of the Agreement and shall not survive the Effective Time. If
the Agreement shall be terminated, the agreements of the parties in the last
three sentences of Section 4.3(a) and Section 8.6 shall survive such
termination.
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 Ironbound or RCFC, no
amendment or modification may be made that would reduce the Merger Consideration
or contravene any provision of the Delaware General Corporation Law 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.
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.
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 to the other party hereto.
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<PAGE>
If to Ironbound, to:
Ironbound Bankcorp
36 Pacific Street
Newark, New Jersey 07105
Facsimile: (973) 589-7686
Attention: Edward Cruz
Chairman of the Board
and
Michael J. Gagliardi
President and Chief Executive Officer
and
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W.
Suite 400
Washington, D.C. 20015
John J. Gorman, Esq.
Alan Schick, Esq.
Facsimile: (202) 362-2902
If to RCFC, to:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 273-8078
Attention: Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
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<PAGE>
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 and 4.14,
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 17th day of July, 1998.
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
---------------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
IRONBOUND BANKCORP, NJ
By: /s/ Edward Cruz
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Edward Cruz
Chairman of the Board
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 17, 1998, between IRONBOUND
BANKCORP, NJ, a New Jersey corporation ("Issuer"), and RICHMOND COUNTY
FINANCIAL CORP., a Delaware corporation ("Grantee").
W I T N E S S E T H:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Agreement; and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined):
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 198,664
fully paid and nonassessable shares of Issuer's Common Stock, par value $5.00
per share ("Common Stock"), at a price of $20.00 per share; provided, however,
that in no event shall the number of shares for which this Option is exercisable
exceed 19.9% of the Issuer's issued and outstanding common shares. The number
of shares of Common Stock that may be received upon the exercise of the Option
and the Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date hereof (or any treasury shares held
by Issuer have been or are sold after July 16, 1998) (other than pursuant to
this Agreement or as set forth in the Merger Agreement), the number of shares of
Common Stock subject to the Option shall be increased so that, after such
issuance, its equals 19.9% of the number of shares of Common Stock then issued
and outstanding without giving effect to any shares subject to or issued
pursuant to the Option. Nothing contained in this Section 1(b) or elsewhere in
this Agreement shall be deemed to authorize Issuer to breach any provision of
the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, a Triggering Event (as
hereinafter defined) has occurred prior to the occurrence of an Exercise
Termination Event (as hereinafter defined), provided that the Holder shall have
sent the written notice of such exercise (as provided in subsection (e) of this
Section 2) within 30 days following such Triggering Event. Each of the
following shall be an Exercise Termination Event: (i) the Effective Time of the
Merger; (ii) termination of the Merger Agreement in accordance with the
provisions thereof if such termination occurs prior to the occurrence of a
Triggering Event; or (iii) the passage of 12 months after termination of the
Merger Agreement if such termination follows the occurrence of
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a Triggering Event; or (iv) the passage of 12 months after termination of the
Merger Agreement, if such termination is pursuant to Sections 6.1(e) or 6.1(h)
and a Triggering Event shall not have occurred during such time. The "Last
Triggering Event" shall mean the last Triggering Event to occur. The term
"Holder" shall mean the holder or holders of the Option.
(b) The term "Triggering Event" shall mean any of the following events or
transactions occurring after the date hereof:
(i) (a) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written consent,
shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Exchange Act, and the rules and regulations
thereunder) other than Grantee or any of its Subsidiaries (each a "Grantee
Subsidiary") or (b) the Board of Directors of Issuer shall have recommended
that the stockholders of Issuer approve or accept any Acquisition
Transaction other than as contemplated by the Merger Agreement. For
purposes of this Agreement, "Acquisition Transaction" shall mean (x) a
merger or consolidation, or any similar transaction, involving Issuer or
any of its subsidiaries ("Issuer Subsidiary"), (y) a purchase, lease or
other acquisition representing 15% or more of the consolidated assets of
Issuer and its subsidiaries, or (z) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or otherwise) of
securities representing 10% or more of the voting power of Issuer or any of
Issuer Subsidiary;
(ii) Issuer or any Issuer Subsidiary, without having received
Grantee's prior written consent, shall have authorized, recommended,
proposed or publicly announced its intention to authorize, recommend or
propose, an agreement to engage in an Acquisition Transaction with any
person other than Grantee or a Grantee Subsidiary, or the Board of
Directors of Issuer shall have withdrawn or modified, or publicly announced
its interest to withdraw or modify, its recommendation that the
stockholders of Issuer approve the transactions contemplated by the Merger
Agreement, followed by the acquisition by any person of beneficial
ownership of 25% or more of the then outstanding common stock of the
Issuer;
(iii) Any person, other than Grantee, any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity, shall have acquired
beneficial ownership or the right to acquire beneficial ownership of 15% or
more of the outstanding shares of Common Stock; (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned
thereto in Section 13(d) of the Exchange Act, and the rules and regulations
thereunder) and the Issuer's shareholders shall not approve the Merger, or
the Issuer shall not have called a meeting of shareholders, or Issuer shall
not have held a meeting of shareholders to vote on the Merger no later than
January 31, 1999, or the Issuer shall have called a meeting of shareholders
or shall have distributed a proxy statement or other solicitation materials
in connection with an Acquisition Transaction,
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followed by the acquisition by any person of beneficial ownership of 25% or
more of the then outstanding common stock of the Issuer;
(iv) Any person other than Grantee or any Grantee Subsidiary, other
than in connection with a transaction to which the Grantee has given its
prior written consent, 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, followed by the acquisition by any person of beneficial
ownership of 25% or more of the then outstanding common stock of the
Issuer;
(v) After a proposal is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer shall have
willfully breached any representation, warranty, covenant or obligation
contained in the Merger Agreement and such breach (x) would entitle Grantee
to terminate the Merger Agreement and (y) shall not have been cured prior
to the Notice Date (as defined below); or
(vi) Any person other than Grantee or any Grantee Subsidiary, 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 Federal
Reserve Board of Governors ("FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), or other federal or state bank regulatory
authority, which application or notice has been accepted for processing,
for approval to engage in an Acquisition Transaction, followed by the
acquisition by any person of beneficial ownership of 25% or more of the
then outstanding common stock of the Issuer.
(vii) The holders of Issuer Common Stock shall not have approved the
Merger Agreement and the transactions contemplated thereby, at the meeting
of such stockholders held for the purpose of voting on such agreement, or
such meeting shall not have been held or shall have been cancelled prior to
termination of the Merger Agreement, in each case after it shall have been
publicly announced that any person (other than Grantee or any affiliate of
Grantee or any person acting in concert in any respect with Grantee) shall
have made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction, followed by the acquisition by any person of
beneficial ownership of 25% or more of the then outstanding common stock of
the Issuer; or
(viii) Issuer's Board of Directors shall not have recommended to the
stockholders of Issuer that such stockholders vote in favor of the approval
of the Merger Agreement and the transactions contemplated thereby or shall
have withdrawn or modified such recommendation in a manner adverse to
Grantee, followed by the acquisition by any person of beneficial ownership
of 25% or more of the then outstanding common stock of the Issuer.
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(c) Issuer shall notify Grantee promptly in writing of the occurrence of a
Triggering Event, it being understood that the giving of such notice by Issuer
shall not be a condition to the right of the Holder to exercise the Option.
(d) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being herein
referred to as the "Notice Date") specifying (i) the total number of shares it
will purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 60 business days from the Notice Date
for the closing of such purchase (the "Closing Date"); provided, that if the
closing of the purchase and sale pursuant to the Option (the "Closing") cannot
be consummated by reason of any applicable judgment, decree, order, law or
regulation, the period of time that otherwise would run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and provided further, without
limiting the foregoing, that if prior notification to or approval of the OTS or
any other regulatory agency is required in connection with such purchase, the
Holder shall promptly file the required notice or application for approval and
shall expeditiously process the same and the period of time that otherwise would
run pursuant to this sentence shall run instead from the date on which any
required notification periods have expired or been terminated or such approvals
have been obtained and any requisite waiting period or periods shall have
passed. Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto. Notwithstanding this subsection (e), in no event shall any
Closing Date be more than 18 months after the related Notice Date, and if the
Closing Date shall not have occurred within 18 months after the related Notice
Date due to the failure to obtain any such required approval, the exercise of
the Option effected on the Notice Date shall be deemed to have expired. In the
event (i) Grantee receives official notice that an approval of the FRB, FDIC or
any other regulatory authority required for the purchase of Option Shares (as
hereinafter defined) would not be issued or granted, (ii) a Closing Date shall
not have occurred within 18 months after the related Notice Date due to the
failure to obtain any such required approval or (iii) Holder shall have the
right pursuant to the last sentence of Section 7 to exercise the Option, Grantee
shall nevertheless be entitled to exercise its right as set forth in Section 7
and, Grantee or Holder shall be entitled to exercise the Option in connection
with the resale of Issuer Common Stock or other securities pursuant to a
registration statement as provided in Section 6.
(e) At the Closing referred to in subsection (d) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, provided that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(f) At such Closing, simultaneously with the delivery of immediately
available funds as provided in subsection (e) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder, and the Holder
shall deliver
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to Issuer a copy of this Agreement and a letter agreeing that the Holder will
not offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Agreement.
(g) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Issuer and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Issuer and will be provided to the holder hereof without charge upon
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if the 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, to the
effect that such legend is not required for purposes of the Securities Act; (ii)
the reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) are both satisfied. In
addition, such certificates shall bear any other legend as may be required by
law.
(h) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (d) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder or the Issuer
shall have failed or refused to designate the bank account described in
subsection (e) of this Section 2. 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 2 in the name of the Holder or its assignee,
transferee or designee.
(i) Notwithstanding anything to the contrary contained in this Agreement,
the Issuer shall not be obligated to issue shares of common stock upon the
exercise of the Option (i) in the absence of any required governmental or
regulatory approval or consent necessary for the Issuer to issue shares or for
the Grantee to exercise the Option, (ii) in the event the Grantee is in material
breach of its representations, warranties, covenants or obligations under the
Merger Agreement or (iii) so long as any injunction or decree or ruling issued
by a court of competent jurisdiction is in effect which prohibits the sale or
delivery of the common stock.
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3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock (and other securities issuable pursuant to Section 5(a)) so that
the Option may be exercised without additional authorization of Common Stock (or
such other securities) after giving effect to all other options, warrants,
convertible securities and other rights to purchase Common Stock (or such other
securities); (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 (x) complying with all premerger notification, reporting
and waiting period requirements specified in 15 U.S.C. 18a and regulations
promulgated thereunder and (y) in the event that under the Change in Bank
Control Act of 1978, as amended, or any state banking law, prior approval of or
notice to the FRB or FDIC, or to any state regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications or notices and providing such information to the FRB
or FDIC, or such state regulatory authority as they may require) in order to
permit the Holder to exercise the Option and the Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) promptly to take all
action provided herein to protect the rights of the Holder against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the 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,
on the same terms and subject to the same conditions as are set forth herein, in
the aggregate the same number of shares of Common Stock purchasable hereunder.
The terms "Agreement" and "Option" as used herein include any Stock Option
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.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option shall be subject to adjustment from time to time as provided in this
Section 5.
(a) In the event of any change in Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof shall be
appropriately adjusted so that Grantee shall receive upon exercise of the
Option and payment of the aggregate Option Price hereunder the number and
class of shares or other securities or property that Grantee would have
received in respect of Common Stock if the Option had been exercised in
full immediately prior to such event, or the record date therefor, as
applicable.
