As filed with the Securities and Exchange Commission on September 8, 1997
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under the
SECURITIES ACT OF 1933
NORTH FORK BANCORPORATION, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 6712 36-3154608
(State or Other Jurisdiction of (Primary Standard (I.R.S. Employer
Incorporation or Organization) Industrial Classification Identification
Code Number) Number)
275 Broad Hollow Road
Melville, New York 11747
(516) 844-1004
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
John Adam Kanas
President, Chairman and Chief Executive Officer
275 Broad Hollow Road
Melville, New York 11747
(516) 844-1004
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
With copies to:
Thomas B. Kinsock, Esq. R. Mark Chamberlin, Esq.
Gallop, Johnson & Neuman, L.C. Mintz, Levin, Cohn, Ferris,
Interco Corporate Tower Glovsky and Popeo, P.C.
101 South Hanley One Financial Center
St. Louis, Missouri 63105 Boston, Massachusetts 02111
(314) 862-1200 (617)542-6000
Approximate date of commencement of proposed sale of the securities to
the public: As soon as practicable after the effective date of this Registration
Statement and the satisfaction or waiver of all other conditions to the Merger
described in the Proxy Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
<CAPTION>
Proposed Proposed Maximum
Title of Each Class of Amount to be Maximum Offering Aggregate Offering Amount of
Securities to be Registered(1) Registered(2) Price Per Share(3) Price (3) Registration Fee(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $2.50 par value........... 1,736,965 shares $17.10 $29,700,065.72 $8,999.12
====================================================================================================================================
<FN>
(1) Includes one attached Series A Preferred Share Purchase Right per
share.
(2) Maximum number of shares of Registrant's Common Stock issuable in the
Merger, unless Registrant waives the maximum exchange ratio limit
established in the merger agreement.
(3) Pursuant to Rule 457(f)(1) and 457(c) promulgated under the Securities
Act of 1933, as amended, and estimated solely for purposes of
calculating the registration fee, the proposed maximum aggregate
offering price is $29,700,065.72, which equals the sum of "A" and "B",
where "A" equals (w) $5.02, such being the average of the high and low
prices of the voting common stock, no par value ("Branford Voting
Common Stock"), of Branford Savings Bank ("Branford") as reported on
The Nasdaq Stock Market National Market System on September 4, 1997,
multiplied by (x) the total number of shares of Branford Voting Common
Stock to be exchanged in the Merger for securities being registered
hereunder, and where "B" equals (y) $2.68, such being the book value
per share of the non-voting common stock, no par value ("Branford
Non-voting Common Stock"), of Branford as of the latest practicable
date, June 30, 1997, multiplied by (z) the total number of shares of
Branford Non-voting Common Stock to be exchanged in the Merger for
securities being registered hereunder. The proposed maximum offering
price per share is equal to the proposed maximum aggregate offering
price determined in the manner described in the preceding sentence
divided by the maximum number of shares of Registrant's common stock
issuable in the Merger as discussed in note (2).
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
(A redherring appears on the left hand side of this page, rotated 90 degrees.
Text follows.)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
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CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Showing the Location in the Proxy Statement/Prospectus
of the Information Required by the Items of Form S-4
<CAPTION>
Form S-4 Item Number and Caption Proxy Statement/Prospectus Heading
Information About the Transaction
<S> <C>
1. Forepart of Registration Statement Cover Page of Registration Statement; Cross Reference Sheet;
and Outside Front Cover Page of Prospectus Outside Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Available Information; Table of
Prospectus Contents; Incorporation of Certain Documents by Reference
3. Risk Factors, Ratio of Earnings to Fixed Charges, Summary; The Merger; Market Prices and Dividend Information;
and Other Information
4. Terms of Transaction Summary; The Merger; Description of North Fork Capital Stock;
Comparison of Shareholder Rights
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the Company Being Acquired Summary; The Merger
7. Additional Information Required for Reoffering by Not Applicable
Persons and Parties Deemed to be Underwriters
8. Interests of Named Experts and Counsel Not Applicable
9. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
<CAPTION>
Information About the Registrant
<S> <C>
10. Information With Respect to S-3 Registrants Available Information; Incorporation of Certain Documents by
Reference; Summary; The Companies--North Fork; The Merger
<PAGE>
11. Incorporation of Certain Information by Reference Incorporation of Certain Documents by Reference
12. Information With Respect to S-2 or S-3 Registrants Not Applicable
13. Incorporation of Certain Information by Reference Not Applicable
14. Information with Respect to Registrants Other Than Not Applicable
S-2 or S-3 Registrants
<CAPTION>
Information About the Company Being Acquired
<S> <C>
15. Information With Respect to S-3 Companies Not Applicable
16. Information With Respect to S-2 or S-3 Companies Not Applicable
17. Information With Respect to Companies Other Than Summary; The Companies--Branford; The Merger; Information
S-2 or S-3 Companies About Branford
<CAPTION>
Voting and Management Information
<S> <C>
18. Information if Proxies, Consents or Authorizations Summary; The Special Meeting; The Merger
Are to be Solicited
19. Information if Proxies, Consents or Authorizations Not Applicable
Are Not to be Solicited in an Exchange Offer
</TABLE>
<PAGE>
Branford Savings Bank
45 South Main Street
Branford, Connecticut 06405
September 5, 1997
To the Shareholders of
Branford Savings Bank
You are cordially invited to attend a special meeting of shareholders
of Branford Savings Bank to be held on [October 31], 1997, at 10:00 a.m. local
time at Woodwinds, 29 School Ground Road, Branford, Connecticut.
As described in the enclosed Proxy Statement/Prospectus, at the meeting
you will be asked to approve the Agreement and Plan of Merger, dated as of July
24, 1997, as amended (the "Merger Agreement"), by and among North Fork
Bancorporation ("North Fork"), an interim Connecticut savings bank newly formed
as a wholly-owned subsidiary of North Fork ("Merger Bank") and Branford Savings
Bank ("Branford"). Under the Merger Agreement, Merger Bank will be merged with
and into Branford (the "Merger"). Upon the Merger, all outstanding shares of the
common stock of Branford, including voting common stock and non-voting common
stock (collectively "Branford common stock") (other than dissenting shares) will
be converted into shares of North Fork common stock, par value $2.50 per share.
Each share of Branford common stock will be converted into North Fork common
stock having a market value of approximately $5.25, with the precise Exchange
Ratio to be determined based on the formula discussed in the enclosed Proxy
Statement/Prospectus plus cash to be paid in lieu of fractional shares. It is
intended that such conversion will qualify as a tax-free exchange for federal
income tax purposes.
Ostrowski & Company, Inc., Branford's financial advisor in connection
with the Merger, has delivered its written opinion to Branford's Board of
Directors that, as of the date of the Merger Agreement, the consideration to be
received by the holders of Branford common stock in the Merger was fair to such
holders from a financial point of view. The written opinion of Ostrowski &
Company, Inc. is reproduced in full as Annex C to the accompanying Proxy
Statement/Prospectus.
Consummation of the Merger is subject to certain conditions, including
approval of the Merger Agreement by at least two-thirds of the issued and
outstanding shares of Branford voting common stock, voting as a class, and at
least two-thirds of the issued and outstanding shares of Branford non-voting
common stock, voting as a class, and the receipt of certain regulatory
approvals.
Your Board of Directors approved the Merger Agreement and the Merger,
and recommends that you vote "FOR" approval of the Merger Agreement and the
Merger.
/s/ Robert J. Mariano
[PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.]
<PAGE>
BRANFORD SAVINGS BANK
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on [October 31], 1997
To the Shareholders of
Branford Savings Bank:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Branford Savings Bank (the "Bank") will be held at Woodwinds, 29 School Ground
Road, Branford, Connecticut, on [October 31], 1997, at 10:00 a.m. local time
(the "Special Meeting"), for the following purposes, all of which are more fully
described in the accompanying Proxy Statement/Prospectus:
(1) To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of July 24, 1997, as
amended (the "Merger Agreement"), among North Fork
Bancorporation, Inc., a Delaware corporation ("North Fork"),
an interim Connecticut savings bank newly formed as a
wholly-owned subsidiary of North Fork ("Merger Bank"), and the
Bank, and the transactions contemplated therein, including,
among other things, the following: (i) Merger Bank will be
merged with and into the Bank (the "Merger"); and (ii) upon
consummation of the Merger, all outstanding shares of the
common stock of the Bank, including voting common stock and
non-voting common stock (collectively, "Branford Common
Stock") (other than certain shares held by the parties to the
Merger Agreement and their subsidiaries and shares held by
Bank shareholders who exercise dissenter's rights), will be
converted into shares of North Fork common stock, par value
$2.50 per share ("North Fork Common Stock"). Each share of
Branford Common Stock will be converted into North Fork Common
Stock having a market value of approximately $5.25, with the
precise exchange ratio to be determined based on the average
reported closing sales prices of North Fork Common Stock
during the 20 consecutive trading-day period immediately
preceding the date on which the last bank regulatory approval
of the Merger is received, excluding post-approval waiting
periods and subject to certain minimum and maximum limits on
the exchange ratio. Cash will be paid in lieu of issuance of
fractional shares.
(2) To transact such other business as may properly come before
the Special Meeting or any adjournments or postponements
thereof, including, without limitation, a motion to adjourn
the Special Meeting to another time and/or place for the
purpose of soliciting additional proxies in order to approve
the Merger Agreement and the Merger.
The Board of Directors of the Bank has fixed the close of business on
[September 23, 1997] as the record date for the determination of shareholders
entitled to notice of and to vote at the Special Meeting and any adjournments or
postponements thereof. Only shareholders of record at the close of business on
such date are entitled to notice of and to vote at the Special Meeting. A list
of Bank shareholders entitled to vote at the Special Meeting will be available
for examination, during ordinary business hours, at the principal executive
offices of the Bank, located at 45 S. Main Street, Branford, Connecticut 06405,
for a period commencing 2 business days after the mailing of this
Proxy/Statement Prospectus until the time of the Special Meeting.
<PAGE>
Branford Common Stock is the only security of the Bank whose holders
are entitled to vote upon the merger proposal to be presented at the Special
Meeting. Holders of both voting common stock and non-voting common stock of the
Bank will be entitled to vote upon the merger proposal.
Your vote is important regardless of the number of shares you own. Each
shareholder, even though he or she now plans to attend the Special Meeting, is
requested to sign, date and return the enclosed Proxy Card without delay in the
enclosed postage-paid envelope. You may revoke your Proxy at any time prior to
its exercise. Any shareholder present at the Special Meeting or at any
adjournments or postponements thereof may revoke his or her Proxy and vote
personally on each matter brought before the Special Meeting.
By Order of the Board of Directors,
Gregory R. Shook
Secretary
Date___________
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR"
THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT.
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
AND MAIL IT PROMPTLY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.
<PAGE>
BRANFORD SAVINGS BANK
PROXY STATEMENT
NORTH FORK BANCORPORATION, INC.
PROSPECTUS
1,736,965 Shares of Common Stock
This Proxy Statement/Prospectus (the "Proxy Statement/Prospectus") is
being furnished to shareholders of Branford Savings Bank (the "Bank" or
"Branford") in connection with the solicitation of proxies by the Board of
Directors of the Bank for use at a special meeting of Bank shareholders
(including any adjournments or postponements thereof) to be held on [October
31], 1997 (the "Special Meeting"). At the Special Meeting, shareholders will
consider and vote upon a proposal to approve and adopt an Agreement and Plan of
Merger, dated as of July 24, 1997, as amended (the "Merger Agreement"), among
North Fork Bancorporation, Inc. ("North Fork"), an interim Connecticut savings
bank newly formed as a wholly owned subsidiary of North Fork ("Merger Bank"),
and the Bank, and the consummation of the transactions contemplated thereby.
Pursuant to the Merger Agreement, Merger Bank will be merged with and into the
Bank (the "Merger"), with the Bank to continue doing business thereafter as a
wholly owned subsidiary of North Fork. The Merger Agreement is attached as Annex
A hereto and is incorporated herein by reference.
This Proxy Statement/Prospectus also constitutes a prospectus of North
Fork with respect to up to 1,736,965 shares of the common stock, par value
$2.50, of North Fork ("North Fork Common Stock") issuable in the Merger to
holders of the voting common stock, no par value, of the Bank ("Branford Voting
Common Stock") and to holders of the non-voting convertible common stock, no par
value, of the Bank ("Branford Non-voting Common Stock"; collectively with
Branford Voting Common Stock, "Branford Common Stock"). Upon consummation of the
Merger, each outstanding share of Branford Common Stock (other than shares held
by dissenting shareholders and certain shares held by the parties to the Merger
Agreement and their subsidiaries) will be converted into and exchangeable for a
number (the "Exchange Ratio") of shares of North Fork Common Stock equal to the
quotient obtained by dividing (x) $5.25 by (y) the average of the closing sales
prices of North Fork Common Stock on the New York Stock Exchange as reported by
The Wall Street Journal over a pricing period consisting of the 20 consecutive
trading days ending on the trading day immediately preceding the date on which
the last required bank regulatory approval of the Merger has been issued,
excluding any required waiting period after such approval (the "Average North
Fork Price"); provided, however, that (a) if the Average North Fork Price is
greater than $26.83, the Exchange Ratio shall remain fixed at 0.1957, or (b) if
the Average North Fork Price is less than $19.83, the Exchange Ratio shall
remain fixed at 0.2648 unless North Fork waives this fixed exchange ratio (and
if no such waiver is made then the Bank may terminate the Merger Agreement).
Under the terms of the Merger Agreement, cash will be paid in lieu of the
issuance of any fractional shares of North Fork Common Stock. In addition, each
share of North Fork Common Stock issued in the Merger will include the
corresponding number of rights attached thereto pursuant to the North Fork
Rights Agreement (as defined below). The Merger is intended to qualify as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended, and is intended to achieve certain federal income tax-deferral benefits
for Bank shareholders with respect to shares of North Fork Common Stock received
in the Merger. See "THE MERGER -- Certain Federal Income Tax Consequences."
<PAGE>
North Fork Common Stock is traded on the New York Stock Exchange under
the symbol "NFB." On ________________, 1997, the closing sale price for North
Fork Common Stock on the New York Stock Exchange ("NYSE") as reported by The
Wall Street Journal was $_____________________. Because the market price of
North Fork Common Stock is subject to fluctuation, the value of the shares of
North Fork Common Stock that Bank shareholders would receive in the Merger may
increase or decrease prior to and after the Merger. See "MARKET PRICES AND
DIVIDEND INFORMATION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES COMMISSION OR THE FEDERAL DEPOSIT INSURANCE CORPORATION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF NORTH FORK COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR
ANY OTHER GOVERNMENT AGENCY NOR ARE THEY GUARANTEED BY ANY BANK OR BANK HOLDING
COMPANY.
This Proxy Statement/Prospectus and the accompanying form of proxy are
first being mailed to shareholders of the Bank on or about ______________, 1997.
The date of this Proxy Statement/Prospectus is September 8, 1997.
<PAGE>
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus or
incorporated by reference herein in connection with the solicitation of proxies
or the offering of securities made hereby and, if given or made, such
information or representations must not be relied upon as having been authorized
by North Fork or Branford. This Proxy Statement/Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create an implication
that there has been no change in the affairs of North Fork or Branford since the
date of this Proxy Statement/Prospectus or that the information herein or the
documents or reports incorporated by reference herein is correct as of any time
subsequent to such date. All information contained in this Proxy
Statement/Prospectus relating to North Fork and its subsidiaries has been
supplied by North Fork and all information contained in this Proxy
Statement/Prospectus relating to Branford has been supplied by Branford.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION...................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 1
SUMMARY .................................................................. 4
MARKET PRICES AND DIVIDEND INFORMATION..................................... 17
THE COMPANIES.............................................................. 19
North Fork........................................................ 19
Branford ......................................................... 20
THE SPECIAL MEETING........................................................ 20
THE MERGER................................................................. 22
Effects of the Merger............................................. 22
Exchange Ratio.................................................... 22
Branford Warrants................................................. 23
Effective Time.................................................... 24
Background of the Merger.......................................... 24
Recommendation of Branford's Board of Directors and
Reasons for the Merger.......................................... 25
Reasons for the Merger - North Fork............................... 26
Opinion of Branford's Financial Advisor........................... 27
Stock Trading History............................................. 28
Contribution Analysis............................................. 28
Comparable Company Analysis....................................... 28
Discounted Cash Flow Analysis..................................... 29
Analysis of Selected Merger Transactions.......................... 29
Impact Analysis................................................... 30
Interests of Certain Persons in the Merger........................ 30
Employee Matters.................................................. 32
Stock Appreciation Rights......................................... 32
Conversion of Securities; Procedures for Exchange of
Certificates; Fractional Shares................................. 33
Conditions to the Merger.......................................... 34
Regulatory Approvals Required for the Merger...................... 35
Conduct of Business Pending the Merger............................ 36
Waiver and Amendment; Termination................................. 38
Resales of North Fork Common Stock Received in the Merger......... 39
Stock Exchange Listing................................... ........ 40
Anticipated Accounting Treatment.................................. 40
Certain Federal Income Tax Consequences........................... 40
Dissenters' Rights................................................ 41
Stock Option Agreement............................................ 43
MANAGEMENT AND OPERATIONS OF THE BANK FOLLOWING THE MERGER................. 47
Board of Directors and Management of the Resulting Bank........... 47
Name and Banking Operations of the Resulting Bank................. 47
i
<PAGE>
Projected Cost Savings and Revenue Enhancements................... 47
Transaction Costs................................................. 48
INFORMATION ABOUT BRANFORD................................................. 48
Description of Business of Branford............................... 48
Description of Property of Branford............................... 66
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Year Ended December 31, 1996........ 67
Management's Discussion and Analysis of Financial Condition
and Results of Operations - Quarter Ended June 30, 1997......... 73
Principal Shareholders............................................ 76
Security Ownership of Management.................................. 76
Legal Proceedings................................................. 78
Independent Accountants........................................... 78
Section 16(a) Compliance.......................................... 78
REGULATORY CONSIDERATIONS APPLICABLE TO NORTH FORK......................... 78
General ......................................................... 78
Payment of Dividends.............................................. 79
Transactions with Affiliates...................................... 79
Holding Company Liability......................................... 79
Prompt Corrective Action.......................................... 80
Capital Adequacy.................................................. 80
Enforcement Powers of the Federal Banking Agencies................ 81
FDIC Insurance Assessments........................................ 81
Control Acquisitions.............................................. 82
Future Legislation................................................ 82
DESCRIPTION OF NORTH FORK CAPITAL STOCK.................................... 83
General ......................................................... 83
Common Stock...................................................... 83
Rights Plan....................................................... 83
COMPARISON OF SHAREHOLDER RIGHTS........................................... 85
Special Meeting of Shareholders................................... 86
Shareholder Action by Written Consent............................. 86
Shareholder Nominations and Proposals for Business................ 86
Certain Business Combinations (Not Involving an
Interested Shareholder)........................................ 87
Business Combinations Involving Interested Shareholders........... 88
Removal of Directors.............................................. 88
Consideration of Other Constituencies............................. 88
Personal Liability of Directors................................... 89
Indemnification of Officers and Directors......................... 89
Rights Plans...................................................... 90
Appraisal Rights.................................................. 90
LEGAL MATTERS.............................................................. 90
EXPERTS .................................................................. 90
SHAREHOLDER PROPOSALS...................................................... 91
ii
<PAGE>
BRANFORD SAVINGS BANK FINANCIAL STATEMENTS.................................. 92
ANNEX - A AGREEMENT AND PLAN OF MERGER.............................. A-1
ANNEX - B STOCK OPTION AGREEMENT.....................................B-1
ANNEX - C OPINION OF OSTROWSKI & COMPANY.............................C-1
ANNEX - D DISSENTERS' RIGHTS PROVISIONS UNDER THE CONNECTICUT
BUSINESS CORPORATION ACT...................................D-1
iii
<PAGE>
AVAILABLE INFORMATION
North Fork and Branford are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"), in the case of North
Fork, and the FDIC, in the case of Branford. The reports, proxy statements and
other information filed by North Fork with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, New York, New York 10048 and Citicorp
Center, 500 West Madison, Suite 1400, Chicago, Illinois 60661. Copies of such
material also can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates or from the Web Site maintained by the Commission at "http://www.sec.gov."
The reports, proxy statements and other information filed by Branford with the
FDIC can be inspected and copied at the public reference facilities maintained
by the FDIC at the FDIC Registration and Disclosure Section, 550 17th Street,
N.W., Room F-643, Washington, D.C. 20429. In addition, material filed by North
Fork can be inspected at the offices of the New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005 and material filed by Branford can be
inspected at the offices of The Nasdaq National Market, 1735 K Street, N.W.,
Washington, D.C. 20006.
North Fork has filed with the Commission a Registration Statement on
Form S-4 (together with any amendments thereof, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the shares of North Fork Common Stock to be issued pursuant to the
Merger Agreement. This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be inspected and copied as set forth above.
Statements contained in this Proxy Statement/Prospectus or in any document
incorporated by reference in this Proxy Statement/Prospectus as to the contents
of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by North Fork (File
No. 1-10458) are incorporated by reference in this Proxy Statement/Prospectus:
1. North Fork's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 (the "1996 North Fork Form 10-K").
2. North Fork's Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1997 and June 30, 1997.
3. North Fork's Current Reports on Form 8-K, dated February
25, 1997, April 10, 1997, April 22, 1997, June 24, 1997 and July 25,
1997.
4. The description of North Fork Common Stock and North Fork
Series A Junior Participating Preferred Stock and Preferred Stock
Purchase Rights set forth in North Fork's Registration Statement filed
by North Fork pursuant to Section 12 of the Exchange Act including any
amendment or report filed for purposes of updating any such
description.
5. The portions of North Fork's Proxy Statement for the Annual
Meeting of Shareholders held on April 22, 1997 that have been
incorporated by reference in the 1996 North Fork Form 10-K.
1
<PAGE>
All documents and reports filed by North Fork (including any documents
or reports of Branford filed as exhibits to any such filing by North Fork)
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Proxy Statement/Prospectus and prior to the date of the Special
Meeting shall be deemed to be incorporated by reference in this Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents or reports. Any statement contained in a document or report
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Proxy Statement/Prospectus to the
extent that a statement contained herein, or in any other subsequently filed
document or report which also is deemed to be incorporated by reference herein,
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates documents by reference
which are not presented herein or delivered herewith. Such documents (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference) are available, without charge, to any person, including any
beneficial owner, to whom this Proxy Statement/Prospectus is delivered, on
written or oral request, in the case of documents relating to North Fork, to
North Fork Bancorporation, Inc., 275 Broad Hollow Road, Melville, New York
11747, Attention: Anthony J. Abate, Secretary, telephone number (516) 844-1004.
In order to ensure timely delivery of the documents, requests should be received
by ______________, 1997.
2
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THIS PROXY STATEMENT/PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF BRANFORD AS WELL AS FORWARD-LOOKING STATEMENTS RELATING TO THE
BUSINESS OF NORTH FORK GENERALLY. THESE STATEMENTS ARE BASED ON THE BELIEFS,
ASSUMPTIONS AND EXPECTATIONS OF THE MANAGEMENTS OF BRANFORD AND NORTH FORK,
RESPECTIVELY. WORDS SUCH AS "EXPECTS," "BELIEVES," "SHOULD," "PLANS," "WILL,"
"ESTIMATES" AND VARIATIONS OF SUCH WORDS AND SIMILAR EXPRESSIONS ARE INTENDED TO
IDENTIFY SUCH FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE NOT GUARANTIES OF
FUTURE CONDITION, PERFORMANCE OR OPERATIONS AND INVOLVE CERTAIN RISKS AND
UNCERTAINTIES THAT ARE DIFFICULT TO QUANTIFY OR, IN SOME CASES, TO IDENTIFY.
THEREFORE, ACTUAL OUTCOMES OR RESULTS MAY DIFFER MATERIALLY FROM WHAT IS
INDICATED OR FORECASTED IN SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, AMONG OTHERS, THE FOLLOWING
POSSIBILITIES: (1) CHANGES IN ECONOMIC OR MARKET CONDITIONS; (2) SIGNIFICANTLY
INCREASED COMPETITION IN THE BANKING AND FINANCIAL SERVICES INDUSTRY; (3)
CHANGES IN THE INTEREST RATE ENVIRONMENT, WITH REDUCTIONS IN BANK MARGINS; AND
(4) CHANGES IN STATE AND FEDERAL REGULATION OF BANKING INSTITUTIONS. PERSONS
READING THIS PROXY STATEMENT/PROSPECTUS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
HEREOF.
3
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. As this summary is necessarily incomplete,
reference is made to, and this summary is qualified in its entirety by, the more
detailed information contained or incorporated by reference in this Proxy
Statement/Prospectus and the Annexes hereto. Shareholders of the Bank are urged
to read this Proxy Statement/Prospectus and the Annexes hereto in their
entirety. Certain capitalized terms that are used but not defined in this
summary are defined elsewhere in this Proxy Statement/Prospectus.
Parties to the Merger
North Fork. North Fork, with its executive headquarters on Long Island,
New York, is a bank holding company organized under the laws of the State of
Delaware in 1980 and registered under the Bank Holding Company Act of 1956, as
amended (the "BHC Act"). North Fork's primary subsidiary, North Fork Bank,
operates 80 retail banking facilities throughout Suffolk and Nassau Counties on
Long Island, New York, as well as in the New York City boroughs of Queens, the
Bronx and Manhattan and in Westchester and Rockland Counties north of New York
City. The proposed merger with Branford represents North Fork's initial
acquisition outside the State of New York.
At June 30, 1997, North Fork had assets of $6.6 billion, deposits of
$4.4 billion and shareholders' equity of $505 million. The principal executive
offices of North Fork are located at 275 Broad Hollow Road, Melville, New York
11747, and its telephone number is (516) 844-1004.
For more information about North Fork, reference is made to "THE
COMPANIES -- North Fork" and to the 1996 North Fork Form 10-K which is
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE."
Branford. Branford Savings Bank (the "Bank" or "Branford"), a
Connecticut-chartered savings bank organized in 1889, is headquartered in
Branford, Connecticut. Deposits at the Bank are FDIC insured. The Bank currently
serves customers in the towns of Branford, North Branford and East Haven and
surrounding communities in New Haven County from its Main Office in Branford,
four branch offices and five Tower Teller ATMs. The Bank will be the resulting
bank in the merger with Merger Bank.
At June 30,1997, the Bank had total assets of $187 million, deposits of
$163 million and shareholders' equity of $17 million. The principal executive
offices of the Bank are located at 45 S. Main Street, Branford, Connecticut
06405, and its telephone number is (203) 481-3471.
Merger Bank. Merger Bank is being organized as a Connecticut-chartered,
interim savings bank under the direction and control of North Fork solely to
facilitate the acquisition by North Fork of 100 percent of the outstanding stock
of Branford pursuant to the Merger. Merger Bank will never open for business,
will be organized with a minimal amount of capital and will have no substantial
assets or liabilities upon consummation of the Merger. In the Merger, Merger
Bank will merge into Branford and the corporate existence of Merger Bank will
cease.
The principal executive offices of Merger Bank will be located at 45 S.
Main Street, Branford, Connecticut 06405, and its telephone number will be (203)
481-3471.
The Special Meeting
The Special Meeting of the Bank's shareholders will be held on [October
31], 1997, at 10:00 a.m., at Woodwinds, 29 School Ground Road, Branford,
Connecticut. At the Special Meeting, the holders of Branford Common Stock will
consider and vote upon: (i) the proposal to approve and adopt the Merger
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Agreement, which is attached as Annex A to this Proxy Statement/Prospectus, and
the consummation of the transactions contemplated thereby and (ii) such other
business as may properly come before the Branford Meeting, or any adjournments
or postponements thereof including, without limitation, a motion to adjourn the
Branford Meeting to another time and/or place for the purpose of soliciting
additional proxies in order to approve the Merger Agreement and the transactions
provided for therein or otherwise.
Only holders of record of Branford Common Stock at the close of
business on [September 23, 1997] (the "Record Date") will be entitled to vote at
the Special Meeting. The approval and adoption of the Merger Agreement by
shareholders of the Bank will require the affirmative vote of the holders of at
least two-thirds of the issued and outstanding shares of Branford Voting Common
Stock, voting as a class, and the affirmative vote of the holders of at least
two-thirds of the issued and outstanding shares of Branford Non-voting Common
Stock, voting as a class.
As of the Record Date, the directors and executive officers of Branford
beneficially owned an aggregate of 364,722 shares of Branford Voting Common
Stock (or approximately 7.04% of such class outstanding), and held voting power
with respect to 100% of the outstanding shares of Branford Non-voting Common
Stock. The directors and executive officers of Branford have indicated a present
intention to vote such shares in favor of the Merger Agreement. See "THE SPECIAL
MEETING."
As of the Record Date, Moses Marx, as a certain affiliate of Branford,
beneficially owned 1,252,800 shares of Branford Voting Common Stock (or
approximately 24.19% of such class outstanding). On July 24, 1997, Mr. Marx
entered into a limited shareholder agreement with North Fork in which Mr. Marx
agreed to vote all of his shares of Branford Voting Common Stock in favor of the
Merger Agreement.
As of the Record Date, neither North Fork (including its subsidiaries)
nor any of the directors and executive officers of North Fork beneficially owned
any shares of Branford Common Stock. See "THE SPECIAL MEETING."
Effects of the Merger
Pursuant to the Merger Agreement, at the Effective Time (as defined
below), (i) Merger Bank will merge with and into the Bank, which will continue
doing business thereafter as a wholly-owned subsidiary of North Fork (the Bank
after the Merger being sometimes referred to herein as the "Resulting Bank"),
and (ii) Bank shareholders will become shareholders of North Fork. See "THE
MERGER -- Effects of the Merger."
Exchange Ratio
At the Effective Time, each issued and outstanding share of Branford
Common Stock, except for (i) certain shares held directly or indirectly by the
parties to the Merger Agreement or their subsidiaries and (ii) shares as to
which the holders thereof shall have exercised dissenter's rights, will be
converted into and become exchangeable for a number (the "Exchange Ratio") of
shares of North Fork Common Stock equal to the quotient obtained by dividing (x)
$5.25 by (y) the average of the closing sales prices of North Fork Common Stock
on the NYSE over a pricing period consisting of the 20 consecutive trading days
immediately preceding the date on which the last required bank regulatory
approval of the Merger is received, excluding required post-approval waiting
periods (the "Average North Fork Price"), provided, however, (A) if the Average
North Fork Price is greater than $26.83, the Exchange Ratio will remain fixed at
0.1957 and Bank shareholders will receive North Fork Common Stock having a
market value (based on the Average North Fork Price) exceeding $5.25 for each
share of Branford Common Stock held by them, or (B) if the Average North Fork
Price is less than $19.83, the Exchange Ratio will remain fixed at 0.2648 and
Bank shareholders will receive North Fork Common Stock having a market value
(based on the Average North Fork Price) less than $5.25 for each share of
Branford Common Stock held by them, unless North Fork elects to waive this fixed
exchange ratio of 0.2648 and allow the Exchange Ratio to continue to be
determined in accordance with the second preceding sentence (and if North Fork
5
<PAGE>
fails to make such a waiver, the Bank may terminate the Merger Agreement). See
"THE MERGER -- Exchange Ratio" and " -- Waiver and Amendment; Termination."
Effective Time
The Merger will become effective (the "Effective Time") at [11:59 p.m.]
on the Closing Date. The Closing Date will be the first day which is (i) the
last business day of a month and (ii) at least two business days after the
satisfaction or waiver of the latest to occur of those conditions to the Merger
specified in the Merger Agreement, unless another date is agreed to by North
Fork and the Bank. See "THE MERGER -- Effective Time."
Background of the Merger
For a discussion of the background of the Merger, see "THE MERGER --
Background of the Merger."
Recommendation of Branford's Board of Directors; Reasons for the Merger
- - Branford
The Branford Board of Directors (the "Branford Board") approved the
Merger Agreement and determined that the Merger is fair to, and in the best
interests of, Branford and its shareholders. The Branford Board therefore
recommends that holders of Branford Common Stock vote to approve and adopt the
Merger Agreement and the transactions contemplated thereby. The Branford Board
believes that the Merger will enable holders of Branford Common Stock to realize
increased value due to the premium over market price, net income per share of
Branford Common Stock and book value per share of Branford Common Stock, as
provided by the Exchange Ratio. For a more complete discussion of the factors
considered by the Branford Board in approving the Merger Agreement, see "THE
MERGER - Recommendation of Branford's Board of Directors and Reasons for the
Merger."
Reasons for the Merger - North Fork
The Board of Directors of North Fork (the "North Fork Board")
unanimously approved the Merger Agreement as being in the best interests of
North Fork and its shareholders. The North Fork Board believes that the Merger
will permit North Fork to achieve a foothold in the New England market through
the acquisition of an established banking organization, and ultimately will
enhance the ability of North Fork to compete in a broader geographic market. See
"THE MERGER -- Reasons for the Merger -- North Fork."
Opinion of Financial Advisor
Ostrowski & Company, Inc. ("O&Co.") has rendered a written opinion to
the Branford Board, dated as of the date of this Proxy Statement/Prospectus, to
the effect that, as of such date, the Exchange Ratio was fair, from a financial
point of view, to the holders of Branford Common Stock. As discussed in "THE
MERGER -- Recommendation of Branford's Board of Directors and Reasons for the
Merger," O&Co.'s opinion and presentation to the Branford Board, together with a
review by the Branford Board of the assumptions used by O&Co., were among the
factors considered by the Branford Board in reaching its determination to
approve the Merger Agreement. The opinion of O&Co. is attached as Annex C to
this Proxy Statement/Prospectus. Shareholders are urged to read such opinion in
its entirety for a description of the procedures followed, assumptions made,
matters considered and qualifications on the review undertaken by O&Co. in
connection therewith. See "THE MERGER - Opinion of Branford's Financial
Advisor."
Interests of Certain Persons in the Merger
Certain members of Branford's management and its Board of Directors
have interests in the Merger in addition to their interests as shareholders of
the Bank generally. These include, among other things, provisions in the Merger
Agreement relating to indemnification; the continuation of certain employment
and severance plans and arrangements applicable to certain management persons;
6
<PAGE>
monetary payments to be received by certain Branford officers, including Mr.
Mariano, at the Effective Time pursuant to change-in-control provisions in their
current employment agreements; the continuation of Mr. Mariano and two other
current members of the Branford Board as directors of the Resulting Bank after
the Merger; the agreement of North Fork to offer a new employment agreement to
Mr. Mariano with the Resulting Bank after the Merger; and the creation of an
advisory committee for the Resulting Bank after the Merger consisting of those
current Bank directors who do not continue as directors of the Resulting Bank.
The Branford Board was aware of these interests and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby. See "THE MERGER -- Interests of Certain Persons in the Merger."
Conditions; Regulatory Approvals
Consummation of the Merger is subject to various conditions, including,
among others, approval of the Merger by shareholders of the Bank, receipt of
necessary regulatory approvals, receipt of opinions of counsel regarding certain
federal income tax consequences of the Merger and certain other matters, and the
satisfaction of other customary closing conditions. See "THE MERGER --
Conditions to the Merger."
Consummation of the Merger and the transactions contemplated thereby
are subject to the prior approval of the Connecticut Banking Commissioner, the
Federal Reserve Board and the FDIC. See "THE MERGER -- Regulatory Approvals
Required for the Merger."
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the
Effective Time by the mutual consent of North Fork and Branford and by either of
them individually under certain specified circumstances, including if the Merger
has not been consummated by March 31, 1998. In addition, the Merger Agreement
provides that Branford may elect to terminate the Merger Agreement if the
Average North Fork Price over the pricing period is less than $19.83, unless
North Fork waives the fixed exchange ratio that would otherwise apply at or
below that price threshold. See "THE MERGER -- Exchange Ratio" and "-- Waiver
and Amendment; Termination."
Stock Exchange Listing
North Fork Common Stock is listed under the symbol NFB on the NYSE.
North Fork has agreed to use reasonable efforts to cause the shares of North
Fork Common Stock issuable in the Merger to be approved for listing on the NYSE.
See "THE MERGER -- Stock Exchange Listing." The obligation of each of Branford
and North Fork to consummate the Merger is subject to approval for listing by
the NYSE of such shares. See "THE MERGER - Conditions to the Merger."
Anticipated Accounting Treatment
It is intended that the Merger will be accounted for by the purchase
method of accounting under generally accepted accounting principles. See "THE
MERGER -- Anticipated Accounting Treatment."
Certain Federal Income Tax Consequences
It is a condition to the obligation of North Fork to consummate the
Merger that North Fork shall have received an opinion of its counsel, dated as
of the Effective Time, in form and substance reasonably satisfactory to North
Fork, to the effect that the Merger will be treated as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), and that, accordingly, for federal income tax purposes no gain or
loss will be recognized by North Fork, Branford or Merger Bank as a result of
the Merger except to the extent Branford may be required to recognize any income
due to the recapture of its bad debt reserves (which in any event is not
expected to be material). It is a condition to the obligation of Branford to
consummate the Merger that Branford shall have received an opinion of its
counsel, dated as of the Effective Time, in form and substance reasonably
satisfactory to Branford, to the effect that the Merger will be treated as a
7
<PAGE>
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes (i) no gain or loss will be
recognized by Branford as a result of the Merger except to the extent Branford
may be required to recognize any income tax due to the recapture of its bad debt
reserves (which in any event is not expected to be material), no gain or loss
will be recognized by the shareholders of Branford who exchange all of their
Branford Common Stock solely for North Fork Common Stock pursuant to the Merger
(except with respect to cash received in lieu of a fractional share interest in
North Fork Common Stock); and (iii) the aggregate tax basis of North Fork Common
Stock received by shareholders of Branford who exchange all of their Branford
Common Stock solely for North Fork Common Stock pursuant to the Merger will be
the same as the aggregate tax basis of the Branford Common Stock surrendered in
exchange therefor. Each of these conditions is waivable at the option of the
party entitled to receive the requisite opinion. Bank shareholders are urged to
consult their tax advisors concerning the specific tax consequences to them of
the Merger, including the applicability and effect of various state, local and
foreign tax laws. See "THE MERGER -- Certain Federal Income Tax Consequences"
and "Conditions to the Merger."
Dissenters' Rights
Under Connecticut law, holders of Branford Common Stock are entitled to
dissenter's rights of appraisal in connection with the Merger. Shares of
Branford Common Stock that are issued and outstanding immediately prior to the
Effective Time and that are owned by shareholders who have properly dissented
from the Merger pursuant to Section 36a-125(h) and Sections 33-855 to 33-872,
inclusively, of the Connecticut General Statutes (the "CGS") (collectively,
"Dissenting Shares") shall not be converted into the right to receive shares of
North Fork Common Stock, unless and until such shareholders shall have failed to
perfect or shall have effectively withdrawn or lost their right of payment under
the applicable law. If any such shareholder shall fail to perfect or shall have
effectively withdrawn or lost such right of payment, the shares of Branford
Common Stock held by such shareholder shall thereupon be deemed to have been
converted into the right to receive and become exchangeable for shares of North
Fork Common Stock at the Effective Time pursuant to the Merger Agreement. See
"THE MERGER - Dissenters' Rights" and Annex D to this Proxy
Statement/Prospectus, which set forth the steps to be taken by a holder of
Branford Common Stock who wishes to exercise the right to dissent.
Stock Option Agreement
Execution of a certain Stock Option Agreement, dated as of July 24,
1997 (the "Stock Option Agreement"), by and between Branford and North Fork, was
a condition to North Fork's merger proposal. Pursuant to the Stock Option
Agreement, Branford granted North Fork an option (the "Option") to purchase
1,030,792 shares of Branford Voting Common Stock, representing approximately
19.9% of the issued and outstanding shares of Branford Voting Common Stock
without giving effect to the shares issuable upon exercise of the Option, at an
exercise price of $4.75, subject to the terms and conditions set forth therein.
The Option may only be exercised upon the occurrence of certain events (none of
which has occurred) and will terminate if and when the Merger is consummated.
The Stock Option Agreement is attached as Annex B to this Proxy
Statement/Prospectus. See "THE MERGER -- Stock Option Agreement."
The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement. Consequently, certain aspects of the Stock Option Agreement may have
the effect of discouraging persons who might be interested now or at any time
prior to the Effective Time in acquiring all or a significant interest in
Branford from proposing or undertaking such an acquisition, even if such persons
were prepared to pay a higher price per share for Branford Common Stock than the
price per share implicit in the Exchange Ratio payable by North Fork under the
Merger Agreement.
Board of Directors and Management of the Bank following the Merger
Pursuant to the terms of the Merger Agreement, at or immediately after
the Effective Time, North Fork will cause the Board of Directors of the
Resulting Bank to be reduced to seven members. North Fork will appoint four of
the seven directors at that time and will cause Mr. Mariano and any two other
current directors of Branford, as selected by Branford and approved by North
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Fork prior to the Merger, to continue as the other three directors of the
Resulting Bank. The other current directors of Branford who do not continue as
directors of the Resulting Bank will continue for at least two years after the
Effective Time to serve as an advisory committee of the Resulting Bank's Board
of Directors. In addition, it is expected that Mr. Mariano will continue to
serve as President of the Resulting Bank for at least two years after the
Effective Time. See "MANAGEMENT AND OPERATIONS OF THE BANK FOLLOWING THE MERGER
- -- Board of Directors and Management of the Resulting Bank" and "THE MERGER --
Interests of Certain Persons in the Merger."
Projected Cost Savings and Revenue Enhancements
North Fork expects to achieve certain cost savings at the Bank
subsequent to the Merger. These cost savings will arise from reductions in
personnel, utilization of certain services provided by North Fork to its
affiliates at efficient prices, and elimination of the expense associated with
operating the Bank as a publicly held entity. In addition, North Fork expects
that Bank revenues will be enhanced after the Merger, principally as a result of
the greater array of banking products and services that will be offered by the
North Fork organization to Bank customers. Due to the speculative nature of
current estimates of cost savings and revenue enhancement at the Resulting Bank
after the Merger and the relative insignificance of any such amounts in
comparison to the total operating expenses and operating revenues of North Fork
on a consolidated basis, estimates of the actual cost savings and actual revenue
enhancement at the Bank that may be realized after the Merger have not been
included herein. See "MANAGEMENT AND OPERATIONS OF THE BANK FOLLOWING THE MERGER
- - Projected Cost Savings and Revenue Enhancements."
Transaction Costs
Transaction costs of approximately $3.8 million, net of taxes, will be
incurred in connection with the transaction and will be accounted for as part of
the purchase price for financial reporting purposes. These costs include
professional fees, severance and employee related costs, facility and system
conversion costs and credit costs resulting from the Merger. See "MANAGEMENT AND
OPERATIONS OF THE BANK FOLLOWING THE MERGER -- Transaction Costs."
Comparison of Shareholder Rights
At the Effective Time, Branford shareholders automatically will become
shareholders of North Fork and as such, their rights will be governed by the
Delaware General Corporation Law (the "DGCL") and by North Fork's Certificate of
Incorporation and By-laws. The rights of North Fork shareholders differ from the
rights of Branford shareholders with respect to certain important matters,
including, among others, the fact that North Fork maintains a Shareholder Rights
Plan under which certain Rights automatically attach to outstanding shares of
North Fork Common Stock. For a summary of these differences, see "COMPARISON OF
SHAREHOLDER RIGHTS."
9
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SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
The following tables set forth for the periods indicated selected
historical consolidated financial information (unaudited) for each of North Fork
and Branford for five years ended December 31, 1996 and the six month periods
ended June 30, 1997 and 1996. The tables have been derived from, and should be
read in conjunction with, the historical financial statements of North Fork and
Branford, including the related notes thereto incorporated by reference or
included elsewhere in this Proxy Statement/Prospectus. Certain Branford
financial information has been reclassified to conform with North Fork. See
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and "BRANFORD SAVINGS BANK
FINANCIAL STATEMENTS." The financial information for the six month periods ended
June 30, 1997 and 1996 for North Fork and Branford reflect, in the opinions of
the management of North Fork and Branford, all adjustments necessary for a fair
presentation of such information. Results for the interim periods are not
necessarily indicative of the results which may be expected for the entire year
or any other interim period.
10
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<TABLE>
NORTH FORK BANCORPORATION, INC.
SELECTED HISTORICAL FINANCIAL INFORMATION
(Unaudited)
(in thousands, except ratios and per share amounts)
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
---------------------- -----------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Summary of Operations:
Interest Income $ 233,126 $ 194,293 $ 405,307 $ 332,492 $ 295,062 $ 289,045 $ 329,654
Interest Expense 96,836 84,834 174,361 140,399 112,576 117,153 175,937
--------- ------- ------- ------- ------- ------- -------
Net Interest Income 136,290 109,459 230,946 192,093 182,486 171,892 153,717
Provision for Loan Losses 3,000 3,400 6,800 11,825 6,825 26,608 34,612
Non-Interest Income 16,521 14,304 29,245 23,010 21,674 21,868 20,161
Net Securities Gains/(Losses) 2,235 1,506 1,878 6,734 (9,189) 1,321 10,111
Other Real Estate Expense 118 709 753 1,255 4,929 25,246 17,696
Merger & Related Restructure
Charges -- -- 21,613 -- 14,338 -- 1,200
SAIF Recapitalization Charge -- -- 8,350 -- -- -- --
Other Non-Interest Expense 60,627 52,666 112,281 91,565 99,338 117,316 101,605
------ ------ ------- ------ ------ ------- -------
Income Before Income Taxes 91,301 68,494 112,272 117,192 69,541 25,911 28,876
Provision for Income Taxes 35,915 27,936 49,830 49,850 26,502 13,015 14,378
------- ------- ------- ------- ------- ------- -------
Net Income $55,386 $40,558 $62,442 $67,342 $43,039 $12,896 $14,498
======= ======= ======= ======= ======= ======= =======
Weighted Average Common Shares
Outstanding 66,056 65,349 64,278 64,432 62,312 61,126 53,976
Common Shares Outstanding at
Period-End 65,939 63,280 64,892 64,617 60,932 59,584 54,947
Consolidated Per Share Data:
Net Income $0.84 $0.62 $0.97 $1.05 $0.69 $0.21 $0.27
Cash Dividends Declared 0.275 0.200 0.425 0.275 0.175 -- --
Stated Book Value at Period-End 7.65 6.69 7.05 6.59 5.84 5.27 5.15
Tangible Book Value at Period-End $6.46 $5.33 $5.79 $6.16 $5.48 $4.83 $4.46
Consolidated Balance Sheet Data at
Period-End:
Securities $2,881,535 $2,539,353 $2,157,506 $2,235,339 $1,766,235 $1,782,271 $1,454,235
Loans, Net of Unearned Income &
Fees 3,434,064 2,863,445 3,171,525 2,400,282 2,303,920 2,128,808 2,419,107
Allowance for Loan Losses 55,837 55,988 53,894 56,627 61,247 67,670 84,595
Intangible Assets 78,502 85,879 82,073 27,893 22,208 26,239 38,026
Total Assets 6,613,754 5,790,215 5,750,527 4,890,866 4,258,827 4,268,034 4,178,229
Deposits 4,417,531 4,485,274 4,469,510 3,739,720 3,538,768 3,633,619 3,736,054
Federal Funds Purchased &
Securities Sold Under
Agreements to Repurchase 1,465,549 783,739 621,789 642,369 246,875 255,643 50,476
Other Borrowings 35,000 35,000 35,000 35,000 75,000 33,000 53,000
Company-Obligated Mandatorily
Redeemable Capital Securities
of Subsidiary Trust 99,643 -- 99,637 -- -- -- --
Stockholders' Equity $ 504,589 $ 423,219 $ 457,531 $ 426,129 $ 355,921 $ 314,263 $ 282,886
(continued)
11
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Consolidated Average Balance Sheet
Data:
Securities $2,565,528 $2,404,499 $2,386,493 $1,874,624 $1,832,327 $1,675,583 $1,242,146
Loans, Net of Unearned Income &
Fees 3,288,412 2,560,771 2,778,663 2,358,636 2,313,419 2,288,712 2,581,547
Total Assets 6,211,177 5,355,546 5,518,016 4,470,920 4,417,627 4,315,839 4,360,516
Deposits 4,489,489 4,233,959 4,373,570 3,634,149 3,600,686 3,671,336 3,897,054
Federal Funds Purchased &
Securities Sold Under
Agreements to Repurchase 994,705 580,902 610,960 350,393 378,198 220,120 82,791
Other Borrowings 35,000 35,000 38,934 36,397 49,044 36,559 55,190
Stockholders' Equity $ 474,035 $ 429,417 $ 431,376 $ 389,095 $ 338,826 $ 304,108 $ 267,239
Performance Ratios:
Return on Average Total Assets 1.80% 1.52% 1.13% 1.51% 0.97% 0.30% 0.33%
Return on Average Stockholders'
Equity 23.56% 18.99% 14.48% 17.31% 12.70% 4.24% 5.43%
Net Interest Margin 4.80% 4.41% 4.50% 4.56% 4.38% 4.26% 3.74%
Total Stockholders' Equity to
Total Assets (end of period) 7.63% 7.31% 7.96% 8.71% 8.36% 7.36% 6.77%
Capital Ratios:
Tier 1 Capital Ratio 14.04% 12.45% 15.12% 15.64% 14.44% 12.25% 9.59%
Risk Adjusted Capital Ratio 15.29% 13.71% 16.38% 16.90% 15.71% 13.52% 10.85%
Leverage Ratio 8.13% 6.33% 8.61% 8.25% 7.73% 6.56% 5.79%
Asset Quality Ratios:
Allowance for Loan Losses to Net Loans
(end of period) 1.63% 1.96% 1.70% 2.36% 2.66% 3.18% 3.50%
Allowance for Loan Losses to
Non-Performing Loans 251% 184% 265% 151% 109% 89% 46%
Non-Performing Loans to Total
Net Loans 0.65% 1.06% 0.64% 1.56% 2.43% 3.58% 7.55%
Net Charge-Offs to Average
Net Loans 0.06% 0.57% 0.46% 0.72% 0.59% 1.90% 1.02%
Non-Performing Assets to Total
Assets 0.38% 0.68% 0.39% 0.92% 1.62% 2.26% 5.02%
<FN>
(1) North Fork's acquisition of Branford pursuant to the Merger Agreement
will not have a material effect on the consolidated operating results
or financial position of North Fork. Consequently, the pro forma
financial information required by Article 11 of the Commission's
Regulation S-X, 17 CFR 210.11, for material acquisitions has not been
included herein.
(2) On December 31, 1996, North Fork completed a business combination with
North Side Savings Bank ("North Side") by merging North Side with and
into North Fork's subsidiary bank, North Fork Bank. On November 30,
1994, North Fork completed a business combination with Metro Bancshares
Inc. ("Metro") by a direct merger of Metro with and into North Fork.
These mergers have been accounted for as pooling- of-interests
transactions and, accordingly, the consolidated financial results of
North Fork for all reported periods preceding such mergers have been
retroactively restated to include the financial results of North Side
and Metro for such periods. Certain financial information of North Side
and Metro has been reclassified to conform with that of North Fork.
12
<PAGE>
(3) In March 1996, North Fork Bank completed the purchase of the domestic
commercial banking business of Extebank and ten Long Island branches of
First Nationwide Bank. These transactions were accounted for under the
purchase method of accounting and, accordingly, North Fork's
consolidated results of operations reflect activity of the acquired
operations subsequent to the acquisition dates. As a result of these
acquisitions, North Fork added approximately $200 million in net loans
and $920 million in deposit liabilities. The intangible assets created
in the aforementioned transactions aggregated approximately $59
million.
(4) On February 25, 1997, the North Fork Board declared a two-for-one
common stock split. The additional shares were issued on May 15, 1997,
to shareholders of record on April 25, 1997. Accordingly, all per share
data has been retroactively restated.
(5) Net income per share exclusive of the nonrecurring SAIF
Recapitalization Charge and Merger & Related Restructure Charges was
$1.33 for the year ending December 31, 1996. The Return on the Average
Total Assets and the Return on Average Stockholders' Equity for 1996,
as adjusted for the aforementioned charges, would have been 1.55% and
19.85%, respectively.
(6) Cash dividends do not reflect dividends declared by North Side and
Metro prior to their respective merger dates.
(7) North Fork's historical earnings per share for the six months ended
June 30, 1997 and 1996 and for the five years ended December 31, 1996,
were based on weighted average common shares outstanding, as dilution
from potentially dilutive common stock equivalents was less than 3% for
each period.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK
SELECTED HISTORICAL FINANCIAL INFORMATION
(Unaudited)
(in thousands, except ratios and per share amounts)
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
----------------------------------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Summary of Operations:
Interest Income $ 6,977 $ 6,775 $13,697 $13,524 $11,710 $12,480 $16,135
Interest Expense 3,056 3,078 6,149 5,918 5,289 6,664 10,136
------ ------ ------- ------- ------- ------- -------
Net Interest Income 3,921 3,697 7,548 7,606 6,421 5,816 5,999
Provision for Loan Losses 150 375 625 1,200 1,517 801 5,847
Non-Interest Income 280 301 587 641 1,282 1,263 1,267
Net Security Gains/(Losses) -- -- -- -- (27) 37 81
Other Real Estate Expense 90 153 232 402 1,663 3,474 1,173
Other Non-Interest Expense 2,849 2,654 5,418 5,485 5,344 6,313 6,727
------ ------ ------ ------ ------ ------ ------
Income/(Loss) Before Income
Taxes 1,112 816 1,860 1,160 (848) (3,472) (6,400)
Provision for Income Taxes 30 9 19 6 6 64 74
------- ------- ------- ------- ------- ------- -------
Net Income/(Loss) $ 1,082 $ 807 $ 1,841 $ 1,154 ($854) ($3,536) ($6,474)
======= ======= ======= ======= ======== ========= ========
Weighted Average Common Shares
Outstanding 6,858 6,845 6,898 6,772 2,007 1,041 688
Common Shares Outstanding at
Period-End (1) 6,559 6,559 6,559 6,559 6,559 1,047 1,020
Per Share Data: (1)
Earnings/(Loss) $0.16 $0.12 $0.27 $0.17 ($0.43) ($3.40) ($9.41)
Cash Dividends Declared 0.04 -- 0.02 -- -- -- --
Book Value at Period-End 2.64 2.38 2.51 2.26 2.08 3.95 7.10
Balance Sheet Data at Period-End:
Securities $53,104 $36,770 $43,511 $28,311 $16,111 $1,432 $8,309
Loans, Net of Unearned Income &
Fees 122,443 126,670 126,553 129,402 139,142 153,566 177,168
Allowance for Loan Losses 3,742 3,592 3,895 3,628 3,419 3,458 5,201
Total Assets 186,555 178,121 183,511 173,934 170,464 172,818 206,496
Deposits 164,972 158,708 160,969 155,368 153,318 161,311 185,813
Other Borrowings 3,000 3,000 5,000 3,000 3,000 6,825 12,145
Stockholders' Equity $17,313 $15,584 $16,478 $14,799 $13,624 $4,132 $7,240
Average Balance Sheet Data:
Securities $45,014 $31,917 $35,417 $21,607 $5,525 $2,407 $5,943
Loans, Net of Unearned Income &
Fees 125,236 127,683 126,940 133,939 146,022 164,642 193,430
Total Assets 180,673 173,810 175,875 170,965 169,021 188,327 219,609
Deposits 159,802 154,642 155,972 152,938 156,515 170,688 190,331
Other Borrowings 2,799 3,000 3,224 3,000 6,223 10,315 19,499
Stockholders' Equity $ 16,910 $15,196 $15,643 $14,189 $5,474 $6,104 $8,213
(continued)
14
<PAGE>
Performance Ratios:
Return on Average Total Assets 1.20% 0.93% 1.05% 0.68% (0.51%) (1.88%) (2.95%)
Return on Average Stockholders'
Equity 12.80% 10.62% 11.77% 8.13% (15.60%) (57.93%) (78.83%)
Net Interest Margin 4.47% 4.39% 4.40% 4.56% 3.98% 3.32% 2.89%
Total Stockholders' Equity to
Total Assets (end of period) 9.28% 8.75% 8.98% 8.51% 7.99% 2.39% 3.51%
Capital Ratios:
Tier 1 Capital Ratio 16.28% 14.27% 15.00% 13.36% 11.83% 3.13% 4.59%
Risk Adjusted Capital Ratio 17.56% 15.55% 16.28% 14.64% 13.10% 4.39% 5.87%
Leverage Ratio 9.58% 8.87% 9.19% 8.57% 8.07% 2.33% 3.48%
Asset Quality Ratios:
Allowance for Loan Losses to Net Loans
(end of period) 3.06% 2.84% 3.08% 2.80% 2.46% 2.25% 2.94%
Allowance for Loan Losses to
Non-Performing Loans 145% 121% 137% 81% 48% 33% 32%
Non-Performing Loans to Total
Net Loans 2.11% 2.35% 2.24% 3.45% 5.09% 6.78% 9.23%
Net Charge-Offs to Average
Net Loans 0.49% 0.65% 0.28% 0.74% 1.07% 1.55% 4.92%
Non-Performing Assets to Total
Assets 1.42% 2.05% 1.92% 2.92% 4.83% 8.52% 13.05%
<FN>
(1) Share information restated to reflect 10 for 1 reverse stock split effective
in 1994.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
Comparative Per Share Data
(Unaudited)
<CAPTION>
Six Months Year
Ended Ended
June 30, December 31,
1997 1996 1996
------------------------------------ -----
<S> <C> <C> <C>
Net Income per Share (1):
North Fork $0.84 $0.62 $0.97
Branford 0.16 0.12 0.27
North Fork Pro Forma 0.84 0.62 0.98
Branford Pro Forma Equivalent 0.18 0.13 0.21
Cash Dividends Declared Per Share (2):
North Fork 0.275 0.20 0.43
Branford 0.04 -- 0.02
North Fork Pro Forma 0.275 0.20 0.43
Branford Pro Forma Equivalent 0.06 0.04 0.09
Book Value Per Share at Period End (3):
Stated:
North Fork 7.65 6.69 7.05
Branford 2.64 2.38 2.51
North Fork Pro Forma 8.01 7.08 7.42
Branford Pro Forma Equivalent 1.68 1.49 1.56
Tangible:
North Fork 6.46 5.33 5.79
Branford 2.64 2.38 2.51
North Fork Pro Forma 6.50 5.36 5.83
Branford Pro Forma Equivalent 1.36 1.13 1.23
<FN>
(1) North Fork pro forma net income per share data is calculated using
historical income information for North Fork and Branford divided by
the average pro forma shares of the combined entity. The average pro
forma shares of the combined entity have been calculated by combining
North Fork's historical average shares with the historical average
shares of Branford as adjusted by an assumed Exchange Ratio of .21,
which would be the Exchange Ratio if the Average North Fork Price over
the pricing period is $25.00. The Branford pro forma equivalent income
per share amounts are computed by multiplying the North Fork pro forma
amounts by the assumed Exchange Ratio of .21 (see "THE MERGER -
Exchange Ratio").
(2) North Fork pro forma cash dividends per share represent historical cash
dividends declared by North Fork and assumes no changes in cash
dividends declared per share. Branford pro forma equivalent cash
dividends per share represents the North Fork pro forma amounts
multiplied by the assumed Exchange Ratio of .21.
(3) North Fork pro forma stated and tangible book value per share amounts
are based on the historical stockholders' equity of the combined entity
divided by the total pro forma common shares of the combined entity
based on the assumed Exchange Ratio of .21. The Branford pro forma
16
<PAGE>
equivalent stated book value and tangible book value per share amounts
are computed by multiplying the North Fork pro forma amounts by the
assumed Exchange Ratio of .21.
</FN>
</TABLE>
17
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
North Fork Common Stock is listed on the NYSE under the symbol "NFB."
Branford Voting Common Stock is listed and traded principally on The Nasdaq
Stock Market National Market System under the symbol "BSBC." Branford Non-voting
Common Stock is not traded and is held by a single holder of record.
The following table sets forth, for the calendar periods indicated, the
high and low sale prices per share for North Fork Common Stock as reported on
the NYSE, the high and low sale prices per share of Branford Voting Common Stock
as reported on The Nasdaq Stock Market National Market System, and the quarterly
per share cash dividends declared on North Fork Common Stock and Branford Common
Stock (including Branford Non-voting Common Stock) for the periods indicated.
<TABLE>
North Fork Branford Voting
Common Stock(1) Common Stock
<CAPTION>
High Low Dividends High Low Dividends(2)
---- --- --------- ---- --- ------------
1995
<S> <C> <C> <C> <C> <C> <C>
Quarter ended March 31 $ 8.25 $ 6.82 $0.063 $2.63 $2.00 $ --
Quarter ended June 30 9.19 8.00 0.063 2.50 2.00 --
Quarter ended September 30 10.38 8.88 0.075 3.13 2.13 --
Quarter ended December 31 12.63 10.38 0.075 3.25 2.50 --
1996
Quarter ended March 31 $12.94 $11.63 $0.100 $3.25 $2.63 $ --
Quarter ended June 30 13.06 11.44 0.100 3.50 3.00 --
Quarter ended September 30 16.00 13.07 0.100 3.50 2.88 --
Quarter ended December 31 17.94 15.44 0.125 4.25 3.25 0.02
1997
Quarter ended March 31 $21.25 $17.06 $0.125 $4.25 $3.73 $0.02
Quarter ended June 30 23.00 18.13 0.150 4.75 3.63 0.02
Third Quarter (through xx.xx xx.xx xx.xx x.xx x.xx x.xx
September xx, 1997)
<FN>
(1) On February 25, 1997, the North Fork Board declared a two-for-one stock
split on North Fork Common Stock, payable as a dividend of one share of
North Fork Common Stock for each outstanding share of North Fork Common
Stock. The additional shares were issued on May 15, 1997, to
shareholders of record on April 25, 1997. North Fork's high and low
stock prices and dividends for all prior periods have been restated to
reflect the effect of such stock split.
(2) Per share dividends applicable both to Branford Voting Common Stock and
Branford Non-voting Common Stock.
</FN>
</TABLE>
18
<PAGE>
The following table sets forth the closing sales price per share of North Fork
Common Stock and Branford Voting Common Stock and the equivalent per share price
for Branford Voting Common Stock giving effect to the Merger on (i) July 24,
1997, the last business day preceding public announcement of the proposed
Merger, and (ii) ____________, the last practicable trading day prior to the
printing of this Proxy Statement/Prospectus:
<TABLE>
<CAPTION>
Equivalent
North Fork Branford Voting Price Per
Common Stock Common Stock Branford Share(1)
------------ ------------ -----------------
<S> <C> <C> <C>
July 24, 1997......................................... $25.38 $ 5.00 $ 5.25
September xx, 1997.................................... x.xx x.xx x.xx
<FN>
(1) The equivalent price per share of Branford Voting Common Stock was
determined by multiplying the last reported closing sales price of North Fork
Common Stock on each specified date by the Exchange Ratio that would apply if
such closing sales price were also the Average North Fork Price over the 20-day
pricing period in which the Exchange Ratio is to be determined under the Merger
Agreement. The listed closing sales price of North Fork Common Stock for July
24, 1997 of $25.38, if it were the Average North Fork Price, would yield an
Exchange Ratio of .2069; the listed closing sales price of North Fork Common
Stock for _________, 1997 would yield an Exchange Ratio of _________. (See "THE
MERGER - Exchange Ratio.").
</FN>
</TABLE>
Branford and North Fork shareholders are advised to obtain current
market quotations for Branford Voting Common Stock and North Fork Common Stock.
It is expected that the market price of North Fork Common Stock will fluctuate
between the date of this Proxy Statement/Prospectus and the date on which the
Merger is consummated and thereafter. Because the number of shares of North Fork
Common Stock to be received by Branford shareholders in the Merger will be fixed
at the conclusion of the 20-day pricing period, on the basis of the Exchange
Ratio then established, the value of the shares of North Fork Common Stock that
holders of Branford Common Stock would receive in the Merger may increase or
decrease prior to the Effective Time in conjunction with any increases or
decreases in the market price of North Fork Common Stock during that period. No
assurance can be given concerning the market price of North Fork Common Stock
before or after the Effective Time. See "THE MERGER - Exchange Ratio" and "-
Waiver and Amendment; Termination."
19
<PAGE>
THE COMPANIES
North Fork. North Fork, with its executive headquarters located in
Melville, New York, is a bank holding company organized under the laws of the
State of Delaware in 1980 and registered under the BHC Act. North Fork's primary
subsidiary, North Fork Bank, a New York-chartered, FDIC-insured, commercial
bank, operates 80 retail banking facilities throughout Suffolk and Nassau
Counties on Long Island, as well as in the New York City boroughs of Queens, the
Bronx and Manhattan and in Westchester and Rockland Counties north of New York
City.
On December 31, 1996, North Fork Bank acquired North Side Savings Bank
by merger. At closing, North Side had $1.6 billion in total assets, $1.2 billion
in deposits, $124.4 million in capital and operated 17 full-service banking
locations in the New York City boroughs of Bronx, Queens and in Nassau and
Suffolk Counties. North Fork issued approximately 7.5 million shares of North
Fork Common Stock in the transaction, which was accounted for as a
pooling-of-interests.
In March, 1996, North Fork Bank completed its acquisition of the
domestic commercial banking business of Extebank for $47 million in cash. At
closing, Extebank had approximately $388 million in assets, $348 million in
deposits and $30 million in capital. Also during March, 1996, North Fork Bank
consummated the acquisition of ten Long Island branches of First Nationwide
Bank, assuming approximately $572 million in deposits for which it paid a
deposit premium of 6.35%.
In July, 1995, North Fork purchased Great Neck Bancorp, the parent
company of Bank of Great Neck, a Long Island based commercial bank, and
immediately thereafter merged Bank of Great Neck into North Fork Bank. Bank of
Great Neck had net assets of $91 million, including $49.4 million in net loans,
and $90.3 million in deposits.
