SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 29, 1999
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NORTH FORK BANCORPORATION, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 1-10458 36-3154608
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(STATE OR OTHER JURISDICTION (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
OF INCORPORATION) IDENTIFICATION NO.)
275 BROAD HOLLOW ROAD MELVILLE, NEW YORK 11747
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) (516) 844-1004
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Item 5. Other Events
On August 16, 1999, North Fork Bancorporation, Inc. ("North Fork")
and JSB Financial, Inc. ("JSB") entered into an Agreement and Plan of
Merger (as amended and restated, the "JSB Merger Agreement") providing for
the merger of JSB with and into North Fork (the "JSB Merger"). At September
30, 1999, JSB had $1.6 billion in total assets, $1.1 billion in deposits,
$374 million in stockholders' equity and served customers from 13 retail
banking facilities in Suffolk and Nassau counties on Long Island, New York,
as well as in the New York City boroughs of Manhattan and Queens.
Consummation of the JSB Merger is subject to certain conditions, including,
but not limited to, approval of the JSB Merger Agreement by the holders of
a majority of the outstanding shares of JSB common stock and the holders of
a majority of the outstanding shares of North Fork common stock and the
receipt of all required regulatory approvals. North Fork intends to account
for the JSB Merger using the "pooling-of-interests" method of accounting.
North Fork expects to complete the JSB Merger in the first quarter of 2000.
The JSB Merger Agreement is included herein as Exhibit 2.2.
On August 30, 1999, North Fork and Reliance Bancorp, Inc.
("Reliance") entered into an Agreement and Plan of Merger (as amended and
restated, the "Reliance Merger Agreement") providing for the merger of
Reliance with and into North Fork (the "Reliance Merger"). At September 30,
1999, Reliance had $2.5 billion in total assets, $1.6 billion in deposits,
$171.7 million in stockholders' equity and served customers from 29 retail
banking facilities throughout Suffolk and Nassau counties on Long Island,
New York, as well as in the New York City boroughs of Manhattan and Queens.
Consummation of the Reliance Merger is subject to certain conditions,
including, but not limited to, approval of the Reliance Merger Agreement by
the holders of a majority of the outstanding shares of Reliance common
stock and the receipt of all required regulatory approvals. North Fork
intends to account for the Reliance Merger using the purchase method of
accounting. North Fork expects to complete the Reliance Merger in the first
quarter of 2000. The Reliance Merger Agreement is included herein as
Exhibit 2.1.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
2.1 Amended and Restated Agreement and Plan of Merger,
dated as of August 30, 1999, by and between North
Fork Bancorporation, Inc., and Reliance Bancorp,
Inc.
2.2 Amended and Restated Agreement and Plan of Merger,
dated as of August 16, 1999, by and between North
Fork Bancorporation, Inc., and JSB Financial, Inc.
23.1 Consent of Independent Accountants of Reliance
Bancorp, Inc.
23.2 Consent of Independent Accountants of Reliance
Bancorp, Inc.
23.3 Consent of Independent Accountants of JSB Financial,
Inc.
99.1 Unaudited Financial Statements of Reliance Bancorp,
Inc. as of September 30, 1999.
99.2 Report of Independent Auditors of Reliance Bancorp,
Inc. as of June 30, 1999, Report of Independent
Auditors of Reliance Bancorp, Inc. as of June 30, 1998,
and Financial Statements of Reliance Bancorp, Inc. as
of June 30, 1999.
99.3 Unaudited Financial Statements of JSB Financial, Inc.
as of September 30, 1999.
99.4 Report of Independent Auditors of JSB Financial, Inc.
as of December 31, 1998 and Financial Statements of JSB
Financial, Inc. as of December 31, 1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
NORTH FORK
BANCORPORATION, INC.
By: /s/ Daniel M. Healy
---------------------------------
Name: Daniel M. Healy
Title: Executive Vice President
and Chief Financial Officer
Date: December 29, 1999
EXHIBIT INDEX
Exhibit
Number Description
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2.1 Amended and Restated Agreement and Plan of Merger,
dated as of August 30, 1999, by and between North Fork
Bancorporation, Inc., and Reliance Bancorp, Inc.
2.2 Amended and Restated Agreement and Plan of Merger,
dated as of August 16, 1999, by and between North Fork
Bancorporation, Inc., and JSB Financial, Inc.
23.1 Consent of Independent Accountants of Reliance
Bancorp, Inc.
23.2 Consent of Independent Accountants of Reliance
Bancorp, Inc.
23.3 Consent of Independent Accountants of JSB Financial,
Inc.
99.1 Unaudited Financial Statements of Reliance Bancorp,
Inc. as of September 30, 1999.
99.2 Report of Independent Auditors of Reliance Bancorp,
Inc. as of June 30, 1999, Report of Independent
Auditors of Reliance Bancorp, Inc. as of June 30, 1998,
and Financial Statements of Reliance Bancorp, Inc. as
of June 30, 1999.
99.3 Unaudited Financial Statements of JSB Financial, Inc.
as of September 30, 1999.
99.4 Report of Independent Auditors of JSB Financial, Inc.
as of December 31, 1998 and Financial Statements of JSB
Financial, Inc. as of December 31, 1998.
EXHIBIT 2.1
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
Between
NORTH FORK BANCORPORATION, INC.
and
RELIANCE BANCORP, INC.
Dated as of August 30, 1999
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TABLE of CONTENTS
Page
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ARTICLE I
THE MERGER.............................................................1
1.1. The Merger.......................................................1
1.2. Effective Time...................................................2
1.3. Effects of the Merger............................................2
1.4. Conversion of Company Common Stock...............................2
1.5. Stock Options....................................................3
1.6. Buyer Common Stock...............................................5
1.7. Certificate of Incorporation.....................................5
1.8. By-Laws..........................................................5
1.9. Directors and Officers...........................................5
1.10. Tax Consequences.................................................5
ARTICLE II
EXCHANGE OF SHARES.....................................................5
2.1. Buyer to Make Shares Available...................................5
2.2. Exchange of Shares...............................................6
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES.....................................9
3.1. Disclosure Schedules.............................................9
3.2. Standards........................................................9
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................10
4.1. Corporate Organization..........................................11
4.2. Capitalization..................................................12
4.3. Authority; No Violation.........................................13
4.4. Consents and Approvals..........................................15
4.5. Reports.........................................................16
4.6. Financial Statements............................................16
4.7. Broker's Fees...................................................17
4.8. Absence of Certain Changes or Events............................18
4.9. Legal Proceedings...............................................18
4.10. Taxes...........................................................19
4.11. Employees.......................................................21
4.12. SEC Reports.....................................................23
4.13. Company Information.............................................23
4.14. Compliance with Applicable Law..................................23
4.15. Certain Contracts...............................................24
4.16. Agreements with Regulatory Agencies.............................25
4.17. Investment Securities...........................................25
4.18. State Takeover Laws; Business Combination
Provision.....................................................25
4.19. Environmental Matters...........................................26
4.20. Derivative Transactions.........................................27
4.21. Opinion.........................................................27
4.22. Approvals.......................................................28
4.23. Loan Portfolio..................................................28
4.24. Property........................................................29
4.25. Reorganization..................................................29
4.26. Company Rights Agreement........................................29
4.27. Equity and Real Estate Investments..............................30
4.28. Year 2000 Matters...............................................30
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER..............................................................30
5.1. Corporate Organization..........................................30
5.2. Capitalization..................................................31
5.3. Authority; No Violation.........................................33
5.4. Consents and Approvals..........................................34
5.5. Reports.........................................................35
5.6. Financial Statements............................................35
5.7. Broker's Fees...................................................36
5.8. Absence of Certain Changes or Events............................36
5.9. Legal Proceedings...............................................37
5.10. Taxes...........................................................37
5.11. Employees.......................................................38
5.12. SEC Reports.....................................................40
5.13. Buyer Information...............................................40
5.14. Compliance with Applicable Law..................................41
5.15. Ownership of Company Common Stock...............................41
5.16. Agreements with Regulatory Agencies.............................41
5.17. Approvals.......................................................42
5.18. Tax Treatment for the Merger;
Reorganization................................................42
5.19. Environmental Matters...........................................42
5.20. Loan Portfolio..................................................43
5.21. Property........................................................44
5.22. Derivative Transactions.........................................44
5.23. Year 2000 Matters...............................................45
5.24. Insurance.......................................................45
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS.............................45
6.1. Covenants of the Company........................................45
6.2. Covenants of Buyer..............................................50
ARTICLE VII
ADDITIONAL AGREEMENTS.................................................51
7.1. Regulatory Matters..............................................51
7.2. Access to Information...........................................53
7.3. Stockholder Meetings............................................55
7.4. Legal Conditions to Merger......................................55
7.5. Affiliates......................................................56
7.6. Stock Exchange Listing..........................................56
7.7. Employee Benefit Plans; Existing
Agreements.....................................................56
7.8. Indemnification.................................................58
7.9. Additional Agreements...........................................60
7.10. Advice of Changes...............................................61
7.11. Current Information.............................................61
7.12. Execution and Authorization of Bank
Merger Agreement...............................................62
7.13. Coordination of Dividends.......................................62
7.14. Directorship....................................................62
7.15. Accountants' Letter.............................................63
7.16. Certain Revaluations, Changes and
Adjustments....................................................63
7.17. Year 2000.......................................................63
7.18. JSB Financial Merger............................................63
7.19. Advisory Board..................................................64
ARTICLE VIII
CONDITIONS PRECEDENT..................................................64
8.1. Conditions to Each Party's Obligation
To Effect the Merger...........................................64
8.2. Conditions to Obligations of Buyer..............................65
8.3. Conditions to Obligations of the Company........................66
ARTICLE IX
TERMINATION AND AMENDMENT.............................................68
9.1. Termination.....................................................68
9.2. Effect of Termination; Expenses.................................73
9.3. Amendment.......................................................73
9.4. Extension; Waiver...............................................74
ARTICLE X
GENERAL PROVISIONS....................................................74
10.1. Closing........................................................74
10.2. Alternative Structure..........................................75
10.3. Nonsurvival of Representations,
Warranties and Agreements.....................................75
10.4. Expenses.......................................................75
10.5. Notices........................................................76
10.6. Interpretation.................................................77
10.7. Counterparts...................................................77
10.8. Entire Agreement...............................................77
10.9. Governing Law..................................................77
10.10. Enforcement of Agreement.......................................77
10.11. Severability...................................................78
10.12. Publicity......................................................78
10.13. Assignment; No Third Party
Beneficiaries................................................78
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
August 30, 1999 (this "Agreement"), by and between North Fork
Bancorporation, Inc., a Delaware corporation ("Buyer"), and Reliance
Bancorp, Inc., a Delaware corporation (the "Company"). Buyer and the
Company are sometimes collectively referred to herein as the "Constituent
Corporations".
WHEREAS, the Boards of Directors of Buyer and the Company have
determined that it is in the best interests of their respective companies
and their stockholders to consummate the business combination transaction
provided for herein in which the Company will, subject to the terms and
conditions set forth herein, merge (the "Merger") with and into Buyer; 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 ARTICLE I
THE MERGER
Section 1.1 The Merger. Subject to the terms and conditions of
this Agreement, in accordance with the Delaware General Corporation Law
(the "DGCL"), at the Effective Time (as defined in Section 1.2 hereof), the
Company shall merge with and into Buyer. Buyer shall be the surviving
corporation (hereinafter sometimes called the "Surviving Corporation") in
the Merger, and shall continue its corporate existence under the laws of
the State of Delaware. The name of the Surviving Corporation shall continue
to be North Fork Bancorporation, Inc. Upon consummation of the Merger, the
separate corporate existence of the Company shall terminate.
Section 1.2 Effective Time. The Merger shall become effective
as set forth in the certificate of merger (the "Certificate of Merger")
which shall be filed with the Secretary of State of the State of Delaware
(the "Secretary") on the Closing Date (as defined in Section 10.1 hereof).
The term "Effective Time" shall be the date and time when the Merger
becomes effective, as set forth in the Certificate of Merger.
Section 1.3 Effects of the Merger. At and after the Effective
Time, the Merger shall have the effects set forth in Sections 259 and 261
of the DGCL.
Section 1.4 Conversion of Company Common Stock.
(a) At the Effective Time, subject to Section 2.2(e) and
Section 9.1(h) hereof, each share of the common stock, par value $0.01 per
share, of the Company (the "Company Common Stock") issued and outstanding
immediately prior to the Effective Time (other than (x) shares of Company
Common Stock held in the Company's treasury, (y) shares of Company Common
Stock held directly or indirectly by Buyer or the Company or any of their
respective Subsidiaries (as defined below) (except for Trust Account Shares
and DPC shares, as such terms are defined in Section 1.4(b) hereof), or (z)
unallocated shares of Company Common Stock held in the Company's
Recognition and Retention Plans) together with the related Company Rights
issued pursuant to the Company Rights Agreement (each as defined in Section
4.2(a) hereof) shall, by virtue of this Agreement and without any action on
the part of the holder thereof, be converted into and exchangeable for 2.0
(two) shares (the "Exchange Ratio") of the common stock, par value $2.50
per share, of Buyer ("Buyer Common Stock"). All of the shares of Company
Common Stock converted into Buyer 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 Company Common Stock shall
thereafter only represent the right to receive (i) the number of whole
shares of Buyer Common Stock and (ii) the cash in lieu of fractional shares
into which the shares of Company Common Stock represented by such
Certificate have been converted pursuant to this Section 1.4(a) and Section
2.2(e) hereof. Certificates previously representing shares of Company
Common Stock shall be exchanged for certificates representing whole shares
of Buyer 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 of this Agreement and the Effective Time, the shares of
Buyer Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, spilt-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 shall be adjusted accordingly.
(b) At the Effective Time, all shares of Company Common
Stock that are owned by the Company as treasury stock, all shares of
Company Common Stock that are owned directly or indirectly by Buyer or the
Company or any of their respective Subsidiaries (other than shares of
Company Common Stock (x) held directly or indirectly in trust accounts,
managed accounts and the like or otherwise held in a fiduciary capacity for
the benefit of third parties (any such shares, and shares of Buyer Common
Stock which are similarly held, whether held directly or indirectly by
Buyer or the Company, as the case may be, being referred to herein as
"Trust Account Shares") and (y) held by Buyer or the Company or any of
their respective Subsidiaries in respect of a debt previously contracted
(any such shares of Company Common Stock, and shares of Buyer Common Stock
which are similarly held, whether held directly or indirectly by Buyer or
the Company, being referred to herein as "DPC Shares") and all unallocated
shares of Company Common Stock that are held in the Company's Recognition
and Retention Plans) shall be cancelled and shall cease to exist and no
stock of Buyer or other consideration shall be delivered in exchange
therefor. All shares of Buyer Common Stock that are owned by the Company or
any of its Subsidiaries (other than Trust Account Shares and DPC Shares)
shall become treasury stock of Buyer.
Section 1.5 Stock Options. At the Effective Time, each option
granted by the Company to purchase shares of Company Common Stock (a
"Company Option") which is outstanding and unexercised immediately prior
thereto shall cease to represent a right to acquire shares of Company
Common Stock and shall be converted automatically into an option to
purchase shares of Buyer Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the
Company's Amended and Restated 1996 Incentive Stock Option Plan, 1994
Incentive Stock Option Plan or Amended and Restated 1994 Stock Option Plan
for Outside Directors (collectively, the "Company Option Plans"), the
agreements evidencing grants thereunder, and any other agreements between
the Company and an optionee regarding Company Options):
(1) the number of shares of Buyer Common Stock to be
subject to the new option shall be equal to the product of the number
of shares of Company Common Stock subject to the original option and
the Exchange Ratio, provided that any fractional share of Buyer
Common Stock resulting from such multiplication shall be rounded down
to the nearest whole share; and
(2) the exercise price per share of Buyer Common Stock
under the new option shall be equal to the exercise price per share
of Company Common Stock under the original option divided by the
Exchange Ratio, provided that such exercise price shall be rounded up
to the nearest cent.
The adjustment provided herein with respect to any options which are
intended to be "incentive stock options" (as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code")) shall be and is
intended to be effected in a manner which is consistent with Section 424(a)
of the Code, and to the extent it is not so consistent, such Section 424(a)
shall override such adjustment. The duration and other terms of the new
option shall be the same as the original option, except that all references
to the Company shall be deemed to be references to Buyer, it being
understood that any option that is intended to be an incentive stock option
and which is exercised by the option holder more than 3 (three) months from
the date of the option holder's termination of employment from the Company
or its Subsidiaries or from Buyer or its Subsidiaries shall be treated as a
non-statutory option.
Section 1.6 Buyer Common Stock. Except for shares of Buyer
Common Stock owned by the Company or any of its Subsidiaries (other than
Trust Account Shares and DPC Shares), which shall be converted into
treasury stock of Buyer as contemplated by Section 1.4 hereof, the shares
of Buyer Common Stock issued and outstanding immediately prior to the
Effective Time shall be unaffected by the Merger and such shares shall
remain issued and outstanding.
Section 1.7 Certificate of Incorporation. At the Effective
Time, the Restated Certificate of Incorporation of Buyer, as in effect at
the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation.
Section 1.8 By-Laws. At the Effective Time, the ByLaws of
Buyer, as in effect immediately prior to the Effective Time, shall be the
By-Laws of the Surviving Corporation until thereafter amended in accordance
with applicable law.
Section 1.9 Directors and Officers. Except as provided in
Section 7.14 hereof, the directors and officers of Buyer immediately prior
to the Effective Time shall be the directors and officers of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation until their
respective successors are duly elected or appointed and qualified.
Section 1.10 Tax Consequences. It is intended that the Merger
shall constitute a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code.
ARTICLE ARTICLE II
EXCHANGE OF SHARES
Section 2.1 Buyer to Make Shares Available. At or prior to the
Effective Time, Buyer shall deposit, or shall cause to be deposited, with a
bank or trust company (which may be a Subsidiary of Buyer) (the "Exchange
Agent") selected by Buyer and reasonably satisfactory to the Company, for
the benefit of the holders of Certificates, for exchange in accordance with
this Article II, certificates representing the shares of Buyer Common Stock
and the cash in lieu of fractional shares (such cash and certificates for
shares of Buyer 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 Company Common Stock.
Section 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 certificates representing the shares of Buyer
Common Stock and the cash in lieu of fractional shares into which the
shares of Company Common Stock 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 (x) a
certificate representing that number of whole shares of Buyer Common Stock
to which such holder of Company 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 shares, if any, which 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 the
cash in lieu of fractional shares and 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 Buyer Common Stock and payable to the
holders of record thereof shall be paid to the holder of any unsurrendered
Certificate until the holder thereof shall surrender such Certificate in
accordance with this Article II. After the surrender of a 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 Buyer Common Stock represented by such Certificate. No holder of
an unsurrendered Certificate shall be entitled, until the surrender of such
Certificate, to vote the shares of Buyer Common Stock into which his
Company Common Stock shall have been converted.
(c) If any certificate representing shares of Buyer
Common Stock is to be issued in a name other than that in which the
Certificate 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 Buyer 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 the Company of the shares of Company 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 certificates representing shares of Buyer Common Stock as
provided in this Article II.
(e) Notwithstanding anything to the contrary contained
herein, no certificates or scrip representing fractional shares of Buyer
Common Stock shall be issued upon the surrender for exchange of
Certificates, no dividend or distribution with respect to Buyer Common
Stock shall be payable on or with respect to any fractional share, and such
fractional share interests shall not entitle the owner thereof to vote or
to any other rights of a shareholder of Buyer. In lieu of the issuance of
any such fractional share, Buyer shall pay to each former stockholder of
the Company who otherwise would be entitled to receive a fractional share
of Buyer Common Stock an amount in cash determined by multiplying (i) the
average of the closing sale prices of Buyer Common Stock on the New York
Stock Exchange (the "NYSE") as reported by The Wall Street Journal for the
five trading days immediately preceding the date on which the Effective
Time shall occur by (ii) the fraction of a share of Buyer Common Stock to
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 stockholders of the Company for six months after the
Effective Time shall be paid to Buyer. Any stockholders of the Company who
have not theretofore complied with this Article II shall thereafter look
only to Buyer for payment of their shares of Buyer Common Stock, cash in
lieu of fractional shares and unpaid dividends and distributions on the
Buyer Common Stock deliverable in respect of each share of Company Common
Stock such stockholder holds as determined pursuant to this Agreement, in
each case, without any interest thereon. Notwithstanding the foregoing,
none of Buyer, the Company, the Exchange Agent or any other person shall be
liable to any former holder of shares of Company Common Stock for any
amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(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 Buyer, the posting by such person of a bond in such amount as
Buyer 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 the shares of Buyer Common
Stock and cash in lieu of fractional shares deliverable in respect thereof
pursuant to this Agreement.
ARTICLE ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
Section 3.1 Disclosure Schedules. Prior to the execution and
delivery of this Agreement, the Company has delivered to Buyer, and Buyer
has delivered to the Company, a schedule (in the case of the Company, the
"Company Disclosure Schedule," and in the case of Buyer, the "Buyer
Disclosure Schedule") setting forth, among other things, items the
disclosure of which is necessary or appropriate either in response to an
express disclosure requirement contained in a provision hereof or as an
exception to one or more of such party's representations or warranties
contained in Article IV, in the case of the Company, or Article V, in the
case of Buyer, or to one or more of such party's covenants contained in
Article VI; provided, however, that notwithstanding anything in this
Agreement to the contrary (a) no such item is required to be set forth in
the Disclosure Schedule as an exception to a representation or warranty
(other than a representation or warranty contained in Sections 4.2, 4.3(a),
4.3(b)(i), 4.6, 4.7, 4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18,
4.21, 4.26 and 4.27, with respect to the Company Disclosure Schedule, or
Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii), 5.11(a) 5.12
and 5.15, with respect to the Buyer Disclosure Schedule) if its absence
would not result in the related representation or warranty being deemed
untrue or incorrect under the standard established by Section 3.2, and (b)
the mere inclusion of an item in a Disclosure Schedule as an exception to a
representation or warranty shall not be deemed an admission by a party that
such item represents a material exception or material fact, event or
circumstance or that such item has had or is reasonably likely to have a
Material Adverse Effect (as defined herein) with respect to either the
Company or Buyer, respectively.
Section 3.2 Standards. (a) No representation or warranty of the
Company contained in Article IV (other than the representations and
warranties contained in Sections 4.2, 4.3(a), 4.3(b)(i), 4.6, 4.7,
4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18, 4.21, 4.26 and 4.27) or
of Buyer contained in Article V (other than the representations and
warranties contained in Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7,
5.8(ii), 5.11(a), 5.12 and 5.15) shall be deemed untrue or incorrect for
any purpose under this Agreement, and no party hereto shall be deemed to
have breached any such representation or warranty for any purpose under
this Agreement, in any case as a consequence of the existence or absence of
any fact, circumstance or event unless such fact, circumstance or event,
individually or when taken together with all other facts, circumstances or
events inconsistent with any representations or warranties contained in
Article IV, in the case of the Company, or Article V, in the case of Buyer,
has had or is reasonably likely to have a Material Adverse Effect with
respect to the Company or Buyer, respectively.
(b) As used in this Agreement, the term "Material Adverse
Effect" means, with respect to Buyer or the Company, as the case may be, a
material adverse effect on (i) the business, assets, liabilities, results
of operations or financial condition of such party and its Subsidiaries
taken as a whole, other than any such effect attributable to or resulting
from (x) any change in banking or similar laws, rules or regulations of
general applicability or interpretations thereof by courts or governmental
authorities, (y) any change in GAAP (as defined herein) or regulatory
accounting principles, in each case which affects banks, thrifts or their
holding companies generally, except to the extent any such condition or
change affects the referenced party to a materially greater extent than
banks, thrifts or their holding companies generally, or (z) any change in
interest rates, provided, that any such change in interest rates shall not
affect the referenced party to a materially greater extent than banks,
thrifts or their holding companies generally, and provided further, that
any such change shall not have a materially adverse effect on the credit
quality of such party's assets, or (ii) the ability of such party and its
Subsidiaries to consummate the transactions contemplated hereby.
ARTICLE ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to Article III hereof and except as set forth in the
Company Disclosure Schedule, the Company hereby represents and warrants to
Buyer as follows:
Section 4.1 Corporate Organization. (a) The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. The Company 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. The Company is duly registered as a non-diversified unitary
savings and loan holding company under the Home Owners' Loan Act of 1933,
as amended. The Restated Certificate of Incorporation and By-laws of the
Company, copies of which have previously been made available to Buyer, are
true and correct copies of such documents as in effect as of the date of
this Agreement. 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) Reliance Federal Savings Bank (the "Company Bank") is
a stock savings bank duly organized, validly existing and in good standing
under the laws of the United States of America. The deposit accounts of the
Company Bank are insured by the Federal Deposit Insurance Corporation (the
"FDIC") through the Savings Association 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. Each of the Company's
other Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation or
organization. Each of the Company's Subsidiaries 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 the location of the properties
and assets owned or leased by it makes such licensing or qualification
necessary. The articles of incorporation, by-laws and similar governing
documents of each Subsidiary of the Company, copies of which have
previously been made available to Buyer, are true and correct copies of
such documents as in effect as of the date of this Agreement.
(c) The minute books of the Company and each of its
Subsidiaries contain true and correct records of all meetings and other
corporate actions held or taken since December 31, 1996 of their respective
stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
Section 4.2 Capitalization. (a) The authorized capital stock of
the Company consists of 20,000,000 shares of Company Common Stock and
4,000,000 shares of preferred stock, par value $.01 per share (the "Company
Preferred Stock"). As of the date of this Agreement, there are (x)
8,584,410 shares of Company Common Stock outstanding and 2,166,410 shares
of Company Common Stock held in the Company's treasury, (y) no shares of
Company Common Stock reserved for issuance upon exercise of outstanding
stock options or otherwise except for (i) 1,080,876 shares of Company
Common Stock reserved for issuance pursuant to the Company Option Plans and
described in Section 4.2(a) of the Company Disclosure Schedule, and (ii)
1,708,297 shares of Company Common Stock reserved for issuance upon
exercise of the option issued to Buyer pursuant to the Stock Option
Agreement, dated August 30, 1999, between Buyer and the Company (the
"Option Agreement") and (z) no shares of Company Preferred Stock issued or
outstanding, held in the Company's treasury or reserved for issuance upon
exercise of outstanding stock options or otherwise, except for 150,000
shares of Company Series A Junior Participating Preferred Stock reserved
for issuance upon exercise of the rights (the "Company Rights") distributed
to holders of Company Common Stock pursuant to the Stockholder Protection
Rights Agreement, dated September 18, 1996 between the Company and
Registrar and Transfer Co., as Rights Agent (the "Company Rights
Agreement"). All of the issued and outstanding shares of Company 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 4.2(a) of the Company Disclosure Schedule, and except
for the Option Agreement, the Company 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 Company Common Stock or Company Preferred Stock or any other
equity security of the Company or any securities representing the right to
purchase or otherwise receive any shares of Company Common Stock or any
other equity security of the Company. The names of the optionees, the date
of each option to purchase Company Common Stock granted, the number of
shares subject to each such option, the expiration date of each such
option, and the price at which each such option may be exercised under the
Company Option Plans are set forth in Section 4.2(a) of the Company
Disclosure Schedule.
(b) Section 4.2(b) of the Company Disclosure Schedule
sets forth a true and correct list of all of the Subsidiaries of the
Company. Except as set forth in Section 4.2(b) of the Company Disclosure
Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of the capital stock of each of such Subsidiaries, free
and clear of all liens, charges, encumbrances and security interests
whatsoever, and all of such shares are duly authorized and validly issued
and are fully paid, nonassessable and free of preemptive rights, with no
personal liability attaching to the ownership thereof. No Subsidiary of the
Company has or is bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other
equity security of such Subsidiary. Assuming compliance by Buyer with
Section 1.5 hereof, at the Effective Time, there will not be any
outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which the Company or any of its Subsidiaries
will be bound calling for the purchase or issuance of any shares of the
capital stock of the Company or any of its Subsidiaries.
Section 4.3 Authority; No Violation. (a) The Company has full
corporate power and authority to execute and deliver this Agreement and the
Option Agreement (this Agreement and the Option Agreement, collectively,
the "Company Documents") and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of each of the Company
Documents and the consummation of the transactions contemplated hereby and
thereby have been duly and validly approved by the Board of Directors of
the Company. The Board of Directors of the Company has directed that this
Agreement and the transactions contemplated hereby be submitted to the
Company's stockholders for approval at a meeting of such stockholders and,
except for the approval and adoption of this Agreement by the affirmative
vote of the holders of a majority of the outstanding shares of the Company
Common Stock, no other corporate proceedings on the part of the Company are
necessary to approve the Company Documents and to consummate the
transactions contemplated hereby and thereby. Each of the Company Documents
has been duly and validly executed and delivered by the Company, and
(assuming due authorization, execution and delivery by Buyer) this
Agreement constitutes a valid and binding obligation of the Company,
enforceable against the Company 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) Except as set forth in Section 4.3(b) of the Company
Disclosure Schedule, neither the execution and delivery of the Company
Documents by the Company, nor the consummation by the Company of the
transactions contemplated hereby, nor compliance by the Company with any of
the terms or provisions hereof, will (i) violate any provision of the
Certificate of Incorporation or By-Laws of the Company or the certificate
of incorporation, by-laws or similar governing documents of any of its
Subsidiaries, or (ii) assuming that the consents and approvals referred to
in Section 4.4 hereof are duly obtained, (x) violate any statute, code,
ordinance, rule, regulation, judgment, order, writ, decree or injunction
applicable to the Company 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 the
Company 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 the Company 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.
Section 4.4 Consents and Approvals. Except for (a) the filing
of an application with the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board") under the Bank Holding Company Act of 1956,
as amended (the "BHC Act") and approval of such application, (b) the filing
of an application with the FDIC under the Bank Merger Act and approval of
such application, in the event the parties enter into the Bank Merger
Agreement (as defined in Section 7.12) (c) the filing of applications and
notices, as applicable, with the Office of Thrift Supervision (the "OTS")
and approval of such applications and notices, (d) the filing of an
application with the New York State Banking Department (the "Banking
Department") and the approval of such application, (e) the filing with the
Securities and Exchange Commission (the "SEC") of a proxy statement in
definitive form relating to the meeting of the Company's stockholders to be
held in connection with this Agreement and the transactions contemplated
hereby (the "Proxy Statement") and the filing and declaration of
effectiveness of the registration statement on Form S-4 (the "S-4") in
which the Proxy Statement will be included as a prospectus, (f) the
approval of this Agreement by the requisite vote of the stockholders of the
Company, (g) the filing of the Certificate of Merger with the Secretary
pursuant to the DGCL, (h) 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 Buyer Common Stock
pursuant to this Agreement, (i) approval of the listing of the Buyer Common
Stock to be issued in the Merger on the NYSE, and (j) such filings,
authorizations or approvals as may be set forth in Section 4.4 of the
Company Disclosure Schedule, no consents or approvals of or filings or
registrations with any court, administrative agency or commission or other
governmental authority or instrumentality (each a "Governmental Entity") or
with any third party are necessary in connection with the execution and
delivery by the Company of the Company Documents or the consummation by the
Company of the Merger and the other transactions contemplated hereby and
thereby.
Section 4.5 Reports. The Company and each of its Subsidiaries
have timely filed all reports, registrations and statements, together with
any amendments required to be made with respect thereto, that they were
required to file since December 31, 1996 with (i) the OTS, (ii) the FDIC,
(iii) any state banking commissions or any other state regulatory authority
(each a "State Regulator") and (iv) any other self-regulatory organization
("SRO") (collectively, with the Federal Reserve Board, the "Regulatory
Agencies"), and have paid all fees and assessments due and payable in
connection therewith. Except for normal examinations conducted by a
Regulatory Agency in the regular course of the business of the Company and
its Subsidiaries, and except as set forth in Section 4.5 of the Company
Disclosure Schedule, no Regulatory Agency has initiated any proceeding or,
to the knowledge of the Company, investigation into the business or
operations of the Company or any of its Subsidiaries since December 31,
1996. There is no unresolved violation, criticism, or exception by any
Regulatory Agency with respect to any report or statement relating to any
examinations of the Company or any of its Subsidiaries.
Section 4.6 Financial Statements. The Company has previously
made available to Buyer copies of (a) the consolidated statements of
condition of the Company and its Subsidiaries as of June 30 for the fiscal
years 1997 and 1998, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the fiscal years 1996
through 1998, inclusive, as reported in the Company's Annual Report on Form
10- K for the fiscal year ended June 30, 1998 filed with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in each
case accompanied by the audit report of KPMG LLP, independent public
accountants with respect to the Company, (b) the unaudited consolidated
statements of condition of the Company and its Subsidiaries as of March 31,
1998 and March 31, 1999 and the related unaudited consolidated statements
of income, cash flows and changes in stockholders' equity for the
nine-month periods then ended as reported in the Company's Quarterly Report
on Form 10-Q for the period ended March 31, 1999 filed with the SEC under
the Exchange Act, and (c) the consolidated statements of condition of the
Company and its Subsidiaries as of June 30 for the fiscal years 1998 and
1999, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the fiscal years 1997 through 1999,
inclusive, as reported in the draft of the Company's Annual Report for the
fiscal year ended June 30, 1999 to be filed with the SEC (the "Draft
Financials"). The June 30, 1998 and June 30, 1999 consolidated statements
of condition of the Company (including the related notes, where applicable)
fairly present the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof, and the other financial statements
referred to in this Section 4.6 (including the related notes, where
applicable) fairly present, and the financial statements to be filed by the
Company with the SEC after the date of this Agreement 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 consolidated financial position of the Company 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) complies, and the financial statements to be filed
by the Company with the SEC after the date of this Agreement will comply,
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 to be filed by the Company with the SEC after the date of this
Agreement 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 10-Q. The books and records of
the Company and its Subsidiaries have been, and are being, maintained in
accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions. Section 4.6 of the
Company Disclosure Schedule sets forth a true and correct description of
the Company's "Borrowed Funds" as reflected in the Draft Financials.
Section 4.7 Broker's Fees. Neither the Company nor any
Subsidiary of the Company nor any of their respective 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 the Company Documents, except that the Company
has engaged, and will pay a fee or commission to, Sandler, O'Neill &
Partners, L.P. ("Sandler O'Neill") in accordance with the terms of a letter
agreement between Sandler O'Neill and the Company, a true and correct copy
of which has been previously delivered by the Company to Buyer.
Section 4.8 Absence of Certain Changes or Events. (a) Except as
may be set forth in Section 4.8(a) of the Company Disclosure Schedule or as
disclosed in any Company Report filed with the SEC prior to the date of
this Agreement, since June 30, 1998, (i) neither the Company nor any of its
Subsidiaries has incurred any liability, except in the ordinary course of
their business consistent with their past practices, and (ii) there has
been no change or development or combination of changes or developments
which has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.8(b) of the Company
Disclosure Schedule or as disclosed in any Company Report filed with the
SEC prior to the date of this Agreement, since June 30, 1998, the Company
and its Subsidiaries have carried on their respective businesses in the
ordinary course consistent with their past practices.
(c) Except as set forth in Section 4.8(c) of the Company
Disclosure Schedule, since June 30, 1999, neither the Company nor any of
its Subsidiaries has (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 June
30, 1999 (which amounts have been previously disclosed to Buyer), granted
any severance or termination pay, entered into any contract to make or
grant any severance or termination pay, or paid any bonus, (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.
Section 4.9 Legal Proceedings. (a) Except as set forth in
Section 4.9 of the Company Disclosure Schedule, neither the Company nor any
of its Subsidiaries is a party to any, and there are no pending or, to the
Company's knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations
of any nature against the Company or any of its Subsidiaries or challenging
the validity or propriety of the transactions contemplated by any of the
Company Documents.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon the Company, any of its Subsidiaries or
the assets of the Company or any of its Subsidiaries.
Section 4.10 Taxes. (a) Except as set forth in Section 4.10(a)
of the Company Disclosure Schedule, each of the Company and its
Subsidiaries 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 and correct, and (ii) paid in full or made adequate provision in the
financial statements of the Company (in accordance with GAAP) for all Taxes
(as hereinafter defined). No deficiencies for any Taxes have been proposed,
asserted, assessed or, to the knowledge of the Company, threatened against
or with respect to the Company or any of its Subsidiaries. Except as set
forth in Section 4.10(a) of the Company Disclosure Schedule, (i) there are
no liens for Taxes upon the assets of either the Company or its
Subsidiaries except for statutory liens for current Taxes not yet due, (ii)
neither the Company nor any of its Subsidiaries has 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 the Company and its Subsidiaries, the federal and state
income Tax Returns of the Company and its Subsidiaries have been audited by
the Internal Revenue Service or appropriate state 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)
neither the Company nor any of its Subsidiaries has filed or been included
in a combined, consolidated or unitary income Tax Return other than one in
which the Company was the parent of the group filing such Tax Return, (v)
neither the Company nor any of its Subsidiaries is 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 1.1552-1(a)(1) under the
Code), (vi) neither the Company nor any of its Subsidiaries is 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, local or
foreign income Tax law), by reason of the voluntary change in accounting
method (nor has any taxing authority proposed any such adjustment or change
of accounting method), (vii) neither the Company nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code,
and (viii) neither the Company nor any of its Subsidiaries has made any
payment or provided any benefit or may be obligated to make any payment or
provide any benefit (by contract or otherwise) which will not be deductible
by reason of Section 280G or Section 162(m) of the Code.
(b) Except as set forth in Section 4.10(b) of the Company
Disclosure Schedule, neither the Company nor any of its Subsidiaries owns,
directly or indirectly (including, without limitation, through
partnerships, corporations, trusts or other entities), interests in real
property ("Real Property Interests") situated in (A) New York State, which
by reason of the Merger would be subject to either (i) the New York State
Real Property Transfer Tax, or (ii) the New York City Real Property
Transfer Tax (collectively, the "New York Transfer Taxes"), or (B) any
state other than New York State which by reason of the Merger would be
subject to any tax similar to the New York Transfer Taxes. For purposes of
this Section 4.10(b), Real Property Interests include, without limitation,
titles in fee, leasehold interests, beneficial interests, encumbrances,
developments 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 the 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, including, but not limited to income, excise, property, sales,
transfer, franchise, payroll, withholding, social security or other taxes,
including any interest, penalties or additions attributable thereto. 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.
Section 4.11 Employees. (a) Section 4.11(a) of the Company
Disclosure Schedule sets forth a true and correct list of each deferred
compensation plan, incentive compensation plan, equity compensation plan,
"welfare" plan, fund or program (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"));
"pension" plan, fund or program (within the meaning of Section 3(2) of
ERISA); each employment, termination or severance agreement; and each other
employee benefit plan, fund, program, agreement or arrangement, in each
case, that is sponsored, maintained or contributed to or required to be
contributed to (the "Plans") by the Company, any of its Subsidiaries or by
any trade or business, whether or not incorporated (an "ERISA Affiliate"),
all of which together with the Company would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), for the benefit of any employee
or former employee of the Company or any Subsidiary.
(b) The Company has heretofore made available to Buyer
true and correct copies of each of the Plans and all related documents,
including but not limited to (i) the actuarial report for such Plan (if
applicable) for each of the last two years, and (ii) the most recent
determination letter from the Internal Revenue Service (if applicable) for
such Plan.
(c) Except as set forth in Section 4.11(c) of the Company
Disclosure Schedule, (i) each of the Plans has been operated and
administered in all material respects in accordance with its terms and
applicable law, including but not limited to ERISA and the Code, (ii) each
of the Plans intended to be "qualified" within the meaning of Section
401(a) of the Code either (1) has received a favorable determination letter
from the IRS, or (2) is or will be the subject of an application for a
favorable determination letter, and the Company is not aware of any
circumstances likely to result in the revocation or denial of any such
favorable determination letter, (iii) with respect to each Plan which is
subject to Title IV of ERISA, the present value of accrued benefits under
such Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Plan's actuary with
respect to such Plan, did not, as of its latest valuation date, exceed the
then current value of the assets of such Plan allocable to such accrued
benefits, (iv) no Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current
or former employees of the Company, its Subsidiaries or any ERISA Affiliate
beyond their retirement or other termination of service, other than (w)
coverage mandated by applicable law, (x) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
Section 3(2) of ERISA, (y) deferred compensation benefits accrued as
liabilities on the books of the Company, its Subsidiaries or the ERISA
Affiliates or (z) benefits the full cost of which is borne by the current
or former employee (or his beneficiary), (v) no liability under Title IV of
ERISA has been incurred by the Company, its Subsidiaries or any ERISA
Affiliate that has not been satisfied in full, and no condition exists that
presents a material risk to the Company, its Subsidiaries or an ERISA
Affiliate of incurring a material liability thereunder, (vi) no Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of
ERISA, (vii) all contributions or other amounts payable by the Company, its
Subsidiaries or any ERISA Affiliates as of the Effective Time with respect
to each Plan in respect of current or prior plan years have been paid or
accrued in accordance with generally accepted accounting practices and
Section 412 of the Code, (viii) neither the Company, its Subsidiaries nor
any ERISA Affiliate has engaged in a transaction in connection with which
the Company, its Subsidiaries or any ERISA Affiliate could be subject to
either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) there
are no pending, or, to the best knowledge of the Company, threatened or
anticipated claims or proceedings (other than routine claims for benefits)
by, on behalf of or against any of the Plans or any trusts related thereto
and (x) the consummation of the transactions contemplated by this Agreement
will not (y) entitle any current or former employee or officer of the
Company or any ERISA Affiliate to severance pay, termination pay or any
other payment or benefit, except as expressly provided in this Agreement or
(z) accelerate the time of payment or vesting or increase the amount or
value of compensation or benefits due any such employee or officer.
Section 4.12 SEC Reports. The Company has previously made
available to Buyer a true and correct copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement
filed since January 1, 1997 by the Company with the SEC pursuant to the
Securities Act of 1933, as amended (the "Securities Act") or the Exchange
Act (the "Company Reports") and (b) communication mailed by the Company to
its stockholders since January 1, 1997, and no such registration statement,
prospectus, report, schedule, proxy statement 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. The Company has timely filed all Company 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 Company Reports
complied with the published rules and regulations of the SEC with respect
thereto.
Section 4.13 Company Information. The information relating to
the Company and its Subsidiaries which is provided to Buyer by the Company
or any of its affiliates or representatives for inclusion in the Proxy
Statement and the S-4, or in any other document filed with any other
regulatory agency 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. The Proxy Statement (except for such portions
thereof that relate only to Buyer or any of its Subsidiaries) will comply
with the provisions of the Exchange Act and the rules and regulations
thereunder.