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(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
6. (a) Upon the occurrence of a Triggering Event that occurs prior to an
Exercise Termination Event (or as otherwise provided in the last sentence of
Section 2(e)), Issuer shall, at the request of Grantee delivered within 30 days
after such Triggering Event (or such trigger date as is provided in the last
sentence of Section 2(e)) (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the Securities Act covering any shares issued
and issuable pursuant to this Option and shall use its best efforts to cause
such registration statement to become effective and remain current in order to
permit the sale or other disposition of any shares of Common Stock issued upon
total or partial exercise of this Option ("Option Shares") in accordance with
any plan of disposition requested by Grantee. Issuer will use its best efforts
to cause such registration statement first to become effective and then to
remain effective for such period not in excess of 180 days from the day such
registration statement first becomes effective or such shorter time as may be
reasonably necessary to effect such sales or other dispositions. Grantee for a
period of 18 months following such first request shall have the right to demand
a second such registration if reasonably necessary to effect such sales or
dispositions. Holder shall not be obligated to pay, liable for or otherwise
bear any payments, fees or expenses associated with the first registration
contemplated by this Section 6, all of which such payments, fees or expenses
shall be borne by the Issuer. The foregoing notwithstanding, if, at the time of
any request by Grantee for registration of Option Shares as provided above,
Issuer is in registration with respect to an underwritten public offering of
shares of Common Stock, and if in the good faith judgment of the managing
underwriter or managing underwriters, or, if none, the sole underwriter or
underwriters, of such offering the inclusion of the Holder's Option or Option
Shares would interfere with the successful marketing of the shares of Common
Stock offered by Issuer, the number of Option Shares otherwise to be covered in
the registration statement contemplated hereby may be reduced; and provided,
however, that after any such required reduction in the number of Option Shares
to be included in such offering for the account of the Holder shall constitute
at least 25% of the total number of shares to be sold by the Holder and Issuer
in the aggregate; and provided further, however, that if such reduction occurs,
then the Issuer shall file a registration statement for the balance as promptly
as practical and no reduction shall thereafter occur (and such registration
shall not be charged against the Holder). Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in connection
with such registration, Issuer shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties, indemnities and
other agreements customarily included in such underwriting agreements for the
Issuer. Upon receiving any request under this Section 6 from any Holder, Issuer
agrees to send a copy thereof to any other person known to
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Issuer to be entitled to registration rights under this Section 6, in each case
by promptly mailing the same, postage prepaid, to the address of record of the
persons entitled to receive such copies.
(b) The Issuer will indemnify and hold harmless Grantee, any
underwriter (as defined in the Securities Act) for Grantee, and each person, if
any, who controls Grantee or such underwriter (within the meaning of the
Securities Act) from and against any and all loss, damage, liability, cost and
expense to which Grantee or any such underwriter or controlling person may
become subject under the Securities Act or otherwise, insofar as such losses,
damages, liabilities, costs or expenses arise out of or are caused by any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus or preliminary prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that the Issuer will not be liable in any such case to the extent that any such
loss, damage, liability, cost or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission so
made in conformity with information furnished by Grantee, such underwriter or
such controlling person in writing specifically for use in the preparation
thereof.
7. (a) Upon the occurrence of a Triggering Event that occurs prior to an
Exercise Termination Event, (i) at the request of the Holder, delivered within
30 days after such occurrence (or such later period as provided in Section 8 or
the last sentence of Section 2(e)), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase Price")
equal to the amount by which (A) the market/offer price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised and (ii) at the request of the owner of Option
Shares from time to time (the "Owner"), delivered within 30 days after such
occurrence (or such later period as provided in Section 8), Issuer shall
repurchase such number of the Option Shares from the Owner as the Owner shall
designate at a price (the "Option Share Repurchase Price") equal to the
market/offer price multiplied by the number of Option Shares so designated. The
term "market/offer price" shall mean the highest of (i) the highest price per
share of Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the highest price per share of Common Stock to be paid by any
third party pursuant to an agreement with Issuer, (iii) the average of the
Closing Price of the Common Stock of Issuer for the ten days preceding the
Triggering Event. In determining the market/offer price, the value of
consideration other than cash, to the extent consideration other than cash is
accepted by the Holder or the Owner, shall be determined by a nationally
recognized investment banking firm selected by the Holder or Owner, as the case
may be.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that the Holder
or the Owner, as the case may be, elects to require Issuer to repurchase this
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Option and/or the Option Shares in accordance with the provisions of this
Section 7. As promptly as practicable, and in any event within five business
days after the surrender of the Option and/or certificates representing Option
Shares and the receipt of such notice or notices relating thereto. Issuer shall
deliver or cause to be delivered to the Holder the Option Repurchase Price
and/or to the Owner the Option Share Repurchase Price therefor or the portion
thereof that Issuer is not then prohibited under applicable law and regulation
from delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from repurchasing the
Option and/or the Option Shares in full, Issuer shall immediately so notify the
Holder and/or the Owner and thereafter deliver or cause to be delivered, from
time to time, to the Holder and/or the Owner, as appropriate, the portion of the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
that it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; provided, however, that if
Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation, or as a consequence of administrative policy, from delivering to the
Holder and/or the Owner, as appropriate, the Option Repurchase Price and the
Option Share Repurchase Price, respectively, in full (and Issuer hereby
undertakes to use its best efforts to obtain all required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to the
Holder, a new Stock Option Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock obtained by multiplying the
number of shares of Common Stock for which the surrendered Stock Option
Agreement was exercisable at the time of delivery of the notice of repurchase by
a fraction, the numerator of which is the Option Repurchase Price less the
portion thereof theretofore delivered to the Holder and the denominator of which
is the Option Repurchase Price, or (B) to the Owner, a certificate for the
Option Shares it is then so prohibited from repurchasing. If an Exercise
Termination Event shall have occurred prior to the date of the notice by Issuer
described in the first sentence of this subsection (c), or shall be scheduled to
occur at any time before the expiration of a period ending on the thirtieth day
after such date, the Holder shall nonetheless have the right to exercise the
Option until the expiration of such 30 day period.
8. The 30-day period for exercise of certain rights under Sections 2, 6,
7, and 11 shall be extended: (i) to the extent necessary to obtain all
regulatory approvals for the exercise of such rights, and for the expiration of
all statutory waiting periods provided such approvals are obtained within 9
months of the submission of an application by the Holder or Grantee; and (ii) to
the extent necessary to avoid liability under Section 16(b) of the Exchange Act
by reason of such exercise.
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9. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Issuer and no other corporate proceedings on the part of
Issuer are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Issuer. This Agreement is the valid and legally binding
obligation of Issuer, enforceable against Issuer in accordance with its terms.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof through
the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
(c) The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation pursuant to any provisions of the Certificate of
Incorporation or by-laws of Issuer or any Subsidiary of Issuer or, subject to
obtaining any approvals or consents contemplated hereby, result in any violation
of any loan or credit agreement, note, mortgage, indenture, lease, Plan or other
agreement, obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Issuer or any Subsidiary of Issuer or their respective properties or assets
which Violation would have a Material Adverse Effect on Issuer.
(d) Issuer reaffirms with respect to this Agreement and the transactions
contemplated hereby the representations and warranties contained in Section 2.3
of the Merger Agreement.
10. Grantee hereby represents and warrants to Issuer as follows:
(a) Grantee has all requisite corporate power and authority to enter
into this Option Agreement and 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 the Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) This Option is not being and any shares or other securities
acquired by Grantee upon exercise of the Option will not be
acquired with a view to
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the public distribution thereof and will not be transferred or
otherwise disposed of except in compliance with the Securities
Act.
11. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to any
other person, without the express written consent of the other party, except
that in the event a Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee, subject to the express provisions hereof, may assign
in whole or in part its rights and obligations hereunder within 30 days
following such Triggering Event (or such later period as provided in Section 8).
12. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation applying to the OTS for approval to
acquire the shares issuable hereunder, but Grantee shall not be obligated to
apply to state banking authorities for approval to acquire the shares of Common
Stock issuable hereunder until such time, if ever, as it deems appropriate to do
so.
13. Notwithstanding anything to the contrary herein, in the event that the
Holder or Owner or any Related Person thereof is a person making without the
prior written consent of Issuer an offer or proposal to engage in an Acquisition
Transaction (other than the transaction contemplated by the Merger Agreement),
then (i) in the case of a Holder or any Related Person thereof, the Option held
by it shall immediately terminate and be of no further force or effect, and (ii)
in the case of an Owner or any Related Person thereof, the Option Shares held by
it shall be immediately repurchasable by Issuer at the Option Price. A Related
Person of a Holder or Owner means any Affiliate (as defined in Rule 12b-2 of the
rules and regulations under the Exchange Act) of the Holder or Owner and any
person that is the beneficial owner of 20% or more of the voting power of the
Holder or Owner, as the case may be.
14. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party hereto
through specific performance, injunctive or other equitable relief.
15. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Agreement
shall remain in full force and effect, and shall in no way be affected, impaired
or invalidated. If for any reason such court or regulatory agency determines
that the Holder is not permitted to acquire the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
Section 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
B-11
<PAGE>
16. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person, by
cable, telegram, telecopy or telex, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement.
17. This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
18. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
19. Except as otherwise expressly provided herein or in the Merger
Agreement, each party shall bear and pay all costs and expenses incurred by it
or on their behalf in connection with the transactions contemplated hereunder,
including fees and expenses of their own financial consultants, investment
bankers, accountants and counsel.
20. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereof, written or oral. The terms
and conditions of this Agreement shall inure to the benefit of and be binding
upon the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon any
party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein. 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.
21. In the event of any exercise of the Option by Grantee, Issuer and
Grantee 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.
22. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
B-12
<PAGE>
IN WITNESS WHEREOF, Richmond County Financial Corp. and Ironbound Bankcorp,
NJ have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
------------------------------------
Michael F. Manzulli
Chairman and Chief Executive Officer
IRONBOUND BANKCORP, NJ
By: /s/ Edward Cruz
------------------------------------
Edward Cruz
Chairman of the Board
B-13
<PAGE>
[OSTROWSKI & COMPANY, INC. LETTERHEAD]
ANNEX C
February 3, 1999
Board of Directors
Ironbound Bankcorp, Inc.
36 Pacific Street
Newark, NJ 06105
Members of the Board:
You have requested an update of our opinion as to the fairness, from a
financial point of view, of the terms of an Agreement and Plan of Merger dated
July 17, 1998 (the "Agreement"), by and among Richmond County Financial Corp
("Richmond") and its principal subsidiary Richmond County Savings Bank, and
Ironbound Bankcorp, NJ ("Ironbound") and its principal subsidiary Ironbound
Bank, to the holders of Ironbound Common Stock, $5.00 par value, ("Ironbound
Common Stock").
Pursuant to the terms of the Merger Agreement, Ironbound will be acquired
by Richmond through the merger of Ironbound with and into Richmond (the
"Merger"). The Merger Agreement provides that each outstanding share of
Ironbound Common Stock shall become and be converted into the right to receive
1.45 shares of Richmond common stock (the "Exchange Ratio") provided, however,
that, notwithstanding any other provision of the Merger Agreement, no fraction
of a share of Richmond common stock and no certificates or scrip therefor will
be issued in the Merger; instead Richmond shall pay each holder of Ironbound
Common Stock who would otherwise be entitled to a fraction of a share of
Richmond common stock an amount in cash, rounded to the nearest cent, determined
by multiplying such fraction by Richmond's Market Value as defined in the Merger
Agreement. The Exchange Ratio is subject to adjustment if Richmond's Market
Value is less than $15.945 but greater than or equal to $14.00, such adjustment
is equal to the number of shares of Richmond common stock obtained by dividing
(A) $23.12 per share by (B) the Richmond Market Value. In the event that the
Richmond Market Value is less than $14.00, Ironbound may elect to terminate the
Merger Agreement.