In November, 1994, North Fork acquired Metro Bancshares Inc., the
parent company of Bayside Federal Savings Bank, with 13 offices in Queens,
Nassau and Suffolk Counties. As part of the acquisition, Bayside Federal was
merged into North Fork Bank. At closing, Bayside Federal had approximately $1.0
billion in assets, $.9 billion in deposits and $83.5 million in capital. The
transaction was accounted for as a pooling-of-interests.
North Fork, through North Fork Bank, provides a variety of banking and
financial services to middle market and small business organizations, local
governmental units, and retail customers throughout its geographic market.
From time to time, North Fork investigates and holds discussions and
negotiations in connection with possible business combination transactions with
other depository institutions. As of the date of this Proxy
Statement/Prospectus, North Fork has not entered into any agreements or
understandings with respect to any significant transactions of the type referred
to above except for the transactions described herein and in documents
incorporated herein by reference. See "AVAILABLE INFORMATION" and "INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE." Any such transaction would be subject to
shareholder approval only if required under applicable law or the rules of the
NYSE.
At June 30, 1997, North Fork had assets of $6.6 billion, deposits of
$4.4 billion and shareholders' equity of $505 million. The principal executive
offices of North Fork are located at 275 Broad Hollow Road, Melville, New York
11747 and its telephone number is (516) 844-1004.
For more information about North Fork, reference is made to the 1996
North Fork Form 10-K which is incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
20
<PAGE>
Branford. Branford, a Connecticut-chartered savings bank organized in
1889, is headquartered in Branford, Connecticut. Deposits at Branford are
insured under the Bank Insurance Fund of the FDIC. Branford currently serves
customers in the towns of Branford, North Branford and East Haven and their
surrounding communities in New Haven County from its Main Office in Branford and
four branch offices. Branford is engaged primarily in the business of attracting
deposits from the general public within its market area and using those funds
and other sources of funds primarily for mortgage loans on residential and
commercial real estate, construction loans to builders and developers, as well
as secured and unsecured consumer and commercial loans. Branford, as a
state-chartered savings bank, is regulated by the Connecticut Banking
Commissioner and by the FDIC. See "INFORMATION ABOUT BRANFORD."
Branford will be the surviving bank in the Merger, and will continue as
a state-chartered savings bank wholly-owned by North Fork. The name of the Bank
may be changed at or after the Effective Time, at the discretion of North Fork,
and the management and types of banking products and services offered by the
Bank will undergo certain changes. See "MANAGEMENT AND OPERATIONS OF THE BANK
FOLLOWING THE MERGER."
THE SPECIAL MEETING
General. This Proxy Statement/Prospectus is being furnished to
shareholders of Branford in connection with the solicitation of proxies by the
Branford Board for use at the special meeting of shareholders of Branford and at
any adjournments or postponements thereof (the "Special Meeting") to be held on
[October 31], 1997, at Woodwinds, 29 School Ground Road, Branford, Connecticut
at 10:00 a.m. local time. At the Special Meeting, the holders of Branford Common
Stock will be asked to: (i) approve and adopt the Agreement and Plan of Merger,
dated as of July 24, 1997, as amended (the "Merger Agreement"), among North Fork
Bancorporation, Inc. ("North Fork"), Merger Bank and Branford and the
consummation of the transactions contemplated thereby, which are more fully
described herein; and (ii) act upon such other matters as may properly be
brought before the Special Meeting and at any adjournments or postponements
thereof. A copy of the Merger Agreement is attached as Annex A hereto.
THE BOARD OF DIRECTORS OF BRANFORD HAS APPROVED THE MERGER AGREEMENT
AND HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST INTERESTS OF,
BRANFORD AND ITS SHAREHOLDERS. THE BOARD THEREFORE RECOMMENDS THAT BRANFORD'S
SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT. SEE "THE MERGER --
BACKGROUND OF THE MERGER" AND "-- RECOMMENDATION OF BRANFORD'S BOARD OF
DIRECTORS AND REASONS FOR THE MERGER."
Record Date; Voting; Solicitation and Revocation of Proxies. The
Branford Board has fixed [September 23], 1997 as the record date (the "Record
Date") for the determination of those shareholders entitled to notice of and to
vote at the Special Meeting. Holders of record of Branford Voting Common Stock
and Branford Non-voting Common Stock at the close of business on the Record Date
will be entitled to notice of and to vote at the Special Meeting. Each of the
Branford Voting Common Stock and the Branford Non-voting Common Stock will be
entitled to vote as a class with respect to the proposal to approve and adopt
the Merger Agreement (the "Merger Proposal"). As of the Record Date, there were
5,179,864 shares of Branford Voting Common Stock outstanding and entitled to
vote which were held by approximately 1,289 holders of record. Each holder of
record of shares of Branford Voting Common Stock on the Record Date is entitled
to cast one vote per share on the Merger Proposal and on any other matter
properly submitted for the vote of Bank shareholders at the Special Meeting. As
of the Record Date, there were 1,379,533 shares of Branford Non-voting Common
Stock outstanding and entitled to vote on certain matters only, all of which
shares were held of record by one shareholder on such date. Each holder of
record of Branford Non-voting Common Stock is entitled to cast one vote per
share on the Merger Proposal but may not be entitled to vote on any other matter
properly submitted for the vote of Bank shareholders at the Special Meeting. The
presence, either in person or by properly executed proxy, of the holders of a
21
<PAGE>
majority of the outstanding shares of each class of Branford Common Stock
entitled to vote at the Special Meeting is necessary to constitute a quorum at
the Special Meeting for such class. Abstentions will be counted as present for
purposes of determining the presence or absence of a quorum at the Special
Meeting.
The approval and adoption of the Merger Agreement by Bank shareholders
will require the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Branford Voting Common Stock, voting as a
class, and the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Branford Non-voting Common Stock, voting as a
class. As described in "THE MERGER - Conditions to the Merger," such shareholder
approval is a condition to consummation of the Merger. In determining whether
the Merger proposal has received the requisite number of affirmative votes,
abstentions and broker non-votes will be counted and will have the same effect
as a vote against the Merger Proposal.
As of the Record Date, directors and executive officers of Branford and
their affiliates beneficially owned 364,722 shares of Branford Voting Common
Stock, or approximately 7.04% of such shares then outstanding, and possessed
voting rights with respect to 1,379,533 shares of Branford Non-voting Common
Stock or 100 percent of such shares then outstanding. Such persons have informed
the Bank that they intend to vote or direct the vote of all such shares of
Branford Common Stock "FOR" the Merger Proposal.
All shares of Branford Common Stock which are entitled to be voted and
are represented at the Special Meeting by properly executed proxies received
prior to or at the meeting, and not revoked, will be voted at such meeting, and
any adjournments or postponements thereof, in accordance with the instructions
indicated on such proxies. If no instructions are indicated, (i) such proxies
will be voted "FOR" the Merger Proposal, and (ii) if the holder of the shares
represented by such proxies possesses voting rights with respect to any other
matter properly brought before the Special Meeting (including, among other
things, a motion to adjourn or postpone the Special Meeting to another time
and/or place, for the purpose of soliciting additional proxies or otherwise),
such proxies will be voted in the discretion of the proxy holders as to such
other matters; provided, however, that no proxy which is voted "AGAINST" the
Merger Proposal will be voted in favor of any such adjournment or postponement.
If any other matters are properly presented at the Special Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent possible under applicable federal
and state securities and banking laws. Branford does not have any knowledge of
any matters to be presented at the Special Meeting other than the matters set
forth above under "-- General."
The presence of a shareholder at the Special Meeting will not
automatically revoke such shareholder's proxy. However, any proxy given by a
Bank shareholder pursuant to this solicitation may be revoked by the person
giving it at any time before it is exercised by (i) delivering to the Secretary
of Branford a written notice of revocation bearing a later date than the proxy,
(ii) delivering to the Secretary of Branford a duly executed proxy bearing a
later date, or (iii) attending the Special Meeting and voting in person. Any
written notice of revocation or subsequently executed proxy should be sent so as
to be delivered to Branford Savings Bank, 45 S. Main Street, Branford,
Connecticut 06405, Attention: Gregory R. Shook, Corporate Secretary, or hand
delivered to Branford's Corporate Secretary at or before the taking of the vote
at the Special Meeting.
If a quorum is not obtained, or if fewer shares of Branford Voting
Common Stock are voted in favor of the proposal for approval of the Merger
Agreement than the number required for approval, it is expected that the Special
Meeting will be adjourned for the purpose of allowing additional time for
obtaining additional proxies. In such event, proxies will be voted to approve an
adjournment, except for proxies as to which instructions have been given to vote
against the Merger Agreement. The holders of a majority of the shares present at
the Special Meeting would be required to approve any adjournment of the Branford
Meeting.
22
<PAGE>
BRANFORD SHAREHOLDERS SHOULD NOT FORWARD ANY BRANFORD COMMON STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED. STOCK
CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A
LETTER OF TRANSMITTAL WHICH WOULD BE SENT TO BRANFORD SHAREHOLDERS BY THE
EXCHANGE AGENT PROMPTLY AFTER THE EFFECTIVE TIME.
THE REQUIRED VOTE OF THE BRANFORD SHAREHOLDERS WITH RESPECT TO THE
MERGER AGREEMENT IS BASED UPON THE TOTAL NUMBER OF OUTSTANDING SHARES OF
BRANFORD COMMON STOCK AND NOT UPON THE NUMBER OF SHARES WHICH ARE ACTUALLY
VOTED. ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN PERSON AT
THE BRANFORD MEETING OR THE ABSTENTION FROM VOTING BY A SHAREHOLDER WILL HAVE
THE SAME EFFECT AS A VOTE "AGAINST" THE MERGER AGREEMENT AND THE MERGER PROVIDED
FOR THEREIN.
The Bank will bear all expenses of this solicitation of proxies from
the holders of Branford Common Stock, except that the cost of preparing and
mailing this Proxy Statement/Prospectus will be borne proportionately by the
Bank and North Fork. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of Branford in person or
by telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation. The Bank
has retained American Stock Transfer and Trust Company, a proxy soliciting firm,
to assist in such solicitation. The fees to be paid to such firm are not
expected to exceed $5,000 plus reasonable out-of-pocket costs and expenses. In
addition, the Bank will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their principals
and will reimburse such parties for their expenses in doing so.
THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement, describes the material aspects of
the Merger but does not purport to be a complete description and is qualified in
its entirety by reference to the Merger Agreement which is incorporated herein
by reference and attached hereto as Annex A. Branford's shareholders are urged
to read carefully the Merger Agreement.
Effects of the Merger
Pursuant to the terms of the Merger Agreement, subject to the
satisfaction or waiver (where permissible) of certain conditions, including,
among other things, the receipt of all necessary regulatory approvals, the
expiration of all waiting periods in respect thereof and the approval of the
Merger Agreement by the requisite vote of the holders of Branford Common Stock,
Merger Bank will be merged with and into the Bank, which will become a
wholly-owned subsidiary of North Fork, and Bank shareholders will become
shareholders of North Fork. The Bank shall be the surviving corporation in the
Merger, and shall continue its corporate existence as a Connecticut
state-chartered savings bank wholly owned by North Fork. Upon consummation of
the Merger, the separate corporate existence of Merger Bank shall terminate.
Each outstanding share of North Fork Common Stock at the Effective Time
will remain outstanding and unchanged as a result of the Merger.
Exchange Ratio
At the Effective Time (as defined below), each issued and outstanding
share of Branford Common Stock, except for (i) shares held directly or
indirectly by Branford or North Fork or their subsidiaries (other than shares
held by them in a fiduciary capacity ("Trust Account Shares") or in respect of a
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debt previously contracted ("DPC Shares")) and (ii) shares of Branford Common
Stock as to which the holder thereof shall have exercised dissenter's rights,
will be converted into and become exchangeable for a number (the "Exchange
Ratio") of shares of North Fork Common Stock equal to the quotient obtained by
dividing (x) $5.25 by (y) the Average North Fork Price, that is, the average of
the closing sales prices of North Fork Common Stock on the NYSE over the 20
consecutive trading days ending on the trading day immediately preceding the
date on which the last required bank regulatory approval of the Merger is
issued, excluding any required waiting period following such approval (the
"Final Regulatory Approval Date"). Notwithstanding the foregoing, (A) if the
Average North Fork Price is greater than $26.83, then the Exchange Ratio shall
remained fixed at 0.1957, and Bank shareholders will receive North Fork Common
Stock having a market value (based on the Average North Fork Price) exceeding
$5.25 for each share of Branford Common Stock held by them at the Effective
Time, or (B) if the Average North Fork Price is less than $19.83, then the
Exchange Ratio shall remain fixed at 0.2648, and Bank shareholders will receive
North Fork Common Stock having a market value (based on the Average North Fork
Price) of less than $5.25 for each share of Branford Common Stock held by them
at the Effective Time, provided, however, that in the latter case North Fork may
at its discretion deliver a written notice to the Bank within 5 trading days of
the Final Regulatory Approval Date that North Fork irrevocably waives the fixed
exchange ratio of 0.2648, in which event the Exchange Ratio will continue to be
determined in accordance with the formula set forth in the first sentence of
this paragraph. If North Fork fails to deliver notice of such waiver, then the
Bank may terminate the Merger Agreement. Each share of North Fork Common Stock
issued in the Merger will include the corresponding number of rights attached
thereto pursuant to North Fork's Rights Agreement (see "DESCRIPTION OF NORTH
FORK CAPITAL STOCK --Rights Plan").
The formula for determining the Exchange Ratio was arrived at through
arm's-length negotiations between Branford and North Fork. If after
determination of the Exchange Ratio North Fork effects a reclassification,
recapitalization, split-up, combination, exchange of shares or readjustment of
or to the North Fork Common Stock or declares a stock dividend on such stock, an
appropriate adjustment to the Exchange Ratio will be made.
It is expected that the market price of North Fork Common Stock will
fluctuate between the date of this Proxy Statement/Prospectus and the date on
which the Merger is consummated and thereafter. Because the number of shares of
North Fork Common Stock to be received by Bank shareholders in the Merger will
be fixed as of the Final Regulatory Approval Date and because market price of
North Fork Common Stock is subject to fluctuation, the value of the shares of
North Fork Common Stock that holders of Branford Common Stock would receive in
the Merger may increase or decrease between the Final Regulatory Approval Date
and the Effective Time. No assurance can be given concerning the market price of
North Fork Common Stock before or after the Effective Time.
No fractional shares of North Fork Common Stock will be issued in
connection with the Merger. In lieu of the issuance of fractional shares, North
Fork will make a cash payment to each Bank shareholder who otherwise would be
entitled to receive a fractional share.
Upon consummation of the Merger, any shares of Branford Common Stock
that were owned by the Bank as treasury stock or that were held directly or
indirectly by North Fork or its subsidiaries (other than Trust Account Shares
and DPC Shares) will be canceled and retired and no payment will be made with
respect thereto.
Branford Warrants
All outstanding and unexercised warrants to purchase shares of Branford
Common Stock, which collectively relate to 700,000 shares of Branford Common
Stock (the "Branford Warrants"), are held by one warrant holder. Under the terms
of the Warrant Purchase Agreement pursuant to which the Branford Warrants were
issued, upon the consummation of a business combination transaction such as the
Merger all outstanding Branford Warrants are automatically to be converted into
warrants to purchase a number of shares of the surviving corporation in the
transaction equal to the product obtained by multiplying (x) the number of
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shares of Branford Common Stock subject to the Branford Warrants immediately
prior to consummation by (y) the exchange ratio applicable to the conversion of
outstanding shares of Branford Common Stock into shares of the surviving
corporation upon consummation.
The Merger Agreement as executed contains a provision whereby the
Branford Warrants will be converted at the Effective Time into warrants to
purchase North Fork Common Stock in accordance with the foregoing formula. The
Merger Agreement also specifies that a holder of Branford Warrants will be able
to elect to receive cash in lieu of the North Fork warrants otherwise receivable
by such holder by sending written notice of such election to North Fork not less
than 5 business days prior to the anticipated date of closing. The holder of all
700,000 outstanding Branford Warrants has made such a cash election. As a
result, the holder will receive at the Effective Time an amount in cash equal to
the difference between "A" and "B", where "A" is equal to the product obtained
by multiplying (x) the number of shares of Branford Voting Common Stock subject
to such holder's Branford Warrants by (y) the Bank Pre-closing Share Value (as
defined below), and where "B" is equal to the aggregate purchase price under
such holder's Branford Warrants. The "Bank Pre-closing Share Value" is equal to
the product obtained by multiplying (i) the average of the closing sales prices
of North Fork Common Stock on the NYSE as reported by The Wall Street Journal
for the 5 trading days ending on the trading day immediately preceding the
Closing Date by (ii) the Exchange Ratio.
Effective Time
The Effective Time of the Merger will be 10:00 a.m. on the Closing
Date. The Closing Date will be the first day which is (i) the last business day
of a month and (ii) at least two business days after the satisfaction or waiver
of the latest to occur of certain conditions to effectiveness of the Merger as
specified in the Merger Agreement, unless another date is agreed to by North
Fork and the Bank. See "- Conditions to the Merger." It is expected that a
period of time will elapse between the Special Meeting and the Effective Time
while the parties seek to obtain all regulatory approvals required to consummate
the Merger. Also, 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. Also, there can be no assurance that the United States Department
of Justice or the Connecticut Attorney General will not challenge the Merger or,
if such a challenge is made, as to the result thereof. See "- Regulatory
Approvals Required for the Merger." The Merger Agreement may be terminated by
either party if, among other reasons, the Merger has not been consummated on or
before March 31, 1998. See "- Waiver and Amendment; Termination."
Background of the Merger
In the Spring of 1996, Branford's management requested the Bank's
financial advisor, O&Co., to prepare a strategic analysis of Branford, including
alternatives to remain an independent bank to affiliate with a potential third
party acquiror. In connection with such process, potential acquirors were
contacted and after considering the results of the contacts, the Branford Board
decided not to take action.
As a result of increased bank merger activity and increased product
value for back stocks, upon instructions from the Executive Committee, the
Bank's management again contacted several potential acquirors of Branford, of
which three indicated an interest in discussing a proposed transaction.
At the regular meeting of the Board of Directors on May 22, 1997, there
was a discussion of the responses from the contacted institutions.
On June 4, 1997, Robert J. Mariano, President and Chief Executive
Officer of Branford and Peter J. Ostrowski, managing director of O&Co. met with
John Adam Kanas, Chairman, President and Chief Executive Officer of North Fork,
at which meeting the participants discussed a potential transaction involving
the respective institutions including potential pricing.
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At a regular Branford Board meeting held on June 26, 1997, Mr. Mariano
reported to the Board on the June 4 meeting with Mr. Kanas and updated the Board
on the status of discussions with the two other financial institutions. At such
meeting the Board determined to proceed with discussions with North Fork.
In the following three weeks, after the signing of a confidentiality
agreement, a number of meetings were held between the representatives of
Branford and North Fork with respect to the terms of a proposed transaction. Due
diligence reviews were arranged off-site from Bank premises. Discussions were
also held between representatives of the Bank and other previously contacted
interested acquirors.
At a special meeting held on July 18, 1997, the Branford Board
considered the status of negotiations with respect to a potential acquisition.
Mr. Mariano reviewed the status of discussions with North Fork and with the
other interested institutions. The consensus of the meeting was that the North
Fork proposal was more attractive than other proposals received. O&Co. presented
a financial review of Branford and of North Fork and Branford separately and
combined. The Board then considered various pricing alternatives and received a
presentation on a proposed draft merger agreement with North Fork. As a result
of their deliberations, the Board authorized the Bank's senior management and
advisors to proceed with discussions towards finalizing an agreement with North
Fork.
At a regular meeting of the Board of Directors held on July 24, 1997,
the Board considered the negotiated proposal from North Fork. O&Co. presented an
updated financial review regarding the proposed transaction. The Bank's legal
counsel reviewed the elements of the proposed contract. After consideration by
the Board of the current and prospective financial status of Branford, the
financial performance of North Fork and the current environment for
acquisitions, the Board voted to approve the execution and delivery of the
Merger Agreement.
Recommendation of Branford's Board of Directors and Reasons for the Merger
The Branford Board has approved the Merger Agreement and the
transactions provided for therein and determined that the Merger is fair to, and
in the best interests of, Branford and its shareholders. The Branford Board
therefore unanimously recommends that holders of Branford Common Stock vote to
approve and adopt the Merger Agreement and the transactions contemplated
therein.
The Branford Board believes that the Merger will enable holders of
Branford Common Stock to realize increased value due to the premium over market
price, net income per share of Branford Common Stock and book value per share of
Branford Common Stock, as provided by the Exchange Ratio. The Branford Board
also believes that the Merger may enable Branford's shareholders to participate
in opportunities for appreciation of North Fork Common Stock. See "- Background
of the Merger" and "- Opinion of Branford's Financial Advisor." In reaching its
decision to approve the Merger Agreement, the Branford Board consulted with its
legal advisor regarding the legal terms of the Merger and the Board's fiduciary
obligations in its consideration of the proposed Merger, and with its financial
advisor regarding the financial aspects and fairness of the proposed Merger, as
well as with management of Branford, and, without assigning any relative or
specific weight, considered the following material factors, many of which are
subjective in nature, both from a short-term and long-term perspective:
(i) The Branford Board's familiarity with, and review of
the Bank's business, financial condition, results of
operations and prospects, including, but not limited
to, its potential growth, development, profitability
and the business risks associated therewith;
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(ii) The current and prospective environment in which
Branford operates, including national and local
economic conditions, the highly competitive
environment for financial institutions generally, the
increased regulatory burden on financial
institutions, and the trend toward consolidation in
the financial services industry;
(iii) The potential for appreciation in market value of
Branford Common Stock on both a short- and long-term
basis, as a stand alone entity, in comparison to the
Exchange Ratio;
(iv) Information derived from publicly available data as
well as other financial data provided by North Fork
and discussions with North Fork management concerning
the business, financial conditions, results of
operations and asset quality of North Fork;
(v) The competitive position and future growth prospects
of North Fork following the Merger;
(vi) The presentations of O&Co. regarding the Merger and
the opinion of O&Co. that as of the date of the
Merger Agreement, the merger consideration was fair,
from a financial point of view, to the holders of
Branford Common Stock (see "--Opinion of Branford's
Financial Advisor");
(vii) The financial terms and other conditions of the
Merger Agreement; and
(viii) The expectation that North Fork will continue to
provide quality services to the communities and
customers served by Branford and North Fork's
capacity, as a larger institution with a larger
capital base, to provide a wider range of services
and enhanced access to credit to such customers and
communities.
Reasons for the Merger - North Fork
In reaching its decision to approve the Merger Agreement, the North
Fork Board was advised by legal counsel regarding the legal aspects of the
transaction, and reviewed with management the key financial components and
fairness of the proposed transaction. Without assigning any relative or specific
weights, the Board and management considered a number of factors, both from a
short-term and a longer term perspective, including the following: (i) North
Fork's business, operations, financial condition, earnings and prospects,
including, but not limited to, its potential growth and development in areas
adjacent to, or more remote from, its current market areas; (ii) the results of
North Fork's in-depth due diligence review of Branford, including its business,
operations, earnings and financial condition on an historical and prospective
basis, and the enhanced opportunities for growth after North Fork's acquisition
of Branford; (iii) a variety of factors affecting and relating to the overall
strategic focus of North Fork including, without limitation, utilization of the
newly-acquired bank to achieve more widespread and innovative marketing of
deposits and other banking products to new target populations; (iv) the current
and prospective economic, competitive and regulatory environment facing
financial institutions generally, and the need to seek new markets and to
explore new modes of delivering products and services; (v) the terms of the
Merger Agreement, the Stock Option Agreement and the other documents executed in
connection with the Merger; (vi) the anticipated revenue enhancement, cost
savings and efficiencies in the operation of the Bank expected to be attained
after the Merger (see "MANAGEMENT AND OPERATIONS OF THE BANK FOLLOWING THE
MERGER Projected Cost Savings and Revenue Enhancements"); and (vii) the
expectation that the Merger would be treated as a tax-free reorganization.
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The North Fork Board believes that the Merger will permit North Fork to
establish a presence in the New England market from which to increase its
deposit taking activities through the acquisition of an established banking
organization, and will enhance its ability to compete in the increasingly
competitive banking and financial services industry.
Opinion of Branford's Financial Advisor
O&Co. was retained by Branford as its financial advisor to provide,
among other services, advice and assistance relating to the evaluation and
execution of mergers and acquisitions pursuant to an engagement letter dated
February 26, 1996 ("O&Co. Engagement Letter"). Branford selected O&Co. on the
basis of its in-depth knowledge of the bank and thrift industry; the
qualifications, experience and reputation of its personnel in the banking and
investment communities; and its experience in the valuation of bank and thrift
institutions and their securities in connection with mergers and acquisitions
and other corporate transactions.
As part of the advisory services described above, the Board of
Directors of Branford requested O&Co.'s opinion as to the fairness, from a
financial point of view, of the terms of the Merger Agreement to the holders of
Branford Common Stock. Pursuant to the terms of the Merger Agreement, each share
of Branford Common Stock will be converted into and become exchangeable for
North Fork Common Stock having a market value of $5.25, with the precise
Exchange Ratio to be determined based on the average reported closing sales
prices of North Fork Common Stock during the twenty consecutive trading-day
period immediately preceding the date on which the last bank regulatory approval
of the Merger is received, excluding post-approval waiting periods and subject
to certain minimum and maximum limits on the Exchange Ratio as follows: 0.1957
shares of North Fork Common Stock if the Average North Fork Price is greater
than $26.83, and 0.2648 shares of North Fork Common Stock if the Average North
Fork Price is less than $19.83, respectively. In the event that the Average
North Fork Price falls below $19.83, North Fork may elect to waive the fixed
Exchange Ratio of 0.2648 and allow the ratio to continue to be determined in
such a manner as to provide a market value of $5.25 to Branford shareholders and
if North Fork fails to make such a waiver, the Bank may terminate the Merger
Agreement. On July 24, 1997, O&Co. delivered its opinion to the Board of
Directors of Branford that, as of such date, the consideration to be received by
the holders of Branford Common Stock was fair from a financial point of view.
THE FULL TEXT OF O&CO.'S FAIRNESS OPINION IS ATTACHED AS ANNEX C TO
THIS PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE. THE
DESCRIPTION OF THE FAIRNESS OPINION SET FORTH HEREIN IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO ANNEX C. HOLDERS OF BRANFORD COMMON STOCK ARE URGED TO
READ THE OPINION IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES FOLLOWED,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND QUALIFICATIONS OF THE REVIEW UNDERTAKEN
BY O&CO. IN CONNECTION THEREWITH. O&CO.'S OPINION IS DIRECTED SOLELY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE TERMS OF THE MERGER AGREEMENT
AND DOES NOT CONSTITUTE ANY RECOMMENDATION TO THE BOARD OF DIRECTORS OF BRANFORD
OR TO THE HOLDERS OF BRANFORD COMMON STOCK WITH RESPECT TO ANY VOTE AT THE
MEETING.
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In connection with providing its opinion, O&Co. examined and relied
upon, among other things, the Merger Agreement, annual reports to shareholders,
proxy statements and related audited financial statements for Branford and North
Fork for the three fiscal years ended December 31, 1994, 1995, and 1996; certain
interim financial reports for Branford and North Fork for the quarters ended
March 31, 1997 and June 30, 1997; certain other financial information for
Branford and North Fork, including pro forma financial statements and
managements' estimates relating to, among other things, earnings, asset quality
and capital. O&Co. conducted discussions with executive management of both
Branford and North Fork concerning historical financial performance and
condition, market area economic conditions, and future business prospects and
financial forecasts. O&Co. reviewed stock market prices and trading activity for
the common shares of Branford and North Fork. O&Co. also reviewed comparable
financial, operating and market data for the banking industry and selected peer
groups; compared the terms of the Merger Agreement with other bank merger and
acquisition transactions; and considered such additional financial and other
information it deemed relevant.
In preparing its opinion, O&Co. relied upon the accuracy, completeness
and fair presentation of all information supplied or otherwise made available to
it by, or on behalf of, Branford and North Fork. O&Co. did not independently
verify such information or undertake an independent evaluation or appraisal of
the assets or liabilities of Branford or North Fork, nor were they furnished any
such evaluations or appraisals. With respect to forecasts of expected future
financial performance, O&Co. was advised that they reflected the best currently
available estimates and judgment of the executive management of Branford and
North Fork. O&Co.'s opinion was necessarily based upon the information available
to it and the market, economic and other conditions as they existed, and could
be evaluated, as of the date of its opinion.
In connection with providing its fairness opinion to the Board of
Directors of Branford, O&Co. performed a variety of financial analyses. The
following is a summary of the material terms of such analyses but does not
purport to be a complete description of O&Co.'s analyses or presentations to the
Branford Board of Directors. The preparation of a fairness opinion is a complex
process involving subjective judgments and does not necessarily lend itself to
partial analyses or summary description. O&Co. believes that its analyses must
be considered as a whole and that selecting portions of such analyses and the
factors considered therein, without considering all factors and analyses, could
create an incomplete view of the analyses and the processes underlying O&Co.'s
opinion.
In performing its analyses, O&Co. made numerous assumptions with
respect to industry performance, business and economic conditions and various
other matters, many of which may be more or less favorable than actual results.
Estimates of values of companies do not purport to be appraisals or necessarily
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reflect the prices at which companies or their securities may actually be sold.
No company or transaction utilized in O&Co.'s analyses was identical to Branford
or North Fork or to the terms of the Merger Agreement. Because such estimates
are inherently subject to uncertainty, O&Co. assumes no responsibility for their
accuracy.
Stock Trading History
O&Co. examined the history of trading prices for Branford Voting Common
Stock and North Fork Common Stock for the period from July 12, 1996 through July
23, 1997. During that time period, Branford Voting Common Stock generally traded
in the $3.00 to $4.75 range. In the early part of the period, through
mid-November 1996, Branford's stock traded at the low end of the range, at
prices at or below $3.50. From mid-November through the early part of June 1997,
Branford Voting Common Stock traded primarily within the $3.50 to $4.50 range.
From mid-June 1997, the stock generally traded between $4.50 and $4.75. On July
23, 1997, Branford Voting Common Stock closed at $4.75. Branford Non-voting
Common Stock and Branford Warrants were issued to a single holder in 1994 and
have never traded.
From July 12, 1996 through July 23, 1997, North Fork Common Stock
traded in the $13.19 to $25.06 range. North Fork's stock price rose steadily
throughout the period. The closing price for North Fork Common Stock on July 23,
1997 was $25.06.
Contribution Analysis
O&Co. prepared a contribution analysis showing the percentage
contributed by Branford to the combined company on a pro forma basis of assets
and deposits at March 31, 1997. This analysis showed that Branford shareholders
would contribute 2.7% of pro forma consolidated assets and 3.4% of pro forma
consolidated deposits. Net income contributions were considered based upon
quarter ended March 31, 1997 results annualized, Branford annualized results
reported on a fully taxable basis, the expected earnings adjustments resulting
from the purchase method of accounting for the acquisition of Branford as well
as the Exchange Ratios previously discussed. It was further assumed the holder
of the Branford Warrants accepts cash for the Warrants. Based on these
assumptions, the acquisition of Branford would contribute 1.35% to consolidated
pro forma earnings. Branford shareholders would receive approximately 1.91%,
2.05% and 2.57% of the pro forma ownership of the combined company assuming
Average North Fork Prices of $26.83, $25.00 and $19.83 and resultant Exchange
Ratios of 0.1957, 0.2100 and 0.2648, respectively.
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Comparable Company Analysis
O&Co. compared the financial condition and operating performance of
Branford with a peer group of 12 NASDAQ and exchanged-listed thrift institutions
headquartered in New England, New York, New Jersey and Pennsylvania with assets
between $150 million and $250 million. Branford reported a return on average
assets of 1.13% and a return on average equity of 12.46%, based on trailing
twelve months earnings as of March 31, 1997, and an equity to assets ratio of
9.52% as of March 31, 1997. Based on trailing twelve months earnings as of March
31, 1997, the peer group reported an average return on average assets of 1.05%;
an average return on average equity of 11.63% and an average equity to assets
ratio of 9.49% as of March 31, 1997. Branford reported a somewhat better
operating performance than the peer group due to the significant positive impact
of its utilization of net operating loss carryforwards to offset income tax
expense. Branford's equity to assets ratio was approximately equal to the peer
group average.
O&Co. compared the trading level of Branford Voting Common Stock with a
peer group of 20 NASDAQ and exchange-listed banks and thrift institutions
headquartered in New England, New York, New Jersey and Pennsylvania with assets
between $150 and $250 million. At July 23, 1997, Branford's Voting Common Stock
price was $4.75, or 16.4 times trailing twelve months earnings per share and
184% of reported March 31, 1997 book value per share, compared to the peer group
average of 16.6 times trailing twelve months earnings and 151% of book value.
The trading level of Branford Voting Common Stock was slightly below the peer
average on an earnings multiple basis, and above the peer average on a book
value basis.
O&Co. compared the financial condition and operating performance of
North Fork with a peer group of nine NASDAQ and exchange-listed banks
headquartered in New England, New York, New Jersey and Pennsylvania with assets
between $3 billion and $10.5 billion. North Fork reported a return on average
assets of 1.23% and a return on average equity of 15.79%, based on March 31,
1997 trailing twelve months earnings per share, and an equity to assets ratio of
7.29% as of March 31, 1997. The peer group had an average return on average
assets of 1.18%; an average return on average equity of 15.28% and an average
equity to assets ratio of 7.93%. North Fork's reported operating performance was
better than the peer group, while its equity to assets ratio was below the peer
average. North Fork's trailing twelve months earnings include the negative
impact of $21.6 million in one-time expenses in 1996 related to a merger and
$8.4 million in SAIF recapitalization charges. For the three months ended March
31, 1997, North Fork's annualized return on average assets was 1.77% and its
annualized return on average equity was 22.09%, both substantially above the
respective peer averages.
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Analysis of Selected Merger Transactions
O&Co. reviewed certain financial data, as of the date of the
announcement, for acquisitions of commercial banks and thrifts in the Northeast
announced between January 1996 and July 1997. O&Co. also reviewed acquisitions
of commercial banks and thrifts in Connecticut between January 1996 and July
1997. O&Co. calculated the average multiple of price to target's earnings for
trailing 12 months, the average percentage of price to book value and the
average premium (price in excess of reported equity) as a percentage of
deposits, on a quarterly basis beginning January 1, 1996 through June 30, 1997.
For transactions announced in the second quarter of 1997, the calculations
resulted in the following averages: (i) price as a multiple to earnings for
Northeast banks of 15.7 times, Northeast thrifts of 8.3 times, and Connecticut
transactions of 11.3 times, compared with the value of the North Fork proposal
of 18.1 times Branford's trailing twelve months earnings; (ii) price as a
percentage of book value for Northeast banks of 194%, Northeast thrifts of 174%,
and Connecticut transactions of 182%, compared with the value of the North Fork
proposal of 208% of Branford's book value; (iii) premium as a percentage of core
deposits for Northeast banks of 10.6%, Northeast thrifts of 11.2%, and
Connecticut transactions of 9.2%, compared with the value of the North Fork
proposal of 12.6% of Branford's deposits.
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Impact Analysis
O&Co. analyzed the changes in the amount of earnings per share and book
value represented by the issuance of 0.1957, 0.2100 and 0.2648 shares of North
Fork Common Stock for each share of Branford Common Stock. The analysis was
based upon reported March 31, 1997 balance sheet data and quarter ended March
31, 1997 annualized reported earnings for Branford, and North Fork's March 31,
1997 balance sheet and March 31, 1997 annualized reported earnings on a pro
forma basis including Branford's annualized results reported on a fully taxable
basis and the estimated earnings adjustments resulting from the purchase method
of accounting for the acquisition of Branford and assuming the holder of
Branford Warrants accepts cash for the Warrants.
Using the exchange ratio of 0.1957, 0.2100 and 0.2648 shares of North
Fork Common Stock for each share of Branford Common Stock, the respective
estimated equivalent 1997 annual earnings per equivalent share of Branford
Common Stock would have been $.30, $.32 and $.41, or 95%, 100% and 129% of
Branford's estimated 1997 earnings per share; the respective book values per
equivalent share of Branford Common Stock as of March 31, 1997, would have been
$1.39, $1.49 and $1.88 or 54%, 58% and 73% of Branford's book value per share as
of the same date; and the respective annual cash dividends for each equivalent
share of Branford Common Stock would have been $.12, $.13 and $.16 per share, or
150%, 163% and 200% of Branford's indicated annual cash dividend of $.08 per
share.
Discounted Cash Flow Analysis.
O&Co. performed an analysis which estimated the future cash flows to
Branford shareholders over a three-year period under various circumstances,
assuming Branford performed in accordance with the earnings forecasts of its
management. To approximate the terminal value of Branford Common Stock at the
end of the three-year period, O&Co. applied price to earnings multiples ranging
from 16.0 times to 22.0 times, which resulted in values that equated to
percentages of book value ranging from 134% to 184%. The terminal values were
then discounted to present values using discount rates ranging from 12.5% to
20.0%, chosen to reflect assumptions regarding rates of return and risk premiums
required by holders or prospective holders of Branford Common Stock. This
analysis indicated a range of present values per share of $2.49 to $4.04.
Remaining Independent Scenario
O&Co. discussed with Branford's management and Board of Directors the
various expenses associated with remaining as an independent company while
achieving acceptable shareholder returns. In order to survive independently in a
highly competitive market, Branford would have to broaden its product and
service offerings to attract and retain customers. This strategy would require a
near-term investment in Branford through the attraction and retention of
additional qualified professionals and a substantial investment in technology.
Moreover, the potential benefit of new products and services is long-term with
no certainty as to the degree of success and Branford's operating performance
could suffer in the short-term with adverse implications to shareholder value.
Pursuant to the O&Co. Engagement Letter, Branford has agreed to pay
O&Co. a fee for its advisory services in connection with the Merger equal to the
sum of $75,000 plus 1.5% of the aggregate value of the consideration received by
Branford shareholders upon consummation of the Merger in excess of $15.0
million, or approximately $431 thousand based upon an estimated aggregate value
of $38.8 million. Branford has agreed to make interim payments to O&Co. during
the pendency of the proposed transaction which will be credited against the
total advisory fee. Branford has made payments totalling $50,000 as of the
mailing of the Proxy Statement/Prospectus. Pursuant to the O&Co. Engagement
Letter, Branford has also agreed to reimburse O&Co. for its reasonable
out-of-pocket expenses, including legal fees, incurred in connection with its
engagement and to indemnify O&Co. and its affiliates and their respective
directors, officers, employees, agents and controlling persons against certain
expenses and liabilities.
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Interests of Certain Persons in the Merger
Certain members of Branford's management and the directors of Branford
may be deemed to have interests in the Merger that are in addition to their
interests as shareholders of the Bank generally. The Branford Board was aware of
these interests and considered them, among other matters, in approving the
Merger Agreement and the transactions contemplated thereby.
Pursuant to the terms of the Merger Agreement, at or immediately after
the Effective Time North Fork will cause the number of directors of the
Resulting Bank to be reduced to seven. North Fork will select four of the seven
directors and will cause Mr. Mariano and any two other current directors of
Branford, as selected by Branford and approved by North Fork (which approval
will not be unreasonably withheld) prior to the Effective Time, to continue as
the other three directors of the Resulting Bank at that time. North Fork shall
cause the three Branford directors continuing on the board of the Resulting Bank
to serve for a period of not less than two years after the Effective Time, if
they so consent. Immediately prior to the Effective Time, Branford will cause
each Branford director who is not continuing as a director of the Resulting Bank
to deliver to North Fork a signed resignation from the Branford Board, which
will become effective at the Effective Time. The Branford directors who do not
continue as directors of the Resulting Bank will be appointed, unless they
decline such appointment, to an advisory committee of the Board of Directors of
the Resulting Bank, to serve as members thereof for a period of not less than
two years after the Effective Time and to receive advisory director fees for
meetings of the advisory committee comparable to the fees received by them as
directors of Branford prior to the Effective Time.
Certain executive officers of Branford, specifically, President and CEO
Robert J. Mariano, Executive Vice President Jeffrey C. Clark, Senior Vice
President Donald S. Beckwith, Senior Vice President and Secretary Gregory R.
Shook, and Senior Vice President and Chief Financial Officer Albert J. Otto, are
currently serving under employment agreements with Branford, which will continue
to be binding agreements of the Resulting Bank after the Merger and which North
Fork also has agreed to honor. These employment agreements contain change-in-
control provisions. Under such provisions, if a change in control of Branford
(as defined in the agreements) occurs and within two years thereafter Branford
or its successor terminates (other than for cause) the officer's employment or
the officer [voluntarily terminates his own employment], the officer is entitled
to receive a lump-sum severance payment. Under Mr. Mariano's agreement, the
severance payment is equal to approximately three times his average base salary
for the five taxable years preceding the year in which the change-in-control
occurs; for each of the other officers, the severance payment is equal to the
officer's last six months' salary before the change-in-control. The Merger will
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qualify as a change-in-control under these employment agreements. It is not
presently known whether the employment of any of these officers with the
Resulting Bank will be voluntarily or involuntarily terminated after the
Effective Time, although as discussed in the following paragraph it is
anticipated that Mr. Mariano will receive the change-in-control severance
payment under his employment agreement, even if he agrees to continue to serve
as President of the Resulting Bank. Based on the current and historical salaries
of the officers serving under such employment agreements and assuming each
becomes entitled to receive the change-in-control severance payment provided
under his employment agreement after the Effective Time, it is estimated that
the officers would be entitled to receive the following severance payments: Mr.
Mariano - [$390,000]; Mr. Clark - [$39,750]; Mr. Beckwith - [$36,150]; Mr. Shook
- - [$37,200]; and Mr. Otto - [$35,000]. The change-in-control severance amount
payable to any such officer under his employment agreement will be reduced,
dollar for dollar, by any amount payable to such officer upon termination of his
employment under Branford's employees severance plan, which also will continue
in effect following the Merger and is discussed more fully below under " -
Employee Matters."
North Fork has offered Mr. Mariano the position of President of the
Resulting Bank after the Merger. In connection therewith, the parties have
negotiated a form of employment agreement which Mr. Mariano may enter into
within 20 business days after the Effective Time. [Mr. Mariano has indicated to
North Fork that he currently anticipates entering into such agreement.] The
proposed employment agreement with Mr. Mariano provides for a two-year term at
an annual base salary equal to the current base salary of Mr. Mariano as
President and Chief Executive Officer of the Bank. Under the terms of the
proposed employment agreement, Mr. Mariano also shall be eligible for annual
bonuses, commencing as of the first fiscal year-end occurring after the
Effective Time unless Mr. Mariano has already received an annual bonus for such
year from the Bank. Any such bonuses shall be determined by the Resulting Bank's
Board in consultation with the senior management of North Fork. The proposed
employment agreement also provides for Mr. Mariano's participation in all of the
employee benefit plans maintained for key employees of the Resulting Bank after
the Effective Time, including any pension, medical insurance or life insurance
plan and all stock option, restricted stock, stock appreciation rights, phantom
stock, stock unit or other stock-based plans. Mr. Mariano's agreement with North
Fork after the Effective Time to accept such an employment agreement and
executive position at the Resulting Bank will not affect his ability to collect
amounts due him under the change-in-control provision of his current employment
agreement with Branford, discussed above, at the Effective Time in the event
that he terminates his existing employment agreement with Branford at that time.
The Merger Agreement also contains standard provisions by which North
Fork indemnifies the directors and officers of Branford in certain respects.
Specifically, the Merger Agreement provides that, in the event of any threatened
or actual claim, action, suit, proceeding or investigation in which any person
who is or has been a director, officer or employee of Branford is, or is
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threatened to be, made a party based in whole or in part on, or pertaining to
(i) the fact that such person was a director, officer or employee of Branford;
or (ii) the Merger Agreement or the transactions contemplated thereby, North
Fork will, subject to the conditions set forth in the Merger Agreement,
indemnify such person to the fullest extent permitted by law against any
liability or expense incurred in connection with any such claim or proceeding.
In addition, prior to the Effective Time, Branford shall obtain directors' and
officers' liability insurance extending for a period of three years following
the Effective Time for the benefit of persons serving as officers and directors
of Branford immediately prior to the Effective Time with respect to acts or
omissions in such capacities occurring prior to the Effective Time, provided
that such policy shall be in amounts and on terms and conditions substantially
similar to the Bank's policy prior to the Merger.
Under the Merger Agreement, all stock appreciation rights relating to
Branford Common Stock that are outstanding and unexercised at the Effective
Time, including any such rights that were not vested immediately prior to the
Effective Time but vest at such time because the Merger constitutes a "change in
control" thereunder, will be converted into cash pursuant to a formula set forth
in the Merger Agreement. Certain executive officers and directors of Branford
currently hold such stock appreciation rights, some of which are not vested on
the date hereof but will likely become vested at the Effective Time due to the
change in control incident to the Merger. Further information regarding such
rights held by the executive officers and directors is set forth in "Stock
Appreciation Rights," below.
Other than as set forth above, no director or executive officer of
Branford has any direct or indirect material interest in the Merger, except
insofar as the ownership of any Branford Common Stock or Branford SAR by such
director or executive officer might be deemed such an interest.
Employee Matters
As soon as practicable after the Effective Time, employees of Branford
will become entitled to participate in the benefit plans maintained by North
Fork for itself and its current subsidiaries on substantially the same terms and
conditions as apply to comparable employees of North Fork and its subsidiaries
and may be granted credit for service with Branford for certain purposes under
certain of such plans. North Fork intends to continue each of the existing
Branford employee benefit plans to which there exists a corresponding North Fork
employee benefit plan until the date on which the inclusion of Branford
employees in North Fork's corresponding plan occurs. In addition, North Fork has
agreed to maintain substantially unchanged, after the Effective Time certain
other employee-related plans or arrangements presently maintained by Branford.
In this regard, for at least two years after the Effective Time, North Fork will
maintain at the Resulting Bank the current employee severance plan of Branford,
under which employees terminated involuntarily (other than for cause) will
receive a lump-sum severance payment equal to two weeks' salary for every full
year of employment with Branford or its successors up to a maximum of fifty-two
weeks salary. Moreover, the employment agreements currently held by certain
Branford officers will continue in effect after the Merger, and North Fork also
has agreed to honor such agreements.
Stock Appreciation Rights
At the Effective Time, each stock appreciation right relating to
Branford Common Stock previously granted by Branford (each a "Branford SAR")
that is outstanding and unexercised immediately prior thereto, whether vested or
non-vested, shall automatically be converted into and become a right to receive
cash in an amount equal to the product of "A" multiplied by "B", where "A" is
equal to the number of shares of Branford Common Stock to which the Branford SAR
relates immediately prior to the Effective Time, and where "B" is equal to the
difference between (x) the Bank Pre-closing Share Value (as defined under
"--Branford Warrants," above), and (y) the exercise price per share of Branford
Common Stock under the Branford SAR.
As of the date hereof, there are 380,000 Branford SARs outstanding. Mr.
Mariano and three other executive officers of Branford hold 180,000 of these
Branford SARs, all of which are currently vested or are expected to vest prior
to the Effective Time in accordance with their normal vesting schedules. The
remaining 200,000 outstanding Branford SARs are held by the eleven current
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directors of Branford other than Mr. Mariano, in amounts ranging from 10,000 to
23,800 Branford SARs per director, depending upon length of service and numbers
of Board meetings attended. The average exercise price for these directors'
Branford SARs is $2.14. None of the Branford SARs held by these directors is
currently vested and few, if any, would be expected to vest prior to the
Effective Time under normal vesting schedules.
Conversion of Securities; Procedures for Exchange of Certificates; Fractional
Shares
As promptly as practicable after the Effective Time, and in no event
more than three business days thereafter, a bank or trust company selected by
North Fork and reasonably satisfactory to Branford, acting in the capacity of
exchange agent (the "Exchange Agent"), will mail to each former holder of record
of Branford Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates previously
representing shares of Branford Common Stock ("Branford Stock Certificates") for
certificates representing shares of North Fork Common Stock ("North Fork Stock
Certificates") and cash in lieu of fractional shares.
HOLDERS OF BRANFORD COMMON STOCK SHOULD NOT SEND IN THEIR BRANFORD
STOCK CERTIFICATES UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND
INSTRUCTIONS FROM THE EXCHANGE AGENT, AND SHOULD NOT RETURN THEIR BRANFORD STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
Upon surrender to the Exchange Agent of one or more Branford Stock
Certificates, together with a properly completed letter of transmittal, there
will be issued and mailed to the shareholder surrendering such items one or more
North Fork Stock Certificates representing the number of shares of North Fork
Common Stock to which such holder is entitled, if any, and, where applicable, a
check for the amount representing any fractional share determined in the manner
described below, without interest. The Branford Stock Certificates so
surrendered will be canceled.
No dividend or other distribution declared after the Effective Time
with respect to North Fork Common Stock will be paid to the holder of any
unsurrendered Branford Stock Certificate until the holder surrenders such
certificate, at which time the holder will be entitled to receive all previously
withheld dividends and distributions, without interest.
After the Effective Time, there will be no transfers on the stock
transfer books of the Bank of shares of Branford Common Stock issued and
outstanding immediately prior to the Effective Time. If Branford Stock
Certificates are presented for transfer after the Effective Time, they will be
canceled and exchanged for North Fork Stock Certificates.
None of the Exchange Agent, North Fork or the Bank, or any other
person, will be liable to any former holder of Branford Common Stock for any
amount properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
If a Branford Stock Certificate has been lost, stolen or destroyed, the
Exchange Agent will issue the consideration properly payable in accordance with
the Merger Agreement upon receipt of appropriate evidence as to such loss, theft
or destruction, appropriate evidence as to the ownership of such certificate by
the claimant, and appropriate and customary indemnification.
No fractional shares of North Fork Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
Branford Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of North Fork Common Stock will
receive, in lieu thereof, cash in an amount equal to such fractional part of a
share of North Fork Common Stock multiplied by the average of the closing sale
prices of North Fork Common Stock on the NYSE as reported in The Wall Street
Journal over the five consecutive trading day period ending on the day prior to
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the Effective Date. No such holder will be entitled to dividends, voting rights
or any other rights as a shareholder in respect of any fractional share which
such holder would otherwise have been entitled to receive.
Conditions to the Merger
The respective obligations of North Fork and the Bank to effect the
Merger are subject to the satisfaction of the following conditions at or prior
to the Effective Time: (i) approval of the Merger Agreement by shareholders of
the Bank; (ii) approval of the Merger Agreement and the transactions
contemplated thereby (including the Merger) by the appropriate governmental
authorities (all such governmental authorities being referred to as the
"Governmental Entities"), and the expiration of any statutory waiting periods in
respect thereof (collectively, the "Requisite Regulatory Approvals") (see "-
Regulatory Approvals Required for the Merger"); (iii) the Registration Statement
of which this Proxy Statement/Prospectus forms a part having become effective
under the Securities Act and no stop order suspending the effectiveness of the
Registration Statement having been issued and no proceedings for that purpose
having been initiated or threatened by the Commission; (iv) receipt of all
necessary state securities laws and "blue sky" permits and other authorizations
required in connection with the issuance of North Fork Common Stock in the
Merger; (v) the shares of North Fork Common Stock issuable to holders of
Branford Common Stock pursuant to the Merger having been authorized for listing
on the NYSE, subject to official notice of issuance; (vi) no order, injunction
or decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") being in effect which prohibits the
consummation of the Merger or any of the other transactions contemplated by the
Merger Agreement; and (vii) no statute, rule, regulation, order, injunction or
decree having been enacted, entered, promulgated or enforced by any Governmental
Entity which prohibits, restricts or makes illegal consummation of the Merger.
The obligations of North Fork to effect the Merger are further subject
to the satisfaction, or waiver by North Fork, of the following conditions: (i)
(x) certain representations and warranties of Branford contained in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent that such representations and
warranties relate to an earlier date) as of the Closing Date as though made on
and as of the Closing Date; (y) the representations and warranties of Branford
contained in the Merger Agreement (including, without limitation, the
representation (the "Branford Material Adverse Change Representation") that
since March 31, 1997 no event has occurred which has caused, or is reasonably
likely to cause, individually or in the aggregate, a Material Adverse Effect (as
defined below) on Branford shall be true and correct as of the date of the
Merger Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as though made on and as of
the Closing Date; provided, however, that for purposes of determining the
satisfaction of the condition described in this clause (i) (y), such
representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, represent a Material Adverse Effect
on Branford; and (ii) Branford shall have duly performed in all material
respects all obligations required to be performed by it under the Merger
Agreement at or prior to the Closing Date; (iii) the consent, approval or waiver
of each person (other than the Governmental Entities) whose consent or approval
shall be required in order to permit the succession by the Resulting Bank
pursuant to the Merger to any obligation, right or interest of Branford under
any loan or credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument to which Branford is a party or is otherwise bound shall
have been obtained, except where the failure to obtain such consents or
approvals would not have a Material Adverse Effect on North Fork; (iv) no
proceeding initiated by a Governmental Entity seeking an Injunction shall be
pending; (v) North Fork shall have received an opinion of its counsel, in form
and substance reasonably satisfactory to North Fork, dated as of the Effective
Time, to the effect that, on the basis of 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 as a reorganization within the
meaning of Section 368 (a) of the Code (see "- Certain Federal Income Tax
Consequences" below); (vi) North Fork shall have received a legal opinion, dated
as of the Effective Time, of Branford's counsel in a form acceptable to North
Fork as set forth in Exhibit E to the Merger Agreement; and (vii) North Fork
shall have received from each Branford Affiliate (as defined below) at least 35
days prior to the Special Meeting a letter in the form set forth as Exhibit D to
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the Merger Agreement (the "Branford Affiliates" to be those persons identified
by Branford as its affiliates for purposes of Rule 145 under the Securities
Act).
The Merger Agreement defines a "Material Adverse Effect," when applied
to a party to the Merger Agreement, as any effect that (i) is material and
adverse to the business, assets, liabilities, results of operations or financial
condition of such party and its subsidiaries taken as whole, or (ii) materially
impairs the ability of such party to consummate the transactions contemplated by
the Merger Agreement; provided, however, that Material Adverse Effect shall not
be deemed to include the impact of (a) changes in laws and regulations or
interpretations thereof that are generally applicable to the banking or savings
industries, (b) changes in generally accepted accounting principles that are
generally applicable to the banking or savings industries, (c) expenses incurred
in connection with the transactions contemplated by the Merger Agreement and (d)
changes attributable to or resulting from changes in general economic
conditions, including changes in the prevailing level of interest rates.
The obligations of Branford to effect the Merger are further subject to
the satisfaction or waiver by Branford of the following conditions: (i) (x)
certain representations and warranties of North Fork contained in the Merger
Agreement shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent that such representations and
warranties relate to an earlier date) as of the Closing Date as though made on
and as of the Effective Time; (y) the representations and warranties of North
Fork contained in the Merger Agreement (including, without limitation, the
representation (the "North Fork Material Adverse Change Representation") that
since March 31, 1997 no event has occurred which has caused, or is reasonably
likely to cause, individually or in the aggregate, a Material Adverse Effect on
North Fork) shall be true and correct in all material respects as of the date of
the Merger Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date; provided, however, that for purposes of determining
the satisfaction of the condition described in this clause (i) (y), such
representations and warranties shall be deemed to be true and correct unless the
failure or failures of such representations and warranties to be so true and
correct, individually or in the aggregate, represent a Material Adverse Effect
on North Fork; (ii) North Fork shall have performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Effective Time; (iii) no proceeding initiated by any Governmental
Entity seeking an Injunction shall be pending; (iv) Branford shall have received
from its counsel an opinion, dated as of the Effective Time, to the effect that
for federal income tax purposes the Merger will be treated as a reorganization
within the meaning of Section 368(a) of the Code and that, accordingly, for
federal income tax purposes (A) no gain or loss will be recognized by Branford
as a result of the Merger; (B) no gain or loss will be recognized by
shareholders of the Bank who exchange all of their Branford Common Stock solely
for North Fork Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in North Fork Common Stock); and
(C) the aggregate tax basis of the North Fork Common Stock received by
shareholders who exchange all of their Branford Common Stock solely for North
Fork Common Stock pursuant to the Merger will be the same as the aggregate tax
basis of Branford Common Stock surrendered in exchange therefor (see "- Certain
Federal Income Tax Consequences" below); and (v) Branford shall have received a
legal opinion, dated as of the Effective Time, of North Fork's counsel in a form
acceptable to Branford as set forth in Exhibit F to the Merger Agreement.
No assurance can be provided as to when, or whether, the regulatory
consents and approvals necessary to consummate the Merger will be obtained or
whether all of the other conditions precedent to the Merger will be satisfied or
waived by the party permitted to do so. See "- Regulatory Approvals Required for
the Merger" below. If the Merger is not effected on or before March 31, 1998,
the Merger Agreement may be terminated by a vote of a majority of the Board of
Directors of either North Fork or Branford unless the failure to effect the
Merger by such date is due to the breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement.
Regulatory Approvals Required for the Merger
Consummation of the Merger and the transactions provided for in the
Merger Agreement is subject to a number of regulatory approvals and consents.
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The acquisition by North Fork of Branford by virtue of the Merger is
subject to the prior approval of the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under Section 3(a) of the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). Consummation of the Merger is
also subject to the prior approval of the FDIC under the Bank Merger Act.
The Federal Reserve Board, in reviewing applications under the BHC Act,
and the FDIC, in reviewing applications under the Bank Merger Act, must each
consider, among other factors, the financial and managerial resources and future
prospects of the institutions involved, and the convenience and needs of the
communities to be served. In addition, neither agency may approve any
transaction that will result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the business
of banking in any part of the United States, or if its effect in any section of
the United States may be substantially to lessen competition or to tend to
create a monopoly, or if it would in any other manner be a restraint of trade,
unless the agency finds that the anticompetitive effects of the transaction are
clearly outweighed by the public interests and the probable effect of the
transaction on meeting the convenience and needs of the communities to be
served. Any transaction approved by the Federal Reserve Board and/or the FDIC
may not be consummated until 30 days after such approval, during which time the
U.S. Department of Justice may challenge such transaction on antitrust grounds
and seek the divestiture of certain assets and liabilities. With the approval of
the respective agency and the U.S. Department of Justice, the waiting period may
be reduced to not less than 15 days.
The acquisition by North Fork of Branford by virtue of the Merger is
also subject to the Connecticut Banking Commissioner's prior approval under
Sections 36a-125 and 36a-411 of the Connecticut Banking Law and non-disapproval
under Section 36a-184 of the Connecticut Banking Law. Generally, in acting on
the parties' applications for approval under these sections, the Connecticut
Banking Commissioner will be required to consider the safety and soundness and
managerial and financial resources of the Resulting Bank and the effect of the
Merger on the convenience and needs of consumers and on competition. The
formation of Merger Bank also will require the approval of the Connecticut
Banking Commissioner pursuant to section 36a-70 of the Connecticut Banking Law.
If the organization of Merger Bank complies with applicable law, the Connecticut
Banking Commissioner will approve it conditioned upon the approval of the
Merger.
Under the Community Reinvestment Act of 1977, as amended (the "CRA"),
and the comparable provisions of the State Banking Law, the banking agencies
also must take into account the record of performance of each of North Fork Bank
and Branford in meeting the credit needs of the assessment area, including low
and moderate income neighborhoods, of each institution. As part of the review
process, the banking agencies frequently receive comments and protests from
community groups and others.
North Fork is not aware of any other regulatory approvals that would be
required for consummation of the Merger, except as described above. Should any
other approvals be required, it is presently contemplated that such approvals
would be sought.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "- Conditions to the Merger" and "- Waiver and Amendment;
Termination." There can be no assurance that any required 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 U.S. Department
of Justice or the Connecticut Attorney General will not challenge the Merger or,
if such a challenge is made, as to the result thereof.
Conduct of Business Pending the Merger
Pursuant to the Merger Agreement, Branford has agreed that until the
Effective Time, except as provided in the Merger Agreement, the Stock Option
Agreement (as defined below) or with the prior consent of North Fork, Branford
will carry on its business in the ordinary course consistent with past practice.
In the Merger Agreement, Branford committed to use its reasonable best efforts
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to (x) preserve its business organization intact, (y) keep available to itself
and North Fork the present services of its employees and (z) preserve for itself
and North Fork the goodwill of its customers and others with whom business
relationships exist.
The Merger Agreement also contains certain restrictions on the conduct
of Branford's business pending consummation of the Merger. In particular, the
Merger Agreement provides that, except as provided in the Merger Agreement or
with the prior written consent of North Fork, Branford may not, among other
things, (i) declare or pay any dividends on, or make other distributions in
respect of, any of its capital stock, other than normal quarterly dividends in
an amount not greater than the most recent quarterly dividend paid in respect of
each share of Branford Common Stock, which dividends shall have the same record
and payment dates as those for dividends on North Fork Common Stock (such that
Bank shareholders shall receive dividends for a given quarter on either Branford
Common Stock or North Fork Common Stock but not both); (ii) (a) split, combine
or reclassify any shares of its capital stock or (b) repurchase, redeem or
otherwise acquire (except for the acquisition of Trust Account Shares and DPC
Shares) any shares of the capital stock of Branford or securities convertible
into or exercisable therefor, (iii) subject to certain exceptions, issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
shares of its capital stock or securities convertible into or exchangeable
therefor, (iv) amend its Certificate of Incorporation, By-laws or other similar
governing documents, (v) make any capital expenditures other than such as are in
the ordinary course of business or are necessary to maintain existing assets in
good repair, and in any event are in an amount of no more than $10,000
individually and $100,000 in the aggregate, (vi) enter into any new line of
business, (vii) subject to certain exceptions, acquire or agree to acquire any
business or entity or otherwise acquire any assets which would be material to
Branford, (viii) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in the Merger
Agreement being or becoming untrue in any material respect, or in any of the
conditions to the Merger not being satisfied, or in a violation of any provision
of the Merger Agreement, except as may be required by applicable law, (ix)
change its methods of accounting in effect at December 31, 1996, subject to
certain exceptions, (x) (a) adopt, amend, renew or terminate (except as may be
required by law) any employee benefit plan or agreement, arrangement, plan or
policy between Branford and any of its current or former directors, officers and
employees, or (b) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
in any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan or agreement as in effect
as of the date of the Merger Agreement (including, without limitation, the
granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares); (xi) take or cause to be
taken any action that would cause the Merger to fail to qualify as a tax-free
reorganization under Section 368(a) of the Code, provided, however that nothing
contained in the Merger Agreement will prevent Branford from taking any action
required by the Stock Option Agreement, (xii) other than in the ordinary course
of business consistent with past practice, dispose or agree to dispose of its
material assets, properties or other rights or agreements, (xiii) other than in
the ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money, or assume, guarantee, endorse or otherwise
become responsible for the obligations of any other entity, (xiv) file any
application to relocate or terminate the operations of any of Branford's banking
offices, (xv) subject to certain exceptions, invest or commit to invest in real
estate or any real estate development project, (xvi) create, renew, amend or
terminate or give notice to do the same to any material contract, agreement or
lease for goods, services or office space to which Branford is a party or by
which it or its property is bound, (xvii) take any action which would cause the
termination or cancellation by the FDIC of insurance in respect of Branford's
deposits, (xviii) (a) without first consulting with North Fork, enter into,
renew or increase any loan or other extension of credit or commit to make any
such loan or other extension of credit, to any person or entity, or modify any
of the material provisions or renew or otherwise extend the maturity date of any
existing loan or other extension of credit or commitment therefore in an amount
in excess of $250,000 or an amount which, when aggregated with any and all
existing loans, other extensions of credit or credit commitments to such person
or entity, would be in excess of $250,000; (b) lend to any person or entity
other than in accordance with the lending policies of Branford as in effect on
the date of the Merger Agreement; or (c) without first consulting with North
Fork, lend to any person or entity if any of the loans or other extensions of
credit by Branford to such person or entity are on Branford's "watch list" or
similar internal report in an amount in excess of $250,000; provided, however,
that nothing in the Merger Agreement shall prohibit Branford from honoring any
contractual obligation in existence on the date of the Merger Agreement, (xix)
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make or commit to any loan or extension of credit to any director or officer of
Branford without giving North Fork five days' notice in advance of Branford's
approval of such loan or extension of credit or commitment relating thereto, or
(xx) agree to do any of the foregoing.
Branford also has agreed in the Merger Agreement that it will not
authorize or permit any of its officers, directors, employees or agents to
directly or indirectly solicit, initiate or encourage any inquiries relating to
the making of any proposal which constitutes a "takeover proposal" (as defined
below), or, except to the extent legally required for the discharge of the
fiduciary duties of the Branford Board, (i) recommend or endorse any takeover
proposal, or (ii) participate in any negotiations or provide third parties with
any non-public information, relating to any such inquiry or proposal. Branford
has agreed to cease and cause to be terminated any takeover activities,
discussions or negotiations previously conducted with any parties other than
North Fork with respect to any of the foregoing. Branford will notify North Fork
immediately if any such inquiries or takeover proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, Branford, and will promptly inform
North Fork in writing of the relevant details with respect to the foregoing. As
used in the Merger Agreement, "takeover proposal" means any tender or exchange
offer, proposal for a merger, consolidation or other business combination
involving Branford or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of,
Branford other than the transactions contemplated or permitted by the Merger
Agreement and the Stock Option Agreement.