Section 4.14 Compliance with Applicable Law. The Company and
each of its Subsidiaries hold, and have at all times held, all licenses,
franchises, permits and authorizations necessary for the lawful conduct of
their respective businesses under and pursuant to all, and have complied
with and are not in default in any respect under any, applicable law,
statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to the Company or any of its Subsidiaries, and
neither the Company nor any of its Subsidiaries knows of, or has received
notice of, any violations of any of the above.
Section 4.15 Certain Contracts. (a) Except as set forth in
Section 4.15(a) of the Company Disclosure Schedule, neither the Company nor
any of its Subsidiaries is a party to or bound by any contract,
arrangement, 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 or benefits
(whether of severance pay or otherwise) becoming due, or any increase in
the amount of or acceleration or vesting of any rights to any payment or
benefits, from Buyer, the Company, the Surviving Corporation or any of
their respective Subsidiaries to any director, officer, employee or
consultant 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 the
Company Reports, (iv) which is a consulting agreement (including data
processing, software programming and licensing contracts) not terminable on
60 days or less notice involving the payment of more than $100,000 per
annum, or (v) which materially restricts the conduct of any line of
business by the Company or any of its Subsidiaries. Each contract,
arrangement, commitment or understanding of the type described in this
Section 4.15(a), whether or not set forth in Section 4.15(a) of the Company
Disclosure Schedule, is referred to herein as a "Company Contract." The
Company has previously delivered or made available to Buyer true and
correct copies of each Company Contract.
(b) Except as set forth in Section 4.15(b) of the Company
Disclosure Schedule, (i) each Company Contract is valid and binding and in
full force and effect, (ii) the Company and each of its Subsidiaries has
performed all obligations required to be performed by it to date under each
Company Contract, (iii) no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a default on the
part of the Company or any of its Subsidiaries under any Company Contract,
and (iv) no other party to such Company Contract is, to the knowledge of
the Company, in default in any respect thereunder.
Section 4.16 Agreements with Regulatory Agencies. Except as set
forth in Section 4.16 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries 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 on Section 4.16 of the Company Disclosure Schedule, a
"Regulatory Agreement"), any Regulatory Agency or other 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 the Company or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is considering
issuing or requesting any Regulatory Agreement.
Section 4.17 Investment Securities. Section 4.17 of the Company
Disclosure Schedule sets forth the book and market value as of July 31,
1999 of the investment securities, mortgage backed securities and
securities held for sale of the Company and its Subsidiaries. Section 4.17
of the Company Disclosure Schedule sets forth, with respect to such
securities, descriptions thereof, CUSIP numbers, pool face values and
coupon rates.
Section 4.18 State Takeover Laws; Business Combination
Provision. The Board of Directors of the Company has approved the
transactions contemplated by this Agreement and the Option Agreement such
that the provisions of Section 203 of the DGCL and Article VIII of the
Company's Certificate of Incorporation will not, assuming the accuracy of
the representations contained in Section 5.15 hereof, apply to this
Agreement or the Option Agreement or any of the transactions contemplated
hereby or thereby.
Section 4.19 Environmental Matters. Except as set
forth in Section 4.19 of the Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries and, to the
knowledge of the Company, each of the Participation Facilities and the Loan
Properties (each as hereinafter defined) are and have been in compliance
with all applicable federal, state and local laws including common law,
regulations and ordinances and with all applicable decrees, orders and
contractual obligations relating to pollution or the discharge of, or
exposure to Hazardous Materials (as hereinafter defined) in the environment
or workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding,
pending or, to the knowledge of the Company, threatened, before any
Governmental Entity or other forum in which the Company, any of its
Subsidiaries, any Participation Facility or any Loan Property, has been or,
with respect to threatened proceedings, may be, named as a defendant (x)
for alleged noncompliance (including by any predecessor), with any
Environmental Laws, or (y) relating to the release, threatened release or
exposure to any Hazardous Material whether or not occurring at or on a site
owned, leased or operated by the Company or any of its Subsidiaries, any
Participation Facility or any Loan Property;
(c) During the period of (x) the Company's or any of its
Subsidiaries' ownership or operation of any of their respective current or
former properties, (y) the Company's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (z) to
the knowledge of the Company, the Company's or any of its Subsidiaries'
interest in a Loan Property, there has been no release of Hazardous
Materials in, on, under or affecting any such property. To the knowledge of
the Company, prior to the period of (x) the Company's or any of its
Subsidiaries' ownership or operation of any of their respective current or
former properties, (y) the Company's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (z) the
Company's or any of its Subsidiaries' interest in a Loan Property, there
was no release or threatened release of Hazardous Materials in, on, under
or affecting any such property, Participation Facility or Loan Property;
and
(d) The following definitions apply for purposes of this
Section 4.19: (x) "Hazardous Materials" means any chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum or other regulated
substances or materials, (y) "Loan Property" means any property in which
the Company or any of its Subsidiaries holds a security interest, and,
where required by the context, said term means the owner or operator of
such property; and (z) "Participation Facility" means any facility in which
the Company or any of its Subsidiaries participates in the management and,
where required by the context, said term means the owner or operator of
such property.
Section 4.20 Derivative Transactions. Except as set forth in
Section 4.20 of the Company Disclosure Schedule, since June 30, 1998,
neither Company nor any of its Subsidiaries has engaged in transactions in
or involving forwards, futures, options on futures, swaps or other
derivative instruments except (i) as agent on the order and for the account
of others, or (ii) as principal for purposes of hedging interest rate risk
on U.S. dollar-denominated securities and other financial instruments. None
of the counterparties to any contract or agreement with respect to any such
instrument is in default with respect to such contract or agreement and no
such contract or agreement, were it to be a Loan (as defined below) held by
the Company or any of its Subsidiaries, would be classified as "Other Loans
Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss",
"Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or
words of similar import. The financial position of the Company and its
Subsidiaries on a consolidated basis under or with respect to each such
instrument has been reflected in the books and records of the Company and
such Subsidiaries in accordance with GAAP consistently applied, and no open
exposure of the Company or any of its Subsidiaries with respect to any such
instrument (or with respect to multiple instruments with respect to any
single counterparty) exceeds $250,000.
Section 4.21 Opinion. Prior to the execution of this Agreement,
the Company has received an opinion from Sandler O'Neill to the effect that
as of the date thereof and based upon and subject to the matters set forth
therein, the Exchange Ratio is fair to the stockholders of the Company from
a financial point of view. Such opinion has not been amended or rescinded
as of the date of this Agreement.
Section 4.22 Approvals. As of the date of this Agreement, the
Company knows of no reason why all regulatory approvals required for the
consummation of the transactions contemplated hereby should not be
obtained.
Section 4.23 Loan Portfolio. (a) Except as set forth in Section
4.23 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is 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"), other than any Loan the unpaid principal balance
of which does not exceed $100,000, under the terms of which the obligor
was, as of June 30, 1999, over 90 days delinquent in payment of principal
or interest or in default of any other provision, or (ii) Loan with any
director, executive officer or five percent or greater stockholder of the
Company or any of its Subsidiaries, or to the knowledge of the Company, any
person, corporation or enterprise controlling, controlled by or under
common control with any of the foregoing. Section 4.23 of the Company
Disclosure Schedule sets forth (i) all of the Loans in original principal
amount in excess of $100,000 of the Company or any of its Subsidiaries that
as of June 30, 1999, were 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
other Loans of the Company and its Subsidiaries that as of June 30, 1999,
were 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 the Company that as of June 30, 1999, was classified as "Other
Real Estate Owned" and the book value thereof. The Company shall
promptly inform Buyer in writing of any Loan that becomes classified in the
manner described in the previous sentence, or any Loan the classification
of which is changed, at any time after the date of this Agreement.
(b) Each Loan in original principal amount in excess of
$250,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to
the extent secured, has been secured by valid liens and security interests
which have been perfected and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
Section 4.24 Property. Each of the Company and its Subsidiaries
has good and marketable title free and clear of all liens, encumbrances,
mortgages, pledges, charges, defaults or equitable interests to all of the
properties and assets, real and personal, tangible or intangible, which are
reflected on the consolidated statement of financial condition of the
Company as of June 30, 1999 or acquired after such date, except (i) liens
for taxes not yet due and payable or contested in good faith by appropriate
proceedings, (ii) pledges to secure deposits and other liens incurred in
the ordinary course of business, (iii) such imperfections of title,
easements and encumbrances, if any, as do not interfere with the use of the
property as such property is used on the date of this Agreement, (iv) for
dispositions and encumbrances of, or on, such properties or assets in the
ordinary course of business or (v) mechanics', materialmen's, workmen's,
repairmen's, warehousemen's, carrier's and other similar liens and
encumbrances arising in the ordinary course of business. All leases
pursuant to which the Company or any Subsidiary of the Company, as lessee,
leases real or personal property are valid and enforceable in accordance
with their respective terms and neither the Company nor any of its
Subsidiaries nor, to the knowledge of the Company, any other party thereto
is in default thereunder.
Section 4.25 Reorganization. As of the date of this Agreement,
the Company has no reason to believe that the Merger will fail to qualify
as a reorganization under Section 368(a) of the Code.
Section 4.26 Company Rights Agreement. The Company has (a) duly
entered into an appropriate amendment to the Company Rights Agreement and
(b) taken all other action necessary or appropriate, in each case so that
the execution of this Agreement and the Option Agreement and the
consummation of the transactions contemplated hereby and thereby
(including, without limitation, the Merger) do not and will not result in
the ability of any person to exercise any rights under the Company Rights
Agreement or enable or require the Company Rights to separate from the
shares of Company Common Stock to which they are attached or to be
triggered or become exercisable.
Section 4.27 Equity and Real Estate Investments. Except as set
forth in Section 4.27 of the Company Disclosure Schedule, neither the
Company nor any of its Subsidiaries has (i) equity investments other than
investments in wholly owned Subsidiaries or (ii) investments in real estate
or real estate development projects, other than assets classified as "other
real estate owned."
Section 4.28 Year 2000 Matters. Section 4.28 of the Company
Disclosure Schedule contains a true and correct copy of the Company's plan
for addressing year 2000 computer issues (the "Year 2000 Plan"). The
Company is in material compliance with the Company's Year 2000 Plan. The
Company has been examined by the OTS with respect to being "Year 2000
Compliant" and the Company's Year 2000 Plan has been reviewed by the OTS
and the Company has received a "satisfactory" rating in connection
therewith, and neither the Company nor the Company Bank has received any
written communication from the OTS commenting adversely with respect to the
ability of the Company to become Year 2000 compliant.
ARTICLE ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER
Subject to Article III hereof and except as set forth in the
Buyer Disclosure Schedule, Buyer hereby represents and warrants to the
Company as follows:
Section 5.1 Corporate Organization. (a) Buyer is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Buyer 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. Buyer is duly
registered as a bank holding company under the BHC Act. The Restated
Certificate of Incorporation and By-laws of Buyer, copies of which have
previously been made available to the Company, are true and correct copies
of such documents as in effect as of the date of this Agreement.
(b) North Fork Bank ("Buyer Bank") is a commercial bank
duly organized, validly existing and in good standing under the laws of the
State of New York. The deposit accounts of Buyer Bank are insured by the
FDIC through the Bank Insurance Fund to the fullest extent permitted by
law, and all premiums and assessments required in connection therewith have
been paid when due. Each of Buyer's other Subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary of Buyer 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. The articles of organization and by-laws of Buyer
Bank, copies of which have previously been made available to the Company,
are true and correct copies of such documents as in effect as of the date
of this Agreement.
(c) The minute books of Buyer and each of its
Subsidiaries contain true and correct records of all meetings and other
corporate actions held or taken since December 31, 1996 of their respective
stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
Section 5.2 Capitalization. (a) As of the date of this
Agreement, the authorized capital stock of Buyer consists of 200,000,000
shares of Buyer Common Stock and 10,000,000 shares of preferred stock, par
value $1.00 per share ("Buyer Preferred Stock"). As of August 23, 1999, (i)
135,802,670 shares of Buyer Common Stock were issued and outstanding, (ii)
no shares of Buyer Preferred Stock were issued and outstanding, (iii) no
shares of Buyer Common Stock were reserved for issuance, except that
2,000,000 shares of Buyer Common Stock were reserved for issuance pursuant
to the Buyer Dividend Investment and Stock Purchase Plan, 1,973,140 shares
of Buyer Common Stock were reserved for issuance pursuant to the Buyer 1985
Incentive Stock Option Plan, the Buyer 1987 Long-Term Incentive Plan, the
Buyer 1989 Executive Management and Compensation Plan, the Buyer 1994 Key
Employee Stock Plan, the Buyer 1997 Non-Officer Stock Plan and the Buyer
1998 Stock Compensation Plan (the "Buyer Stock Plans"), and 31,000,000
shares of Buyer Common Stock were reserved for issuance pursuant to the
Agreement and Plan of Merger, dated as of August 16, 1999, between Buyer
and JSB Financial, Inc., (iv) no shares of Buyer Preferred Stock were
reserved for issuance and (v) 9,323,852 shares of Buyer Common Stock were
held by Buyer in its treasury or by Buyer's Subsidiaries. All of the issued
and outstanding shares of Buyer 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 5.2(a) of the Buyer Disclosure Schedule, Buyer 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 Buyer Common Stock or Buyer Preferred Stock or
any other equity securities of Buyer or any securities representing the
right to purchase or otherwise receive any shares of Buyer Common Stock or
Buyer Preferred Stock or any other equity security of the Buyer. The shares
of Buyer Common Stock to be issued pursuant to the Merger 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 5.2(b) of the Buyer Disclosure Schedule sets
forth a true and correct list of all of the Subsidiaries of the Buyer as of
the date of this Agreement. Except as set forth in Section 5.2(b) of the
Buyer Disclosure Schedule, as of the date of this Agreement, Buyer owns,
directly or indirectly, all of the issued and outstanding shares of capital
stock of each of the Subsidiaries of Buyer, free and clear of all liens,
charges, encumbrances and security interests whatsoever, and all of such
shares are 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, no
Subsidiary of Buyer has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character with
any party that is not a direct or indirect Subsidiary of Buyer calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to
purchase or otherwise receive any shares of capital stock or any other
equity security of such Subsidiary.
Section 5.3 Authority; No Violation. (a) Buyer 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
Buyer, and no other corporate proceedings on the part of Buyer are
necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Buyer and (assuming due authorization, execution and delivery
by the Company) this Agreement constitutes a valid and binding obligation
of Buyer, enforceable against Buyer 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) Except as set forth in Section 5.3(b) of the Buyer
Disclosure Schedule, neither the execution and delivery of this Agreement
by Buyer nor the consummation by Buyer of the transactions contemplated
hereby, nor compliance by Buyer with any of the terms or provisions hereof,
will (i) violate any provision of the Restated Certificate of Incorporation
or By-Laws of Buyer, or the articles of incorporation or by-laws 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 Buyer 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 Buyer 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 Buyer 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.
Section 5.4 Consents and Approvals. Except for (a) the filing
of an application with the Federal Reserve Board under the BHC Act, and
approval of such application, (b) the filing of an application with the
FDIC under the Bank Merger Act and approval of such application, in the
event the parties enter into the Bank Merger Agreement (as defined in
Section 7.12), (c) the filing of applications and notices, as applicable,
with the OTS and approval of such applications and notices, (d) the State
Banking Approvals, (e) the filing with the SEC of the Proxy Statement and
the filing and declaration of effectiveness of the S-4, (f) the approval of
this Agreement by the requisite vote of the stockholders of the Company,
(g) the filing of the Certificate of Merger with the Secretary, (h) 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 Buyer Common Stock pursuant to this Agreement,
(i) approval of the listing of the Buyer Common Stock to be issued in the
Merger on the NYSE, and (j) such filings, authorizations or approvals as
may be set forth in Section 5.4 of the Buyer Disclosure Schedule, no
consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with the
execution and delivery by Buyer of this Agreement or the consummation by
Buyer of the Merger and the other transactions contemplated hereby.
Section 5.5 Reports. Buyer and each of its Subsidiaries have
timely filed all reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file since December 31, 1996 with any Regulatory Agency, and
have paid all fees and assessments due and payable in connection therewith.
Except for normal examinations conducted by a Regulatory Agency in the
regular course of the business of Buyer and its Subsidiaries, and except as
set forth in Section 5.5 of the Buyer Disclosure Schedule, no Regulatory
Agency has initiated any proceeding or, to the knowledge of Buyer,
investigation into the business or operations of Buyer or any of its
Subsidiaries since December 31, 1996. There is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any report
or statement relating to any examinations of Buyer or any of its
Subsidiaries.
Section 5.6 Financial Statements. Buyer has previously made
available to the Company copies of (a) the consolidated statements of
financial condition of Buyer and its Subsidiaries as of December 31 for the
fiscal years 1997 and 1998 and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the fiscal years
1996 through 1998, inclusive, as reported in Buyer's Annual Report on Form
10-K for the fiscal year ended December 31, 1998 filed with the SEC under
the Exchange Act, in each case accompanied by the audit report of KPMG LLP,
independent public accountants with respect to Buyer, and (b) the unaudited
consolidated statements of financial condition of Buyer and its
Subsidiaries as of March 31, 1998 and March 31, 1999 and the related
unaudited consolidated statements of income, changes in stockholder's
equity and cash flows for the three-month periods then ended as reported in
Buyer's Quarterly Report on Form 10-Q for the period ended March 31, 1999
filed with the SEC under the Exchange Act. The December 31, 1998
consolidated statements of financial condition of Buyer (including the
related notes, where applicable) fairly presents the consolidated financial
position of Buyer and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 5.6 (including the
related notes, where applicable) fairly present, and the financial
statements to be filed by Buyer with the SEC after the date of this
Agreement 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 stockholders'
equity and consolidated financial position of Buyer 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) complies, and the financial statements to be filed by Buyer
with the SEC after the date of this Agreement will comply, 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 to
be filed by Buyer with the SEC after the date of this Agreement 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
Buyer and its Subsidiaries have been, and are being, maintained in
accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
Section 5.7 Broker's Fees. Neither Buyer nor any Subsidiary of
Buyer, nor any of their respective 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 Buyer
has engaged, and will pay a fee or commission to, Donaldson, Lufkin &
Jenrette Securities Corporation.
Section 5.8 Absence of Certain Changes or Events. (a) Except as
may be set forth in Section 5.8(a) of the Buyer Disclosure Schedule or as
disclosed in any Buyer Report filed with the SEC prior to the date of this
Agreement, since December 31, 1998, (i) neither Buyer nor any of its
Subsidiaries has incurred any liability, except in the ordinary course of
their business consistent with their past practices, and (ii) there has
been no change or development or combination of changes or developments
which has had, or is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on Buyer.
(b) Except as disclosed in any Buyer Report filed with
the SEC prior to the date of this Agreement, since December 31, 1998, the
Buyer and its Subsidiaries have carried on their respective businesses in
the ordinary course consistent with prudent banking practices.
(c) Since December 31, 1998, neither the Buyer nor any of
its Subsidiaries has (i)suffered any strike, work stoppage, slow-down, or
other labor disturbance, (ii) been a party to a collective bargaining
agreement, contract or other agreement or understanding with a labor union
or organization, or (iii) had any union organizing activities.
Section 5.9 Legal Proceedings. (a) Except as set forth in
Section 5.9 of the Buyer Disclosure Schedule, neither Buyer nor any of its
Subsidiaries is a party to any and there are no pending or, to Buyer's
knowledge, threatened, legal, administrative, arbitral or other
proceedings, claims, actions or governmental or regulatory investigations
of any nature against Buyer or any of its Subsidiaries or challenging the
validity or propriety of the transactions contemplated by this Agreement.
(b) There is no injunction, order, judgment, decree, or
regulatory restriction imposed upon Buyer, any of its Subsidiaries or the
assets of Buyer or any of its Subsidiaries.
Section 5.10 Taxes. Except as set forth in Section 5.10 of the
Buyer Disclosure Schedule, each of Buyer and its Subsidiaries has (i) duly
and timely filed (including applicable extensions granted without penalty)
all Tax Returns required to be filed at or prior to the Effective Time, and
such Tax Returns are true and correct, and (ii) paid in full or made
adequate provision in the financial statements of Buyer (in accordance with
GAAP) for all Taxes. No deficiencies for any Taxes have been proposed,
asserted, assessed or, to the best knowledge of Buyer, threatened against
or with respect to Buyer or any of its Subsidiaries. Except as set forth in
Section 5.10 of the Buyer Disclosure Schedule, (i) there are no liens for
Taxes upon the assets of either Buyer or its Subsidiaries except for
statutory liens for current Taxes not yet due, (ii) neither Buyer nor any
of its Subsidiaries has 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 Buyer
and its Subsidiaries, the federal and state income Tax Returns of Buyer and
its Subsidiaries have been audited by the Internal Revenue Service or
appropriate state 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) neither Buyer nor any of its
Subsidiaries has filed or been included in a combined, consolidated or
unitary income Tax Return other than one in which Buyer was the parent of
the group filing such Tax Return, (v) neither Buyer nor any of its
Subsidiaries is 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 1.1552-1(a)(1) under the Code), (vi) neither Buyer
nor any of its Subsidiaries is 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, local 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), and (vii) neither Buyer nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code.
Section 5.11 Employees. (a) Section 5.11(a) of the Buyer
Disclosure Schedule sets forth a true and correct list of each deferred
compensation plan, incentive compensation plan, equity compensation plan,
"welfare" plan, fund or program (within the meaning of section 3(1) of the
ERISA); "pension" plan, fund or program (within the meaning of section 3(2)
of ERISA); each employment, termination or severance agreement; and each
other employee benefit plan, fund, program, agreement or arrangement, in
each case, that is sponsored, maintained or contributed to or required to
be contributed to as of the date of this Agreement (the "Buyer Plans") by
Buyer, any of its Subsidiaries or by any trade or business, whether or not
incorporated (a "Buyer ERISA Affiliate"), all of which together with Buyer
would be deemed a "single employer" within the meaning of Section 4001 of
ERISA, for the benefit of any employee or former employee of Buyer, any
Subsidiary or any Buyer ERISA Affiliate.
(b) Except as set forth in Section 5.11(b) of the Buyer
Disclosure Schedule, (i) each of the Buyer Plans has been operated and
administered in accordance with its terms and applicable law, including but
not limited to ERISA and the Code, (ii) each of the Buyer Plans intended to
be "qualified" within the meaning of Section 401(a) of the Code has either
(1) received a favorable determination letter from the IRS, or (2) is or
will be the subject of an application for a favorable determination letter,
and Buyer is not aware of any circumstances likely to result in the
revocation or denial of any such favorable determination letter, (iii) with
respect to each Buyer Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such Buyer Plan, based upon the
actuarial assumptions used for funding purposes in the most recent
actuarial report prepared by such Buyer Plan's actuary with respect to such
Buyer Plan, did not, as of its latest valuation date, exceed the then
current value of the assets of such Buyer Plan allocable to such accrued
benefits, (iv) no Plan provides benefits, including without limitation
death or medical benefits (whether or not insured), with respect to current
or former employees of Buyer, its Subsidiaries or any Buyer ERISA Affiliate
beyond their retirement or other termination of service, other than (w)
coverage mandated by applicable law, (x) death benefits or retirement
benefits under any "employee pension plan," as that term is defined in
Section 3(2) of ERISA, (y) deferred compensation benefits accrued as
liabilities on the books of Buyer, its Subsidiaries or the ERISA Affiliates
or (z) benefits the full cost of which is borne by the current or former
employee (or his beneficiary), (v) no liability under Title IV of ERISA has
been incurred by Buyer, its Subsidiaries or any Buyer ERISA Affiliate that
has not been satisfied in full and no condition exists that presents a
material risk to the Buyer, its Subsidiaries or an ERISA Affiliate of
incurring a material liability thereunder, (vi) no Buyer Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of
ERISA, (vii) all contributions or other amounts payable by Buyer, its
Subsidiaries or any ERISA Affiliate as of the Effective Time with respect
to each Plan in respect of current or prior plan years have been paid or
accrued in accordance with generally accepted accounting practices and
Section 412 of the Code, (viii) neither Buyer, its Subsidiaries nor any
Buyer ERISA Affiliate has engaged in a transaction in connection with which
Buyer, its Subsidiaries or any Buyer ERISA Affiliate could be subject to
either a civil penalty assessed pursuant to Section 409 or 502(i) of ERISA
or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) there
are no pending, or, to the best knowledge of Buyer, threatened or
anticipated claims or proceedings (other than routine claims for benefits)
by, on behalf of or against any of the Buyer Plans or any trusts related
thereto and (x) the consummation of the transactions contemplated by this
Agreement will not (y) entitle any current or former employee or officer of
Buyer or any Buyer ERISA Affiliate to severance pay, termination pay or any
other payment or benefit, except as expressly provided in this Agreement or
(z) accelerate the time of payment or vesting or increase in the amount or
value of compensation or benefits due any such employee or officer.
Section 5.12 SEC Reports. Buyer has previously made available
to the Company a true and correct copy of each (a) final registration
statement, prospectus, report, schedule and definitive proxy statement
filed since January 1, 1997 by Buyer with the SEC pursuant to the
Securities Act or the Exchange Act (the "Buyer Reports") and (b)
communication mailed by Buyer to its stockholders since January 1, 1997,
and no such registration statement, prospectus, report, schedule, proxy
statement 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. Buyer has timely
filed all Buyer 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 Buyer Reports complied with the published rules and regulations
of the SEC with respect thereto.
Section 5.13 Buyer Information. The information relating to
Buyer and its Subsidiaries to be contained in the Proxy Statement and the
S-4, or in any other document filed with any other regulatory agency 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. The S-4 will comply with the provisions of the Securities Act
and the rules and regulations thereunder.
Section 5.14 Compliance with Applicable Law. Buyer and each of
its Subsidiaries hold, and have at all times held, all licenses,
franchises, permits and authorizations necessary for the lawful conduct of
their respective businesses under and pursuant to all, and have complied
with and are not in default in any respect under any, applicable law,
statute, order, rule, regulation, policy and/or guideline of any
Governmental Entity relating to Buyer or any of its Subsidiaries, and
neither Buyer nor any of its Subsidiaries knows of, or has received notice
of violation of, any violations of any of the above.
Section 5.15 Ownership of Company Common Stock. (a) Except for
the Option Agreement and 55,000 shares of Company Common Stock beneficially
owned by Buyer, neither Buyer 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, in each case, any shares of capital stock of the Company (other than
Trust Account Shares and DPC Shares).
(b) Neither Buyer nor any of its Subsidiaries is an
"affiliate" (as such term is defined in DGCL ss. 203(c)(1)) or an
"associate" (within the meaning of DGCL ss. 203(c)(2)) of the Company or an
"Interested Stockholder" (as such term is defined in Article VIII of the
Company's Certificate of Incorporation).
Section 5.16 Agreements with Regulatory Agencies. Neither Buyer
nor any of its Subsidiaries 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 5.16 of the Buyer Disclosure Schedule, a "Buyer Regulatory
Agreement"), any Regulatory Agency or other 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 Buyer or any of its Subsidiaries been advised by any Regulatory Agency
or other Governmental Entity that it is considering issuing or requesting
any Regulatory Agreement.
Section 5.17 Approvals. As of the date of this Agreement, Buyer
knows of no reason why all regulatory approvals required for the
consummation of the transactions contemplated hereby should not be
obtained.
Section 5.18 Tax Treatment for the Merger; Reorganization. As
of the date of this Agreement, Buyer has no reason to believe that the
Merger will fail to qualify as a reorganization under Section 368(a) of the
Code.
Section 5.19 Environmental Matters. Except as set
forth in Section 5.19 of the Buyer Disclosure Schedule:
(a) Each of Buyer and its Subsidiaries and, to the
knowledge of the Buyer, each of the Participation Facilities and the Loan
Properties (each as hereinafter defined) are and have been in compliance
with all Environmental Laws;
(b) There is no suit, claim, action or proceeding,
pending or, to the knowledge of Buyer, threatened, before any Governmental
Entity or other forum in which Buyer, any of its Subsidiaries, any
Participation Facility or any Loan Property, has been or, with respect to
threatened proceedings, may be, named as a defendant (x) for alleged
noncompliance (including by any predecessor) with any Environmental Laws,
or (y) relating to the release, threatened release or exposure to any
Hazardous Material whether or not occurring at or on a site owned, leased
or operated by Buyer or any of its Subsidiaries, any Participation Facility
or any Loan Property;
(c) During the period of (x) Buyer's or any of its
Subsidiaries' ownership or operation of any of their respective current or
former properties, (y) Buyer's or any of its Subsidiaries' participation in
the management of any Participation Facility, or (z) to the knowledge of
the Buyer, Buyer's or any of its Subsidiaries' interest in a Loan Property,
there has been no release of Hazardous Materials in, on, under or affecting
any such property. To the knowledge of the Buyer, prior to the period of
(x) Buyer's or any of its Subsidiaries' ownership or operation of any of
their respective current or former properties, (y) Buyer's or any of its
Subsidiaries' participation in the management of any Participation
Facility, or (z) Buyer's or any of its Subsidiaries' interest in a Loan
Property, there was no release of Hazardous Materials in, on, under or
affecting any such property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of this
Section 5.19: (x) "Loan Property" means any property in which Buyer or any
of its Subsidiaries holds a security interest, and, where required by the
context, said term means the owner or operator of such property; (y)
"Participation Facility" means any facility in which Buyer or any of its
Subsidiaries participates in the management and, where required by the
context, said term means the owner or operator of such property; and (z)
"Hazardous Materials" means any chemicals, pollutants, contaminants,
wastes, toxic substances, petroleum or other regulated substances or
materials.
Section 5.20 Loan Portfolio. Section 5.20 of the Buyer
Disclosure Schedule sets forth, by category, the aggregate book value
amount of (i) all of the Loans in original principal amount in excess of
$100,000 of the Buyer or any of its Subsidiaries that as of July 31, 1999,
were 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 and (ii) all assets of the
Buyer that as of June 30, 1999, were classified as "Other Real Estate
Owned".
(b) Each Loan in original principal amount in excess of
$250,000 (i) is evidenced by notes, agreements or other evidences of
indebtedness which are true, genuine and what they purport to be, (ii) to
the extent secured, has been secured by valid liens and security interests
which have been perfected and (iii) is the legal, valid and binding
obligation of the obligor named therein, enforceable in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
Section 5.21 Property. Each of the Buyer and its Subsidiaries
has good and marketable title free and clear of all liens, encumbrances,
mortgages, pledges, charges, defaults or equitable interests to all of the
properties and assets, real and personal, tangible or intangible, which are
reflected on the consolidated statement of financial condition of the Buyer
as of June 30, 1999 or acquired after such date, except (i) liens for taxes
not yet due and payable or contested in good faith by appropriate
proceedings, (ii) pledges to secure deposits and other liens incurred in
the ordinary course of business, (iii) such imperfections of title,
easements and encumbrances, if any, as do not interfere with the use of the
property as such property is used on the date of this Agreement, (iv) for
dispositions and encumbrances of, or on, such properties or assets in the
ordinary course of business or (v) mechanics', materialmen's, workmen's,
repairmen's, warehousemen's, carrier's and other similar liens and
encumbrances arising in the ordinary course of business. All leases
pursuant to which the Buyer or any Subsidiary of the Buyer, as lessee,
leases real or personal property are valid and enforceable in accordance
with their respective terms and neither the Buyer nor any of its
Subsidiaries nor, to the knowledge of the Buyer, any other party thereto is
in default thereunder.
Section 5.22 Derivative Transactions. Except as set forth in
Section 5.22 of the Buyer Disclosure Schedule, since December 31, 1998,
neither Buyer nor any of its Subsidiaries has engaged in transactions in or
involving forwards, futures, options on futures, swaps or other derivative
instruments except (i) as agent on the order and for the account of others,
or (ii) as principal for purposes of hedging interest rate risk on U.S.
dollar-denominated securities and other financial instruments. None of the
counterparties to any contract or agreement with respect to any such
instrument is in default with respect to such contract or agreement and no
such contract or agreement, were it to be a Loan (as defined below) held by
the Buyer or any of its Subsidiaries, would be classified as "Other Loans
Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss",
"Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or
words of similar import. The financial position of Buyer and its
Subsidiaries on a consolidated basis under or with respect to each such
instrument has been reflected in the books and records of Buyer and such
Subsidiaries in accordance with GAAP consistently applied, and no open
exposure of Buyer or any of its Subsidiaries with respect to any such
instrument (or with respect to multiple instruments with respect to any
single counterparty) exceeds $250,000.
Section 5.23 Year 2000 Matters. Section 5.23 of the Buyer
Disclosure Schedule contains a true and correct copy of the Buyer's plan
for addressing year 2000 computer issues (the "Year 2000 Plan"). The Buyer
is in material compliance with the Buyer's Year 2000 Plan.
Section 5.24 Insurance. The Buyer and its Subsidiaries are
presently insured, and since December 31, 1998, have been insured, for
reasonable amounts with financially sound and reputable insurance
companies, against such risks as companies engaged in a similar business
would, in accordance with good business practice, customarily be insured.
All of the insurance policies and bonds maintained by the Buyer and its
Subsidiaries are in full force and effect, the Buyer and its Subsidiaries
are not in default thereunder and all material claims thereunder have been
filed in due and timely fashion.
ARTICLE ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 Covenants of the Company. 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 Buyer, the Company and its
Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with past practice and consistent with prudent banking
practice. The Company will use its best efforts to (x) preserve its
business organization and that of its Subsidiaries intact, (y) keep
available to itself and Buyer the present services of the employees of the
Company and its Subsidiaries and (z) preserve for itself and Buyer the
goodwill of the customers of the Company and its Subsidiaries and others
with whom business relationships exist. Without limiting the generality of
the foregoing, and except as set forth in Section 6.1 of the Company
Disclosure Schedule or as otherwise contemplated by this Agreement or
consented to in writing by Buyer, the Company shall not, and shall not
permit any of its Subsidiaries to:
(a) solely in the case of the Company, declare or pay any
dividends on, or make other distributions in respect of, any of its capital
stock, other than normal quarterly dividends not in excess of $0.21 per
share of Company Common Stock;
(b) (i) split, combine or reclassify any shares of its
capital stock or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, (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 the
Company or any Subsidiary of the Company, or any securities convertible
into or exercisable for any shares of the capital stock of the Company or
any Subsidiary of the Company; or (iii) issue, deliver or sell, or
authorize or propose the issuance, delivery or sale of, any shares of its
capital stock or any 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, except, in the case of
clauses (i) and (iii), for the issuance of Company Common Stock upon the
exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent
outstanding and in existence on the date of this Agreement and in
accordance with their present terms;
(c) amend its Certificate of Incorporation, By-laws or
other similar governing documents;
(d) authorize any of its officers, directors, or agents
to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or recommend or endorse any takeover
proposal, or participate in any discussions or negotiations, or provide
third parties with any nonpublic information, relating to any such inquiry
or proposal or otherwise facilitate any effort or attempt to make or
implement a takeover proposal; provided, however, that the Company may
communicate information about any such takeover proposal to its
stockholders if, in the judgment of the Company's Board of Directors, based
upon the advice of outside counsel, such communication is required under
applicable law; provided further, however, that nothing contained in this
Section 6.1(d) shall prohibit the Company from furnishing information to,
or entering into discussions or negotiations with, any person or entity
that makes an unsolicited, bona fide takeover proposal that constitutes a
Superior Proposal (as defined below) in each case if, and only to the
extent that (A) such actions occur at a time prior to approval of the
Merger Agreement by the Company's stockholders, (B) the Board of Directors
of the Company concludes in good faith, after consultation with and based
upon the advice of outside counsel, that it is required to do so in order
to comply with its fiduciary duties to the Company's stockholders under
applicable law, and (C) prior to taking such action, the Company receives
from such person or entity an executed confidentiality agreement and an
executed standstill agreement, each in reasonably customary form (provided
that such agreements shall contain terms that are no less restrictive than
the terms of any such agreement between Buyer and the Company). For
purposes of this Agreement, "Superior Proposal" means any bona fide written
takeover proposal for or in respect of all of the outstanding shares of
Company Common Stock, (i) on terms that the Board of Directors of the
Company determines in its good faith judgment (after consultation with a
financial advisor of nationally recognized reputation and taking into
account all the terms and conditions of the takeover proposal deemed
relevant by such Board of Directors, including the consideration to be paid
pursuant thereto, any break-up fees, expense reimbursement provisions,
conditions to consummation, and the ability of the party making such
proposal to obtain financing therefor) are more favorable from a financial
point of view to its stockholders than the Merger, and (ii) that
constitutes a transaction that, in such Board of Directors' good faith
judgment, is reasonably likely to be consummated on the terms set forth,
taking into account all legal, financial, regulatory and other aspects of
such proposal. The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations previously
conducted with any parties other than Buyer with respect to any of the
foregoing. The Company will take all actions necessary or advisable to
inform the appropriate individuals or entities referred to in the first
sentence hereof of the obligations undertaken in this Section 6.1(d). The
Company will notify Buyer 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, the Company, and the Company will promptly inform Buyer 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 the Company or any Subsidiary of the Company or any proposal or
offer to acquire in any manner a substantial equity interest in, or a
substantial portion of the assets of, the Company or any Subsidiary of the
Company other than the transactions contemplated or permitted by this
Agreement and the Option Agreement;
(e) make any capital expenditures other than those 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 $500,000 in the aggregate;
(f) enter into any new line of business;
(g) 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 the Company, 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;
(h) 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 VIII not being
satisfied;
(i) change its methods of accounting in effect at June
30, 1998 except as required by changes in GAAP or regulatory accounting
principles as concurred to by the Company's independent auditors;
(j) (i) except as required by applicable law or as
required to maintain qualification pursuant to the Code, adopt, amend,
renew or terminate any employee benefit plan (including, without
limitation, any Plan) or any agreement, arrangement, plan or policy between
the Company or any Subsidiary of the Company 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 or agreement 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);
(k) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368(a) of
the Code;
(l) other than activities in the ordinary course of
business consistent with past 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;
(m) 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;
(n) file any application to relocate or terminate
the operations of any banking office of it or any of its Subsidiaries;
(o) make any equity investment or commitment to make such
an investment in real estate or in any real estate development project,
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;
(p) 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 the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries or their respective properties is bound;
(q) other than in prior consultation with Buyer,
restructure or materially change its investment securities portfolio,
through purchases, sales or otherwise, or the manner in which the portfolio
is classified or reported; or
(r) agree to do any of the foregoing.
Section 6.2 Covenants of Buyer. 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 the Company, Buyer and its
Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with prudent banking practice. Except as set forth in
Section 6.2 of the Buyer Disclosure Schedule or as otherwise contemplated
by this Agreement or consented to in writing by the Company, Buyer shall
not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of Buyer, declare or pay any
extraordinary or special dividends on or make any other extraordinary or
special distributions in respect of any of its capital stock; provided,
however, that nothing contained herein shall prohibit Buyer from increasing
the quarterly cash dividend on the Buyer Common Stock;
(b) 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 VIII not being
satisfied;
(c) change its methods of accounting in effect at
December 31, 1998, except in accordance with changes in GAAP or regulatory
accounting principles as concurred to by Buyer's independent auditors;
(d) take or cause to be taken any action which would
disqualify the Merger as a tax free reorganization under Section 368(a) of
the Code; or
(e) change any provisions of the Certificate of
Incorporation of the Buyer, other than as disclosed in Section 6.2(e) of
the Buyer Disclosure Schedule;
(f) agree to do any of the foregoing.
ARTICLE ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 Regulatory Matters. (a) The Company shall promptly
prepare and file with the SEC the Proxy Statement and Buyer shall promptly
prepare and file with the SEC the S-4, in which the Proxy Statement will be
included as a prospectus. Each of the Company and Buyer shall use all
reasonable efforts to have the S-4 declared effective under the Securities
Act as promptly as practicable after such filing, and the Company shall
thereafter mail the Proxy Statement to its stockholders. Buyer shall also
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 the Company shall furnish all
information concerning the Company and the holders of Company Common Stock
as may be reasonably requested in connection with any such action.
(b) The parties hereto shall cooperate with each other
and use their reasonable best 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. The Company and Buyer shall have the right
to review in advance, and to the extent practicable each will consult the
other on, in each case subject to applicable laws relating to the exchange
of information, all the information relating to the Company or Buyer, as
the case may be, and any of their respective Subsidiaries, which appears 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. The parties
hereto agree that they will consult with each other with respect to the
obtaining of all permits, consents, approvals and authorizations of all
third parties and Governmental Entities necessary or advisable to
consummate the transactions contemplated by this Agreement and each party
will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
(c) Buyer and the Company shall, upon request, furnish
each other with all information concerning themselves, their Subsidiaries,
directors, officers and stockholders and such other matters as may be
reasonably necessary or advisable in connection with the Proxy Statement,
the S-4 or any other statement, filing, notice or application made by or on
behalf of Buyer, the Company or any of their respective Subsidiaries to any
Governmental Entity in connection with the Merger and the other
transactions contemplated by this Agreement.
(d) Buyer and the Company shall promptly furnish each
other with copies of written communications received by Buyer or the
Company, as the case may be, or any of their respective Subsidiaries,
Affiliates or Associates (as such terms are defined in Rule 12b-2 under the
Exchange Act as in effect on the date of this Agreement) from, or delivered
by any of the foregoing to, any Governmental Entity in respect of the
transactions contemplated hereby.
Section 7.2 Access to Information. (a) Upon reasonable notice
and subject to applicable laws relating to the exchange of information, the
Company shall, and shall cause each of its Subsidiaries to, afford to the
officers, employees, accountants, counsel and other representatives of
Buyer, 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, the Company shall, and shall cause
its Subsidiaries to, make available to Buyer (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 the
Company is not permitted to disclose under applicable law) and (ii) all
other information concerning its business, properties and personnel as
Buyer may reasonably request. Neither the Company nor any of its
Subsidiaries shall be required to provide access to or to disclose
information where such access or disclosure would violate or prejudice the
rights of the Company'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.
(b) Upon reasonable notice and subject to applicable laws
relating to the exchange of information, Buyer shall, and shall cause its
Subsidiaries to, afford to the officers, employees, accountants, counsel
and other representatives of the Company, access, during normal business
hours during the period prior to the Effective Time, to such information
regarding Buyer and its Subsidiaries as shall be reasonably necessary for
the Company to fulfill its obligations pursuant to this Agreement to assist
in the preparation of the Proxy Statement or which may be reasonably
necessary for the Company to confirm that the representations and
warranties of Buyer contained herein are true and correct and that the
covenants of Buyer contained herein have been performed in all material
respects. Neither Buyer nor any of its Subsidiaries shall be required to
provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of Buyer'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.