In connection with executing the Merger Agreement, Ironbound entered into
an Stock Option Agreement dated July 17, 1998 (the "Option Agreement"), pursuant
which Ironbound has granted Richmond an option to acquire up to 198,664 shares
of Ironbound Common Stock at a price of $20.00 per share; provided further that
in no event shall the number of shares of Common Stock for which this Option is
exercisable exceed 19.9% of the Ironbound's issued and outstanding shares of
common stock after giving effect to any shares subject to or issued pursuant to
the option. Richmond may exercise this Option upon the occurrence of certain
events specified in the Option Agreement.
<PAGE>
Board of Directors
February 3, 1999
Page 2
Ostrowski & Company, Inc., as part of its bank and thrift advisory
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
purposes. We are familiar with Ironbound and have received and will receive fees
from Ironbound for issuing our opinion as to the fairness, from a financial
point of view, of the terms of the proposed transaction as set forth in the
Agreement.
In connection with providing this opinion, we have examined and relied
upon, among other things: the Agreement; the Option Agreement; annual reports to
shareholders, proxy statements and related audited financial statements for
Ironbound for each of the three fiscal years ended December 31, 1995, 1996 and
1997; certain unaudited interim financial reports for Ironbound for the quarters
ended March 31, 1998, June 30, 1998 and September 30, 1998; certain other
financial information for Ironbound, including pro forma financial statements
and management's estimates relating to, among other things, earnings, asset
quality, loan delinquencies and capital; audited financial statements for
Richmond County Savings Bank for each of the fiscal years ended June 30 1996 and
1997 and for Richmond for the fiscal year ended June 30, 1998; the Prospectus
dated December 16, 1997; certain unaudited interim financial reports for
Richmond for the quarters ended June 30, 1998 and September 30, 1998; certain
other financial information for Richmond, including proforma financial
statements and management's estimates relating to, among other things, earnings,
asset quality, loan delinquencies and capital. We have conducted discussions
with executive management of Ironbound and Richmond concerning historical
financial performance and condition, market area economic conditions, future
business prospects and financial forecasts. We have reviewed comparable
financial, operating and market data for the banking industry and selected peer
groups; compared the terms of the Agreement with other bank and thrift merger
and acquisition transactions; and have considered such additional financial and
other information deemed relevant.
In preparing our opinion, we have relied upon the accuracy, completeness
and fair presentation of all information supplied or otherwise made available to
us by, or on behalf of, Ironbound and Richmond. We have not independently
verified such information or undertaken an independent evaluation or appraisal
of the assets or liabilities of Ironbound or Richmond, nor have we been
furnished any such evaluations or appraisals. With respect to forecasts of
expected future financial performance, we have been advised that they reflect
the best currently available estimates and judgement of the executive
management. This opinion is necessarily based upon the information available to
us and the market, economic and other conditions, as they exist and can be
evaluated, as of the date of this letter.
<PAGE>
Board of Directors
February 3, 1999
Page 3
This opinion is directed solely to the fairness, from a financial point of
view, of the terms of the Agreement to Ironbound Shareholders and does not
constitute a recommendation to any Ironbound Shareholder as to how such
Ironbound Shareholder should vote with respect to the Agreement.
In reliance upon and subject to the foregoing, it is our opinion that as of
the date hereof, the terms of the Agreement are fair, from a financial point of
view, to Ironbound Shareholders.
Very truly yours,
/s/ Ostrowski & Company, Inc.
-------------------------------
OSTROWSKI & COMPANY, INC.
<PAGE>
ANNEX D
FINANCIAL INFORMATION
REGARDING
IRONBOUND BANKCORP, NJ
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
Stockholders' equity increased to $11,529,511 at September 30, 1998, an
increase of $685,148 or 6.31% from $10,844,363 at December 31, 1997. The
increase in stockholders' equity was primarily due to, net income for the first
nine months of 1998 of $983,207, less three quarterly cash dividends, each at
five cents a share, totaling $149,538 and less the acquisition of 8,985 shares
of treasury stock, during the nine month period, at a cost of $134,775. At
September 30, 1998 Ironbound Bankcorp, NJ's tangible and tier one risk based
capital ratios were 9.92% and 20.78% respectively.
Total assets increased by $2,959,438 or 2.64% during the first nine months
of 1998 to $115,302,049 at September 30, 1998, from $115,172,606 at December 31,
1997. Net loans increased by $3,072,558 or 8.11% from $37,872,726 at
December 31, 1997 to $40,945,284 at September 30,1998. Securities investments
decreased by $2,154,501, or 3.85% to $53,848,152 at September 30, 1998, from
$56,002,653 at December 31, 1997 while federal funds and money market
investments increased by $314,541 to $12,318,177 at September 30, 1998. Premises
and equipment increased by $954,743 to $2,629,966 at September 30, 1998 from
$1,675,223 at December 31, 1997. Almost all of this increase was due to the
acquisition of two vacant lots, which will be used as future branch sites. One
of these sites is in the town of Union, New Jersey, and the other in the borough
of Garwood, New Jersey, near its border with the town of Westfield. The spacious
size of these sites will permit the future construction of major branch
facilities at each of these locations. In October 1998 Ironbound Bank's main
office complex, which was previously leased, was purchased at a cost of
$1,850,000.
Total deposits increased by $2,117,331 or 2.10% during the first nine
months of 1998 to $102,828,170 at September 30, 1998, from $100,710,839 at
December 31, 1997. Most of the increase was in non-interest bearing demand
deposits which totaled $19,344,963 at September 30, 1998, an increase of
$1,597,805 or 9.00%, from $17,747,158 at December 31, 1997. Other real estate
owned increased to $148,500 at September 30, 1998. There was no balance in other
real estate owned at December 31, 1997.
COMPARISON OF THE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
NET INCOME. Net income for the nine months ended September 30, 1998 was a
record setting $983,207, representing basic net income per share of $0.99. This
compares with $955,681 or $0.92 per share for the nine months ended September
30,1997. Annualized returns on average assets and equity were 1.17% and 11.77%
respectively, for the first nine months of 1998, compared to 1.16% and 11.91%
respectively, for the nine months ended September 30, 1997.
INTEREST INCOME. Interest income for the nine months ended September 30,
1998 was $5,784,561, a modest increase of $15,009 over $5,769,552 for the first
nine months of 1997. Average earnings assets for the first nine months of 1998
of $106,225,400 were $1,884,675 higher than the average of $104,340,725 for the
same nine month period of 1997. The tax equivalent yield on average earning
assets declined to 7.31% for the first nine months of 1998 from 7.42% for the
comparable period of 1997. An increase in average loan volume of $3,159,159,
from an average of $37,427,746 for the first nine months of 1997 to $40,586,905
for the nine months ended September 30, 1998 had a positive effect on 1998's
interest income. The aforementioned reduction in the yield on earning assets of
eleven basis points had a negative effect on 1998's
D-1
<PAGE>
interest income and was primarily attributable to a decline in the yields on the
loan and investment securities portfolios. The average yield on loans declined
to 9.23% for the nine months ended September 30, 1998, compared with 9.53% for
the first nine months of 1997, while the tax equivalent average yield on
investment securities declined to 6.26% from 6.41% for the same respective nine
month periods.
INTEREST EXPENSE. Interest expense for the nine months ended September 30,
1998, was $2,069,775, and is $133,254 higher than the $1,936,521 reported for
the first nine months of 1997. This increase was primarily due to an increase
in the average rate paid on interest bearing deposits, to 3.38% for the nine
months ended September 30, 1998, from 3.15% for the first nine months of 1997.
NET INTEREST INCOME. As a result of the aforementioned increases in
interest income of $15,009 and interest expense of $133,254, net interest income
decreased by $118,245, to $3,714,786 for the nine months ended September 30,
1998, from $3,833,031 for the first nine months of 1997. The tax equivalent
average net interest rate spread (including non-interest bearing demand
deposits) was 4.55% for the nine months ended September 30,1998, compared with
4.79% for first nine months of 1997. A rather substantial increase in the
average volume of non-interest bearing demand deposits of $2,115,066 or 13.00%,
from an average balance of $16,257,472 for the nine months ended September 30,
1997, to $18,372,538 for the first nine months of 1998 had a beneficial effect
on 1998's net interest income spread.
PROVISION (CREDIT) FOR LOAN LOSSES. For the nine months ended
September 30,1998 an income credit was realized in the provision for loan
losses. There were no charges or credits to the provision for loan losses for
the nine months ended September 30, 1997. The credit to the 1998's provision
resulted from a recovery of a previously charged off loan in the amount of
$201,000, which was credited to the allowance for loan losses account. This
recovery caused an excess balance in the allowance account and $190,000
subsequently was charged to the allowance account and credited (recognized as
income) to the provision for loan loss account in March of 1998.
NON-INTEREST INCOME. Non-interest income for the first nine months of 1998
totaled $507,837, compared with $560,809 for the nine months ended
September 30,1997, a decrease of $52,972. Service charges on deposit accounts
decreased by $38,951 and other fees and income increased by the modest amount of
$1,661. Gains on the sale of investment securities in the amount of $15,682 also
were recorded during the first nine months of 1997. No security gains were
recorded in the first nine months of 1998.
NON-INTEREST EXPENSES. Total non-interest expenses were $2,888,496 and
$2,897,967 for the nine months ended September 30, 1998 and 1997 respectively, a
reduction of $9,471. Reductions in combined salary and benefits expenses of
$34,206, professional fees of $68,978, other operating expenses of $39,523,
amortization of branch acquisition premium (which became fully amortized in
1998) of $22,947, and advertising and marketing expenses of $13,999, were
partially off set by increases in combined occupancy and equipment expenses of
$17,821, and accrual for merger related expenses of $150,000.
INCOME BEFORE TAXES AND INCOME TAX EXPENSE. Income before taxes increased
modestly to $1,524,127 for the first nine months of 1998, from $1,495,873 for
the nine months ended September 30, 1997, an increase of $28,254. Income tax
expense remained relatively unchanged at $540,920 for the first nine months of
1998 compared with $540,192 for the comparable nine month period of 1997.
