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Filed Pursuant to Rule 424(b)(3)
Registration No. 333-66749
LOGO OF LOGO OF
RICHMOND COUNTY FINANCIAL CORP. BAYONNE BANCSHARES, INC.
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of Richmond County Financial Corp. and Bayonne
Bancshares, Inc. have agreed on a merger of Richmond County and Bayonne. 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 Bayonne common stock that
you hold will be converted automatically into the right to receive 1.05 shares
of common stock of Richmond County. As of January 19, 1999, this was worth about
$16.60 for each share of Bayonne common stock. We cannot complete the merger
unless the stockholders of both of our companies approve it. Each of us will
hold a meeting of our stockholders to vote on this merger proposal. YOUR VOTE IS
VERY IMPORTANT. Whether or not you plan to attend your 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 dates, times and places of the meetings are as follows:
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FOR RICHMOND COUNTY FINANCIAL CORP. FOR BAYONNE BANCSHARES, INC.
February 25, 1999, 10:00 a.m. local time February 25, 1999, 10:00 a.m. local time
Columbian Lyceum The Chandelier Restaurant
386 Clove Road 1081 Broadway
Staten Island, New York 10310 Bayonne, New Jersey 07002
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This document provides you with detailed information about these meetings and
the proposed merger. You can also get information about our companies from
publicly available documents that our companies have filed with the Securities
and Exchange Commission. We encourage you to read this entire document
carefully.
We strongly support this combination of our companies and join with all of the
other members of our Boards of Directors in enthusiastically recommending that
you vote in favor of the merger.
Michael F. Manzulli Patrick F.X. Nilan
Chairman and Chief Executive Officer Chairman
Richmond County Financial Corp. Bayonne Bancshares, Inc.
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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 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.
- --------------------------------------------------------------------------------
RICHMOND COUNTY'S AND BAYONNE'S COMMON STOCK ARE BOTH TRADED ON THE NATIONAL
MARKET SYSTEM OF THE NASDAQ STOCK MARKET. THE TRADING SYMBOL FOR
RICHMOND COUNTY COMMON STOCK IS "RCBK." THE TRADING SYMBOL FOR BAYONNE
COMMON STOCK IS "FSNJ."
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FOR ANY QUESTIONS, OR TO REQUEST ASSISTANCE, PLEASE CALL OUR PROXY SOLICITOR,
KISSEL-BLAKE, AT (800) 554-7733.
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JOINT PROXY STATEMENT/PROSPECTUS DATED JANUARY 28, 1999
AND FIRST MAILED TO STOCKHOLDERS ON FEBRUARY 1, 1999
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JOINT PROXY STATEMENT/PROSPECTUS
TABLE OF CONTENTS
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SUMMARY...................................................................... 1
The Companies........................................................... 1
Richmond County Financial Corp..................................... 1
Bayonne Bancshares, Inc............................................ 1
The Stockholders' Meetings.............................................. 1
Richmond County Stockholders....................................... 1
Bayonne Stockholders............................................... 1
Who Can Vote at the Meetings; What Vote is Required
for Approval of the Merger Agreement............................... 1
Richmond County Stockholders....................................... 1
Bayonne Stockholders............................................... 2
The Bayonne Merger...................................................... 2
General............................................................ 2
Bayonne Stockholders Will Receive 1.05 Shares of Richmond County
Common Stock for Each Bayonne Share They Own .................
Tax-Free Transaction for Bayonne Stockholders...................... 2
You Do Not Have Appraisal Rights in the Merger..................... 3
Accounting Treatment of the Merger................................. 3
Interests of Bayonne's Directors and Officers in the Merger that
are Different From Your Interests............................. 3
Differences in the Rights of Richmond County's and Bayonne's
Stockholders.................................................. 3
Our Reasons for the Merger......................................... 4
Our Recommendations to Stockholders................................ 4
The Transaction is Fair to Stockholders According to Two
Investment Advisors........................................... 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................... 5
Bayonne Merger Stock Option Agreement.............................. 5
The Ironbound Merger.................................................... 6
SELECTED HISTORICAL FINANCIAL DATA OF RICHMOND COUNTY AND BAYONNE............ 7
UNAUDITED PRO FORMA COMBINED SELECTED FINANCIAL INFORMATION.................. 14
COMPARATIVE PER SHARE DATA................................................... 16
THE COMPANIES................................................................ 17
Richmond County......................................................... 17
Bayonne................................................................. 17
WHERE YOU CAN FIND MORE INFORMATION.......................................... 18
FORWARD-LOOKING STATEMENTS................................................... 20
MARKET PRICES AND DIVIDEND INFORMATION....................................... 21
THE STOCKHOLDERS' MEETINGS................................................... 22
MEETING OF RICHMOND COUNTY STOCKHOLDERS...................................... 22
Date, Time and Place; Purpose of Meeting................................ 22
Who Can Vote on Matters Addressed in this Document...................... 22
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Proxies; Voting and Revocation of Proxies............................. 22
Vote Required; Principal Stockholders................................. 24
BENEFICIAL OWNERSHIP OF RICHMOND COUNTY COMMON STOCK....................... 25
Owners of 5% of Richmond County Common Stock.......................... 25
What Richmond County's Directors and Executive
Officers Own......................................................... 26
MEETING OF BAYONNE STOCKHOLDERS............................................ 27
Date, Time and Place; Purpose of Meeting.............................. 27
Who Can Vote on Matters Addressed in this Document.................... 27
Proxies; Voting and Revocation of Proxies............................. 27
Vote Required; Principal Stockholders................................. 28
BENEFICIAL OWNERSHIP OF BAYONNE COMMON STOCK............................... 30
Owners of 5% of Bayonne Common Stock.................................. 30
What Bayonne's Directors and Executive Officers Own................... 31
PROPOSAL NO. 1 FOR THE RICHMOND COUNTY AND BAYONNE STOCKHOLDERS:
THE MERGER............................................................ 32
General............................................................... 32
Background of the Merger.............................................. 32
Recommendation of the Richmond County Board; Richmond County's
Reasons for the Merger........................................... 35
The Transaction is Fair to Richmond County's Stockholders
According to Richmond County's Investment Advisor................ 36
Material Projections Shared Between the Companies in
Negotiating the Merger Agreement................................. 43
Recommendation of the Bayonne Board; Bayonne's Reasons
for the Merger................................................... 44
The Transaction is Fair to Bayonne's Stockholders
According to Bayonne's Investment Advisor........................ 45
Bayonne Stockholders Will Receive 1.05 Shares of Richmond
County Common Stock for Each Bayonne Share....................... 54
Procedures for Exchanging Your Stock Certificates..................... 55
Richmond County.................................................. 55
Bayonne.......................................................... 55
Interests of Directors and Officers in the Merger that
are Different from Your Interests................................ 55
Management and Operations Following the Merger........................ 57
Employee Matters...................................................... 57
Conditions to the Merger.............................................. 58
Regulatory Approvals Needed to Complete the Merger.................... 59
Conduct of Business Pending the Merger................................ 61
Representations and Warranties Made by Richmond County
and Bayonne in the Merger Agreement.............................. 63
What Happens if a Third Party Offers to Buy Bayonne................... 63
Waiving and Amending Provisions in, or Terminating,
the Merger Agreement............................................. 64
Price-Based Termination of the Merger Agreement....................... 65
Nasdaq National Market Listing........................................ 65
Accounting Treatment of the Merger.................................... 65
Tax-Free Transaction for Bayonne Stockholders......................... 65
Selling the Richmond County Common Stock You Receive
in the Merger.................................................... 66
You Do Not Have Appraisal Rights in the Merger........................ 66
Who Pays For What..................................................... 66
When Will the Merger Be Completed..................................... 67
CERTAIN RELATED TRANSACTIONS............................................... 67
Bayonne Merger Stock Option Agreement................................. 67
Effect of the Bayonne Merger Stock Option Agreement.............. 68
Bank Merger Agreement................................................. 68
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THE IRONBOUND MERGER........................................................ 69
REGULATION AND SUPERVISION.................................................. 69
General................................................................ 69
New York State Law..................................................... 69
FDIC Regulations....................................................... 70
Investment Activities.................................................. 71
Transactions with Companies or Entities that Control
Savings Banks......................................................... 72
The FDIC's Enforcement Authority....................................... 73
Insurance of Deposit Accounts.......................................... 73
Payment of Financing Corporation Bonds................................ 73
Federal Reserve System................................................. 73
Community Reinvestment Act............................................. 74
Holding Company Regulation............................................. 74
Interstate Banking and Branching....................................... 76
DESCRIPTION OF RICHMOND COUNTY CAPITAL STOCK................................ 77
General................................................................ 77
Common Stock........................................................... 77
Preferred Stock........................................................ 77
COMPARISON OF CERTAIN RIGHTS OF STOCKHOLDERS................................ 78
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS................................................... 79
ADDITIONAL MATTERS TO BE CONSIDERED AT THE RICHMOND COUNTY
MEETING................................................................ 88
Proposal No. 2 for the Richmond County Stockholders:
Ratification of the Amendments to the Richmond County Financial
Corp. 1998 Stock-Based Incentive Plan............................. 88
ADDITIONAL MATTERS TO BE CONSIDERED AT THE BAYONNE MEETING.................. 89
Proposal No. 2 for Bayonne Stockholders: Election of
Bayonne Directors................................................. 89
Information with Respect to the Nominees, Continuing
Directors and Executive Officers of Bayonne....................... 90
Compensation Committee and Insider Participation in
Compensation Decisions............................................ 91
Directors' Compensation................................................ 91
Executive Compensation................................................. 92
Summary Compensation Table............................................. 96
Employment Agreements.................................................. 97
Change in Control Agreements........................................... 98
Retirement Plan........................................................ 98
Option Exercises and Year-End Value.................................... 100
Transactions With Certain Related Persons.............................. 100
Stock Performance Graph................................................ 101
Proposal No. 3 for Bayonne Stockholders: Ratification
of Appointment of Independent Auditors............................ 102
ADDITIONAL INFORMATION...................................................... 102
If You Want to Have a Stockholder Proposal Included in Bayonne's Proxy
Statement Relating to the 1999 Annual Stockholders' Meeting
Notice of Business to be Conducted at a Bayonne Meeting................ 102
LEGAL MATTERS............................................................... 103
EXPERTS..................................................................... 103
STOCKHOLDER PROPOSALS....................................................... 103
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Annex A Amended and Restated Agreement and Plan of Merger, amended and
restated as of October 14, 1998, by and between Richmond County
Financial Corp. and Bayonne Bancshares, Inc.
Annex B Stock Option Agreement, dated as of July 19, 1998, by and between
Bayonne Bancshares, Inc. and Richmond County Financial Corp.
Annex C Opinion of Tucker Anthony Incorporated.
Annex D Opinion of Sandler O'Neill & Partners, L.P.
Annex E Proposed Amended Richmond County Financial Corp. 1998 Stock-Based
Incentive Plan.
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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 18.
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.
BAYONNE BANCSHARES, INC.
568 Broadway
Bayonne, New Jersey 07002
(201) 437-1000
Bayonne is a savings and loan holding company organized under the laws of the
State of Delaware in 1997. We operate 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 STOCKHOLDERS' MEETINGS (PAGE 22)
Richmond County Stockholders. The Richmond County special meeting will be held
on February 25, 1999 at 10:00 a.m., local time, at the Columbian Lyceum, 386
Clove Road, Staten Island, New York 10310. At the Richmond County special
meeting, you will be asked to:
1. approve the merger of our company with Bayonne Bancshares, Inc.;
2. ratify amendments to the Richmond County Financial Corp. 1998 Stock-Based
Incentive Plan; and
3. act on any other items that may be submitted to a vote at the meeting.
Bayonne Stockholders. The Bayonne annual meeting will be held on February 25,
1999 at 10:00 a.m., local time, at The Chandelier Restaurant, 1081 Broadway,
Bayonne, New Jersey 07002. At the Bayonne annual meeting, you will be asked to:
1. approve the merger of our company with Richmond County;
2. elect Patrick F.X. Nilan and Joseph L. Wisniewski to the board of directors
of Bayonne for a term of three years;
3. ratify the appointment by the board of directors of KPMG LLP as independent
auditors of Bayonne Bancshares, Inc.; and
4. act on any other items that may be submitted to a vote at the annual meeting.
WHO CAN VOTE AT THE MEETINGS; WHAT VOTE IS REQUIRED FOR APPROVAL OF THE MERGER
AGREEMENT (PAGES 22 AND 27)
Richmond County Stockholders. You can vote at the meeting of Richmond County
stockholders if you owned Richmond County common stock at the close of business
on January 19, 1999. You can cast one vote for each share of Richmond County
common stock that you owned at that time. In order to approve the merger, the
holders of a majority of the outstanding shares of Richmond County's common
stock must vote in its favor. Richmond County's bylaws and Delaware law require
a majority of the votes cast at the Richmond County meeting to ratify the
amendments to the Richmond County's stock incentive plan. You can vote your
shares by telephone, by attending the Richmond County meeting and voting in
person or by mailing the enclosed proxy card. We have printed instructions on
how to vote by telephone on the proxy card. You can revoke your proxy as late as
the date of the meeting either by sending in a new proxy, by changing your vote
by telephone or by attending the meeting and voting in person.
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Bayonne Stockholders. You can vote at the meeting of Bayonne stockholders if
you owned Bayonne common stock at the close of business on January 19, 1999.
You can cast one vote for each share of Bayonne common stock you owned at that
time. In order to approve the merger, the holders of a majority of the
outstanding shares of Bayonne common stock must vote in its favor. You can vote
your shares by telephone, by attending the Bayonne meeting and voting in person,
or by mailing the enclosed proxy card. We have printed instructions on how to
vote by telephone on the proxy card. You can revoke your proxy as late as the
date of the meeting either by sending in a new proxy, by changing your vote by
telephone, or by attending the meeting and voting in person.
THE BAYONNE MERGER (PAGE 32)
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 Bayonne 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 first quarter of 1999.
BAYONNE STOCKHOLDERS WILL RECEIVE 1.05 SHARES OF RICHMOND COUNTY COMMON STOCK
FOR EACH BAYONNE SHARE THEY OWN (PAGE 54)
As a Bayonne stockholder, each of your shares of Bayonne common stock will
automatically become exchangeable for 1.05 shares of Richmond County common
stock. The total number of shares you receive will therefore be equal to the
number of shares of Bayonne common stock you own multiplied by 1.05. 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 Bayonne 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 55 of this document. For example, if you owned
ten shares of Bayonne common stock, after the merger you will send in the letter
of transmittal and your old Bayonne certificates and in exchange you will
receive ten 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 and Bayonne common stock are quoted on the Nasdaq
National Market. On October 13, 1998, the last trading day before we announced
the amended merger agreement, Richmond County common stock closed at $12.25 per
share and Bayonne common stock closed at $12.00 per share. On January 19, 1999,
Richmond County common stock closed at $15.81 per share and Bayonne common stock
closed at $16.13 per share.
Based on the exchange ratio in the merger, the amount that Bayonne stockholders
will receive in the merger for each share of Bayonne common stock would be
$16.60 based on Richmond County's closing stock price on January 19, 1999. Of
course, the market price of Richmond County will fluctuate prior to the merger,
while the exchange ratio is fixed. You should obtain current stock price
quotations for Richmond County common stock and Bayonne common stock. These
quotations are available from your stock broker, in major newspapers such as The
Wall Street Journal and on the Internet.
TAX-FREE TRANSACTION FOR BAYONNE STOCKHOLDERS (PAGE 65)
For United States federal income tax purposes, your exchange of shares of
Bayonne 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.
YOU DO NOT HAVE APPRAISAL RIGHTS IN THE MERGER (PAGE 66)
Delaware law does not provide you with appraisal rights in the merger. This
means that
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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 65)
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 Bayonne's
assets, less liabilities, on its financial statements. Because the purchase
price is greater than the fair market value of Bayonne's net assets, Richmond
County will record an asset called "goodwill" of approximately $28.6 million.
Richmond County will write off this goodwill as an expense over the next 15
years, reducing net income during that period. The Ironbound merger, discussed
later, will create additional goodwill of approximately $16.1 million, which
will also be written off over 15 years.
INTERESTS OF BAYONNE'S DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT
FROM YOUR INTERESTS (PAGE 55)
Some of Bayonne's directors and officers have interests in the merger that are
different from, or in addition to, their interests as Bayonne stockholders. The
members of our boards 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 the payout of cash benefits under
existing employment agreements, and the payment or entitlement of or to benefits
under employee benefit plans sooner than if the merger had not happened. For
example, 49,684 shares of restricted Bayonne common stock, for which these
people would otherwise have waited longer to have, will be converted into
approximately 52,200 shares of Richmond County common stock. Further, all
outstanding options to purchase Bayonne common stock will be converted into
options to purchase Richmond County common stock. Bayonne's officers and
directors hold options to purchase 460,783 shares of Bayonne common stock. In
addition, Mr. Michael A. Nilan, who is currently the President, Chief Executive
Officer and a director of Bayonne, will become an officer of Richmond County
Savings Bank. Richmond County has also agreed to increase its board of directors
by one member and to appoint Mr. Patrick F.X. Nilan to fill that seat until the
year 2000. Additionally, Mr. Patrick F.X. Nilan's consulting agreement with
Bayonne will also be terminated after the merger, in return for which he will
receive $100,000. Bayonne has also agreed to pay its Chief Financial Officer,
Mr. Eugene Malinowski, approximately $350,000 if he is terminated because of the
merger.
Also, following the merger, Richmond County will purchase directors' and
officers' insurance for the officers and directors of Bayonne and will protect
directors and officers of Bayonne against the cost of events occurring before
the merger, including events related to the merger. This protection and
insurance will be in addition to the protection and insurance to which the
officers and directors of Richmond County are entitled. Additional interests of
some of our directors and executive officers are described under "--Bayonne
Stockholders Will Receive 1.05 Shares of Richmond County Common Stock for Each
Bayonne Share" at page 45 of this document.
DIFFERENCES IN THE RIGHTS OF RICHMOND COUNTY'S AND BAYONNE'S STOCKHOLDERS (PAGE
78)
After the merger is completed, Bayonne's stockholders automatically will become
stockholders of Richmond County. Their rights as stockholders of Richmond County
will be governed by Delaware General Corporation Law and by Richmond County's
Certificate of Incorporation and bylaws. The rights of stockholders of Richmond
County, as defined in its Certificate of Incorporation and bylaws, do not
materially differ from the rights of the stockholders of Bayonne.
OUR REASONS FOR THE MERGER (PAGES 35 AND 44)
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
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competitive. While no assurances can be made, we expect to achieve cost savings
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 32 through 45.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGES 35 AND 44)
The boards of directors of Richmond County and Bayonne believe that the terms of
the merger agreement are fair to their respective stockholders, and unanimously
recommend that their respective stockholders vote "FOR" the proposal to approve
the merger agreement.
THE TRANSACTION IS FAIR TO STOCKHOLDERS ACCORDING TO TWO INVESTMENT ADVISORS
(PAGES 36 AND 45)
Tucker Anthony Incorporated has delivered to the Richmond County board its
opinion that, as of the date of this document, the exchange ratio is fair to
Richmond County stockholders from a financial point of view. Sandler O'Neill &
Partners, L.P. has delivered to the Bayonne board its opinion that, as of the
date of this document, the exchange ratio is fair to Bayonne stockholders from a
financial point of view. We have attached their opinions to this document as
Annex C and Annex D. You should read these opinions completely to understand
the assumptions made, matters considered and limitations of the review made by
Tucker Anthony and Sandler O'Neill in providing these opinions.
STOCK OPTIONS (PAGE 54)
Upon completion of the merger, each option to acquire Bayonne common stock
granted under Bayonne's stock option plans that is outstanding and unexercised
immediately before completing the merger will become an option to purchase
Richmond County common stock. The option will be governed by the terms of the
Richmond County stock option plan. The number of shares of Richmond County
common stock subject to Bayonne stock options, as well as the exercise price of
those stock options, will be adjusted to account for the exchange ratio in the
merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER (PAGE 57)
After the merger, the Richmond County board of directors will be made up of the
directors on the board immediately before the merger, plus Patrick F.X. Nilan.
Mr. Nilan is currently Chairman of the Bayonne board of directors. Mr. Nilan
will serve on the Richmond County board until the year 2000. The remainder of
Bayonne's board of directors who desire to do so will serve on an advisory board
after the merger.
WHAT WE NEED TO DO TO COMPLETE THE MERGER (PAGE 58)
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 both the Richmond County stockholders and
the Bayonne stockholders.
2. Approval of the merger by the Federal Deposit Insurance Corporation, the
Office of Thrift Supervision, the Superintendent of Banks of New York
State, and the Commissioner of the New Jersey Department of Banking and
Insurance.
We have 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 Bayonne of a legal opinion from their
respective tax counsel that, for United States federal income tax
purposes, Bayonne stockholders who exchange their shares for shares of
Richmond County common stock will not recognize any gain or loss as a
result of the merger, except in connection with the payment of cash
instead of fractional shares. These opinions will be subject to various
limitations and we recommend that you read the fuller description of tax
consequences provided in this document beginning at page 65.
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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 Bayonne common stock.
5. The absence of any injunction or legal restraint blocking the merger or
government proceedings trying to block the merger.
Where the law permits, Richmond County or Bayonne 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 (PAGE 64)
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
and that denial has become final, or if any government authority issues
an order that blocks 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 failure to obtain a
governmental or regulatory approval, consent or waiver, in which case the
termination date would be extended to July 31, 1999.
3. One party breaches the agreement in a way that would entitle the other
party to terminate, as long as the party seeking to terminate the
agreement has not also violated the agreement.
4. Richmond County's and/or Bayonne's stockholders do not approve the
merger.
Bayonne can also terminate the agreement if the price of Richmond County common
stock is less than $15.41 and has declined by more than 15% compared to a select
group of its peers during a period prior to the anticipated closing. If Bayonne
elects to terminate on this basis, Richmond County may prevent termination by
increasing the number of shares of Richmond County stock to be received by
Bayonne stockholders.
Regardless of whether the merger is completed, we will each pay our own fees and
expenses, except that we will evenly divide the costs and expenses that we have
incurred in printing and mailing this document and the registration fees that we
will have to pay to the SEC.
WAIVING AND AMENDING PROVISIONS OF THE AGREEMENT (PAGE 64)
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 Bayonne stockholders. In those cases, the
stockholders negatively impacted by the change would have to approve the
amendment or waiver.
BAYONNE MERGER STOCK OPTION AGREEMENT (PAGE 67)
At the request of Richmond County, Bayonne entered into a stock option agreement
granting Richmond County an option to purchase 1,809,804 shares of Bayonne
common stock.
Richmond County cannot exercise its option unless certain events occur. These
events include the merger of Bayonne 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.
The most shares that can be purchased if the option is exercised is 19.9% of the
total number of outstanding shares of Bayonne common stock. The purchase price
per share under the option agreement is $15.50 per share.
Bayonne granted the option to increase the likelihood that we would complete the
merger. The option agreement could discourage other companies from trying or
proposing to combine with Bayonne before we complete the merger.
THE IRONBOUND MERGER (PAGE 69)
In a separate and unrelated transaction, Richmond County is also acquiring
Ironbound Bankcorp, NJ. Ironbound is a New Jersey bank
5
<PAGE>
holding company. It operates 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 $115.3 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 or Bayonne stockholders.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF
RICHMOND COUNTY AND BAYONNE
(UNAUDITED)
The following tables show summarized historical financial data for each of
us.
The information in the following tables is based on historical financial
information that we have presented in our prior SEC 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 79. The historical financial statements of Richmond County
and Bayonne are incorporated by reference into this document. See "WHERE YOU
CAN FIND MORE INFORMATION."
Because Richmond County's fiscal year ends on June 30 and Bayonne's fiscal
year ends on March 31, the financial data for Bayonne for the three months ended
September 30 have been presented to coincide with the fiscal reporting period
for Richmond County. Following the merger, the combined company's fiscal year,
like that of Richmond County, will end on June 30.
Richmond County was organized under Delaware law in September 1997.
Therefore, all financial information contained herein for periods prior to
December 31, 1997 relates solely to Richmond County Savings Bank. Richmond
County's audited annual historical financial statements were audited by Ernst &
Young LLP, independent certified public accountants, and Bayonne's audited
annual historical financial statements were audited by KPMG LLP, independent
certified public accountants.
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, 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 CONDITION DATA:
Total assets...................... $1,692,615 $ 1,023,780 $ 1,595,844 $ 993,370 $ 914,483 $851,751 $825,663
Federal funds sold................ 4,200 4,000 26,000 6,000 20,000 18,000 17,500
Debt and equity securities, net:
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 20,375 -- 15,550 -- -- -- --
New York stock.................
Intangible assets................. 1,130 1,447 1,209 1,527 1,802 2,115 2,428
Deposits.......................... 953,506 887,489 950,808 885,818 819,216 766,231 750,216
Borrowings........................ 400,000 25,639 306,000 -- -- -- --
Stockholders' equity.............. 329,826 104,253 328,595 100,865 89,901 81,166 73,550
SELECTED OPERATING DATA:
Interest income................... 27,662 17,754 86,754 65,781 59,063 54,321 51,608
Interest expense.................. 12,599 7,596 37,512 27,707 26,254 22,456 20,207
---------- ----------- ----------- --------- --------- -------- --------
Net interest income before
provision for possible
loan losses................. 15,063 10,158 49,242 38,074 32,809 31,865 31,401
Provision for possible loan
losses......................... 750 450 2,200 1,080 1,600 600 859
---------- ----------- ----------- --------- --------- -------- --------
Net interest income after
provision for possible
loan losses................. 14,313 9,708 47,042 36,994 31,209 31,265 30,542
---------- ----------- ----------- --------- --------- -------- --------
Non-interest income............... 1,844 817 3,601 2,861 2,827 2,659 2,961
Non-interest expense.............. 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 Conversion..... $ .22 N/A $ (0.16) N/A N/A N/A N/A
========== ===========
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE
THREE MONTHS ENDED
SEPTEMBER 30, AT OR FOR THE YEAR ENDED JUNE 30,
-------------------- --------------------------------------------
1998 1997 1998 1997 1996 1995 1994
------- ---------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
RATIOS AND OTHER DATA (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 18.94 114.99 113.96 111.64
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 93.59 177.32 175.67 181.65
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 41.09 125.55 109.35 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
Richmond County Savings 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>
BAYONNE BANCSHARES, INC.
SELECTED HISTORICAL UNAUDITED FINANCIAL AND OTHER DATA
(In thousands, except per share amounts)
Listed below are selected financial and other data of Bayonne. This
information is derived in part from and should be read in conjunction with the
Consolidated Financial Statements of Bayonne and the Notes to those statements
included in Bayonne's Form 10-K, as amended, as of March 31, 1998. The selected
financial and other data at or for the six month periods ended September 30,
1998 and 1997 are unaudited. However, in the opinion of management, all
adjustments, consisting only of normal recurring accruals, necessary for a fair
presentation at such dates and for such periods have been made. The results of
operations for the six-month period ended September 30, 1998, are not
necessarily indicative of results that may be expected for a full fiscal year.
At the time of First Savings' reorganization into a mutual holding company
structure in 1995, First Savings changed its fiscal year-end from May 31 to
March 31. At June 30, 1998, Bayonne had total assets of $700.0 million,
deposits of $422.0 million and stockholders' equity of $96.0 million. Net
income for the three months ended June 30, 1998 was $1.1 million, compared to
$838,000 for the three months ended June 30, 1997.
Loans receivable, net, excludes loans to joint ventures of First Savings'
subsidiaries. U.S. Government and agency obligations, net of valuation allowance
at September 30, 1998 and 1997, March 31, 1998, 1997, 1996 and 1995 and May 31,
1994 includes $80.3 million, $61.1 million, $61.1 million, $69.5 million, $67.6
million, $92.6 million, $64.3 million and $64.1 million of those securities, net
of valuation allowances classified as available for sale, and $7.9 million, $7.9
million, $7.9 million, $8.9 million, $8.9 million, $83.7 million and $82.7
million, respectively, of those securities were classified as held to maturity.
Mortgage securities include mortgage-backed securities and mutual funds that
invest primarily in mortgage-backed securities, net of valuation allowance. At
September 30, 1998 and 1997 and March 31, 1998, 1997, 1996 and 1995 and May 31,
1994, all such securities were classified as available for sale.
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31, MAY 31,
----------------- -------------------------------------- --------
1998 1997 1998 1997 1996 1995 1994
-------- ------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
CONDITION DATA:
Total assets....................... $672,657 $609,053 $646,058 $577,004 $651,945 $512,126 $547,550
Cash and cash equivalents.......... 3,047 14,221 16,617 15,472 11,791 6,111 47,839
Loan receivable, net:
Real estate..................... 278,802 203,262 208,723 207,262 198,658 197,240 172,552
Consumer........................ 29,987 28,558 26,742 28,362 25,370 21,314 16,428
-------- -------- -------- -------- -------- -------- --------
Total loans receivable, net.. 308,789 231,820 235,465 235,624 224,028 218,554 188,980
U.S. Government and agency 88,208 76,931 77,446 76,489 101,729 148,062 146,806
obligations, net of valuation
allowance.......................
Mortgage securities, net........... 244,179 262,646 274,652 222,980 289,848 117,205 141,271
Deposits........................... 420,749 432,131 423,545 444,139 445,424 444,380 471,681
Borrowed funds..................... 147,022 75,489 115,380 75,598 151,334 15,032 --
Stockholders' equity............... 95,152 95,161 98,649 48,079 49,519 46,625 34,066
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TEN
MONTHS YEAR
THREE MONTHS ENDED ENDED ENDED
SEPTEMBER 30, YEARS ENDED MARCH 31, MARCH 31, MAY 31,
------- ------- ---------------------------------------- -------
1998 1997 1998 1997 1996 1995(1) 1994
------- ------- ------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED CONSOLIDATED OPERATING
DATA:
Total interest and dividend income..... $11,137 $10,293 $40,860 $41,126 $37,309 $28,431 $35,616
Total interest expense................. 6,735 6,429 24,872 27,469 23,842 15,831 20,795
------- ------- ------- ------- ------- ------- -------
Net interest income (8)............. 4,402 3,864 15,988 13,657 13,467 12,600 14,821
Provision for loan losses (8).......... 75 45 180 320 450 350 500
------- ------- ------- ------- ------- ------- -------
Net interest income after 4,327 3,819 15,808 13,337 13,017 12,250 14,321
provision for loan losses (8).... ------- ------- ------- ------- ------- ------- -------
Other income (loss):
Loan fees and service charges....... 69 63 238 294 307 285 428
Deposit fees........................ 159 147 611 576 327 256 305
Gain (loss) on sale of securities
available for sale, net (2)...... 197 (5) (5) (2,878) (2,217) (547) 262
Income from subsidiary.............. 69 26 204 168 251 85 18
Gain (loss) on sale of real estate
acquired in settlement of loans.. (8) (1) (9) (92) (7) -- 62
Other............................... 52 53 304 136 126 49 705
------- ------- ------- ------- ------- ------- -------
Total other income (loss) (8).... 538 283 1,343 (1,796) (1,213) 128 1,780
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Compensation and employee 1,588 1,476 5,619 7,184 5,821 4,674 4,735
benefits.........................
Occupancy and equipment............. 310 311 1,179 1,201 1,211 1,000 1,035
Data processing service 210 207 821 707 683 488 585
expense..........................
Savings Association Insurance -- -- -- 2,895 -- -- --
Fund assessment (3)..............
Federal insurance premiums.......... 134 142 569 974 1,163 990 1,210
Other............................... 526 428 1,982 1,641 1,937 1,799 1,951
------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 2,768 2,564 10,170 14,602 10,815 8,951 9,516
------- ------- ------- ------- ------- ------- -------
Income/(loss) before income tax 2,097 1,538 6,981 (3,061) 989 3,427 6,585
expenses and cumulative effect
of accounting changes...............
Income tax expense..................... 776 569 2,602 154 374 1,236 2,247
------- ------- ------- ------- ------- ------- -------
Income/(loss) before cumulative 1,321 969 4,379 (3,215) 615 2,191 4,338
effect of accounting changes........
Cumulative effect of accounting
changes:
Income taxes........................ -- -- -- -- -- -- 400
Postretirement benefits............. -- -- -- -- -- -- (1,216)
Investments......................... -- -- -- -- -- -- 471
------- ------- ------- ------- ------- ------- -------
Net income/(loss) (8)............ $ 1,321 $ 969 $ 4,379 $(3,215) $ 615 $ 2,191 $ 3,993
======= ======= ======= ======= ======= ======= =======
Basic earnings/(loss) per share........ $ 0.15 $ 0.11 $ 0.49 $ (0.37) $ 0.07 N/A(4) N/A(4)
======= ======= ======= ======= =======
Diluted earnings/(loss) per share...... $ 0.15 $ 0.11 $ 0.49 $ (0.37) $ 0.07 N/A(4) N/A(4)
======= ======= ======= ======= =======
</TABLE>
(continued on next page)
12
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE TEN
THREE MONTHS MONTHS YEAR
ENDED ENDED ENDED
SEPTEMBER 30, (9) YEARS ENDED MARCH 31, MARCH 31, MAY 31,
--------- ------ ----------------------- ----------- ---------
1998 1997 1998 1997 1996 1995 1994
--------- ------ ----- ------ ------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER
DATA:
Performance ratios:
Equity to assets at period end (7)........ 14.15% 15.62% 15.27% 8.33% 7.60% 9.10% 6.22%
Net interest rate spread (difference
between average yield on interest-
earning assets and average cost of
interest-bearing liabilities) (7)...... 2.05 2.12 2.18 1.99 2.16 2.92 2.52
Net interest margin (net interest income
as a percentage of average interest-
earning assets) (7).................... 2.66 2.63 2.72 2.28 2.48 3.12 2.71
Return on average assets (net income
divided by average total assets) (7).. 0.78 0.64 0.72 (0.52) 0.11 0.52 0.71
Return on average equity (net income
divided by average equity) (7)......... 5.53 6.85 5.82 (6.56) 1.20 7.06 10.22
Dividend payout ratio (5)................. 41.67% 38.64% 24.64% N/A(4) 38.0% N/A(4) N/A(4)
Stockholders' equity to average assets
ratio (average stockholders' equity
divided by average total assets)....... 14.04 9.30 12.39 7.90 9.08 7.30 6.92
Total other income to average
assets (7)............................. 0.32 0.19 0.22 (0.29) (0.21) 0.03 0.31
Total operating expenses to average
assets (6) (7)......................... 1.63 1.69 1.68 1.87 1.91 1.76 1.68
Net interest income to total operating
expense (6)............................ 1.59x 1.51x 1.57x 1.18x 1.25x 1.41x 1.56x
Net interest income after provision for
loan losses, to total operating
expense (6)............................ 1.56x 1.49x 1.55x 1.15x 1.20x 1.37x 1.51x
Average interest-earning assets to
average interest-bearing
liabilities (7)........................ 1.15x 1.12x 1.13x 1.06x 1.07x 1.05x 1.05x
Asset quality ratios:
Loans 90 days or more past due to net
loans.................................. 1.39% 2.77% 1.62% 2.38% 2.66% 2.55% 3.64%
Loans 90 days past due and other
nonperforming assets to total assets... 0.71% 1.05% 0.64% 1.08% 1.00% 1.29% 1.53%
Allowance for loan losses to loans 90
days past due and other
nonperforming assets................... 63.43% 50.56% 71.21% 50.66% 45.54% 40.62% 34.74%
Allowance for loan losses as a percent
of net loans receivable at end of
period................................. 0.98% 1.40% 1.25% 1.34% 1.33% 1.22% 1.54%
Regulatory capital ratios:
Tangible capital (7)...................... 12.24% 11.99% 12.01% 8.99% 8.48% 10.83% 6.22%
Core capital (7).......................... 12.24 11.99 12.01 8.99 8.48 10.83 6.22
Risk-based capital (7).................... 27.30 34.67 33.85 25.31 26.10 32.21 20.61
Number of full-service offices............... 4 4 4 4 4 4 4
</TABLE>
(footnotes on next page)
13
<PAGE>
_______________________
(1) At the time of its 1995 reorganization, First Savings Bank changed its
fiscal year end from May 31 to March 31.
(2) The loss on securities available for sale in 1997 and 1996 resulted from
the sale of investment securities as part of First Savings Bank
restructuring of its investment portfolio.
(3) Reflects the Savings Association Insurance Fund's Special Assessment of
$2.9 million as of September 30, 1996.
(4) Not applicable.
(5) Aggregate dividends per share divided by net income per share.
(6) Total operating expense does not include income tax expense, the
provision for loan losses or the Savings Association Insurance Fund
Special Assessment.
(7) At June 30, 1998 Bayonne had an equity to assets ratio of 13.10%, a net
interest rate spread ratio of 2.00%, a net interest rate margin ratio of
2.61%, a return on average assets ratio of .67%, a return on average
equity ratio of 4.56%, a total other income to assets ratio of .19, a
total operating expenses to average assets ratio of 1.64%, an average
interest-earning assets to average interest-bearing liabilities ratio of
1.15x, a tangible capital ratio of 11.42%, a core capital ratio of 11.42%
and a risk-based capital ratio of 25.9%.
(8) Net interest income was $4.2 million for the quarter ended June 30, 1998
compared to $3.6 million for the comparable prior year quarter. Non-
interest income totalled $311,000 for the three months ended June 30,
1998, compared to $398,000 for the quarter ended June 30, 1997. Total
interest expense was $6.4 million for the three months ended June 30,
1998, compared to $6.3 million for the three months ended June 30, 1997.
The provision for loan losses totalled $50,000 for the three months ended
June 30, 1998 as compared to $45,000 for the prior year's three month
period.
(9) Annualized where appropriate.
UNAUDITED PRO FORMA COMBINED SELECTED
FINANCIAL INFORMATION
The following unaudited pro forma combined selected financial information
combine Richmond County's historical results with Bayonne's historical results
as if the Bayonne merger had become effective as of the dates indicated in the
case of the balance sheet information presented, and as if the Bayonne merger
had become effective at the beginning of the periods indicated in the case of
the income statement information presented. We refer to this as "pro forma"
information. In addition, because the Bayonne merger and the Ironbound merger
are expected to be completed during the same time period, the following pro
forma tables reflect the Bayonne merger and the Ironbound merger. The pro forma
---
information in the tables assumes that the Bayonne merger and the Ironbound
merger are accounted for using the purchase method of accounting.
The merger will be accounted for as a "purchase," which means that the
purchase price will be allocated to assets acquired and liabilities assumed
based on their estimated fair values at the time the companies are combined.
For a more detailed description of purchase accounting, see "THE BAYONNE MERGER-
- -Accounting Treatment of the Merger."
Because Richmond County's fiscal year ends on June 30, Bayonne's fiscal
year ends on March 31, and Ironbound Bankcorp, NJ's ends on December 31, the
financial data for Bayonne and Ironbound Bankcorp, NJ for the three months ended
September 30 have been presented to coincide with the fiscal reporting period
for Richmond County. Following the Bayonne merger, the combined company's
fiscal year, like that of Richmond County, will end on June 30.
When reviewing these tables, you should also read the historical financial
statements, including their notes, of Richmond County and Bayonne. See "WHERE
YOU CAN FIND MORE INFORMATION" on page 18 of this document. You should also
read the more detailed pro forma financial information, including their notes,
that are found on page 79 of this document.
This information is presented for informational purposes only. You should
not assume that Richmond County, Bayonne and Ironbound would have achieved the
combined pro forma results if they had actually been combined during the periods
shown.
There may be certain cost savings and/or revenue enhancements that will
result from the Bayonne merger and the Ironbound merger. The information
furnished in these tables does not reflect either the cost savings or the
revenue enhancements.
14
<PAGE>
SELECTED UNAUDITED PRO FORMA FINANCIAL DATA
OF RICHMOND COUNTY, IRONBOUND AND BAYONNE
<TABLE>
<CAPTION>
AT
SEPTEMBER 30,
1998
-------------
<S> <C>
PRO FORMA CONDENSED COMBINED BALANCE SHEET:
Total assets................................. $2,522,691
Long term borrowings......................... 548,582
Total stockholders' equity................... 478,377
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
1998 1998
------------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME :
Net interest income after provision for loan losses...... $19,808 $67,596
Net income............................................... 6,378 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 Richmond County Savings' conversion.
15
<PAGE>
COMPARATIVE PER SHARE DATA
(UNAUDITED)
The following table sets forth information about our earnings per share,
dividends per share and book value per share, and similar information reflecting
the Bayonne merger. In addition, we have included similar information relating
to the Ironbound merger. You can use this table to understand how the Bayonne
merger and the Ironbound 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 together
with the historical financial statements and related notes contained in the
annual reports and other information that Richmond County and Bayonne have
either attached to this document or have filed previously with the SEC. See
"WHERE YOU CAN FIND MORE INFORMATION" on page 18.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, JUNE 30,
1998 1998
------------- ----------
<S> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE (1):
Richmond County................................ $ 0.22 $(0.16) (4)
Bayonne........................................ 0.15 0.49
Richmond County pro forma (with Bayonne only).. 0.18 0.21
Bayonne pro forma equivalent................... 0.19 0.22
Bayonne pro forma equivalent with Ironbound.... 0.19 0.24
DILUTED EARNINGS (LOSS) PER SHARE (1):
Richmond County................................ $ 0.22 $(0.16) (4)
Bayonne........................................ 0.15 0.49
Richmond County pro forma (with Bayonne only).. 0.18 0.21
Bayonne pro forma equivalent................... 0.19 0.23
Bayonne pro forma equivalent with Ironbound.... 0.19 0.24
CASH DIVIDENDS DECLARED PER SHARE (2):
Richmond County................................ $0.070 $0.110
Bayonne........................................ 0.063 0.170
Richmond County pro forma (with Bayonne only).. 0.070 0.110
Bayonne pro forma equivalent................... 0.074 0.116
Bayonne pro forma equivalent with Ironbound.... 0.074 0.116
BOOK VALUE PER SHARE AT PERIOD END (3):
Richmond County................................ $12.48 $12.44
Bayonne........................................ 10.43 10.85
Richmond County pro forma (with Bayonne only).. 12.58 N/A
Bayonne pro forma equivalent................... 13.21 N/A
Bayonne pro forma equivalent with Ironbound.... 12.78 N/A
TANGIBLE BOOK VALUE PER SHARE AT PERIOD END:
Richmond County................................ $12.44 $12.39
Bayonne........................................ 10.43 10.85
Richmond County pro forma (with Bayonne only).. 11.78 N/A
Bayonne pro forma equivalent................... 12.37 N/A
Bayonne pro forma equivalent with Ironbound.... 12.16 N/A
</TABLE>
____________________
(1) The pro forma combined net income per share of Richmond County common
stock is based upon the combined historical net income for Richmond
County and Bayonne for the periods indicated divided by the average pro
forma fully diluted common share of the combined entities.
(2) Richmond County pro forma cash dividends per share represent historical
cash dividends declared by Richmond County and assumes no changes in cash
dividends declared per share. Bayonne pro forma equivalent cash
dividends per share represent such amounts multiplied by the exchange
ratio of 1.05.
(3) Richmond County pro forma stated and tangible book value per share
amounts are based on the historical total stockholders' equity of the
combined entity divided by the total pro forma common shares of the
combined entity based on the exchange ratio of 1.05. The Bayonne pro
forma equivalent stated book value and tangible book value per share
amounts are computed by multiplying the Richmond County pro forma amounts
by the exchange ratio of 1.05.
(4) Richmond 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 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. See "WHERE YOU CAN FIND MORE INFORMATION."
BAYONNE
Bayonne is a savings and loan holding company organized under the laws of
the State of Delaware in 1997. Bayonne's wholly owned subsidiary, First Savings
Bank of New Jersey, SLA, operates four banking offices and one financial center
in Bayonne, New Jersey. First Savings is a New Jersey savings association which
has operated since 1889. First Savings' deposits are insured by the Savings
Association Insurance Fund of the FDIC.
In January 1995, First Savings reorganized from a New Jersey chartered
mutual savings and loan association into the federal mutual holding company form
of organization. In connection with the 1995 reorganization, First Savings
became a New Jersey chartered stock savings association and issued approximately
54% of its outstanding common stock to Bayonne Bankshares, M.H.C., a federal
mutual holding company. First Savings sold the remaining shares of outstanding
common stock to certain members of the general public.
In August 1997, First Savings and Bayonne MHC completed a conversion and
reorganization from the mutual holding company to the stock holding company form
of organization. Through the second-step conversion, First Savings formed
Bayonne and as the result of a series of corporate reorganizations became a
wholly owned subsidiary of Bayonne. Bayonne exchanged 2.933 shares of its
common stock for each share of common stock of First Savings held by public
stockholders and sold an additional 4.8 million shares of its common stock to
members of the general public. The shares of First Savings common stock held by
Bayonne MHC were cancelled and the separate corporate existence of Bayonne MHC
was terminated.
At September 30, 1998, Bayonne had total assets of $672.7 million, deposits
of $420.7 million and stockholders' equity of $95.2 million.
For more information about Bayonne, reference is made to the 1998 Bayonne
Form 10-K. The Bayonne Form 10-K is incorporated by reference into this
document. See "WHERE YOU CAN FIND MORE INFORMATION."
17
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Richmond County and Bayonne file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission. You may read and copy any reports, statements or other information
that the companies file at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-
0330 for further information on the public reference rooms. Richmond County and
Bayonne public filings are also available to the public from commercial document
retrieval services and at the Internet World Wide Website maintained by the SEC
at "http://www.sec.gov."
Richmond County has filed the registration statement to register with the
SEC the shares of Richmond County common stock to be issued to Bayonne
stockholders in the merger. This prospectus is a part of the registration
statement and constitutes a prospectus of Richmond County, a proxy statement of
Richmond County for the Richmond County special meeting and a proxy statement of
Bayonne for the Bayonne annual meeting.
As allowed by SEC rules, this document does not contain all the information
that stockholders can find in the registration statement or the exhibits to the
registration statement.
The SEC allows Richmond and Bayonne to "incorporate by reference"
information into this document, which means that Richmond County and Bayonne can
disclose important information to you by referring you to another document filed
separately with the SEC. The information incorporated by reference is deemed to
be part of this document, except for any information superseded by information
contained directly in the document. This document incorporates by reference
other documents which are listed below that Richmond and Bayonne have previously
filed with the SEC. The documents contain important information about their
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
BAYONNE SEC FILINGS (FILE NO. 0-22499)
Registration Statement on Form 8-A Dated April 30, 1997
Annual Report on Form 10-K Year ended March 31, 1998
Amended Annual Report on Form 10-K/A Year ended March 31, 1998
Quarterly Report on Form 10-Q Three months ended June 30, 1998
Quarterly Report on Form 10-Q Three months ended September 30, 1998
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/A Dated October 16, 1998
Richmond County and Bayonne incorporated by reference additional documents
that they might file with the SEC between the date of this prospectus and the
date of their meetings. These include periodic reports, such as Annual Reports
on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as
well as proxy statements. The Bayonne Annual Report on Form 10-K for the Year
Ended March 31, 1998 as well as subsequent quarterly reports on Forms 10-Q, and
any amendments to these forms, are also being mailed along with this document to
Bayonne stockholders.
Richmond County has supplied all information contained or incorporated by
reference in this document relating to Richmond County.
18
<PAGE>
Bayonne has supplied all information contained or incorporated by reference
in this document relating to Bayonne.
If you are a stockholder of Richmond County or Bayonne, as the case may be,
we may have sent you some of the documents incorporated by reference, but you
can obtain any of them through Richmond County or Bayonne, as the case may be,
or the SEC or the SEC's Internet World Wide Website described above.
Documents incorporated by reference are available from the companies
without charge, excluding all exhibits unless specifically incorporated by
reference as an exhibit to this prospectus. Stockholders of Richmond County or
Bayonne may obtain documents incorporated by reference in this prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Attention: Thomas R. Cangemi, Corporate Secretary
Telephone No. (718) 448-2800
Bayonne Bancshares, Inc.
568 Broadway
Bayonne, New Jersey 07002
Attention: Thomas Coughlin, Corporate Secretary
Telephone No. (201) 437-1000
If you would like to request documents from either company, please do so by
February 12, 1999 to receive them before the Richmond County special meeting
and/or Bayonne annual 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 Richmond County meeting
and/or Bayonne meeting. Richmond County and Bayonne have not authorized anyone
to provide you with information that is different from what is contained in this
document. This prospectus is dated January 28, 1999. You should not assume
that the information contained in the prospectus is accurate as of any date
other than that date, and neither the mailing of this document to 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
have been 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
any other written or oral statements made by or on behalf of Richmond County and
Bayonne may include forward-looking statements with respect to the financial
condition, results of operations and business of Richmond County and Bayonne,
based on management's belief and information currently available to management.
Such forward-looking statements are subject to risks, uncertainties and
assumptions. Actual results may vary materially from those anticipated,
estimated, projected or expected. Among, but not limited to, the factors that
may cause variations from such forward-looking statements are:
19
<PAGE>
. fluctuations in the economy, especially in the market areas of
Richmond County and its proposed acquisition entities;
. changes in the interest rate environment;
. Richmond County's ability to realize anticipated cost savings relating
to pending acquisitions;
. Richmond County's success in assimilating acquired operations in
Richmond County's culture, including its ability to instill Richmond
County's credit culture into acquired operations;
. the continued growth of the markets in which Richmond County operates;
and
. the enactment of legislation impacting Richmond County.
Readers are cautioned not to place undue reliance on any forward-looking
statements made by or on behalf of Richmond County and Bayonne. Additional
information with respect to factors that may cause the results to differ
materially from those contemplated by such forward-looking statements is
included in Richmond County's and Bayonne's current and subsequent filings with
the SEC.
20
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
Richmond County common stock is listed on the Nasdaq National Market under
the symbol "RCBK." Bayonne common stock is listed on the Nasdaq National Market
under the symbol "FSNJ."
The following table lists the high and low prices per share for Richmond
County common stock and Bayonne common stock as reported on the Nasdaq National
Market and the quarterly cash dividends declared by each company for the periods
indicated. Richmond County common stock began trading on the Nasdaq National
Market on February 18, 1998. After the second-step conversion of Bayonne, the
common stock of Bayonne began trading on the Nasdaq National Market in August,
1997.
<TABLE>
<CAPTION>
RICHMOND COUNTY
COMMON STOCK BAYONNE COMMON STOCK
----------------------------- -----------------------------
HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
-------- ----- --------- -------- ----- ---------
<S> <C> <C> <C> <C> <C> <C>
1997
Quarter ended March 31....... N/A N/A N/A $ 8.35 $ 7.16 $.0425
Quarter ended June 30........ N/A N/A N/A 9.21 7.93 .0425
Quarter ended September 30... N/A N/A N/A 13.06 9.20 .0425
Quarter ended December 31.... N/A N/A N/A 13.38 11.63 .0425
1998
Quarter ended March 31....... $19.63 $15.68 $0.05 $14.88 $12.06 $.0425
Quarter ended June 30........ 19.75 17.75 0.06 17.38 15.25 .0625
Quarter ended September 30... 18.69 11.88 0.07 17.13 10.00 .0625
Quarter ended December 31.... 17.13 11.31 0.08 17.56 10.63 .0625
1999
Quarter ended March 31 $16.44 $15.00 N/A(1) $16.75 $15.38 N/A(1)
(As of January 19, 1999)..
</TABLE>
___________________
(1) As of January 19, 1999, neither Richmond County nor Bayonne 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, Bayonne common stock and the equivalent per share price for
Bayonne common stock giving effect to the merger on (1) October 13, 1998, which
is the last business day preceding the public announcement of the amendments to
the merger agreement, and (2) January 19, 1999, which is the last practicable
trading day prior to the mailing of this document. The equivalent per share
price of Bayonne common stock was computed by multiplying the price of Richmond
County common stock by the 1.05 exchange ratio.
<TABLE>
<CAPTION>
EQUIVALENT
PRICE PER
SHARE OF
RICHMOND COUNTY BAYONNE BAYONNE
COMMON STOCK COMMON STOCK COMMON STOCK
--------------- ------------ ------------
<S> <C> <C> <C>
October 13, 1998.......... $12.25 $12.00 $12.86
January 19, 1999.......... $15.81 $16.13 $16.60
</TABLE>
You should obtain current market quotations for Richmond County common
stock and Bayonne common stock as the market price of Richmond County common
stock will continue to fluctuate between the date of this document and the date
on which the Bayonne merger is completed and thereafter. Because the number of
shares of Richmond County common stock that Bayonne 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 holders
of Bayonne common stock would receive in the merger may increase or decrease
prior to the merger. See "THE BAYONNE MERGER--Bayonne Stockholders Will Receive
1.05 Shares of Richmond County Common Stock for Each Bayonne Share" and "--
Waiving and Amending Provisions in, or Terminating, the Merger Agreement."
21
<PAGE>
THE STOCKHOLDERS' MEETINGS
MEETING OF RICHMOND COUNTY STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
The Richmond County meeting will be held at the Columbian Lyceum, 386 Clove
Road, Staten Island, New York 10310, on February 25, 1999 at 10:00 a.m., local
time. At this meeting, Richmond County's stockholders will be asked to vote
upon:
. a proposal to approve and adopt the merger agreement;
. the ratification of amendments to the Richmond County Financial Corp.
1998 Stock-Based Incentive Plan; and
. other matters properly brought before the Richmond County meeting.
A copy of the merger agreement is attached as Annex A. A copy of the
proposed amended Richmond County incentive plan is attached as Annex E.
THE RICHMOND COUNTY 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 RICHMOND COUNTY AND ITS STOCKHOLDERS. THE RICHMOND
COUNTY BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT RICHMOND COUNTY'S
STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE MERGER AGREEMENT. IN
ADDITION, THE RICHMOND COUNTY BOARD HAS DETERMINED THAT THE AMENDMENTS TO THE
RICHMOND COUNTY 1998 STOCK-BASED INCENTIVE PLAN DESCRIBED IN THIS DOCUMENT ARE
IN THE BEST INTERESTS OF RICHMOND COUNTY AND ITS STOCKHOLDERS AND UNANIMOUSLY
RECOMMENDS THAT RICHMOND COUNTY STOCKHOLDERS VOTE "FOR" THE AMENDMENTS TO THE
RICHMOND COUNTY STOCK-BASED INCENTIVE PLAN.
See "THE BAYONNE MERGER--Background of the Merger" and "--Recommendation of
the Richmond County Board; Richmond County's Reasons for the Merger."
Additional information on the ratification of certain amendments to the
Richmond County Incentive Plan is included under "ADDITIONAL MATTERS TO BE
CONSIDERED AT THE RICHMOND COUNTY MEETING."
WHO CAN VOTE ON MATTERS ADDRESSED IN THIS DOCUMENT
The Richmond County board has fixed January 19, 1999 as the record date for
determining which stockholders are entitled to notice of and to vote at the
Richmond County meeting. Only holders of record of Richmond County common stock
at the close of business on the record date will be entitled to notice and to
vote. As of the record date, there were 25,192,550 shares of Richmond County
common stock outstanding and entitled to be voted.
PROXIES; VOTING AND REVOCATION OF PROXIES
Each record holder of Richmond County common stock on the record date is
entitled to cast one vote for each share of stock owned. However, Richmond
County's Certificate of Incorporation provides that record holders of common
stock who own or may be considered to own more than 10% of the outstanding
shares of common stock can only vote their stock up to the 10% limit. The limit
includes shares which people have the right to acquire through any agreement or
the exercise of any rights, warrants or options.
The presence, either in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of Richmond County common stock
entitled to vote at the meeting is necessary to constitute a quorum. To
determine if a quorum exists Richmond County will count shares of common stock
present in person at the meeting but not voted, and shares of stock for which it
has received proxies but with respect to which holders have abstained on any
matter, as present at the meeting. Because the
22
<PAGE>
approval and adoption of the merger agreement requires the affirmative vote of
the holders of a majority of the outstanding shares of common stock entitled to
vote, each non-voting share and abstention will have the effect of a vote
against the merger agreement. In addition, brokers who hold shares in street
name for customers who own or may be considered to be the owners of those shares
are prohibited from giving a proxy to vote shares held for those customers
without specific instructions from such customers. Given that the approval and
adoption of the merger agreement requires a majority vote, the failure to
provide specific instructions to a broker with respect to shares (a "broker non-
vote") will be counted as a vote against the merger agreement.