(c) All information furnished by either party to the
other party or its representatives pursuant hereto shall be treated as the
sole property of the delivery party and, if the Merger shall not occur, the
receiving party and its representatives shall return to the delivering
party all of such written information and all documents, notes, summaries
or other materials containing, reflecting or referring to, or derived from,
such information. The receiving party shall, and shall use its best efforts
to cause its representatives to, keep confidential all such information,
and shall not directly or indirectly use such information for any
competitive or other commercial purpose. The obligation to keep such
information confidential shall continue for ten years from the date the
proposed Merger is abandoned and shall not apply to (i) any information
which (x) was already in the receiving party's possession prior to the
disclosure thereof by the delivering party; (y) was then generally known to
the public; or (z) was disclosed to the receiving party by a third party
not bound by an obligation of confidentiality or (ii) disclosures made as
required by law. It is further agreed that, if in the absence of a
protective order or the receipt of a waiver hereunder the receiving party
is nonetheless, in the opinion of its counsel, compelled to disclose
information concerning delivering party to any tribunal or governmental
body or agency or else stand liable for contempt or suffer other censure or
penalty, the receiving party may disclose such information to such tribunal
or governmental body or agency without liability hereunder.
(d) No investigation by either of the parties or their
respective representatives shall affect the representations, warranties,
covenants or agreements of the other set forth herein.
Section 7.3 Stockholder Meetings. The Company shall take all
steps necessary to duly call, give notice of, convene and hold a meeting of
its stockholders to be held as soon as is reasonably practicable after the
date on which the S-4 becomes effective for the purpose of voting upon the
approval of this Agreement and the consummation of the transactions
contemplated hereby. The Company will, through its Board of Directors,
recommend to its stockholders approval of this Agreement and the
transactions contemplated hereby and such other matters as may be submitted
to its stockholders in connection with this Agreement; provided, however,
that nothing shall prohibit the Board of Directors of the Company from
withdrawing or modifying in a manner adverse to Buyer such recommendation
to the Company's stockholders if (a) the Company is not in breach of, and
has not breached, any of the provisions of Section 6.1(d), (b) the Company
receives an unsolicited, bona fide written takeover proposal which
constitutes a Superior Proposal (each as defined in Section 6.1(d)), and
(c) the Board of Directors of the Company determines in good faith that it
is required to take such action, but only after consultation with outside
counsel and only if such outside counsel concludes and advises the Board
that the failure to take such action would result in a violation of its
fiduciary duties under applicable law.
Section 7.4 Legal Conditions to Merger. Each of Buyer and the
Company shall, and shall cause its Subsidiaries to, use their reasonable
best 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 such party or its Subsidiaries with respect to the Merger
and, subject to the conditions set forth in Article VIII hereof, 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 the
Company or Buyer or any of their respective 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.
Section 7.5 Affiliates. The Company shall use its reasonable
best efforts to cause each director, executive officer and other person who
is an "affiliate" (for purposes of Rule 145 under the Securities Act) of
the Company to deliver to Buyer, as soon as practicable after the date of
this Agreement, a written agreement, in the form of Exhibit 7.5 hereto.
Section 7.6 Stock Exchange Listing. Buyer shall use all
reasonable efforts to cause the shares of Buyer 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.
Section 7.7 Employee Benefit Plans; Existing Agreements. (a) As
soon as practicable following the Effective Time, the employees of the
Company and its Subsidiaries (the "Company Employees") shall be eligible to
participate in Buyer's employee benefit plans in which similarly situated
employees of Buyer or Buyer Bank participate, to the same extent as
similarly-situated employees of Buyer or Buyer Bank (it being understood
that inclusion of Company Employees in Buyer's employee benefit plans may
occur at different times with respect to different plans); provided,
however, that Buyer shall continue the comparable plans of Company and its
Subsidiaries for the exclusive benefit of Company Employees until such time
as Company Employees become eligible to participate in the plans of Buyer
or Buyer Bank. Company's ESOP shall terminate as of the Effective Time and
prior to such time Company shall make contributions to the ESOP sufficient
to enable the trustee of the plan to repay in full all outstanding
acquisition loans of the plan. If Company cannot make contributions
sufficient to enable the trustee to repay such loans in full by reason of
the operation of Section 415(c) of the Code then, in accordance with the
terms of the ESOP, the trustee shall sell a number of shares sufficient to
repay the remaining portion of the loan. All shares of stock and cash held
by the plan as of the Effective Time shall be allocated to participants of
the ESOP in accordance with its terms.
(b) With respect to each Buyer Plan that is an "employee
benefit plan," as defined in Section 3(3)of ERISA, for purposes of
determining eligibility to participate, vesting, and entitlement to
benefits, including for severance benefits and vacation entitlement (but
not for accrual of pension benefits), service with the Company and its
Subsidiaries shall be treated as service with Buyer; provided however, that
such service shall not be recognized to the extent that such recognition
would result in a duplication of benefits. Such service also shall apply
for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitations.
Company Employees shall be given credit for amounts paid under a
corresponding benefit plan during the same period for purposes of applying
deductibles, copayments and out-of-pocket maximums as though such amounts
had been paid in accordance with the terms and conditions of the Buyer
Plan.
(c) Buyer shall honor and shall cause the appropriate
Subsidiaries of Buyer to honor, and the Company shall pay at the Closing
Date, in accordance with their terms all employment, severance and other
compensation agreements and arrangements existing prior to the execution of
this Agreement which are between the Company or any of its Subsidiaries and
any director, officer or employee thereof and which have been disclosed in
the Company Disclosure Schedule and previously have been delivered to
Buyer. All payments under employment and change in control agreements
identified in Section 4.15(a) of the Company Disclosure Schedule between
the Company or its Subsidiaries and individual officers and employees of
the Company or its Subsidiaries shall be paid by the Company at the Closing
Date regardless of whether or not such individual continues in employment
with Buyer or its Subsidiaries. The Company Disclosure Schedule sets forth
the reasonable, good faith estimates of amounts payable under employment
and severance agreements between the Company or its Subsidiaries and
certain individuals and the amounts shown and methodology used in preparing
such estimates shall be followed in determining the actual amounts payable
under such agreements.
(d) Employees of the Company and its Subsidiaries shall be
entitled to receive payment for accrued but unused vacation days and any
accrued but unused vacation days of employees of the Company or its
Subsidiaries as of the Closing Date shall, at the employee's option, either
be paid immediately prior to the Closing Date or taken as vacation as soon
as practicable following the Closing Date; provided, however, that the
Company shall deliver to Buyer, not later than fifteen (15) business days
after the date of this Agreement, a schedule of employees indicating their
accrued but unused vacation days as of the most recent date practicable.
(e) The Company or its Subsidiaries shall pay bonuses in
accordance with its past practices through December 31, 1999, and the
compensation with respect to which bonuses are paid for any individual
shall be for the period of time that has elapsed since the payment of the
last bonus. At the Closing Date each Company Employee shall be entitled to
receive a bonus equal to the bonus received by such Company Employee for
the period ended as of December 31, 1999, multiplied by a fraction, the
numerator of which shall be the number of days from December 31 through the
date on which the Closing Date occurs and the denominator of which is 366
(in the case of employees who were paid annual bonuses as of December 31)
and 180 days (in the case of employees who received semi annual bonuses as
of both June 30 and December 31), as the case may be.
Section 7.8 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 of the Company or any of
its Subsidiaries (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 or
officer of the Company, any of the Subsidiaries of the Company or any of
their respective 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, Buyer shall indemnify
and hold harmless, as and to the extent permitted by 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 Buyer; provided, however, that (1) Buyer shall have
the right to assume the defense thereof with counsel reasonably acceptable
to the Indemnified party and upon such assumption Buyer 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 Buyer elects not to assume such
defense or counsel for the Indemnified Parties reasonably advises that
there are issues which raise conflicts of interest between Buyer and the
Indemnified Parties, the Indemnified Parties may retain counsel reasonably
satisfactory to them after consultation with Buyer, and Buyer shall pay the
reasonable fees and expenses of such counsel for the Indemnified Parties,
(2) Buyer shall in all cases be obligated pursuant to this paragraph to pay
for only one firm of counsel with respect to any claim, action or suit for
all Indemnified Parties, (3) Buyer shall not be liable for any settlement
effected without its prior written consent (which consent shall not be
unreasonably withheld) and (4) Buyer 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 7.8, upon learning of
any such claim, action, suit, proceeding or investigation, shall notify
promptly Buyer thereof, provided that the failure to so notify shall not
affect the obligations of Buyer under this Section 7.8 except to the extent
such failure to notify prejudices Buyer. Buyer's obligations under this
Section 7.8 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) Buyer shall cause the persons serving as officers and
directors of the Company immediately prior to the Effective Time to be
covered for a period of six (6) years from the Effective Time by the
directors' and officers' liability insurance policy maintained by the
Company (provided that Buyer may substitute therefor policies of at least
the same coverage and amounts containing terms and conditions which are not
less advantageous than such policy) with respect to acts or omissions
occurring prior to the Effective Time which were committed by such officers
and directors in their capacity as such; provided, however, that in no
event shall Buyer be required to expend on an annual basis more than 175%
of the current amount expended by the Company (the "Insurance Amount") to
maintain or procure insurance coverage, and further provided that if Buyer
is unable to maintain or obtain the insurance called for by this Section
7.8(b) Buyer shall use all reasonable efforts to obtain as much comparable
insurance as is available for the Insurance Amount.
(c) In the event Buyer or any of its successors or
assigns (i) consolidates with or merges into any other person and shall not
be the continuing or surviving corporation or entity of such consolidation
or merger, or (ii) transfers or conveys all or substantially all of its
properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Buyer assume the obligations set forth in this section.
(d) The provisions of this Section 7.8 are intended to be
for the benefit of, and shall be enforceable by, each Indemnified Party and
his or her heirs and representatives.
Section 7.9 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 the Surviving Corporation
with full title to all properties, assets, rights, approvals, immunities
and franchises of any of the parties to the Merger, the proper officers and
directors of each party to this Agreement and their respective Subsidiaries
shall take all such necessary action as may be reasonably requested by
Buyer.
Section 7.10 Advice of Changes. Buyer and the Company shall
promptly advise the other party of any change or event having a Material
Adverse Effect on it or which it believes would or would be reasonably
likely to cause or constitute a material breach of any of its
representations, warranties or covenants contained herein. From time to
time prior to the Effective Time (and on the date prior to the Closing
Date), each party will supplement or amend its Disclosure Schedules
delivered in connection with the execution of this Agreement to reflect any
matter which, 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 which 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 8.2(a) or 8.3(a) hereof, as the case may be, or the compliance by
the Company or Buyer, as the case may be, with the respective covenants and
agreements of such parties contained herein.
Section 7.11 Current Information. (a)
During the period from the date of this Agreement to the Effective Time,
the Company will cause one or more of its designated representatives to
confer on a regular and frequent basis (not less than monthly) with
representatives of Buyer and to report the general status of the ongoing
operations of the Company and its Subsidiaries. The Company will promptly
notify Buyer of any material change in the normal course of business or
in the operation of the properties of the Company or any of its
Subsidiaries and of any governmental complaints, investigations or hearings
(or communications indicating that the same may be contemplated), or the
institution or the threat of significant litigation involving the Company
or any of its Subsidiaries, and will keep Buyer fully informed of such
events.
(b) During the period from the date of this Agreement
to the Effective Time, Buyer shall inform the Company of any proposed
acquisition or merger transaction involving Buyer.
Section 7.12 Execution and Authorization of Bank Merger
Agreement. As soon as reasonably practicable following a request made by
Buyer, (a) Buyer shall (i) cause the Board of Directors of Buyer Bank to
approve an Agreement and Plan of Merger providing for the merger of Company
Bank into Buyer Bank (the "Bank Merger Agreement"), (ii) cause Buyer Bank
to execute and deliver the Bank Merger Agreement, and (iii) approve the
Bank Merger Agreement as the sole stockholder of Buyer Bank, and (b) the
Company shall (i) cause the Board of Directors of the Company Bank to
approve the Bank Merger Agreement, (ii) cause the Company Bank to execute
and deliver the Bank Merger Agreement, and (iii) approve the Bank Merger
Agreement as the sole stockholder of the Company Bank. The Bank Merger
Agreement shall contain terms that are normal and customary in light of the
transactions contemplated hereby and such additional terms as are necessary
to carry out the purposes of this Agreement.
Section 7.13 Coordination of Dividends. From the date of this
Agreement to the Effective Time, each of Buyer and the Company shall
coordinate with the other the declaration, record and payment dates with
respect to dividends in respect of the Buyer Common Stock and the Company
Common Stock and the record dates and payments dates relating thereto, it
being the intention of the parties that the holders of Buyer Common Stock
or Company Common Stock shall not receive more than one dividend, or fail
to receive one dividend, for any single calendar quarter with respect to
their shares of Buyer Common Stock and/or Company Common Stock and any
shares of Buyer Common Stock any holder of Company Common Stock receives in
exchange therefor in the Merger.
Section 7.14 Directorship. Effective as of the Effective Time,
Buyer shall cause its Board of Directors to be expanded by one member and
shall appoint Raymond A. Nielsen to fill the vacancy on Buyer's Board of
Directors created by such increase as of the Effective Time and shall cause
Mr. Nielsen to be nominated for election to the Board of Directors for a
period not less than three (3) years.
Section 7.15 Accountants' Letter. The Company shall
use its reasonable efforts to cause to be delivered to Buyer a letter of
its 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 Buyer, in form and substance customary for "comfort"
letters delivered by independent accountants in accordance with Statement
of Financial Accounting Standards No. 72.
Section 7.16 Certain Revaluations, Changes and Adjustments. At
or before the Effective Time, upon the request of Buyer, the Company shall,
consistent with GAAP, modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves) so as to be applied consistently on a mutually
satisfactory basis with those of Buyer and establish such accruals and
reserves as shall be necessary to reflect Merger-related expenses and costs
incurred by the Company, provided, however, that the Company shall not be
required to take such action unless Parent acknowledges in writing that all
conditions to closing set forth in Article VIII have been satisfied or
waived (other than those conditions relating to delivery of documents on
the Closing Date); provided further, however, that no accrual or reserve
made by the Company or any Company Subsidiary pursuant to this Section 7.16
shall constitute or be deemed to be a breach, violation of or failure to
satisfy any representation, warranty, covenant, condition or other
provision of this Agreement or otherwise be considered in determining
whether any such breach, violation or failure to satisfy shall have
occurred.
Section 7.17 Year 2000. Each of Buyer and the Company shall use
its commercially reasonable efforts to implement its respective Y2K Plan.
At the request of the other party, each of Buyer and the Company shall
periodically update the other party regarding its process with respect to
its Y2K Plan.
Section 7.18 JSB Financial Merger. It is understood by the
parties that the Merger shall be accounted for under the purchase method of
accounting. Accordingly, the parties agree to use all reasonable efforts to
cause the Effective Time to occur prior to the consummation of the merger
between Buyer and JSB Financial, Inc. pursuant to the Agreement and Plan of
Merger (as amended) between such parties dated as of August 16, 1999.
Section 7.19 Advisory Board. Buyer shall, as of the Effective
Time, invite Gerald M. Sauvigne and all of the members of the Company's
Board of Directors as of the date of this Agreement, other than Mr.
Nielsen, who are willing to serve to be appointed as members of Buyer's
advisory board (the "Advisory Board"). The members of the Advisory Board
who are willing to so serve shall be elected to a term of three (3) years
beginning on the Closing Date and shall receive an annual retainer fee in
the amount set forth in Section 7.19 of the Buyer Disclosure Schedule.
ARTICLE ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 Conditions to Each Party's Obligation To Effect the
Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been
approved and adopted by the requisite vote of the holders of the
outstanding shares of Company Common Stock under applicable law.
(b) NYSE Listing. The shares of Buyer Common Stock which
shall be issued to the stockholders of the Company 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 no stop order suspending the effectiveness of the S-4
shall have been issued and no proceedings for that purpose shall have been
initiated or threatened by the SEC.
(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 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.
Section 8.2 Conditions to Obligations of Buyer. The obligation
of Buyer to effect the Merger is also subject to the satisfaction or waiver
by Buyer at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (i) Subject to
Section 3.2, the representations and warranties of the Company set forth in
this Agreement (other than those set forth in Sections 4.2, 4.3(a),
4.3(b)(i), 4.6, 4.7, 4.8(a)(ii), 4.8(b), 4.11(a), 4.12, 4.15(a), 4.18,
4.21, 4.26 and 4.27) 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 Date as though made on and
as of the Closing Date; and (ii) the representations and warranties of the
Company set forth in Sections 4.2, 4.3(a), 4.3(b)(i), 4.6, 4.7, 4.8(a)(ii),
4.8(b), 4.11(a), 4.12, 4.15(a), 4.18, 4.21, 4.26 and 4.27 of this Agreement
shall be true and correct in all material respects (without giving effect
to Section 3.2 of this Agreement) 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 Date as though made on and as of the
Closing Date. Buyer shall have received a certificate signed on behalf of
the Company by the Chief Executive Officer and the Chief Financial Officer
of the Company to the foregoing effect.
(b) Performance of Obligations of the Company. The
Company shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the
Closing Date, and Buyer shall have received a certificate signed on behalf
of the Company by the Chief Executive Officer and the Chief Financial
Officer of the Company to such effect.
(c) Consents Under Agreements. The consent, approval or
waiver of each person (other than the Governmental Entities referred to in
Section 8.1(c)) whose consent or approval shall be required in order to
permit the succession by the Surviving Corporation pursuant to the Merger
to any obligation, right or interest of the Company or any Subsidiary of
the Company under any loan or credit agreement, note, mortgage, indenture,
lease, license or other agreement or instrument shall have been obtained,
except where the failure to obtain such consent, approval or waiver would
not have a Material Adverse Effect on the Company.
(d) No Pending Governmental Actions. No proceeding
initiated by any Governmental Entity seeking an Injunction shall be pending.
(e) Federal Income Tax Opinion. Buyer shall have received
an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Buyer
("Buyer's Counsel"), dated the Effective Date, in form and substance
reasonably satisfactory to Buyer, 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. In rendering such opinion, Buyer's Counsel may
require and rely upon representations and covenants, including those
contained in certificates of officers of Buyer, the Company and others
reasonably satisfactory in form and substance to such counsel.
Section 8.3 Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of
the following conditions:
(a) Representations and Warranties. (i) Subject to
Section 3.2, the representations and warranties of Buyer (other than those
set forth in Sections 5.2, 5.3(a), 5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii),
5.11(a), 5.12 and 5.15) 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 Date as though made on and as of the Closing Date; and (ii) the
representations and warranties of Buyer set forth in Sections 5.2, 5.3(a),
5.3(b), 5.3(c)(i), 5.6, 5.7, 5.8(ii), 5.11(a), 5.12 and 5.15 of this
Agreement shall be true and correct in all material respects (without
giving effect to Section 3.2 of this Agreement) 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 Date as though made on and
as of the Closing Date. The Company shall have received a certificate
signed on behalf of Buyer by the Chief Executive Officer and the Chief
Financial Officer of Buyer to the foregoing effect.
(b) Performance of Obligations of Buyer. Buyer shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and the Company
shall have received a certificate signed on behalf of Buyer by the Chief
Executive Officer and the Chief Financial Officer of Buyer to such effect.
(c) Consents Under Agreements. The consent, approval or
waiver of each person (other than the Governmental Entities referred to in
Section 8.1(c)) whose consent or approval shall be required in connection
with the transactions contemplated hereby under any loan or credit
agreement, note, mortgage, indenture, lease, license or other agreement or
instrument to which Buyer or any of its Subsidiaries is a party or is
otherwise bound shall have been obtained, except where failure to obtain
such consents and approvals would not, individually or in the aggregate,
have a Material Adverse Effect on Buyer and its Subsidiaries taken as a
whole (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 Income Tax Opinion. The Company shall have
received an opinion of Muldoon, Murphy & Faucette LLP (the "Company's
Counsel"), in form and substance reasonably satisfactory to the Company,
dated the Effective Date, 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. In rendering such opinion, the Company's Counsel may
require and rely upon representations and covenants, including those
contained in certificates of officers of Buyer, the Company and others,
reasonably satisfactory in form and substance to such counsel.
ARTICLE ARTICLE IX
TERMINATION AND AMENDMENT
Section 9.1 Termination. This Agreement may be terminated at
any time prior to the Effective Time, whether before or after approval of
the matters presented in connection with the Merger by the stockholders of
the Company:
(a) by mutual consent of the Company and Buyer 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 Buyer or the Company upon written notice to
the other party (i) 60 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 60-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 9.1(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 Merger;
(c) by either Buyer or the Company if the Merger shall
not have been consummated on or before June 30, 2000, unless the failure of
the Closing to occur by such date shall be due to the failure of the party
seeking to terminate this Agreement to perform or observe the covenants and
agreements of such party set forth herein;
(d) by either Buyer or the Company (provided that the
terminating party shall not be in material breach of any of its obligations
under Section 7.3) if any approval of the stockholders of the Company
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 stockholders or at any adjournment or postponement thereof;
(e) by either Buyer or the Company (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 thirty 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 9.1(e) unless the breach
of representation or warranty, together with all other such breaches, would
entitle the party receiving such representation not to consummate the
transactions contemplated hereby under Section 8.2(a) (in the case of a
breach of representation or warranty by the Company) or Section 8.3(a) (in
the case of a breach of representation or warranty by Buyer);
(f) by either Buyer or the Company (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 thirty days following receipt by the breaching party of
written notice of such breach from the other party hereto, or which breach,
by its nature, cannot be cured prior to the Closing;
(g) by Buyer, if the Board of Directors of the Company
does not publicly recommend in the Proxy Statement that the Company's
stockholders approve and adopt this Agreement or if, after recommending in
the Proxy Statement that stockholders approve and adopt this Agreement, the
Board of Directors of the Company shall have withdrawn, modified or amended
such recommendation in any manner adverse to Buyer; or
(h) by the Company at any time during the five business-day
period commencing on the first business day after the Determination Date (as
defined below), if both of the following conditions are satisfied:
(1) the Average Closing Price (as defined below) shall be less
than $16.20 and
(2) (i) the number obtained by dividing the Average Closing
Price by the Starting Price (such number being referred to herein as
the "Buyer Ratio") shall be less than (ii) the number obtained by
dividing the Final Index Price by the Initial Index Price and
subtracting 0.15 from such quotient (such number being referred to
herein as the "Index Ratio"),
subject to the following provisions. If the Company elects to exercise its
termination right pursuant to the immediately preceding sentence, it shall
give prompt written notice to Buyer; provided that such notice of election
to terminate may be withdrawn at any time within the aforementioned five
business-day period. During the five business-day period commencing with
its receipt of such notice, Buyer shall have the option of adjusting the
Exchange Ratio to equal the lesser of (i) a number equal to a quotient
(rounded to the nearest one-ten-thousandth), the numerator of which is the
product of 0.85, the Starting Price and the Exchange Ratio (as then in
effect) and the denominator of which is the Average Closing Price, and (ii)
a number equal to a quotient (rounded to the nearest one-ten-thousandth),
the numerator of which is the Index Ratio multiplied by the Exchange Ratio
(as then in effect) and the denominator of which is the Buyer Ratio. If
Buyer makes the election contemplated by the preceding sentence, within
such five business-day period, it shall give prompt written notice to the
Company of such election and the revised Exchange Ratio, whereupon no
termination shall have occurred pursuant to this Section 9.1(h) and this
Agreement shall remain in effect in accordance with its terms (except as
the Exchange Ratio shall have been so modified), and any references in this
Agreement to "Exchange Ratio" shall thereafter be deemed to refer to the
Exchange Ratio as adjusted pursuant to this Section 9.1(h). For purposes of
this Section 9.1(h), the following terms shall have the meanings indicated:
"Average Closing Price" means the average of the last reported
sale prices per share of Buyer Common Stock as reported on NYSE (as
reported in The Wall Street Journal or, if not reported therein, in another
mutually agreed upon authoritative source) for the 20 consecutive trading
days on the NYSE ending at the close of trading on the Determination Date.
"Determination Date" means the business day prior to the date
on which the last of the Requisite Regulatory Approvals shall have been
received, without regard to any requisite waiting periods in respect
thereof.
"Final Index Price" means the sum of the Final Prices for each
company comprising the Index Group.
"Final Price", with respect to any company belonging to the
Index Group, means the product of (x) the average of the daily closing
sales prices of a share of common stock of such company (and if there is no
closing sales price on any such day, then the mean between the closing bid
and the closing asked prices on that day), as reported on the consolidated
transaction reporting system for the market or exchange on which such
common stock is principally traded, for the 20 consecutive trading days
ending at the close of trading on the Determination Date, and (y) the
weighting set forth opposite such company's name in the definition of
"Index Group" below.
"Index Group" means the group of each of the twenty (20) bank
holding companies listed below, the common stock of each of which shall be
publicly traded and as to which there shall not have been, since the
Starting Date and before the Determination Date, an announcement of a
proposal (i) for such company to be acquired or (ii) for such company to
acquire another company or companies in transactions with a value exceeding
25% of the acquiror's market capitalization as of the Starting Date. In the
event that, on or prior to the date immediately preceding the Determination
Date, the common stock of any such company ceases to be publicly traded or
any such announcement is made with respect to any such company, such
company will be removed from the Index Group, and the weights (which have
been determined based on the number of outstanding shares of common stock)
redistributed proportionately for purposes of determining the Index Price.
The twenty (20) bank holding companies and the weights attributed to them
are as follows:
Company Symbol Weighting
- ------- ------ ---------
Astoria Financial Corporation ASFC 4.76%
CCB Financial Corporation CCB 3.45%
Charter One Financial, Inc. COFI 14.35%
Chittenden Corporation CHZ 2.45%
Commerce Bancorp, Inc./NJ CBH 2.41%
First Commonwealth Financial Corporation FCF 2.69%
FirstMerit Corporation FMER 7.86%
Fulton Financial Corporation FULT 6.00%
GreenPoint Financial Corp. GPT 9.50%
Independence Community Bank Corp. ICBC 5.91%
Keystone Financial, Inc. KSTN 4.21%
M & T Bank Corporation MTB 0.68%
Peoples Heritage Financial Group, Inc. PHBK 9.10%
Queens County Bancorp, Inc. QCSB 1.86%
Richmond County Financial Corp. RCBK 2.79%
Roslyn Bancorp, Inc. RSLN 6.68%
Staten Island Bancorp, Inc. SIB 3.54%
Susquehanna Bancshares, Inc. SUSQ 3.21%
Valley National Bancorp VLY 5.25%
Webster Financial Corporation WBST 3.31%
-----
100.00%
"Initial Index Price" means the sum of the Initial Prices for
each company comprising the Index Group. The "Initial Price," with respect
to any company belonging to the Index Group, means the product of (x) the
per share closing sales price of the common stock of such company, as such
price was reported on the consolidated transaction reporting system for the
market or exchange on which such common stock was principally traded on
August 27, 1999, multiplied by (y) the weighting set forth opposite such
company's name above.
"Starting Date" means August 27, 1999.
"Starting Price" means $19.0625.
If Buyer of any company belonging to the Index Group declares
or effects a stock dividend, reclassification, recapitalization, split-up,
combination, exchange of shares or similar transaction between the Starting
Date and the Determination Date, the weighting and/or the prices for the
common stock of such company or Buyer shall be appropriately adjusted for
the purposes of applying this Section 9.1(h).
Section 9.2 Effect of Termination; Expenses. In the event of
termination of this Agreement by either Buyer or the Company as provided in
Section 9.1, this Agreement shall forthwith become void and have no effect
except that (i) Sections 7.2(c), 9.2 and 10.4 shall survive any termination
of this Agreement, and (ii) notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from
any liabilities or damages arising out of its willful breach of any
provision of this Agreement.
Section 9.3 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 of the matters presented in connection with the Merger by
the stockholders of the Company; provided, however, that after any approval
of the transactions contemplated by this Agreement by the Company's
stockholders, there may not be, without further approval of such
stockholders, any amendment of this Agreement which reduces the amount or
changes the form of the consideration to be delivered to the Company
stockholders 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.
Section 9.4 Extension; Waiver. At any time prior to the
Effective Time, each of the parties hereto, by action taken or authorized
by its 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 party hereto, (b) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any document delivered
pursuant hereto and (c) waive compliance by the other party with any of its
agreements contained herein, or waive compliance with any of the conditions
to its obligations hereunder. 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 ARTICLE X
GENERAL PROVISIONS
Section 10.1 Closing. Subject to the terms and conditions of
this Agreement, 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 VIII hereof (other than those conditions which relate to
actions to be taken at the Closing)(the "Closing Date"), at the offices of
Buyer's Counsel unless another time, date or place is agreed to in writing by
the parties hereto.
Section 10.2 Alternative Structure. Notwithstanding anything to
the contrary contained in this Agreement, prior to the Effective Time,
Buyer shall be entitled to revise the structure of the Merger and the
related transactions contemplated hereby (including, without limitation,
(x) substituting a subsidiary of Buyer as a Constituent Corporation in the
Merger, (y) providing that a different entity shall be the Surviving
Corporation in the Merger, and (z) providing for the merger of Company Bank
into Buyer Bank in accordance with a Bank Merger Agreement), provided that
each of the transactions comprising such revised structure shall (i) fully
qualify as, or fully be treated as part of, one or more tax-free
reorganizations within the meaning of Section 368(a) of the Code, (ii) not
change the amount of consideration to be received by the stockholders of
the Company, and (iii) be capable of consummation in as timely a manner as
the structure contemplated herein. This Agreement and any related documents
shall be appropriately amended in order to reflect any such revised
structure.
Section 10.3 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 pursuant to the Option Agreement which shall
terminate in accordance with its terms) 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.
Section 10.4 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
the costs and expenses of printing and mailing the Proxy Statement to the
stockholders of the Company and Buyer, and all filing and other fees paid
to the SEC or any other Governmental Entity in connection with the Merger
and the other transactions contemplated hereby, shall be borne equally by
Buyer and the Company, provided further, 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.
Section 10.5 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 Buyer, to:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Facsimile: (516) 844-1471
Attention: Mr. John Adam Kanas
Chairman, President and
Chief Executive Officer
with a copy to:
William S. Rubenstein, Esq.
Skadden, Arps Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Facsimile: (212) 735-2000
and
(b) if to the Company, to:
Reliance Bancorp, Inc.
585 Stewart Avenue
Garden City, New York 11530
Facsimile: (516) 222-1805
Attention: Mr. Raymond A. Nielsen
President and Chief
Executive Officer
with a copy to:
Lawrence M.F. Spaccasi
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
Facsimile: (202) 966-9409
Section 10.6 Interpretation. When a reference is made in
this Agreement to Sections, Exhibits or Schedules, such reference
shall be to a Section of or 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. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall
be deemed to be followed by the words "without limitation". 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
August 30, 1999.
Section 10.7 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.
Section 10.8 Entire Agreement. This Agreement (including the
documents and the instruments referred to herein), together with the Option
Agreement, 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.
Section 10.9 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.
Section 10.10 Enforcement of Agreement. The parties hereto
agree that irreparable damage would occur in the event that the provisions
contained in and Section 7.2(c) of this Agreement were not performed in
accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of Section 7.2(c) 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.
Section 10.11 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.
Section 10.12 Publicity. Except as otherwise required by law or
by the rules of the NYSE or The NASDAQ Stock Market, so long as this
Agreement is in effect, neither Buyer nor the Company shall, or shall
permit any of its Subsidiaries to, 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.
Section 10.13 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.
IN WITNESS WHEREOF, Buyer and the Company 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
--------------------------------
John Adam Kanas
Chairman of the Board,
President and Chief Executive
Officer
RELIANCE BANCORP, INC.
By: /s/Raymond A. Nielsen
--------------------------------
Raymond A. Nielsen
President and Chief Executive
Officer
EXHIBIT 2.2
===============================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
dated as of August 16, 1999
by and between
NORTH FORK BANCORPORATION, INC.
and
JSB FINANCIAL, INC.
===============================================================================
TABLE OF CONTENTS
INTRODUCTORY STATEMENT
ARTICLE I
THE MERGER
Section 1.1 Structure of the Merger.......................................2
Section 1.2 Effect on Outstanding Shares of JSB Common Stock..............2
Section 1.3 Exchange Procedures...........................................3
Section 1.4 Stock Options.................................................4
Section 1.5 Bank Merger...................................................5
Section 1.6 Directors of NFB after Effective Time.........................5
Section 1.7 Alternative Structure.........................................5
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Disclosure Letters............................................6
Section 2.2 Standards.....................................................6
Section 2.3 Representations and Warranties of JSB.........................7
Section 2.4 Representations and Warranties of NFB........................18
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.1 Conduct of JSB's Business Prior to the Effective Time........28
Section 3.2 Forbearance by JSB...........................................28
Section 3.3 Conduct of NFB's Business Prior to the Effective Time........30
Section 3.4 Forbearance by NFB...........................................30
ARTICLE IV
COVENANTS
Section 4.1 Acquisition Proposals........................................31
Section 4.2 Certain Policies of JSB......................................32
Section 4.3 Access and Information.......................................33
Section 4.4 Certain Filings, Consents and Arrangements...................34
Section 4.5 Antitakeover Provisions......................................34
Section 4.6 Additional Agreements........................................34
Section 4.7 Publicity....................................................34
Section 4.8 Stockholders Meetings........................................34
Section 4.9 Proxy Statements; Comfort Letters............................35
Section 4.10 Registration of NFB Common Stock.............................35
Section 4.11 Affiliate Letters............................................36
Section 4.12 Notification of Certain Matters..............................36
Section 4.13 Directors and Officers.......................................36
Section 4.14 Indemnification; Directors' and Officers' Insurance..........37
Section 4.15 Employees; Benefit Plans and Programs........................38
Section 4.16 Advisory Board...............................................41
ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.1 Conditions to Each Party's Obligations.......................41
Section 5.2 Conditions to the Obligations of NFB and NFB Bank............42
Section 5.3 Conditions to the Obligations of JSB and JSB Bank............43
ARTICLE VI
TERMINATION
Section 6.1 Termination..................................................44
Section 6.2 Effect of Termination........................................47
Section 6.3 Termination Fee..............................................47
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1 Effective Date and Effective Time............................49
Section 7.2 Deliveries at the Closing....................................49
ARTICLE VIII
CERTAIN OTHER MATTERS
Section 8.1 Certain Definitions; Interpretation..........................49
Section 8.2 Survival.....................................................49
Section 8.3 Waiver; Amendment............................................50
Section 8.4 Counterparts.................................................50
Section 8.5 Governing Law................................................50
Section 8.6 Expenses.....................................................50
Section 8.7 Notices......................................................50
Section 8.8 Entire Agreement; etc........................................51
Section 8.9 Assignment...................................................51
EXHIBITS AND SCHEDULES
Exhibit A Plan of Bank Merger
Exhibit B Form of Affiliate Letter for JSB Affiliates
Exhibit C Form of Affiliate Letter for NFB Affiliates
Schedule 4.13(d)
Schedule 4.15(e)
INDEX OF DEFINED TERMS
Page
Acquisition Proposal....................................................32
Acquisition Transaction.................................................31
Advisory Board..........................................................41
Agreement................................................................1
Bank Merger..............................................................1
Bank Regulator..........................................................10
BHCA....................................................................19
BIF......................................................................7
Closing.................................................................49
Closing Date............................................................49
Code.....................................................................1
Converted Options........................................................5
Costs...................................................................37
Covered Person..........................................................17
Date Data...............................................................18
Date-Sensitive System...................................................18
Derivatives Contract....................................................17
Disclosure Letter........................................................6
Effective Date..........................................................49
Effective Time..........................................................49
Environmental Law.......................................................14
ERISA...................................................................12
Exchange Act............................................................16
Exchange Agent...........................................................3
Exchange Ratio...........................................................2
Excluded Shares..........................................................2
FDIA.....................................................................7
FDIC.....................................................................7
FHLB....................................................................17
Final Index Price.......................................................45
Final Price.............................................................45
FRB......................................................................9
GAAP.....................................................................9
GATT....................................................................40
Governmental Entity.....................................................10
Hazardous Material......................................................15
HOLA.....................................................................7
Indemnified Party.......................................................37
Index Group.............................................................45
Index Ratio.............................................................45
Initial Index Price.....................................................47
Initial NFB Market Value................................................47
Initial Termination Date................................................44
IRS.....................................................................12
Joint Proxy Statement-Prospectus........................................18
JSB......................................................................1
JSB Bank.................................................................1
JSB Bank BRP............................................................40
JSB Bank ESOP...........................................................41
JSB Bank Outside Directors' Plan........................................36
JSB Certificate..........................................................3
JSB Common Stock.........................................................1
JSB Employee............................................................38
JSB Employee Plans......................................................12
JSB ERISA Affiliate.....................................................12
JSB Option...............................................................4
JSB Option Agreement.....................................................1
JSB Option Plans.........................................................4
JSB Pension Plan........................................................12
JSB Preferred Stock......................................................7
JSB Qualified Plan......................................................12
JSB Y2K Plan............................................................18
JSB's Reports............................................................9
Letter of Transmittal....................................................3
Loan....................................................................15
Loan Property...........................................................14
Material Adverse Effect..................................................6
Maximum Agreement.......................................................38
Merger...................................................................2
Merger Consideration.....................................................2
Named Individual........................................................13
New Compensation and Benefits Program...................................39
New NFB Director........................................................36
NFB......................................................................1
NFB Bank.................................................................1
NFB Common Stock.........................................................2
NFB Employee Plans......................................................23
NFB ERISA Affiliate.....................................................23
NFB Market Value.........................................................2
NFB Pension Plan........................................................23
NFB Preferred Stock.....................................................19
NFB Qualified Plan......................................................23
NFB Ratio...............................................................44
NFB Stock Plans.........................................................19
NFB Y2K Plan............................................................27
NFB's Reports...........................................................21
NYSBD....................................................................9
NYSE.....................................................................2
OREO....................................................................16
OTS......................................................................9
Participation Facility..................................................14
PBGC....................................................................12
Permitted Transaction...................................................47
Registration Statement..................................................18
Requisite Regulatory Approvals...........................................9
SEC......................................................................9
Securities Act..........................................................18
Skadden.................................................................42
Specified Compensation and Benefit Programs.............................13
SRO......................................................................9
Stock Adjustment........................................................2
Stockholder Meeting.....................................................34
Subsidiary...............................................................7
Superfund...............................................................15
Superlien...............................................................15
Thacher Proffitt........................................................43
Unsolicited Acquisition Proposal........................................32
Valuation Date...........................................................2
Voting Debt..............................................................8
Year 2000 Compliance....................................................18
AGREEMENT AND PLAN OF MERGER
----------------------------
This is an AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER,
dated as of the 16th day of August, 1999 ("Agreement"), by and between
NORTH FORK BANCORPORATION, INC., a Delaware corporation ("NFB"), and JSB
FINANCIAL, INC., a Delaware corporation ("JSB").
INTRODUCTORY STATEMENT
The Board of Directors of NFB (i) has determined that this
Agreement and the business combination and related transactions
contemplated hereby are in the best interests of NFB and its stockholders,
(ii) has determined that this Agreement and the transactions contemplated
hereby are consistent with, and in furtherance of, its business strategy
and (iii) has approved this Agreement.
The Board of Directors of JSB (i) has determined that this
Agreement and the business combination and related transactions
contemplated hereby are in the best interests of JSB and in the best
long-term interests of its stockholders, (ii) has determined that this
Agreement and the transactions contemplated hereby are consistent with, and
in furtherance of, its business strategy and (iii) has approved this
Agreement.
Concurrently with the execution and delivery of this Agreement,
and as a condition and inducement to NFB's willingness to enter into this
Agreement, NFB and JSB have entered into a stock option agreement ("JSB
Option Agreement"), pursuant to which JSB has granted to NFB an option to
purchase shares of JSB's common stock, par value $.01 per share ("JSB
Common Stock"), upon the terms and conditions therein contained.
Following the consummation of the Merger (as defined below),
Jamaica Savings Bank, a wholly owned subsidiary of JSB Financial, Inc.
("JSB Bank"), may be merged with and into North Fork Bank, a wholly owned
subsidiary of North Fork Bancorporation, Inc. ("NFB Bank"), with NFB Bank
being the surviving entity ("Bank Merger").
The parties hereto intend that the Merger and the Bank Merger,
if effected, each shall qualify as a reorganization under the provisions of
Section 368(a) of the Internal Revenue Code of 1986, as amended ("Code"),
for federal income tax purposes, and that the Merger shall be
accounted for as a pooling-of-interests
for financial accounting purposes.
NFB and JSB desire to make certain representations, warranties
and agreements in connection with the business combination and related
transactions provided for herein and to prescribe various conditions to
such transactions.
In consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Agreement and prescribe
the terms and conditions hereof and the manner and basis of carrying it
into effect, which shall be as follows:
ARTICLE I
THE MERGER
Section 1.1 Structure of the Merger. On the Effective Date (as
defined in Section 7.1), JSB will merge with and into NFB ("Merger"), with
NFB being the surviving entity, pursuant to the provisions of, and with the
effect provided in, the Delaware General Corporation Law. Upon consummation
of the Merger, the separate corporate existence of JSB shall cease. NFB
shall continue to be governed by the laws of the State of Delaware and its
name and separate corporate existence, with all of its rights, privileges,
immunities, powers and franchises, shall continue unaffected by the Merger.
Section 1.2 Effect on Outstanding Shares of JSB Common Stock.
(a) By virtue of the Merger, automatically and without
any action on the part of the holder thereof, each share of JSB Common
Stock issued and outstanding at the Effective Time (as defined in Section
7.1), other than (i) shares held directly or indirectly by NFB (other than
shares held in a fiduciary capacity or in satisfaction of a debt previously
contracted) and (ii) shares held by JSB as treasury stock (such shares
referred to in clauses (i) and (ii) being referred to herein as the
"Excluded Shares"), shall become and be converted into the right to receive
3.0 shares (the "Exchange Ratio") of NFB's common stock, par value $2.50
per share ("NFB Common Stock"); provided, however, that, notwithstanding
any other provision hereof, no fraction of a share of NFB Common Stock and
no certificates or scrip therefor will be issued in the Merger; instead,
NFB shall pay to each holder of JSB Common Stock who would otherwise be
entitled to a fraction of a share of NFB Common Stock an amount in cash,
rounded to the nearest cent, determined by multiplying such fraction by the
NFB Market Value (as defined below). The shares of NFB Common Stock and any
cash for fractional shares are collectively referred to in this Agreement
as the "Merger Consideration."