Pursuant to the Merger Agreement, North Fork has also agreed that until
the Effective Time, except as provided in the Merger Agreement or with the prior
written consent of Branford, neither North Fork nor any of its subsidiaries will
(i) solely in the case of North Fork, declare, pay or make any extraordinary or
special dividends or distributions in respect of North Fork Common Stock, (ii)
subject to certain exceptions, change its method of accounting in effect at
December 31, 1996, (iii) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in the
Merger Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger not being satisfied, or in a violation of any
provision of the Merger Agreement, except as may be required by applicable law,
(iv) take or cause to be taken any action that would cause the Merger to fail to
qualify as a tax-free reorganization under Section 368(a) of the Code, except
that nothing contained in the Merger Agreement will limit the ability of North
Fork to exercise its rights under the Stock Option Agreement, (v) amend its
Certificate of Incorporation or By-laws or other governing instrument in a
manner which would adversely affect in any manner the terms of the North Fork
Common Stock or the ability of North Fork to consummate the transactions
contemplated by the Merger Agreement, or (vi) agree to do any of the foregoing.
Waiver and Amendment; Termination
Prior to the Effective Time, any provision of the Merger Agreement may
be waived by the party benefitted by the provision or, subject to applicable
law, amended or modified (including the structure of the transaction) by an
agreement in writing approved by the Boards of Directors of North Fork and
Branford provided that, after the vote of the shareholders of Branford, the
Merger Agreement may not be amended, without further approval of such
shareholders, to reduce the amount or change the form of the consideration to be
received by Branford shareholders other than as contemplated by the Merger
Agreement.
The Merger Agreement may be terminated at any time prior to the
Effective Time, either before or after approval of the matters presented in
connection with the Merger by the shareholders of both Branford and North Fork,
as follows: (i) by the mutual consent of North Fork and Branford if the Boards
of Directors of each so determines; (ii) by either North Fork or Branford upon
written notice to the other (a) 30 days after the date on which any request or
application for a regulatory approval required for consummation of the
transactions contemplated by the Merger Agreement is denied or withdrawn at the
request of the Governmental Entity which must grant such approval, unless within
such 30-day period a petition for rehearing or an amended application has been
filed with the applicable Governmental Entity (or unless the failure to obtain
the necessary regulatory approval is due to the failure of the party seeking to
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terminate the Merger Agreement to perform or observe its covenants and
agreements set forth in the Merger Agreement) or (b) if any Governmental Entity
of competent jurisdiction issues a final nonappealable order enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by the Merger Agreement; (iii) by either North Fork or Branford in the event
that the Merger has not been consummated by March 31, 1998, unless the failure
to consummate the Merger is due to a breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement; (iv) by either North Fork or Branford
(provided that the terminating party is not in breach of its obligations in the
Merger Agreement with respect to the meeting of its shareholders to approve the
Merger Agreement) if any approval of the shareholders of Branford required for
consummation of the Merger Agreement shall not have been obtained by reason of
the failure to obtain the required vote at a duly held meeting of such
shareholders; (v) by either North Fork or Branford in the event of a material
breach by the other of any of its representations or warranties contained in the
Merger Agreement which is not cured within 30 days after written notice of such
breach is given to the breaching party or which breach, by its nature, cannot be
cured prior to the Effective Time; (vi) by either North Fork or Branford in the
event of a material breach of any of the covenants or agreements contained in
the Merger Agreement by the other which is not cured within 30 days after
written notice of such breach is given to the breaching party; (vii) by North
Fork if the Branford Board shall have withdrawn, modified or amended in any
respect materially adverse to North Fork its recommendation to the shareholders
of Branford that they approve and adopt the Merger Agreement; (viii) by Branford
at any time during the period extending from the sixth trading day to the tenth
trading day, inclusive, after the Final Regulatory Approval Date, if the Average
North Fork Price over the Pricing Period is less than $19.83 and North Fork
shall not have delivered written notice to Branford within five days after the
Final Regulatory Approval Date that North Fork irrevocably waives the Fixed
Exchange Ratio of 0.2648 such that the Exchange Ratio will continue to be
determined in accordance with the formula set forth in the Merger Agreement (see
"- Exchange Ratio" above).
In the event of the termination of the Merger Agreement by either North
Fork or Branford, neither North Fork nor Branford will have any further
obligations under the Merger Agreement except (i) for certain specified
provisions of the Merger Agreement relating to confidentiality and expenses and
(ii) that no party will be relieved or released from any liabilities or damages
arising out of its willful breach of any provisions of the Merger Agreement.
Notwithstanding the previous sentence, if the Merger Agreement (A) is terminated
by North Fork for failure of the Branford Board to recommend in the
Prospectus/Proxy Statement that Branford shareholders vote to approve the Merger
Agreement or because the Branford Board has withdrawn, modified or amended such
recommendation in any respect materially adverse to North Fork, (B) is
terminated after the occurrence of an Initial Triggering Event or a Subsequent
Triggering Event (as defined in the Stock Option Agreement - see "- Stock Option
Agreement" below) by North Fork because the Merger was not consummated on or
before March 31, 1998, or by either North Fork or Branford because the approval
of the Branford shareholders required for the consummation of the Merger shall
not have been obtained, and an Acquisition Transaction relating to Branford (as
defined in the Stock Option Agreement - see "- Stock Option Agreement" below)
shall have occurred within twelve months after such termination, or (C) is
terminated by either or both parties subsequent to such an Acquisition
Transaction, Branford will promptly pay to North Fork $1 million in cash, as
reimbursement of North Fork's direct and indirect expenses and costs, including,
without limitation, legal, accounting and administrative costs, as well as the
opportunity costs to North Fork of business transactions foregone as a result of
its efforts to effect the Merger.
Resales of North Fork Common Stock Received in the Merger
The shares of North Fork Common Stock to be issued in the Merger will
be registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to (i) any Branford shareholder who may
be deemed to be an "affiliate" of Branford for purposes of Rule 145 under the
Securities Act, and (ii) any shares that may be issued to affiliates of North
Fork. Branford affiliates may not sell their shares of North Fork Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Proxy Statement/Prospectus does not
cover any resales of North Fork Common Stock received in the Merger by persons
who may deemed to be affiliates of Branford. Persons who may be deemed to be
affiliates of Branford generally include individuals or entities that control,
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are controlled by or are under common control with Branford, and may include
certain officers and directors as well as principal shareholders of Branford.
Pursuant to the terms of the Merger Agreement, Branford has agreed to
use its best efforts to cause each of its affiliates (for purposes of Rule 145
of the Securities Act) to deliver to North Fork a written agreement intended to
ensure compliance with the Securities Act.
Stock Exchange Listing
North Fork Common Stock is listed on the NYSE. North Fork has agreed to
use reasonable efforts to cause the shares of North Fork Common Stock to be
issued in the Merger to be approved for listing on the NYSE, subject to official
notice of issuance, prior to or at the Effective Time. The obligations of the
parties to consummate the Merger are subject to approval for listing by the NYSE
of such shares. See "- Conditions to the Merger" above.
Anticipated Accounting Treatment
Upon consummation of the Merger, the transaction will be accounted for
as a purchase, and all of the assets and liabilities of the Bank will be
recorded in North Fork's consolidated financial statements at their estimated
fair value. The amount, if any, by which the purchase price paid by North Fork
to Branford shareholders in the Merger exceeds the fair value of the net assets
acquired by North Fork through the Merger will be recorded as goodwill. North
Fork's consolidated financial statements will include the operations of the
Resulting Bank after the Effective Time.
Certain Federal Income Tax Consequences
The Merger. The following is a discussion of certain federal income tax
consequences of the Merger to North Fork, Branford and holders of Branford
Common Stock. The discussion is based upon the Code, Treasury regulations,
rulings of the Internal Revenue Service (the "IRS" or the "Service"), and
judicial and administrative decisions in effect as of the date hereof, all of
which are subject to change at any time, possibly with retroactive effect. This
discussion assumes that shares of Branford Common Stock are held by the holders
thereof as a "capital asset" within the meaning of Section 1221 of the Code
(i.e., property generally held for investment). In addition, this discussion
does not address all of the tax consequences that may be relevant to a holder of
Branford Common Stock in light of the holder's particular circumstances or to
shareholders subject to special rules, such as foreign persons, financial
institutions, tax-exempt organizations or insurance companies. The opinions of
counsel referred to in this section will be based on facts existing at the
Effective Time, and in rendering such opinions, such counsel will require and
rely upon representations contained herein and in certificates and
representations of North Fork, Branford and certain shareholders of Branford
regarding the satisfaction of certain requirements to a reorganization within
the meaning of Section 368 of the Code (including the absence of any plan or
intention by certain holders of Branford Common Stock to sell, exchange or
otherwise dispose of shares of North Fork Common Stock to be received by such
person upon consummation of the Merger). Unlike a ruling from the IRS, an
opinion of counsel is not binding on the IRS and there can be no assurance that
the IRS will not take a position contrary to one or more of the positions
reflected in such opinions or that such positions will be upheld by the courts
if challenged by the IRS. If Branford does not receive the tax opinion from its
counsel discussed below, or if the material tax consequences described therein
materially differ from those as stated below, Branford will resolicit
shareholders.
HOLDERS OF BRANFORD COMMON STOCK SHOULD CONSULT THEIR OWN TAX ADVISORS
AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL
AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX
LAW.
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It is a condition to the obligation of North Fork to consummate the
Merger that North Fork shall have received an opinion of Gallop, Johnson &
Neuman, L.C., counsel to North Fork, dated as of the Effective Time, in form and
substance reasonably satisfactory to North Fork, to the effect that the Merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly, for federal income tax purposes, no gain or loss
will be recognized by North Fork, Branford or Merger Bank as a result of the
Merger except to the extent Branford may be required to recognize any income due
to the recapture of its bad debt reserves (which in any event is not expected to
be material). It is a condition to the obligation of Branford to consummate the
Merger that Branford shall have received an opinion of Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo, P.C., counsel to Branford, dated as of the Effective
Time, in form and substance reasonably satisfactory to Branford, to the effect
that the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code and that, accordingly, for federal income tax
purposes:
(i) no gain or loss will be recognized by Branford as a result
of the Merger except to the extent Branford may be required to
recognize any income due to the recapture of its bad debt reserves
(which in any event is not expected to be material);
(ii) no gain or loss will be recognized by the shareholders of
Branford who exchange all of their Branford Common Stock solely for
North Fork Common Stock pursuant to the Merger (except with respect to
cash received in lieu of a fractional share interest in North Fork
Common Stock); and
(iii) the aggregate tax basis of the North Fork Common Stock
received by a shareholder of the Bank who exchanges all of his or her
Branford Common Stock solely for North Fork Common Stock pursuant to
the Merger will be the same as the aggregate tax basis of Branford
Common Stock surrendered in exchange therefor.
Based upon the current ruling position of the Service, cash received by
a holder of Branford Common Stock in lieu of a fractional share interest in
North Fork Common Stock will be treated as received in exchange for such
fractional share interest, and gain or loss will be recognized for federal
income tax purposes measured by the difference between the amount of cash
received and the portion of the basis of the share of Branford Common Stock
allocable to such fractional share interest. Such gain or loss should be capital
gain or loss taxable at the maximum rate of 20% (10% for those in a federal tax
bracket of 15% or less) with respect to Branford Common Stock held for more than
18 months and 28% with respect to Branford Common Stock held for more than 1
year but not more than 18 months.
Dissenters' Rights
Holders of shares of Branford Common Stock who follow the procedures
set forth in Sections 33-855 to 33-872 of the Connecticut Business Corporation
Act (the "Connecticut Dissenters' Law") will be entitled to receive payment for
their shares. The following summary of the current provisions of the Connecticut
Dissenters' Law is not intended to be a complete statement of such provisions
and is qualified in its entirety by reference thereto, the full text of which is
set forth as Annex D hereto.
A holder of shares of Branford Common Stock electing to exercise
dissenters' rights (1) must file with Branford, before the taking of the vote on
the Merger Agreement, a written notice of such holder's intent to demand payment
of fair value for such holder's shares if the Merger is consummated, and (2)
must not vote in favor of adoption of the Merger Agreement. Neither a vote
against the Merger Agreement nor a proxy directing such vote nor an abstention
will satisfy the requirement that a written demand for appraisal be delivered to
Branford before the vote on the Merger Agreement. A holder may not dissent as to
less than all of the shares as to which such holder has a right to dissent, that
is, as to less than all of the shares held of record by such holder that such
holder owns beneficially; provided, however, that a record holder may dissent as
to less than all the shares registered in such holder's name only if the holder
dissents with respect to all shares beneficially owned by any one person and
notifies Branford in writing as to the name and address of each such person. A
nominee or fiduciary may not dissent on behalf of any beneficial owner as to
less than all of the shares of such owner held of record by such nominee or
fiduciary.
A beneficial shareholder may assert dissenters' rights as to shares
held on behalf of such holder only if such holder submits to Branford the record
shareholder's written consent to dissent not later than the time the beneficial
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shareholder asserts dissenters' rights, provided such beneficial holder does so
with respect to all shares beneficially owned by such holder or over which such
holder has power to direct the vote.
Within 10 days after the date on which the Merger Agreement is approved
and adopted by the shareholders of Branford, Branford must give a written
dissenters' notice to each holder who has properly filed a written objection and
who did not vote in favor of the Merger Agreement. Such dissenters' notice shall
set forth the procedures that the dissenting shareholders must follow as
prescribed by the Connecticut Dissenters' Law, including the date by which
Branford must receive the payment demand, as described below, which date may not
be fewer than thirty nor more than sixty days after the date on which the
dissenters' notice is delivered to shareholders.
Upon receipt of a dissenters' notice, a shareholder must: (1) demand
payment; (2) certify whether such holder acquired beneficial ownership of the
shares before the date set forth in the dissenters' notice; and (3) deposit such
holder's share certificates in accordance with the terms of the dissenters'
notice. A shareholder who demands payment and deposits such holder's share
certificates will retain all other rights of a Bank shareholder until such
rights are cancelled or modified by the consummation of the Merger. Any
shareholder who fails to demand payment or deposit such holder's share
certificates will not be entitled to payment for such holder's shares.
As soon as the Merger is consummated or upon receipt of a payment
demand, the Resulting Bank shall pay each dissenter who complied with all the
conditions of the Connecticut Dissenters' Law the amount the Resulting Bank
estimates to be the fair value of the relevant shares plus accrued interest. In
addition thereto, the Resulting Bank shall send to dissenting shareholders (1)
the Bank's balance sheet as of the end of the last fiscal year prior to payment,
an income statement for such year, a statement of changes in shareholders'
equity for that year and the latest available interim financial statements; (2)
a statement of the Resulting Bank's estimate of the fair value of the shares;
(3) an explanation of how the interest was calculated; (4) a statement of the
dissenter's right to demand payment; and (5) a copy of the Connecticut
Dissenters' Law.
If the shareholder believes that the payment amount is less than the
fair value of such holder's shares or that the interest thereon was calculated
incorrectly, the shareholder may give written notice to the Resulting Bank of
such holder's own estimate of the fair value and interest thereon and demand
payment of such amount by the Resulting Bank less any amount already received by
the shareholder. If such a demand for payment is unsettled, the Resulting Bank
must commence a proceeding and petition a court of competent jurisdiction to
determine the fair value of the shares and accrued interest thereon. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the issue of fair value. If the court determines that the fair
value of the shares and the interest accrued thereon exceeds the amount paid by
the Resulting Bank, the shareholder will be entitled to a judgment in the amount
of any such difference.
The court in such appraisal proceeding shall determine all the costs of
the proceeding including the reasonable costs and expenses of appraisers
appointed by the court. The court shall assess all such costs against the
Resulting Bank except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment for their shares. The court may also assess the fees and expenses of
counsel and experts for the respective parties, in amounts the court finds
equitable against the Resulting Bank, and in favor of any or all dissenters if
the court finds that the corporation did not substantially comply with the
requirements of the Connecticut Dissenters' Law, or against either the Resulting
Bank or a dissenter in favor of the other party if the court finds that the
party against whom the fees and expenses are assessed acted arbitrarily,
vexatiously or not in good faith.
If any holder who demands payment for his shares of Branford Common
Stock under the Connecticut Dissenters' Law loses such holder's right to
appraisal, the shares of such holder will be converted into a right to receive
the consideration payable under the Merger Agreement to holders of Branford
Common Stock not exercising dissenters' rights. Failure by a shareholder to
comply with the provisions of the Connecticut Dissenters' Law for perfecting
dissenters' rights may result in the loss of such rights.
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All written notices of intent to demand payment of fair value should be
sent or delivered to Gregory R. Shook, Secretary, Branford Savings Bank, 45
South Main Street, Branford, Connecticut 06045. Branford suggests that
shareholders use registered or certified mail, return receipt requested, for
this purpose.
HOLDERS OF SHARES OF BRANFORD COMMON STOCK CONSIDERING DEMANDING THE
PURCHASE OF THEIR SHARES AT FAIR MARKET VALUE SHOULD KEEP IN MIND THAT THE FAIR
VALUE OF THEIR SHARES DETERMINED UNDER SECTIONS 33-855 TO 33-872, INCLUSIVE,
COULD BE MORE, THE SAME, OR LESS THAN THE MERGER CONSIDERATION THEY ARE ENTITLED
TO RECEIVE PURSUANT TO THE MERGER IF THEY DO NOT DEMAND THE PURCHASE OF THEIR
SHARES AT FAIR VALUE.
THE SUMMARY SET FORTH ABOVE DOES NOT PURPORT TO BE A COMPLETE STATEMENT
OF THE PROVISION OF THE CONNECTICUT DISSENTERS' LAW RELATING TO THE RIGHTS OF
DISSENTING SHAREHOLDERS OF SHARES OF BRANFORD COMMON STOCK AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SECTIONS 33-855 THROUGH 33-872, WHICH ARE INCLUDED
AS ANNEX D TO THIS PROXY STATEMENT/PROSPECTUS. HOLDERS OF SHARES OF BRANFORD
COMMON STOCK INTENDING TO DEMAND THE PURCHASE OF THEIR SHARES AT FAIR VALUE ARE
URGED TO REVIEW CAREFULLY ANNEX D AND TO CONSULT WITH LEGAL COUNSEL SO AS TO BE
IN STRICT COMPLIANCE THEREWITH.
Stock Option Agreement
The following is a summary of the material provisions of the Stock
Option Agreement, dated as of July 24, 1997 (the "Stock Option Agreement"), by
and between Branford and North Fork, which is attached hereto as Annex B. The
following summary is qualified in its entirety by reference to the Stock Option
Agreement.
Execution of the Stock Option Agreement was a condition to North Fork's
merger proposal. Pursuant to the Stock Option Agreement, Branford granted to
North Fork an option (the "Option") to purchase up to 1,030,792 shares (the
"Option Shares") of Branford Voting Common Stock (representing approximately
19.9% of the issued and outstanding shares of Branford Voting Common Stock
without giving effect to the shares that may be issued upon exercise of the
Option) at an exercise price of $4.75 per share (the "Exercise Price"), subject
to the terms and conditions set forth therein.
The Stock Option Agreement provides that North Fork may exercise the
Option, in whole or in part, subject to regulatory approval, if both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below); provided that North Fork shall have sent
to Branford written notice of such exercise within 90 days following such
Subsequent Triggering Event. The terms Initial Triggering Event and Subsequent
Triggering Event generally relate to an acquisition by one or more third parties
of a significant interest in or control over Branford, or attempts to acquire
such an interest or control. Any exercise of the Option will be deemed to occur
on the date written notice of exercise is sent by North Fork.
For purposes of the Stock Option Agreement:
(a) The term "Initial Triggering Event" means the occurrence
of any of the following events or transactions after July 24, 1997: (i)
Branford, without North Fork's prior written consent, shall have
entered into an agreement to engage in, or the Branford Board shall
have authorized, recommended or proposed (or publicly announced its
intention to authorize, recommend or propose) an Acquisition
Transaction (as defined below) with any person or group (other than as
contemplated by the Merger Agreement); (ii) any person, other than
North Fork or any subsidiary of North Fork, shall have acquired
beneficial ownership, or the right to acquire beneficial ownership, of
10% of more of the outstanding shares of Branford Voting Common Stock
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or any person other than North Fork or any subsidiary of North Fork
shall have commenced (as such term is defined under the rules and
regulations of FDIC), or shall have filed or publicly disseminated a
registration statement or similar disclosure statement with respect to,
a tender offer or exchange offer to purchase any shares of Branford
Voting Common Stock such that, upon consummation of such offer, such
person would own or control 10% or more of the then outstanding shares
of Branford Voting Common Stock (such an offer being referred to herein
as a "Tender Offer" or an "Exchange Offer," respectively); (iii) (A)
the holders of Branford Common Stock shall not approve the Merger
Agreement and the transactions contemplated thereby at the meeting of
such shareholders held for the purpose of voting on such agreement, (B)
such meeting shall not have been held or shall have been cancelled
prior to termination of the Merger Agreement, or (C) the Branford Board
shall have publicly withdrawn or modified, or publicly announced its
intention to withdraw or modify, in any manner adverse to North Fork,
its recommendation that the shareholders of Branford approve the
transactions contemplated by the Merger Agreement, in each case after
it shall have been publicly announced that any person other than North
Fork or any subsidiary of North Fork shall have (x) made, or disclosed
an intention to make, a proposal to engage in an Acquisition
Transaction, (y) commenced a Tender Offer, or filed or publicly
disseminated a registration statement or similar disclosure statement
with respect to an Exchange Offer, or (z) filed an application (or
given a notice), whether in draft or final form, under any federal or
state banking laws seeking regulatory approval to engage in an
Acquisition Transaction; or (iv) Branford shall have breached any
covenant or obligation contained in the Merger Agreement and such
breach would entitle North Fork to terminate the Merger Agreement in
accordance with the terms thereof (without regard to any cure periods
provided for in the Merger Agreement unless such cure is promptly
effected without jeopardizing the consummation of the Merger in
accordance with the terms of the Merger Agreement) after (A) a bona
fide proposal is made by any person other than North Fork or any
subsidiary of North Fork to Branford or its shareholders to engage in
an Acquisition Transaction, (B) any person other than North Fork or any
subsidiary of North Fork discloses to Branford or its shareholders or
publicly discloses its intention to make a proposal to engage in an
Acquisition Transaction if the Merger Agreement terminates, or (C) any
person other than North Fork or any subsidiary of North Fork shall have
filed an application or notice, whether in draft or final form, with
any Governmental Entity to engage in an Acquisition Transaction;
(b) The term "Acquisition Transaction" means (w) a merger or
consolidation, or any similar transaction, involving Branford, (x) a
purchase, lease or other acquisition of 10% or more of the assets of
Branford, or (y) a purchase or other acquisition (including by way of
merger, consolidation, Tender Offer or Exchange Offer (as such terms
are hereinafter defined), share exchange or otherwise) of securities
representing 10% or more of the voting power of Branford; and
(c) The term "Subsequent Triggering Event" means the
occurrence of either of the following events or transactions after July
24, 1997: (i) the acquisition by any person of beneficial ownership of
25% or more of the then outstanding shares of Branford Voting Common
Stock; or (ii) the occurrence of the Initial Triggering Event described
above in clause (a) (i), except that the percentage referred to in
subclause (y) of the definition of "Acquisition Transaction" set forth
above shall be 25%.
The Option will expire upon the occurrence of an "Exercise Termination
Event," defined as: (i) the Effective Time of the Merger, (ii) termination of
the Merger Agreement by mutual consent of Branford and North Fork by written
instrument, or by either party upon written notice to the other party that a
Requisite Regulatory Approval was denied or withdrawn; or (iii) termination of
the Merger Agreement other than as provided in clause (ii) above (an "Other
Termination") if such Other Termination occurs prior to the occurrence of an
Initial Triggering Event; or (iv) twelve months after any Other Termination of
the Merger Agreement if such termination occurs after the occurrence of an
Initial Triggering Event.
The closing of a purchase of shares pursuant to the Stock Option
Agreement is subject to the obtaining of all necessary governmental approvals
including, without limitation, any approvals required under the BHC Act,
provided, however, that if the Option cannot be exercised because of an
48
<PAGE>
injunction, order or similar restraint issued by a court of competent
jurisdiction, the Option shall expire no earlier than on the 10th business day
after such injunction, order or restraint shall have been dissolved or shall
have become permanent and no longer subject to appeal, as the case may be.
As of the date of this Proxy Statement/Prospectus, to the best
knowledge of North Fork and Branford, no Initial Triggering Event or Subsequent
Triggering Event has occurred.
The number and type of securities subject to the Option and the
purchase price of shares will be adjusted for (i) any change in Branford Voting
Common Stock by reason of a stock dividend, stock split, split-up,
recapitalization, combination, exchange of shares or similar transaction or (ii)
the effect of any of the rights or similar securities that may be issued
pursuant to any shareholder rights, poison pill or similar plan of Branford
becoming exercisable, such that North Fork will receive (upon exercise of the
Option) the same number and type of securities as if the Option had been
exercised immediately prior to the occurrence of such event (or the record date
therefor). The number of shares of Branford Voting Common Stock subject to the
Option will also be adjusted in the event Branford issues additional shares of
Branford Voting Common Stock such that the number of shares of Branford Voting
Common Stock subject to the Option, together with shares previously purchased
pursuant thereto, represents 19.9% of the Branford Voting Common Stock then
issued and outstanding, without giving effect to shares subject to or issuable
pursuant to the Option. In no event will the number of Option Shares for which
the Option is exercisable exceed 19.9% of the Branford Voting Common Stock then
issued and outstanding, without giving effect to the shares subject to or
issuable pursuant to the Option.
In the event Branford enters into any agreement (i) to merge into or
consolidate with any person other than North Fork or one of its subsidiaries
such that Branford is not the surviving corporation, (ii) to permit any person,
other than North Fork or one of its subsidiaries, to merge into Branford and
Branford is the surviving corporation, but, in connection with such merger, the
then outstanding shares of Branford Voting Common Stock are changed into or
exchanged for stock or other securities of Branford or any other person or cash
or any other property or the outstanding shares of Branford Voting Common Stock
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 North Fork or one of its subsidiaries, then, and in each such case, the
agreement governing the transaction must provide that, upon consummation of the
transaction, the Option will be converted into or exchanged for an option to
purchase securities of either the acquiring person, any person that controls the
acquiring person or Branford (if Branford is the surviving entity), in all cases
at the election of North Fork.
North Fork has the right to require Branford to repurchase (i) the
Option and (ii) any Option Shares acquired pursuant to exercise of the Option of
which North Fork has beneficial ownership, upon the occurrence of any of the
following circumstances (each a "Repurchase Event"):
(a) the acquisition by any person or group (other than North
Fork or any of its subsidiaries) of beneficial ownership of 50% or more
of the then outstanding shares of Branford Voting Common Stock, or
(b) the consummation of any of the transactions described in
clauses (i)-(iii) of the preceding paragraph.
Such repurchase will be at an aggregate price equal to the sum of: (i)
the aggregate exercise price paid by North Fork for any shares of Branford
Voting Common Stock acquired pursuant to the Option with respect to which North
Fork then has beneficial ownership; (ii) the excess, if any, of (x) the
Applicable Price (as defined below) for each share of Branford Voting Common
Stock over (y) the exercise price of the Option, multiplied by the number of
shares of Branford Voting Common Stock with respect to which the Option has not
been exercised; and (iii) the excess, if any, of the Applicable Price over the
exercise price of the Option paid by North Fork for each share of Branford
Voting Common Stock with respect to which the Option has been exercised and with
49
<PAGE>
respect to which North Fork then has beneficial ownership, multiplied by the
number of such shares. North Fork's right to require such repurchase generally
expires 12 months after the first occurrence of a Repurchase Event. The
aggregate amount that Branford may pay to North Fork upon exercise of the
repurchase right described herein is capped by the Stock Option Agreement at
$10,000,000.
For purposes of the Stock Option Agreement, "Applicable Price" means
the highest of (i) the highest price per share of Branford Voting Common Stock
paid for any such share by any person or group described in subsection (a) of
the second preceding paragraph, (ii) the price per share of Branford Voting
Common Stock received by the holders of such common stock in connection with any
merger or other business combination referred to in subsection (b) of the second
preceding paragraph and (iii) the highest closing sales price per share of
Branford Voting Common Stock quoted on NASDAQ (or, if the Branford Voting Common
Stock is not quoted on The Nasdaq Stock Market National Market, the highest bid
price per share as quoted on the principal trading market or securities exchange
on which such shares are traded as reported by a recognized source) during the
60 business days prior to North Fork's exercise of its right to require Branford
to repurchase the Option or the shares acquired upon exercise thereof, except
that in the event of a sale of less than all of Branford's assets, the
Applicable Price shall be the sum of the price paid in such sale for such assets
and the current market value of the remaining assets of Branford as determined
by a nationally recognized investment banking firm selected by North Fork,
divided by the number of shares of Branford Common Stock outstanding at the time
of such sale.
Branford has granted North Fork certain registration rights with
respect to shares of Branford Voting Common Stock acquired by North Fork upon
exercise of the Option. These rights include requiring Branford to file a
registration statement under the Securities Act or equivalent statements under
the applicable rules and regulations of the FDIC if requested by North Fork
within three years of the date the Option first becomes exercisable (the
"Registration Period") provided such registration is necessary in order to
permit the sale or other disposition of the shares acquired by North Fork. Any
such registration or equivalent statement, and any sale covered thereby, will be
at Branford's expense other than allocable underwriting discounts or
commissions, brokers' fees and the fees and disbursements of North Fork's
counsel related thereto. In addition, in the event that during the Registration
Period Branford effects a registration under the Securities Act of Branford
Voting Common Stock (other than on Form S-4 or Form S-8 or any form with respect
to a dividend reinvestment or similar plan and other than on the equivalent
forms of the FDIC), Branford will allow North Fork to participate in such
registration, subject to certain limitations. In connection with any
registration described above, Branford and North Fork will provide to each other
and any underwriter of the offering customary representations, warranties,
covenants, indemnifications and contributions.
Certain rights and obligations of North Fork and Branford under the
Stock Option Agreement are subject to receipt of required regulatory approvals.
The approval of the Federal Reserve Board is required for the acquisition by
North Fork of more than 5% of the outstanding shares of Branford Voting Common
Stock.
Effect of Stock Option Agreement. The Stock Option Agreement is
intended to increase the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement. Consequently, certain aspects
of the Stock Option Agreement may have the effect of discouraging persons who
might now or prior to the Effective Time be interested in acquiring Branford or
a significant interest in Branford from considering or proposing such an
acquisition, even if such persons were prepared to pay a higher price per share
for Branford Common Stock than the price per share implicit in the Exchange
Ratio. The acquisition of Branford or an interest in Branford, or an agreement
to do either, could cause the Option to become exercisable. The existence of the
Option could significantly increase the cost to a potential acquiror of
acquiring Branford compared to its cost had the Stock Option Agreement and the
Merger Agreement not been entered into. Such increased cost might discourage a
potential acquiror from considering or proposing an acquisition or might result
in a potential acquiror proposing to pay a lower per share price to acquire
Branford than it might otherwise have proposed to pay. Moreover, following
consultation with Branford's independent accountants, the management of Branford
believes that the exercise of the Option is likely to prohibit any acquiror of
50
<PAGE>
Branford from accounting for any acquisition of Branford using the pooling of
interests accounting method for a period of two years. Accordingly, the
existence of the Stock Option Agreement may deter significantly, or completely
preclude, an acquisition of Branford by certain other banking organizations. The
Branford Board took this factor into account before approving the Stock Option
Agreement. See "- Recommendation of Branford's Board of Directors and Reasons
for the Merger."
MANAGEMENT AND OPERATIONS OF THE BANK FOLLOWING THE MERGER
Board of Directors and Management of the Resulting Bank
Pursuant to the terms of the Merger Agreement, at or immediately after
the Effective Time North Fork will cause the number of directors of Resulting
Bank to be reduced to seven. North Fork will select four of the seven directors
of the Resulting Bank at that time, and will cause Mr. Mariano and two other
current directors of Branford, as selected by Branford and approved by North
Fork (which approval will not be unreasonably withheld), to continue at such
time as the other three directors of the Resulting Bank.
In addition, it is expected that Mr. Mariano will continue to serve as
President of the Resulting Bank for at least two years after the Effective Time.
At or immediately after the Effective Time, North Fork will create an
advisory committee of the Board of Directors of the Resulting Bank comprising
those members of the Branford Board immediately prior to Effective Time who do
not continue as directors of the Resulting Bank. See "THE MERGER - Interests of
Certain Persons in the Merger."
Name and Banking Operations of the Resulting Bank
At or after the Effective Time North Fork may elect to adopt a new name
for the Resulting Bank. It is expected that North Fork's management will
supplement the banking products and services presently offered by Branford with
additional banking or bank-related products and services presently being offered
to customers by North Fork Bank and its affiliates.
Projected Cost Savings and Revenue Enhancements
North Fork expects to achieve certain cost savings at the Resulting
Bank after the Merger. These cost savings will arise from reductions in
personnel, utilization by the Bank of administrative and back office services
provided by North Fork to its affiliates on a cost-efficient basis, including
data processing services, and elimination of expenses associated with operating
the Bank as a publicly held entity. North Fork is considering other strategic
options that may serve to further reduce Bank expenses, including the possible
sale of selected branches, but no final decisions have been reached on such
matters. Estimates of the actual cost savings that will be realized at the
Resulting Bank after the Merger are still highly speculative and in any event
would not be material to the financial results achieved by North Fork on a
consolidated basis. Thus, such estimates have not been included herein. From the
standpoint of revenues, it has been North Fork's experience in its prior
acquisitions of savings banks that revenue enhancement will arise from the more
diverse array of banking products and services offered by the North Fork
organization to customers of the acquired bank after the acquisition. North Fork
believes that revenue enhancement of this nature will occur at the Bank after
the Merger, but has not included estimates of enhanced revenue herein due to the
speculative nature of current estimates and the relative insignificance of
post-merger revenues that might be earned at the Bank in relation to the total
revenues of North Fork on a consolidated basis.
51
<PAGE>
Transaction Costs
Transaction costs of approximately $3.8 million, net of taxes, will be
incurred upon consummation of the Merger and will be accounted for as part of
the purchase price for financial reporting purposes. Such transaction costs will
be composed as follows:
Type of Cost Expected Costs
------------ --------------
Professional Fees................................................. $1,747,000
Merger Related Compensation and Severance Costs................... 1,791,993
Facility and System Costs......................................... 859,400
Other Merger Related Costs........................................ 1,480,000
---------
Total Pre-Tax Transaction Costs................................... 5,878,393
Less: Tax Effect.................................................. (2,052,285)
----------
Total After--Tax Transaction Costs................................ $3,826,108
==========
Refinements to the foregoing estimates may occur subsequent to the Effective
Time.
INFORMATION ABOUT BRANFORD
Description of Business of Branford
General
Branford was organized in 1889 as a state-chartered mutual savings
bank. On November 12, 1986, Branford converted to a Connecticut-chartered
capital stock savings bank.
Branford's role is as a locally-based lender and depository for small
to medium-sized businesses and for consumers. The primary sources of funds for
Branford's lending and investment activities are deposits, loan interest and
principal payments, borrowings, and to a lesser extent, maturing investments and
earnings on investments. The Bank's products and services appeal to small to
medium-sized businesses, professional organizations and individuals.
Branford offers a wide variety of commercial and consumer products,
predominately secured and limited unsecured commercial loans, construction and
permanent commercial mortgages, letters of credit, and mostly secured consumer
installment, time and demand loans, guaranteed student and parent loans, credit
card services, Savings Bank Life Insurance, checking and NOW accounts, line of
credit checking, money market accounts, savings certificates, and IRA accounts.
The Bank also offers the "H.E.R.O." line of credit, an adjustable-rate revolving
line of credit secured by residential real estate, which has been well received
in light of tax law changes limiting the deductibility of consumer interest for
loans that are not secured by a first or second home. The Bank also offers night
depository and bank-by-mail services, traveler's checks (issued by an
independent entity), wire transfers and treasurer's checks. The Bank issues
credit cards through a correspondent bank and acts as a merchant depository for
cardholder drafts. In addition, Branford offers direct deposit services through
the New England Automated Clearing House (NEACH) as well as ATM processing by
its own proprietary card (Tower Teller), through NYCE, Honor and Cirrus.
The Bank is also seeking to expand existing, and to develop additional,
fee-based services. Current fee- based product lines include mortgage
originations, checking accounts, credit card services, credit life and
disability insurance, savings services, money order sales, and safe deposit box
rentals.
52
<PAGE>
Branford's primary market area includes Branford, North Branford and
East Haven, Connecticut and, to a lesser extent, their surrounding communities
in New Haven and Middlesex Counties, Connecticut. Substantially all of
Branford's depositors and borrowers reside in these areas. The Bank's main
office is located in the central district of the Town of Branford, Connecticut.
As a Connecticut-chartered, FDIC-insured savings bank, Branford is
subject to regulation and supervision by both the Connecticut Department of
Banking and the FDIC and is also subject to various regulatory requirements of
the Federal Reserve Board applicable to FDIC- insured financial institutions.
Branford's deposit accounts are insured up to $100,000 per insured depositor by
the FDIC. Branford's operations, like those of other financial institutions, are
significantly influenced by general economic conditions. Branford's operations
are further influenced by the policies and regulations of financial institution
regulatory authorities such as the FDIC and by the monetary, fiscal, legislative
and regulatory policies of the United States government and the State of
Connecticut.
The executive offices of Branford are located at 45 South Main Street,
Branford, Connecticut, 06405 and its telephone number is (203) 481-3471.
Markets
The Bank services its primary market area through five full-service
offices. Substantially all of Branford's depositors reside in these areas. At
December 31, 1996, the primary market area contained 9 thrifts and banks and 3
credit unions with 21 offices, representing an aggregate of approximately $928
million in deposits. On such date, the Bank had approximately 26.5% of all
banking deposits in Branford, 14.6% in North Branford and 8.4% in East Haven,
according to data supplied by Sheshunoff Information Services, Inc.
The Town of Branford is the site of Branford's main office. The
adjoining towns of North Branford and East Haven are the sites of three branch
offices. A fourth is located in Branford near the Guilford line. The Bank opened
its North Branford office in 1970; its East Haven, Route 80 office in 1981; its
East Haven, 263 Hemingway Avenue office in 1989; and its Branford East office in
1989.
Adding contiguous communities to the primary market area, Branford
serves a market area of approximately 797,500 people. Located along the
Connecticut coastline, seven miles east of the City of New Haven, Branford's
market area is readily accessible by highways I-95 and nearby I-91. It is also
served by the primary northeast corridor railway line and by a regional airport.
Because of their proximity to New York City, Fairfield County, the City of New
Haven, Hartford and the Connecticut shoreline, the towns served by Branford are
popular residential communities.
The character of the three towns comprising Branford's primary market
area is residential, commercial, technical, service and light industrial. Each
community experienced development of light industrial, technical and office
parks which resulted in a significant growth in commerce during the mid 1980's.
The economic base of Branford's market area includes the headquarters or plant
locations of companies in the automotive parts, turbine components, food
products, clothing, precision machinery and mechanical equipment industries,
other manufacturing companies, health care institutions, and educational
institutions such as Yale University. The largest employer in Branford's primary
market area is Echlin, Inc., an automotive parts manufacturer and Fortune 500
company, headquartered in Branford. In the late 1980's the area suffered a
contraction. The decline in the local economy limited growth in commercial
activity and in the residential real estate market in Branford's primary market
area and limited demand for commercial banking services. Currently, however, the
residential real estate market is very active for refinancing and first-time
buyers. Mortgage loan rates are low and home values recently have improved or at
least stabilized. Although there is no way to accurately predict the direction
of the local and national economic climates, management believes that continuing
improvements in employment levels will be a key element in stabilizing real
estate values.
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<PAGE>
Lending and Investment Activities
Authority and Lending Limits. As a Connecticut-chartered savings bank,
Branford has statutory authority to invest its funds in a variety of assets,
principally loans and investment securities. The lending activities of Branford
are heavily influenced by economic trends affecting the availability of funds,
and by general interest rate levels. In originating loans, Branford is competing
with other banks, savings and loan associations, mortgage companies and other
financial intermediaries. The aggregate amount of loans that Branford may make
to any one borrower is restricted by state law to a percentage of its capital
base that varies according to the amount and type of collateral securing the
loans. Subject to certain limited exceptions, unsecured loans to one borrower
may not exceed 15% of Branford's capital, surplus, undivided profits and
allowance for loan losses (resulting in an unsecured lending limit of $3,056,000
at December 31, 1996), while the limit for fully secured loans to one borrower
(other than first mortgage real estate loans) is an additional 10% of the
capital base (resulting in a fully secured lending limit for Branford at
December 31, 1996, of $5,093,000, less the dollar amount of unsecured loans
outstanding). Loans to one borrower secured by a first mortgage on real estate
may not exceed 50% of Branford's capital base (or [$10,185,000] at December 31,
1996), less the amount of the borrower's other obligations to Branford.
Loan Portfolio. Branford has a lending policy that emphasizes secured
residential, commercial and consumer loans and establishes specific underwriting
criteria for construction loans and commercial mortgage loans. Branford's
principal lending activities have generally consisted of the origination of both
conventional permanent and construction loans on residential real estate.
Branford provides first mortgage loans for the purchase and refinancing of
residential properties primarily in its service area. Branford also provides
commercial mortgage, consumer installment, home equity, guaranteed education,
and loans collateralized by deposits or securities. Branford also offers
commercial business loans, most of which are collateralized with real estate.
Branford's loan portfolio totaled $126 million at December 31, 1996,
representing 69% of its total assets. At December 31, 1996, 42% of Branford's
loan portfolio consisted of mortgage loans collateralized by residential real
estate, 41% were commercial real estate loans, 8% were consumer loans, 1% were
construction loans and 8% were other commercial loans.
The following table sets forth the composition of Branford's loan
portfolio at December 31 for each of the years indicated:
<TABLE>
<CAPTION>
(In Thousands) 1996 1995 1994 1993 1992
- -------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Mortgage $ 104,813 $ 107,729 $ 112,650 $ 117,287 $ 119,728
Construction 1,416 1,246 2,139 3,540 4,655
Consumer 9,827 11,262 13,474 15,996 19,590
Education --- --- 5 5 511
Commercial 10,586 9,246 10,969 15,747 27,910
------ ----- ------ ------ ------
Total Loans $ 126,642 $ 129,483 $139,237 $152,575 $172,394
========= ========= ======== ======== ========
</TABLE>
The following table shows the maturity of commercial and construction
loans outstanding as of December 31, 1996, with all loans divided into fixed and
variable rate loans and grouped according to time periods of maturity. It
excludes mortgage, consumer and education loans.
54
<PAGE>
<TABLE>
<CAPTION>
Maturing (In Thousands)
-----------------------
After One After Five
Within but Within but Within After Ten
One Year Five Years Ten Years Years Total
-------- ---------- --------- ----- -----
<S> <C> <C> <C> <C> <C>
Commercial
-Fixed interest rates $ 451 $ 1,042 $ 1,344 $ --- $2,837
-Variable interest rates 7,749 --- --- --- 7,749
------- -------
Total $ 8,200 $ 1,042 $ 1,344 $ --- $ 10,586
======= ======= =======
Construction
-Fixed interest rates $ --- $ --- $ 159 $ --- $ 159
-Variable interest rates 1,257 --- --- --- 1,257
------- ------- ------- --------
Total $ 1,257 $ --- $ 159 $ --- $ 1,416
======= ======= ======= ======= ========
</TABLE>
Problem Loans and Allowances for Possible Losses. The Bank's policy is
to discontinue the accrual of interest on a loan when management believes, after
considering economic and business conditions as well as periods of delinquency
and collection efforts, that the borrower's financial condition is such that
collection of interest is doubtful. When interest accruals are discontinued,
uncollected interest previously credited to income is reversed. Management may
elect to continue the accrual of interest when the estimated net realizable
value of collateral is sufficient to cover the principal balance and accrued
interest.
The following tables show the Bank's past due loans at December 31:
<TABLE>
<CAPTION>
Past Due (In Thousands)
90 Days
30-89 Days Or More Nonaccrual
Type of Loan
1996
<S> <C> <C> <C>
Mortgage $ 2,013 $ --- $ 1,601
Construction --- --- ---
Consumer 405 --- 333
Education --- --- ---
Commercial 262 --- 899
-------- -------- --------
Total $ 2,680 $ --- $ 2,833
======== ======== ========
Total loans past due and
nonaccrual loans $ 5,513
========
Nonaccrual loans not past
due included in above $ 223
========
55
<PAGE>
<CAPTION>
Past Due (In Thousands)
90 Days
30-89 Days Or More Nonaccrual
Type of Loan
1995
<S> <C> <C> <C>
Mortgage $ 2,418 $ --- $ 2,839
Construction --- --- ---
Consumer 965 --- 448
Education --- --- ---
Commercial 387 --- 1,176
-------- -------- --------
Total $ 3,770 $ --- $ 4,463
======== ======== ========
Total loans past due and
nonaccrual loans $ 8,233
========
Nonaccrual loans not past
due included in above $ 585
========
<CAPTION>
Past Due (In Thousands)
90 Days
30-89 Days Or More Nonaccrual
Type of Loan
1994
<S> <C> <C> <C>
Mortgage $ 1,584 $ --- $ 5,884
Construction --- --- 69
Consumer 511 --- 103
Education --- --- ---
Commercial 1,144 --- 1,022
-------- -------- --------
Total $ 3,239 $ --- $ 7,078
======== ======== ========
Total loans past due and
nonaccrual loans $ 10,317
========
Nonaccrual loans not past
due included in above $ 1,983
========
56
<PAGE>
<CAPTION>
Past Due (In Thousands)
90 Days
30-89 Days Or More Nonaccrual
Type of Loan
1993
<S> <C> <C> <C>
Mortgage $ 1,649 $ --- $ 7,493
Construction --- --- 85
Consumer 185 --- 343
Education --- --- ---
Commercial 2,547 --- 2,487
-------- -------- --------
Total $ 4,381 $ --- $ 10,408
======== ======== ========
Total loans past due and
nonaccrual loans $ 14,789
========
Nonaccrual loans not past
due included in above $ 2,678
========
<CAPTION>
Past Due (In Thousands)
90 Days
Type of Loan 30-89 Days Or More Nonaccrual
1992
<S> <C> <C> <C>
Mortgage $ 3,155 $ --- $ 7,944
Construction --- --- 245
Consumer 740 --- 846
Education --- --- ---
Commercial 1,753 --- 7,325
-------- -------- --------
Total $ 5,648 $ --- $ 16,360
======== ======== ========
Total loans past due and
nonaccrual loans $ 22,008
========
Nonaccrual loans not past
due included in above $ 3,573
========
</TABLE>
57
<PAGE>
The following is an analysis of interest income related to impaired and
other nonaccrual loans at December 31, 1996:
<TABLE>
<CAPTION>
(In Thousands) Mtge. Const. Cons. Educ. Comml. Total
-------------- ----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Interest income that would have been
recognized if loans had been current
at original contractual terms $151.7 $ --- $35.2 $ --- $133.8 $320.7
Amount recognized as interest income 78.2 --- 18.7 --- 44.2 141.1
Difference $ 73.5 $ --- $16.5 $ --- $ 89.6 $179.6
====== ===== ===== ===== ====== ======
</TABLE>
The allowance for loan losses has been set at a level believed adequate
by management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on evaluation of the
portfolio, past loan loss experience, current economic conditions, volume,
growth and composition of the loan portfolio and other relevant factors. The
allowance is increased by provisions for loan losses. The allowance for loan
losses should not be interpreted as an indication that charge-offs will occur or
as an indication of future charge-off trends.
The following tables set forth a summary of the Bank's loan loss
experience for the fiscal years ended December 31:
<TABLE>
<CAPTION>
(In Thousands) Mortgage Construction Consumer Commercial Total
-------------- -------- ------------ -------- ---------- -----
1996
<S> <C> <C> <C> <C> <C>
Balance of Allowance for Loan $2,700 $100 $171 $ 657 $3,628
------ ---- ---- ----- ------
Losses at Beginning of period
Charge-Offs (285) --- (255) (299) (839)
Recoveries 49 --- 36 396 481
------ ---- ---- ------ -----
Net Charge-Offs (236) --- (219) 97 (358)
Provision for Loan Losses 359 --- 198 68 625
------ ---- ---- ------ -----
Balance of Allowance for Loan $ 2,823 $100 $150 $ 822 $3,895
====== ==== ==== ====== ======
Losses at End of Period
Ratio of Net Charge-Offs to 0.29%
Average Net Loans
Percent of Categories to Total
Loan Loss Allowance 72% 3% 4% 21% 100%
======= ====== ====== ====== ========
1995
Balance of Allowance for Loan $2,528 $160 $152 $ 579 $3,419
---- ---- ----- ------
Losses at Beginning of Period
Charge-Offs (639) --- (216) (362) (1,217)
Recoveries 51 --- 3 172 226
--------
Net Charge-Offs (588) --- (213) (190) (991)
Provision for Loan Losses 760 (60) 232 268 1,200
------ ----- ----- ------ -----
Balance of Allowance for Loan $2,700 $100 $171 $ 657 $3,628
====== ==== ==== ====== ======
Losses at End of Period
57
<PAGE>
Ratio of Net Charge-Offs to 0.76%
Average Net Loans ======
Percent of Categories to Total
Loan Loss Allowance 74% 3% 5% 18% 100%
==== === === ==== ======
1994
Balance of Allowance for Loan $2,611 $170 $119 $ 558 $3,458
---- ---- ------ ------
Losses at Beginning of Period
Charge-Offs (1,067) --- (122) (776) (1,965)
Recoveries 130 --- 22 257 409
-------
Net Charge-Offs (937) --- (100) (519) (1,556)
Provision for Loan Losses 854 (10) 133 540 1,517
------- ----- ----- ------ -----
Balance of Allowance for Loan $2,528 $160 $152 $ 579 $3,419
====== ==== ==== ====== ======
Losses at End of Period
Ratio of Net Charge-Offs to 1.09%
Average Net Loans ========
Percent of Categories to Total
Loan Loss Allowance 74% 5% 4% 17% 100%
======== ====== ====== ======= ========
1993
Balance of Allowance for Loan $2,507 $391 $272 $2,031 $5,201
---- ---- ------ ------
Losses at Beginning of Period
Charge-Offs (706) (87) (169) (2,124) (3,086)
Recoveries 102 130 47 263 542
--------
Net Charge-Offs (604) 43 (122) (1,861) (2,544)
Provision for Loan Losses 708 (264) (31) 388 801
------- ----- ----- ------- ------
Balance of Allowance for Loan $2,611 $170 $119 $ 558 $3,458
====== ==== ==== ====== ======
Losses at End of Period
Ratio of Net Charge-Offs to 1.61%
Average Net Loans ========
Percent of Categories to Total
Loan Loss Allowance 76% 5% 3% 16% 100%
======== ====== ====== ====== ========
1992
Balance for Allowance of Loan $3,637 $ 333 $ 819 $ 4,090 $ 8,879
----- ----- ------- -------
Losses at Beginning of Period
Charge-Offs (4,092) (387) (664) (4,829) (9,972)
Recoveries 135 118 53 141 447
-------
Net Charge-Offs (3,957) (269) (611) (4,688) (9,525)
Provision for Loan Losses 2,827 327 64 2,629 5,847
------- ----- ------ ------- --------
Balance for Allowance of Loan $2,507 $ 391 $ 272 $ 2,031 $ 5,201
====== ===== ====== ======= =======
Losses at End of Period
Ratio of Net Charge-Offs to 4.60%
Average Net Loans ========
Percent of Categories to Total
Loan Loss Allowance 48% 8% 5% 39% 100%
======== ======= ======= ======== ========
</TABLE>
58
<PAGE>
The risk of non-payment (or deferred payment) of loans is inherent in
banking in general. Furthermore, the Bank's marketing focus on small to
medium-sized firms may involve certain lending risks not inherent in loans to
larger companies. Small companies may have shorter operating histories, less
sophisticated internal recordkeeping and financial planning capabilities, and
greater debt-to-equity ratios. Consumer and installment loans as well as
unsecured commercial loans usually carry a fairly significant amount of risk as
compared to the real estate-mortgage loans and some of the commercial loans
which are secured by real estate. Many of these consumer and installment loans
are either unsecured or are secured by depreciating type of collateral. It is
the policy of the Bank to underwrite each loan to minimize credit risks.
Investment Activities. Savings banks chartered in the State of
Connecticut have authority to make a wide range of investments. Subject to
various restrictions, they may own federal funds, commercial paper, various
notes and other short term securities, and mutual fund shares. The Bank has a
written investment policy incorporating liquidity objectives and funding
strategies that are periodically reviewed by the Board of Directors and revised
as economic conditions or Bank needs dictate. The Bank's Investment Committee,
the President and the Chief Financial Officer carry out policy and make
adjustments in the portfolio mix when necessary for liquidity, tax or other
appropriate purposes.
The Bank maintains a liquid investment portfolio consisting primarily
of U.S. Treasury and federal agency obligations and mortgage-backed securities.
At December 31, 1996, 40.0% of Branford's investments in bonds and other debt
obligations had maturities or were repricing within one year.
The following table sets forth the maturities of the Bank's investment
portfolio at December 31, 1996, with securities grouped according to the time
period of maturity (for fixed rate securities) or of repricing (in the case of
adjustable rate securities), and the weighted average yield for each such
grouping:
<TABLE>
<CAPTION>
(In Thousands) 1 yr or less 1-5 years 5-10 years Over 10 yrs
-------------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $ 8,250 $ 1,994 $ --- $ ---
U.S. Government
Obligations:
Mortgage Backed
Securities 1,364 9,839 2,761 6,096
Other Debt
Obligations 6,476 5,983 --- ---
-------- -------- -------- ------
Total $16,090 $17,816 $2,761 $6,096
======= ======= ====== ======
Average Yield 5.91% 6.42% 7.54% 7.17%
======== ======== ======== ======
</TABLE>
The following tables set forth the carrying values and market values of
securities at December 31, 1996:
<TABLE>
<CAPTION>
(In Thousands) Carrying Value Market Value Average Yield
-------------- -------------- ------------ -------------
<S> <C> <C> <C>
U.S. Treasury $10,244 $10,232 5.76%
U.S. Government
Obligations:
Mortgage-Backed
Securities 20,060 20,177 6.87%
Other Debt
Obligations 12,459 12,498 6.85%
-------- --------
Total $42,763 $42,907 6.60%
======= ======= =====
</TABLE>
59
<PAGE>
The following table sets forth the maturities of the Bank's investment
portfolio at December 31, 1995, with securities grouped according to the time
period of maturity (for fixed rate securities) or of repricing (in the case of
adjustable rate securities), and the weighted average yield for each such
grouping:
<TABLE>
<CAPTION>
(In Thousands) 1 yr or less 1-5 years 5-10 years Over 10 yrs
-------------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury $4,014 $ 2,230 $ --- $ ---
U.S. Government
Obligations:
Mortgage-Backed
Securities --- 7,368 3,538 ---
Other Debt
Obligations 1,000 7,449 --- 1,686
------- ------- -------- -----
Total $5,014 $17,047 $3,538 $1,686
======
Average Yield 6.12% 6.68% 7.53% 6.16%
======== ========= ======== ========
</TABLE>
The following tables set forth the carrying values and market values of
securities at December 31, 1995:
<TABLE>
<CAPTION>
(In Thousands) Carrying Value Market Value Average Yield
-------------- -------------- ------------ -------------
<S> <C> <C> <C>
U.S. Treasury $ 6,244 $ 6,274 6.31%
U.S. Government
Obligations:
Mortgage-Backed
Securities 12,591 12,783 7.18%
Other Debt
Obligations 8,450 8,585 6.30%
-------- --------
Total $27,285 $27,642 6.65%
======= ======= =====
</TABLE>
60
<PAGE>
Of the foregoing securities, $1,247,000 of the U.S. Treasury notes were
pledged against treasury, tax and loan accounts and public funds at December 31,
1996. These pledged securities are not included in the liquidity ratios
identified in the "Liquidity" section of the "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year Ended December
31, 1996," below.
Deposits and Other Sources of Funds
Deposits. Deposits have traditionally been Branford's major source of
funds for investment. Branford also derives funds from loan amortizations,
prepayments, interest and dividend income, sales of assets, and borrowings from
the Federal Home Loan Bank (the "FHLB"). Branford offers a wide variety of
retail and commercial deposit accounts designed to attract both short- and
long-term funds.
The following table summarizes the average monthly amount of deposits
and average rates paid on deposits by type of deposits for the fiscal years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- -----
(In Thousands) Amount Rate Amount Rate Amount Rate
- -------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand deposits $ 10,249 -- $ 9,857 -- $ 9,760 --
Interest bearing
demand and savings
deposits 53,010 2.35% 53,163 2.41% 60,956 2.44%
Money market 9,116 2.69 10,441 2.68 12,740 2.69
Time deposits 82,545 5.35 78,408 5.25 72,015 4.14
-------- --------- --------
Total $154,920 3.74% $151,869 3.74% $155,471 3.10%
======== ===== ======== ===== ======== =====
</TABLE>
Summarized below are the maturities of Branford's time certificates of
deposit of $100,000 or more outstanding at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ----------------------------- ----------------------------
(In Thousands) Amount Rate Amount Rate Amount Rate
- -------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Three Months or Less $1,616 5.42% $1,497 5.42% $1,462 4.46%
Over Three Months
through Six Months 1,616 5.43 1,498 5.42 1,462 4.46
Over Six Months through
Twelve Months 1,111 5.27 740 5.29 717 5.37
Over One Year through
Five Years 1,045 5.74 1,245 6.40 703 5.16
------- ------- -------
Total $5,388 5.45% $4,980 5.65% $4,344 4.72%
====== ===== ====== ===== ====== =====
</TABLE>
62
<PAGE>
Borrowings. The Bank also utilizes FHLB advances to assist it in
managing the "gap" between the repricing characteristics of its assets and the
repricing characteristics of its liabilities, primarily by matching the
maturities or repricing dates on new FHLB advances to offset the maturities
and/or repricing dates on new loans. The following table shows the average
balances and weighted average interest rates of FHLB advances taken by the Bank
in each of the fiscal years indicated grouped by maturity of the advances, using
repricing dates in the case of adjustable rate advances.
<TABLE>
<CAPTION>
1996 1995 1994
------------------- -------------------- ---------------------
(In Thousands) Amount Rate Amount Rate Amount Rate
- -------------- ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Daily $ --- --- $ --- --- $ --- ---
1995 --- --- --- --- --- ---
1996 --- --- 3,000 7.52% 3,000 7.52%
1997 5,000 5.58% --- --- --- ---
------ ----- ------ ------ ------- ------
$5,000 5.58% $3,000 7.52% $3,000 7.52%
====== ===== ====== ===== ====== =====
Maximum Month End
Borrowings During
Each Period $5,000 $3,000 $6,825
====== ====== ======
Average Balances
Outstanding and
Weighted Average
Rates for Each $3,224 6.95% $3,000 7.52% $6,223 7.37%
Period ====== ===== ====== ===== ====== =====
</TABLE>
In accordance with FHLB credit policy, Branford must maintain at all
times an amount of "qualified collateral" behind its FHLB advances that is
sufficient to satisfy certain collateral maintenance level requirements set by
the FHLB. At December 31, 1996, the collateral maintenance level requirement was
$5,506,000, based on $5,000,000 in outstanding advances and $506,000 in
available lines of credit, and the "qualified collateral" pledged to support
FHLB borrowings was comprised of residential mortgages in Branford's portfolio
and funds placed in accounts at the FHLB.
63
<PAGE>
Management of Interest Rate Risk
The Bank's asset/liability management strategies are designed to match
more closely interest rate-sensitive assets to interest rate-sensitive
liabilities in order to minimize the impact of interest rate fluctuations on
future earnings. A major aspect of this strategy has been the retention of
adjustable-rate mortgages in the portfolio while originating fixed-rate
mortgages primarily for sale in the secondary market. The Bank has also
emphasized the origination of more interest rate sensitive commercial and
consumer loans, and the attraction of short to medium-term deposit accounts. At
December 31, 1996, the Bank had a one-year positive GAP position (i.e., the
ratio of rate-sensitive assets to rate sensitive liabilities, each repricing or
maturing in a one-year time frame) of $4.7 million (2.57% of total assets). It
is the intention of the Bank to keep the one-year GAP as close to a balanced or
zero position as possible. As required pursuant to Section 305 of the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), the FDIC has
issued regulations which include an interest rate risk component as part of the
capital evaluation criteria for regulatory examinations. The FDIC has indicated
that in the future it will issue regulations setting forth an explicit minimum
capital charge for interest rate risk.
The following table presents for the periods indicated (i) average
assets, liabilities and shareholders' equity, (ii) interest income and expense,
(iii) average yields on interest-earning assets and average rates incurred on
interest-bearing liabilities, (iv) the net interest spread, and (v) the net
interest income as a percentage of interest-earning assets (net interest margin)
on a tax equivalent basis whenever applicable. Nonaccrual loans have been
included in the average balances.
64
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
----------------------------------- ----------------------------------
AVERAGE YIELD AVERAGE YIELD
BALANCE INTEREST RATE(a) BALANCE INTEREST RATE(a)
------------------------------------ -----------------------------------
ASSETS (000's) (000's)
Interest Earning Assets:
<S> <C> <C> <C> <C> <C> <C>
Loans (net of allowance
for loan losses (b)(d) $123,232 $ 10,926 8.87% $ 130,256 $ 11,419 8.77%
Interest Bearing Deposits 7 - 4.24 3 - 4.62
Federal Funds Sold 9,309 484 5.20 11,184 650 5.81
Investment Securities
Taxable 34,624 2,236 6.46 20,589 1,384 6.72
Nontaxable - - - - - -
Dividends (e) - - - - - -
Dividends-FHLB Stock (c) 800 51 6.38 1,027 71 6.91
Total Investment Securities (e) 35,424 2,287 6.46 21,616 1,455 6.73
Total Interest Earning Assets (e) 167,972 13,697 8.15% 163,059 13,524 8.29
Noninterest Earning Assets:
Cash and Due from Banks 3,661 3,118
Premises and Equipment 2,076 2,200
Other Real Estate Owned 727 958
Other Assets 1,439 1,630
----- -----
Total Noninterest Earning Assets 7,903 7,906
----- -----
Total Assets $175,875 $170,965
======== ========
<CAPTION>
1994
----------------------------------
AVERAGE YIELD
BALANCE INTEREST RATE(a)
----------------------------------
ASSETS (000's)
Interest Earning Assets:
Loans (net of allowance
for loan losses (b)(d) $ 142,916 $11,018 7.71%
Interest Bearing Deposits 2 - 3.06
Federal Funds Sold 9,762 401 4.11
Investment Securities
Taxable 4,483 210 4.68
Nontaxable - - -
Dividends (e) - 1 6.67
Dividends-FHLB Stock (c) 1,027 80 7.79
Total Investment Securities (e) 5,510 291 5.27
Total Interest Earning Assets (e) 158,190 11,710 7.40
Noninterest Earning Assets:
Cash and Due from Banks 3,130
Premises and Equipment 2,433
Other Real Estate Owned 3,596
Other Assets 1,672
-----
Total Noninterest Earning Assets 10,831
------
Total Assets $169,021
========
65
<PAGE>
LIABILITIES AND SHAREHOLDERS EQUITY
Interest Bearing Liabilities:
Deposits
Demand-Interest Bearing and
Saving $ 53,010 $ 1,247 2.35% $ 53,163 $ 1,281 2.41%
Money Market 9,116 245 2.69 10,441 280 2.68
Time 82,545 4,417 5.35 78,408 4,113 5.25
Advances From Borrowers 1,052 16 1.52 1,069 15 1.40
FHLBB Advances 3,224 224 6.95 3,000 229 7.63
Obligations Under Capital Leases - - - - - -
Total Interest Bearing Liabilities 148,947 $ 6,149 4.12% 146,081 $ 5,918 4.05%
Noninterest Bearing Liabilities:
Demand Deposits 10,249 9,857
Other Liabilities 1,036 838
------- -------
Total Noninterest Bearing
Liabilities 11,285 10,695
------- -------
Total Liabilities 160,232 156,776
Shareholders' Equity 15,643 14,189
------- -------
Total Liabilities and Shareholders'
Equity $175,875 $ 170,965
======= ========
Net Interest Income $ 7,548 $ 7,606
======== ========
Net Yield on Earning Assets (f) 4.49% 4.66%
==== ====
Net Interest Spread (g) 4.03% 4.24%
==== ====
<CAPTION>
1994
----------------------------------
AVERAGE YIELD
BALANCE INTEREST RATE(a)
----------------------------------
LIABILITIES AND SHAREHOLDERS EQUITY
Interest Bearing Liabilities:
Deposits
Demand-Interest Bearing and
Saving $ 60,956 $ 1,489 2.44%
Money Market 12,740 343 2.69
Time 72,015 2,983 4.14
Advances From Borrowers 1,044 14 1.34
FHLBB Advances 6,223 459 7.36
Obligations Under Capital Leases 12 1 8.33
Total Interest Bearing Liabilities 152,990 $ 5,289 3.46%
Noninterest Bearing Liabilities:
Demand Deposits 9,760
Other Liabilities 797
-------
Total Noninterest Bearing
Liabilities 10,557
-------
Total Liabilities 163,547
Shareholders' Equity 5,474
-------
Total Liabilities and Shareholders'
Equity $169,021
=======
Net Interest Income $ 6,421
=======
Net Yield on Earning Assets (f) 4.05%
====
Net Interest Spread (g) 3.94%
====
66
<PAGE>
<FN>
(a) Represents tax equivalent yields for tax advantaged investments at the
applicable rates for each respective year.
(b) Nonaccrual loans are included in the average balances for calculation
purposes. Average balances for these loans were approximately $3.3
million, $6.1 million, and $8.9 million, respectively for the years
ended 1996, 1995, and 1994.