Shares of Richmond County common stock represented at the meeting by
properly executed proxies received prior to or at the meeting, and which are not
revoked, will be voted as instructed on the proxies. If no instructions are
indicated, the proxies will be voted:
. "FOR" approval and adoption of the merger agreement;
. "FOR" the ratification of the amendments to the Richmond County 1998
Stock-Based Incentive Plan; 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. Richmond
County does not know of any other matters to be presented at the meeting.
Richmond County stockholders who grant their proxy can revoke the proxy
before it is voted by:
. delivering to the Corporate Secretary of Richmond County, at or before
the taking of the vote at the meeting, a written notice of revocation
bearing a later date than the date of the proxy;
. executing a later-dated proxy relating to the same shares and
delivering it to the Corporate Secretary of Richmond County before the
taking of the vote at the meeting; or
. attending the meeting and voting in person. Attendance at the meeting
will not in and of itself constitute revocation of the proxy.
Any written notice of revocation or subsequently executed proxy should be
delivered to Richmond County Financial Corp., 1214 Castleton Avenue, Staten
Island, New York 10310, Attention: Corporate Secretary, or hand delivered to
Richmond County's Corporate Secretary at 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 THE MEETING. Examples of such documentation include a broker's
- --------------------------
statement, letter or other document confirming your ownership of shares.
Richmond County will pay for the solicitation of proxies from the holders
of Richmond County's stock. Proxies may be solicited by mail, by directors,
officers and employees of Richmond County in person or by telephone, telegram or
other means of communication. Directors, officers and employees who solicit
proxies will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses they incur in the solicitation. Richmond
County has retained Kissel-Blake, Inc., a proxy soliciting firm, to assist in
the solicitation. The fee to be paid to Kissel-Blake is not expected to exceed
$5,000, plus reasonable out-of-pocket costs and expenses. Further, Richmond
County will make arrangements with brokerage firms and other custodians,
nominees and fiduciaries to send proxy materials to their principals and will
reimburse those parties for their expenses in doing so.
23
<PAGE>
HOLDERS OF RICHMOND COUNTY COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE,
SIGN AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO RICHMOND
COUNTY IN THE ENCLOSED POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
VOTE REQUIRED; PRINCIPAL STOCKHOLDERS
The approval and adoption of the merger agreement by Richmond County
stockholders will require at least a majority vote for the merger from the
outstanding shares of common stock. STOCKHOLDER APPROVAL IS A CONDITION TO
CLOSING THE MERGER.
The ratification of certain amendments to the Richmond County 1998 Stock-
Based Incentive Plan will require a majority of the votes cast by Richmond
County stockholders. Shares as to which the "Abstain" box has been selected on
the proxy card will be counted as present and entitled to vote and have the
effect of a vote against the matter. In contrast, shares underlying broker non-
votes or in excess of the Richmond County limit will have no effect on the vote
on the item.
As of September 30, 1998, directors and executive officers of Richmond
County, and persons closely associated with them, may be deemed to have owned
and were entitled to vote 282,317 shares of Richmond County common stock. This
equals 1.10% of the outstanding common stock that may be voted at the Richmond
County meeting. This figure does not include shares which may be acquired
through stock options under the Richmond County stock incentive plan. These
persons have informed Richmond County that they intend to vote or direct the
vote of their shares FOR approval of the merger agreement and for the amendments
to the stock incentive plan. In addition, as of September 30, 1998, Bayonne,
its subsidiaries and the directors and executive officers of Bayonne were
considered to have owned 900 shares of Richmond County common stock. See
"CERTAIN RELATED TRANSACTIONS--Bayonne Merger Stock Option Agreement."
24
<PAGE>
BENEFICIAL OWNERSHIP OF RICHMOND COUNTY COMMON STOCK
OWNERS OF 5% OF RICHMOND COUNTY COMMON STOCK
Other than those persons listed below, Richmond County is not aware of any
person who may be considered to be the owner of more than 5% of the outstanding
shares of Richmond County common stock as of September 30, 1998. For the
purposes of the following table and the table set forth under "--What Richmond
County's Directors and Executive Officers Own," a person may be considered to
own any shares of Richmond County 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
NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF SECURITY OF BENEFICIAL OWNERS OWNERSHIP OUTSTANDING
- -------------- -------------------- ------------ -------------
<S> <C> <C> <C>
Common Stock Richmond County Savings Bank 2,113,880(1) 8.0%
Employee Stock Ownership Plan
1214 Castleton Avenue
Staten Island, New York 10310
Common Stock Richmond County Savings 1,957,300(2) 7.4%
Foundation
1214 Castleton Avenue
Staten Island, New York 10310
Common Stock Thomson, Horstmann & Bryant, 1,682,350(3) 6.4%
Inc.
Park 80 West, Plaza One
Saddle Brook, New Jersey 07663
</TABLE>
___________________
(1) Shares of Richmond County common stock were acquired by the Richmond
County Savings ESOP in Richmond County Savings' conversion. The Richmond
County Savings ESOP Committee administers the Richmond County Savings
ESOP. Marine Midland Bank is the corporate trustee for the Richmond
County Savings ESOP. The Richmond County Savings ESOP trustee is
required to vote all allocated shares held in the Richmond County Savings
ESOP as instructed by the Richmond County Savings ESOP participants. As
of September 30, 1998, no shares had been allocated under the Richmond
County Savings ESOP. Unallocated shares are required to be voted by the
Richmond County Savings ESOP trustee in a manner calculated to most
accurately reflect the voting instructions received from Richmond County
Savings ESOP participants. That vote must be done according to the laws
of the Employee Retirement Income Security Act of 1974, as amended.
(2) The Richmond County Savings Foundation was established and funded by
Richmond County in connection with Richmond County Savings' conversion
with an amount of Richmond County's common stock equal to 8.0% of the
total amount of Richmond County common stock sold in the conversion. The
Richmond County Savings Foundation is a Delaware non-stock corporation
and is dedicated to the promotion of charitable purposes within the
communities in which Richmond County Savings operates. The Richmond
County Savings Foundation is governed by a board of directors with eight
members, all of whom are directors of Richmond County or Richmond County
Savings. All shares of Richmond County common stock held by the Richmond
County Savings Foundation must be voted in the same ratio as all other
shares of Richmond County's common stock on all proposals considered by
stockholders of Richmond County.
(3) According to information disclosed on a Schedule 13F, filed with the SEC
on July 27, 1998, as well as a Schedule 13F filed with the SEC in
September 1998. Thomson, Horstmann & Bryant, Inc. is an investment
adviser under Section 203 of the Investment Advisers Act of 1940.
25
<PAGE>
WHAT RICHMOND COUNTY'S DIRECTORS AND EXECUTIVE OFFICERS OWN
The following table provides information about the shares of Richmond
County common stock that are owned or may be deemed to be owned by each director
of Richmond County, by Richmond County's Chief Executive Officer and by the next
four most highly paid executive officers of Richmond County. It also includes
all directors and executive officers of Richmond County as a group as of
September 30, 1998. Except as otherwise indicated, each person and each group
shown in the table has sole voting and investing power over their shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
BENEFICIAL COMMON STOCK
NAME TITLE OWNERSHIP(1) OUTSTANDING(2)
- ---- ----- ------------ --------------
<S> <C> <C> <C>
Michael F. Manzulli Chairman of the Board and Chief 27,225 *
Executive Officer
Anthony E. Burke President, Chief Operating 14,425 *
Officer
and Director
Godfrey H. Carstens, Jr. Director 17,032 *
Robert S. Farrell Director 19,945 *
William C. Frederick Director 6,000 *
Maurice K. Shaw Director 6,326 *
James L. Kelley Director 13,640 *
T. Ronald Quinlan, Jr. Director 1,000 *
Thomas R. Cangemi Senior Vice President, Chief 27,175 *
Financial Officer and Secretary
John M. McKenna Executive Vice President 1,063 *
All directors and executive
officers as a group (23 persons) 282,317 1.10%
</TABLE>
____________________
* Represents less than 1% of outstanding Richmond County common stock.
(1) Does not include options and awards intended to be granted under the
Richmond County stock incentive plan. See "ADDITIONAL MATTERS TO BE
CONSIDERED AT THE RICHMOND COUNTY MEETING" for a discussion of the
granting of such options and awards.
(2) Percentages have been calculated on the basis of 26,423,550 shares of
Richmond County common stock, the number of shares of Richmond County
common stock outstanding as of September 30, 1998.
26
<PAGE>
MEETING OF BAYONNE STOCKHOLDERS
DATE, TIME AND PLACE; PURPOSE OF MEETING
The Bayonne meeting will be held on February 25, 1999 at 10:00 a.m., local
time, at The Chandelier Restaurant, 1081 Broadway, Bayonne, New Jersey 07002.
At the Bayonne meeting, holders of Bayonne common stock will be asked to vote
on:
. a proposal to approve and adopt the merger agreement;
. the election of two directors of Bayonne to serve until completion of
the merger or, if the merger is not completed, for three-year terms
and until their successors shall have been elected and qualified;
. the ratification of the appointment of KPMG LLP as independent
auditors of Bayonne for the fiscal year ending March 31, 1999; and
. such other matters as may properly be brought before the meeting.
THE BAYONNE 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 BAYONNE AND ITS STOCKHOLDERS. THE BAYONNE BOARD
THEREFORE UNANIMOUSLY RECOMMENDS THAT BAYONNE'S STOCKHOLDERS VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AGREEMENT. IN ADDITION, THE BAYONNE BOARD HAS
DETERMINED THAT THE ELECTION TO THE BOARD OF THE DIRECTOR NOMINEES NAMED IN THIS
DOCUMENT IS IN THE BEST INTERESTS OF BAYONNE AND ITS STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT BAYONNE STOCKHOLDERS VOTE "FOR" THE ELECTION TO THE
BOARD THESE DIRECTOR NOMINEES TO SERVE UNTIL COMPLETION OF THE MERGER OR FOR
THREE-YEAR TERMS IF THE MERGER IS NOT COMPLETED. FURTHER, THE BAYONNE BOARD HAS
DETERMINED THAT THE RATIFICATION OF APPOINTMENT OF KPMG LLP AS INDEPENDENT
AUDITORS OF BAYONNE IS IN BAYONNE'S AND ITS STOCKHOLDERS BEST INTERESTS AND
UNANIMOUSLY RECOMMENDS THAT BAYONNE'S STOCKHOLDERS VOTE "FOR" THE RATIFICATION
OF APPOINTMENT OF KPMG LLP AS INDEPENDENT AUDITORS OF BAYONNE.
See "THE BAYONNE MERGER--Recommendation of the Bayonne Board; Bayonne's
Reasons for the Merger." Additional information on the election of directors
and the ratification of independent auditors is included under "ADDITIONAL
MATTERS TO BE CONSIDERED AT THE BAYONNE MEETING."
WHO CAN VOTE ON MATTERS ADDRESSED IN THIS DOCUMENT
The Bayonne board has fixed the close of business on January 19, 1999 as
the record date for determining which Bayonne stockholders are entitled to
receive notice of and to vote at the meeting. Only holders of record of Bayonne
common stock at the close of business on the Bayonne record date are entitled to
receive notice and to vote. At the close of business on the Bayonne record
date, there were 8,255,828 shares of Bayonne common stock outstanding and
entitled to be voted at the meeting. The presence, in person or by proxy, of
the holders of at least a majority of the total number of outstanding shares of
Bayonne common stock entitled to vote at the meeting is necessary to constitute
a quorum.
PROXIES; VOTING AND REVOCATION OF PROXIES
Each holder of Bayonne common stock on the Bayonne record date will be
entitled to one vote for each share of stock owned on each matter to be voted
upon at the meeting. However, Bayonne's Certificate of Incorporation imposes a
limit on stockholders who are deemed to own more than 10% of the outstanding
shares of Bayonne common stock. Those people can only vote their stock up to
this limit. The limit applies to stockholders and persons closely associated
with them.
Shares of common stock represented at the meeting by properly executed
proxies received prior to or at the meeting and which are not revoked will be
voted as instructed on the proxies. If no instructions are given, the proxies
will be voted:
27
<PAGE>
. "FOR" approval and adoption of the merger agreement;
. "FOR" the election of the nominees for director named in this
document; and
. "FOR" the ratification of KPMG LLP as independent auditors of Bayonne
for the fiscal year ending March 31, 1999.
The presence of a stockholder at the meeting will not automatically revoke
the stockholder's proxy. However, a stockholder may revoke a proxy at any time
prior to its exercise by:
. filing a written notice of revocation with the Corporate Secretary of
Bayonne prior to the meeting;
. delivering to the Corporate Secretary of Bayonne prior to the meeting
a duly executed proxy bearing a later date; or
. attending the meeting, filing a written notice of revocation with the
secretary of the meeting and voting in person.
IF YOU ARE A STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR OWN NAME,
--------------------------------------------------------------------------
YOU WILL NEED ADDITIONAL DOCUMENTATION FROM YOUR RECORD HOLDER IN ORDER TO BE
- -----------------------------------------------------------------------------
ADMITTED TO THE MEETING. Examples of such documentation include a broker's
- -----------------------
statement, letter or other document confirming your ownership of shares.
Bayonne will pay for the soliciting of proxies from the holders of Bayonne
common stock. In addition to the solicitation of proxies by mail, Kissel-Blake,
Inc., a proxy solicitation firm, will assist Bayonne in soliciting proxies for
the meeting. Kissel-Blake will be paid a fee estimated to be $5,000, plus out-
of-pocket expenses. Proxies may also be solicited personally, by telephone,
facsimile or other means, by directors, officers and employees of Bayonne or its
subsidiaries, without additional compensation. Bayonne will also request
persons, firms and corporations holding shares of Bayonne common stock in their
names or in the name of their nominees, which are considered to be owned by
others, to forward proxy materials to and obtain proxies from the owners, and
will reimburse the record holders for their reasonable expenses incurred in
doing so.
HOLDERS OF BAYONNE COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT TO BAYONNE IN THE ENCLOSED
POSTAGE-PAID PRE-ADDRESSED ENVELOPE.
VOTE REQUIRED; PRINCIPAL STOCKHOLDERS
The approval and adoption of the merger agreement will require the
affirmative vote of at least a majority of the outstanding shares of common
stock. Accordingly, failure to return a properly executed proxy card or to vote
in person, or abstaining from voting, will have the same effect as a vote
against the merger agreement. Shares underlying broker non-votes or held in
excess of the limit 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.
As to the election of directors, the proxy card being provided by the
Bayonne board enables a stockholder to vote "FOR" the election of the nominees
proposed by the Bayonne board, or to "WITHHOLD" authority to vote for one or
more of the nominees being proposed. Under Delaware law and Bayonne's bylaws,
directors are elected by a plurality of votes cast, without regard to either (1)
broker non-votes, or (2) proxies as to which authority to vote for one or more
of the nominees being proposed is withheld. "Plurality" means that the directors
are elected by a majority of votes. Accordingly, the two nominees receiving the
most votes will be elected.
As to the ratification of KPMG LLP as independent auditors of Bayonne, the
proxy card being provided by the Bayonne board enables a stockholder to check
the appropriate box on the proxy card to:
. vote "FOR" the item;
28
<PAGE>
. vote "AGAINST" the item; or
. "ABSTAIN" from voting on such item.
A representative of KPMG LLP will be in attendance at the meeting in order
to answer any questions you might have.
Under Delaware law and Bayonne's bylaws, a majority of the shares of
Bayonne common stock present, in person or by proxy, at the meeting is required
for stockholder approval. Shares as to which the "ABSTAIN" box has been
selected on the proxy card will be counted as present and entitled to vote and
have the effect of a vote against the matter. In contrast, shares underlying
broker non-votes or in excess of the limit will have no effect on the vote on
the item.
As of September 30, 1998, directors and executive officers of Bayonne, and
persons closely associated with them, are considered to have owned and were
entitled to vote 888,684 shares of Bayonne common stock. This is 9.74% of the
outstanding Bayonne common stock which may be voted at the Bayonne meeting.
This figure does not include shares of common stock that may be acquired upon
the exercise of stock options under the Bayonne Bancshares, Inc. Amended and
Restated 1995 Stock Option Plan and shares awarded, but that have not vested,
and under the Bayonne Bancshares, Inc. 1998 Stock-Based Incentive Plan. These
people have indicated their intent to vote their shares in favor of the approval
and adoption of the merger agreement, for the election of the director nominees,
and the ratification of KPMG LLP as independent auditors. As of September 30,
1998, Richmond County, its subsidiaries and the directors and executive officers
of Richmond County are considered to have owned approximately 443,000 shares of
Bayonne common stock. Additionally, Richmond County may also be considered to
be the beneficial owner of 1,809,804 shares of Bayonne common stock issuable
under the Bayonne Merger Stock Option Agreement. That document is attached to
this document as Annex B. Under the merger stock option agreement, Richmond
County has the right to exercise an option to purchase 1,809,804 shares if some
events occur, none of which has yet occurred. Richmond County has expressly
disclaimed any ownership interest of these 1,809,804 shares. See "CERTAIN
RELATED TRANSACTIONS--Bayonne Merger Stock Option Agreement."
29
<PAGE>
BENEFICIAL OWNERSHIP OF BAYONNE COMMON STOCK
OWNERS OF 5% OF BAYONNE COMMON STOCK
Other than those persons listed below, Bayonne is not aware of any person
who owns or may be considered to be the owner of more than 5% of the outstanding
shares of Bayonne common stock as of September 30, 1998.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF SECURITY OF BENEFICIAL OWNERS OWNERSHIP OUTSTANDING (1)
- -------------- -------------------- -------------- ----------------
<S> <C> <C> <C>
Common Stock First Savings Bank of New Jersey, SLA 708,179(1) 7.76%
Employee Stock Ownership Plan
568 Broadway
Bayonne, New Jersey 07002
Common Stock Jeffrey S. Halis 94,846(2)(3) 1.04%
500 Park Avenue
Fifth Floor
New York, New York 10022
Common Stock Michael Lowenstein 431,151(4) 4.73%
500 Park Avenue
Fifth Floor
New York, New York 10022
</TABLE>
_____________________
(1) Shares of common stock were acquired by the Bayonne ESOP in connection
with Bayonne's second-step conversion, which closed on August 22, 1997.
The Bayonne ESOP Committee administers the Bayonne ESOP. First Security
Trust Company is the trustee for the Bayonne ESOP. The Bayonne ESOP
trustee is required to vote all allocated shares held in the Bayonne ESOP
in accordance with the instructions of the Bayonne ESOP participants. At
September 30, 1998, 191,186 shares had been allocated under the Bayonne
ESOP and 516,993 shares remain unallocated. Each participant, however,
will be deemed to have one share of Bayonne common stock in the Bayonne
ESOP allocated to the participant's account for providing voting
instructions to the Bayonne ESOP trustee. Under the Bayonne ESOP,
unallocated shares and allocated shares as to which voting instructions
are not given by participants will be voted by the Bayonne ESOP trustee
in a manner calculated to most accurately reflect the instructions
received from participants regarding the allocated stock. This must be
done in conformance with the fiduciary provisions of ERISA.
(2) Based on information disclosed in a Schedule 13D/A filed with the SEC on
June 9, 1998.
(3) The 431,151 shares reported in a Schedule 13D filed by Michael Lowenstein
on September 5, 1997 include shares owned by Tyndall Partners, L.P.,
Madison Avenue Partners, L.P., Tyndall Institutional Partners, L.P., and
Halo International, Ltd.. According to the Schedule 13D filed on
September 5, 1997, Michael Lowenstein possesses the sole power to vote
and dispose of the common stock held by this investment group. However,
Jeffrey S. Halis is a general partner of Halo Capital Partners, L.P.,
which is the sole general partner of each member of the investment group,
and also serves as a member of Jemi Management, L.L.C., which serves as
the investment manager for Halo International, Ltd.
(4) Based on information disclosed in a Schedule 13D filed with the SEC on
September 5, 1997. Mr. Lowenstein disclaims any interest in the shares
owned individually by Mr. Halis.
30
<PAGE>
WHAT BAYONNE'S DIRECTORS AND EXECUTIVE OFFICERS OWN
The following table provides information on the shares of Bayonne common
stock considered to be owned by each director of Bayonne, by Bayonne's Chief
Executive Officer and by the next four most highly paid executive officers of
Bayonne. It also includes all directors and executive officers of Bayonne as a
group as of September 30, 1998. Except as otherwise indicated, each person and
each group shown in the table has sole voting and investing power over their
shares.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF BENEFICIAL COMMON STOCK
NAME TITLE OWNERSHIP(1)(2)(3) OUTSTANDING(7)
- ---- ----- -------------------- --------------
<S> <C> <C> <C>
Patrick F.X. Nilan Chairman of the Board 295,416(1)(2)(3) 3.24%
Michael A. Nilan President, Chief Executive 93,655(3)(4)(5) 1.03%
Officer and Director
James F. Sisk Director 74,583(1)(2) *
Patrick D. Conaghan Director 110,440(1)(2) 1.21%
Frederick G. Whelpley Director 97,360(1)(2) 1.07%
Joseph L. Wisniewski Director 94,966(2)(3) 1.04%
Eugene V. Malinowski, C.P.A. Vice President and 43,497(5) *
Chief Financial Officer
James E. Collins Vice President/Loan Officer 35,898(4)(5) *
Donald Mindiak Treasurer 27,821(4)(5) *
Thomas M. Coughlin, C.P.A. Corporate Secretary/Controller 15,048(4)(5) *
All directors and executive 888,684(6) 9.74%
officers as a group (10 persons)
</TABLE>
__________________________
* Represents less than 1% of outstanding Bayonne common stock.
(1) Includes 3,983, 4,049 and 3,983 options awarded to Messrs. Conaghan,
Whelpley and Sisk, respectively, under the Bayonne 1995 Stock Option Plan,
that are currently exercisable or will become exercisable within 60 days of
September 30, 1998. When the second-step conversion closed, Bayonne adopted
the stock option plan and agreed to issue Bayonne common stock under that
plan. The adjusted exercise price of all of the options that have been
awarded to date under that Plan is $4.43.
(2) Includes 15,932, 3,184, 3,184 and 3,184 shares awarded to Messrs. Patrick
F.X. Nilan, Conaghan, Whelpley and Sisk, respectively, under the Bayonne's
recognition and retention plan, Amended and Restated 1995 recognition and
retention plan that have not vested. Includes 9,738 shares awarded to each
of Messrs. Patrick F.X. Nilan, Wisniewski, Sisk, Conaghan and Whelpley
under the Bayonne Incentive Plan that have not vested. Awards granted under
the Bayonne's recognition and retention plan and the Bayonne Incentive Plan
vest in equal installments of 20% per year. Upon completion of the second-
step conversion, Bayonne adopted the Bayonne's recognition and retention
plan and agreed to issue Bayonne common stock under the terms of that plan.
Each recipient has voting power as to the shares awarded.
(3) Includes 13,429, 7,901 and 10,029 shares allocated to Messrs. Patrick F.X.
Nilan, Joseph L. Wisniewski and Michael A. Nilan, respectively, under the
Bayonne ESOP for which each has sole voting power.
(4) Includes 6,069, 6,069, 6,069 and 4,957 options awarded to Messrs. Michael
A. Nilan, Collins, Mindiak and Coughlin under the Bayonne 1995 Stock Option
Plan that are currently, or will become, exercisable in 60 days.
(5) Includes 32,709 and 24,348 shares awarded to Mr. Michael A. Nilan under
Bayonne's 1995 Recognition and Retention Plan and the Bayonne incentive
plan, respectively. It also includes 21,424 shares awarded to Mr.
Malinowski under the Bayonne incentive plan, and 3,344, 3,344 and 958
shares awarded to Messrs. Collins, Mindiak and Coughlin, respectively,
under Bayonne's recognition and retention plan, that have not vested.
Shares awarded under Bayonne's recognition and retention plan vest in equal
annual installments of 20% per year. Approximately 20% of the shares
awarded to Messrs. Michael Nilan and Malinowski, respectively, under the
Bayonne incentive plan vest in equal installments during the first and
second years after April 27, 1998, the date of grant. The remaining shares
granted to Mr. Michael Nilan under the Bayonne incentive plan vest if
Bayonne satisfies, during years three, four and five after the date of
grant, certain performance goals related to earnings per share and return
on equity. Approximately 10% of the shares awarded to Mr. Malinowski under
the Bayonne incentive plan vest in equal installments during years three,
four and five after the date of grant, while the remaining shares vest if
the performance goals referenced above are satisfied. Each recipient has
voting power over the shares awarded.
(6) Includes 64,010 shares awarded under the Bayonne's recognition and
retention plan as to which voting may be directed. Includes 83,337 options
awarded under the stock option plan that are currently exercisable or will
become exercisable in 60 days. Includes 208,248 shares of Bayonne common
stock that may be purchased pursuant to options awarded under the Bayonne
incentive plan, none of which are currently exercisable.
(7) Percentages with respect to each person or group of persons have been
calculated on the basis of 9,119,526 shares of Bayonne common stock, the
number of shares of Bayonne common stock outstanding as of September 30,
1998.
31
<PAGE>
PROPOSAL NO. 1 FOR THE RICHMOND COUNTY AND BAYONNE STOCKHOLDERS:
THE 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. Richmond County and Bayonne stockholders are urged to read the
merger agreement carefully.
GENERAL
Bayonne will be merged with and into Richmond County and Bayonne's
stockholders will become stockholders of Richmond County. Richmond County will
be the surviving corporation in the merger, and will continue its corporate
existence under Delaware law. After the merger, the separate corporate
existence of Bayonne will terminate. The merger is subject to the satisfaction
of certain conditions, including the receipt of all necessary regulatory
approvals and the approval by the requisite vote of the stockholders of Richmond
County and Bayonne.
As part of the merger, First Savings will merge with and into a Federal
interim savings bank to be formed by Richmond County Savings, or be converted to
a New Jersey-chartered savings bank. First Savings will then merge with and
into Richmond County Savings, with the surviving bank being named Richmond
County Savings Bank. See "CERTAIN RELATED TRANSACTIONS--Bank Merger Agreement."
BACKGROUND OF THE MERGER
BAYONNE WAS ORIGINALLY CREATED TO HELP ENHANCE VALUE AND PROMOTE GROWTH.
Since First Savings' conversion to the mutual holding company form of
organization in 1995, the board of directors of First Savings has considered
First Savings' future and how best to enhance value for stockholders given the
competitive position of First Savings in its market area, the growth prospects
of First Savings, the operating results of First Savings and the opportunity for
increasing earnings. In 1997, the mutual holding company converted to a stock
holding company form. This second-step conversion was completed in August 1997,
when First Savings became a wholly owned subsidiary of Bayonne.
RICHMOND COUNTY WAS ALSO CREATED IN ORDER TO PROMOTE GROWTH, AND SAW THE
BAYONNE ACQUISITION AS ONE OPPORTUNITY TO GROW.
In February 1998, Richmond County Savings completed its mutual to stock
conversion and became a wholly owned subsidiary of Richmond County. Richmond
County Savings converted to stock form because, among other reasons, it believed
that this provided greater ability to expand its operations and market area
through a variety of methods, including potential acquisitions of other
financial institutions. Shortly after the completion of its conversion,
Richmond County began purchasing shares of Bayonne common stock in the open
market. These purchases were unknown to Bayonne at the time.
DISCUSSIONS REGARDING BAYONNE'S INCENTIVE PLAN LED TO DISCUSSIONS REGARDING
THE FUTURE OF BAYONNE AND THE ENGAGEMENT OF FINANCIAL ADVISORS.
In March 1998, Bayonne held a special meeting of stockholders to obtain
approval of the Bayonne incentive plan. While the Bayonne incentive plan was
approved, there was significant opposition to the plan, including opposition by
some significant Bayonne stockholders. In April 1998, one of those stockholders
notified Bayonne that he intended to nominate himself for election as a director
of Bayonne at Bayonne's next annual meeting of stockholders. This stockholder
later reiterated his intentions in June 1998.
In the following weeks, due in part to the Bayonne board's continuing
obligations to its stockholders to attempt to enhance stockholder value and to
the potential proxy contest, the Bayonne board and senior management considered
its strategic alternatives in light of an increasingly competitive market as
well as the continued consolidation of the banking industry. Strategic
alternatives considered by Bayonne included continued implementation of
Bayonne's business plan, acquisition of other
32
<PAGE>
financial institutions or the sale of Bayonne to another financial institution.
While the Bayonne board believed it could increase long-term stockholder value
by pursuing its business plan, senior management was authorized to explore the
possibility of acquiring another financial institution. Throughout this
process, Bayonne utilized the services of Sandler O'Neill & Partners, L.P.,
which provided financial advisory services to Bayonne as well as a significant
number of other financial institutions in the New York metropolitan area. In
addition, the Bayonne board authorized senior management to explore strategic
business combinations with other financial institutions, particularly in light
of the consideration paid in comparable mergers in and around Bayonne's market
area. Bayonne contacted a potential acquisition target during this time, but
discussions remained at a preliminary stage and Bayonne subsequently terminated
consideration of the acquisition.
UPON LEARNING OF RICHMOND COUNTY'S INTEREST IN BAYONNE, BAYONNE ENTERED
INTO GENERAL DISCUSSIONS REGARDING A POSSIBLE COMBINATION.
In June 1998, Bayonne learned that Richmond County had accumulated a block
of its common stock. Accordingly, Bayonne desired to learn the intentions of
Richmond County and requested Sandler O'Neill to arrange a meeting between
representatives of Richmond County and Michael A. Nilan, the President of
Bayonne. Sandler O'Neill had provided financial advisory services for Richmond
County as well as Bayonne and, therefore, had relationships with the management
of both companies. The meeting, which was the first relating to a possible
business combination, took place on June 25, 1998. At the June 25th meeting,
the President of Bayonne, the President and Chief Financial Officer of Richmond
County and a representative of Sandler O'Neill discussed the general terms for a
potential business combination between the two companies. Based on the results
of the June 25th meeting, on June 30, 1998, representatives of Richmond County
met with members of the Bayonne board to reiterate their interest in discussing
the acquisition of Bayonne and a range of preliminary values was presented by
Richmond County to the Bayonne board.
BAYONNE OBTAINED REGULATORY CLEARANCE TO ENGAGE IN FURTHER DISCUSSIONS, AND
STARTED TO NEGOTIATE A MERGER AGREEMENT WITH RICHMOND COUNTY, AND ALSO
ENGAGED IN INVESTIGATING RICHMOND COUNTY.
Having determined that Richmond County's proposal for a business
combination merited further consideration, in early July 1998 Bayonne requested
and received approval from the Office of Thrift Supervision to engage in
discussions with Richmond County. Approval from the OTS was necessary pursuant
to customary conditions imposed in the OTS's approval of Bayonne's second-step
conversion. Discussion concerning a potential business combination continued in
early July 1998 and, on July 10, 1998, Richmond County provided Bayonne with an
initial draft of a definitive merger agreement. Over the course of the next
week, representatives of Bayonne and Richmond County negotiated the terms of the
merger agreement and conducted due diligence investigations with respect to each
other. These due diligence investigations included a review of the operational
matters, including loans, investments, contractual obligations, regulatory
relations and the status of each party's preparations to be Year 2000 compliant.
BAYONNE'S BOARD OF DIRECTORS WAS PRESENTED WITH A DRAFT MERGER AGREEMENT
AND AN ANALYSIS OF THE POTENTIAL MERGER PREPARED BY ITS FINANCIAL ADVISORS,
AND DISCUSSED THE DESIRABILITY OF THE PROPOSED TRANSACTION.
On July 17, 1998, the Bayonne board, along with Sandler O'Neill and
Bayonne's legal counsel, reviewed the contents of the merger agreement together
with its exhibits. Sandler O'Neill presented the Bayonne board with a financial
analysis of both Bayonne and Richmond County, a description of the market for
merger transactions, and a financial analysis of the proposed merger. The
Bayonne board also considered, among other things, Bayonne's strategic
alternatives, including whether to determine if other potential acquirors
existed, and the impact of the proposed transaction on employees and customers
of First Savings. Based on its analysis, the Bayonne board determined that a
strategic alliance with Richmond County was in the long-term interests of its
stockholders and therefore decided not to seek other potential acquirers. At the
conclusion of this meeting, the Bayonne board authorized management to continue
negotiations with Richmond County.
33
<PAGE>
BAYONNE'S FINANCIAL ADVISORS GAVE THEIR OPINION TO THE DIRECTORS THAT THE
EXCHANGE RATIO WAS FAIR TO BAYONNE'S STOCKHOLDERS.
On July 19, 1998, the Bayonne board reconvened to review the definitive
merger agreement. At this time the Bayonne board received Sandler O'Neill's
written opinion that the exchange ratio was fair to holders of Bayonne common
stock from a financial point of view. The Bayonne board later unanimously
approved the merger agreement.
AT THE SAME TIME, THE DIRECTORS OF RICHMOND COUNTY WERE PERFORMING A
SIMILAR ANALYSIS, AND ALSO RECEIVED AN OPINION REGARDING THE FAIRNESS OF
THE DEAL TO ITS STOCKHOLDERS.
On July 19, 1998, the Richmond County board considered and approved, by
unanimous vote, the merger, the merger agreement and the related transactions.
Presentations were made by both Tucker Anthony Incorporated and Richmond
County's legal counsel. At the special meeting, members of Richmond County's
senior management, together with its legal and financial advisors, reviewed with
the Richmond County board, among other things, the background of the proposed
transaction, the potential benefits of the transaction, including the strategic
rationale for the transaction, a summary of their due diligence findings,
financial and valuation analyses of the transaction and the terms of the
proposed agreements. In addition, Tucker Anthony delivered to the Richmond
County board its written opinion to the effect that, as of such date, the
exchange ratio was fair to Richmond County stockholders from a financial point
of view.
AFTER ENTERING INTO THE MERGER AGREEMENT, BAYONNE AND RICHMOND COUNTY
REVIEWED THE METHOD OF ACCOUNTING FOR THE MERGER.
The merger agreement entered into on July 19, 1998 required that Richmond
County would account for the merger as a pooling-of-interests. After July 19,
1998, representatives of both Richmond County and Bayonne, together with their
respective financial and legal advisors, and Richmond County's independent
auditors, determined that it would be preferable, for financial and operational
reasons, to account for the merger as a "purchase." By utilizing purchase
accounting, (1) Richmond County and Bayonne would not be precluded from engaging
in certain corporate transactions, such as share repurchases, which may be
inconsistent with pooling-of-interests accounting, and (2) Richmond County would
not be prevented following the merger from engaging in share repurchases in a
manner inconsistent with pooling-of-interests accounting.
THE MERGER AGREEMENT WAS REVISED TO TAKE THESE CHANGES INTO ACCOUNT, AND
THE DIRECTORS OF EACH CORPORATION WERE TOLD THAT THESE CHANGES WOULD NOT
AFFECT THE FAIRNESS OF THE TRANSACTION.
On October 14, 1998, the Richmond County board and the Bayonne board each
considered presentations by each company's respective management, legal and
financial advisors regarding the possible amendment to the merger agreement. In
addition, Richmond County considered a presentation by its independent auditors
as well. Richmond County's and Bayonne's financial advisors each confirmed that
the possible amendments to the merger agreement did not affect their opinion to
their respective clients that, as of July 19, 1998, the exchange ratio was fair,
from a financial point of view, to Richmond County or Bayonne and their
respective stockholders, as the case may be. The Richmond County board and the
Bayonne board each authorized its management to take further action to cause the
merger to be accounted for as a purchase. On October 14, 1998, Richmond County
and Bayonne formally amended the original agreement entered into by the parties
on July 19, 1998 to eliminate certain provisions relating to pooling-of-
interests accounting as a condition to the completion of the merger, to
terminate the Bayonne ESOP at the completion of the merger and to condition the
completion of the merger to be accounted for as a purchase accounting
transaction.
RECOMMENDATION OF THE RICHMOND COUNTY BOARD; RICHMOND COUNTY'S REASONS FOR THE
MERGER
Before approving the merger agreement, the Richmond County board consulted
with its legal advisors on the legal terms of, and its obligations in
consideration of, the proposed transaction. It also consulted with its
financial advisors on the financial aspects and fairness of the proposed
transaction, and with management of Richmond County. This is not an exhaustive
list of factors considered by the board
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<PAGE>
but does include all material factors the board considered. The Richmond County
board's evaluation of the merger also included the following:
(1) its familiarity with and review of Richmond County's business, results
of operations, financial condition, competitive position and
prospects;
(2) the nature of the industry in which Richmond County operates, both on
a historical and future basis;
(3) the potential growth, development, productivity and profitability of
Richmond County;
(4) national and local economic conditions, the competitive environment
for thrifts and other financial institutions, and the trend toward
consolidation in the financial services and thrift industries. The
board also considered the likely effect these factors would have on
Richmond County's potential growth, development, productivity and
profitability;
(5) the review of Bayonne's business, financial condition, results of
operations and management, including the status of Bayonne's
preparations to be Year 2000 compliant, based in part on presentations
by Richmond County's management and advisors;
(6) based in part on presentations by Richmond County's management and
advisors, the review of:
(a) the performance of the Bayonne common stock on both a historical
and prospective basis;
(b) the strategic fit between the parties;
(c) operating efficiencies that could result from the merger;
(d) the respective contributions the parties would bring to a
combined institution; and
(e) the expectation of accounting for the merger as a purchase and
the anticipated financial effects of such accounting treatment on
Richmond County's earnings.
(7) the review of the historical and prospective market prices of Richmond
County's and Bayonne's stock compared to what Richmond County was to
pay for Bayonne's stock;
(8) a comparison of the consideration to be paid to Bayonne's stockholders
to that paid in other comparable thrift mergers;
(9) the review with its legal and financial advisors of alternatives to
the merger, including the possibility of growing internally;
(10) the belief that Bayonne has a strong financial and capital position;
(11) the belief that the combined company presents a strong investment for
the future and has substantial capacity for future growth for Richmond
County stockholders;
(12) the presentation by Tucker Anthony and the written opinion of Tucker
Anthony that the exchange ratio is fair from a financial point of view
to Richmond County stockholders. See "--The Transaction is Fair to
Richmond County's Stockholders According to Richmond County's
Investment Advisors";
(13) the significant similarity between, and the compatibility of, Richmond
County's and Bayonne's business lines, cultures and management
philosophies;
35
<PAGE>
(14) the expectation that the combined institution will continue to provide
quality service to the communities and customers served by both
companies;
(15) the board's review with its legal and financial advisors of the terms
and conditions of the merger agreement, including exchange ratio, and
the other documents executed in connection with the merger;
(16) the review by the board with its legal and financial advisors, of the
terms and conditions of the merger stock option agreement;
(17) the board's recognition of the complementary nature of the markets
served and products offered by Richmond County and Bayonne and the
ability of Richmond County to extend its market area to include that
of Bayonne;
(18) factors affecting and relating to the overall strategic focus of
Richmond County including opportunities for growth in deposits, assets
and earnings, including ongoing potential acquisition opportunities,
and opportunities available to Richmond County in the market areas
where Bayonne conducts business;
(19) the anticipated cost savings and efficiencies available from the
merger, which were estimated to be approximately $4.7 million; and
(20) the expectation that the merger would be treated as a tax-free
reorganization for federal income tax purposes (see "--Tax-Free
Transaction for Bayonne Stockholders" below).
The board did not assign any specific or relative weights to the factors
under consideration. The board believes that the merger is fair to, and in the
best interests of, Richmond County and its stockholders. ACCORDINGLY, THE
RICHMOND COUNTY BOARD UNANIMOUSLY RECOMMENDS THAT RICHMOND COUNTY'S STOCKHOLDERS
VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
THE TRANSACTION IS FAIR TO RICHMOND COUNTY'S STOCKHOLDERS ACCORDING TO RICHMOND
COUNTY'S INVESTMENT ADVISOR
Tucker Anthony was retained by Richmond County in July 1998 for the purpose
of rendering a fairness opinion to the Richmond County board in connection with
Richmond County's proposed acquisition of Bayonne. Richmond County selected
Tucker Anthony for a number of reasons, including its familiarity with Richmond
County and Bayonne and their respective businesses. Richmond County also
considered Tucker Anthony's experience and reputation in the area of valuation
and financial advisory work generally, and in relation to financial institutions
specifically. Tucker Anthony makes a market in Richmond County and Bayonne
common stock. Tucker Anthony is a nationally recognized investment banking firm
and is regularly engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, leveraged buyouts, negotiated
underwritings, private placements and valuations for corporate and other
purposes. From time to time, Tucker Anthony and its affiliates may hold long or
short positions in Richmond County or Bayonne common stock.
Tucker Anthony has rendered written opinions to the Richmond County board
to the effect that, as of July 19, 1998 and as of the date of this document, the
consideration to be paid to the holders of Bayonne common stock in the merger
under the merger agreement is fair, from a financial point of view, to the
holders of Richmond County common stock. THE FULL TEXT OF THE FAIRNESS OPINION
DATED AS OF THE DATE OF THIS DOCUMENT, SETTING FORTH THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED AND CERTAIN LIMITATIONS ON THE REVIEW
UNDERTAKEN BY TUCKER ANTHONY, IS INCLUDED AS ANNEX C OF THIS DOCUMENT. HOLDERS
OF RICHMOND COUNTY COMMON STOCK ARE URGED TO READ THE FAIRNESS OPINION IN ITS
ENTIRETY. This opinion is directed to the Richmond County board only and does
not constitute a recommendation to any holder of Richmond County common stock as
to how such stockholder should vote at the Richmond County meeting. Tucker
Anthony has advised Richmond County that it believes that no person other than
the Richmond County board has the legal right to rely on the Tucker Anthony
fairness opinion and, absent any controlling precedent, Richmond County and
Tucker Anthony have agreed to resist any assertion otherwise. The engagement
letter between Richmond County and Tucker Anthony contains an express disclaimer
of the ability of any party other
36
<PAGE>
than the board to rely on the Tucker Anthony fairness opinion. Richmond County
and Tucker Anthony are not aware of any controlling precedent that would create
a statutory or common law right for persons other than the board to rely on the
Tucker Anthony fairness opinion. Richmond County and Tucker Anthony base their
belief that no such person may rely on the Tucker Anthony fairness opinion on
the limited nature of Tucker Anthony's contractual duty and the absence of such
controlling precedent. In the absence of such controlling precedent, the ability
of a stockholder to rely on the Tucker Anthony fairness opinion would be
resolved by a court of competent jurisdiction. Resolution of the question of a
stockholder's ability to rely on the Tucker Anthony fairness opinion will have
no effect on the rights and responsibilities of the board under applicable state
law or on the rights and responsibilities of either Tucker Anthony or the board
under federal securities law. The July 19, 1998 opinion is substantially
identical to the opinion attached to this document.
As compensation for its services as financial advisor, including issuance
of the opinions, Richmond County has agreed to pay Tucker Anthony a total of
$150,000, all of which has been paid as of the date of this document. Richmond
County has also agreed to reimburse Tucker Anthony for its out-of-pocket
expenses and to protect Tucker Anthony against certain liabilities arising out
of its services.
In arriving at its opinion dated as of the date of this document. Tucker
Anthony, among other things:
(1) reviewed the merger agreement;
(2) reviewed the registration statement on Form S-4, including this
document;
(3) reviewed certain historical financial and other information
concerning Richmond County for the five fiscal years ended June
30, 1998 and for the six months ended December 31, 1998,
including Richmond County's reports on Forms 10-K and 10-Q;
(4) reviewed certain historical financial and other information
concerning Bayonne for the five fiscal years ended March 31, 1998
and for the six months ended September 30, 1998, including
Bayonne's reports on Forms 10-K and 10-Q;
(5) held discussions with the senior management of Richmond County
and Bayonne with respect to their past and current financial
performance, financial condition and future prospects;
(6) reviewed certain internal financial data, projections and other
information of Richmond County and Bayonne including financial
projections approved by management regarding Richmond County's
and Bayonne's past and current business, operations and results
thereof, financial condition and future prospects;
(7) analyzed certain publicly available information of other
financial institutions that it deemed comparable or otherwise
relevant to its inquiry, and compared Richmond County and Bayonne
from a financial point of view with certain of these
institutions;
(8) compared the consideration to be paid by Richmond County under
the merger agreement with the consideration paid by acquirors in
other acquisitions of financial institutions that it deemed
comparable or otherwise relevant to its inquiry;
(9) reviewed publicly available earnings estimates, historical
trading activity and ownership data of Richmond County common
stock and Bayonne common stock; and
37
<PAGE>
(10) conducted such other financial studies, analyses and
investigations and reviewed such other information as it deemed
appropriate to enable it to render its opinion.
In its review, it also took into account an assessment of general economic,
market and financial conditions and certain industry trends and related matters.
Tucker Anthony's opinions were necessarily based upon conditions as they existed
and could be evaluated on the date thereof and the information made available to
Tucker Anthony through the date of this document.
No limitations were imposed by the boards of directors of Richmond County
or Bayonne upon Tucker Anthony with respect to the investigations made or
procedures followed by Tucker Anthony in its review and analysis. In its review
and analysis and in arriving at its opinions, Tucker Anthony assumed and relied
upon the accuracy and completeness of all the financial information publicly
available or provided to it by Richmond County and Bayonne, and did not attempt
to verify any of such information. Tucker Anthony assumed (1) that the
financial projections of Richmond County and Bayonne provided to it with respect
to the results of operations likely to be achieved by each company were prepared
on a basis reflecting the best currently available estimates and judgments of
Richmond County's and Bayonne's management and advisors as to future financial
performance and results, and (2) that such forecasts and estimates would be
realized in the amounts and in the time periods estimated. Tucker Anthony also
assumed, without independent verification, that the current and projected
aggregate reserves for possible loan losses for Richmond County and Bayonne were
adequate to cover such losses. Tucker Anthony did not make or obtain any
independent evaluations or appraisals of any assets or liabilities of Richmond
County, Bayonne or any of their respective subsidiaries nor did it verify any of
Richmond County's or Bayonne's books or records or review any individual loan
credit files.
On July 19, 1998, Tucker Anthony made a presentation, and subsequently
rendered a written fairness opinion, to Richmond County's board. Set forth
below is a summary of the material elements of the financial analyses performed
by Tucker Anthony in connection with rendering its written opinion of July 19,
1998. In connection with its opinion dated as of the date of this document,
Tucker Anthony performed procedures to update certain analyses and reviewed the
assumptions on which such analyses were based and the factors it considered.
Taken as a whole, Tucker Anthony believes these analyses support the conclusion
that the consideration to be paid to holders of Bayonne common stock is fair,
from a financial point of view, to the holders of Richmond County common stock.
STOCK TRADING ANALYSIS. Tucker Anthony examined the historical trading
prices, volume and market pricing multiples of Richmond County common stock and
Bayonne common stock, and compared the historical trading prices of Richmond
County common stock and Bayonne common stock in relation to movements in certain
stock indices, specifically the Standard & Poor's Major Regional Bank Index and
the Standard and Poor's Savings & Loan Index, as well as to indices of other
selected publicly traded financial institutions. This analysis sought to provide
a perspective on the market price of Richmond County common stock in recognition
of the fact that the merger will be accomplished through an exchange of shares.
Tucker Anthony's analysis indicated that the stock of each company was trading
in a range comparable to that company's peer groups before the announcement of
the transaction.
Specifically, the index of other selected publicly traded financial
institutions compared to Richmond County common stock included:
(1) Commonwealth Bancorp, Inc. (7) PennFed Financial Services, Inc.
(2) Dime Community Bancshares, Inc. (8) Queens County Bancorp, Inc.
(3) Flushing Financial Corporation (9) Roslyn Bancorp, Inc.
(4) Haven Bancorp, Inc. (10) Staten Island Bancorp, Inc.
(5) Ocwen Financial Corporation (11) WSFS Financial Corporation
(6) Parkvale Financial Corporation (12) York Financial Corporation
The index of other selected publicly traded financial institutions compared
to Bayonne common stock included:
(1) ESB Financial Corporation (3) First Bell Bancorp, Inc.
(2) Fidelity Bancorp, Inc. (4) First Keystone Financial, Inc.
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<PAGE>
(5) GA Financial, Inc. (9) Pulse Bancorp, Inc.
(6) Harleysville Savings Bank (10) Statewide Financial Corporation
(7) Little Falls Bancorp, Inc. (11) TF Financial Corporation
(8) Pamrapo Bancorp, Inc.
Tucker Anthony also compared financial data and financial ratios for these
two groups of financial institutions to Richmond County and Bayonne, as detailed
in the section "--Analysis of Selected Publicly Traded Companies" below.
CONTRIBUTION ANALYSIS. Tucker Anthony analyzed the contribution of each of
Richmond County and Bayonne to, among other things, the stockholders' equity and
after-tax net income of the pro forma combined company. This analysis showed
that, among other factors, Bayonne would have contributed 30.5%, 22.7%, and
22.8% of the assets, stockholders' equity, and net income of the pro forma
combined company as of and for the 12 months ended June 30, 1998, respectively.
This is compared with a proposed ownership of 25.6% of the combined company to
be held by the holders of Bayonne common stock following the merger. Tucker
Anthony's analysis determined that the projected contribution to be provided by
Bayonne to the combined company in relationship to assets, equity and income is
consistent with the price to be paid by Richmond County.
PRO FORMA MERGER ANALYSIS. Based on projections provided by Richmond
County, Tucker Anthony analyzed certain pro forma effects of the merger.
Assuming a price per share of Richmond County common stock of $18.13 as of July
17, 1998, this analysis indicated that, while the merger would be modestly
dilutive to tangible book value per share, the merger would be accretive to
earnings in the first full year following the close of the merger. In this
analysis Tucker Anthony assumed that Richmond County performed in accordance
with the earnings forecasts and expected synergies provided to Tucker Anthony by
Richmond County's senior management.
ANALYSIS OF SELECTED ACQUISITION TRANSACTIONS. Tucker Anthony reviewed and
performed analysis on 38 unassisted acquisitions of thrift institutions in the
New York and surrounding states (the "Selected Market Transactions") and 28
unassisted acquisitions of thrift institutions in the U.S. with a transaction
size between $100 million and $250 million (the "Selected U.S. Transactions")
announced since January 1, 1997, comparing the target financial institutions'
capital structure and profitability to Bayonne's current results of operations
and financial condition. The Selected Market Transactions 38 unassisted
acquisitions of thrift institutions in the New York and surrounding states and
Selected U.S. Transactions 28 unassisted acquisitions of thrift institutions in
the U.S. with a transaction size between $100 million and $250 million were
chosen because they represented merger and acquisition transactions which
involved target financial institutions exhibiting certain characteristics--
including asset size, geographic proximity and business risk--similar to those
exhibited by Bayonne. Excluding the highest and lowest ratios, the target
financial institutions involved in the Selected Market Transactions 38
unassisted acquisitions of thrift institutions in the New York and surrounding
states and the Selected U.S. Transactions 28 unassisted acquisitions of thrift
institutions in the U.S. with a transaction size between $100 million and $250
million had an average return on assets for the latest 12 months prior to
announcement date of 0.89% and 0.93% and an average return on equity for the
latest 12 months prior to announcement date of 9.79% and 9.39%, respectively, as
compared to 0.64% and 4.36%, respectively, for Bayonne. Tucker Anthony's
analysis of selected acquisition transactions sought to compare the proposed
pricing of the merger to other selected transactions to determine whether or not
the proposed pricing multiples to be paid were comparable to such recent
transactions. Tucker Anthony's analysis determined that the proposed pricing
multiples were comparable to these transactions. Set forth below is a summary of
the analysis with respect to the Selected Market Transactions and the Selected
U.S. Transactions.
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<PAGE>
<TABLE>
<CAPTION>
SELECTED MARKET SELECTED U.S.
TRANSACTIONS TRANSACTIONS
---------------------- -----------------------
BAYONNE OFFER OFFER
OFFER(1) MEDIAN PERCENTILE(2) MEDIAN PERCENTILE(2)
-------- ------ ------------- ------ -------------
<S> <C> <C> <C> <C> <C>
Price/Trailing Twelve Months Earnings.. 26.8x 22.9x 72% 21.6x 67%
Price/Book Value....................... 1.79x 2.14x 30% 1.97x 37%
Price/Adjusted Book Value (3).......... 2.47x 1.90x 70% 2.17x 69%
Premium to Market Price (4)............ 111% 111% 50% 111% 57%
</TABLE>
____________________
(1) Based upon value of $19.03 per share of Bayonne common stock (based on the
July 17, 1998 closing price of Richmond County common stock of $18.13). If
the value of the Richmond County common stock were based on its average
closing bid price per share of $18.45 during the fifteen trading day period
prior to the announcement of the merger, implying a value of $19.38 per
share of Bayonne common stock, the corresponding multiples in the table
would be: price/trailing twelve months earnings of 27.3x; price/book value
of 1.82x; price/10% book value of 2.51x; and premium to market price of
113%.
(2) Position of the Richmond County offer in relation to percentile rankings of
the Selected Market Transactions and the Selected U.S. Transactions,
respectively.
(3) Because of the extraordinary nature of Bayonne's capital base relative to
most other financial institutions, Tucker Anthony also analyzed the terms
of the proposed transaction and the terms of the selected acquisition
transactions on an adjusted 10% book value basis. This analysis reviews
transaction statistics of premiums paid over a theoretical book value based
on adjusting the aggregate transaction value on a dollar-for-dollar basis
for differentials between actual book value and the theoretical book value
calculated at 10% of total assets.
(4) Premium to market price for Selected Market Transactions and the Selected
U.S. Transactions based on stock price one week prior to announcement;
market price for Bayonne of $17.13 per share reflects closing price on July
17, 1998.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES. Tucker Anthony compared
selected financial data and financial ratios of Richmond County and Bayonne to
the corresponding data and ratios of certain publicly traded thrift
institutions located in New York, New Jersey and surrounding states with total
assets comparable to Richmond County and Bayonne, respectively. This analysis
sought to determine whether or not the financial data and ratios exhibited by
Richmond County and Bayonne were comparable to those exhibited by their
respective peer groups in order to assist Tucker Anthony in its evaluation of
Richmond County and Bayonne. The thrift institutions included in the comparison
to Richmond County were:
(1) Commonwealth Bancorp, Inc. (7) PennFed Financial Services, Inc.
(2) Dime Community Bancshares, Inc. (8) Queens County Bancorp, Inc.
(3) Flushing Financial Corporation (9) Roslyn Bancorp, Inc.
(4) Haven Bancorp, Inc. (10) Staten Island Bancorp, Inc.
(5) Ocwen Financial Corporation (11) WSFS Financial Corporation
(6) Parkvale Financial Corporation (12) York Financial Corporation
The thrift institutions included in the comparison to Bayonne were:
(1) ESB Financial Corporation (7) Little Falls Bancorp, Inc.
(2) Fidelity Bancorp, Inc. (8) Pamrapo Bancorp, Inc.
(3) First Bell Bancorp, Inc. (9) Pulse Bancorp, Inc.
(4) First Keystone Financial, Inc. (10) Statewide Financial Corporation
(5) GA Financial, Inc. (11) TF Financial Corporation
(6) Harleysville Savings Bank
The selected thrifts, as groups, exhibited certain characteristics -
including asset size, geographic proximity and business risk - similar to those
exhibited by Richmond County and Bayonne, respectively.
The comparison of Richmond County to its selected thrift peer group showed
among other things that based on financial data as of June 30, 1998 for Richmond
County and March 31, 1998 for the selected thrift peer group:
(1) the ratio of Richmond County's net loans to assets was 40.4% compared
to an average of 59.7% for its peer group;
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(2) the ratio of Richmond County's loan loss reserves to non-performing
assets was 124.2% compared to 129.3% for its peer group;
(3) the ratio of Richmond County's non-performing assets (including loans
90 days past due) to the sum of stockholders' equity and loan loss
reserves was 1.74% compared to an average of 7.70% for its peer group;
(4) the ratio of Richmond County's equity to total assets was 20.6% as
compared to an average of 11.4% for its peer group;
(5) the latest quarter annualized return on assets for Richmond County was
1.42% compared to an average of 1.06% for its peer group;
(6) the latest quarter annualized return on equity for Richmond County was
6.74%, compared to an average of 10.50% for its peer group;
(7) the ratio of Richmond County's market price to its book value per
common share was 147% compared to an average of 190% for its peer
group;
(8) the price/earnings ratio for the trailing 12 months earnings for
Richmond County was 30.5x, compared to an average of 20.3x for its
peer group; and
(9) the average latest quarter annualized dividend yield for Richmond
County was 1.3% as compared to 1.5% for its peer group.