D-2
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
(UNAUDITED)
SEPTEMBER 30, DECEMBER 31,
------------- -------------
1998 1997
<S> <C> <C>
ASSETS:
Cash and due from banks...................................... $ 4,070,155 $ 3,322,032
Federal funds and money market investments................... 12,318,177 12,003,636
Total cash and cash equivalents........................... 16,388,332 15,325,668
Investment securities held to maturity
(market value of $43,162,000 in 1998 and
$42,184,510 in 1997)...................................... 42,632,360 42,092,640
Investment securities available for sale
(amortized cost of $11,122,871 in 1998 and
$13,780,909 in 1997)...................................... 11,215,792 13,910,013
Loans (less allowance for possible loan losses
of $857,007 in 1998 and $903,013 in 1997)................. 40,945,284 37,872,726
Premises and equipment, net.................................. 2,629,966 1,675,223
Accrued interest receivable.................................. 785,143 841,934
Real estate owned............................................ 148,500 --
Prepaid expenses and other assets............................ 427,229 494,964
------------- ------------
Total assets.............................................. $115,172,606 $112,213,168
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Non-interest bearing demand deposits...................... $ 19,344,963 $ 17,747,158
Interest bearing demand deposits.......................... 18,334,962 20,512,718
Savings deposits.......................................... 35,279,704 33,957,997
Time deposits under $100,000.............................. 23,486,773 22,403,437
Time deposits $100,000 and over........................... 6,381,768 6,089,529
Total deposits......................................... 102,828,170 100,710,839
Accrued interest payable..................................... 110,022 105,955
Accrued expenses and other liabilities....................... 704,903 552,011
------------- ------------
Total liabilities...................................... 103,643,095 101,368,805
============= ============
STOCKHOLDERS' EQUITY:
Capital stock ($5 par value, 4,000,000 shares authorized,
1,042,663 issued in 1998 and 1,041,663 in 1997)........... 5,213,315 5,208,315
Paid-in capital............................................... 4,301,362 4,298,362
Retained earnings............................................. 2,631,170 1,797,537
Treasury stock, at cost (45,505 shares in 1998 and
36,520 shares in 1997).................................... (672,089) (537,314)
Net unrealized gain on securities available for sale.......... 55,753 77,463
------------- ------------
Total stockholders' equity.................................. 11,529,511 10,844,363
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................... $115,172,606 $112,213,168
============= ============
</TABLE>
D-3
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
---------- ----------
<S> <C> <C>
INTEREST INCOME:
Loans........................................ $2,801,774 $2,663,964
Investments securities....................... 2,563,898 2,725,665
Federal funds sold and money market funds.... 418,889 379,923
---------- ---------
Total interest income...................... 5,784,561 5,769,552
INTEREST EXPENSE:
Demand deposits.............................. 303,089 296,885
Savings deposits............................. 621,420 627,445
Time deposit................................. 1,145,266 1,012,191
---------- ---------
Total interest expense..................... 2,069,775 1,936,521
Net interest income............................ 3,714,786 3,833,031
Provision (credit) for possible loan losses.... (190,000) --
---------- ---------
Net interest income after provision (credit)
for possible loan losses..................... 3,904,786 3,833,031
NON-INTEREST INCOME:
Service fees on deposits..................... 417,597 456,548
Other income................................. 90,240 88,579
Gain on sales of securities.................. -- 15,682
---------- ---------
Total non-interest income.................. 507,837 560,809
NON-INTEREST EXPENSES:
Salaries..................................... 1,135,174 1,121,963
Employee benefits............................ 237,792 285,209
Occupancy.................................... 379,687 370,793
Equipment.................................... 177,549 168,622
Professional fees............................ 46,235 115,213
Data processing and service charges.......... 194,394 192,540
Amortization of branch acquisition
premium.................................... 78,643 101,590
Deposit insurance............................ 8,916 8,409
Advertising and marketing.................... 45,326 59,325
Other operating expenses..................... 434,780 474,303
Merger related expenses...................... 150,000 --
---------- ---------
Total non-interest expenses................ 2,888,496 2,897,967
Income before income taxes..................... 1,524,127 1,495,873
Provision for income taxes..................... 540,920 540,192
---------- ---------
Net income..................................... $ 983,207 $ 955,681
========== ==========
Basic net income per share..................... $0.99 $0.92
========== ==========
Net income per share - assuming dilution....... $0.95 $0.90
========== ==========
Weighted average shares outstanding............ 996,953 1,039,708
Weighted average shares outstanding - assuming
dilution..................................... 1,039,831 1,062,410
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
D-4
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES:
<S> <C>
Net income............................................................................... $ 983,207
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation............................................................................ 205,867
Amortization of securities premium, net................................................. 16,986
Amortization of purchased deposits premium.............................................. 78,643
Provision (credit) for possible loan losses............................................. (190,000)
Decrease in deferred loan fees.......................................................... (841)
Increase in deferred income tax assets.................................................. (102,184)
Decrease in accrued interest receivable prepaid expenses and other assets............... 148,067
Increase in accrued interest payable, income taxes payable and other accrued
expenses and liabilities.............................................................. 160,221
Other increases......................................................................... 14,473
------------
Net cash provided by operating activities............................................ $ 1,314,439
------------
INVESTING ACTIVITIES:
Purchase of investment securities....................................................... (22,953,531)
Maturities of investment securities..................................................... 25,054,863
Net increase in loans................................................................... (2,881,717)
Purchase of equipment................................................................... (1,160,610)
Increase in real estate owned........................................................... (148,500)
Purchase of treasury stock.............................................................. (134,775)
Dividends paid.......................................................................... (149,574)
------------
Net cash (used) in investing activities.............................................. 2,373,844
------------
FINANCING ACTIVITIES:
Net increase in deposits................................................................ 2,117,331
Principal payments on capital leases.................................................... (3,262)
Capital stock issued.................................................................... 8,000
------------
Net cash provided by financing activities............................................ 2,122,069
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................................ 1,062,664
CASH AND EQUIVALENTS BEGINNING OF YEAR................................................... 15,325,668
------------
CASH AND CASH EQUIVALENTS END OF PERIOD.............................................. $ 16,388,332
------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest................................................ $ 2,065,708
------------
Cash paid during the period for income taxes............................................ $ 428,351
------------
SUPPLEMENTAL DISCLOSURE FOR NON-CASH TRANSACTIONS:
Adjustment to equity for unrealized gains (losses) on securities available for sale
(net of income tax effect).......................................................... $ (21,710)
------------
</TABLE>
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS.
D-5
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Ironbound
Bankcorp, NJ (the "Company"), established in 1997, its wholly owned
subsidiary, Ironbound Bank (the "Bank"), and the Bank's wholly owned
subsidiary Ironbound Investment Company, Inc. which was established in
1996. Intercompany transactions and balances are eliminated in
consolidation.
The consolidated statement of financial condition as of September 30, 1998,
and the related consolidated statements of income for the nine-month
periods ended September 30, 1998 and 1997 and the consolidated statement
of cash flows for the nine-month period ended September 30, 1998 are
unaudited but, in the opinion of management, reflect all adjustments
(consisting only of normal and recurring accruals) necessary for a fair
presentation of financial condition, results of operations, and cash flows.
The December 31, 1997 consolidated statement of financial condition was
derived from the Company's December 31, 1997 audited consolidated financial
statements.
B. EARNINGS PER SHARE ("EPS")
Basic EPS excludes dilution and is computed by dividing income attributable
to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if options other than contracts to issue common stock were
exercised or converted into common stock.
Information used to calculate EPS was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
-------------------------------------
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS
-------------------------------------
<S> <C> <C> <C>
Basic EPS:
Income attributable to common
shareholders.................. $983,207 996,953 $ .99
Diluted EPS:
Effect of dilutive securities:
Stock options................. -- 42,878 (0.04)
-------- ---------- ------
Income attributable to common
shareholders and assumed
conversions....................... $983,207 1,039,831 $ .95
</TABLE> ======== ========== ======
C. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," effective January 1, 1998. The
standard requires that comprehensive income and its components be disclosed
in the financial statements. The Company's comprehensive income includes
all items which comprise net income plus the unrealized holding gains on
available-for-sale securities. For the nine months ended September 30,
1998, the Company's comprehensive income was as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Net income.................................. $983,207
Other comprehensive income.................. (21,710)
--------
Total comprehensive income............... $961,497
========
</TABLE>
D. RICHMOND COUNTY FINANCIAL CORP. "RICHMOND" MERGER
On July 17, 1998, Richmond County Financial Corp. and the Company announced
the signing of a definitive merger agreement. The merger was approved by
the shareholders of both companies.
The merger will be accounted for as a purchase transaction. Each share of
the Company's common stock will be converted into the right to receive
1.45 shares of common stock with cash paid in lieu of fractional shares.
D-6
<PAGE>
4. IMPACT OF RECENTLY ISSUED OR ADOPTED ACCOUNTING STANDARDS
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information," was issued in June 1997 and redefined how operating segments
are determined. SFAS No. 131 requires disclosure of certain financial and
descriptive information about a company's operating segments. This
statement was adopted by the Company on January 1, 1998. Provisions of
this statement require annual disclosure in the year of adoption and
interim reporting for periods thereafter. This statement does not affect
the results of operations or financial position of the Company.
SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits," was issued in February 1998 and standardizes the
annual disclosure requirements for pensions and other postretirement
benefits. This statement does not affect the results of operations or
financial position of the Company. SFAS No. 132 was adopted by the Company
as of January 1, 1998.
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was issued in June 1998 and establishes accounting reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement is effective for all fiscal years beginning after June 15, 1999.
This statement is not expected to have a material impact on the results of
operations or financial position of the Company.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," was issued in October 1998. Prior to issuance of SFAS No. 134,
when a mortgage banking company securitized loans held for sale but did not
sell the security in the secondary market, the security was classified as
trading. SFAS No. 134 requires that the security be classified in
accordance with SFAS No. 115 as either trading, available for sale or held
to maturity according to the Company's intent unless the Company has
already committed to sell the security before or during the securitization
process. The statement is not expected to have a material impact on the
results of operations or financial position of the Company.
D-7
<PAGE>
IRONBOUND MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview of Consolidated Financial Performance for the Years Ended
December 31, 1997 and 1996.
The following comparative schedule shows condensed operating results for
the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
INCREASE
1997 1996 (DECREASE)
<S> <C> <C> <C>
Net interest income......................................... $5,084,952 $4,715,427 $369,525
Provision for possible loan losses.......................... -- -- --
---------- ---------- --------
Net interest income after provision for possible
loan losses.............................................. 5,084,952 4,715,427 369,525
Non-interest income......................................... 707,360 692,235 15,125
---------- ---------- --------
Income before non-interest expenses......................... 5,792,312 5,407,662 384,650
Non-interest expenses....................................... 3,842,625 3,924,098 (81,473)
---------- ---------- --------
Income before securities gains (losses)
and income taxes......................................... 1,949,687 1,483,564 466,123
Securities gains (losses)................................... 15,682 (3,321) 19,003
---------- ---------- --------
Income before income taxes.................................. 1,965,369 1,480,243 485,126
Provision for income taxes.................................. 704,637 633,620 71,017
---------- ---------- --------
Net income.................................................. $1,260,732 $ 846,623 $414,109
========== ========== ========
Basic earnings per share (based on 1,035,461 and 1,041,663
issued and outstanding shares in 1997 and 1996).......... $ 1.22 $ 0.81 $ 0.41
========== ========== ========
Return on average assets.................................... 1.14% 0.85% 0.29%
========== ========== ========
Return on average equity.................................... 11.68% 8.50% 3.18%
========== ========== ========
</TABLE>
D-8
<PAGE>
GENERAL
Net income for 1997 of $1,260,732 is $414,109 or 49% higher than the
$846,623 earned in 1996. Record returns on average assets and equity of 1.14%
and 11.68%, respectively, were also realized in 1997.
Total assets ended the 1997 year at $112,213,168, an increase of
$5,856,274, or 5.5%. Gross loans increased by $3,008,319 or 8.4% for the 1997
year, while the securities investment portfolio decreased by $3,119,642 or 5.3%.
The overall increase was primarily due to the increase in Federal Funds Sold and
Money Market Funds which increased $5,770,000. Past due (90 day and over) and
non-performing loans decreased to $176,986 or 0.45% of the gross loan portfolio
at December 31, 1997, from $208,456 or 0.59% of the loan portfolio at the end of
1996.