(c) Dividends on FHLB stock qualify for a 67.9% dividend exclusion for
state income tax purposes but are fully taxable for federal income tax
purposes. No tax was paid on the dividends in 1996, 1995, and 1994 for
state income tax purposes due to the net operating loss carryforwards.
No tax was paid on dividends for 1996 and 1995 for federal income tax
purposes due to the net operating loss carryforwards. This is reflected
in the tax equivalent yields.
(d) Interest income on loans includes loan fees of $185,401, $121,930, and
$131,254, respectively, for the years ended 1996, 1995 and 1994.
(e) Average balances listed are net of unrealized appreciation
(depreciation) on available-for-sale securities. Yields are calculated
using aggregate costs. Average unrealized appreciation on
available-for-sale securities was $7,000, $9,000 and $15,000 for the
years ended 1996, 1995 and 1994, respectively.
(f) Net interest income (including loan fees) divided by average earning
assets.
(g) Yield on earning assets (including loan fees) less interest paid on
average interest-bearing liabilities.
</FN>
</TABLE>
67
<PAGE>
The following tables set forth for the periods indicated a summary of
the changes between periods in interest earned and interest paid resulting from
changes in volume and changes in rate:
<TABLE>
<CAPTION>
1996 Compared to 1995
Increase (Decrease) Due to (1)
-------------------------------------------------------
(In Thousands) Volume Rate Net
- -------------- ------ ---- ---
<S> <C> <C> <C>
Interest earned on:
Loans, including fees (2) ($ 622) $ 129 ($ 493)
Investment securities 893 ( 61) 832
Other (3) ( 102) ( 64) ( 166)
---------- ----------- -----------
Total Interest Earning Assets $ 169 $ 4 $ 173
========= ========== ==========
Interest paid on:
Deposits & Escrow $ 106 $ 130 $ 236
FHLBB Advances 16 ( 21) ( 5)
Other (3) -- -- --
--------- ---------- -----------
Total Interest Bearing Liabilities $ 122 $ 109 $ 231
========= ========= ==========
Net Interest Income $ 47 ($ 105) ($ 58)
========= ========== ===========
<FN>
(1) The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
(2) The amount applicable to loan fees included in the loan calculations is
a net increase of approximately $70,661 from 1995 levels.
(3) Other earning assets include federal funds and interest bearing
deposits. Other interest bearing liabilities represent obligations
under capital leases.
</FN>
</TABLE>
68
<TABLE>
<CAPTION>
1995 Compared to 1994
Increase (Decrease) Due to (1)
-------------------------------------------------------
(In Thousands) Volume Rate Net
- -------------- ------ ---- ---
<S> <C> <C> <C>
Interest earned on:
Loans, including fees (2) ($ 1,030) $ 1,431 $ 401
Investment securities 1,063 101 1,164
Other (3) 65 184 249
------------ ---------- ---------
Total Interest Earning Assets $ 98 $ 1,716 $ 1,814
=========== ========== ========
Interest paid on:
Deposits & Escrow ($ 124) $ 984 $ 860
FHLBB Advances ( 246) 16 ( 230)
Other (3) ( 1) -- ( 1)
------------ ----------- -----------
Total Interest Bearing Liabilities ($ 371) $ 1,000 $ 629
=========== ========= ==========
Net Interest Income $ 469 $ 716 $ 1,185
========== ========== =========
<FN>
(1) The change in interest due to both rate and volume has been allocated
to volume and rate changes in proportion to the relationship of the
absolute dollar amounts of the change in each.
(2) The amount applicable to loan fees included in the loan calculations is
a net decrease of approximately $9,324 from 1994 levels.
(3) Other earning assets include federal funds and interest bearing
deposits. Other interest bearing liabilities represent obligations
under capital leases.
</FN>
</TABLE>
69
<PAGE>
Return on Equity and Assets
The following table sets forth the Bank's return on average assets and
return on average equity for each of the past three fiscal years, as well as
average equity to average assets for each such year.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Return on average assets 1.05% 0.68% ( 0.51%)
Return on average equity 11.77% 8.13% (15.60%)
Average equity to average assets 8.89% 8.30% 3.24%
</TABLE>
Capital Resources
At December 31, 1996, Branford's leverage capital ratio (Tier 1 equity
to average assets) was 9.19%, compared to 8.57% as of December 31, 1995.
Depending on the FDIC's rating of Branford's overall performance, the minimum
leverage capital requirement is 3.00% for the highest rated banks, and 4.00% to
5.00% or higher for all other banks. The FDIC also requires banks to meet
supplemental capital adequacy standards which measure qualifying Tier 1 and
total capital against risk-weighted assets plus off-balance sheet items such as
outstanding loan commitments and letters of credit. Under the FDIC's capital
requirements, the minimum Tier 1 risk-based capital ratio is 4.0% and the
minimum total risk-based capital ratio is 8.0%. At December 31, 1996, Branford's
Tier 1 risk-based capital ratio was 15.00% and its total risk-based capital
ratio was 16.28%.
70
<PAGE>
During the year ended December 31, 1996, Branford paid dividends of
$.02 per share, representing a dividend payout ratio of 7%. Branford paid no
cash dividends in either fiscal 1995 and or fiscal 1994.
Competition
In general, competition in the financial services industry in
Connecticut is strong. Numerous commercial banks, savings banks and savings and
loan associations maintain offices in the central Connecticut area although
their numbers have been decreasing recently through consolidations as is
discussed further below. Commercial banks, savings banks, savings and loan
associations, mortgage brokers, finance companies, credit unions, insurance
companies, investment firms and private lenders compete with the Bank for
deposits, loans and employees. Many of these competitors have far greater
resources than the Bank and are able to conduct more intensive and broader based
promotional efforts to reach both commercial and individual customers.
Changes in the financial services industry resulting from fluctuating
interest rates, technological changes and deregulation have resulted in an
increase in competition, cost of funds, merger activity and customer awareness
of product and services differences among competitors.
In the last few years, the banking industry experienced increased
consolidation as a result of acquisitions of banks by other banks and financial
institutions. A number of federal and state statutes have been enacted in the
past six years which have increased the ability of bank holding companies and
banks to acquire bank holding companies and banks and to establish branches in
other states. The effect of such legislation has been, on the one hand, to
increase consolidation on a regional basis and thereby increase the average size
of competitors of the Bank, and, on the other, to increase the ease of entry
into the Bank's geographic market. Although it is not possible to predict, the
consolidation of financial institutions will likely continue and at the same
time competitive pressures will likely continue to build at all levels of
banking.
Regulation
As a Connecticut-chartered savings bank whose deposits are insured by
the FDIC, the Bank is subject to extensive regulation and supervision by both
the Connecticut Department of Banking and the FDIC. The Bank is also subject to
various regulatory requirements of the Federal Reserve Board applicable to
FDIC-insured financial institutions. Such governmental regulation is primarily
intended to protect depositors, not shareholders.
Connecticut Regulation. As a state-chartered capital stock savings
bank, the Bank is subject to the applicable provisions of Connecticut law and
the regulations adopted thereunder by the Connecticut Banking Commissioner. The
Connecticut Banking Commissioner administers Connecticut banking laws, which
contain comprehensive provisions for the regulation of savings banks. The Bank
derives its lending and investment powers from these laws, and is subject to
periodic examination by and reporting to the Connecticut Department of Banking.
71
<PAGE>
Savings banks in Connecticut are empowered by statute, subject to
limitations expressed therein, to accept savings and time deposits, to accept
checking accounts, to pay interest on such deposits and accounts, to make loans
on residential and other real estate, to make consumer and commercial loans, to
invest, with certain limitations, in equity securities and debt obligations of
banks and corporations, to issue credit cards, to establish an insurance
department to issue (but not underwrite) life insurance and sell (not
underwrite) annuities directly or through an affiliate, and to offer various
other banking services to their customers.
Under applicable Connecticut law, a Connecticut savings bank may
invest, subject to certain rating requirements, up to 25% of its assets in debt
obligations. In addition, a Connecticut savings bank may invest, subject to
certain limitations, up to 25% of its total assets in equity investment
securities of corporations incorporated and doing a major portion of their
business in the United States, and up to 8% of its total assets in any
investments, except securities of banks, out-of-state banks and bank holding
companies, provided the investment is prudent in the opinion of the bank. [A
Connecticut savings bank also has authority to invest in 10% or more of the
equity securities of banks, bank holding companies and certain corporations.]
Certain of the investment powers authorized under Connecticut law have been
restricted by federal law to permit only investments that would be permissible
for national banks.
As of March 19, 1990, the Connecticut Interstate Banking Act permitted
Connecticut banks and bank holding companies, with the approval of the
Connecticut Banking Commissioner, to engage in stock acquisitions of banks and
bank holding companies in other states with reciprocal legislation.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Act") became federal law in October 1994. The
Interstate Banking Act authorized a number of interstate banking transactions
and activities, including, among other things, the following: (i) since October
1995 (the first anniversary of the Interstate Banking Act's effectiveness), bank
holding companies have been permitted to acquire banks located in states outside
of the holding company's home state, without regard to state law; and (ii)
effective June 1, 1997 (or earlier if allowed by state law), insured banks have
been permitted to acquire banks located outside of the acquiring bank's home
state unless the state of the target bank passed a law before June 1, 1997
prohibiting such transactions with out-of-state banks (only Texas and Montana
did so); and (iii) an insured bank is able to establish new branches in states
outside of the bank's home state if the state in which the bank desires to
establish a branch has a law permitting out-of-state banks to establish
branches.
The Connecticut legislature passed an Act Concerning Interstate Banking
and Branching in June 1995. This act changed Connecticut's interstate banking
law in response to the passage of the Interstate Banking Act, specifically
opting in to the interstate branching provisions in the federal law. Significant
changes include: (i) authorizing out-of-state banks to directly establish de
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<PAGE>
novo branches in Connecticut without first acquiring an existing whole bank or
branch, with the Connecticut Banking Commissioner's approval; (ii) adopting a
five-year age requirement for in-state targets of in-state and interstate
mergers, consolidations and acquisitions, including acquisitions of branches and
a substantial part of a bank's assets; and (iii) a 30% limit on the resulting
concentration of deposits in such in-state and interstate mergers,
consolidations and acquisitions.
FDIC Regulation. The deposit accounts of the Bank are insured by the
FDIC to a maximum of $100,000 for each insured depositor. As an insured bank,
the Bank is subject to extensive supervision and examination by the FDIC, and
also is subject to FDIC regulations regarding many aspects of its business,
including types of deposit instruments offered, permissible methods for
acquisition of funds, and activities of subsidiaries and affiliates of the Bank.
The FDIC periodically makes its own examination of insured institutions.
Capital Requirements. In April 1990, the FDIC adopted the
minimum capital requirements which require a minimum leverage capital ratio
(calculated using Tier 1 capital, as defined below, compared to average total
assets for the previous quarter) of 3% for certain banks which have high
examination ratings and that are not anticipating or experiencing significant
growth. All other banks that are not highly rated or which are anticipating or
experiencing significant growth must maintain a minimum capital ratio at least
100 to 200 basis points above 3%, with a minimum of 4%. As of December 31, 1996,
the Bank's leverage capital ratio was 9.19%.
In addition, the FDIC has issued regulations providing for capital
guidelines based upon the ratio of a bank's capital to total assets adjusted for
risk. Under such FDIC regulations, a bank's risk-based capital ratio is
calculated by dividing (i) its qualifying total capital base (being the
numerator of the ratio) by (ii) its risk-weighted assets (being the denominator
of the ratio).
The elements which comprise the qualifying total capital base are: (1)
Tier 1 capital elements (which include shareholders' equity, certain preferred
stock, and minority interests in equity capital accounts of consolidated
subsidiaries); and (2) Tier 2 capital elements (which include certain preferred
stock, a limited amount of allowances for loan and lease losses, convertible
debt securities and subordinated debt, subject to certain adjustments). At least
50% of the qualifying total capital must consist of Tier 1 capital.
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Under the risk-based capital framework, a bank's balance sheet assets
and credit equivalent amounts of off- balance sheet items are assigned to one of
four broad risk categories according to the obligor or, if relevant, the
guarantor or the nature of the collateral. The aggregate dollar amount in each
category is then multiplied by the risk weight assigned to that category and the
amounts aggregated resulting in total risk-weighted assets. Banks are required
to meet a minimum ratio of qualifying total capital to risk-weighted assets of
8%, of which at least one-half should be in the form of Tier 1 capital. The
Bank's Tier 1 risk-based capital ratio was 15.00% and its total risk- based
capital ratio was 16.28% as of December 31, 1996.
FDICIA requires each federal banking agency to revise its risk-based
capital standards for insured institutions to ensure that those standards take
adequate account of interest rate risk, concentration of credit risk and the
risk of non-traditional activities, and reflect the actual performance and
expected risk of loss on multi-family residential loans. The FDIC has published
a final rule, effective September 1, 1995, for the purpose of revising its
risk-based capital standards. Such rules amend the capital standards to specify
that the FDIC will include in its evaluations of the Bank's capital adequacy an
assessment of the exposure to declines in the economic value of the Bank's
capital due to changes in interest rates. This rule does not codify a
measurement framework for assessing the level of the Bank's interest rate risk
exposure. The FDIC has stated that it will at some future date issue a proposed
rule which will establish an explicit minimum capital charge for interest rate
risk, based on the level of the Bank's measured interest rate risk exposure.
Such rule could further increase the regulatory capital requirements which are
applicable to the Bank.
FDICIA. FDICIA, which was enacted on December 19, 1991,
recapitalized the Bank Insurance Fund ("BIF") and imposed a number of regulatory
reforms on insured banks and savings associations, including reductions in
insurance coverage for certain kinds of deposits, increases in consumer-oriented
requirements, such as truth-in-savings disclosures on deposit accounts similar
to existing truth-in-lending disclosure requirements, the establishment of
risk-based premiums for deposit insurance, increased financial reporting
requirements and related requirements and responsibilities of directors' audit
committees, and major revisions in the supervision and examination processes.
FDICIA also mandated the adoption of new regulations concerning capital,
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internal controls, safety and soundness standards, prompt regulatory corrective
action (including placing severely undercapitalized institutions into
conservatorship or receivership), real estate lending standards and foreign
banks. Many of these regulations have been, or are in the process of being,
adopted by the federal banking agencies, and in some cases have resulted in
increased compliance expense for the Bank. Some of the particular areas of bank
regulation affected by FDICIA are discussed in more detail below.
Brokered Deposits. Under FDICIA, a bank cannot
accept, renew or roll over brokered deposits unless (i) it is well
capitalized or (ii) it is adequately capitalized and receives a waiver
from the FDIC. A bank is defined to be well capitalized for purposes of
this restriction if it maintains a leverage capital ratio of at least
5.00%, a Tier 1 risk-based capital ratio of 6.00%, and a total
risk-based capital ratio of at least 10.00% and is not otherwise in a
"troubled condition" as specified by its appropriate federal regulatory
agency. A bank is defined to be adequately capitalized if it meets all
minimum capital requirements. A bank that cannot receive brokered
deposits also cannot offer "pass-through" insurance on certain employee
benefit accounts. In addition, a bank that is "undercapitalized" may
not pay an interest rate on any deposits in excess of 75 basis points
over certain prevailing market rates. Undercapitalized is defined as
any institution which fails to meet the minimum capital requirement
prescribed by its appropriate federal banking agency. Currently, the
Bank is deemed "well capitalized" for purposes of these restrictions.
Federal Reserve Borrowings. Loans to undercapitalized
depository institutions are severely restricted by FDICIA. A Federal
Reserve Bank may not make advances to an undercapitalized institution
(including institutions with the lowest regulatory rating) for more
than 60 days in any 120-day period without a viability certification by
a federal banking agency or by the Chairman of the Federal Reserve
Board (after an examination by the Federal Reserve Board). If an
institution is deemed critically undercapitalized, an extension of
Federal Reserve Bank credit cannot continue for five days without
demand for payment unless the Federal Reserve Board is willing to
accept responsibility for any resulting loss to the FDIC.
Safety and Soundness Standards. Section 39 of the
FDIA, which was added by FDICIA, required each federal banking agency
to institute certain safety and soundness standards by regulation or
guideline for all insured depository institutions. Specifically, the
agencies were directed to establish three types of standards: (i)
operational and managerial standards, (ii) compensation standards and
(iii) standards relating to asset quality, earnings, and stock
valuation. Operational and managerial standards were to address
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure and asset
growth. Compensation standards were required to address unsafe and
unsound practices in connection with employment contracts, compensation
or benefit agreements, fee arrangements, perquisites, stock option
plans, post-employment benefits and other compensatory arrangements
that would provide any executive officer, employee, director or
principal shareholder of the institution with excessive compensation,
fees or benefits or could lead to material financial loss to the
institution.
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On July 10, 1995, the federal banking agencies adopted a final
rule ratifying Interagency Guidelines Establishing Standards for Safety
and Soundness (the "Guidelines"). The Guidelines addressed all
standards required by Section 39 except for those relating to asset
quality and earnings. On August 26, 1996, the FDIC issued final
regulations setting forth guidelines for the monitoring of asset
quality and earnings.
FDICIA also required each federal banking agency to adopt
uniform regulations prescribing standards for extensions of credit (i)
secured by real estate, or (ii) made for the purpose of financing the
construction of improvements on real estate. In prescribing these
standards, the banking agencies were directed to consider the risk
posed to the deposit insurance funds by real estate loans, the need for
safe and sound operation of insured depository institutions and the
availability of credit. The FDIC and the other federal banking agencies
promulgated uniform regulations, effective March 19, 1993. The
regulations require each bank to establish and maintain written
internal real estate lending standards 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. These
standards must also be consistent with the FDIC's guidelines, which
include maximum loan-to-value ratios for certain types of real estate
loans as follows: raw land (65%); land development (75%);
nonresidential construction (80%); and improved property (85%).
One-to-four family mortgages and home equity loans do not have maximum
loan-to-value ratio limits, but any such loans having a greater than
90% loan-to-value ratio at origination are expected to be backed by
private mortgage insurance or readily marketable collateral.
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 appropriately reviewed and justified. The FDIC's
guidelines also list a number of lending situations in which exceptions
to the loan-to-value standards are justified.
Restriction on Activities. FDICIA also generally
limited the activities and equity investments of FDIC-insured,
state-chartered banks to those that are permissible for national banks.
In October 1992, the FDIC issued final regulations to implement the
restrictions on equity investments and indicated its intention to
propose regulations addressing the activities limitations at a later
date. Under the regulations dealing with equity investments, an insured
state bank generally may not acquire or retain any equity investment of
a type, or in an amount, that is not permissible for a national bank.
An insured state bank is not prohibited from, among other things, (i)
acquiring or retaining a majority interest in a subsidiary, (ii)
investing as a limited partner in a partnership the sole purpose of
which is direct or indirect investment in the acquisition,
rehabilitation or new construction of a qualified housing project,
provided that such limited partnership investments may not exceed 2% of
the bank's assets, (iii) acquiring up to 10% of the voting stock of a
company that solely provides or reinsures directors' and officers'
liability insurance and (iv) acquiring or retaining the voting shares
of a depository institution if certain requirements are met. FDICIA did
provide a limited exception to the prohibition on equity investments
for certain pre-existing equity investments of insured state banks.
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<PAGE>
Specifically, under this "grandfathering" provision, an insured state
bank was authorized to retain and acquire common or preferred stock of
corporations listed on a national securities exchange or shares in
registered mutual funds to the extent that the aggregate amount of such
investments did not exceed 100% of the bank's capital, if such bank (i)
was located in a state which, as of September 30, 1991, allowed such
investments, (ii) maintained an investment in such securities during
the period beginning September 30, 1990 and ending November 26, 1991,
(iii) applied for and received approval from the FDIC, subject to
whatever conditions or restrictions the FDIC determined were necessary
or appropriate. The Bank applied to the FDIC in 1992 under this
grandfathering provision to retain certain equity investments and
received approval of its waiver request on March 15, 1993.
Audit Requirements. Pursuant to FDICIA, on February
21, 1996, the FDIC promulgated final regulations requiring that insured
depository institutions in excess of $500 million in assets have an
annual audit by an independent public accountant and establish an
independent audit committee made up of outside directors. Such
institutions must also establish and maintain internal control systems
and procedures to ensure compliance with laws and regulations
concerning safety and soundness. Independent auditors would also be
required to attest to a report separately on assertions in management's
reports by using audit procedures set by regulators for determining the
extent of compliance with laws and regulations concerning safety and
soundness.
Deposit Premiums. The Bank is currently paying $-0-
per $100 of deposits to the FDIC for the insurance of the Bank's
deposits. As mandated by FDICIA and revised by regulations adopted by
the FDIC on November 26, 1996, the FDIC established a system of
risk-based deposit insurance assessments. Both BIF and SAIF insured
institutions pay between .0% and .27% of domestic-insured deposits for
deposit insurance on their risk classification. The risk-based
assessment system is based on capital ratios and on supervisory
evaluations of the risk posed by the institution to the FDIC insurance
fund. Institutions are assigned to one of three capital groups, "well
capitalized", "adequately capitalized" and "undercapitalized," which
categories correspond to those defined under the prompt corrective
action regulations described below. Each of these three groups is then
divided into three subgroups based on supervisory examinations by the
FDIC. Insured institutions are thus classified in one of nine risk
categories, ranging from a 1A, the lowest risk, to a 3C, the highest
risk. The FDIA authorizes the Financing Corporation ("FICO") to assess
fees based on deposits of insured institutions. Such fees are not tied
to the risk based classification system and for BIF insured
institutions will be 1.296 basis points of deposits for fiscal 1997.
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The FDIC may terminate the deposit insurance of any insured
depository institution if, among other things, it determines, after
notice and a hearing, that the institution has engaged or is engaging
in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations or has violated any applicable law, regulation,
order or any condition imposed by, or under an agreement with, the
FDIC. It also may suspend deposit insurance temporarily during the
hearing process for the permanent termination of insurance, if the
institution has no tangible capital.
Prompt Corrective Action. The prompt corrective
action requirements of FDICIA provide for the classification of banks
into one of five categories according to capital levels. With respect
to banks not meeting their minimum capital levels, and depending on the
extent to which a bank is undercapitalized, federal bank regulators are
required to take certain enumerated corrective actions against such
undercapitalized banks, ranging from requiring an acceptable capital
restoration plan to placing a bank into conservatorship or receivership
in the case of a "critically undercapitalized" institution. A bank will
be categorized as "critically undercapitalized" if its tangible capital
to total assets ratio is below 2%. In general, all undercapitalized
banks are subject to restrictions on asset growth, acquisitions,
branching and business expansion and are subject to increased
monitoring by the appropriate regulator. The regulators may, or, as a
bank's capital ratio decreases, are required, to take further actions,
including imposing restrictions on rates of interest paid on deposits,
transactions with affiliates, engaging in material transactions not in
the ordinary course of business, or payments to senior officers or
requiring an institution to raise additional capital, hold new
elections for directors, dismiss directors or officers, accept an
acquisition offer, or divest any subsidiaries.
Community Reinvestment Act. The Community
Reinvestment Act of 1977 ("CRA") was enacted to encourage every
financial institution to help meet the credit needs of its entire
community, including low and moderate income neighborhoods, consistent
with the institution's safe and sound operation. Under the CRA, state
and federal regulators are required, when examining financial
institutions and when considering applications for approval of certain
merger, acquisition or other transactions, to take into account the
institution's record in helping to meet the needs of the entire
community, including low and moderate income neighborhoods. Under the
new CRA regulations, effective July 1, 1995, state and federal
regulators, in evaluating an institution's CRA record, will take into
account the results of various performance tests. These performance
tests include evaluations of the following criteria: (i) lending, (ii)
investment, (iii) service, and (iv) community development. In addition,
an institution may elect to have its performance evaluated on the basis
of a pre-approved strategic plan. Following its most recent CRA
examination as of May 13, 1996, the Bank received a "satisfactory"
rating regarding its compliance with CRA.
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Federal Reserve Board. The Federal Reserve Board has adopted
regulations that require the Bank to maintain reserves against its transaction
accounts and certain non-personal time deposits. These regulations generally
require that reserves of 3% must be maintained against amounts in transaction
accounts up to a threshold level of $49,300,000 and that a reserve of 10% must
be maintained against amounts in such accounts exceeding $49,300,000. As of
December 27, 1990, the Federal Reserve Board eliminated the requirements that a
reserve of 3% be maintained on non-personal time deposits with original
maturities of less than one and one-half years. The effect of such elimination
has resulted in increased liquidity for the Bank. However, as the amount of
non-personal time deposits with original maturities of less than one and
one-half years at the Bank is small, such increased liquidity has not been
substantial. These amounts and percentages are subject to adjustment by the
Federal Reserve Board.
[The Deregulation Act] also gives the Bank authority to borrow from the
Federal Reserve Board's "discount window."
Description of Property of Branford
The following tables set forth the location of Branford's offices and
other related information at June 30, 1997:
<TABLE>
Branford Real Properties
<CAPTION>
Lease
Expiration
Property Location Owned or Leased Date
- -------- -------- --------------- ----
<S> <C> <C> <C>
Banking Offices
- ---------------
Main Office 45 South Main Street Owned ---
Branford, CT 06405
North Branford (a) Route 80 Leased 1997
North Branford, CT 06471
East Haven (a) Route 80 Leased 2001
East Haven, CT 06513
East Haven Center (a) 263 Hemingway Street Leased 2003
East Haven, CT 06512
Branford East (a) (b) 568 East Main Street Leased 2008
Branford, CT 06405
Other Properties
- ----------------
Operations Office (a) 19 South Main Street Leased 1998
Branford, CT 06405
Parking Area (a) 19 South Main Street Leased 1998
Branford, CT 06405
- -----------------------
<FN>
(a) Current annual lease payments on the Bank's leased premises are as
follows: North Branford office - $28,140; East Haven (Foxon) office -
$31,132; East Haven Center office - $28,800; Branford East office -
$25,486; Operations Office - $14,400; and Parking Area - $9,488. The
Bank leases the Parking Area for the main office and operations office.
The Bank sublet the second floor of the Branford East office to a third
party (in June, 1995) for 5 years (with a five-year renewal option) at
$49,000 annually. These properties in general are considered to be in
good condition and adequate for the purposes for which they are used.
(b) Land lease.
The Bank's operating leases expire at various dates through 2008.
</FN>
</TABLE>
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Net rental expense under the above operating leases was $85,376,
$81,887 and $81,194 for 1996, 1995 and 1994, respectively. Future minimum
payments under non-cancelable operating leases having initial or remaining terms
in excess of one year as of December 31, 1996 were as follows:
1997 $132,756
1998 90,409
1999 92,618
2000 92,618
2001 77,052
Later years 235,402
--------
720,855
Less: Sublease rentals (167,417)
--------
Total $553,438
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Year Ended December 31, 1996
Financial Condition
General
The Bank reported net income of $1,841,000, or $.27 per weighted
average share (fully diluted), for the year ended December 31, 1996, as compared
to net income of $1,154,000 or $.17 per weighted average share (fully diluted),
for the same period in 1995. The increase in net income in 1996 was mainly due
to a reduction in noninterest expenses as well as a reduction in the provision
for loan loss due to continuing decreases in non-performing loans and an
increase in loan loss recoveries.
Nonperforming assets continued to show decreases throughout 1996,
decreasing 31% for the year after 34% and 48% decreases in the previous two
years. During 1996, writedowns on foreclosed real estate were $85,000, and loan
chargeoffs equaled $839,000. During 1995, writedowns on foreclosed real estate
totaled $203,000 and loan chargeoffs equaled $1.2 million. At December 31, 1996,
nonperforming assets totaled $3.5 million, consisting of $2.8 million in
nonaccrual loans and $684,000 in foreclosed real estate. This compared to
nonperforming assets at December 31, 1995 of $5.1 million, consisting of $4.5
million in nonaccrual loans and $621,000 in foreclosed real estate.
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Total assets increased by approximately $9.6 million to $183.5 million
at December 31, 1996 from $173.9 million at December 31, 1995. Increases in
funding included a $5.6 million increase in deposits and a $2.0 million increase
in FHLB advances. Loan demand in the Bank's market area continued to be soft,
and excess funds were invested in the securities portfolio, which accounts for
the 34% increase in interest income on securities.
In November 1995, the FDIC voted to reduce the insurance premiums paid
on deposits covered by the BIF. Under the new rates, the highest rated
institutions insured by the BIF need only pay the statutory annual minimum fee.
As a result, the Bank's FDIC premium expense for 1996 was $2,000 as compared to
$391,000 for the same period in 1995.
After having suspended the payment of dividends since February 1990,
the Board of Directors declared a $.02 per share dividend in November 1996.
Liquidity
Liquidity is the ability to meet expected and unexpected deposit
withdrawals and increased loan demand of a short term nature with a minimum loss
of principal. The Bank's principal source of liquidity includes cash receipts
from deposits, loan principal and interest payments, sales or maturities of
securities, as well as the availability of advances from the FHLB. The current
principal uses of funds include disbursements to fund securities, loan
originations, payments of interest on deposits and advances, payments of
dividends, and payments to meet operating expenses. The Bank considers the
following short-term assets, along with cash on hand, as liquid: Federal Funds
Sold, interest-bearing deposits with other banks, securities maturing within one
year, and U.S Treasury and agency securities. At December 31, 1996, the Bank's
liquidity ratio was 33.39% as compared to 26.98% at December 31, 1995 and 18.27%
at December 31, 1994.
At December 31, 1996, the Bank had approximately $5.4 million
outstanding in certificates of deposits in denominations of $100,000 or more as
compared to $5.0 million at December 31, 1995. At December 31, 1996,
approximately 30% of these deposits had scheduled maturities of three months or
less, and the withdrawal of a significant portion could have an adverse impact
on the Bank's liquidity.
At December 31, 1996, the Bank had $5.0 million in FHLB advances due to
mature within one year. These advances are reviewed on a regular basis by the
Asset/Liability Committee, which recommends either renewal or payment using
excess liquidity.
The Bank believes that it has sufficient liquidity in ordinary
circumstances to meet current and future loan demand and expected and unexpected
deposit withdrawals, especially with its borrowing capacity through the FHLB
advance program.
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Capital Resources
Capital increased at December 31, 1996 by approximately $1.7 million,
or 11.4%, over total capital at December 31, 1995 as a result of the net income
for 1996, partially offset by dividends paid and a net unrealized loss on
available-for-sale securities. This brought the Bank's leverage capital ratio to
9.19% at December 31, 1996 as compared to 8.57% at December 31, 1995. The Bank's
Tier 1 and total risk-based capital ratios at December 31, 1996 were 15.00% and
16.28%, respectively, compared to 13.36% and 14.64%, respectively, at December
31, 1995.
Loans
Continued low demand for loans in the Bank's market area contributed to
a 2.2% decrease in gross loans at December 31, 1996. Gross loans totaled $126.6
million at December 31, 1996, down from $129.5 million at December 31, 1995. The
factors contributing to this decrease were loan chargeoffs of $839,000,
transfers of $1.0 million of impaired and other nonaccrual loans to foreclosed
real estate, and loan payments and pay-offs outpacing originations.
The Bank views as nonperforming loans those loans on which it is
probable that the Bank will be unable to collect all amounts due according to
the contractual terms of the loan (impaired loans) and other loans on which it
has stopped accruing interest (nonaccrual loans). Interest income generally is
not recognized on specific impaired loans unless the likelihood of future loss
is remote. Interest payments received on impaired loans are generally applied as
a reduction of the loan principal balance. The Bank takes into income interest
received on other nonaccrual loans on a cash basis or applies such interest as a
reduction to the principal amount of the loan. The Bank's policy is to
discontinue the accrual of interest on a loan when management believes, after
considering economic and business conditions as well as periods of delinquency
and collection efforts, that the borrower's financial condition is such that the
collection of interest is doubtful.
The majority of 90 days or more past due loans are transferred to
nonaccrual status. Nonaccrual status generally continues until the loan becomes
current and has demonstrated continued current payments and an ability to
continue future payments. Management may elect to continue the accrual of
interest when the net realizable value of collateral is sufficient to cover the
principal balance and accrued interest. The Bank had no loans past due 90 days
or more on which it was still accruing interest at December 31, 1996 or at
December 31, 1995. Total past due, impaired, and other nonaccrual loans at
December 31, 1996 was $5,874,000 as compared to $8,611,000 at December 31, 1995.
Of the year-end 1996 total, approximately $3.6 million, or 65.6%, was secured by
real estate.
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At December 31, 1996 and 1995, the Bank had loans amounting to
approximately $2,211,000 and $3,369,000, respectively, that were specifically
classified as impaired. The average balance of these loans amounted to
$2,423,000 and $4,258,000 for the years ended December 31, 1996 and 1995,
respectively. The allowance for loan losses relating to these loans amounted to
approximately $275,000 and $406,000 at December 31 1996 and 1995, respectively.
Cash receipts on these loans amounted to $135,000 for the year ended December
31, 1996 and was applied $62,000 to reduce principal balances and $73,000 as
interest income. Cash receipts on impaired loans amounted to $327,000 for the
year ended December 31, 1995 and was applied $297,000 to reduce principal
balances and $30,000 as interest income. At year-end 1996 and 1995, the Bank had
no commitments to loan additional funds to any of the borrowers having impaired
or nonaccrual loans.
The adequacy of the Bank's allowance for loan losses is evaluated on a
regular basis by management and the Board of Directors in relation to the Bank's
delinquency status, economic and portfolio trends and the inherent risk in the
portfolio. In assessing such risk, potential loss exposure on significant credit
is evaluated, as are concentrations of credit within the portfolio. The
provision for loan loss charged to operating expense in any quarter is based
upon management's judgment of the amount necessary to maintain the allowance at
a level adequate to absorb possible losses. Loan losses are charged against the
allowance on a quarterly basis when management believes the collectibility of
principal is unlikely.
For the year ended December 31, 1996, the Bank booked a provision for
loan loss of $625,000, compared to $1.2 million for the year ended December 31,
1995. After chargeoffs of $358,000 (net of recoveries) for 1996, the allowance
for loan losses at year-end stood at $3,895,000, or 3.1% of gross loans,
compared to $3,628,000, or 2.8% of gross loans, at December 31, 1995. The
coverage ratio (i.e., the ratio of the allowance for loan losses to nonaccrual
loans) at December 31, 1996 was 137.5% compared to 81.3% at December 31, 1995.
This increase was due to the above mentioned decrease in nonaccruing loans and
to the increase in the allowance for loan losses.
Management believes that the current allowance for loan loss is
adequate given the decrease in nonperforming assets, previous loan experience,
the decrease in gross loans, the Bank's review of specific problem loans and
potential problem loans, and the current economic conditions. However, the
allowance is based on estimates, appraisals and judgments that may change with
changing economic conditions and the effect thereof on borrowers' collateral
values. Additional provision, chargeoffs and writedowns may be necessary as a
result of further deterioration in the loan portfolio or, if required, as a
result of regulatory examinations.
Property acquired by the Bank as a result of foreclosure or by
deed-in-lieu of foreclosure is classified as "foreclosed real estate" until such
time as it is sold or reclassified. These properties are recorded at the lower
of the carrying value of the loan plus related costs or fair value of the real
estate less estimated selling costs. Costs relating to the subsequent
development or improvement of the property are capitalized and holding costs are
charged to expense. Foreclosed real estate was $684,000 at December 31, 1996 as
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compared to $621,000 at December 31, 1995. Sales of $899,000 and writedowns of
$85,000 were offset by $1.0 million of new foreclosed properties during 1996.
Securities and Other Assets
As previously mentioned, due to low loan demand, the Bank invested its
excess liquidity in the securities portfolio. During 1996, the Bank purchased
approximately $27.5 million of U.S. Government Agency bonds and mortgage-backed
securities. Securities maturing in 1996 totaled $9.0 million. As outlined in the
Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities" (SFAS 115), the Bank is required to
identify, at time of purchase, whether a security is available-for-sale or
held-to-maturity. It is the Bank's intent that all securities purchased will be
suitable for holding to maturity, but certain securities purchased will be
placed in the available-for-sale category for liquidity purposes.
At December 31, 1996, the Bank's securities portfolio consisted of U.S.
Treasury Notes, U.S. Government Agency bonds and mortgage-backed securities. Of
the total dollar amount in the portfolio, 78.1% was classified as held-to
maturity and 21.9% was classified as available-for-sale.
At December 31, 1995, the Bank's securities portfolio also consisted of
U.S. Treasury Notes, U.S. Government Agency bonds and mortgage-backed
securities. On that date, 79.1% of the portfolio was classified as
held-to-maturity and 20.9% as available-for-sale.
Other assets, consisting mainly of prepaid expenses and miscellaneous
receivables, increased $37,000, or 21.0%, at December 31, 1996, over the level
at December 31, 1995. This increase was mainly due to an increase in prepaid
expenses for insurance and pension funding, offset by a decrease in
miscellaneous receivables.
Deposits and Advances
Deposits increased at December 31, 1996 by approximately $5.6 million
over December 31, 1995. At December 31, 1996, deposits totaled $159.3 million as
compared to $153.7 million at December 31, 1995. More competitive rates and an
aggressive marketing effort accounted for this increase. FHLB advances increased
at December 31, 1996 to $5.0 million from $3.0 million at December 31, 1995. The
additional borrowing was a result of leveraging the Bank in order to take
advantage of excess capital.
Shareholders' Equity
The Bank's shareholders' equity increased to $16.5 million at December
31, 1996 due to the net income reported for the year of $1,841,000, which was
partially offset by the payment of a $.02 per share dividend in November 1996
and by a net unrealized loss on available-for-sale securities. Shareholders'
equity at December 31, 1995 was $14.8 million.
Book value per share at December 31, 1996 was $2.51 based on 6,559,297
shares outstanding, compared to $2.26 at December 31, 1995.
Results of Operations: Comparison of Years ended December 31, 1996 and 1995
General. The Bank reported net income of $1,841,000, or $.27 per
weighted average share (fully diluted), for fiscal year 1996, as compared to net
income of $1,154,000, or $.17 per weighted average share (fully diluted), for
fiscal year 1995. This increase in income resulted from a reduction in
noninterest expenses and a reduction in the provision for loan loss.
Interest Income. Interest income on loans in 1996 decreased 4.3% from
the previous year. Even though average balances of loans decreased throughout
1996, the average yield on loans increased from 8.76% in 1995 to 8.85% in 1996.
Treasury rates, the index used for residential mortgage loans, increased during
the first half of 1996, then showed a steady decrease through the second half of
the year. Prime rate, the index used for most commercial loans, declined a
quarter of a point in February 1996. The return of nonperforming assets to
performing status also contributed to offsetting the net decrease in the loan
portfolio.
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<PAGE>
Interest income on Federal Funds Sold and the securities portfolio,
including dividends, increased $666,000, or 31.6% in 1996 over 1995, reflecting
a proportionate increase in the securities portfolio itself. High levels of
liquidity throughout 1996 coupled with low loan demand produced a 32.2% increase
in the levels of Federal Funds Sold and the securities portfolio at year-end
1996 compared to year-end 1995.
Interest Expense. Interest expense on deposits and advances from
lenders increased $236,000, or 4.1%, in 1996 as compared to 1995. Higher levels
of deposits and a slight increase in prevailing market rates contributed to this
increase. Deposits increased 3.6% in 1996 while average interest paid on
certificates of deposit equaled 5.32% in 1996 as compared to 5.23% in 1995.
Interest expense on borrowed funds was approximately the same in 1996 as in the
prior year. The $3.0 million FHLB advance, outstanding as the end of 1995,
matured in September 1996 and was renewed at lower, current rates. This
reduction in rate was offset by an increase in advances outstanding at the end
of the year.
Net Interest Income. As a result of the previously mentioned factors
(slightly higher deposit rates and low demand for loans), net interest income
decreased $58,000, or 0.8% in 1996 over that of the previous year. The Bank's
net interest margin decreased to 4.49% in 1996 from 4.66% in 1995, while the net
interest spread decreased to 4.03% in 1996 from 4.24% in 1995.
Provision for loans. The provision made by the Bank to the allowance
for loan losses decreased to $625,000 in 1996 from $1,200,000 in 1995, as
discussed in "Loans" above. The decrease in loans charged-off, the increase in
recoveries and the reductions in nonaccrual loans accounted for the decrease in
the provision.
Noninterest Income. Total noninterest income in 1996 decreased $54,000,
or 8.4%, over 1995. This decrease was mainly due to a decrease in service fees
collected on deposits.
Noninterest Expenses. Noninterest expenses, which consist of salaries
and employee benefits, net occupancy and equipment costs, foreclosed real estate
expense, collection expense, and other operating expenses, decreased $237,000,
or 4.0%, in 1996 from the previous year due mainly to the reduction in FDIC
premium expense and the decrease in foreclosed real estate expense, offset in
part by an increase in employee benefits expense.
Salaries and employee benefits increased $320,000, or 11.9%, due mainly
to an increase in the market value of the stock appreciation rights that were
issued to directors and executive officers in 1994. Stock appreciation rights
are similar to stock options except that upon the exercise of stock appreciation
rights the holder purchases no shares of stock but instead receives the amount
by which the market value of the shares as to which the stock appreciation
rights are being exercised exceeds the exercise price thereof. Due to a $1.00
increase in the market value of Branford Voting Common Stock from December 31,
1995 to December 31, 1996, the Bank expensed $345,000 in 1996 compared to
$161,000 in 1995, an increase of $184,000. Average raises of 4.00% for all
employees and an increase in the bonuses for executive officers accounted for
the remainder of the 1996 increase in salaries and employee benefits.
Occupancy and equipment expense increased $65,000, or 5.5%, in 1996
over 1995. An increase in building maintenance expense due to increased snow
removal and an architectural study of the Bank's main office for compliance with
the American with Disabilities Act accounted for the increase in occupancy
expense. An upgrade to the Bank's computer network produced higher depreciation
expense and accounted for most of the increase in equipment expense.
Foreclosed real estate expense decreased $170,000, or 42.3%, for 1996
from the previous year. Writedowns on foreclosed properties totaled $85,000 for
1996 as compared to $203,000 for 1995. Sales of foreclosed properties produced a
net loss of approximately $1,000 in 1996 as compared to a net gain in 1995 of
$52,000. Maintenance and upkeep of the properties decreased $105,000 in 1996 as
compared to 1995.
Collection expense decreased $113,000, or 50.5%, in 1996 from that of
1995 reflecting the decrease in nonaccrual loans, as described in "Loans" above.
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<PAGE>
The Bank's FDIC premium expense decreased from $391,000 to $2,000, or
almost 100%, in 1996 as compared to 1995. In November 1995, the FDIC voted to
reduce the insurance premiums paid on deposits covered by the BIF. Under the new
rates, the highest rated institutions insured by the BIF need only pay the
statutory annual minimum fee, or $2,000.
Other operating expenses increased $50,000, or 5.0% in 1996 over that
in 1995. Directors' fees were reinstituted in July 1995, with the result that
such fees in 1996 were approximately twice the level of 1995. Continued
aggressive marketing efforts to attract new depositors and loan customers
accounted for a $28,600 increase in advertising expense and a $20,000 increase
in printing and office supplies. New programs for training and re-energizing
employees increased education expense by $11,000. Legal and professional fees
decreased $30,000. Appraisal fee expense increased $18,000. Miscellaneous
expense decreased $48,000 due to a settlement in 1995 paid to a former employee
regarding an employment contract issue.
Income Taxes. Because of the Bank's net loss carryforwards, it accrued
only the minimum Connecticut corporate tax and $10,000 of Federal income tax for
1996.
Results of Operations: Comparison of Years ended December 31, 1995 and 1994
General. The Bank reported net income of $1,154,000, or $.17 per
weighted average share (fully diluted), for fiscal year 1995, as compared to a
loss of $854,000, or $.43 per weighted average share (fully diluted),
experienced in fiscal year 1995. Improved net income in 1995 primarily resulted
from increases to the securities portfolio mainly due to the investing of
capital raised in the 1994 rights offering and decreases in overhead expense
related to foreclosed real estate.
Interest Income. Interest income on loans in 1995 increased 3.6% from
the previous year. Even though average balances of loans decreased 8.9% in 1995
from the 1994 level, the average yield on loans increased to 8.76% in 1995 from
7.70% in 1994, an increase of 106 basis points or 13.8%. This increase in yield
can be attributed to the success in the reduction of nonaccrual loans throughout
1995, as well as a delayed reaction to the increase in prevailing market rates
in 1994 as variable rate mortgages repriced higher. Declining loan rates in 1995
began showing their effect on the loan portfolio toward the end of the year.
Lost income on impaired and other nonaccrual loans totalled $326,000 in 1995.
Lost income on nonaccrual loans in 1994 totalled $337,000.
Interest income on federal funds sold and the securities portfolio
increased 204.2% in 1995 over that of the previous year based on average
balances in the portfolio increasing 114.8% and increases to the average short
term yields in 1995 over 1994. In November 1994, when the funds were received
from the rights offering, the money was invested in short term U.S. Treasury
Notes until a long-term investment strategy was developed. During 1995, as the
Treasury Notes matured, the money was invested into various U.S. Treasury and
Government Agency bonds as well as mortgage-backed securities. An increase in
deposits, together with low loan demand, also contributed to the increase in the
securities portfolio.
Interest Expense. Interest expense on deposits and advances from
borrowers increased 17.8% in 1995 as compared to 1994. Even though average
balances on interest bearing liabilities decreased 4.5% in 1995 as compared to
1994, average rates paid on time deposits increased 26.3%. The Bank experienced
a shifting of deposits from savings accounts to certificates of deposit during
1995, contributing to the increase in average rates paid. Interest expense on
borrowed funds and capital leases decreased 50.2% in 1995 as compared to 1994
due mainly to the decrease of FHLB advances and expiration of leases.
Net Interest Income. As a result of the previously mentioned factors,
net interest income increased 18.5% in 1995 over that of the previous year. The
Bank's net interest margin increased to 4.66% in 1995 from 4.05% in 1994, while
the net interest spread increased to 4.24% in 1995 from 3.94% in 1994.
Provision for Loan Losses. The provision made by the Bank to the
allowance for loan losses decreased to $1,200,000 in 1995 from $1,517,000 in
1994. The decrease in the amount of loans charged-off in 1995 and the reduction
of nonaccrual loans attributed for the decrease in the provision for 1995. The
coverage ratio (the amount of the allowance for loan losses divided by
nonaccrual loans) increased to 81.3% at December 31, 1995 from 48.3% at December
31, 1994.
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<PAGE>
Noninterest Income. Total noninterest income in 1995 decreased 48.9%
over 1994 due mainly to the sale of the Bank's Trust Department in June 1994.
Income received from the Trust Department in 1994 prior to the sale thereof
amounted to $222,000 and the gain on the sale amounted to $429,000. Offsetting
some of this Trust Department-related income in 1994 was a loss in 1994 on the
sale of a mutual fund held in the securities portfolio. Noninterest income,
without regard to the Trust Department income and sales on securities, equaled
$631,000 for 1995 as compared to $640,000 in 1994.
Noninterest Expenses. Noninterest expenses, which consist of salaries
and employee benefits, net occupancy and equipment costs, foreclosed real estate
expense, collection expense, and other operating expenses, decreased $1.1
million, or 15.9% in 1995 compared to the previous year due mainly to a decrease
in foreclosed real estate expense, particularly in writedowns on these
properties.
Salaries and employee benefits increased $285,000 or 11.9% over 1994
levels. At the end of 1994, the directors and executive officers were issued
stock appreciation rights which entitle each holder to the market value
appreciation of the Bank's stock over the life of the stock appreciation right,
payable in cash. Based on the market value of Bank Voting Common Stock, at
December 31, 1995, the Bank expensed $161,000 on stock appreciation rights for
1995. Average raises for all employees of 4.0% and additional personnel
accounted for a $92,000 increase in salaries, and a $40,000 increase in expense
for postretirement benefits accounted for the remainder of the increase in
salaries and benefits.
Occupancy and equipment expense decreased $143,000 or 10.7%.
Renegotiation of the Bank's data center contract for computer services accounted
for a $79,000 decrease in equipment expense, while reductions in depreciation
expense on the Bank's building and furniture and equipment accounted for a
$47,000 decrease in occupancy expense. Miscellaneous maintenance expense on the
Bank's properties also decreased $14,000 due mainly to less snow removal during
the 1994-95 winter.
Foreclosed real estate expense decreased $1.3 million or 75.8% due
mainly to a decrease in writedowns on these properties. Writedowns on foreclosed
real estate for 1995 totaled $203,000, down from $1,131,000 for 1994. Sales of
foreclosed real estate produced a gain of $52,000 during 1995 as compared to a
loss of $122,000 in 1994. Maintenance and upkeep of foreclosed properties
decreased between 1994 and 1995 in proportion to the decrease in the balance of
foreclosed real estate.
Collection expense decreased $132,000 or 37.1% in 1995 reflecting the
decrease in nonaccrual loans. Nonaccrual loans decreased 37.0% to $4,463,000 at
December 31, 1995 from $7,078,000 at December 31, 1994.
The Bank's FDIC premiums decreased $99,000 or 20.2% in 1995. The FDIC
reduced the premiums paid by banks in 1995, when the BIF became fully funded.
This reduction in premiums, along with a rebate of approximately $30,000
associated with the reduction in premiums, accounted for the decrease in total
premiums paid for 1995.
Other operating expenses increased $230,000 or 30.1% in 1995. Increased
coverage under the directors' and officers' liability insurance policy increased
the premium expense by approximately $40,000. Legal and professional fees
increased $89,000. Marketing efforts to attract new deposits and loan customers
accounted for a $19,000 increase in advertising and public relations expense.
Directors' fees which were discontinued in 1991 due to the losses incurred were
reinstated in 1995 and totaled $30,000. A settlement of $50,000 was paid in 1995
to a former employee regarding an employment contract issue.
Income Taxes. Because of the Bank's net loss carryforwards, it accrued
no federal income tax for 1995 and only the minimum Connecticut corporate tax.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Six Months Ended June 30, 1997
Results of operations
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<PAGE>
Branford reported net income of $1,082,000, or $.16 per weighted
average share, assuming dilution, for the first six months of 1997, a 34.1%
increase over the same period the previous year. Net income for the six months
ended June 30, 1996 was $807,000, or $.12 per weighted average share, assuming
dilution. The increase in net income between the comparable periods is mainly
attributable to a reduction in the provision for loan losses and an increase in
interest received from investment securities.
Net interest income increased $224,000, or 6.1%, for the six months
ended June 30, 1997 as compared to the same period in the previous year. The
investment of excess liquidity resulting from increased deposit levels into the
securities portfolio produced an increase in interest and dividends on
securities of $328,000, or 25.5%, for the six months ended June 30, 1997,
compared to the same period in 1996.
The provision for loan losses for the first six months of 1997 was
$150,000 as compared to $375,000 for the first six months of 1996, a decrease of
60.0%. A reduction in nonperforming loans of 27.6% between June 30, 1996 and
June 30, 1997 contributed to the decrease in the loan loss provision.
Non-interest income decreased $21,000, or 7.0%, for the six months
ended June 30, 1997, as compared to the same period in 1996, due mainly to
reductions in service fees collected on deposits.
Non-interest expense increased $132,000, or 4.7%, for the six months
ended June 30, 1997, as compared to the same period in 1996. Salaries and
employee benefits increased $194,000, or 13.5%, for the six months ended June
30, 1997, over the same period in the previous year. An increase of $131,000 in
the value of stock appreciation rights and an average 4.00% salary increase
resulting from performance reviews accounted for these increases. An increase in
occupancy and equipment expense of $16,000 for the six months ended June 30,
1997 was due mainly to increases in maintenance expense of $8,000, depreciation
expense of $8,000, telephone expense of $5,000, and equipment contracts of
$5,000, offset by a decrease in computer center service fees of $14,000. Net
foreclosed real estate expense decreased $63,000, or 41.2%, for the six months
ended June 30, 1997, as compared to the same period in 1996. These decreases can
be mainly attributed to reductions in maintenance costs of $14,000, net gains
and losses of sales of $8,000, and valuation allowances of $40,000. Collection
expense decreased $35,000, or 56.5%, for the six months ended June 30, 1997,
respectively, over the same period in 1996. These decreases are due mainly to
the above mentioned 27.6% reduction in nonperforming loans. An increase in FDIC
insurance premiums of $9,000 for the six months ended June 30, 1997 is a result
of premiums paid to fund the Financing Corporation Bank Insurance Fund. An
increase in other operating expenses of $11,000 for the six months ended June
30, 1997 may be attributed to increases in advertising of $14,000 and education
and training of $6,000, offset by a decrease in insurance of $12,000.
Financial condition
Liquidity
Liquidity is the ability to meet expected and unexpected deposit
withdrawals and increased loan demand of a short-term nature with a minimum loss
of principal. The Bank's principal sources of liquidity include cash receipts
from deposits, loan principal and interest payments, earnings, investment
principal and interest payments, and sales or maturities of investments as well
as advances from the FHLB. The current principal uses of funds include
disbursements to fund investments and loan originations, payments of interest on
deposits and advances, payment of dividends, and payments to meet operating
expenses. The Bank considers the following short-term assets, along with cash on
hand, as liquid: Federal funds sold, interest-bearing deposits with other banks,
89
<PAGE>
investment securities maturing in one year or less, marketable equity, and U.S.
Treasury and agency securities. At June 30, 1997, the Bank's liquidity ratio was
37.35% as compared to 33.39% at December 31, 1996 and 30.59% at June 30, 1996.
At June 30, 1997, the Bank had approximately $6.2 million of
outstanding certificates of deposit in denominations of $100,000 or more. The
Bank believes that it has sufficient liquidity in ordinary circumstances to meet
current and future loan demand and expected and unexpected deposit withdrawals.
Capital Resources
At June 30, 1997, the Bank's leverage capital ratio was 9.58% as
compared to 9.19% at December 31, 1996 and 8.87% at June 30, 1996. The Bank's
Tier 1 and total risk-based capital ratios at June 30, 1997 were 16.28% and
17.56%, respectively, as compared to 15.00% and 16.28%, respectively, at
December 31, 1996 and 14.27% and 15.55%, respectively, at June 30, 1996.
Loans
Continued low loan demand in the Bank's market area and early payoffs
of loans has caused a 3.2% decrease in gross loans in the first six months of
1997.
For a discussion of the Bank's general policies and procedures with
respect to impaired, nonaccrual and 90 days past due loans, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Year
Ended December 31, 1996", above.
At June 30, 1997, the Bank had loans amounting to $2,082,000 that were
specifically classified as impaired as compared to $2,211,000 at December 31,
1996 and $2,100,000 at June 30, 1996. The allocation for allowances for loan
loss reserves relating to impaired loans totaled $228,000 at June 30, 1997, as
compared to $275,000 at December 31, 1996 and $221,000 at June 30, 1996. Other
nonaccrual loans totaled $862,000 at June 30, 1997, as compared to $982,000 at
December 31, 1996 and $1,255,000 at June 30, 1996. At June 30, 1997, the Bank
had no loans past due 90 days or more on which it was still accruing interest.
The same was true at December 31, 1996.
For a discussion of the Bank's general policies and procedures
regarding its allowance for loan losses and provisions thereto, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations- Year Ended December 31, 1996", above.
The Bank booked a provision for loan losses of $150,000 for the six
months ended June 30, 1997, as compared to $375,000 for the same period in 1996.
After charge-offs, net of recoveries, of $303,000 for the first six months of
1997, the allowance for loan losses stood at $3,742,000 at June 30, 1997 as
compared to $3,895,000 at December 31, 1996 and $3,592,000 at June 30, 1996. The
coverage ratio (the amount of allowance for loan losses divided by nonaccrual
loans) at June 30, 1997 was 144.53% as compared to 137.49% at December 31, 1996,
and 120.66% at June 30, 1996.
Management believes that the current allowance for loan loss is
adequate given the decrease in nonperforming loans, previous loan experience,
the decrease in gross loans, the Bank's review of specific problem loans and
potential problem loans, and the current economic conditions. However, the
allowance is based on estimates, appraisals, and judgments that may change with
changing economic conditions and the effect thereof on borrowers and collateral
values. Additional provisions, charge-offs and writedowns may be necessary as a
result of further deterioration in the loan portfolio or, if required, as a
result of regulatory examinations.
For a discussion of the Bank's general policy and procedures on real
estate foreclosure, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Year Ended December 31, 1996", above.
Foreclosed real estate at June 30, 1997 totaled $60,000 as compared to $684,000
at December 31, 1996 and $680,000 at June 30, 1996. The sales of foreclosed real
estate during the first six months of 1997 totaled $774,000 while the additions
to foreclosed real estate totaled $167,000. Writedowns on foreclosed real estate
for the first six months of 1997 totaled $17,000 as compared to $58,000 for the
same period in 1996.
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<PAGE>
Securities and Other Assets
During the first six months of 1997, the Bank purchased $20,922,000
worth of securities classified as held- to-maturity and $1,001,000 worth of
securities classified as available-for-sale. During this same period, $6,250,000
worth of securities classified as held-to-maturity and $4,000,000 worth of
securities classified as available-for-sale had matured. At June 30, 1997 the
Bank's portfolio consisted mainly of short term U.S. Treasury notes, U.S.
Government Agency bonds, and mortgage-backed securities.
Other assets consisted mainly of prepaid expenses and miscellaneous
receivables. Other assets at June 30, 1997, increased $151,000, or 70.9%, over
the level at December 31, 1996, due to an increase in miscellaneous prepaid
expenses and miscellaneous receivables.
Deposits and Advances
Deposits increased by $4,039,000, or 2.5% at June 30, 1997 compared to
December 31, 1996. An aggressive marketing effort by the Bank and recent
customer dislocation resulting from consolidations of other banks accounted for
this increase. FHLB advances decreased $2,000,000 at June 30, 1997 from December
31, 1996. During the first six months of 1997 $5,000,000 in advances was repaid
at maturity while $3,000,000 of new advances was taken.
Principal Shareholders
The following table shows, as of the Record Date, each person
(including any "group" as that term is used in section 13(d)(3) of the Exchange
Act) known to Branford to be the beneficial owner of more than 5% of the
outstanding shares of Branford Voting Common Stock or Branford Non-voting Common
Stock. In preparing the following table, Branford has relied on information
furnished by such persons either directly or in their Forms F-11 and F-11A, as
filed with the FDIC.
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Class
------------------------------------ -------------------- -----
<S> <C> <C>
Voting Common Stock:
--------------------
Moses Marx 1,252,800 24.19%
160 Broadway
New York, New York 10038
Non-voting Common Stock:
------------------------
First Union Bancorporation 1,379,533 100%
301 South College Street
Charlotte, N.C. 28288
</TABLE>
Security Ownership of Management
The following table shows as of the Record Date, the number and
percentage of outstanding shares of Branford Voting Common Stock beneficially
owned by each director and executive officer of Branford and the directors and
executive officers of Branford as a group. Except as indicated in the notes
following the table below, the directors and executive officers had sole voting
and investment power of the Branford Voting Common Stock listed as being
beneficially owned by them.
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<PAGE>
<TABLE>
<CAPTION>
Branford Voting Common Stock
---------------------------------------------------
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership (1) Beneficially Owned*(a)
------------------------ --------------------- ----------------------
<S> <C> <C>
Richard W. Kahl, Director 4,706 .09%
Edward L. Marcus, Director 141,441(b) 2.73%
George S. Warburg, Director 97,500(c) 1.88%
Patricia M. Widlitz, Director 19,200(d) .37%
William C. Brierley, Director 10 .00%
Vincent J. Della Rocca, Director -- .00%
Alan R. House, Director 25,100 .48%
Donald Press, Director 49,000(e) .95%
Robert J. Mariano, Director and President 7,011(f) .14%
Bernard H. Page, Director 753(e) .01%
Bruce E. Storm, Director -- .00%
David M. Trout Jr., Director 27,011(f) .52%
Directors & Executive Officers
as a Group (16 Persons) 364,722 7.04%
<FN>
* In accordance with applicable FDIC regulations, percentages are
calculated on the basis of the amount of outstanding voting securities,
i.e., outstanding shares of Branford Voting Common Stock.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is
deemed to be the beneficial owner, for purposes of this table, of any
shares of Branford Voting Common Stock (1) over which such person has
or shares voting or investment power, or (2) of which such person has
the right to acquire beneficial ownership at any time within 60 days
from the Record Date. As used herein, "voting power" is the power to
vote or direct the voting of shares and "investment power" is the power
to dispose or direct the disposition of shares. All persons shown in
the table above have sole voting and investment power, except as
otherwise indicated.
(a) The directors and executive officers do not own any shares of the
Branford Non-voting Common Stock.
(b) Includes 6,500 shares owned jointly with spouse and 5,000 shares owned
by spouse as to which Mr. Marcus disclaims beneficial ownership.
(c) All 19,200 shares are indirectly owned by spouse as to which Mrs.
Widlitz disclaims beneficial ownership.
(d) Includes 33,000 shares indirectly owned through retirement plan.
(e) Includes 7,011 shares owned by the Bank's 401(k) Plan, of which Mr.
Mariano and Mr. Trout serve as co-trustees.
(f) Includes 127 shares owned jointly with spouse.
</FN>
</TABLE>
Pursuant to a Voting Agreement dated November 1, 1994 between Branford
and First Union Bancorporation, Charlotte, North Carolina, successor by merger
to Centerbank, Branford directors, Robert J. Mariano and George S. Warburg have
sole voting power with respect to all issued and outstanding shares of Branford
Non-voting Common Stock, to the extent such shares are required by law to
possess voting power in certain matters.
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<PAGE>
Legal Proceedings
Branford is not a party to any material litigation, other than routine
litigation incidental to the ordinary course of business. Management does not
expect that Branford's ultimate liability, if any, arising out of such
litigation, will have a material adverse effect on its financial condition.
Independent Accountants
A representative of Branford's independent auditors, Seward & Monde, is
expected to be present at the Special Meeting to respond to shareholders'
questions and to make a statement if he or she desires to do so.
Section 16(a) Compliance
Section 16(a) of the Exchange Act requires Branford's officers and
directors, and persons who own more than ten percent of a registered class of
Branford's equity securities, to file reports of ownership and changes in
ownership with the FDIC. Officers, directors and greater than ten percent
shareholders are required by FDIC regulation to furnish Branford with copies of
all Section 16(a) forms they file. Based solely on its review of the copies of
Forms F-7, F-8 and F-8A furnished to it, or written representations from certain
reporting persons that no such forms were required for those persons, Branford
believes that during fiscal 1996 all filing requirements applicable to its
executive officers, directors and greater than ten percent beneficial owners
were complied with, except that director Patricia Widlitz filed a form on
February 13, 1997, reporting purchases made by her husband of Branford Common
Stock on August 4, 1995, August 7, 1995, August 11, 1995, September 3, 1996 and
February 13, 1997.
REGULATORY CONSIDERATIONS APPLICABLE TO NORTH FORK
General
North Fork is a bank holding company subject to supervision and
regulation by the Federal Reserve Board under the BHC Act. As a bank holding
company, North Fork's activities and those of its banking and nonbanking
subsidiaries are limited to the business of banking and activities closely
related or incidental to banking, and North Fork may not directly or indirectly
acquire the ownership or control of more than five percent of any class of
voting shares or substantially all of the assets of any company, including a
bank, without the prior approval of the Federal Reserve Board. Because as a
result of the Merger, North Fork will become the owner of 100 percent of the
outstanding voting shares of the Bank, North Fork must obtain the prior approval
of the Federal Reserve Board before consummating the Merger.
The Bank, as a Connecticut-chartered stock-form savings bank, is
subject to the supervision, regulation, and examination by the Connecticut
Department of Banking and the FDIC. The FDIC has broad enforcement authority
over federally-insured depository institutions, including the power to terminate
deposit insurance, to appoint a conservator or receiver if any of a number of
conditions are met, and to impose substantial fines and other civil penalties.
Almost every aspect of the operations and financial condition of the Bank is
subject to extensive regulation and supervision and to various requirements and
restrictions under federal and state law, including requirements governing
capital adequacy, liquidity, earnings, dividends, reserves against deposits,
management practices, branching, loans, investments, and the provision of
services. Various consumer protection laws and regulations also affect the
operations of the Bank. The deposits of the Bank are insured up to applicable
limits by the FDIC.
Supervision and regulation of bank holding companies and their
subsidiaries are intended primarily for the protection of depositors, the
deposit insurance funds of the FDIC and the banking system as a whole, not for
the protection of bank holding company shareholders or creditors.
The following description summarizes some of the legal and bank
regulatory restrictions applicable to North Fork and its subsidiaries, including
North Fork Bank. To the extent statutory or regulatory provisions or proposals
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are described, the description is qualified in its entirety by reference to the
particular statutory or regulatory provisions or proposals.
Payment of Dividends
North Fork is a legal entity separate and distinct from its
subsidiaries. The principal current source of North Fork's cash revenues is
dividends from North Fork Bank. There are various legal and regulatory
limitations under federal and state law on the extent to which a banking
subsidiary may finance or otherwise supply funds to its holding company and on
the extent to which a bank holding company may pay dividends to its
shareholders.
Under federal law, a depository institution is prohibited from paying a
dividend if the depository institution would thereafter be "undercapitalized" as
determined by the federal bank regulatory agencies.
In addition, dividends from a state-chartered bank, such as North Fork
Bank (and Branford, if the Merger is completed), are typically limited by state
banking law and the regulations issued thereunder by the relevant state banking
authorities.
At the level of the holding company, Federal Reserve Board policy
provides that, as a matter of prudent banking, a bank holding company generally
should not maintain a rate of cash dividends unless its net income available to
common shareholders has been sufficient to fully fund the dividends, and the
prospective rate of earnings retention appears to be consistent with the holding
company's capital needs, asset quality and overall financial condition.