(b) As used herein, "NFB Market Value" shall be the
average of the daily closing sales prices of a share of NFB Common Stock
(and if there is no closing sales price on any such day, then the mean
between the closing bid and the closing asked prices on that day), as
reported on the New York Stock Exchange ("NYSE"), for the 15 consecutive
trading days immediately preceding the Valuation Date.
(c) As used herein, "Valuation Date" shall mean the date
that is the latest of (i) the day of expiration of the last waiting period
with respect to any of the Requisite Regulatory Approvals (as defined in
Section 2.3(e)), (ii) the day on which the last of the Requisite Regulatory
Approvals is obtained and (iii) the day on which the last of the required
stockholder approvals have been obtained.
(d) If, between the date of this Agreement and the
Effective Time, the outstanding shares of NFB Common Stock shall have been
changed into a different number of shares or into a different class by
reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares (each, a "Stock
Adjustment"), the Exchange Ratio shall be adjusted correspondingly to the
extent appropriate to reflect the Stock Adjustment.
(e) As of the Effective Time, each Excluded Share shall
be canceled and retired and shall cease to exist, and no exchange or
payment shall be made with respect thereto. All shares of NFB Common Stock
and NFB Preferred Stock (as defined in Section 2.4(b)) that are held by
JSB, if any, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, shall become treasury stock
of NFB.
Section 1.3 Exchange Procedures.
(a) Appropriate transmittal materials ("Letter of
Transmittal") shall be mailed as soon as reasonably practicable after the
Effective Time, and in no event later than 5 business days thereafter, to
each holder of record of JSB Common Stock as of the Effective Time. A
Letter of Transmittal will be deemed properly completed only if accompanied
by certificates representing all shares of JSB Common Stock to be converted
thereby.
(b) At and after the Effective Time, each certificate
("JSB Certificate") previously representing shares of JSB Common Stock
(except as specifically set forth in Section 1.2) shall represent only
the right to receive the Merger Consideration.
(c) Prior to the Effective Time, NFB shall deposit, or
shall cause to be deposited, with such bank or trust company that is
selected by NFB and is reasonably acceptable to JSB to act as exchange
agent ("Exchange Agent"), for the benefit of the holders of shares of JSB
Common Stock, for exchange in accordance with this Section 1.3, an
estimated amount of cash sufficient to pay the aggregate amount of cash in
lieu of fractional shares to be paid pursuant to Section 1.2, and NFB shall
reserve for issuance with its transfer agent and registrar a sufficient
number of shares of NFB Common Stock to provide for payment of the Merger
Consideration.
(d) The Letter of Transmittal shall (i) specify that
delivery shall be effected, and risk of loss and title to the JSB
Certificates shall pass, only upon delivery of the JSB Certificates to the
Exchange Agent, (ii) be in a form and contain any other provisions as NFB
may reasonably determine and (iii) include instructions for use in
effecting the surrender of the JSB Certificates in exchange for the Merger
Consideration. Upon the proper surrender of the JSB Certificates to the
Exchange Agent, together with a properly completed and duly executed Letter
of Transmittal, the holder of such JSB Certificates shall be entitled to
receive in exchange therefor (m) a certificate representing that number of
whole shares of NFB Common Stock that such holder has the right to receive
pursuant to Section 1.2 and (n) a check in the amount equal to the cash in
lieu of fractional shares, if any, that such holder has the right to
receive pursuant to Section 1.2 and any dividends or other distributions to
which such holder is entitled pursuant to this Section 1.3. JSB
Certificates so surrendered shall forthwith be canceled. As soon as
practicable, but no later than 10 business days following receipt of the
properly completed Letter of Transmittal and any necessary accompanying
documentation, the Exchange Agent shall distribute NFB Common Stock and
cash as provided herein. The Exchange Agent shall not be entitled to vote
or exercise any rights of ownership with respect to the shares of NFB
Common Stock held by it from time to time hereunder, except that it shall
receive and hold all dividends or other distributions paid or distributed
with respect to such shares for the account of the persons entitled
thereto. If there is a transfer of ownership of any shares of JSB Common
Stock not registered in the transfer records of JSB, the Merger
Consideration shall be issued to the transferee thereof if the JSB
Certificates representing such JSB Common Stock are presented to the
Exchange Agent, accompanied by all documents required, in the reasonable
judgment of NFB and the Exchange Agent, (x) to evidence and effect such
transfer and (y) to evidence that any applicable stock transfer taxes have
been paid.
(e) No dividends or other distributions declared or made
after the Effective Time with respect to NFB Common Stock shall be remitted
to any person entitled to receive shares of NFB Common Stock hereunder
until such person surrenders his or her JSB Certificates in accordance with
this Section 1.3. Upon the surrender of such person's JSB Certificates,
such person shall be entitled to receive any dividends or other
distributions, without interest thereon, which theretofore had become
payable with respect to shares of NFB Common Stock represented by such
person's JSB Certificates.
(f) From and after the Effective Time there shall be no
transfers on the stock transfer records of JSB of any shares of JSB Common
Stock. If, after the Effective Time, JSB Certificates are presented to NFB,
they shall be canceled and exchanged for the Merger Consideration
deliverable in respect thereof pursuant to this Agreement in accordance
with the procedures set forth in this Section 1.3.
(g) Any portion of the aggregate amount of cash to be
paid in lieu of fractional shares pursuant to Section 1.2, any dividends or
other distributions to be paid pursuant to this Section 1.3 or any proceeds
from any investments thereof that remain unclaimed by the stockholders of
JSB for six months after the Effective Time shall be repaid by the Exchange
Agent to NFB upon the written request of NFB. After such request is made,
any stockholders of JSB who have not theretofore complied with this Section
1.3 shall look only to NFB for the Merger Consideration deliverable in
respect of each share of JSB Common Stock such stockholder holds, as
determined pursuant to Section 1.2 of this Agreement, without any interest
thereon. If outstanding JSB Certificates are not surrendered prior to the
date on which such payments would otherwise escheat to or become the
property of any governmental unit or agency, the unclaimed items shall, to
the extent permitted by any abandoned property, escheat or other applicable
laws, become the property of NFB (and, to the extent not in its possession,
shall be paid over to it), free and clear of all claims or interest of any
person previously entitled to such claims. Notwithstanding the foregoing,
none of NFB, NFB Bank, the Exchange Agent or any other person shall be
liable to any former holder of JSB Common Stock for any amount delivered to
a public official pursuant to applicable abandoned property, escheat or
similar laws.
(h) NFB and the Exchange Agent shall be entitled to rely
upon JSB's stock transfer books to establish the identity of those persons
entitled to receive the Merger Consideration, which books shall be
conclusive with respect thereto. In the event of a dispute with respect to
ownership of stock represented by any JSB Certificate, NFB and the Exchange
Agent shall be entitled to deposit any Merger Consideration represented
thereby in escrow with an independent third party and thereafter be
relieved with respect to any claims thereto.
(i) If any JSB Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such JSB Certificate to be lost, stolen or destroyed and, if
required by the Exchange Agent, the posting by such person of a bond in
such amount as the Exchange Agent may direct as indemnity against any claim
that may be made against it with respect to such JSB Certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
JSB Certificate the Merger Consideration deliverable in respect thereof
pursuant to Section 1.2.
Section 1.4 Stock Options.
(a) Each option to purchase shares of JSB Common Stock
issued by JSB and outstanding at the Effective Time (a "JSB Option")
pursuant to the JSB 1990 Incentive Stock Option Plan, the JSB 1990 Stock
Option Plan for Outside Directors and the JSB 1996 Stock Option Plan
(collectively, the "JSB Option Plans") shall be converted into an option to
purchase shares of NFB Common Stock as follows:
(i) the aggregate number of shares of NFB
Common Stock issuable upon the exercise of the converted JSB Option
after the Effective Time shall be equal to the product of the Exchange
Ratio multiplied by the number of shares of JSB Common Stock issuable
upon exercise of the JSB Option immediately prior to the Effective
Time, such product to be rounded to the nearest whole share of NFB
Common Stock; and
(ii) the exercise price per share of each
converted JSB Option shall be equal to the quotient of the exercise
price of such JSB Option at the Effective Time divided by the Exchange
Ratio, such quotient to be rounded to the nearest whole cent;
provided, however, that, in the case of any JSB Option that is intended to
qualify as an incentive stock option under Section 422 of the Code, the
number of shares of NFB Common Stock issuable upon exercise of and the
exercise price per share for such converted JSB Option determined in the
manner provided above shall be further adjusted in such manner as NFB may
determine to be necessary to conform to the requirements of Section 424(b)
of the Code. Options to purchase shares of NFB Common Stock that arise from
the operation of this Section 1.4 shall be referred to as the "Converted
Options." All Converted Options shall be exercisable for the same period
and otherwise have the same terms and conditions applicable to the JSB
Options that they replace; provided, however, that such exercise period,
terms and conditions shall be further modified if and to the extent
necessary to enable the Merger to qualify for pooling-of-interests
accounting treatment. Prior to the Effective Time, NFB shall take, or cause
to be taken, all necessary action to effect the intent of the provisions
set forth in this Section 1.4.
(b) Prior to the date of the JSB stockholders meeting
contemplated by Section 4.8, JSB shall take, or cause to be taken,
appropriate action under the terms of any stock option plan, agreement or
arrangement under which JSB Options have been granted to provide for the
conversion of JSB Options outstanding at the Effective Time into Converted
Options and to effect any other modifications contemplated by Section
1.4(a).
(c) Concurrently with the reservation of shares of NFB
Common Stock to provide for the payment of the Merger Consideration, NFB
shall take all corporate action necessary to reserve for future issuance a
sufficient additional number of shares of NFB Common Stock to provide for
the satisfaction of its obligations with respect to the Converted Options.
On or before the Effective Time, NFB shall file a registration statement on
Form S-8 (or any successor or other appropriate form) and make any state
filings or obtain state exemptions with respect to the NFB Common Stock
issuable upon exercise of the Converted Options. Within 15 days after the
Effective Time, NFB shall cause to be executed and delivered to each holder
of a Converted Option an agreement, certificate or other instrument, in
such form and of such substance as NFB may reasonably determine, evidencing
such holder's rights with respect to the Converted Options. JSB shall use
its best efforts to obtain from each person holding JSB Options, within 30
days after the date of this Agreement, a waiver of such person's limited
stock appreciation rights for purposes of the Merger, in the form mutually
agreed to by the parties.
Section 1.5 Bank Merger. At the election of NFB, concurrently
with or within 60 days after the execution and delivery of this Agreement,
NFB Bank and JSB Bank shall enter into the Plan of Bank Merger, in the form
attached hereto as Exhibit A, pursuant to which the Bank Merger will be
effected. The parties hereto intend that, if the Plan of Bank Merger is
entered into, the Bank Merger shall become effective promptly following
consummation of the Merger. The Plan of Bank Merger shall provide that the
directors of NFB Bank as the surviving entity of the Bank Merger shall be
all of the directors of NFB Bank serving immediately prior to the Bank
Merger and the additional person who shall become a director of NFB Bank in
accordance with Section 4.13.
Section 1.6 Directors of NFB after Effective Time. At and after
the Effective Time, the directors of NFB shall consist of all of the
directors of NFB serving immediately prior to the Effective Time and the
additional person who shall become a director of NFB in accordance with
Section 4.13.
Section 1.7.Alternative Structure. Notwithstanding anything to the
contrary contained in this Agreement, prior to the Effective Time, NFB may
specify that the structure of the transactions contemplated hereby be
revised and the parties shall enter into such alternative transactions as
NFB may determine to effect the purposes of this Agreement; provided,
however, that such revised structure shall not adversely affect the tax
effects or economic benefits of the transactions contemplated hereby to the
holders of JSB Common Stock, and, further, such revised structure shall not
materially delay the Closing Date (as defined in Section 7.1). This
Agreement and any related documents shall be appropriately amended in order
to reflect any such revised structure.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Disclosure Letters. On or prior to the execution
and delivery of this Agreement, JSB and NFB each shall have delivered to
the other a letter (each, its "Disclosure Letter") setting forth, among
other things, facts, circumstances and events the disclosure of which is
required or appropriate in relation to any or all of their respective
representations and warranties (and making specific reference to the
Section of this Agreement to which they relate), other than Section 2.3(g)
and Section 2.4(g); provided, that (a) no such fact, circumstance or event
is required to be set forth in the Disclosure Letter as an exception to a
representation or warranty if its absence is not reasonably likely to
result in the related representation or warranty being deemed untrue or
incorrect under the standards established by Section 2.2 and (b) the mere
inclusion of a fact, circumstance or event in a Disclosure Letter shall not
be deemed an admission by a party that such item represents a material
exception or that such item is reasonably likely to result in a Material
Adverse Effect (as defined in Section 2.2(b)).
Section 2.2 Standards.
(a) No representation or warranty of JSB or NFB contained
in Sections 2.3 or 2.4, respectively, shall be deemed untrue or incorrect,
and no party hereto shall be deemed to have breached a representation or
warranty, on account of the existence of any fact, circumstance or event
unless, as a direct or indirect consequence of such fact, circumstance or
event, individually or taken together with all other facts, circumstances
or events inconsistent with any paragraph of Sections 2.3 or 2.4, as
applicable, there is reasonably likely to exist a Material Adverse Effect.
JSB's representations, warranties and covenants contained in this Agreement
shall not be deemed to be untrue or breached as a result of effects arising
solely from actions taken in compliance with a written request of NFB.
(b) As used in this Agreement, the term "Material Adverse
Effect" means either:
(i) an effect which is material and adverse to the
business, financial condition or results of operations of JSB or NFB,
as the context may dictate, and its Subsidiaries taken as a whole;
provided, however, that any such effect resulting from any (A)
changes in laws, rules or regulations or generally accepted
accounting principles or interpretations thereof that apply to both
NFB and NFB Bank and JSB and JSB Bank, as the case may be, or (B)
changes in the general level of market interest rates shall not be
considered in determining if a Material Adverse Effect has occurred;
or
(ii) the failure of (x) a representation or warranty
contained in Section 2.3(a)(i) and (iv), Section 2.3(d), Section
2.3(g)(iii), Section 2.4(a)(i) and (iv), Section 2.4(d), Section
2.4(g)(ii) or Section 2.4(l) to be true and correct or (y) a
representation or warranty contained in Section 2.3(b)(i), Section
2.3(c), clause (ii) of Section 2.3(e), the last sentence of Section
2.3(e), Section 2.3(f), Section 2.3(j), the first sentence of Section
2.3(m), Section 2.3(q), Section 2.3(u), Section 2.3(v), the first two
sentences of Section 2.3(bb), Section 2.4(b)(i), Section 2.4(c),
clause (ii) of Section 2.4(e), the last sentence of Section 2.4(e),
Section 2.4(f), Section 2.4(j), the first sentence of Section 2.4(n),
Section 2.4(q), Section 2.4(t) and the first two sentences of 2.4(w)
to be true and correct in all material respects.
(c) For purposes of this Agreement, "knowledge" shall
mean, with respect to a party hereto, actual knowledge of the members of
the Board of Directors of that party, its counsel, any officer of that
party with the title ranking not less than senior vice president and, with
respect to JSB, any Vice President of JSB whose name is listed in Section
4.13(d) hereof.
Section 2.3 Representations and Warranties of JSB. Subject to
Sections 2.1 and 2.2, JSB represents and warrants to NFB that, except as
disclosed in JSB's Disclosure Letter:
(a) Organization(i) JSB is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly registered as a savings and loan holding company under
the Home Owners' Loan Act of 1933, as amended ("HOLA"). JSB Bank is a
savings association duly organized, validly existing and in good standing
under the laws of the United States of America and is a wholly owned
Subsidiary (as defined below) of JSB. Each Subsidiary of JSB, other than
JSB Bank, is a corporation, limited liability company or partnership duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. Each of JSB and its
Subsidiaries has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
As used in this Agreement, unless the context requires otherwise, the term
"Subsidiary" when used with respect to any party means any corporation or
other organization, whether incorporated or unincorporated, which is
consolidated with such party for financial reporting purposes or which is
controlled, directly or indirectly, by such party.
(ii) JSB and each of its Subsidiaries has the requisite
corporate power and authority, and is duly qualified and is in good
standing, to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary.
(iii) JSB's Disclosure Letter sets forth all of JSB's
Subsidiaries and all entities (whether corporations, partnerships or
similar organizations), including the corresponding percentage ownership,
in which JSB owns, directly or indirectly, 5% or more of the ownership
interests as of the date of this Agreement and indicates for each of JSB's
Subsidiaries, as of such date, its jurisdiction of organization and the
jurisdiction(s) wherein it is qualified to do business. All such
Subsidiaries and ownership interests are in compliance with all applicable
laws, rules and regulations relating to direct investments in equity
ownership interests. JSB owns, either directly or indirectly, all of the
outstanding capital stock of each of its Subsidiaries. No Subsidiary of JSB
other than JSB Bank is an "insured depository institution" as defined in
the Federal Deposit Insurance Act, as amended ("FDIA"), and the applicable
regulations thereunder. All of the shares of capital stock of each of the
Subsidiaries of JSB are duly authorized and validly issued, fully paid and
nonassessable and not subject to any preemptive rights and are owned by JSB
or a Subsidiary of JSB free and clear of any claims, liens, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities laws), and there are no agreements or understandings with
respect to the voting or disposition of any such shares.
(iv) The deposits of JSB Bank are insured by the Bank
Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
("FDIC") to the extent provided in the FDIA. JSB Bank is a member
of the Federal Home Loan Bank of New York.
(b) Capital Structure.(i) The authorized capital stock of
JSB consists of 65,000,000 shares of JSB Common Stock and 15,000,000 shares
of preferred stock, par value $.01 per share ("JSB Preferred Stock"). As of
the date of this Agreement: (A) 9,286,897 shares of JSB Common Stock were
issued and outstanding, (B) no shares of JSB Preferred Stock were issued
and outstanding, (C) no shares of JSB Common Stock were reserved for
issuance, except that 952,676 shares of JSB Common Stock were reserved for
issuance pursuant to the JSB Option Plans, which includes 810,676 shares
reserved for issuance upon the exercise of options that have already been
granted under the JSB Option Plans, plus 142,000 shares reserved for
issuance upon the exercise of options that will be automatically granted
pursuant to the terms of the JSB 1996 Option Plan as a result of the
execution of this Agreement, (D) no shares of JSB Preferred Stock were
reserved for issuance and (E) 6,713,103 shares of JSB Common Stock were
held by JSB in its treasury or by its Subsidiaries. The authorized capital
stock of JSB Bank consists of 40,000,000 shares of common stock, par value
$1.00 per share, and 20,000,000 shares of preferred stock, par value $1.00
per share. As of the date of this Agreement, 1,000 shares of such common
stock were outstanding, no shares of such preferred stock were outstanding
and all outstanding shares of such common stock were, and as of the
Effective Time will be, owned by JSB. All outstanding shares of capital
stock of JSB and JSB Bank are duly authorized and validly issued, fully
paid and nonassessable and not subject to any preemptive rights and, with
respect to shares held by JSB in its treasury or by its Subsidiaries, are
free and clear of all claims, liens, encumbrances or restrictions (other
than those imposed by applicable federal or state securities laws) and
there are no agreements or understandings with respect to the voting or
disposition of any such shares. JSB's Disclosure Letter sets forth a
complete and accurate list of all outstanding options to purchase JSB
Common Stock that have been granted pursuant to the JSB Option Plans,
including the dates of grant, exercise prices, dates of vesting, dates of
termination and shares subject to each grant, and all options to purchase
JSB Common Stock that will be automatically granted as a result of the
execution of this Agreement.
(ii) No bonds, debentures, notes or other indebtedness
having the right to vote on any matters on which stockholders may vote
("Voting Debt") of JSB are issued or outstanding.
(iii) As of the date of this Agreement, except for this
Agreement, the JSB Option Agreement, the JSB Option Plans and as set forth
in JSB's Disclosure Letter, neither JSB nor any of its Subsidiaries has or
is bound by any outstanding options, warrants, calls, rights, convertible
securities, commitments or agreements of any character obligating JSB or
any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any additional shares of capital stock of JSB or any of
its Subsidiaries or obligating JSB or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, convertible
security, commitment or agreement. As of the date hereof, there are no
outstanding contractual obligations of JSB or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of JSB
or any of its Subsidiaries.
(c) Authority. Each of JSB and JSB Bank has the requisite
corporate power and authority to enter into this Agreement and the Plan of
Bank Merger, respectively, and, subject to approval of this Agreement by
the requisite vote of JSB's stockholders and receipt of all required
regulatory or governmental approvals, as contemplated by Section 5.1(b) of
this Agreement, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, and, subject to the approval of
this Agreement by JSB's stockholders, the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
actions on the part of JSB and JSB Bank. This Agreement has been duly
executed and delivered by JSB and constitutes a valid and binding
obligation of JSB, enforceable in accordance with its terms subject to
applicable bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity, whether applied in a court of law or a court of
equity.
(d) Stockholder Approval; Fairness Opinion. The
affirmative vote of the holders of a majority of the outstanding shares of
JSB Common Stock entitled to vote on this Agreement is the only vote of the
stockholders of JSB required for approval of this Agreement by JSB and the
consummation by JSB of the Merger and the related transactions contemplated
hereby. JSB has received the written opinion of Northeast Capital &
Advisory, Inc. to the effect that, as of the date hereof, the Exchange
Ratio is fair, from a financial point of view, to JSB's stockholders.
(e) No Violations. The execution, delivery and
performance of this Agreement by JSB do not, and the consummation of the
transactions contemplated hereby will not, constitute (i) assuming
receipt of all Requisite Regulatory Approvals (as defined below) and
requisite stockholder approvals, a breach or violation of, or a default
under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of
JSB or any of its Subsidiaries, or to which JSB or any of its Subsidiaries
(or any of their respective properties) is subject, (ii) a breach or
violation of, or a default under, the certificate of incorporation or
bylaws of JSB or the similar organizational documents of any of its
Subsidiaries or (iii) a breach or violation of, or a default under (or an
event which, with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the properties or assets
of JSB or any of its Subsidiaries, under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or
other agreement, instrument or obligation to which JSB or any of its
Subsidiaries is a party, or to which any of their respective properties or
assets may be subject; and the consummation of the transactions (including
the Bank Merger) contemplated hereby (exclusive of the effect of any
changes effected pursuant to Section 1.7) will not require any approval,
consent or waiver under any such law, rule, regulation, judgment, decree,
order, governmental permit or license or the approval, consent or waiver of
any other party to any such agreement, indenture or instrument, other than
(x) the approval of the holders of a majority of the outstanding shares of
JSB Common Stock and the approval of JSB as the sole stockholder of JSB
Bank and (y) the provision of notice to or the approval of, if required,
the Office of Thrift Supervision ("OTS") under HOLA, the approval, if
required, of the Federal Deposit Insurance Corporation under Section 18(c)
of the FDIA, the approval of the Board of Governors of the Federal Reserve
System ("FRB") under the Bank Holding Company Act of 1956, as amended, and
the approval of the New York State Banking Department ("NYSBD") under the
Banking Law of the State of New York (collectively, the "Requisite
Regulatory Approvals"), and (z) such approvals, consents or waivers as are
required under the federal and state securities or "blue sky" laws in
connection with the transactions contemplated by this Agreement. As of the
date hereof, the executive officers of JSB know of no reason pertaining to
JSB why any of the approvals referred to in this Section 2.3(e) should not
be obtained.
(f) Reports. (i) As of their respective dates, none of
the reports or other statements filed by JSB or JSB Bank on or subsequent
to December 31, 1997 with the Securities and Exchange Commission ("SEC")
(collectively, "JSB's Reports"), contained, or will contain, any untrue
statement of a material fact or omitted or will omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the financial statements of JSB included in JSB's
Reports complied as to form, as of their respective dates of filing with
the SEC, in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with respect
thereto and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods
involved ("GAAP") (except as may be indicated in the notes thereto or, in
the case of unaudited financial statements, as permitted by Form 10-Q of
the SEC). Each of the consolidated statements of condition, consolidated
statements of operations, consolidated statements of cash flows and
consolidated statements of changes in stockholders' equity contained or
incorporated by reference in JSB's Reports (including in each case any
related notes and schedules) fairly presented, or will fairly present, as
the case may be, the financial position, results of operations, cash flows
and stockholders' equity, as the case may be, of the entity or entities to
which it relates for the periods set forth therein (subject, in the case of
unaudited interim statements, to normal year-end audit adjustments that are
not material in amount or effect), in each case in accordance with GAAP,
except as may be noted therein.
(ii) JSB and its Subsidiaries have each timely filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file since December 31, 1996 with (A) the OTS, (B) the FDIC,
(C) the SEC, (D) the NYSE and (E) any other self-regulatory organization
("SRO"), and have paid all fees and assessments due and payable in
connection therewith.
(g) Absence of Certain Changes or Events. Except as
disclosed in JSB's Reports filed on or prior to the date of this Agreement,
since December 31, 1998, (i) JSB and its Subsidiaries have not incurred any
liability, except in the ordinary course of their businesses consistent
with past practice, (ii) JSB and its Subsidiaries have conducted their
respective businesses only in the ordinary and usual course of such
businesses and (iii) there has not been any Material Adverse Effect with
respect to JSB.
(h) Absence of Claims. Except as disclosed in JSB's
Disclosure Letter, no litigation, proceeding, controversy, claim or action
before any court or any federal, state, local or foreign governmental or
regulatory body (each, a "Governmental Entity") is pending against JSB or
any of its Subsidiaries and, to the best of JSB's knowledge, no such
litigation, proceeding, controversy, claim or action has been threatened.
(i) Absence of Regulatory Actions. Neither JSB nor any of
its Subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or any commitment letter or
similar written undertaking to, or is subject to any action, proceeding,
order or directive by, or is a recipient of any extraordinary supervisory
letter from any federal or state governmental authority charged with the
supervision or regulation of depository institutions or depository
institution holding companies or engaged in the insurance of bank and/or
savings and loan deposits (each, a "Bank Regulator"), or has adopted any
board resolutions at the request of any Bank Regulator, nor has it been
advised by any Bank Regulator that it is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting)
any such action, proceeding, order, directive, written agreement,
memorandum of understanding, extraordinary supervisory letter, commitment
letter, board resolutions or similar written undertaking.
(j) Taxes. All federal, state, local and foreign tax
returns required to be filed by or on behalf of JSB or any of its
Subsidiaries have been timely filed or requests for extensions have been
timely filed and any such extension shall have been granted and not have
expired, and all such filed returns are complete and accurate in all
material respects. All taxes shown on such returns, all taxes required to
be shown on returns for which extensions have been granted and all other
taxes required to be paid by JSB or any of its Subsidiaries have been paid
in full or adequate provision has been made for any such taxes on JSB's
balance sheet (in accordance with GAAP). For purposes of this Section
2.3(j), the term "taxes" shall include all federal, state, local or foreign
taxes, charges or other assessments, including, without limitation, income,
franchise, gross receipts, real and personal property, real property
transfer and gains, wage and employment taxes, and the term "tax return"
shall mean any return or other report (including elections, declarations,
disclosures, schedules, estimates and information returns) required to be
filed with respect to any tax. Except as disclosed in JSB's Disclosure
Letter, as of the date of this Agreement, there is no audit examination,
deficiency assessment, tax investigation or refund litigation with respect
to any taxes of JSB or any of its Subsidiaries, and no claim has been made
by any authority in a jurisdiction where JSB or any of its Subsidiaries do
not file tax returns that JSB or any such Subsidiary is subject to taxation
in that jurisdiction. All taxes, interest, additions and penalties due with
respect to completed and settled examinations or concluded litigation
relating to JSB or any of its Subsidiaries have been paid in full or
adequate provision has been made for any such taxes on JSB's balance sheet
(in accordance with GAAP). JSB and its Subsidiaries have not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any material tax due that is currently in effect. JSB and
each of its Subsidiaries has withheld and paid all taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder or other third
party, and JSB and each of its Subsidiaries has timely complied with all
applicable information reporting requirements under Part III, Subchapter A
of Chapter 61 of the Code and similar applicable state and local
information reporting requirements. Neither JSB nor any of its Subsidiaries
(i) has made an election under Section 341(f) of the Code, (ii) has issued
or assumed any obligation under Section 279 of the Code, any high yield
discount obligation as described in Section 163(i) of the Code or any
registration-required obligation within the meaning of Section 163(f)(2) of
the Code that is not in registered form or (iii) is or has been a United
States real property holding corporation within the meaning of Section
897(c)(2) of the Code.
(k) Agreements. (i) Except for the JSB Option Agreement
and arrangements made in the ordinary course of business, and except as
disclosed in JSB's Disclosure Letter, JSB and its Subsidiaries are not
bound by any material contract (as defined in Item 601(b)(10) of Regulation
S-K) to be performed after the date hereof that has not been filed with or
incorporated by reference in JSB's Reports. Except as disclosed in JSB's
Reports filed prior to the date of this Agreement or as disclosed in JSB's
Disclosure Letter, neither JSB nor any of its Subsidiaries is a party to an
oral or written (A) consulting agreement (other than data processing,
software programming and licensing contracts entered into in the ordinary
course of business) not terminable on 60 days' or less notice, (B)
agreement with any executive officer or other key employee of JSB or any of
its Subsidiaries the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction
involving JSB or any of its Subsidiaries of the nature contemplated by this
Agreement or the JSB Option Agreement, (C) agreement with respect to any
employee or director of JSB or any of its Subsidiaries providing any term
of employment or compensation guarantee extending for a period longer than
60 days or for the payment of in excess of $50,000 per annum, (D) agreement
or plan, including any stock option plan, phantom stock or stock
appreciation rights plan, restricted stock plan or stock purchase plan, any
of the benefits of which will be increased, or the vesting or payment of
the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the JSB Option Agreement or
the value of any of the benefits of which will be calculated on the basis
of any of the transactions contemplated by this Agreement or the JSB Option
Agreement or (E) agreement containing covenants that limit the ability of
JSB or any of its Subsidiaries to compete in any line of business or with
any person, or that involve any restriction on the geographic area in
which, or method by which, JSB (including any successor thereof) or any of
its Subsidiaries may carry on its business (other than as may be required
by law or any regulatory agency).
(ii) Neither JSB nor any of its Subsidiaries is in
default under or in violation of any provision of any note, bond,
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement to which it is a party or by which it is bound or to which any of
its respective properties or assets is subject.
(iii) JSB and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all
patents, copyrights, trade secrets, trade names, servicemarks and
trademarks used in its businesses, and neither JSB nor any of its
Subsidiaries has received any notice of conflict with respect thereto that
asserts the right of others. Each of JSB and its Subsidiaries has performed
all the obligations required to be performed by it and are not in default
under any contact, agreement, arrangement or commitment relating to any of
the foregoing.
(l) Labor Matters. Neither JSB nor any of its
Subsidiaries is or has ever been a party to, or is or has ever been bound
by, any collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization with respect to its
employees, nor is JSB or any of its Subsidiaries the subject of any
proceeding asserting that it has committed an unfair labor practice or
seeking to compel it to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike, other labor dispute or
organizational effort involving JSB or any of its Subsidiaries pending or,
to the best of JSB's knowledge, threatened. JSB and its Subsidiaries are in
compliance with applicable laws regarding employment of employees and
retention of independent contractors and are in compliance with applicable
employment tax laws.
(m) Employee Benefit Plans. JSB's Disclosure Letter
contains a complete and accurate list of all pension, retirement, stock
option, stock purchase, stock ownership, savings, stock appreciation right,
profit sharing, deferred compensation, consulting, bonus, group insurance,
severance and other benefit plans, contracts, agreements and arrangements,
including, but not limited to, "employee benefit plans," as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), incentive and welfare policies, contracts, plans and
arrangements and all trust agreements related thereto with respect to any
present or former directors, officers or other employees of JSB or any of
its Subsidiaries (hereinafter collectively referred to as the "JSB Employee
Plans"). Except as disclosed in JSB's Disclosure Letter:
(i) all of the JSB Employee Plans comply in all material
respects with all applicable requirements of ERISA, the Code and
other applicable laws; there has occurred no "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
which is likely to result in the imposition of any penalties or taxes
under Section 502(i) of ERISA or Section 4975 of the Code upon JSB or
any of its Subsidiaries.
(ii) no liability to the Pension Benefit Guaranty
Corporation ("PBGC") has been or is expected by JSB or any of its
Subsidiaries to be incurred with respect to any JSB Employee Plan
which is subject to Title IV of ERISA ("JSB Pension Plan"), or with
respect to any "single-employer plan" (as defined in Section 4001(a)
of ERISA) currently or formerly maintained by JSB or any entity which
is considered one employer with JSB under Section 4001(b)(1) of ERISA
or Section 414 of the Code (a "JSB ERISA Affiliate");
(iii) no JSB Pension Plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, as of the last day of the end of the most recent plan year
ending prior to the date hereof; the fair market value of the assets
of each JSB Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such
JSB Pension Plan as of the end of the most recent plan year with
respect to the respective JSB Pension Plan ending prior to the date
hereof, calculated on the basis of the actuarial assumptions used in
the most recent actuarial valuation for such JSB Pension Plan as of
the date hereof; and no notice of a "reportable event" (as defined in
Section 4043 of ERISA) for which the 30-day reporting requirement has
not been waived has been required to be filed for any JSB Pension
Plan within the 12-month period ending on the date hereof;
(iv) neither JSB nor any of its Subsidiaries has
provided, or is required to provide, security to any JSB Pension Plan
or to any single-employer plan of a JSB ERISA Affiliate pursuant to
Section 401(a)(29) of the Code;
(v) neither JSB, its Subsidiaries, nor any JSB ERISA
Affiliate has contributed to any "multiemployer plan," as defined in
Section 3(37) of ERISA, on or after September 26, 1980;
(vi) each JSB Employee Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is
intended to be qualified under Section 401(a) of the Code ("JSB
Qualified Plan") has received a favorable determination letter from
the Internal Revenue Service ("IRS"), and JSB and its Subsidiaries
are not aware of any circumstances likely to result in revocation of
any such favorable determination letter;
(vii) there is no pending or, to JSB's knowledge,
threatened litigation, administrative action or proceeding relating
to any JSB Employee Plan;
(viii)there has been no announcement or commitment by JSB
or any of its Subsidiaries to create an additional JSB Employee Plan,
or to amend any JSB Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such JSB
Employee Plan; and, except as specifically identified in JSB's
Disclosure Letter, JSB and its Subsidiaries do not have any
obligations for post-retirement or post-employment benefits under any
JSB Employee Plan that cannot be amended or terminated upon 60 days'
notice or less without incurring any liability thereunder, except for
coverage required by Part 6 of Title I of ERISA or Section 4980B of
the Code, or similar state laws, the cost of which is borne by the
insured individuals;
(ix) neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
result in any payment or series of payments by JSB or any of its
Subsidiaries to any person which is an "excess parachute payment" (as
defined in Section 280G of the Code), increase or secure (by way of a
trust or other vehicle) any benefits payable under any JSB Employee
Plan or accelerate the time of payment or vesting of any such
benefit; and
(x) with respect to each JSB Employee Plan, JSB has made
available to NFB a true and correct copy of (A) the annual report on
the applicable form of the Form 5500 series filed with the IRS for
the most recent three plan years, if required to be filed, (B) such
JSB Employee Plan, including amendments thereto, (C) each trust
agreement, insurance contract or other funding arrangement relating
to such JSB Employee Plan, including amendments thereto, (D) the most
recent summary plan description and summary of material modifications
thereto for such JSB Employee Plan, if the JSB Employee Plan is
subject to Title I of ERISA, (E) the most recent actuarial report or
valuation if such JSB Employee Plan is a JSB Pension Plan and any
subsequent changes to the actuarial assumptions contained therein and
(F) the most recent determination letter issued by the IRS if such
JSB Employee Plan is a Qualified Plan.
(n) Termination Benefits. JSB's Disclosure Letter
contains a schedule identifying the types of benefits and other payments
due under the Specified Compensation and Benefit Programs (as defined
herein) for each Named Individual (as defined herein) individually and for
all persons other than the Named Individuals as a group. For purposes
hereof, "Specified Compensation and Benefit Programs" shall include all
employment agreements, change in control agreements, severance or special
termination agreements, severance plans, pension, retirement or deferred
compensation plans for non-employee directors, supplemental executive
retirement programs, tax indemnification agreements, outplacement programs,
cash bonus programs, deferred compensation plans, all performance and/or
bonus plans, stock appreciation right, phantom stock or stock unit plan,
and health, life, disability and other insurance or welfare plans, but
shall not include any tax-qualified pension, profit-sharing or employee
stock ownership plan or any JSB Option Plans. For purposes hereof, "Named
Individual" shall include each non-employee director of JSB or any of its
Subsidiaries and each executive officer of JSB.
(o) Title to Assets. JSB and each of its Subsidiaries has
good and marketable title to its properties and assets (including any
intellectual property asset such as any trademark, servicemark, trade name
or copyright) and property acquired in a judicial foreclosure proceeding or
by way of a deed in lieu of foreclosure or similar transfer, other than
property as to which it is lessee, in which case the related lease is valid
and in full force and effect. Each lease pursuant to which JSB or any of
its Subsidiaries is lessor is valid and in full force and effect and no
lessee under any such lease is in material default or violation of any
provisions of any such lease. All material tangible properties of JSB and
each of its Subsidiaries are in a good state of maintenance and repair,
conform with all applicable ordinances, regulations and zoning laws and are
considered by JSB to be adequate for the current business of JSB and its
Subsidiaries.
(p) Compliance with Laws. JSB and each of its
Subsidiaries has all permits, licenses, certificates of authority, orders
and approvals of, and has made all filings, applications and registrations
with, all Governmental Entities that are required in order to permit it to
carry on its business as it is presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect, and, to the best knowledge of JSB, no suspension or
cancellation of any of them is threatened. Since the date of its
incorporation, the corporate affairs of JSB have not been conducted in
violation of any law, ordinance, regulation, order, writ, rule, decree or
approval of any Governmental Entity. The businesses of JSB and its
Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, order, writ, rule, decree or condition to approval of any
Governmental Entity.
(q) Fees. Other than financial advisory services
performed for JSB by Northeast Capital & Advisory, Inc. pursuant to an
agreement dated May 27, 1999, a true and complete copy of which has been
previously delivered to NFB, neither JSB nor any of its Subsidiaries, nor
any of their respective officers, directors, employees or agents, has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no broker
or finder has acted directly or indirectly for JSB or any of its
Subsidiaries in connection with this Agreement or the transactions
contemplated hereby.
(r) Environmental Matters (i) With respect to JSB and each
of its Subsidiaries, except as disclosed in JSB's Disclosure Letter:
(A) each of JSB and its Subsidiaries and,
to JSB's knowledge, the Participation Facilities (as defined herein)
and the Loan Properties (as defined herein) are, and have been, in
substantial compliance with, and are not liable under, all
Environmental Laws (as defined herein);
(B) there is no suit, claim, action,
demand, executive or administrative order, directive, investigation or
proceeding pending or, to the best of JSB's knowledge, threatened,
before any court, Governmental Entity or board or other forum against
it or any of its Subsidiaries or any Participation Facility (x) for
alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence
of or release into the environment of any Hazardous Material (as
defined herein), whether or not occurring at or on a site owned,
leased or operated by it or any of its Subsidiaries or any
Participation Facility;
(C) to the best of JSB's knowledge, there
is no suit, claim, action, demand, executive or administrative order,
directive, investigation or proceeding pending or threatened before
any court, Governmental Entity or board or other forum relating to or
against any Loan Property (or JSB or any of its Subsidiaries in
respect of such Loan Property) (x) relating to alleged noncompliance
(including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into
the environment of any Hazardous Material, whether or not occurring at
or on a site owned, leased or operated by a Loan Property; and
(D) to the best of JSB's knowledge,
during the period of (l) JSB's or any of its Subsidiaries' ownership
or operation of any of their respective current properties or (m)
JSB's or any of its Subsidiaries' participation in the management of
any Participation Facility, there has been no contamination by or
release of Hazardous Materials in, on, under or affecting such
properties.
(ii) The following definitions apply for purposes of this
Section 2.3(r) and Section 2.4(r): (w) "Loan Property" means any property
in which the applicable party (or any of its Subsidiaries) holds a security
interest, and, where required by the context, includes the owner or
operator of such property, but only with respect to such property; (x)
"Participation Facility" means any facility in which the applicable party
(or any of its Subsidiaries) participates in the management (including all
property held as trustee or in any other fiduciary capacity) and, where
required by the context, includes the owner or operator of such property,
but only with respect to such property; (y) "Environmental Law" means (i)
any federal, state or local law, statute, ordinance, rule, regulation,
code, license, permit, authorization, approval, consent, legal doctrine,
order, directive, executive or administrative order, judgment, decree,
injunction, legal requirement or agreement with any Governmental Entity
relating to (A) the protection, preservation or restoration of the
environment (which includes, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, structures, soil, surface land,
subsurface land, plant and animal life or any other natural resource), or
to human health or safety as it relates to Hazardous Materials, or (B) the
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production, release or
disposal of, Hazardous Materials, in each case as amended and as now in
effect. The term Environmental Law includes all federal, state and local
laws, rules, regulations or requirements relating to the protection of the
environment or health and safety, including, without limitation, (i) the
Federal Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Water Pollution Control Act of 1972, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation and Recovery Act
of 1976 (including, but not limited to, the Hazardous and Solid Waste
Amendments thereto and Subtitle I relating to underground storage tanks),
the Federal Solid Waste Disposal and the Federal Toxic Substances Control
Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Occupational Safety and Health Act of 1970 as it relates to Hazardous
Materials, the Federal Hazardous Substances Transportation Act, the
Emergency Planning and Community Right-To-Know Act, the Safe Drinking Water
Act, the Endangered Species Act, the National Environmental Policy Act, the
Rivers and Harbors Appropriation Act or any so-called "Superfund" or
"Superlien" law, each as amended and as now or hereafter in effect, and
(ii) any common law or equitable doctrine (including, without limitation,
injunctive relief and tort doctrines such as negligence, nuisance, trespass
and strict liability) that may impose liability or obligations for injuries
or damages due to, or threatened as a result of, the presence of or
exposure to any Hazardous Material; and (z) "Hazardous Material" means any
substance (whether solid, liquid or gas) which is or could be detrimental
to human health or safety or to the environment, currently or hereafter
listed, defined, designated or classified as hazardous, toxic, radioactive
or dangerous, or otherwise regulated, under any Environmental Law, whether
by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation,
any toxic waste, pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste, industrial substance, oil or
petroleum, or any derivative or by-product thereof, radon, radioactive
material, asbestos, asbestos-containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
(s) Loan Portfolio; Allowance; Asset Quality. (i) With
respect to each loan owned by JSB or its Subsidiaries in whole or in part
(each, a "Loan"), to the best knowledge of JSB:
(A) the note and the related security
documents are each legal, valid and binding obligations of the maker
or obligor thereof, enforceable against such maker or obligor in
accordance with their terms;
(B) neither JSB nor any of its
Subsidiaries, nor any prior holder of a Loan, has modified the note or
any of the related security documents in any material respect or
satisfied, canceled or subordinated the note or any of the related
security documents except as otherwise disclosed by documents in the
applicable Loan file;
(C) JSB or a Subsidiary is the sole
holder of legal and beneficial title to each Loan (or JSB's applicable
participation interest, as applicable), except as otherwise referenced
on the books and records of JSB;
(D) the note and the related security
documents, copies of which are included in the Loan files, are true
and correct copies of the documents they purport to be and have not
been suspended, amended, modified, canceled or otherwise changed,
except as otherwise disclosed by documents in the applicable Loan
file;
(E) there is no pending or threatened
condemnation proceeding or similar proceeding affecting the property
that serves as security for a Loan, except as otherwise referenced on
the books and records of JSB;
(F) there is no litigation or proceeding
pending or threatened relating to the property that serves as security
for a Loan that would have a material adverse effect upon the related
Loan; and
(G) with respect to a Loan held in the
form of a participation, the participation documentation is legal,
valid, binding and enforceable.