The comparison of Bayonne to its selected thrift peer group showed among
other things that based on financial data as of June 30, 1998 for Bayonne and
March 31, 1998 for the selected thrift peer group:
(1) the ratio of Bayonne's net loans to assets was 45.4% compared to an
average of 49.4% for its peer group;
(2) the ratio of Bayonne's loan loss reserves to non-performing assets was
75.7% compared to 153.2% for its peer group;
(3) the ratio of Bayonne's non-performing assets to the sum of
stockholders' equity and loan loss reserves was 3.9% compared to an
average of 5.8% for its peer group;
(4) the ratio of Bayonne's equity to total assets was 13.8% as compared to
an average of 9.3% for its peer group;
(5) the latest quarter annualized return on assets for Bayonne was 0.61%
compared to an average of 0.85% for its peer group;
(6) the latest quarter annualized return on equity for Bayonne was 4.17%,
compared to an average of 9.46% for its peer group;
(7) the ratio of Bayonne's market price to its book value per common share
was 161% compared to an average of 162% for its peer group;
(8) the price/earnings ratio for the trailing 12 months earnings for
Bayonne was 24.2x, compared to an average of 16.4x for its peer group;
and
(9) the average latest quarter annualized dividend yield for Bayonne was
1.5% as compared to 2.0% for its peer group.
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EVALUATION OF AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER. On
October 14, 1998, Richmond County and Bayonne entered into an amended and
restated agreement and plan of merger under which the merger would be accounted
for as a purchase rather than a pooling-of-interests. At the request of
Richmond County's board, Tucker Anthony updated its analysis of selected
acquisition transactions, analysis of selected publicly traded companies, and
pro forma merger analysis, incorporating financial information provided to
Tucker Anthony by Richmond County management concerning the impact of purchase
accounting to evaluate whether the change in accounting treatment would change
Tucker Anthony's opinion of July 19, 1998.
On October 14, 1998, Tucker Anthony made a presentation to the Richmond
County board in which it reviewed the financial implications of the merger under
purchase and pooling-of-interests accounting treatments. Tucker Anthony also
updated the Richmond County board on current market conditions of financial
institutions similar to Richmond County and Bayonne and comparable merger and
acquisition activity that occurred subsequent to July 19, 1998. Among other
observations, Tucker Anthony noted that, based on management's accounting
assumptions, a change to purchase accounting would cause the merger to be
modestly less dilutive to tangible book value per share and modestly less
accretive to pro forma earnings resulting from the amortization of goodwill.
The foregoing is a summary of the material elements of the financial
analyses performed by Tucker Anthony, but it does not purport to be a complete
description of such analyses. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to a
summary description. Accordingly, notwithstanding the separate factors
summarized above, Tucker Anthony believes that its analyses must be considered
as a whole and that selecting portions of its analyses and factors considered by
it, without considering all analyses and factors, or attempting to ascribe
relative weights to some or all of such analyses or factors, could create an
incomplete view of the evaluation process underlying Tucker Anthony's opinion.
In addition, Tucker Anthony may have used the various analyses for different
purposes and may have deemed various assumptions more or less probable than
other assumptions, so that the ranges of valuations resulting from any
particular analysis described above should not be taken to be Tucker Anthony's
view of the actual value of Bayonne to Richmond County. The fact that any
specific analysis has been referred to in the summary above is not meant to
indicate that such analysis was given more weight than any other analysis.
In performing its analyses, Tucker Anthony made numerous assumptions with
respect to industry performance, general business and economic conditions, many
of which are beyond the control of Richmond County and Bayonne. The analyses
performed by Tucker Anthony are not necessarily indicative of actual values or
actual future results, which may be significantly more or less favorable than
those suggested by such analyses. Such analyses were prepared solely as a part
of Tucker Anthony's analysis of the fairness, from a financial point of view, to
the holders of Richmond County common stock of the consideration to be paid in
the merger to the holders of Bayonne common stock, and were provided to the
Richmond County board in connection with the delivery of Tucker Anthony's
opinion. The analyses do not purport to be appraisals or to reflect the prices
at which Richmond County or Bayonne might actually be sold or the prices at
which any securities may trade at the present time or at any time in the future.
In addition, as described above, Tucker Anthony's opinion is just one of the
many factors taken into consideration by Richmond County's board. See "--
Background of the Merger" and "--Recommendation of the Richmond County Board;
Richmond County's Reasons for the Merger."
MATERIAL PROJECTIONS SHARED BETWEEN THE COMPANIES IN NEGOTIATING THE MERGER
AGREEMENT
In evaluating a possible transaction involving Bayonne, Bayonne prepared
nonpublic estimates reflecting management's views as to the possible future
performance of Bayonne. 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 Bayonne and the significant time and resources
management devoted to developing such estimates. The following are the material
estimates prepared by Bayonne's management and furnished to Richmond County
while the parties were negotiating the merger
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<PAGE>
agreement. All of the following estimates exclude gains on sales of investments
and non-recurring items.
BAYONNE'S PROJECTIONS FOR THE FISCAL YEAR ENDED MARCH 31, 1999 (DOLLARS IN
THOUSANDS)
<TABLE>
<S> <C>
Net Interest Income............ $18,857
Non-Interest Income............ 1,386
Non-Interest Expense........... 11,041
Net Income..................... 5,562
Earnings Per Share............. 0.55
Book Value Per Share........... 11.26
Tangible Book Value Per Share.. 11.26
Dividends Per Share............ 0.25
</TABLE>
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 Bayonne while the parties were negotiating
the merger agreement.
RICHMOND COUNTY'S PROJECTIONS FOR THE FISCAL YEAR ENDED JUNE 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
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
</TABLE>
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 it 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.
RECOMMENDATION OF THE BAYONNE BOARD; BAYONNE'S REASONS FOR THE MERGER
The Bayonne board believes that the terms of the merger agreement are fair
and in the best interests of Bayonne and its stockholders. In the course of
reaching its determination, the Bayonne board consulted with legal counsel with
respect to its legal duties and the terms of the merger agreement. The Bayonne
board consulted with its financial advisor with respect to the financial aspects
of the transaction
43
<PAGE>
and fairness of the exchange ratio from a financial point of view; and with
senior management regarding, among other things, operational matters.
The following discussion of the information and factors considered by the
Bayonne board is not intended to be exhaustive, but does include all material
factors considered by the board. In reaching its decision to approve the merger
agreement, the Bayonne board considered the following:
(1) That Bayonne and Richmond County serve contiguous market areas with
similar communities and that the expanded reach of the combined
company would benefit existing customers and make the combined company
more attractive to potential customers.
(2) That Richmond County offers a broader range of products and services
and that the merger would provide Bayonne's customers with access to
these products and services without Bayonne having to undergo the
expense of introducing them on its own.
(3) The strength of Richmond County's management and the similarity of
operating philosophies between the companies.
(4) The resources of the charitable foundation established by Richmond
County in connection with the conversion of Richmond County Savings
would become available to Bayonne's communities as a result of the
merger.
(5) The financial condition, results of operations, cash flow, businesses
and prospects of Bayonne. In this regard, the Bayonne board analyzed
the options of selling Bayonne or continuing on a stand-alone basis.
The range of values on a sale of control basis were determined to
generally exceed the present value of Bayonne shares on a stand-alone
basis. (6) The written opinion of Sandler O'Neill that, as of July 19,
1998, the exchange ratio was fair to Bayonne stockholders from a
financial point of view.
(7) The Bayonne board also considered that Sandler O'Neill provides
financial advisory services to Richmond County. See "--The
Transaction is Fair to Bayonne's Stockholders According to Bayonne's
Investment Advisor."
(8) The current operating environment, including the continued
consolidation and increasing competition in the banking and financial
services industries and the prospect for further changes in these
industries.
(9) The other terms of the merger agreement and exhibits, including the
opportunity for Bayonne stockholders to receive shares of Richmond
County common stock in a tax-free exchange.
(10) The detailed financial analyses, pro forma and other information,
including the anticipated effects of purchase accounting on the
combined company on a prospective basis, with respect to Bayonne and
Richmond County discussed by Sandler O'Neill, as well as the Bayonne
board's knowledge of Bayonne, Richmond County and their respective
businesses.
(11) The likelihood of the merger and related transactions being approved
by the appropriate regulatory authorities, including factors such as
market share analyses, Richmond County's Community Reinvestment Act
rating at that time and the estimated pro forma financial impact of
the transaction on Richmond County. See "--Regulatory Approvals Needed
to Complete the Merger."
(12) The fact that the merger agreement prohibits Bayonne from initiating
or encouraging discussion with third parties relating to an
alternative transaction and that Richmond County required Bayonne to
enter into the merger stock option agreement.
44
<PAGE>
(13) That it did not solicit offers from third parties or determine whether
other institutions would be interested in acquiring Bayonne.
(14) The Bayonne board believed that a tax-free transaction pursuant to
which Bayonne stockholders receive shares of the acquiror would be
desired by most stockholders.
(15) The Bayonne board determined that the unique features of Richmond
County, the financial analysis provided by Sandler O'Neill, the pro
forma review of the combined entity, and the fact that there was no
controlling stockholder of Richmond County provided a reasonable basis
for not seeking other offers prior to recommending the proposed
transaction to Bayonne stockholders.
(16) The Bayonne board's review of the status of Richmond County's
preparations to be Year 2000 compliant.
In reaching its determination to approve and recommend the merger
agreement, the Bayonne board did not assign any relative or specific weights to
the foregoing factors, and individual directors may have weighed factors
differently.
The Bayonne board believes that the merger is in the best interests of
Bayonne and its stockholders. ACCORDINGLY, THE BAYONNE BOARD UNANIMOUSLY
RECOMMENDS THAT BAYONNE'S STOCKHOLDERS VOTE "FOR" APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
THE TRANSACTION IS FAIR TO BAYONNE'S STOCKHOLDERS ACCORDING TO BAYONNE'S
INVESTMENT ADVISOR
By letter agreement dated as of March 10, 1998, Bayonne retained Sandler
O'Neill as an independent financial advisor in connection with Bayonne's general
strategic analyses and its consideration of possible business combinations with
a second party. Sandler O'Neill is a nationally recognized investment banking
firm whose principal business specialty is financial institutions. In the
ordinary course of its investment banking business, Sandler O'Neill is regularly
engaged in the valuation of financial institutions and their securities in
connection with mergers and acquisitions and other corporate transactions.
Sandler O'Neill acted as financial advisor to Bayonne in connection with
the merger and participated in certain of the negotiations leading to the merger
agreement. At the request of the Bayonne board, representatives of Sandler
O'Neill attended the July 17, 1998 and July 19, 1998 meetings of the Bayonne
board at which the board considered and approved the merger agreement. At the
July 19th meeting, Sandler O'Neill delivered to the Bayonne board its written
opinion that, as of such date, the exchange ratio was fair to the Bayonne
stockholders from a financial point of view. Sandler O'Neill has also delivered
to the Bayonne board a written fairness opinion dated the date of this document,
which reflects the fact that the merger will be accounted for as a purchase
transaction and not as a pooling-of-interests, but is otherwise substantially
identical to the July 19, 1998 opinion. THE FULL TEXT OF THE SANDLER FAIRNESS
OPINION IS ATTACHED AS ANNEX D TO THIS DOCUMENT. THE SANDLER FAIRNESS OPINION
OUTLINES THE PROCEDURES FOLLOWED, ASSUMPTIONS MADE, MATTERS CONSIDERED AND
QUALIFICATIONS AND LIMITATIONS ON THE REVIEW UNDERTAKEN BY SANDLER O'NEILL IN
RENDERING THE OPINION. THE SANDLER FAIRNESS OPINION IS INCORPORATED BY
REFERENCE INTO THIS DESCRIPTION OF THE OPINION AND THIS DESCRIPTION IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE SANDLER FAIRNESS OPINION. BAYONNE
STOCKHOLDERS ARE URGED TO CAREFULLY READ THE SANDLER FAIRNESS OPINION IN
CONNECTION WITH THEIR CONSIDERATION OF THE PROPOSED MERGER.
THE SANDLER FAIRNESS OPINION IS DIRECTED TO THE BAYONNE BOARD AND WAS
PROVIDED TO THE BAYONNE BOARD FOR ITS INFORMATION IN CONSIDERING THE MERGER.
THE SANDLER FAIRNESS OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE EXCHANGE
RATIO TO BAYONNE STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. IT DOES NOT
ADDRESS THE UNDERLYING BUSINESS DECISION OF BAYONNE TO ENGAGE IN THE MERGER OR
ANY OTHER ASPECT OF THE MERGER AND IS NOT A RECOMMENDATION TO ANY BAYONNE
STOCKHOLDER AS TO HOW SUCH STOCKHOLDER SHOULD VOTE AT THE MEETING WITH RESPECT
TO THE MERGER OR ANY OTHER RELATED MATTER.
45
<PAGE>
In rendering its July 19, 1998 opinion, Sandler O'Neill performed a variety
of financial analyses. The following is a summary of the material analyses
performed by Sandler O'Neill, but is not a complete description of all the
analyses underlying Sandler O'Neill's opinion. The preparation of a fairness
opinion is a complex process involving subjective judgments as to the most
appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances. The process, therefore, is not
necessarily susceptible to a partial analysis or summary description. Sandler
O'Neill believes that its analyses must be considered as a whole and that
selecting portions of the factors and analyses considered without considering
all factors and analyses, or attempting to ascribe relative weights to some or
all such factors and analyses, could create an incomplete view of the evaluation
process underlying its opinion.
In performing its analyses, Sandler O'Neill made numerous assumptions with
respect to industry performance, business and economic conditions, many of which
cannot be predicted and are beyond the control of Bayonne, Richmond County and
Sandler O'Neill. The analyses performed by Sandler O'Neill are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses. Sandler O'Neill prepared its
analyses solely for the purpose of rendering its opinion and provided such
analyses to the Bayonne board at the July 17th meeting. Estimates on the values
of companies do not purport to be appraisals or necessarily reflect the prices
at which companies or their securities may actually be sold. Such estimates are
inherently subject to uncertainty and actual values may be materially different.
Accordingly, Sandler O'Neill's analyses do not necessarily reflect the value of
Bayonne common stock or Richmond County common stock or the prices at which
Bayonne common stock or Richmond County common stock may be sold at any time.
SUMMARY OF PROPOSAL. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of Richmond County common
stock on July 16, 1998 of $18.31 and the exchange ratio of 1.05, Sandler O'Neill
calculated an implied transaction value per share of Bayonne common stock of
$19.23 (the "Implied Value"). The implied aggregate transaction value was
$178.7 million, based upon the Implied Value of $19.23 and 9,359,072 fully
diluted shares of Bayonne common stock outstanding, which was determined using
the treasury stock method at the Implied Value. Based upon the Implied Value
and Bayonne's June 30, 1998 financial information, Sandler O'Neill calculated
the following ratios:
Implied Value/Tangible book value 1.77x
Implied Value/Book value 1.77x
Implied Value/LTM EPS 27.9x
Implied Value/LQA EPS 30.0x
For purposes of Sandler O'Neill's analyses, earnings per share were based on
fully diluted earnings per share. Sandler O'Neill noted that the Implied Value
represented a 13.1% premium over the July 16, 1998 closing price of Bayonne
common stock of $17.00.
STOCK TRADING HISTORY. Sandler O'Neill reviewed the history of the
reported trading prices and volume of Bayonne common stock and Richmond County
common stock, and the relationship between the movements in the prices of
Bayonne common stock and Richmond County common stock, respectively, to
movements in certain stock indices, including the Standard & Poor's 500 Index,
the NASDAQ Bank Index and selected composite peer groups of publicly traded
savings institutions identified as the Regional Group and Peer Group,
respectively, below. During the period August 22, 1997 through July 15, 1998,
Bayonne common stock outperformed each of the indices to which it was compared.
During the period February 18, 1998 through July 15, 1998, Richmond County
common stock slightly underperformed the Standard & Poor's 500 Index and
outperformed each of the other indices to which it was compared.
COMPARABLE COMPANY ANALYSIS. Sandler O'Neill used publicly available
information to compare selected financial and market trading information,
including balance sheet composition, asset quality ratios, loan loss reserve
levels, profitability, capital adequacy, dividends and trading multiples, for
Bayonne and two different groups of savings institutions. The first group
consisted of Bayonne and the following 16 publicly traded regional savings
institutions (the "Regional Group"):
46
<PAGE>
(1) Ambanc Holding Co. Inc. (9) Lakeview Financial Corp.
(2) Carver Bancorp Inc. (10) Northeast PA Financial Corporation
(3) ESB Financial Corporation (11) Parkvale Financial Corporation
(4) Fidelity Bancorp Inc. (12) Peoples Bancorp Inc.
(5) First Bell Bancorp Inc. (13) Progress Financial Corporation
(6) Flushing Financial Corporation (14) Raritan Bancorp Inc.
(7) FMS Financial Corporation (15) Statewide Financial Corporation
(8) GA Financial Inc. (16) TF Financial Corporation
47
<PAGE>
Sandler O'Neill also compared Bayonne to a group of 14 publicly traded
savings institutions that had a return on average equity (based on last 12
months' earnings) of greater than 14.0% and a price to tangible book value of
greater than 170% (the "Highly Valued Group"). The Highly Valued Group included
the following institutions:
(1) American Bank of Connecticut
(2) CFSB Bancorp Inc.
(3) Coastal Financial Corporation
(4) SMS Financial Corp.
(5) Highland Bancorp Inc.
(6) Home Federal Bancorp
(7) Lakeview Financial Corp.
(8) MECH Financial Inc.
(9) Metropolitan Financial Corp.
(10) MetroWest Bank
(11) People's Bancshares Inc.
(12) First Mutual Savings Bank
(13) Progress Financial Corporation
(14) PVF Capital Corporation
The analysis utilized publicly available financial information for Bayonne
as of and for each of the years ended March 31, 1993 through March 31, 1998.
The analysis compared Bayonne data and the median data for each of the Regional
Group and the Highly Valued Group as of and for each of the years ended December
31, 1993 through December 31, 1997 and as of and for the 12 months ended March
31, 1998. The table below sets forth the comparative data as of and for the 12
months ended March 31, 1998.
<TABLE>
<CAPTION>
HIGHLY
REGIONAL VALUED
BAYONNE GROUP GROUP
---------- -------- --------
<S> <C> <C> <C>
Total Assets........................... $646,058 $646,058 $648,892
Annual Growth Rate of Total Assets..... 11.97% 14.18% 17.06%
Tangible Equity/Total Assets........... 15.27% 7.96% 7.04%
Intangible Assets/Total Equity......... 0.00% 0.99% 0.49%
Net Loans/Total Assets................. 36.45% 49.40% 71.84%
Cash and Securities/Total Assets....... 61.47% 47.55% 24.27%
Gross Loans/Total Deposits............. 56.29% 81.56% 101.62%
Total Borrowings/Total Assets.......... 17.86% 20.07% 16.92%
Nonperforming Assets/Total Assets...... 0.56% 0.44% 0.62%
Loan Loss Reserve/Nonperforming Loans.. 91.77% 126.73% 111.01%
Loan Loss Reserve/Gross Loans.......... 1.24% 1.05% 1.20%
Net Interest Margin.................... 2.71% 3.35% 3.69%
Loan Loss Provision/Average Assets..... 0.03% 0.08% 0.22%
Noninterest Income/Average Assets...... 0.22% 0.38% 0.85%
Noninterest Expense/Average Assets..... 1.68% 2.17% 2.38%
Efficiency Ratio....................... 58.63% 57.24% 58.71%
Return on Average Assets............... 0.72% 0.88% 1.30%
Return on Average Equity............... 5.82% 8.63% 16.78%
Price/Tangible Book Value per Share.... 155.53% 164.69% 249.33%
Price/Earnings per Share............... 26.40x 18.38x 15.60x
Market Capitalization/Assets........... 23.74% 15.85% 16.81%
Dividend Yield......................... NM 1.43% 0.90%
Dividend Payout Ratio.................. NM 24.98% 15.95%
</TABLE>
48
<PAGE>
Sandler O'Neill also used publicly available information to perform a
similar comparison of selected financial and market trading information for
Richmond County and two different groups of savings institutions. The first
group consisted of Richmond County and the following 13 publicly traded savings
institutions (the "Peer Group"):
(1) Dime Community Bancshares Inc. (8) Parkvale Financial Corp.
(2) ESB Financial Corp. (9) PennFed Financial Services Inc.
(3) First Source Bancorp Inc. (10) Peoples Bancorp Inc.
(4) Flushing Financial Corp. (11) Queens County Bancorp Inc.
(5) Haven Bancorp Inc. (12) WSFS Financial Corp.
(6) JSB Financial Inc. (13) York Financial Corp.
(7) Ocwen Financial Corp.
Sandler O'Neill also compared Richmond County to a group of nine publicly
traded savings institutions that had a return on average equity of greater than
14.5%, based on last 12 months' earnings, and a price to tangible book value of
greater than 200% (the "Large Thrift Highly Valued Group"). The Large Thrift
Highly Valued Group included:
(1) Anchor BanCorp Wisconsin (6) Metropolitan Financial Corp.
(2) Andover Bancorp Inc. (7) Parkvale Financial Corp.
(3) CFSB Bancorp Inc. (8) People's Bancshares Inc.
(4) D&N Financial Corp. (9) WSFS Financial Corp.
(5) First Federal Capital Corp.
The analysis utilized publicly available financial information for Richmond
County as of and for each of the years ended June 30, 1993 through June 30, 1997
and as of and for the 12 months ended March 31, 1998. The analysis compared
Richmond County data to the median data for each of the Peer Group and the Large
Thrift Highly Valued Group as of and for each of the years ended December 31,
1993 through December 31, 1997 and as of and for the 12 months ended March 31,
1998. The table below sets forth the comparative data as of and for the 12
months ended March 31, 1998.
<TABLE>
<CAPTION>
RICHMOND REGIONAL HIGHLY VALUED
COUNTY GROUP GROUP
------------ ----------- -------------
<S> <C> <C> <C>
Total Assets........................... $1,463,805 $1,466,435 $1,392,342
Annual Growth Rate of Total Assets..... 50.78% 16.78% 8.52%
Tangible Equity/Total Assets........... 21.96% 9.61% 6.30%
Intangible Assets/Total Equity......... 0.40% 0.52% 0.80%
Net Loans/Total Assets................. 38.32% 56.78% 74.62%
Cash and Securities/Total Assets....... 59.14% 39.05% 24.17%
Gross Loans/Total Deposits............. 60.95% 87.23% 106.47%
Total Borrowings/Total Assets.......... 13.66% 17.99% 22.34%
Nonperforming Assets/Total Assets...... 0.47% 0.48% 0.50%
Loan Loss Reserve/Nonperforming Loans.. 106.63% 125.21% 205.01%
Loan Loss Reserve/Gross Loans.......... 1.17% 1.04% 0.86%
Net Interest Margin.................... 4.06% 3.20% 3.07%
Loan Loss Provision/Average Assets..... 0.17% 0.07% 0.04%
Noninterest Income/Average Assets...... 0.27% 0.40% 0.65%
Noninterest Expense/Average Assets..... 1.94% 1.81% 2.14%
Efficiency Ratio....................... 46.77% 51.10% 57.80%
Return on Average Assets............... 1.04% 0.95% 1.07%
Return on Average Equity............... 6.78% 10.14% 16.97%
Price/Tangible Book Value per Share.... 150.60% 178.90% 287.14%
Price/Earnings per Share............... 32.71x 19.82x 15.70x
Market Capitalization/Assets........... 33.06% 18.20% 16.96%
Dividend Yield......................... NM 1.59% 1.39%
Dividend Payout Ratio.................. NM 27.03% 24.95%
</TABLE>
No company included in the above analysis is identical to Bayonne or
Richmond County. Accordingly, an analysis of comparable companies is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
49
<PAGE>
companies and other factors that could affect the public trading values or
merger transaction values, as the case may be, of Bayonne and Richmond County
and the companies to which they are being compared.
ANALYSIS OF SELECTED MERGER TRANSACTIONS. Sandler O'Neill reviewed certain
other merger or acquisition transactions announced from January 1, 1998 to July
15, 1998 involving publicly traded savings institutions as acquired institutions
with transaction values greater than $15 million. Sandler O'Neill reviewed 34
transactions announced nationwide ("Nationwide Transactions") and 11
transactions announced in Maryland, New Jersey, New York and Pennsylvania
("Regional Transactions"). Sandler O'Neill reviewed the ratios of deal price to
last 12 months' earnings, deal price to book value, deal price to tangible book
value, tangible book premium to core deposits, deal price to total deposits and
deal price to total assets and computed high, low, mean and median ratios and
premiums for the respective groups of transactions. These multiples were
applied to Bayonne's financial information as of and for the 12 months ended
March 31, 1998. As illustrated in the following table, Sandler O'Neill derived
an imputed range of values per share of Bayonne common stock of $15.05 to $24.91
based upon the median multiples for Nationwide Transactions and $15.00 to $22.26
based upon the median multiples for Regional Transactions. Sandler O'Neill
concluded that the Implied Value of the merger to Bayonne stockholders of $19.23
was within the range of values suggested by comparable transactions.
<TABLE>
<CAPTION>
NATIONWIDE
TRANSACTIONS REGIONAL TRANSACTIONS
-------------------- ------------------------
MEDIAN IMPLIED MEDIAN IMPLIED
MULTIPLE VALUE MULTIPLE VALUE
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
Deal price/LQA EPS................... 26.47x $16.94 26.39x $16.89
Deal price/Est. 1999 net income...... 26.47x 15.05 26.39x 15.00
Deal price/Book value................ 2.28x 24.69 2.05x 22.26
Deal price/Tangible book value....... 2.30x 24.91 2.05x 22.26
Deal price/Total deposits............ 33.17% 15.46 32.74% 15.26
Tangible book premium/Core deposits.. 21.63% 20.43 21.47% 20.36
Deal price/Total assets.............. 24.96% 17.74 26.73% 19.00
</TABLE>
No companies involved in the transactions included in the above analysis
are identical to Bayonne and Richmond County and no transaction included in the
above analysis is identical to the merger. Accordingly, an analysis of the
results of the foregoing analysis is not mathematical; rather, it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values or merger transaction values, as the case may be, of
Bayonne and Richmond County and the companies to which they are being compared.
DISCOUNTED DIVIDEND STREAM AND TERMINAL VALUE ANALYSIS. Sandler O'Neill
also performed an analysis which estimated the future stream of after-tax
dividend flows of Bayonne through March 31, 2003 under various circumstances,
assuming Bayonne's current dividend payout ratio and that Bayonne performed in
accordance with the earnings forecasts of its management. To approximate the
terminal value of Bayonne common stock at March 31, 2003, Sandler O'Neill
applied price to earnings multiples ranging from 12x to 27x and applied
multiples of tangible book value ranging from 100% to 350%. The dividend income
streams and terminal values were then discounted to present values using
different discount rates ranging from 9% to 15% chosen to reflect different
assumptions regarding required rates of return of holders or prospective buyers
of Bayonne common stock. As illustrated in the following table, this analysis
indicated an imputed range of values per share of Bayonne common stock of $6.77
to $18.62 when applying the price/earnings multiples and $7.67 to $32.15 when
applying multiples of tangible book value. As calculated by Sandler O'Neill, the
Implied Value of the merger to Bayonne stockholders was $19.23.
50
<PAGE>
<TABLE>
<CAPTION>
PRICE/EARNINGS TANGIBLE BOOK
DISCOUNT MULTIPLES VALUE MULTIPLES
----------------- -----------------
RATE 12X 27X 1.0X 3.5X
-------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
9% $8.86 $18.62 $10.44 $32.15
11 8.09 16.94 9.41 28.72
13 7.40 15.43 8.49 25.68
15 6.77 14.06 7.67 22.98
</TABLE>
In connection with its analysis, Sandler O'Neill considered and discussed
with the Bayonne board how the present value analysis would be affected by
changes in the underlying assumptions, including variations with respect to the
growth rate of assets, net interest spread, non-interest income, non-interest
expenses and dividend payout ratio. Sandler O'Neill noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or future results.
PRO FORMA MERGER ANALYSIS. Sandler O'Neill analyzed certain potential pro
forma effects of the merger, based upon the exchange ratio of 1.05, Bayonne's
and Richmond County's current and projected income statements and balance
sheets, and assumptions regarding the economic environment, accounting and tax
treatment of the merger, charges associated with the merger, operating
efficiencies and other adjustments discussed with senior managements of Bayonne
and Richmond County. This analysis indicated that in the first full year
following the merger, the merger would be neutral to Richmond County's earnings
per share and slightly dilutive to tangible book value per share. The analysis
also indicated that, from a Bayonne stockholder's perspective, as compared to
the projected stand-alone performance of Bayonne, the merger would be accretive
to both earnings per share and tangible book value per share.
Sandler O'Neill updated its analysis following the amendment and
restatement of the agreement to reflect the fact that the merger will be
accounted for as a purchase transaction. This analysis included the projected
impact of the 15 year amortization of the goodwill created as a result of the
merger and a projected repurchase of 10% of the pro forma number of shares of
Richmond County common stock outstanding after giving effect to the merger. As
illustrated in the following table, this analysis indicated that the merger
would be accretive to Richmond County's earnings per share and dilutive to
tangible book value per share. The analysis also indicated that, from a Bayonne
stockholder's perspective, as compared to the projected stand-alone performance
of Bayonne, the merger would be accretive to both earnings per share and
tangible book value per share. The actual results achieved by Richmond County
may vary from projected results and the variations may be material.
<TABLE>
<CAPTION>
RICHMOND
JUNE 30, 2000 COUNTY BAYONNE
------------- -------- ----------
<S> <C> <C>
Stand-alone EPS......................... $ 1.19 $ 0.83
Pro forma EPS........................... $ 1.25 $ 1.31/(1)/
EPS accretion........................... 5.10% 57.60%
Stand-alone tangible book value......... $ 13.28 $ 11.43
Pro forma tangible book value........... $ 13.21 $ 13.87/(1)/
Tangible book value accretion (dilution) (0.50)% 21.40%
Stand-alone leverage capital ratio...... 13.80% NM
Pro forma leverage capital ratio........ 12.40% NM
</TABLE>
____________________
(1) Determined by multiplying the Richmond County values by the exchange
ratio.
51
<PAGE>
CONTRIBUTION ANALYSIS. Sandler O'Neill reviewed the relative contributions
to, among other things, total assets, total net loans, total deposits, total
borrowings, total equity, last quarter annualized net income and market
capitalization to be made by Bayonne and Richmond County to the combined
institution based on data at and for the 12 months ended March 31, 1998. This
analysis indicated that the implied contributions to the combined entity were as
follows:
<TABLE>
<CAPTION>
RICHMOND
BAYONNE COUNTY
------- --------
<S> <C> <C>
Total assets.......................... 30.6% 69.4%
Total net loans....................... 29.6% 70.4%
Total deposits........................ 31.3% 68.7%
Total borrowings...................... 36.6% 63.4%
Total equity.......................... 23.4% 76.6%
LQA net income........................ 27.1% 72.9%
Market capitalization................. 24.2% 75.8%
Percentage of pro forma shares owned.. 25.9% 74.1%
</TABLE>
Sandler O'Neill concluded that the percentage of pro forma shares owned by
Bayonne stockholders was comparable to the percentage contribution of Bayonne to
the combined company.
In connection with rendering its July 19, 1998 opinion, Sandler O'Neill
reviewed, among other things:
(1) the merger agreement and exhibits thereto;
(2) the merger stock option agreement;
(3) certain publicly available financial statements of Bayonne and other
historical financial information provided by Bayonne that Sandler
O'Neill deemed relevant;
(4) certain publicly available financial statements of Richmond County and
other historical financial information provided by Richmond County
that Sandler O'Neill deemed relevant;
(5) certain financial analyses and forecasts of Bayonne prepared by and
reviewed with management of Bayonne and the views of senior management
of Bayonne regarding Bayonne's past and current business, operations,
results thereof, financial condition and future prospects;
(6) certain financial analyses and forecasts of Richmond County prepared
by and reviewed with management of Richmond County and the views of
senior management of Richmond County regarding Richmond County's past
and current business, operations, results thereof, financial condition
and future prospects;
(7) the pro forma impact of the merger;
(8) the publicly reported historical price and trading activity for
Bayonne and Richmond County common stock, including a comparison of
certain financial and stock market information for Bayonne and
Richmond County with similar publicly available information for
certain other companies the securities of which are publicly traded;
(9) the financial terms of recent business combinations in the savings
institution industry, to the extent publicly available;
(10) the current market environment generally and the banking environment
in particular; and
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(11) such other information, financial studies, analyses and investigations
and financial, economic and market criteria as Sandler O'Neill
considered relevant.
In connection with rendering the Sandler fairness opinion, Sandler O'Neill
confirmed the appropriateness of its reliance on the analyses used to render its
July 19, 1998 opinion by performing procedures to update certain of such
analyses and by reviewing the assumptions upon which such analyses were based
and the other factors considered in rendering its opinion. In performing such
procedures, Sandler O'Neill considered the impact on its analyses arising out of
the change in the accounting treatment of the merger from a pooling-of-interests
to a purchase transaction.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with it, and Sandler O'Neill does not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of such information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of Bayonne or Richmond
County or any of their respective subsidiaries, or the collectibility of any
such assets, nor was it furnished with any such evaluations or appraisals.
Sandler O'Neill is not an expert in the evaluation of allowances for loan losses
and it has not made an independent evaluation of the adequacy of the allowance
for loan losses of Bayonne or Richmond County, nor has it reviewed any
individual credit files relating to Bayonne or Richmond County. With Bayonne's
consent, Sandler O'Neill has assumed that the respective allowances for loan
losses for both Bayonne and Richmond County are adequate to cover such losses
and will be adequate on a pro forma basis for the combined entity. In addition,
Sandler O'Neill has not conducted any physical inspection of the properties or
facilities of Bayonne or Richmond County. With respect to all financial
projections prepared by or reviewed with each company's management and used by
Sandler O'Neill in its analyses, Sandler O'Neill assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the respective managements of the respective future financial
performances of Bayonne and Richmond County and that such performances will be
achieved. Sandler O'Neill expressed no opinion as to such financial projections
or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its analysis,
that all of the representations and warranties contained in the merger agreement
and all related agreements are true and correct, that each party to such
agreements will perform all of the covenants required to be performed by such
party under such agreements and that the conditions precedent in the merger
agreement are not waived. Sandler O'Neill also assumed, with Bayonne's consent,
that there has been no material change in Bayonne's and Richmond County's
assets, financial condition, results of operations, business or prospects since
the date of the last publicly filed financial statements available to it, that
Bayonne and Richmond County will remain as going concerns for all periods
relevant to its analyses, and that the merger will be accounted for as a
purchase and will qualify as a tax-free reorganization for federal income tax
purposes.
Bayonne has agreed to pay Sandler O'Neill a transaction fee in connection
with the merger, a substantial portion of which is contingent upon the closing
of the merger. Based on the closing price of Bayonne common stock on January
19, 1999, the last practicable date prior to the printing of this document,
Bayonne will pay Sandler O'Neill a transaction fee of approximately $1,651,000,
of which approximately $470,000 has been paid and the balance will be paid when
the merger is closed. Sandler O'Neill has also received a fee of $50,000 for
rendering its fairness opinion. Bayonne has also agreed to reimburse Sandler
O'Neill for its reasonable out-of-pocket expenses incurred in connection with
its engagement and to protect Sandler O'Neill and its affiliates and their
respective partners, directors, officers, employees, agents, and controlling
persons against certain expenses and liabilities, including liabilities under
securities laws.
Sandler O'Neill has in the past provided certain other financial services
to Bayonne and has received compensation for such services. Sandler O'Neill has
in the past provided and currently provides certain financial advisory services
to Richmond County and has received, and will receive, compensation for such
services. In addition, Sandler O'Neill may in the future provide investment
banking services to Richmond County and will receive compensation for such
services. In the ordinary course of its business
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as a broker-dealer, Sandler O'Neill may purchase securities from and sell
securities to Bayonne and Richmond County and may actively trade the equity
securities of Bayonne and Richmond County for its own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
BAYONNE STOCKHOLDERS WILL RECEIVE 1.05 SHARES OF RICHMOND COUNTY COMMON STOCK
FOR EACH BAYONNE SHARE
Upon completion of the merger, each share of Bayonne common stock, will be
converted into the right to receive 1.05 shares of Richmond County common stock.
However, some shares, as described on the next page, will not be so converted.
The exchange ratio may be increased by Richmond County if Bayonne exercises its
rights under the merger agreement to terminate the merger agreement due to the
price of the Richmond County common stock declining below certain levels. See
"--Price-Based Termination of the Merger Agreement." However, Richmond County is
under no obligation to increase the exchange ratio. Any decision to increase the
exchange ratio would be made by the Richmond County board. If Richmond County
elects to increase the exchange ratio, it must give Bayonne prompt notice of
that election. If Richmond County increases the exchange ratio as called for by
the merger agreement, no termination of the merger agreement would occur.
The exchange ratio was arrived at through arm's-length negotiations between
Richmond County and Bayonne. The exchange ratio cannot be decreased without
approval of Bayonne and the Richmond County stockholders. If Richmond County
effects a stock dividend, reclassification, split, combination or exchange of
shares of the Richmond County common stock, an appropriate adjustment to the
exchange ratio will be made. This insures that the consideration to be received
by Bayonne stockholders will not be impacted by a dividend, stock split or the
like.
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
Bayonne's stockholders in the merger is fixed (subject to possible increase as
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 Bayonne 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 Bayonne 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.
No fractional shares of Richmond County common stock will be issued in
connection with the merger. Instead, Richmond County will make a cash payment to
each Bayonne stockholder who would otherwise receive fractional shares. The cash
payment will equal the product of (1) the fractional portion which a Bayonne
stockholder would otherwise receive and (2) the average of the daily closing
sales prices of a share of Richmond County common stock for the 15 consecutive
trading days immediately preceding the day on which the last required regulatory
approval for the merger is obtained.
Upon completion of the merger, some shares of Bayonne common stock will be
canceled and retired and no payment will be made for them. These shares are:
. shares held directly or indirectly by Richmond County. This does not
apply to shares held in a fiduciary capacity or in satisfaction of a
debt previously contracted;
. shares held by Bayonne as treasury stock; and
. unallocated shares held in the Bayonne 1995 RRP.
Other than the option Richmond County may have the right to exercise under
the merger stock option agreement, each outstanding and unexercised option to
purchase Bayonne common stock, will be converted into an option to purchase
Richmond County common stock. The number of shares of Richmond County common
stock to be received is equal to the product of the number of shares of Bayonne
common stock subject to Bayonne options and the exchange ratio. The price per
share of the Richmond County common stock will equal the exercise price per
share of Bayonne common stock otherwise purchasable under the Bayonne option,
divided by the exchange ratio.
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PROCEDURES FOR EXCHANGING YOUR STOCK CERTIFICATES
RICHMOND COUNTY. Shares of Richmond County capital stock issued and
outstanding immediately prior to the completion of the merger will remain issued
and outstanding and be unaffected by the merger.
BAYONNE. Within five business days after the completion of the merger, a
bank or trust company selected by Richmond County and reasonably satisfactory to
Bayonne, will mail to each former holder of record of Bayonne common stock a
letter with instructions on how to exchange Bayonne stock certificates for
Richmond County stock certificates and cash for fractional shares.
HOLDERS OF BAYONNE 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 Bayonne certificates you surrender will
be canceled.
As a Bayonne stockholder, you will receive Richmond County dividends or
other distributions declared after the completion of the merger only if you
surrendered your Bayonne stock certificates. Only then will you be entitled to
receive all previously withheld dividends and distributions, without interest.
After the completion of the merger, no transfers of Bayonne common stock
issued and outstanding immediately prior to the completion of the merger will be
allowed. Bayonne stock certificates that are presented for transfer after the
completion of the merger, will be canceled and exchanged for Richmond County
stock certificates.
If your Bayonne stock certificates have been lost, stolen or destroyed, you
will have to prove your ownership of those 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 this evidence.
INTERESTS OF DIRECTORS AND OFFICERS IN THE MERGER THAT ARE DIFFERENT FROM YOUR
INTERESTS
Some members of Bayonne's management and the Bayonne board may have
interests in the merger that are in addition to or different from the interests
of stockholders. The Bayonne board was aware of these interests and considered
them in approving the merger agreement.
EXISTING EMPLOYMENT, CHANGE IN CONTROL AND CONSULTING AGREEMENTS. Mr.
Michael A. Nilan is President of Bayonne. He has an employment contract with
Bayonne. Because of the merger, his contract will be terminated. In exchange for
this he will receive a payment of approximately $150,000. Following the merger,
Mr. Nilan will be employed by Richmond County Savings under an employment
agreement. Other senior officers of Bayonne, including Mr. Eugene Malinowski,
Bayonne's Chief Financial Officer, will receive severance payments totalling, in
the aggregate, approximately $1.1 million if their employment is terminated in
connection with or following the merger. Mr. Malinowski himself will receive
approximately $350,000. These officers will also be entitled to continued life,
health and disability insurance coverage for 36-months following their
termination of employment. Mr. Patrick F.X. Nilan's consulting agreement with
Bayonne will be terminated after the merger, in return for which he will receive
$100,000.
VESTING OF RESTRICTED STOCK. Under the Bayonne 1995 Recognition and
Retention Plan, grants of restricted stock were made to directors and officers
of Bayonne. The vesting of these shares was to occur over a period of years.
However, this plan provides that all unvested restricted shares of Bayonne
common stock become vested upon a change in control of Bayonne. The merger is a
change in control. Officers and directors of Bayonne currently hold 49,684
shares of unvested restricted stock, which will be converted into shares of
Richmond County common stock at the exchange ratio. The vesting of
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shares of restricted stock granted under the Bayonne Incentive Plan will not be
accelerated by the merger. However, Richmond County will assume Bayonne's
obligations under these awards.
ESTABLISHMENT OF DIVISIONAL BOARD. Richmond County will create a
divisional board to advise Richmond County on deposit and lending activities in
Bayonne's market area and to maintain and develop customer relationships.
Richmond County will appoint all of the present members of the Bayonne board who
wish to serve to the divisional board. The divisional board will be maintained
until April 30, 2003 or later, at the discretion of the Richmond County board.
Each member of the divisional board will receive an annual retainer of $12,000
and a $1,000 attendance fee for each meeting attended.
APPOINTMENT TO RICHMOND COUNTY BOARD OF DIRECTORS. Following the
completion of the merger, Richmond County will increase the Richmond County
board by one member and appoint Patrick F.X. Nilan to fill the newly created
vacancy. Mr. Patrick F.X. Nilan's term will expire in year 2000. For his
services as a member of the Richmond County board, Mr. Nilan will receive the
customary Richmond County board fees and retainers. He will not receive fees for
service on the divisional board while a member of the Richmond County board.
NEW EMPLOYMENT AGREEMENTS. Following the merger, Michael A. Nilan will
enter into an employment agreement with Richmond County Savings. He will serve
as a senior officer of Richmond County Savings for the three years following the
merger. His initial base salary under the agreement will be $150,000. He will
also receive a bonus of $150,000 when he executes his new employment agreement.
Mr. Nilan will also receive compensation for not competing with Richmond County
during the term of his agreement and for the loss of benefits he would have
received under Bayonne's retirement programs that are being lost due to the
merger.
BAYONNE STOCK OPTIONS. Options to purchase shares of Bayonne common stock
under the Bayonne 1995 Stock Option Plan or the Bayonne Incentive Plan will be
converted into options to purchase Richmond County common stock. As of September
30, 1998, the directors and executive officers of Bayonne held options to
purchase a total of 460,783 shares of Bayonne common stock.
PROTECTION OF OFFICERS, DIRECTORS AND EMPLOYEES AGAINST CLAIMS. Richmond
County has also agreed as to protect and hold harmless each present and former
director, officer and employee of Bayonne and its subsidiaries and each officer
or employee of Bayonne and its subsidiaries that is serving or has served as a
director or trustee of another entity at Bayonne's request or direction. These
people will be protected against any costs, expenses judgments, fines, losses,
claims, or liabilities incurred in connection with any claim, suit, proceeding
or investigation relating to matters existing or occurring at or prior to the
completion of the merger. Richmond County also agreed to advance these persons
costs they incur to the fullest extent the costs would have been advanced to
them if they were a director, officer, or employee of Bayonne under the Delaware
General Corporation Law. The indemnification will last for six years following
the merger.
Moreover, Richmond County will maintain Bayonne's existing directors' and
officers' insurance policy. In the alternative, Richmond County will provide a
policy providing comparable coverage and amounts on terms no less favorable to
the persons currently covered by Bayonne's existing policy. This coverage will
be maintained for three years after the merger.
MANAGEMENT AND OPERATIONS FOLLOWING THE MERGER
Following the merger, Richmond County will increase its board by one member
and will appoint Patrick F.X. Nilan to fill the vacancy. Mr. Nilan's term as a
member of the Richmond County board will expire in the year 2000. For his
services as a member of the Richmond County board, Mr. Nilan will be paid the
customary board fee. In addition, Richmond County will establish a divisional
board with respect to deposit and lending activities in Bayonne's market area
and to maintain and develop customer relationships.
Richmond County expects to achieve significant consolidation efficiencies
following the consummation of the merger, although there can be no assurance
that the anticipated efficiencies will be achieved. The efficiencies are
expected to be achieved primarily through the elimination of duplicative
compensation costs and computer system costs. A merger integration committee,
consisting of senior
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management members of Richmond County and Bayonne, is in the process of
establishing a definitive plan, including a timetable, to achieve the cost
reductions.
Following the merger, Richmond County intends to continue to utilize a
stock repurchase program, subject to regulatory limitations or conditions,
economic and market conditions and a review by the board and management of the
anticipated effects of such a program. Such a program may affect Richmond
County's ability to utilize pooling-of-interests accounting in any potential
acquisitions, although, like other public companies, Richmond County will retain
the ability to terminate the stock repurchase plan and reissue all or a portion
of these repurchased shares in order to utilize the pooling-of-interests method
of accounting for future acquisitions.
EMPLOYEE MATTERS
Each First Savings employee whose employment is not specifically terminated
will become an employee of Richmond County or Richmond County Savings. However:
(1) Bayonne'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 Mr. Michael A. Nilan, all of Bayonne's
continuing employees who remain following the completion of the merger
will be employed at the will of Richmond County or Richmond County
Savings.
(3) With the exception of Mr. Michael A. Nilan, no employee of Bayonne
will become a contractual employee of Richmond County or Richmond
County Savings unless the contract is in writing with Richmond County
or Richmond County Savings.
(4) Each of Bayonne's continuing employees who is a participant in the
Bayonne 401(k) Plan will become fully vested in his or her account
balance in the Bayonne 401(k) Plan. The Bayonne 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. Bayonne's
continuing employees participating in the Bayonne 401(k) Plan will
become participants in the Richmond County Savings 401(k) Plan.
(5) Richmond County will honor existing employment agreements, including
the change in control provisions of those agreements and in certain
benefit plans. Richmond County will also honor the payment of benefits
by Bayonne under the agreements and plans to the extent these
obligations have been previously disclosed to Richmond County.
Payments under the Bayonne employment agreements may be made by
Bayonne immediately prior to the completion of the merger.
(6) Except as otherwise provided in paragraphs (4) and (5) above,
appropriate steps shall be taken to terminate all Bayonne employee
plans around the time the merger closes. Except as provided in
paragraph (4), each Bayonne 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 ESOP and the Richmond County Savings
401(k) Plan, service with Bayonne or First Savings will be treated as
service with Richmond County or Richmond County Savings to determine
eligibility to participate, vesting and entitlement to benefits.
Service will not be recognized to the extent that it would result in a
duplication of benefits. For purposes of the Richmond County ESOP or
Richmond County Savings 401(k) Plan, Bayonne's continuing employees
will be treated as newly-hired employees of Richmond County or
Richmond County Savings as of the completion of the merger and credit
for service will begin accruing as of that date.
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CONDITIONS TO THE MERGER
The obligations of Richmond County and Bayonne to close the merger are
conditioned on the following being satisfied at or prior to the completion of
the merger:
(1) Richmond County's and Bayonne's stockholders must approve the merger
agreement;
(2) the requisite regulatory approvals, consents and waivers must be
obtained and all statutory waiting periods must have expired;
(3) any necessary material third party consents, waivers or approvals must
be obtained or made;
(4) no approval or consent will have imposed any condition or requirement
that would materially and adversely impact the economic or business
benefits to either party that, had the condition or requirement been
known, the party would not have entered into the merger agreement;
(5) no party to the merger will be subject to any order, decree or
injunction that prohibits closing any of the merger's transactions;
(6) no statute, rule or regulation will prohibit completion of the
merger's transactions;
(7) 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;
(8) all required approvals by state securities or "blue sky" authorities
will have been obtained; and
(9) Richmond County will issue its shares in exchange for the shares of
Bayonne common stock. Such shares will be listed on the Nasdaq
National Market.
The obligations of Richmond County and Bayonne 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 boards will have taken all actions they
are required to under the merger agreement and each will furnish the
other with copies of the appropriate corporate records reflecting this
fact;
(4) Richmond County and Bayonne will have obtained all necessary material
consents or approvals to permit Richmond County to assume Bayonne's
contracts, leases and other agreements;
(5) Richmond County and Bayonne 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 will have provided a designated agent (a) certificates
representing at least the aggregate number of shares of Richmond
County stock to be issued to Bayonne's stockholders, and (b)
sufficient cash to pay Bayonne stockholders for their fractional share
interest; and
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(7) Richmond County and Bayonne 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, Bayonne or First Savings as a result of the
merger;
(b) besides cash received for fractional shares, no gain or loss will
be recognized by Bayonne's stockholders who exchange their
Bayonne stock for Richmond County's stock;
(c) the tax basis of stock received by Bayonne's stockholders in the
merger will be the same as the tax basis of their Bayonne stock.
This tax basis will be reduced by any amount allocable to a
fractional share interest for which cash is received; and
(d) the holding period of Richmond County common stock received by
Bayonne's stockholders will include the holding period of their
Bayonne stock. However, Bayonne's stockholders must have first
held their Bayonne stock as a capital asset at the merger's
conclusion.
The parties have received these opinions which will be updated after
completion of the merger.
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 Richmond County's or Bayonne's board. If, on that date, all
necessary regulatory or governmental approvals, consents or waivers required to
complete the merger will not have been obtained but all other conditions have
been fulfilled, the deadline will be July 31, 1999. However, the failure to
complete the merger by that date cannot be due to the breach of the merger
agreement 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 up to 30 days must be satisfied prior to consummation of the bank
merger after FDIC approval. Richmond County filed an application with the FDIC
on December 7, 1998.
Further, under the New York State Banking Law, the bank merger is subject
to the prior approval of the Superintendent of Banks of New York State. Richmond
County filed an application for approval of the bank merger with the
Superintendent on December 7, 1998. In determining whether to approve the
application for the merger of Bayonne with and into Richmond County, the
Superintendent will consider, among other factors, whether the 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. Such factors will be
considered by the Superintendent in connection with Richmond County's
application.
A savings and loan holding company is prohibited under the Home Owners'
Loan Act, as amended, from acquiring, directly or indirectly, another savings
and loan holding company or a savings
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association without the prior written approval of the Office of Thrift
Supervision. Accordingly, Richmond County has filed an application with the OTS
for approval of the merger. In evaluating applications by holding companies to
acquire savings institutions, the OTS must consider the financial and managerial
resources and future prospects of the company and institution involved, the
effect of the acquisition on the risk to the insurance funds, the convenience
and needs of the community and competitive factors. Like the FDIC, the OTS may
not approve any proposed acquisition if it will result in a monopoly or
otherwise be anticompetitive.
In order to complete the bank merger, First Savings will merge with a
Federal interim savings bank or convert to a savings bank, which will then merge
into Richmond County Savings. The merger of First Savings into the Federal
interim savings bank is subject to the approval of the OTS and the Commissioner
of the New Jersey Department of Banking and Insurance, which is also responsible
for approving its conversion to a savings bank. First Savings has filed
applications with the OTS and the Commissioner.
Under the Community Reinvestment Act, the FDIC and OTS must take into
account the record of performance of Richmond County Savings and First Savings
in meeting the credit needs of the entire community, including low- and
moderate-income neighborhoods, served by each institution. As part of the review
process, the banking agencies frequently receive comments and protests from
community groups and others. See "REGULATION AND SUPERVISION--Community
Reinvestment Act."
In addition, a period of up to 30 days must expire following approval by
the FDIC and OTS 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 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
which causes such approvals to fail to satisfy the condition set forth in the
merger agreement and described below under "--Conditions to the Merger."
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 do not include review of the merger from
the standpoint of the adequacy of the consideration to be received by Bayonne
stockholders. Further, 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 Bayonne
have agreed that, during the period from July 19, 1998 to the completion of the
merger, Richmond County, Bayonne and their respective subsidiaries will use
commercially reasonable efforts to:
. conduct their business in the regular, ordinary and usual course
consistent with past practice;
. maintain and preserve intact their business organization, properties,
leases, employees and advantageous business relationships and retain
the services of their officers and key employees;
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. take no action which would materially adversely affect or delay the
ability of Richmond County or Bayonne to perform their respective
covenants and agreements on a timely basis under the merger agreement;
. take no action which would adversely affect or delay the ability of
Richmond County, Richmond County Savings, Bayonne or First Savings to
obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated by
the merger agreement; and
. take no action that results in or is reasonably likely to have a
materially adverse effect on Richmond County or Bayonne.
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 a 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 to be materially true.
Further, except as otherwise provided in the merger agreement, during the
period from July 19, 1998 to the completion of the merger, Bayonne 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, or issuing, granting or selling
any option, warrant, call, or commitment relating to the authorized or
issued capital stock of Bayonne. This restriction does not apply to
the exercise of stock options or warrants outstanding as of July 19,
1998;
(3) other than regular quarterly dividends, 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.
Bayonne also will change its regular quarterly dividend record dates
and payment dates so that they are the same as Richmond County's.
Bayonne's stockholders cannot receive two dividends from either
Bayonne or from Bayonne and Richmond County in any one quarter as a
result of the merger. Bayonne may pay a cash dividend as permitted by
the merger agreement;
(4) other than in the ordinary course of business consistent with past
practice, disposing of any of its material properties, leases or
assets to anyone other than to its wholly owned subsidiary, or
cancelling any such indebtedness;
(5) 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 can not cause more than a 5% increase
in the total annual compensation expenses for such person for the 12
month period ended March 31, 1998. Additionally, any increase must not
represent an increase of more than 5% over such person's annual base
salary at March 31, 1998. Further, unless approved in advance by
Richmond County, Bayonne cannot make payments to retain key employees.
It also can not 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. Bayonne is also prohibited from
voluntarily accelerating the vesting of any stock options or other
compensation, making discretionary contributions to any Bayonne
employee plan, or hiring any employee with annual total compensation
of more than $35,000. The merger agreement also prevents Bayonne from
entering into any employment contracts, or terminating or materially
increasing the costs to Bayonne or any subsidiary of any of their
employee plans;
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(6) except as contemplated by the merger agreement, changing its method of
accounting as in effect at March 31, 1998;
(7) settling any claims of Bayonne or any of its subsidiaries in excess of
$50,000 or imposing material restrictions on the operations of Bayonne
or any of its subsidiaries;
(8) acquiring or agreeing to acquire any business or business assets which
are material to Bayonne, except to satisfy debts previously
contracted;
(9) except for those loans existing at July 19, 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;
(10) establishing or committing to the establishment of any new branch or
other office facilities other than those for which all regulatory
approvals have been obtained except as previously disclosed to
Richmond County;
(11) 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;
(12) investing in any debt security 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 under OTS mandates or
securities of the Federal Home Loan Bank. Any debt security that is
purchased must be done in the ordinary course of business consistent
with past practice;
(13) 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;
(14) creating loan, lease or credit obligations, except (a) in conformity
with existing lending practices in amounts not to exceed $500,000 to
any individual borrower or (b) loans or advances that Bayonne has a
binding obligation to make as of July 19, 1998 and a description of
which has been provided to Richmond County;
(15) 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. Bayonne is also restricted from
pledging any of its assets to secure any borrowings other than as
required as of July 19, 1998 or permitted under the merger agreement.