The relevant federal and state bank regulatory agencies also have
authority to prohibit a bank or bank holding company from engaging in what, in
the opinion of such regulatory body, constitutes an unsafe or unsound practice
in conducting its business. Under particular circumstances, the payment of
dividends by a financial institution might be deemed by regulators to constitute
such an unsafe or unsound practice and thus prohibited, even if such payment
would otherwise comply with applicable laws and regulations.
In addition, the provisions of the Note Purchase Agreement, between
North Fork and Allstate Life Insurance Company (the "Note Purchase Agreement"),
impose certain limitations on the payment of dividends by North Fork. North
Fork's dividend capability under the Note Purchase Agreement will increase by an
amount equal to the sum of 30% of the cumulative Consolidated New Income (as
defined therein) for North Fork plus the net cash proceeds to North Fork from
the issuance of any common stock, and will decrease by, among things, an amount
equal to a specified percentage of the purchase price of certain Restricted
Assets (as defined therein). While there can be no assurance as to the future
payment of dividends on the North Fork Common Stock, North Fork does not
currently expect the provisions of the Note Purchase Agreement to impede North
Fork's ability to pay future dividends in accordance with past practice.
Transactions with Affiliates
Any FDIC-insured bank is subject to restrictions under federal law on
certain transactions between the bank and its nonbanking subsidiaries, including
loans, other extensions of credit, investments or asset purchases. These
restrictions currently apply to transactions between North Fork Bank and its
non-bank affiliates, including North Fork (and after the Merger would apply to
transactions between the Resulting Bank and its non-bank affiliates, including
North Fork). Such transactions by a bank with any one affiliate are limited in
amount to ten percent of the bank's capital and surplus and, with all affiliates
together, to an aggregate of twenty percent of such bank's capital and surplus.
Furthermore, such loans and extensions of credit, as well as certain other
transactions, are required to be secured in specified amounts. These and certain
other transactions, including any payment of money, must be on terms and
conditions that are offered (or in good faith would be offered) to nonaffiliated
companies.
Holding Company Liability
Under Federal Reserve Board policy, a bank holding company is expected
to act as a source of financial strength to each of its banking subsidiaries and
commit resources to their support. Such support may be required at times when,
absent this Federal Reserve Board policy, a holding company may not be inclined
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to provide it. As discussed below under "Prompt Corrective Action," a bank
holding company in certain circumstances may be required to guarantee the
capital plan of an undercapitalized banking subsidiary.
In the event of a bank holding company's bankruptcy under Chapter 11 of
the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is
required to cure immediately any deficit under any commitment by the debtor
holding company to any of the federal banking agencies to maintain the capital
of an insured depository institution, and any claim for breach of such
obligation will generally have priority over most other unsecured claims.
Capital Adequacy
<TABLE>
Leverage and Risk-based Capital Ratios
<CAPTION>
Risk-Based Ratios
Leverage Tier 1 Total
As of June 30, 1997 Ratio Capital Capital
- ------------------- ----- ------- -------
<S> <C> <C> <C>
North Fork.................................................. 8.13% 14.04% 15.29%
North Fork Bank............................................. 6.43 11.30 12.56
Minimum required ratio...................................... 3.0* 4.0 8.0
"Well capitalized" minimum ratio............................ 5.0 6.0 10.0
<FN>
* For all but the most highly-rated bank holding companies and banks, the
minimum required leverage ratio is 3% plus an additional percentage of at
least 100 to 200 basis points; expansion-oriented institutions also are
subjected to higher minimum leverage ratios.
</FN>
</TABLE>
The Federal Reserve Board has issued standards for measuring capital
adequacy for bank holding companies. These standards are designed to provide
risk-responsive capital guidelines and to incorporate a consistent framework for
use by financial institutions operating in major international financial
markets. Federal bank regulators have issued standards for banks and thrifts
that are similar but not identical to the standards for bank holding companies.
In general, the risk-related standards require banks and bank holding
companies to maintain capital based on "risk-adjusted" assets so that categories
of assets with potentially higher credit risk will require more capital backing
then categories with lower credit risks. In addition, banks and bank holding
companies are required to maintain capital to support off-balance sheet
activities such as loan commitments.
Under the risk-based capital standard, the minimum consolidated ratio
of total capital to risk-adjusted assets (including certain off-balance sheet
items, such as standby letters of credit) required by the Federal Reserve Board
for bank holding companies is currently 8%. At least one-half of the total
capital must consist of so-called Tier 1 capital, comprising common equity,
retained earnings, qualifying non-cumulative perpetual preferred stock, a
limited amount of qualifying cumulative perpetual preferred stock and minority
interest in the equity accounts of consolidated subsidiaries, plus certain items
such as goodwill and certain other intangible assets. The remainder may consist
of so-called "Tier 2" capital, defined as qualifying hybrid capital instruments,
perpetual debt, mandatory convertible debt securities, a limited amount of
subordinated debt, preferred stock that does not qualify as Tier 1 Capital and a
limited amount of loan and lease loss reserves.
In addition to the risk-based standard, the Federal Reserve Board has
established minimum leverage ratio guidelines for bank holding companies. These
guidelines provide for a minimum ratio of Tier 1 capital to adjusted average
total assets less goodwill and certain other intangibles (the "Leverage Ratio")
of 3% for bank holding companies that meet certain specified criteria, including
having the highest regulatory rating. Other bank holding companies, including
expansion-oriented holding companies, generally are required to maintain a
Leverage Ratio of at least 4% to 5%. Neither North Fork nor its banking
subsidiary, North Fork Bank, has been advised by its primary banking regulator
of any specific Leverage Ratio applicable to it.
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The Federal Reserve Board has indicated that it will consider a
"tangible Tier 1 capital leverage ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities. In addition, the regulations of the Federal Reserve Board provide
that concentration of credit risk and certain risks arising from nontraditional
activities as well as an institution's ability to manage these risks, are
important factors to be taken into account by regulatory agencies in assessing
an organization's overall capital adequacy.
The FDIC has also established risk-based and leverage capital
guidelines which state non-member banks are required to meet. These regulations
are generally similar to those established by the Federal Reserve Board for bank
holding companies. The capital ratios for North Fork and North Fork Bank are
provided in the chart above.
The federal banking agencies have adopted amendments to their
risk-based capital regulations to provide for the consideration of interest rate
risk in the agencies' determination of a banking institution's capital adequacy.
The amendments require such institutions to effectively measure and monitor
their interest rate risk and to maintain capital adequate for that risk.
Pursuant to FDICIA, as enacted in 1991, the federal banking agencies
were required to implement a capital classification system for insured
institutions under which banks would be ranked in one of five capital categories
ranging from "well capitalized" to "critically undercapitalized," depending on
their capital strength. See the discussion of this classification system, and
the potential consequences for banks that fall into one of the lower capital
categories, in "INFORMATION ABOUT BRANFORD-Regulation," above. As of June 30,
1997, both North Fork and North Fork Bank exceeded by wide margins the required
capital ratios for classification as "well capitalized." These required ratios
are provided in the chart above.
FDIC Insurance Assessments
The deposits of North Fork Bank are primarily insured by the BIF. In
addition, certain deposits of North Fork Bank that are related to the bank's
prior acquisitions of a savings association and branches of a federal savings
bank are insured by the FDIC's Savings Association Insurance Fund (the "SAIF").
The FDIC has adopted a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk involved in its activities. Under this risk based insurance
system, BIF- and SAIF-insured deposits are currently assessed at a rate within
the range of 0 to 27 cents per $100 of eligible deposits, with BIF-insured
deposits generally being assessed at lower rates than SAIF-insured deposits.
In 1996, Congress enacted legislation that, among other things, was
intended to eliminate the deposit insurance premium disparity between BIF- and
SAIF-insured deposits by utilizing BIF assessments to help fund debt service on
certain Financing Corporation (FICO) bonds, resulting in higher insurance
premiums for certain BIF-insured deposits and lower insurance premiums for
SAIF-insured deposits. Institutions with SAIF-insured deposits such as North
Fork Bank were subject to a one-time special assessment on their SAIF-assessable
deposits. In connection with this assessment, North Fork recognized a one-time
charge for the quarter ended September 30, 1996 of approximately $5.0 million,
net of taxes.
Control Acquisitions
The Change in Bank Control Act prohibits a person or group of persons
from acquiring "control" of a bank holding company such as North Fork unless the
Federal Reserve Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of 10% or more of a class of voting stock of a bank holding company
with a class of securities registered under Section 12 of the Exchange Act
would, under the circumstances set forth in the presumption, constitute
acquisition of control of such holding company.
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Interstate Acquisitions
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle-Neal Act") authorized adequately capitalized and adequately managed
bank holding companies, with Federal Reserve Board approval, to acquire banking
institutions located in states other than the acquiring holding company's home
state without regard to whether the transaction is prohibited under the law of
either state. In addition, under the Riegle- Neal Act, effective June 1, 1997,
national and state banks located in different states were permitted to merge
across state lines, with the approval of the appropriate federal banking agency,
unless the home state of either bank had passed legislation prior to that date
expressly prohibiting interstate mergers (and only Texas and Montana did so).
Under the interstate merger provisions of Riegle-Neal Act and the
applicable banking laws of New York and Connecticut, North Fork Bank and
Branford would be permitted to merge and form a single bank with one home office
and a common name and branches in both states. However, the managements of North
Fork and Branford have not proposed this as part of the transaction in question
and currently have no plans to merge the two banks.
Future Legislation
Various legislation, including proposals to overhaul the bank
regulatory system, expand the powers of banking institutions and bank holding
companies and limit the investments that a depository institution may make with
insured funds, is from time to time introduced in Congress. Such legislation may
change banking statutes and the operating environment of North Fork and its
subsidiaries in substantial and unpredictable ways. North Fork cannot determine
the ultimate effect that potential legislation, if enacted, or implementing
regulations, would have upon the financial condition or results of operations of
North Fork or its subsidiaries.
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DESCRIPTION OF NORTH FORK CAPITAL STOCK
General
The authorized capital stock of North Fork consists of 200,000,000
shares of North Fork Common Stock and 10,000,000 shares of preferred stock, par
value $1.00 per share ("North Fork Preferred Stock"), issuable in one or more
series with such terms and at such times and for such consideration as the North
Fork Board determines. As of June 30, 1997, 66,051,463 shares of North Fork
Common Stock (including 56,004 shares of treasury stock) and no shares of North
Fork Preferred Stock had been issued.
As of June 30, 1997, approximately 1,827,502 shares of North Fork
Common Stock had been reserved for issuance upon the exercise of outstanding
stock options under various employee stock option plans and 865,604 shares of
North Fork Common Stock were reserved for issuance pursuant to North Fork's
dividend reinvestment and stock purchase plan and 401(k) plan. In addition,
1,000,000 shares of a series of North Fork Preferred Stock designated as Series
A Junior Participating Preferred Stock, par value $1.00 per share (the "Series A
Preferred"), were reserved for issuance as provided in the Rights Plan described
below.
The following description contains a summary of all the material
features of the capital stock of North Fork but does not purport to be complete
and is subject in all respects to the applicable provisions of the Delaware
General Corporate Law (the "Delaware Corporation Law") and is qualified in its
entirety by reference to the Certificate of Incorporation of North Fork (the
"North Fork Certificate"), the Bylaws of North Fork ("North Fork Bylaws") and
the terms of the Rights Agreement (the "North Fork Rights Agreement"), between
North Fork and North Fork Bank, as Rights Agent, dated as of February 28, 1989,
described below.
Common Stock
The outstanding shares of North Fork Common Stock are fully paid and
nonassessable. Holders of North Fork Common Stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the shareholders
and have no preemptive rights. Holders of North Fork Common Stock are not
entitled to cumulative voting rights with respect to the election of directors.
The North Fork Common Stock is neither redeemable nor convertible into other
securities, and there are no sinking fund provisions.
Subject to the preferences applicable to any shares of North Fork
Preferred Stock outstanding at the time, holders of North Fork Common Stock are
entitled to dividends when and as declared by the North Fork Board from funds
legally available therefor and are entitled, in the event of liquidation, to
share ratably in all assets remaining after payment of liabilities.
The North Fork Certificate and the North Fork Bylaws provide that the
North Fork Board is to be divided into three classes which shall be as nearly
equal in number as possible. Directors are elected by classes to three year
terms, so that approximately one-third of the directors of North Fork are
elected at each annual meeting of the shareholders. In addition, the North Fork
Bylaws provide that the power to fill vacancies is vested in the North Fork
Board. The overall effect of such provisions may be to prevent a person or
entity from seeking to acquire control of North Fork through an increase in the
number of directors on the North Fork Board and the election of designated
nominees to fill such newly created vacancies.
Rights Plan
On February 28, 1989, the North Fork Board declared a dividend
distribution of one right (a "Right") for each outstanding share of North Fork
Common Stock to shareholders of record at the close of business on March 13,
1989. Each Right entitles the registered holder to purchase from North Fork a
unit consisting of one one-hundredth of a share (a "Unit") of Series A Preferred
at a Purchase Price of $70 per Unit, subject to adjustment. The description and
terms of the Rights are set forth in the North Fork Rights Agreement. Unless
otherwise defined herein, all capitalized terms used herein shall have the
meanings set forth in the North Fork Rights Agreement.
Initially, the Rights will be attached to all North Fork Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the North Fork
Common Stock and a Distribution Date will occur upon the earlier of (i) 10 days
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following a public announcement that a person or group of affiliated or
associated persons (an "Acquiring Person") has acquired, or obtained the right
to acquire, beneficial ownership of 20% or more of the outstanding shares of
North Fork Common Stock (the "Stock Acquisition Date"), (ii) 10 business days
following the commencement of a tender offer or exchange offer that would result
in a person or group beneficially owning 20% or more of such outstanding shares
of North Fork Common Stock or (iii) 10 days after the North Fork Board
determines that any person, alone or together with its affiliates and
associates, has become the Beneficial Owner of an amount of North Fork Common
Stock which such directors determine to be substantial (which amount shall in no
event be less than 10% of the shares of North Fork Common Stock outstanding) and
such directors, after reasonable inquiry and investigation, including
consultation with such persons as such directors shall seem appropriate, shall
determine that (a) such beneficial ownership by such person is intended to cause
North Fork to repurchase the North Fork Common Stock beneficially owned by such
person or to cause pressure on North Fork to take action or enter into a
transaction or series of transactions intended to provide such person with
financial gain under circumstances where the North Fork Board determines that
the best interests of North Fork and its shareholders would not be served by
taking such action or entering into such transactions or series of transactions
at that time or (b) such beneficial ownership is causing or reasonably likely to
cause a material adverse impact (including, but not limited to, impairment of
relationships with customers or impairment of North Fork's ability to maintain
its competitive position) on the business or prospects of North Fork (any such
person being referred to herein and in the North Fork Rights Agreement as an
"Adverse Person"). Pursuant to the North Fork Rights Agreement, North Fork
reserves the right to require prior to the occurrence of a Triggering Event (as
defined below) that, upon any exercise of Rights, a number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on March 13, 1999, unless earlier redeemed by
North Fork as described below.
In the event that (i) a person becomes the beneficial owner of 20% or
more of the then outstanding shares of North Fork Common Stock (except pursuant
to an offer for all outstanding shares of North Fork Common Stock which the
independent directors determine to be fair to and otherwise in the best
interests of North Fork and its shareholders) or (ii) the North Fork Board
determines that a person is an Adverse Person (any of such events being referred
to herein as a "Flip-in Event"), each holder of a Right will thereafter have the
right to receive, upon exercise, North Fork Common Stock (or, in certain
circumstances, cash, property or other securities of North Fork) having a value
equal to two times the exercise price of the Right. Notwithstanding any of the
foregoing, following the occurrence of either of the events set forth in this
paragraph, all Rights that are, or (under certain circumstances specified in the
Rights Agreement) were beneficially owned by any Acquiring Person or Adverse
Person will be null and void. However, Rights are not exercisable following the
occurrence of the event set forth above until such time as the Rights are no
longer redeemable by North Fork as set forth below.
In the event that, at any time following the Stock Acquisition Date or
the date on which the North Fork Board determines that a person is an Adverse
Person, (i) North Fork is acquired in a merger or other business combination
transaction in which North Fork is not the surviving corporation (other than a
merger which follows an offer described in the preceding paragraph), or (ii) 50%
or more of North Fork's assets or earning power is sold or transferred, each
holder of a Right (except Rights which previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the exercise price of
the Right. The events set forth in this paragraph and in the preceding paragraph
are referred to as the "Triggering Events."
The Purchase Price payable, and the number of Units of Series A
Preferred or other securities or property issuable, upon exercise of the Rights
are subject to adjustment from time to time to prevent dilution (i) in the event
of a stock dividend on, or a subdivision, combination or reclassification of,
the Series A Preferred, (ii) if holders of the Series A Preferred are granted
certain rights or warrants to subscribe for Series A Preferred or convertible
securities at less than the current market price of the Series A Preferred, or
(iii) upon the distribution to holders of the Series A Preferred of evidences of
indebtedness or assets (excluding regular quarterly cash dividends) or of
subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
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Price. No fractional Units will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Series A Preferred on the
last trading date prior to the date of exercise.
In general, at any time until ten days following the Stock Acquisition
Date, North Fork may redeem the Rights in whole, but not in part, at a price of
$.01 per Right (payable in cash, North Fork Common Stock or other consideration
deemed appropriate by the North Fork Board). Under certain circumstances set
forth in the North Fork Rights Agreement, the decision to redeem shall require
the concurrence of a majority of the Continuing Directors (as defined below).
North Fork may not redeem the Rights if the North Fork Board has previously
declared a person to be an Adverse Person. Immediately upon the action of the
North Fork Board ordering redemption of the Rights, with, where required, the
concurrence of the Continuing Directors, the Rights will terminate and the only
right of the holders of Rights will be to receive the $.01 redemption price.
The term "Continuing Directors" means any member of the North Fork
Board who was a member of the North Fork Board prior to the date of the North
Fork Rights Agreement, and any person who is subsequently elected to the North
Fork Board if such person is recommended or approved by a majority of the
Continuing Directors, but shall not include an Acquiring Person, an Adverse
Person, or an affiliate or associate of an Acquiring Person or an Adverse
Person, or any representative of the foregoing entities.
At any time after the occurrence of a Flip-in Event, the North Fork
Board may exchange the Rights (other than Rights owned by an Acquiring Person or
an Adverse Person, which have become void), in whole or in part, at an exchange
ratio of one share of North Fork Common Stock per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of North Fork, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to shareholders of North Fork or to North Fork, shareholders of North
Fork may, depending upon the circumstances, recognize taxable income in the
event that the Rights become exercisable for North Fork Common Stock (or other
consideration) of North Fork or for common stock of the acquiring company as set
forth above, or are exchanged as provided in the preceding paragraph.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the North Fork Rights Agreement may be
amended by the North Fork Board prior to the Distribution Date. After the
Distribution Date, the provisions of the North Fork Rights Agreement may be
amended by the North Fork Board (in certain circumstances, with the concurrence
of the Continuing Directors) in order to cure any ambiguity, to make changes
which do not adversely affect the interests of holders of Rights (excluding the
interests of any Acquiring Person or Adverse Person), or to shorten or lengthen
any time period under the North Fork Rights Agreement; provided, however, that
no amendment to adjust the time period governing redemption shall be made at
such time as the Rights are not redeemable.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire North Fork in
a manner which causes the Rights to become exercisable unless the offer is
conditional on a substantial number of Rights being acquired. The Rights,
however, should not affect any prospective offeror willing to make an offer at a
fair price and otherwise in the best interests of North Fork and its
shareholders as determined by the North Fork Board or willing to negotiate with
the North Fork Board. The Rights should not interfere with any merger or other
business combination approved by the North Fork Board since the North Fork Board
may, at its option, at any time until ten days following the Stock Acquisition
Date (unless the North Fork Board has previously declared a person to be an
Adverse Person), redeem all but not less than all of the then outstanding Rights
at the redemption price.
COMPARISON OF SHAREHOLDER RIGHTS
North Fork is incorporated under the laws of the State of Delaware and
the Bank is a Connecticut-chartered stock form savings bank governed under the
Connecticut Banking Law and the Connecticut Business Corporation Law
("Connecticut Corporation Law"). If the Merger is consummated, the holders of
Branford Common Stock, whose rights as shareholders are currently governed by
the Connecticut Banking Law and the Connecticut Corporation Law, Branford's
Certificate of Incorporation (the "Branford Certificate") and the Bylaws of
Branford (the "Branford Bylaws") will, upon the exchange of their Branford
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Common Stock pursuant to the Merger Agreement, become holders of shares of North
Fork Common Stock and their rights as such will be governed by the Delaware
Corporation Law, the North Fork Certificate and the North Fork Bylaws. The
material differences between the rights of holders of Branford Common Stock and
the rights of holders of North Fork Common Stock, resulting from the differences
in their governing documents and the differences in the state law applicable
thereto, are summarized below.
The following summary does not purport to be a complete statement of
the rights of holders of North Fork Common Stock under applicable Delaware
Corporation Law, the North Fork Certificate and the North Fork Bylaws or a
comprehensive comparison with the rights of the holders of Branford Common Stock
under the applicable Connecticut Banking Law and the Connecticut Corporation
Law, the Branford Certificate and the Branford Bylaws, or a complete description
of the specific provisions referred to herein. This summary contains a list of
the material differences but is not meant to be relied upon as an exhaustive
list or a detailed description of the provisions discussed and is qualified in
its entirety by reference to the Delaware Corporation Law and the governing
corporate instruments of North Fork (including the North Fork Rights Agreement)
and to the Connecticut Banking Law and the Connecticut Corporation Law and the
governing corporate instruments of the Branford, to which the holders of
Branford Common Stock are referred. Copies of such governing corporate
instruments of North Fork and Branford are available, without charge, to any
person, including any beneficial owner to whom this Proxy Statement/Prospectus
is delivered on written or oral request in the case of documents relating to
North Fork, to North Fork Bancorporation, Inc., 275 Broad Hollow Road, Melville,
New York 11747, Attention: Anthony J. Abate, Secretary, telephone number (516)
844-1004, in the case of documents relating to Branford, to Branford Savings
Bank, 45 South Main Street, Branford, Connecticut 06405, Attention: Gregory R.
Shook, Secretary, telephone number (203) 481-3471. In order to insure timely
delivery of the documents, requests should be received _______________, 1997.
Special Meeting of Shareholders
North Fork. Under the Delaware Corporation Law, special shareholder
meetings of a corporation may be called by its board of directors and by any
person or persons authorized to do so by its certificate of incorporation or
bylaws. Under the North Fork Bylaws, special meetings of North Fork shareholders
may be called by the North Fork Board, by the Chairman or by the President.
Branford. Under the Branford Certificate and Branford Bylaws, special
meetings of Branford shareholders may be called at any time but only by the
President or Board of Directors of the corporation or by a written request of
one-third of the issued and outstanding shares entitled to vote at a meeting of
the shareholders.
Shareholder Action by Written Consent
North Fork. Under the Delaware Corporation Law, unless otherwise
provided in the certificate of incorporation, any action which may be taken at
an annual or special meeting of shareholders may be taken without a meeting and
without prior notice, if a consent in writing, setting forth the action so
taken, is signed by the holders of outstanding shares, having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. The North Fork Certificate does not contain any provision to the
contrary.
Branford. Under the Branford Certificate, any action required or
permitted to be taken by the shareholders must be taken at a duly called annual
or special meetings and may not be effected by any consent in writing.
Shareholder Nominations and Proposals for Business
North Fork. The North Fork Bylaws establish procedures that must be
followed for shareholders to nominate individuals to the North Fork Board or to
propose business at an annual meeting of shareholders.
In order to nominate individuals to the North Fork Board, a shareholder
must provide timely notice of such nomination in writing to the Secretary of
North Fork. A shareholder's notice must set forth (a) as to each person whom the
shareholder proposed to nominate for election as a director (i) the name, age,
business address and residence address of each person, (ii) the principal
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occupation or employment of the person, (iii) the class or series and number of
shares of North Fork held by the person, and (iv) any other information relating
to the person that is required to be made in connection with solicitations of
proxies for election of directors pursuant to Section 14 of the Exchange Act,
and the rules and regulations promulgated thereunder, and (b) as to the
shareholder giving such notice (i) the name and record address of such
shareholder, (ii) the class or series and number of shares of capital stock of
North Fork which are owned beneficially or of record by such shareholder, (iii)
a description of all arrangements or understandings between such shareholder and
each proposed nominee and any other person or persons (including their names)
pursuant to which the nomination(s) are to be made by such shareholder, (iv) a
representation that such shareholder intends to appear in person or by proxy at
the annual meeting to nominate the persons named in its notice, and (v) any
other information relating to such shareholder that would be required to be
disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors pursuant to
Section 14 of the Exchange Act and the rules and regulations promulgated
thereunder. Such notice must be accompanied by a written consent of each
proposed nominee to being named as a nominee and to serve as a director if
elected.
In order to properly propose that an item of business come before the
annual meeting of shareholders, a shareholder must provide timely notice in
writing to the Secretary of North Fork, which notice must include (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name,
record address, class and number of shares of North Fork capital stock
beneficially owned by the shareholder giving such notice, (iii) a description of
all arrangements or understandings between such shareholder and any other person
or persons (including their names) in connection with the proposal of such
business by such shareholder and any material interest of such shareholder in
such business, and (iv) a representation that such shareholder intends to appear
in person or by proxy at the annual meeting to bring such business before the
meeting.
To be timely, a shareholder's notice of a nominee or proposed item of
business to the Secretary must be delivered to or mailed and received at the
principal executive offices of North Fork not less than sixty (60) days nor more
than ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of shareholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the shareholder in order to be timely
must be so received not later than the close of business on the tenth (10) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs.
Branford. The Branford Bylaws establish procedures similar to those
provided in the North Fork Bylaws (see the first and third preceding paragraphs)
that must be followed by any shareholder who wishes to nominate an individual to
the Branford Board. Neither the Branford Bylaws nor the Branford Certificate
establishes specific procedures for a shareholder to propose business at an
annual meeting of shareholders.
Pursuant to the Exchange Act, in order to properly propose that an item
of business come before the annual meeting of shareholders, an eligible
shareholder (one holding 1% or $1,000 in market value of shares for at least one
year) may propose an item of business if timely and in proper form. To be timely
for an annual meeting, the proposal must be received at Branford's executive
offices not less than 120 days in advance of the month and day that the Bank
released its proxy statement to shareholders in connection with the previous
year's annual meeting, except if the annual meeting was not held the prior year
or the date of the current year's meeting is changed by more than 30 days from
the prior year's date, the proposal must be received by Branford within a
reasonable time before solicitation is made.
To be in proper form, a proposal must provide the shareholder's name,
address, the number of shares held by the shareholder, the date(s) the shares
were acquired, and documentary support for any claim of beneficial ownership. In
addition, the proposal and any statement in support must be less than 500 words
in the aggregate. Finally, a shareholder may submit only one proposal for a
shareholder meeting.
Certain Business Combinations (Not Involving an Interested Shareholder)
North Fork. The Delaware Corporation Law generally requires approval of
any merger, consolidation or sale of substantially all the assets of a
corporation at a meeting of shareholders by the affirmative vote of the holders
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<PAGE>
of a majority of all outstanding shares entitled to vote thereon. The
certificate of incorporation of a Delaware corporation may provide for a greater
vote. Except as set forth below in "-- Business Combinations Involving
Interested Shareholders," the North Fork Certificate does not contain such a
provision.
Branford. The Connecticut Banking Law requires that the merger or
consolidation of a stock savings bank such as Branford must be approved by the
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of each class of capital stock.
Business Combinations Involving Interested Shareholders
North Fork. The Delaware Corporation Law prohibits a corporation from
engaging in any "business combination" with an interested shareholder (defined
as a 15% shareholder) for a period of three years after the time that
shareholder became an interested shareholder unless (i) before that time, the
board of directors of the corporation approved the business combination or the
transaction transforming the shareholder into an interested shareholder, or (ii)
upon consummation of the transaction which resulted in the shareholder becoming
an interested shareholder, that shareholder owned at least 85% of the
outstanding voting stock (excluding shares owned by directors, officers and
certain employee stock ownership plans), or (iii) on or after the time the
shareholder became "interested," the business combination gained the approval of
both the corporation's directors and two-thirds of the outstanding voting shares
not owned by the interested shareholder voted at a meeting and not by written
consent. A Delaware corporation may negate this provision through an amendment
to the certificate of incorporation or bylaws adopted by a majority of the
outstanding voting shares. North Fork has not adopted any such amendment. A
"business combination" for purposes of the statute includes mergers,
consolidations and sales of substantially all assets.
Branford. Pursuant to the Connecticut Corporation Law and the Branford
Certificate, any business combination, including but not limited to any merger,
consolidation or share exchange of Branford, with an interested shareholder (a
10% shareholder) must first be approved by the Branford Board and then be
approved by the affirmative vote of (i) the holders of at least eighty percent
of the voting power of the then outstanding shares of voting stock of Branford;
and (ii) the holders of at least two-thirds of the voting power of the then
outstanding shares of voting stock, exclusive of any shares held by such
interested shareholder. Such voting requirements do not apply if the business
combination is (1) approved by the Branford Board at a time prior to the time
that the interested shareholder first became an interested shareholder or (2)
certain fair price and procedure requirements are satisfied.
Removal of Directors
North Fork. The Delaware Corporation Law provides that, unless the
certificate of incorporation provides otherwise, in the case of a corporation
whose board of directors is classified (as is the North Fork Board),
shareholders may remove a director only for cause by a vote of the majority of
the then-outstanding shares of the corporation entitled to vote thereon.
Further, shareholders may not remove a director without cause. The North Fork
Certificate does not contain any provisions concerning the removal of directors.
Branford. Under the Branford Certificate and Branford ByLaws, a
director may be removed from office, without cause, only by the affirmative vote
of the holders of not less than eighty percent of the issued and outstanding
shares entitled to vote, at any meeting of shareholders called for that purpose;
provided, however, that if there is an interested shareholder (a 10%
shareholder), such eighty percent vote must include the affirmative vote of not
less than two-thirds of the voting power of the issued and outstanding shares
entitled to vote thereon held by shareholders other than the interested
shareholder. Any director may be removed from office, with cause, only by the
affirmative vote of two-thirds of the members of the Branford Board other than
the person being considered for removal, or by the affirmative vote of the
holders of a majority of the issued and outstanding shares entitled to vote, at
any meeting of shareholders called for that purpose.
Consideration of Other Constituencies
North Fork. The North Fork Certificate does not contain any provision
specifically relating to the ability of the North Fork Board to consider the
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interests of any constituencies of North Fork other than its shareholders in
considering whether to approve or oppose any corporate action, including without
limitation any proposal to acquire North Fork by means of a merger, tender offer
or similar business combination. However, pursuant to case law interpreting the
provisions of the Delaware Corporation Law, the board of directors of a Delaware
corporation such as North Fork generally may consider the impact of such a
proposal on North Fork's other constituencies, provided that doing so bears some
reasonable relationship to general shareholder interests.
Branford. The Connecticut Corporation Law provides that a director of a
corporation (including a stock savings bank such as Branford) shall consider, in
determining the best interests of the corporation for an issue before the
corporation, (1) the long-term as well as the short-term interests of the
corporation, (2) the interests of the shareholders, long-term as well as
short-term, including the possibility that those interests may be best served by
the continued independence of the corporation, (3) the interests of the
corporation's employees, customers, creditors and suppliers, and (4) community
and societal considerations including those of any community in which any office
or other facility of the corporation is located. A director may also in his
discretion consider any other factors he reasonably considers appropriate in
determining what he reasonably believes to be in the best interests of the
corporation.
Personal Liability of Directors
North Fork. The North Fork Certificate provides, subject only to the
express prohibitions on elimination or limitation of liability of directors set
forth in the Delaware Corporation Law, that the personal liability of each of
its directors to North Fork or its shareholders for monetary damages for breach
of his fiduciary duty as a director is limited to $25,000 per occurrence. The
Delaware Corporation Law allows a corporation, through its certificate of
incorporation, to limit or eliminate the personal liability of directors to the
corporation and its shareholders for monetary damages for breach of fiduciary
duty. However, this provision excludes any limitation on liability (i) for any
breach of the director's duty of loyalty to the corporation or its shareholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, (iii) for willful or negligent violation
of the laws governing the payment of dividends or the purchase or redemption of
stock or (iv) for any transaction from which the director derives an improper
personal benefit.
Branford. The Branford Certificate provides that no director shall be
personally liable to Branford or its shareholders for monetary damages for
breach of fiduciary duty as a director notwithstanding any provision of law
imposing such liability; provided, however, that to the extent required by
applicable law, this provision shall not eliminate or limit the liability of a
director (a) to an amount that is less than the compensation received by the
director for serving as a director during the year of the breach and (b) for any
breach that (i) involved a knowing and culpable violation of law by the
director, (ii) enabled the director or an associate to receive an improper
personal economic gain, (iii) showed a lack of good faith and conscious
disregard for the duty of the director to the Bank under circumstances in which
the director was aware that his conduct or omission created an unjustifiable
risk of serious injury to the Bank, (iv) constituted a sustained and unexcused
pattern of inattention that amounted to an abdication of the director's duty to
the Bank, or (v) created liability under Section 36-9 of the Connecticut General
Statutes. The liability of a director of Branford shall, in addition to the
limitation of personal liability provided herein, be limited or eliminated to
the fullest extent permitted by such laws, as from time to time amended.
Indemnification of Officers and Directors
North Fork. The Delaware Corporation Law provides that directors and
officers as well as other employees and agents of a Delaware corporation may be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement in connection with specified actions, suits or
proceedings, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the corporation in a derivative action), if
they acted in good faith and in a manner they reasonably believed to be in, or
not opposed to, the best interests of the corporation, and, with respect to any
criminal action, suit or proceeding, if they had no reasonable cause to believe
their conduct was unlawful. The North Fork Bylaws provide that North Fork shall
indemnify, to the fullest extent permitted by law, any director or officer who
may be indemnified pursuant to the Delaware Corporation Law.
Branford. The Connecticut Corporation Law provides that a Connecticut
corporation (including a stock savings bank such as Branford) may indemnify an
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individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if: (1) he conducted himself in good faith;
and (2) he reasonably believed (A) in the case of conduct in his official
capacity with the corporation, that his conduct was in its best interests, and
(B) in all other cases, that his conduct was at least not opposed to its best
interests; and (3) in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful. A corporation may not indemnify a
director: (1) in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation; or (2)
in connection with any other proceeding charging improper personal benefit to
him, whether or not involving action in his official capacity, in which he was
adjudged liable on the basis that personal benefit was improperly received by
him. Indemnification permitted in connection with a proceeding by or in the
right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
The Branford Bylaws provide that the Bank shall provide indemnification
to its officers, directors and employees to the full extent permitted or
required of corporations under Connecticut law and to such other persons as may
be specified in the law.
Rights Plans
North Fork. On February 28, 1989, the North Fork Board declared a
dividend distribution of one Right for each outstanding share of North Fork
Common Stock to shareholders of record at the close of business on March 13,
1989, pursuant to the North Fork Rights Agreement. For a description of the
Rights and the North Fork Rights Agreement, see "DESCRIPTION OF NORTH FORK
CAPITAL STOCK - Rights Plan."
Branford. Branford has not adopted a shareholder protection rights
plan.
Appraisal Rights
North Fork. Under the Delaware Corporation Law, appraisal rights are
available in connection with a statutory merger or consolidation in certain
specified situations. Appraisal rights are not available when a corporation is
to be the surviving corporation and no vote of its shareholders is required to
approve the merger under the Delaware Corporation Law. In addition, unless
otherwise provided in the corporation's certificate of incorporation, no
appraisal rights are available to holders of shares of any class of stock which
is either: (a) listed on a national securities exchange (as North Fork currently
is) or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. or (b)
held of record by more than 2,000 shareholders, unless such shareholders are
required by the terms of the merger to accept anything other than: (i) shares of
stock of the surviving corporation; (ii) shares of stock of another corporation
which are or will be listed on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the
National Association of Securities Dealers, Inc., or held of record by more than
2,000 shareholders; (iii) cash in lieu of fractional shares of such stock; or
(iv) any combination thereof. The North Fork Certificate has no provisions
regarding appraisal rights.
Branford: The Connecticut Corporation Law provides for dissenter's
rights for shareholders of Connecticut corporations (including Connecticut
savings banks such as Branford), in connection with certain transactions such as
mergers and consolidations. The proposed Merger is such a transaction giving
rise to dissenters' rights. See "THE MERGER-Dissenters' Rights."
LEGAL MATTERS
The validity of the shares of North Fork Common Stock which will be
issued in the Merger and certain other legal matters will be passed upon for
North Fork by Gallop, Johnson & Neuman, L.C.
Legal matters in connection with the Merger will be passed upon for
Branford by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
See "THE MERGER-Certain Federal Income Tax Consequences."
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EXPERTS
The consolidated financial statements of North Fork and subsidiaries as
of December 31, 1996 and 1995 and for each of the years in the three year period
ended December 31, 1996, included in North Fork's 1996 Form 10-K incorporated by
reference into this Proxy Statement/Prospectus, have been incorporated by
reference herein and in the Registration Statement of which this Proxy
Statement/Prospectus is a part in reliance upon the report of KPMG Peat Marwick
LLP, independent auditors, included in North Fork's 1996 Form 10-K and
incorporated by reference herein, and upon the authority of said firm as experts
in accounting and auditing. The report of KPMG Peat Marwick LLP refers to
various changes in accounting as discussed in the notes to these statements.
The financial statements of Branford as of December 31, 1996 and 1995
and for each of the years in the three year period ended December 31, 1996,
included herein have been included herein and in the Registration Statement of
which this Proxy Statement/Prospectus is a part in reliance upon the report of
Seward & Monde, independent auditors, also included herein and in such
Registration Statement, and upon the authority of said firm as experts in
accounting and auditing.
SHAREHOLDER PROPOSALS
It is possible that Branford will hold a 1998 Annual Meeting of its
Shareholders prior to consummation of the Merger or in the event the Merger is
abandoned or terminated. Any shareholder who wishes to submit a proposal for
presentation to such annual meeting, and for inclusion, if appropriate, in
Branford's proxy statement and the form of proxy relating to such annual
meeting, must comply with the rules and regulations of the FDIC then in effect
and must submit such proposal to the Corporate Secretary of Branford. Any
shareholder proposal must be received by Branford not less than 90 days before
the anniversary date of Branford's proxy statement released to shareholders for
the previous year's Annual Meeting. In the event that Branford's Annual Meeting
date has been changed by more than 30 days from the date of the previous year's
Annual Meeting, any shareholder proposal must be received by Branford within a
reasonable time before the solicitation of proxies for such Annual Meeting is
made.
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BRANFORD SAVINGS BANK FINANCIAL STATEMENTS
Index
Financial Statements (Audited)
Independent Auditors' Report................................................F-2
Statements of Condition
Years ended December 31, 1996 and 1995......................................F-3
Statements of Income
Years ended December 31, 1996, 1995 and 1994................................F-4
Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994................................F-5
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994................................F-6
Notes to Financial Statements ..............................................F-7
Financial Statements (Unaudited)
Statements of Condition (Unaudited)--
June 30, 1997 and December 31, 1996.........................................F-25
Statements of Income (Unaudited)--
Three Months Ended June 30, 1997 and 1996...................................F-26
Statements of Income (Unaudited)--
Six Months Ended June 30, 1997 and 1996.....................................F-27
Statements of Changes in Shareholders' Equity (Unaudited)--
Six Months Ended June 30, 1997 and 1996.....................................F-28
Statements of Cash Flows (Unaudited)--
Six Months Ended June 30, 1997 and 1996.....................................F-29
Notes to Financial Statements (Unaudited)...................................F-30
F-1
<PAGE>
Independent Auditors' Report
Board of Directors
Branford Savings Bank
Branford, Connecticut
We have audited the accompanying statements of condition of Branford
Savings Bank as of December 31, 1996 and 1995, and the related statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 1996. These financial statements are the
responsibility of the management of Branford Savings Bank. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Branford Savings
Bank as of December 31, 1996 and 1995, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
North Haven, Connecticut
January 20, 1997
F-2
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF CONDITION
<CAPTION>
December 31,
(In Thousands) 1996 1995
--------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 4,990 $ 4,460
Federal funds sold 8,125 11,205
Securities:
Available-for-sale, at market value 9,357 5,700
Held-to-maturity, at amortized cost
(market value $33,550 and $21,942) 33,406 21,585
Federal Home Loan Bank stock 748 1,026
Loans, net 122,658 125,774
Real estate and equipment 1,996 2,102
Accrued interest receivable 1,334 1,285
Foreclosed real estate, net 684 621
Other assets 213 176
-------- --------
$183,511 $173,934
======== ========
LIABILITIES and SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $159,353 $153,749
Advances from borrowers for taxes
and insurance 1,616 1,619
Federal Home Loan Bank advances 5,000 3,000
Other liabilities 1,064 767
-------- --------
167,033 159,135
-------- --------
Commitments and Contingencies (Note 19)
SHAREHOLDERS' EQUITY
Series A preferred stock, no par value;
authorized 30,000 shares; none issued
and outstanding -- --
Serial preferred stock, no par value;
authorized 970,000 shares; none issued
and outstanding -- --
Common stock, no par value; authorized
30,000,000 shares; issued and
outstanding 5,179,864 shares in 1996 and 1995 1,557 1,557
Non-voting convertible common stock, no par value;
authorized 2,000,000 shares; issued and
outstanding 1,379,533 in 1996 and 1995 -- --
Paid-in capital 31,227 31,227
Net unrealized gains (losses) on securities
available-for-sale ( 10) 21
Retained earnings (deficit) (16,296) ( 18,006)
-------- --------
Total shareholders' equity 16,478 14,799
-------- --------
$183,511 $173,934
======== ========
See notes to financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF INCOME
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
(In Thousands, Except Per Share Amounts) 1996 1995 1994
-------------- --------------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 10,926 $ 11,419 $ 11,018
Interest and dividends on securities:
Interest 2,720 2,034 612
Dividends 51 71 80
-------------- --------------- ------------
Total interest income 13,697 13,524 11,710
-------------- --------------- ------------
Interest expense:
Interest on deposits 5,909 5,674 4,815
Interest on advances from borrowers 16 15 14
Interest on borrowed funds 224 229 460
-------------- --------------- ------------
Total interest expense 6,149 5,918 5,289
-------------- --------------- -----------
Net interest income 7,548 7,606 6,421
Provision for loan losses 625 1,200 1,517
-------------- --------------- ------------
Net interest income after
provision for loan losses 6,923 6,406 4,904
-------------- --------------- ------------
Noninterest income:
Service fees charged on deposits 440 496 495
Securities losses --- --- (27)
Gain on sale of Trust Department --- --- 429
Other operating income 147 145 358
-------------- --------------- ------------
Total noninterest income 587 641 1,255
-------------- --------------- ------------
Noninterest expenses:
Salaries and employee benefits 3,006 2,686 2,401
Occupancy and equipment 1,256 1,191 1,334
Foreclosed real estate expense, net 232 402 1,663
Collection expense 111 224 356
FDIC deposit insurance premium 2 391 490
Other operating expenses 1,043 993 763
-------------- --------------- ------------
Total noninterest expenses 5,650 5,887 7,007
-------------- --------------- ------------
Income (loss) before income taxes 1,860 1,160 (848)
Income tax expense 19 6 6
-------------- --------------- ------------
Net income (loss) $ 1,841 $ 1,154 ($854)
============== =============== ============
Earnings (loss) per share:
Primary $ .28 $ .18 ($ .43)
============== ================ =============
Fully diluted $ .27 $ .17 ($ .43)
================ ================ =============
See notes to financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<CAPTION>
Net Unrealized
Gains (Losses)
on Securities Retained
Common Paid-In Available- Earnings
(In Thousands) Stock Capital for-sale (Deficit) Total
----- ------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ 1,557 $ 20,881 $ --- ($ 18,306) $ 4,132
1994 net loss --- --- --- (854) (854)
Proceeds from rights offering, net --- 10,346 --- --- 10,346
--------- ----------- --------- --------- ---------
Balance at December 31, 1994 1,557 31,227 --- (19,160) 13,624
1995 net income --- --- --- 1,154 1,154
Change in net unrealized gains (losses)
on securities available-for-sale --- --- 21 --- 21
---------- ---------- ------------ ------------- ----------
Balance at December 31, 1995 1,557 31,227 21 (18,006) 14,799
1996 net income --- --- --- 1,841 1,841
Dividends paid --- --- --- (131) (131)
Change in net unrealized gains (losses)
on securities available-for-sale --- --- (31) --- (31)
---------- ---------- ------------ ------------- ----------
Balance at December 31, 1996 $ 1,557 $ 31,227 ($ 10) ($ 16,296) $ 16,478
========== =========== ============ =============== ===========
See notes to financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended December 31,
(In Thousands) 1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) $ 1,841 $ 1,154 ($ 854)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Provision for loan losses 625 1,200 1,517
Provision for losses on foreclosed real estate 85 203 1,131
Provision for depreciation 288 264 311
Amortization of premiums and (accretion) of discounts
on securities, net ( 46) ( 159) ( 14)
Amortization of net deferred loan fees ( 39) ( 14) ( 45)
Securities losses --- --- 27
Realized loss (gain) on sale of foreclosed real estate 1 ( 52) 122
Decrease (increase) in accrued interest receivable ( 49) 16 ( 277)
Decrease (increase) in other assets ( 37) 178 92
Increase in other liabilities 294 261 18
-------------------------------------------
Net cash provided by operating activities 2,963 3,051 2,028
-------------------------------------------
Investing Activities:
Principal collected on mortgage-backed securities 3,090 1,190 ---
Proceeds from sale of securities available-for-sale --- --- 279
Purchase of securities held-to-maturity ( 19,549) ( 24,670) ( 17,971)
Purchase of securities available-for-sale ( 8,004) ( 8,640) ---
Maturities of securities available-for-sale 4,000 3,000 ---
Maturities of securities held-to-maturity 5,000 17,100 3,000
Net decrease in loans 1,482 7,095 10,547
Purchase of real estate and equipment ( 182) ( 68) ( 57)
Sale of FHLB stock 278 --- ---
Proceeds from sales of foreclosed real estate 899 2,050 4,275
Proceeds from sales of fixed assets --- --- 12
---------------------------------------------
Net cash provided (used) by investing activities ( 12,986) ( 2,943) 85
---------------------------------------------
Financing Activities:
Increase (decrease) in deposits 5,604 2,034 ( 8,000)
Proceeds of FHLB advances 5,000 --- ---
Repayment of FHLB advances ( 3,000) --- ( 3,825)
Repayment of capital lease obligations --- --- ( 39)
Proceeds of rights offering --- --- 10,346
Dividends paid ( 131) --- ---
--------------------------------------------
Net cash provided (used) by financing activities 7,473 2,034 ( 1,518)
----------------------------------------------
Increase (decrease) in cash and cash equivalents ( 2,550) 2,142 595
Cash and cash equivalents - January 1 15,665 13,523 12,928
--------------------------------------------
Cash and cash equivalents - December 31 $ 13,115 $ 15,665 $ 13,523
============================================
Supplemental Disclosures:
Cash paid during the year for:
Interest expense $ 6,144 $ 5,918 $ 5,313
Income taxes 34 9 4
Non-cash investing activities:
Addition to foreclosed real estate 1,047 1,608 1,233
See notes to financial statements.
</TABLE>
F-6
<PAGE>
BRANFORD SAVINGS BANK
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
A. Nature of Operations
The Bank provides a variety of financial services to individuals and
corporate customers through its headquarters in Branford, Connecticut and four
branch offices. The Bank serves the towns of Branford, North Branford and East
Haven, Connecticut and their surrounding communities in New Haven County. The
Bank's primary deposit products are savings accounts and certificates of
deposit. Its primary lending products are residential and commercial real estate
loans.
B. Use of Estimates.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for loan losses and the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for loan losses and foreclosed real estate, management obtains independent
appraisals for significant properties.
The Bank's loans receivable consist primarily of residential and
commercial real estate loans located within its primary market area in New Haven
County, Connecticut. Although the Bank has a diversified loan portfolio, its
debtors' ability to honor their contracts is substantially dependent upon the
general economic conditions of the region.
While management uses available information to recognize losses on
loans and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition, regulatory
agencies, as an integral part of their examination process, periodically review
the Bank's allowances for loan losses and foreclosed real estate. Such agencies
may require the Bank to recognize additions to the allowances based on their
judgments about information available to them at the time of their examination.
C. Securities
Securities that may be sold as part of the Bank's asset/liability or
liquidity management or in response to or in anticipation of changes in interest
rates and resulting prepayment risk, or for other similar factors, are
classified as available-for-sale and carried at fair market value. Unrealized
holding gains and losses on such securities are reported net of related taxes,
as a separate component of shareholders' equity. Securities that the Bank has
the ability and positive intent to hold to maturity are classified as
held-to-maturity and carried at amortized cost.
The amortization of premiums and accretion of discounts is recorded
over the life of the security using a method which approximates the interest
method. Realized gains and losses on the sales of all securities are reported in
income and computed using the specific identification cost basis.
D. Federal Home Loan Bank Stock.
The investment in Federal Home Loan Bank of Boston stock is stated at
cost.
E. Loans and Allowance for Loan Losses.
Loans are stated at the amount of unpaid principal, reduced by unearned
discount, unamortized nonrefundable fees and an allowance for loan losses.
Loan origination fees and certain direct loan origination costs are
deferred and the net amount is amortized as an adjustment of the related loan's
yield over the life of the loan using a method which approximates the interest
method.
F-7
<PAGE>
Effective January 1, 1995 the Bank adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("SFAS 114") and Statement of Financial Accounting Standards No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure" ("SFAS 118"). The Bank evaluates the collectibility of both
contractual interest and contractual principal of all loans when assessing the
need for a loss accrual. When a loan is impaired, the Bank measures impairment
based on the present value of the expected future cash flows discounted at the
loan's effective interest rate, or the fair value of the collateral, less
estimated selling costs, if the loan is collateral-dependent and foreclosure is
probable. The Bank recognizes an impairment by creating a valuation allowance. A
loan is impaired when, based on current information, it is probable that the
Bank will be unable to collect all amounts due according to the contractual
terms of the loan.
The allowance for loan losses is increased through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans, overall portfolio quality, the
review of specific problem loans and current economic conditions that may affect
the borrowers' ability to pay.
Income on loans is recognized over the term of the loans using
applicable interest rates applied to outstanding principal balances. Interest
income generally is not recognized on specific impaired loans unless the
likelihood of future loss is remote. Interest payments received on such loans
are generally applied as a reduction of the loan principal balance. The Bank
takes into income any further interest received on other nonaccrual loans on a
cash basis or applies such interest as a reduction to the principal amount of
the loan. The Bank's policy is to discontinue the accrual of interest on a loan
when management believes, after considering economic and business conditions as
well as periods of delinquency and collection efforts, that the borrower's
financial condition is such that the collection of interest is doubtful. Any
unpaid interest previously accrued on nonaccrual loans is reversed from income.
F. Real Estate and Equipment.
Real estate and equipment are stated at cost less an allowance for
depreciation. Depreciation is computed over the estimated useful lives of the
assets using the straight-line method.
G. Foreclosed Real Estate.
Real estate acquired through foreclosure is recorded at the lower of
the carrying value of the loan or fair value less estimated selling costs. Costs
relating to the subsequent development or improvement of the property are
capitalized and holding costs are charged to expense. If subsequent economic
conditions warrant further decreases in the fair value of the foreclosed real
estate, management adjusts the values through a provision for losses charged to
expense.
H. Income Taxes.
Deferred income taxes and tax benefits are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
I. Cash and Cash Equivalents.
Cash and cash equivalents include cash on hand, deposits at other
financial institutions and federal funds sold.
J. Reclassifications.
Certain 1995 and 1994 amounts have been reclassified to conform with
the 1996 presentation.
F-8
<PAGE>
2. SECURITIES:
Securities classified available-for-sale (carried at market value) are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 6,007 $ 1 ($ 8) $ 6,000
U.S. Government agency obligations:
Mortgage-backed securities 1,366 --- ( 2) 1,364
Other 1,994 --- ( 1) 1,993
------------ ------------- ---------------- -----------------
Totals $ 9,367 $ 1 ($ 11) $ 9,357
============ ============= ================ =================
<CAPTION>
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,000 $ 14 $ --- $ 4,014
U.S. Government agency obligations:
Mortgage-backed securities 1,679 7 --- 1,686
------------ ------------- ---------------- -----------------
Totals $ 5,679 $ 21 $ --- $ 5,700
============ ============= ================ =================
</TABLE>
Securities classified held-to-maturity (carried at amortized cost) are as
follows:
<TABLE>
<CAPTION>
December 31, 1996
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 4,244 $ 4 ($ 15) $ 4,233
U.S. Government agency obligations:
Mortgage-backed securities 18,696 147 ( 30) 18,813
Other 10,466 47 ( 9) 10,504
------------- ------------- ---------------- -----------------
Totals $ 33,406 $ 198 ($ 54) $ 33,550
============= ============= ================ =================
F-9
<PAGE>
<CAPTION>
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---- ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Treasury $ 2,230 $ 30 $ --- $ 2,260
U.S. Government agency obligations:
Mortgage-backed securities 10,905 219 ( 27) 11,097
Other 8,450 135 --- 8,585
------------ ------------- ---------------- -----------------
Totals $ 21,585 $ 384 ($ 27) $ 21,942
============= ============= ================ =================
</TABLE>
The amortized cost and market value of debt securities classified
available-for-sale and held-to-maturity, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1996 1995
-------------------------------- ----------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
(In Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Within one year $ 8,001 $ 7,993 $ 4,000 $ 4,014
Due after ten years 1,366 1,364 1,679 1,686
------------ ------------ ---------------- -----------------
Totals $ 9,367 $ 9,357 $ 5,679 $ 5,700
============ ============ ================ =================
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1996 1995
-------------------------------- ----------------------------------------
Amortized Market Amortized Market
Cost Value Cost Value
---- ----- ---- -----
(In Thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Within one year $ 5,251 $ 5,256 $ 1,000 $ 1,000
Due after one year through
five years 19,298 19,362 17,047 17,309
Due after five years through
ten years 2,761 2,813 3,538 3,633
Due after ten years 6,096 6,119 --- ---
------------ ------------ ----------------- ----------------
Totals $ 33,406 $ 33,550 $ 21,585 $ 21,942
============= ============ ================= =================
</TABLE>
During 1996 and 1995 there were no sales of securities from the
available-for-sale or held-to-maturity classifications, only maturities of
bonds.
During 1994, proceeds from the sale of the mutual bond fund, which was
classified as available-for-sale, was sold for $279,000, resulting in a loss of
$27,000. There were no sales of held-to-maturity securities in 1994.
F-10
<PAGE>
3. LOANS:
Loans receivable at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
(In Thousands)
<S> <C> <C>
First mortgage loans:
Residential real estate $ 53,529 $ 53,178
Secured by other properties 51,284 54,551
Construction loans 1,416 1,246
Home equity and second mortgage 9,003 10,427
Consumer 824 835
Commercial 10,586 9,246
---------------- ---------------
126,642 129,483
Less:
Allowance for loan losses (3,895) (3,628)
Unamortized nonrefundable fees (89) (81)
---------------- ----------------
Loans, net $ 122,658 $ 125,774
================ ================
</TABLE>
At December 31, 1996 and 1995, the Bank had loans amounting to approximately
$2,211,000 and $3,369,000, respectively, that were specifically classified as
impaired. The average balance of these loans amounted to approximately
$2,423,000 and $4,258,000 for the years ended December 31, 1996 and 1995,
respectively. The allowance for loan losses relating to these loans amounted to
approximately $275,000 and $406,000 at December 31, 1996 and 1995, respectively.
The following is a summary of cash receipts on these loans and how they were
applied:
<TABLE>
<CAPTION>
1996 1995
---------------- ----------------
(In Thousands)
<S> <C> <C>
Cash receipts applied to reduce principal balance $ 62 $ 297
Cash receipts recognized as interest income 73 30
---------------- ----------------
Total cash receipts $ 135 $ 327
================ ================
</TABLE>
In addition, at December 31, 1996 and 1995, the Bank had other nonaccrual loans
of approximately $982,000 and $1,473,000, respectively for which impairment had
not been recognized. If interest on these loans had been recognized at the
original interest rates, interest income would have increased approximately
$53,000 in 1996 and $122,000 in 1995.
Prior to the adoption of SFAS 114, interest income would have increased
approximately $337,000 for the year ending December 31, 1994 for loans on which
the accrual of interest had been discontinued.
The Bank has no commitments to loan additional funds to the borrowers of
impaired or nonaccrual loans.
Included in loans receivable at December 31, 1995 are loans with a carrying
value of $1,103,000 the terms of which have been modified in a troubled debt
restructuring. The Bank recognized interest income on troubled debt
restructurings in 1995 and 1994 aggregating $78,000 and $102,000, respectively,
whereas under the original terms, the Bank would have recognized interest income
of $95,000 and $169,000, respectively.
During 1994, the Bank sold foreclosed real estate and issued below market
interest rate loans to certain buyers. At December 31, 1996 and 1995, the face
amount of these loans totaled $2,386,000 and $2,405,000, respectively and the
unamortized discount was $119,000 and $156,000, respectively, which results in
an effective interest rate of 8%.
F-11
<PAGE>
Changes in the allowance for loan losses during the years ended December 31 were
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- ------------------
(In thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 3,628 $ 3,419 $ 3,458
Provision charged to operations 625 1,200 1,517
Loan recoveries 481 226 409
Loans charged off (839) (1,217) (1,965)
---------------- ------------------- ------------------
Balance, end of year $ 3,895 $ 3,628 $ 3,419
================ =================== ==================
</TABLE>
4. REAL ESTATE AND EQUIPMENT:
Real estate and equipment at December 31 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -------------------
(In Thousands)
<S> <C> <C>
Land $ 210 $ 210
Buildings 1,363 1,363
Improvements 267 267
Furniture and equipment 2,150 2,263
Leasehold improvements 1,753 1,750
---------------- -------------------
Total - at cost 5,743 5,853
Less, Accumulated depreciation (3,747) (3,751)
---------------- -------------------
Net $ 1,996 $ 2,102
================ ===================
</TABLE>
Depreciation expense amounted to $287,848, $263,815 and $310,838 in 1996, 1995
and 1994, respectively.
5. FORECLOSED REAL ESTATE:
Foreclosed real estate at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995
---------------- -------------------
(In Thousands)
<S> <C> <C>
Residential land and buildings $ 503 $ 663
Commercial land and buildings 266 ---
---------------- -------------------
769 663
Less, Allowance for losses (85) (42)
---------------- -------------------
Net realizable value $ 684 $ 621
================ ===================
</TABLE>
The components of foreclosed real estate expense are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Expenses of holding foreclosed real
estate, net of rental income $ 146 $ 251 $ 410
Loss (gain) on sale of foreclosed real
estate, net 1 (52) 122
Provision for estimated losses 85 203 1,131
---------------- ------------------- ------------------
Net expense $ 232 $ 402 $ 1,663
================ =================== ==================
</TABLE>
F-12
<PAGE>
The following summarizes the activity in the allowance for estimated losses:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 42 $ 473 $ 1,296
Provision for estimated losses charged
to operations 85 203 1,131
Sale of foreclosed real estate (42) (634) (1,954)
---------------- ------------------- ------------------
Balance, end of year $ 85 $ 42 $ 473
================ =================== ==================
</TABLE>
6. DEPOSITS:
Deposits at December 31 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
---------------- -------------------
(In Thousands)
<S> <C> <C>
Non-interest-bearing demand deposits $ 11,408 $ 10,653
Interest-bearing demand and savings accounts 54,312 52,026
Interest-bearing money market checking accounts 9,423 9,025
Interest-bearing certificates of deposit 84,210 82,045
---------------- -------------------
$ 159,353 $ 153,749
================ ===================
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $5,388,000 and $4,980,000 at December 31, 1996 and
1995, respectively.
At December 31, 1996, scheduled maturities of certificates of deposit were as
follows:
Weighted Average
Stated Interest Year Ending
Rate December 31 Amount
---- ----------- ------
(In Thousands)
5.24% 1997 $ 68,649
5.49 1998 10,252
5.56 1999 2,321
6.09 2000 1,449
6.09 2001 1,449
5.83 Thereafter 90
---------------------
Total $ 84,210
=====================
Interest expense on deposits for the years ended December 31 is summarized as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Demand and savings $ 1,247 $ 1,281 $ 1,489
Money market checking 245 280 343
Certificates of deposit 4,417 4,113 2,983
---------------- ------------------- ------------------
$ 5,909 $ 5,674 $ 4,815
================ =================== ==================
</TABLE>
F-13
<PAGE>
7. INCOME TAXES:
The components of the provision for income taxes are as follows:
1996 1995 1994
------------ ------------ ------------
(In Thousands)
Current:
Federal $ 10 --- ---
State 9 $ 6 $ 6
------------ ------------ ------------
Income taxes $ 19 $ 6 $ 6
============ ============ ============
A reconciliation of the income tax provision to that computed using the
statutory federal tax rate for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ -------------
(In Thousands)
<S> <C> <C> <C>
Federal income tax (benefit) at statutory rates $ 629 $ 394 $ (288)
Connecticut corporation tax, net 9 6 6
Bad debt allowance 91 71 (13)
Tax benefits of net operating loss carryforwards (837) (513) ---
Tax benefits of net operating loss carryforwards
not currently realizable --- --- 204
Other, net 127 48 97
------------ ------------ ------------
$ 19 $ 6 $ 6
============ ============ ============
</TABLE>
The components of the Bank's net deferred tax asset at December 31 is as
follows:
<TABLE>
<CAPTION>
1996 1995
-------------------------------- ---------------------------------------
Federal State Federal State
(In Thousands)
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 3,045 $ 1,462 $ 3,742 $ 1,988
Bad debt deduction 1,188 370 1,107 345
Accrued compensation and
pension expense 141 44 10 3
Deferred loan fees 27 8 25 8
Real estate and equipment 103 32 --- ---
Other 71 22 141 44
------------ ------------- ---------------- ----------------
Total deferred tax assets 4,575 1,938 5,025 2,388
Valuation reserve (4,57) (1,938) (5,025) (2,388)
------------ ------------- ---------------- ----------------
Net deferred tax asset $ --- $ --- $ --- $ ---
============ ============= ================ ================
</TABLE>
F-14
<PAGE>
The change in the total valuation allowance for the years ended December 31 is
as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- -------------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 7,413 $ 9,589 $ 9,224
(Decrease) Increase in allowance (900) (2,176) 365
---------------- ------------------- ------------------
Balance, end of year $ 6,513 $ 7,413 $ 9,589
================ =================== ==================
</TABLE>
The Bank will only recognize a deferred tax asset when, based upon available
evidence, realization is more likely than not, and accordingly, the December 31,
1996 and 1995 net deferred tax asset was reduced by a 100% valuation reserve.
Net operating losses available for application against future taxable income are
as follows:
<TABLE>
<CAPTION>
Federal
----------------------------------------
Year of Before After
Expiration State Ownership Change Ownership Change
---------- ----- ---------------- ----------------
(In Thousands)
<S> <C> <C> <C>
1997 $ 8,885 --- ---
1998 5,470 --- ---
1999 1,031 --- ---
2005 --- $ 1,125 ---
2006 --- 125 ---
2007 --- 125 $ 2,303
2008 --- --- 5,393
2009 --- --- 961
</TABLE>
In May 1992 the Bank underwent an "ownership change", as defined under the
Internal Revenue Code, as a result of a rights offering. The ability of the Bank
to utilize its federal net operating loss carryforwards incurred prior to the
"ownership change" is limited to approximately $125,000 annually.
8. OBLIGATIONS UNDER LEASES:
The Bank has operating leases for certain of its facilities under leases which
expire at various dates through 2008.
Net rental expense under the above operating leases was $85,376, $81,887 and
$81,194 for 1996, 1995 and 1994, respectively. Future minimum payments under
noncancelable operating leases having initial or remaining terms in excess of
one year are as follows:
1997 $ 132,756
1998 90,409
1999 92,618
2000 92,618
2001 77,052
Later years 235,402
--------
720,855
Less: Sublease rentals (167,417)
---------
$ 553,438
=========
F-15
<PAGE>
9. FEDERAL HOME LOAN BANK ADVANCES:
Advances from the Federal Home Loan Bank of Boston ("FHLBB")consisted of the
following at December 31:
<TABLE>
<CAPTION>
Interest Rate Maturity 1996 1995
------------- -------- ---- ----
(In Thousands)
<S> <C> <C> <C>
7.52% 1996 --- $3,000
5.39 to 5.78 1997 $5,000 ---
------ ------
$5,000 $3,000
====== ======
</TABLE>
In accordance with the Credit Policy of the FHLBB, the Bank must maintain at all
times an amount of Qualified Collateral that is sufficient to satisfy the
Collateral Maintenance Level requirements set by the FHLBB. At December 31, 1996
the Collateral Maintenance Level requirement was $5,506,000, based on $5,000,000
in outstanding advances and $506,000 in available lines of credit, and the
Qualified Collateral was comprised of residential mortgages in the Bank's loan
portfolio and funds placed in accounts at the FHLBB.
10. RETIREMENT PLANS:
The Bank maintains a non-contributory defined benefit pension plan which covers
substantially all its employees. Plan benefits are based primarily on years of
service and average compensation. It is the Bank's policy to fund the plan at
levels sufficient to meet the minimum funding requirements set forth in the
Employee Retirement Income Security Act of 1974, plus such additional amounts as
the Bank may determine to be appropriate from time to time. Plan assets consist
principally of money market, bond and equity funds.