Deposits rose above the $100 million threshold and closed 1997 at
$100,710,839, an increase of $5,472,614 or 5.7% for the year. Stockholders'
equity increased by $555,726 during 1997 and totaled $10,844,363 at December 31,
1997. This increase was achieved despite the payment of $537,314 in acquisition
costs of treasury stock and the distribution of cash dividends to shareholders
in the amount of $205,652.
NET INTEREST INCOME
Net interest income is the principal source of the Company's earnings. It
represents the amount by which interest income on earning assets exceeds the
interest expense on deposits. Interest rate fluctuations as well as the mix and
volume of interest-earning assets and interest-bearing liabilities combine to
affect net interest income.
Tax adjusted net interest income (see note below) for 1997 was $5,121,686,
an increase of $395,455 or 8.4% above the $4,726,231 reported in 1996 (see
Rate/Volume Analysis below). The overall yield on earning assets decreased
slightly from 7.43% in 1996 to 7.40% in 1997. Interest expense increased
16 basis points to 3.18%. Accordingly, the Bank's net interest spread was down
19 basis points from 4.41% in 1996 to 4.22% in 1997.
Interest earned on investments, tax exempt securities, money market funds
and federal funds sold of $4,165,847 increased $332,200 or 8.67% over the
$3,833,647 reported a year ago. Interest on loans increased by $436,210 or
13.94%, to $3,566,221 for 1997. Total interest income of $7,732,068 was up
$768,410 or 11.03%, from $6,963,658 reported in 1996.
Total interest expense on deposits of $2,610,382 was up $372,955 from
$2,237,427 in 1996. This increase was primarily attributable to an increase
in time deposit balances.
D-9
<PAGE>
<TABLE>
<CAPTION>
RATES AND AMOUNTS EARNED/PAID ON INTEREST-EARNING ASSETS
AND INTEREST-BEARING LIABILITIES TAX ADJUSTED BASIS
FOR THE YEARS 1997 AND 1996(2)
----------------------------------------------------------------
1997 1996
------------------------------- -------------------------------
INTEREST INTEREST
AVERAGE EARNED OR AVERAGE EARNED OR
BALANCE RATE PAID BALANCE RATE PAID
------------- ---- --------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans/ (3)/.................................... $ 37,678,846 9.46% $3,566,221 $31,695,856 9.88% $3,130,011
Investments.................................... 55,216,295 6.39 3,525,712 55,420,445 6.29 3,483,962
Tax-exempt securities and preferred stock
(See Note below).............................. 1,822,119 6.56 119,524 455,683 8.66 39,489
Federal funds sold............................. 7,827,164 5.44 425,539 5,074,055 5.29 268,215
Money Market Funds............................. 1,915,769 4.96 95,072 1,045,385 4.02 41,981
------------ ---- ---------- ----------- ---- ----------
Total interest-earning assets................ $104,460,193 7.40% $7,732,068 $93,691,424 7.43% $6,963,658
------------ ---- ---------- ----------- ---- ----------
INTEREST-BEARING LIABILITIES:
NOW and money-market accounts/ (1)/............ $ 20,128,964 1.96% $ 394,707 $17,284,404 1.90% $ 328,080
Savings accounts/ (1)/......................... 34,551,803 2.41 833,240 35,829,046 2.42 866,543
Time deposits/ (1)/............................ 27,445,690 5.04 1,382,435 21,048,499 4.95 1,042,804
------------ ---- ---------- ----------- ---- ----------
Total interest-bearing liabilities/ (1)/..... $ 82,126,457 3.18% $2,610,382 $74,161,949 3.02% $2,237,427
============ ===========
Net interest income............................ $5,121,686 $4,726,231
========== ==========
Net interest spread............................ 4.22% 4.41%
==== ====
Net interest margin............................ 4.90% 5.05%
==== ====
</TABLE>
- -------------------------
(1) Total interest expense on deposits of $2,610,382 was up $372,955 from
$2,237,427 in 1996. This increase was primarily attributable to an increase
in time deposit balances.
(2) Interest income has been increased by $36,734 for 1997 and $10,804
for 1996 to show the income tax effect of municipal securities and preferred
stock investments.
(3) The average balance for loans includes nonaccrual loans. Interest earned on
loans includes loan fees.
D-10
<PAGE>
An analysis showing the effects of changes in rates and volumes (balances)
on the increase in tax adjusted net interest income, for the 1997 and 1996 years
of $395,455 and $423,333, respectively, is as follows:
<TABLE>
<CAPTION>
RATES/VOLUME ANALYSIS FOR THE YEARS 1997 AND 1996
------------------------------------------------------------------------------
1997 1996
-------------------------------------- --------------------------------------
CHANGE DUE TO INCREASE (DECREASE) IN: CHANGE DUE TO INCREASE (DECREASE) IN:
RATE VOLUME TOTAL RATE VOLUME TOTAL
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans.......................... $(142,343) $578,553 $436,210 $ 57,207 $360,891 $418,098
Investments.................... 54,685 (12,935) 41,750 54,280 221,419 275,699
Tax-exempt securities and
preferred stock............... (26,088) 106,123 80,035 19,745 19,745 39,490
Federal funds sold............. 9,720 147,604 157,324 (17,493) 160,327 142,834
Money Market Funds............. 14,018 39,073 53,091 (9,079) 15,461 6,382
--------- -------- -------- -------- -------- --------
Total interest-earning
assets...................... (90,008) 858,418 768,410 104,660 777,843 882,503
--------- -------- -------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
NOW and money-market
accounts...................... $ 11,741 $ 54,886 $ 66,627 $ 3,179 $(22,931) $(19,752)
Savings accounts............... (2,457) (30,846) (33,303) (32,077) (14,952) (47,029)
Time deposits.................. 20,051 319,580 339,631 8,001 518,050 526,051
--------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities................. 29,335 343,620 372,955 (20,897) 480,167 459,270
--------- -------- -------- -------- -------- --------
Net interest income............ $(119,343) $514,798 $395,455 $125,557 $297,676 $423,233
========= ======== ======== ======== ======== ========
</TABLE>
- -----------
The change attributable to both the change in rate and change in volume has been
allocated evenly between the above change attributable to rate and change
attributable to volume.
PROVISION AND ALLOWANCE FOR LOAN LOSS
As a result of the Company's success in recovering previously charged off
loans and reducing delinquent loans, no provision for loan losses was charged to
operations in 1997 or 1996. The allowance for loan losses of $903,013 at
December 31, 1997 equates to 2.38% of net loans and significantly exceeds the
balance of past due and non-accrual loans at year end of $176,986. Management
believes that the balance in the allowance account at December 31, 1997 is
adequate to absorb any possible loss that may occur due to the uncollectibility
of loans in the existing portfolio. In reaching this conclusion management has
given consideration to its detailed evaluation of the collectibility of such
loans, the risk characteristics of the loan portfolio, historical loan loss
experience, current and projected economic conditions and the dynamics of the
banking and regulatory environment.
NON-INTEREST INCOME
A significant portion of the Company's income is derived from non-interest
income. The primary component of non-interest income is service fees on deposit
accounts which increased slightly, from $654,346 in 1996, to $668,163 in 1997.
Other fee income of $39,197 was $1,308 higher than last year. Accordingly, total
non-interest income from deposit and other fees increased by $15,125, or 2.2%
during the 1997 year.
NON-INTEREST EXPENSES
Total non-interest expenses decreased $81,473, or 2.1%, to $3,842,625 in
1997 from $3,924,098 for 1996.
Salary expense increased $59,823, or 4.2%, to $1,499,891, from $1,440,068
reported for 1996. Employee benefit expenses decreased $19,428, or 5.3%, to
$346,863. The increase in salaries is the result of a normal merit increase and
increases in incentive compensation bonus payments. The reduction in employee
benefits is the result of favorable claims experience in the Company's self-
funded health insurance plan.
Occupancy expenses decreased $3,909, or 0.9%, to $494,513 from the $498,422
reported in 1996.
Equipment expenses were down $9,642, or 4.1%, to $223,418 from the $233,060
reported for 1996. Reductions in furniture and fixture expenses account for most
of this reduction.
D-11
<PAGE>
Professional fees were down $49,633, or 24.4%, to $153,834 from the
$203,467 reported in 1996. Reduced legal fees and regulatory examination fee
accrual are the primary reason for this decrease.
Data processing and related service charges increased $3,837, or 1.5%, to
$256,017.
Deposit insurance increased by $9,272 as the result of changes in the
method of assessment by the FDIC for such insurance.
Other operating expenses decreased $54,368, or 7.9%, from the $689,116
reported for 1996. Reductions in stationery and supplies, shareholder expenses,
delivery service and organization expenses of $17,425, $23,424, $22,584 and
$27,338, respectively, were realized while marketing costs increased by $14,695
and other losses increased by $17,100.
LIQUIDITY AND INTEREST SENSITIVITY
Liquidity can be defined as the ability to provide cash flow in a manner
that dispenses obligations in a timely fashion and adequately provides for
future funding demands. In the ordinary course of business, funds are generated
from the repayment or satisfaction of loans, maturities within the investment
portfolio and the acquisition of deposits. Management's interest sensitivity
efforts involve matching the maturity and repricing rate of interest-earning
assets with interest-bearing liabilities. This matching should be designed to
optimize net interest income within the constraints imposed by regulatory
authorities regarding liquidity and capital guidelines.
The Company's Asset/Liability Management Committee is responsible for
reviewing interest rate risk and evaluating future liquidity needs over various
time periods. The schedule below shows the Company's one year GAP at
December 31, 1997 and 1996. For purposes of this schedule, the one year GAP
amount is defined as the excess of interest sensitive liabilities over interest
sensitive assets that mature or reprice within a one year time frame. This
schedule indicated that the Company's one year GAP amount at December 31, 1997
was $24.7 million, or approximately 22.0% of total assets, compared to
$23.8 million, or 22.4% of total assets, at December 31, 1996.
<TABLE>
<CAPTION>
ONE YEAR GAP ANALYSIS
ASSETS AND LIABILITIES MATURING OR
REPRICING WITHIN ONE YEAR
AS OF DECEMBER 31, 1997 AND 1996
------------------------------------
(AMOUNTS IN THOUSANDS)
1997 1996 CHANGE
INTEREST SENSITIVE ASSETS: -------- -------- --------
<S> <C>
Loans................................................. $ 7,462 $ 13,155 $ (5,693)
Investments(A)........................................ 20,378 17,254 3,124
Money market funds.................................... 2,634 2,135 499
Federal funds sold.................................... 9,370 4,100 5,270
-------- -------- --------
Total interest sensitive assets...................... 39,844 36,644 3,200
-------- -------- --------
INTEREST SENSITIVE LIABILITIES:
NOW and money market accounts......................... 20,513 17,093 3,420
Savings accounts(B)................................... 16,979 18,081 (1,102)
Time deposits......................................... 27,049 25,287 1,762
-------- -------- --------
Total interest sensitive liabilities................. 64,541 60,461 4,080
-------- -------- --------
One Year GAP amount (excess of interest sensitive
liabilities over interest sensitive assets)......... $(24,697) $(23,817) $ 880
======== ======== ========
One Year GAP amount as a percentage
Of total assets..................................... (22.0)% (22.4)% (0.4)%
</TABLE>
D-12
<PAGE>
NOTES
(A) Investments do not include approximately $16 million of callable bonds which
will probably be called during 1998 if market rates remain as they were at
December 31, 1997.
(B) Savings accounts are assumed to have an annual decay factor of 50%.