Deposits are not considered borrowings;
(16) making any capital expenditures in excess of $20,000 other than under
binding commitments existing on July 19, 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;
(17) 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 or otherwise investing in any
subsidiary;
(18) adding new members to the senior executive officer team or the Bayonne
board after July 19, 1998; and
(19) agreeing or making any commitment to take any action that is described
above.
At Richmond County's request, Bayonne will cause First Savings to 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
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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 30 days prior to the completion of the
---
merger.
REPRESENTATIONS AND WARRANTIES MADE BY RICHMOND COUNTY AND BAYONNE IN THE MERGER
AGREEMENT
Both Richmond County and Bayonne have made customary representations and
warranties relating to their businesses. For detailed information on these
representations and warranties, see the merger agreement attached as Annex A.
Such representations and warranties must remain true in all material respects
through the completion of the merger unless such 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 BAYONNE
Bayonne has agreed not to seek to have an outside third party try to buy a
material interest in Bayonne or its subsidiaries. Generally, an offer to buy at
least 15% of Bayonne's or First Savings' assets, at least 10% of Bayonne's
stock, or a public announcement by Bayonne to enter into an agreement to do
this, would violate this covenant.
However, the Bayonne board may enter into discussions or negotiations with
anyone who makes an unsolicited written, bona fide proposal to acquire Bayonne
that is deemed to be a financially superior proposal to Richmond County. A
proposal of this nature is one about which Bayonne's financial advisors opine in
writing is superior to this merger from a financial point of view to Bayonne's
stockholders. For the Bayonne 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 Bayonne 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 Bayonne 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 Bayonne or Richmond County, no amendment or
modification may be made that would reduce the amount to be received by
Bayonne's stockholders under the terms of the merger.
The merger agreement may also be terminated at any time 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 both Richmond
County and Bayonne by:
(1) the mutual consent of both boards;
(2) either party's board if the stockholders of Richmond County or Bayonne
do not approve the merger agreement. However, a party can only
terminate the merger agreement if it has complied in all material
respects with its obligations to solicit the support of its
stockholders for the merger and has complied, in all material
respects, with its representations and warranties;
(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;
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(4) either party's board if the merger is not completed by April 30, 1999.
However, if, as of April 30, 1999, all necessary regulatory or
governmental approvals, consents or waivers required to complete the
merger have not been obtained, but all other conditions to the
---
completion of the merger have been fulfilled, the termination date
----
will be extended to July 31, 1999. The failure to complete the merger
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 the other's board does not publicly recommend in this
document that its stockholders approve the merger agreement or if
either board withdraws, modifies or amends their recommendation in a
manner materially adverse to the other party;
(6) either party if there has occurred an event since July 19, 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;
(7) 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;
(8) Bayonne, if its board determines that it must accept a superior
proposal made by a third party to acquire more than 65% of the
combined voting power of the shares of outstanding Bayonne common
stock. However, prior to any such termination, Bayonne must negotiate
in good faith with Richmond County to attempt to make this merger
work; or
(9) by Bayonne as discussed below under "--Price-Based Termination of the
Merger Agreement."
PRICE-BASED TERMINATION OF THE MERGER AGREEMENT
Generally, 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 $15.41, and Richmond County's stock has underperformed the stock of
a group of its peers by 15% or more, then Bayonne may terminate the merger
agreement. This termination can occur during the five days following the date on
which the last regulatory approval is obtained. The peer group against which
Richmond County's stock prices will be compared is comprised of 14 financial
institution holding companies identified in the merger agreement that are
publicly traded and for which no publicly announced acquisition transaction has
occurred. The peer group's stock prices are evaluated for the 15 trading days
ending on the date on which the last regulatory approval is obtained. However,
no termination will occur if Richmond County agrees to increase the exchange
ratio. The increase required by the merger agreement is generally designed to
make up for the extent to which Richmond County's stock has underperformed those
of its peers, should that be the case. The calculations necessary to arrive at
such an increase are complex and we encourage you to read them in context within
Section 6.1 of the merger agreement. Please note, however, that based on
Richmond County's stock price alone as of January 19, 1999, no such increase
would be necessary. Of course, this could change due to market fluctuations
beyond the parties' control.
NASDAQ NATIONAL MARKET LISTING
Richmond County stock is listed on the Nasdaq National Market. Richmond
County has agreed to use reasonable efforts to cause the shares of Richmond
County common stock to be issued in the 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.
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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 Bayonne will be
treated as one company as of the date of the combination, and that Richmond
County will record the fair market value of Bayonne'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 Bayonne's operations beginning at
the completion of the merger.
The unaudited pro forma condensed combined 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 BAYONNE STOCKHOLDERS
The following is a discussion of the material federal income tax
consequences of the merger to Richmond County, Bayonne and holders of Bayonne
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 Bayonne 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 Bayonne common stock in light of his or her particular circumstances
or to holders subject to special rules, such as foreign persons, financial
institutions, tax-exempt organizations, dealers in securities or foreign
currencies or insurance companies. The opinions of counsel referred to in this
section will be based on facts existing at the completion of the merger. In
rendering their opinions, counsel will require and rely upon representations
contained in certificates of officers of Richmond County, Bayonne and others.
HOLDERS OF BAYONNE COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER.
It is a condition to the obligation of Richmond County and Bayonne 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, that the merger
will be treated as a reorganization within the meaning of 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
Richmond County stockholders or Bayonne 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:
(1) none of the companies involved in the merger will recognize a gain or
a loss;
(2) no stockholders of Bayonne will recognize a gain or a loss for
exchanging their Bayonne shares for Richmond County shares except for
cash received instead of fractional shares; and
(3) Bayonne stockholders will not have their individual tax basis or
holding periods affected by exchanging their Bayonne shares for
Richmond County shares, except to the extent cash is received instead
of fractional shares.
SELLING THE RICHMOND COUNTY COMMON 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 Bayonne
stockholder who may be deemed to control Bayonne, 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 an applicable exemption from the registration requirements of the
Securities Act of 1933. This document does not cover any resales of Richmond
County common
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stock received in the merger by persons who may be deemed to be controlling
persons of Bayonne. Bayonne has obtained from each person who is a controlling
person 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
The Delaware General Corporation Laws provide that stockholders of a
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 designated as a national market system security on the
Nasdaq National Market, or held of record by more than 2,000 stockholders, with
certain exceptions not applicable in the merger. Bayonne stockholders are not
entitled to appraisal rights generally because the shares of Bayonne common
stock are listed on the Nasdaq National Market. Stockholders are not entitled to
appraisal rights in connection with the merger because the shares of Richmond
County common stock to be issued in the merger are shares of the surviving
corporation in the merger and will be listed on the Nasdaq National Market at
the completion of the merger, subject to official notice of issuance. In
addition, there are more than 2,000 holders of record of Richmond County common
stock.
WHO PAYS FOR WHAT
All costs and expenses incurred in connection with the merger will be paid
by the party incurring such expense. However, Richmond County shall bear the
expenses incurred in connection with printing and mailing this document and
filing fees associated with the requisite registrations and approvals required
to complete the merger.
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 within 14 days of the
satisfaction or waiver of certain conditions to the merger, unless another date
is agreed to in writing by Richmond County and Bayonne. 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 Richmond County meeting and the Bayonne 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. However,
if, as of April 30, 1999, all necessary regulatory or governmental approvals,
consents or waivers required to complete the merger will not have been obtained
but all other conditions have been fulfilled, then this deadline will be July
31, 1999. See "--Waiving and Amending Provisions in, or Terminating, the Merger
Agreement."
CERTAIN RELATED TRANSACTIONS
BAYONNE MERGER STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the Bayonne Merger
Stock Option Agreement, which is attached 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 Bayonne 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, Bayonne granted Richmond County
the option to purchase up to 1,809,804 authorized but unissued shares of Bayonne
common stock. This represents approximately 19.9% of the issued and outstanding
shares of Bayonne common
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stock on July 19, 1998. The option price is $15.50 per share, subject to
adjustment in certain circumstances.
So long as (1) Richmond County is not in material breach of the agreements
or covenants contained in the merger agreement or the merger stock option
agreement and (2) no preliminary or permanent injunction or other order against
the delivery of the shares covered by the option granted under the merger stock
option agreement issued by any court is in effect, Richmond County may exercise
the option granted under the merger stock option agreement, in whole or in part,
at any time following the occurrence of a particular event, such as when Bayonne
or First Savings enters into an agreement, or has recommended or publicly
announced an intention to merge with or sell to a third party a material amount
of its stock or assets. However, the option granted under the merger stock
option agreement will terminate upon the earliest to occur of:
(a) the completion of the merger;
(b) termination of the merger agreement prior to the occurrence of an
event described above or one which may lead to those events;
(c) 12 months after the termination of the merger agreement other
than because of the events described above or because of other
situations that may lead to the events described above;
----
(d) 12 months after the termination of the merger agreement by
Richmond County in accordance with the terms of the merger
agreement; and
(e) 12 months after the first occurrence of an event described above.
A preliminary event that could lead to Bayonne or First Savings merging
with a third party, or the like, generally occurs when a third party undertakes
----------
to acquire a substantial ownership interest in Bayonne or its subsidiaries. It
also applies if Bayonne's stockholders do not approve the merger, the Bayonne
meeting is not held or the Bayonne 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 Bayonne or its subsidiaries. These preliminary events can
also occur if a third party makes a legitimate proposal to buy a material
interest in Bayonne or its subsidiaries, after which Bayonne breaches an
obligation under the merger agreement. They can also occur if a third party
files an application or notice with the OTS, or other federal or state bank
regulatory authority, for approval to merge with Bayonne or First Savings, buys
at least 20% of their assets, or buys 15% of their stock.
Bayonne must notify Richmond County promptly in writing if any of the
foregoing situations arise.
EFFECT OF THE BAYONNE 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 Bayonne from considering or proposing such an acquisition. The
acquisition of Bayonne or an interest therein, or an agreement to acquire all or
part of Bayonne, could cause the 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 Bayonne 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 Bayonne's independent accountant, Bayonne'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 Bayonne 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 Bayonne by certain
other banking organizations. The Bayonne board took this factor into account
before approving the merger stock option agreement. See "THE BAYONNE MERGER--
Recommendation of the Bayonne Board; Bayonne's Reasons for the Merger."
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BANK MERGER AGREEMENT
In connection with the merger, Richmond County Savings and First Savings
have entered into a bank merger agreement under which First Savings and Richmond
County Savings will merge, with Richmond County Savings Bank being the surviving
bank. The bank merger agreement may be terminated by mutual consent of the
parties at any time and will be terminated automatically if the merger agreement
is terminated. In order to facilitate the bank merger, First Savings will merge
with a Federal interim savings bank, or may be converted to a New Jersey-
chartered savings bank, which will then merge with and into Richmond County
Savings.
THE IRONBOUND MERGER
In a separate and unrelated transaction, Richmond County is also acquiring
Ironbound Bankcorp, NJ. Ironbound is a New Jersey bank holding company that was
organized 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 under the
Bank Insurance Fund. At September 30, 1998, Ironbound had total assets of $115.3
million, deposits of $102.8 million, and stockholders' equity of $11.5 million.
Ironbound's principal offices are located at 36 Pacific Street at New York
Avenue, Newark, New Jersey 07105, and its telephone number is (973) 589-3800.
After the Ironbound merger, Ironbound will be merged with and into Richmond
County, and Ironbound stockholders will become stockholders of Richmond County.
It is intended that the Ironbound merger will be completed in the first quarter
of 1999. Immediately following the completion of the Ironbound merger, Richmond
County Savings and Ironbound Bank will also merge. Richmond County Savings Bank
will be the name of the surviving bank. THE RICHMOND COUNTY BOARD HAS
UNANIMOUSLY APPROVED THE IRONBOUND MERGER. THE IRONBOUND MERGER DOES NOT REQUIRE
THE APPROVAL OF THE RICHMOND COUNTY STOCKHOLDERS.
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 Superintendent and the New York Banking Board as its
chartering agency, and by the FDIC, as the deposit insurer. Richmond County
Savings must file reports with the New York Banking Board, the Superintendent
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 Board and
the Superintendent 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 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
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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
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 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.
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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 First Savings' regulatory capital ratios at
September 30, 1998:
<TABLE>
<S> <C>
Tier I Risk-Based Capital..................... 27.30%
Total Risk-Based Capital...................... 28.45%
Leverage Capital.............................. 12.24%
</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.
DIVIDEND LIMITATIONS. The FDIC has authority to use its enforcement powers
to prohibit a bank from paying dividends if, in its opinion, the payment of
dividends would constitute an unsafe or unsound practice. Federal law prohibits
the payment of dividends by a bank that will result in the bank failing to meet
applicable minimum capital requirements on a pro forma basis. Additionally,
Richmond County Savings, as a subsidiary of a savings and loan holding company,
is required to provide the OTS with 30 days prior written notice before
declaring any dividend. The plan of conversion adopted by Richmond County
Savings' in connection with its conversion to stock form also restricts the
institution's payment of dividends in the event the dividend would impair the
liquidation account established in connection with the conversion. In addition,
the liquidation account established by First Savings in connection with
Bayonne's second-step conversion may not be impaired by the payment of
dividends. Richmond County Savings is also subject to dividend declaration
restrictions imposed by New York State law. See "--New York State Law."
INVESTMENT ACTIVITIES
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act, 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 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
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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 merging 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 Board of Governors of 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 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
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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. The FDIC is authorized to raise the assessment rates in certain
circumstances, including to maintain or achieve the designated reserve ratio of
1.25%, which requirement the 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 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 Savings Association Insurance Fund are merged.
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 Bank or a
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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
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 Community Reinvestment Act. Under 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.
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 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.
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 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.
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 in 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 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
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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.
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" in certain "qualified thrift investments" in
at least 9 months out of each 12 month period. "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% 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.
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INTERSTATE BANKING AND BRANCHING
Richmond County, as a savings and loan holding company, is limited under
Home Owners' Loan Act with respect to its acquisition of a savings association
located in a state other than New York. In general, a savings and loan holding
company may not acquire an additional savings association subsidiary that is
located in a state other than the home state of its first savings association
subsidiary unless such an interstate acquisition is permitted by the statutes of
such other state. Many states permit such interstate acquisitions if the
statutes of the home state of the acquiring savings and loan holding company
satisfy various reciprocity conditions. New York is one of a number of states
that permit out-of-state bank and savings and loan holding companies to acquire
New York savings banks and savings associations.
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 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 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. The Interstate Banking Act also authorizes de
novo branching into another state if the host state enacts a law expressly
permitting out-of-state banks to establish such branches within its borders.
The Interstate Banking Act may facilitate the further consolidation of the
banking industry. The effect of the Interstate Banking Act on Richmond County
Savings, if any, is likely to occur as banking institutions, state legislators,
and bank regulators respond to the new federal regulatory structure. The states
will have to establish appropriate corporate law, tax and regulatory structures
to adjust to the growth of new interstate banks.
DESCRIPTION OF RICHMOND COUNTY CAPITAL STOCK
GENERAL
The authorized capital stock of Richmond County consists of 75,000,000
shares of Richmond County common stock and 5,000,000 shares of preferred stock,
par value $0.01 per share, issuable in one or more series with such terms and at
such times and for such consideration as the Richmond County board determines.
As of July 19, 1998, 26,423,550 shares of Richmond County common stock and no
shares of Richmond County preferred stock had been issued.
As of September 30, 1998, 3,699,297 shares of Richmond County common stock
had been reserved for issuance pursuant to the Richmond County stock incentive
plan.
The following description contains a summary of all the material features
of the capital stock of Richmond County.
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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 preemptive 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 Richmond County common stock who beneficially 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. Richmond County's Certificate of Incorporation
authorizes the Richmond County board (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 stockholders. In addition, Richmond
County's bylaws provide that the power to fill vacancies is vested in the
Richmond County board. The overall effect of such provisions may be to prevent a
person or entity from seeking to acquire control of Richmond County through an
increase in the number of directors on the Richmond County board and the
election of designated nominees to fill such newly created vacancies.
PREFERRED STOCK
Preferred stock may be issued with such designations, powers, preferences
and rights as the Richmond County board may from time to time determine. The
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
Richmond County and Bayonne are both Delaware corporations subject to the
provisions of the Delaware General Corporation Laws. If the merger is completed,
the holders of Bayonne common stock, whose rights are currently protected by the
Delaware General Corporation Laws and governed under the Bayonne Certificate of
Incorporation and the Bayonne bylaws will, at the completion of the merger,
become stockholders of Richmond County and continue to have rights protected by
Delaware General Corporation Laws but governed under the Richmond County
Certificate of Incorporation and Richmond County bylaws. There are no material
differences between the rights of the holders of Bayonne common stock and the
rights of holders of Richmond County common stock. Copies of such governing
instruments of Richmond County and Bayonne are available, without charge, to any
person to whom this document is delivered, on written or oral request, by
following the instructions listed under "WHERE YOU CAN FIND MORE INFORMATION."
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UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
FINANCIAL STATEMENTS
The following statements contain selected condensed financial information
for Richmond County and Bayonne and Ironbound, on an unaudited pro forma
condensed combined consolidated basis giving effect to the Bayonne merger and
Ironbound merger applying the purchase method of accounting. The pro forma
condensed statements of income reflecting the Bayonne merger and Ironbound
merger assume the acquisitions of Bayonne and Ironbound were 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 fiscal year end with Richmond County's June 30 year end.
The unaudited pro forma condensed balance sheet presents the combined
financial position of Richmond County and Bayonne as of September 30, 1998. The
unaudited pro forma condensed balance sheet reflects (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
acquisitions 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 cost savings or the
revenue enhancements that may or may not be achieved.
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RICHMOND COUNTY FINANCIAL CORP.
IRONBOUND BANKCORP, NJ
BAYONNE BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF FINANCIAL CONDITION
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 43,129
Securities available for sale, net 831,670 324,457 1,156,127 10,718
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 2,601
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 17,883 587
---------- -------- -------- ---------- --------
Total assets................................. $1,692,615 $672,657 $ 28,076 $2,393,348 $115,302
========== ======== ======== ========== ========
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)/ 18,675 945
(234)/(3)/
---------- -------- -------- ---------- --------
Total liabilities.......................... 1,362,789 577,505 312 1,940,606 103,773
Stockholders' equity:
Preferred stock.............................. -- -- -- --
Common stock................................. 264 91 (91)/(8)/ 360 5,213
96/(2)/ -- 14/(5)/
Additional paid-in-capital................... 254,288 60,995 (60,995)/(8)/ 379,928 4,301/(8)/
125,640/(2)/ 25,621/(5)/
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 $115,302
========== ======== ========= ========== ========
<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)/ 22,636
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................................... 18,470
---------- ----------
Total assets................................. $ 14,041 $2,522,691
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Liabilities:
Deposits..................................... $ (69)/(6)/ $1,476,108
Borrowings................................... 548,582
Accrued expenses and other liabilities....... 4/(6)/ 19,624
--
----------- -----------
Total liabilities............................ (65) 2,044,314
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 $ 2,522,691
=========== ===========
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS."
78
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
IRONBOUND BANKCORP, NJ
BAYONNE BANCSHARES, INC.
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 ALL
COUNTY/ COMBINED
RICHMOND PRO FORMA BAYONNE PRO FORMA TRANSACTIONS
COUNTY BAYONNE ADJUSTMENTS PRO FORMA IRONBOUND ADJUSTMENTS PRO FORMA
------------ ---------- ------------- ------------ ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............... $ 27,662 $ 11,137 $ (2)/(9)/ $ 38,797 $ 1,950 $ (28)/(10)/ $ 40,719
Interest expense.............. 12,599 6,735 (58)/(9)/ 19,391 697 (2)/(10)/ 20,086
----------- ---------- ------------- ------------ ---------- ------------- ------------
Net interest income........... 15,063 4,402 (60) 19,406 1,253 (26) 20,633
Provision for loan losses..... 750 75 -- 825 -- -- 825
----------- ---------- ------------- ------------ ---------- ------------- ------------
Net interest income after 14,313 4,327 (60) 18,581 1,253 (26) 19,808
provision for loan losses..
Non-interest income........... 1,844 538 -- 2,382 172 -- 2,554
Non-interest expense.......... 7,632 2,768 476/(4)(11)/ 10,876 902 269/(7)(11)/ 12,047
----------- ---------- ------------- ------------ ---------- ------------- ------------
Income before income taxes.... 8,525 2,097 (536) 10,087 523 (295) 10,315
Provision for income taxes.... 3,171 776 (18) 3,929/(12)/ 186 (178) 3,937/(12)/
----------- ---------- ------------- ------------ ---------- ------------- ------------
Net income.................... $ 5,354 $ 1,321 $ (518) $ 6,158 $ 337 $ (117) $ 6,378
=========== ========== ============= ============ ========== ============= ============
Weighted average shares
outstanding:
Basic...................... 24,362,800 9,041,000 33,938,302 997,158 35,384,181
Diluted.................... 24,362,800 9,174,637 34,078,621 1,031,527 35,558,869
Earnings per share:
Basic...................... $ 0.22 $ 0.15 $ 0.18 $ 0.34 $ 0.18
Diluted.................... $ 0.22 $ 0.15 $ 0.18 $ 0.34 $ 0.18
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS."
79
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
IRONBOUND BANKCORP, NJ
BAYONNE BANCSHARES, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED
STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
RICHMOND ALL
COUNTY/ COMBINED
RICHMOND PRO FORMA BAYONNE PRO FORMA TRANSACTIONS
COUNTY BAYONNE ADJUSTMENTS PRO FORMA IRONBOUND ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ------------ ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............... $ 86,754 $ 40,860 $(9)/(9)/ $ 127,605 $ 7,695 $(110)/(10)/ $ 135,190
Interest expense.............. 37,512 24,872 229/(9)/ 62,613 2,610 (9)/(10)/ 65,214
----------- ---------- --------- ------------ ---------- ------------ ------------
Net interest income........... 49,242 15,988 (238) 64,992 5,085 (101) 69,976
Provision for loan losses..... 2,200 180 -- 2,380 -- -- 2,380
----------- ---------- --------- ------------ ---------- ------------ ------------
Net interest income after 47,042 15,808 (238) 62,612 5,085 (101) 67,596
provision for loan losses..
Non-interest income........... 3,601 1,343 -- 4,944 723 -- 5,667
Contribution to the 19,558 -- -- 19,558 -- -- 19,558
Foundation.................
Non-interest expense.......... 24,488 10,170 1,904 36,562 3,843 1,075 41,480
----------- ---------- --------- ------------ ---------- ------------ ------------
Income before income taxes.... 6,597 6,981 (2,142) 11,436 1,965 (1,176) 12,225
Provision (benefit) for 2,071 2,602 (484) 4,189/(12)/ 705 (457) 4,177/(12)/
income taxes............... ----------- ---------- --------- ------------ ---------- ------------ ------------
Net income.................... $ 4,526 $ 4,379 $ (1,658) $ 7,247 $ 1,260 $ (719) $ 8,048
=========== ========== ========= ============ ========== ============ ============
Weighted average shares
outstanding:
Basic...................... 24,328,143 8,865,966 33,903,645 1,035,461 35,349,524
Diluted.................... 24,328,143 8,963,512 34,006,069 1,058,163 35,474,650
Earnings (loss) per share:
Basic...................... $ (0.16) $ 0.49 $ 0.21 $ 1.22 $ 0.23
Diluted.................... $ (0.16) $ 0.49 $ 0.21 $ 1.19 $ 0.23
</TABLE>
See "NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL
STATEMENTS."
80
<PAGE>
RICHMOND COUNTY FINANCIAL CORP.
IRONBOUND BANKCORP, NJ
BAYONNE BANCSHARES, INC.
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 have been prepared as if 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 Bayonne merger and
the Ironbound merger had been consummated on July 1, 1997. The Unaudited Pro
Forma Condensed Combined Consolidated Financial Statements are based on the
historical financial statements of Richmond County, Bayonne and Ironbound after
giving effect to the Bayonne merger and the Ironbound merger under the purchase
method of accounting and the assumptions and adjustments in the notes that
follow.
Assumptions relating to the pro forma adjustments set forth in the
Unaudited Pro Forma Condensed Combined Consolidated Financial Statements are
summarized as follows:
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>
81
<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
=========
(4) Excess of cost over fair value of net assets acquired for the merger
was calculated as follows:
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
=========
(5) The cost to acquire Ironbound has been allocated as described in the
table below:
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 Ironbound 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>
82
<PAGE>
(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
=======
(7) Excess of cost over fair value of net assets acquired for the Ironbound
merger was calculated as follows:
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>
83
<PAGE>
(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>
(11) The amortization of the excess of cost over the fair value of net assets
acquired for the 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 earnings 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.
84
<PAGE>
(14) The following table summarizes the estimated impact of the amortization
and accretion of the purchase accounting adjustments made in connection
with the Bayonne merger and Ironbound merger on Richmond County's results
of operations for the five years:
<TABLE>
<CAPTION>
PROJECTED FUTURE
AMOUNTS FOR THE EXCESS OF COST NET NET DECREASE
FISCAL YEARS OVER FAIR VALUE (ACCRETION) IN INCOME
ENDED OF NET ASSETS AMORTIZATION BEFORE TAXES
JUNE 30, ACQUIRED
------------------- --------------- ------------ ------------
<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>
85
<PAGE>
ADDITIONAL MATTERS TO BE CONSIDERED
AT THE RICHMOND COUNTY MEETING
PROPOSAL NO. 2 FOR THE RICHMOND COUNTY STOCKHOLDERS:
RATIFICATION OF THE AMENDMENTS TO THE RICHMOND COUNTY FINANCIAL CORP.
1998 STOCK-BASED INCENTIVE PLAN
The Richmond County board presents for stockholder ratification an amended
and restated stock incentive plan. Stockholders originally approved the stock
incentive plan on September 29, 1998. The Richmond County board approved the
amended and restated stock incentive plan in January 1999, subject to
stockholder approval. The proposed amended stock incentive plan is attached as
Annex E.
The Richmond County board believes it is in the best interest of Richmond
County and Richmond County Savings to amend the stock incentive plan primarily
in two respects. First, the amended plan allows Richmond County the discretion
to accelerate or modify the vesting of restricted stock awards and stock options
following a participant's retirement. Second, the amended plan provides for
accelerated vesting of outstanding restricted stock awards and stock options
upon a change in control of Richmond County or Richmond County Savings. Richmond
County also amended the stock incentive plan for conforming changes and certain
minor administrative matters.
As of December 31, 1998, Richmond County had granted options covering
2,617,885 shares of Richmond County's common stock under the stock incentive
plan and 24,470 shares remained available for future grants of stock options. As
of December 31, 1998, Richmond County had granted restricted stock awards of
1,054,274 under the stock incentive plan and 2,668 shares of common stock
remained available for future grants of awards.
Richmond County implemented the stock incentive plan largely to attract,
keep, and motivate qualified individuals in key positions. The stock incentive
plan provides officers, employees and non-employee directors of Richmond County
and its affiliates, including Richmond County Savings, an incentive to
contribute to the success of Richmond County by giving them an ownership
interest in Richmond County. This aligns the interests of management and
stockholders and rewards employees for outstanding performance.
The stock incentive plan allows Richmond County to grant awards of
restricted shares of Richmond County common stock and options to purchase
Richmond County common stock. All full-time employees and all outside directors
of Richmond County and its affiliates, including Richmond County Savings, are
eligible to receive awards under the stock incentive plan. A committee
consisting of three members of the Richmond County board, who are not employees
of Richmond County or its affiliates, administers the stock incentive plan.
FDIC policies provide that restricted stock and stock option awards granted
under any stock-based benefit plan, such as the stock incentive plan, adopted by
a financial institution within the first year after conversion to stock form,
must vest at a rate of no greater than 20% per year, except in the case of death
or disability. However, following one year after conversion, the financial
institution may amend the plan to also provide for accelerated vesting in the
cases of retirement and change in control. The one year ban on accelerated
vesting in these cases, as applied to Richmond County Savings and Richmond
County, ends in February 1999.
THE RICHMOND COUNTY BOARD RECOMMENDS THAT YOU VOTE "FOR" THE AMENDMENTS TO
THE RICHMOND COUNTY FINANCIAL CORP. 1998 STOCK-BASED INCENTIVE PLAN.
86
<PAGE>
ADDITIONAL MATTERS TO BE CONSIDERED AT THE BAYONNE MEETING
PROPOSAL NO. 2 FOR BAYONNE STOCKHOLDERS:
ELECTION OF BAYONNE DIRECTORS
The Bayonne board currently consists of six directors and is divided into
three classes. Each of the six members of the Bayonne board also presently
serves as a director of First Savings. Mr. Sam P. Lamparello, who served as a
director of both Bayonne and First Savings, passed away in February 1998. The
Bayonne board subsequently reduced the size of the Bayonne board from seven to
six members. Directors are elected for staggered terms of three years each, with
the term of office of only one of the three classes of directors expiring each
year. Directors serve until their successors are elected and qualified.
The two nominees proposed for election at the meeting are Patrick F.X.
Nilan and Joseph L. Wisniewski. No person being nominated as a director is being
proposed for election under any agreement or understanding between any such
person and Bayonne.
In the event that any such nominee is unable to serve, or declines to serve
for any reason, it is intended that the proxies will be voted for the election
of such other person as may be designated by the present Bayonne board. The
Bayonne board has no reason to believe that any of the persons named will be
unable or unwilling to serve. UNLESS AUTHORITY TO VOTE FOR THE NOMINEES IS
WITHHELD, IT IS INTENDED THAT THE SHARES REPRESENTED BY THE ENCLOSED PROXY CARD,
IF EXECUTED AND RETURNED, WILL BE VOTED FOR THE ELECTION OF THE NOMINEES
PROPOSED BY THE BAYONNE BOARD.
THE BAYONNE BOARD RECOMMENDS THAT YOU VOTE "FOR" THE ELECTION OF THE
DIRECTOR NOMINEES NAMED IN THIS DOCUMENT.
87
<PAGE>
INFORMATION WITH RESPECT TO THE NOMINEES, CONTINUING DIRECTORS AND EXECUTIVE
OFFICERS OF BAYONNE
The following table lists, as of the Bayonne record date, the names of the
nominees and continuing directors of Bayonne; their ages; a brief description of
their recent business experience, including present occupations and employment;
certain directorships held by each; the year in which each became a director and
the year in which their terms (or in the case of the nominees, their proposed
terms) as director of Bayonne expire. The table also lists the amount of Bayonne
common stock and the percent considered to be owned by each director and all
directors and executive officers as a group as of the Bayonne record date.
<TABLE>
<CAPTION>
EXPIRATION
NAME AND PRINCIPAL OCCUPATION DIRECTOR OF TERM AS
AT PRESENT AND FOR PAST FIVE YEARS AGE SINCE (1) DIRECTOR
- ---------------------------------- --- --------- ---------
<S> <C> <C> <C>
NOMINEES
Patrick F.X. Nilan....................................................... 68 1963 2001
Chairman of the Board of Bayonne and First Savings. Mr. Nilan
served as President and Chief Executive Officer of First Savings
until his retirement in June 1997.
Joseph L. Wisniewski..................................................... 67 1967 2001
Retired Senior Vice President of First Savings. Mr. Wisniewski
was employed by First Savings in various capacities from 1956
until his retirement in August 1996.
CONTINUING DIRECTORS
James F. Sisk............................................................ 59 1983 2000
Mr. Sisk was the Public Safety Director of the City of Bayonne
until June 1998. He served as the Chief of Police of the City of
Bayonne until 1996.
Patrick D. Conaghan...................................................... 61 1986 1999
Partner in the law firm of Conaghan & Conaghan.
Frederick G. Whelpley.................................................... 77 1973 1999
Retired Chief Executive Officer of Bayonne Hospital.
Michael A. Nilan......................................................... 34 1997 1999
President and Chief Executive Officer of Bayonne since
February 1997 and First Savings since July 1997. Mr. Nilan was
employed by First Savings in various capacities prior to assuming
the positions of President and Chief Executive Officer of Bayonne
and First Savings.
NAMED EXECUTIVE OFFICERS
WHO ARE NOT DIRECTORS
Eugene V. Malinowski, C.P.A.............................................. 58 -- --
Vice President and Chief Financial Officer of Bayonne and First
Savings. Prior to joining First Savings, Mr. Malinowski was Vice
President, Chief Operating Officer and Chief Financial Officer of a
long distance telephone reseller, and prior to that was Executive
Vice President and Chief Financial Officer of a commercial bank.
</TABLE>
____________________
(1) Includes years of service as a Director of First Savings.
88
<PAGE>
COMPENSATION COMMITTEE AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS
Michael A. Nilan, President and Chief Executive Officer of Bayonne and
First Savings, participated in deliberations of the Compensation Committee of
the Bayonne board concerning executive officer compensation during the past
fiscal year. Additionally, Patrick F.X. Nilan, who retired as President and
Chief Executive Officer of First Savings during fiscal 1998, also participated
in deliberations concerning executive officer compensation. Neither Michael A.
Nilan nor Patrick F.X. Nilan participated in deliberations concerning their own
individual compensation for fiscal 1998.
DIRECTORS' COMPENSATION
DIRECTORS' FEES. In connection with Bayonne's second-step conversion, and
as a result of the transition to operating as a publicly owned company, the
Bayonne board determined to restructure the compensation of directors to
emphasize stock-based incentives and reduce the reliance on cash-based
compensation. Accordingly, in 1997, the Bayonne board reduced the quarterly
retainer for non-employee directors by 50% and the fees paid to non-employee
directors for each meeting attended by 33 1/3%. Non-employee directors presently
receive $1,000 for each board of directors' meeting attended, plus a $3,000
retainer each quarter. The Chairman of the Board receives $1,330 for each board
of directors' meeting attended, plus a quarterly retainer of $3,750. Non-
employee directors serving on the Asset/Liability Committee and the Audit
Committee are paid $250 for each meeting attended, and non-employee directors
serving on the Security and Investment Committee are paid $500 monthly.
In 1987, First Savings, prior to its reorganization into the mutual holding
company form of organization, entered into annuity compensation agreements with
each of First Savings' current directors. First Savings paid all of its
obligations under the agreements in 1987, and therefore, the agreements do not
represent a current expense for First Savings. Under the agreements, First
Savings currently pays each outside director an annual benefit of $16,000. The
payments will continue to be made over the lifetime of each outside director
with no fewer than 120 monthly payments, which commenced in 1992, to be made to
each director or his beneficiary, and are in addition to other fees received by
directors. These agreements are fully funded by Presidential Life Insurance
Company and First Savings is a mere conduit for payments to each outside
director.
CONSULTING AGREEMENT. Bayonne and Patrick F.X. Nilan entered into a three
year consulting agreement subsequent to Mr. Nilan's retirement as President and
Chief Executive Officer of First Savings. Under the agreement, Mr. Nilan will
provide advice with respect to all areas in which Bayonne or First Savings does
business and in which Mr. Nilan has special knowledge, skill and expertise,
utilize his business and industry contacts to assist with the implementation of
First Savings' business plan, represent Bayonne and First Savings at civic and
community functions, and advise Bayonne and First Savings on strategic planning
matters, government affairs, industry trends and economic factors affecting
First Savings' business and future prospects. Mr. Nilan is paid a fee of
$100,000 annually for his services.
INCENTIVE PLAN. Bayonne's stockholders approved the Bayonne's incentive
plan under which all directors of Bayonne and First Savings are eligible to
receive stock-based compensation awards. Under Bayonne's incentive plan, each
outside director of Bayonne and First Savings was granted non-statutory stock
options to purchase 24,346 shares of Bayonne common stock with "limited rights",
and awards of 9,738 shares of Bayonne common stock on April 27, 1998, which vest
in five equal installments commencing April 27, 1999. The limited rights
provide, in the event of a change in control, a lump sum cash payment equal to
the difference between the exercise price of the related option and the fair
market value of the shares of Bayonne common stock subject to the option on the
date of exercise, less any applicable tax withholding. The non-statutory stock
option awards vest in five equal annual installments commencing on April 27,
1999, and have an exercise price of $16.31. All options granted under Bayonne's
incentive plan expire ten years from the date of grant. In the event an outside
director ceases service due to death or disability, all directors' awards will
immediately vest or become exercisable and all stock options will remain
exercisable for a period of three years.
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EXECUTIVE COMPENSATION
Unless specifically stated, the report of the compensation committee of
Bayonne and the stock performance graph have not, are not, and will not, be
filed under the Securities Act of 1933.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION. Under rules
established by the SEC, Bayonne is required to provide certain data and
information in regard to the compensation and benefits provided to Bayonne's
Chief Executive Officer and other executive officers of Bayonne for the fiscal
year ended March 31, 1998. The disclosure requirements for the Chief Executive
Officer and other executive officers include a report explaining the rationale
and considerations that led to fundamental compensation decisions affecting
those individuals.
The following policies and procedures were utilized to determine executive
compensation levels for fiscal 1998. As a result of the second-step conversion
and other operational changes, subjective qualitative measures were more heavily
relied upon by the compensation committee than quantitative measures.
COMPENSATION POLICIES AND PROCEDURES. The Compensation Committee consists
of the entire Bayonne board. It is responsible for administering the
compensation and benefit programs for the executive officers and employees of
Bayonne and First Savings and to make recommendations regarding the amount and
composition of compensation paid to the executive officers. Members of the
committee who are employees of Bayonne or First Savings, however, do not
participate in the committee's determination of their own compensation package.
The committee's goal is to establish executive compensation policies that:
. link the interests of management and stockholders;
. link executive compensation with the long-term performance of Bayonne
and its subsidiaries;
. attract, retain and reward highly qualified and productive persons;
. link compensation to individual performance; and
. establish compensation levels that are internally equitable and
externally competitive with comparable financial institutions.
The compensation program developed by the committee to achieve these goals
consists primarily of:
. a base salary;
. an annual bonus; and
. stock-based compensation. In addition, executive officers participate
in other benefit plans available to all employees, including a
retirement plan, the Bayonne ESOP, and the Bayonne 401(k) Plan.
As a result of Bayonne's second-step conversion into the stock holding
company structure, the committee revised the executive compensation policies to
reflect the status of Bayonne as a public company. The committee believes that
the compensation policies it has established contributed to the success of
Bayonne in making the transition to a publicly owned company, as well as to the
increase in net income and earnings per share, recorded by Bayonne for the year
ended March 31, 1998.
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BASE SALARY. The committee annually reviews and evaluates base salary for
all executive officers, and in conducting such reviews places primary
consideration upon First Savings' overall objectives and performance, peer group
comparisons and individual performance. In addition, salary levels reflect an
individual officer's responsibilities and experience and the committee's
evaluation of competitive marketplace conditions.
Salary levels recommended by the committee are intended to be consistent
and competitive with the practices of comparable financial institutions and each
executive's level of responsibility. The committee generally utilizes internal
and/or external surveys of compensation paid to executive officers performing
similar duties for depository institutions and their holding companies with
particular focus on the level of compensation paid by comparable institutions in
the metropolitan New York region. For the fiscal year ended March 31, 1998, the
committee utilized an internal survey prepared by an independent compensation
consultant.
Although the committee's recommendations are discretionary and no specific
formula is used for decision making, salary determinations reflect the overall
performance of Bayonne and First Savings and the performance of the individual
executive officer. In addition, for the fiscal year ended March 31, 1998, the
committee gave consideration to the adjustments required to be made by each
executive officer in response to the transition of Bayonne to a publicly owned
entity in determining the appropriate salary levels.
ANNUAL INCENTIVES. In determining annual bonus awards, the committee
considers the entire compensation package of each executive officer. Although
all determinations by the committee regarding bonuses paid to executive officers
are discretionary and no specific formula is used for awarding bonuses, the
primary factors considered include the profitability of Bayonne and First
Savings, the level of responsibility of each executive officer and their
contribution to the financial performance of Bayonne and First Savings. No
particular weighting of the factors considered by the compensation committee is
used to calculate bonuses.
STOCK-BASED COMPENSATION. Bayonne maintains stock benefit plans, discussed
in more detail below, for the purpose of providing long-term incentives to its
employees, including executive officers, through the award of stock options and
restricted stock awards. The committee believes that stock options and
restricted stock awards align the interests of management with stockholders
because the executive officers receive value if the market value of the Bayonne
common stock increases. Under Bayonne's stock option plans, the exercise price
of options granted to executive officers is equal to or greater than the market
value of the Bayonne common stock on the date of grant. Therefore, the options
have value only to the extent the share price of the Bayonne common stock
increases. Furthermore, although the committee has discretion to determine the
terms of options and stock awards granted to executive officers and other
employees of Bayonne and First Savings, options and stock awards granted under
Bayonne's plans typically vest in equal annual installments over a period of
five years, which provides incentive to management to maximize both short-term
and long-term stockholder value. The committee considered past awards of stock
options and restricted stock awards, as well as possible future awards, in
determining the overall compensation package of each executive officer.
BAYONNE 1995 STOCK OPTION PLAN. During the fiscal year ended March 31,
1996, First Savings adopted the stock option plan, which was subsequently
adopted by Bayonne. Subsequent to the adoption of the stock option plan, all of
the executive officers of First Savings received grants of options to purchase
shares of First Savings common stock, which options commenced vesting in equal
annual installments of 20% on August 9, 1996. Upon consummation of the second-
step conversion, Bayonne adopted the stock option plan and each option to
purchase First Savings' common stock under such plan was exchanged for 2.933
options to purchase Bayonne common stock. The compensation committee did not
make any additional awards under the stock option plan during fiscal 1998.
BAYONNE 1995 RECOGNITION AND RETENTION PLAN . First Savings adopted
Bayonne's recognition and retention plan and made awards of restricted stock to
all of the executive officers of First Savings in July 1995. The awards
commenced vesting in equal annual installments of 20% on July 28, 1996. Upon
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<PAGE>
completion of the second-step conversion, Bayonne adopted Bayonne's recognition
and retention plan, and all previously awarded, but unvested shares of First
Savings common stock and any shares that had not yet been awarded were converted
into 2.933 shares of Bayonne common stock. The committee did not make any
additional awards under Bayonne's recognition and retention plan during fiscal
1998.
BAYONNE INCENTIVE PLAN. Due in part to Bayonne's transition to a publicly
owned company and the desire of the Bayonne board to link executive compensation
to the performance of the Bayonne common stock, the Bayonne board adopted
Bayonne's incentive plan, which the stockholders approved on March 27, 1998.
Pursuant to Bayonne's incentive plan, executive officers and other employees of
Bayonne and First Savings are eligible to receive grants of stock options to
purchase shares of Bayonne common stock with limited rights and stock awards.
Subject to certain adjustments to prevent dilution of stock options and stock
awards granted to participants, the maximum number of shares reserved for
purchase through the exercise of options and option-related awards that may be
granted under Bayonne's incentive plan is 486,919 shares. The maximum number
of the shares reserved for stock awards is 194,768 shares.
A committee of non-employee directors of Bayonne makes awards under
Bayonne's incentive plan and determines the terms of all awards. Options granted
may be intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code. Incentive stock options afford tax benefits to the
recipient upon compliance with certain conditions set forth in the Internal
Revenue Code and do not result in tax deductions for Bayonne. The limited rights
provide, in the event of a change in control, a lump sum cash payment equal to
the difference between the exercise price of the related option and the fair
market value of the shares of Bayonne common stock subject to the option on the
date of exercise, less any applicable tax withholding. In no event may options
be exercised more than ten years from the date of grant. The committee of
outside directors that administers Bayonne's incentive plan may condition the
vesting of options and stock awards granted under the plan on the attainment of
predetermined performance goals.
No awards were made under Bayonne's incentive plan during fiscal 1998.
Prior to granting awards under Bayonne's incentive plan, Bayonne retained an
independent compensation consultant to review the current compensation of
executive officers and to make recommendations as to awards to such officers
under Bayonne's incentive plan. Following review and consideration of the
compensation consultant's report, the committee determined on April 27, 1998, to
grant both stock options and stock awards pursuant to Bayonne's incentive plan
to certain executive officers of Bayonne and First Savings. All of the stock
options and stock awards initially granted will vest in equal annual
installments during the first two years, with the remaining shares to be granted
during years three, four and five if certain performance goals are met.
CHIEF EXECUTIVE OFFICER. Michael A. Nilan entered into an employment
agreement with First Savings during fiscal 1998 that provides for a base salary
of $150,000. In addition, Mr. Nilan was paid a bonus of $2,000 for fiscal 1998
and participated in the benefit plans available to all officers and employees of
Bayonne and First Savings. No specific formula was used in connection with the
Compensation Committee's decisions regarding Mr. Nilan's base salary, bonus and
other compensation, nor did the committee set specified compensation levels
based on the achievement of particular quantifiable objectives or financial
goals of Bayonne and First Savings. Rather, the committee considered the overall
financial performance of Bayonne and First Savings, the responsibilities and
experience of Mr. Nilan and the individual contributions made by Mr. Nilan.
Specifically, the factors considered by the committee in determining Mr. Nilan's
overall compensation package included:
. The profits recorded by Bayonne and First Savings for fiscal year
1998;
. The increase in the market value of Bayonne's common stock;
. The successful implementation of Bayonne's strategic business plan and
the continued operation of First Savings in a safe and sound manner;
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. Actions taken by Mr. Nilan to facilitate the transition of Bayonne to
a publicly owned entity; and
. Mr. Nilan's active participation on behalf of Bayonne and First
Savings in civic and community events.
THE COMPENSATION COMMITTEE
Patrick F.X. Nilan
Joseph L. Wisniewski
James F. Sisk
Patrick D. Conaghan
Frederick G. Whelpley
Michael A. Nilan
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SUMMARY COMPENSATION TABLE. The following table shows, for the year ended
March 31, 1998, the cash compensation paid, as well as certain other
compensation paid or accrued for that year to the Chief Executive Officers of
Bayonne and by the next four most highly compensated officers of Bayonne and
First Savings in fiscal year 1998. No other executive officer of Bayonne or
First Savings earned and/or received salary and bonus in excess of $100,000 in
fiscal year 1998.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION(1) AWARDS PAYOUTS
-------------------------------- -------------------------- ----------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND FISCAL SALARY BONUS COMPENSATION AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
PRINCIPAL POSITIONS YEAR ($)(1) ($) ($) ($)(2) (#)(3) ($) ($)
- ------------------- ------ --------- ------ ------------ ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael A. Nilan(5)............. 1998 $150,000 $ 2,000 -- -- -- -- $82,229(4)
President and Chief 1997 99,000 5,000 -- -- -- -- 36,354
Executive Officer
Patrick F.X. Nilan.............. 1998 $217,625 -- -- -- -- -- $98,229(4)
Chairman of Bayonne and First 1997 470,000 $37,500 -- -- -- -- 82,008
Savings; former President and 1996 432,597 75,000 -- $176,540 33,950 -- 38,203
Chief Executive Officer of
First Savings
Eugene V. Malinowski............ 1998 $116,000 $10,000 -- -- -- -- --
Vice President and Chief
Financial Officer
</TABLE>
________________________
(1) Includes compensation deferred at the election of the officer pursuant to
the Bayonne 401(k) Plan. Salary for Patrick F.X. Nilan includes $106,250
received for services as President and Chief Executive Officer of First
Savings through June 30, \1997, $36,375 in directors fees, and $75,000 in
fees for services as a consultant to Bayonne and First Savings.
(2) Messrs. Michael A. and Patrick F.X. Nilan were awarded 2,852 and 13,580
shares of First Savings common stock, respectively, pursuant to Bayonne's
recognition and retention plan. The awards were granted on July 28, 1995,
and had a fair market value of $13.00, based upon the closing price per
share of First Savings common stock on the date of grant. Awards granted
under Bayonne's recognition and retention plan vest in equal installments
at a rate of 20% per year commencing on July 28, 1996, unless otherwise
determined by the Bayonne board. Awards will be 100% vested upon
termination of employment due to death, disability or following a change in
control. Upon consummation of the second-step conversion, Bayonne adopted
Bayonne's recognition and retention plan as a plan of Bayonne and issued
Bayonne common stock in lieu of First Savings common stock to Bayonne's
recognition and retention plan in accordance with its terms. As of the
effective date of the second-step conversion, rights outstanding under the
plan were assumed by Bayonne and constitute rights only for shares of
Bayonne common stock, with each such right being for a number of shares of
Bayonne common stock equal to the number of shares of First Savings common
stock that were available thereunder immediately prior to such effective
date multiplied by the exchange ratio of 2.933. The price of each right has
been adjusted to reflect the plan exchange ratio so that the aggregate
purchase price of the right is unaffected, but there is no change in the
other terms and conditions of the rights. Accordingly, at March 31, 1998,
the number of shares awarded to Messrs. Michael A. and Patrick F.X. Nilan
pursuant to Bayonne's recognition and retention plan, as adjusted for the
second-step conversion, was 8,365 and 39,830, respectively, with a market
value of $124,429 and $592,471, respectively, based upon the closing price
of the Bayonne common stock on that date of $14.875 per share.
(3) Messrs. Michael A. and Patrick F.X. Nilan were awarded options to purchase
3,449 and 33,950 shares of First Savings common stock, respectively, on
August 9, 1995 under the stock option plan. Under the stock option plan,
options commenced vesting in five equal annual installments on August 9,
1996, with an exercise price of $13.00. Upon completion of the second-step
conversion, Bayonne adopted the stock option plan and agreed to issue
shares of its common stock in lieu of First Savings common stock in
accordance with the terms of such plan. Accordingly, the number of options
awarded to Messrs. Michael A. and Patrick F.X. Nilan under the stock option
plan, as adjusted for the second-step conversion, was 10,115 and 99,575,
respectively. The adjusted exercise price of the options is $4.43. All of
the options awarded to Patrick F.X. Nilan immediately vested upon his
retirement on June 30, 1997.
(4) Includes $16,000 received by Patrick F.X. Nilan pursuant to First Savings
annuity compensation agreements. Includes the value of 10,029 and 13,429
shares allocated to Michael A. Nilan and Patrick F.X. Nilan, respectively,
under the Bayonne ESOP as of March 31, 1998. Does not include amounts
contributed by First Savings pursuant to First Savings' noncontributory
defined benefit plan, First Savings' nonqualified supplemental executive
retirement income-deferred compensation agreements, automobile insurance on
personal vehicles used instead of automobiles supplied by First Savings,
nor reimbursement of mileage while on company business.
(5) Michael A. Nilan was appointed President and Chief Executive Officer of
Bayonne on February 6, 1997.
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EMPLOYMENT AGREEMENTS. Subsequent to the second-step conversion, Bayonne
and First Savings entered into employment agreements with Mr. Michael A. Nilan.
The employment agreements are intended to ensure that Bayonne and First Savings
will be able to maintain a stable and competent management base after the
second-step conversion.
Mr. Nilan's employment agreement provides that, commencing on the first
anniversary date and continuing each anniversary date thereafter, the board of
directors of First Savings will review the agreement and Mr. Nilan's performance
for purposes of determining whether to extend the agreement for an additional
year. The agreement automatically extends daily, such that the new term is the
same as the original term unless written notice of non-renewal is given by the
Bayonne board after conducting a performance evaluation of Mr. Nilan. The base
salary for Mr. Nilan under the employment agreement is $150,000. In addition to
the base salary, the employment agreements provide for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. The employment agreement provides for termination by
Bayonne or First Savings for cause, as defined in the agreements, at any time.
In the event Bayonne or First Savings chooses to terminate Mr. Nilan's
employment for reasons other than for cause, or in the event of Mr. Nilan's
resignation from Bayonne or First Savings upon:
(1) failure to re-elect him to his current offices;
(2) a material change in his functions, duties or responsibilities;
(3) a relocation of his principal place of employment by more than 25
miles;
(4) liquidation or dissolution of Bayonne or First Savings; or
(5) a breach of the agreement by Bayonne or First Savings, Mr. Nilan or,
in the event of death, his beneficiary, is entitled to receive the
remaining base salary payments due to him and the contributions that
would have been made on his behalf to any employee benefit plans of
Bayonne or First Savings during the remaining term of the agreements.
Bayonne or First Savings will also continue and pay for Mr. Nilan's
life, health and disability coverage for the remaining term of the
employment agreements.
The employment agreements provide for severance payments in the event of a
change in control. If voluntary or involuntary termination follows a change in
the control of Bayonne or First Savings. A change in control occurs if Bayonne
is merged into Richmond County and First Savings into Richmond County Savings,
Mr. Nilan or, in the event of death, his beneficiary, will be entitled to a
payment equal to the greater of (1) the payments due for the remaining term of
the agreement; or (2) a severance payment equal to three times the average of
the five preceding taxable years' compensation. Bayonne and First Savings would
also continue Mr. Nilan's life, health, and disability coverage for 36 months.
Payments to Mr. Nilan under his employment agreement will be guaranteed by
Bayonne in the event that payments or benefits are not paid by First Savings.
Payments under the Bayonne employment agreement will be made by Bayonne. All
reasonable costs and legal fees paid or incurred by Mr. Nilan over any dispute
or question of interpretation relating to the employment agreements will be paid
by Bayonne or First Savings if Mr. Nilan is successful on the merits under a
legal judgment, arbitration or settlement. The employment agreements also
provide that Bayonne and First Savings will protect Mr. Nilan to the fullest
extent allowable under federal and Delaware law, respectively. In the event of a
change in control of Bayonne or First Savings, the total amount of payments that
would be due under the employment agreements, based solely on cash compensation
paid to Mr. Nilan over the past three fiscal years and excluding any benefits
under any employee benefit plan that may be payable, would be approximately
$237,000. The merger constitutes a change in control under the terms of the
employment agreements.
CHANGE IN CONTROL AGREEMENTS. Subsequent to the second-step conversion,
Bayonne and First Savings entered into change in control agreements with Mr.
Malinowski and three executive officers.
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The agreements have terms of three years. The agreements provide that commencing
on the first anniversary date and continuing on each anniversary thereafter,
First Savings' agreements may be renewed by the Bayonne board for an additional
year while the term of Bayonne's agreements are extended on a daily basis unless
written notice of non-renewal is given by the Bayonne board. The agreements with
Bayonne also provide that in the event voluntary or involuntary termination
follows a change in control of First Savings or Bayonne, the officer is entitled
to receive a severance payment equal to three times the officer's average annual
compensation for the five years preceding termination, depending on the term of
the officers' agreement. First Savings' agreements have a similar change in
control provision; however, the officer would only be entitled to receive a
severance payment under one agreement. Bayonne and First Savings will also
continue, and pay for, the officer's life, health and disability coverage for 36
months following termination. Payments to the officer under First Savings'
agreements will be guaranteed by Bayonne in the event that payments or benefits
are not paid by First Savings. In the event of a change in control of First
Savings or Bayonne, the total payments that would be due under the agreements,
based solely on the cash compensation paid to the officers covered by the
agreements over the past three fiscal years and excluding any benefits under any
employee benefit plans that may be payable, would be approximately $1.1 million.
The merger constitutes a change in control under the terms of the agreements.
RETIREMENT PLAN. First Savings maintains a retirement plan under which all
employees age 21 or older who have worked at First Savings for a period of six
months are eligible to accrue benefits. First Savings annually contributes an
amount to the retirement plan necessary to satisfy the actuarially determined
minimum funding requirements in accordance with the ERISA. The retirement plan
operates on a plan year beginning December 15 each year. Immediately following
the execution of the merger agreement, Bayonne took all appropriate steps to
"freeze" benefit accruals under the retirement plan.
At the normal retirement age of 65 (or the fifth anniversary of plan
participation, if later), the plan is designed to provide a life annuity
guaranteed for ten years. The retirement benefit provided is an amount equal to
2% of a participant's average monthly salary, multiplied by the total number of
years of service from the date of employment to normal retirement date. This
amount is reduced by approximately .63% of average monthly salary up to the
covered compensation wage base (as defined in the retirement plan) multiplied by
the total number of years of service (up to a maximum of 35 years).
Notwithstanding the above formula, the retirement plan will pay a minimum
monthly benefit equal to 2% of monthly salary, times years of service up to ten
years of service. Retirement benefits are also payable upon retirement due to
early and late retirement, disability or death. A reduced benefit is payable
upon early retirement at or after age 55 and the completion of ten years of
service with First Savings. Upon termination of employment other than as
specified above, a participant is eligible to receive his vested accrued benefit
as a retirement annuity commencing on such participant's normal date. Benefits
are payable in various annuity forms with the normal form being an annuity for
the participant's life, with a minimum guarantee of payments for five years. For
the plan year ended December 14, 1998, First Savings made a contribution to the
retirement plan of $259,000.