The funded status of the plan at December 31 was as follows:
<TABLE>
<CAPTION>
1996 1995
------------- ---------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 1,031,422 $ 946,780
============= ===============
Accumulated benefit obligation $ 1,160,261 $ 1,000,281
============= ===============
Projected benefit obligation $ 1,341,536 $ 1,304,400
Plan assets at fair value 1,236,366 1,063,381
------------- ---------------
Plan assets less than projected benefit
obligation (105,17) (241,01)
Unrecognized net loss 25,149 83,984
Prior service cost not yet recognized in
net periodic pension cost 124,418 125,438
------------- ---------------
Prepaid/(accrued) pension costs
included in other assets/ (liabilities) $ 44,397 ($ 31,597)
============= ===============
</TABLE>
F-16
<PAGE>
Pension cost includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- ------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 90,242 $ 69,634 $ 104,455
Interest cost on projected
benefit obligation 103,248 96,926 94,185
Actual return on plan assets (21,135) (109,939) 48,601
Net amortization and deferral (68,388) 7,504 (172,451)
--------------- ------------------- ------------------
Net pension expense $ 103,967 $ 64,125 $ 74,790
================ =================== ==================
</TABLE>
Assumptions used in the accounting for pension cost are as follows:
1996 1995 1994
---- ---- ----
Discount rate 8.0% 8.0% 8.0%
Average wage increase 3.0% 3.0% 3.0%
Expected long-term rate of return 8.0% 8.0% 8.0%
The Bank maintained an Employee Stock Ownership Plan (ESOP) for the benefit of
all eligible employees who have completed twelve months of service with the Bank
and who have attained age 21. During 1995 the ESOP plan was merged into the
employees' retirement plan under Section 401(k) of the Internal Revenue Code.
This plan allows employees to defer a portion of their income on a pre-tax
basis. The Bank contribution, which is discretionary, is determined as a
percentage of the employee contribution. There was no contribution made for
these plans in 1996, 1995 or 1994.
11. RETIREMENT BENEFITS:
The Bank provides certain health care insurance benefits for retired employees.
Participants become eligible for the benefits if they retire after attaining
specified age and service requirements while they worked for the Bank. The Bank
does not fund this plan. The expected cost of these postretirement benefits is
charged to expense during the years that the employees render service.
The following table sets forth the plan's funded status with the amount
reflected in the Bank's balance sheet at December 31:
<TABLE>
<CAPTION>
1996 1995
----------------- ------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees ($ 140,130) ($ 139,488)
Other active participants (157,501) (126,726)
Unrecognized actuarial gain (305,377) (329,799)
Unrecognized transition obligation 370,492 393,648
----------------- -----------------
Accrued postretirement benefit cost included in
other liabilities ($ 232,516) ($ 202,365)
================ =================
</TABLE>
F-17
<PAGE>
For the years ended December 31, net postretirement benefit cost included the
following components:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Service cost $ 19,471 $ 29,870 $ 3,574
Interest cost on accumulated postretirement
benefit obligation 21,297 47,948 33,908
Amortization of transition obligation
over 20 years 23,156 23,156 23,156
Amortization of gain (23,28) --- ---
------------ ------------ ------------
Net postretirement benefit cost $ 40,639 $ 100,974 $ 60,638
============ ============= ============
</TABLE>
The discount rate used in determining the accumulated postretirement benefit
obligation was 8%.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires the Bank to disclose estimated fair
value for its financial instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Cash and due from banks, Federal funds sold, Federal Home Loan Bank stock,
Accrued interest receivable:
The carrying amount is a reasonable estimate of fair value.
Securities:
Securities classified as available-for-sale are carried at fair value. Fair
values for securities classified as available-for-sale and held-to-maturity are
based on quoted market prices.
Loans:
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type, such as mortgage, construction,
commercial, consumer, and home equity lines of credit and by performing and
nonperforming categories. The mortgage portfolio is further segmented into fixed
and adjustable rate interest terms.
The fair value of performing loans is estimated using quoted market prices for
securities backed by similar loans, adjusted for differences in loan
characteristics. Fair value for nonperforming loans is based on specific loan
evaluations, some of which include appraisals.
Deposits:
The fair value of deposits with no stated maturity, such as demand deposits,
savings and money market accounts is equal to the amount payable on demand. The
fair value of certificates of deposit is based on the discounted value of
contractual cash flows using rates currently offered for deposits of similar
remaining maturities.
Federal Home Loan Bank advances:
Rates currently available to the Bank for debt with similar terms and remaining
maturities are used to estimate fair value of existing debt.
F-18
<PAGE>
Financial Instruments with Off-Balance Sheet Risk:
The fair values of commitments to extend credit were estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of letters of credit is based on fees currently charged for similar
agreements or on the estimated cost to terminate or otherwise settle the
obligations with the counterparties. The fair value of items with off-balance
sheet risk was approximately $9,405,000 at December 31, 1996 and approximately
$7,478,000 at December 31, 1995.
Financial instruments are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------------- ---------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(In Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks $ 4,990 $ 4,990 $ 4,460 $ 4,460
Federal funds sold 8,125 8,125 11,205 11,205
Securities available- for-sale 9,357 9,357 5,700 5,700
Securities held- to-maturity 33,406 33,550 21,585 21,942
Federal Home Loan Bank stock 748 748 1,026 1,026
Loans, net of allowance for
loan losses 122,658 122,473 125,774 127,549
Accrued interest receivable 1,334 1,334 1,285 1,285
Financial Liabilities:
Deposits 159,353 159,464 153,749 153,979
Federal Home Loan
Bank advances 5,000 5,000 3,000 3,039
</TABLE>
13. EARNINGS (LOSS) PER SHARE:
Primary per share amounts have been calculated by dividing net earnings by the
weighted average number of common shares outstanding during each period.
Fully diluted per share amounts are similarly computed, but include the
incremental shares attributed to the assumed conversion of an outstanding
warrant to purchase 700,000 shares of common stock.
The weighted average number of shares used in computing earnings (loss) per
share are as follows:
1996 1995 1994
------ ------- -----
Primary 6,559,297 6,559,297 1,965,640
Fully diluted 6,898,000 6,772,340 2,006,816
14. STOCK OPTIONS:
At a Special Meeting of Shareholders on November 21, 1991, the Bank's 1986 Stock
Option and Incentive Plan (the "1986 Plan") was terminated, except with respect
to outstanding options, and was replaced with a 1991 Stock Option Plan (the
"1991 Plan").
Under the 1991 Plan, as with the 1986 Plan, incentive and nonqualified stock
options and stock appreciation rights (SARs) may be granted to officers and
other key employees by a Nominating, Pension, Options and Compensation Committee
of the Board of Directors. In addition, under the 1991 Plan, nonqualified stock
options and SARs may be granted to consultants of the Bank. SARs are similar to
stock options except that upon the exercise of SARs the holder purchases no
shares of stock, but instead receives the amount by which the market value of
the shares as to which SARs are exercised exceeds the exercise price.
F-19
<PAGE>
The 1991 Plan provides that the exercise price of any SARs must not be less than
100% of the fair market value of the Bank's Common Stock on the date of grant
or, in the case of SARs granted in tandem with options, the exercise price of
the related option.
In September of 1994 the Board of Directors amended the 1991 Plan to clarify
that SARs granted not in tandem with options may be granted in an amount up to
the economic equivalent of 500,000 shares of Bank Common Stock. These SARs are
not exercisable until two to three years from the date of grant unless certain
events take place.
During 1996, all outstanding options under the 1986 Plan and the 1991 Plan were
cancelled. The number of SARs outstanding at December 31, 1996 under the 1991
Plan is summarized as follows:
<TABLE>
<CAPTION>
Outstanding
Date December 31,
Granted Price Granted 1996
------- ----- ------- ------------
<S> <C> <C> <C> <C>
Directors Nov. 1994 $2.00 80,000 80,000
Employees Nov. 1994 2.00 202,000 202,000
Directors May 1995 2.375 100,000 100,000
Directors Aug. 1995 2.75 10,000 10,000
Directors Oct. 1996 3.50 10,000 10,000
</TABLE>
15. CAPITAL:
At the 1994 annual meeting of stockholders on October 20, 1994, the Bank's
shareholders approved the following amendments to the Certificate of
Incorporation to permit the Bank to conduct a rights offering to raise
additional capital:
A) To provide for a reverse stock split pursuant to which ten shares of Bank
Common Stock outstanding was changed into one new fully paid and nonassessable
share of Bank Common Stock. All references in the financial statements to number
of shares and per share amounts of the Bank's Voting Common Stock were restated
to reflect the reverse stock split.
B) Authorized a new class of 2,000,000 shares of Non-Voting Convertible Common
Stock. At any time after five years following the issuance of any share of
Non-Voting Common Stock, each holder may convert their shares into Series A
Preferred Stock at a conversion rate, initially set at .02 share of Series A
Preferred Stock for each share of Non-voting Common Stock.
F-20
<PAGE>
In addition, in 1994 the Board of Directors amended the Certificate of
Incorporation to authorize 30,000 shares of Series A Preferred Stock. The Series
A Preferred Stock has no voting rights, except to the extent required by law.
The dividends on this preferred stock are not cumulative and would be subject to
prior approval by Bank regulatory authority. In the event of any liquidation of
the Bank the preferred stockholders would receive full preferential payments
prior to any payments to holders of any class of common stock.
On September 16, 1994 the Bank granted to each of its shareholders of record
non-transferable subscription rights to subscribe to 5,512,500 shares at a price
of $2.00 per share. Each eligible shareholder received one right for each share
of the Bank's outstanding common stock owned after the reverse stock split
described above. Each right entitled the holder to purchase 5.264 shares and
included an oversubscription privilege.
In November 1994, the Bank successfully completed the rights offering. Shares
sold totaled 5,512,500 and the Bank received net proceeds of $10,346,000.
In addition, in consideration of an investor's commitment to purchase shares in
the offering the Bank issued to the investor a warrant to purchase an additional
700,000 shares of voting shares for a purchase price of $2.00 per share. The
warrant has a ten year term and is subject to certain restrictions and
conditions.
16. LOANS to RELATED PARTIES:
The Bank has granted loans to certain of its principal shareholders, Officers
and Directors and to their associates. Related party loans are made on
substantially the same terms, including interest rate and collateral, as those
prevailing at the time for comparable transactions with unrelated persons, and
do not involve more than normal risk of collectibility. The aggregate dollar
amounts of these loans was approximately $1,784,000 and $804,000 at December 31,
1996 and 1995, respectively.
F-21
<PAGE>
Loan activity for the periods ended December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------- ------------------- ------------------
(In Thousands)
<S> <C> <C> <C>
Balance, beginning of year $ 804 $ 822 $ 832
Additions 1,037 --- 35
Payments and deletions (57) (18) (45)
---------------- ------------------- ------------------
Balance, end of year $ 1,784 $ 804 $ 822
================ =================== ==================
</TABLE>
17. REGULATORY MATTERS and ENVIRONMENT:
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary actions by
regulators, that if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total risk-based
capital and Tier 1 capital to risk-weighted assets (as defined in the
regulations), and Tier 1 capital to average assets (average total assets for the
most recent quarter). Management believes, as of December 31, 1996, that the
Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To remain categorized as well
capitalized, the Bank will have to maintain minimum total risk-based, Tier 1
risk-based, and Tier 1 leverage ratios as disclosed in the table below. There
are no conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
F-22
<PAGE>
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars in (dollars in (dollars in
thousands) thousands) thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based Capital $17,882 16.28% $ 8,787 8.00% $10,983 10.00%
(to Risk-Weighted Assets)
Tier 1 Capital $16,478 15.00% $ 4,393 4.00% $ 6,590 6.00%
(to Risk-Weighted Assets)
Tier 1 Capital $16,478 9.19% $ 7,171 4.00% $ 8,963 5.00%
(to Average Assets)
<CAPTION>
December 31, 1995
----------------------------------------------------------------------------------------------
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(dollars in (dollars in (dollars in
thousands) thousands) thousands)
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based Capital $16,211 14.64% $ 8,861 8.00% $11,077 10.00%
(to Risk-Weighted Assets)
Tier 1 Capital $14,799 13.36% $ 4,431 4.00% $ 6,646 6.00%
(to Risk-Weighted Assets)
Tier 1 Capital $14,799 8.57% $ 6,911 4.00% $ 8,638 5.00%
(to Average Assets)
</TABLE>
F-23
<PAGE>
18. OTHER NONINTEREST INCOME and EXPENSE:
Other noninterest income and expense amounts are summarized as follows for the
years ended December 31:
1996 1995 1994
---- ---- ----
(In Thousands)
Other noninterest income:
Banking service charges and fees $ 144 $ 140 $ 131
Trust department fees --- --- 222
Other 3 5 5
----- ----- -----
$ 147 $ 145 $ 358
==== ===== =====
Other noninterest expense:
Fees and services $ 302 $ 292 $ 172
Office expense and supplies 201 181 170
Insurance 214 225 192
Advertising 111 82 64
Other 215 213 165
----- ----- -----
$1,043 $ 993 $ 763
====== ===== =====
F-24
<PAGE>
19. FINANCIAL INSTRUMENTS with OFF-BALANCE SHEET RISK:
The Bank is a party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amounts recognized in the balance sheet.
The following table summarizes these financial instruments at December 31, 1996
and 1995:
1996 1995
---- ----
(In Thousands)
Commitments to extend credit:
Outstanding construction mortgages $1,623 $1,163
Unused lines of credit 5,437 5,526
Commitments to fund loans 1,765 ---
Standby letters of credit 565 767
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer and generally
have fixed expiration dates or other termination clauses and may require payment
of a fee. Since commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the counterparty.
Standby letters of credit are written conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loans to customers.
F-25
<PAGE>
BRANFORD SAVINGS BANK
UNAUDITED FINANCIAL STATEMENTS
F-26
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF CONDITION
Unaudited (Dollars in Thousands)
<CAPTION>
June 30, December 31,
1997 1996
---- ----
ASSETS
<S> <C> <C>
Cash and due from banks $ 6,250 $ 4,990
Federal funds sold 4,775 8,125
Securities:
Available-for-Sale, at market value 6,351 9,357
Held-to-Maturity (market value $45,942 and $33,550) 45,940 33,406
Loans, net118,701 122,658
Real estate and equipment 1,921 1,996
Accrued interest receivable 1,380 1,334
Federal Home Loan Bank stock, at cost 813 748
Foreclosed real estate, net 60 684
Other assets 364 213
--------- ---------
TOTAL ASSETS $ 186,555 $ 183,511
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits $ 163,392 $ 159,353
Accrued interest payable on deposits 7 ---
Advances from borrowers for taxes
and insurance 1,580 1,616
Federal Home Loan Bank advances 3,000 5,000
Other liabilities 1,263 1,064
--------- ---------
Total Liabilities 169,242 167,033
--------- ---------
SHAREHOLDERS' EQUITY
Series A Preferred Stock, no par value;
Authorized 30,000 shares;
none issued and outstanding --- ---
Serial Preferred Stock, no par value;
Authorized 970,000 shares;
none issued and outstanding --- ---
Common stock, no par value;
authorized 30,000,000 shares;
issued and outstanding 5,179,864
shares in 1997 and 1996 1,557 1,557
Non-voting Convertible Common Stock,
no par value; Authorized 2,000,000
shares; issued and outstanding
1,379,533 shares in 1997 and 1996 --- ---
Paid-in capital 31,227 31,227
Net unrealized gain (loss) on
available-for-sale securities 5 ( 10)
Retained deficit ( 15,476) ( 16,296)
--------- ---------
Total Shareholders' Equity 17,313 16,478
--------- ---------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 186,555 $ 183,511
========= =========
See notes to unaudited financial statements.
</TABLE>
F-27
<PAGE>
BRANFORD SAVINGS BANK STATEMENTS OF INCOME
Unaudited (In Thousands Except Per Share Amount)
Three Months Ended June 30
--------------------------
1997 1996
---------- -----------
Interest income:
Interest and fees on loans $ 2,677 $ 2,736
Interest and dividends on securities:
Interest 839 663
Dividends 13 12
--------- ---------
Total interest income 3,529 3,411
--------- ---------
Interest expense:
Interest on deposits 1,500 1,468
Interest on advances from borrowers 4 5
Interest on borrowed funds 37 57
--------- ---------
Total interest expense 1,541 1,530
--------- ---------
Net interest income 1,988 1,881
Provision for loan losses 50 175
--------- ---------
Net interest income
after provision for loan losses 1,938 1,706
--------- ---------
Noninterest income:
Service fees charged on deposits 105 111
Other operating income 34 35
--------- ---------
Total noninterest income 139 146
--------- ---------
Noninterest expenses:
Salaries and employee benefits 895 754
Occupancy and equipment 311 303
Foreclosed real estate expense, net 30 59
Collection expense 14 28
FDIC deposit insurance premiums 6 ---
Other operating expenses 269 280
--------- ---------
Total noninterest expenses 1,525 1,424
--------- ---------
Income before income taxes 552 428
Income tax expense 15 6
--------- ---------
Net income $ 537 $ 422
========= =========
Earnings per weighted average share
Basic $ .08 $ .06
========= =========
Diluted $ .08 $ .06
========= =========
Weighted Average Shares Outstanding
Basic 6,559,397 6,559,397
========= =========
Diluted 6,858,032 6,844,582
========= =========
See notes to unaudited financial statements.
F-28
<PAGE>
BRANFORD SAVINGS BANK STATEMENTS OF INCOME
Unaudited (In Thousands Except
Per Share Amount)
Six Months Ended June 30
--------------------------
1997 1996
------------ ----------
Interest income:
Interest and fees on loans $ 5,361 $ 5,487
Interest and dividends on securities:
Interest 1,591 1,261
Dividends 25 27
-------- --------
Total interest income 6,977 6,775
-------- --------
Interest expense:
Interest on deposits 2,969 2,956
Interest on advances from borrowers 7 8
Interest on borrowed funds 80 114
--------- ---------
Total interest expense 3,056 3,078
--------- ---------
Net interest income 3,921 3,697
Provision for loan losses 150 375
--------- ---------
Net interest income
after provision for loan losses 3,771 3,322
--------- ---------
Noninterest income:
Service fees charged on deposits 207 224
Other operating income 73 77
--------- ---------
Total noninterest income 280 301
--------- ---------
Noninterest expenses:
Salaries and employee benefits 1,634 1,440
Occupancy and equipment 648 632
Foreclosed real estate expense, net 90 153
Collection expense 27 62
FDIC deposit insurance premiums 10 1
Other operating expenses 530 519
--------- ---------
Total noninterest expenses 2,939 2,807
--------- ---------
Income before income taxes 1,112 816
Income tax expense 30 9
--------- ---------
Net income $ 1,082 $ 807
========= =========
Earnings per weighted average share
Basic $ .16 $ .12
========= =========
Diluted $ .16 $ .12
========= =========
Weighted Average Shares Outstanding
Basic 6,559,397 6,559,397
========= =========
Diluted 6,858,032 6,844,582
========= =========
See notes to unaudited financial statements.
F-29
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Unaudited (Dollars in Thousands)
<CAPTION>
NET
UNREALIZED RETAINED TOTAL
COMMON PAID-IN GAIN (LOSS) EARNINGS SHAREHOLDERS'
STOCK CAPITAL SECURITIES (DEFICIT) EQUITY
----- ------- ---------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance as of
December 31, 1995 $ 1,557 $31,227 $ 21 ($18,006) $14,799
Net income for the
six months ended
June 30, 1996 807 807
Change in net
unrealized gain (loss)
on available-for-sale
securities ( 22) ( 22)
------------ ----------- ---------- ---------- ----------
Balance as of
June 30, 1996 $ 1,557 $ 31,227 ($ 1) ($ 17,199) $ 15,584
=========== ========== ========== ========= ==========
Balance as of
December 31, 1996 $ 1,557 $ 31,227 ($ 10) ($16,296) $ 16,478
Net income for the
six months ended
June 30, 1997 1,082 1,082
Dividends Paid ( 262) ( 262)
Change in net
unrealized gain (loss)
on available-for-sale
securities 15 15
------------ ----------- ---------- ----------- ----------
Balance as of
June 30, 1997 $ 1,557 $ 31,227 $ 5 ($ 15,476) $ 17,313
=========== ========== ========== ========== ==========
See notes to unaudited financial statements.
</TABLE>
F-30
<PAGE>
<TABLE>
BRANFORD SAVINGS BANK STATEMENTS OF CASH FLOWS
Unaudited (Dollars In Thousands)
<CAPTION>
Six Months Ended June 30
------------------------
1997 1996
---- ----
<S> <C> <C>
Operating Activities:
Net income $1,082 $ 807
Adjustments to reconcile net income
to net cash provided (used) by operating
activities:
Provision for loan losses 150 375
Provision for losses on foreclosed
real estate 17 58
Provision for depreciation 143 135
Amortization and accretion of securities
premiums and discounts, net ( 21) ( 28)
Amortization of net deferred loan fees ( 30) ( 19)
Realized loss on sale of foreclosed
real estate 5 13
Decrease in accrued interest receivable ( 46) ( 22)
Increase in other assets ( 151) ( 18)
Increase in other liabilities 170 73
-------- --------
Net cash provided (used) by
operating activities 1,319 1,374
-------- --------
Investing Activities:
Principal collected on
mortgage-backed securities 2,181 1,325
Purchase of securities, available-for-sale ( 1,001) ( 1,005)
Purchase of securities, held-to-maturity ( 20,922) ( 12,051)
Maturities of securities, available-for-sale 4,000 2,000
Maturities of securities, held-to-maturity 6,250 1,000
Net decrease in loans 3,664 1,756
Purchase of real estate and equipment ( 68) ( 117)
Sale of FHLB Stock --- 278
Purchase of FHLB Stock ( 64) ---
Proceeds from sale of foreclosed real estate 774 454
-------- --------
Net cash provided (used) by investing
activities ( 5,186) ( 6,360)
-------- --------
Financing Activities:
Increase in deposits 4,039 3,329
Proceeds from FHLB Advances 3,000 ---
Repayment of FHLB Advances ( 5,000) ---
Dividends Paid ( 262) ---
-------- --------
Net cash provided (used) by
financing activities 1,777 3,329
-------- --------
Increase (decrease) in cash and cash
equivalents ( 2,090) ( 1,657)
Cash and cash equivalents, January 1 13,115 15,665
-------- --------
Cash and cash equivalents, June 30 $ 11,025 $ 14,008
======== ========
Supplemental Disclosures:
Cash paid during the period for:
Interest $ 3,058 $ 3,070
Income taxes 79 26
Non-cash investing activities:
Addition to foreclosed real estate 167 584
See notes to unaudited financial statements.
F-31
<PAGE>
BRANFORD SAVINGS BANK NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim information and the
instructions to the F-4 and should be read with the audited financial statements
and notes thereto included in the Bank's 1996 annual report. In the opinion of
management of Branford Savings Bank, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1997.
NOTE B - COMMITMENTS AND CONTINGENT LIABILITIES
In the normal course of business, the Bank makes various commitments and incurs
certain contingent liabilities that are not present in the accompanying
financial statements. These commitments are summarized as follows:
(In thousands) June 30, 1997 December 31, 1996
------------- -----------------
Outstanding construction mortgages $ 992 $ 1,623
Unused lines of credit 5,549 5,437
Commitments to fund loans 2,306 1,765
Standby letters of credit 630 565
F-32
<PAGE>
Annex A
AGREEMENT AND PLAN OF MERGER
by and among
North Fork Bancorporation, Inc.,
Merger Bank
and
Branford Savings Bank
Dated as of July 24, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER................................................ A-1
1.1. The Merger................................................ A-1
1.2. Effective Time............................................ A-1
1.3. Effects of the Merger..................................... A-1
1.4. Conversion of Bank Common Stock........................... A-2
1.5 Conversion of Warrants.................................... A-3
1.6. Conversion of Stock Appreciation Rights................... A-4
1.7. Merger Bank Common Stock.................................. A-4
1.8. Certificate of Incorporation, etc. of Resulting Bank...... A-4
1.9. By-Laws of Resulting Bank................................. A-4
1.10. Directors of Resulting Bank............................... A-4
1.11. Tax Consequences.......................................... A-5
ARTICLE II EXCHANGE OF SHARES........................................ A-5
2.1. Parent to Make Shares Available........................... A-5
2.2. Exchange of Shares........................................ A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BANK.................... A-7
3.1. Corporate Organization.................................... A-7
3.2. Capitalization............................................ A-8
3.3. Authority; No Violation................................... A-8
3.4. Consents and Approvals.................................... A-9
3.5. Regulatory Reports; Examinations.......................... A-10
3.6. Financial Statements...................................... A-10
3.7. Broker's Fees............................................. A-11
3.8. Absence of Certain Changes or Events...................... A-11
3.9. Legal Proceedings......................................... A-11
3.10. Taxes..................................................... A-12
3.11. Employee Benefits......................................... A-13
3.12. FDIC Reports.............................................. A-16
3.13. Bank Information.......................................... A-16
3.14. Compliance with Applicable Law............................ A-17
3.15. Certain Contracts......................................... A-17
3.16. Agreements with Regulatory Agencies....................... A-18
3.17. Investment Securities..................................... A-18
3.18. Property.................................................. A-18
3.19. Equity and Real Estate Investments........................ A-18
3.20. Environmental Matters..................................... A-19
i
<PAGE>
3.21. Derivative Transactions................................... A-20
3.22. Takeover Laws............................................. A-20
3.23. Loan Portfolio............................................ A-20
3.24. Reorganization............................................ A-21
3.25. Fairness Opinion.......................................... A-21
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT.................. A-21
4.1. Corporate Organization.................................... A-21
4.2. Capitalization............................................ A-21
4.3. Authority; No Violation................................... A-22
4.4. Consents and Approvals.................................... A-23
4.5. Financial Statements...................................... A-24
4.6. Broker's Fees............................................. A-24
4.7. Absence of Certain Changes or Events...................... A-25
4.8. Legal Proceedings......................................... A-25
4.9. Compliance with Applicable Law............................ A-25
4.10. SEC Reports............................................... A-25
4.11. Parent Information........................................ A-25
4.12. Ownership of Bank Voting Common Stock..................... A-26
4.13. Employees................................................. A-26
4.14. Agreements with Regulatory Agencies....................... A-26
4.15. Reorganization............................................ A-26
4.16. Reserve for Losses........................................ A-26
4.17. Loans..................................................... A-26
4.18. Environmental Matters..................................... A-27
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS................. A-28
5.1. Covenants of Bank......................................... A-28
5.2. Covenants of Parent....................................... A-31
ARTICLE VI ADDITIONAL AGREEMENTS..................................... A-32
6.1. Regulatory Matters........................................ A-32
6.2. Access to Information..................................... A-33
6.3. Shareholder Meeting....................................... A-34
6.4. Legal Conditions to Merger................................ A-34
6.5. Stock Exchange Listing.................................... A-34
6.6. Certain Agreements and Arrangements....................... A-34
6.7. Indemnification........................................... A-35
6.8. Subsequent Financial Statements........................... A-36
6.9. Additional Agreements..................................... A-37
6.10. Advice of Changes, Failure of Conditions.................. A-37
6.11. Current Information....................................... A-37
6.12. Merger Bank............................................... A-37
6.13. Board of Directors of Resulting Bank; Advisory Directors.. A-37
ii
<PAGE>
6.14. Accountants' Letters...................................... A-38
6.15. Parent Rights Agreement................................... A-38
6.16. Affiliates' Letters....................................... A-38
ARTICLE VII CONDITIONS PRECEDENT...................................... A-38
7.1. Conditions to Each Party's Obligation To Effect the Merger A-38
(a) Shareholder Approval................................ A-39
(b) NYSE Listing........................................ A-39
(c) Other Approvals..................................... A-39
(d) S-4................................................. A-39
(e) No Injunctions or Restraints; Illegality............ A-39
7.2. Conditions to Obligations of Parent....................... A-39
(a) Representations and Warranties...................... A-39
(b) Performance of Obligations of Bank.................. A-40
(c) Consents Under Agreements........................... A-40
(d) No Pending Governmental Actions..................... A-40
(e) Federal Tax Opinion................................. A-40
(f) Legal Opinion....................................... A-40
(g) Affiliates' Letters................................. A-40
7.3. Conditions to Obligations of Bank......................... A-41
(a) Representations and Warranties...................... A-41
(b) Performance of Obligations of Parent................ A-41
(c) No Pending Governmental Actions..................... A-41
(d) Federal Tax Opinion................................. A-41
(e) Legal Opinion....................................... A-42
ARTICLE VIII TERMINATION AND AMENDMENT................................. A-42
8.1. Termination............................................... A-42
8.2. Effect of Termination; Expenses........................... A-43
8.3. Amendment................................................. A-44
8.4. Extension; Waiver......................................... A-44
ARTICLE IX GENERAL PROVISIONS........................................ A-44
9.1. Closing................................................... A-44
9.2. Alternative Structure..................................... A-45
9.3. Nonsurvival of Representations, Warranties and Agreements. A-45
9.4. Expenses.................................................. A-45
9.5. Notices................................................... A-45
9.6. Interpretation............................................ A-46
9.7. Counterparts.............................................. A-46
9.8. Entire Agreement.......................................... A-46
9.9. Governing Law............................................. A-47
9.10. Enforcement of Agreement.................................. A-47
9.11. Severability.............................................. A-47
iii
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9.12. Publicity................................................. A-47
9.13. Assignment; No Third Party Beneficiaries.................. A-47
iv
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 24, 1997, by and among
North Fork Bancorporation, Inc., a Delaware corporation ("Parent"), a
Connecticut interim bank to be formed as a direct wholly owned subsidiary of
Parent ("Merger Bank"), and Branford Savings Bank, a Connecticut-chartered stock
form savings bank ("Bank").
WHEREAS, the Boards of Directors of Parent and Bank have determined
that it is in the best interests of their respective companies and their
shareholders to consummate the business combination transaction provided for
herein, in which the Bank will merge with and into Merger Bank subject to the
terms and conditions set forth herein (the "Merger"); and
WHEREAS, the parties intend that the Merger qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger;
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1. The Merger. Subject to the terms and conditions of this Agreement,
in accordance with the Banking Law of Connecticut (the "CBL"), at the Effective
Time (as defined in Section 1.2 hereof), Bank shall merge with and into Merger
Bank. The resulting bank in the Merger shall be Merger Bank which shall continue
its corporate existence under the laws of the State of Connecticut. Upon
consummation of the Merger, the separate corporate existence of Bank shall
terminate.
1.2. Effective Time. The Merger shall become effective at the close of
business on the date determined in accordance with the provisions of Section 9.1
hereof as the date of the Closing (as defined therein), provided such date shall
be on or after the date of the filing of this Merger Agreement and the approval
of the Merger by the Banking Commissioner of the State of Connecticut (the
"State Commissioner") in the office of the Connecticut Secretary of State. The
term "Effective Time" shall be the date and time when the Merger becomes
effective.
1.3. Effects of the Merger. At and after the Effective Time, the Merger
shall have the effects set forth in Section 125(g) of the CBL.
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1.4. Conversion of Bank Common Stock. (a) At the Effective Time,
subject to Section 2.2(e) and the last sentence of this Section 1.4(a), each
share of the voting Common Stock, no par value, of Bank ("Bank Voting Common
Stock") and each share of the Nonvoting Convertible Common Stock, no par value,
of Bank ("Bank Non-voting Common Stock"; Bank Voting Common Stock and Bank
Non-voting Common Stock are referred to hereinafter collectively as "Bank Common
Stock") issued and outstanding immediately prior to the Effective Time (other
than (x) shares of Bank Common Stock held (1) in the treasury of Bank or (2)
directly or indirectly by Bank or Parent or any Subsidiary thereof (as defined
below) (except for Trust Account Shares and DPC Shares, as such terms are
defined in Section 1.4(b) hereof) and (y) Dissenting Shares (as defined in
Section 1.4(c) hereof), if any) shall, by virtue of this Agreement and without
any action on the part of the holder thereof, be converted into and become
exchangeable for a number of shares (rounded to the nearest ten-thousandth of a
share) (the "Exchange Ratio") of the Common Stock, par value $2.50 per share, of
Parent ("Parent Common Stock") (together with the number of Parent Rights (as
defined in Section 4.2 hereof) associated therewith) equal to the quotient
obtained by dividing (x) $5.25 (the "Base Share Price") by (y) the average of
the closing sales prices of Parent Common Stock on the New York Stock Exchange
("NYSE") as reported by The Wall Street Journal (or, if not reported thereby, by
another authoritative source) for the twenty trading days ending on the trading
day immediately preceding the date (the "Final Regulatory Approval Date") on
which the final approval required to be given or issued by a bank regulatory
authority in order for the Merger to be consummated has been given or issued,
excluding any required waiting periods after such approval (the "Average Parent
Share Price"); provided, however, that (A) if the Average Parent Share Price is
less than $19.83 then the Exchange Ratio shall be equal to 0.2648 unless Parent
has made a Fixed Exchange Ratio Waiver (as defined and further described in
Section 8.1(h)), and (B) if the Average Parent Share Price is greater than
$26.83, then the Exchange Ratio shall be equal to 0.1957. All shares of Bank
Common Stock that are converted at the Effective Time into Parent Common Stock
pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each certificate (each
a "Certificate") previously representing any such shares of Bank Common Stock
shall thereafter represent only the right to receive the consideration into
which such shares have been converted pursuant to this Section 1.4(a) and
Section 2.2(e) hereof. Certificates previously representing shares of Bank
Common Stock shall be exchanged for certificates representing whole shares of
Parent Common Stock and cash in lieu of fractional shares issued in
consideration therefor upon the surrender of such Certificates in accordance
with Section 2.2 hereof, without any interest thereon. If, between the date
hereof and the Effective Time, the shares of Parent Common Stock shall be
changed into a different number or class of shares by reason of any
reclassification, recapitalization, split-up, combination, exchange of shares or
readjustment, or a stock dividend thereon shall be declared with a record date
within said period, the Exchange Ratio determined under Section 1.4(a)(i) above
shall be adjusted accordingly.
(b) At the Effective Time, all shares of Bank Common Stock that are
owned by Bank as treasury stock or that are owned directly or indirectly by Bank
or Parent or any Subsidiary thereof (other than shares of Bank Common Stock (x)
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held directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by third
parties (any such shares, and any shares of Parent Common Stock which are
similarly held, whether held directly or indirectly by Bank or Parent or any
Subsidiary thereof, being referred to herein as "Trust Account Shares") and (y)
held by Bank or Parent or any Subsidiary thereof in respect of a debt previously
contracted (any such shares of Bank Common Stock, and any shares of Parent
Common Stock which are similarly held, whether held directly or indirectly by
Bank or Parent or any Subsidiary thereof, being referred to herein as "DPC
Shares")) shall be cancelled and shall cease to exist and no stock of Parent or
other consideration shall be delivered in exchange therefor.
(c) Notwithstanding anything in this Agreement to the contrary, if (and
to the extent required by law) dissenters rights are available to holders of
Bank Common Stock, then any shares of Bank Common Stock that are outstanding
immediately prior to the Effective Time and are held by shareholders who shall
not have voted such shares in favor of the Merger and shall have timely
delivered to Bank a written notice of their intention to demand payment for
their shares in the manner provided in Sections 33-861 to 33-872, inclusive, of
the Connecticut Business Corporation Act (the "Dissenters' Rights Law") shall
not be converted into the right to receive, or be exchangeable for, the
consideration provided for in Section 1.4(a) hereof, but, instead, the holders
of such shares ("Dissenting Shares") shall be entitled to payment of the fair
value thereof in accordance with the provisions of the Dissenters' Rights Law.
Bank shall (x) notify Parent promptly in writing of the receipt by Bank of any
notice from a shareholder of his intent to demand payment for his shares, (y)
not settle or offer to settle any such demand without the prior written consent
of Parent and (z) not, without the prior written consent of Parent, waive any
failure by any shareholder to timely deliver a written notice of dissent or
otherwise comply with any provision of the Dissenters' Rights Law.
1.5 Conversion of Warrants. At the Effective Time, each warrant to
purchase one or more shares of Bank Voting Common Stock (each a "Bank Warrant")
issued and outstanding immediately prior thereto shall automatically be
converted pursuant to its terms into and become a warrant (a "Parent Warrant")
to purchase a number of shares of Parent Common Stock equal to the product
obtained by multiplying (x) the number of shares of Bank Voting Common Stock
subject to the Bank Warrant immediately prior thereto by (y) the Exchange Ratio
(with all other material terms and conditions of such Parent Warrant, including
the aggregate purchase price, to be identical or substantially identical to the
material terms and conditions of such Bank Warrant immediately prior thereto);
provided, however, that any holder of a Bank Warrant may elect to receive cash
consideration in lieu of the Parent Warrant into which such holder's Bank
Warrant would otherwise be converted in the Merger by complying with the
election procedures set forth in the second succeeding sentence. Any holder of a
Bank Warrant who elects to receive cash in lieu of the Parent Warrant otherwise
receivable by such holder shall receive, in respect of each such Bank Warrant,
an amount in cash equal to the difference between "A" and "B", where "A" is
equal to the product obtained by multiplying (x) the number of shares of Bank
Voting Common Stock subject to the Bank Warrant by (y) the Bank Pre-closing
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Share Value (as defined below), and where "B" is equal to the purchase price
under such Bank Warrant. The "Bank Pre-closing Share Value" is equal to the
product obtained by multiplying (x) the average of the closing sales price of
Parent Common Stock on the NYSE as reported by The Wall Street Journal (or, if
not reported thereby, by another authoritative source) for the five trading days
ending on the day immediately preceding the date on which the Effective Time
shall occur (the "Parent Pre-closing Share Price") by (y) the Exchange Ratio.
Any holder of a Bank Warrant wishing to exercise the cash election right set
forth above must send written notice of such election ("Cash Election Notice")
to Parent not less than 5 business days prior to the anticipated date of Closing
("Expected Closing Date"), which Expected Closing Date will be communicated in
writing by Parent to each holder of a Bank Warrant not less than 20 business
days prior to the Effective Time.
1.6. Conversion of Stock Appreciation Rights. At the Effective Time,
each stock appreciation right relating to Bank Voting Common Stock granted by
Bank (each a "Bank SAR") that is outstanding and unexercised immediately prior
thereto shall automatically be converted into and become the right to receive
cash in an amount equal to the product of "A" multiplied by "B", where "A" is
equal to the number of shares of Bank Voting Common Stock to which the Bank SAR
relates immediately prior to the Effective Time, and where "B" is equal to the
difference between (x) the Bank Pre-closing Share Value and (y) the exercise
price per share of Bank Voting Common Stock under the Bank SAR.
1.7. Merger Bank Common Stock. Each share of common stock, no par
value, of Merger Bank, issued and outstanding immediately prior to the Effective
Time, which shall be the only shares of capital stock of Merger Bank outstanding
prior to the Effective Time and all of which shall be owned by Parent, shall
remain issued, outstanding and unchanged after the Merger and shall thereafter
constitute all of the issued and outstanding shares of the capital stock of the
resulting bank in the Merger. (Merger Bank sometimes being referred to
hereinafter as "Resulting Bank" at and after the Effective Time).
1.8. Certificate of Incorporation, etc. of Resulting Bank. The
Certificate of Incorporation of Merger Bank immediately prior to the Effective
Time, as set forth in Exhibit A-1, shall continue as the Certificate of
Incorporation of Resulting Bank at and after the Effective Time, amended (if
amended) at the Effective Time as provided in Exhibit A-2. The name and
authorized capital stock of Resulting Bank at and after the Effective Time shall
be as set forth in Exhibit A-1, amended (if amended) at the Effective Time as
provided in Exhibit A-2. The main office of Resulting Bank shall be in Branford,
Connecticut.
1.9. By-Laws of Resulting Bank. At and after the Effective Time, the
By-Laws of Merger Bank shall continue as the By-Laws of Resulting Bank, amended
(if amended) at the Effective Time as provided in Exhibit B attached hereto.
1.10. Directors of Resulting Bank. In accordance with Section 6.13
hereof, at the Effective Time the Board of Directors of Merger Bank immediately
prior thereto shall continue as the Board of Directors of Resulting Bank, with
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such changes to be effected in the Board of Directors of Resulting Bank at or as
soon as possible after the Effective Time as is specified in Section 6.13.
1.11. Tax Consequences. It is intended that the Merger constitute a
reorganization within the meaning of Section 368(a) of the Code, and that this
Agreement shall constitute a "plan of reorganization" for purposes of Section
368 of the Code.
ARTICLE II
EXCHANGE OF SHARES
2.1. Parent to Make Shares Available. At or prior to the Effective
Time, Parent shall deposit, or shall cause to be deposited, with a bank or trust
company (which may be a Subsidiary of Parent) (the "Exchange Agent") selected by
Parent and reasonably satisfactory to Bank, for the benefit of the holders of
Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Parent Common Stock and cash (such cash and
certificates for shares of Parent Common Stock, together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") to be issued pursuant to Section 1.4 and paid pursuant to
Section 2.2(a) in exchange for outstanding shares of Bank Common Stock.
2.2. Exchange of Shares. (a) As soon as practicable after the Effective
Time, and in no event more than three business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent) and instructions for use in effecting
the surrender of the Certificates in exchange for the consideration into which
the shares of Bank Common Stock previously represented by such Certificate or
Certificates shall have been converted pursuant to this Agreement. Upon
surrender of a Certificate for exchange and cancellation to the Exchange Agent,
together with such letter of transmittal, duly executed, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of Parent Common Stock to which such
holder of Bank Common Stock shall have become entitled pursuant to the
provisions of Article I hereof and (y) a check representing the amount of cash
in lieu of fractional share, if any, that such holder has the right to receive
in respect of the Certificate surrendered pursuant to the provisions of this
Article II, and the Certificate so surrendered shall forthwith be cancelled. No
interest will be paid or accrued on any cash payable as consideration for Bank
Common Stock or on unpaid dividends and distributions, if any, payable to
holders of Certificates.
(b) No dividends or other distributions declared after the Effective
Time with respect to Parent Common Stock and payable to the holders of record
thereof shall be paid to the holder of any unsurrendered Certificate previously
representing Bank Common Stock until the holder thereof shall have surrendered
such Certificate in accordance with this Article II. After the surrender of any
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such Certificate in accordance with this Article II, the record holder thereof
shall be entitled to receive any such dividends or other distributions, without
any interest thereon, which theretofore had become payable with respect to
shares of Parent Common Stock represented by such Certificate.
(c) If any certificate representing shares of Parent Common Stock is to
be issued in a name other than that in which the Certificate representing shares
of Bank Common Stock surrendered in exchange therefor is registered, it shall be
a condition of the issuance thereof that the Certificate so surrendered shall be
properly endorsed (or accompanied by an appropriate instrument of transfer) and
otherwise in proper form for transfer, and that the person requesting such
exchange shall pay to the Exchange Agent in advance any transfer or other taxes
required by reason of the issuance of a certificate representing shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or required for any other reason, or shall establish to
the satisfaction of the Exchange Agent that such tax has been paid or is not
payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of Bank of the shares of Bank Common Stock which were issued and
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates representing such shares are presented for transfer to the
Exchange Agent, they shall be cancelled and exchanged for the consideration
issuable with respect thereto as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Parent Common Stock
shall be issued upon the surrender for exchange of Certificates formerly
representing Bank Common Stock, no dividend or distribution with respect to
Parent Common Stock shall be payable on or with respect to any such fractional
share, and such fractional share interests shall not entitle the owner thereof
to vote or to any other rights of a stockholder of Parent. In lieu of the
issuance of any such fractional share, Parent shall pay to each former
shareholder of Bank who otherwise would be entitled to receive a fractional
share of Parent Common Stock an amount in cash determined by multiplying (x) the
Parent Pre-closing Share Price by (y) the fraction of a share of Parent Common
Stock which such holder would otherwise be entitled to receive pursuant to
Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by the
shareholders of Bank for six months after the Effective Time shall be paid to
Parent. Any shareholders of Bank who have not theretofore complied with this
Article II shall thereafter look only to Parent for payment of the consideration
due them under this Agreement, including, if appropriate, unpaid dividends and
distributions on any Parent Common Stock deliverable to them under this
Agreement, in each case, without any interest thereon. Notwithstanding the
foregoing, none of Parent, Resulting Bank, Bank, the Exchange Agent or any other
person shall be liable to any former holder of shares of Bank Common Stock for
any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
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(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Parent, the
posting by such person of a bond in such amount as Parent may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate consideration issuable pursuant to this Agreement in
respect of the shares of Bank Common Stock formerly represented thereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BANK
Bank hereby represents and warrants to Parent as follows:
3.1. Corporate Organization. (a) Bank is a savings bank duly organized
and validly existing under the laws of the State of Connecticut. The deposit
accounts of Bank are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Bank Insurance Fund to the fullest extent permitted by law,
and all premiums and assessments required to be paid in connection therewith
have been paid when due by Bank. Bank has the corporate power and authority to
own or lease all of its properties and assets and to carry on its business as it
is now being conducted, and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or location of the properties and assets owned or leased by it makes
such licensing or qualification necessary, except where the failure to be so
licensed or qualified would not have a Material Adverse Effect (as defined
below) on Bank. The Amended and Restated Certificate of Incorporation and Bylaws
of Bank, copies of which have previously been delivered to Parent, are true,
complete and correct copies of such documents as in effect as of the date of
this Agreement. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to Parent or Bank, as the case may be, any effect that (i)
is material and adverse to the business, assets, liabilities, results of
operations or financial condition of Parent and its Subsidiaries (as defined
below), taken as whole, or Bank, respectively, or (ii) materially impairs the
ability of Parent and it Subsidiaries, including Merger Bank, or Bank,
respectively, to consummate the transactions contemplated hereby; provided,
however, that Material Adverse Effect shall not be deemed to include the impact
of (a) changes in laws and regulations or interpretations thereof that are
generally applicable to the banking or savings industries, (b) changes in
generally accepted accounting principles that are generally applicable to the
banking or savings industries, (c) expenses incurred in connection with the
transactions contemplated hereby and (d) changes attributable to or resulting
from changes in general economic conditions, including changes in the prevailing
level of interest rates. As used in this Agreement, the word "Subsidiary" when
used with respect to any party means any corporation, partnership or other
organization, whether incorporated or unincorporated, which is consolidated with
such party for financial reporting purposes.
(b) Bank has no Subsidiaries.
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(c) The minute books of Bank contain true, complete and accurate
records in all material respects of all meetings and other corporate actions
held or taken since December 31, 1992 of the shareholders and Board of Directors
of Bank (including committees of the Board of Directors).
3.2. Capitalization. The authorized capital stock of Bank consists of
30,000,000 shares of Bank Voting Common Stock, 2,000,000 shares of Bank
Non-Voting Common Stock, and 1,000,000 shares of serial preferred stock, no par
value ("Bank Preferred Stock"), 30,000 of which shares of Bank Preferred Stock
have been designated as Series A. As of the date of this Agreement, there are
(i) 5,179,864 shares of Bank Voting Common Stock issued and outstanding (subject
to minimal adjustments in connection with rounding of shares incident to
exchanges of new stock certificates for old stock certificates pre-dating the
1994 reverse stock split), 1,379,533 shares of Bank Non-Voting Common Stock
issued and outstanding, and no shares of Bank Preferred Stock issued and
outstanding, (ii) no shares of Bank Common Stock or Bank Preferred Stock held in
Bank's treasury, and (iii) no shares of Bank Common Stock or Bank Preferred
Stock reserved for issuance except for 1,030,792 shares of Bank Voting Common
Stock reserved for issuance upon exercise of the option issued to Parent
pursuant to the Stock Option Agreement, dated as of the date hereof, between
Parent and the Bank (the "Option Agreement"). All of the issued and outstanding
shares of Bank Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. Except as referred to above or
reflected in Section 3.2(a) of the Disclosure Schedule which is being delivered
by Bank to Parent concurrently herewith (the "Bank Disclosure Schedule") and
except for the Option Agreement, Bank does not have and is not bound by any
outstanding subscriptions, options, warrants, calls, commitments or agreements
of any character calling for the purchase or issuance of any shares of Bank
Common Stock, Bank Preferred Stock or any other equity security of Bank or any
securities representing the right to purchase or otherwise receive any shares of
Bank Common Stock, Bank Preferred Stock or any other equity security of Bank.
Section 3.2(a) of the Bank Disclosure Schedule sets forth the names of the
holders of all Bank SARs and Bank Warrants issued and outstanding as of the date
hereof, together with, for each such Bank SAR and Bank Warrant, the date of
grant thereof, the number of shares subject thereto, the expiration date
thereof, and the current exercise or purchase price thereunder.
3.3. Authority; No Violation. (a) Bank has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Bank. The Board of Directors of
Bank has directed that this Agreement and the transactions contemplated hereby
be submitted to Bank's shareholders for approval at a meeting of such
shareholders and, except for the adoption of this Agreement by the requisite
vote of Bank's shareholders, no other corporate proceedings on the part of Bank
are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. The only approval by shareholders of the Bank required
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under applicable law, the Amended and Restated Certificate of Incorporation or
Bylaws of Bank or otherwise, in order to effect the Merger and other
transactions provided for herein is (i) the affirmative vote of the holders of
not less than two-thirds of the outstanding shares of Bank Voting Common Stock
and (ii) the affirmative vote of the holders of not less than two-thirds of the
outstanding shares of Bank Non-voting Common Stock, and no higher percentage of
either such class and no affirmative vote or consent of any other class of
equity securities of Bank is required. This Agreement has been duly and validly
executed and delivered by Bank and (assuming due authorization, execution and
delivery by each of Parent and Merger Bank) constitutes a valid and binding
obligation of Bank, enforceable against Bank in accordance with its terms,
except as enforcement may be limited by laws affecting insured depository
institutions, general principles of equity whether applied in a court of law or
a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) Except as set forth in Section 3.3(b) of the Bank Disclosure
Schedule, neither the execution and delivery of this Agreement by Bank, nor the
consummation by Bank of the transactions contemplated hereby, nor compliance by
Bank with any of the terms or provisions hereof, will (i) violate any provision
of the Amended and Restated Certificate of Incorporation or By-Laws of Bank, or
(ii) assuming that the consents and approvals referred to in Section 3.4 hereof
are duly obtained, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Bank or any of its
properties or assets, or (y) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
result in the termination of or a right of termination or cancellation under,
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 Bank under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which Bank is a party, or by which it or
any of its properties or assets may be bound or affected, except (in the case of
clause (y) above) for such violations, conflicts, breaches or defaults which,
either individually or in the aggregate, would not have or be reasonably likely
to have a Material Adverse Effect on Bank.
3.4. Consents and Approvals. (a) Except for (i) the filing of an
application with the FDIC under the Bank Merger Act and approval of such
application, (ii) the filing of a merger application with the State Commissioner
and approval of such application, (iii) the filing with the FDIC of a proxy
statement in definitive form relating to the meeting of Bank's shareholders to
be held in connection with this Agreement and the transactions contemplated
hereby, which shall be in the form of a prospectus for the shares of Parent
Common Stock issuable in connection with the Merger (the "Prospectus/Proxy
Statement"), (iv) the approval of this Agreement by the requisite vote of the
shareholders of Bank, (v) review of this Agreement and the transactions
contemplated hereby by the U.S. Department of Justice ("DOJ") under federal
antitrust laws, and (vi) such filings, authorizations or approvals as may be set
forth in Section 3.4(a) of the Bank Disclosure Schedule, no consents or
approvals of or filings or registrations with any court, administrative agency
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or commission or other governmental authority or instrumentality or
self-regulatory organization, as defined in Section 3(a)(26) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (each a "Governmental
Entity"), or with any third party are necessary on behalf of Bank in connection
with (1) the execution and delivery by Bank of this Agreement and (2) the
consummation by Bank of the Merger and the other transactions contemplated
hereby.
(b) As of the date hereof, Bank is not aware of any reasons relating to
Bank (including, without limitation, Community Reinvestment Act compliance) why
all consents and approvals shall not be procured from all regulatory agencies
having jurisdiction over the transactions contemplated by this Agreement as
shall be necessary for consummation of the transactions contemplated by this
Agreement.
3.5. Regulatory Reports; Examinations. Bank has timely filed all
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that it was required to file since
December 31, 1993, with any Governmental Entity and has paid all fees and
assessments due and payable in connection therewith. Except for normal
examinations conducted by a Governmental Entity in the regular course of the
business of Bank and except as set forth in Section 3.5 of the Bank Disclosure
Schedule, no Governmental Entity has initiated any proceeding or, to the best
knowledge of Bank, investigation into the business or operations of Bank since
December 31, 1993. There is no unresolved material violation, criticism, or
exception by any Governmental Entity with respect to any report or statement
relating to any examinations of Bank.
3.6. Financial Statements. Bank has previously delivered to Parent
copies of (a) the statements of condition of Bank as of December 31 for the
fiscal years 1995 and 1996, and the related statements of income, changes in
shareholders' equity and cash flows for the fiscal years 1994 through 1996,
inclusive, as reported in Bank's Annual Report on Form F-2 for the fiscal year
ended December 31, 1996 filed with the FDIC pursuant to the rules and
regulations of the FDIC, in each case accompanied by the audit report of Seward
and Monde, independent public accountants with respect to Bank, and (b) the
unaudited statement of condition of Bank as of March 31, 1997 and the related
unaudited statements of income, changes in shareholders' equity and cash flows
for the three-month period then ended as reported in Bank's Quarterly Report on
Form F-4 for the period ended March 31, 1997 filed with the FDIC pursuant to the
rules and regulations of the FDIC. The December 31, 1996 statement of condition
of Bank (including the related notes, where applicable) fairly presents the
financial position of Bank as of the date thereof, and the other financial
statements referred to in this Section 3.6 (including the related notes, where
applicable) fairly present, and the financial statements referred to in Section
6.8 hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the operations and financial position of Bank for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply, and the
financial statements referred to in Section 6.8 hereof will comply, in all
material respects with applicable accounting requirements and with the published
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rules and regulations of the FDIC with respect thereto; and each of such
statements (including the related notes, where applicable) has been, and the
financial statements referred to in Section 6.8 hereof will be, prepared in
accordance with generally accepted accounting principles ("GAAP") consistently
applied during the periods involved, except as indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form F-4. The books and
records of Bank have been, and are being, maintained in all material respects in
accordance with GAAP and any other applicable legal and accounting requirements
and reflect only actual transactions.
3.7. Broker's Fees. Neither Bank nor any of its officers or directors
has employed any broker or finder or incurred any liability for any broker's
fees, commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement or the Option Agreement, except that Bank has
engaged, and will pay a fee to, Ostrowski & Company, Inc. ("O & Co."), in
accordance with the terms of a letter agreement between Bank and O & Co., a
true, complete and correct copy of which has been previously delivered by Bank
to Parent.
3.8. Absence of Certain Changes or Events. (a) Except as may be set
forth in Section 3.8(a) of the Bank Disclosure Schedule, (i) since March 31,
1997, Bank has not incurred any material liability, except in the ordinary
course of its business consistent with its past practices (excluding the
incurrence of expenses in connection with this Agreement and the transactions
contemplated hereby), (ii) since March 31, 1997, no event has occurred which has
caused, or is reasonably likely to cause, individually or in the aggregate, a
Material Adverse Effect on Bank, and (iii) for the period from March 31, 1997 up
until the date of this Agreement, Bank has carried on its business in the
ordinary course consistent with its past practices (excluding the execution of
this Agreement and related matters).
(b) Except as set forth in Section 3.8(b) of the Bank Disclosure
Schedule, since December 31, 1996, Bank has not (i) increased the wages,
salaries, compensation, pension, or other fringe benefits or perquisites payable
to any executive officer, employee, or director from the amount thereof in
effect as of December 31, 1996 (which amounts have been previously disclosed to
Parent), granted any severance or termination pay, entered into any contract to
make or grant any severance or termination pay, or paid any bonus other than
year-end bonuses for fiscal 1996 as listed in Section 3.8(b) of the Bank
Disclosure Schedule, (ii) suffered any strike, work stoppage, slow-down or other
labor disturbance, (iii) been a party to a collective bargaining agreement,
contract or other agreement or understanding with a labor union or organization,
or (iv) had any union organizing activities.
3.9. Legal Proceedings. (a) Except as set forth in Section 3.9 of the
Bank Disclosure Schedule, Bank is not a party to any, and there are no pending
or, to the best of Bank's knowledge, threatened, legal, administrative, arbitral
or other proceedings, claims, actions or governmental or regulatory
investigations of any nature against Bank (i) as to which there is a reasonable
probability of an adverse determination and which, if adversely determined,
would, individually or in the aggregate, have or be reasonably expected to have
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a Material Adverse Effect on Bank or (ii) challenging the validity or propriety
of the transactions contemplated by this Agreement or the Option Agreement.
(b) There is no injunction, order, judgment, decree or regulatory
restriction imposed upon Bank or its assets which has had, or could reasonably
be expected to have, a Material Adverse Effect on Bank.
3.10. Taxes. (a) Except as set forth in Section 3.10(a) of the Bank
Disclosure Schedule, Bank has (i) duly and timely filed (including applicable
extensions granted without penalty) all Tax Returns (as hereinafter defined)
required to be filed at or prior to the Effective Time, and such Tax Returns are
true, correct and complete in all material respects and, to the extent required,
Bank has disclosed on its federal income Tax Returns all positions taken therein
that could give rise to a substantial understatement of federal income Taxes (as
hereinafter defined) within the meaning of Section 6662 of the Code, and (ii)
paid in full or made adequate provision in the financial statements of Bank (in
accordance with GAAP) for all Taxes. No deficiencies for any Taxes have been
proposed, asserted, assessed or, to the best knowledge of Bank, threatened
against or with respect to Bank. Except as set forth in Section 3.10(a) of the
Bank Disclosure Schedule, (i) there are no liens for Taxes upon the assets of
Bank except for statutory liens for current Taxes not yet due, (ii) Bank has not
requested any extension of time within which to file any Tax Returns in respect
of any fiscal year which have not since been filed and no request for waivers of
the time to assess any Taxes are pending or outstanding, (iii) with respect to
each taxable period of Bank, the federal and state income Tax Returns of Bank
have not been audited by the Internal Revenue Service or appropriate other tax
authorities or the time for assessing and collecting income Tax with respect to
such taxable period has closed and such taxable period is not subject to review,
(iv) Bank has not filed or been included in a combined, consolidated or unitary
income Tax Return nor is it subject to any actual or contingent liability for
the Taxes of any person under Regulation ss.1.1502-6 under the Code (or any
similar provision of state law), (v) Bank is not a party to any agreement
providing for the allocation or sharing of Taxes (other than the allocation of
federal income taxes as provided by Regulation ss.1.1552-1(a)(1) under the
Code), (vi) Bank is not required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar or corresponding provision or
requirement of state or foreign income Tax law), by reason of the voluntary
change in accounting method (nor has any taxing authority proposed in writing
any such adjustment or change of accounting method), (vii) Bank has not filed a
consent pursuant to Section 341(f) of the Code, (viii) Bank has not made any
payment nor will it be obligated to make any payment (by contract or otherwise)
which will not be deductible by reason of Section 280G of the Code, and (ix)
none of the assets of Bank directly or indirectly secures any debt the interest
on which is tax-exempt under Section 103(a) of the Code.
(b) Except as set forth in Section 3.10(b) of the Bank Disclosure
Schedule, Bank does not own, directly or indirectly (including, without
limitation, through partnerships, corporations, trusts or other entities),
interests in real property ("Real Property Interests") situated in (A)
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Connecticut, which by reason of the Merger would be subject to the tax imposed
under Sections 12-638a through 12-638p of the Connecticut General Statutes on
the sale or transfer of a controlling interest in the corporation owning such
Real Property Interests, or (B) any state other than Connecticut which by reason
of the Merger would be subject to any similar taxes imposed under the laws of
such state. For purposes of this Section 3.10(b) and Section 3.18, Real Property
Interests include, without limitation, titles in fee, leasehold interests,
beneficial interests, encumbrances, development rights or any other interests
with the right to use or occupy real property or the right to receive rents,
profits or other income derived therefrom, or any options or contracts to
purchase real property.
(c) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state[, local] or foreign taxing authority, as applicable,
including, but not limited to income, excise, property, sales, use, transfer,
franchise, gross receipts, payroll, withholding, estimated, social security,
unemployment insurance, stamp, workers' compensation or other taxes, including
any interest, penalties or additions attributable thereto.
(d) For purposes of this Agreement, "Tax Return" shall mean any return,
report, information return or other document (including any related or
supporting information) with respect to Taxes.
3.11. Employee Benefits. (a) Section 3.11 of the Bank Disclosure
Schedule lists all employee benefit plans, arrangements and agreements to which
Bank is a party or by which it is bound, legally or otherwise (collectively, the
"Plans" and each individually a "Plan"), including, without limitation, (i) any
profit-sharing, deferred compensation, bonus, stock option, stock purchase,
pension, retainer, consulting, retirement, severance, welfare or incentive plan,
agreement or arrangement (specifically including the 1997 special severance
arrangement (the "1997 Severance Arrangement")), (ii) any plan, agreement or
arrangement providing for "fringe benefits" or perquisites to employees,
officers, directors or agents, including but not limited to benefits relating to
company automobiles, clubs, vacation, child care, parenting, sabbatical, sick
leave, medical, dental, hospitalization, life insurance and other types of
insurance, and (iii) any other "employee benefit plan" (within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Bank has delivered to Parent true and complete copies of each Plan
(including a summary description of any such Plan, including the 1997 Severance
Arrangement, not otherwise in writing) and all related documents, including but
not limited to (i) all summary plan descriptions (if applicable) relating to the
Plan, (ii) the actuarial report for the Plan (if applicable) for each of the
last two years, (iii) the most recent determination letter from the Internal
Revenue Service (if applicable) for the Plan, and (iv) in the case of any and
all such severance Plans, a listing setting forth the total dollar amount
payable to each current employee of Bank under such Plans currently in effect
based on the various assumptions set forth in such list. Except as set forth in
Section 3.11 of the Bank Disclosure Schedule, there are no negotiations, demands
or proposals that are pending or have been made that concern matters now
covered, or that would be covered, by the Plans. Except as set forth in Section
3.11 of the Bank Disclosure Schedule, Bank is in full compliance with the
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applicable provisions of ERISA (as amended through the date of this Agreement),
the regulations and published authorities thereunder, and all other laws, rules
and regulations applicable with respect to all Plans that are subject to ERISA.
Bank has performed all of its material obligations under all the Plans,
including, but not limited to, the full payment when due of all amounts required
to be made as contributions thereto or otherwise, except where such
nonperformance would not have a Material Adverse Effect on Bank. To the best
knowledge of Bank, there are no actions, suits or claims (other than routine
claims for benefits) pending or threatened against such Plans or their assets,
or arising out of such Plans, and, to the best knowledge of Bank, no facts exist
which could give rise to any such actions, suits or claims that might have a
material adverse effect on such Plans. Except as specified in Section 3.11 of
the Bank Disclosure Schedule, each Plan can be terminated by Bank within a
period of not more than 60 days, without payment of any additional compensation
or amount or the additional vesting or acceleration of any benefits payable
thereunder. With respect to each such Plan which is an "employee benefit plan"
(within the meaning of Section 3(3) of ERISA) or a "plan" (within the meaning of
Section 4975(e)(1) of the Code), there has occurred no transaction prohibited by
Section 406 of ERISA and no "prohibited transaction" (within the meaning of
Section 4975(c) of the Code).
(b) Section 3.11 of the Bank Disclosure Schedule separately identifies
all "employee pension benefit plans" (within the meaning of Section 3(2) of
ERISA) which are also stock bonus, pension or profit-sharing plans within the
meaning of Section 401(a) of the Code (each a "Qualified Plan"). Each such
Qualified Plan has been duly authorized by the Board of Directors of Bank and is
qualified in form and operation under Section 401(a) of the Code and each trust
under each such Qualified Plan is exempt from tax under Section 501(a) of the
Code. No event has occurred that will or could give rise to disqualification or
loss of tax-exempt status of any such Qualified Plan or related trust under such
Sections. No event has occurred that will or could subject any such Qualified
Plan to tax under Section 511 of the Code. In addition to those documents
deliverable under Section 3.11(a), Bank has delivered to Parent for each such
Qualified Plan copies of the following documents: (i) the Form 5500 filed in
each of the most recent three plan years, including, if required under
applicable law, all schedules thereto and financial statements with attached
opinions of independent accountants, (ii) the consolidated statement of assets
and liabilities of such Qualified Plan as of its most recent valuation date, and
(iii) the statement of changes in fund balance and in financial position or the
statement of changes in net assets available for benefits under such Qualified
Plan for the most recently ended plan year. The financial statements so
delivered fairly present the financial condition and the results of operations
of each such Qualified Plan as of such dates, in accordance with GAAP. Except as
disclosed on Schedule 3.11, with respect to each Qualified Plan subject to
Section 412 of the Code maintained for employees of Bank or any of its ERISA
Affiliates (as defined below), there has occurred no failure to meet the minimum
funding standard of Section 412 of the Code (whether or not waived in accordance
with Section 412(d) of the Code) or failure to make by its due date a required
installment under Section 412(m) of the Code. "ERISA Affiliate", as applied to
any person, means (i) any corporation which is a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code of which that
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person is a member, (ii) any trade or business (whether or not incorporated)
which is a member of a group of trades or business under common control within
the meaning of Section 414(c) of the Code of which that person is a member, and
(iii) any member of an affiliated service group within the meaning of Section
414(m) and (o) of the Code of which that person, any corporation described in
clause (i) above or any trade or business described in clause (ii) above is a
member.