Static GAP analysis, such as that presented above, cannot always be relied
upon to represent a company's one year interest-rate risk exposure because it is
based upon various assumptions as to future events. Accordingly, such as static
analysis is limited in its ability to measure future interest-rate risk
exposure.
CAPITAL RESOURCES
Capital management involves consideration of the quality and diversity of
the loan and securities investment portfolios, interest rate risk, and sources
and concentration of deposits.
The Federal Reserve Board and the Federal Insurance Deposit Corporation
have adopted capital adequacy regulations for banking institutions. These
regulations require banking institutions to maintain a minimum tier one capital
to average assets ratio of 4% and that total capital to risk weighted assets be
at least 8%. At December 31, 1997, Ironbound Bankcorp, NJ's capital levels
substantially exceed those regulatory minimums with a tier one capital ratio of
9.6% and total risk based capital of 21.1%.
D-13
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
ASSETS
<S> <C> <C>
Cash and due from banks...................................................... $ 3,322,032 $ 2,521,026
Federal funds sold and money market funds.................................... 12,003,636 6,234,819
------------ ------------
Total cash and cash equivalents............................................ 15,325,668 8,755,845
Investment securities held to maturity (market value of
$42,184,510 in 1997 and $45,937,053 in 1996) (Note C)..................... 42,092,640 46,617,193
Investment securities available for sale (amortized cost of $13,780,909 in
1997 and $12,439,264 in 1996) (Note C).................................... 13,910,013 12,505,102
Loans (less allowance for possible loan losses
of $903,013 in 1997 and $789,923 in 1996) (Notes D and E)................. 37,872,726 34,972,742
Premises and equipment, net (Note F)......................................... 1,675,223 1,855,510
Accrued interest receivable.................................................. 841,934 888,362
Prepaid expenses and other assets............................................ 157,247 238,363
Purchased deposits premium................................................... 78,643 214,096
Deferred taxes (Note I)...................................................... 259,074 309,681
------------ ------------
Total assets............................................................... $112,213,168 $106,356,894
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Non-interest bearing demand deposits......................................... $ 17,747,158 $ 16,176,372
Interest-bearing demand deposits............................................. 20,512,718 17,093,024
Savings deposits............................................................. 33,957,997 36,161,169
Time deposits under $100,000................................................. 22,403,437 19,770,639
Time deposits $100,000 and over (Note H)..................................... 6,089,529 6,037,021
------------ ------------
Total deposits............................................................. 100,710,839 95,238,225
Accrued interest payable..................................................... 105,955 92,893
Accrued expenses and other liabilities....................................... 552,011 459,893
Income taxes payable......................................................... -- 277,246
------------ ------------
Total liabilities.......................................................... 101,368,805 96,068,257
------------ ------------
Commitments (Notes G and K)
STOCKHOLDERS' EQUITY:
Capital stock ($5 par value, 4,000,000 shares authorized,.................... 5,208,315 5,208,315
1,041,663 shares issued in 1997 and 1996) (Note J)
Paid-in capital.............................................................. 4,298,362 4,298,362
Retained earnings............................................................ 1,797,537 742,457
Treasury stock, at cost (36,520 shares in 1997) (Note N)..................... (537,314) --
Net unrealized gain on securities available for sale......................... 77,463 39,503
------------ ------------
Total stockholders' equity................................................. 10,844,363 10,288,637
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $112,213,168 $106,356,894
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
D-14
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
INTEREST INCOME:
<S> <C> <C>
Loans......................................................... $3,566,221 $3,130,011
Investment securities......................................... 3,608,502 3,512,647
Federal funds sold and money market funds..................... 520,611 310,196
---------- ----------
Total interest income....................................... 7,695,334 6,952,854
---------- ----------
INTEREST EXPENSE:
Demand deposits............................................... 394,707 328,080
Savings deposits.............................................. 833,240 866,543
Time deposits................................................. 1,382,435 1,042,804
---------- ----------
Total interest expense...................................... 2,610,382 2,237,427
---------- ----------
Net interest income............................................ 5,084,952 4,715,427
Provision for possible loan losses (Note E)................... -- --
---------- ----------
Net interest income after provision for possible loan losses... 5,084,952 4,715,427
---------- ----------
NON-INTEREST INCOME:
Gain (loss) on sale of securities (Note C).................... 15,682 (3,321)
Service fees on deposit accounts.............................. 668,163 654,346
Other......................................................... 39,197 37,889
---------- ----------
Total non-interest income................................... 723,042 688,914
---------- ----------
NON-INTEREST EXPENSES:
Salaries...................................................... 1,499,891 1,440,068
Employee benefits............................................. 346,863 366,291
Occupancy..................................................... 494,513 498,422
Equipment..................................................... 223,418 233,060
Professional fees............................................. 153,834 203,467
Data processing and service charges........................... 256,017 252,180
Stationery and supplies....................................... 86,456 103,881
Amortization of purchased deposits premium.................... 135,454 135,454
Deposit insurance............................................. 11,431 2,159
Other operating expenses...................................... 634,748 689,116
---------- ----------
Total non-interest expenses................................. 3,842,625 3,924,098
---------- ----------
Income before income taxes..................................... 1,965,369 1,480,243
Provision for income taxes (Note I)............................ 704,637 633,620
---------- ----------
Net income..................................................... $1,260,732 $ 846,623
========== ==========
Basic net income per share..................................... $1.22 $0.81
========== ==========
Net income per share - assuming dilution....................... $1.19 $0.80
========== ==========
Weighted average shares outstanding............................ 1,035,461 1,041,663
========== ==========
Weighted average shares outstanding - assuming dilution........ 1,058,163 1,056,761
========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
D-15
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN
CAPITAL STOCK (LOSS) ON
----------------------- SECURITIES
NO. OF PAID IN RETAINED TREASURY AVAILABLE
SHARES VALUE CAPITAL EARNINGS STOCK FOR SALE TOTAL
---------- ---------- ---------- ---------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995............. 1,041,663 $5,208,315 $4,298,362 $ -- $ -- $106,289 $ 9,612,966
Change in unrealized gain (loss)
on securities available for sale... -- -- -- -- -- (66,786) (66,786)
1996 net income....................... -- -- -- 846,623 -- -- 846,623
Cash dividends paid or declared....... -- -- -- (104,166) -- -- (104,166)
---------- ---------- ---------- ---------- --------- -------- -----------
Balance December 31, 1996............. 1,041,663 5,208,315 4,298,362 742,457 -- 39,503 10,288,637
Change in unrealized gain (loss)
on securities available for sale... -- -- -- -- -- 37,960 37,960
1997 net income....................... -- -- -- 1,260,732 -- -- 1,260,732
Purchase of Treasury Stock............ (36,520) -- -- -- (537,314) -- (537,314)
Cash dividends paid or declared....... -- -- -- (205,652) -- -- (205,652)
---------- ---------- ---------- ---------- --------- -------- -----------
Balance December 31, 1997............. 1,005,143 $5,208,315 $4,298,362 $1,797,537 $(537,314) $ 77,463 $10,844,363
========== ========== ========== ========== ========= ======== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
D-16
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
OPERATING ACTIVITIES:
<S> <C> <C>
Net income.......................................................... $ 1,260,732 $ 846,623
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation...................................................... 261,514 282,398
Amortization of securities premium, net........................... 48,488 83,987
Net (gain) loss on sale of investment securities.................. (15,682) 3,321
Amortization of purchased deposits premium........................ 135,454 135,454
(Decrease) increase in deferred loan fees......................... (4,755) 9,292
Decrease in deferred taxes........................................ 50,607 78,660
Decrease (increase) in accrued interest receivable, prepaid
expenses and other assets...................................... 161,755 (198,064)
(Decrease) increase in accrued interest payable, income taxes
payable and other accrued expenses and liabilities............. (202,184) 452,834
Net gain on sale of other real estate............................. (15,059) (6,016)
Other (decreases) increases....................................... (25,307) 25,934
------------ ------------
Net cash provided by operating activities....................... 1,655,563 1,714,423
------------ ------------
INVESTING ACTIVITIES:
Purchase of investment securities................................... (13,874,371) (22,358,863)
Maturities of investment securities................................. 15,661,270 14,019,334
Proceeds from sale of investment securities available for sale...... 1,363,203 1,046,563
Net increase in loans............................................... (2,895,229) (6,839,526)
Purchase of equipment............................................... (81,227) (121,266)
Proceeds on sale of other real estate............................... 15,059 417,480
------------ ------------
Net cash provided by (used in) investing activities............. 188,705 (13,836,278)
------------ ------------
FINANCING ACTIVITIES:
Net increase in deposits............................................ 5,472,614 15,572,705
Cash dividends paid................................................. (205,652) (104,166)
Purchase of treasury stock.......................................... (537,314) --
Principal payments under capital lease obligations.................. (4,093) (8,746)
------------ ------------
Net cash provided by financing activities....................... 4,725,555 15,459,793
------------ ------------
Net increase in cash and cash equivalents............................ 6,569,823 3,337,938
Cash and cash equivalents, beginning of year......................... 8,755,845 5,417,907
------------ ------------
Cash and cash equivalents, end of year............................... $ 15,325,668 $ 8,755,845
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest.............................. $ 2,597,320 $ 2,222,410
Cash paid during the year for income taxes.......................... $ 1,075,503 $ 373,410
============ ============
SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS:
Adjustment to equity for unrealized gains (losses) on securities
available for sale (net of income tax effect).................... $ 37,960 $ (66,786)
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
D-17
<PAGE>
IRONBOUND BANKCORP, NJ AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
A. ORGANIZATION AND NATURE OF OPERATIONS
Ironbound Bankcorp, NJ (the "Company"), a bank holding company, was
incorporated on February 14, 1997 with authorized capital of 4,000,000 shares of
$5.00 par value common stock. On July 1, 1997 the Company acquired 100 percent
of the shares of Ironbound Bank (the "Bank") by exchanging one share of its
common stock for each share of the Bank's stock. This exchange of shares has
been accounted for as a reorganization of entities under common control, similar
to a pooling of interest, which resulted in no changes to the underlying
carrying amounts of assets and liabilities.
The Bank, which was chartered in 1988, is a full service Community Bank,
providing competitively priced commercial, mortgage and consumer loan products
to businesses and individuals primarily in its northern New Jersey market area.
The Bank also offers non-interest bearing demand deposits and a variety of
interest bearing deposits with varying rates which generally reflect market
conditions.
The majority of the Company's net income is derived from interest on loans
and investments, plus fees on deposit accounts, less interest on deposit
accounts and operating expenses.
B. SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
PRINCIPALS OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company, established in 1997, its wholly owned
subsidiary, Ironbound Bank, and the Bank's wholly owned subsidiary, Ironbound
Investment Company, Inc. which was established in 1996. All significant
intercompany accounts and transactions have been eliminated.
BASIS OF CONSOLIDATED FINANCIAL STATEMENT PRESENTATION. The accounting and
reporting policies used in the preparation of the financial statements of the
Company conform to generally accepted accounting principles and to general
practices within the banking industry.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. Such estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
INVESTMENT SECURITIES. Held-to-maturity securities are those debt
securities which the Company has the intent and ability to hold to maturity and
are reported at amortized cost adjusted for unamortized purchase premiums and
discounts. Available-for-sale securities are those debt and equity securities
which are neither held-to-maturity securities nor trading securities and are
reported at fair value, with unrealized gains and losses, net of the related
income tax effect, excluded from earnings and reported in a separate component
of stockholders' equity. The Company does not hold any securities for trading
purposes. The cost of investments sold is determined on the specific
identification method.