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The following table indicates the annual retirement benefit that would be
payable under the retirement plan upon retirement at age 65 in calendar year
1997, expressed in the form of a life annuity with a five year guaranteed
payment for the final average salary and benefit service classification
specified below. Benefits payable under the retirement plan are not subject to a
deduction for social security or other amounts.
<TABLE>
<CAPTION>
HIGH 5 YEAR YEARS OF BENEFIT SERVICE
FINAL AVERAGE -------------------------------------------------------------------------
EARNINGS /(1)/ 5 10 15 20 25 30 35 40
- -------------- --------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 2,000 $ 4,000 $ 4,125 $ 5,500 $ 6,875 $ 8,250 $ 9,625 $ 11,625
$ 40,000 4,000 8,000 9,188 12,250 15,313 18,375 21,438 25,438
$ 60,000 6,000 12,000 15,188 20,250 25,313 30,375 35,438 41,438
$ 80,000 8,000 16,000 21,188 28,250 35,313 42,375 49,438 57,438
$ 100,000 10,000 20,000 27,188 36,250 45,313 54,375 63,438 73,438
$ 150,000 15,000 30,000 42,188 56,250 70,313 84,375 98,438 113,438
$ 152,000/(2)/ 15,200 30,400 42,788 57,050 71,313 85,575 99,838 115,038
$ 152,000/(2)/ 15,200 30,400 42,788 57,050 71,313 85,575 99,838 115,038
</TABLE>
____________________
(1) High five-year average monthly earnings means the average of a
participant's monthly earnings in the five consecutive years yielding the
highest such average while a participant in the retirement plan. For
participants with less than five years of service, it is the average of
monthly earnings for all complete calendar years of participation.
(2) Limited due to maximum earnings limits under Section 401(a)(17) of the
Internal Revenue Code.
As of December 14, 1997, officers Michael A. Nilan, Patrick F.X. Nilan and
Eugene V. Malinowski had 11, 37 and one year of credit service, respectively,
and accrued benefits under the retirement plan equal to annual retirement
benefits of $16,061, $149,436 and $0, respectively. Mr. Patrick F.X. Nilan
retired from First Savings on June 30, 1997 and received a lump sum benefit
payment of $1.6 million under the retirement plan.
SUPPLEMENTAL EXECUTIVE RETIREMENT INCOME-DEFERRED COMPENSATION AGREEMENTS.
First Savings has previously maintained supplemental executive retirement
agreements for certain executives of First Savings and their beneficiaries whose
benefits from the tax-qualified defined benefit plan maintained by First Savings
were reduced by reason of (1) the annual limitation on benefits and
contributions imposed by Section 415 of the Internal Revenue Code and (2) the
limitation imposed by Section 401(a)(17) of the Internal Revenue Code with
respect to compensation that can be taken into consideration in the
determination of benefits. The lump sum payments represented the present value
of the executives' accrued annual benefits under the supplemental executive
retirement agreements based on a current actuarial valuation. First Savings
determined that paying the participants in a lump sum would benefit First
Savings over time by saving the annual accruals that would otherwise be required
to fund the supplemental executive retirement agreements. First Savings has
discontinued this plan.
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OPTION EXERCISES AND YEAR-END VALUE. This table contains information about
exercised and unexercisable options during the fiscal year ended March 31, 1998
for Bayonne's Chief Executive Officers and the next four highest paid executive
officers of Bayonne.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
ACQUIRED YEAR-END(1) YEAR-END(2)
------------------------- ----------------------------
UPON VALUE
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ---------- ---------- ------------------------- ----------------------------
<S> <C> <C> <C> <C>
Michael A. Nilan.............. - - 4,046/6,069 $42,260/$63,390
Patrick F.X. Nilan............ 62,391 $518,762(3) 37,184/0 $ 388,387/$0
</TABLE>
___________________
(1) Represents the number of options for Bayonne common stock held as of
March 31, 1998.
(2) Equals the difference between the $4.43 exercise price of such options
and the aggregate fair market value of the shares of Bayonne common stock
that would be received upon exercise, assuming such exercise occurred on
March 31, 1998, at which date the last sale of the Bayonne common stock,
as quoted on the Nasdaq National Market, was at $14.875 per share.
(3) The market price of the Bayonne common stock on September 30, 1997, the
date Mr. Patrick F.X. Nilan exercised 42,476 options, was $12.625, and
the market price of the Bayonne common stock on February 10, 1998, the
date Mr. Patrick F.X. Nilan exercised 19,915 options, was $13.00.
TRANSACTIONS WITH CERTAIN RELATED PERSONS. All loans made by First Savings
to its directors and executive officers are made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other persons and do not involve more than the
normal risk of collectibility or present other unfavorable features. First
Savings is permitted to offer loans to executive officers and directors on terms
not available to the public, but available to other employees, in accordance
with recently modified federal regulations. Under First Savings's existing
policy, any loan to an executive officer or director, must be approved, in
advance, by a majority of the disinterested members of the Bayonne board.
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STOCK PERFORMANCE GRAPH
The following graph shows a comparison of total stockholder return on
Bayonne's common stock, based on the market price of the Bayonne common stock
with the cumulative total return of companies in The Nasdaq Market Index and the
Nasdaq Stock Bank for the period beginning on January 9, 1995, the day Bayonne's
common stock began trading, through December 31, 1998. The data was supplied by
Media General Financial Services.
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PROPOSAL NO. 3 FOR BAYONNE STOCKHOLDERS:
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Bayonne's independent auditors for the fiscal year ended March 31, 1998
were KPMG LLP. The Bayonne board has reappointed KPMG LLP to continue as
independent auditors for First Savings and Bayonne for the year ending March 31,
1999, subject to ratification of such appointment by the stockholders.
Representatives of KPMG LLP will be present at the meeting. They will be
given an opportunity to make a statement if they desire to do so and will be
available to respond to appropriate questions from stockholders present at the
meeting.
UNLESS MARKED TO THE CONTRARY, THE SHARES REPRESENTED BY THE ENCLOSED PROXY
CARD WILL BE VOTED "FOR" RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE
INDEPENDENT AUDITORS OF BAYONNE.
THE BAYONNE BOARD RECOMMENDS THAT YOU VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF KPMG LLP AS THE INDEPENDENT AUDITORS OF BAYONNE.
ADDITIONAL INFORMATION
IF YOU WANT TO HAVE A STOCKHOLDER PROPOSAL INCLUDED IN BAYONNE'S PROXY STATEMENT
RELATING TO THE 1999 ANNUAL STOCKHOLDERS' MEETING
To be considered for inclusion in Bayonne's proxy statement and form of
proxy relating to the 1999 Bayonne Meeting of Stockholders, which will be held
if the merger is not completed, a stockholder proposal must be received by the
Corporate Secretary of Bayonne by a reasonable time before the proxy
solicitation for such annual meeting is made at the address set forth on the
first page of this document. Any such proposal will be subject to 17 C.F.R. (S)
240.14a-8 of the Rules and Regulations under the Exchange Act.
NOTICE OF BUSINESS TO BE CONDUCTED AT A BAYONNE MEETING
The bylaws of Bayonne set forth the procedures by which a stockholder may
properly bring business before a meeting of stockholders. The bylaws of Bayonne
provide an advance notice procedure for a stockholder to properly bring business
before an annual meeting. The stockholder must give written advance notice to
the Corporate Secretary of Bayonne not less than 90 days before the date
originally fixed for such meeting. However, if less than 100 days notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, to be timely, notice must be received not later than the close of
business on the tenth day following the date on which Bayonne's notice to
stockholders of the annual meeting date was mailed or such public disclosure was
made. The advance notice by stockholders must include the stockholder's name and
address, as they appear on Bayonne's record of stockholders, a brief description
of the proposed business, the reason for conducting such business at the annual
meeting, the class and number of shares of Bayonne's capital stock that are
considered to be owned by such stockholder and any material interest of such
stockholder in the proposed business. In the case of nominations to the Bayonne
board, certain information regarding the nominee must be provided. Nothing in
this paragraph shall be deemed to require Bayonne to include in its proxy
statement or the proxy relating to any annual meeting any stockholder proposal
which does not meet all of the requirements for inclusion established by the SEC
in effect at the time such proposal is received.
LEGAL MATTERS
The validity of the shares of Richmond County common stock which will be
issued in the merger 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
100
<PAGE>
merger for Richmond County and McCarter & English, LLP will pass on the tax-free
nature of the merger for Bayonne.
EXPERTS
The consolidated financial statements of Richmond County and subsidiary as
of June 30, 1998 and 1997, and for each of the years in the three-year period
ended June 30, 1998, 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 Bayonne and subsidiaries as of
March 31, 1998 and 1997, and for each of the years in the three-year period
ended March 31, 1998 incorporated by reference in the 1998 Bayonne Form 10-K/A
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 KPMG LLP, independent public accountants, incorporated by
reference in the 1998 Bayonne Form 10-K, and any amendments to that document,
and incorporated by reference herein, and upon the authority of said firm as
experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the 1999 Annual
Meeting of Richmond County must be received by Richmond County Financial Corp.
at 1214 Castleton Avenue, Staten Island, New York 10310 no later than May 24,
1999 to be eligible for inclusion in the proxy statement and form of proxy. Any
such proposal shall be subject to 17 C.F.R. (S)240.14a-8 promulgated by the SEC
under the Exchange Act.
101
<PAGE>
ANNEX A
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AS OF OCTOBER 14, 1998
BY AND BETWEEN
RICHMOND COUNTY FINANCIAL CORP.
AND
BAYONNE BANCSHARES, INC.
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Introductory Statement 4
ARTICLE I
THE MERGER .................................................................................. 5
----------
Section 1.1. Structure of the Merger ................................................. 5
-----------------------
Section 1.2. Effect on Outstanding Shares of Bayonne Common Stock .................... 5
----------------------------------------------------
Section 1.3. Exchange Procedures ..................................................... 6
-------------------
Section 1.4. Stock Options ........................................................... 8
-------------
Section 1.5. Bank Merger ............................................................. 9
-----------
Section 1.6. Directors of RCFC after Effective Time .................................. 9
--------------------------------------
Section 1.7. Alternative Structure ................................................... 9
---------------------
Section 1.8. Certificate of Incorporation and Bylaws of the Surviving Corporation .... 9
--------------------------------------------------------------------
ARTICLE II
REPRESENTATIONS AND WARRANTIES .............................................................. 10
------------------------------
Section 2.1. Disclosure Letters ...................................................... 10
------------------
Section 2.2. Standards ............................................................... 10
---------
Section 2.3. Representations and Warranties of Bayonne ............................... 11
-----------------------------------------
Section 2.4. Representations and Warranties of RCFC .................................. 26
--------------------------------------
ARTICLE III
CONDUCT PENDING THE MERGER .................................................................. 38
--------------------------
Section 3.1. Conduct of Bayonne's Business Prior to the Effective Time ............... 38
---------------------------------------------------------
Section 3.2. Forbearance by Bayonne .................................................. 39
----------------------
Section 3.3. Conduct of RCFC's Business Prior to the Effective Time .................. 42
------------------------------------------------------
ARTICLE IV
COVENANTS ................................................................................... 42
---------
Section 4.1. Acquisition Proposals ................................................... 42
---------------------
Section 4.2. Certain Policies of Bayonne ............................................. 44
---------------------------
Section 4.3. Access and Information .................................................. 44
----------------------
Section 4.4. Certain Filings, Consents and Arrangements .............................. 45
------------------------------------------
Section 4.5. Antitakeover Provisions ................................................. 46
-----------------------
Section 4.6. Additional Agreements ................................................... 46
---------------------
Section 4.7. Publicity ............................................................... 46
---------
Section 4.8. Stockholders Meetings ................................................... 46
---------------------
Section 4.9. Proxy Statements; Comfort Letters ....................................... 47
---------------------------------
Section 4.10. Registration of RCFC Common Stock ....................................... 47
---------------------------------
Section 4.11. Affiliate Letters ....................................................... 48
-----------------
Section 4.12. Notification of Certain Matters ......................................... 48
-------------------------------
Section 4.13. Employees, Directors and Officers ....................................... 49
---------------------------------
Section 4.14. Indemnification ......................................................... 50
---------------
</TABLE>
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<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
Section 4.15. Pooling and Tax-Free Reorganization Treatment ........................... 52
---------------------------------------------
Section 4.16. Divisional Board ........................................................ 52
----------------
ARTICLE V
CONDITIONS TO CONSUMMATION .................................................................. 53
--------------------------
Section 5.1. Conditions to Each Party's Obligations .................................. 53
--------------------------------------
Section 5.2. Conditions to the Obligations of RCFC and RCFC Bank ..................... 54
---------------------------------------------------
Section 5.3. Conditions to the Obligations of Bayonne and First Savings .............. 56
----------------------------------------------------------
ARTICLE VI
TERMINATION ................................................................................. 57
-----------
Section 6.1. Termination ............................................................. 57
-----------
Section 6.2. Effect of Termination ................................................... 61
---------------------
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME .................................................. 61
------------------------------------------
Section 7.1. Effective Date and Effective Time ....................................... 61
---------------------------------
Section 7.2. Deliveries at the Closing ............................................... 61
-------------------------
ARTICLE VIII
CERTAIN OTHER MATTERS ....................................................................... 61
---------------------
Section 8.1. Certain Definitions; Interpretation ..................................... 61
-----------------------------------
Section 8.2. Survival ................................................................ 62
--------
Section 8.3. Waiver; Amendment ....................................................... 62
-----------------
Section 8.4. Counterparts ............................................................ 62
------------
Section 8.5. Governing Law ........................................................... 62
-------------
Section 8.6. Expenses ................................................................ 62
--------
Section 8.7. Notices ................................................................. 63
-------
Section 8.8. Entire Agreement; etc ................................................... 64
---------------------
Section 8.9. Assignment .............................................................. 64
----------
</TABLE>
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<PAGE>
AMENDED AND RESTATED
--------------------
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, amended
and restated as of the 14th day of October, 1998 ("Agreement"), by and between
Richmond County Financial Corp., a Delaware corporation ("RCFC"), and Bayonne
Bancshares, Inc., a Delaware corporation ("Bayonne").
INTRODUCTORY STATEMENT
The Board of Directors of each of RCFC and Bayonne (i) has determined
that this Agreement and the business combination and related transactions
contemplated hereby are in the best interests of RCFC and Bayonne, respectively,
and in the best long-term interests of their respective stockholders, (ii) has
determined that this Agreement and the transactions contemplated hereby are
consistent with, and in furtherance of, its respective business strategies and
(iii) has approved, at meetings of each of such Boards of Directors, this
Agreement.
Concurrently with the execution and delivery of this Agreement, and as
a condition and inducement to RCFC's willingness to enter into this Agreement,
RCFC and Bayonne have entered into a stock option agreement (the "Option
Agreement"), pursuant to which Bayonne has granted to RCFC an option to purchase
shares of Bayonne's common stock, par value $0.01 per share ("Bayonne Common
Stock"), upon the terms and conditions therein contained; and Bayonne will use
its best efforts to have certain executive officers and directors of Bayonne,
within twenty-one days of the date of this Agreement, execute in favor of RCFC a
Letter Agreement in the form annexed as Exhibit A.
The parties hereto intend that the Merger as defined herein shall
qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended ("Code"), for federal income tax
purposes, and that the Merger shall be accounted for as a purchase business
combination for accounting purposes.
RCFC and Bayonne desire to make certain representations, warranties
and agreements in connection with the business combination and related
transactions provided for herein and to prescribe various conditions to such
transactions.
In consideration of their mutual promises and obligations hereunder,
the parties hereto adopt and make this Agreement and prescribe the terms and
conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
A-4
<PAGE>
ARTICLE I
THE MERGER
----------
Section 1.1. Structure of the Merger. On the Effective Date (as
-----------------------
defined in Section 7.1), Bayonne will merge with and into RCFC ("Merger"), with
RCFC being the surviving entity, pursuant to the provisions of, and with the
effect provided in, the Delaware General Corporation Law ("DGCL"). Upon
consummation of the Merger, the separate corporate existence of Bayonne shall
cease. RCFC shall continue to be governed by the laws of the State of Delaware
and its name and separate corporate existence, with all of its rights,
privileges, immunities, powers and franchises, shall continue unaffected by the
Merger. From and after the Effective Time, RCFC shall possess all of the
properties and rights and subject to all of the liabilities and obligations of
Bayonne, all as more fully described in the DGCL.
Section 1.2. Effect on Outstanding Shares of Bayonne Common Stock.
----------------------------------------------------
(a) By virtue of the Merger, automatically and without any action on
the part of the holder thereof, each share of Bayonne Common Stock issued and
outstanding at the Effective Time (as defined in Section 7.1), other than (i)
shares the holder of which (the "Dissenting Shareholders") pursuant to any
applicable law providing for dissenters' or appraisal rights is entitled to
receive payment in accordance with the provisions of any such law, such holder
to have only the rights provided in any such law (the "Dissenters' Shares"),
(ii) shares held directly or indirectly by RCFC (other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted), (iii)
shares held by Bayonne as treasury stock and (iv) unallocated shares held in the
Amended and Restated Bayonne Bancshares, Inc. 1995 Recognition and Retention
Plan ("Bayonne RRP") (such shares referred to in clauses (i), (ii), (iii) and
(iv) being referred to herein as the "Excluded Shares") shall become and be
converted into the right to receive 1.05 shares of RCFC Common Stock (the
"Exchange Ratio"); provided, however, that, notwithstanding any other provision
hereof, no fraction of a share of RCFC Common Stock and no certificates or scrip
therefor will be issued in the Merger; instead, RCFC shall pay to each holder of
Bayonne Common Stock who would otherwise be entitled to a fraction of a share of
RCFC Common Stock an amount in cash, rounded to the nearest cent, determined by
multiplying such fraction by the RCFC Market Value (as defined herein)
(collectively, the "Merger Consideration").
(b) As used herein, "RCFC Market Value" shall be the average of the
closing sales price on that day, as reported on the National Market System of
The Nasdaq Stock Market, Inc. ("Nasdaq National Market"), for the 15 consecutive
trading days immediately preceding the day on which the last of the required
regulatory approvals, as contemplated by Section 5.1(b), is obtained (such date
being referred to herein as the "Valuation Date").
(c) If, between the date of this Agreement and the Effective Time,
the outstanding shares of RCFC Common Stock shall have been changed into a
different number of shares or into a different class by reason of any stock
dividend, subdivision, reclassification,
A-5
<PAGE>
recapitalization, split, combination or exchange of shares (each, a "Stock
Adjustment"), the Merger Consideration shall be adjusted correspondingly to the
extent appropriate to reflect the Stock Adjustment.
(d) As of the Effective Time, each Excluded Share, other than
Dissenters' Shares, shall be cancelled and retired and shall cease to exist, and
no exchange or payment shall be made with respect thereto. All shares of RCFC
Common Stock and RCFC Preferred Stock (as defined in Section 2.4(b)) that are
held by Bayonne, if any, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, shall become treasury stock of
RCFC.
Section 1.3. Exchange Procedures.
-------------------
(a) Appropriate transmittal materials ("Letter of Transmittal") shall
be mailed as soon as reasonably practicable after the Effective Time, and in no
event later than 5 business days thereafter, to each holder of record of Bayonne
Common Stock as of the Effective Time. A Letter of Transmittal will be deemed
properly completed only if accompanied by certificates representing all shares
of Bayonne Common Stock to be converted thereby.
(b) At and after the Effective Time, each certificate ("Bayonne
Certificate") previously representing shares of Bayonne Common Stock (except as
specifically set forth in Section 1.2) shall represent only the right to receive
the Merger Consideration.
(c) Prior to the Effective Time, RCFC shall deposit, or shall cause
to be deposited, with such bank or trust company that is selected by RCFC and is
reasonably acceptable to Bayonne to act as exchange agent ("Exchange Agent"),
for the benefit of the holders of shares of Bayonne Common Stock, for exchange
in accordance with this Section 1.3, an estimated amount of cash sufficient to
pay the aggregate amount of cash in lieu of fractional shares to be paid
pursuant to Section 1.2, and RCFC shall reserve for issuance with its Transfer
Agent and Registrar a sufficient number of shares of RCFC Common Stock to
provide for payment of the Merger Consideration. On the Closing Date, RCFC shall
have granted the Exchange Agent the requisite power and authority to effect for
and on behalf of RCFC the issuance of the number of shares of RCFC Common Stock
issuable in the share exchange.
(d) The Letter of Transmittal shall (i) specify that delivery shall
be effected, and risk of loss and title to the Bayonne Certificates shall pass,
only upon delivery of the Bayonne Certificates to the Exchange Agent, (ii) be in
a form and contain any other provisions as RCFC may reasonably determine and
(iii) include instructions for use in effecting the surrender of the Bayonne
Certificates in exchange for the Merger Consideration. Upon the proper surrender
of the Bayonne Certificates to the Exchange Agent, together with a properly
completed and duly executed Letter of Transmittal, the holder of such Bayonne
Certificates shall be entitled to receive in exchange therefor (m) a certificate
representing that number of whole shares of RCFC Common Stock that such holder
has the right to receive pursuant to Section 1.2 and (n) a
A-6
<PAGE>
check in the amount equal to the cash in lieu of fractional shares, if any, that
such holder has the right to receive pursuant to Section 1.2 and any dividends
or other distributions to which such holder is entitled pursuant to this Section
1.3. Bayonne Certificates so surrendered shall forthwith be cancelled. As soon
as practicable, but no later than 10 business days following receipt of the
properly completed Letter of Transmittal and any necessary accompanying
documentation, the Exchange Agent shall distribute RCFC Common Stock and cash as
provided herein. The Exchange Agent shall not be entitled to vote or exercise
any rights of ownership with respect to the shares of RCFC Common Stock held by
it from time to time hereunder, except that it shall receive and hold all
dividends or other distributions paid or distributed with respect to such shares
for the account of the persons entitled thereto. If there is a transfer of
ownership of any shares of Bayonne Common Stock not registered in the transfer
records of Bayonne, the Merger Consideration shall be issued to the transferee
thereof if the Bayonne Certificates representing such Bayonne Common Stock are
presented to the Exchange Agent, accompanied by all documents required, in the
reasonable judgment of RCFC and the Exchange Agent, (x) to evidence and effect
such transfer and (y) to evidence that any applicable stock transfer taxes have
been paid.
(e) No dividends or other distributions declared or made after the
Effective Time with respect to RCFC Common Stock shall be remitted to any person
entitled to receive shares of RCFC Common Stock hereunder until such person
surrenders his or her Bayonne Certificates in accordance with this Section 1.3.
Upon the surrender of such person's Bayonne Certificates, such person shall be
entitled to receive any dividends or other distributions, without interest
thereon, which theretofore had become payable with respect to shares of RCFC
Common Stock represented by such person's Bayonne Certificates.
(f) From and after the Effective Time there shall be no transfers on
the stock transfer records of Bayonne of any shares of Bayonne Common Stock.
If, after the Effective Time, Bayonne Certificates are presented to RCFC, they
shall be cancelled and exchanged for the Merger Consideration deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Section 1.3.
(g) Any portion of the aggregate amount of cash to be paid in lieu of
fractional shares pursuant to Section 1.2, any dividends or other distributions
to be paid pursuant to this Section 1.3 or any proceeds from any investments
thereof that remains unclaimed by the stockholders of Bayonne for 6 months after
the Effective Time shall be repaid by the Exchange Agent to RCFC upon the
written request of RCFC. After such request is made, any stockholders of Bayonne
who have not theretofore complied with this Section 1.3 shall look only to RCFC
for the Merger Consideration deliverable in respect of each share of Bayonne
Common Stock such stockholder holds, as determined pursuant to Section 1.2 of
this Agreement, without any interest thereon. If outstanding Bayonne
Certificates are not surrendered prior to the date on which such payments would
otherwise escheat to or become the property of any governmental unit or agency,
the unclaimed items shall, to the extent permitted by any abandoned property,
escheat or other applicable laws, become the property of RCFC (and, to the
extent not in its possession,
A-7
<PAGE>
shall be paid over to it), free and clear of all claims or interest of any
person previously entitled to such claims. Notwithstanding the foregoing,
neither the Exchange Agent nor any party to this Agreement (or any affiliate
thereof) shall be liable to any former holder of Bayonne Common Stock for any
amount delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(h) RCFC and the Exchange Agent shall be entitled to rely upon
Bayonne's stock transfer books to establish the identity of those persons
entitled to receive the Merger Consideration, which books shall be conclusive
with respect thereto. In the event of a dispute with respect to ownership of
stock represented by any Bayonne Certificate, RCFC and the Exchange Agent shall
be entitled to deposit any Merger Consideration represented thereby in escrow
with an independent third party and thereafter be relieved with respect to any
claims thereto.
(i) If any Bayonne Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Bayonne Certificate to be lost, stolen or destroyed and, if required by the
Exchange Agent, the posting by such person of a bond in such amount as the
Exchange Agent may direct as indemnity against any claim that may be made
against it with respect to such Bayonne Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Bayonne Certificate the
Merger Consideration deliverable in respect thereof pursuant to Section 1.2.
Section 1.4. Stock Options.
-------------
(a) At the Effective Time, by virtue of the Merger, and without any
action on the part of any holder of an option, each option to acquire shares of
Bayonne Common Stock granted pursuant to either the 1995 Stock Option Plan or
the 1998 Stock-Based Incentive Plan (a "Bayonne Option") that is then
outstanding and unexercised shall be converted into and become an option to
acquire RCFC Common Stock on the same terms and conditions as are in effect with
respect to the Bayonne Option immediately prior to the Effective Time, except
that (i) the number of shares of RCFC Common Stock subject to such Bayonne
Option shall be equal to the number of shares of Bayonne Common Stock subject to
such Bayonne Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, the product being rounded, if necessary, up or down to the
nearest whole share, and (ii) the per share exercise price of the option shall
be adjusted by dividing the per share exercise price of the Bayonne Option by
the Exchange Ratio, and rounding up to the nearest cent. It is intended that
the foregoing assumption shall be effected in a manner which is consistent with
the requirements of Section 424 of the Internal Revenue Code of 1986, as
amended, as to any Bayonne Option that is an incentive stock option.
Section 1.5. Bank Merger. Concurrently with or as soon as
-----------
practicable after the execution and delivery of this Agreement, Richmond County
Savings Bank ("RCFC Bank"), a wholly-owned subsidiary of RCFC, and First Savings
Bank of New Jersey, SLA ("First Savings"), a wholly-owned subsidiary of Bayonne,
shall enter into the Plan of Bank Merger, in
A-8
<PAGE>
the form attached hereto as Exhibit B, pursuant to which the Bank Merger will be
effected. The parties hereto intend that the Bank Merger shall become effective
on the Effective Date. The Plan of Bank Merger shall provide that the directors
of RCFC Bank as the surviving entity of the Bank Merger shall be all of the
directors of RCFC Bank serving immediately prior to the Bank Merger.
Section 1.6. Directors of RCFC after Effective Time. At the
--------------------------------------
Effective Time, the directors of RCFC shall consist of (a) the directors of RCFC
serving immediately prior to the Effective Time and (b) one additional person
who shall become a director of RCFC in accordance with Section 4.13. Other than
as provided in Section 4.13, no director of Bayonne shall become a director of
RCFC.
Section 1.7. Alternative Structure. Notwithstanding anything to the
---------------------
contrary contained in this Agreement, prior to the Effective Time, RCFC may
specify that the structure of the transactions contemplated hereby be revised
and the parties shall enter into such alternative transactions as RCFC may
determine to effect the purposes of this Agreement; provided, however, that such
revised structure shall not (i) adversely affect the tax effects or alter or
change the amount or kind of the Merger Consideration or the treatment of
Bayonne Options or the economic benefits of the transactions contemplated hereby
to the holders of Bayonne Common Stock, (ii) diminish the benefits to be
received by the directors, officers or employees of Bayonne or First Savings as
set forth in or as contemplated by this Agreement, and (iii) materially impede
or delay the receipt of any approval referred to in this Agreement (as defined
in Section 7.1). This Agreement and any related documents shall be appropriately
amended in order to reflect any such revised structure.
Section 1.8. Certificate of Incorporation and Bylaws of the
----------------------------------------------
Surviving Corporation. The Certificate of Incorporation and Bylaws of RCFC in
- ---------------------
effect immediately prior to the Effective Time shall be the Certificate of
Incorporation and Bylaws of the surviving corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
------------------------------
Section 2.1. Disclosure Letters. On or prior to the execution and
------------------
delivery of this Agreement, Bayonne and RCFC each shall have delivered to the
other a letter (each, its "Disclosure Letter") setting forth, among other
things, facts, circumstances and events the disclosure of which is required or
appropriate in relation to any or all of their respective representations and
warranties (and making specific reference to the Section of this Agreement to
which they relate), other than Section 2.3(g) and Section 2.4(g); provided, that
(a) no such fact, circumstance or event is required to be set forth in the
Disclosure Letter as an exception to a representation or warranty if its absence
is not reasonably likely to result in the related
A-9
<PAGE>
representation or warranty being deemed untrue or incorrect under the standards
established by Section 2.2 and (b) the mere inclusion of a fact, circumstance or
event in a Disclosure Letter shall not be deemed an admission by a party that
such item represents a material exception or that such item is reasonably likely
to result in a Material Adverse Effect (as defined in Section 2.2(b)).
Section 2.2. Standards.
---------
(a) No representation or warranty of Bayonne or RCFC contained in
Sections 2.3 or 2.4, respectively, shall be deemed untrue or incorrect, and no
party hereto shall be deemed to have breached a representation or warranty, on
account of the existence of any fact, circumstance or event unless, as a direct
or indirect consequence of such fact, circumstance or event, individually or
taken together with all other facts, circumstances or events inconsistent with
any paragraph of Sections 2.3 or 2.4, as applicable, there is reasonably likely
to exist a Material Adverse Effect. Bayonne's representations, warranties and
covenants contained in this Agreement shall not be deemed to be untrue or
breached as a result of effects arising solely from actions taken in connection
with this Agreement or in compliance with a written request of RCFC.
(b) As used in this Agreement, the term "Material Adverse Effect"
means either (i) an effect which is material and adverse to the business,
financial condition or results of operations of Bayonne or RCFC, as the context
may dictate, and its Subsidiaries (as defined herein) taken as a whole;
provided, however, that any such effect resulting from any (A) changes in laws,
rules or regulations or generally accepted accounting principles or regulatory
accounting requirements or interpretations thereof that apply to both RCFC and
RCFC Bank and Bayonne and First Savings, as the case may be, or to similarly
situated financial and/or depository institutions or (B) changes in economic
conditions affecting financial institutions generally, including but not limited
to, changes in the general level of market interest rates shall not be
considered in determining if a Material Adverse Effect has occurred; or (ii) the
failure of (x) a representation or warranty contained in Section 2.3(a)(i) and
(iv), Section 2.3(c), Section 2.3(g)(iii), Sections 2.4(a)(i) and (iv), Section
2.4(c), Section 2.4(g)(iii) or Section 2.4(l) to be true and correct in all
material respects or (y) a representation or warranty contained in the last
sentence of each of Section 2.3(e) or Section 2.4(e), the second sentence of
each of Section 2.3(f)(i) or Section 2.4(f)(i) and the first two sentences of
each of Section 2.3(aa) or Section 2.4(x) to be true and correct in all material
respects.
(c) For purposes of this Agreement, "knowledge" shall mean, with
respect to a party hereto, actual knowledge of the members of the Board of
Directors of that party or any officer of that party with the title ranking not
less than senior vice president.
Section 2.3. Representations and Warranties of Bayonne. Subject to
-----------------------------------------
Sections 2.1 and 2.2, Bayonne represents and warrants to RCFC that, except as
disclosed in Bayonne's Disclosure Letter:
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<PAGE>
(a) Organization. (i) Bayonne is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and is duly registered as a savings and loan holding company under the Home
Owners' Loan Act, as amended ("HOLA") . First Savings is a stock savings
association duly organized, validly existing and in good standing under the laws
of the State of New Jersey. Each Subsidiary (as defined below) of First Savings
is a corporation, limited liability company or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of Bayonne and its Subsidiaries has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted. As used in this Agreement,
unless the context requires otherwise, the term "Subsidiary" when used with
respect to any party means any corporation or other organization, whether
incorporated or unincorporated, which is consolidated with such party for
financial reporting purposes or which is controlled, directly or indirectly, by
such party.
(ii) Each of Bayonne and its Subsidiaries has the requisite
corporate power and authority, and is duly qualified and is in good standing, to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary.
(iii) Bayonne's Disclosure Letter sets forth all of Bayonne's
Subsidiaries and all entities (whether corporations, partnerships or similar
organizations), including the corresponding percentage ownership, in which
Bayonne owns, directly or indirectly, 5% or more of the ownership interests as
of the date of this Agreement and indicates for each of Bayonne's Subsidiaries,
as of such date, its jurisdiction of organization and the jurisdiction(s)
wherein it is qualified to do business. All such Subsidiaries and ownership
interests are in compliance with all applicable laws, rules and regulations
relating to direct investments in equity ownership interests. Bayonne owns,
either directly or indirectly, all of the outstanding capital stock of each of
its Subsidiaries. No Subsidiary of Bayonne other than First Savings is an
"insured depository institution" as defined in the Federal Deposit Insurance
Act, as amended ("FDIA"), and the applicable regulations thereunder. All of the
shares of capital stock of each of the Subsidiaries held by Bayonne or any of
its other Subsidiaries are fully paid, nonassessable and not subject to any
preemptive rights and are owned by Bayonne or a Subsidiary of Bayonne free and
clear of any claims, liens, encumbrances or restrictions (other than those
imposed by applicable federal and state securities laws), and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(iv) The deposits of First Savings are insured by the Savings
Association Insurance Fund ("SAIF") of the Federal Deposit Insurance Corporation
("FDIC") to the extent provided in the FDIA.
(b) Capital Structure. (i) The authorized capital stock of Bayonne
-----------------
consists of 22,000,000 shares of Bayonne Common Stock and 2,000,000 shares of
preferred stock, par value $.01 per share ("Bayonne Preferred Stock"). As of
the date of this Agreement:
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<PAGE>
(A) 9,094,495 shares of Bayonne Common Stock were issued and outstanding, (B) no
shares of Bayonne Preferred Stock were issued and outstanding, (C) no shares of
Bayonne Common Stock were reserved for issuance, except that 945,085 shares of
Bayonne Common Stock were reserved for issuance pursuant to the Bayonne Option
Plans, (D) no shares of Bayonne Preferred Stock were reserved for issuance and
(E) 194,768 shares of Bayonne Common Stock were held by Bayonne in its treasury
or by its Subsidiaries. The authorized capital stock of First Savings consists
of 20,000,000 shares of common stock, par value $.10 per share, and 10,000,000
shares of preferred stock, par value $.10 per share. As of the date of this
Agreement, 1,000 shares of such common stock were outstanding, no shares of such
preferred stock were outstanding and all outstanding shares of such common stock
were, and as of the Effective Time will be, owned by Bayonne. All outstanding
shares of capital stock of Bayonne and First Savings are duly authorized and
validly issued, fully paid and nonassessable and not subject to any preemptive
rights and, with respect to shares held by Bayonne in its treasury or by its
Subsidiaries, are free and clear of all liens, claims, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities laws) and there are no agreements or understandings with respect to
the voting or disposition of any such shares. Bayonne's Disclosure Letter sets
forth a complete and accurate list of all options to purchase Bayonne Common
Stock that have been granted pursuant to the Bayonne Option Plans and all
restricted stock grants under the Bayonne RRP, including the dates of grant,
exercise prices, dates of vesting, dates of termination and shares subject to
each grant.
(ii) No bonds, debentures, notes or other indebtedness having
the right to vote on any matters on which stockholders may vote ("Voting Debt")
of Bayonne are issued or outstanding.
(iii) As of the date of this Agreement, except for this
Agreement, the Option Agreement and the Bayonne Option Plans, neither Bayonne
nor any of its Subsidiaries has or is bound by any outstanding options,
warrants, calls, rights, convertible securities, commitments or agreements of
any character obligating Bayonne or any of its Subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, any additional shares of capital
stock of Bayonne or any of its Subsidiaries or obligating Bayonne or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right, convertible security, commitment or agreement. As of the date hereof,
there are no outstanding contractual obligations of Bayonne or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of capital
stock of Bayonne or any of its Subsidiaries.
(c) Authority. Each of Bayonne and First Savings has all requisite
---------
corporate power and authority to enter into this Agreement and the Plan of Bank
Merger, respectively, and, subject to approval of this Agreement by the
requisite vote of Bayonne's stockholders and receipt of all required regulatory
or governmental approvals, as contemplated by Section 5.1(b) of this Agreement,
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the Bank Plan of Merger, and, subject to the approval of
this Agreement by Bayonne's stockholders, the consummation of the transactions
contemplated hereby, have been
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duly authorized by all necessary corporate actions on the part of Bayonne and
First Savings. This Agreement has been duly executed and delivered by Bayonne
and constitutes a valid and binding obligation of Bayonne, enforceable in
accordance with its terms subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity, whether applied in a court
of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote
--------------------------------------
of a majority of the outstanding shares of Bayonne Common Stock entitled to vote
on this Agreement is the only vote of the stockholders of Bayonne required for
approval of this Agreement and the consummation of the Merger and the related
transactions contemplated hereby. Bayonne has received the written opinion of
Sandler O'Neill & Partners, L.P. to the effect that, as of the date hereof, the
Exchange Ratio to be received by Bayonne's stockholders is fair, from a
financial point of view, to such stockholders.
(e) No Violations. The execution, delivery and performance of this
-------------
Agreement and Option Agreement by Bayonne do not, and the consummation of the
transactions contemplated hereby will not, constitute (i) assuming receipt of
all Requisite Regulatory Approvals (as defined below) and requisite stockholder
approvals, a breach or violation of, or a default under, any law, rule or
regulation or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of Bayonne or any of its Subsidiaries, or to
which Bayonne or any of its Subsidiaries (or any of their respective properties)
is subject, (ii) a breach or violation of, or a default under, the certificate
of incorporation or bylaws of Bayonne or the similar organizational documents of
any of its Subsidiaries or (iii) a breach or violation of, or a default under
(or an event which, with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the properties or assets of Bayonne or
any of its Subsidiaries, under, any of the terms, conditions or provisions of
any note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which Bayonne or any of its Subsidiaries is a party,
or to which any of their respective properties or assets may be subject; and the
consummation by Bayonne and First Savings of the transactions (including the
Bank Merger) contemplated hereby (exclusive of the effect of any changes
effected pursuant to Section 1.7) will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (x) the
approval of the holders of a majority of the outstanding shares of Bayonne
Common Stock entitled to vote, (y) the approval of the Office of Thrift
Supervision ("OTS") under HOLA, and (z) the approval of the New Jersey
Department of Banking (the "NJBD") and the approval of the appropriate
regulatory authority under Section 18(c) of the FDIA. As of the date hereof,
the executive officers of Bayonne know of no reason pertaining to Bayonne why
any of the approvals referred to in this Section 2.3(e) should not be obtained
without the imposition of any material condition or restriction described in the
proviso to Section 5.1(b).
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<PAGE>
(f) Reports. (i) As of their respective dates, none of the reports
-------
or other statements filed by Bayonne or First Savings on or subsequent to March
31, 1998 with the FDIC or the Securities and Exchange Commission ("SEC")
(collectively, "Bayonne's Reports"), contained, or will contain, any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they were made, not misleading. Each
of the financial statements of Bayonne included in Bayonne's Reports complied as
to form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP")(except as may be indicated in the
notes thereto or, in the case of the unaudited financial statements, as
permitted by the SEC). Each of the consolidated statements of condition
contained or incorporated by reference in Bayonne's Reports (including in each
case any related notes and schedules) and each of the consolidated statements of
operations, consolidated statements of cash flows and consolidated statements of
changes in stockholders' equity, contained or incorporated by reference in
Bayonne's Reports (including in each case any related notes and schedules)
fairly presented, or will fairly present, as the case may be (A) the financial
position of the entity or entities to which it relates as of its date, and (B)
the results of operations, stockholders' equity and cash flows, as the case may
be, of the entity or entities to which it relates for the periods set forth
therein (subject, in the case of unaudited interim statements, to normal year-
end audit adjustments that are not material in amount or effect), in each case
in accordance with GAAP, except as may be noted therein. Bayonne has made
available to RCFC a true and complete copy of each of Bayonne's Reports filed
with the SEC since March 31, 1998.
(ii) Bayonne and each of its Subsidiaries have each timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
March 31, 1995 with (A) the NJBD, (B) the FDIC, (C) the OTS, (D) the National
Association of Securities Dealers, Inc. ("NASD"), (E) the SEC and (F) any other
self-regulatory organization ("SRO"), and, to Bayonne's knowledge, have paid all
fees and assessments due and payable in connection therewith.
(g) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
Bayonne's Reports filed on or prior to the date of this Agreement, since March
31, 1998, (i) Bayonne and its Subsidiaries have not incurred any liability,
except in the ordinary course of their business consistent with past practice,
(ii) Bayonne and its Subsidiaries have conducted their respective businesses
only in the ordinary and usual course of such businesses and (iii) there has not
been any Material Adverse Effect with respect to Bayonne.
(h) Absence of Claims. Except as set forth in Bayonne's Disclosure
-----------------
Letter, no litigation, proceeding, controversy, claim or action before any court
or governmental agency is pending against Bayonne or any of its Subsidiaries
and, to the best of Bayonne's knowledge, no such litigation, proceeding,
controversy, claim or action has been threatened.
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<PAGE>
(i) Absence of Regulatory Actions. Neither Bayonne nor any of its
-----------------------------
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or any commitment letter or similar
undertaking to, or is subject to any action, proceeding, order or directive by,
or is a recipient of any extraordinary supervisory letter from any federal or
state governmental authority charged with the supervision or regulation of
depository institutions or depository institution holding companies or engaged
in the insurance of bank and/or savings and loan deposits ("Government
Regulators"), or has adopted any board resolutions at the request of any
Government Regulator, nor has it been advised by any Government Regulator that
it is contemplating issuing or requesting (or is considering the appropriateness
of issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar undertaking.
(j) Taxes. All federal, state, local and foreign tax returns
-----
required to be filed by or on behalf of Bayonne or any of its Subsidiaries have
been timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by Bayonne or any of
its Subsidiaries have been paid in full or adequate provision has been made for
any such taxes on Bayonne's balance sheet (in accordance with GAAP). For
purposes of this Section 2.3(j), the term "taxes" shall include all income,
franchise, gross receipts, real and personal property, real property transfer
and gains, wage and employment taxes. As of the date of this Agreement, there is
no audit examination, deficiency assessment, tax investigation or refund
litigation with respect to any taxes of Bayonne or any of its Subsidiaries, and
no claim has been made by any authority in a jurisdiction where Bayonne or any
of its Subsidiaries do not file tax returns that Bayonne or any such Subsidiary
is subject to taxation in that jurisdiction. All taxes, interest, additions and
penalties due with respect to completed and settled examinations or concluded
litigation relating to Bayonne or any of its Subsidiaries have been paid in full
or adequate provision has been made for any such taxes on Bayonne's balance
sheet (in accordance with GAAP). Bayonne and its Subsidiaries have not executed
an extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. Bayonne and each
of its Subsidiaries has withheld and paid all taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other third party, and Bayonne
and each of its Subsidiaries has timely complied with all applicable information
reporting requirements under Part III, Subchapter A of Chapter 61 of the Code
and similar applicable state and local information reporting requirements.
Neither Bayonne nor any of its Subsidiaries (i) has made an election under
Section 341(f) of the Code, (ii) has issued or assumed any obligation under
Section 279 of the Code, any high yield discount obligation as described in
Section 163(i) of the Code or any registration-required obligation within the
meaning of Section 163(f)(2) of the Code that is not in registered form or (iii)
is or has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code.
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<PAGE>
(k) Agreements. (i) Except for the Option Agreement and
----------
arrangements made in the ordinary course of business, and except as set forth in
Bayonne's Disclosure Letter, Bayonne and its Subsidiaries are not bound by any
material contract (as defined in Item 601(b)(10) of Regulation S-K) to be
performed after the date hereof that has not been filed with or incorporated by
reference in Bayonne's Report. Except as disclosed in Bayonne's Disclosure
Letter, neither Bayonne nor any of its Subsidiaries is a party to an oral or
written (A) consulting agreement (other than data processing, software
programming and licensing contracts entered into in the ordinary course of
business) not terminable on 60 days' or less notice, (B) agreement with any
executive officer or other key employee of Bayonne or any of its Subsidiaries
the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving Bayonne or any of its
Subsidiaries of the nature contemplated by this Agreement or the Option
Agreement, (C) agreement with respect to any employee or director of Bayonne or
any of its Subsidiaries providing any term of employment or compensation
guarantee extending for a period longer than 60 days or for the payment of in
excess of $30,000 per annum, (D) agreement or plan, including any stock option
plan, phantom stock or stock appreciation rights plan, restricted stock plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting or payment of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement or the
Option Agreement or the value of any of the benefits of which will be calculated
on the basis of any of the transactions contemplated by this Agreement or the
Option Agreement or (E) agreement containing covenants that limit the ability of
Bayonne or any of its Subsidiaries to compete in any line of business or with
any person, or that involve any restriction on the geographic area in which, or
method by which, Bayonne (including any successor thereof) or any of its
Subsidiaries may carry on its business (other than as may be required by law or
any regulatory agency).
(ii) Neither Bayonne nor any of its Subsidiaries is in default
under or in violation of any provision of any note, bond, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement to which it is a party
or by which it is bound or to which any of its respective properties or assets
is subject.
(iii) Bayonne and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses, and neither Bayonne nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others. Each
of Bayonne and its Subsidiaries has performed all the obligations required to be
performed by it and are not in default under any contact, agreement, arrangement
or commitment relating to any of the foregoing.
(l) Labor Matters. Neither Bayonne nor any of its Subsidiaries is or
-------------
has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is Bayonne or any
of its Subsidiaries the subject of any proceeding asserting that
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<PAGE>
it has committed an unfair labor practice or seeking to compel it or any such
Subsidiary to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike, other labor dispute or organizational
effort involving Bayonne or any of its Subsidiaries pending or, to Bayonne's
knowledge, threatened. Bayonne and its Subsidiaries are in compliance with
applicable laws regarding employment of employees and retention of independent
contractors and are in compliance with applicable employment tax laws.
(m) Employee Benefit Plans. Bayonne's Disclosure Letter contains a
----------------------
complete and accurate list of all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance, severance and other
benefit plans, contracts, agreements and arrangements, including, but not
limited to, "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), incentive and
welfare policies, contracts, plans and arrangements and all trust agreements
related thereto with respect to any present or former directors, officers or
other employees of Bayonne or any of its Subsidiaries (hereinafter collectively
referred to as the "Bayonne Employee Plans"). All of the Bayonne Employee Plans
comply in all material respects with all applicable requirements of ERISA, the
Code and other applicable laws; there has occurred no "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code) which is likely
to result in the imposition of any penalties or taxes under Section 502(i) of
ERISA or Section 4975 of the Code upon Bayonne or any of its Subsidiaries.
Neither Bayonne nor any of its Subsidiaries has provided, or is required to
provide, security to any Bayonne Pension Plan or to any single-employer plan of
an ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Neither Bayonne,
its Subsidiaries, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
Each Bayonne Employee Plan that is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) and which is intended to be qualified under
Section 401(a) of the Code (a "Bayonne Qualified Plan") has received a favorable
determination letter from the Internal Revenue Service ("IRS"), and Bayonne and
its Subsidiaries are not aware of any circumstances likely to result in
revocation of any such favorable determination letter. There is no pending or,
to Bayonne's knowledge, threatened litigation, administrative action or
proceeding relating to any Bayonne Employee Plan. There has been no
announcement or commitment by Bayonne or any of its Subsidiaries to create an
additional Bayonne Employee Plan, or to amend any Bayonne Employee Plan, except
for amendments required by applicable law which do not materially increase the
cost of such Bayonne Employee Plan; and, except as specifically identified in
Bayonne's Disclosure Letter, Bayonne and its Subsidiaries do not have any
obligations for post-retirement or post-employment benefits under any Bayonne
Employee Plan that cannot be amended or terminated upon 60 days' notice or less
without incurring any liability thereunder, except for coverage required by Part
6 of Title I of ERISA or Section 4980B of the Code, or similar state laws, the
cost of which is borne by the insured individuals. With respect to Bayonne or
any of its Subsidiaries, for the Employee Plans listed in Bayonne's Disclosure
Letter, the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment or series of
payments by Bayonne or any of its Subsidiaries to any person which is an "excess
parachute
A-17
<PAGE>
payment" (as defined in Section 280G of the Code), increase or secure (by way of
a trust or other vehicle) any benefits payable under any Bayonne Employee Plan
or accelerate the time of payment or vesting of any such benefit. With respect
to each Bayonne Employee Plan, Bayonne has supplied to RCFC a true and correct
copy of (A) the annual report on the applicable form of the Form 5500 series
filed with the IRS for the most recent three plan years, if required to be
filed, (B) such Bayonne Employee Plan, including amendments thereto, (C) each
trust agreement, insurance contract or other funding arrangement relating to
such Bayonne Employee Plan, including amendments thereto, (D) the most recent
summary plan description and summary of material modifications thereto for such
Bayonne Employee Plan, if the Bayonne Employee Plan is subject to Title I of
ERISA, and (E) the most recent determination letter issued by the IRS if such
Employee Plan is a Qualified Plan.
(n) Title to Assets. Bayonne and each of its Subsidiaries has good
---------------
and marketable title to its properties and assets (including any intellectual
property asset such as any trademark, service mark, tradename or copyright) and
property acquired in a judicial foreclosure proceeding or by way of a deed in
lieu of foreclosure or similar transfer, other than property as to which it is
lessee, in which case the related lease is valid and in full force and effect.
Each lease pursuant to which Bayonne or any of its Subsidiaries is lessor is
valid and in full force and effect and no lessee under any such lease is in
default or in violation of any provisions of any such lease. All material
tangible properties of Bayonne and each of its Subsidiaries are in a good state
of maintenance and repair, conform with all applicable ordinances, regulations
and zoning laws and are considered by Bayonne to be adequate for the current
business of Bayonne and its Subsidiaries.
(o) Compliance with Laws. Bayonne and each of its Subsidiaries has
--------------------
all permits, licenses, certificates of authority, orders and approvals of, and
has made all filings, applications and registrations with, all federal, state,
local and foreign governmental or regulatory bodies that are required in order
to permit it to carry on its business as it is presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and, to the best knowledge of Bayonne, no suspension or
cancellation of any of them is threatened. Since the date of its incorporation,
the corporate affairs of Bayonne have not been conducted in violation of any
law, ordinance, regulation, order, writ, rule, decree or approval of any federal
or state regulatory authority having jurisdiction over insured depositary
institutions or their holding companies, the SEC, the NASD or any other SRO
(each, a "Governmental Entity"). The businesses of Bayonne and its Subsidiaries
are not being conducted in violation of any law, ordinance, regulation, order,
writ, rule, decree or condition to approval of any Governmental Entity.
(p) Fees. Other than financial advisory services performed for
----
Bayonne by Sandler O'Neill & Partners, L.P., neither Bayonne nor any of its
Subsidiaries, nor any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finder's fees, and no
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<PAGE>
broker or finder has acted directly or indirectly for Bayonne or any of its
Subsidiaries in connection with this Agreement or the transactions contemplated
hereby.
(q) Environmental Matters. (i) With respect to Bayonne and each
---------------------
of its Subsidiaries:
(A) Each of Bayonne and its Subsidiaries, the Participation
Facilities (as defined herein), and, to Bayonne's knowledge, the Loan Properties
(as defined herein) are, and have been, in substantial compliance with, and are
not liable under, all Environmental Laws (as defined herein);
(B) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
Bayonne's knowledge, threatened, before any court, governmental agency or board
or other forum against it or any of its Subsidiaries or any Participation
Facility (x) for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence of or
release (as defined herein) into the environment of any Hazardous Material (as
defined herein), whether or not occurring at or on a site owned, leased or
operated by it or any of its Subsidiaries or any Participation Facility;
(C) To Bayonne's knowledge, there is no suit, claim, action,
demand, executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum relating to or against any Loan Property (or Bayonne or any of
its Subsidiaries in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by a Loan Property;
(D) To Bayonne's knowledge, the properties currently owned or
operated by Bayonne or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law;
(E) Neither Bayonne nor any of its Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or request
for information from any federal, state, local or foreign governmental entity or
any third party indicating that it may be in violation of, or liable under, any
Environmental Law;
(F) To Bayonne's knowledge, there are no underground storage
tanks on, in or under any properties owned or operated by Bayonne or any of its
Subsidiaries or any Participation Facility and no underground storage tanks have
been closed or removed from any
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properties owned or operated by Bayonne or any of its Subsidiaries or any
Participation Facility; and
(G) To Bayonne's knowledge, during the period of (l) Bayonne's
or any of its Subsidiaries' ownership or operation of any of their respective
current properties or (m) Bayonne's or any of its Subsidiaries' participation in
the management of any Participation Facility, there has been no contamination by
or release of Hazardous Materials in, on, under or affecting such properties. To
Bayonne's knowledge, prior to the period of (x) Bayonne's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties or (y) Bayonne's or any of its Subsidiaries' participation in the
management of any Participation Facility, there was no contamination by or
release of Hazardous Material in, on, under or affecting such properties.
(ii) The following definitions apply for purposes of this
Section 2.3(r) and Section 2.4(r): (w) "Loan Property" means any property in
which the applicable party (or a Subsidiary of it) holds a security interest,
and, where required by the context, includes the owner or operator of such
property, but only with respect to such property; (x) "Participation Facility"
means any facility in which the applicable party (or a Subsidiary of it)
participates in the management (including all property held as trustee or in any
other fiduciary capacity) and, where required by the context, includes the owner
or operator of such property, but only with respect to such property; (y)
"Environmental Law" means (i) any federal, state or local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, directive, executive or administrative order,
judgment, decree, injunction, legal requirement or agreement with any
governmental entity relating to (A) the protection, preservation or restoration
of the environment (which includes, without limitation, air, water vapor,
surface water, groundwater, drinking water supply, structures, soil, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety as it relates to Hazardous Materials, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or disposal
of, Hazardous Materials, in each case as amended and as now in effect. The term
Environmental Law includes all federal, state and local laws, rules, regulations
or requirements relating to the protection of the environment or health and
safety, including, without limitation, (i) the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Superfund
Amendments and Reauthorization Act of 1986, the Federal Water Pollution Control
Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the Federal
Resource Conservation and Recovery Act of 1976 (including, but not limited to,
the Hazardous and Solid Waste Amendments thereto and Subtitle I relating to
underground storage tanks), the Federal Solid Waste Disposal and the Federal
Toxic Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide
Act, the Federal Occupational Safety and Health Act of 1970 as it relates to
Hazardous Materials, the Federal Hazardous Substances Transportation Act, the
Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water Act,
the Endangered Species Act, the National Environmental Policy Act, the Rivers
and Harbors Appropriation Act or any so-called "Superfund" or "Superlien" law,
each as amended and as now
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<PAGE>
or hereafter in effect, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such as
negligence, nuisance, trespass and strict liability) that may impose liability
or obligations for injuries or damages due to, or threatened as a result of, the
presence of or exposure to any Hazardous Material; and (z) "Hazardous Material"
means any substance (whether solid, liquid or gas) which is or could be
detrimental to human health or safety or to the environment, currently or
hereafter listed, defined, designated or classified as hazardous, toxic,
radioactive or dangerous, or otherwise regulated, under any Environmental Law,
whether by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or petroleum, or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
(r) Loan Portfolio; Allowance; Asset Quality. (i) With respect to
----------------------------------------
each loan owned by Bayonne or its Subsidiaries in whole or in part (each, a
"Loan"), to Bayonne's knowledge:
(A) the note and the related security documents are each legal,
valid and binding obligations of the maker or obligor thereof, enforceable
against such maker or obligor in accordance with their terms;
(B) neither Bayonne nor any of its Subsidiaries, nor any prior
holder of a Loan, has modified the note or any of the related security documents
in any material respect or satisfied, canceled or subordinated the note or any
of the related security documents except as otherwise disclosed by documents in
the applicable Loan file;
(C) Bayonne or a Subsidiary is the sole holder of legal and
beneficial title to each Loan (or Bayonne's applicable participation interest,
as applicable), except as otherwise referenced on the books and records of
Bayonne;
(D) the note and the related security documents, copies of which
are included in the Loan files, are true and correct copies of the documents
they purport to be and have not been suspended, amended, modified, canceled or
otherwise changed except as otherwise disclosed by documents in the applicable
Loan file;
(E) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property that serves as security for a Loan,
except as otherwise referenced on the books and records of Bayonne;
(F) there is no litigation or proceeding pending or threatened
relating to the property that serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan; and
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<PAGE>
(G) with respect to a Loan held in the form of a participation,
the participation documentation is legal, valid, binding and enforceable.