(ii) The allowance for possible losses reflected in JSB's
audited statement of condition at December 31, 1998 was, and the allowance
for possible losses shown on the balance sheets in JSB's Reports for
periods ending after December 31, 1998 will be, adequate, as of the dates
thereof, under GAAP.
(iii) JSB's Disclosure Letter sets forth by category the
amounts of all loans, leases, advances, credit enhancements, other
extensions of credit, commitments and interest-bearing assets of JSB and
its Subsidiaries that have been classified by any bank examiner (whether
regulatory or internal) as "Special Mention," "Substandard," "Doubtful,"
"Loss" or words of similar import, and JSB and its Subsidiaries shall
promptly after the end of any month inform NFB of any such classification
arrived at any time after the date hereof. The other real estate owned
("OREO") included in any non-performing assets of JSB or any of its
Subsidiaries is carried net of reserves at the lower of cost or fair value,
less estimated selling costs, based on current management appraisals or
evaluations to the extent material; provided, however, that "current" shall
mean within the past 12 months. JSB's Disclosure Letter sets forth a list
of the unsold co-operative shares owned by JSB or its Subsidiaries.
(t) Deposits. None of the deposits of JSB or any of its
Subsidiaries is a "brokered" deposit.
(u) Accounting Matters. Except as disclosed in JSB's
Disclosure Letter, neither JSB nor any of its Subsidiaries or, to the best
of its knowledge, any of its other affiliates has, through the date hereof,
taken or agreed to take any action that would prevent NFB from accounting
for the business combination to be effected by the Merger as a
pooling-of-interests, and JSB has no knowledge of any fact or circumstance
that would prevent such accounting treatment.
(v) Antitakeover Provisions Inapplicable. JSB and its
Subsidiaries have taken all actions required to exempt JSB, the Agreement,
the Plan of Bank Merger, the Merger, the Bank Merger and the JSB Option
Agreement from any provisions of an antitakeover nature in their
organization certificates and bylaws, including Article Eighth of JSB's
certificate of incorporation, and the provisions of any federal or state
"antitakeover," "fair price," "moratorium," "control share acquisition" or
similar laws or regulations.
(w) Material Interests of Certain Persons. Except as
disclosed in JSB's Proxy Statement for its 1999 Annual Meeting of
Stockholders, no officer or director of JSB, or any "associate" (as such
term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended ("Exchange Act")) of any such officer or director, has any material
interest in any material contract or property (real or personal), tangible
or intangible, used in or pertaining to the business of JSB or any of its
Subsidiaries. No such interest has been created or modified since the date
of the last regulatory examination of JSB or its Subsidiaries.
(x) Insurance. JSB and its Subsidiaries are presently
insured, and since December 31, 1996, have been insured, for reasonable
amounts with financially sound and reputable insurance companies, against
such risks as companies engaged in a similar business would, in accordance
with good business practice, customarily be insured. All of the insurance
policies and bonds maintained by JSB and its Subsidiaries are in full force
and effect, JSB and its Subsidiaries are not in default thereunder and all
material claims thereunder have been filed in due and timely fashion.
(y) Investment Securities; Borrowings. (i) Except for
investments in Federal Home Loan Bank ("FHLB") stock and pledges to secure
FHLB borrowings and reverse repurchase agreements entered into in
arms-length transactions pursuant to normal commercial terms and conditions
and entered into in the ordinary course of business and restrictions that
exist for securities to be classified as "held to maturity," none of the
investments reflected in the consolidated balance sheet of JSB included in
JSB's Report on Form 10-K for the year ended December 31, 1998, and none of
the investment securities held by it or any of its Subsidiaries since
December 31, 1998, is subject to any restriction (contractual or statutory)
that would materially impair the ability of the entity holding such
investment freely to dispose of such investment at any time.
(ii) Neither JSB nor any Subsidiary is a party to or has
agreed to enter into an exchange-traded or over-the-counter equity,
interest rate, foreign exchange or other swap, forward, future, option,
cap, floor or collar or any other contract that is not included on the
consolidated statements of condition and is a derivative contract
(including various combinations thereof) (each, a "Derivatives Contract")
or owns securities that (A) are referred to generically as "structured
notes," "high risk mortgage derivatives," "capped floating rate notes" or
"capped floating rate mortgage derivatives" or (B) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes, except for those Derivatives Contracts and other
instruments legally purchased or entered into in the ordinary course of
business, consistent with safe and sound banking practices and regulatory
guidance, and listed (as of the date hereof) in JSB's Disclosure Letter or
disclosed in JSB's Reports filed on or prior to the date hereof.
(iii) Set forth in JSB's Disclosure Letter is a true and
complete list of JSB's borrowed funds (excluding deposit accounts) as of
the date hereof.
(z) Indemnification. Except as provided in JSB's
Disclosure Letter, JSB's Employment Agreements or the organization
certificate or bylaws of JSB and its Subsidiaries, neither JSB nor any
Subsidiary is a party to any indemnification agreement with any of its
present or future directors, officers, employees, agents or other persons
who serve or served in any other capacity with any other enterprise at the
request of JSB (a "Covered Person"), and, except as disclosed in JSB's
Disclosure Letter, to the best knowledge of JSB, there are no claims for
which any Covered Person would be entitled to indemnification under the
organization certificate or bylaws of JSB or any of its Subsidiaries, under
any applicable law or regulation or under any indemnification agreement.
(aa) Books and Records. The books and records of JSB and
its Subsidiaries on a consolidated basis have been, and are being,
maintained in accordance with applicable legal and accounting requirements
and reflect in all material respects the substance of events and
transactions that should be included therein.
(bb) Corporate Documents. JSB has made available to NFB
true and complete copies of its certificate of incorporation and bylaws and
of JSB Bank's organization certificate and bylaws. The minute books of JSB
and JSB Bank constitute a complete and correct record of all actions taken
by their respective boards of directors (and each committee thereof) and
their stockholders. The minute books of each of JSB's Subsidiaries
constitutes a complete and correct record of all actions taken by the
respective boards of directors (and each committee thereof) and the
stockholders of each such Subsidiary.
(cc) Liquidation Account. Neither the Merger nor the Bank
Merger will result in any payment or distribution payable out of the
liquidation account of JSB Bank established in connection with JSB Bank's
conversion from mutual to stock form.
(dd) Tax Treatment of the Merger. As of the date hereof,
JSB has no knowledge of any fact or circumstance that would prevent the
Merger or the Bank Merger, if effected, from qualifying as a reorganization
under Section 368(a) of the Code.
(ee) Beneficial Ownership of NFB Common Stock. As of the
date hereof, JSB does not beneficially own any shares of NFB Common Stock
and does not have any option, warrant or right of any kind to acquire the
beneficial ownership of any shares of NFB Common Stock.
(ff) Year 2000 Matters.(i) JSB's Disclosure Letter sets
forth a true and complete copy of JSB's plan to cause all of the
Date-Sensitive Systems owned, leased or used by JSB or any of its
Subsidiaries intended and necessary for use after December 31, 1999, or
licensed to JSB or any of its Subsidiaries for use by JSB or any of its
Subsidiaries, and all of the Date Data of JSB or any of its Subsidiaries to
be Year 2000 Compliant (the "JSB Y2K Plan"). JSB believes that the JSB Y2K
Plan can be substantially achieved on or before September 30, 1999, with
aggregate expenditures under the JSB Y2K Plan not materially in excess of
$200,000.
(ii) The following definitions apply for purposes of this
Section 2.3(ff) and Section 2.4(z): (x) "Date Data" means any data of any
type that includes date information or that is otherwise derived from,
dependent on or related to date information; (y) "Date-Sensitive System"
means, with respect to a particular entity, any software, microcode or
hardware system or component, including any electronic or electronically
controlled system or component, that processes any Date Data and that is
installed in a development or on order by such entity or any Subsidiary of
such entity for its internal use; and (z) "Year 2000 Compliance" means, (A)
with respect to Date Data, that such data are in proper format for all
dates in the twentieth and twenty-first centuries and (B) with respect to
Date-Sensitive Systems, that such system accurately processes all Date
Data, including for the twentieth and twenty-first centuries, without loss
of any functionality or performance, including calculating, comparing,
sequencing, storing and displaying such Date Data (including all leap-year
considerations), when used as a stand-alone system or in combination with
other software or hardware.
(gg) Registration Statement. The information regarding
JSB to be supplied by JSB for inclusion in (i) the Registration Statement
on Form S-4 and/or such other form(s) as may be appropriate to be filed
under the Securities Act of 1933, as amended ("Securities Act"), with the
SEC by NFB for the purpose of, among other things, registering the NFB
Common Stock to be issued to JSB's stockholders in the Merger (as amended
or supplemented from time to time, the "Registration Statement"), or (ii)
the joint proxy statement to be filed with the SEC by JSB and NFB under the
Exchange Act and distributed in connection with JSB's and NFB's respective
meeting of stockholders to vote upon this Agreement (together with the
prospectus included in the Registration Statement, the "Joint Proxy
Statement-Prospectus") will not, at the time such Registration Statement
becomes effective, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they are made, not misleading.
Section 2.4 Representations and Warranties of NFB. Subject to
Sections 2.1 and 2.2, NFB represents and warrants to JSB that, except as
disclosed in NFB's Disclosure Letter:
(a) Organization (i) NFB is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly registered as a bank holding company under the Bank
Holding Company Act of 1956, as amended ("BHCA"). NFB Bank is a bank duly
organized, validly existing and in good standing under the laws of the
State of New York and is a wholly owned Subsidiary of NFB. Each Subsidiary
of NFB, other than NFB Bank, is a corporation, limited liability company or
partnership duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization. Each of NFB and
its Subsidiaries has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
(ii) NFB and each of its Subsidiaries has the requisite
corporate power and authority, and is duly qualified and is in good
standing, to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such
qualification necessary.
(iii) NFB's Disclosure Letter sets forth all of NFB's
Subsidiaries and all entities (whether corporations, partnerships or
similar organizations), including the corresponding percentage ownership,
in which NFB owns, directly or indirectly, 5% or more of the ownership
interests as of the date of this Agreement and indicates for each of NFB's
Subsidiaries, as of such date, its jurisdiction of organization and the
jurisdiction(s) wherein it is qualified to do business. All such
Subsidiaries and ownership interests are in compliance with all applicable
laws, rules and regulations relating to direct investments in equity
ownership interests. NFB owns, either directly or indirectly, all of the
outstanding capital stock of each of its Subsidiaries. No Subsidiary of NFB
other than NFB Bank and Superior Savings of New England is an "insured
depository institution" as defined in the FDIA and the applicable
regulations thereunder. All of the shares of capital stock of each of the
Subsidiaries of NFB are duly authorized and validly issued, fully paid and
nonassessable and not subject to any preemptive rights and are owned by NFB
or a Subsidiary of NFB free and clear of any claims, liens, encumbrances or
restrictions (other than those imposed by applicable federal and state
securities laws) and there are no agreements or understandings with respect
to the voting or disposition of any such shares.
(iv) The deposits of NFB Bank are insured by the BIF or
the Savings Association Insurance Fund of the FDIC to the extent provided
in the FDIA.
(b) Capital Structure.(i) The authorized capital stock of
NFB consists of 200,000,000 shares of NFB Common Stock and 10,000,000
shares of preferred stock, par value $1.00 per share ("NFB Preferred
Stock"). As of the date of this Agreement, (A) 135,767,087 shares of NFB
Common Stock were issued and outstanding, (B) no shares of NFB Preferred
Stock were issued and outstanding, (C) no shares of NFB Common Stock were
reserved for issuance, except that 2,000,000 shares of NFB Common Stock
were reserved for issuance pursuant to the NFB Dividend Reinvestment and
Stock Purchase Plan and 1,973,140 shares of NFB Common Stock were reserved
for issuance pursuant to the NFB 1985 Incentive Stock Option Plan, the NFB
1987 Long-Term Incentive Plan, the NFB 1989 Executive Management and
Compensation Plan, the NFB 1994 Key Employee Stock Plan, the NFB 1997
Non-Officer Stock Plan and the NFB 1998 Stock Compensation Plan (the "NFB
Stock Plans"), (D) no shares of NFB Preferred Stock were reserved for
issuance and (E) 9,359,435 shares of NFB Common Stock were held by NFB in
its treasury or by its Subsidiaries. The authorized capital stock of NFB
Bank consists of 5,500,000 shares of common stock, par value $1.00 per
share, and no shares of preferred stock. As of the date of this Agreement,
5,500,000 shares of such common stock were outstanding, no shares of such
preferred stock were outstanding and all outstanding shares of such common
stock were, and as of the Effective Time will be, owned by NFB. All
outstanding shares of capital stock of NFB and NFB Bank are duly authorized
and validly issued, fully paid and nonassessable and not subject to any
preemptive rights and, with respect to shares held by NFB in its treasury
or by its Subsidiaries, are free and clear of all claims, liens,
encumbrances or restrictions (other than those imposed by applicable
federal or state securities laws) and there are no agreements or
understandings with respect to the voting or disposition of any such
shares.
(ii) No Voting Debt of NFB is issued or outstanding.
(iii) As of the date of this Agreement, except for this
Agreement, the NFB Stock Plans and as set forth in NFB's Disclosure Letter,
neither NFB nor any of its Subsidiaries has or is bound by any outstanding
options, warrants, calls, rights, convertible securities, commitments or
agreements of any character obligating NFB or any of its Subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, any
additional shares of capital stock of NFB or any of its Subsidiaries or
obligating NFB or any of its Subsidiaries to grant, extend or enter into
any such option, warrant, call, right, convertible security, commitment or
agreement. As of the date hereof, there are no outstanding contractual
obligations of NFB or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of NFB or any of its
Subsidiaries.
(c) Authority. Each of NFB and NFB Bank has the requisite
corporate power and authority to enter into this Agreement and the Plan of
Bank Merger, respectively and, subject to approval of this Agreement by the
requisite vote of NFB's stockholders and receipt of all required regulatory
or governmental approvals, as contemplated by Section 5.1(b) of this
Agreement, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement, and, subject to the approval of
this Agreement by NFB's stockholders, the consummation of the transactions
contemplated hereby, have been duly authorized by all necessary corporate
actions on the part of NFB and NFB Bank. This Agreement has been duly
executed and delivered by NFB and constitutes a valid and binding
obligation of NFB, enforceable in accordance with its terms subject to
applicable bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally and subject, as to enforceability, to general
principles of equity, whether applied in a court of law or a court of
equity.
(d) Stockholder Approval; Fairness Opinion. The
affirmative vote of the holders of a majority of the outstanding shares of
NFB Common Stock entitled to vote on this Agreement is the only vote of the
stockholders of NFB required for approval of this Agreement by NFB and the
consummation by NFB of the Merger and the related transactions contemplated
hereby. NFB has received the written opinion of Donaldson, Lufkin &
Jenrette Securities Corporation to the effect that, as of the date hereof,
the Exchange Ratio is fair, from a financial point of view, to NFB's
stockholders.
(e) No Violations. The execution, delivery and
performance of this Agreement by NFB do not, and the consummation of the
transactions contemplated hereby will not, constitute (i) assuming receipt
of all Requisite Regulatory Approvals and requisite stockholder approvals,
a breach or violation of, or a default under, any law, rule or regulation
or any judgment, decree, order, governmental permit or license, or
agreement, indenture or instrument of NFB or any of its Subsidiaries, or to
which NFB or any of its Subsidiaries (or any of their respective
properties) is subject, (ii) a breach or violation of, or a default under,
the certificate of incorporation or bylaws of NFB or the similar
organizational documents of any of its Subsidiaries or (iii) a breach or
violation of, or a default under (or an event which, with due notice or
lapse of time or both, would constitute a default under), or result in the
termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the properties or assets of NFB or any of its
Subsidiaries, under, any of the terms, conditions or provisions of any
note, bond, indenture, deed of trust, loan agreement or other agreement,
instrument or obligation to which NFB or any of its Subsidiaries is a
party, or to which any of their respective properties or assets may be
subject; and the consummation of the transactions (including the Bank
Merger) contemplated hereby (exclusive of the effect of any changes
effected pursuant to Section 1.7) will not require any approval, consent or
waiver under any such law, rule, regulation, judgment, decree, order,
governmental permit or license or the approval, consent or waiver of any
other party to any such agreement, indenture or instrument, other than (x)
the approval of the holders of a majority of the outstanding shares of NFB
Common Stock, (y) the Requisite Regulatory Approvals and (z) such
approvals, consents or waivers as are required under the federal and state
securities or "blue sky" laws in connection with the transactions
contemplated by this Agreement. As of the date hereof, the executive
officers of NFB know of no reason pertaining to NFB why any of the
approvals referred to in this Section 2.4(e) should not be obtained.
(f) Reports. (i) As of their respective dates, none of
the reports or other statements filed by NFB or NFB Bank on or subsequent
to December 31, 1997 with the SEC (collectively, "NFB's Reports"),
contained, or will contain, any untrue statement of a material fact or
omitted or will omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. Each of the
financial statements of NFB included in NFB's Reports complied as to form,
as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto and have been
prepared in accordance with GAAP (except as may be indicated in the notes
thereto or, in the case of unaudited financial statements, as permitted by
Form 10-Q of the SEC). Each of the consolidated statements of condition,
consolidated statements of operations, consolidated statements of cash
flows and consolidated statements of changes in stockholders' equity
contained or incorporated by reference in NFB's Reports (including in each
case any related notes and schedules) fairly presented, or will fairly
present, as the case may be, the financial position, results of operations,
cash flows and stockholders' equity, as the case may be, of the entity or
entities to which it relates for the periods set forth therein (subject, in
the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with GAAP, except as may be noted therein.
(ii) NFB and its Subsidiaries have each timely filed all
material reports, registrations and statements, together with any
amendments required to be made with respect thereto, that they were
required to file since December 31, 1996 with (A) the NYSBD, (B) FRB (C)
the FDIC, (D) the SEC, (E) the NYSE and (F) any other SRO, and have paid
all fees and assessments due and payable in connection therewith.
(g) Absence of Certain Changes or Events. Except as
disclosed in NFB's Reports filed on or prior to the date of this Agreement,
since December 31, 1998, (i) NFB and its Subsidiaries have not incurred any
liability, except in the ordinary course of their businesses
consistent with past practice and (ii) there has not been any Material
Adverse Effect with respect to NFB.
(h) Absence of Claims. Except as disclosed in NFB's
Disclosure Letter, no litigation, proceeding, controversy, claim or action
before any court or Governmental Entity is pending against NFB or any of
its Subsidiaries, and, to the best of NFB's knowledge, no such litigation,
proceeding, controversy, claim or action has been threatened.
(i) Absence of Regulatory Actions. Neither NFB nor any of
its Subsidiaries is a party to any cease and desist order, written
agreement or memorandum of understanding with, or any commitment letter or
similar written undertaking to, or is subject to any action, proceeding,
order or directive by, or is a recipient of any extraordinary supervisory
letter from any Bank Regulator, or has adopted any board resolutions at the
request of any Bank Regulator, nor has it been advised by any Bank
Regulator that it is contemplating issuing or requesting (or is considering
the appropriateness of issuing or requesting) any such action, proceeding,
order, directive, written agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter, board resolutions or
similar written undertaking.
(j) Taxes. All federal, state, local and foreign tax
returns required to be filed by or on behalf of NFB or any of its
Subsidiaries have been timely filed or requests for extensions have been
timely filed and any such extension shall have been granted and not have
expired, and all such filed returns are complete and accurate in all
material respects. All taxes shown on such returns, all taxes required to
be shown on returns for which extensions have been granted and all other
taxes required to be paid by NFB or any of its Subsidiaries have been paid
in full or adequate provision has been made for any such taxes on NFB's
balance sheet (in accordance with GAAP). For purposes of this Section
2.4(j), the terms "taxes" and "tax return" shall have the meanings assigned
to such terms in Section 2.3(j) of this Agreement. Except as disclosed in
NFB's Disclosure Letter, as of the date of this Agreement, there is no
audit examination, deficiency assessment, tax investigation or refund
litigation with respect to any taxes of NFB or any of its Subsidiaries, and
no claim has been made by any authority in a jurisdiction where NFB or any
of its Subsidiaries do not file tax returns that NFB or any such Subsidiary
is subject to taxation in that jurisdiction. All taxes, interest, additions
and penalties due with respect to completed and settled examinations or
concluded litigation relating to NFB or any of its Subsidiaries have been
paid in full or adequate provision has been made for any such taxes on
NFB's balance sheet (in accordance with GAAP). NFB and its Subsidiaries
have not executed an extension or waiver of any statute of limitations on
the assessment or collection of any material tax due that is currently in
effect. NFB and each of its Subsidiaries has withheld and paid all taxes
required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or
other third party, and NFB and each of its Subsidiaries has timely complied
with all applicable information reporting requirements under Part III,
Subchapter A of Chapter 61 of the Code and similar applicable state and
local information reporting requirements. Neither NFB nor any of its
Subsidiaries (i) has made an election under Section 341(f) of the Code,
(ii) has issued or assumed any obligation under Section 279 of the Code,
any high yield discount obligation as described in Section 163(i) of the
Code or any registration-required obligation within the meaning of Section
163(f)(2) of the Code that is not in registered form or (iii) is or has
been a United States real property holding corporation within the meaning
of Section 897(c)(2) of the Code.
(k) Agreements. (i) Except for arrangements made in the
ordinary course of business, and except as disclosed in NFB's Disclosure
Letter, NFB and its Subsidiaries are not bound by any material contract (as
defined in Item 601(b)(10) of Regulation S-K) to be performed after the
date hereof that has not been filed with or incorporated by reference in
NFB's Reports. Except as disclosed in NFB's Reports filed prior to the date
of this Agreement or as disclosed in NFB's Disclosure Letter, neither NFB
nor any of its Subsidiaries is a party to an oral or written agreement
containing covenants that limit the ability of NFB or any of its
Subsidiaries to compete in any line of business or with any person, or that
involve any restriction on the geographic area in which, or method by
which, NFB (including any successor thereof) or any of its Subsidiaries may
carry on its business (other than as may be required by law or any
regulatory agency).
(ii) Neither NFB nor any of its Subsidiaries is in
default under or in violation of any provision of any note, bond,
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement to which it is a party or by which it is bound or to which any of
its respective properties or assets is subject.
(iii) NFB and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all
patents, copyrights, trade secrets, trade names, servicemarks and
trademarks used in its businesses, and neither NFB nor any of its
Subsidiaries has received any notice of conflict with respect thereto that
asserts the right of others. Each of NFB and its Subsidiaries has performed
all the obligations required to be performed by it and are not in default
under any contact, agreement, arrangement or commitment relating to any of
the foregoing.
(l) NFB Common Stock. The shares of NFB Common Stock to
be issued pursuant to this Agreement, when issued in accordance with the
terms of this Agreement, will be duly authorized and validly issued, fully
paid and nonassessable and not subject to any preemptive rights.
(m) Labor Matters. Neither NFB nor any of its Subsidiaries
is or has ever been a party to, or is or has ever been bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization with respect to its
employees, nor is NFB or any of its Subsidiaries the subject of any
proceeding asserting that it has committed an unfair labor practice or
seeking to compel it to bargain with any labor organization as to wages and
conditions of employment, nor is there any strike, other labor dispute or
organizational effort involving NFB or any of its Subsidiaries pending or,
to the best of NFB's knowledge, threatened. NFB and its Subsidiaries are in
compliance with applicable laws regarding employment of employees and
retention of independent contractors and are in compliance with applicable
employment tax laws.
(n) Employee Benefit Plans. NFB's Disclosure Letter
contains a complete and accurate list of all pension, retirement, stock
option, stock purchase, stock ownership, savings, stock appreciation right,
profit sharing, deferred compensation, consulting, bonus, group insurance,
severance and other benefit plans, contracts, agreements and arrangements,
including, but not limited to, "employee benefit plans," as defined in
Section 3(3) of ERISA, incentive and welfare policies, contracts, plans and
arrangements and all trust agreements related thereto with respect to any
present or former directors, officers or other employees of NFB or any of
its Subsidiaries (hereinafter collectively referred to as the "NFB Employee
Plans"). Except as disclosed in NFB's Disclosure Letter:
(i) all of the NFB Employee Plans comply in all material
respects with all applicable requirements of ERISA, the Code and
other applicable laws; there has occurred no "prohibited transaction"
(as defined in Section 406 of ERISA or Section 4975 of the Code)
which is likely to result in the imposition of any penalties or taxes
under Section 502(i) of ERISA or Section 4975 of the Code upon NFB or
any of its Subsidiaries;
(ii) no liability to the PBGC has been or is expected by
NFB or any of its Subsidiaries to be incurred with respect to any NFB
Employee Plan which is subject to Title IV of ERISA ("NFB Pension
Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a) of ERISA) currently or formerly maintained by NFB or
any entity which is considered one employer with NFB under Section
4001(b)(1) of ERISA or Section 414 of the Code (a "NFB ERISA
Affiliate");
(iii) no NFB Pension Plan had an "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, as of the last day of the end of the most recent plan year
ending prior to the date hereof; the fair market value of the assets
of each NFB Pension Plan exceeds the present value of the "benefit
liabilities" (as defined in Section 4001(a)(16) of ERISA) under such
NFB Pension Plan as of the end of the most recent plan year with
respect to the respective NFB Pension Plan ending prior to the date
hereof, calculated on the basis of the actuarial assumptions used in
the most recent actuarial valuation for such NFB Pension Plan as of
the date hereof; and no notice of a "reportable event" (as defined in
Section 4043 of ERISA) for which the 30-day reporting requirement has
not been waived has been required to be filed for any NFB Pension
Plan within the 12-month period ending on the date hereof;
(iv) neither NFB nor any of its Subsidiaries has
provided, or is required to provide, security to any NFB Pension Plan
or to any single-employer plan of a NFB ERISA Affiliate pursuant
to Section 401(a)(29) of the Code;
(v) neither NFB, its Subsidiaries, nor any NFB ERISA
Affiliate has contributed to any "multiemployer plan," as defined in
Section 3(37) of ERISA, on or after September 26, 1980;
(vi) each NFB Employee Plan that is an "employee pension
benefit plan" (as defined in Section 3(2) of ERISA) and which is
intended to be qualified under Section 401(a) of the Code ("NFB
Qualified Plan") has received a favorable determination letter from
the IRS, and NFB and its Subsidiaries are not aware of any
circumstances likely to result in revocation of any such favorable
determination letter;
(vii) there is no pending or, to NFB's knowledge,
threatened litigation, administrative action or proceeding relating
to any NFB Employee Plan;
(viii)there has been no announcement or commitment by NFB
or any of its Subsidiaries to create an additional NFB Employee Plan,
or to amend any NFB Employee Plan, except for amendments required by
applicable law which do not materially increase the cost of such NFB
Employee Plan; and, except as specifically identified in NFB's
Disclosure Letter, NFB and its Subsidiaries do not have any
obligations for post-retirement or post-employment benefits under any
NFB Employee Plan that cannot be amended or terminated upon 60 days'
notice or less without incurring any liability thereunder, except for
coverage required by Part 6 of Title I of ERISA or Section 4980B of
the Code, or similar state laws, the cost of which is borne by the
insured individuals;
(ix) neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
result in any payment or series of payments by NFB or any of its
Subsidiaries to any person which is an "excess parachute payment" (as
defined in Section 280G of the Code), increase or secure (by way of a
trust or other vehicle) any benefits payable under any NFB Employee
Plan or accelerate the time of payment or vesting of any such
benefit; and
(x) with respect to each NFB Employee Plan, NFB has made
available to JSB a true and correct copy of (A) the annual report on
the applicable form of the Form 5500 series filed with the IRS for
the most recent three plan years, if required to be filed, (B) such
NFB Employee Plan, including amendments thereto, (C) each trust
agreement, insurance contract or other funding arrangement relating
to such NFB Employee Plan, including amendments thereto, (D) the most
recent summary plan description and summary of material modifications
thereto for such NFB Employee Plan, if the NFB Employee Plan is
subject to Title I of ERISA, (E) the most recent actuarial report or
valuation if such NFB Employee Plan is an NFB Pension Plan and any
subsequent changes to the actuarial assumptions contained therein and
(F) the most recent determination letter issued by the IRS if such
NFB Employee Plan is a Qualified Plan.
(o) Title to Assets. NFB and each of its Subsidiaries has
good and marketable title to its properties and assets (including any
intellectual property asset such as any trademark, servicemark, trade name
or copyright) and property acquired in a judicial foreclosure proceeding or
by way of a deed in lieu of foreclosure or similar transfer, other than
property as to which it is lessee, in which case the related lease is valid
and in full force and effect. Each lease pursuant to which NFB or any of
its Subsidiaries is lessor is valid and in full force and effect and no
lessee under any such lease is in material default or violation of any
provisions of any such lease. All material tangible properties of NFB and
each of its Subsidiaries are in a good state of maintenance and repair,
conform with all applicable ordinances, regulations and zoning laws and are
considered by NFB to be adequate for the current business of NFB and its
Subsidiaries.
(p) Compliance with Laws. NFB and each of its
Subsidiaries has all permits, licenses, certificates of authority, orders
and approvals of, and has made all filings, applications and registrations
with, all Governmental Entities that are required in order to permit it to
carry on its business as it is presently conducted; all such permits,
licenses, certificates of authority, orders and approvals are in full force
and effect, and, to the best knowledge of NFB, no suspension or
cancellation of any of them is threatened. Since the date of its
incorporation, the corporate affairs of NFB have not been conducted in
violation of any law, ordinance, regulation, order, writ, rule, decree or
approval of any Governmental Entity. The businesses of NFB and its
Subsidiaries are not being conducted in violation of any law, ordinance,
regulation, order, writ, rule, decree or condition to approval of any
Governmental Entity.
(q) Fees. Other than financial advisory services performed
for NFB by Donaldson, Lufkin & Jenrette Securities Corporation pursuant to
an agreement dated July 29, 1999, a true and complete copy of which has
been previously delivered to JSB, neither NFB nor any of its Subsidiaries,
nor any of their respective officers, directors, employees or agents, has
employed any broker or finder or incurred any liability for any financial
advisory fees, brokerage fees, commissions or finder's fees, and no broker
or finder has acted directly or indirectly for NFB or any of its
Subsidiaries in connection with this Agreement or the transactions
contemplated hereby.
(r) Environmental Matters. With respect to NFB and each of
its Subsidiaries, except as disclosed in NFB's Disclosure Letter:
(i) each of NFB and its Subsidiaries and, to
NFB's knowledge, the Participation Facilities and the Loan Properties
are, and have been, in substantial compliance with, and are not liable
under, all Environmental Laws;
(ii) there is no suit, claim, action, demand,
executive or administrative order, directive, investigation or
proceeding pending or, to the best of NFB's knowledge, threatened,
before any court, Governmental Entity or board or other forum against
it or any of its Subsidiaries or any Participation Facility (x) for
alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (y) relating to the presence
of or release into the environment of any Hazardous Material, whether
or not occurring at or on a site owned, leased or operated by it or
any of its Subsidiaries or any Participation Facility;
(iii) to the best of NFB's knowledge, there is no
suit, claim, action, demand, executive or administrative order,
directive, investigation or proceeding pending or threatened before
any court, Governmental Entity or board or other forum relating to or
against any Loan Property (or NFB or any of its Subsidiaries in
respect of such Loan Property) (x) relating to alleged noncompliance
(including by any predecessor) with, or liability under, any
Environmental Law or (y) relating to the presence of or release into
the environment of any Hazardous Material, whether or not occurring at
or on a site owned, leased or operated by a Loan Property; and
(iv) to the best of NFB's knowledge, during the
period of (l) NFB's or any of its Subsidiaries' ownership or operation
of any of their respective current properties or (m) NFB's or any of
its Subsidiaries' participation in the management of any Participation
Facility, there has been no contamination by or release of Hazardous
Materials in, on, under or affecting such properties.
(s) Loan Portfolio; Allowance; Asset Qua(i)y. With
respect to each Loan owned by NFB or its Subsidiaries in whole or in part,
to the best knowledge of NFB:
(A) the note and the related security
documents are each legal, valid and binding obligations of the maker
or obligor thereof, enforceable against such maker or obligor in
accordance with their terms;
(B) neither NFB nor any of its
Subsidiaries nor any prior holder of a Loan has modified the note or
any of the related security documents in any material respect or
satisfied, canceled or subordinated the note or any of the related
security documents except as otherwise disclosed by documents in the
applicable Loan file;
(C) NFB or a Subsidiary is the sole
holder of legal and beneficial title to each Loan (or NFB Bank's
applicable participation interest, as applicable); except as otherwise
referenced on the books and records of NFB;
(D) the note and the related security
documents, copies of which are included in the Loan files, are true
and correct copies of the documents they purport to be and have not
been suspended, amended, modified, canceled or otherwise changed,
except as otherwise disclosed by documents in the applicable Loan
file;
(E) there is no pending or threatened
condemnation proceeding or similar proceeding affecting the property
that serves as security for a Loan, except as otherwise referenced on
the books and records of NFB;
(F) there is no litigation or proceeding
pending or threatened, relating to the property that serves as
security for a Loan that would have a material adverse effect upon the
related Loan; and
(G) with respect to a Loan held in the
form of a participation, the participation documentation is legal,
valid, binding and enforceable.
(ii) The allowance for possible losses reflected in NFB's
audited statement of condition at December 31, 1998 was, and the allowance
for possible losses shown on the balance sheets in NFB's Reports for
periods ending after December 31, 1998 will be, adequate, as of the dates
thereof, under GAAP.
(iii) NFB's Disclosure Letter sets forth by category the
amounts of all loans, leases, advances, credit enhancements, other
extensions of credit, commitments and interest-bearing assets of NFB and
its Subsidiaries that have been classified by any bank examiner (whether
regulatory or internal) as "Special Mention," "Substandard," "Doubtful,"
"Loss" or words of similar import, and NFB and its Subsidiaries shall
promptly after the end of any month inform JSB of any such classification
arrived at any time after the date hereof. The OREO included in any
non-performing assets of NFB or any of its Subsidiaries is carried net of
reserves at the lower of cost or fair value, less estimated selling costs,
based on current independent appraisals or evaluations or current
management appraisals or evaluations; provided, however, that "current"
shall mean within the past 12 months.
(t) Accounting Matters. Except as disclosed in NFB's
Disclosure Letter, neither NFB nor any of its Subsidiaries or, to the best
of its knowledge, any of its other affiliates has, through the date hereof,
taken or agreed to take any action that would prevent NFB from accounting
for the business combination to be effected by the Merger as a
pooling-of-interests, and NFB has no knowledge of any fact or circumstance
that would prevent such accounting treatment.
(u) Insurance. NFB and its Subsidiaries are presently
insured, and since December 31, 1996, have been insured, for reasonable
amounts with financially sound and reputable insurance companies, against
such risks as companies engaged in a similar business would, in accordance
with good business practice, customarily be insured. All of the insurance
policies and bonds maintained by NFB and its Subsidiaries are in full force
and effect, NFB and its Subsidiaries are not in default thereunder and all
material claims thereunder have been filed in due and timely fashion.
(v) Investment Securities; Borrowings. (i) Except for
investments in FHLB Stock and pledges to secure FHLB borrowings and reverse
repurchase agreements entered into in arms-length transactions pursuant to
normal commercial terms and conditions and entered into in the ordinary
course of business and restrictions that exist for securities to be
classified as "held to maturity," none of the investments reflected in the
consolidated balance sheet of NFB included in NFB's Report on Form 10-K for
the year ended December 31, 1998, and none of the investment securities
held by it or any of its Subsidiaries since December 31, 1998 is subject to
any restriction (contractual or statutory) that would materially impair the
ability of the entity holding such investment freely to dispose of such
investment at any time.
(ii) Neither NFB nor any Subsidiary is a party to or has
agreed to enter into any Derivatives Contract or owns securities that (A)
are referred to generically as "structured notes," "high risk mortgage
derivatives," "capped floating rate notes" or "capped floating rate
mortgage derivatives" or (B) are likely to have changes in value as a
result of interest or exchange rate changes that significantly exceed
normal changes in value attributable to interest or exchange rate changes,
except for those Derivatives Contracts and other instruments legally
purchased or entered into in the ordinary course of business, consistent
with safe and sound banking practices and regulatory guidance, and listed
(as of the date hereof) in NFB's Disclosure Letter or disclosed in NFB's
Reports filed on or prior to the date hereof.
(iii) Set forth in NFB's Disclosure Letter is a true and
complete list of NFB's borrowed funds (excluding deposit accounts) as of
the date hereof.
(w) Corporate Documents. NFB has made available to JSB
true and complete copies of its certificate of incorporation and bylaws and
of NFB Bank's organization certificate and bylaws. The minute books of NFB
and NFB Bank constitute a complete and correct record of all actions taken
by their respective boards of directors (and each committee thereof) and
their stockholders. The minute books of each of NFB's Subsidiaries
constitutes a complete and correct record of all actions taken by the
respective boards of directors (and each committee thereof) and the
stockholders of each such Subsidiary.
(x) Tax Treatment of the Merger. As of the date hereof,
NFB has no knowledge of any fact or circumstance that would prevent the
Merger or the Bank Merger, if effected, from qualifying as a reorganization
under Section 368(a) of the Code.
(y) Beneficial Ownership of JSB Common Stock. As of the
date hereof, NFB does not beneficially own any shares of JSB Common Stock
and, other than as contemplated by the JSB Option Agreement, does not have
any option, warrant or right of any kind to acquire the beneficial
ownership of any shares of JSB Common Stock.
(z) Year 2000 Matters. NFB's Disclosure Letter sets forth
a true and complete copy of NFB's plan to cause all of the Date-Sensitive
Systems owned, leased or used by NFB or any of its Subsidiaries intended
and necessary for use after December 31, 1999, or licensed to NFB or any of
its Subsidiaries for use by NFB or any of its Subsidiaries, and all of the
Date Data of NFB or any of its Subsidiaries to be Year 2000 Compliant (the
"NFB Y2K Plan"). NFB believes that the NFB Y2K Plan can be substantially
achieved on or before September 30, 1999, with aggregate expenditures under
the NFB Y2K Plan not materially in excess of $2 million.
(aa) Registration Statement. The information to be
supplied by NFB for inclusion in (i) the Registration Statement or (ii) the
Joint Proxy Statement-Prospectus will not, at the time such Registration
Statement becomes effective, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE III
CONDUCT PENDING THE MERGER
Section 3.1 Conduct of JSB's Business Prior to the Effective Time.
Except as expressly provided in this Agreement, during the period from the
date of this Agreement to the Effective Time, JSB shall, and shall cause
its Subsidiaries to, use commercially reasonable efforts to (i) conduct its
business in the regular, ordinary and usual course consistent with past
practice; (ii) maintain and preserve intact its business organization,
properties, leases, employees and advantageous business relationships and
retain the services of its officers and key employees, (iii) take no action
which would materially adversely affect or delay the ability of JSB or NFB
to perform their respective covenants and agreements on a timely basis
under this Agreement, (iv) take no action which would adversely affect or
delay the ability of JSB, JSB Bank, NFB or NFB Bank to obtain any necessary
approvals, consents or waivers of any governmental authority required for
the transactions contemplated hereby or which would reasonably be expected
to result in any such approvals, consents or waivers containing any
material condition or restriction, and (v) take no action that results in
or is reasonably likely to have a Material Adverse Effect on JSB or JSB
Bank.