(c) Section 3.11 of the Bank Disclosure Schedule also separately
identifies each Plan that is also subject to Title IV of ERISA. With respect to
each such Plan which is an "employee pension benefit plan" (within the meaning
of Section 3(2) of ERISA) in which Bank or any ERISA Affiliate participates or
has participated, except as disclosed in Section 3.11 of the Bank Disclosure
Schedule or in any actuarial report for such Plan delivered to Parent, (i)
neither Bank nor any ERISA Affiliate has withdrawn from such Plan during a plan
year in which it was a "substantial employer" (as defined in Section 4001(a)(2)
of ERISA) where such withdrawal could result in liability of such substantial
employer pursuant to Section 4062(e) or 4063 of ERISA, (ii) neither Bank nor any
ERISA Affiliate has filed a notice of intent to terminate any such Plan or
adopted any amendment to treat any such Plan as terminated, (iii) the PBGC has
not instituted proceedings to terminate any such Plan, (iv) no other event or
condition has occurred which might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
such Plan, (v) no accumulated funding deficiency, whether or not waived, exists
with respect to any such Plan, and no condition has occurred or exists which by
the passage of time would be expected to result in an accumulated funding
deficiency as of the last day of the current plan year of any such Plan, (vi)
all required premium payments to the PBGC have been paid when due, (vii) no
reportable event, as described in Section 4043 of ERISA, has occurred with
respect to any such Plan, (viii) no excise taxes are payable under the Code and
(ix) no amendment with respect to which security is required under Section 307
of ERISA has been made or is reasonably expected to be made, except for any of
the foregoing which is disclosed in Section 3.11 of the Bank Disclosure
Schedule, or which individually or in the aggregate, has not had, and is not
reasonably likely to have, a Material Adverse Effect on such Plan or the Bank.
Except as listed in Section 3.11 of the Bank Disclosure Schedule, all costs of
any such Plan have been provided for on the basis of consistent methods in
accordance with sound actuarial assumptions and practices. Section 3.11 of the
Bank Disclosure Schedule identifies for each such Plan, as of its last valuation
date, the amount by which its assets exceeded (or were less than) its "benefit
liabilities" (within the meaning of Section 4001 of ERISA). Except as disclosed
in Section 3.11 of the Bank Disclosure Schedule, since the last valuation date
for each such Plan, there has been no amendment or change to such Plan that
would increase the amount of benefits thereunder and, to the best knowledge of
Bank, there has been no event or occurrence that would cause the excess of
assets over benefit liabilities as listed in Section 3.11 of the Bank Disclosure
Schedule to be reduced or the amount by which benefit liabilities exceed assets
as listed in Section 3.11 of the Bank Disclosure Schedule to be increased. In
addition to the documents provided pursuant to other provisions of this Section
3.11, Bank has delivered to Parent for each such Plan copies of the following
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documents: (i) the Form PBGC-1 filed in each of the most recent three plan
years, and (ii) the actuarial reports as of the two most recent valuation dates.
Each such actuarial report fairly presents the financial condition and the
results of operations of such Plan as of such date, in accordance with GAAP.
(d) No Plan listed in Section 3.11 of the Bank Disclosure Schedule is a
"multiemployer plan" (within the meaning of Section 3(37) of ERISA). Bank has
never contributed to or had an obligation to contribute to any multiemployer
plan. No ERISA Affiliate has withdrawn from any such multiemployer plan in a
complete or partial withdrawal under Subtitle E of Title IV of ERISA with
respect to which there is any outstanding liability as of the date hereof, or
received notice from any such multiemployer plan that it is in reorganization or
insolvency pursuant to Sections 4241 or 4245 of ERISA or that it intends to
terminate or has terminated under Section 4041A or 4042 or ERISA.
(e) All Plans that are group health plans of Bank and any ERISA
Affiliate have been operated in material compliance with the group health plan
continuation coverage requirements of Part 6 Subtitle B of Title I of ERISA and
4980B of the Code to the extent such requirements are applicable. Except to the
extent required under Section 4980B of the Code or as otherwise disclosed in
Section 3.11 of the Bank Disclosure Schedule, Bank does not provide health or
welfare benefits (through the purchase of insurance or otherwise) for any
retired or former employees.
(f) There has been no act or omission by Bank or any ERISA Affiliate
that has given rise to or may give rise to fines, penalties, taxes, or related
changes under Section 502(c), (i) or (1) Section 4071 of ERISA or Chapter 43 of
the Code.
3.12. FDIC Reports. Bank has previously made available to Parent an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1994 by
Bank with the FDIC pursuant to the Exchange Act or the rules and regulations of
the FDIC (the "Bank Reports") and (b) communication mailed by Bank to its
shareholders since January 1, 1994, and no such Bank Report or communication
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, except that information as of a later date shall be deemed to modify
information as of an earlier date. Bank has timely filed all Bank Reports and
other documents required to be filed by it pursuant to the Exchange Act on the
rules and regulations of the FDIC, and, as of their respective dates, all Bank
Reports complied in all material respects with the published rules and
regulations of the FDIC with respect thereto.
3.13. Bank Information. The information relating to Bank to be
contained (whether directly or incorporated by reference) in the
Prospectus/Proxy Statement and the Registration Statement under the Securities
Act of 1933, as amended (the "Securities Act"), on Form S-4 to be prepared and
filed by Parent with the Securities and Exchange Commission (the "SEC")
registering the shares of Parent Common Stock issuable in connection with the
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Merger, or in any other document filed with any other Governmental Entity in
connection herewith, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein, in light
of the circumstances in which they are made, not misleading.
3.14. Compliance with Applicable Law. Bank holds, and has at all times
held, all material licenses, franchises, permits and authorizations necessary
for the lawful conduct of its businesses under and pursuant to each, and, except
as disclosed in Section 3.14 of the Bank Disclosure Schedule, has complied with
and is not in default in any respect under any, applicable law, statute, order,
rule, regulation, policy and/or guideline of any Governmental Entity relating to
Bank, except where the failure to hold such license, franchise, permit or
authorization or such noncompliance or default would not, individually or in the
aggregate, have or be reasonably likely to have a Material Adverse Effect on
Bank, and Bank does not know of, and has received no notice of, any material
violations of any of the above.
3.15. Certain Contracts. (a) Except as set forth in Section 3.15(a) of
the Bank Disclosure Schedule, Bank is not a party to or bound by any contract,
arrangement, plan, commitment or understanding (whether written or oral) (i)
with respect to the employment of any directors, officers, employees or
consultants, (ii) which, upon the consummation of the transactions contemplated
by this Agreement, will (either alone or upon the occurrence of any additional
acts or events) result in any payment (whether of severance pay or otherwise)
becoming due from Parent, Bank, or Resulting Bank to any officer or employee
thereof, (iii) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement that
has not been filed or incorporated by reference in Bank Reports, (iv) which is
an agreement, not otherwise described by clause (iii) hereof, involving the
payment by Bank of more than $100,000, per annum, (v) which materially restricts
the conduct of any line of business by Bank, or (vi) under which any of the
benefits will be increased, or the vesting of the benefits will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement, or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. Each contract, arrangement,
plan, commitment or understanding of the type described in this Section 3.15(a),
whether or not set forth in Section 3.15(a) of the Bank Disclosure Schedule, is
referred to herein as a "Bank Contract." Bank has previously delivered to Parent
true, complete and correct copies of each Bank Contract and any amendments or
modifications thereof.
(b) Except as set forth in Section 3.15(b) of the Bank Disclosure
Schedule, (i) each Bank Contract is valid and binding and in full force and
effect, (ii) Bank has in all material respects performed all obligations
required to be performed by it to date under each Bank Contract, except where
such noncompliance, individually or in the aggregate, would not have or be
reasonably likely to have a Material Adverse Effect on Bank, (iii) no event or
condition exists which constitutes or, after notice or lapse of time or both,
would constitute, a material default on the part of Bank under any such Bank
Contract, except where such default, individually or in the aggregate, would not
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have or be reasonably likely to have a Material Adverse Effect on Bank and (iv)
no other party to such Bank Contract is, to the best knowledge of Bank, in
default in any respect thereunder, except where such default, individually or in
the aggregate, would not have or be reasonably likely to have a Material Adverse
Effect on Bank.
3.16. Agreements with Regulatory Agencies. Except as set forth in
Section 3.16 of the Bank Disclosure Schedule, Bank is not subject to any
cease-and-desist or other order issued by, and is not a party to any written
agreement, consent agreement or memorandum of understanding with, and is not a
party to any commitment letter or similar undertaking to, and is not subject to
any order or directive by or a recipient of any extraordinary supervisory letter
from, and has not adopted any board resolutions at the request of (each of the
foregoing, whether or not set forth on Section 3.16 of the Bank Disclosure
Schedule, a "Regulatory Agreement"), any Governmental Entity that restricts the
conduct of its business or that in any manner relates to its capital adequacy,
its credit policies, its management or its business, nor has Bank been advised
by any Governmental Entity that it is considering issuing or requesting any
Regulatory Agreement.
3.17. Investment Securities. Section 3.17 of the Bank Disclosure
Schedule sets forth the book and market value as of June 30, 1997 of the
investment securities, mortgage backed securities and securities held for sale
of Bank. Section 3.17 of the Bank Disclosure Schedule sets forth an investment
securities report as of June 30, 1997 which includes security descriptions,
CUSIP numbers, original and current face values, book values, coupon rates and
current market values. Section 3.17 of the Bank Disclosure Schedule sets forth
all securities pledged by Bank for any purpose as of June 30, 1997, if any.
3.18. Property. Bank has good and marketable title free and clear of
all liens, encumbrances, mortgages, pledges, charges, defaults or equitable
interests to all of the Real Property Interests and personal property and
assets, tangible or intangible, which, individually or in the aggregate, are
material, and which are reflected on the balance sheet of Bank as of December
31, 1996 or acquired after such date, except (i) liens for taxes not yet due and
payable, (ii) pledges to secure deposits and other liens incurred in the
ordinary course of banking business, (iii) such imperfections of title,
easements and encumbrances, if any, as are not material in character, amount or
extent or (iv) for dispositions thereof and encumbrances thereon for adequate
consideration in the ordinary course of business. All leases pursuant to which
Bank, as lessee, leases real or personal property which, individually or in the
aggregate, are material are valid and enforceable in accordance with their
respective terms and neither Bank nor, to the best knowledge of Bank, any other
party thereto is in default in any material respect thereunder. Section 3.18 of
the Bank Disclosure Schedule identifies the book value on the books of Bank as
of June 30, 1997, of all Real Property Interests of Bank, together with the
dollar amounts of accumulated depreciation and amortization with respect
thereto.
3.19. Equity and Real Estate Investments. Except as set forth in
Section 3.19 of the Bank Disclosure Schedule, Bank has no (i) equity
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investments, or (ii) investments in real estate, other than assets classified as
"other real estate owned" and set forth in Section 3.23 of the Bank Disclosure
Schedule, or real estate development projects.
3.20. Environmental Matters. Except as set forth in Section 3.20 of the
Bank Disclosure Schedule:
(a) Neither the conduct nor operation of Bank nor any condition of any
property presently or previously owned, leased or operated by it violates or
violated Environmental Laws (as defined below) and no condition has existed or
event has occurred with respect to Bank or any such property that, with notice
or the passage of time, or both, is reasonably likely to result in liability
under Environmental Laws, except for any violations or conditions which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on Bank;
(b) No litigation, claim or other proceeding under any Environmental
Law is pending before any court or governmental agency (and, to the best of
Bank's knowledge, no such litigation, claim or other proceeding has been
threatened) alleging noncompliance with or violation of any Environmental Laws
by Bank, and neither Bank nor any of its properties is a party to or is subject
to any order, decree, agreement, memorandum of understanding or similar
arrangement with any federal or state governmental agency or authority charged
with monitoring or enforcing any Environmental Laws, and Bank has not been
advised by any such regulatory authority charged with monitoring or enforcing
any Environmental Laws that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement or memorandum of understanding (all of the above,
collectively "Environmental Legal Matters"), except for any Environmental Legal
Matter which, individually or in the aggregate, has not had, and is not
reasonably likely to have, a Material Adverse Effect on Bank;
(c) Bank has not received any notice from any person or entity that (i)
Bank is or was in violation of, or (ii) the operation or condition of any
property at any time owned, leased, operated, held as collateral or held as a
fiduciary by Bank is or was in violation of or is or has been alleged to give
rise to liability on the part of Bank under, any Environmental Law, including
but not limited to responsibility (or potential responsibility) for the cleanup
or other remediation of any pollutants, contaminants, or hazardous or toxic
wastes, substances or materials (collectively, "Hazardous Materials") at, on,
beneath, or originating from any such property, except for any of the above
which, individually or in the aggregate, has not had, and is not reasonably
likely to have, a Material Adverse Effect on Bank; and
(d) For purposes of this Section 3.20, "Environmental Laws" means all
applicable local, state and federal environmental, health and safety laws and
regulations, including, without limitation, the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation, and
Liability Act, the Clean Water Act, the Federal Clean Air Act, and the
Occupational Safety and Health Act, each as amended, and all regulations
promulgated thereunder, and all state law counterparts thereof.
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3.21. Derivative Transactions. Except as set forth in Section 3.21 of
the Bank Disclosure Schedule, Bank has not engaged in transactions in or
involving, and does not own or hold and has no exposure to, any forwards,
futures, options on futures, swaps or other derivative instruments except for
any such transactions entered into by Bank as agent on the order and for the
account of others, or as principal for purposes of hedging interest rate risk on
U.S. dollar denominated securities and other financial instruments.
3.22. Takeover Laws. (a) No transaction contemplated by this Agreement
or the Option Agreement is subject to the requirements imposed by any applicable
antitakeover law or regulation, including "business combination", "moratorium",
"control share", or other similar law or regulation, federal or state, including
without limitation, the laws of the State of Connecticut.
(b) The provisions of Article Seventh, Section 1, of Bank's Amended and
Restated Certificate of Incorporation will not apply to this Agreement or the
Option Agreement or any of the transactions contemplated hereby or thereby.
3.23. Loan Portfolio. (a) Except as set forth in Section 3.23 of the
Bank Disclosure Schedule, Bank is not a party to any written or oral (i) loan
agreement, note or borrowing arrangement (including, without limitation, leases,
credit enhancements, commitments, guarantees and interest-bearing assets)
(collectively, "Loans"), under the terms of which the obligor is, as of the date
of this Agreement, over 90 days delinquent in payment of principal or interest
or in default of any other material provision, or (ii) Loan as of the date of
this Agreement with any director, executive officer or, to the best of Bank's
knowledge, greater than five percent shareholder of Bank, or to the best
knowledge of Bank, any person, corporation or enterprise controlling, controlled
by or under common control with any of the foregoing. Section 3.23 of the Bank
Disclosure Schedule sets forth (i) all of the Loans of Bank that as of the date
of this Agreement are classified by any bank examiner (whether regulatory or
internal) as "Other Loans Specially Mentioned", "Special Mention",
"Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit Risk
Assets", "Concerned Loans", "Watch List" or words of similar import, together
with the principal amount of and accrued and unpaid interest on each such Loan
and the identity of the borrower thereunder, (ii) by category of Loan (i.e.,
commercial, consumer, etc.), all of the Loans of Bank that as of the date of
this Agreement are classified as such, together with the aggregate principal
amount of and accrued and unpaid interest on such Loans by category and (iii)
each asset of Bank that as of the date of this Agreement is classified as "Other
Real Estate Owned" and the book value thereof.
(b) Each Loan (i) is evidenced by notes, agreements or other evidences
of indebtedness which are true, genuine and what they purport to be, (ii) to the
extent secured, has been secured by valid liens and security interests which
have been perfected and (iii) is the legal, valid and binding obligation of the
obligor named therein, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and other laws of general
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applicability relating to or affecting creditors' rights and to general equity
principles, in each case other than Loans as to which the failure to satisfy the
foregoing standards would not have a Material Adverse Effect on Bank.
3.24. Reorganization. As of the date hereof, Bank has no reason to
believe that the Merger will fail to qualify as a reorganization under Section
368(a) of the Code.
3.25. Fairness Opinion. Bank has received a written opinion from O &
Co. on or prior to the date of the Agreement, to the effect that, subject to the
terms, conditions and qualifications set forth in such opinion and as of the
date thereof, the consideration to be received by the shareholders of Bank
pursuant to this Agreement is fair to such shareholders from a financial point
of view (the "O & Co. Opinion"), and the O & Co. Opinion has not been amended or
rescinded as of the date of this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent hereby represents and warrants to Bank as follows:
4.1. Corporate Organization. (a) Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Parent has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Parent. Parent is duly registered as
a bank holding company under the BHC Act. The Certificate of Incorporation and
By-laws of Parent, copies of which have previously been delivered to Bank, are
true, complete and correct copies of such documents as in effect as of the date
of this Agreement.
(b) Upon its formation, Merger Bank will be a savings bank duly
organized, validly existing and in good standing under the laws of the State of
Connecticut. The sole banking Subsidiary of Parent as of the date of this
Agreement is duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation.
4.2. Capitalization. (a) As of the date of this Agreement, the
authorized capital stock of Parent consists of 200,000,000 shares of Parent
Common Stock and 10,000,000 shares of preferred stock, par value $1.00 per share
("Parent Preferred Stock"). As of June 30, 1997, there were 65,939,455 shares of
Parent Common Stock and no shares of Parent Preferred Stock issued and
outstanding, and 56,004 shares of Parent Common Stock held in Parent's treasury.
As of the date of this Agreement, no shares of Parent Common Stock or Parent
Preferred Stock were reserved for issuance, except for 624,763 shares of Parent
Common Stock reserved for issuance pursuant to Parent's dividend reinvestment
and stock purchase plans, 1,623,708 shares of Parent Common Stock reserved for
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issuance upon the exercise of stock options pursuant to Parent's 1989 Executive
Stock Option Plan, 1994 Key Employee Stock Plan, and Secondary Stock Option Plan
and stock option plans of predecessors of Parent (collectively, the "Parent
Stock Plans"), 240,841 shares of Parent Common Stock reserved for issuance under
Parent's 401(k) plan, and 500,000 shares of Parent Series A Junior Participating
Preferred Stock reserved for issuance upon exercise of the rights (the "Parent
Rights") distributed to holders of Parent Common Stock pursuant to a Rights
Agreement, dated as of February 28, 1989, between Parent and Bank, as Rights
Agent (the "Parent Rights Agreement"). All of the issued and outstanding shares
of Parent Common Stock have been duly authorized and validly issued and are
fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
except as referred to above or reflected in Section 4.2(a) of the Disclosure
Schedule which is being delivered by Parent to Bank herewith (the "Parent
Disclosure Schedule") and the Parent Rights Agreement, Parent does not have and
is not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Parent Common Stock or Parent Preferred Stock or any other
equity securities of Parent or any securities representing the right to purchase
or otherwise receive any shares of Parent Common Stock or Parent Preferred
Stock. The shares of Parent Common Stock to be issued pursuant to the Merger,
when so issued, will be duly authorized and validly issued and, at the Effective
Time, all such shares will be fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof.
(b) Section 4.2(b) of the Parent Disclosure Schedule sets forth a true
and correct list of all Subsidiaries of Parent as of the date of this Agreement.
4.3. Authority; No Violation. (a) Parent has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Parent. No other corporate
proceedings on the part of Parent are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Parent and (assuming due authorization, execution and delivery by
Bank) constitutes a valid and binding obligation of Parent, enforceable against
Parent in accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(b) Upon its formation, Merger Bank will have full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will be duly and
validly approved by the Board of Directors of Merger Bank and by Parent as the
sole shareholder of Merger Bank, and, upon such approval, no other corporate
proceedings on the part of Merger Bank will be necessary to consummate the
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transactions contemplated hereby. This Agreement will be duly and validly
executed and delivered by Merger Bank and (assuming due authorization, execution
and delivery by Bank) will constitute a valid and binding obligation of Merger
Bank, enforceable against Merger Bank in accordance with its terms, except as
enforcement may be limited by laws affecting insured depository institutions,
general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(c) Except as set forth in Section 4.3(c) of the Parent Disclosure
Schedule, neither the execution and delivery of this Agreement by Parent or by
Merger Bank, nor the consummation by Parent or Merger Bank, as the case may be,
of the transactions contemplated hereby, nor compliance by Parent or Merger
Bank, as the case may be, with any of the terms or provisions hereof, will (i)
violate any provision of the Certificate of Incorporation or By-Laws of Parent,
or the articles of incorporation or bylaws or similar governing documents of any
of its Subsidiaries, or (ii) assuming that the consents and approvals referred
to in Section 4.4 are duly obtained, (x) violate any statute, code, ordinance,
rule, regulation, judgment, order, writ, decree or injunction applicable to
Parent or any of its Subsidiaries or any of their respective properties or
assets, or (y) violate, conflict with, result in a breach of any provision of or
the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon any of the respective
properties or assets of Parent or any of its Subsidiaries under, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which
Parent or any of its Subsidiaries is a party, or by which they or any of their
respective properties or assets may be bound or affected, except for such
violations, conflicts, breaches or defaults which either individually or in the
aggregate will not have or be reasonably likely to have a Material Adverse
Effect on Parent.
4.4. Consents and Approvals. Except for (i) the filing of an
application with the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board") under the BHC Act for approval of the acquisition by
Parent directly or indirectly of 100 percent of the stock of Bank (the "Federal
Reserve Application"), and approval thereof, (ii) the filing of an application
with the FDIC under the Bank Merger Act and approval thereof, (iii) the filing
with the State Commissioner of (A) an application for a temporary savings bank
charter for Merger Bank, (B) an application for approval of the Merger, (C) an
application for the indirect acquisition by Parent of Bank, and (D) an
acquisition statement relating to such acquisition, and the granting of such
charter and the approval of or non-objection to such applications and
acquisition by the State Commissioner, (iv) the filing with the SEC of a
Registration Statement on Form S-4 under the Securities Act, registering the
shares of Parent Common Stock issuable to holders of Bank Voting Common Stock at
the Effective Time pursuant to this Agreement (the "S-4"), and effectiveness of
the S-4, (v) review of this Agreement and the transactions contemplated hereby
by the DOJ under federal antitrust laws, (vi) the filing of an application with
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the NYSE to list the Parent Common Stock to be issued in the Merger on the NYSE
and the approval of such application, (vii) such filings and approvals as are
required to be made or obtained under the securities or "Blue Sky" laws of
various states in connection with the issuance of the shares of Parent Common
Stock pursuant to this Agreement, and (viii) such filings, authorizations or
approvals as may be set forth in Section 4.4 of the Parent Disclosure Schedule,
no consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary on behalf of Parent or Merger Bank
in connection with (1) the execution and delivery by Parent and Merger Bank of
this Agreement, and (2) the consummation by Parent and Merger Bank of the Merger
and the other transactions contemplated hereby.
4.5. Financial Statements. Parent has previously delivered to Bank
copies of (a) the consolidated balance sheets of Parent and its Subsidiaries as
of December 31 for the fiscal years 1995 and 1996 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1994 through 1996, inclusive, as reported in Parent's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of KPMG
Peat Marwick LLP, independent public accountants with respect to Parent, and (b)
the unaudited consolidated balance sheet of Parent and its Subsidiaries as of
March 31, 1997 and the related unaudited consolidated statements of income,
changes in shareholders' equity and cash flows for the three-month period then
ended as reported in Parent's Quarterly Report on Form 10-Q for the period ended
March 31, 1997 filed with the SEC under the Exchange Act. The December 31, 1996
consolidated balance sheet of Parent (including the related notes, where
applicable) fairly presents the consolidated financial position of Parent and
its Subsidiaries as of the date thereof, and the other financial statements
referred to in this Section 4.5 (including the related notes, where applicable)
fairly present and the financial statements referred to in Section 6.8 hereof
will fairly present (subject, in the case of the unaudited statements, to
recurring audit adjustments normal in nature and amount), the results of the
consolidated operations and changes in shareholders' equity and consolidated
financial position of Parent and its Subsidiaries for the respective fiscal
periods or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.8 hereof will comply, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 6.8 hereof will be, prepared in accordance
with GAAP consistently applied during the periods involved, except as indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q. The books and records of Parent and its Subsidiaries have been, and
are being, maintained in all material respects in accordance with GAAP and any
other applicable legal and accounting requirements and reflect only actual
transactions.
4.6. Broker's Fees. Neither Parent nor any Subsidiary of Parent, nor
any of their respective officers or directors, has employed any broker or finder
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or incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement or the
Option Agreement.
4.7. Absence of Certain Changes or Events. Except as may be set forth
in Section 4.7 of the Parent Disclosure Schedule, since March 31, 1997, neither
Parent nor any of its Subsidiaries has incurred any material liability, except
in the ordinary course of business consistent with their past practices.
4.8. Legal Proceedings. Except as set forth in Section 4.8 of the
Parent Disclosure Schedule, neither Parent nor any of its Subsidiaries is a
party to any and there are no pending or, to the best of Parent's knowledge,
threatened, material legal, administrative, arbitral or other proceedings,
claims or actions challenging the validity or propriety of the transactions
contemplated by this Agreement or the Option Agreement.
4.9. Compliance with Applicable Law. Each of Parent and its principal
banking Subsidiary holds, and has at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of its
business under and pursuant to each, and has complied with and is not in default
in any respect under any, applicable law, statute, order, rule, regulation,
policy and/or guideline of any Governmental Entity relating to Parent or such
Subsidiary, except where the failure to hold such license, franchise, permit or
authorization or such non-compliance or default would not, individually or in
the aggregate, have, or be reasonably likely to have, a Material Adverse Effect
on Parent, and Parent does not know of, and has received no notice of violation
of, any material violations of any of the above.
4.10. SEC Reports. Parent has previously made available to Bank an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1997 by
Parent with the SEC pursuant to the Securities Act or the Exchange Act (the
"Parent Reports") and (b) communication mailed by Parent to its shareholders
since January 1, 1997, and no such Parent Report or communication contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not misleading,
except that information as of a later date shall be deemed to modify information
as of an earlier date. Parent has timely filed all Parent Reports and other
documents required to be filed by it under the Securities Act and the Exchange
Act, and, as of their respective dates, all Parent Reports complied in all
material respects with the published rules and regulations of the SEC with
respect thereto.
4.11. Parent Information. The information relating to Parent and its
Subsidiaries to be contained in (whether directly or incorporated by reference)
the Prospectus/Proxy Statement and the S-4, or in any other document filed with
any other Governmental Entity in connection herewith, will not contain any
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untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances in which they are
made, not misleading.
4.12. Ownership of Bank Voting Common Stock. Except for the Option
Agreement and as set forth in Section 4.12 of the Parent Disclosure Schedule,
neither Parent nor any of its affiliates or associates (as such terms are
defined under the Exchange Act), (i) beneficially owns, directly or indirectly,
or (ii) is a party to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of capital
stock of Bank (other than Trust Account Shares and DPC Shares).
4.13. Employees. Section 4.13 of the Parent Disclosure Schedule sets
forth a true and complete list of each retirement plan qualified under Section
401(a) of the Code that is maintained or contributed to or required to be
contributed to as of the date of this Agreement (the "Parent Plans") by Parent,
any of its Subsidiaries or any ERISA Affiliate.
4.14. Agreements with Regulatory Agencies. Except as set forth in
Section 4.14 of the Parent Disclosure Schedule, neither Parent nor its principal
banking Subsidiary is subject to any cease-and-desist or other order issued by,
or is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 4.14 of the Parent
Disclosure Schedule, a "Parent Regulatory Agreement"), any Governmental Entity
that restricts the conduct of its business or that in any manner relates to its
capital adequacy, its credit policies, its management or its business, nor has
Parent or such Subsidiary been advised by any Governmental Entity that it is
considering issuing or requesting any Parent Regulatory Agreement.
4.15. Reorganization. Parent has no reason to believe that the Merger
will fail to qualify as a reorganization under Section 368(a) of the Code.
4.16. Reserve for Losses. All reserves or other allowances for possible
losses reflected in Parent's financial statements referred to in Section 4.5
hereof as of December 31, 1996 complied with all applicable laws, rules and
regulations and are adequate under GAAP. Neither Parent nor its principal
banking Subsidiary has been notified by the FDIC or its independent auditor, in
writing or otherwise, that such reserves are inadequate or that the practices
and policies of Parent or its principal banking Subsidiary in establishing such
reserves and in accounting for delinquent and classified assets generally fail
to comply with applicable accounting or regulatory requirements, or that the
FDIC or its independent auditor believes such reserves to be inadequate or
inconsistent with the historical loss experience of parent. All OREO held by
Parent or its principal banking Subsidiary is recorded in accordance with GAAP.
4.17. Loans. As of the date hereof:
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(a) All loans owned by Parent or its principal banking Subsidiary or in
which Parent or its principal banking Subsidiary has an interest, comply in all
material respects with all Laws, including, but not limited to, applicable usury
statutes, underwriting and recordkeeping requirements and the Truth in Lending
Act, the Equal Credit Opportunity Act, and the Real Estate Settlement Procedures
Act, and other applicable consumer protection statutes and the regulations
thereunder.
(b) All loans owned by Parent or its principal banking Subsidiary, or
in which Parent or its principal banking Subsidiary has an interest, have been
made or acquired thereby in accordance with board of director-approved loan
policies and all of such loans are collectible, except to the extent reserves
have been made against such loans in Parent's financial statements at December
31, 1996 referred to in Section 4.5 hereof. Parent or its principal banking
Subsidiary holds the mortgages contained in its loan portfolio for its own
benefit to the extent of its interest shown therein; such mortgages evidence
liens having the priority indicated by their terms, subject, as of the date of
recordation or filing of applicable security instruments, only to such
exceptions as are discussed in attorneys' opinions regarding title or in title
insurance policies in the mortgage files relating to the loans secured by real
property or are not material as to the collectability of such loans. All
applicable remedies against all borrowers and guarantors are enforceable except
as may be limited by bankruptcy, insolvency, moratorium or other similar laws
affecting creditors' rights and except as may be limited by the exercise of
judicial discretion in applying principles of equity. All loans purchased or
originated by Parent or its principal banking Subsidiary and subsequently sold
by Parent or its principal banking Subsidiary have been sold without recourse to
Parent or its principal banking Subsidiary and without any liability under any
yield maintenance or similar obligations.
(c) Parent and its principal banking Subsidiary have properly perfected
or caused to be properly perfected all security interests, liens, or other
interests in any collateral securing any loans made by them.
4.18. Environmental Matters. (a) Parent and its principal banking
Subsidiary are in compliance in all material respects with all Environmental
Laws.
(b) There is no suit, claim, action, proceeding, investigation or
notice pending or to the knowledge of Parent or its principal banking Subsidiary
threatened (or past or present actions or events that could form the basis of
any such suit, claim, action, proceeding, investigation or notice), in which
Parent or its principal banking Subsidiary has been or, with respect to
threatened suits, claims, actions, proceedings, investigations or notices may
be, named as a defendant (x) for alleged noncompliance (including by any
predecessor), with any Environmental Law or (y) relating to any material release
or threatened release into the environment of any Hazardous Material, whether or
not occurring at or on a site owned, leased or operated by parent.
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(c) To the knowledge of Parent or its principal banking Subsidiary,
during the period of Parent's or its principal banking Subsidiary's ownership or
operation of any of their respective properties, there has not been any material
release of Hazardous Material in, on, under or affecting any such property.
(d) To the knowledge of Parent or its principal banking Subsidiary,
neither Parent nor its principal banking Subsidiary has made or participated in
any loan or any person who is subject to any suit, claim, action, proceeding,
investigation or notice, pending or threatened, with respect to (i) any alleged
material noncompliance as to any property securing such loan with any
Environmental Law, or (ii) the material release or the material threatened
release into the environment of any Hazardous Materials at a site owned, leased
or operated by such person on any property securing such loan.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1. Covenants of Bank. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or the Option Agreement or with the
prior written consent of Parent, Bank shall carry on its business in the
ordinary course consistent with past practice. Bank will use its reasonable best
efforts to (x) preserve its business organization intact, (y) keep available to
itself and Parent the present services of the employees of Bank and (z) preserve
for itself and Parent the goodwill of the customers of Bank and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as set forth on Section 5.1 of the Bank Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by Parent,
Bank shall not:
(a) declare or pay any dividends on, or make other
distributions in respect of, any shares of its capital stock, other
than normal quarterly dividends in an amount not in excess of the most
recent quarterly dividend paid in respect of each share of Bank Common
Stock, which dividends shall have the same record and payment dates as
the record and payment dates relating to dividends on Parent Common
Stock, it being the intention of the parties that the shareholders of
Bank receive dividends for any particular quarter on either Bank Common
Stock or Parent Common Stock but not both;
(b) (i) split, combine or reclassify any shares of its capital
stock or (ii) repurchase, redeem or otherwise acquire (except for the
acquisition of Trust Account Shares and DPC Shares, as such terms are
defined in Section 1.4(b) hereof) any shares of the capital stock of
Bank, or any securities convertible into or exercisable for any shares
of the capital stock of Bank;
(c) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any
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securities convertible into or exercisable for, or any rights, warrants
or options to acquire, any such shares, or enter into any agreement
with respect to any of the foregoing, other than (i) the issuance of
Bank Common Stock pursuant to the exercise of Bank Warrants outstanding
as of the date hereof, if and as permitted pursuant to the terms of
such Bank Warrants as of the date hereof, or (ii) pursuant to the
Option Agreement;
(d) amend its Amended and Restated Certificate of
Incorporation, By-laws or other similar governing documents;
(e) authorize or permit any of its officers, directors,
employees or agents to directly or indirectly solicit, initiate or
encourage any inquiries relating to the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or (i) recommend
or endorse any takeover proposal (subject to the fiduciary duties of
Bank's Board of Directors as advised in writing by outside counsel to
Bank), or (ii) participate in any negotiations or provide third parties
with any nonpublic information relating to any such inquiry or
proposal. Bank will immediately cease and cause to be terminated any
existing activities, discussions or negotiations previously conducted
with any parties other than Parent with respect to any of the
foregoing. Bank will take all actions necessary or advisable to inform
the appropriate individuals or entities referred to in the first clause
of this Section 5.1(e) of the obligations undertaken in this Section
5.1(e). Bank will notify Parent immediately if any such inquiries or
takeover proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be
initiated or continued with, Bank, and Bank will promptly inform Parent
in writing of all of the relevant details with respect to the
foregoing. As used in this Agreement, "takeover proposal" shall mean
any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving Bank or any proposal or offer to
acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, Bank other than the transactions
contemplated or permitted by this Agreement and the Option Agreement;
(f) make any capital expenditures other than expenditures
which (i) are made in the ordinary course of business or are necessary
to maintain existing assets in good repair and (ii) in any event are in
an amount of no more than $10,000 individually and $100,000 in the
aggregate;
(g) enter into any new line of business;
(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 any assets, which
would be material, individually or in the aggregate, to Bank, other
than in connection with foreclosures, settlements in lieu of
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foreclosure or troubled loan or debt restructurings in the ordinary
course of business consistent with prudent banking practices;
(i) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger set forth in Article
VII not being satisfied, or in a violation of any provision of this
Agreement except, in every case, as may be required by applicable law;
(j) change its methods of accounting in effect at December 31,
1996, except as required by changes in GAAP or regulatory accounting
principles as concurred in by Bank's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate
any Plan or any agreement, arrangement, plan or policy between Bank and
one or more of its current or former directors, officers or employees
or (ii) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law,
increase in any manner the compensation or fringe benefits of any
director, officer or employee or pay any benefit not required by any
Plan as in effect as of the date hereof (including without limitation,
the granting of stock options, stock appreciation rights, restricted
stock, restricted stock units or performance units or shares);
(l) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368 of
the Code, provided, however, that nothing contained herein shall
prevent Bank from taking any action required by the Option Agreement;
(m) other than activities in the ordinary course of business
consistent with prior practice, sell, lease, encumber, assign or
otherwise dispose of, or agree to sell, lease, encumber, assign or
otherwise dispose of, any of its material assets, properties or other
rights or agreements;
(n) other than in the ordinary course of business consistent
with past practice, incur any indebtedness for borrowed money, or
assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or
other entity;
(o) file any application to relocate or terminate the
operations of any banking office;
(p) make any equity investment or commitment to make such an
investment in real estate or in any real estate development project,
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other than in connection with foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings in the ordinary
course of business consistent with prudent banking practices;
(q) create, renew, amend or terminate or give notice of a
proposed renewal, amendment or termination of, any material contract,
agreement or lease for goods, services or office space to which Bank is
a party or by which Bank or its properties is bound;
(r) take any action which would cause the termination or
cancellation by the FDIC of insurance in respect of Bank's deposits;
(s) (i) without first consulting with Parent, enter into,
renew or increase any loan or other extension of credit (including
guaranties and standby letters of credit), or commit to make any such
loan or other extension of credit, to any person or entity, or modify
any of the material provisions or renew or otherwise extend the
maturity date of any existing loan or other extension of credit or
commitment therefor (collectively, "Lend to") in an amount in excess of
$250,000 or in an amount which, when aggregated with any and all
existing loans, other extensions of credit or credit commitments to
such person or entity, would be in excess of $250,000; (ii) Lend to any
person or entity other than in accordance with the lending policies of
Bank as in effect on the date hereof; or (iii) without first consulting
with Parent, Lend to any person or entity if any of the loans or other
extensions of credit by Bank to such person or entity are on Bank's
"watch list" or similar internal report of Bank in an amount in excess
of $250,000; provided, however, that nothing in this Section 5.1(s)
shall prohibit Bank from honoring any contractual obligation in
existence on the date of this Agreement;
(t) Lend to (as defined in Section 5.1(s)) any director or
officer of Bank without giving Parent five days' notice in advance of
Bank's approval of such loan or other extension of credit or commitment
relating thereto; or
(u) agree to do any of the foregoing.
5.2. Covenants of Parent. Except as set forth in Section 5.2 of the
Parent Disclosure Schedule or as otherwise contemplated by this Agreement or
consented to in writing by Bank, Parent shall not, and shall not permit any of
its Subsidiaries to:
(a) declare or pay any extraordinary or special dividends on,
or make any extraordinary or special distributions in respect of,
Parent Common Stock;
(b) change its method of accounting in effect at December 31,
1996, except as required by changes in GAAP or regulatory accounting
principles as concurred in by Parent's independent auditors;
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(c) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set
forth in this Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger set forth in Article
VII not being satisfied, or in a violation of any provision of this
Agreement except, in every case, as may be required by applicable law;
(d) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368 of
the Code, provided, however, that nothing contained herein shall limit
the ability of Parent to exercise its rights under the Option
Agreement; or
(e) amend its Certificate of Incorporation or By-laws or other
governing instruments in a manner which would adversely affect in any
manner the terms of the Parent Common Stock or the ability of Parent to
consummate the transactions contemplated hereby; or
(f) agree to do any of the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1. Regulatory Matters. (a) The parties shall cooperate with respect
to the preparation of the Prospectus/Proxy Statement and the S-4 and shall
promptly file such documents with the FDIC and the SEC, as applicable. Each of
Bank and Parent shall use all reasonable efforts to have the S-4 declared
effective by the SEC under the Securities Act and the Prospectus/Proxy Statement
authorized for use by the FDIC under the Exchange Act as promptly as practicable
after the respective filing thereof, and Bank and Parent shall thereafter
cooperate in mailing the Prospectus/Proxy Statement to the shareholders of Bank.
Parent shall use all reasonable efforts to obtain all necessary state securities
law or "Blue Sky" permits and approvals required to carry out the transactions
contemplated by this Agreement, and Bank shall furnish all information
concerning Bank and the holders of Bank Common Stock as may be reasonably
requested in connection with any such action.
(b) The parties hereto shall cooperate with each other and use all
reasonable efforts to promptly prepare and file all necessary documentation, to
effect all applications, notices, petitions and filings, and to obtain as
promptly as practicable all permits, consents, approvals and authorizations of
all third parties and Governmental Entities which are necessary or advisable to
consummate the transactions contemplated by this Agreement (including without
limitation the Merger) (it being understood that any amendments to the S-4 or a
resolicitation of proxies as a consequence of a subsequent proposed merger,
stock purchase or similar acquisition by Parent or any of its Subsidiaries shall
not violate this covenant). Bank and Parent shall have the right to review in
advance, and to the extent practicable each will consult with the other on, in
each case subject to applicable laws relating to the exchange of information,
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all the information relating to Bank or Parent, including its Subsidiaries,
which appear in any filing made with, or written materials submitted to, any
third party or any Governmental Entity in connection with the transactions
contemplated by this Agreement. In exercising the foregoing right, each of the
parties hereto shall act reasonably and as promptly as practicable. Each party
will keep the other apprised of the status of matters relating to completion of
the transactions contemplated herein.
(c) Each of Parent and Bank shall, upon request, furnish the other with
all information concerning Parent and Bank, respectively, its directors,
officers and equity holders and such other matters as may be reasonably
necessary or advisable in connection with the Prospectus/Proxy Statement, the
S-4 or any other statement, filing, notice or application made by or on behalf
of Bank or Parent or any affiliate thereof to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
6.2. Access to Information. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, Bank shall afford to
the officers, employees, accountants, counsel and other representatives of
Parent, access, during normal business hours during the period prior to the
Effective Time, to all its properties, books, contracts, commitments, records,
officers, employees, accountants, counsel and other representatives and, during
such period, Bank shall make available to Parent (i) a copy of each report,
schedule, registration statement and other document filed or received by it
during such period pursuant to the requirements of Federal securities laws or
Federal or state banking laws (other than reports or documents which Bank is not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as Parent may reasonably
request. Bank shall not be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of Bank's customers, jeopardize any attorney-client privilege or
contravene any law, rule, regulation, order, judgment, decree, fiduciary duty or
binding agreement entered into prior to the date of this Agreement. The parties
hereto will make appropriate substitute disclosure arrangements under
circumstances in which the restrictions of the preceding sentence apply. Parent
will hold all such information in confidence to the extent required by, and in
accordance with, the provisions of a certain letter agreement, dated June 3,
1997, between Parent and O & Co., acting as agent for Bank (the "Confidentiality
Agreement").
(b) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Parent shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of Bank, access, during normal business hours during the period
prior to the Effective Time, to such information regarding Parent and its
Subsidiaries as shall be reasonably necessary for Bank to fulfill its
obligations pursuant to this Agreement to prepare the portions of the
Prospectus/Proxy Statement for which it bears principal responsibility or as may
be reasonably necessary for Bank to confirm that the representations and
warranties of Parent contained herein are true and correct and that the
covenants of Parent contained herein have been performed in all material
respects. Neither Parent nor any of its Subsidiaries shall be required to
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provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of Parent's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Except as specifically required otherwise by
applicable law or to the extent such information shall have become publicly
available (other than through the direct or indirect actions of Bank or its
employees, representatives or agents), Bank will hold all such information in
strictest confidence.
(c) No investigation by either Parent or Bank or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
6.3. Shareholder Meeting. Bank shall take all steps necessary to duly
call, give notice of, convene and hold a special meeting of its shareholders to
be held as soon as is reasonably practicable after the date on which the S-4 is
declared effective by the SEC and the Prospectus/Proxy Statement contained
therein is authorized for use by the FDIC for the purpose of voting upon the
approval of this Agreement and the consummation of the transactions contemplated
hereby. The Board of Directors of Bank hereby does and (subject to the fiduciary
duties of Bank's Board of Directors, as advised by outside counsel to Bank) will
recommend that shareholders of Bank vote to approve this Agreement and the
Merger and the other transactions contemplated hereby and (subject to such
duties) will use best efforts to obtain any vote of such shareholders that is
necessary to authorize the Merger and such transactions. Bank shall coordinate
and cooperate with Parent with respect to the scheduling of the special meeting
of its shareholders.
6.4. Legal Conditions to Merger. Each of Bank and Parent shall, and
Parent shall cause its Subsidiaries to, use all reasonable efforts (a) to take,
or cause to be taken, all actions necessary, proper or advisable to comply
promptly with all legal requirements which may be imposed on Bank or on Parent
or its Subsidiaries, respectively, in regard to the Merger and to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity and any other third party which
is required to be obtained by Bank or Parent or any of Parent's Subsidiaries in
connection with the Merger and the other transactions contemplated by this
Agreement, and to comply with the terms and conditions of such consent,
authorization, order or approval.
6.5. Stock Exchange Listing. Parent shall use all reasonable efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, as of
the Effective Time.
6.6. Certain Agreements and Arrangements. (a) Within 20 business days
after the Effective Time, if Robert J. Mariano so elects, Parent, Resulting Bank
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and Mr. Mariano shall enter into an employment agreement in the form attached as
Exhibit C hereto. The provisions of this Section 6.6(a) are intended to be for
the benefit of, and shall be enforceable by, Mr. Mariano.
(b) At the Effective Time, Resulting Bank shall succeed to and shall
thereafter be bound by and shall perform all obligations of Bank under all
severance and change-in-control contracts, plans and arrangements previously
entered into or adopted or established by Bank and in effect immediately prior
thereto, specifically including the 1997 Severance Arrangement, and with respect
to any such plan or arrangement that by its terms might otherwise be terminable
or might be modified or amended by Bank acting unilaterally, Parent specifically
covenants that, for a period of two years after the Effective Time, neither it
nor Resulting Bank nor any successor to all or a significant portion of the
business of Resulting Bank will amend, modify or alter the terms of any such
plan or arrangement, specifically including the 1997 Severance Arrangement, in
any way detrimental to any of the persons covered thereunder. The provisions of
this Section 6.6(b) are intended to be for the benefit of, and shall be
enforceable by, the persons covered under or subject to such contracts, plans or
arrangements immediately prior to the Effective Time, and their heirs and
representatives.
6.7. Indemnification. (a) In the event of any threatened or actual
claim, action, suit, proceeding or investigation, whether civil, criminal or
administrative, including, without limitation, any such claim, action, suit,
proceeding or investigation in which any person who is now, or has been at any
time prior to the date of this Agreement, or who becomes prior to the Effective
Time, a director or officer or employee of Bank (the "Indemnified Parties") is,
or is threatened to be, made a party based in whole or in part on, or arising in
whole or in part out of, or pertaining to (i) the fact that he is or was a
director, officer or employee of Bank or any of its predecessors or (ii) this
Agreement or any of the transactions contemplated hereby, whether in any case
asserted or arising before or after the Effective Time, the parties hereto agree
to cooperate and use their best efforts to defend against and respond thereto.
It is understood and agreed that after the Effective Time, Parent shall
indemnify and hold harmless, as and to the extent permitted by Delaware law,
each such Indemnified Party against any losses, claims, damages, liabilities,
costs, expenses (including reasonable attorney's fees and expenses in advance of
the final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by law upon receipt of any
undertaking required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), the Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with Parent; provided,
however, that (1) Parent shall have the right to assume the defense thereof and
upon such assumption Parent shall not be liable to any Indemnified Party for any
legal expenses of other counsel or any other expenses subsequently incurred by
any Indemnified Party in connection with the defense thereof, except that if
Parent elects not to assume such defense, the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation with Parent, and
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Parent shall pay the reasonable fees and expenses of such counsel for the
Indemnified Parties, (2) Parent shall in all cases be obligated pursuant to this
paragraph to pay for only one firm of counsel for all Indemnified Parties, (3)
Parent shall not be liable for any settlement effected without its prior written
consent (which consent shall not be unreasonably withheld) and (4) Parent shall
have no obligation hereunder to any Indemnified Party when and if a court of
competent jurisdiction shall ultimately determine, and such determination shall
have become final and nonappealable, that indemnification of such Indemnified
Party in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this Section 6.7, upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent thereof, provided that the failure to so notify shall not
affect the obligations of Parent under this Section 6.7 except to the extent
such failure to notify materially prejudices Parent. Parent's obligations under
this Section 6.7 shall continue in full force and effect for a period of six (6)
years from the Effective Time; provided, however, that all rights to
indemnification in respect of any claim (a "Claim") asserted or made within such
period shall continue until the final disposition of such Claim.
(b) Bank shall act prior to the Effective Time, after consultation with
Parent, to obtain directors' and officers' liability insurance coverage
extending for a period of three years following the Effective Time for acts or
omissions occurring prior to the Effective Time by persons who are currently
covered by Bank's existing directors' and officers' liability insurance policy,
in amounts and on terms and conditions substantially similar to Bank's existing
policy. Resulting Bank shall take all appropriate action after the Effective
Time to preserve the coverage thus obtained for the designated period.
(c) In the event Parent or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, proper provision shall be
made so that the successors and assigns of Parent assume the obligations set
forth in this section.
(d) The provisions of this Section 6.7 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives.
6.8. Subsequent Financial Statements. Parent will deliver to Bank
simultaneously with its filing thereof with the SEC any Quarterly or Annual
Report of Parent on Form 10-Q or 10-K, respectively, filed by Parent with the
SEC under the Exchange Act between the date hereof and the Effective Time, and
Bank will deliver to Parent simultaneously with its filing thereof with the FDIC
any Quarterly or Annual Report of Bank on Form F-4 or F-2, respectively, filed
by Bank with the FDIC under the Exchange Act between the date hereof and the
Effective Time.
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6.9. Additional Agreements. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement or to vest Resulting Bank with full title to all properties,
assets, rights, approvals, immunities and franchises of Bank, the proper
officers and directors of Bank shall take all such necessary action as may be
reasonably requested by Parent.
6.10. Advice of Changes, Failure of Conditions. Each of Parent and Bank
shall promptly advise the other party of any change or event which it believes
has caused or constitutes, or is reasonably likely to cause or constitute, a
material breach of any of its representations, warranties or covenants contained
herein or is reasonably likely to cause any condition in Article VII to the
other party's obligation to consummate the Merger not to be satisfied. From time
to time prior to the Effective Time (and on the day prior to the Closing), each
party will promptly supplement or amend the Disclosure Schedules delivered by it
in connection with the execution of this Agreement to reflect any matter that,
if existing, occurring or known at the date of this Agreement, would have been
required to be set forth or described in such Disclosure Schedules or that is
necessary to correct any information in such Disclosure Schedules which has been
rendered inaccurate thereby. No supplement or amendment to such Disclosure
Schedules shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Sections 7.2(a) or 7.3(a) hereof, as the case may
be, or the compliance by Bank or Parent, as the case may be, with the respective
covenants and agreements of such parties contained herein.
6.11. Current Information. During the period from the date of this
Agreement to the Effective Time, Bank will cause one or more of its designated
representatives to confer on a regular and frequent basis (not less often than
monthly) with representatives of Parent and to report the general status of the
ongoing operations of Bank. Bank will promptly notify Parent of its receipt of
any governmental complaints or the initiation of any governmental investigations
or hearings (or communications indicating that the same may be contemplated) or
institution or threat of significant litigation involving it, and thereafter
will keep Parent fully informed of such events.
6.12. Merger Bank. Parent shall cause Merger Bank to be duly organized
and to execute and deliver this Agreement and any Related Agreement and take all
necessary action to complete the transactions contemplated hereby and thereby,
subject to the terms and conditions hereof.
6.13. Board of Directors of Resulting Bank; Advisory Directors. At or
immediately after the Effective Time, Parent shall cause the number of directors
of Resulting Bank, which shall be as set forth in the Certificate of
Incorporation of Merger Bank attached hereto as Exhibit A-1, to be fixed at
seven (7) members and shall appoint or cause to be appointed as three members of
such Board at such time Robert J. Mariano and any two other current directors of
Bank who may be selected by Bank and approved by Parent (which approval shall
not be unreasonably withheld) as nominees prior to the Effective Time (such
three persons, the "Nominees"), with the other four members of the Board of
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Directors of Resulting Bank at such time to be appointed by Parent. Parent shall
cause each such Nominee, if the Nominee so consents, to serve as director of
Resulting Bank for a period of not less than two years after the Effective Time.
Those directors of Bank immediately prior to the Effective Time who are not
Nominees shall be appointed at or immediately after the Effective Time, unless
they decline such appointment, as advisory directors of Bank, each to serve in
such capacity for a period of not less than two years after the Effective Time
and to receive advisory director fees for meetings of the advisory directors
(which meetings will be held not less often than quarterly) comparable to
directors' fees received by them as Bank directors for meetings of the Bank's
Board of Directors prior to the Effective Time.
6.14. Accountants' Letters. Each of Parent and Bank shall use its
reasonable efforts to cause to be delivered to the other party a letter of its
respective independent public accountants dated (i) the date on which the S-4
shall become effective and (ii) a date shortly prior to the Effective Time, and
addressed to such other party, in form and substance customary for "comfort"
letters delivered by independent accountants in accordance with Statement of
Auditing Standards No. 72.
6.15. Parent Rights Agreement. Parent agrees that any Parent Rights
issued pursuant to the Parent Rights Agreement shall be issued with respect to
each share of Parent Common Stock issued pursuant to the terms hereof regardless
whether there has occurred a "Distribution Date" under the terms of such Parent
Rights Agreement prior to the Effective Time, as well as to take all action
necessary or advisable to enable the holder of each such share of Parent Common
Stock to obtain the benefit of such Parent Rights notwithstanding their prior
distribution, including, without limitation, amendment of the Parent Rights
Agreement.
6.16. Affiliates' Letters. As soon as practicable after the date
hereof, Bank shall deliver a letter to Parent identifying each person who is as
of the date hereof, or who may reasonably be expected to be as of the
anticipated date of the special meeting of the Bank shareholders called to
consider and vote upon the Merger, an "affiliate" of Bank for purposes of Rule
145 under the Securities Act (each a "Bank Affiliate"), which identification
shall be updated by Bank not more than five days prior to the mailing of the
Prospectus/Proxy Statement for the special meeting. Bank shall use best efforts
to cause each Bank Affiliate thus identified to execute and deliver to Parent,
on or prior to the date of the mailing of the Prospectus/Proxy Statement, a
letter agreement (each an "Affiliate Letter") containing certain written
undertakings in the form of the agreement attached hereto as Exhibit D.
ARTICLE VII
CONDITIONS PRECEDENT
7.1. Conditions to Each Party's Obligation To Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
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(a) Shareholder Approval. This Agreement and the Merger provided for
herein shall have received all required approvals by the shareholders of Bank.
(b) NYSE Listing. The shares of Parent Common Stock which shall be
issued to the shareholders of Bank upon consummation of the Merger shall have
been authorized for listing on the NYSE, subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals required to consummate
the transactions contemplated hereby (including the Merger) shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired (all such approvals and the
expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act,
and Parent shall have received all state securities laws or "Blue Sky" permits
and other authorizations or there shall be exemptions from registration
requirements necessary to issue the Parent Common Stock in connection with the
Merger, and neither the S-4 nor any such permit, authorization or exemption
shall be subject to a stop order or threatened stop order by the SEC or any
state securities authority.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger or any of the other transactions contemplated by this Agreement shall be
in effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits, restricts or makes illegal consummation of the Merger.
7.2. Conditions to Obligations of Parent. The obligation of Parent to
effect the Merger is also subject to the satisfaction or waiver by Parent at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
warranties of Bank set forth in Sections 3.2 and 3.3(a) of this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing as though made on and as of the Closing; and
(II) the representations and warranties of Bank set forth in this Agreement
shall be true and correct as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing as though made on and as of the Closing; provided, however, that for
purposes of determining the satisfaction of the condition contained in this
clause (II), such representations and warranties shall be deemed to be true and
correct unless the failure or failures of such representations and warranties to
be so true and correct, individually or in the aggregate, represent a Material
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Adverse Effect on Bank. Parent shall have received a certificate signed on
behalf of Bank by the Chief Executive Officer and the Chief Financial Officer of
Bank to the foregoing effect.
(b) Performance of Obligations of Bank. Bank shall have performed in
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time, and Parent shall have received a
certificate signed on behalf of Bank by the Chief Executive Officer and the
Chief Financial Officer of Bank to such effect.
(c) Consents Under Agreements. The consent, approval or waiver of each
person (other than the Governmental Entities referred to in Section 7.1(c))
whose consent or approval shall be required in order to permit the succession by
Resulting Bank pursuant to the Merger to any obligation, right or interest of
Bank under any loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument to which Bank is a party or is
otherwise bound shall have been obtained, except those consents or approvals for
which failure to obtain would not, individually or in the aggregate, have a
Material Adverse Effect on Parent (after giving effect to the transactions
contemplated hereby).
(d) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(e) Federal Tax Opinion. Parent shall have received an opinion of
Gallop, Johnson & Neuman, L.C., counsel to Parent ("Parent's Counsel"), in form
and substance reasonably satisfactory to Parent, dated as of the Effective Time,
substantially to the effect that, on the basis of 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 as a
reorganization within the meaning of Section 368(a) of the Code and that,
accordingly, for federal income tax purposes no gain or loss will be recognized
by Parent, Bank or Merger Bank as a result of the Merger except to the extent
Bank or Merger Bank may be required to recognize any income due to the recapture
of bad debt reserves of Bank. In rendering such opinion, Parent's Counsel may
require and rely upon representations and covenants contained in certificates of
officers of Parent, Bank and others.
(f) Legal Opinion. Parent shall have received a legal opinion, dated as
of the Effective Time, of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
("Bank's Counsel"), substantially in the form attached hereto as Exhibit E. In
rendering such opinion, Bank's Counsel may rely upon representations and
covenants contained in certificates of officers of Parent, Bank and others.
(g) Affiliates' Letters. Each Bank Affiliate shall have executed and
delivered to Parent an Affiliate Letter at least 35 days prior to the special
meeting of Bank shareholders called to consider and vote upon the Merger.
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7.3. Conditions to Obligations of Bank. The obligation of Bank to
effect the Merger is also subject to the satisfaction or waiver by Bank at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
warranties of Parent set forth in Sections 4.2 and 4.3(a) of this Agreement
shall be true and correct in all material respects as of the date of this
Agreement and (except to the extent such representations and warranties speak as
of an earlier date) as of the Closing as though made on and as of the Closing;
and (II) the representations and warranties of Parent set forth in this
Agreement shall be true and correct in all material respects as of the date of
this Agreement and (except to the extent such representations and warranties
speak as of an earlier date) as of the Closing as though made on and as of the
Closing; provided, however, that for purposes of determining the satisfaction of
the condition contained in this clause (II), such representations and warranties
shall be deemed to be true and correct unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, represent a Material Adverse Effect on Parent (after giving effect to
the transactions contemplated hereby). Bank shall have received a certificate
signed on behalf of Parent by the Chief Executive Officer and the Chief
Financial Officer of Parent to the foregoing effect.
(b) Performance of Obligations of Parent. Parent shall have performed
in all material respects all obligations required to be performed by it under
this Agreement at or prior to the Effective Time, and Bank shall have received a
certificate signed on behalf of Parent by the Chief Executive Officer and the
Chief Financial Officer of Parent to such effect.
(c) No Pending Governmental Actions. No proceeding initiated by any
Governmental Entity seeking an Injunction shall be pending.
(d) Federal Tax Opinion. Bank shall have received an opinion of Bank's
Counsel, in form and substance reasonably satisfactory to Bank, dated as of the
Effective Time, substantially to the effect that, on the basis of 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 as a reorganization within the meaning of Section 368(a) of the Code and
that, accordingly, for federal income tax purposes:
(i) No gain or loss will be recognized by Bank as a result of
the Merger, except to the extent Bank may be required to recognize any
income due to the recapture of bad debt reserves;
(ii) No gain or loss will be recognized by the shareholders of
Bank who exchange all of their Bank Voting Common Stock solely for
Parent Common Stock pursuant to the Merger (except with respect to cash
received in lieu of a fractional share interest in Parent Common
Stock); and
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(iii) The aggregate tax basis of the Parent Common Stock
received by shareholders who exchange all of their Bank Voting Common
Stock solely for Parent Common Stock pursuant to the Merger will be the
same as the aggregate tax basis of Bank Voting Common Stock surrendered
in exchange therefor.
(e) Legal Opinion. Bank shall have received a legal opinion, dated as
of the Effective Time, of Parent's Counsel, in substantially the form attached
hereto as Exhibit F. In rendering such opinion, Parent's Counsel may require and
rely upon representations and covenants contained in certificates of officers of
Parent, Bank and others.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval by the shareholders of Bank
of the matters presented in connection with the Merger:
(a) by mutual consent of Bank and Parent in a written instrument, if
the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either Parent or Bank upon written notice to the other party (i)
30 days after the date on which any request or application for a Requisite
Regulatory Approval shall have been denied or withdrawn at the request or
recommendation of the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 30-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, provided, however, that no party shall
have the right to terminate this Agreement pursuant to this Section 8.1(b)(i) if
such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein, or (ii) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the consummation of any
of the transactions contemplated by this Agreement;
(c) by either Parent or Bank if the Merger shall not have been
consummated on or before March 31, 1998, unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of such party
set forth herein;
(d) by either Parent or Bank (provided that the terminating party shall
not be in material breach of any of its obligations under Section 6.3 and any
related obligations hereunder) if the approval of the shareholders of Bank
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of such
shareholders or at any adjournment or postponement thereof;
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(e) by either Parent or Bank (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any of
the representations or warranties set forth in this Agreement on the part of the
other party, which breach is not cured within 30 days following written notice
to the party committing such breach, or which breach, by its nature, cannot be
cured prior to the Closing; provided, however, that neither party shall have the
right to terminate this Agreement pursuant to this Section 8.1(e) unless the
breach of any representation or warranty, together with all other such breaches,
would entitle the party receiving such representation or warranty not to
consummate the transactions contemplated hereby under Section 7.2(a) (in the
case of a breach of a representation or warranty by Bank) or Section 7.3(a) (in
the case of a breach of a representation or warranty by Parent);
(f) by either Parent or Bank (provided that the terminating party is
not then in material breach of any representation, warranty, covenant or other
agreement contained herein) if there shall have been a material breach of any of
the covenants or agreements set forth in this Agreement on the part of the other
party, which breach shall not have been cured within 30 days following receipt
by the breaching party of written notice of such breach from the other party
hereto;
(g) by Parent, if the Board of Directors of Bank shall fail to
recommend in the Prospectus/Proxy Statement and any accompanying letters and
releases that shareholders of the Bank vote to approve this Agreement and the
Merger and other transactions provided for herein, or if, having made such
recommendation, the Board of Directors of Bank shall have withdrawn, modified or
amended such recommendation in any respect materially adverse to Parent;
(h) by Bank, at any time during the period (the "Bank Election Period")
extending from the sixth trading day to the tenth trading day, inclusive, after
the Final Regulatory Approval Date, if the Average Parent Share Price
(calculated pursuant to Section 1.4(a)) is less than $19.83 and Parent shall not
have delivered written notice to Bank within five trading days after the Final
Regulatory Approval Date that Parent irrevocably waives the fixed Exchange Ratio
of 0.2648 and that the Exchange Ratio will continue to be determined in
accordance with the formula set forth in the first clause of Section 1.4(a)(i)
(such notice a "Fixed Exchange Ratio Waiver"); or
(i) by Bank, prior to the first mailing or delivery of the definitive
Prospectus/Proxy Statement to shareholders of Bank, if the O & Co. Opinion has
been amended, withdrawn or rescinded prior to such time.
8.2. Effect of Termination; Expenses. In the event of termination of
this Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and have no effect except that (i) the last sentence of each of Sections
6.2(a) and 6.2(b), this Sections 8.2 and Section 9.4 shall survive any
termination of this Agreement and (ii) no party shall be relieved or released,
as a result of such termination, from any liabilities or damages arising out of
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its willful breach of any provision of this Agreement, provided, however, that
if this Agreement (A) is terminated by Parent pursuant to Section 8.1(g), (B) is
terminated after the occurrence of an Initial Triggering Event or a Subsequent
Triggering Event (as defined in the Option Agreement) by Parent pursuant to
8.1(c), by either party pursuant to Section 8.1(d), or by Bank pursuant to
Section 8.1(i), and an Acquisition Transaction (as defined in the Option
Agreement) shall have occurred within 12 months after such termination, or (C)
is terminated subsequent to an Acquisition Transaction, Bank will promptly pay
to Parent, as reimbursement of Parent's direct and indirect expenses and costs,
including, without limitation legal, accounting and administrative costs, as
well as the opportunity cost to Parent of business transactions foregone as a
result of its efforts to effect the Merger, an amount in cash equal to $1
million.
8.3. Amendment. Subject to compliance with applicable law, this
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval by
the shareholders of Bank of the Merger and the transactions provided for herein;
provided, however, that after any approval of this Agreement by Bank's
shareholders, there may not be, without further approval of such shareholders,
any amendment of this Agreement which reduces the amount or changes the form of
the consideration to be delivered to Bank shareholders hereunder other than as
contemplated by this Agreement. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
8.4. Extension; Waiver. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1. Closing. Subject to the terms and conditions of this Agreement,
including Section 1.2 hereof, the closing of the Merger (the "Closing") will
take place at 10:00 a.m. on the first day which is (a) the last business day of
a month and (b) at least two business days after the satisfaction or waiver
(subject to applicable law) of the latest to occur of the conditions set forth
in Article VII hereof (or, if such date shall occur prior to expiration of the
Bank Election Period (as defined in Section 8.1(h)) in circumstances where Bank
has the right to terminate the Agreement under Section 8.1(h) on the first day
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after expiration of the Bank Election Period), unless another time or date after
such satisfaction or waiver (and after expiration of the Bank Election Period,
if applicable) is agreed to in writing by the parties hereto. The Closing will
occur at the main office of Parent, unless another place is agreed to in writing
by the parties.
9.2. Alternative Structure. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, Parent shall be
entitled to revise the structure of the Merger such that Bank shall in some
other manner become a wholly-owned subsidiary of Parent at the Effective Time;
provided, however, that any such revised structure must (i) qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code, (ii)
not subject any shareholders of Bank to adverse tax consequences or change the
amount of consideration to be received by such shareholders, and (iii) not
materially delay the Closing. This Agreement and any Related Agreement and any
other related documents shall be appropriately amended in order to reflect any
such revised structure.
9.3. Nonsurvival of Representations, Warranties and Agreements. None of
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than the Option
Agreement, which shall terminate only as provided therein) shall survive the
Effective Time, except for those covenants and agreements contained herein and
therein which by their terms apply in whole or in part after the Effective Time.
9.4. Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that nothing contained herein shall
limit either party's rights to recover any liabilities or damages arising out of
the other party's willful breach of any provision of this Agreement.