(ii) The allowance for possible losses reflected in Bayonne's
audited statement of condition at March 31, 1998 was, and the allowance for
possible losses shown on the balance sheets in Bayonne's Reports for periods
ending after December 31, 1997 will, in the opinion of management, be adequate,
as of the dates thereof, under generally accepted accounting principles
applicable to stock savings associations consistently applied.
(iii) Bayonne's Disclosure Letter sets forth by category the
amounts of all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of Bayonne and its Subsidiaries
that have been classified (whether regulatory or internal) as "Special Mention,"
"Substandard," "Doubtful," "Loss" or words of similar import, and Bayonne and
its Subsidiaries shall promptly after the end of any month inform RCFC of any
such classification arrived at any time after the date hereof. The other real
estate owned ("OREO") or words of similar import included in any non-performing
assets of Bayonne or any of its Subsidiaries is carried net of reserves at the
lower of cost or fair value, less estimated selling costs, based on current
independent appraisals or evaluations or current management appraisals or
evaluations; provided, however, that "current" shall mean within the past 12
months.
(s) Deposits. None of the deposits of Bayonne or any of its
--------
Subsidiaries is a "brokered" deposit, except as disclosed in Bayonne's
Disclosure Letter.
(t) [RESERVED]
(u) Antitakeover Provisions Inapplicable. Bayonne and its
------------------------------------
Subsidiaries have taken all actions required to exempt Bayonne, the Agreement,
the Merger and the Option Agreement from any provisions of an antitakeover
nature in their organization certificates and bylaws, and the provisions of any
federal or state "antitakeover," "fair price," "moratorium," "control share
acquisition" or similar laws or regulations.
(v) Material Interests of Certain Persons. Except as disclosed in
-------------------------------------
Bayonne's Disclosure Letter, no officer or director of Bayonne, or any
"associate" (as such term is defined in Rule 12b-2 under the Securities Exchange
Act of 1934, as amended ("Exchange Act")) of any such officer or director, has
any material interest in any material contract or property (real or personal),
tangible or intangible, used in or pertaining to the business of Bayonne or any
of its Subsidiaries. No such interest has been created or modified since the
date of completion of the last regulatory examination of Bayonne or its
Subsidiaries.
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<PAGE>
(w) Insurance. In the opinion of management, Bayonne and its
---------
Subsidiaries are presently insured, and since December 31, 1995, have been
insured, for amounts deemed reasonable by management with, to Bayonne's
knowledge, financially sound insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by Bayonne and its Subsidiaries are in full force and effect, Bayonne
and its Subsidiaries are not in default thereunder and all material claims
thereunder have been filed in due and timely fashion.
(x) Investment Securities; Borrowings. (i) Except for investments
---------------------------------
in Federal Home Loan Bank ("FHLB") Stock, pledges to secure FHLB borrowings, and
reverse repurchase agreements entered into in arms-length transactions pursuant
to normal commercial terms and conditions and entered into in the ordinary
course of business and restrictions that exist for securities to be classified
as "held to maturity," none of the investments reflected in the consolidated
balance sheet of Bayonne for the year ended March 31, 1998, and none of the
investment securities held by it or any of its Subsidiaries since March 31,
1998, is subject to any restriction (contractual or statutory) that would
materially impair the ability of the entity holding such investment freely to
dispose of such investment at any time.
(ii) Except as set forth in Bayonne's Disclosure Letter, Bayonne
nor any Subsidiary is a party to or has agreed to enter into an exchange-traded
or over-the-counter equity, interest rate, foreign exchange or other swap,
forward, future, option, cap, floor or collar or any other contract that is a
derivative contract (including various combinations thereof) (each, a
"Derivatives Contract") or owns securities that (A) are referred to generically
as "structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes.
(iii) Set forth in Bayonne's Disclosure Letter is a true and
complete list of Bayonne's borrowed funds (excluding deposit accounts) as of the
date hereof.
(y) Indemnification. Except as provided in Bayonne's Employment
---------------
Agreements or the organization certificate or bylaws of Bayonne and its
Subsidiaries, neither Bayonne nor any Subsidiary is a party to any
indemnification agreement with any of its present or future directors, officers,
employees, agents or other persons who serve or served in any other capacity
with any other enterprise at the request of Bayonne (a "Covered Person"), and,
to the best knowledge of Bayonne, there are no claims for which any Covered
Person would be entitled to indemnification under the organization certificate
or bylaws of Bayonne or any of its Subsidiaries, under any applicable law or
regulation or under any indemnification agreement.
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<PAGE>
(z) Books and Records. The books and records of Bayonne and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal and accounting requirements and reflect in all
material respects the substance of events and transactions that should be
included therein.
(aa) Corporate Documents. Bayonne has delivered to RCFC true and
-------------------
complete copies of its certificate of incorporation and bylaws and of First
Savings's organization certificate and bylaws. The minute books of Bayonne and
First Savings constitute a complete and correct record of all actions taken by
their respective boards of directors (and each committee thereof) and their
stockholders. The minute books of each of Bayonne's Subsidiaries constitutes a
complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of each such
Subsidiary.
(bb) Tax Treatment of the Merger. As of the date hereof, Bayonne has
---------------------------
no knowledge of any fact or circumstance relating to it that would prevent the
transactions contemplated by this Agreement from qualifying as a tax-free
reorganization under the Code.
(cc) Beneficial Ownership of RCFC Common Stock. As of the date
-----------------------------------------
hereof, Bayonne beneficially owns no shares of RCFC Common Stock and does not
have any option, warrant or right of any kind to acquire the beneficial
ownership of any shares of RCFC Common Stock.
(dd) Year 2000 Matters. Bayonne has completed a review of its
-----------------
computer systems to identify systems that could be affected by the "Year 2000"
issue and reasonably believes it has identified all such Year 2000 problems.
Bayonne's management has developed and commenced implementation of a plan which
is designed to complete any required initial changes to its computer systems and
to complete testing of those changes by December 31, 1998. Between the date of
this Agreement and the Effective Time, Bayonne shall use commercially
practicable efforts to implement and/or continue to undertake such plan. Year
2000 issues have not had, and are not reasonably expected to have, a Material
Adverse Effect on Bayonne and its Subsidiaries, taken as a whole.
(ee) Registration Statement. The information regarding Bayonne to be
----------------------
supplied by Bayonne for inclusion in (i) the Registration Statement on Form S-4
and/or such other form(s) as may be appropriate to be filed under the Securities
Act of 1933, as amended ("Securities Act"), with the SEC by RCFC for the purpose
of, among other things, registering the RCFC Common Stock to be issued to
Bayonne's stockholders in the Merger (as amended or supplemented from time to
time, the "Registration Statement"), or (ii) the proxy statement to be filed
with the SEC by RCFC and Bayonne under the Exchange Act and distributed in
connection with Bayonne's meeting of stockholders and RCFC's meeting of
stockholders to vote upon this Agreement (as amended or supplemented from time
to time, the "Proxy Statement," and together with the prospectus included in the
Registration Statement, as amended or supplemented from time to time, the "Proxy
Statement-Prospectus") will not, at the time such Registration Statement
A-24
<PAGE>
becomes effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
(ff) Community Reinvestment Act ("CRA") Compliance. First Savings is
---------------------------------------------
in material compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and First Savings currently has a CRA rating
of satisfactory or better. To Bayonne's knowledge, there is no fact or
circumstance or set of facts or circumstances that would cause First Savings to
fail to comply with such provisions or cause the CRA rating of First Savings to
fall below satisfactory.
Section 2.4. Representations and Warranties of RCFC. Subject to
--------------------------------------
Sections 2.1 and 2.2, RCFC represents and warrants to Bayonne that, except as
specifically disclosed in RCFC's Disclosure Letter:
(a) Organization. (i) RCFC is a corporation duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware
and is duly registered as a savings and loan holding company under HOLA. RCFC
Bank is a stock savings bank duly organized, validly existing and in good
standing under the laws of the State of New York. Each Subsidiary of RCFC Bank
is a corporation, limited liability company or partnership duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of RCFC and its Subsidiaries has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
(ii) RCFC and each of its Subsidiaries has the requisite
corporate power and authority, and is duly qualified and is in good standing, to
do business in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary.
(iii) RCFC's Disclosure Letter sets forth all of RCFC's
Subsidiaries and all entities (whether corporations, partnerships or similar
organizations), including the corresponding percentage ownership, in which RCFC
owns, directly or indirectly, 5% or more of the ownership interests as of the
date of this Agreement and indicates for each of RCFC's Subsidiaries, as of such
date, its jurisdiction of organization and the jurisdiction(s) wherein it is
qualified to do business. All such Subsidiaries and ownership interests are in
compliance with all applicable laws, rules and regulations relating to direct
investments in equity ownership interests. RCFC owns, either directly or
indirectly, all of the outstanding capital stock of each of its Subsidiaries.
No Subsidiary of RCFC other than RCFC Bank is an "insured depository
institution" as defined in the FDIA and the applicable regulations thereunder.
All of the shares of capital stock of each of the Subsidiaries held by RCFC or
any of its other Subsidiaries are fully paid, nonassessable and not subject to
any preemptive rights and are owned by RCFC or a Subsidiary of RCFC free and
clear of any claims, liens, encumbrances or restrictions (other than
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<PAGE>
those imposed by applicable federal and state securities laws) and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(iv) The deposits of RCFC Bank are insured by the Bank Insurance
Fund ("BIF") of the FDIC and the SAIF of the FDIC to the extent provided in the
FDIA.
(b) Capital Structure. (i) The authorized capital stock of RCFC
-----------------
consists of 75,000,000 shares of RCFC Common Stock and 5,000,000 shares of
preferred stock, par value $.01 per share ("RCFC Preferred Stock"). As of the
date of this Agreement, (A) 26,423,600 shares of RCFC Common Stock were issued
and outstanding, (B) no shares of RCFC Preferred Stock were outstanding, (C) no
shares of RCFC Common Stock were reserved for issuance, except that 2,642,360
shares of RCFC Common Stock were reserved for issuance pursuant to the RCFC 1998
Stock-Based Incentive Plan and (D) no shares of RCFC Common Stock were held by
RCFC in its treasury or by its Subsidiaries. The authorized capital stock of
RCFC Bank consists of 75,000,000 shares of common stock, par value $.01 per
share, and 5,000,000 shares of preferred stock, par value $.01 per share. As of
the date of this Agreement, 1,000 shares of such common stock were outstanding,
no shares of such preferred stock were outstanding and all outstanding shares of
such common stock were, and as of the Effective Time will be, owned by RCFC.
All outstanding shares of capital stock of RCFC and RCFC Bank are validly
issued, fully paid and nonassessable and not subject to any preemptive rights
and, with respect to shares held by RCFC in its treasury or by its Subsidiaries,
are free and clear of all liens, encumbrances or restrictions (other than those
imposed by applicable federal or state securities laws) and there are no
agreements or understandings with respect to the voting or disposition of any
such shares.
(ii) No Voting Debt of RCFC is issued or outstanding.
(iii) As of the date of this Agreement, except for this
Agreement and as set forth in RCFC's Disclosure Letter, neither RCFC nor any of
its Subsidiaries has or is bound by any outstanding options, warrants, calls,
rights, convertible securities, commitments or agreements of any character
obligating RCFC or any of its Subsidiaries to issue, deliver or sell, or cause
to be issued, delivered or sold, any additional shares of capital stock of RCFC
or any of its Subsidiaries or obligating RCFC or any of its Subsidiaries to
grant, extend or enter into any such option, warrant, call, right, convertible
security, commitment or agreement. As of the date hereof, there are no
outstanding contractual obligations of RCFC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of RCFC or
any of its Subsidiaries.
(c) Authority. Each of RCFC and RCFC Bank has the requisite
---------
corporate power and authority to enter into this Agreement, the Option Agreement
and the Plan of Bank Merger, respectively and, subject to approval of this
Agreement, by the requisite vote of RCFC's stockholders and receipt of all
required regulatory or governmental approvals, as contemplated by Section 5.1(b)
of this Agreement, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the Option Agreement, and, subject
to the approval of this Agreement by RCFC's stockholders, the consummation of
the transactions contemplated
A-26
<PAGE>
hereby, have been duly authorized by all necessary corporate actions on the part
of RCFC and RCFC Bank. This Agreement and the Option Agreement have been duly
executed and delivered by RCFC and constitutes a valid and binding obligations
of RCFC, enforceable in accordance with its terms subject to applicable
bankruptcy, insolvency and similar laws affecting creditors' rights and remedies
generally and subject, as to enforceability, to general principles of equity,
whether applied in a court of law or a court of equity.
(d) Stockholder Approval; Fairness Opinion. The affirmative vote of
--------------------------------------
a majority of the outstanding shares of RCFC Common Stock entitled to vote on
this Agreement is the only vote of the stockholders of RCFC required for
approval of the Agreement and the consummation of the Merger and the related
transactions contemplated hereby. RCFC has received the opinion of Tucker
Anthony Incorporated, to the effect that, as of the date hereof, the Exchange
Ratio is fair, from a financial point of view, to RCFC's stockholders.
(e) No Violations. The execution, delivery and performance of this
-------------
Agreement by RCFC does not, and the consummation of the transactions
contemplated hereby will not, constitute (i) assuming receipt of all Requisite
Regulatory Approvals and requisite stockholder approvals, a breach or violation
of, or a default under, any law, rule or regulation or any judgment, decree,
order, governmental permit or license, or agreement, indenture or instrument of
RCFC or any of its Subsidiaries, or to which RCFC or any of its Subsidiaries (or
any of their respective properties) is subject, (ii) a breach or violation of,
or a default under, the certificate of incorporation or bylaws of RCFC or the
similar organizational documents of any of its Subsidiaries or (iii) a breach or
violation of, or a default under (or an event which, with due notice or lapse of
time or both, would constitute a default under), or result in the termination
of, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of RCFC or any of its Subsidiaries, under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which RCFC or any
of its Subsidiaries is a party, or to which any of their respective properties
or assets may be subject; and the consummation of the transactions (including
the Bank Merger) contemplated hereby (exclusive of the effect of any changes
effected pursuant to Section 1.7) will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any other
party to any such agreement, indenture or instrument, other than (x) the
approval of the holders of a majority of the outstanding shares of RCFC Common
Stock, (y) the approval of the Banking Board of the State of New York ("Banking
Board") under Section 143-b of the Banking Law of the Sate of New York ("Banking
Law"), the approval of the Superintendent of Banks of the State of New York (the
"Superintendent") under Section 601 of the Banking Law and any other requirement
of the Banking Board or the Superintendent, the approval of the OTS, under HOLA,
the approval of the NJBD and the approval of the appropriate regulatory
authority under Section 18(c) of the FDIC (collectively, the "Requisite
Regulatory Approvals") and (z) such approvals, consents or waivers as are
required under the federal and state securities or "blue sky" laws in connection
with the transactions contemplated by this Agreement. As of the date hereof,
the executive officers of
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<PAGE>
RCFC know of no reason pertaining to RCFC why any of the approvals referred to
in this Section 2.4(e) should not be obtained without the imposition of any
material condition or restriction described in the proviso to Section 5.1(b).
(f) Reports. (i) As of their respective dates, none of the reports
-------
or other statements filed by RCFC or RCFC Bank on or subsequent to December 31,
1997, with the FDIC or the SEC (collectively, "RCFC's Reports"), contained, or
will contain, any untrue statement of a material fact or omitted or will omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the financial statements of RCFC included in
RCFC's Reports complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements and
with the published rules and regulations of the SEC with respect thereto and
have been prepared in accordance with GAAP (except as may be indicated in the
notes thereto or, in the case of unaudited financial statements, as permitted by
Form 10-Q of the SEC). Each of the consolidated statements of condition
contained or incorporated by reference in RCFC's Reports (including in each case
any related notes and schedules) and each of the statements of operations,
consolidated statements of cash flows and consolidated statements of changes in
stockholders' equity, contained or incorporated by reference in RCFC's Reports
(including in each case any related notes and schedules) fairly presented, or
will fairly present, as the case may be, (A) the financial position of the
entity or entities to which it relates as of its date, and (B) the results of
operations, stockholders' equity and cash flows, as the case may be, of the
entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with GAAP, except as may be noted therein. RCFC has made available
to Bayonne a true and complete copy of each of RCFC's Reports filed with the SEC
since December 31, 1997.
(ii) RCFC and each of its Subsidiaries have each timely filed
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1993 with (A) the FDIC, (B) the SEC, (C) the NASD, (D) the NYBD and
(E) any other SRO, and, to RCFC's knowledge, have paid all fees and assessments
due and payable in connection therewith.
(g) Absence of Certain Changes or Events. Except as disclosed in
------------------------------------
RCFC's Reports filed on or prior to the date of this Agreement, since December
31, 1997, (i) RCFC and its Subsidiaries have not incurred any liability, except
in the ordinary course of their business consistent with past practice, (ii)
RCFC and its Subsidiaries have conducted their respective businesses only in the
ordinary and usual course of such businesses and (iii) there has not been any
Material Adverse Effect with respect to RCFC.
(h) Absence of Claims. Except as set forth in RCFC's Disclosure
-----------------
Letter, no litigation, proceeding, controversy, claim or action before any court
or governmental agency is
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<PAGE>
pending against RCFC or any of its Subsidiaries, and, to the best of RCFC's
knowledge, no such litigation, proceeding, controversy, claim or action has been
threatened.
(i) Absence of Regulatory Actions. Neither RCFC nor any of its
-----------------------------
Subsidiaries is a party to any cease and desist order, written agreement or
memorandum of understanding with, or any commitment letter or similar written
undertaking to, or is subject to any action, proceeding, order or directive by,
or is a recipient of any extraordinary supervisory letter from any Government
Regulator, or has adopted any board resolutions at the request of any Government
Regulator, nor has it been advised by any Governmental Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such action, proceeding, order, directive, written
agreement, memorandum of understanding, extraordinary supervisory letter,
commitment letter, board resolutions or similar written undertaking.
(j) Taxes. All federal, state, local and foreign tax returns
-----
required to be filed by or on behalf of RCFC or any of its Subsidiaries have
been timely filed or requests for extensions have been timely filed and any such
extension shall have been granted and not have expired, and all such filed
returns are complete and accurate in all material respects. All taxes shown on
such returns, all taxes required to be shown on returns for which extensions
have been granted and all other taxes required to be paid by RCFC or any of its
Subsidiaries have been paid in full or adequate provision has been made for any
such taxes on RCFC's balance sheet (in accordance with GAAP). For purposes of
this Section 2.4(j), the term "taxes" shall include all income, franchise, gross
receipts, real and personal property, real property transfer and gains, wage and
employment taxes. As of the date of this Agreement, there is no audit
examination, deficiency assessment, tax investigation or refund litigation with
respect to any taxes of RCFC or any of its Subsidiaries, and no claim has been
made by any authority in a jurisdiction where RCFC or any of its Subsidiaries do
not file tax returns that RCFC or any such Subsidiary is subject to taxation in
that jurisdiction. All taxes, interest, additions and penalties due with respect
to completed and settled examinations or concluded litigation relating to RCFC
or any of its Subsidiaries have been paid in full or adequate provision has been
made for any such taxes on RCFC's balance sheet (in accordance with GAAP).
Except as set forth in RCFC's Disclosure Letter, RCFC and its Subsidiaries have
not executed an extension or waiver of any statute of limitations on the
assessment or collection of any material tax due that is currently in effect.
RCFC and each of its Subsidiaries has withheld and paid all taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third party,
and RCFC and each of its Subsidiaries has timely complied with all applicable
information reporting requirements under Part III, Subchapter A of Chapter 61 of
the Code and similar applicable state and local information reporting
requirements. Neither RCFC nor any of its Subsidiaries (i) has made an election
under Section 341(f) of the Code, (ii) has issued or assumed any obligation
under Section 279 of the Code, any high yield discount obligation as described
in Section 163(i) of the Code or any registration-required obligation within the
meaning of Section 163(f)(2) of the Code that is not in registered form or
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<PAGE>
(iii) is or has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code.
(k) Agreements. (i) Except for arrangements made in the ordinary
----------
course of business, and except as set forth in RCFC's Disclosure Letter, RCFC
and its Subsidiaries are not bound by any material contract (as defined in Item
601(b)(10) of Regulation S-K) to be performed after the date hereof that has not
been filed with or incorporated by reference in RCFC's Reports. Except as
disclosed in RCFC's Reports filed prior to the date of this Agreement, neither
RCFC nor any of its Subsidiaries is a party to an oral or written (A) consulting
agreement (other than data processing, software programming and licensing
contracts entered into in the ordinary course of business) not terminable on 60
days' or less notice, (B) agreement with any executive officer or other key
employee of RCFC or any of its Subsidiaries the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving RCFC or any of its Subsidiaries of the nature
contemplated by this Agreement, (C) agreement with respect to any employee or
director of RCFC or any of its Subsidiaries providing any term of employment or
compensation guarantee extending for a period longer than 60 days or for the
payment of in excess of $100,000 per annum, (D) agreement or plan, including any
stock option plan, phantom stock or stock appreciation rights plan, restricted
stock plan or stock purchase plan, any of the benefits of which will be
increased, or the vesting or payment of the benefits of which will be
accelerated, by the occurrence of a transaction involving RCFC or any of its
Subsidiaries of the nature contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of a transaction of the
nature contemplated by this Agreement or (E) agreement containing covenants that
limit the ability of RCFC or any of its Subsidiaries to compete in any line of
business or with any person, or that involve any restriction on the geographic
area in which, or method by which, RCFC (including any successor thereof) or any
of its Subsidiaries may carry on its business (other than as may be required by
law or any regulatory agency).
(ii) Neither RCFC nor any of its Subsidiaries is in default
under or in violation of any provision of any note, bond, indenture, mortgage,
deed of trust, loan agreement, lease or other agreement to which it is a party
or by which it is bound or to which any of its respective properties or assets
is subject.
(iii) RCFC and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses, and neither RCFC nor any of its Subsidiaries has received any notice
of conflict with respect thereto that asserts the right of others. Each of RCFC
and its Subsidiaries has performed all the obligations required to be performed
by it and are not in default under any contract, agreement, arrangement or
commitment relating to any of the foregoing.
(l) RCFC Common Stock. The shares of RCFC Common Stock to be issued
-----------------
pursuant to this Agreement, when issued in accordance with the terms of this
Agreement, will be
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duly authorized, validly issued, fully paid and non-assessable and subject to no
preemptive rights.
(m) Labor Matters. Neither RCFC nor any of its Subsidiaries is or
-------------
has ever been a party to, or is or has ever been bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization with respect to its employees, nor is RCFC or any of
its Subsidiaries the subject of any proceeding asserting that it has committed
an unfair labor practice or seeking to compel RCFC or any of its Subsidiaries to
bargain with any labor organization as to wages and conditions of employment,
nor is there any strike, other labor dispute or organizational effort involving
RCFC or any of its Subsidiaries pending or, to RCFC's knowledge, threatened.
RCFC and its Subsidiaries are in compliance with applicable laws regarding
employment of employees and retention of independent contractors and are in
compliance with applicable employment tax laws.
(n) Employee Benefit Plans. RCFC's Disclosure Letter contains a
----------------------
complete and accurate list of all pension, retirement, stock option, stock
purchase, stock ownership, savings, stock appreciation right, profit sharing,
deferred compensation, consulting, bonus, group insurance, severance and other
benefit plans, contracts, agreements and arrangements, including, but not
limited to, "employee benefit plans," as defined in Section 3(3) of ERISA,
incentive and welfare policies, contracts, plans and arrangements and all trust
agreements related thereto with respect to any present or former directors,
officers or other employees of RCFC or any of its Subsidiaries (hereinafter
referred to collectively as the "RCFC Employee Plans"). All of the RCFC
Employee Plans comply in all material respects with all applicable requirements
of ERISA, the Code and other applicable laws; there has occurred no "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
which is likely to result in the imposition of any penalties or taxes under
Section 502(i) of ERISA or Section 4975 of the Code upon RCFC or any of its
Subsidiaries. No liability to the PBGC has been or is expected by RCFC or any
of its Subsidiaries to be incurred with respect to any RCFC Employee Plan which
is subject to Title IV of ERISA ("RCFC Pension Plan"), or with respect to any
"single-employer plan" (as defined in Section 4001(a) of ERISA) currently or
formerly maintained by RCFC or any entity which is considered one employer with
RCFC under Section 4001(b)(1) of ERISA or Section 414 of the Code (an "ERISA
Affiliate"). No RCFC Pension Plan had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, as of the last day of
the end of the most recent plan year ending prior to the date hereof; the fair
market value of the assets of each RCFC Pension Plan exceeds the present value
of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under
such RCFC Pension Plan as of the end of the most recent plan year with respect
to the respective RCFC Pension Plan ending prior to the date hereof, calculated
on the basis of the actuarial assumptions used in the most recent actuarial
valuation for such RCFC Pension Plan as of the date hereof; and no notice of a
"reportable event" (as defined in Section 4043 of ERISA) for which the 30-day
reporting requirement has not been waived has been required to be filed for any
RCFC Pension Plan within the 12-month period ending on the date hereof. Neither
RCFC nor any of its Subsidiaries has provided, or is required to provide,
security to any RCFC Pension Plan or to any single-employer plan of an
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<PAGE>
ERISA Affiliate pursuant to Section 401(a)(29) of the Code. Neither RCFC, its
Subsidiaries, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
Each RCFC Employee Plan that is an "employee pension benefit plan" (as defined
in Section 3(2) of ERISA) and which is intended to be qualified under Section
401(a) of the Code (an "RCFC Qualified Plan") has received a favorable
determination letter from the IRS, and RCFC and its Subsidiaries are not aware
of any circumstances likely to result in revocation of any such favorable
determination letter. Each RCFC Qualified Plan that is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the Code) has satisfied all
of the applicable requirements of Sections 409 and 4975(e)(7) of the Code and
the regulations thereunder in all respects and any assets of any such RCFC
Qualified Plan that are not allocated to participants' individual accounts are
pledged as security for, and may be applied to satisfy, any securities
acquisition indebtedness. There is no pending or, to RCFC's knowledge,
threatened litigation, administrative action or proceeding relating to any RCFC
Employee Plan. There has been no announcement or commitment by RCFC or any of
its Subsidiaries to create an additional RCFC Employee Plan, or to amend any
RCFC Employee Plan, except for amendments required by applicable law which do
not materially increase the cost of such RCFC Employee Plan; and, except as
specifically identified in RCFC's Disclosure Letter, RCFC and its Subsidiaries
do not have any obligations for post-retirement or post-employment benefits
under any RCFC Employee Plan that cannot be amended or terminated upon 60 days'
notice or less without incurring any liability thereunder, except for coverage
required by Part 6 of Title I of ERISA or Section 4980B of the Code, or similar
state laws, the cost of which is borne by the insured individuals. With respect
to RCFC or any of its Subsidiaries, for the Employee Plans listed in RCFC's
Disclosure Letter, the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
payment or series of payments by RCFC or any of its Subsidiaries to any person
which is an "excess parachute payment" (as defined in Section 280G of the Code),
increase or secure (by way of a trust or other vehicle) any benefits payable
under any RCFC Employee Plan or accelerate the time of payment or vesting of any
such benefit. With respect to each RCFC Employee Plan, RCFC has supplied to
Bayonne a true and correct copy of (A) the annual report on the applicable form
of the Form 5500 series filed with the IRS for the most recent three plan years,
if required to be filed, (B) such RCFC Employee Plan, including amendments
thereto, (C) each trust agreement, insurance contract or other funding
arrangement relating to such RCFC Employee Plan, including amendments thereto,
(D) the most recent summary plan description and summary of material
modifications thereto for such RCFC Employee Plan, if the RCFC Employee Plan is
subject to Title I of ERISA, (E) the most recent actuarial report or valuation
if such RCFC Employee Plan is an RCFC Pension Plan and any subsequent changes to
the actuarial assumptions contained therein and (F) the most recent
determination letter issued by the IRS if such RCFC Employee Plan is a Qualified
Plan.
(o) Title to Assets. RCFC and each of its Subsidiaries has good and
---------------
marketable title to its properties and assets (including any intellectual
property asset such as any trademark, service mark, tradename or copyright) and
property acquired in a judicial foreclosure proceeding or by way of a deed in
lieu of foreclosure or similar transfer, other than property as to
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<PAGE>
which it is lessee, in which case the related lease is valid and in full force
and effect. Each lease pursuant to which RCFC or any of its Subsidiaries is
lessor is valid and in full force and effect and no lessee under any such lease
is in default or in violation of any provisions of any such lease. All material
tangible properties of RCFC and each of its Subsidiaries are in a good state of
maintenance and repair, conform with all applicable ordinances, regulations and
zoning laws and are considered by RCFC to be adequate for the current business
of RCFC and its Subsidiaries.
(p) Compliance with Laws. RCFC and each of its Subsidiaries has all
--------------------
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, all federal, state, local
and foreign governmental or regulatory bodies that are required in order to
permit it to carry on its business as it is presently conducted; all such
permits, licenses, certificates of authority, orders and approvals are in full
force and effect, and, to the best knowledge of RCFC, no suspension or
cancellation of any of them is threatened. Since the date of its incorporation,
the corporate affairs of RCFC have not been conducted in violation of any law,
ordinance, regulation, order, writ, rule, decree or approval of any Governmental
Entity. The businesses of RCFC and its Subsidiaries are not being conducted in
violation of any law, ordinance, regulation, order, writ, rule, decree or
condition to approval of any Governmental Entity. The businesses of RCFC and
its Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, order, writ, rule, decree or condition to approve of any Government
Entity.
(q) Fees. Other than the financial advisory services performed for
----
RCFC by Tucker Anthony Incorporated pursuant to an agreement with RCFC dated
July 19, 1998, a true and complete copy of which has been previously delivered
to Bayonne, neither RCFC nor any of its Subsidiaries, nor any of their
respective officers, directors, employees or agents, has employed any broker or
finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finder's fees, and no broker or finder has acted directly
or indirectly for RCFC or any of its Subsidiaries in connection with this
Agreement or the transactions contemplated hereby.
(r) Environmental Matters. With respect to RCFC and each of its
---------------------
Subsidiaries:
(i) Each of RCFC and its Subsidiaries, the Participation
Facilities and, to RCFC's knowledge, the Loan Properties are, and have been, in
substantial compliance with, and are not liable under, all Environmental Laws;
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to
RCFC's knowledge, threatened, before any court, governmental agency or board or
other forum against it or any of its Subsidiaries or any Participation Facility
(x) for alleged noncompliance (including by any predecessor) with, or liability
under, any Environmental Law or (y) relating to the presence of or release into
the environment of any Hazardous Material, whether or not occurring at or on a
site owned, leased or operated by it or any of its Subsidiaries or any
Participation Facility;
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<PAGE>
(iii) To RCFC's knowledge, there is no suit, claim, action,
demand, executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum relating to or against any Loan Property (or RCFC or any of its
Subsidiaries in respect of such Loan Property) (x) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at or on a site
owned, leased or operated by a Loan Property;
(iv) To RCFC's knowledge, the properties currently owned or
operated by RCFC or any of its Subsidiaries (including, without limitation,
soil, groundwater or surface water on, under or adjacent to the properties, and
buildings thereon) are not contaminated with and do not otherwise contain any
Hazardous Material other than as permitted under applicable Environmental Law;
(v) Neither RCFC nor any of its Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or request
for information from any federal, state, local or foreign governmental entity or
any third party indicating that it may be in violation of, or liable under, any
Environmental Law;
(vi) To RCFC's knowledge, there are no underground storage tanks
on, in or under any properties owned or operated by RCFC or any of its
Subsidiaries or any Participation Facility and no underground storage tanks have
been closed or removed from any properties owned or operated by RCFC or any of
its Subsidiaries or any Participation Facility; and
(vii) To RCFC's knowledge, during the period of (l) RCFC's or
any of its Subsidiaries' ownership or operation of any of their respective
current properties or (m) RCFC's or any of its Subsidiaries' participation in
the management of any Participation Facility, there has been no contamination by
or release of Hazardous Materials in, on, under or affecting such properties.
To RCFC's knowledge, prior to the period of (x) RCFC's or any of its
Subsidiaries' ownership or operation of any of their respective current
properties or (y) RCFC's or any of its Subsidiaries' participation in the
management of any Participation Facility, there was no contamination by or
release of Hazardous Material in, on, under or affecting such property,
Participation Facility or Loan Property.
(s) Loan Portfolio; Allowance; Asset Quality. (i) With respect to
----------------------------------------
each Loan owned by RCFC or its Subsidiaries in whole or in part, to RCFC's best
knowledge:
(A) the note and the related security documents are each legal,
valid and binding obligations of the maker or obligor thereof, enforceable
against such maker or obligor in accordance with their terms;
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<PAGE>
(B) neither RCFC nor any of its Subsidiaries nor any prior
holder of a Loan has modified the note or any of the related security documents
in any material respect or satisfied, canceled or subordinated the note or any
of the related security documents except as otherwise disclosed by documents in
the applicable Loan file;
(C) RCFC or a Subsidiary is the sole holder of legal and
beneficial title to each Loan (or RCFC Bank's applicable participation interest,
as applicable); except as otherwise referenced on the books and records of RCFC;
(D) the note and the related security documents, copies of which
are included in the Loan files, are true and correct copies of the documents
they purport to be and have not been suspended, amended, modified, canceled or
otherwise changed except as otherwise disclosed by documents in the applicable
Loan file;
(E) there is no pending or threatened condemnation proceeding or
similar proceeding affecting the property that serves as security for a Loan;
except as otherwise referenced on the books and records of RCFC;
(F) there is no litigation or proceeding pending or threatened
relating to the property that serves as security for a Loan that would have a
Material Adverse Effect upon the related Loan; and
(G) with respect to a Loan held in the form of a participation,
the participation documentation is legal, valid, binding and enforceable.
(ii) The allowance for possible losses reflected in RCFC Bank's
audited statement of condition at June 30, 1997 was, and the allowance for
possible losses shown on the balance sheets in RCFC's Reports for periods ending
after June 30, 1997 will, in the opinion of management, be adequate, as of the
dates thereof, under generally accepted accounting principles applicable to
stock savings associations consistently applied.
(iii) RCFC's Disclosure Letter sets forth by category the
amounts of all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of RCFC and its Subsidiaries
that have been classified (whether regulatory or internal) as "Other Loans
Specially Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss,"
"Classified," "Criticized," "Credit Risk Assets," "Concerned Loans" (in the
latter two cases, to the extent available) or words of similar import, and RCFC
and its Subsidiaries shall promptly after the end of any month inform Bayonne of
any such classification arrived at any time after the date hereof. The OREO or
words of similar import included in any non-performing assets of RCFC or any of
its Subsidiaries is carried net of reserves at the lower of cost or fair value,
less estimated selling costs, based on current independent appraisals or
evaluations or current management appraisals or evaluations; provided, however,
that "current" shall mean within the past 12 months.
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<PAGE>
(t) [RESERVED]
(u) Investment Securities; Borrowing. (i) Except for investments in
--------------------------------
FHLB Stock and pledges to secure FHLB borrowings and reverse repurchase
agreements entered into in arms-length transactions pursuant to normal
commercial terms and conditions and entered into in the ordinary course of
business and restrictions that exist for securities to be classified as "held to
maturity," none of the investments reflected in the consolidated balance sheet
of RCFC included in RCFC's Report on Form 10-K for the year ended December 31,
1997, and none of the investment securities held by it or any of its
Subsidiaries since December 31, 1997 is subject to any restriction (contractual
or statutory) that would materially impair the ability of the entity holding
such investment freely to dispose of such investment at any time.
(ii) Except as set forth in RCFC's Disclosure Letter, neither
RCFC nor any Subsidiary is a party to or has agreed to enter into any
Derivatives Contract or owns securities that (A) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other
instruments legally purchased or entered into in the ordinary course of
business, consistent with safe and sound banking practices and regulatory
guidance, and listed (as of the date hereof) in RCFC's Disclosure Letter or
disclosed in RCFC's Report filed on or prior to the date hereof.
(iii) Set forth in RCFC's Disclosure Letter is a true and
complete list of RCFC's borrowed funds (excluding deposit accounts) as of the
date hereof.
(v) Registration Statement. The information regarding RCFC to be
----------------------
supplied by RCFC for inclusion in (i) the Registration Statement, (ii) the Proxy
Statement or (iii) any other documents to be filed with any Regulatory Authority
in connection with the transactions contemplated hereby will not, at the time
such Registration Statement becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. All documents that
RCFC is responsible for filing in connection with the transactions contemplated
hereby will comply as to form in all material respects with the provisions of
applicable law.
(w) Books and Records. The books and records of RCFC and its
-----------------
Subsidiaries on a consolidated basis have been, and are being, maintained in
accordance with applicable legal
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<PAGE>
and accounting requirements and reflect in all material respects the substance
of events and transactions that should be included therein.
(x) Corporate Documents. RCFC has delivered to Bayonne true and
-------------------
complete copies of its organization certificate and bylaws and of RCFC Bank's
organization certificate and bylaws. The minute books of RCFC and RCFC Bank
constitute a complete and correct record of all actions taken by their
respective boards of directors (and each committee thereof) and their
stockholders. The minute books of each of RCFC's Subsidiaries constitutes a
complete and correct record of all actions taken by the respective boards of
directors (and each committee thereof) and the stockholders of each such
Subsidiary.
(y) Beneficial Ownership of Bayonne Common Stock. As of the date
--------------------------------------------
hereof, RCFC beneficially owns 442,500 shares of Bayonne Common Stock and, other
than as contemplated by the Option Agreement, does not have any option, warrant
or right of any kind to acquire the beneficial ownership of any shares of
Bayonne Common Stock.
(z) Tax Treatment of the Merger. As of the date hereof, RCFC has no
---------------------------
knowledge of any fact or circumstance relating to it that would prevent the
transactions contemplated by this Agreement from qualifying as a tax-free
reorganization under the Code.
(aa) Year 2000 Matters. RCFC has completed a review of its computer
-----------------
systems to identify systems that could be affected by the "Year 2000" issue and
reasonably believes it has identified all Year 2000 problems. RCFC's management
has developed and commenced implementation of a plan which is designed to
complete any required initial changes to its computer systems and to complete
testing of those changes by December 31, 1998. Between the date of this
Agreement and the Effective Time, RCFC shall use commercially practicable
efforts to implement and/or continue to undertake such plan. Year 2000 issues
have not had, and are not reasonably expected to have, a Material Adverse Effect
on RCFC and its Subsidiaries, taken as a whole.
(bb) Community Reinvestment Act ("CRA") Compliance. RCFC Bank is in
---------------------------------------------
material compliance with the applicable provisions of the CRA and the
regulations promulgated thereunder, and RCFC Bank currently has a CRA rating of
satisfactory or better. To RCFC's knowledge, there is no fact or circumstance
or set of facts or circumstances that would cause RCFC Bank to fail to comply
with such provisions or cause the CRA rating of RCFC Bank to fall below
satisfactory.
ARTICLE III
CONDUCT PENDING THE MERGER
--------------------------
Section 3.1. Conduct of Bayonne's Business Prior to the Effective
----------------------------------------------------
Time. Except as expressly provided in this Agreement, during the period from
- ----
the date of this Agreement to the Effective Time, Bayonne shall, and shall cause
its Subsidiaries to, use
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<PAGE>
commercially reasonable efforts to (i) conduct its business in the regular,
ordinary and usual course consistent with past practice; (ii) maintain and
preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers and
key employees, (iii) take no action which would adversely affect or delay the
ability of Bayonne or RCFC to perform their respective covenants and agreements
on a timely basis under this Agreement, (iv) take no action which would
adversely affect or delay the ability of Bayonne, First Savings, RCFC or RCFC
Bank to obtain any necessary approvals, consents or waivers of any governmental
authority required for the transactions contemplated hereby or which would
reasonably be expected to result in any such approvals, consents or waivers
containing any material condition or restriction, and (v) take no action that
results in or is reasonably likely to have a Material Adverse Effect on Bayonne
or First Savings.
Section 3.2. Forbearance by Bayonne. Without limiting the covenants
----------------------
set forth in Section 3.1 hereof, except as otherwise provided in this Agreement
and except to the extent required by law or regulation or any Government
Regulators, during the period from the date of this Agreement to the Effective
Time, Bayonne shall not, and shall not permit any of its Subsidiaries to,
without the prior consent of RCFC, which consent shall not be unreasonably
withheld:
(a) unless required by applicable law or regulation or regulatory
directive, change any provisions of the certificate of incorporation or bylaws
of Bayonne or the similar governing documents of its Subsidiaries;
(b) issue any shares of capital stock or change the terms of any
outstanding stock options or warrants or issue, grant or sell any option,
warrant, call, commitment, stock appreciation right, right to purchase or
agreement of any character relating to the authorized or issued capital stock of
Bayonne except pursuant to the exercise of stock options or warrants outstanding
as of the date of this Agreement;
(c) other than regular quarterly dividends, make, declare or pay any
cash or stock dividend or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock. As promptly as practicable following the date of
this Agreement, the Board of Directors of Bayonne shall cause its regular
quarterly dividend record dates and payment dates to be the same as RCFC's
regular quarterly dividend record dates and payments dates for RCFC Common
Stock, and Bayonne shall not thereafter change its regular dividend payment
dates and record dates. Nothing contained in this Section 3.2(c) or in any
other Section of this Agreement shall be construed to permit holders of shares
of Bayonne Common Stock to receive two dividends from either Bayonne or from
Bayonne and RCFC in any one quarter. Subject to applicable regulatory
restrictions, if any, First Savings may pay a cash dividend that is, in the
aggregate, sufficient to fund any dividend by Bayonne permitted hereunder;
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<PAGE>
(d) other than in the ordinary course of business consistent with
past practice, (i) sell, transfer, mortgage, encumber or otherwise dispose of
any of its material properties, leases or assets to any individual, corporation
or other entity other than a direct or indirect wholly owned Subsidiary of
Bayonne or (ii) cancel, release or assign any indebtedness of any such
individual, corporation or other entity;
(e) except to the extent required by law or as specifically provided
for elsewhere herein, increase in any manner the compensation or fringe benefits
of any of its employees or directors, other than general increases in
compensation for non-executive officer employees in the ordinary course of
business consistent with past practice that do not cause the annualized
compensation of any of Bayonne's non-executive officer employees following such
increase to exceed by more than 5% the total annual compensation expenses of
Bayonne with respect to such person for the twelve-month period ended March 31,
1998 and that do not cause the annual rate of base salary of any of Bayonne's
non-executive officer employees to increase by more than 5% over such person's
base salary at March 31, 1998; pay, unless approved in advance by RCFC, any
reasonable "stay in place" pay where necessary or appropriate to retain key
employees; pay any pension or retirement allowance not required by any existing
plan or agreement to any such employees or directors, or become a party to,
amend or commit itself to fund or otherwise establish any trust or account
related to any Bayonne Employee Plan (as defined in Section 2.3(m)) with or for
the benefit of any employee or director; voluntarily accelerate the vesting of
any stock options or other compensation or benefit; make any discretionary
continuation to any Employee Plan; hire any employee with an annual total
compensation payment in excess of $35,000 or enter into any employment contract;
terminate or materially increase the costs to Bayonne or any Subsidiary of any
Employee Plan;
(f) except as contemplated by Section 4.2, change its method of
accounting as in effect at March 31, 1998, except as required by changes in GAAP
as concurred in by Bayonne's independent auditors;
(g) settle any claim, action or proceeding involving any liability of
Bayonne or any of its Subsidiaries for money damages in excess of $50,000 or
impose material restrictions upon the operations of Bayonne or any of its
Subsidiaries;
(h) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, in each case which are material,
individually or in the aggregate, to Bayonne, except in satisfaction of debts
previously contracted;
(i) except pursuant to commitments existing at the date hereof which
have previously been disclosed to RCFC, make any real estate loans secured by
undeveloped land or real estate located outside the State of New Jersey (other
than real estate secured by one-to-four
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<PAGE>
family homes) or make any construction loan (other than construction loans
secured by one-to-four family homes) outside the State of New Jersey;
(j) establish or commit to the establishment of any new branch or
other office facilities other than those for which all regulatory approvals have
been obtained except as disclosed in the Bayonne Disclosure Schedule;
(k) [RESERVED];
(l) other than in the ordinary course of business consistent with
past practice in individual amounts not to exceed $50,000 and other than
investments for Bayonne's portfolio made in accordance with Section 3.2(m), make
any investment either by purchase of stock or securities, contributions to
capital, property transfers, or purchase of any property or assets of any other
individual, corporation or other entity;
(m) make any investment in any debt security, including mortgage-
backed and mortgage-related securities, other than US government and US
government agency securities with final maturities not greater than five years,
mortgage-backed or mortgage related securities which would not be considered
"high risk" securities pursuant to Thrift Bulletin Number 52 issued by the OTS
or securities of the FHLB, in each case that are purchased in the ordinary
course of business consistent with past practice;
(n) enter into or terminate any contract or agreement, or make any
change in any of its leases or contracts, other than with respect to those
involving aggregate payments of less than, or the provision of goods or services
with a market value of less than, $20,000 per annum and other than contracts or
agreements covered by Section 3.2(g);
(o) make, renegotiate, renew, increase, extend or purchase any
(i) loan, lease (credit equivalent), advance, credit enhancement or other
extension of credit, or make any commitment in respect of any of the foregoing,
except (A) in conformity with existing lending practices in amounts not to
exceed $500,000 to any individual borrower or (B) loans or advances as to which
Bayonne has a binding obligation to make such loan or advances as of the date
hereof and a description of which has been provided by Bayonne in the Bayonne
Disclosure Schedule;
(p) incur any additional borrowings beyond those set forth in the
Bayonne Disclosures Schedule other than short-term (six months or less) FHLB
borrowings and reverse repurchase agreements consistent with past practice, or
pledge any of its assets to secure any borrowings other than as required
pursuant to the terms of borrowings of Bayonne or any Subsidiary in effect at
the date hereof or in connection with borrowings or reverse repurchase
agreements permitted hereunder. Deposits shall not be deemed to be borrowings
within the meaning of this paragraph;
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<PAGE>
(q) make any capital expenditures in excess of $20,000 per
expenditure from the date of this Agreement until the Effective Date other than
pursuant to binding commitments existing on the date hereof disclosed in the
Bayonne Disclosure Schedule, other than expenditures necessary to maintain
existing assets in good repair or to make payment of necessary taxes;
(r) organize, capitalize, lend to or otherwise invest in any
subsidiary (other than securities of the FHLB that are purchased in the ordinary
course of business consistent with past practice);
(s) elect to any senior executive office any person who is not a
member of the senior executive officer team of Bayonne as of the date of this
Agreement or elect to the Board of Directors of Bayonne any person who is not a
member of the Board of Directors of Bayonne;
(t) agree or make any commitment to take any action that is
prohibited by this Section 3.2.
In the event that RCFC does not respond in writing to Bayonne within
3 business days of receipt by RCFC of a written request for Bayonne to engage in
any of the actions for which RCFC's prior written consent is required pursuant
to this Section 3.2, RCFC shall be deemed to have consented to such action. Any
request by Bayonne or response thereto by RCFC shall be made in accordance with
the notice provisions of Section 8.7, shall note that it is a request pursuant
to this Section 3.2 and shall state that a failure to respond within 3 business
days shall constitute consent.
Section 3.3. Conduct of RCFC's Business Prior to the Effective Time.
------------------------------------------------------
Except as expressly provided in this Agreement, during the period from the date
of this Agreement to the Effective Time, RCFC shall, and shall cause its
Subsidiaries to, use commercially reasonable efforts to (i) conduct its
business in the regular, ordinary and usual course consistent with past
practice; (ii) maintain and preserve intact its business organization,
properties, leases, employees and advantageous business relationships and retain
the services of its officers and key employees; (iii) take no action which would
materially adversely affect or delay the ability of Bayonne or RCFC to perform
their respective covenants and agreements on a timely basis under this
Agreement, (iv) take no action which would adversely affect or delay the ability
of Bayonne, RCFC, First Savings or RCFC Bank to obtain any necessary approvals,
consents or waivers of any governmental authority required for the transactions
contemplated hereby or which would reasonably be expected to result in any such
approvals, consents or waivers containing any material condition or restriction,
and (v) take no action that results in or is reasonably likely to have a
Material Adverse Effect on RCFC.
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ARTICLE IV
COVENANTS
---------
Section 4.1. Acquisition Proposals. From and after the date hereof
---------------------
until the termination of this Agreement, neither Bayonne or First Savings, nor
any of their respective officers, directors, employees, representatives, agents
or affiliates (including, without limitation, any investment banker, attorney or
accountant retained by Bayonne or any of its Subsidiaries), will, directly or
indirectly, initiate, solicit or knowingly encourage (including by way of
furnishing non-public information or assistance), or facilitate knowingly, any
inquiries or the making of any proposal that constitutes, or may reasonably be
expected to lead to, any Acquisition Proposal (as defined below), or enter into
or maintain or continue discussions or negotiate with any person or entity in
furtherance of such inquiries or to obtain an Acquisition Proposal or agree to
or endorse any Acquisition Proposal, or authorize or permit any of its officers,
directors or employees or any of its Subsidiaries or any investment banker,
financial advisor, attorney, accountant or other representative retained by any
of its Subsidiaries to take any such action, and Bayonne shall notify RCFC
orally (within 1 business day) and in writing (as promptly as practicable) of
such inquiries and proposals which it or any of its subsidiaries or any such
officer, director, employee, investment banker, financial advisor, attorney,
accountant or other representative may receive relating to any of such matters
and if such inquiry or proposal is in writing, Bayonne shall deliver to RCFC a
copy of such inquiry or proposal promptly; provided, however, that nothing
contained in this Section 4.1 shall prohibit the Board of Directors of Bayonne
from (i) furnishing information to, or entering into discussions or negotiations
with any, person or entity that makes an unsolicited written, bona fide proposal
to acquire Bayonne pursuant to a merger, consolidation, share exchange, business
combination, tender or exchange offer or other similar transaction, if, and only
to the extent that, (A) the Board of Directors of Bayonne receives a written
opinion from its independent financial advisor that such proposal may be
superior to the Merger from a financial point-of-view to Bayonne's stockholders,
(B) the Board of Directors of Bayonne, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Board of
Directors of Bayonne to comply with its fiduciary duties to stockholders under
applicable law (such proposal that satisfies (A) and (B) being referred to
herein as a "Superior Proposal") and (C) prior to furnishing such information
to, or entering into discussions or negotiations with, such person or entity,
Bayonne (x) provides reasonable notice to RCFC to the effect that it is
furnishing information to, or entering into discussions or negotiations with,
another partyand (y) receives from such person or entity an executed
confidentiality agreement in reasonably customary form, (ii) complying with Rule
14e-2 promulgated under the Exchange Act with regard to a tender or exchange
offer or (iii) failing to make or withdrawing or modifying its recommendation
and entering into a Superior Proposal if there exists a Superior Proposal and
the Board of Directors of Bayonne, after consultation with independent legal
counsel, determines in good faith that such action is necessary for the Board of
Directors of Bayonne to comply with its fiduciary duties to stockholders under
applicable law. For purposes of this Agreement, "Acquisition Proposal" shall
mean any of the following (other than the transactions contemplated hereunder)
involving Bayonne or any of its Subsidiaries: (i) any merger, consolidation,
share exchange, business
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combination, or other similar transaction; (ii) any sale, lease, exchange,
mortgage, pledge, transfer or other disposition of 15% or more of the assets of
Bayonne or First Savings, taken as a whole, in a single transaction or series of
transactions; (iii) any tender offer or exchange offer for 10% or more of the
outstanding shares of capital stock of Bayonne or the filing of a registration
statement under the Securities Act in connection therewith; or (iv) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
Section 4.2. Certain Policies of Bayonne.
---------------------------
(a) At the request of RCFC, Bayonne shall cause First Savings to
modify and change its loan, litigation and real estate valuation policies and
practices (including loan classifications and levels of reserves) and investment
and asset/liability management policies and practices after the date on which
all Requisite Regulatory Approvals and stockholder approvals are received, and
after receipt of written confirmation from RCFC that it is not aware of any fact
or circumstance that would prevent completion of the Merger, and prior to the
Effective Time so as to be consistent on a mutually satisfactory basis with
those of RCFC Bank; provided, however, that Bayonne shall not be required to
take such action more than 30 days prior to the Effective Date; and provided,
further, that such policies and procedures are not prohibited by GAAP or any
applicable laws and regulations.
(b) Bayonne's representations, warranties and covenants contained in
this Agreement shall not be deemed to be untrue or breached in any respect for
any purpose as a consequence of any modifications or changes undertaken solely
on account of this Section 4.2. RCFC agrees to hold harmless, indemnify and
defend Bayonne and its Subsidiaries, and their respective directors, officers
and employees, for any loss, claim, liability or other damage caused by or
resulting from compliance with this Section 4.2.
Section 4.3. Access and Information.
----------------------
(a) Upon reasonable notice, Bayonne and RCFC shall (and shall cause
their respective Subsidiaries to) afford to the other and their respective
representatives (including, without limitation, directors, officers and
employees of such party and its affiliates and counsel, accountants and other
professionals retained by such party) such reasonable access during normal
business hours throughout the period prior to the Effective Time to the books,
records (including, without limitation, tax returns and work papers of
independent auditors), properties, personnel and to such other information as
either party may reasonably request; provided, however, that no investigation
pursuant to this Section 4.3 shall affect or be deemed to modify any
representation or warranty made herein. In furtherance, and not in limitation
of the foregoing, Bayonne shall make available to RCFC all information necessary
or appropriate for the preparation and filing of all real property and real
estate transfer tax returns and reports required by reason of the Merger or the
Bank Merger. RCFC and Bayonne will not, and will cause their respective
representatives not to, use any information obtained pursuant to this
Section 4.3 for any purpose unrelated to the
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consummation of the transactions contemplated by this Agreement. Subject to the
requirements of applicable law, each of RCFC and Bayonne will keep confidential,
and will cause their respective representatives to keep confidential, all
information and documents obtained pursuant to this Section 4.3 unless such
information (i) was already known to such party or an affiliate of such party,
other than pursuant to a confidentiality agreement or other confidential
relationship, (ii) becomes available to such party or an affiliate of such party
from other sources not known by such party to be bound by a confidentiality
agreement or other obligation of secrecy, (iii) is disclosed with the prior
written approval of the other party or (iv) is or becomes readily ascertainable
from published information or trade sources. In the event that this Agreement is
terminated or the transactions contemplated by this Agreement shall otherwise
fail to be consummated, each party shall promptly cause all copies of documents
or extracts thereof containing information and data as to another party hereto
(or an affiliate of any party hereto) to be returned to the party that furnished
the same.
(b) During the period of time beginning on the day application
materials for the Bank Merger are initially filed with the OTS, the FDIC, the
NYBD and the NJBD and continuing to the Effective Time, including weekends and
holidays, Bayonne shall cause First Savings to provide RCFC, RCFC Bank and their
authorized agents and representatives full access to First Savings's offices
after normal business hours for the purpose of installing necessary wiring and
equipment to be utilized by RCFC Bank after the Effective Time; provided, that:
(i) reasonable advance notice of each entry shall be given to
First Savings and First Savings approves of each entry, which approval shall not
be unreasonably withheld;
(ii) First Savings shall have the right to have its employees or
contractors present to inspect the work being done;
(iii) to the extent practicable, such work shall be done in a
manner that will not interfere with First Savings's business conducted at any
affected branch offices;
(iv) all such work shall be done in compliance with all
applicable laws and government regulations, and RCFC Bank shall be responsible
for the procurement, at RCFC Bank's expense, of all required governmental or
administrative permits and approvals;
(v) RCFC Bank shall maintain appropriate insurance satisfactory
to First Savings in connection with any work done by RCFC Bank's agents and
representatives pursuant to this Section 4.3;
(vi) RCFC Bank shall reimburse First Savings for any material
out-of-pocket costs or expenses incurred by First Savings in connection with
this undertaking; and
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(vii) in the event this Agreement is terminated in accordance
with Article VI hereof, RCFC Bank, within a reasonable time period and at its
sole cost and expense, will restore such offices to their condition prior to the
commencement of any such installation.