Section 3.2 Forbearance by JSB. Without limiting the covenants
set forth in Section 3.1 hereof, except as otherwise provided in this
Agreement and except to the extent required by law or regulation or any
Bank Regulators, during the period from the date of this Agreement to the
Effective Time, JSB shall not, and shall not permit any of its Subsidiaries
to, without the prior consent of NFB, which consent shall not be
unreasonably withheld:
(a) change any provisions of the certificate of
incorporation or bylaws of JSB or the similar governing documents of its
Subsidiaries;
(b) issue any shares of capital stock or change the terms
of any outstanding stock options or warrants or issue, grant or sell any
option, warrant, call, commitment, stock appreciation right, right to
purchase or agreement of any character relating to the authorized or issued
capital stock of JSB, except pursuant to (i) the exercise of stock options
or warrants outstanding as of the date of this Agreement, (ii) the
automatic grant of 142,000 stock options under the JSB 1996 Stock Option
Plan as a result of the execution of this Agreement or (iii) the JSB Option
Agreement; adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend (except for JSB's regular quarterly dividend,
which shall not be increased by more than $.05 per share from the current
level) or make any other distribution on, or directly or indirectly redeem,
purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares
of its capital stock. As promptly as practicable following the date of this
Agreement, the Board of Directors of JSB shall cause its regular quarterly
dividend record dates and payment dates to be the same as NFB's regular
quarterly dividend record dates and payments dates for NFB Common Stock,
and JSB shall not thereafter change its regular dividend payment dates and
record dates. Nothing contained in this Section 3.2(b) or in any other
Section of this Agreement shall be construed to permit holders of shares of
JSB Common Stock to receive two dividends from either JSB or from JSB and
NFB in any one quarter or to deny or prohibit such holders from receiving
one dividend from either JSB or NFB in any quarter. Subject to applicable
regulatory restrictions, if any, JSB Bank may pay a cash dividend that is,
in the aggregate, sufficient to fund any dividend by JSB permitted
hereunder and to allow JSB to make the payments required under Section
4.13(d) of this Agreement;
(c) other than in the ordinary course of business
consistent with past practice and pursuant to policies currently in effect,
sell, transfer, mortgage, encumber or otherwise dispose of any of its
material properties, leases or assets to any individual, corporation or
other entity other than a direct or indirect wholly owned Subsidiary of JSB
or cancel, release or assign any indebtedness of any such individual,
corporation or other entity, except pursuant to contracts or agreements in
force at the date of this Agreement and which have been disclosed to NFB
and except for the sale of unsold cooperative shares owned by JSB or its
Subsidiaries, as disclosed in JSB's Disclosure Letter;
(d) except to the extent required by law or as disclosed
in JSB's Disclosure Letter or specifically provided for elsewhere herein,
(i) increase the compensation or fringe benefits of any of its employees or
directors, other than general increases in compensation in the ordinary
course of business consistent with past practice and, upon consultation
with NFB, the payment of reasonable "stay in place" pay where necessary or
appropriate to retain key employees in an amount not to exceed $500,000 in
the aggregate; (ii) pay any pension or retirement allowance not required by
any existing plan or agreement to any such employees or directors, or
become a party to, amend or commit itself to fund or otherwise establish
any trust or account related to any JSB Employee Plan (as defined in
Section 2.3(m)) with or for the benefit of any employee or director; or
(iii) voluntarily accelerate the vesting of any stock options or other
compensation or benefit;
(e) except as contemplated by Section 4.2, change its
method of accounting as in effect at December 31, 1998, except as required
by changes in GAAP as concurred in by JSB's independent auditors;
(f) settle any claim, action or proceeding involving any
liability of JSB or any of its Subsidiaries for money damages in excess of
$500,000 or impose material restrictions upon the operations of JSB or any
of its Subsidiaries;
(g) acquire or agree to acquire, by merging or
consolidating with, or by purchasing a substantial equity interest in or a
substantial portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any assets, in
each case which are material, individually or in the aggregate, to JSB,
except in satisfaction of debts previously contracted;
(h) except pursuant to commitments existing at the date
hereof which have previously been disclosed to NFB, make any real estate
loans secured by undeveloped land or real estate located outside the States
of New York, New Jersey or Connecticut (other than real estate secured by
one-to-four family homes) or make any construction loan (other than
construction loans secured by one-to-four family homes) outside the States
of New York, New Jersey or Connecticut;
(i) establish or commit to the establishment of any new
branch or other office facilities other than those for which all regulatory
approvals have been obtained;
(j) take, fail to take, or cause to be taken or not taken
any action that would prevent or impede the Merger from qualifying (A) for
pooling-of-interests accounting treatment or (B) as a reorganization within
the meaning of Section 368(a) of the Code; or
(k) make any capital expenditures other than those 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 $500,000 in the aggregate;
(l) enter into any new line of business;
(m) 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 any
of the conditions to the Merger set forth in Article V not being satisfied;
(n) other than in the ordinary course of business
consistent with prudent banking practices, 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) make any equity investment or commitment to make such
an investment in real estate or in any real estate development project,
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;
(p) other than in prior consultation with NFB,
restructure or materially change its investment securities portfolio,
through purchases, sales or otherwise, or the manner in which the portfolio
is classified or reported; or
(q) agree or commit to take any action that is prohibited
by this Section 3.2.
In the event that NFB does not respond in writing to JSB within five
business days of receipt by NFB of a written request for JSB to engage in
any of the actions for which NFB's prior written consent is required
pursuant to this Section 3.2, NFB shall be deemed to have consented to such
action. Any request by JSB or response thereto by NFB shall be made in
accordance with the notice provisions of Section 8.7, shall note that it is
a request pursuant to this Section 3.2 and shall state that a failure to
respond within five business days shall constitute consent.
Section 3.3 Conduct of NFB's Business Prior to the Effective Time.
Except as expressly provided in this Agreement, during the period from the
date of this Agreement to the Effective Time, NFB shall, and shall cause
its Subsidiaries to, use commercially reasonable efforts to (i) conduct its
business in the regular, ordinary and usual course consistent with past
practice; (ii) maintain and preserve intact its business organization,
properties, leases, employees and advantageous business relationships and
retain the services of its officers and key employees, (iii) take no action
which would materially adversely affect or delay the ability of JSB or NFB
to perform their respective covenants and agreements on a timely basis
under this Agreement, (iv) take no action which would adversely affect or
delay the ability of JSB, NFB, JSB Bank or NFB Bank to obtain any necessary
approvals, consents or waivers of any Governmental Entity required for the
transactions contemplated hereby and (v) take no action that results in or
is reasonably likely to have a Material Adverse Effect on NFB.
Section 3.4 Forbearance by NFB. Without limiting the covenants
set forth in Section 3.3 hereof, except as otherwise provided in this
Agreement and except to the extent required by law or regulation or any
Bank Regulators, during the period from the date of this Agreement to the
Effective Time, NFB shall not, and shall not permit any of its Subsidiaries
to, without the prior consent of JSB, which consent shall not be
unreasonably withheld:
(a) change any provisions of the certificate of
incorporation of NFB or the organization certificate of NFB Bank, other
than to increase the authorized capital stock of NFB or to change the par
value of NFB Common Stock;
(b) issue any shares of capital stock or change the terms
of any outstanding stock options or warrants or issue, grant or sell any
option, warrant, call, commitment, stock appreciation right, right to
purchase or agreement of any character relating to the authorized or issued
capital stock of NFB except (i) in transactions permitted under Section
3.4(e), (ii) pursuant to the exercise of stock options or warrants
outstanding as of the date of this Agreement or granted in accordance with
this Section 3.4(b), (iii) for the grant of options under the NFB Stock
Plans consistent with NFB's past practice or (iv) for the issuance of such
number of shares of NFB Common Stock as is necessary to permit the Merger
to be accounted for as a pooling-of-interests; adjust, split, combine or
reclassify any capital stock; or, solely in the case of NFB, make, declare
or pay any dividend (except for NFB's regular quarterly cash dividend) or
make any other distribution on any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares
of its capital stock; provided, however, that nothing contained herein
shall prohibit NFB from increasing the quarterly cash dividend on NFB
Common Stock;
(c) make any acquisition or take any other action that
individually or in the aggregate could materially adversely affect the
ability of NFB to consummate the transactions contemplated hereby, or enter
into any agreement providing for, or otherwise participate in, any merger,
consolidation or other transaction in which NFB or any surviving
corporation may be required not to consummate the Merger or any of the
other transactions contemplated hereby in accordance with the terms of this
Agreement;
(d) take, fail to take, or cause to be taken or not taken
any action that would prevent or impede the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code; provided,
however, that nothing contained herein shall limit the ability of NFB to
exercise its rights under the JSB Option Agreement;
(e) enter into an agreement with respect to an
Acquisition Transaction (as defined below) with a third party; provided,
that the foregoing shall not prevent NFB or any of its Subsidiaries from
entering into any agreement with respect to an Acquisition Transaction if
such action is, in the reasonable judgment of NFB, desirable in the conduct
of the business of NFB and its Subsidiaries and would not, in the
reasonable judgment of NFB, likely delay the Effective Time to a date
subsequent to the date set forth in Section 6.1(d) of this Agreement or
adversely affect the Merger Consideration to be received by JSB's
stockholders pursuant to this Agreement. For purposes of this Agreement,
"Acquisition Transaction" shall mean (x) a merger or consolidation, or any
similar transaction, involving NFB, (y) a purchase, lease or other
acquisition of all or substantially all of the assets of NFB or (z) a
purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of NFB; provided, that the term "Acquisition Transaction" does
not include (i) any internal merger or consolidation involving only NFB and
its Subsidiaries or (ii) any acquisition or acquisitions by NFB subsequent
to August 15, 1999 involving in the aggregate, for all such acquisitions,
the issuance of up to the difference between (1) 10% of the shares of NFB
Common Stock outstanding as of the date hereof and (2) the number of
shares, if any, issued pursuant to Section 3.4(b)(iv), or cash
consideration equal to such number of shares multiplied by $20.44 per
share;
(f) change its method of accounting as in effect at
December 31, 1998, except as required by changes in GAAP as concurred in by
JSB's independent auditors;
(g) 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 any
of the conditions to the Merger set forth in Article V not being satisfied;
or
(h) agree or commit to take any action that is prohibited
by this Section 3.4.
ARTICLE IV
COVENANTS
Section 4.1 Acquisition Proposals. JSB agrees that neither it nor
any of its Subsidiaries, nor any of the respective officers and directors
of JSB or any of its Subsidiaries, shall, and JSB shall not authorize or
permit any of its employees, agents or representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or
any of its Subsidiaries) to, (a) initiate, solicit or encourage, directly
or indirectly, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to JSB's
stockholders) with respect to a merger, consolidation or similar
transaction involving, or any purchase of all or any significant portion of
the assets or any equity securities of, JSB or any of its material
Subsidiaries (any such proposal or offer being hereinafter referred to as
an "Acquisition Proposal") or (b) engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions
with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition
Proposal; provided, however, that nothing contained in this Agreement shall
prevent JSB or its Board of Directors from (i) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal
or (ii) (A) providing information in response to a request therefor by a
person who has made an unsolicited bona fide written Acquisition Proposal
(an "Unsolicited Acquisition Proposal") if the Board of Directors receives
from the person so requesting such information an executed confidentiality
agreement on terms substantially equivalent to those contained in the
confidentiality agreement between NFB and JSB, dated as of July 13, 1999;
or (B) engaging in any negotiations or discussions with any person who has
made an Unsolicited Acquisition Proposal, if and only to the extent that,
in each such case referred to in clause (A) or (B) above, (x) the Board of
Directors of JSB, after consultation with and based upon the written
opinion of outside legal counsel, in good faith deems such action to be
legally necessary for the proper discharge of its fiduciary duties under
applicable law and (y) the Board of Directors of JSB, after consultation
with its financial advisor, determines in good faith that such Unsolicited
Acquisition Proposal, if accepted, is reasonably likely to be consummated,
taking into account all legal, financial and regulatory aspects of the
proposal and the person making the proposal and would, if consummated,
result in a more favorable transaction than the transaction contemplated by
this Agreement, taking into account the prospects and interests of JSB and
its stockholders. JSB will notify NFB immediately orally (within one day)
and in writing (within three days) if any such Unsolicited Acquisition
Proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with JSB after the date hereof, the identity of the person making such
inquiry, proposal or offer and the substance thereof and will keep NFB
informed of any developments with respect thereto immediately upon the
occurrence thereof. Subject to the foregoing, JSB will immediately cease
and cause to be terminated any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of
the foregoing. JSB will take the necessary steps to inform the appropriate
individuals or entities referred to in the first sentence hereof of the
obligations undertaken in this Section 4.1. JSB will promptly request each
person (other than NFB) that has executed a confidentiality agreement prior
to the date hereof in connection with its consideration of a business
combination with JSB or any of its Subsidiaries to return or destroy all
confidential information previously furnished to such person by or on
behalf of JSB or any of its Subsidiaries. JSB shall take all steps
necessary to enforce all such confidentiality agreements.
Section 4.2 Certain Policies of JSB.
(a) At the request of NFB, JSB shall cause JSB Bank to
modify and change its loan, litigation and real estate valuation policies
and practices (including loan classifications and levels of reserves) and
investment and asset/liability management policies and practices after the
date on which all Requisite Regulatory Approvals and stockholder approvals
are received, and after receipt of written confirmation from NFB that it is
not aware of any fact or circumstance that would prevent completion of the
Merger, and prior to the Effective Time so as to be consistent on a
mutually satisfactory basis with those of NFB Bank; provided, however, that
JSB shall not be required to take such action more than 30 days prior to
the Effective Date; and provided, further, that such policies and
procedures are not prohibited by GAAP or any applicable laws and
regulations.
(b) JSB's representations, warranties and covenants
contained in this Agreement shall not be deemed to be untrue or breached in
any respect for any purpose as a consequence of any modifications or
changes undertaken solely on account of this Section 4.2. NFB agrees to
hold harmless, indemnify and defend JSB and its Subsidiaries, and their
respective directors, officers and employees, for any loss, claim,
liability or other damage caused by or resulting from compliance with this
Section 4.2.
Section 4.3 Access and Information.
(a) Upon reasonable notice, JSB and NFB shall (and shall
cause their respective Subsidiaries to) afford to the other and their
respective representatives (including, without limitation, directors,
officers and employees of such party and its affiliates and counsel,
accountants and other professionals retained by such party) such reasonable
access during normal business hours throughout the period prior to the
Effective Time to the books, records (including, without limitation, tax
returns and work papers of independent auditors), properties, personnel and
to such other information as either party may reasonably request; provided,
however, that no investigation pursuant to this Section 4.3 shall affect or
be deemed to modify any representation or warranty made herein. In
furtherance, and not in limitation of the foregoing, JSB shall make
available to NFB all information necessary or appropriate for the
preparation and filing of all real property and real estate transfer tax
returns and reports required by reason of the Merger or the Bank Merger.
NFB and JSB will not, and will cause their respective representatives not
to, use any information obtained pursuant to this Section 4.3 for any
purpose unrelated to the consummation of the transactions contemplated by
this Agreement. Subject to the requirements of applicable law, each of NFB
and JSB will keep confidential, and will cause their respective
representatives to keep confidential, all information and documents
obtained pursuant to this Section 4.3 unless such information (i) was
already known to such party or an affiliate of such party, other than
pursuant to a confidentiality agreement or other confidential relationship,
(ii) becomes available to such party or an affiliate of such party from
other sources not known by such party to be bound by a confidentiality
agreement or other obligation of secrecy, (iii) is disclosed with the prior
written approval of the other party or (iv) is or becomes readily
ascertainable from published information or trade sources. In the event
that this Agreement is terminated or the transactions contemplated by this
Agreement shall otherwise fail to be consummated, each party shall promptly
cause all copies of documents or extracts thereof containing information
and data as to another party hereto (or an affiliate of any party hereto)
to be returned to the party that furnished the same.
(b) During the period of time beginning on the day
application materials to obtain the Requisite Regulatory Approvals for the
Merger are initially filed and continuing to the Effective Time, including
weekends and holidays, JSB shall cause JSB Bank to provide NFB, NFB Bank
and their authorized agents and representatives full access to JSB Bank's
offices after normal business hours for the purpose of installing necessary
wiring and equipment to be utilized by NFB Bank after the Effective Time;
provided, that:
(i) reasonable advance notice of each entry
shall be given to JSB Bank and JSB Bank approves of each entry, which
approval shall not be unreasonably withheld;
(ii) JSB Bank shall have the right to have
its employees or contractors present to inspect the work being done;
(iii) to the extent practicable, such work
shall be done in a manner that will not interfere with JSB Bank's
business conducted at any affected branch offices;
(iv) all such work shall be done in compliance
with all applicable laws and government regulations, and NFB Bank
shall be responsible for the procurement, at NFB Bank's expense, of
all required governmental or administrative permits and approvals;
(v) NFB Bank shall maintain appropriate
insurance satisfactory to JSB Bank in connection with any work done by
NFB Bank's agents and representatives pursuant to this Section 4.3;
(vi) NFB Bank shall reimburse JSB Bank for
any material out-of-pocket costs or expenses incurred by JSB Bank in
connection with this undertaking; and
(vii) in the event this Agreement is terminated
in accordance with Article VI hereof, NFB Bank, within a reasonable
time period and at its sole cost and expense, will restore such
offices to their condition prior to the commencement of any such
installation.
Section 4.4 Certain Filings, Consents and Arrangements. NFB and
JSB shall (a) as soon as practicable (and in any event within 45 days after
the date hereof) make, or cause to be made, any filings and applications
and provide any notices required to be filed or provided in order to obtain
all approvals, consents and waivers of Governmental Entities and third
parties necessary or appropriate for the consummation of the transactions
contemplated hereby or by the JSB Option Agreement; (b) cooperate with one
another in promptly (i) determining what filings and notices are required
to be made or approvals, consents or waivers are required to be obtained
under any relevant federal or state law or regulation or under any relevant
agreement or other document and (ii) making any such filings and notices,
furnishing information required in connection therewith and seeking timely
to obtain any such approvals, consents or waivers; and (c) deliver to the
other copies of the publicly available portions of all such filings,
notices and applications promptly after they are filed.
Section 4.5 Antitakeover Provisions. JSB and its Subsidiaries
shall take all steps required by any relevant federal or state law or
regulation or under any relevant agreement or other document to exempt or
continue to exempt NFB, the Agreement, the Plan of Bank Merger, the Merger,
the Bank Merger and the JSB Option Agreement from any provisions of an
antitakeover nature in JSB's or its Subsidiaries' organization certificates
and bylaws and the provisions of any federal or state antitakeover laws.
Section 4.6 Additional Agreements. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all
actions and to do promptly, or cause to be done promptly, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this
Agreement (including, if the Plan of Bank Merger is executed, the Bank
Merger) as expeditiously as possible, including using efforts to obtain all
necessary actions or non-actions, extensions, waivers, consents and
approvals from all applicable Governmental Entities, effecting all
necessary registrations, applications and filings (including, without
limitation, filings under any applicable state securities laws) and
obtaining any required contractual consents and regulatory approvals.
Section 4.7 Publicity. The initial press release announcing
this Agreement shall be a joint press release and thereafter JSB and NFB
shall consult with each other in issuing any press releases or otherwise
making public statements with respect to the Merger and any other
transaction contemplated hereby and in making any filings with any
Governmental Entity or with any national securities exchange with respect
thereto.
Section 4.8 Stockholders Meetings. JSB and NFB each shall take
all action necessary, in accordance with applicable law and its respective
corporate documents, to convene a meeting of its respective stockholders
(each, a "Stockholder Meeting") as promptly as practicable for the purpose
of considering and voting on approval and adoption of the transactions
provided for in this Agreement. Except to the extent legally required for
the discharge by the Board of Directors of its fiduciary duties as advised
by such Board's counsel in writing, the Board of Directors of each of JSB
and NFB shall (a) recommend at its Stockholder Meeting that the
stockholders vote in favor of and approve the transactions provided for in
this Agreement and (b) use its best efforts to solicit such approvals. JSB
and NFB, in consultation with the other, shall each employ professional
proxy solicitors to assist in contacting stockholders in connection with
soliciting favorable votes on the Merger. JSB and NFB shall coordinate and
cooperate with respect to the timing of their respective Stockholder
Meetings.
Section 4.9 Proxy Statements; Comfort Letters. (i) As soon
as practicable after the date hereof, NFB and JSB shall cooperate with
respect to the preparation of a Joint Proxy Statement-Prospectus for the
purpose of taking stockholder action on the Merger and this Agreement and
file the Joint Proxy Statement- Prospectus with the SEC, respond to
comments of the staff of the SEC and, promptly after the Registration
Statement is declared effective by the SEC, mail the Joint Proxy
Statement-Prospectus to the respective holders of record (as of the
applicable record date) of shares of voting stock of each of JSB and NFB.
NFB and JSB each represents and covenants to the other that the Joint Proxy
Statement-Prospectus, and any amendment or supplement thereto, with respect
to the information pertaining to it or its Subsidiaries at the date of
mailing to its stockholders and the date of its Stockholder Meeting will be
in compliance with the Exchange Act and all relevant rules and regulations
of the SEC and will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated or necessary in order
to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(ii) NFB shall cause KPMG LLP, its independent public
accounting firm, to deliver to JSB, and JSB shall cause KPMG LLP, its
independent public accounting firm, to deliver to NFB and to its officers
and directors who sign the Registration Statement for this transaction, a
"comfort letter" or "agreed upon procedures" letter, in the form
customarily issued by such accountants at such time in transactions of this
type, dated (a) the date of the mailing of the Joint Proxy
Statement-Prospectus for the Stockholders Meeting of JSB and the date of
mailing of the Joint Proxy Statement-Prospectus for the Stockholders
meeting of NFB, respectively, and (b) a date not earlier than five business
days preceding the date of the Closing (as defined in Section 7.1).
Section 4.10Registration of NFB Common Stock.
(a) NFB shall, as promptly as practicable following the
preparation thereof, file the Registration Statement (including any
pre-effective or post-effective amendments or supplements thereto) with the
SEC under the Securities Act in connection with the transactions
contemplated by this Agreement, and NFB and JSB shall use all reasonable
efforts to have the Registration Statement declared effective under the
Securities Act as promptly as practicable after such filing. NFB will
advise JSB promptly after NFB receives notice of the time when the
Registration Statement has become effective or any supplement or amendment
has been filed, of the issuance of any stop order or the suspension of the
qualification of the shares of capital stock issuable pursuant to the
Registration Statement, or the initiation or threat of any proceeding for
any such purpose, or of any request by the SEC for the amendment or
supplement of the Registration Statement or for additional information. NFB
will provide JSB with as many copies of such Registration Statement and all
amendments thereto promptly upon the filing thereof as JSB may reasonably
request.
(b) NFB shall use its reasonable best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary
state securities laws or "blue sky" permits and approvals required to carry
out the transactions contemplated by this Agreement.
(c) NFB shall use its reasonable best efforts to list,
prior to the Effective Time, on the NYSE, or on such other exchange as NFB
Common Stock shall then be trading, subject only to official notice of
issuance, the shares of NFB Common Stock to be issued by NFB in exchange
for the shares of JSB Common Stock.
Section 4.11 Affiliate Letters. Promptly, but in any event
within two weeks after the execution and delivery of this Agreement, JSB
shall deliver to NFB a letter identifying all persons who, to the knowledge
of JSB, may be deemed to be "affiliates" of JSB under Rule 145 of the
Securities Act and the pooling-of-interests accounting rules, including,
without limitation, all directors and executive officers of JSB. Within two
weeks after delivery of such letter, JSB shall deliver executed letter
agreements, each substantially in the form attached hereto as Exhibit B,
executed by each such person so identified as an affiliate of JSB agreeing
(i) to comply with Rule 145, (ii) to refrain from transferring shares as
required by the pooling-of-interests accounting rules and (iii) to be
present in person or by proxy and vote in favor of the Merger at the JSB
Stockholders Meeting. Within four weeks after the date hereof, NFB shall
cause its directors and executive officers to enter into letter agreements,
in the form attached hereto as Exhibit C, with NFB concerning the
pooling-of-interests accounting rules. NFB hereby agrees to publish, or
file a Form 8-K, Form 10-K or Form 10-Q containing, financial results
covering at least 30 days of post-Merger combined operations of NFB and JSB
as soon as practicable, but in no event later than 30 days following the
end of the first calendar month ending at least 30 days after the Effective
Time, in form and substance sufficient to remove the restrictions in
connection with the pooling-of-interests accounting rules contained
therein.
Section 4.12 Notification of Certain Matters. Each party shall
give prompt notice to the others of: (a) any event or notice of, or other
communication relating to, a default or event that, with notice or lapse of
time or both, would become a default, received by it or any of its
Subsidiaries subsequent to the date of this Agreement and prior to the
Effective Time, under any contract material to the financial condition,
properties, businesses or results of operations of each party and its
Subsidiaries taken as a whole to which each party or any Subsidiary is a
party or is subject; and (b) any event, condition, change or occurrence
which individually or in the aggregate has, or which, so far as reasonably
can be foreseen at the time of its occurrence, is reasonably likely to
result in a Material Adverse Effect. Each of JSB and NFB shall give prompt
notice to the other party of any notice or other communication from any
third party alleging that the consent of such third party is or may be
required in connection with any of the transactions contemplated by this
Agreement.
Section 4.13 Directors and Officers.
(a) NFB agrees to cause Park T. Adikes (the "New NFB
Director") to be elected or appointed as a director of NFB and NFB Bank at,
or as promptly as practicable after, the Effective Time; provided, however,
that if Mr. Adikes does not become a director of NFB or NFB Bank because of
death, disability or otherwise, or if Mr. Adikes shall cease to be a
director of NFB or NFB Bank at any time before the third anniversary of the
Effective Time, NFB agrees to cause a person who is a member of the Board
of Directors of JSB as of the date hereof to be elected or appointed as the
New NFB Director.
(b) At the Effective Time, NFB shall cause NFB Bank, or,
if the Bank Merger is not effected, JSB Bank, to assume and honor the JSB
Bank Outside Directors' Consultation and Retirement Plan ("JSB Bank Outside
Directors' Plan") in accordance with the terms and conditions of such plan
as of the date hereof; provided, however, that, notwithstanding any
provision of such plan to the contrary, (i) effective immediately prior to
the Effective Time, the references to "fifteen (15) years" in Section 3 of
the JSB Bank Outside Directors' Plan regarding eligibility shall be amended
so as to refer to "one (1) year" for the purpose of making all eight
outside directors of JSB Bank participants under such plan and (ii) any
outside member of the JSB Bank Board of Directors who does not become a
member of the Board of Directors of NFB Bank from and after the Effective
Time shall have the right to commence receiving benefits under the JSB Bank
Outside Directors' Plan effective as of the Effective Time and shall not be
required to provide consulting services in order to receive such benefits;
provided, further, that in no event shall any amendment or termination of
the JSB Bank Outside Directors' Plan on or after the Effective Time
adversely affect the right of any plan participant, former participant or
beneficiary thereof to receive any benefits under such plan in respect of
participation for any period ending on or before the date on which such
amendment or termination is adopted or, if later, the date on which it is
made effective. NFB Bank and JSB Bank also agree that all individuals who,
prior to the Effective Time, were receiving benefits under the JSB Bank
Outside Directors' Plan shall continue to receive all such benefits from
this plan on the same terms and conditions from and after the Effective
Time.
(c) NFB shall use all reasonable efforts to identify and
offer employment opportunities to qualified, satisfactorily performing
officers and employees of JSB and its Subsidiaries in positions within the
business operations of NFB and its Subsidiaries for which such officers and
employees are qualified. NFB shall give, and shall cause its Subsidiaries
to give, priority consideration to all such officers and employees of JSB
and its Subsidiaries vis-a-vis all individuals other than current officers
and employees of NFB; provided, however, that officers and employees of JSB
and its Subsidiaries who become employed by NFB or its Subsidiaries shall
then be treated on an equal basis with the officers and employees of NFB
and its Subsidiaries.
(d) NFB shall honor (i) the Employment Agreements between
JSB and, respectively, Park T. Adikes, Edward P. Henson, Joanne Corrigan,
Thomas R. Lehmann, Lawrence J. Kane, John F. Bennett, Jack Connors, John J.
Conroy, Bernice Glaz, Teresa D. Covello, Joseph J. Hennessy, Philip Pepe,
Daniel J. Huber and Laurel M. Romito, each as amended and restated as of
June 22, 1999 and (ii) the Employment Agreements between JSB Bank and,
respectively, Park T. Adikes, Edward P. Henson, Joanne Corrigan, Thomas R.
Lehmann, Lawrence J. Kane, John F. Bennett, Jack Connors, John J. Conroy,
Bernice Glaz, Teresa D. Covello, Joseph J. Hennessy, Philip Pepe, Daniel J.
Huber and Laurel M. Romito, each as amended and restated as of June 22,
1999, by permitting JSB to pay to each such individual on the Closing Date
the lump sum amounts that are due under each agreement and by providing any
additional payments or benefits in accordance with the terms of such
Employment Agreements, regardless of whether or not the individual officer
continues employment with NFB or NFB Bank. NFB and JSB have delivered to
each other a good faith reasonable estimate of the amounts payable on the
Closing Date under the Employment Agreements, based upon procedures and
information available at the date of this Agreement, and the procedures
used in preparing such estimates shall be followed in determining the
actual amounts payable under the Employment Agreements on the Closing Date,
which estimate is attached hereto as Schedule 4.13(d).
Section 4.14 Indemnification; Directors' and Officers' Insurance.
(a) From and after the Effective Time through the sixth
anniversary of the Effective Date, NFB agrees to indemnify and hold
harmless each present and former director and officer of JSB and its
Subsidiaries and each officer or employee of JSB and its Subsidiaries that
is serving or has served as a director or trustee of another entity
expressly at JSB's request or direction (each, an "Indemnified Party"),
against any costs or expenses (including reasonable attorneys' fees),
judgments, fines, losses, claims, damages or liabilities (collectively,
"Costs") incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative,
arising out of matters existing or occurring at or prior to the Effective
Time (including the transactions contemplated by this Agreement, including
the entering into of the JSB Option Agreement), whether asserted or claimed
prior to, at or after the Effective Time, and to advance any such Costs to
each Indemnified Party as they are from time to time incurred, in each case
to the fullest extent such Indemnified Party would have been indemnified as
a director, officer or employee of JSB and its Subsidiaries and as then
permitted under applicable law.
(b) Any Indemnified Party wishing to claim indemnification
under Section 4.14(a), upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify NFB thereof, but the
failure to so notify shall not relieve NFB of any liability it may have
hereunder to such Indemnified Party if such failure does not materially
prejudice the indemnifying party. In the event of any such claim, action,
suit, proceeding or investigation, (i) NFB shall have the right to assume
the defense thereof with counsel reasonably acceptable to the Indemnified
Party and NFB shall not be liable to such Indemnified Party for any legal
expenses of other counsel subsequently incurred by such Indemnified Party
in connection with the defense thereof, except that if NFB does not elect
to assume such defense within a reasonable time or counsel for the
Indemnified Party at any time advises that there are issues which raise
conflicts of interest between NFB and the Indemnified Party (and counsel
for NFB does not disagree), the Indemnified Party may retain counsel
satisfactory to such Indemnified Party, and NFB shall remain responsible
for the reasonable fees and expenses of such counsel as set forth above, to
be paid promptly as statements therefor are received; provided, however,
that NFB shall be obligated pursuant to this paragraph (b) to pay for only
one firm of counsel for all Indemnified Parties in any one jurisdiction
with respect to any given claim, action, suit, proceeding or investigation
unless the use of one counsel for such Indemnified Parties would present
such counsel with a conflict of interest; (ii) the Indemnified Party will
reasonably cooperate in the defense of any such matter; and (iii) NFB shall
not be liable for any settlement effected by an Indemnified Party without
its prior written consent, which consent may not be withheld unless such
settlement is unreasonable in light of such claims, actions, suits,
proceedings or investigations against, or defenses available to, such
Indemnified Party.
(c) NFB shall pay all reasonable Costs, including
attorneys' fees, that may be incurred by any Indemnified Party in
successfully enforcing the indemnity and other obligations provided for in
this Section 4.14 to the fullest extent permitted under applicable law. The
rights of each Indemnified Party hereunder shall be in addition to any
other rights such Indemnified Party may have under applicable law.
(d) For a period of six years after the Effective Time,
NFB shall cause the former directors and officers of JSB to be covered by
the policy of directors and officers liability insurance currently
maintained by JSB; provided, however, that NFB may substitute therefor a
policy of at least the same coverage and containing terms no less
advantageous to the beneficiaries thereof than such policies (including,
without limitation, by providing coverage under its existing policy);
provided, however, that in no event shall NFB be obligated to expend, in
order to maintain or provide insurance coverage pursuant to this Section
4.14(d), any premium per annum in excess of 175% of the amount of the
annual premiums paid as of the date hereof by JSB for such insurance
("Maximum Agreement"); provided, further, that if the amount of the annual
premiums necessary to maintain or procure such insurance coverage exceeds
the Maximum Amount, NFB shall obtain the most advantageous coverage of
directors' and officers' insurance obtainable for an annual premium equal
to the Maximum Amount; and provided, further, that officers and directors
of JSB may be required to make application and provide customary
representations and warranties to NFB's insurance carrier for the purpose
of obtaining such insurance.
Section 4.15 Employees; Benefit Plans and Programs.
(a) Each person who is employed by JSB or JSB Bank
immediately prior to the Effective Time (a "JSB Employee") shall, at the
Effective Time, become an employee of NFB or NFB Bank (unless the Bank
Merger is not effected, in which case the references in this Section 4.15
to NFB Bank shall mean JSB Bank). Beginning at the Effective Time, each of
the JSB Employees shall serve NFB or NFB Bank in the same capacity in which
he or she served immediately prior to the Effective Time and upon the same
terms and conditions generally applicable to other employees of NFB or NFB
Bank with comparable positions, with the following special provisions:
(i) No JSB Employee shall be, or have or
exercise the authority of, an officer of NFB or NFB Bank unless and
until elected or appointed an officer of NFB or NFB Bank in accordance
with NFB's or NFB Bank's bylaws.
(ii) At or as soon as practicable following the
Effective Time, NFB and NFB Bank shall establish and implement a
program of compensation and benefits designed to cover all similarly
situated employees on a uniform basis ("New Compensation and Benefits
Program"). The New Compensation and Benefits Program may contain any
combination of new plans, continuations of plans maintained by NFB or
NFB Bank immediately prior to the Effective Time and continuation of
plans maintained by JSB or JSB Bank immediately prior to the Effective
Time as NFB, in its discretion, may determine. To the extent that it
is not practicable to implement any constituent part of the New
Compensation and Benefits Program at the Effective Time, NFB and NFB
Bank shall continue in effect any comparable plan maintained
immediately prior to the Effective Time for the respective employees
of NFB, JSB, NFB Bank and JSB Bank for a transition period. During the
transition period, the persons who were employees of JSB or JSB Bank
immediately prior to the Effective Time who become employees of NFB or
NFB Bank at the Effective Time shall continue to participate in the
plans of JSB and JSB Bank that are continued for transitional
purposes, and all other employees of NFB or NFB Bank will participate
only in the comparable plans of NFB and NFB Bank that are continued
for transitional purposes.
(iii) Each constituent part of the New
Compensation and Benefits Program shall recognize, in the case of
persons employed by NFB, NFB Bank, JSB or JSB Bank immediately prior
to the Effective Time who are also employed by NFB or NFB Bank
immediately after the Effective Time, all service with NFB, NFB Bank,
JSB or JSB Bank as service with NFB and NFB Bank for all purposes,
including eligibility, vesting, benefit accrual and level of matching
contributions; provided, however, that such service shall not be
recognized to the extent that such recognition would result in a
duplication of benefit; provided further, however, that in no event
will such recognition result in any current or former employees of JSB
or any of its Subsidiaries being covered under the post-retirement
medical benefits plan of NFB or any of its Subsidiaries to the extent
such coverage is provided at the expense of NFB or any of its
Subsidiaries.
(iv) In the case of any constituent part of the
New Compensation and Benefits Program which is a life or health
insurance plan: (A) such plan shall not apply any preexisting
condition limitations for conditions covered under the applicable life
or health insurance plans maintained by NFB, NFB Bank, JSB and JSB
Bank as of the Effective Time, (B) each such plan which is a life or
health insurance plan shall honor any deductible and out of pocket
expenses incurred under the applicable life or health insurance plans
maintained by NFB, NFB Bank, JSB and JSB Bank as of the Effective Time
and (C) each such plan which is a life insurance plan shall waive any
medical certification otherwise required in order to assure the
continuation of coverage at a level not less than that in effect
immediately prior to the implementation of such plan (but subject to
any overall limit on the maximum amount of coverage under such plans).
(b) NFB shall assume the obligations of JSB and JSB Bank
with respect to any severance plans or agreements identified in JSB's
Disclosure Letter, as they may be in effect at the Effective Time, and
shall pay amounts thereunder when due; provided, however, that in the event
of the termination of employment of officers and employees of JSB or JSB
Bank within 15 months following the Effective Time, such persons shall be
provided severance benefits equal to the greater of those provided under
the JSB Bank Severance Plan or those provided by NFB or NFB Bank under any
severance plan maintained by NFB or NFB Bank.
(c) Notwithstanding any other provision in this Agreement
to the contrary, officers and employees of JSB and its Subsidiaries who are
covered under the JSB Pension Plan immediately prior to the Effective Time
and who continue to be employed by NFB or its Subsidiaries on and after the
Effective Time shall, if, as of the Effective Time, they either:
(i) are within 10 years of their normal retirement age
(as defined in the JSB Pension Plan) and have a period of service (as
defined in the JSB Pension Plan) of at least 10 years with JSB or its
Subsidiaries, or
(ii) have a period of service (as defined in the JSB Pension
Plan) of at least 25 years with JSB or its Subsidiaries, have the right to
elect to continue to accrue benefits under the benefit accrual formula
under the JSB Pension Plan rather than having their benefits be determined
under the NFB Cash Balance Retirement Plan.
(d) Notwithstanding any other provision in this Agreement
to the contrary, if the Closing Date occurs after December 31, 1999, the
amounts payable to any officer or employee of JSB under the Benefit
Restoration Plan of Jamaica Savings Bank FSB ("JSB Bank BRP") shall be
determined under the actuarial factors and interest rate assumptions in
effect on December 31, 1999 even if such factors and assumptions would
otherwise have changed by the express terms of the JSB Bank BRP, the JSB
Pension Plan, by changes in the law (such as the pension and benefit
provisions of the Uruguay Round Agreements Act of the General Agreement on
Tariffs and Trade ("GATT")), or otherwise, the purpose of this Section
4.15(d) being that any benefits payable under the JSB Bank BRP shall be
determined under the actuarial factors and interest rate assumptions in
effect on December 31, 1999. JSB shall, and shall cause JSB Bank to, take
all actions as shall be necessary to provide that no change-in-control,
termination or severance payments or benefits (including without limitation
any amounts paid under the agreements listed in Section 4.13(d)) will be
taken into account for purposes of determining any amounts payable under
the JSB Bank BRP.
(e) In the event that the Closing Date occurs on or
before December 31, 1999, the employees of JSB Bank shall receive bonuses
in accordance with JSB Bank's past practices (and the amount of such
bonuses shall be based upon such employees' compensation for the entire
year of 1999), and such bonuses shall be paid at least five business days
prior to the Closing Date. In the event that the Closing Date occurs on or
after January 1, 2000, (i) the employees of JSB Bank shall be paid bonuses
in accordance with JSB Bank's past practices (and the amount of such
bonuses shall be based upon such employees' compensation for the entire
year of 1999) for 1999, which shall be paid in December 1999 in accordance
with JSB Bank's past practices, and (ii) the employees of JSB Bank shall be
paid additional bonuses equal to the amounts payable to each such employee
as a bonus for 1999 multiplied by a fraction, the numerator of which is the
number of days in 2000 through and including the Closing Date and the
denominator of which is 366, and such additional bonuses shall be paid at
least five business days prior to the Closing Date. A schedule showing the
aggregate bonus estimates for 1999 is attached hereto as Schedule 4.15(e).
(f) Employees of JSB Bank who have obtained or who have
received approval to obtain, at any time prior to the Closing Date, a loan
or a mortgage loan under the existing JSB Bank employee loan program shall
continue to receive the benefits of such employee loan program, subject to
the terms and conditions of such program; provided, however, that if the
employment of any such employee with JSB Bank or, after the Closing Date,
NFB Bank, shall terminate for any reason other than cause, the interest
rate reduction under the employee loan shall continue in effect
notwithstanding such termination of employment.
(g) Employees of JSB Bank (other than officers) shall be
entitled to receive attendance bonuses in accordance with JSB Bank's past
practices for 1999, and, if the Closing Date occurs after December 31,
1999, such persons shall be entitled to attendance bonuses in accordance
with JSB Bank's past practices for 2000, pro-rated through the Closing Date
in the manner described in Section 4.15(e).
(h) Employees of JSB Bank shall be entitled to receive
payment for accrued but unused vacation days in accordance with JSB Bank's past
practices, and any accrued but unused vacation days of employees of JSB
Bank as of the Closing Date shall, at the employee's option, either be paid
immediately prior to the Closing Date or taken as vacation time as soon as
practicable following the Closing Date; provided, however, that JSB shall
deliver to NFB, not later than 15 business days after the date of this
Agreement, a schedule of employees indicating their accrued but unused
vacation days as of the most recent date practicable. Life insurance and
continued health insurance for retirees of JSB Bank shall be continued in
accordance with JSB Bank's past practices, to the extent that such
continued coverage does not result in a material increase in the costs of
such continued coverage to NFB Bank over the costs of such coverage to JSB
Bank. JSB and NFB agree to use all reasonable efforts to review the
tax-qualified defined benefit plans of both banks with a view towards,
effective as of the Closing Date, continuing, to the extent practicable,
the types and forms of benefits under the JSB Pension Plan for participants
in such JSB Pension Plan whose employment is terminated upon or within
one-year following the Closing Date, particularly with respect to the 100%
joint and survivor form of benefits provided in the event that the
participant dies prior to the commencement of the participant's benefit
payments. JSB Bank shall make a contribution to the JSB Bank Employee Stock
Ownership Plan ("JSB Bank ESOP") for 1999 in accordance with its past
practices and such contribution shall be allocated in accordance with the
terms of the JSB Bank ESOP. A pro-rated JSB Bank contribution shall be made
to the JSB Bank ESOP for the portion of the year 2000 through the Closing
Date.
Section 4.16 Advisory Board. NFB shall, promptly following the
Effective Time, cause all of the members of JSB's Board of Directors as of
the date of this Agreement, other than the New NFB Director, who are
willing to so serve to be elected or appointed as members of NFB's advisory
board ("Advisory Board"), the function of which shall be to advise NFB with
respect to deposit and lending activities in JSB's former market area and
to maintain and develop customer relationships. The members of the Advisory
Board who are willing to so serve shall be elected to serve an initial term
of three years beginning on the Effective Date. Each member of the Advisory
Board shall receive an annual retainer fee for such service of $25,000,
payable in monthly installments or in one lump sum at any time in advance
at the option of NFB, notwithstanding that such Advisory Board members are
receiving benefits under the JSB Bank Outside Directors' Plan. Service on
the Advisory Board shall be considered service as a director of NFB for
purposes of any stock option plan of JSB or NFB.