LOANS AND LOAN FEES. Loans are stated at their principal amount
outstanding, net of deferred loan fees and costs and allowance for possible loan
losses. Interest income on loans is accrued generally based upon the principal
amount outstanding. Net deferred fees are amortized into income over the
contractual life of the related loans by use of a method which approximates the
interest method. Interest income is not accrued on
D-18
<PAGE>
loans where management has determined that the borrowers may be unable to meet
contractual principal and/or interest obligations or where interest or principal
is 90 days or more past due, unless the loans are well secured and in process of
collection. When a loan is placed on nonaccrual, interest accruals cease and in
general, uncollected past due interest (including interest applicable to prior
years, if any) is reversed and charged against current income. Thereafter,
interest income is not accrued unless the financial condition and payment record
of the borrower warrant the accrual of interest income. Interest on loans that
have been restructured is accrued according to the renegotiated terms.
ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan losses
is established or increased through charges to income. Loan losses are charged
against the allowance when it is believed that the collectibility of principal
is unlikely. The level of allowance is based upon management's estimate of
potential future losses in the existing loan portfolio. Periodic evaluations of
the loan portfolio which take into consideration such factors as the borrowers'
ability to pay, specific review of problem loans, changes in the nature and
volume of the loan portfolio, overall portfolio quality and prevailing and
anticipated economic conditions are used for this purpose. Since the allowance
is based on estimates, ultimate losses may vary from current estimates. As
adjustments become necessary, they are reflected in operations in the period in
which they become known.
PURCHASED DEPOSITS PREMIUM. Purchased deposits premium is amortized on a
straight-line basis over the life of the deposits acquired, which is estimated
to be seven years.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization is provided
on a straight-line basis over the shorter of the estimated lives of the assets
or the term of the related leases, including renewal options. Estimated useful
lives are as follows: 30 years for buildings, 7 to 20 years for leasehold
improvements and 5 to 10 years for furniture and equipment.
CASH FLOW REPORTING. For purposes of reporting cash flows, the Company
considers cash and cash equivalents to include cash on hand and due from banks,
federal funds sold and money market funds. Federal funds sold are generally due
within one business day.
C. INVESTMENT SECURITIES
The amortized cost and estimated market value of investment securities at
December 31, 1997 and 1996 are as follows:
D-19
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
-----------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES HELD
TO MATURITY:
U.S. Treasury securities and agencies... $27,450,091 $110,383 $140,259 $27,420,215
Mortgage-backed securities.............. 11,880,365 171,461 53,467 11,998,359
Other debt securities................... 2,762,184 10,778 7,026 2,765,936
----------- -------- -------- -----------
Total................................ $42,092,640 $292,622 $200,752 $42,184,510
=========== ======== ======== ===========
INVESTMENT SECURITIES
AVAILABLE FOR SALE:
U.S. Treasury securities and agencies... $ 8,217,856 $ 47,782 $ -- $ 8,265,638
Mortgage-backed securities.............. 3,327,074 55,726 3,214 3,379,586
Other debt securities................... 1,738,479 3,810 -- 1,742,289
Preferred stock......................... 497,500 25,000 -- 522,500
----------- -------- -------- -----------
Total................................ $13,780,909 $132,318 $ 3,214 $13,910,013
=========== ======== ======== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
AMORTIZED GROSS GROSS ESTIMATED
COST UNREALIZED UNREALIZED MARKET
GAINS LOSSES VALUE
------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES HELD
TO MATURITY:
U.S. Treasury securities and agencies... $30,446,474 $ 35,871 $537,414 $29,944,931
Mortgage-backed securities.............. 4,270,598 20,947 22,513 4,269,032
Other debt securities................... 11,900,121 72,440 249,471 11,723,090
----------- -------- -------- -----------
Total................................ $46,617,193 $129,258 $809,398 $45,937,053
=========== ======== ======== ===========
INVESTMENT SECURITIES
AVAILABLE FOR SALE:
U.S. Treasury securities................ $ 8,792,149 $ 37,403 $ 8,628 $ 8,820,924
Mortgage-backed securities.............. 1,619,142 14,540 -- 1,633,682
Other debt securities................... 1,372,967 -- 2,152 1,370,815
Preferred stock......................... 655,006 25,000 325 679,681
----------- -------- -------- -----------
Total................................ $12,439,264 $ 76,943 $ 11,105 $12,505,102
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated market value of investment securities at
December 31, 1997 by maturity is shown below. Expected maturities may differ
from contractual maturities because certain securities can be called or prepaid
by the issuer with or without call or prepayment penalties.
D-20
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
AVAILABLE FOR SALE HELD TO MATURITY
1997 1997
-----------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
-----------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less.................. $ 925,546 $ 926,390 $ 6,799,767 $ 6,785,089
Due after one year through five years.... 5,702,195 5,735,230 9,392,637 9,372,701
Due after five years through ten years... 2,473,004 2,490,700 16,705,061 16,689,347
Due after ten years...................... 4,182,664 4,235,193 9,195,175 9,337,373
Preferred stock.......................... 497,500 522,500 -- --
----------- ----------- ----------- -----------
Total................................. $13,780,909 $13,910,013 $42,092,640 $42,184,510
=========== =========== =========== ===========
</TABLE>
Proceeds from the sales of investment securities available for sale were
$1,363,203 and $1,046,563 for the years ended December 31, 1997 and 1996,
respectively. A gain on sale of securities of $15,682 was realized in 1997. A
loss of $3,321 was realized in 1996.
D. LOANS RECEIVABLE
The components of loans receivable at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------------------------
<S> <C> <C>
Commercial.............................. $28,273,655 $27,175,747
Consumer................................ 3,108,046 2,715,745
Real estate............................. 7,522,765 6,004,655
----------- -----------
Gross loans............................. 38,904,466 35,896,147
Less:
Net deferred loan fees............... 128,727 133,482
Allowance for possible loan losses... 903,013 789,923
----------- -----------
Net loans........................ $37,872,726 $34,972,742
=========== ===========
</TABLE>
The total amount of nonaccruing loans approximated $177,000 and $208,000 at
December 31, 1997 and 1996, respectively. Gross interest income of $21,089 and
$26,630 would have been recorded for the years ended December 31, 1997 and 1996,
respectively, if nonaccrual loans had been current. Interest collected on
nonaccrual loans amounted to $17,597 and $82,270 for the years ended December
31, 1997 and 1996, respectively.
At December 31, 1997 loans consisted of the following:
<TABLE>
<CAPTION>
MATURITY FIXED VARIABLE TOTAL
- -------- ----------- ----------- -----------
<S> <C> <C> <C>
One year or less................... $ 3,418,050 $1,394,439 $ 4,812,489
One to five years.................. 20,151,353 2,371,441 22,522,794
More than 5 years.................. 10,985,813 583,370 11,569,583
----------- ---------- -----------
$34,555,216 $4,349,250 $38,904,466
=========== ========== ===========
</TABLE>
An analysis of activity with respect to loans outstanding to directors,
officers, their entities and immediate families is as follows:
D-21
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Balance, beginning of year............. $ 392,000 $274,000
New loans.............................. 1,660,000 180,000
Repayments............................. (150,000) (62,000)
---------- --------
Balance, end of year................... $1,902,000 $392,000
========== ========
</TABLE>
These loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with unaffiliated persons.
E. ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of activity in the allowance for possible loan losses account for
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
Balance, beginning of year............. $789,923 $762,149
Provision for possible loan losses..... -- --
Loans charged off...................... (75,370) (11,042)
Recoveries............................. 188,460 38,816
-------- --------
Balance, end of year................... $903,013 $789,923
======== ========
</TABLE>
The ratio of net charge offs to average loan balance for the year ending
December 31, 1997 and 1996 was (.31%) and (.09%), respectively.
F. PREMISES AND EQUIPMENT
The composition of premises and equipment at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
---------- -----------
<S> <C> <C>
Leasehold improvements........................... $1,250,756 $1,257,831
Furniture, fixtures and equipment................ 1,304,638 1,394,977
Building......................................... 696,098 691,358
---------- ----------
Total........................................... 3,251,492 3,344,166
Less accumulated depreciation and amortization... 1,576,269 1,488,656
---------- ----------
Premises and equipment, net................... $1,675,223 $1,855,510
========== ==========
</TABLE>
G. LEASES
Operating leases are in place for certain properties. One such lease is
with a related party under a net lease agreement at $21 per square foot for
approximately 7,900 square feet. The company has options to renew
D-22
<PAGE>
all of its operating leases. As of December 31, 1997, aggregate minimum rental
commitments under operating and capital leases are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDING DECEMBER 31, LEASES LEASES
- ---------------------------------- ---------- ----------
<S> <C> <C>
1998................................. $ 258,392 $ 5,311
1999................................. 260,392 5,311
2000................................. 260,392 6,195
2001................................. 260,392 --
2002................................. 260,392 --
---------- ----------
Total minimum lease payments $1,299,960 16,817
==========
Less: Amount representing interest 1,655
----------
Net lease payments................... $15,162
==========
</TABLE>
H. DEPOSITS
At December 31, 1997, time deposits had remaining periods to
contractual maturity as follows:
<TABLE>
<CAPTION>
UNDER OVER
MATURITY $100,000 $100,000 TOTAL
- -------- ----------- ---------- -----------
<S> <C> <C> <C>
Three months or less.......... $10,948,371 $3,230,724 $14,179,095
Three to twelve months........ 10,478,562 2,390,921 12,869,483
One to three years............ 941,292 467,884 1,409,176
Over three years.............. 35,212 -- 35,212
$22,403,437 $6,089,529 $28,492,966
</TABLE>
I. INCOME TAXES
The income tax expense is comprised of the following components:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
------------------------
<S> <C> <C>
Current federal income tax expense......................... $597,027 $437,243
Current state income tax expense........................... 82,308 73,299
Deferred federal and state income tax provision............ 25,302 123,078
-------- --------
Total income tax expense................................ $704,637 $633,620
======== ========
</TABLE>
Net deferred tax assets at December 31, 1997 and 1996 of $259,074 and
$309,681, respectively, have been provided for the temporary differences between
the tax basis and financial statement carrying amounts of assets and
liabilities. The net deferred tax asset at December 31, 1997 and 1996 includes
liabilities of $51,641 and $26,335, respectively, recorded on the unrealized
appreciation on securities classified as available-for-sale under SFAS 115.
These amounts were reflected in the financial statement as adjustments to
stockholders' equity.
D-23
<PAGE>
The major sources of temporary differences and their deferred tax effect
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
--------- ----------
DEFERRED TAX ASSETS:
<S> <C> <C>
Allowance for loan losses.............................. $139,718 $150,703
Loan fees.............................................. -- 9,900
Premiums on securities................................. 131,577 144,911
Depreciation and amortization.......................... 50,751 22,812
Other.................................................. 6,056 7,690
--------- ----------
Total deferred tax assets............................ 328,102 336,016
--------- ----------
DEFERRED LIABILITIES:
Net unrealized gain on securities available for sale... 51,641 26,335
Loan fees.............................................. 17,387 --
--------- ----------
Total deferred tax liabilities....................... 69,028 26,335
--------- ----------
Net deferred tax assets............................. $259,074 $309,681
========= ==========
</TABLE>
A reconciliation of the 1997 statutory income tax provision to the
effective income tax provision is as follows:
<TABLE>
<CAPTION>
STATUTORY
AMOUNT RATE
-------- ---------
<S> <C> <C>
Federal income tax expense..................................... $668,225 34.00%
State income tax expense (net of federal tax benefit).......... 57,225 2.91
Meals and entertainment........................................ 1,843 0.09
Penalties...................................................... 1,301 0.07
Interest on tax-exempt securities.............................. (20,092) (1.02)
Other.......................................................... (3,865) (0.20)
-------- ---------
Total income tax provision.................................. $704,637 35.85%
======== =========
</TABLE>
J. DIVIDENDS
The Board of Directors declared four cash dividends during the 1997 year,
each at $.05 per share. Total dividends paid or declared in 1997 and 1996 were
$205,652 and $104,166, respectively.
K. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involved, in varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of financial condition.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the
D-24
<PAGE>
contractual notional amount of those instruments. The Company uses the same
credit policies in making commitments and conditional obligations as it does for
on-balance sheet instruments.
A summary of financial instruments whose contract amounts represent credit
risk at December 31, 1997 is as follows:
<TABLE>
<S> <C>
Commitments to extend credit.................... $4,491,000
Commitments to purchase securities.............. 833,000
Commercial and standby letters of credit........ 71,000
----------
Total........................................ $5,395,000
==========
</TABLE>
Commitments to extend credit are legally binding agreements to lend to a
customer as long as there is no violation of any condition established in the
contract. Commitments generally have fixed dates or other termination clauses
and may require the customer to pay a fee. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. Each customer's credit
worthiness is evaluated on a case-by-case basis. The amount of collateral
obtained, if deemed necessary upon the extension of credit, is based on
management's credit evaluation of the borrower. Collateral held varies but may
include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to assure the performance of a customer to a third party. Commercial letters of
credit are conditional commitments issued by the Company to provide financing
upon the delivery of commercial goods to a customer. All guarantees under
letters of credit extend for a period of up to a year from the issuance date.
The credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. If deemed necessary,
the Company may hold collateral supporting those commitments.
L. FAIR VALUE OF FINANCIAL INSTRUMENTS
The information provided below is required by SFAS No. 107, "Disclosures
About Fair Value of Financial Instrument." These amounts represent estimates of
fair value of financial instruments at a point in time. Significant estimates
using available market information and appropriate valuation methodologies were
used for the purposes of this disclosure. The estimates are not necessarily
indicative of the amounts that could realize in a current market exchange, and
the use of different market assumptions or methodologies could have a material
effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------
ESTIMATED
CARRYING FAIR OR
VALUE MARKET VALUE
--------------------------
<S> <C> <C>
Cash and cash equivalents....... $ 15,325,668 $ 15,325,668
Investment securities:
Held to maturity............... 42,092,640 42,184,510
Held for sale.................. 13,910,013 13,910,013
Loans receivable................ 38,904,466 39,154,424
Deposits........................ 100,710,839 100,779,406
</TABLE>
D-25
<PAGE>
The fair value of investment securities is based on quoted market prices.
The fair value of loans receivable was estimated by discounting the future cash
flows over the estimated remaining term of the loans. The discount factor was
determined by taking into consideration current market rates and loss
experience.
Demand deposits and savings deposits are shown at their face values. The
fair value of time deposits was estimated by discounting the future cash flows
over the remaining term. The estimated value of demand and savings does not
reflect the value of core deposits which is determined by taking into
consideration the customer base and deposit mix. Management believes there is
significant core deposit value which is not reflected in the above schedule.
M. STOCK OPTIONS AND EARNINGS PER SHARE
The Company has a stock option plan (the "Plan") which provides for grants
of options to purchase a total of 49,608 shares of stock (24,804 shares to each
of the Company's two executive officers). Options vest at a rate of 10,000 per
year beginning in 1995 through 1998 with the remainder of 9,608 shares vesting
in 1999. The option price of $8.00 per share was higher than the related market
value per share at the date of the grant. At December 31, 1997 and 1996, all
49,608 options remained outstanding.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for The Plan. Had compensation cost for The Plan been
determined based on the fair value at the grant date of awards in 1997 and 1996,
consistent with the provisions of SFAS No. 123, the Bank's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
At December 31, 1997, there were 30,000 options that were vested and
exercisable.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996
------------------------
<S> <C> <C>
Net income, as reported..................... $1,260,732 $846,623
Net income, pro forma....................... 1,250,722 836,523
Basic earnings per share, as reported....... $ 1.22 $ 0.81
Basic earnings per share, pro forma......... 1.21 0.80
Diluted earnings per share, as reported..... 1.19 0.80
Diluted earnings per share, pro forma....... 1.18 0.79
</TABLE>
The fair value of each option grant of $1.54 is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions used for grants in 1997 and 1996: dividend yield of 1.7%,
risk-free interest rate of 6.5%, and expected lives of five years.
D-26
<PAGE>
Basic earnings per share and diluted earnings per share, as reported, were
calculated as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996
--------------------------------- ------------------------------
EARNINGS EARNINGS
INCOME SHARES PER SHARE INCOME SHARES PER SHARE
--------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic earnings per share.......... $1,260,732 1,035,461 $ 1.22 $846,623 1,041,663 $ 0.81
Effect of stock options........... -- 22,702 (0.03) -- 15,098 (0.01)
---------- --------- ------ -------- --------- ------
Diluted earnings per share........ $1,260,732 1,058,136 $ 1.19 $846,623 1,056,761 $ 0.80
========== ========= ====== ======== ========= ======
</TABLE>
N. STOCK REPURCHASE PROGRAM
On July 2, 1997 the Board of Directors authorized the repurchase of up to
5%, or 52,083 shares of the Company's outstanding stock. This program permits
the Company to repurchase such shares, from time to time, in the open market or
in privately negotiated transactions as market conditions, in the opinion of
management, may warrant. The repurchase shares will be held in treasury and may
be used for general corporate purposes. The repurchase program can be
discontinued at any time. At December 31, 1997 the Company had repurchased
36,520 shares at a cost of $537,314.
O. CAPITAL ADEQUACY
The Company and its subsidiary Bank are subject to various regulatory
capital requirements administered by the federal banking agencies. The
regulations require the Company and the Bank to meet specific minimum capital
adequacy guidelines that involve quantitative measures of assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. Such capital classifications are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
D-27
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the table below) of Tier 1 capital (as defined in the regulations) to
total average assets (as defined), and minimum ratios of Tier 1 and total
capital (as defined) to risk-weighted assets (as defined). The Company's
(Ironbound Bankcorp, NJ) and its subsidiary (Ironbound Bank) actual capital
amounts and ratios are presented in the following table:
<TABLE>
<CAPTION>
REQUIRED BY REGULATION REQUIRED BY REGULATION
FOR CAPITAL ADEQUACY TO BE CONSIDERED
ACTUAL PURPOSES WELL CAPITALIZED
-------------------- ---------------------- -----------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------ ------ ------------- ------- ------------ --------
IRONBOUND BANKCORP, NJ (CONSOLIDATED)
DECEMBER 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital to Average Assets................ $10,605,745 9.6% $4,401,040 4.0% $5,501,300 5.0%
Tier 1 Capital to Risk Weighted Assets.......... 10,688,257 20.8 2,055,520 4.0 3,083,280 6.0
Total Capital to Risk Weighted Assets........... 10,844,363 21.1 4,111,040 8.0 5,138,800 10.0
IRONBOUND BANK
DECEMBER 31, 1997:
Tier 1 Capital to Average Assets................ $10,605,745 9.6% $4,401,359 4.0% $5,501,699 5.0%
Tier 1 Capital to Risk Weighted Assets.......... 10,688,257 20.8 2,056,320 4.0 3,084,480 6.0
Total Capital to Risk Weighted Assets........... 10,844,363 21.1 4,112,640 8.0 5,140,800 10.0
IRONBOUND BANK
DECEMBER 31, 1996:
Tier 1 Capital to Average Assets................ $ 9,603,238 9.6% $3,991,904 4.0% $4,989,880 5.0%
Tier 1 Capital to Risk Weighted Assets.......... 10,035,038 15.9 2,517,560 4.0 3,776,340 6.0
Total Capital to Risk Weighted Assets........... 10,288,637 16.4 5,035,120 8.0 6,293,900 10.0
</TABLE>
All of the above capital ratios for the Company and the Bank substantially
exceeded regulatory requirements. The FDIC's most recent examination of the
Bank was performed as of the close of business at September 30, 1996. In this
examination report, the FDIC categorized the Bank as a well-capitalized
institution. Management is not aware of any change in conditions or events
since the FDIC examination date which would lead it to believe that the
institution's capital category has changed.
D-28
<PAGE>
P. CONDENSED FINANCIAL STATEMENTS OF IRONBOUND BANKCORP, NJ (PARENT COMPANY
ONLY)
<TABLE>
<CAPTION>
STATEMENT OF FINANCIAL CONDITION DECEMBER 31, 1997
-------------------------------- -----------------
ASSETS
<S> <C>
Cash and due from banks...................................................... $ 50,271
Other assets - organization costs............................................ 27,254
Investment in subsidiary (equity method)..................................... 10,844,363
-----------
TOTAL ASSETS.................................................................. $10,921,888
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable............................................................ $ 50,271
Due to subsidiary............................................................ 27,254
-----------
Total liabilities......................................................... 77,525
-----------
STOCKHOLDERS' EQUITY
Common stock................................................................. 5,208,315
Paid-in capital.............................................................. 4,298,362
Retained earnings............................................................ 1,797,537
Treasury stock............................................................... (537,314)
Net unrealized gains on held-for-sale securities (net of tax)................ 77,463
-----------
Total stockholders' equity................................................. 10,844,363
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................................... $10,921,888
===========
YEAR ENDED
STATEMENT OF INCOME DECEMBER 31, 1997
------------------- -------------------
Dividends from subsidiary for acquisition of treasury stock and
dividends to shareholders....................................................... $ 742,966
Other income-management fee changed to subsidiary................................ 2,478
-----------
Total income.................................................................. 745,444
Other expense-amortization of organization costs................................. 2,478
-----------
Income before equity in undistributed earnings of subsidiary..................... 742,966
Equity in undistributed earnings of subsidiary................................... 517,766
-----------
NET INCOME....................................................................... $ 1,260,732
===========
STATEMENT OF CASH FLOWS
-----------------------
OPERATING ACTIVITIES:
Net income....................................................................... $ 1,260,732
Adjustments to reconcile net income to net cash provided from operations:
Equity in undistributed earnings of subsidiary................................. (517,766)
Amortization of organization costs............................................. 2,478
Management fee charged to subsidiary Bank...................................... (2,478)
Increase in organization costs................................................. (27,254)
Increase in total liabilities.................................................. 77,525
-----------
Net cash provided from operating activities................................... 793,237
-----------
FINANCING ACTIVITIES:
Cash dividends paid to shareholders........................................... (205,652)
Acquisition of treasury stock................................................. (537,314)
-----------
Net cash (used) for financing activities..................................... (742,966)
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS........................................ 50,271
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................................... --
-----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................................... $ 50,271
===========
</TABLE>
D-29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors of Stockholders
Ironbound Bankcorp, NJ
Newark, New Jersey
We have audited the accompanying consolidated statements of financial
condition of Ironbound Bankcorp, NJ and Subsidiary as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in stockholders'
equity and cash flows for the years then ended. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Ironbound Bankcorp, NJ and
Subsidiary as of December 31, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
January 27, 1998
Parsippany, New Jersey
D-30