Section 4.4. Certain Filings, Consents and Arrangements. RCFC
------------------------------------------
shall (a) as soon as practicable and in cooperation with Bayonne (and in any
event within 45 days after the date hereof) make, or cause to be made, any
filings and applications and provide any notices required to be filed or
provided in order to obtain all approvals, consents and waivers of governmental
authorities and third parties necessary or appropriate for the consummation of
the transactions contemplated hereby; (b) cooperate with one another in promptly
(i) determining what filings and notices are required to be made or approvals,
consents or waivers are required to be obtained under any relevant federal or
state law or regulation or under any relevant agreement or other document and
(ii) making any such filings and notices, furnishing information required in
connection therewith and seeking timely to obtain any such approvals, consents
or waivers; and (c) deliver to the other copies of the publicly available
portions of all such filings, notices and applications prior to filing.
Section 4.5. Antitakeover Provisions. Bayonne and its Subsidiaries
-----------------------
shall take all steps required by any relevant federal or state law or regulation
or under any relevant agreement or other document to exempt or continue to
exempt RCFC, the Agreement, the Merger, the Bank Merger and the Option Agreement
from any provisions of an antitakeover nature in Bayonne's or its Subsidiaries'
organization certificates and bylaws and the provisions of any federal or state
antitakeover laws.
Section 4.6. Additional Agreements. Subject to the terms and
---------------------
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including the Bank
Merger, as expeditiously as possible, including using efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and approvals
from all applicable governmental entities, effecting all necessary
registrations, applications and filings (including, without limitation, filings
under any applicable state securities laws) and obtaining any required
contractual consents and regulatory approvals.
Section 4.7. Publicity. The initial press release announcing this
---------
Agreement shall be a joint press release and thereafter Bayonne and RCFC shall
consult with each other in issuing any press releases or otherwise making public
statements with respect to the Merger and any other transaction contemplated
hereby and in making any filings with any governmental entity or with any
national securities exchange with respect thereto.
Section 4.8. Stockholders Meetings. RCFC and Bayonne shall take
---------------------
all action necessary, in accordance with applicable law and their respective
corporate documents, to
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convene a meeting of their respective stockholders (each, a "Stockholder
Meeting") as promptly as practicable for the purpose of considering and voting
on approval and adoption of the transactions provided for in this Agreement.
Except to the extent legally required for the discharge by the Board of
Directors of its fiduciary duties as advised by such Board's counsel, the Board
of Directors of each of RCFC and Bayonne shall (a) recommend at its Stockholder
Meeting that the stockholders vote in favor of and approve the transactions
provided for in this Agreement and (b) use its best efforts to solicit such
approvals. RCFC and Bayonne, in consultation with each other, shall each employ
professional proxy solicitors to assist in contacting stockholders in connection
with soliciting favorable votes on the Merger. RCFC and Bayonne shall coordinate
and cooperate with respect to the timing of their respective stockholders
meetings.
Section 4.9. Proxy Statements; Comfort Letters. (i) As soon as
---------------------------------
practicable after the date hereof, RCFC shall, in cooperation with Bayonne,
prepare a Proxy Statement-Prospectus for the purpose of taking stockholder
action on the Merger and this Agreement and subject to the provisions of Section
4.4, file the Proxy Statement-Prospectus with the SEC, respond to comments of
the staff of the SEC and, promptly after the Registration Statement is declared
effective by the SEC, mail the Proxy Statement-Prospectus to the respective
holders of record (as of the applicable record date) of shares of voting stock
of each of Bayonne and RCFC. RCFC and Bayonne each represents and covenants to
the other that the Proxy Statement-Prospectus, and any amendment or supplement
thereto, with respect to the information pertaining to it or its Subsidiaries at
the date of mailing to its stockholders and the date of its Stockholder Meeting
will be in compliance with the Exchange Act and all relevant rules and
regulations of the SEC.
(ii) RCFC shall use its reasonable best efforts to cause Ernst &
Young LLP, its independent public accounting firm, to deliver to Bayonne, and
Bayonne shall use its reasonable best efforts to cause KPMG Peat Marwick LLP,
its independent public accounting firm, to deliver to RCFC and to its officers
and directors who sign the Registration Statement for this transaction, a
"comfort letter" or "agreed upon procedures" letter, in the form customarily
issued by such accountants at such time in transactions of this type, dated
(a) the date of the mailing of the Proxy Statement-Prospectus for the
Stockholders Meeting of Bayonne and the date of mailing of the Proxy Statement
for the Stockholders meeting of RCFC, respectively, and (b) a date not earlier
than fourteen days preceding the date of the Closing (as defined in
Section 7.1).
Section 4.10. Registration of RCFC Common Stock.
---------------------------------
(a) RCFC shall, as promptly as practicable following the preparation
thereof, file the Registration Statement in which the Proxy Statement-Prospectus
will be included (including any pre-effective or post-effective amendments or
supplements thereto) with the SEC under the Securities Act in connection with
the transactions contemplated by this Agreement, and RCFC and Bayonne shall use
all reasonable efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing. RCFC
will advise
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Bayonne promptly after RCFC receives notice of the time when the Registration
Statement has become effective or any supplement or amendment has been filed, of
the issuance of any stop order or the suspension of the qualification of the
shares of capital stock issuable pursuant to the Registration Statement, or the
initiation or threat of any proceeding for any such purpose, or of any request
by the SEC for the amendment or supplement of the Registration Statement or for
additional information. RCFC will provide Bayonne with as many copies of such
Registration Statement and all amendments thereto promptly upon the filing
thereof as Bayonne may reasonably request.
(b) RCFC shall use its best efforts to obtain, prior to the effective
date of the Registration Statement, all necessary state securities laws or "blue
sky" permits and approvals required to carry out the transactions contemplated
by this Agreement.
(c) RCFC shall use its best efforts to list, prior to the Effective
Time, on the Nasdaq National Market, or on such other exchange as RCFC Common
Stock shall then be trading, subject only to official notice of issuance, the
shares of RCFC Common Stock to be issued by RCFC in exchange for the shares of
Bayonne Common Stock.
Section 4.11. Affiliate Letters. Promptly, but in any event within
-----------------
7 days after the execution and delivery of this Agreement, Bayonne shall deliver
to RCFC a letter identifying all persons who, to the knowledge of Bayonne, may
be deemed to be "affiliates" of Bayonne under Rule 145 of the Securities Act,
including, without limitation, all directors and executive officers of Bayonne.
Within 21 days after delivery of such letter, Bayonne shall use its best efforts
to deliver executed letter agreements, each substantially in the form attached
hereto as Exhibit A, executed by each such person so identified as an affiliate
of Bayonne agreeing to comply with Rule 145.
Section 4.12. Notification of Certain Matters. Each party shall
-------------------------------
give prompt notice to the others of: (a) any event or notice of, or other
communication relating to, a default or event that, with notice or lapse of time
or both, would become a default, received by it or any of its Subsidiaries
subsequent to the date of this Agreement and prior to the Effective Time, under
any contract material to the financial condition, properties, businesses or
results of operations of each party and its Subsidiaries taken as a whole to
which each party or any Subsidiary is a party or is subject; and (b) any event,
condition, change or occurrence which individually or in the aggregate has, or
which, so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in a Material Adverse Event. Each of Bayonne and
RCFC shall give prompt notice to the other party of any notice or other
communication from any third party alleging that the consent of such third party
is or may be required in connection with any of the transactions contemplated by
this Agreement.
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Section 4.13. Employees, Directors and Officers.
---------------------------------
(a) All persons who are employees of First Savings immediately prior
to the Effective Time ("Bayonne's Employees") and whose employment is not
specifically terminated at or prior to the Effective Time (a "Continuing
Employee") shall, at the Effective Time, become employees of RCFC or RCFC Bank,
respectively; provided, however, that in no event shall any of Bayonne's
Employees be officers of RCFC or RCFC Bank, or have or exercise any power or
duty conferred upon such an officer, unless and until duly elected or appointed
to such position in accordance with the bylaws of RCFC or RCFC Bank. Subject to
paragraph (e) of this Section 4.13, all of Bayonne's Employees who remain
following the Effective Date shall be employed at the will of RCFC or RCFC Bank
and no contractual right to employment shall inure to such employees because of
this Agreement. Except as provided in paragraph (e) of this Section 4.13, no
employee of Bayonne will become a contractual employee of RCFC or RCFC Bank
unless such contract is in writing and executed by the President or Chief
Executive Officer of RCFC or RCFC Bank.
(b) Except as otherwise provided in paragraphs (c), (f) and (g) of
this Section 4.13, appropriate steps shall be taken to terminate all Bayonne
Employee Plans as of the Effective Time or as promptly as practical thereafter.
Except as provided in paragraph (c) of this Section 4.13, immediately following
the Effective Time, each Continuing Employee shall be eligible to participate in
RCFC Employee Plans, on the same basis as any newly-hired employee of RCFC or
RCFC Bank (it being understood that inclusion of Continuing Employees in RCFC
Employee Plans may occur at different times with respect to different plans);
provided, however, that with respect to each RCFC Employee Plan, other than the
Richmond County Savings Bank Employee Stock Ownership Plan (the "RCFC Bank
ESOP") and the Retirement Plan of Richmond County Savings Bank in RSI Trust (the
"RCFC Bank Retirement Plan"), for purposes of determining eligibility to
participate, vesting, and entitlement to benefits, service with Bayonne or First
Savings shall be treated as service with RCFC or RCFC Bank; provided further
however, that such service shall not be recognized to the extent such
recognition would result in a duplication of benefits. Such service shall also
apply for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitation with
respect to any RCFC or RCFC Bank welfare benefit plan. For purposes of
determining eligibility to participate, vesting, and entitlement to benefits
(including accrual of benefits) under the RCFC Bank ESOP or RCFC Bank Retirement
Plan, Continuing Employees shall be treated as newly-hired employees of RCFC or
RCFC Bank as of the Effective Date and credit for service shall begin accruing
as of that date.
(c) As of the Effective Time, each Bayonne Employee who is a
participant in the Bayonne 401(k) Plan (the "Bayonne 401(k) Plan") shall become
fully vested in his or her account balance in the Bayonne 401(k) Plan and the
Bayonne 401(k) Plan will either be merged into the Richmond County Savings Bank
401(k) Savings Plan (the "RCFC Bank 401(k) Plan") effective as of a date
following the Effective Time selected by RCFC Bank or, if so elected by RCFC
Bank, terminated immediately prior to, on, or after the Effective Time. The
determination
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as to whether the Bayonne Savings Plan shall be terminated or merged into the
RCFC Bank 401(k) Plan shall be made by RCFC Bank. Effective as of the date of
the merger of the Bayonne 401(k) Plan into the RCFC 401(k) Plan, if applicable,
or the termination of the Bayonne 401(k) Plan (or the Effective Time, if
subsequent to such termination), if applicable, Bayonne Employees who are then
participating in the Bayonne 401(k) Plan shall become participants in the RCFC
Bank 401(k) Plan.
(d) RCFC agrees to honor existing employment agreements, including
the change in control provisions of such agreements, between Bayonne and First
Savings and certain employees, stock option plans and restricted stock plans,
and other benefit plans as set forth in Bayonne's Disclosure Letter
(collectively "Employment Agreements") and to the payment of benefits by Bayonne
as of the Effective Time or earlier as agreed to by Bayonne and RCFC under such
agreements and plans as described in the Bayonne Disclosure Schedule. Payments
under the Employment Agreements may be made by Bayonne if so agreed to by RCFC.
(e) At the Effective Time, RCFC Bank shall enter into an employment
agreement with Michael A. Nilan, substantially in the form attached hereto as
Exhibit D.
(f) Prior to the Effective Time, Bayonne shall terminate the Bayonne
ESOP by proper action of the Board of Directors of Bayonne. As soon as
administratively practicable after the Effective Time and subject to such
conditions as may be necessary to qualify the Merger as a tax-free
reorganization, the ESOP shall convert to cash a sufficient number of shares of
RCFC Common Stock as may be received by the ESOP with respect to unallocated
shares of Bayonne Common Stock held by the ESOP at the Effective Time and apply
such cash to the repayment in full of the outstanding ESOP indebtedness. Any
surplus of RCFC Common Stock remaining after repayment of such indebtedness
shall be allocated as investment earnings of the ESOP to the accounts of ESOP
participants (and, if required, to the accounts of former participants or their
beneficiaries) in proportion to their account balances in a manner consistent
with the terms of the ESOP Plan document.
(g) Immediately following execution of this Agreement, Bayonne shall
take all appropriate steps necessary to "freeze" benefit accruals under the tax-
qualified defined benefit plan sponsored by Bayonne.
(h) RCFC shall cause its Board of Directors to be increased by one
member and shall appoint Patrick F.X. Nilan as the nominee to fill such vacancy
on RCFC's Board of Directors created by such increase. The term for Mr. Patrick
F.X. Nilan shall expire in the year 2000 and he shall receive only RCFC Board
fees and no Divisional Board fees during this term.
(i) Immediately upon execution of this Agreement, the Board of
Directors of Bayonne shall provide notice to Patrick F.X. Nilan of termination
of the consulting agreement between Bayonne and Patrick F.X. Nilan. Such notice
of termination shall be effective as of the Effective Date. Consideration to be
paid pursuant to the termination of the consulting agreement is to be made as
disclosed in the Bayonne Disclosure Letter.
(j) Upon request, Bayonne shall supply RCFC with all documentation
regarding all actions taken in accordance with this Section 4.13.
Section 4.14. Indemnification.
---------------
(a) From and after the Effective Time through the sixth anniversary
of the Effective Date, RCFC (and any successor) agrees to indemnify and hold
harmless each present and former director, officer and employee of Bayonne and
its Subsidiaries and each officer or employee of Bayonne and its Subsidiaries
that is serving or has served as a director or trustee of
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another entity expressly at Bayonne's request or direction (each, an
"Indemnified Party"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, amount paid in settlement, losses, claims,
damages or liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of matters existing or occurring at
or prior to the Effective Time (including the transactions contemplated by this
Agreement), whether asserted or claimed prior to, at or after the Effective
Time, and to advance any such Costs to each Indemnified Party as they are from
time to time incurred, in each case to the fullest extent such Indemnified Party
would have been indemnified as a director, officer or employee of Bayonne and
its Subsidiaries and as then permitted under the DGCL.
(b) Any Indemnified Party wishing to claim indemnification under
Section 4.14(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify RCFC thereof, but the failure to so notify
shall not relieve RCFC of any liability it may have hereunder to such
Indemnified Party if such failure does not materially and substantially
prejudice the indemnifying party. In the event of any such claim, action, suit,
proceeding or investigation, (i) RCFC shall have the right to assume the defense
thereof with counsel reasonably acceptable to the Indemnified Party and RCFC
shall not be liable to such Indemnified Party for any legal expenses of other
counsel subsequently incurred by such Indemnified Party in connection with the
defense thereof, except that if RCFC does not elect to assume such defense
within a reasonable time or counsel for the Indemnified Party at any time
advises that there are issues which raise conflicts of interest between RCFC and
the Indemnified Party (and counsel for RCFC does not disagree), the Indemnified
Party may retain counsel satisfactory to such Indemnified Party, and RCFC shall
remain responsible for the reasonable fees and expenses of such counsel as set
forth above, to be paid promptly as statements therefor are received; provided,
however, that RCFC shall be obligated pursuant to this paragraph (b) to pay for
only one firm of counsel for all Indemnified Parties in any one jurisdiction
with respect to any given claim, action, suit, proceeding or investigation
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest; (ii) the Indemnified Party will reasonably
cooperate in the defense of any such matter; and (iii) RCFC shall not be liable
for any settlement effected by an Indemnified Party without its prior written
consent, which consent may not be withheld unless such settlement is
unreasonable in light of such claims, actions, suits, proceedings or
investigations against, or defenses available to, such Indemnified Party.
(c) RCFC shall pay all reasonable Costs, including attorneys' fees,
that may be incurred by any Indemnified Party in successfully enforcing the
indemnity and other obligations provided for in this Section 4.14 to the fullest
extent permitted under the DGCL. The rights of each Indemnified Party hereunder
shall be in addition to any other rights such Indemnified Party may have under
applicable law.
(d) RCFC shall maintain Bayonne's existing directors and officers'
insurance policy (or provide a policy providing comparable coverage and amounts
on terms no less favorable to the persons currently covered by Bayonne's
existing policy, including RCFC's
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existing policy if its meets the foregoing standard) covering persons who are
currently covered by such insurance for a period of 3 years after the effective
date.
(e) In the event RCFC or any of its successors or assigns
(i) consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person or entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and assigns of
RCFC assume the obligations set forth in this Section 4.14.
(f) The provisions of this Section 4.14 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
representatives.
Section 4.15. Tax-Free Reorganization Treatment. Prior to the
----------------------------------
Effective Time, neither RCFC nor Bayonne shall intentionally take, fail to take,
or cause to be taken or not taken, or cause or permit any of their respective
Subsidiaries to take, fail to take, or cause to be taken or not taken, any
action within its control that would disqualify the Merger as a reorganization
within the meaning of Section 368(a) of the Code. Subsequent to the Effective
Time, RCFC shall not take any action within its control that would disqualify
the Merger as a reorganization under the Code.
Section 4.16. Divisional Board. RCFC shall, promptly following the
----------------
Effective Time, cause all of the members of Bayonne's Board of Directors as of
the date of this Agreement, who are willing to so serve, to be elected to or
appointed as members of RCFC's divisional board ("Divisional Board"), the
function of which shall be to advise RCFC with respect to deposit and lending
activities in Bayonne's market area and to maintain and develop customer
relationships. The members of the Board who are willing to so serve shall be
elected to serve a term not to exceed April 30, 2003. Beginning immediately
after the Effective Time, each member of the Divisional Board shall receive an
annual retainer fee of $12,000 and a $1,000 attendance fee for each board
meeting attended. Each member of the Divisional Board shall be prohibited from
competing with RCFC for the duration of the term for which they were elected or
appointed. Such Divisional Board annual retainer fee shall be payable in
quarterly installments or in one lump sum at any time in advance at the option
of RCFC. The responsibilities and obligations of members of the Divisional
Board shall be determined by RCFC. Service on the Divisional Board shall be
deemed to constitute service for purposes of the vesting provisions of the
Bayonne Option Plans and the Bayonne RRP. In the event RCFC or any of its
successors or assigns (i) consolidates with or merges into any other person or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation or merger, or (ii) transfers or conveys all or substantially
all of its properties and assets to any person or entity, then, and in each such
case, to the extent necessary, proper provision shall be made so that the
successors and assigns of RCFC assume the obligations set forth in this
Section 4.16.
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<PAGE>
ARTICLE V
CONDITIONS TO CONSUMMATION
--------------------------
Section 5.1. Conditions to Each Party's Obligations. The respective
--------------------------------------
obligations of each party to effect the Merger, the Bank Merger and any other
transactions contemplated by this Agreement shall be subject to the satisfaction
of the following conditions:
(a) this Agreement shall have been approved by the requisite vote of
Bayonne's and RCFC's stockholders in accordance with applicable laws and
regulations;
(b) the Requisite Regulatory Approvals and any waivers with respect
to this Agreement and the transactions contemplated hereby shall have been
obtained and shall remain in full force and effect, and all statutory waiting
periods shall have expired; and all other consents, waivers and approvals of any
third parties which are necessary to permit the consummation of the Merger and
the other transactions contemplated hereby shall have been obtained or made
except for those the failure to obtain would not have a Material Adverse Effect
(i) on Bayonne and its Subsidiaries taken as a whole or (ii) on RCFC and its
Subsidiaries taken as a whole. No such approval or consent shall have imposed
any condition or requirement that would so materially and adversely impact the
economic or business benefits to RCFC or Bayonne of the transactions
contemplated hereby that, had such condition or requirement been known, such
party would not, in its reasonable judgment, have entered into this Agreement.
(c) no party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the Merger, the Bank Merger or any other
transactions contemplated by this Agreement;
(d) no statute, rule or regulation shall have been enacted, entered,
promulgated, interpreted, applied or enforced by any governmental authority
which prohibits, restricts or makes illegal consummation of the Merger, the Bank
Merger or any other transactions contemplated by this Agreement;
(e) the Registration Statement shall have been declared effective by
the SEC and no proceedings shall be pending or threatened by the SEC to suspend
the effectiveness of the Registration Statement; RCFC shall have received all
required approvals by state securities or "blue sky" authorities with respect to
the transactions contemplated by this Agreement; and
(f) [RESERVED]
(g) [RESERVED]
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<PAGE>
(h) RCFC shall have caused to be listed on the Nasdaq National
Market, or on such other market on which shares of RCFC Common Stock shall then
be trading, subject only to official notice of issuance, the shares of RCFC
Common Stock to be issued by RCFC in exchange for the shares of Bayonne Common
Stock.
Section 5.2. Conditions to the Obligations of RCFC and RCFC Bank.
---------------------------------------------------
The obligations of RCFC and RCFC Bank to effect the Merger, the Bank Merger and
any other transactions contemplated by this Agreement shall be further subject
to the satisfaction of the following additional conditions, any one or more of
which may be waived by RCFC:
(a) each of the obligations of Bayonne and First Savings,
respectively, required to be performed by it at or prior to the Closing pursuant
to the terms of this Agreement shall have been duly performed and complied with
in all material respects and the representations and warranties of Bayonne and
First Savings contained in this Agreement shall be true and correct, subject to
Sections 2.1 and 2.2, as of the date of this Agreement and as of the Effective
Time as though made at and as of the Effective Time (except as to any
representation or warranty which specifically relates to an earlier date). RCFC
shall have received a certificate to the foregoing effect signed by the chief
executive officer and the chief financial or principal accounting officer of
Bayonne;
(b) all action required to be taken by, or on the part of, Bayonne
and First Savings to authorize the execution, delivery and performance of this
Agreement and the consummation by Bayonne and First Savings of the transactions
contemplated hereby shall have been duly and validly taken by the Board of
Directors and stockholders of Bayonne or First Savings, as the case may be, and
RCFC shall have received certified copies of the resolutions evidencing such
authorization;
(c) Bayonne shall have obtained the consent or approval of each
person (other than the governmental approvals or consents referred to in Section
5.1(b)) whose consent or approval shall be required in order to permit the
succession by the surviving corporation pursuant to the Merger to any
obligation, right or interest of Bayonne or its Subsidiaries under any loan or
credit agreement, note, mortgage, indenture, lease, license or other agreement
or instrument to which Bayonne or its Subsidiaries is a party or is otherwise
bound, except those for which failure to obtain such consents and approvals
would not, individually or in the aggregate, have a Material Adverse Effect on
RCFC (after giving effect to the consummation of the transactions contemplated
hereby) or upon the consummation of the transactions contemplated hereby.
(d) RCFC shall have received certificates (such certificates to be
dated as of a day as close as practicable to the Closing Date) from appropriate
authorities as to the corporate existence and good standing of Bayonne and its
Subsidiaries;
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<PAGE>
(e) RCFC shall have received an opinion of Muldoon, Murphy &
Faucette, counsel to RCFC, dated as of the Effective Date, in form and substance
customary in transactions of the type contemplated hereby, and reasonably
satisfactory to RCFC, substantially to the effect that on the basis of the
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by RCFC, RCFC Bank,
Bayonne or First Savings as a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a
fractional share interest in RCFC Common Stock, no gain or loss will be
recognized by the stockholders of Bayonne who exchange their Bayonne Common
Stock for RCFC Common Stock pursuant to the Merger;
(iii) The tax basis of RCFC Common Stock received by
stockholders who exchange their Bayonne Common Stock for RCFC Common Stock in
the Merger will be the same as the tax basis of Bayonne Common Stock surrendered
pursuant to the Merger, reduced by any amount allocable to a fractional share
interest for which cash is received and increased by any gain recognized on the
exchange; and
(iv) The holding period of RCFC Common Stock received by each
stockholder in the Merger will include the holding period of Bayonne Common
Stock exchanged therefor, provided that such stockholder held such Bayonne
Common Stock as a capital asset on the Effective Date.
Such opinion may be based on, in addition to the review of such
matters of fact and law as Muldoon, Murphy & Faucette considers appropriate,
(x) representations made at the request of Muldoon, Murphy & Faucette by RCFC,
RCFC Bank, Bayonne, First Savings, stockholders of RCFC or Bayonne, or any
combination of such persons and (y) certificates provided at the request of
Muldoon, Murphy & Faucette by officers of RCFC, RCFC Bank, Bayonne, First
Savings and other appropriate persons.
Section 5.3. Conditions to the Obligations of Bayonne and First
--------------------------------------------------
Savings. The obligations of Bayonne and First Savings to effect the Merger, the
- -------
Bank Merger and any other transactions contemplated by this Agreement shall be
further subject to the satisfaction of the following additional conditions, any
one or more of which may be waived by Bayonne:
(a) each of the obligations of RCFC and RCFC Bank, respectively,
required to be performed by it at or prior to the Closing pursuant to the terms
of this Agreement shall have been duly performed and complied with in all
material respects and the representations and warranties of RCFC and RCFC Bank
contained in this Agreement shall be true and correct, subject to Sections 2.1
and 2.2, as of the date of this Agreement and as of the Effective Time as
A-54
<PAGE>
though made at and as of the Effective Time (except as to any representation or
warranty which specifically relates to an earlier date). Bayonne shall have
received a certificate to the foregoing effect signed by the chief executive
officer and the chief financial or principal accounting officer of RCFC;
(b) all action required to be taken by, or on the part of, RCFC and
RCFC Bank to authorize the execution, delivery and performance of this Agreement
and the consummation by RCFC and RCFC Bank of the transactions contemplated
hereby shall have been duly and validly taken by the Board of Directors and
stockholders of RCFC or RCFC Bank, as the case may be, and Bayonne shall have
received certified copies of the resolutions evidencing such authorization;
(c) RCFC shall have obtained the consent or approval of each person
(other than the governmental approvals or consents referred to in Section
5.1(b)) whose consent or approval shall be required in connection with the
transactions contemplated hereby under any loan or credit agreement, note,
mortgage, indenture, lease, license or other agreement or instrument to which
RCFC or its Subsidiaries is a party or is otherwise bound, except those for
which failure to obtain such consents and approvals would not, individually or
in the aggregate, have a Material Adverse Effect on RCFC (after giving effect to
the transactions contemplated hereby) or upon the consummation of the
transactions contemplated hereby.
(d) Bayonne shall have received certificates (such certificates to be
dated as of a day as close as practicable to the Closing Date) from appropriate
authorities as to the corporate existence and good standing of RCFC and its
Subsidiaries;
(e) Bayonne shall have received an opinion of Breyer & Aguggia LLP,
counsel to Bayonne, dated as of the Effective Date, in form and substance
customary in transactions of the type contemplated hereby, and reasonably
satisfactory to Bayonne, substantially to the effect that on the basis of the
facts, representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time, the Merger
will be treated for federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(i) No gain or loss will be recognized by RCFC, RCFC Bank,
Bayonne or First Savings as a result of the Merger;
(ii) Except to the extent of any cash received in lieu of a
fractional share interest in RCFC Common Stock, no gain or loss will be
recognized by the stockholders of Bayonne who exchange their Bayonne Common
Stock for RCFC Common Stock pursuant to the Merger;
(iii) The tax basis of RCFC Common Stock received by
stockholders who exchange their Bayonne Common Stock for RCFC Common Stock in
the Merger will be the same as the tax basis of Bayonne Common Stock surrendered
pursuant to the Merger,
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<PAGE>
reduced by any amount allocable to a fractional share interest for which cash is
received and increased by any gain recognized on the exchange; and
(iv) The holding period of RCFC Common Stock received by each
stockholder in the Merger will include the holding period of Bayonne Common
Stock exchanged therefor, provided that such stockholder held such Bayonne
Common Stock as a capital asset on the Effective Date.
(f) RCFC shall have provided to the Exchange Agent (i) certificates
representing at least the aggregate number of shares of RCFC Common Stock to be
issued to the shareholders of Bayonne pursuant to the terms hereof, and (ii)
sufficient cash to pay Bayonne shareholders their fractional share interest as
provided herein.
Such opinion may be based on, in addition to the review of such
matters of fact and law as Breyer & Aguggia, LLP considers appropriate, (x)
representations made at the request of Breyer & Aguggia LLP by RCFC, RCFC Bank,
Bayonne, First Savings, stockholders of RCFC or Bayonne, or any combination of
such persons and (y) certificates provided at the request of Breyer & Aguggia
LLP by officers of RCFC, RCFC Bank, Bayonne and other appropriate persons.
ARTICLE VI
TERMINATION
-----------
Section 6.1. Termination. This Agreement may be terminated, and
-----------
the Merger abandoned, at or prior to the Effective Date, either before or after
any requisite stockholder approval:
(a) by the mutual consent of RCFC and Bayonne in a written
instrument, if the Board of Directors of each so determines by vote of a
majority of the members of its entire Board; or
(b) by RCFC or Bayonne, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event of the
failure of the stockholders of Bayonne or RCFC to approve the Agreement at its
Stockholder Meeting called to consider such approval; provided, however, that
Bayonne or RCFC, as the case may be, shall only be entitled to terminate the
Agreement pursuant to this clause if it has complied in all material respects
with its obligations under Section 4.8; or
(c) by RCFC or Bayonne, by written notice to the other party, if
either (i) any approval, consent or waiver of a governmental agency required to
permit consummation of the transactions contemplated hereby shall have been
denied or (ii) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by this Agreement; or
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<PAGE>
(d) by RCFC or Bayonne, if its Board of Directors so determines by
vote of a majority of the members of its entire Board, in the event that the
Merger is not consummated by April 30, 1999 ("Initial Termination Date");
provided, that if, as of such date, all necessary regulatory or governmental
approvals, consents or waivers required to consummate the transactions
contemplated hereby shall not have been obtained but all other conditions to the
consummation of the Merger (other than the delivery of executed documents at the
Closing) shall be fulfilled, the Initial Termination Date shall be extended to
July 31, 1999, unless the failure to so consummate by such time is due to the
breach of any representation, warranty or covenant contained in this Agreement
by the party seeking to terminate; or
(e) by RCFC, if the Board of Directors of Bayonne does not publicly
recommend in the Proxy Statement that Bayonne's stockholders approve and adopt
this Agreement or if, after recommending in the Proxy that stockholders approve
and adopt this Agreement, the Board of Directors of Bayonne shall have
withdrawn, modified or amended such recommendation in any respect materially
adverse to RCFC; or
(f) by RCFC or Bayonne by written notice to the other party in the
event that there has occurred since the date of this Agreement an event,
condition, change or occurrence which, individually or in the aggregate, has had
or could reasonably be expected to result in a Material Adverse Effect on
Bayonne or RCFC as the case may be; provided that each party shall have given
the other 30 calendar days prior written notice of such termination, and such
party shall not have remedied such event, condition, change or occurrence by the
end of such 30-day period;
(g) by Bayonne, if its Board of Directors so determines by the
requisite vote of members of its entire board, at any time during the 5-day
period commencing with the Valuation Date, if both of the following conditions
are satisfied:
(i) Richmond Market Value is less than $15.41, adjusted as
indicated in the last sentence of this Section 6.1(g); and
(ii) (A) the number obtained by dividing Richmond Market Value on
such Valuation Date by the Initial RCFC Market Value (the "Richmond
Ratio") is less than (B) the number obtained by dividing the Final
Index Price by the Initial Index Price and subtracting 0.15 from the
quotient in this clause (ii)(B) (the "Index Ratio");
subject, however, to the following three sentences: (1) if Bayonne elects to
exercise its termination right pursuant to this Section 6.1(g), it shall give
prompt written notice to Richmond (provided, further, that such notice of
election to terminate may be withdrawn at any time during the 5-day period); (2)
for a period of 7 days commencing with its receipt of such notice, RCFC shall
have the option to increase the consideration to be received by the holders of
Bayonne
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<PAGE>
Common Stock hereunder, by adjusting the Exchange Ratio to equal the lesser of
(x) a number equal to a fraction, the numerator of which is 1.05 multiplied by
the Initial RCFC Market Value multiplied by .85 and the denominator of which is
the Richmond Market Value, and (y) a number equal to a fraction, the numerator
of which is the Index Ratio multiplied by 1.05 and the denominator of which is
Richmond Ratio; and (3) if RCFC so elects it shall give prompt written notice to
Bayonne of such election and the adjusted Merger Consideration, whereupon no
termination shall have occurred pursuant to this Section 6.1(g) and this
Agreement shall remain in effect in accordance with its terms (except as the
Merger Consideration shall have been so adjusted).
For purposes of this Section 6.1(g), the following terms shall have the
meanings indicated below:
"Final Index Price" means the sum of the Final Prices for each company
comprising the Index Group multiplied by the applicable weighting.
"Final Price," with respect to any company being a member of the Index
Group, means the average of the daily closing sales prices of a share of
common stock of such company, as reported on the consolidated transaction
reporting system for the market or exchange on which such common stock is
principally traded, during the period of 15 trading days ending on the
Valuation Date, adjusted as indicated in the last sentence of this Section
6.1(g).
"Index Group" means the 14 financial institution holding companies
listed below, the common stock of all of which are publicly traded and as
to which there have not been any publicly announced proposal at any time
during the period beginning on the date of this Agreement and ending on the
Valuation Date for any such company to be acquired. In the event that the
common stock of any such company ceases to be publicly traded or a proposal
to acquire any such company is announced at any time during the period
beginning on the date of this Agreement and ending on the Valuation Date,
such company shall be removed from the Index Group, and the weights
attributed to the remaining companies shall be adjusted proportionately for
purposes of determining the Final Index Price and the Initial Index Price.
The 14 financial institution holding companies and the weights attributed
to them are as follows:
<TABLE>
<CAPTION>
Holding Company Weighting
--------------- ---------
<S> <C>
GreenPoint Financial Corp. 27.71%
Astoria Financial Corp. 11.20%
Independence Community Bank Corp. 9.97%
Staten Island Bancorp, Inc. 8.14%
Webster Financial Corp. 7.16%
St. Paul Bancorp, Inc. 6.61%
Queens County Bancorp, Inc. 5.13%
</TABLE>
A-58
<PAGE>
<TABLE>
<CAPTION>
Holding Company Weighting
--------------- ---------
<S> <C>
Bay View Capital Corp. 4.96%
JSB Financial, Inc. 4.52%
MAF Bancorp 4.24%
Anchor BanCorp Wisconsin 3.03%
InterWest Bancorp 2.88%
Reliance Bancorp, Inc. 2.76%
Haven Bancorp, Inc. 1.69%
</TABLE>
"Initial Index Price" means the sum of each per share closing price of
the common stock of each company comprising the Index Group multiplied by
the applicable weighting, as such prices are reported on the consolidated
transactions reporting system for the market or exchange on which such
common stock is principally traded on the trading day immediately preceding
the public announcement of this Agreement.
"Initial RCFC Market Value" means the closing sales price of RCFC
Common Stock, as reported on the Nasdaq National Market, on the trading day
immediately preceding the public announcement of this Agreement, adjusted
as indicated in the last Section 6.1(e).
"Richmond Market Value" shall have the meaning set forth in Section
1.2(c) hereof.
"Valuation Date" means the Valuation Date, as defined in Section
1.2(c) hereof.
If RCFC or any company belonging to the Index Group declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
shares or similar transaction between the date of this Agreement and the
Valuation Date, the prices for the common stock of such company shall be
appropriately adjusted, in the manner specified in Section 1.2(b) of this
Agreement, for the purposes of applying this Section 6.1(g).
(h) by RCFC or Bayonne (provided that the party seeking termination
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein), in the event of (i) a failure to perform or
comply by the other party with any covenant or agreement of such other party
contained in this Agreement, which failure or non-compliance is material in the
context of the transactions contemplated by this Agreement, or (ii) subject to
Section 2.2(b), any inaccuracies, omissions or breach in the representations,
warranties, covenants or agreements of the other party contained in this
Agreement the circumstances as to which either individually or in the aggregate
have, or reasonably could be expected to have, a Material Adverse Effect on such
other party; in either case which has not been or cannot be cured within 30
calendar days after written notice thereof is given by the party seeking to
terminate to such other party.
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<PAGE>
(i) by Bayonne, if the Board of Directors of RCFC does not publicly
recommend in the Proxy Statement-Prospectus that RCFC's stockholders approve and
adopt this Agreement or if, after recommending in the Proxy Statement-Prospectus
that stockholders approve and adopt this Agreement, the Board of Directors of
RCFC shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to Bayonne.
(j) by Bayonne, if the Board of Directors of Bayonne reasonably
determines that a proposal made by a third party to acquire, directly or
indirectly, including pursuant to a tender offer, exchange offer, merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction, for consideration consisting of cash and/or securities,
more than 65% of the combined voting power of the shares of Bayonne Common Stock
then outstanding or all or substantially all of the assets of Bayonne
constitutes a Superior Proposal and that such proposal must be accepted;
provided, however, that prior to any such termination, Bayonne shall use its
reasonable efforts to negotiate in good faith with RCFC to make such adjustments
in the terms and conditions of this agreement a would enable Bayonne to proceed
with the transactions contemplated herein.
Section 6.2. Effect of Termination. In the event of termination of
---------------------
this Agreement by either RCFC or Bayonne as provided in Section 6.1, this
Agreement shall forthwith become void and have no effect except (i) Sections
4.3(a), 8.6 and 8.7, shall survive any termination of this Agreement, (ii) that
notwithstanding anything to the contrary contained in this Agreement, no party
shall be relieved or released from any liabilities or damages arising out of its
willful breach of any provision of this Agreement.
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
------------------------------------------
Section 7.1. Effective Date and Effective Time. The closing of the
---------------------------------
transactions contemplated hereby ("Closing") shall take place at the offices of
Muldoon, Murphy & Faucette, 5101 Wisconsin Ave. N.W., Washington, D.C. 20016,
unless another place is agreed to by RCFC and Bayonne, on a date ("Closing
Date") that is no later than 14 days following the date on which the expiration
of the last applicable waiting period in connection with notices to and
approvals of governmental authorities shall occur and all conditions to the
consummation of this Agreement are satisfied or waived, or on such other date as
may be agreed to by the parties. Prior to the Closing Date, RCFC and Bayonne
shall execute a Certificate of Merger in accordance with all appropriate legal
requirements, which shall be filed as required by law on the Closing Date, and
the Merger provided for therein shall become effective upon such filing or on
such date as may be specified in such Certificate of Merger. The date of such
filing or such later effective date as specified in the Certificate of Merger is
herein referred to as the "Effective Date." The "Effective Time" of the Merger
shall be as set forth in the Certificate of Merger.
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<PAGE>
Section 7.2. Deliveries at the Closing. Subject to the provisions
-------------------------
of Articles V and VI, on the Closing Date there shall be delivered to RCFC and
Bayonne the documents and instruments required to be delivered under Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
---------------------
Section 8.1. Certain Definitions; Interpretation. As used in this
-----------------------------------
Agreement, the following terms shall have the meanings indicated:
"material" means material to RCFC or Bayonne (as the case may be) and
its respective Subsidiaries, taken as a whole.
"person" includes an individual, corporation, limited liability
company, partnership, association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of, Exhibit or Schedule to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for ease of reference only and shall not affect
the meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation." Any singular term in this Agreement
shall be deemed to include the plural, and any plural term the singular. Any
reference to gender in this Agreement shall be deemed to include any other
gender.
Section 8.2. Survival. Only those agreements and covenants of the
--------
parties that are by their terms applicable in whole or in part after the
Effective Time, including Sections 4.3(a), 4.13, 4.14, 4.15, 4.16 and 8.6 of
this Agreement, shall survive the Effective Time. All other representations,
warranties, agreements and covenants shall be deemed to be conditions of the
Agreement and shall not survive the Effective Time.
Section 8.3. Waiver; Amendment. Prior to the Effective Time, any
-----------------
provision of this Agreement may be: (i) waived in writing by the party
benefitted by the provision or (ii) amended or modified at any time (including
the structure of the transaction) by an agreement in writing between the parties
hereto except that, after the vote by the stockholders of Bayonne or RCFC, no
amendment or modification may be made that would reduce the amount or alter or
change the kind of consideration to be received by holders of Bayonne Common
Stock or contravene any provision of the DGCL or the federal banking laws, rules
and regulations.
Section 8.4. Counterparts. This Agreement may be executed in
------------
counterparts each of which shall be deemed to constitute an original, but all of
which together shall constitute one and the same instrument.
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<PAGE>
Section 8.5. Governing Law. This Agreement shall be governed by,
-------------
and interpreted in accordance with, the laws of the State of New York, without
regard to conflicts of laws principles.
Section 8.6. Expenses. Each party hereto will bear all expenses
--------
incurred by it in connection with this Agreement and the transactions
contemplated hereby; provided, however, that RCFC shall pay all printing and
mailing expenses and filing fees associated with the registrations and approvals
required hereunder.
Section 8.7. Notices. All notices, requests, acknowledgments and
-------
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, overnight courier or
facsimile transmission (confirmed in writing) to such party at its address or
facsimile number set forth below or such other address or facsimile transmission
as such party may specify by notice (in accordance with this provision) to the
other party hereto.
If to Bayonne, to:
Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-2912
Attention: Patrick F.X. Nilan
Chairman of the Board
With copies to:
Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-5958
Attention: Thomas M. Coughlin
Corporate Secretary
and
Paul M. Aguggia, Esq.
Breyer & Aguggia LLP
1300 I Street, N.W., Suite 470 East
Washington, DC 20005
Facsimile: (201) (737-7979)
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<PAGE>
If to RCFC, to:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
With copies to:
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Thomas R. Cangemi
Senior Vice President, Chief Financial
Officer and Secretary
and
Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
Section 8.8. Entire Agreement; etc. This Agreement, together with
---------------------
the Plan of Bank Merger, Option Agreement and the Disclosure Letters, represents
the entire understanding of the parties hereto with reference to the
transactions contemplated hereby and supersedes any and all other oral or
written agreements heretofore made. All terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns. Except for Section 4.13, 4.14 and
4.16, which confer rights on the parties described therein, nothing in this
Agreement is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 8.9. Assignment. This Agreement may not be assigned by
----------
either party hereto without the written consent of the other party.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers as of the 14th day of October,
1998.
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
-----------------------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
BAYONNE BANCSHARES, INC.
By: /s/ Patrick F.X. Nilan
--------------------------------------
Patrick F.X. Nilan
Chairman of the Board
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<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 19, 1998 (the "Agreement"), by and
between Bayonne Bancshares, Inc., a Delaware corporation ("Issuer"), and
Richmond County Financial Corp., a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of July 19, 1998 (the "Plan"), providing for, among other
things, the merger of Issuer with and into Grantee, with Grantee as the
surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the Plan,
Grantee has required that Issuer agree, and Issuer has agreed, to grant Grantee
the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. DEFINED TERMS. Capitalized terms which are used but not defined
herein shall have the meanings ascribed to such terms in the Plan.
2. GRANT OF OPTION. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 1,809,804 shares (as adjusted as set forth herein, the "Option
Shares", which shall include the Option Shares before and after any transfer of
such Option Shares) of common stock, par value $0.01 per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
equal to $15.50.
3. EXERCISE OF OPTION.
(a) Provided that (i) Grantee or Holder (as defined below), as applicable,
shall not be in material breach of the agreements or covenants contained in this
Agreement or the Plan, and (ii) no preliminary or permanent injunction or other
order against the delivery of shares covered by the Option issued by any court
of competent jurisdiction in the United States shall be in effect, the Holder
may exercise the Option, in whole or in part, at any time and from time to time
following the occurrence of a Purchase Event (as hereinafter defined); PROVIDED
that the Option shall terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time, (B) termination of the Plan by
Issuer in accordance with the terms thereof prior to the occurrence of a
Purchase Event or a Preliminary Purchase Event (as hereinafter defined) (an
"Issuer Termination"), (C) 12 months after the termination of the Plan by Issuer
other than pursuant to an Issuer Termination, (D) 12 months after the
termination of the Plan by Grantee in
<PAGE>
accordance with the terms thereof, and (E) 12 months after the first occurrence
of a Purchase Event; PROVIDED, HOWEVER, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Home Owners' Loan Act, as amended (the
"HOLA"); provided, further, however, that if the option cannot be exercised on
any day because of an injunction, order or similar restraint issued by a court
of competent jurisdiction, the period during which the option may be exercised
shall be extended so that the option shall expire no earlier than the tenth
business day after such injunction, order or restraint shall have been dissolved
or when such injunction, order or restraint shall have become permanent and no
longer subject to appeal, as the case may be. The term "Holder" shall mean the
holder or holders of the Option from time to time, and which initially is
Grantee.
(b) As used herein, a "Purchase Event" means any of the following events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an agreement
with any person (other than Grantee or any subsidiary of Grantee) to effect
an Acquisition Transaction. As used herein, the term "Acquisition
Transaction" shall mean (A) a merger, consolidation or similar transaction
involving Issuer or any of its significant subsidiaries, (B) the
disposition, by sale, lease, exchange or otherwise, of assets or deposits
of Issuer or any of its significant subsidiaries representing in either
case 20% or more of the consolidated assets or deposits of Issuer and its
subsidiaries, or (C) the issuance, sale or other disposition of (including
by way of merger, consolidation, share exchange or any similar transaction)
securities representing 15% or more of the voting power of Issuer or any of
its significant subsidiaries other than the issuance of Issuer Common Stock
upon the exercise of outstanding options; or
(ii) any person (other than Grantee or any subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the
right to acquire beneficial ownership of, 15% or more of the voting power
of Issuer or any of its significant subsidiaries.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities Act
with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 15% or more of the then outstanding shares of Issuer
Common Stock (such an offer being referred to herein as a "Tender Offer" or
an "Exchange Offer," respectively); or
B-2
<PAGE>
(ii) the holders of Issuer Common Stock shall not have approved the
Plan at the Meeting, the Meeting shall not have been held or shall have
been canceled prior to termination of the Plan, or Issuer's Board of
Directors shall have withdrawn or modified in a manner adverse to Grantee
the recommendation of Issuer's Board of Directors with respect to the Plan,
in each case after it shall have been publicly announced that any person
(other than Grantee or any subsidiary of Grantee) shall have (A) made or
disclosed an intention to make a proposal to engage in an Acquisition
Transaction, or (B) commenced a Tender Offer or filed a registration
statement under the Securities Act with respect to an Exchange Offer; or
(iii) any person, other than Grantee or any subsidiary of Grantee,
shall have made a bona fide proposal to Issuer or its stockholders by
public announcement, or written communication that is or becomes the
subject of public disclosure, to engage in an Acquisition Transaction; or
(iv) after a bona fide proposal is made by a third party to Issuer or
its stockholders to engage in an Acquisition Transaction, Issuer shall have
breached any covenant or obligation contained in the Plan and such breach
would entitle Grantee to terminate the Plan under Section 6.1(h) thereof
(without regard to the cure period provided for therein unless such cure is
promptly effected without jeopardizing consummation of the Mergers pursuant
to the terms of the Plan); or
(v) any person, other than Grantee or any subsidiary of Grantee, other
than in connection with a transaction to which Grantee has given its prior
written consent, shall have filed an application or notice with the Office
of Thrift Supervision (the "OTS"), or other federal or state bank
regulatory authority, for approval to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of
any Preliminary Purchase Event or Purchase Event (in either case, a "Triggering
Event"), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of Holder to exercise the Option.
(e) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise, and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"); PROVIDED,
HOWEVER, if any required application for listing such shares on the Nasdaq
National Market has not been approved by the date so specified, such date shall
be extended for a period not to exceed 21 days from the
B-3
<PAGE>
Notice Date. If prior notification to or approval of the OTS or any other
regulatory authority is required in connection with such purchase, Issuer shall
cooperate with the Holder in the filing of the required notice or application
for approval and the obtaining of such approval and the Closing shall occur
immediately following such regulatory approvals (and any mandatory waiting
periods). Any exercise of the Option shall be deemed to occur on the Notice Date
relating thereto.
4. PAYMENT AND DELIVERY OF CERTIFICATES.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option Shares to
be purchased on such Closing Date, and (ii) present and surrender this Agreement
to the Issuer at the address of the Issuer specified in subsection (f) of
Section 11 hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in subsection (a) of
this Section 4, (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no preemptive rights, and (B)
if the Option is exercised in part only, an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall
deliver to Issuer a letter agreeing that Holder shall not offer to sell or
otherwise dispose of such Option Shares in violation of applicable federal and
state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be endorsed
with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF JULY 19, 1998. A COPY OF
SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT
BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by
delivery of substitute certificate(s) without such legend if Holder shall have
delivered to Issuer a copy of a letter from the staff of the SEC, or an opinion
of counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
B-4
<PAGE>
(d) Upon the giving by Holder to Issuer of the written notice of exercise
of the Option provided for under subsection (e) of Section 3 hereof, the tender
of the applicable purchase price in immediately available funds and the tender
of this Agreement to Issuer, Holder shall be deemed to be the holder of record
of the shares of Issuer Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be closed or
that certificates representing such shares of Issuer Common Stock shall not then
be actually delivered to Holder. Issuer shall pay all expenses, and any and all
United States federal, state, and local taxes and other charges that may be
payable in connection with the preparation, issuance and delivery of stock
certificates under this Section in the name of Holder or its assignee,
transferee, or designee.
(e) Issuer agrees (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Issuer Common Stock so that the Option may be exercised without additional
authorization of Issuer Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Issuer Common
Stock, (ii) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer, (iii) promptly to take all action as may from time to time be required
(including (A) complying with all premerger notification, reporting and waiting
period requirements specified in 15 U.S.C. (S)18a and regulations promulgated
thereunder and (B) in the event, under the HOLA, or the Change in Bank Control
Act of 1978, as amended, or a state banking law, prior approval of or notice to
the OTS or to any state regulatory authority is necessary before the Option may
be exercised, cooperating fully with Holder in preparing such applications or
notices and providing such information to the OTS or such state regulatory
authority as they may require) in order to permit Holder to exercise the Option
and Issuer duly and effectively to issue shares of the Issuer Common Stock
pursuant hereto, and (iv) promptly to take all action provided herein to protect
the rights of Holder against dilution.
5. REPRESENTATIONS AND WARRANTIES OF ISSUER. Issuer hereby represents
and warrants to Grantee (and Holder, if different than Grantee) as follows:
(a) Due Authorization. Issuer has all requisite corporate power and
-----------------
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly executed
and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate and other
----------------
action to authorize and reserve and to permit it to issue, and, at all times
from the date hereof until the obligation to deliver Issuer Common Stock upon
the exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock necessary
for Holder to exercise the Option, and Issuer will take all necessary corporate
action to
B-5
<PAGE>
authorize and reserve for issuance all additional shares of Issuer Common Stock
or other securities which may be issued pursuant to Section 7 upon exercise of
the Option. The shares of Issuer Common Stock to be issued upon due exercise of
the Option, including all additional shares of Issuer Common Stock or other
securities which may be issuable pursuant to Section 7, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid and nonassessable, and
shall be delivered free and clear of all liens, claims, charges and encumbrances
of any kind or nature whatsoever, including any preemptive rights of any
stockholder of Issuer.
(c) No Violations. The execution, delivery and performance of this
-------------
Agreement does not and will not, and the consummation by Issuer of any of the
transactions contemplated hereby will not, constitute or result in (i) a breach
or violation of, or a default under, its Certificate of Incorporation or By-
Laws, or the comparable governing instruments of any of its subsidiaries, or
(ii) a breach or violation of, or a default under, any agreement, lease,
contract, note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the lapse of time
or both) or under any law, rule, ordinance or regulation or judgment, degree,
order, award or governmental or non-governmental permit or license to which it
or any of its subsidiaries is subject, that would, in any case, give any other
person the ability to prevent or enjoin Issuer's performance under this
Agreement in any material respect.
6. REPRESENTATIONS AND WARRANTIES OF GRANTEE. Grantee hereby represents
and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate power and
-----------------
authority to enter into this Agreement and, subject to any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase not for Distribution. This Option is not being, and any
-----------------------------
Option Shares or other securities acquired by Grantee upon exercise of the
Option will not be, acquired with a view to the public distribution thereof and
will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
7. ADJUSTMENT UPON CHANGES IN ISSUER CAPITALIZATION, ETC.
(a) In the event of any change in Issuer Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction, the type and number of shares or securities
subject to the Option, and the Purchase Price therefor, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Holder shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Holder would
have received in respect of Issuer Common Stock if the Option had been exercised
immediately prior to such event, or the record
B-6
<PAGE>
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this subsection (a), upon exercise of any
option to purchase Issuer Common Stock outstanding on the date hereof or upon
conversion into Issuer Common Stock of any convertible security of Issuer
outstanding on the date hereof), the number of shares of Issuer Common Stock
subject to the Option shall be adjusted so that, after such issuance, it,
together with any shares of Issuer Common Stock previously issued pursuant
hereto, equals 19.9% of the number of shares of Issuer Common Stock then issued
and outstanding, without giving effect to any shares subject to or issued
pursuant to the Option. No provision of this Section 7 shall be deemed to affect
or change, or constitute authorization for any violation of, any of the
covenants or representations in the Plan.
(b) In the event that Issuer shall enter in an agreement (i) to consolidate
with or merge into any person, other than Grantee or one of its subsidiaries,
and shall not be the continuing or surviving corporation of such consolidation
or merger, (ii) to permit any person, other than Grantee or one of its
subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Holder, of either (x) the Acquiring Corporation (as
hereinafter defined), (y) any person that controls the Acquiring Corporation, or
(z) in the case of a merger described in clause (ii), Issuer (such person being
referred to as "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided, that, if the terms of the Substitute Option cannot, for legal reasons,
be the same as the Option, such terms shall be as similar as possible and in no
event less advantageous to Holder. Substitute Option Issuer shall also enter
into an agreement with Holder in substantially the same form as this Agreement,
which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of Substitute Option
per share of Substitute Common Stock (the "Substitute Option Price") shall then
be equal to the Option Price multiplied by a fraction in which the numerator is
the number of shares of Issuer Common Stock for which the Option was theretofore
exercisable and the denominator is
B-7
<PAGE>
the number of shares of the Substitute Common Stock for which the Substitute
Option is exercisable.
(e) The following terms have the meanings indicated:
(1) "Acquiring Corporation" shall mean (i) the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), (ii) Issuer in a merger in which Issuer is the continuing or
surviving person, or (iii) the transferee of all or substantially all
of Issuer's assets (or a substantial part of the assets of its
subsidiaries taken as a whole).
(2) "Substitute Common Stock" shall mean the common stock issued by
Substitute Option Issuer upon exercise of the Substitute Option.
(3) "Assigned Value" shall mean the highest of (x) the price per share
of Issuer Common Stock at which a Tender Offer or an Exchange Offer
therefor has been made, (y) the price per share of Issuer Common Stock
to be paid by any third party pursuant to an agreement with Issuer,
and (z) the highest per share closing price for shares of Issuer
Common Stock within the six-month period immediately preceding the
consolidation, merger, or sale in question. In the event that a Tender
Offer or an Exchange Offer is made for Issuer Common Stock or an
agreement is entered into for a merger or consolidation involving
consideration other than cash, the value of the securities or other
property issuable or deliverable in exchange for Issuer Common Stock
shall be determined by a nationally recognized investment banking firm
selected by Holder or Owner, as the case may be (and if there are both
a Holder and an Owner, the Holder).
(4) "Average Price" shall mean the average closing price per share of
Substitute Common Stock for the one year immediately preceding the
consolidation, merger, or sale in question, but in no event higher
than the closing price of the shares of Substitute Common Stock on the
day preceding such consolidation, merger or sale; provided that if
Issuer is the issuer of the Substitute Option, the Average Price shall
be computed with respect to a share of common stock issued by Issuer,
the person merging into Issuer or by any company which controls such
person, as Holder may elect.