9.5. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a) if to Parent, to:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Attention: Mr. John Adam Kanas
Chairman, President and CEO
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with a copy to:
Gallop, Johnson & Neuman
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Thomas B. Kinsock, Esq.
and
(b) if to Bank, to:
Branford Savings Bank
45 South Main Street
Branford, Connecticut 06405
Attention: Mr. Robert J. Mariano
President and CEO
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attn: R. Mark Chamberlin, Esq.
9.6. Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or an
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. The phrases "the date of this Agreement", "the date hereof" and terms
of similar import, unless the context otherwise requires, shall be deemed to
refer to July 24, 1997.
9.7. Counterparts. This Agreement may be executed in counterparts, all
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
9.8. Entire Agreement. This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, the Option Agreement and any Related Agreement as may
be entered into by two or more of the parties hereto.
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9.9. Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without regard to any
applicable conflicts of law.
9.10. Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that the provisions contained in the
last sentence of each of Sections 6.2(a) and 6.2(b) of this Agreement were not
performed in accordance with its specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 6.2(a) and of
Section 6.2(b) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.12. Publicity. Except as otherwise required by law or the rules of
the NYSE or NASDAQ, so long as this Agreement is in effect, neither Parent nor
Bank shall issue or cause the publication of any press release or other public
announcement with respect to, or otherwise make any public statement concerning,
the transactions contemplated by this Agreement without the consent of the other
party, which consent shall not be unreasonably withheld.
9.13. Assignment; No Third Party Beneficiaries. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
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IN WITNESS WHEREOF, Parent, Bank and Merger Bank have caused this
Agreement to be executed by their respective officers thereunto duly authorized
as of the date first above written.
NORTH FORK BANCORPORATION, INC.
By: /s/ John Adam Kanas
Name: John Adam Kanas
Title: Chairman, President and CEO
Attest:
/s/ Anthony J. Abate
Name: Anthony J. Abate
Title: Sr. V.P. and Secretary
BRANFORD SAVINGS BANK
By: /s/ Robert J. Mariano
Name: Robert J. Mariano
Title: President & CEO
Attest:
/s/ R. Mark Chamberlin
Name: R. Mark Chamberlin
Title:
MERGER BANK
By: /s/ Daniel M. Healy
Name: Daniel M. Healy
Title: Sole Organizer
Attest:
/s/ Anthony J. Abate
Name: Anthony J. Abate
Title:
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<PAGE>
IN WITNESS WHEREOF, the undersigned, constituting a majority of the
directors of Bank, have executed this Agreement as of the date and year first
above written.
/s/ Edward L. Marcus
Richard W. Kahl Edward L. Marcus
/s/ Patricia M. Widlitz
George S. Warburg Patricia M. Widlitz
/s/ Vincent J. Della Rocca
William C. Brierley Vincent J. Della Rocca
/s/ Alan R. House /s/ Donald Press
Alan R. House Donald Press
/s/ Robert J. Mariano /s/ Bernard H. Page
Robert J. Mariano Bernard H. Page
/s/ Bruce E. Storm /s/ David M. Trout, Jr.
Bruce E. Storm David M. Trout, Jr.
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IN WITNESS WHEREOF, the undersigned, constituting a majority of the
proposed initial directors of Merger Bank, have executed this Agreement as of
the date and year first above written.
/s/ Daniel M. Healy /s/ Anthony J. Abate
Name: Daniel M. Healy Name: Anthony J. Abate
Title: Proposed Initial Director Title: Proposed Initial Director
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AMENDMENT NO. 1
AMENDMENT, dated as of August 21, 1997, by and among North Fork
Bancorporation, Inc., a Delaware corporation ("Parent"), a Connecticut-chartered
savings bank to be formed as a direct wholly owned subsidiary of Parent ("Merger
Bank"), and Branford Savings Bank, a Connecticut-chartered stock form savings
bank ("Bank"), to the Agreement and Plan of Merger (the "Merger Agreement"),
dated as of July 24, 1997, by and among Parent, Merger Bank and Bank.
Capitalized terms which are not otherwise defined herein shall have the meaning
set forth in the Merger Agreement.
WHEREAS, in accordance with Section 9.2 of the Merger Agreement, the
parties desire to revise the structure of the Merger so that Merger Bank will
merge with and into Bank, with the understanding that the Merger as thus
restructured will continue to qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended, specifically under
Section 368(a)(2)(E); and
WHEREAS, the parties hereto desire to amend the Merger Agreement in
certain respects in order to reflect such revised structure.
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Section 1.1 is hereby amended in its entirety to read as follows:
"1.1. The Merger. Subject to the terms and conditions of this
Agreement, in accordance with the Banking Law of Connecticut (the
"CBL"), at the Effective Time (as defined in Section 1.2 hereof),
Merger Bank shall merge with and into Bank. The resulting bank in the
Merger shall be Bank (sometimes referred to hereinafter as "Resulting
Bank" at and after the Effective Time), which shall continue its
corporate existence under the laws of the State of Connecticut. Upon
consummation of the Merger, the separate corporate existence of Merger
Bank shall terminate."
2. Section 1.7 is hereby amended in its entirety to read as follows:
"1.7. Merger Bank Common Stock. At the Effective Time, each
share of common stock, no par value, of Merger Bank, issued and
outstanding immediately prior thereto, which shall be the only shares
of capital stock of Merger Bank outstanding prior to the Effective Time
and all of which shall be owned by Parent, shall be converted into and
become one share of the common stock of the Resulting Bank, and such
shares shall thereafter constitute all of the issued and outstanding
shares of capital stock of the Resulting Bank."
3. Section 1.8 is hereby amended in its entirety to read as follows:
<PAGE>
"1.8. Certificate of Incorporation, etc. of Resulting Bank.
The Certificate of Incorporation of Bank immediately prior to the
Effective Time, as set forth in Exhibit A-1, shall continue as the
Certificate of Incorporation of Resulting Bank at and after the
Effective Time, amended (if amended) at the Effective Time as provided
in Exhibit A-2. The name and authorized capital stock of Resulting Bank
at and after the Effective Time shall be as set forth in Exhibit A-1,
amended (if amended) at the Effective Time as provided in Exhibit A-2.
The main office of Resulting Bank shall be in Branford, Connecticut."
4. Section 1.9 is hereby amended in its entirety to read as follows:
"1.9. By-Laws of Resulting Bank. At and after the Effective
Time, the ByLaws of Bank shall continue as the By-Laws of Resulting
Bank, amended (if amended) at the Effective Time as provided in Exhibit
B attached hereto."
5. Section 1.10 is hereby amended in its entirety to read as follows:
"1.10. Directors of Resulting Bank. In accordance with Section
6.13 hereof, at the Effective Time the Board of Directors of Bank
immediately prior thereto shall continue as the Board of Directors of
Resulting Bank, with such changes to be effected in the Board of
Directors of Resulting Bank at or immediately after the Effective Time
as is specified in Section 6.13.
6. The first sentence of Section 6.6(b) is hereby amended in its
entirety to read as follows:
"At and after the Effective Time, Resulting Bank shall
continue to be bound by and shall perform all of its obligations under
all severance and change-in-control contracts, plans and arrangements
previously entered into or adopted or established by Bank and in effect
immediately prior thereto, specifically including the 1997 Severance
Arrangement, and with respect to any such plan or arrangement that by
its terms might otherwise be terminable or might be modified or amended
by Bank acting unilaterally, Parent specifically covenants that, for a
period of two years after the Effective Time, neither it nor Resulting
Bank nor any successor to all or a significant portion of the business
of Resulting Bank will amend, modify or alter the terms of any such
plan or arrangement, specifically including the 1997 Severance
Arrangement, in any way detrimental to any of the persons covered
thereunder."
7. Section 6.12 is hereby amended in its entirety to read as follows:
"6.12. Merger Bank. Parent shall cause Merger Bank to be duly
organized and to execute and deliver this Agreement and any amendments
to this Agreement or other agreements related to this Agreement
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<PAGE>
("Related Agreements") and take all necessary action to complete the
transactions contemplated hereby and thereby, subject to the terms and
conditions hereof."
8. Section 6.13 is hereby amended in its entirety to read as follows:
"6.13. Board of Directors of Resulting Bank; Advisory
Directors. (a) At or immediately after the Effective Time, Parent shall
cause the number of directors of Resulting Bank to be reduced to seven.
Three of the directors of Bank at the Effective Time, consisting of
Robert J. Mariano and any two other current directors of Bank who may
be designated by Bank and approved by Parent (which approval shall not
be unreasonably withheld) prior to the Effective Time (the "Continuing
Bank Directors"), shall continue as three of the seven directors of
Resulting Bank at and after such reduction, with the other four members
of the Board of Directors of Resulting Bank at such time to be
appointed by Parent. Parent shall cause the three Continuing Bank
Directors to continue to serve, if they consent to serve, as directors
of Resulting Bank for a period of not less than two years after the
Effective Time.
"(b) Bank shall cause each director of Bank immediately prior
to the Effective Time who has not been designated and approved as a
Continuing Bank Director to deliver to Parent prior to the Effective
Time a signed resignation as a director of Bank which shall become
effective at the Effective Time. Parent shall cause such resigning
directors of Bank to be appointed at or immediately after the Effective
Time, unless they decline such appointment, as advisory directors of
Resulting Bank, each to serve in such capacity for a period of not less
than two years after the Effective Time and to receive advisory
director fees for meetings of the advisory directors (which meetings
will be held not less often than quarterly) comparable to directors'
fees received by them as Bank directors for meetings of the Bank's
Board of Directors prior to the Effective Time."
9. All references to "this Agreement" in the Merger Agreement shall
mean the Merger Agreement as amended hereby.
10. Each of Parent and Bank represents to the other that (i) it has
full corporate power and authority to execute and deliver this Amendment and,
subject to the receipt of all Requisite Regulatory Approvals, to consummate the
transactions contemplated hereby, (ii) the execution and delivery of this
Amendment by such party have been duly and validly approved by the Board of
Directors of such party and, except for the approval of the Merger Agreement as
amended by this Amendment by the shareholders of Bank, no other corporate
proceedings on the part of such party are necessary in connection with such
Amendment and (iii) this Amendment has been duly and validly executed and
delivered by such party and constitutes a valid and binding obligation of such
party, enforceable against such party in accordance with its terms.
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<PAGE>
11. Except as expressly amended by this Amendment, the Merger Agreement
is hereby ratified and confirmed in all respects. Simultaneously with the
amendments provided for above, the Exhibits to the Merger Agreement, as
previously in effect, shall be amended, if and as necessary, solely to reflect
the changed structure of the Merger provided for herein.
12. This Amendment may be executed in counterparts, all of which shall
be considered one and the same agreement and shall become effective when
counterparts have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
13. This Amendment shall be governed and construed in accordance with
the laws of the State of New York, without regard to any applicable conflicts of
law provisions.
IN WITNESS WHEREOF, Parent, Merger Bank and Bank have caused this
Amendment to be executed by their respective officers thereunto duly authorized
as of the date first above written.
NORTH FORK BANCORPORATION, INC.
By:/s/ John Adam Kanas
Name: John Adam Kanas
Title: Chairman, President and
Chief Executive Officer
BRANFORD SAVINGS BANK
By:/s/ Robert J. Mariano
Name: Robert J. Mariano
Title: President and Chief Executive Officer
MERGER BANK
By:/s/ Daniel M. Healy
Name: Daniel M. Healy
Title: Sole Organizer
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IN WITNESS WHEREOF, the undersigned, constituting a majority of the
directors of Bank, have executed this Amendment as of the date and year first
above written.
/s/ Edward L. Marcus
Richard W. Kahl Edward L. Marcus
/s/ George S. Warburg
George S. Warburg Patricia M. Widlitz
/s/ William C. Brierley /s/ Vincent J. Della Rocca
William C. Brierley Vincent J. Della Rocca
/s/ Alan R. House /s/ Donald Press
Alan R. House Donald Press
/s/ Robert J. Mariano /s/ Bernard H. Page
Robert J. Mariano Bernard H. Page
/s/ David M. Trout, Jr.
Bruce E. Storm David M. Trout, Jr.
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IN WITNESS WHEREOF, the undersigned, constituting a majority of the
proposed initial directors of Merger Bank, have executed this Amendment as of
the date and year first above written.
/s/ Daniel M. Healy /s/ Anthony J. Abate
Name: Daniel M. Healy Name: Anthony J. Abate
Title: Proposed Initial Director Title: Proposed Initial Director
6
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ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 24, 1997 (the "Agreement"), by
and between Branford Savings Bank, a Connecticut-chartered stock form savings
bank ("Issuer"), and North Fork Bancorporation, Inc., a Delaware corporation
("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger (the "Merger Agreement"), of even date herewith, providing for, among
other things, the merger of Issuer with and into a wholly owned subsidiary of
Grantee; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has requested 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 Merger Agreement, 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 Merger Agreement.
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 1,030,792 shares (subject to adjustment as set forth herein) (the
"Option Shares") of Voting Common Stock, no par value, of Issuer ("Issuer Voting
Common Stock") at a purchase price (subject to adjustment as set forth herein)
of $4.75 per Option Share (the "Purchase Price"), provided that in no event
shall the number of Option Shares for which the Option is exercisable exceed
19.9% of the issued and outstanding shares of Issuer Voting Common Stock without
giving effect to any shares subject to or issued pursuant to the Option. (Issuer
Voting Common Stock and the Non-voting Common Stock, no par value, of Issuer are
referred to collectively hereinafter as "Issuer Common Stock.")
3. Exercise of Option. (a) Provided that (i) Grantee is not in material
breach of the agreements or covenants contained in the Merger Agreement and (ii)
no preliminary or permanent injunction or other order against the delivery of
the Option Shares issued by any court of competent jurisdiction in the United
States shall be in effect, Grantee may exercise the Option, in whole or part,
and from time to time, if, but only if, both an Initial Triggering Event (as
hereinafter defined) and a Subsequent Triggering Event (as hereinafter defined)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined); provided, however, that Grantee shall have sent the
written notice of such exercise (as provided in subsection (d) of this Section
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<PAGE>
3) within 90 days following such Subsequent Triggering Event; and provided
further, however, that any purchase of shares upon exercise of the Option shall
be subject to compliance with applicable law, including, without limitation, the
Bank Holding Company Act of 1956, as amended (the "BHC Act") and the Banking Law
of Connecticut; and provided further, however, that if the Option cannot be
exercised on any day because of any injunction, order or similar restraint
issued by a court of competent jurisdiction, the period during which the Option
may be exercised shall be extended so that the Option shall expire no earlier
than on the 10th 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. Each of
the following shall be an Exercise Termination Event: (i) the Effective Time;
(ii) termination of the Merger Agreement in accordance with Section 8.1(a) or
8.1(b) of the Merger Agreement, (iii) termination of the Merger Agreement other
than as provided in clause (ii) above (any such transaction, an "Other
Termination") if such Other Termination occurs prior to the occurrence of an
Initial Triggering Event; or (iv) the passage of 12 months after any Other
Termination of the Merger Agreement where such Other Termination follows the
occurrence of an Initial Triggering Event. The rights set forth in Section 8
hereof shall terminate at the time set forth in Section 8.
(b) The term "Initial Triggering Event" shall mean any of the following
events or transactions occurring after the date hereof:
(i) Issuer, without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any person (other
than Grantee or any of its Subsidiaries) or Issuer, without having
received Grantee's prior written consent, shall have authorized,
recommended, proposed, or publicly announced its intention to
authorize, recommend or propose to engage in, an Acquisition
Transaction with any person other than Grantee or a Subsidiary of
Grantee. For purposes of this Agreement, "Acquisition Transaction"
shall mean (w) a merger or consolidation, or any similar transaction,
involving Issuer, (x) a purchase, lease or other acquisition of 10% or
more of the assets of Issuer (other than in the ordinary course of
business), or (y) a purchase or other acquisition (including by way of
merger, consolidation, Tender Offer or Exchange Offer (as such terms
are hereinafter defined), share exchange or otherwise) of securities
representing 10% or more of the voting power of Issuer;
(ii) Any person other than Grantee or any Subsidiary of
Grantee shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 10% or more of the outstanding shares
of Issuer Voting Common Stock (the term "beneficial ownership" for
purposes of this Option Agreement having the meaning assigned thereto
in Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations thereunder) or any
person other than Grantee or any Subsidiary of Grantee shall have
commenced (as such term is defined under the rules and regulations of
the Federal Deposit Insurance Corporation (the "FDIC")), or shall have
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filed or publicly disseminated a registration statement or similar
disclosure statement with respect to, a tender offer or exchange offer
to purchase any shares of Issuer Voting Common Stock such that, upon
consummation of such offer, such person might own or control 10% or
more of the then outstanding shares of Issuer Voting Common Stock (such
an offer being referred to herein as a "Tender Offer" or an "Exchange
Offer," respectively);
(iii) (A) The shareholders of Issuer shall not have approved
the Merger Agreement and the transactions contemplated thereby at the
meeting of such shareholders called and held for the purpose of
considering and voting on such agreement, (B) such meeting shall not
have been held or shall have been cancelled prior to termination of the
Merger Agreement, or (C) the Board of Directors of Issuer shall have
publicly withdrawn or modified, or publicly announced its intention to
withdraw or modify, in any manner adverse to Grantee, its
recommendation that the shareholders of Issuer approve the transactions
contemplated by the Merger Agreement, in each case after it shall have
been publicly announced that any person other than Grantee or any
Subsidiary of Grantee shall have (x) made, or disclosed an intention to
make, a proposal to engage in an Acquisition Transaction, (y) commenced
a Tender Offer, or filed or publicly disseminated a registration
statement or similar disclosure statement with respect to an Exchange
Offer, or (z) filed an application (or given a notice), whether in
draft or final form, under any federal or state banking laws seeking
regulatory approval to engage in an Acquisition Transaction; or
(iv) Issuer shall have breached any covenant or obligation
contained in the Merger Agreement and such breach would entitle Grantee
to terminate the Merger Agreement in accordance with the terms thereof
(without regard to any cure periods provided for in the Merger
Agreement unless such cure is promptly effected without jeopardizing
the consummation of the Merger in accordance with the terms of the
Merger Agreement) after (A) a bona fide proposal is made by any person
other than Grantee or any Subsidiary of Grantee to Issuer or its
shareholders to engage in an Acquisition Transaction, (B) any person
other than Grantee or any Subsidiary of Grantee discloses to Issuer or
its shareholders, or publicly discloses, its intention to make a
proposal to engage in an Acquisition Transaction if the Merger
Agreement terminates, or (C) any person other than Grantee or any
Subsidiary of Grantee shall have filed an application or notice,
whether in draft or final form, with any Governmental Entity to engage
in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of
25% or more of the then outstanding Issuer Voting Common Stock; or
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(ii) The occurrence of the Initial Triggering Event described
in clause (i) of subsection (b) of this Section 3, except that the
percentage referred to in clause (y) shall be 25%.
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) In the event Grantee is entitled under the terms of this Agreement
to exercise and wishes to exercise the Option, it shall send to Issuer a written
notice (the date of which being herein referred to as the "Notice Date")
specifying (i) the total number of 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 30 business days from the Notice Date for the closing (the
"Option Closing") of such purchase (the "Option Closing Date"). If prior
notification to or approval of any regulatory authority is required in
connection with such purchase, Issuer shall cooperate in good faith with Grantee
in the filing of the required notice or application for approval and the
obtaining of any such approval and the period of time that otherwise would run
pursuant to the preceding sentence shall run instead from the date on which, as
the case may be, (i) any required notification period has expired or been
terminated or (ii) such approval has been obtained, and in either event, any
requisite waiting period shall have passed.
4. Payment and Delivery of Certificates. (a) On each Option Closing
Date, Grantee 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 Option
Closing Date and (ii) present and surrender this Agreement to the Issuer at the
address of the Issuer specified in Section 13(f) hereof.
(b) At each Option Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided in
Section 4(a) hereof, Issuer shall deliver to Grantee (A) a certificate or
certificates representing the Option Shares to be purchased at such Option
Closing, which Option Shares shall be free and clear of all liens, claims,
charges and encumbrances of any kind whatsoever, 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
Voting Common Stock purchasable hereunder. If Issuer shall have issued rights or
any similar securities ("Rights") pursuant to any shareholder rights, poison
pill or similar plan (a "Shareholder Rights Plan") prior or subsequent to the
date of this Agreement and such Rights remain outstanding at the time of the
issuance of any Option Shares pursuant to an exercise of all or part of the
Option hereunder, then each Option Share issued pursuant to such exercise shall
also represent the number of Rights issued per share of Issuer Voting Common
Stock with terms substantially the same as and at least as favorable to Grantee
as are provided under the Shareholder Rights Plan as then in effect.
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(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Option Closing shall be
endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE MAY
BE SUBJECT TO RESTRICTIONS ARISING UNDER THE FEDERAL SECURITIES LAWS
AND STATE AND FEDERAL BANKING LAWS AND PURSUANT TO THE TERMS OF A STOCK
OPTION AGREEMENT DATED AS OF JULY 24, 1997. 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 certificates without such legend if Grantee shall have delivered
to Issuer a copy of (i) a letter from the staff of the Securities and Exchange
Commission (the "SEC"), or an opinion of outside counsel reasonably satisfactory
to Issuer 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 of 1933, as amended (the "Securities Act") and (ii) a letter from
the staff of each of the relevant regulatory authorities, 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 under applicable state or federal
banking laws.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Due Authorization. Issuer has full corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Issuer. This Agreement has been duly and validly executed and
delivered by Issuer.
(b) No Violation. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated
hereby, nor compliance by Issuer with any of the terms or provisions
hereof, will (i) violate any provision of the Amended and Restated
Certificate of Incorporation or By-Laws of Issuer or (ii) (x) assuming
that all of the consents and approvals required under applicable law
for the purchase of Option Shares upon the exercise of the Option are
duly obtained, violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to Issuer, or
any of its properties or assets, or (y) violate, conflict with, result
in a breach of any provisions of or the loss of any benefit under,
constitute a default (or an event which, with notice or lapse of time,
or both, would constitute a default) under, result in the termination
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of or a right of termination or cancellation under, 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 Issuer under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which
Issuer is a party, or by which it or any of its properties or assets
may be bound or affected.
(c) 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 of this Agreement until the obligation
to deliver Issuer Voting Common Stock upon the exercise of the Option
terminates, will have reserved for issuance, upon exercise of the
Option, shares of Issuer Voting Common Stock necessary for Grantee to
exercise the Option, and Issuer will take all necessary corporate
action to authorize and reserve for issuance all additional shares of
Issuer Voting Common Stock (together with any Rights which may have
been issued with respect thereto) or other securities which may be
issued pursuant to Section 7 upon exercise of the Option. The shares of
Issuer Voting Common Stock to be issued upon due exercise of the
Option, including all additional shares of Issuer Voting Common Stock
(together with any Rights which may have been issued with respect
thereto) 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 (except any such lien or encumbrance created by Grantee),
including any preemptive rights of any shareholder of Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Due Authorization. Grantee has corporate power and authority to
enter into this Agreement and, subject to any required regulatory approvals or
consents, 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 acquired
with a view to the public distribution thereof and neither this Option nor any
Option Shares will be transferred or otherwise disposed of except in a
transaction registered or exempt from registration under the Securities Act and
applicable state and federal banking laws.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event (i)
of any change in Issuer Voting Common Stock by reason of a stock dividend, stock
split, split-up, recapitalization, combination, exchange of shares or similar
transaction or (ii) that any Rights issued by Issuer shall become exercisable,
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the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and, in the case of
any of the transactions described in clause (i) above, proper provision shall be
made in the agreements governing such transaction so that Grantee shall receive,
upon exercise of the Option, the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Voting Common
Stock if the Option had been exercised immediately prior to such event, or the
record date therefor, as applicable. If any additional shares of Issuer Voting
Common Stock are issued after the date of this Agreement (other than pursuant to
an event described in the first sentence of this Section 7(a)), the number of
shares of Issuer Voting Common Stock subject to the Option shall be adjusted so
that, after such issuance, the Option, together with any shares of Issuer Voting
Common Stock previously issued pursuant hereto, equals 19.9% of the number of
shares of Issuer Voting Common Stock then issued and outstanding, without giving
effect to any shares subject or previously issued pursuant to the Option.
(b) In the event that Issuer shall enter into 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 Voting 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 Voting 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 Grantee, of any of (I) the
Acquiring Corporation (as defined below), (II) any person that controls the
Acquiring Corporation or (III) in the case of a merger described in clause (ii),
the Issuer (such person being referred to as the "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 Grantee. The Substitute Option Issuer shall also
enter into an agreement with the then holder or holders of the Substitute Option
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 the Substitute Common Stock (as hereinafter defined) as is equal to
the Assigned Value (as hereinafter defined) multiplied by the number of shares
of Issuer Voting Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as hereinafter defined). The exercise price of the
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Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the Purchase Price multiplied by a
fraction in which the numerator is the number of shares of the Issuer Voting
Common Stock for which the Option was theretofore exercisable and the
denominator is the number of shares of the Substitute Common Stock for which the
Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(I) "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, and (iii) the transferee of all or
substantially all of the Issuer's assets.
(II) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute
Option.
(III) "Assigned Value" shall mean the highest of (i) the price
per share of Issuer Voting Common Stock at which a tender offer or
exchange offer therefor has been made by any person (other than
Grantee), (ii) the price per share of Issuer Voting Common Stock to be
paid by any person (other than the Grantee) pursuant to an agreement
with Issuer, and (iii) the highest closing sales price per share of
Issuer Voting Common Stock quoted on National Association of Securities
Dealers, Inc. Automated Quotation/National Market System ("NASDAQ") (or
if Issuer Voting Common Stock is not quoted on NASDAQ, the highest bid
price per share as quoted on the principal trading market or securities
exchange on which such shares are traded as reported by a recognized
source) within the six-month period immediately preceding the agreement
referred to in Section 7(c) hereof, provided, however, that in the
event of a sale of all or substantially all of Issuer's assets, the
Assigned Value shall be the sum of the price paid in such sale for such
assets and the current market value of the remaining assets of Issuer
as determined by a nationally recognized investment banking firm
selected by Grantee or by a Grantee Majority (as defined below),
divided by the number of shares of Issuer Voting Common Stock
outstanding at the time of such sale. In the event that an exchange
offer is made for the Issuer Voting 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 the Issuer Voting Common Stock shall be
determined by a nationally recognized investment banking firm selected
by Grantee (or a majority of interest of the Grantees if there shall be
more than one Grantee (a "Grantee Majority")) and reasonably acceptable
to Issuer, which determination shall be conclusive for all purposes of
this Agreement.
(IV) "Average Price" shall mean the average closing price of a
share of the 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 the Substitute
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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 or is controlled by such merging person, as Grantee may
elect.
(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 the 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 this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a Grantee Majority).
(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 shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
(other than any diminution in value resulting from the fact that the shares of
Substitute Common Stock may be restricted securities, as defined in Rule 144
under the Securities Act) than other shares of common stock issued by the
Substitute Option Issuer).
(h) The provisions of Sections 8, 9 and 10 shall apply to any
securities for which the Option becomes exercisable pursuant to this Section 7
and, as applicable, references in such sections to "Issuer", "Option", "Purchase
Price" and "Issuer Voting Common Stock" shall be deemed to be references to
"Substitute Option Issuer", "Substitute Option", "Substitute Purchase Price" and
"Substitute Common Stock", respectively.
8. Repurchase at the Option of Grantee. (a) At the request of Grantee
at any time commencing upon the first occurrence of a Repurchase Event (as
defined in Section 8(d) below) and ending 12 months immediately thereafter,
Issuer shall repurchase from Grantee (I) the Option and (II) all shares of
Issuer Voting Common Stock theretofore purchased by Grantee pursuant hereto with
respect to which Grantee then has beneficial ownership. The date on which
Grantee exercises its rights under this Section 8 is referred to as the "Request
Date". Such repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee for any
shares of Issuer Voting Common Stock acquired pursuant to the Option
with respect to which Grantee then has beneficial ownership;
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(ii) the excess, if any, of (x) the Applicable Price (as
defined below) for each share of Issuer Voting Common Stock over (y)
the Purchase Price (subject to adjustment pursuant to Section 7),
multiplied by the number of shares of Issuer Voting Common Stock with
respect to which the Option has not been exercised; and
(iii) the excess, if any, of the Applicable Price over the
Purchase Price (subject to adjustment pursuant to Section 7) paid (or,
in the case of Option Shares with respect to which the Option has been
exercised but the Closing Date has not occurred, payable) by Grantee
for each share of Issuer Voting Common Stock with respect to which the
Option has been exercised and with respect to which Grantee then has
beneficial ownership, multiplied by the number of such shares.
(b) If Grantee exercises its rights under this Section 8, Issuer shall,
within 10 business days after the Request Date, pay the Section 8 Repurchase
Consideration to Grantee in immediately available funds by wire transfer to a
bank account designated by Grantee, and Grantee shall surrender to Issuer the
Option and the certificates evidencing the shares of Issuer Voting Common Stock
purchased thereunder with respect to which Grantee then has beneficial
ownership, and Grantee shall warrant that it has sole record and beneficial
ownership of such shares and that the same are then free and clear of all liens,
claims, charges and encumbrances of any kind whatsoever. Notwithstanding the
foregoing, to the extent that prior notification to or approval of any
regulatory authority is required in connection with the payment of all or any
portion of the Section 8 Repurchase Consideration, Grantee shall have the
ongoing option to revoke its request for repurchase pursuant to Section 8 or to
require that Issuer (a) deliver from time to time that portion of the Section 8
Repurchase Consideration that it is not then so prohibited from paying and (b)
promptly file the required notice or application for approval and expeditiously
process the same (and each party shall cooperate with the other in the filing of
any such notice or application and the obtaining of any such approval). If any
regulatory authority disapproves of any part of Issuer's proposed repurchase
pursuant to this Section 8, Issuer shall promptly give notice of such fact to
Grantee and redeliver to Grantee the Option and/or Option Shares it is then
prohibited from repurchasing, and Grantee shall have the right (x) to exercise
the Option as to the number of Option Shares for which the Option was
exercisable at the Request Date less the number of shares covered by the Option
in respect of which payment has been made pursuant to Section 8(a)(ii) hereof or
(y) to revoke its request for repurchase with respect to any Option Shares in
respect of which such payment has been made and exercise the Option as to the
number of Option Shares for which the Option was exercisable at the Request
Date. Notwithstanding anything herein to the contrary, (i) all of Grantee's
rights under this Section 8 shall terminate on the date of termination of this
Option pursuant to Section 3(a) hereof, unless this Option shall have been
exercised in whole or part prior to the date of termination and (ii) if this
Option shall have been exercised in whole or in part prior to the date of
termination described in clause (i) above, then Grantee's rights under this
Section 8 shall terminate 12 months after such date of termination.
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(c) For purposes of this Agreement, the term "Applicable Price" means
the highest of (i) the highest price per share of Issuer Voting Common Stock
paid for any such share by the person or groups described in Section 8(d)(i)
hereof, (ii) the price per share of Issuer Voting Common Stock received by
holders of Issuer Voting Common Stock in connection with any merger or other
business combination transaction described in Section 7(b)(i), 7(b)(ii) or
7(b)(iii) hereof or (iii) the highest closing sales price per share of Issuer
Voting Common Stock quoted on NASDAQ (or if Issuer Voting Common Stock is not
quoted on NASDAQ, the highest bid price per share as quoted on the principal
trading market or securities exchange on which such shares are traded as
reported by a recognized source) during the 60 business days preceding the
Request Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer, as determined by a nationally recognized investment banking firm
selected by Grantee, divided by the number of shares of the Issuer Voting Common
Stock outstanding at the time of such sale. If the consideration to be offered,
paid or received pursuant to either of the foregoing clauses (i) or (ii) shall
be other than in cash, the value of such consideration shall be determined in
good faith by an independent nationally recognized investment banking firm
selected by Grantee (or a Grantee Majority) and reasonably acceptable to Issuer,
which determination shall be conclusive for all purposes of this Agreement.
(d) As used herein, a "Repurchase Event" shall occur if (i) any person
(other than Grantee or any of its Subsidiaries) shall have acquired beneficial
ownership of (as such term is defined in Rule 13d-3 under the Exchange Act) or
the right to acquire beneficial ownership of, or any "group" (as such term is
defined under the Exchange Act) (other than Grantee or any Subsidiary of
Grantee) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 50% or more of the then outstanding shares of
Issuer Voting Common Stock or (ii) any of the transactions described in Section
7(b)(i), 7(b)(ii) or 7(b)(iii) hereof shall be consummated.
(e) Notwithstanding anything herein to the contrary, the aggregate
amount payable to Grantee pursuant to this Section 8 shall not exceed
$10,000,000.
9. Registration Rights. Issuer shall, if requested by Grantee (or if
applicable, a Grantee Majority) at any time and from time to time within three
years of the date on which the Option first becomes exercisable, provided that
such period of time shall be extended by the number of days, if any, by which
Issuer shall delay the registration of the Issuer Voting Common Stock pursuant
to the proviso contained at the end of this sentence, as expeditiously as
possible prepare and file a registration statement under the Securities Act if
such registration is necessary, or a registration or equivalent statement under
the rules and regulations of the Federal Deposit Insurance Corporation (the
"FDIC") (or in any event a suitable disclosure statement for federal securities
law purposes if no such registration is required under the Securities Act or the
applicable rules and regulations of the FDIC) in order to permit the sale or
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other disposition of any or all shares of Issuer Voting Common Stock or other
securities that have been acquired by or are issuable to Grantee upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by Grantee, including 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 under any
applicable state securities laws; provided, however, that Issuer may delay for a
period not to exceed 90 days filing a registration or equivalent statement if
Issuer shall in good faith determine that (i) any such registration would
adversely affect an offering or contemplated offering of securities by Issuer or
(ii) the filing of such registration or equivalent statement would, if not so
delayed, materially and adversely affect a then proposed or pending financial
project, acquisition, merger or corporate reorganization; and provided further,
that nothing contained herein shall limit or adversely affect in any manner
Grantee's rights contained in the fifth following sentence hereof. Issuer shall
use its best efforts to cause such registration statement to become effective,
to obtain all consents or waivers of other parties which are required therefor
and to keep such registration statement effective for such period not in excess
of 180 days from the day such registration statement first becomes effective as
may be reasonably necessary to effect such sale or other disposition. Any
registration or similar statement prepared and filed under this Section 9, and
any sale covered thereby, shall be at Issuer's expense except for underwriting
discounts or commissions and brokers' fees allocable to the sale of Issuer
securities by or on behalf of Grantee and the fees and disbursements of
Grantee's counsel related thereto. In no event shall Issuer be required to
effect more than one registration under the first sentence of this Section 9.
Grantee shall provide all information reasonably requested by Issuer for
inclusion in any registration or similar statement to be filed under this
Section 9. If during the time periods referred to in the first sentence of this
Section 9, Issuer effects a registration under the Securities Act or the rules
and regulations of the FDIC of Issuer Voting Common Stock for its own account or
for any other shareholder of Issuer (other than on Form S-4 or Form S-8 or any
successor forms or any form with respect to a dividend reinvestment or similar
plan, and other than on the equivalent forms of the FDIC), it shall allow
Grantee the right to participate in such registration, and such participation
shall not affect the obligation of Issuer to effect a registration statement for
Grantee under the first sentence of this Section 9; provided, however, that, if
the managing underwriters of such an offering initiated by Issuer in which
Grantee is participating should advise Issuer in writing that in their opinion
the number of shares of Issuer Voting Common Stock requested by Grantee to be
included in such registration, together with the shares of Issuer Voting Common
Stock proposed to be included in such registration, exceeds the number that can
be sold in such offering, Issuer shall include the shares requested to be
included therein by Grantee pro rata with the shares intended to be included
therein by Issuer. In connection with any registration pursuant to this Section
9, Issuer and Grantee shall provide each other and any underwriter of the
offering with customary representations, warranties, covenants, indemnification
and contribution in connection with such registration. Notwithstanding anything
to the contrary contained herein, Issuer shall not be required to register
Option Shares pursuant to this Section 9 (i) prior to the occurrence of a
Purchase Event, (ii) under the first sentence of this Section 9 within 90 days
after the effective date of a registration referred to in the second preceding
sentence pursuant to which Grantee was afforded the opportunity to register
B-12
<PAGE>
Option Shares and such shares were registered as requested, (iii) unless a
request therefor is made to Issuer by a Grantee or Grantees which hold at least
25% of the aggregate number of Option Shares (including shares of Issuer Voting
Common Stock upon exercise of the Option) then outstanding and (iv) under the
first sentence of this Section 9 on more than one occasion by reason of the fact
that there may be more than one Grantee as a result of any assignment of this
Agreement or division of this Agreement pursuant to Section 11 hereof.
10. Listing. If Issuer Voting Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation on
NASDAQ or any securities exchange, Issuer, upon the request of Grantee, will
promptly file an application to authorize for quotation the shares of Issuer
Voting Common Stock or other securities to be acquired upon exercise of the
Option on NASDAQ or such other securities exchange and will use its best efforts
to obtain approval of such listing as soon as practicable.
11. Division of Option. Upon the occurrence of a Purchase Event, this
Agreement (and the Option granted hereby) are exchangeable, without expense, at
the option of Grantee, 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 Voting 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.
12. Rights Agreement. Issuer shall not approve, adopt or amend, or
propose the approval and adoption or amendment of, any Shareholder Rights Plan
unless such Shareholder Rights Plan contains terms which provide, to the
reasonable satisfaction of Grantee, that (a) the Rights issued pursuant thereto
will not become exercisable by virtue of the fact that Grantee is the Beneficial
Owner of shares of Issuer Voting Common Stock (x) of which Grantee was the
Beneficial Owner on July 24, 1997, (y) acquired or acquirable pursuant to the
grant or exercise of this Option and (z) held by Grantee or any of its
Subsidiaries as Trust Account Shares or DPC Shares and (b) no restrictions or
limitations with respect to the exercise of any Rights acquired or acquirable by
Grantee will result or be imposed to the extent such Rights relate to the shares
of Issuer Voting Common Stock described in clause (a) of this Section 12. This
covenant shall survive for so long as Grantee is the Beneficial Owner of the
shares of Issuer Voting Common Stock described in clause (a) of this Section 12.
B-13
<PAGE>
13. Miscellaneous. (a) Expenses. Except as otherwise provided herein,
each of the parties hereto shall bear and pay all costs and expenses incurred by
it or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(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 Merger Agreement and the other agreements and
instruments referred to herein and therein, (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 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 Grantee to acquire the full number of shares of Issuer Voting
Common Stock as provided in Section 3 hereof (as adjusted pursuant to Section 7
hereof), it is the express intention of Issuer to allow Grantee to acquire 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 Connecticut 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:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, NY 11747
Attention: Chief Executive Officer
B-14
<PAGE>
with a copy to:
Gallop, Johnson & Neuman, L.C.
101 South Hanley Road
St. Louis, Missouri 63105
Attention: Thomas B. Kinsock, Esq.
If to Grantee to:
Branford Savings Bank
45 South Main Street
Branford, Connecticut 06405
Attention: Robert J. Mariano
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attention: R. Mark Chamberlin, Esq.
(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 Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and after the occurrence of a
Subsequent Triggering Event Grantee may assign its rights under this Agreement
to one or more third parties. 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. As used in this Agreement, Grantee
shall include any person to whom this Agreement or the Option shall be assigned
by a previous Grantee in accordance with the terms hereof.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
B-15
<PAGE>
(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.
BRANFORD SAVINGS BANK
By:/s/ Robert J. Mariano
Name: Robert J. Mariano
Title: President & CEO
NORTH FORK BANCORPORATION, INC.
By:/s/ John Adam Kanas
Name: John Adam Kanas
Title: Chairman, President and CEO
B-16
<PAGE>
Draft 9/8/97
Annex C
OSTROWSKI & COMPANY, INC.
Bank and Thrift Advisors
ONE WORLD TRADE CENTER WESTGATE OFFICE CENTER
SUITE 2135 700 WEST JOHNSON AVENUE
NEW YORK, NY 10048 0202 CHESHIRE, CT 06410-1135
212-432-0055 203-699-1445
FAX: 212-432-1254 FAX: 203-699-1447
[Date]
Board of Directors
Branford Savings Bank
45 South Main Street
Branford, CT 06405
Members of the Board:
You have requested our opinion as to the fairness, from a financial
point of view, of the terms of an Agreement and Plan of Merger dated July 24,
1997 (the "Merger Agreement"), by and among North Fork Bancorp, Inc. ("NFB"),
Merger Bank, a Connecticut-chartered savings bank to be formed as a direct
wholly-owned subsidiary of NFB and Branford Savings Bank 9"Branford"), to the
holders of Branford Voting Common Stock, no part value, and Branford Non-voting
Common Stock, no par value (collectively, "Branford Shareholders" and "Branford
Common Stock").
Pursuant to the terms of the Merger Agreement, Branford will be
acquired by NFB through the merger of Branford with and into Merger Bank (the
"Merger"). The Merger Agreement provides that each outstanding share of Branford
Common Stock, no par value, will be converted into and exchangeable for that
number of shares of NFB common stock, par value $2.50 per share, determined by
dividing $5.25 by the Average Parent Share Price (as defined below), computed to
four decimal places (the "Exchange Ratio"). The Exchange Ratio is subject to
adjustment unless the Average Parent Share Price is greater the $26.83, then the
Exchange Ratio will be 0.1957; or if the Average Parent Share Price is less than
$19.83, then the Exchange Ratio shall be equal to 0.2648. If the Average Parent
Share Price is less than $19.83 the Merger Agreement may be terminated by
Branford unless NFB elects to increase the Exchange Ratio in accordance with the
formula described above. For purposes of the Agreement, the term "Average Parent
Share Price" shall mean the average of the daily closing prices per share for
NFB common stock for the 20 trading days ending on the day preceding the receipt
of the last required bank regulatory approval. The actual terms of the proposed
transaction are contained in the Merger Agreement.
Ostrowski & Company, Inc., as part of its bank and thrift advisory
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other corporate
purposes. We are familiar with Branford, having provided financial advisory
services to the Board of Directors since February, 1996, and we participated in
the negotiations leading to the Merger Agreement. We have received and will
receive fees from Branford for advisory services, and will receive fees for
advisory services in connection with the completion of the transactions
contemplated in the Merger Agreement.
<PAGE>
OSTROWSKI & COMPANY, INC.
In connection with providing this opinion, we have examined and relied
upon, among other things: the Merger Agreement; the Option Agreement dated July
24, 1997 between Branford and NFB; annual reports to shareholders, proxy
statements and related audited financial statements for Branford and NFB for
each of the three fiscal years ended December 31, 1994, 1995 and 1996; certain
unaudited interim financial reports for Branford and NFB for the quarters ended
March 31, 1997, and June 30, 1997, certain other financial information for
Branford and NFB, including pro forma financial statements and managements'
estimates relating to, among other things, earnings, asset quality, and capital.
We have conducted discussions with executive management of both Branford and NFB
concerning historical financial performance and condition, market area economic
conditions, future business prospects and financial forecasts. We have reviewed
stock market prices and trading activity for the common shares of Branford and
NFB. We have reviewed comparable financial, operating and market data for the
banking industry and selected peer groups; compared the terms of the Merger
Agreement with the bank and thrift merger and acquisition transactions; and have
considered such additional financial and other information deemed relevant.
In preparing our opinion, we have relied upon the accuracy,
completeness and fair presentation of all information supplied or otherwise made
available to us by, or on behalf of, Branford and NFB. We have not independently
verified such information or undertaken an independent evaluation or appraisal
of the assets or liabilities of Branford or NFB, nor have we been furnished any
such evaluations or appraisals. With respect to forecasts of expected future
financial performance, we have been advised that they reflect the best currently
available estimates and judgement of the executive managements of Branford and
NFB. This opinion is necessarily based upon the information available to us and
the market, economic and other conditions, as they exist and can be evaluated,
as of the date of this letter.
This opinion is directed solely to the fairness, from a financial point
of view, of the terms of the Merger Agreement to Branford Shareholders and does
not constitute a recommendation to any Branford Shareholder as to how such
Branford Shareholder should vote with respect to the Merger Agreement.
In reliance upon and subject to the foregoing, it is our opinion that
as of the date hereof, the terms of the Merger Agreement are fair, from a
financial point of view, to Branford Shareholders.
Very truly yours,
/s/ OSTROWSKI & COMPANY, INC.
<PAGE>
Annex D
Connecticut Business Corporation Act
PART XIII. DISSENTERS' RIGHTS
(A) RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Section 33-855. Definitions
As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by merger
or share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and in
the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the value
of the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner
of shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
(1994, P.A. 94-186, Section 147, eff. Jan. 1, 1997.)
Section 33-856. Right to dissent
(a) A shareholder is entitled to dissent from, and obtain payment of
the fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section 33-817
or the certificate of incorporation and the shareholder is entitled to vote on
the merger or (B) if the corporation is a subsidiary that is merged with its
parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the shareholder
is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course of
business, if the shareholder is entitled to vote on the sale or exchange,
including a sale in dissolution, but not including a sale pursuant to court
<PAGE>
order or a sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders within one
year after the date of sale;
(4) An amendment of the certificate of the incorporation that
materially and adversely affects rights in respect of a dissenter's shares
because it: (A) Alters or abolishes a preferential right of the shares; (B)
creates, alters or abolishes a right in respect of redemption, including a
provision respecting a sinking fund for the redemption or repurchase, of the
shares; (C) alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with similar voting
rights; or (E) reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired for
cash under section 33-668; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to
a shareholder by this section, such remedy shall be his exclusive remedy as
holder of such shares against the corporate transactions described in this
section, whether or not he proceeds as provided in sections 33-855 to 33-872,
inclusive.
(1994, P.A. 94-186, Section 148, eff. Jan. 1, 1997; 1996, P.A. 96-271, Section
111, eff. Jan. 1, 1997.)
Section 33-857. Dissent by nominees and beneficial owners
(a) A record shareholder may asset dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
(1994, P.A. 94-186, Section 149, eff. Jan. 1, 1997.)
(B) PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
Section 33-860. Notice of dissenters' rights
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, the meeting
notice shall state that shareholders are or may be entitled to assert
dissenters' rights under sections 33-855 to 33-872, inclusive, and be
accompanied by a copy of said sections.
(b) If corporate action creating dissenters' rights under section
33-856 is taken without a vote of shareholders, the corporation shall notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken and send them the dissenters' notice described in section 33-862.
(1994, P.A. 94-186, Section 150, eff. Jan. 1, 1997.)
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<PAGE>
Section 33-861. Notice of intent to demand payment
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights (1) shall deliver to the corporation
before the vote is taken written notice of his intent to demand payment for his
shares if the proposed action is effectuated and (2) shall not vote his shares
in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection
(a) of this section is not entitled to payment for his shares under sections
33-855 to 33-872, inclusive.
(1994, P.A. 94-186, Section 151, eff. Jan. 1, 1997.)
Section 33-862. Dissenters' notice
(a) If proposed corporate action creating dissenters' rights under
section 33-856 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after
the corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the proposed
corporate action and requires that the person asserting dissenters' rights
certify whether or not he acquired beneficial ownership of the shares before
that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days after
the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
(1994, P.A. 94-186, Section 152, eff. Jan. 1, 1997.)
Section 33-863. Duty to demand payment
(a) A shareholder sent a dissenters' notice described in section 33-862
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to subdivision (3) of subsection (b) of said section and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) of this section retains all other rights of a
shareholder until these rights are cancelled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
D-3
<PAGE>
(1994, P.A. 94-186, Section 153, eff. Jan. 1, 1997.)
Section 33-864. Share restrictions
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
(1994, P.A. 94-186, Section 154, eff. Jan. 1, 1997.)
Section 33-865. Payment
(a) Except as provided in section 33-867, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with section 33-863 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
(1994, P.A. 94-186, Section 155, eff. Jan. 1, 1997.)
Section 33-866. Failure to take action
(a) If the corporation does not take the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
(1994, P.A. 94-186, Section 156, eff. Jan. 1, 1997.)
Section 33-867. After-acquired shares
(a) A corporation may elect to withhold payment required by section
33-865 from a dissenter unless he was the beneficial owner of the shares before
the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
(1994, P.A. 94-186, Section 157, eff. Jan. 1, 1997.)
D-4
<PAGE>
Section 33-868. Procedure if shareholder dissatisfied with payment or offer
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865 or
offered under section 33-867 is less than the fair value of his shares or that
the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
(1994, P.A. 94-186, Section 158, eff. Jan. 1, 1997.)
(C) JUDICIAL APPRAISAL OF SHARES
Section 33-871. Court action
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court
for the judicial district where a corporation's principal office or, if none in
this state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents
of this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment (1) for the amount, if any, by which the court finds the fair value of
D-5
<PAGE>
his shares, plus interest, exceeds the amount paid by the corporation, or (2)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under section 33-867.
(1994, P.A. 94-186, Section 159, eff. Jan. 1, 1997.)
Section 33-872. Court costs and counsel fees
(a) The court in an appraisal proceeding commenced under section 33-871
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable: (1)
Against the corporation and in favor of any or all dissenters if the court finds
the corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted.
(1994, P.A. 94-186, Section 160, eff. Jan. 1, 1997.)
D-6
<PAGE>
PART II -- Information Not Required in Prospectus
Item 20. Indemnification of Directors and Officers.
Section 145 of the DGCL generally provides that a corporation may indemnify
directors, officers, employees or agents against liabilities they may incur in
such capacities provided certain standards are met, including good faith and the
reasonable belief that the particular action was in, or not opposed to, the best
interests of the corporation.
Subsection (a) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the corporation), by reason of the fact that he is or was a
director, officer, employee or agent of the corporation or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.
Subsection (b) of Section 145 of the DGCL empowers a corporation to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor, by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
under standards similar to those set forth above, except that no indemnification
may be made in respect of any claim, issue or matter as to which such person
shall have been adjudged to be liable to the corporation, unless and only to the
extent that the Delaware Court of Chancery or the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the DGCL further provides that, among other things, to the
extent that a director or officer of a corporation has been successful in the
defense of any action, suit or proceeding referred to in Subsections (a) and (b)
of Section 145, or in the defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
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reasonably incurred by him in connection therewith; that indemnification
provided for by Section 145 shall not be deemed exclusive of any other rights to
which the indemnified party may be entitled; and that a corporation is empowered
to purchase and maintain insurance on behalf of a director or officer of the
corporation against any liability asserted against him and incurred by him in
any such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify against such liability under
Section 145.
Indemnification as described above shall be granted in a specific case only
upon a determination that indemnification is proper under the circumstances
using the applicable standard of conduct which is made by (a) a majority of
directors who were not parties to such proceeding, (b) independent legal counsel
in a written opinion if there are no such disinterested directors or if such
disinterested directors so direct, or (c) the shareholders.
Article 8.1 of the By-laws of the Registrant provides that the Registrant
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he or she is or was a director or officer of the
Registrant against expenses (including attorneys' fees), judgments, fines and
settlement payments actually and reasonably incurred by him or her to the
fullest extent permitted by the DGCL and any other applicable law, as may be in
effect from time to time.
Article 8.2 of the By-laws of the Registrant provides that the Registrant
may indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding by
reason of the fact that he or she is or was an employee or agent of the
Registrant or is serving at the request of the Registrant as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her to the extent permitted by the DGCL, and any other applicable law
as may be in effect from time to time.
Section 102(b)(7) of the DGCL ("Section 102(b)(7)(1)) permits the
certificate of incorporation of a corporation to provide that a director shall
not be personally liable to the corporation or its stockholders for monetary
damages for breach of his or her fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
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which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL (dealing with unlawful dividends or unlawful stock
purchases or redemptions), or (iv) for any transaction from which the director
derived an improper personal benefit.
Article 10 of the Registrant's Certificate of Incorporation provides that,
subject only to the express prohibitions on elimination or limitation of
liability of directors set forth in Section 102(b)(7), as it now exists or may
be hereinafter amended, directors shall not be liable for monetary damages in
excess of $25,000 per occurrence resulting from a breach of their fiduciary
duties.
The Registrant maintains a director and officer liability insurance policy
providing for the insurance on behalf of any person who is or was a director or
officer of the Registrant and subsidiary companies against any liability
incurred by him in any such capacity or arising out of his status as such. The
insurer's limit of liability under the policy is $10 million, with an additional
$10 million excess policy, in the aggregate for all insured losses per year. The
policy contains various reporting requirements and exclusions.
Section 8(k) of the Federal Deposit Insurance Act (the "FDI Act") provides
that the Federal Deposit Insurance Corporation (the "FDIC") may prohibit or
limit, by regulation or order, payments by any insured depository institution or
its holding company for the benefit of directors and officers of the insured
depository institution, or others who are or were "institution-affiliated
parties," as defined under the FDI Act, in order to pay or reimburse such person
for any liability or legal expense sustained with regard to any administrative
or civil enforcement action which results in a final order against the person.
The FDIC recently adopted regulations prohibiting, subject to certain
exceptions, insured depository institutions, their subsidiaries and affiliated
holding companies from indemnifying officers, directors or employees for any
civil money penalty or judgment resulting from an administrative or civil
enforcement action commenced by any federal banking agency, or for that portion
of the costs sustained with regard to such an action that results in a final
order or settlement that is adverse to the director, officer or employee.
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Item 21. Exhibits and Financial Statement, Schedules.
(a) Exhibits.
2.1 Agreement and Plan of Merger, dated as of July 24, 1997, as amended,
by and among North Fork Bancorporation, Inc., Merger Bank and
Branford Savings Bank (excluding exhibits thereto), is included as
Annex A to the Proxy Statement/Prospectus which is part of this
Registration Statement.
3.1 Certificate of Incorporation of the Registrant, as amended,
previously filed and incorporated by reference to North Fork
Bancorporation, Inc.'s Registration Statement on Form S-3 (File No.
33-42294) filed August 16, 1991.
3.2 By-laws of the Registrant, previously filed and incorporated by
reference to North Fork Bancorporation, Inc.'s Annual Report on form
10-K for the year ended December 31, 1993.
4.1 Rights Agreement, previously filed and incorporated by reference to
North Fork Bancorporation, Inc.'s Registration Statement on Form 8-A
filed March 21, 1989.
5.1 Opinion of Gallop, Johnson & Neuman, L.C.
8.1 Opinion of Gallop, Johnson & Neuman, L.C. regarding tax matters.
8.2* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding tax matters.
10.1 Stock Option Agreement, dated as of July 24, 1997, by and between
Branford Savings Bank and North Fork Bancorporation, Inc. is included
as Annex B to the Proxy Statement/Prospectus which is part of this
Registration Statement.
23.1 Consent of KPMG Peat Marwick LLP, New York, New York.
23.2 Consent of Seward and Monde, North Haven, Connecticut.
23.3* Consent of Ostrowski & Company, Inc., New York, New York.
23.4 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit 5.1
hereto).
23.5 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit 8.1
hereto).
23.6 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 8.2 hereto).
24.1 Powers of Attorney (see the signature page to this Form S-4
Registration Statement).
99.1* Opinion of Ostrowski & Company, Inc., a draft of which is included as
Annex C to the Proxy Statement/ Prospectus which is part of this
Registration Statement.
* To be provided by amendment.
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<PAGE>
Item 22. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1)To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most
recent post-effective amendment hereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in this registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration
statement or any material change to such information in this
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply
if the registration statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2)That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3)To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
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<PAGE>
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder, through
use of a prospectus which is a part of this registration statement, by
any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c) of the Securities Act of 1933, the issuer
undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(c) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to the paragraph immediately preceding, or (ii)
that purports to meet the requirements of Section 10(a)(3) of the
Securities Act of 1933 and is used in connection with an offering of
securities subject to Rule 415 of the Securities Act of 1933, will be
filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering
of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
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of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11, or 13 of this form, within one business
day of receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing
of the Registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable,
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in this registration statement shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became effective.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Melville, State of New
York, on September 5, 1997.
NORTH FORK BANCORPORATION, INC.
/s/ Daniel M. Healy
By: Daniel M. Healy
Its: Executive Vice President and Chief
Financial Officer
We, the undersigned officers and directors of North Fork Bancorporation,
Inc., hereby severally and individually constitute and appoint Daniel M. Healy,
the true and lawful attorney and agent (with full power of substitution and
resubstitution in each case) of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) any and all
amendments to this registration statement and all instruments necessary or
advisable in connection therewith and to file the same with the Securities and
Exchange Commission, said attorney and agent to have power to act and to have
full power and authority to do and perform in the name and on behalf of each of
the undersigned every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person and we hereby ratify and confirm our signatures as
they may be signed by our said attorney and agent to any and all such amendments
and instruments.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the date indicated.
Name Title Date
---- ----- ----
/s/ John A. Kanas President, Chief Executive September 5, 1997
John A. Kanas Officer and Chairman of the
Board
/s/ Daniel M. Healy Executive Vice President and September 5, 1997
Daniel M. Healy Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ John Bohlsen Director September 5, 1997
John Bohlsen
/s/ Irvin L. Cherashore Director September 5, 1997
Irvin L. Cherashore
/s/ Allan C. Dickerson Director September 5, 1997
Allan C. Dickerson
/s/ Lloyd A. Gerard Director September 5, 1997
Lloyd A. Gerard
/s/ Thomas M. O'Brien Director September 5, 1997
Thomas M. O'Brien
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/s/ James F. Reeve Director September 5, 1997
James F. Reeve
/s/ James H. Rich, Jr. Director September 5, 1997
James H. Rich, Jr.
/s/ George H. Rowsom Director September 5, 1997
George H. Rowsom
/s/ Kurt R. Schmeller Director September 5, 1997
Kurt R. Schmeller
/s/ Raymond W. Terry, Jr. Director September 5, 1997
Raymond W. Terry, Jr.
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<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Merger, dated as of July 24, 1997, as
amended, by and among North Fork Bancorporation, Inc., Merger Bank
and Branford Savings Bank (excluding exhibits thereto), is
included as Annex A to the Proxy Statement/Prospectus which is
part of this Registration Statement.
3.1 Certificate of Incorporation of the Registrant, as amended,
previously filed and incorporated by reference to North Fork
Bancorporation, Inc.'s Registration Statement on Form S-3 (File
No. 33-42294) filed August 16, 1991.
3.2 By-laws of the Registrant, previously filed and incorporated by
reference to North Fork Bancorporation, Inc.'s Annual Report on
form 10-K for the year ended December 31, 1993.
4.1 Rights Agreement, previously filed and incorporated by reference
to North Fork Bancorporation, Inc.'s Registration Statement on
Form 8-A filed March 21, 1989.
5.1 Opinion of Gallop, Johnson & Neuman, L.C.
8.1 Opinion of Gallop, Johnson & Neuman, L.C. regarding tax matters.
8.2* Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
regarding tax matters.
10.1 Stock Option Agreement, dated as of July 24, 1997, by and between
Branford Savings Bank and North Fork Bancorporation, Inc. is
included as Annex B to the Proxy Statement/Prospectus which is
part of this Registration Statement.
23.1 Consent of KPMG Peat Marwick LLP, New York, New York.
23.2 Consent of Seward and Monde, North Haven, Connecticut.
23.3* Consent of Ostrowski & Company, Inc., New York, New York.
23.4 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit 5.1
hereto).
23.5 Consent of Gallop, Johnson & Neuman, L.C. (included in Exhibit 8.1
hereto).
23.6 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
(included in Exhibit 8.2 hereto).
24.1 Powers of Attorney (see the signature page to this Form S-4
Registration Statement).
99.1* Opinion of Ostrowski & Company, Inc., a draft of which is included
as Annex C to the Proxy Statement/ Prospectus which is part of
this Registration Statement.
* To be provided by amendment.
II-10
</TABLE>
GALLOP, JOHNSON & NEUMAN, L.C.
101 S. Hanley
St. Louis, Missouri 63105
September 5, 1997
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Re: North Fork Bancorporation, Inc.
Registration Statement on Form S-4
Gentlemen:
We have acted as special counsel to North Fork Bancorporation, Inc., a
Delaware corporation ("North Fork"), in connection with the proposed issuance
and sale by North Fork of an aggregate of up to 1,736,965 shares of common
stock, par value $2.50 per share (the "Common Stock"), of North Fork, together
with an equal number of rights to purchase units of Series A Junior
Participating Preferred Stock of North Fork associated therewith (the "Rights"),
pursuant to an Agreement and Plan of Merger, dated as of July 24, 1997, as
amended (the "Merger Agreement"), by and among North Fork, a Connecticut interim
bank to be formed as a wholly-owned subsidiary of North Fork ("Merger Bank") and
Branford Savings Bank, a Connecticut-chartered stock form savings bank
("Branford").
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of (i) the Registration
Statement of North Fork on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on the date hereof (the "Registration Statement"),
(ii) the form of certificates to be used to represent the shares of Common Stock
(and the Rights), (iii) the Certificate of Incorporation and ByLaws of North
Fork, as amended to date, (iv) resolutions adopted by the Board of Directors of
North Fork relating to the Merger Agreement and the issuance of the shares of
Common Stock and Rights pursuant thereto, (v) the Rights Agreement, dated as of
February 28, 1989 (the "Rights Agreement"), between North Fork and North Fork
Bank, as Rights Agent, and (vi) such other documents as we have deemed necessary
or appropriate as a basis for the opinions set forth below.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, the conformity
<PAGE>
North Fork Bancorporation, Inc.
September 5, 1997
Page 2
to original documents of all documents submitted to us as certified, conformed
or photostatic copies, and the authenticity of originals of such copies. As to
any facts material to this opinion that we did not independently establish or
verify, we have relied upon statements or representations of officers and other
representatives of North Fork and others.
In rendering this opinion, we have assumed that, if North Fork issues
in excess of 1,736,965 shares of Common Stock (and associated Rights) pursuant
to the Merger Agreement, the Board of Directors of North Fork, including any
appropriate committee appointed thereby, and appropriate officers of North Fork
will have taken all necessary corporate action to approve the issuance of such
additional shares of Common Stock and associated Rights and related matters.
The opinions expressed by us herein are limited to the statutory
Delaware General Corporation Law (Title 8), and we express no opinion as to any
other laws.
Based upon and subject to the foregoing, and assuming the due execution
and delivery of certificates representing the shares of Common Stock in the form
examined by us, we are of the opinion that:
1. The shares of Common Stock to be issued by North Fork pursuant to
the Merger Agreement, when issued in accordance with the terms of the Merger
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable.
2. The Rights, when issued as described in the Registration Statement
and in accordance with the Rights Agreement, will be duly authorized and validly
issued.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "LEGAL MATTERS" in the Registration Statement. In
giving such consent we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act.
Very truly yours,
/s/GALLOP, JOHNSON & NEUMAN, L.C.
GALLOP, JOHNSON & NEUMAN, L.C.
101 S. Hanley
St. Louis, Missouri 63105
September 5, 1997
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Gentlemen:
You have requested our opinion regarding the discussion of the material
U.S. federal income tax consequences under the captions "SUMMARY--Certain
Federal Income Tax Consequences" and "THE MERGER--Certain Federal Income Tax
Consequences" in the Proxy Statement/Prospectus (the "Proxy
Statement/Prospectus") which will be included in the Registration Statement on
Form S-4 (the "Registration Statement") filed on the date hereof with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"). The Proxy Statement/Prospectus
relates to the proposed merger of Merger Bank, a wholly-owned subsidiary of
North Fork Bancorporation, Inc. ("North Fork") with and into Branford Savings
Bank ("Branford") so that Branford will become and continue as a wholly-owned
subsidiary of North Fork. This opinion is delivered in accordance with the
requirements of Item 601(b)(8) of Regulation S-K under the Securities Act.
We have reviewed the Proxy Statement/Prospectus and such other
materials as we have deemed necessary or appropriate as a basis for the opinion
expressed herein, and have considered the applicable provisions of the Internal
Revenue Code of 1986, as amended, Treasury regulations, pertinent judicial
authorities, rulings of the Internal Revenue Service, and such other authorities
as we have considered relevant to such opinion.
Based upon the foregoing, and subject to the qualifications and the
accuracy of the assumptions made therein, it is our opinion that the statements
made under the captions "SUMMARY--Certain Federal Income Tax Consequences" and
"THE MERGER--Certain Federal Income Tax Consequences" in the Proxy
Statement/Prospectus, to the extent that they constitute matters of law or legal
conclusions, are correct in all material respects.
In accordance with the requirements of Item 601(b)(23) of Regulation
S-K under the Securities Act, we hereby consent to the use of our name under the
caption "THE MERGER--Certain Federal Income Tax Consequences" in the Proxy
<PAGE>
North Fork Bancorporation, Inc.
September 5, 1997
Page 2
Statement/Prospectus and to the filing of this opinion as Exhibit 8.1
to the Registration Statement. In giving this consent, we do not admit that we
come within the category of persons whose consent is required under Section 7 of
the Securities Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/GALLOP, JOHNSON & NEUMAN, L.C.
The Stockholders and Board of Directors
North Fork Bancorporation, Inc.:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus. Our report
refers to various changes in accounting principles as discussed in the notes to
the consolidated financial statements.
/s/ KPMG PEAT MARWICK LLP
New York, New York
August 27, 1997
SEWARD AND MONDE
Certified Public Accountants
296 State Street
North Haven, Connecticut 06473-2165
(203) 248-9341
(203) 248-5813
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this proxy statement/prospectus filed with the
Securities and Exchange Commission of our report, dated January 20, 1997 on our
audits of the statements of condition of Branford Savings Bank as of December
31, 1996 and 1995, and the statements of income, changes in stockholders' equity
and cash flows for each of three years in the period ended December 31, 1996,
which report is included in the Bank's Annual Report on Form F-2. We also
consent to the reference to our firm under the caption "Experts".
/s/ Seward and Monde
North Haven, Connecticut
September 4, 1997