ARTICLE V
CONDITIONS TO CONSUMMATION
Section 5.1 Conditions to Each Party's Obligations. The
respective obligations of each party to effect the Merger , the Bank Merger
and any other transactions contemplated by this Agreement shall be subject
to the satisfaction of the following conditions:
(a) this Agreement shall have been approved by (i) the
requisite vote of JSB's stockholders in accordance with applicable law and
regulations and (ii) the requisite vote of NFB's stockholders in accordance
with applicable law and regulations;
(b) the Requisite Regulatory Approvals and any necessary
regulatory consents and waivers with respect to this Agreement and the
transactions contemplated hereby shall have been obtained and shall remain
in full force and effect, and all statutory waiting periods shall have
expired;
(c) no party hereto shall be subject to any order, decree
or injunction of a court or agency of competent jurisdiction which enjoins
or prohibits the consummation of the Merger or the Bank Merger;
(d) no statute, rule or regulation shall have been
enacted, entered, promulgated, interpreted, applied or enforced by any
Governmental Entity which prohibits, restricts or makes illegal
consummation of the Merger or the Bank Merger;
(e) the Registration Statement shall have been declared
effective by the SEC and no proceedings shall be pending or threatened by
the SEC to suspend the effectiveness of the Registration Statement; all
required approvals by state securities or "blue sky" authorities with
respect to the transactions contemplated by this Agreement shall have been
obtained; and
(f) NFB shall have caused to be listed on the NYSE, or on
such other market on which shares of NFB Common Stock shall then be
trading, subject only to official notice of issuance, the shares of NFB
Common Stock to be issued by NFB in exchange for the shares of JSB Common
Stock.
Section 5.2 Conditions to the Obligations of NFB and NFB Bank.
The obligations of NFB and NFB Bank to effect the Merger, the Bank Merger
and any other transactions contemplated by this Agreement shall be further
subject to the satisfaction of the following additional conditions, any one
or more of which may be waived by NFB:
(a) each of the obligations of JSB and JSB Bank,
respectively, required to be performed by it at or prior to the Closing
pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects and the representations and
warranties of JSB and JSB Bank contained in this Agreement shall be true
and correct, subject to Sections 2.1 and 2.2, as of the date of this
Agreement and as of the Effective Time as though made at and as of the
Effective Time (except as to any representation or warranty which
specifically relates to an earlier date). NFB shall have received a
certificate to the foregoing effect signed by the chief executive officer
and the chief financial or principal accounting officer of JSB;
(b) all action required to be taken by, or on the part
of, JSB and JSB Bank to authorize the execution, delivery and performance
of this Agreement and the consummation by JSB and JSB Bank of the
transactions contemplated hereby shall have been duly and validly taken by
the Board of Directors and stockholders of JSB or JSB Bank, as the case may
be, and NFB shall have received certified copies of the resolutions
evidencing such authorization;
(c) JSB shall have obtained the consent, waiver or
approval of each person (other than the regulatory approvals or consents
referred to in Section 5.1(b)) whose consent, waiver or approval shall be
required in order to consummate the Merger or the Bank Merger or to permit
the succession by the surviving corporation pursuant to the Merger to any
obligation, right or interest of JSB or its Subsidiaries under any loan or
credit agreement, note, mortgage, indenture, lease, license or other
agreement or instrument to which JSB or its Subsidiaries is a party or is
otherwise bound, except those for which failure to obtain such consents,
waivers and approvals would not, individually or in the aggregate, have a
Material Adverse Effect on NFB (after giving effect to the consummation of
the transactions contemplated hereby) or upon the consummation of the
transactions contemplated hereby;
(d) NFB shall have received certificates (such
certificates to be dated as of a day as close as practicable to the Closing
Date) from appropriate authorities as to the corporate existence and good
standing of JSB and JSB Bank; and
(e) NFB shall have received an opinion of Skadden, Arps,
Slate, Meagher & Flom LLP ("Skadden"), counsel to NFB, dated as of the
Effective Date, in form and substance reasonably satisfactory to NFB,
substantially to the effect that on the basis of the facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing at the Effective Time, the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. In rendering its opinion, Skadden may require
and rely upon, in addition to the review of such matters of fact and law as
Skadden considers appropriate, representations and covenants, including
those contained in certificates of officers of NFB, NFB Bank, JSB, JSB Bank
and others, reasonably satisfactory in form and substance to Skadden.
Section 5.3 Conditions to the Obligations of JSB and JSB Bank.
The obligations of JSB and JSB Bank to effect the Merger, the Bank Merger
and any other transactions contemplated by this Agreement shall be further
subject to the satisfaction of the following additional conditions, any one
or more of which may be waived by JSB:
(a) each of the obligations of NFB and NFB Bank,
respectively, required to be performed by it at or prior to the Closing
pursuant to the terms of this Agreement shall have been duly performed and
complied with in all material respects and the representations and
warranties of NFB and NFB Bank contained in this Agreement shall be true
and correct, subject to Sections 2.1 and 2.2, as of the date of this
Agreement and as of the Effective Time as though made at and as of the
Effective Time (except as to any representation or warranty which
specifically relates to an earlier date). JSB shall have received a
certificate to the foregoing effect signed by the chief executive officer
and the chief financial or principal accounting officer of NFB;
(b) all action required to be taken by, or on the part
of, NFB and NFB Bank to authorize the execution, delivery and performance
of this Agreement and the consummation by NFB and NFB Bank of the
transactions contemplated hereby shall have been duly and validly taken by
the Board of Directors and stockholders of NFB or NFB Bank, as the case may
be, and JSB shall have received certified copies of the resolutions
evidencing such authorization;
(c) NFB shall have obtained the consent, waiver or
approval of each person (other than the governmental approvals or consents
referred to in Section 5.1(b)) whose consent, waiver or approval shall be
required in connection with the transactions contemplated hereby under any
loan or credit agreement, note, mortgage, indenture, lease, license or
other agreement or instrument to which NFB or its Subsidiaries is a party
or is otherwise bound, except those for which failure to obtain such
consents, waivers and approvals would not, individually or in the
aggregate, have a Material Adverse Effect on NFB (after giving effect to
the transactions contemplated hereby) or upon the consummation of the
transactions contemplated hereby;
(d) JSB shall have received certificates (such
certificates to be dated as of a day as close as practicable to the Closing
Date) from appropriate authorities as to the corporate existence and good
standing of NFB and NFB Bank; and
(e) JSB shall have received an opinion of Thacher
Proffitt & Wood ("Thacher Proffitt"), counsel to JSB, dated as of the
Effective Date, in form and substance reasonably satisfactory to JSB,
substantially to the effect that on the basis of the facts, representations
and assumptions set forth in such opinion which are consistent with the
state of facts existing at the Effective Time, the Merger will be treated
for federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. In rendering its opinion, Thacher Proffitt may
require and rely upon, in addition to the review of such matters of fact
and law as Thacher Proffitt considers appropriate, representations and
covenants, including those contained in certificates of officers of NFB,
NFB Bank, JSB, JSB Bank and others, reasonably satisfactory in form and
substance to Thacher Proffitt.
ARTICLE VI
TERMINATION
Section 6.1 Termination. This Agreement may be terminated, and
the Merger abandoned, at or prior to the Effective Date, either before or
after its approval by the stockholders of JSB and NFB:
(a) by the mutual consent of NFB and JSB, if the Board of
Directors of each so determines by vote of a majority of the members of its
entire Board;
(b) by NFB or JSB, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event of (i) the failure of the stockholders of JSB or NFB to approve the
Agreement at its Stockholder Meeting called to consider such approval;
provided, however, that JSB or NFB, as the case may be, shall only be
entitled to terminate the Agreement pursuant to this clause (i) if it has
complied in all material respects with its obligations under Sections 4.8
and 4.9, or (ii) a material breach by the other party hereto of any
representation, warranty, covenant or agreement contained herein which
causes the conditions set forth in Section 5.2(a) (in the case of
termination by NFB) and Section 5.3(a) (in the case of the termination by
JSB) not to be satisfied and such breach is not cured within 25 business
days after written notice of such breach is given to the party committing
such breach by the other party or which breach is not capable of being
cured by the date set forth in Section 6.1(d) or any extension thereof;
(c) by NFB or JSB, by written notice to the other party,
if either (i) any approval, consent or waiver of a Governmental Entity
required to permit consummation of the transactions contemplated hereby
shall have been denied or (ii) any governmental authority of competent
jurisdiction shall have issued a final, unappealable order enjoining or
otherwise prohibiting consummation of the transactions contemplated by this
Agreement;
(d) by NFB or JSB, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event that the Merger is not consummated by February 29, 2000 ("Initial
Termination Date"), unless the failure to so consummate by such time is due
to the breach of any representation, warranty or covenant contained in this
Agreement by the party seeking to terminate; provided, that if, as of such
date, all necessary regulatory or governmental approvals, consents or
waivers required to consummate the transactions contemplated hereby shall
not have been obtained but all other conditions to the consummation of the
Merger (other than the delivery of executed documents at the Closing) shall
be fulfilled, the Initial Termination Date shall be extended to April 30,
2000;
(e) by NFB or JSB, if the Board of Directors of the other
party does not publicly recommend in the Joint Proxy Statement-Prospectus
that its stockholders approve and adopt this Agreement or if, after
recommending in the Joint Proxy Statement-Prospectus that its stockholders
approve and adopt this Agreement, the Board of Directors of the other party
shall have withdrawn, qualified or revised such recommendation in any
respect materially adverse to the party seeking to terminate this
Agreement; or
(f) by JSB, if its Board of Directors so determines by a
majority vote of the members of its entire Board, if both of the following
conditions are satisfied:
(i) the NFB Market Value on the Valuation Date
is less than $16.35; and
(ii) (A) the number obtained by dividing the
NFB Market Value as of the Valuation Date by the Initial NFB Market
Value ("NFB Ratio") shall be less than (B) the number obtained by
dividing the Final Index Price by the Initial Index Price and
subtracting 0.10 from the quotient in this clause (ii)(B) ("Index
Ratio");
subject, however, to the following three sentences. If JSB elects to
exercise its termination right pursuant to this Section 6.1(f), it shall
give written notice thereof to NFB at any time during the five business day
period commencing on the day following the Valuation Date; provided, that
such notice of election to terminate may be withdrawn at any time during
the 15 business day period commencing on the day such notice is received by
NFB. During the five business day period commencing with its receipt of
such notice, NFB shall have the option to increase the consideration to be
received by the holders of JSB Common Stock hereunder by increasing the
Exchange Ratio from 3.0 to a number equal to the lesser of (1) the product
of (x) the Index Ratio plus 0.10 and (y) 3.0, divided by the NFB Ratio or
(2) the quotient obtained by dividing $61.31 by the NFB Market Value. If
NFB so elects, it shall give, within such five business day period, written
notice to JSB of such election and the revised Exchange Ratio, whereupon no
termination shall be deemed to have occurred pursuant to this Section
6.1(f) and this Agreement shall remain in full force and effect in
accordance with its terms (except as the Exchange Ratio shall have been so
modified).
For purposes of this Section 6.1(f), the following terms shall have the
meanings indicated below:
"Acquisition Transaction" shall have the meaning set forth in
Section 3.4(e), without regard to subsection (ii) of the proviso set forth
therein.
"Final Index Price" means the sum of the Final Prices for each
company comprising the Index Group multiplied by the weighting set forth
opposite such company's name in the definition of Index Group
below.
"Final Price," with respect to any company belonging to the
Index Group, means the average of the daily closing sales prices of a share
of common stock of such company (and if there is no closing sales price on
any such day, then the mean between the closing bid and the closing asked
prices on that day), as reported on the consolidated transaction reporting
system for the market or exchange on which such common stock is principally
traded, for the 15 consecutive trading days immediately preceding the
Valuation Date.
"Index Group" means the 23 financial institution holding
companies listed below, the common stock of all of which shall be publicly
traded and as to which there shall not have been an Acquisition Transaction
involving any of such companies publicly announced at any time during the
period beginning on the date of this Agreement and ending on the day
immediately preceding the Valuation Date. In the event that:
(i) the common stock of any of such companies ceases to be
publicly traded, or
(ii) an Acquisition Transaction involving any of such companies
is announced at any time during the period beginning on the date of
this Agreement and ending on the day immediately preceding the
Valuation Date, or
(iii) any such company shall announce at any time during the
period beginning on the date of this Agreement and ending on the day
immediately preceding the Valuation Date that it has entered into a
definitive agreement to acquire insured deposits from another
financial institution in excess of 20% of its deposit base as of the
most recent quarter end for which information is available or intends
to issue additional capital securities in excess of 10% of the total
value of its Tier 1 capital securities outstanding as of the most
recent quarter end for which information is available,
then such company or companies will be removed from the Index Group, and
the weights attributed to the remaining companies will be adjusted
proportionately for purposes of determining the Final Index Price and the
Initial Index Price; provided, however, that, in the event an Acquisition
Transaction is publicly announced which involves only companies that are
listed below, none of such companies shall be removed from the Index Group.
The 23 financial institution holding companies and the weights attributed
to them are as follows:
Holding Company Symbol Weighting
--------------- ------ ---------
Astoria Financial Corporation ASFC 4.26%
CCB Financial Corporation CCB 3.10%
Charter One Financial, Inc. COFI 12.85%
Chittenden Corporation CHZ 2.19%
City National Corporation CYN 3.55%
Dime Community Bancshares, Inc. DCOM 0.99%
First Commonwealth Financial Corporation FCF 2.41%
FirstMerit Corporation FMER 7.03%
Fulton Financial Corporation FULT 5.37%
GreenPoint Financial Corp. GPT 8.48%
Independence Community Bank Corp. ICBC 5.29%
Keystone Financial, Inc. KSTN 3.69%
M & T Bank Corporation MTB 0.61%
Peoples Heritage Financial Group, Inc. PHBK 8.12%
Queens County Bancorp, Inc. QCSB 1.67%
Richmond County Financial Corp. RCBK 2.46%
State Bancorp, Inc. STB 0.54%
Staten Island Bancorp, Inc. SIB 3.19%
Suffolk Bancorp SUBK 0.47%
Summit Bancorp SUB 13.19%
Susquehanna Bancshares, Inc. SUSQ 2.88%
Valley National Bancorp VLY 4.70%
Webster Financial Corporation WBST 2.96%
-------
100.00%
"Initial Index Price" means the sum of the per share closing
sales price of the common stock of each company comprising the Index Group
multiplied by the applicable weighting, as such prices are reported on the
consolidated transaction reporting system for the market or exchange on
which such common stock is principally traded on the trading day
immediately preceding the public announcement of this Agreement.
"Initial NFB Market Value" means the closing sales price of a
share of NFB Common Stock, as reported on the NYSE, on the trading day
immediately preceding the public announcement of this Agreement, adjusted
as indicated in the last sentence of this Section 6.1(f).
"NFB Market Value" shall have the meaning set forth in Section
1.2(b) hereof.
"Valuation Date" shall have the meaning set forth in Section 1.2(c)
hereof.
If NFB or any company belonging to the Index Group declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares or similar transaction between the date of this
Agreement and the Valuation Date, the prices for the common stock of such
company shall be appropriately adjusted for the purposes of applying this
Section 6.1(f).
Section 6.2 Effect of Termination. In the event of the
termination of this Agreement by either NFB or JSB, as provided above, this
Agreement shall thereafter become void and, subject to Section 6.3, there
shall be no liability on the part of any party hereto or their respective
officers or directors, except that (a) any such termination shall be
without prejudice to the rights of any party hereto arising out of the
breach by any other party of any covenant, representation or obligation
contained in this Agreement and (b) the obligations of the parties under
the last three sentences in Section 4.3(a) and under Section 8.6 shall
survive.
Section 6.3 Termination Fee. In recognition of the efforts,
expenses and other opportunities foregone by NFB and JSB, respectively,
while structuring the Merger, the parties hereto agree that:
(a) NFB shall pay to JSB a termination fee of Twelve Million,
Five Hundred Thousand Dollars ($12,500,000) plus JSB's documented,
reasonable out-of-pocket expenses (including fees and expenses of legal,
financial and accounting advisors) in cash on demand if, within 12 months
after the date of this Agreement, after a written bona fide proposal is
made after the date of this Agreement by a third party to NFB or its
stockholders to engage in an Acquisition Transaction (as defined in Section
3.4(e)), other than any Acquisition Transaction permitted pursuant to the
terms of this Agreement, including without limitation Section 3.4(e) (a
"Permitted Transaction"), any of the following occur:
(i) NFB shall have willfully breached any covenant or
obligation contained in this Agreement and such breach would entitle
JSB to terminate the Agreement;
(ii) the stockholders of NFB shall not have approved the
Agreement at the meeting of such stockholders held for the purpose of
voting on the Agreement, such meeting shall not have been held or
shall have been canceled prior to termination of the Agreement; or
(iii) NFB's Board of Directors shall have withdrawn or
modified in a manner adverse to JSB the recommendation of NFB's Board
of Directors with respect to the Agreement; and
(b) NFB shall pay to JSB a termination fee of Twenty-Five
Million Dollars ($25,000,000) plus JSB's documented, reasonable
out-of-pocket expenses (including fees and expenses of legal, financial and
accounting advisors) in cash on demand if, during a period of 18 months
after the date hereof, NFB or any of its Subsidiaries, without having
received JSB's prior written consent, shall have entered into an agreement
to engage in an Acquisition Transaction (as defined in Section 3.4(e)),
other than a Permitted Transaction, with any person (the term "person" for
purposes of this Agreement having the meaning assigned thereto in Sections
3(a)(9) and 13(d)(3) of the Exchange Act and the rules and regulations
thereunder) other than JSB or any of its Subsidiaries or the Board of
Directors of NFB shall have recommended that the stockholders of NFB
approve or accept an Acquisition Transaction other than a Permitted
Transaction with any person other than JSB or any of its Subsidiaries. Any
fee payable to JSB pursuant to Section 6.3(b) shall be reduced dollar for
dollar to the extent that any fee is actually paid pursuant to Section
6.3(a). Notwithstanding the foregoing, NFB shall not be obligated to pay to
JSB the termination fee described in Section 6.3(a) or Section 6.3(b) in
the event that at or prior to such time as such fee becomes payable (i) NFB
and JSB validly terminate this Agreement pursuant to Section 6.1(a), (ii)
NFB or JSB validly terminates this Agreement pursuant to Sections 6.1(c) or
6.1(d), (iii) NFB validly terminates this Agreement pursuant to Section
6.1(b) or Section 6.1(e) or (iv) JSB validly terminates this Agreement
pursuant to Section 6.1(f).
(c) JSB shall pay to NFB a termination fee of Twelve Million,
Five Hundred Thousand Dollars ($12,500,000) plus NFB's documented,
reasonable out-of-pocket expenses (including fees and expenses of legal,
financial and accounting advisors) in cash on demand if, within 12 months
after the date of this Agreement, after a bona fide proposal is made after
the date of this Agreement by a third party to JSB or its stockholders to
engage in an Acquisition Transaction (as defined in the JSB Option
Agreement), any of the following occur:
(i) JSB shall have willfully breached any covenant or
obligation contained in this Agreement and such breach would entitle
NFB to terminate the Agreement;
(ii) the stockholders of JSB shall not have approved the
Agreement at the meeting of such stockholders held for the purpose of
voting on the Agreement, such meeting shall not have been held or
shall have been canceled prior to termination of the Agreement; or
(iii) JSB's Board of Directors shall have withdrawn or
modified in a manner adverse to NFB the recommendation of JSB's Board
of Directors with respect to the Agreement; and
(d) JSB shall pay to NFB a termination fee of Twenty-Five
Million Dollars ($25,000,000) plus NFB's documented, reasonable
out-of-pocket expenses (including fees and expenses of legal, financial and
accounting advisors) in cash on demand if, during a period of 18 months
after the date hereof, JSB or any of its Subsidiaries, without having
received NFB's prior written consent, shall have entered into an agreement
to engage in an Acquisition Transaction (as defined in the JSB Option
Agreement) with any person other than NFB or any of its Subsidiaries or the
Board of Directors of JSB shall have recommended that the stockholders of
JSB approve or accept an Acquisition Transaction (as defined in the JSB
Option Agreement) with any person other than NFB or any of its
Subsidiaries. Any fee payable to NFB pursuant to this Section 6.3(d) shall
be reduced dollar for dollar to the extent that any fee is actually paid
pursuant to Section 6.3(c). Notwithstanding the foregoing, JSB shall not be
obligated to pay to NFB the termination fee described in Section 6.3(c) or
Section 6.3(d) in the event that at or prior to such time as such fee
becomes payable (i) NFB and JSB validly terminate this Agreement pursuant
to Section 6.1(a), (ii) NFB or JSB validly terminates this Agreement
pursuant to Sections 6.1(c) or 6.1(d) or (iii) JSB validly terminates this
Agreement pursuant to Section 6.1(b), Section 6.1(e) or Section 6.1(f).
ARTICLE VII
CLOSING, EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1 Effective Date and Effective Time. The closing of
the transactions contemplated hereby ("Closing") shall take place at the
offices of Thacher Proffitt & Wood, Two World Trade Center, New York, New
York 10048, on a date ("Closing Date") that is no later than five business
days following the date on which the expiration of the last applicable
waiting period in connection with notices to and approvals of regulatory
and governmental authorities shall occur and all conditions to the
consummation of this Agreement are satisfied or waived, or on such other
date as may be agreed to by the parties. Prior to the Closing Date, NFB and
JSB shall execute a Certificate of Merger in accordance with all
appropriate legal requirements, which shall be filed as required by law on
the Closing Date, and the Merger provided for therein shall become
effective upon such filing or on such date as may be specified in such
Certificate of Merger. The date of such filing or such later effective date
as specified in the Certificate of Merger is herein referred to as the
"Effective Date." The "Effective Time" of the Merger shall be as set forth
in the Certificate of Merger.
Section 7.2 Deliveries at the Closing. Subject to the provisions
of Articles V and VI, on the Closing Date there shall be delivered to NFB
and JSB the documents and instruments required to be delivered under
Article V.
ARTICLE VIII
CERTAIN OTHER MATTERS
Section 8.1 Certain Definitions; Interpretation. As used in this
Agreement, the following terms shall have the meanings indicated:
"material" means material to NFB or JSB (as the case may be) and
its respective Subsidiaries, taken as a whole.
"person" includes an individual, corporation, limited liability
company, partnership, association, trust or unincorporated organization.
When a reference is made in this Agreement to Sections, Exhibits or
Schedules, such reference shall be to a Section of, Exhibit or Schedule to,
this Agreement unless otherwise indicated. The table of contents and
headings contained in this Agreement are for ease of reference only and
shall not affect the meaning or interpretation of this Agreement. Whenever
the words "include," "includes" or "including" are used in this Agreement,
they shall be deemed followed by the words "without limitation." Any
singular term in this Agreement shall be deemed to include the plural, and
any plural term the singular. Any reference to gender in this Agreement
shall be deemed to include any other gender.
Section 8.2 Survival. Only those agreements and covenants of
the parties that are by their terms applicable in whole or in part after
the Effective Time, including Sections 4.3(a), 4.13, 4.14, 4.15, 4.16, 4.17
and 8.6 of this Agreement, shall survive the Effective Time. All other
representations, warranties, agreements and covenants shall not survive the
Effective Time. If the Agreement shall be terminated, the agreements of the
parties in the last three sentences of Section 4.3(a) and in Section 8.6
shall survive such termination.
Section 8.3 Waiver; Amendment. Prior to the Effective Time, any
provision of this Agreement may be: (i) waived in writing by the party
benefitted by the provision or (ii) amended or modified at any time
(including the structure of the transaction) by an agreement in writing
between the parties hereto except that, after the vote by the stockholders
of JSB or NFB, no amendment or modification may be made that would reduce
the Merger Consideration or contravene any provision of the Delaware
General Corporation Law or the federal banking laws, rules and regulations.
Section 8.4 Counterparts. This Agreement may be executed in
counterparts each of which shall be deemed to constitute an original, but
all of which together shall constitute one and the same instrument.
Section 8.5 Governing Law. This Agreement shall be governed by,
and interpreted in accordance with, the laws of the State of New York,
without regard to conflicts of laws principles.
Section 8.6 Expenses. Each party hereto will bear all expenses
incurred by it in connection with this Agreement and the transactions
contemplated hereby.
Section 8.7 Notices. All notices, requests, acknowledgments and
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, overnight courier or
facsimile transmission (confirmed in writing) to such party at its address
or facsimile number set forth below or such other address or facsimile
transmission as such party may specify by notice to the other party hereto.
If to JSB, to:
JSB Financial, Inc.
303 Merrick Road
Lynbrook, New York 11563
Facsimile: (516) 887-6007
Attention: Mr. Park T. Adikes
Chairman of the Board and
Chief Executive Officer
With copies to:
JSB Financial, Inc.
303 Merrick Road
Lynbrook, New York 11563
Facsimile: (516) 887-6007
Attention: Mr. Lawrence J. Kane
Executive Vice President
and
Douglas J. McClintock, Esq.
Thacher Proffitt & Wood
Two World Trade Center
New York, New York 10048
Facsimile: 212-432-2898
If to NFB, to:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Facsimile: (516) 844-1471
Attention: Mr. John Adam Kanas
Chairman, President and
Chief Executive Officer
With copies to:
North Fork Bancorporation, Inc.
275 Broad Hollow Road
Melville, New York 11747
Facsimile: (516) 844-1471
Attention: Mr. Daniel M. Healy
Executive Vice President and
Chief Financial Officer
and
William S. Rubenstein, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Facsimile: (212) 735-2000
Section 8.8 Entire Agreement; etc. This Agreement, together
with the Plan of Bank Merger, the JSB Option Agreement and the Disclosure
Letters, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and
all other oral or written agreements heretofore made. All terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns.
Except for Section 4.13 (other than Section 4.13(c)) and Section 4.14,
which confer rights on the parties described therein, nothing in this
Agreement is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 8.9 Assignment. This Agreement may not be assigned by
either party hereto without the written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of the date
first above written.
NORTH FORK BANCORPORATION, INC.
By: /s/ John Adam Kanas
----------------------------------------
Chairman of the Board, President and
Chief Executive Officer
JSB FINANCIAL, INC.
By:/s/ Park T. Adikes
----------------------------------------
Park T. Adikes
Chairman of the Board and
Chief Executive Officer
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this Current Report on Form 8-K of North Fork Bancorporation, Inc. of our
report dated July 21, 1999 included in Reliance Bancorp, Inc.'s Form 10-K
for the year ended June 30, 1999 and to all references to our Firm included
in this Current Report.
/s/ Arthur Andersen LLP
- --------------------------
Arthur Andersen LLP
New York, New York
December 29, 1999
EXHIBIT 23.2
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Reliance Bancorp, Inc.:
We consent to the inclusion of our report dated July 23, 1998 with respect
to the consolidated statement of financial condition of Reliance Bancorp,
Inc. and subsidiary as of June 30, 1998, and the related consolidated
statements of income, changes in stockholders' equity, comprehensive income
and cash flows for each of the years in the two-year period ended June 30,
1998, which report appears in the Form 8-K of North Fork Bancorporation,
Inc. dated December 29, 1999.
/s/ KPMG LLP
- ------------------------
KPMG LLP
Melville, New York
December 29, 1999
EXHIBIT 23.3
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
JSB Financial, Inc.:
We consent to the inclusion of our report dated January 28, 1999, with
respect to the consolidated statements of financial condition of JSB
Financial, Inc. and subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1998, which report appears in the Form 8-K of North Fork
Bancorporation, Inc. dated December 29, 1999.
/s/ KPMG LLP
- --------------------------
KPMG LLP
Melville, New York
December 29, 1999
EXHIBIT 99.1
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, June 30,
1999 1999
------------- --------
<S> <C> <C>
Assets
Cash and due from banks................................. $ 29,623 $ 33,255
Debt and equity securities available-for-sale........... 123,877 122,168
Debt and equity securities held-to-maturity (with
estimated market values of $48,702 and $28,840,
respectively)........................................ 48,835 28,835
Mortgage-backed securities available-for-sale........... 889,004 935,038
Mortgage-backed securities held-to-maturity (with
estimated market values of $256,806 and $252,233,
respectively)........................................ 260,844 255,917
Loans receivable:
Mortgage loans..................................... 824,835 810,894
Commercial loans................................... 50,540 44,949
Consumer and other loans........................... 132,219 127,350
Less allowance for loan losses................... (9,068) (9,120)
-------- --------
Loans receivable, net...................... 998,526 974,073
Accrued interest receivable, net........................ 14,148 13,095
Office properties and equipment, net.................... 17,779 16,368
Prepaid expenses and other assets....................... 41,135 16,960
Mortgage servicing rights............................... 1,389 1,514
Excess of cost over fair value of net assets acquired... 53,232 54,373
Real estate owned, net.................................. 507 177
----------- ----------
Total assets...............................$ 2,478,899 $2,451,773
=========== ==========
Liabilities and Stockholders' Equity
Deposits................................................$ 1,555,159 $1,549,419
Borrowed Funds.......................................... 711,989 702,434
Advance payments by borrowers for taxes and insurance... 12,693 6,399
Accrued expenses and other liabilities.................. 27,356 21,854
----------- ----------
Total liabilities.......................... 2,307,197 2,280,106
--------- ---------
Commitments Stockholders' Equity
Preferred Stock, $.01 par value, 4,000,000 shares
authorized; none issued............................... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 10,750,820 shares issued; 8,589,490 and 8,586,210
outstanding, respectively........................... 108 108
Additional paid-in capital.............................. 121,309 121,037
Retained earnings, substantially restricted............. 119,607 115,976
Accumulated other comprehensive income:
Net unrealized depreciation on securities
available-for-sale, net of taxes.................... (14,654) (10,546)
Less:
Unallocated common stock held by ESOP................... (3,519) (3,726)
Unearned common stock held by RRP....................... (23) (66)
Common stock held by SERP (at cost)..................... (551) (550)
Treasury stock, at cost (2,161,330 and 2,164,610
shares, respectively)................................ (50,575) (50,566)
---------- ---------
Total stockholders' equity......................... 171,702 171,667
----------- ----------
Total liabilities and stockholders' equity..$ 2,478,899 $2,451,773
=========== ===========
</TABLE>
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended
September 30,
1999 1998
---- ----
Interest income:
First mortgage loans................................. $ 15,814 $ 15,718
Commercial loans..................................... 1,123 1,392
Consumer and other loans............................. 2,644 2,925
Mortgage-backed securities........................... 18,803 19,724
Money market investments............................. 35 163
Debt and equity securities........................... 2,903 2,946
------ ------
Total interest income............................. 41,322 42,868
------ ------
Interest expense:
Deposits............................................. 13,880 16,635
Borrowed funds....................................... 9,993 9,030
------ ------
Total interest expense............................ 23,873 25,665
------ ------
Net interest income before provision for loan losses 17,449 17,203
Provision for loan losses............................ -- 150
------ -------
Net interest income after provision for loan losses 17,449 17,053
------ ------
Non-interest income:
Loan fees and service charges........................ 443 160
Other operating income............................... 1,272 1,013
Income from Money Centers............................ 723 632
Net gain on securities............................... -- 66
------- ------
Total non-interest income......................... 2,438 1,871
----- -----
Non-interest expense:
Compensation and benefits............................ 5,267 5,286
Occupancy and equipment.............................. 1,697 1,775
Federal deposit insurance premiums................... 230 228
Advertising.......................................... 217 268
Other operating expenses............................. 1,868 1,570
------ -----
Total general and administrative expenses......... 9,279 9,127
Real estate operations, net.......................... 55 87
Amortization of excess of cost over fair
value of net assets acquired...................... 1,141 1,140
Total non-interest expense........................... 10,475 10,354
Income before income taxes.............................. 9,412 8,570
Income tax expense ..................................... 4,030 3,799
------ ------
Net income.............................................. $ 5,382 $ 4,771
===== =====
Net income per common share:
Basic.................................. $ 0.65 $ 0.53
===== ====
Diluted................................ $ 0.62 $ 0.50
==== ====
<TABLE>
<CAPTION>
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Three months ended
September 30,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income................................................. $ 5,382 $ 4,771
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses.................................. -- 150
Provision for losses on real estate owned.................. 29 35
Amortization of premiums, net.............................. 65 595
Amortization relating to allocation and earned
portion of stock plans................................... 702 913
Amortization of excess of cost over fair value
of net assets acquired.................................. 1,141 1,140
Amortization of mortgage servicing rights.................. 125 201
Depreciation and amortization.............................. 350 451
Net gain on securities..................................... -- (66)
Net gain on loans sold..................................... (3) (32)
Proceeds from loans sold................................... 1,758 6,184
Net gain on sale of real estate owned...................... (1) --
Increase in accrued interest receivable, net............... (1,053) (454)
(Increase) decrease in prepaid expenses and other assets... (21,083) 1,892
Increase in accrued expenses and other liabilities......... 5,594 6,680
-------- -------
Net cash provided by operating activities.............. (6,994) 22,460
------- ------
Cash flows from investing activities:
(Originated and purchased loans) net of principal
repayments............................................. (26,466) (11,053)
Purchases of mortgage-backed securities available-for-sale. (12,353) (194,362)
Proceeds from sales of mortgage-backed securities
available-for-sale..................................... -- 115,705
Purchases of mortgage-backed securities held-to-maturity... (22,172) (55,208)
Principal repayments from mortgage-backed securities....... 71,476 110,897
Purchases of debt securities available-for-sale............ (4,995) (2,000)
Purchases of debt securities held-to-maturity.............. (20,000) --
Proceeds from calls and maturities of debt securities...... -- 12,195
Proceeds from sales of debt securities available-for-sale.. -- 1,292
Purchases of office properties and equipment............... (1,777) (278)
Proceeds from sales of real estate owned................... 4 --
-------- --------
Net cash used in investing activities.................. (16,283) (22,812)
-------- --------
Cash flows from financing activities:
Increase in deposits....................................... 5,853 30,399
Decrease in advance payments by borrowers for taxes
and insurance............................................ 6,294 3,231
Proceeds from FHLB advances................................ 215,943 99,700
Repayment of FHLB advances............................... (222,006) (45,136)
Proceeds from reverse repurchase agreements................ 283,722 180,132
Repayment of reverse repurchase agreements.................(269,104) (258,450)
Proceeds from other borrowings............................. 1,000 --
Purchases of treasury stock................................ (530) (15,621)
Net proceeds from issuance of common stock upon
exercise of stock options............................... 223 145
Dividends paid............................................. (1,750) (1,640)
------- --------
Net cash provided by (used in) financing activities.... 19,645 (7,240)
------ --------
Net decrease in cash and cash equivalents.................. (3,632) (7,592)
Cash and cash equivalents at beginning of period........... 33,255 47,096
------ -------
Cash and cash equivalents at end of period.................$ 29,623 $ 39,504
====== ======
See accompanying notes to unaudited consolidated financial
statements.
</TABLE>
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended
September 30,
1999 1998
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the three months ended for:
<S> <C> <C>
Interest................................................... $ 22,369 $ 23,158
====== ======
Income taxes...............................................$ -- $ --
=== ===
Non-cash investing activities:
Transfers from loans to real estate owned..................$ 363 $ 237
=== ===
See accompanying notes to unaudited consolidated financial
statements.
</TABLE>
RELIANCE BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include
the accounts of Reliance Bancorp, Inc. (the "Company"), its direct
wholly-owned subsidiary, Reliance Federal Savings Bank (the "Bank")
and the subsidiaries of the Bank.
The unaudited consolidated financial statements included herein
reflect all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for the
interim periods presented. The results of operations for the three
months ended September 30, 1999 are not necessarily indicative of the
results of operations that may be expected for the entire fiscal
year. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in
conjunction with audited consolidated financial statements and notes
thereto, included in the Company's 1999 Annual Report on Form 10-K.
2. ACQUISITION OF RELIANCE BANCORP, INC. BY NORTH FORK
BANCORPORATION, INC.
On August 30, 1999, the Company announced that it had signed a
definitive Agreement and Plan of Merger, dated as of August 30, 1999,
with North Fork Bancorporation, Inc. NFB is the bank holding company
parent of North Fork Bank, a New York State chartered stock
commercial bank. The Merger Agreement provides, among other things,
that Reliance will merge with and into NFB, with NFB being the
surviving corporation.
Pursuant to the Merger Agreement, each share of Reliance common
stock, par value $0.01 per share, issued and outstanding immediately
prior to the Effective Time will be converted into and become the
right to receive 2.0 shares of NFB common stock, par value $2.50 per
share.
The Merger will be structured as a tax-free reorganization and will
be accounted under the purchase method of accounting. Consummation of
the Merger is subject to the satisfaction of certain customary
conditions, including approval of the Merger Agreement by the
stockholders of Reliance and approval of the appropriate regulatory
agencies. Following consummation of the Merger, the Bank will be
merged with and into North Fork Bank and Trust Company. It is
anticipated that the Merger will be completed in 2000.
Reliance has the right to terminate the Merger Agreement if the
closing price of NFB's shares decline beyond a specified price and
index, unless NFB elects to increase the Merger Consideration to be
received by Reliance's stockholders as set forth in the Merger
Agreement.
The Merger Agreement also provides that options to purchase shares of
Reliance Common Stock under Reliance's stock option plans that are
outstanding at the Effective Time shall be converted into options to
purchase shares of NFB Common Stock in accordance with the procedure
set forth in the Merger Agreement. In connection with the Merger
Agreement, Reliance granted to NFB a stock option pursuant to a Stock
Option Agreement, dated as of August 30, 1999, which, under certain
defined circumstances, would enable NFB to purchase up to 19.9% of
Reliance's issued and outstanding shares of common stock. The Stock
Option Agreement provides that the total profit receivable thereunder
may not exceed $17.4 million plus reasonable out-of-pocket expenses.
On October 29, 1999, the Company amended its definitive Agreement and
Plan of Merger. The amendments reflect modifications and
clarifications to the price-based termination provisions with regard
to the determination of the index group price. The amendments also
reflect the revision of the financial institutions group index to
remove Dime Bancorp, Inc. The Bank and North Fork Bank also executed
the Subsidiary Agreement and Plan of Merger, pursuant to which the
Bank will merge with and into North Fork Bank.
3. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No.133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial condition
and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative (that is, unrealized gains
and losses) depends on the intended use of the derivative and the
resulting designation. SFAS No. 133 is effective for fiscal quarters
of fiscal years beginning after June 15, 1999 and does not require
restatement of prior periods. In June 1999, the FASB issued SFAS No.
137, "Deferral of Effective Date of SFAS No. 133", which defers the
adoption of SFAS No. 133 by one year. Management of the Company
believes the implementation of SFAS No. 133 will not have a material
impact on the Company's financial condition or results of operations.
4. COMPREHENSIVE INCOME
The Company follows Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130
requires that all items that are components of "comprehensive income"
be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income is
defined as "the change in equity [net assets] of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources." It includes all changes in
equity during a period except those resulting from investments by
owners and distributions to owners. The Company adopted the
provisions of SFAS No. 130 during the first quarter of fiscal 1999
and as such was required to (a) classify items of other comprehensive
income by their nature in a financial statement; (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity
section in the statement of financial condition and (c) reclassify
prior periods presented. As the requirements of SFAS No. 130 are
disclosure-related, its implementation had no impact on the Company's
financial condition or results of operations.
Comprehensive income for the three months ended September 30, 1999 and 1998
is as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
Net income .............................................. $ 5,382 $ 4,771
Other comprehensive income, net of taxes:
Change in net unrealized (depreciation)
appreciation on securities available-for-
sale net of reclassification adjustment........... (4,108) 1,204
------- -------
Comprehensive income..................................... $ 1,274 $ 5,975
======= =======
</TABLE>
EXHIBIT 99.2
REPORT OF INDEPENDENT AUDITORS
[LOGO] Arthur Andersen LLP
Independent Public Accountants
1345 Avenue of the Americas
New York, NY 10105
To the Board of Directors and Stockholders of
Reliance Bancorp, Inc.,
We have audited the accompanying consolidated statement of condition of
Reliance Bancorp, Inc. and subsidiary as of June 30, 1999, and the related
consolidated statements of income, changes in stockholders' equity,
comprehensive income and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit. The consolidated financial statements of Reliance
Bancorp, Inc. and subsidiary as of June 30, 1998, and for each of the years
in the two year period then ended were audited by other auditors whose
report dated July 23, 1998, expressed an unqualified opinion on those
statements.
We conducted our audit 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 audit
provides 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 Reliance Bancorp, Inc.
and subsidiary as of June 30, 1999, and the results of their operations and
their cash flows for the year then ended in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
- --------------------------
Arthur Andersen LLP
New York, New York
July 21, 1999
(except with respect to the matter
discussed in Note 2, as to which
the date is August 30, 1999)
REPORT OF INDEPENDENT AUDITORS
[LOGO] KPMG LLP
1305 Walt Whitman Road
Melville, NY 11747-4302
To the Board of Directors and Stockholders of
Reliance Bancorp, Inc.,
We have audited the accompanying consolidated statement of condition
of Reliance Bancorp, Inc. and subsidiary as of June 30, 1998, and the
related consolidated statements of income, changes in stockholders' equity,
comprehensive income and cash flows for each of the years in the two-year
period ended June 30, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated 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 Reliance
Bancorp, Inc. and subsidiary as of June 30, 1998, and the results of their
operations and their cash flows for each of the years in the two-year
period ended June 30, 1998, in conformity with generally accepted
accounting principles.