B-8
<PAGE>
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for the limitation in the first sentence of this subsection (f), Substitute
Option Issuer shall make a cash payment to Holder equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in the
first sentence of this subsection (f) over (ii) the value of the Substitute
Option after giving effect to the limitation in the first sentence of this
subsection (f). This difference in value shall be determined by a nationally-
recognized investment banking firm selected by Holder.
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the holders of the other
shares of common stock issued by Substitute Option Issuer are not entitled to
exercise any rights by reason of the issuance or exercise of the Substitute
Option and the shares of Substitute Common Stock are otherwise in no way
distinguishable from or have lesser economic value (other than any dimunition in
value resulting from the fact that the Substitute Common Stock are restricted
securities, as defined in Rule 144 under the Securities Act) than other shares
of common stock issued by Substitute Option Issuer).
8. REGISTRATION RIGHTS.
(a) Demand Registration Rights. Issuer shall, subject to the conditions
--------------------------
of subparagraph (c) below, if requested by any Holder or Owner, as applicable,
including Grantee and any permitted transferee ("Selling Shareholder"), as
expeditiously as possible prepare and file a registration statement under the
Securities Act if such registration is necessary in order to permit the sale or
other disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by or are issuable to the Selling Shareholder
upon exercise of the Option in accordance with the intended method of sale or
other disposition stated by the Selling Shareholder in such request, including
without limitation a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use its best efforts
to qualify such shares or other securities for sale under any applicable state
securities laws. Grantee shall have the right to demand no more than two
registrations pursuant to this paragraph. If requested by Grantee in connection
with any such registration, Issuer and Grantee shall provide each other with
representatives, warranties, indemnities and other agreements customarily given
in connection with such registration. If requested by Grantee in connection with
any such registration, Issuer and Grantee shall become party to any underwriting
agreement relating to the sale of the Option Shares, but only to the extent of
obligating themselves in respect of representations, warranties, indemnities and
other agreement customarily included in such underwriting agreements.
B-9
<PAGE>
(b) Additional Registration Rights. If Issuer at any time after the
------------------------------
exercise of the Option proposes to register any shares of Issuer Common Stock
under the Securities Act in connection with an underwritten public offering of
such Issuer Common Stock, Issuer will promptly give written notice to the
Selling Shareholders of its intention to do so and, upon the written request of
any Selling Shareholder given within 30 days after receipt of any such notice
(which request shall specify the number of shares of Issuer Common Stock
intended to be included in such underwritten public offering by the Selling
Shareholder), Issuer will cause all such shares for which a Selling Shareholder
requests participation in such registration, to be so registered and included in
such underwritten public offering; PROVIDED, HOWEVER, that Issuer may elect to
not cause any such shares to be so registered (i) if the underwriters in good
faith object for valid business reasons, or (ii) in the case of a registration
solely to implement an employee benefit plan or a registration filed on Form S-
4; PROVIDED, FURTHER, HOWEVER, that such election pursuant to (i) may only be
made two times. If some but not all the shares of Issuer Common Stock, with
respect to which Issuer shall have received requests for registration pursuant
to this subsection (b) shall be excluded from such registration, Issuer shall
make appropriate allocation of shares to be registered among the Selling
Shareholders desiring to register their shares pro rata in the proportion that
the number of shares requested to be registered by each such Selling Shareholder
bears to the total number of shares requested to be registered by all such
Selling Shareholders then desiring to have Issuer Common Stock registered for
sale.
(c) Conditions to Required Registration. Issuer shall use all reasonable
-----------------------------------
efforts to cause each registration statement referred to in subparagraph (a)
above to become effective and to obtain all consents or waivers of other parties
which are required therefor and to keep such registration statement effective,
PROVIDED, HOWEVER, that Issuer may delay any registration of Option Shares
required pursuant to subparagraph (a) above for a period not exceeding 180 days
provided Issuer shall in good faith determine that any such registration would
adversely affect an offering or contemplated offering of other securities by
Issuer, and Issuer shall not be required to register Option Shares under the
Securities Act pursuant to subsection (a) above:
(i) prior to the earliest of (a) termination of the Plan pursuant to
Section 6.1 thereof, (b) failure to obtain the requisite stockholder
approval pursuant to Section 4.8 of the Plan, and (c) a Purchase Event or a
Preliminary Purchase Event;
(ii) on more than one occasion during any calendar year;
(iii) within 90 days after the effective date of a registration
referred to in subsection (b) above pursuant to which the Selling
Shareholder or Selling Shareholders concerned were afforded the opportunity
to register such shares under the Securities Act and such shares were
registered as requested; and
(iv) unless a request therefor is made to Issuer by Selling
Shareholders that hold at least 25% or more of the aggregate number of
Option Shares (including shares of Issuer Common Stock issuable upon
exercise of the Option) then outstanding.
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<PAGE>
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all applicable
state securities laws to the extent necessary to permit the sale or other
disposition of the Option Shares so registered in accordance with the intended
method of distribution for such shares, PROVIDED, HOWEVER, that Issuer shall not
be required to consent to general jurisdiction or qualify to do business in any
state where it is not otherwise required to so consent to such jurisdiction or
to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such payments,
--------
Issuer will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and expenses
of counsel), legal expenses, including the reasonable fees and expenses of one
counsel to the holders whose Option Shares are being registered, printing
expenses and the costs of special audits or "cold comfort" letters, expenses of
underwriters, excluding discounts and commissions but including liability
insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subsection (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subsection (a) or (b)
above.
(e) Indemnification. In connection with any registration under Section
---------------
8(a) or 8(b) of this Agreement, Issuer hereby indemnifies the Selling
Shareholders, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such Selling Shareholders, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement that was
included by issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this Section 8(e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or
B-11
<PAGE>
reimbursement may be sought against any indemnifying party under this Section
8(e), such indemnified party shall notify the indemnifying party in writing of
the commencement of such action, but the failure so to notify the indemnifying
party shall not relieve it of any liability which it may otherwise have to any
indemnified party under this Section 8(e). In case notice of commencement of any
such action shall be given to the indemnifying party as above provided, the
indemnifying party shall be entitled to participate in and, to the extent it may
wish, jointly with any other indemnifying party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
reasonable costs of investigation) shall be paid by the indemnified party unless
(i) the indemnifying party either agrees to pay the same, (ii) the indemnifying
party fails to assume the defense of such action with counsel satisfactory to
the indemnified party, or (iii) the indemnified party has been advised by
counsel that one or more legal defenses may be available to the indemnifying
party that may be contrary to the interest of the indemnified party, in which
case the indemnifying party shall be entitled to assume the defense of such
action notwithstanding its obligation to bear fees and expenses of such counsel.
No indemnifying party shall be liable for any settlement entered into without
its consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this Section 8(e) is unavailable to
a party otherwise entitled to be indemnified in respect of any expenses, losses,
claims, damages or liabilities referred to herein, then the indemnifying party,
in lieu of indemnifying such party otherwise entitled to be indemnified shall
contribute to the amount paid or payable by such party to be indemnified as a
result of such expenses, losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative benefits received by
Issuer, the Selling Shareholders and the underwriters from the offering of the
securities and also the relative fault of Issuer, the Selling Shareholders, and
the underwriters in connection with the statements or omissions which resulted
in such expenses, losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The amount paid or payable by a party as a
result of the expenses, losses, claims, damages and liabilities referred to
above shall be deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending any action
or claim; provided, however, that in no case shall any Selling Shareholder be
responsible, in the aggregate, for any amount in excess of the net offering
proceeds attributable to its Option Shares included in the offering. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. Any obligation by any holder to
indemnify shall be several and not joint with other holders.
In connection with any registration pursuant to Section 8(a) or 8(b) of
this Agreement, Issuer and each Selling Shareholder (other than Grantee) shall
enter into an agreement containing the indemnification provisions of Section
8(e) of this Agreement.
B-12
<PAGE>
(f) Miscellaneous Reporting. Issuer shall comply with all reporting
-----------------------
requirements and will do all such other things as may be necessary to permit the
expeditious sale at any time of any Option Shares by the Selling Shareholders
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144A. Issuer shall at its expense provide the Selling Shareholders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the rules of
any stock exchange.
(g) Issuer Taxes. Issuer will pay all stamp taxes in connection with the
------------
issuance and the sale of the Option Shares and in connection with the exercise
of the Option, and will save the Selling Shareholders harmless, without
limitation as to time, against any and all liabilities, with respect to all such
taxes.
9. QUOTATION; LISTING. If Issuer Common Stock or any other securities to
be acquired in connection with the exercise of the Option are then authorized
for quotation or trading or listing on the Nasdaq National Market or any
securities exchange, Issuer, upon the request of Holder, will promptly file an
application, if required, to authorize for quotation or trading or listing the
shares of Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the Nasdaq National Market or such other securities exchange
and will use its best efforts to obtain approval, if required, of such quotation
or listing as soon as practicable.
10. DIVISION OF OPTION. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. MISCELLANEOUS.
(a) Expenses. Each of the parties hereto shall bear and pay all costs and
--------
expenses incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its own financial
consultants, investment bankers, accountants and counsel.
B-13
<PAGE>
(b) Waiver and Amendment. Any provision of this Agreement may be waived at
--------------------
any time by the party that is entitled to the benefits of such provision. This
Agreement may not be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the parties hereto.
(c) Entire Agreement: no Third-party Beneficiary; Severability. This
----------------------------------------------------------
Agreement, together with the Plan and the other documents and instruments
referred to herein and therein, between Grantee and Issuer (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person other than the parties hereto
(other than any transferees of the Option Shares or any permitted transferee of
this Agreement pursuant to subsection (h) of this Section 11 and other than
indemnified parties under subsection (e) of Section 8) any rights or remedies
hereunder. If any term, provision, covenant or restriction of this Agreement is
held by a court of competent jurisdiction or a federal or state regulatory
agency to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated. If
for any reason such court or regulatory agency determines that the Option does
not permit Holder or Owner to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Section 3 (as
adjusted pursuant to Section 7), it is the express intention of Issuer to allow
Holder or Owner to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
-------------
accordance with the laws of the State of Delaware without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are
--------------------
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer, to: Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-2912
Attention: Patrick F.X. Nilan
Chairman of the Board
B-14
<PAGE>
With copies to: Bayonne Bancshares, Inc.
586 Broadway
Bayonne, New Jersey 07002
Facsimile: (201) 437-5958
Attention: Thomas M. Coughlin
Corporate Secretary
and Paul M. Aguggia, Esq.
Breyer & Aguggia LLP
1300 I Street, N.W., Suite 470 East
Washington, DC 20005
Facsimile: (201) (737-7979)
If to Grantee, to: Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
With copies to: Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Facsimile: (718) 390-0224
Attention: Thomas R. Cangemi
Senior Vice President, Chief Financial
Officer and Secretary
and Douglas P. Faucette, Esq.
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
(g) Counterparts. This Agreement and any amendments hereto may be executed
------------
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
----------
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Holder may
B-15
<PAGE>
assign this Agreement to a wholly-owned subsidiary of Holder and Holder may
assign its rights hereunder in whole or in part after the occurrence of a
Purchase Event. Subject to the preceding sentence, this Agreement shall be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by the
------------------
Holder, Issuer and the Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
--------------------
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties further agree to waive any requirement for
the securing or posting of any bond in connection with the obtaining of any such
equitable relief and that this provision is without prejudice to any other
rights that the parties hereto may have for any failure to perform this
Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
BAYONNE BANCSHARES, INC.
By: /s/ Patrick F.X. Nilan
-----------------------------------------------
NAME: Patrick F.X. Nilan
TITLE: Chairman of the Board
RICHMOND COUNTY FINANCIAL CORP.
By: /s/ Michael F. Manzulli
-----------------------------------------------
NAME: Michael F. Manzulli
TITLE: Chairman of the Board and
Chief Executive Officer
B-16
<PAGE>
ANNEX C
January 28, 1999
Board of Directors
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, NY 10310-1702
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of Richmond County Financial Corp. (the "Company") common
stock (the "Company Common Stock"), par value $0.01, of the consideration to be
paid by the Company to the holders of Bayonne Bancshares, Inc. ("Bayonne")
common stock (the "Seller Common Stock"), par value $0.10 per share, pursuant to
the Agreement and Plan of Merger (the "Agreement") by and between the Company
and Seller. At the Effective Time, as defined in the Agreement, each share of
Seller Common Stock held by Bayonne's shareholders shall be converted into the
right to receive 1.05 shares of Company Common Stock.
Tucker Anthony Incorporated ("Tucker Anthony") as part of its investment banking
business is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for corporate and other
purposes. In the ordinary course of our business, we may actively trade the
securities of both the Company and Bayonne for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
In arriving at our opinion, we have among other things:
(i) Reviewed the Agreement and Plan of Merger dated July 19, 1998;
(ii) Reviewed the Amended and Restated Agreement and Plan of Merger dated
October 14, 1998;
(iii) Reviewed certain historical financial and other information concerning the
Company for the five fiscal years ended June 30, 1998 and for the
six months ended December 31, 1998;
(iv) Reviewed certain historical financial and other information concerning
Bayonne for the five fiscal years ended March 31, 1998 and for the
six month period ended September 30, 1998;
(v) Held discussions with the senior management of the Company and Bayonne
with respect to their past and current financial performance, financial
condition and future prospects;
<PAGE>
Board of Directors
January 28, 1999
Page 2
(vi) Reviewed certain internal financial data, projections and other
information of the Company and Bayonne, including financial projections
approved by management;
(vii) Analyzed certain publicly available information of other financial
institutions that we deemed comparable or otherwise relevant to our
inquiry, and compared the Company and Bayonne from a financial point of
view with certain of these institutions;
(viii) Compared the consideration to be paid by the Company pursuant to the
Agreement with the consideration paid in other acquisitions of financial
institutions that we deemed comparable or otherwise relevant to our
inquiry;
(ix) Reviewed publicly available earnings estimates, historical trading
activity and ownership data of both the Company's and Bayonne's common
stocks and considered the prospects for dividends and price movement in
each; and
(x) Considered such other financial studies, analyses and investigations and
reviewed such other information as we deemed appropriate to enable us to
render our opinion. In our review, we have also taken into account an
assessment of general economic, market and financial conditions and
certain industry trends and related matters.
In our review and analysis and in arriving at our opinion we have assumed and
relied upon the accuracy and completeness of all the financial information
publicly available or provided to us by the Company and Bayonne and have not
attempted to verify any of such information. We have assumed that (i) the
financial projections of the Company and Bayonne provided to us with respect to
the results of operations likely to be achieved by each company have been
prepared on a basis reflecting the best currently available estimates and
judgments of the Company's and Bayonne's management and advisors as to future
financial performance and results and (ii) that such forecasts and estimates
will be realized in the amounts and in the time periods currently estimated. We
have also assumed, without independent verification, that the current and
projected aggregate reserves for possible loan losses for the Company and
Bayonne are adequate to cover such losses. We did not make or obtain any
independent evaluations or appraisals of any assets or liabilities of the
Company, Bayonne or any of their respective subsidiaries nor did we verify any
of the Company's or Bayonne's books or records or review any individual loan
credit files.
Our opinion is necessarily based upon market, economic and other conditions as
they exist and can be evaluated as of the date of this letter.
This opinion is being furnished for the use and benefit of the Board of
Directors of the Company and is not a recommendation to shareholders. The
Company and Tucker Anthony have agreed that they
<PAGE>
Board of Directors
January 28, 1999
Page 3
do not believe any person other than the Board has the legal right to rely on
the opinion and, absent any controlling precedent, would resist any assertion
otherwise.
Based upon and subject to the foregoing, it is our opinion that as of the date
hereof the consideration to be paid by the Company pursuant to the Agreement is
fair to the Company's stockholders from a financial point of view.
Very truly yours,
/s/ Tucker Anthony Incorporated
<PAGE>
ANNEX D
January 28, 1999
Board of Directors
Bayonne Bancshares, Inc.
586 Broadway
Bayonne, NJ 07002
Gentlemen:
Bayonne Bancshares, Inc. ("Bayonne") and Richmond County Financial Corp.
("Richmond County") have entered into an Amended and Restated Agreement and Plan
of Merger, dated as of October 14, 1998 (the "Agreement"), pursuant to which
Bayonne will be merged with and into Richmond County (the "Merger"). Upon
consummation of the Merger, each share of Bayonne common stock, par value $.01
per share, issued and outstanding immediately prior to the effective time of the
Merger (the "Bayonne Shares"), other than certain shares specified in the
Agreement, will be converted into the right to receive 1.05 shares (the
"Exchange Ratio") of Richmond County common stock, par value $.01 per share.
The terms and conditions of the Merger are more fully set forth in the
Agreement. You have requested our opinion as to the fairness, from a financial
point of view, of the Exchange Ratio to the holders of Bayonne Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) the Stock Option Agreement,
dated July 19, 1998, by and between Bayonne and Richmond County; (iii) certain
publicly available financial statements of Bayonne and other historical
financial information provided by Bayonne that we deemed relevant; (iv) certain
publicly available financial statements of Richmond County and other historical
financial information provided by Richmond County that we deemed relevant;
(v) certain financial analyses and forecasts of Bayonne prepared by and reviewed
with management of Bayonne and the views of senior management of Bayonne
regarding Bayonne's past and current business, operations, results thereof,
financial condition and future prospects; (vi) certain financial analyses and
forecasts of Richmond County prepared by and reviewed with management of
Richmond County and the views of senior management of Richmond County regarding
Richmond County's past and current business, operations, results thereof,
financial condition and future prospects; (vii) the pro forma impact of the
Merger; (viii) the publicly reported historical price and trading activity for
Bayonne's and Richmond County's common stock, including a comparison of
<PAGE>
Board of Directors
Bayonne Bancshares, Inc.
January 28, 1999
Page 2
certain financial and stock market information for Bayonne and Richmond County
with similar publicly available information for certain other companies the
securities of which are publicly traded; (ix) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (x) the current market environment generally and the banking
environment in particular; and (xi) such other information, financial studies,
analyses and investigations and financial, economic and market criteria as we
considered relevant. In connection with our engagement, we were not asked to,
and did not, solicit indications of interest in a potential transaction from
other third parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We
did not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Bayonne or Richmond County or any of their subsidiaries, or the collectibility
of any such assets, nor have we been furnished with any such evaluations or
appraisals. With respect to the financial projections reviewed with management,
we have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the respective managements
of the respective future financial performances of Bayonne and Richmond County
and that such performances will be achieved, and we express no opinion as to
such financial projections or the assumptions on which they are based. We have
also assumed that there has been no material change in Bayonne's or Richmond
County's assets, financial condition, results of operations, business or
prospects since the date of the most recent financial statements made available
to us. We have assumed in all respects material to our analysis that Bayonne
and Richmond County will remain as going concerns for all periods relevant to
our analyses, that all of the representations and warranties contained in the
Agreement and all related agreements are true and correct, that each party to
such agreements will perform all of the covenants required to be performed by
such party under such agreements, that the conditions precedent in the Agreement
are not waived and that the Merger will qualify as a tax-free reorganization for
federal income tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of Richmond County common
stock will be when issued to Bayonne's shareholders pursuant to the Agreement or
the prices at which Bayonne's or Richmond County's common stock will trade at
any time.
<PAGE>
Board of Directors
Bayonne Bancshares, Inc.
January 28, 1999
Page 3
We have acted as Bayonne's financial advisor in connection with the Merger
and will receive a fee for our services, a significant portion of which is
contingent upon consummation of the Merger. We have also received a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Bayonne and have received compensation for such
services. As we have previously advised you, in the past we have also provided,
and expect to continue to provide, certain investment banking services for
Richmond County and have received, and will receive, compensation for such
services.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to Bayonne and Richmond County. We may also
actively trade the equity securities of Bayonne and Richmond County for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in such securities.
Our opinion is directed to the Board of Directors of Bayonne in connection
with its consideration of the Merger and does not constitute a recommendation to
any stockholder of Bayonne as to how such stockholder should vote at any meeting
of stockholders called to consider and vote upon the Merger. Our opinion is not
to be quoted or referred to, in whole or in part, in a registration statement,
prospectus, proxy statement or in any other document, nor shall this opinion be
used for any other purposes, without Sandler O'Neill's prior written consent;
provided, however, that we hereby consent to the inclusion of this opinion as an
annex to Bayonne's and Richmond County's Joint Proxy Statement/Prospectus dated
the date hereof and to the references to this opinion therein.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of Bayonne Shares.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
<PAGE>
ANNEX E
FINANCIAL INFORMATION
REGARDING
RICHMOND COUNTY FINANCIAL CORP.
<PAGE>
ANNEX E
RICHMOND COUNTY FINANCIAL CORP.
1998 STOCK-BASED INCENTIVE PLAN
(as amended and restated)
1. DEFINITIONS.
-----------
(a) "Affiliate" means any "parent corporation" or "subsidiary corporation"
of the Holding Company, as such terms are defined in Sections 424(e) and 424(f)
of the Code.
(b) "Award" means, individually or collectively, a grant under the Plan of
Non-Statutory Stock Options, Incentive Stock Options, Stock Awards, Limited
Option Rights, and Limited Stock Rights.
(c) "Award Agreement" means an agreement evidencing and setting forth the
terms of an Award.
(d) "Bank" means Richmond County Savings Bank.
(e) "Board of Directors" means the board of directors of the Holding
Company.
(f) "Change in Control" of the Holding Company or the Bank means an event
of a nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof, pursuant to
Section 12 or 15(d) of the Exchange Act; or (ii) results in a "change in
control" of the Bank or the Holding Company within the meaning of the Change in
Bank Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with respect
to the Bank, and the Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), with respect to the Holding
Company; or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Bank or the Holding Company representing 20% or more of the
Bank's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the bank purchased
by the Holding Company and any voting securities purchased by any employee
benefit plan of the Holding Company or its Affiliates, or (B) individuals who
constitute the Board of Directors on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a Nominating Committee solely composed of members
which are Incumbent Board members, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Holding Company or similar transaction occurs or is
effectuated in which the Bank or Holding Company is not the resulting entity, or
(D) a proxy statement has been distributed soliciting proxies from stockholders
of the Holding Company, by someone other than the current management of the
Holding Company, seeking stockholder approval of a plan of reorganization,
merger or consolidation of the Holding Company or Bank with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(g) "Code" means the Internal Revenue Code of 1986, as amended.
(h) "Committee" means the committee designated by the Board of Directors,
pursuant to Section 2 of the Plan, to administer the Plan.
(i) "Common Stock" means the Common Stock of the Holding Company, par
value, $.01 per share.
<PAGE>
(j) "Date of Grant" means the effective date of an Award.
(k) "Disability" means any mental or physical condition with respect to
which the Participant qualifies for and receives benefits for under a long-term
disability plan of the Holding Company or an Affiliate, or in the absence of
such a long-term disability plan or coverage under such a plan, "Disability"
shall mean a physical or mental condition which, in the sole discretion of the
Committee, is reasonably expected to be of indefinite duration and to
substantially prevent the Participant from fulfilling his duties or
responsibilities to the Holding Company or an Affiliate.
(l) "Effective Date" means September 29, 1998, subject to Section 18 of the
Plan.
(m) "Employee" means any person employed by the Holding Company or an
Affiliate. Directors who are employed by the Holding Company or an Affiliate
shall be considered Employees under the Plan.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Exercise Price" means the price at which a Participant may purchase a
share of Common Stock pursuant to an Option.
(p) "Fair Market Value" means the market price of Common Stock, determined
by the Committee as follows:
(i) If the Common Stock was traded on the date in question on The
Nasdaq Stock Market then the Fair Market Value shall be equal
to the closing price reported for such date;
(ii) If the Common Stock was traded on a stock exchange on the date
in question, then the Fair Market Value shall be equal to the
closing price reported by the applicable composite transactions
report for such date; and
(iii) If neither of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good
faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee
shall be based on the prices reported in The Wall Street Journal. The
-----------------------
Committee's determination of Fair Market Value shall be conclusive and binding
on all persons.
(q) "Holding Company" means Richmond County Financial Corp.
(r) "Incentive Stock Option" means a stock option granted to a Participant,
pursuant to Section 7 of the Plan, that is intended to meet the requirements of
Section 422 of the Code.
(s) "Non-Statutory Stock Option" means a stock option granted to a
Participant pursuant to the terms of the Plan but which is not intended to be
and is not identified as an Incentive Stock Option or a stock option granted
under the Plan which is intended to be and is identified as an Incentive Stock
Option but which does not meet the requirements of Section 422 of the Code.
(t) "Option" means an Incentive Stock Option or Non-Statutory Stock Option.
(u) "Outside Director" means a member of the board(s) of directors of the
Holding Company or an Affiliate who is not also an Employee of the Holding
Company or an Affiliate.
(v) "Participant" means any person who holds an outstanding Award.
E-2
<PAGE>
(w) "Performance Award" means an Award granted to a Participant pursuant
to Section 9 of the Plan.
(x) "Plan" means this Richmond County Financial Corp. 1998 Stock-Based
Incentive Plan, as amended and restated.
(y) "Retirement" means retirement from employment with the Holding Company
or an Affiliate in accordance with the then current retirement policies of the
Holding Company or Affiliate, as applicable. "Retirement" with respect to an
Outside Director means the termination of service from the board(s) of directors
of the Holding Company and any Affiliate following written notice to such
board(s) of directors of the Outside Director's intention to retire.
(z) "Stock Award" means an Award granted to a Participant pursuant to
Section 8 of the Plan.
(aa) "Termination for Cause" shall mean, in the case of an Outside
Director, removal from the board(s) of directors of the Holding Company and its
Affiliates in accordance with the applicable by-laws of the Holding Company and
its Affiliates or, in the case of an Employee, as defined under any employment
agreement with the Holding Company or an Affiliate; provided, however, that if
no employment agreement exists with respect to the Employee, Termination for
Cause shall mean termination of employment because of a material loss to the
Holding Company or an Affiliate, as determined by and in the sole discretion of
the Board of Directors or its designee(s).
(bb) "Trust" means a trust established by the Board of Directors in
connection with this Plan to hold Common Stock or other property for the
purposes set forth in the Plan.
(cc) "Trustee" means any person or entity approved by the Board of
Directors or its designee(s) to hold any of the Trust assets.
2. ADMINISTRATION.
--------------
(a) The Committee shall administer the Plan. The Committee shall consist
of two or more disinterested directors of the Holding Company, who shall be
appointed by the Board of Directors. A member of the Board of Directors shall
be deemed to be "disinterested" only if he satisfies (i) such requirements as
the Securities and Exchange Commission may establish for non-employee directors
administering plans intended to qualify for exemption under Rule 16b-3 (or its
successor) under the Exchange Act and (ii) such requirements as the Internal
Revenue Service may establish for outside directors acting under plans intended
to qualify for exemption under Section 162(m)(4)(C) of the Code. The Board of
Directors may also appoint one or more separate committees of the Board of
Directors, each composed of one or more directors of the Holding Company or an
Affiliate who need not be disinterested and who may grant Awards and administer
the Plan with respect to Employees and Outside Directors who are not considered
officers or directors of the Holding Company under Section 16 of the Exchange
Act or for whom Awards are not intended to satisfy the provisions of Section
162(m) of the Code.
(b) The Committee shall (i) select the Employees and Outside Directors who
are to receive Awards under the Plan, (ii) determine the type, number, vesting
requirements and other features and conditions of such Awards, (iii) interpret
the Plan and Award Agreements in all respects and (iv) make all other decisions
relating to the operation of the Plan. The Committee may adopt such rules or
guidelines as it deems appropriate to implement the Plan. The Committee's
determinations under the Plan shall be final and binding on all persons.
(c) Each Award shall be evidenced by a written agreement ("Award
Agreement") containing such provisions as may be required by the Plan and
otherwise approved by the Committee. Each Award Agreement shall constitute a
binding contract between the Holding Company or an Affiliate and the
Participant, and every Participant, upon acceptance of an Award Agreement, shall
be bound by the terms and restrictions of the Plan and the Award Agreement. The
terms of each Award Agreement shall be in accordance with the Plan, but each
Award Agreement may include any additional provisions and restrictions
determined by the Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan. In
particular and at a
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minimum, the Committee shall set forth in each Award Agreement (i) the type of
Award granted; (ii) the Exercise Price of any Option; (iii) the number of shares
subject to the Award; (iv) the expiration date of the Award; (v) the manner,
time and rate (cumulative or otherwise) of exercise or vesting of such Award;
and (vi) the restrictions, if any, placed upon such Award, or upon shares which
may be issued upon exercise of such Award. The Chairman of the Committee and
such other directors and officers as shall be designated by the Committee is
hereby authorized to execute Award Agreements on behalf of the Company or an
Affiliate and to cause them to be delivered to the recipients of Awards.
(d) The Committee may delegate all authority for: (i) the determination of
forms of payment to be made by or received by the Plan and (ii) the execution of
any Award Agreement. The Committee may rely on the descriptions,
representations, reports and estimates provided to it by the management of the
Holding Company or an Affiliate for determinations to be made pursuant to the
Plan, including the satisfaction of any conditions of a Performance Award.
However, only the Committee or a portion of the Committee may certify the
attainment of any conditions of a Performance Award intended to satisfy the
requirements of Section 162(m) of the Code.
3. TYPES OF AWARDS AND RELATED RIGHTS.
----------------------------------
The following Awards may be granted under the Plan:
(a) Non-Statutory Stock Options.
(b) Incentive Stock Options.
(c) Stock Awards.
4. STOCK SUBJECT TO THE PLAN.
-------------------------
Subject to adjustment as provided in Section 15 of the Plan, the maximum
number of shares reserved for Awards under the Plan is 3,699,297, which number
shall not exceed 14% of the outstanding shares of the Common Stock determined
immediately as of the Effective Date. Subject to adjustment as provided in
Section 15 of the Plan, the maximum number of shares reserved hereby for
purchase pursuant to the exercise of Options, including Incentive Stock Options,
and Option-related Awards granted under the Plan is 2,642,355, which number
shall not exceed 10% of the outstanding shares of Common Stock as of the
Effective Date. The maximum number of the shares reserved for Stock Awards is
1,056,942, which number shall not exceed 4% of the outstanding shares of Common
Stock as of the Effective Date. The shares of Common Stock issued under the Plan
may be either authorized but unissued shares or authorized shares previously
issued and acquired or reacquired by the Trustee or the Holding Company,
respectively. To the extent that Options and Stock Awards are granted under the
Plan, the shares underlying such Awards will be unavailable for any other use
including future grants under the Plan except that, to the extent that Stock
Awards or Options terminate, expire or are forfeited without having vested or
without having been exercised (in the case of Limited Option Rights and Limited
Stock Rights, exercised for cash), new Awards may be made with respect to these
shares.
5. ELIGIBILITY.
-----------
Subject to the terms of the Plan, all full-time Employees and Outside
Directors shall be eligible to receive Awards under the Plan. In addition, the
Committee may grant eligibility to consultants and advisors of the Holding
Company or an Affiliate, as it sees fit.
6. NON-STATUTORY STOCK OPTIONS.
---------------------------
The Committee may, subject to the limitations of this Plan and the
availability of shares of Common Stock reserved but not previously awarded under
the Plan, grant Non-Statutory Stock Options to eligible individuals upon such
terms and conditions as it may determine to the extent such terms and conditions
are consistent with the following provisions:
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<PAGE>
(a) Exercise Price. The Committee shall determine the Exercise Price of
--------------
each Non-Statutory Stock Option. However, the Exercise Price shall not be less
than 100% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Terms of Non-statutory Stock Options. The Committee shall determine
------------------------------------
the term during which a Participant may exercise a Non-Statutory Stock Option,
but in no event may a Participant exercise a Non-Statutory Stock Option, in
whole or in part, more than ten (10) years from the Date of Grant. The Committee
shall also determine the date on which each Non-Statutory Stock Option, or any
part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Non-Statutory Stock Option.
The shares of Common Stock underlying each Non-Statutory Stock Option may be
purchased in whole or in part by the Participant at any time during the term of
such Non-Statutory Stock Option, or any portion thereof, once the Non-Statutory
Stock Option becomes exercisable.
(c) Non-Transferability. Unless otherwise determined by the Committee in
-------------------
accordance with this Section 6(c), a Participant may not transfer, assign,
hypothecate, or dispose of in any manner, other than by will or the laws of
intestate succession, a Non-Statutory Stock Option. The Committee may, however,
in its sole discretion, permit transferability or assignment of a Non-Statutory
Stock Option if such transfer or assignment is, in its sole determination, for
valid estate planning purposes and such transfer or assignment is permitted
under the Code and Rule 16b-3 under the Exchange Act. For purposes of this
Section 6(c), a transfer for valid estate planning purposes includes, but is not
limited to: (a) a transfer to a revocable intervivos trust as to which the
Participant is both the settlor and trustee, (b) a transfer for no consideration
to: (i) any member of the Participant's Immediate Family, (ii) any trust solely
for the benefit of members of the Participant's Immediate Family, (iii) any
partnership whose only partners are members of the Participant's Immediate
Family, and (iv) any limited liability corporation or corporate entity whose
only members or equity owners are members of the Participant's Immediate Family,
or (c) a transfer to the Richmond County Savings Foundation. For purposes of
this Section 6(c), "Immediate Family" includes, but is not necessarily limited
to, a Participant's parents, grandparents, spouse, children, grandchildren,
siblings (including half bothers and sisters), and individuals who are family
members by adoption. Nothing contained in this Section 6(c) shall be construed
to require the Committee to give its approval to any transfer or assignment of
any Non-Statutory Stock Option or portion thereof, and approval to transfer or
assign any Non-Statutory Stock Option or portion thereof does not mean that such
approval will be given with respect to any other Non-Statutory Stock Option or
portion thereof. The transferee or assignee of any Non-Statutory Stock Option
shall be subject to all of the terms and conditions applicable to such Non-
Statutory Stock Option immediately prior to the transfer or assignment and shall
be subject to any other conditions proscribed by the Committee with respect to
such Non-Statutory Stock Option.
(d) Termination of Employment or Service (General). Unless otherwise
----------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or other service for any reason other than Retirement, Disability or death,
or Termination for Cause, the Participant may exercise only those Non-Statutory
Stock Options that were immediately exercisable by the Participant at the date
of such termination and only for a period of three (3) months following the date
of such termination.
(e) Termination of Employment or Service (Retirement). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of a Participant's Retirement, the
Participant may exercise only those Non-Statutory Stock Options that were
immediately exercisable by the Participant at the date of Retirement and only
for a period of one (1) year from the date of Retirement.
(f) Termination of Employment or Service (Disability or death). Unless
----------------------------------------------------------
otherwise determined by the Committee, in the event of the termination of a
Participant's employment or other service due to Disability or death, all Non-
Statutory Stock Options held by such Participant shall immediately become
exercisable and remain exercisable for a period one (1) year following the date
of such termination.
(g) Termination of Employment or Service (Termination for Cause). Unless
------------------------------------------------------------
otherwise determined by the Committee, in the event of a Participant's
Termination for Cause, all rights with respect to the Participant's Non-
Statutory Stock Options shall expire immediately upon the effective date of such
Termination for Cause.
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<PAGE>
(h) Acceleration Upon a Change in Control. In the event of a Change in
-------------------------------------
Control all Non-Statutory Stock Options held by a Participant as of the date of
the Change in Control shall immediately become exercisable and shall remain
exercisable until the expiration of the term of the Non-Statutory Stock Options.
(i) Payment. Payment due to a Participant upon the exercise of a Non-
-------
Statutory Stock Option shall be made in the form of shares of Common Stock.
(j) Maximum Individual Award. No individual Employee shall be granted an
------------------------
amount of Non-Statutory Stock Options which exceeds 25% of all Options eligible
to be granted under the Plan within any 60-month period.
7. INCENTIVE STOCK OPTIONS.
-----------------------
The Committee may, subject to the limitations of the Plan and the
availability of shares of Common Stock reserved but unawarded under this Plan,
grant Incentive Stock Options to an Employee upon such terms and conditions as
it may determine to the extent such terms and conditions are consistent with the
following provisions:
(a) Exercise Price. The Committee shall determine the Exercise Price of
--------------
each Incentive Stock Option. However, the Exercise Price shall not be less than
100% of the Fair Market Value of the Common Stock on the Date of Grant;
provided, however, that if at the time an Incentive Stock Option is granted, the
Employee owns or is treated as owning, for purposes of Section 422 of the Code,
Common Stock representing more than 10% of the total combined voting securities
of the Holding Company ("10% Owner"), the Exercise Price shall not be less than
110% of the Fair Market Value of the Common Stock on the Date of Grant.
(b) Amounts of Incentive Stock Options. To the extent the aggregate Fair
----------------------------------
Market Value of shares of Common Stock with respect to which Incentive Stock
Options that are exercisable for the first time by an Employee during any
calendar year under the Plan and any other stock option plan of the Holding
Company or an Affiliate exceeds $100,000, or such higher value as may be
permitted under Section 422 of the Code, such Options in excess of such limit
shall be treated as Non-Statutory Stock Options. Fair Market Value shall be
determined as of the Date of Grant with respect to each such Incentive Stock
Option.
(c) Terms of Incentive Stock Options. The Committee shall determine the
--------------------------------
term during which a Participant may exercise an Incentive Stock Option, but in
no event may a Participant exercise an Incentive Stock Option, in whole or in
part, more than ten (10) years from the Date of Grant; provided, however, that
if at the time an Incentive Stock Option is granted to an Employee who is a 10%
Owner, the Incentive Stock Option granted to such Employee shall not be
exercisable after the expiration of five (5) years from the Date of Grant. The
Committee shall also determine the date on which each Incentive Stock Option, or
any part thereof, first becomes exercisable and any terms or conditions a
Participant must satisfy in order to exercise each Incentive Stock Option. The
shares of Common Stock underlying each Incentive Stock Option may be purchased
in whole or in part at any time during the term of such Incentive Stock Option
after such Option becomes exercisable.
(d) Non-Transferability. No Incentive Stock Option shall be transferable
-------------------
except by will or the laws of descent and distribution and is exercisable,
during his lifetime, only by the Employee to whom the Committee grants the
Incentive Stock Option. The designation of a beneficiary does not constitute a
transfer of an Incentive Stock Option.
(e) Termination of Employment (General). Unless otherwise determined by
-----------------------------------
the Committee, upon the termination of a Participant's employment or other
service for any reason other than Retirement, Disability or death, or
Termination for Cause, the Participant may exercise only those Incentive Stock
Options that were immediately exercisable by the Participant at the date of such
termination and only for a period of three (3) months following the date of such
termination.
(f) Termination of Employment(Retirement). Unless otherwise determined by
-------------------------------------
the Committee, in the event of a Participant's Retirement, the Participant may
exercise only those Incentive Stock Options that were
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<PAGE>
immediately exercisable by the Participant at the date of Retirement and only
for a period of one (1) year from the date of Retirement.
(g) Termination of Employment (Disability or Death). Unless otherwise
-----------------------------------------------
determined by the Committee, in the event of the termination of a Participant's
employment or other service due to Disability or death, all Incentive Stock
Options held by such Participant shall immediately become exercisable and remain
exercisable for a period one (1) year following the date of such termination.
(h) Termination of Employment (Termination for Cause). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of an Employee's Termination for
Cause, all rights under such Employee's Incentive Stock Options shall expire
immediately upon the effective date of such Termination for Cause.
(i) Acceleration Upon a Change in Control. In the event of a Change in
-------------------------------------
Control all Incentive Stock Options held by a Participant as of the date of the
Change in Control shall immediately become exercisable and shall remain
exercisable until the expiration of the term of the Incentive Stock Options.
Any Option originally designated as an Incentive Stock Option shall be treated
as a Non-Statutory Stock Options to the extent the Option does not otherwise
qualify as an Incentive Stock Option pursuant to Section 422 of the Code.
(j) Payment. Payment due to a Participant upon the exercise of an
-------
Incentive Stock Option shall be made in the form of shares of Common Stock.
(k) Maximum Individual Award. No individual Employee shall be granted an
------------------------
amount of Incentive Stock Options which exceeds 25% of all Options eligible to
be granted under the Plan within any 60-month period.
(l) Disqualifying Dispositions. Each Award Agreement with respect to an
--------------------------
Incentive Stock Option shall require the Participant to notify the Committee of
any disposition of shares of Common Stock issued pursuant to the exercise of
such Option under the circumstances described in Section 421(b) of the Code
(relating to certain disqualifying dispositions), within 10 days of such
disposition.
8. STOCK AWARDS.
------------
The Committee may make grants of Stock Awards, which shall consist of the
grant of some number of shares of Common Stock, to a Participant upon such terms
and conditions as it may determine to the extent such terms and conditions are
consistent with the following provisions:
(a) Grants of the Stock Awards. Stock Awards may only be made in whole
---------------------------
shares of Common Stock. Stock Awards may only be granted from shares reserved
under the Plan and available for award at the time the Stock Award is made to
the Participant.
(b) Terms of the Stock Awards. The Committee shall determine the dates on
-------------------------
which Stock Awards granted to a Participant shall vest and any terms or
conditions which must be satisfied prior to the vesting of any Stock Award or
portion thereof. Any such terms or conditions shall be determined by the
Committee as of the Date of Grant.
(c) Termination of Employment or Service (General). Unless otherwise
----------------------------------------------
determined by the Committee, upon the termination of a Participant's employment
or service for any reason other than Retirement, Disability or death, or
Termination for Cause, any Stock Awards in which the Participant has not become
vested as of the date of such termination shall be forfeited and any rights the
Participant had to such Stock Awards shall become null and void.
(d) Termination of Employment or Service (Retirement). Unless otherwise
-------------------------------------------------
determined by the Committee, in the event of a Participant's Retirement, any
Stock Awards in which the Participant has not become
E-7
<PAGE>
vested as of the date of Retirement shall be forfeited and any rights the
Participant had to such unvested Stock Awards shall become null and void.
(e) Termination of Employment or Service (Disability or death). Unless
----------------------------------------------------------
otherwise determined by the Committee, in the event of a termination of the
Participant's service due to Disability or death all unvested Stock Awards held
by such Participant shall immediately vest as of the date of such termination.
(f) Termination of Employment or Service (Termination for Cause). Unless
------------------------------------------------------------
otherwise determined by the Committee, or in the event of the Participant's
Termination for Cause, all Stock Awards in which the Participant had not become
vested as of the effective date of such Termination for Cause shall be forfeited
and any rights such Participant had to such unvested Stock Awards shall become
null and void.
(g) Acceleration Upon a Change in Control. In the event of a Change in
-------------------------------------
Control all unvested Stock Awards held by a Participant shall immediately vest.
(h) Maximum Individual Award. No individual Employee shall be granted an
------------------------
amount of Stock Awards which exceeds 25% of all Stock Awards eligible to be
granted under the Plan within any 60-month period.
(i) Issuance of Certificates. Unless otherwise held in Trust and
------------------------
registered in the name of the Trustee, reasonably promptly after the Date of
Grant with respect to shares of Common Stock pursuant to a Stock Award, the
Holding Company shall cause to be issued a stock certificate, registered in the
name of the Participant to whom such Stock Award was granted, evidencing such
shares; provided, that the Holding Company shall not cause such a stock
certificate to be issued unless it has received a stock power duly endorsed in
blank with respect to such shares. Each such stock certificate shall bear the
following legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the restrictions, terms and
conditions (including forfeiture provisions and restrictions against
transfer) contained in the Richmond County Financial Corp. 1998 Stock-
Based Incentive Plan and Award Agreement entered into between the
registered owner of such shares and Richmond County Financial Corp. or
its Affiliates. A copy of the Plan and Award Agreement is on file in
the office of the Corporate Secretary of Richmond County Financial
Corp. located at 1214 Castleton Avenue, Staten Island, New York 10310.
Such legend shall not be removed until the Participant becomes vested in such
shares pursuant to the terms of the Plan and Award Agreement. Each certificate
issued pursuant to this Section 8(i), in connection with a Stock Award, shall be
held by the Holding Company or its Affiliates, unless the Committee determines
otherwise.
(j) Non-Transferability. Except to the extent permitted by the Code, the
-------------------
rules promulgated under Section 16(b) of the Exchange Act or any successor
statutes or rules:
(i) The recipient of a Stock Award shall not sell, transfer, assign,
pledge, or otherwise encumber shares subject to the Stock Award
until full vesting of such shares has occurred. For purposes of
this section, the separation of beneficial ownership and legal
title through the use of any "swap" transaction is deemed to be a
prohibited encumbrance.
(ii) Unless determined otherwise by the Committee and except in the
event of the Participant's death or pursuant to a domestic
relations order, a Stock Award is not transferable and may be
earned in his lifetime only by the Participant to whom it is
granted. Upon the death of a Participant, a Stock Award is
transferable by will or the laws of descent and distribution. The
designation of a beneficiary shall not constitute a transfer.
E-8
<PAGE>
(iii) If a recipient of a Stock Award is subject to the provisions of
Section 16 of the Exchange Act, shares of Common Stock subject to
such Stock Award may not, without the written consent of the
Committee (which consent may be given in the Award Agreement), be
sold or otherwise disposed of within six (6) months following the
date of grant of the Stock Award.
(k) Accrual of Dividends. To the extent Stock Awards are held in Trust and
--------------------
registered in the name of the Trustee, unless otherwise specified by the Trust
agreement whenever shares of Common Stock underlying a Stock Award are
distributed to a Participant or beneficiary thereof under the Plan, such
Participant or beneficiary shall also be entitled to receive, with respect to
each such share distributed, a payment equal to any cash dividends and the
number of shares of Common Stock equal to any stock dividends, declared and paid
with respect to a share of the Common Stock if the record date for determining
shareholders entitled to receive such dividends falls between the date the
relevant Stock Award was granted and the date the relevant Stock Award or
installment thereof is issued. There shall also be distributed an appropriate
amount of net earnings, if any, of the Trust with respect to any dividends paid
out on the shares related to the Stock Award.
(l) Voting of Stock Awards. After a Stock Award has been granted but for
----------------------
which the shares covered by such Stock Award have not yet been vested, earned
and distributed to the Participant pursuant to the Plan, the Participant shall
be entitled to vote or to direct the Trustee to vote, as the case may be, such
shares of Common Stock which the Stock Award covers subject to the rules and
procedures adopted by the Committee for this purpose and in a manner consistent
with the Trust agreement.
(m) Payment. Payment due to a Participant upon the redemption of a Stock
-------
Award shall be made in the form of shares of Common Stock.
9. PERFORMANCE AWARDS.
------------------
(a) The Committee may determine to make any Award under the Plan contingent
upon the satisfaction of any conditions related to the performance of the
Holding Company, an Affiliate of the Participant. Each Performance Award shall
be evidenced in the Award Agreement, which shall set forth the applicable
conditions, the maximum amounts payable and such other terms and conditions as
are applicable to the Performance Award. Unless otherwise determined by the
Committee, each Performance Award shall be granted and administered to comply
with the requirements of Section 162(m) of the Code and subject to the following
provisions:
(b) Any Performance Award shall be made not later than 90 days after the
start of the period for which the Performance Award relates and shall be made
prior to the completion of 25% of such period. All determinations regarding the
achievement of any applicable conditions will be made by the Committee. The
Committee may not increase during a year the amount of a Performance Award that
would otherwise be payable upon satisfaction of the conditions but may reduce or
eliminate the payments as provided for in the Award Agreement.
(c) Nothing contained in the Plan will be deemed in any way to limit or
restrict the Committee from making any Award or payment to any person under any
other plan, arrangement or understanding, whether now existing or hereafter in
effect.
(d) A Participant who receives a Performance Award payable in Common Stock
shall have no rights as a shareholder until the Company Stock is issued pursuant
to the terms of the Award Agreement. The Common Stock may be issued without
cash consideration.
(e) A Participant's interest in a Performance Award may not be sold,
assigned, transferred, pledged, hypothecated, or otherwise encumbered.
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<PAGE>
(f) No Award or portion thereof that is subject to the satisfaction of any
condition shall be distributed or considered to be earned or vested until the
Committee certifies in writing that the conditions to which the distribution,
earning or vesting of such Award is subject have been achieved.
10. DEFERRED PAYMENTS.
-----------------
The Committee, in its discretion, may permit a Participant to elect to
defer receipt of all or any part of any cash or stock payment under the Plan, or
the Committee may determine to defer receipt by some or all Participants, of all
or part of any such payment. The Committee shall determine the terms and
conditions of any such deferral, including the period of deferral, the manner of
deferral, and the method for measuring appreciation on deferred amounts until
their payout.
11. METHOD OF EXERCISE OF OPTIONS.
-----------------------------
Subject to any applicable Award Agreement, any Option may be exercised by
the Participant in whole or in part at such time or times, and the Participant
may make payment of the Exercise Price in such form or forms permitted by the
Committee, including, without limitation, payment by delivery of cash, Common
Stock or other consideration (including, where permitted by law and the
Committee, Awards) having a Fair Market Value on the exercise date equal to the
total Exercise Price, or by any combination of cash, shares of Common Stock and
other consideration, including exercise by means of a cashless exercise
arrangement with a qualifying broker-dealer, as the Committee may specify in the
applicable Award Agreement.
12. RIGHTS OF PARTICIPANTS.
----------------------
No Participant shall have any rights as a shareholder with respect to any
shares of Common Stock covered by an Option until the date of issuance of a
stock certificate for such Common Stock. Nothing contained herein or in any
Award Agreement confers on any person any right to continue in the employ or
service of the Holding Company or an Affiliate or interferes in any way with the
right of the Holding Company or an Affiliate to terminate a Participant's
services.
13. DESIGNATION OF BENEFICIARY.
--------------------------
A Participant may, with the consent of the Committee, designate a person or
persons to receive, in the event of death, any Award to which the Participant
would then be entitled. Such designation will be made upon forms supplied by
and delivered to the Holding Company and may be revoked in writing. If a
Participant fails effectively to designate a beneficiary, then the Participant's
estate will be deemed to be the beneficiary.
14. DILUTION AND OTHER ADJUSTMENTS.
------------------------------
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger, consolidation,
spin-off, reorganization, combination or exchange of shares, or other similar
corporate change, or other increase or decrease in such shares without receipt
or payment of consideration by the Holding Company, or in the event an
extraordinary capital distribution is made, the Committee may make such
adjustments to previously granted Awards, to prevent dilution, diminution, or
enlargement of the rights of the Participant, including any or all of the
following:
(a) adjustments in the aggregate number or kind of shares of Common Stock
or other securities that may underlie future Awards under the Plan;
(b) adjustments in the aggregate number or kind of shares of Common Stock
or other securities underlying Awards already made under the Plan;
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<PAGE>
(c) adjustments in the Exercise Price of outstanding Incentive and/or
Non-statutory Stock Options, or any Limited Rights attached to such
Options.
No such adjustments may, however, materially change the value of benefits
available to a Participant under a previously granted Award. All Awards under
this Plan shall be binding upon any successors or assigns of the Holding
Company.
15. TAX WITHHOLDING.
---------------
(a) Whenever under this Plan, cash or shares of Common Stock are to be
delivered upon exercise or payment of an Award or any other event with respect
to rights and benefits hereunder, the Committee shall be entitled to require as
a condition of delivery (i) that the Participant remit an amount sufficient to
satisfy all federal, state, and local withholding tax requirements related
thereto, (ii) that the withholding of such sums come from compensation otherwise
due to the Participant or from any shares of Common Stock due to the Participant
under this Plan or (iii) any combination of the foregoing provided, however,
that no amount shall be withheld from any cash payment or shares of Common Stock
relating to an Award which was transferred by the Participant in accordance with
this Plan.
(b) If any disqualifying disposition described in Section 7(l) is made
with respect to shares of Common Stock acquired under an Incentive Stock Option
granted pursuant to this Plan, or any transfer described in Section 6(c) is
made, or any election described in Section 17 is made, then the person making
such disqualifying disposition, transfer, or election shall remit to the Holding
Company or its Affiliates an amount sufficient to satisfy all federal, state,
and local withholding taxes thereby incurred; provided that, in lieu of or in
addition to the foregoing, the Holding Company or its Affiliates shall have the
right to withhold such sums from compensation otherwise due to the Participant,
or, except in the case of any transfer pursuant to Section 6(c), from any shares
of Common Stock due to the Participant under this Plan.
16. NOTIFICATION UNDER SECTION 83(b).
--------------------------------
The Committee may, on the Date of Grant or any later date, prohibit a
Participant from making the election described below. If the Committee has not
prohibited such Participant from making such election, and the Participant
shall, in connection with the exercise of any Option, or the grant of any Stock
Award, make the election permitted under Section 83(b) of the Code, such
Participant shall notify the Committee of such election within 10 days of filing
notice of the election with the Internal Revenue Service, in addition to any
filing and notification required pursuant to regulations issued under the
authority of Section 83(b) of the Code.
17. AMENDMENT OF THE PLAN AND AWARDS.
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(a) Except as provided in paragraph (c) of this Section 17, the Board of
Directors may at any time, and from time to time, modify or amend the Plan in
any respect, prospectively or retroactively; provided however, that provisions
governing grants of Incentive Stock Options shall be submitted for shareholder
approval to the extent required by such law, regulation or otherwise. Failure
to ratify or approve amendments or modifications by shareholders shall be
effective only as to the specific amendment or modification requiring such
ratification. Other provisions of this Plan will remain in full force and
effect. No such termination, modification or amendment may adversely affect the
rights of a Participant under an outstanding Award without the written
permission of such Participant.
(b) Except as provided in paragraph (c) of this Section 17, the Committee
may amend any Award Agreement, prospectively or retroactively; provided,
however, that no such amendment shall adversely affect the rights of any
Participant under an outstanding Award without the written consent of such
Participant.
(c) In no event shall the Board of Directors amend the Plan or shall
the Committee amend an Award Agreement in any manner that has the effect of:
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(i) Allowing any Option to be granted with an exercise below the Fair
Market Value of the Common Stock on the Date of Grant.
(ii) Allowing the exercise price of any Option previously granted
under the Plan to be reduced subsequent to the Date of Award.
(d) Notwithstanding anything in this Plan or any Award Agreement to the
contrary, if any Award or right under this Plan would, in the opinion of the
Holding Company's accountants, cause a transaction to be ineligible for pooling
of interest accounting that would, but for such Award or right, be eligible for
such accounting treatment, the Committee, at its discretion, may modify, adjust,
eliminate or terminate the Award or right so that pooling of interest accounting
is available.
18. EFFECTIVE DATE OF PLAN.
----------------------
The Plan was originally approved by shareholders and became effective on
September 29, 1998. The Plan, as amended and restated, shall become effective
upon approval by the Holding Company's shareholders. The failure to obtain
shareholder ratification for such purposes will not effect the validity of the
prior provisions of the Plan and any Awards made under the Plan.
19. TERMINATION OF THE PLAN.
-----------------------
The right to grant Awards under the Plan will terminate upon the earlier
of: (i) ten (10) years after the Effective Date; (ii) the issuance of a number
of shares of Common Stock pursuant to the exercise of Options or the
distribution of Stock Awards which is equivalent to the maximum number of shares
reserved under the Plan as set forth in Section 4 of the Plan hereof. The Board
of Directors has the right to suspend or terminate the Plan at any time,
provided that no such action will, without the consent of a Participant,
adversely affect a Participant's vested rights under a previously granted Award.
20. APPLICABLE LAW.
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The Plan will be administered in accordance with the laws of the state of
Delaware to the extent not pre-empted by applicable federal law.
21. TREATMENT OF UNVESTED, UNEXERCISED, OR NON-EXERCISABLE AWARDS UPON A CHANGE
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IN CONTROL.
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(a) In the event of a Change in Control where the Holding Company or the
Bank is not the surviving entity, the Board of Directors of the Holding Company
and/or the Bank, as applicable, shall require that the successor entity take one
of the following actions with respect to all Awards held by Participants at the
date of the Change in Control:
(i) Assume the Awards with the same terms and conditions as granted
to the Participant under this Plan; or
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(ii) Replace the Awards with comparable Awards, subject to the same
or more favorable terms and conditions as the Award granted to the
Participant under this Plan, whereby the Participant will be granted
common stock or the option to purchase common stock of the successor
entity; or, only if the Committee determines that neither of the
alternatives set forth in clauses (i) or (ii) are legally available,
(iii) Replace the Awards with a cash payment under an incentive plan,
program, or other arrangement of the successor entity that preserves
the economic value of the Awards and makes any such cash payment
subject to the same vesting or exercisability schedule applicable to
such Awards.
(b) The determination of comparability of Awards offered by a successor
entity under clause (ii) of paragraph(a) above shall be made by the Committee,
and the Committee's determination shall be conclusive and binding.
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