/s/ KPMG LLP
- --------------
KPMG LLP
July 23, 1998
<TABLE>
<CAPTION>
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(In thousands, except share amounts)
June 30,
--------------------------
1999 1998
-------- -------
ASSETS
<S> <C> <C>
Cash and due from banks................................ $ 33,255 $ 37,596
Money market investments............................... -- 9,500
Debt and equity securities available-for-sale.......... 122,168 134,907
Debt and equity securities held-to-maturity (with
estimated market values of $28,840 and $40,509,
respectively)....................................... 28,835 40,189
Mortgage-backed securities available-for-sale.......... 935,038 940,347
Mortgage-backed securities held-to-maturity (with
estimated market values of $252,233 and $252,332,
respectively)....................................... 255,917 249,259
Loans receivable:
Mortgage loans.................................... 810,894 790,951
Commercial loans.................................. 44,949 49,887
Consumer and other loans.......................... 127,350 137,900
Less allowance for loan losses.................. (9,120) (8,941)
--------- ---------
Loans receivable, net..................... 974,073 969,797
Accrued interest receivable, net....................... 13,095 14,958
Office properties and equipment, net................... 16,368 15,436
Prepaid expenses and other assets...................... 16,960 11,732
Mortgage servicing rights.............................. 1,514 2,317
Excess of cost over fair value of net assets acquired.. 54,373 58,936
Real estate owned, net................................. 177 755
------- -----------
Total assets.............................. $ 2,451,773 $2,485,729
=========== ===========
Liabilities and Stockholders' Equity
Deposits............................................... $ 1,549,419 $1,628,298
Borrowed Funds......................................... 702,434 630,206
Advance payments by borrowers for taxes and insurance.. 6,399 9,806
Accrued expenses and other liabilities................. 21,854 22,555
----------- ---------
Total liabilities......................... 2,280,106 2,290,865
----------- ----------
Commitments
Stockholders' Equity
Preferred Stock, $.01 par value, 4,000,000 shares
authorized; none issued.............................. -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 10,750,820 shares issued;
8,586,210 and 9,564,988
outstanding, respectively........................... 108 108
Additional paid-in capital............................. 121,037 117,909
Retained earnings, substantially restricted............ 115,976 102,305
Accumulated other comprehensive income:
Net unrealized (depreciation) appreciation
on securities available-for-sale, net of taxes...... (10,546) 4,212
Less:
Unallocated common stock held by ESOP.................. (3,726) (4,554)
Unearned common stock held by RRP...................... (66) (713)
Common stock held by SERP (at cost).................... (550) (373)
Treasury stock, at cost (2,164,610 and 1,185,832
shares, respectively)............................... (50,566) (24,030)
----------- ---------
Total stockholders' equity........................ 171,667 194,864
---------- ---------
Total liabilities and stockholders'
equity.................................. $ 2,451,773 $2,485,729
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
Year Ended June 30,
-----------------------------------------------
1999 1998 1997
-------- -------- --------
Interest Income:
<S> <C> <C> <C>
First Mortgage Loans....................... $ 62,182 $ 63,573 $ 56,948
Commercial Loans........................... 4,892 3,916 --
Consumer and Other Loans................... 10,730 12,130 11,525
Mortgage-Backed Securities................. 78,948 67,185 59,392
Money Market Investments................... 284 615 618
Debt and Equity Securities................. 10,274 6,400 4,806
-------- --------- ---------
Total Interest Income................ 167,310 153,819 133,289
------- -------- --------
Interest Expense:
Deposits................................... 61,972 63,432 54,139
Borrowed Funds............................. 36,034 23,396 17,514
------ -------- --------
Total Interest Expense............... 98,006 86,828 71,653
------ -------- --------
Net Interest Income Before Provision
for Loan Losses........................ 69,304 66,991 61,636
Provision for Loan Losses...................... 650 1,650 950
-------- -------- -------
Net Interest Income After Provision
for Loan Losses........................ 68,654 65,341 60,686
------- ------- -------
Non-Interest Income:
Loan Fees and Service Charges.............. 1,352 1,047 683
Other Operating Income..................... 4,279 3,452 2,557
Income from Money Centers.................. 2,650 1,882 --
Condemnation Award on Joint Venture........ -- 1,483 --
Net Gain (Loss) on Securities.............. 119 (5) 172
-------- ---------- --------
Total Non-Interest Income............ 8,400 7,859 3,412
------- ------- -------
Non-Interest Expense:
Compensation and Benefits.................. 20,373 20,297 16,509
Occupancy and Equipment.................... 7,064 6,531 5,719
Federal Deposit Insurance Premiums......... 930 921 1,813
Advertising................................ 1,247 1,202 1,168
Other Operating Expenses................... 6,675 6,274 5,778
------- -------- -------
Total General and Administrative Expenses 36,289 35,225 30,987
Real Estate Operations, Net................ 111 218 383
Amortization of Excess of Cost Over Fair Value
of Net Assets Acquired................... 4,563 4,218 3,404
SAIF Recapitalization Charge............... -- -- 8,250
---------- ---------- -------
Total Non-Interest Expense........... 40,963 39,661 43,024
------- ------- -------
Income Before Income Taxes..................... 36,091 33,539 21,074
Income Tax Expense ............................ 15,940 14,810 10,138
------- ------- -------
Net Income .................................... $ 20,151 $ 18,729 $ 10,936
====== ====== ======
Net Income per Common Share:
Basic............................. $ 2.38 $ 2.11 $ 1.32
Diluted........................... $ 2.26 $ 1.99 $ 1.25
See accompanying notes to consolidated financial statements.
</TABLE>
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
Year Ended June 30,
------------------------------
1999 1998 1997
------ ------ ------
Common Stock (Par Value: $.01):
Balance at Beginning and End of Year....... $ 108 $ 108 $ 108
--- --- ---
Additional Paid in Capital:
Balance at Beginning of Year............... 117,909 105,871 104,041
Net (Loss) Gain from Reissuance of
Treasury Stock........................... (675) 7,903 --
Allocation of ESOP Stock and Earned
Portion of RRPs......................... 1,646 2,023 868
Common Stock Acquired by SERP.............. 177 164 209
Tax Benefits on Stock Plans................ 1,980 1,948 753
-------- -------- --------
Balance at End of Year..................... 121,037 117,909 105,871
------- ------- -------
Retained Earnings, Substantially Restricted:
Balance at Beginning of Year............... 102,305 89,660 83,966
Net Income................................. 20,151 18,729 10,936
Dividends Declared......................... (6,480) (6,044) (4,930)
Loss on Reissuance of Treasury Stock....... -- (40) (312)
---------- ------- --------
Balance at End of Year..................... 115,976 102,305 89,660
------- ------- -------
Accumulated Other Comprehensive Income:
Net Unrealized (Depreciation) Appreciation on
Securities Available-for-Sale, Net of Tax:
Balance at Beginning of Year............... 4,212 1,705 (5,281)
Change in Net Unrealized (Depreciation)
Appreciation, Net of Tax.................. (14,758) 2,507 6,986
--------- ------- --------
Balance at End of Year..................... (10,546) 4,212 1,705
--------- ------- --------
Unallocated Common Stock Held by ESOP:
Balance at Beginning of Year............... (4,554) (5,382) (6,210)
Allocation of ESOP Stock................... 828 828 828
-------- -------- --------
Balance at End of Year..................... (3,726) (4,554) (5,382)
-------- -------- --------
Unearned Common Stock Held by RRPs:
Balance at Beginning of Year............... (713) (1,567) (2,392)
Earned Portion of RRPs..................... 647 854 825
------- -------- --------
Balance at End of Year..................... (66) (713) (1,567)
-------- --------- --------
Common Stock Held by Supplemental Executive Retirement Plan:
Balance at Beginning of Year.............. (373) (209) --
Common Stock Acquired by SERP (6,312, 4,433 and
11,021 shares)..................... (177) (164) (209)
-------- ------- --------
Balance at End of Year.................... (550) (373) (209)
-------- ------- --------
Treasury Stock:
Balance at Beginning of Year.............. (24,030) (27,516) (20,613)
Reissuance of stock for Continental
Bank acquisition (1,013,909 shares).... -- 14,711 --
Common Stock Purchased, at Cost
(1,040,207, 460,973 and
442,182 shares)....................... (27,936) (15,269) (8,113)
Exercise of Stock Options................. 1,400 4,044 1,210
-------- --------- ---------
Balance at End of Year.................... (50,566) (24,030) (27,516)
--------- --------- ---------
Total Stockholders' Equity................. $ 171,667 $ 194,864 $ 162,670
======= ======= =======
See accompanying notes to consolidated financial statements.
RELIANCE BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Years Ended June 30,
---------------------------
1999 1998 1997
------ ------ ------
Net Income...................................... $ 20,151 $18,729 $10,936
Other Comprehensive Income, Net of
Income Taxes:
Unrealized (Losses)/Gains on Securities
Available-for-Sale.......................... (14,758) 2,507 6,986
------------------------------
Comprehensive Income............................ $ 5,393 $21,236 $17,922
==============================
See accompanying notes to consolidated financial statements.
RELIANCE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Year Ended June 30,
--------------------------------
1999 1998 1997
------ ------ ------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net Income..........................................$ 20,151 $ 18,729 $ 10,936
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Provision for Loan Losses......................... 650 1,650 950
Provision for Losses on Real Estate Owned ........ 35 93 200
Amortization of Premiums, Net..................... 2,060 2,755 1,448
Net (Gain) Loss on Securities..................... (118) 5 (172)
Expense Charge Relating to Allocation and Earned
Portions of Stock Plans....................... 3,120 3,705 2,521
Amortization of Excess of Cost Over Fair Value of
Net Assets Acquired ......................... 4,564 4,218 3,404
Amortization of Mortgage Servicing Rights......... 803 729 859
Acquisition Related Tax Benefits not
Previously Recognized........................... -- -- 562
Depreciation and Amortization..................... 1,844 1,635 1,417
Net Gain on Loans Sold............................ (134) (44) (28)
Proceeds from Loans Sold.......................... 28,240 8,473 7,303
Net Gain on Sale of Real Estate Owned............. (84) (146) (56)
Decrease (Increase) in Accrued Interest
Receivable, Net.................................. 1,863 (1,837) (728)
Decrease (Increase) in Prepaid Expenses and
Other Assets.................................... 3,862 (1,345) 3,174
Increase in Accrued Expenses and
Other Liabilities............................... 3,251 2,670 7,164
------ ------ ------
Net Cash Provided by Operating Activities.... 70,107 41,290 38,954
------ ------- ------
Cash Flows From Investing Activities:
(Originations and Purchased Loans) Net of
Principal Payments............................... (33,733) 5,417 (101,583)
Purchases of Mortgage-Backed Securities
Held-to-Maturity................................ (106,292) (147,163) --
Purchases of Mortgage-Backed Securities
Available-for-Sale............................. (730,157) (623,759) (277,483)
Proceeds from Sales of Mortgage-Backed
Securities Available-for-Sale.................. 322,180 190,245 59,810
Principal Repayments from Mortgage-Backed
Securities..................................... 488,009 351,591 123,823
Proceeds from Call of Debt Securities............ 38,145 12,500 7,313
Proceeds from Sales of Debt and Equity
Securities Available-for-Sale1................. 5,229 4,870 5,028
Purchases of Debt Securities Available-for-Sale..... (24,743) (115,500) (19,715)
Purchases of Debt and Equity Securities
Held-to-Maturity............................... (11,138) -- (5,007)
Proceeds from Maturities of Debt Securities......... 3,400 1,205 1,350
Purchases of Premises and Equipment................. (2,837) (1,623) (1,734)
Proceeds from Sale of Real Estate Owned ............ 1,199 3,402 1,899
Cash and Cash Equivalents Acquired from
Continental Bank Acquisition...................... -- 9,106 --
-------- ------- ---------
Net Cash Used in Investing Activities......... (40,738) (309,709) (206,299)
-------- --------- ---------
Cash Flows from Financing Activities:
(Decrease) Increase in Deposits.....................$(78,422) $ 55,717 $ 91,009
(Decrease) Increase in Advance Payments by
Borrowers for Taxes and Insurance............... (3,407) 789 171
Proceeds from FHLB Advances.........................1,095,981 143,336 60,000
Repayment of FHLB Advances..........................(939,399) (22,025) (23,000)
Proceeds from Reverse Repurchase Agreements......... 743,772 1,077,963 1,177,298
Repayment of Reverse Repurchase Agreements..........(828,126)(1,002,606)(1,128,545)
Proceeds from Capital Securities.................... -- 50,000 --
Purchases of Treasury Stock......................... (27,936) (15,269) (8,113)
Net Proceeds from Issuance of Common Stock Upon
Exercise of Stock Options........................ 725 2,670 898
Dividends Paid...................................... (6,398) (5,725) (4,578)
------- ------- ----------
Net Cash (Used in) Provided by
Financing Activities....................... (43,210) 284,850 165,140
Net (Decrease) Increase in Cash and Cash Equivalents. (13,841) 16,431 (2,205)
Cash and Cash Equivalents at Beginning of Year....... 47,096 30,665 32,870
------- ------ -------
Cash and Cash Equivalents at End of Year.............$ 33,255 $ 47,096 $ 30,665
====== ======= ======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Year for:
Interest........................................... $97,218 $ 85,449 $ 71,005
====== ====== ======
Income Taxes ...................................... $14,390 $ 11,077 $ 4,745
====== ====== =====
Non-cash Investing Activities:
Transfers from Loans to Real Estate Owned........... $ 571 $ 3,654 $ 929
=== ===== ===
Supplemental Information to the Consolidated Statement of Cash Flows Relating to
Continental Bank Acquisition.
Non-cash investing and financing transactions relating to the Continental
Bank acquisition for the year ended June 30, 1998 not reflected in the
Consolidated Statement of Cash Flows are listed below:
1998
-----------
Fair Value of Assets Acquired, Excluding Cash and Cash
Equivalents Acquired.............................. $ 168,240
Liabilities Assumed.................................. (171,083)
Excess of Cost Over Fair Value of Net Assets Acquired 17,691
Stock Consideration.................................. (23,954)
---------
Cash and Cash Equivalents Acquired................... $ (9,106)
=======
See accompanying notes to consolidated financial statements.
</TABLE>
RELIANCE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Reliance and subsidiary conform to
generally accepted accounting principles and to general practice within the
financial institution industry. The following is a description of the more
significant policies which the Company follows in preparing and presenting
its consolidated financial statements.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiary, Reliance Federal Savings Bank.
All significant intercompany transactions and balances are eliminated in
consolidation.
As more fully discussed in Note 3, Reliance Bancorp Inc., a Delaware
corporation, was organized by the Bank for the purpose of acquiring all of
the capital stock of the Bank pursuant to the conversion of the Bank from a
federally chartered mutual savings bank to a federally chartered stock
savings bank. The Company is subject to the financial reporting
requirements of the Securities and Exchange Act of 1934, as amended.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the consolidated statements of
condition and income and expense for the years presented. Estimates that
are susceptible to change include primarily the determination of the
allowances for losses on loans and the valuation of real estate acquired in
connection with foreclosures.
(b) Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include
cash and due from banks, federal funds sold and repurchase agreements with
an original term to maturity of less than three months.
(c) Securities Available-for-Sale
The Company follows Statement of Financial Accounting Standards ("SFAS")
No.115, "Accounting for Certain Investments in Debt and Equity Securities".
SFAS No. 115 requires securities, including debt, equity and
mortgage-backed securities, classified as available-for-sale to be recorded
at estimated fair value with changes in unrealized gains or losses reported
net of tax as a separate component in stockholders' equity.
Debt securities are classified as available-for-sale when management
intends to hold the securities for indefinite periods of time or when the
securities may be utilized for tactical asset/liability management strategy
and may be sold from time to time to effectively manage interest rate
exposure and resultant prepayment risk and liquidity needs. Premiums and
discounts are amortized or accreted, respectively, using the level-yield
method. Readily marketable equity securities are also classified as
available-for-sale. Gains or losses on the sales of the securities are
recognized when sold using the specific identification method.
(d) Debt and Equity Securities Held-to-Maturity
Debt and equity securities classified as held-to-maturity are carried at
cost unless there is a permanent impairment of value, at which time they
are valued at the lower of cost or market value resulting in a new cost
basis for the security. The debt securities are adjusted for amortization
of premiums and accretion of discounts over the term of the security using
the level-yield method. The Company currently has the ability and intent to
hold the debt securities until maturity. Equity securities classified
held-to-maturity are not readily marketable.
(e) Mortgage-Backed Securities Held-to-Maturity
Mortgage-backed securities represent participating interests in pools of
long-term first mortgage loans originated and serviced by the issuers of
the securities. Mortgage-backed securities held-to-maturity are carried at
current unpaid principal balances, adjusted for unamortized premiums and
unaccreted discounts. Premiums are amortized and discounts are accreted to
income over the estimated life of the respective securities using the
level-yield method. The Company currently has the ability and intent to
hold the securities until maturity.
(f) Loans
Loans are stated at the principal amount outstanding, less unearned
discounts and net deferred loan origination fees, if applicable. Interest
on loans is credited to income based on the principal amount outstanding
during the period. Gains and losses on the sale of loans are determined
using the specific identification method.
Interest on loans is recognized on the accrual basis. Loans are placed on
nonaccrual status when principal or interest becomes 90 days or more past
due for mortgage loans and commercial loans and 120 days past due for other
loans, unless the obligation is both well secured and in the process of
collection. Accrued interest receivable previously recognized is reserved
when a loan is placed on nonaccrual status. Loans remain on nonaccrual
status until principal and interest payments are current or the obligation
is considered both well secured and in the process of collection. A loan is
considered a troubled debt restructuring when changes, such as reduction in
interest rates or deferral of interest or principal payments, are made to
contractual terms due to a borrower's weakened financial condition.
The Company defers loan origination fees on multi-family loans, less
certain direct costs, and subsequently recognizes them as an adjustment of
the loan's yield over the contractual life of the loan using the
level-yield method or, in the case of loans with below-market introductory
rates, generally over the applicable introductory period, using the
interest method.
The Company follows SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures". Under SFAS No. 114 and SFAS No.
118, a loan is considered impaired when, based upon current information and
events, it is probable that a creditor will be unable to collect all
amounts due including principal and interest, according to the contractual
terms of the loan agreement. These statements require that impaired loans
that are within their scope be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or as a practical expedient, at the loan's current observable market price,
or the fair value of the collateral if the loan is collateral dependent.
The amount by which the recorded investment of an impaired loan exceeds the
measurement value is recognized by creating a valuation allowance through a
charge to the provision for loan losses. Interest income received on
impaired loans is recognized on a cash basis.
(g) Allowance for Loan Losses
A provision for loan losses charged to income is reflected as an addition
to a valuation allowance which is netted against loans receivable.
Management's periodic evaluation of the adequacy of the valuation allowance
considers the Bank's past loan loss experience, known and inherent risks in
the portfolio, adverse situations which may affect the borrower's ability
to repay, estimated value of the underlying collateral and the current real
estate markets and economic condition in the Bank's lending areas. In
addition, the Bank's regulators, as an integral part of their examination
process, periodically review the Bank's allowance for losses on loans and
real estate. Accordingly, the Bank may be required to take certain
charge-offs and recognize additions to the allowance based on the
regulators' judgments concerning information available to them during their
examination.
(h) Office Properties and Equipment
Land is carried at cost. Buildings, leasehold improvements, furniture and
fixtures and equipment are carried at cost, less accumulated depreciation
and amortization. Depreciation and amortization are provided on a
straight-line method over the estimated useful lives of the assets. The
cost of leasehold improvements is being amortized using the straight-line
method over the shorter of the term of the related leases or the estimated
useful lives.
(i) Excess of Cost Over Fair Value of Net Assets Acquired The excess of
cost over the fair value of net assets acquired in the acquisitions of the
Bank of Westbury, Sunrise Bancorp, Inc. and Continental Bank is amortized
using the straight line method over fifteen years. The excess of cost over
the fair value of net assets acquired is evaluated periodically by the
Company for impairment in response to changes in circumstances or events.
(j) Real Estate Owned
Real estate acquired through foreclosure is recorded at the lower of cost
(unpaid loan balance plus foreclosure costs) or fair market value at the
time of acquisition. The carrying value of individual properties is
subsequently adjusted to the extent it exceeds estimated fair market value
less costs to sell. Operating expenses of holding real estate, net of
related income, are charged against income as incurred. Gains on sales of
real estate are recognized when down payment and other requirements are
met; otherwise such gains are deferred and recognized on the installment
method of accounting. Losses on the disposition of real estate, including
expenses incurred in connection with the disposition, are charged to
income. A valuation allowance is maintained through provisions for real
estate losses charged to income for any decrease in the fair value of
property less costs to sell, which is netted against real estate owned.
(k) Taxes on Income
The Company files a calendar-year Federal income tax return on a
consolidated basis with its subsidiary.
The Company follows SFAS No. 109, "Accounting for Income Taxes" which
requires the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred income taxes are recognized
for the tax consequences of "temporary differences" by applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and tax bases of existing assets and
liabilities. Under SFAS No. 109, the effect on deferred taxes of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(l) Employee Benefits
The Bank's pension plan is non-contributory and covers substantially all
eligible employees. The plan conforms to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The Bank's policy is to
accrue for all pension costs and to fund the maximum amount allowable for
tax purposes. In the interest of maintaining a comprehensive benefit
package for employees, the Bank periodically evaluates the overall
effectiveness and economic value of the pension plan. Based on an
evaluation of the pension plan in fiscal 1998, the Bank concluded that
future benefit accruals under the plan would cease, or "freeze" on May 31,
1998. In its stead, Reliance Federal Savings Bank 401(k) Retirement Savings
Plan (the "401(k) Plan") was formed. Effective June 1, 1998, all Reliance
Federal Savings Bank employees who are at least 21 years of age and have
completed one year of service are eligible to participate in the 401(k)
Plan.
Actuarial gains and losses that arise from changes in assumptions
concerning future events, used in estimating pension costs, have been
amortized over a period that reflects the long range nature of pension
expense. However, as a result of the freezing of the plan, the Bank
recognized a curtailment gain in fiscal 1998. (See Note 17).
The Company follows AICPA Statement of Position 93-6, "Employers'
Accounting for Employee Stock Ownership Plans" ("SOP 93-6") to account for
the established Employee Stock Ownership Plan ("ESOP"). SOP 93-6 requires
that compensation expense be recognized for shares committed to be released
to directly compensate employees equal to the fair value of the shares
committed. In addition, SOP 93-6 requires that leveraged ESOP debt and
related interest expense be reflected in the employer's financial
statements. The application of SOP 93-6 results in fluctuations in
compensation expense as a result of changes in the fair value of the
Company's common stock; however, such compensation expense fluctuations
result in an offsetting adjustment to paid in capital. Therefore, total
stockholders' equity is not affected.
The Bank follows SFAS No. 123, "Accounting for Stock-Based Compensation".
SFAS No. 123 applies to all transactions in which an entity acquires goods
or services by issuing equity instruments or by incurring liabilities where
the payment amounts are based on the entity's common stock price, except
for employee stock ownership plans. SFAS No. 123 established a fair
value-based method of accounting for stock-based compensation arrangements
with employees, rather than the intrinsic value-based method that is
contained in Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("APB No. 25"). SFAS No. 123 does not require an
entity to adopt the new fair value-based method for purposes of preparing
its basic financial statements; an entity is allowed to continue to use the
APB No. 25 method for preparing its basic financial statements. The Company
has chosen to continue to use the APB No. 25 method, however, SFAS No. 123
requires presentation of pro forma net income and earnings per share
information, in the notes to the financial statements, as if the fair
value-based method had been adopted.
(m) Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost.
(n) Comprehensive Income
The Company follows Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires
that all items that are components of "comprehensive income" be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as "the change in
equity [net assets] of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources." It
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners. The Company adopted the
provisions of SFAS No. 130 during the first quarter of fiscal 1999 and as
such was required to (a) classify items of other comprehensive income by
their nature in a financial statement; (b) display the accumulated balance
of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section in the statement of
financial condition and (c) reclassify prior periods presented. As the
requirements of SFAS No. 130 are disclosure-related, its implementation had
no impact on the Company's financial condition or results of operations.
(o) Earnings Per Share
The Company follows SFAS No. 128, "Earnings per Share" which specifies the
computation, presentation and disclosure requirements for earnings per
share ("EPS") for entities with publicly held common stock or potential
common stock. This statement simplifies the standard for computing EPS
previously found in Accounting Principles Board Opinion No. 15 ("APB No.
15"). It replaces the presentation of primary EPS with a presentation of
basic EPS and the presentation of fully diluted EPS with a presentation of
diluted EPS. Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the period, adjusted for
the unallocated portion of shares held by the ESOP in accordance with SOP
93-6. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity. Potential common stock due
to the dilutive effect of stock options is computed using the treasury
stock method. SFAS No. 128 was effective for financial statements issued
for periods ending after December 15, 1997 and requires the restatement of
all prior-period EPS data presented. The Company adopted SFAS No. 128
effective December 31, 1997.
(p) Segment Reporting
During fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No.131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 requires public companies to report certain
financial information about significant revenue-producing segments of the
business for which such information is available and utilized by the chief
operating decision maker. Specific information to be reported for
individual operating segments includes a measure of profit and loss,
certain revenue and expense items, and total assets. As a
community-oriented financial institution, substantially all of the
Company's operations involve the delivery of loan and deposit products to
customers. Management makes operating decisions and assesses performance
base on an ongoing review of these community banking operations, which
constitute the Company's only operating segment for financial reporting
purposes under SFAS No.131.
2. SUBSEQUENT EVENT
ACQUISITION OF RELIANCE BANCORP, INC. BY NORTH FORK BANCORPORATION, INC.
On August 30, 1999, the Company announced that it had signed a definitive
Agreement and Plan of Merger, dated as of August 30, 1999, with North Fork
Bancorporation, Inc. NFB is the bank holding company parent of North Fork
Bank and Trust Company, a New York State chartered stock commercial bank.
The Merger Agreement provides, among other things, that Reliance will merge
with and into NFB, with NFB being the surviving corporation.
Pursuant to the Merger Agreement, each share of Reliance common stock, par
value $0.01 per share, issued and outstanding immediately prior to the
Effective Time will be converted into and become the right to receive 2.0
shares of NFB common stock, par value $2.50 per share.
The Merger will be structured as a tax-free reorganization and will be
accounted under the purchase method of accounting. Consummation of the
Merger is subject to the satisfaction of certain customary conditions,
including approval of the Merger Agreement by the stockholders of Reliance
and approval of the appropriate regulatory agencies. Following consummation
of the Merger, the Bank will be merged with and into North Fork Bank and
Trust Company. It is anticipated that the Merger will be completed in 2000.
Reliance has the right to terminate the Merger Agreement if the closing
price of NFB's shares decline beyond a specified price and index, unless
NFB elects to increase the Merger Consideration to be received by
Reliance's stockholders as set forth in the Merger Agreement.
The Merger Agreement also provides that options to purchase shares of
Reliance Common Stock under Reliance's stock option plans that are
outstanding at the Effective Time shall be converted into options to
purchase shares of NFB Common Stock in accordance with the procedure set
forth in the Merger Agreement. In connection with the Merger Agreement,
Reliance granted to NFB a stock option pursuant to a Stock Option
Agreement, dated as of August 30, 1999, which, under certain defined
circumstances, would enable NFB to purchase up to 19.9% of Reliance's
issued and outstanding shares of common stock. The Stock Option Agreement
provides that the total profit receivable thereunder may not exceed $17.4
million plus reasonable out-of-pocket expenses.
3. STOCK FORM OF OWNERSHIP
On September 16, 1993, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from a federally chartered mutual savings bank to a
federally chartered stock savings bank with the concurrent formation of a
holding company. As part of the conversion, the Company was incorporated
under Delaware law on November 16, 1993. The Company completed its initial
public offering on March 31, 1994 and issued 10,750,820 shares of common
stock resulting in net proceeds of approximately $103.6 million. The
Company retained $51.8 million of the net proceeds and used the remaining
net proceeds to purchase all of the outstanding stock of the Bank. The
financial position and results of operations of the Company as of and for
the year ended June 30, 1999, 1998 and 1997 are presented in Note 22.
On November 6, 1998, the Company completed its seventh five percent stock
repurchase plan purchasing 500,000 shares at an aggregate cost of $13.9
million. The Company also announced its eighth stock repurchase plan to
repurchase up to 500,000 of the Company's outstanding shares. As of June
30, 1999, 146,207 shares under this program were repurchased at an
aggregate cost of $4.1 million. During fiscal years 1999, 1998 and 1997,
the Company repurchased total shares of 1,040,207, 460,973 and 442,182,
respectively, at an aggregate cost of $27.9 million, $15.3 million and $8.1
million, respectively.
At the time of the conversion, the Bank established a liquidation account
with a balance equal to its retained earnings reflected in its statement of
condition. The balance in the liquidation account at June 30, 1999 and 1998
was approximately $18.3 million and $21.4 million, respectively. The
liquidation account will be maintained for the benefit of eligible account
holders who continue to maintain their accounts at the Bank after the
conversion. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their qualifying deposits as of
each anniversary date. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts then
held.
The Company may not declare or pay cash dividends on or repurchase any of
its shares of common stock if the effect thereof would cause stockholders'
equity to be reduced below applicable regulatory capital maintenance
requirements, the amount required for the liquidation account, or if such
declaration and payment would otherwise violate regulatory requirements.
During fiscal 1999, the Company declared cash dividends totaling $6.5
million.
4. ACQUISITION
ACQUISITION OF CONTINENTAL BANK
On October 17, 1997, the Company completed the acquisition of Continental
Bank ("Continental"), a commercial bank with two full service banking
offices located in Nassau and Suffolk counties in Long Island, New York, a
commercial lending facility and five check cashing facilities ("Money
Centers") in Manhattan. The transaction was accounted for as a purchase.
Under the terms of the merger, Reliance issued 1.10 shares (1,013,909
shares) of its common stock for each outstanding common share of
Continental. The cost of the acquisition was approximately $24.4 million.
Assets acquired in the transaction, principally loans and mortgage-backed
securities aggregated $177.8 million and liabilities assumed, substantially
all deposits and borrowings, aggregated $171.1 million. The excess of cost
over fair value of net assets acquired in the transaction was $17.7
million, which is being amortized on a straight line basis over 15 years.
5. MONEY MARKET INVESTMENTS
Money market investments generally have original maturities of three months
or less, and at 1998 consist solely of securities purchased under
agreements to resell (repurchase agreements). There were no money market
investments at June 30,1999. These agreements represent short-term loans
and are reflected as an asset in the consolidated statements of condition.
The same securities are to be resold at maturity of the repurchase
agreements.
Securities purchased under repurchase agreements averaged $1.4 million for
the year ended June 30, 1999 and $4.5 million for the year ended June 30,
1998. The maximum amount of such agreements outstanding at any month-end
during the fiscal year ended June 30, 1999 and 1998 was $8.0 million and
$23.0 million, respectively.
6. DEBT AND EQUITY SECURITIES
A summary of the amortized cost and estimated market values of debt and
equity securities are as follows:
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
-------------------------------------------------
(In thousands)
HELD-TO-MATURITY:
<S> <C> <C> <C> <C>
U.S. Government Agency Obligations..........$ 8,885 $ 3 $ -- $ 8,888
Obligation of New York State................ 390 2 -- 392
FHLB Stock................................. . 19,560 -- -- 19,560
------ -- -- ------
$ 28,835 $ 5 $ -- $ 28,840
======== ====== ======== ========
AVAILABLE-FOR-SALE:
U.S. Government Agency Obligations..........$ 10,000 $ 10 $ -- $ 10,010
Corporate Obligations...................... .113,855 138 (2,712) 111,281
Marketable Equity Securities................ 1,177 19 (319) 877
-------- ------ --------- --------
$125,032 $ 167 $ (3,031) $122,168
======== ====== ========= ========
June 30, 1998
-------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
-------------------------------------------------
(In thousands)
HELD-TO-MATURITY:
U.S. Government Agency Obligations..........$ 22,493 $ 293 $ -- $ 22,786
Obligation of New York State................ 390 27 -- 417
FHLB Stock.................................. 17,306 -- -- 17,306
-------- ----- -------- --------
$ 40,189 $ 320 $ -- $ 40,509
======== ====== ======== ========
AVAILABLE-FOR-SALE:
U.S. Government Agency Obligations..........$ 29,031 $ 260 $ (1) $ 29,290
Corporate Obligations...................... .103,070 343 (246) 103,167
Marketable Equity Securities................ 2,419 31 -- 2,450
-------- ------ -------- ---------
$134,520 $ 634 $ (247) $134,907
======== ====== ======== =========
</TABLE>
The amortized cost and estimated market value of debt and equity securities
at June 30, 1999 and 1998, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
---------------------------------------------- -----------------------------------------------
Held-to-maturity Available-for-sale Held-to-maturity Available-for-sale
-------------------- -------------------- ------------------- -----------------------
Estimated Estimated Estimated Estimated
Amortized market Amortized market Amortized market Amortized market
cost value cost value cost value cost value
--------- ------- --------- -------- --------- ------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due in One Year or Less.. $ 390 $ 392 $ -- $ -- $ 2,493 $ 2,499 $ 5,892 $ 5,902
Due After One Year
Through Five Years.... -- -- 2,046 1,970 390 417 18,466 18,493
Due After Five Years
Through Ten Years..... 8,885 8,888 32,753 32,901 20,000 20,287 13,144 13,378
Due After Ten Years..... -- -- 89,056 86,420 -- -- 94,599 94,684
Equity Securities....... 19,560 19,560 1,177 877 17,306 17,306 2,419 2,450
------- ------- ------ -------- -------- -------- --------- --------
$28,835 $28,840 $125,032 $122,168 $40,189 $ 40,509 $ 134,520 $ 134,907
======== ======= ======== ======== ======== ======== ========== =========
</TABLE>
In fiscal 1999, 1998 and 1997 gross proceeds from the sale of debt and
equity securities available-for-sale totaled $15.2 million, $4.9 million
and $5.0 million, respectively. For fiscal 1999, 1998 and 1997 gross
realized gains totaled $172,000, $11,000 and $17,000, respectively, and
gross realized losses totaled $127,000, $0, and $16,000, respectively.
7. MORTGAGE-BACKED SECURITIES
The amortized cost and estimated market values of mortgage-backed
securities are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1999
---------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
-------------------------------------------------
(In thousands)
HELD- TO-MATURITY:
Pass-through Certificates Guaranteed by:
<S> <C> <C> <C> <C>
GNMA................................$ 55,782 $ 1,056 $ -- $ 56,838
FHLMC............................... 7,792 148 -- 7,940
FNMA................................ 28,228 269 (16) 28,481
REMICs:
Agency Issuance.............. 91,476 27 (4,289) 87,214
Private Issuance............. 72,639 15 (894) 71,760
-------- --------- --------- ----------
$255,917 $ 1,515 $ (5,199) $ 252,233
======== ========= ========= ==========
AVAILABLE-FOR-SALE:
Pass-through Certificates Guaranteed by:
GNMA................................ $285,238 $ 601 $ (2,528) $ 283,311
FHLMC............................... 48,259 403 (152) 48,510
FNMA................................ 83,555 160 (707) 83,008
REMICs:
Agency Issuance............... 160,742 47 (5,884) 154,905
Private Issuance.............. 373,053 13 (7,762) 365,304
-------- --------- --------- ----------
$950,847 $ 1,224 $(17,033) $ 935,038
======== ========= ========= ==========
June 30, 1998
---------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized market
cost gain loss value
-------------------------------------------------
(In thousands)
HELD- TO-MATURITY:
Pass-through Certificates Guaranteed by:
GNMA................................ $ 78,106 $ 2,126 $ -- $ 80,232
FHLMC............................... 10,304 267 -- 10,571
FNMA................................ 33,949 959 -- 34,908
REMICs:
Agency Issuance.............. 53,021 85 (307) 52,799
Private Issuance............. 73,879 353 (410) 73,822
------ --------- -------- ----------
$249,259 $ 3,790 $ (717) $ 252,332
======== ========= ======== ==========
AVAILABLE-FOR-SALE:
Pass-through Certificates Guaranteed by:
GNMA................................$ 187,562 $ 2,732 $ (47) 190,247
FHLMC............................... 118,982 1,702 (7) 120,677
FNMA................................ 140,597 1,618 (32) 142,183
REMICs:
Agency Issuance............... 128,113 198 (39) 128,272
Private Issuance.............. 358,033 1,404 (469) 358,968
------- ---------- -------- ----------
$ 933,287 $ 7,654 $ (594) $ 940,347
======== ========= ======== ==========
</TABLE>
In fiscal 1999, 1998 and 1997 gross proceeds from the sale of
mortgage-backed securities available-for-sale totaled $322.2 million,
$190.2 million and $59.8 million, respectively. For fiscal 1999, 1998 and
1997 gross realized gains totaled $1.2 million, $540,000 and $466,000,
respectively, and gross realized losses totaled $1.1 million, $556,000 and
$295,000, respectively.
8. LOANS RECEIVABLE
Loans receivable, net are summarized as follows:
June 30,
--------------------------
1999 1998
---------- ---------
(In thousands)
Mortgage Loans:
One- to four-family.............................. $ 434,237 $ 492,804
Multi-family..................................... 316,115 243,070
Commercial Real Estate........................... 48,104 43,624
Co-op............................................ 5,872 7,516
Construction..................................... 7,515 4,879
------- --------
811,843 791,893
Less:
Unearned Discount, Premiums and
Deferred Loan Origination Fees, Net.............. (949) (942)
----------- ----------
Total Mortgage Loans........................ 810,894 790,951
-------- -------
Commercial Loans:
Asset Based Loans................................ 11,056 21,339
Other Commercial Loans........................... 33,893 28,548
------- -------
Total Commercial Loans...................... 44,949 49,887
------- -------
Consumer and Other Loans:
Home Equity Lines of Credit...................... 85,576 93,862
Guaranteed Student Loans......................... 12,791 15,262
Home Equity Loans................................ 21,530 19,050
Loans on Deposit Accounts........................ 4,788 5,416
Other Loans...................................... 2,065 3,622
-------- --------
126,750 137,212
Deferred Loan Origination Costs, Net.............. 600 688
--------- --------
Total Consumer and Other Loans.............. 127,350 137,900
------- -------
Less:
Allowance for Loan Losses........................ (9,120) (8,941)
--------- ---------
$ 974,073 $ 969,797
========= =========
June 30,
-----------------------
1999 1998
-------- --------
(In thousands)
Commitments Outstanding:
Mortgage Loans................................... $ 40,412 $ 33,386
Consumer and Other Commercial Loans.............. $ 4,793 $ 7,056
Unused Consumer Lines of Credit.................. $ 52,014 $ 53,361
Unused Commercial Lines of Credit................ $ 18,105 $ 22,622
At June 30, 1999 and 1998, the Company had commitments to sell loans of
$2.2 million and $3.7 million, respectively. At June 30, 1999 and 1998, the
Company had no commitments to purchase loans.
The principal balance of loans in arrears three months or more:
June 30,
------------------------------
1999 1998
---------- --------
No. of No. of
loans Amount loans Amount
(Dollars in thousands)
One- to four-family Mortgages............ 44 $ 3,693 70 $ 6,256
Consumer and Other Loans................. 59 564 62 517
Commercial Real Estate................... 8 1,868 7 1,962
Commercial............................... 10 433 9 567
---- ----- ---- ----
121 $ 6,558 148 $ 9,302
=== ===== === =====
Interest income that would have been recorded under the original terms of
loans classified as non-accrual and interest income actually recognized are
as follows:
Year Ended June 30,
-----------------------------
1999 1998 1997
------ ------ ------
(In thousands)
Interest Income that would have been Recorded...... $ 792 $1,159 $ 838
Interest Income Recognized......................... (294) (360) (265)
----- ------ ------
Interest Income Foregone........................... $ 498 $ 799 $ 573
===== === ===
In accordance with SFAS No. 114, the Company deems certain loans impaired
when, based upon current information and events, it is probable that the
Company will be unable to collect all amounts due, both principal and
interest, according to the contractual terms of the loan agreement. SFAS
No. 114 generally does not apply to large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment, such as
one- to four-family mortgage loans and consumer loans. Loans individually
reviewed for impairment by the Company are limited to multi-family loans,
commercial loans, construction and land loans, loans modified in a troubled
debt restructuring and selected large one- to four-family loans. Examples
of measurement techniques utilized by the Company include present value of
expected future cash flows, the loan's market price if one exists, and the
estimated fair value of the collateral.
At June 30, 1999, 1998 and 1997 the Company had seven, four and four
impaired commercial real estate loans totaling $1.6 million, $1.9 million
and $2.9 million, respectively, with no related allowance. The Company had
10 impaired commercial loans totaling $433,000 and $567,000, respectively,
at June 30, 1999 and 1998 and no impaired commercial loans at June 30,
1997, with no related allowances. The Company's average recorded investment
in impaired loans for the years ended June 30, 1999, 1998 and 1997 was $2.5
million, $2.5 million and $1.9 million, respectively. The Company did not
recognize any interest income on impaired loans for the years ended June
30, 1999, 1998 and 1997.
The Bank generally originates fixed rate loans with terms greater than 15
years for sale to FHLMC, FNMA or other secondary market investors. At June
30, 1999 and 1998, there were no fixed rate loans classified as held for
sale.
Included in mortgage loans at June 30, 1999 and 1998 are $408.8 million and
$425.2 million, respectively, of adjustable rate mortgage loans.
Proceeds from the sale of first mortgage loans were $28.2 million, $8.5
million and $7.3 million during the fiscal years ended June 30, 1999, 1998
and 1997, respectively. Gross realized gains and losses resulting from sale
of first mortgage loans were as follows:
Year Ended June 30,
-------------------------------
1999 1998 1997
-----------------------------
(In thousands)
Gross Realized Gains............... $144 $ 44 $ 31
Gross Realized Losses.............. (10) -- (3)
---- ---- ----
$134 $ 44 $ 28
=== ==== ====
The Bank services mortgage loans for investors which are not included in
the accompanying consolidated statements of condition. A summary of the
principal balances, custodial escrow, servicing income and number of loans
serviced for others by the Bank are as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------------
1999 1998 1997
------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C>
Principal Balances.................................$ 298,635 $355,149 $ 410,229
Custodial Escrow................................... $ 3,242 $ 4,290 $ 4,493
Servicing Income (Excludes MSR Amortization)....... $ 959 $ 1,183 $ 1,399
Number of Loans.................................... 5,186 6,085 6,842
</TABLE>
Fees earned for servicing loans are reported as income when the related
mortgage payments are collected. Mortgage Servicing Rights ("MSRs") are
amortized as a reduction to loan service fee income on a method that
approximates the level-yield basis over the estimated remaining life of the
underlying mortgage loans. MSRs are carried at fair value and impairment,
if any, is recognized through a valuation allowance. For the year ended
June 30, 1999 and 1998, no impairment existed in the MSRs and as a result,
no valuation allowance was required.
MSR activity is summarized as follows:
Year Ended June 30,
--------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
Balance at Beginning of the Year......... $ 2,317 $ 3,046 $ 3,905
Amortization............................. (803) (729) (859)
Balance at End of the Year............... $ 1,514 $ 2,317 $ 3,046
9. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
Year Ended June 30,
---------------------------------
1999 1998 1997
------ ------ ------
(In thousands)
Balance at Beginning of the Year.......... $ 8,941 $ 5,182 $ 4,495
Provision for Loan Losses................ 650 1,650 950
Allowances of Acquired Institutions...... -- 2,745 --
Charge-offs.............................. (513) (773) (306)
Recoveries................................ 42 137 43
Balance at End of the Year................ $ 9,120 $ 8,941 $ 5,182
10. REAL ESTATE OWNED
Real estate owned, net is summarized as follows:
June 30,
------------------
1999 1998
---- ----
(In thousands)
One- to four-family Residences..................... $ 185 $ 505
Co-ops............................................. 63 73
Commercial......................................... -- 300
Allowance for Losses on Real Estate Owned.......... (71) (123)
----- -----
$ 177 $ 755
===== =====
Results of operating real estate owned for the years ended June 30, 1999,
1998 and 1997 are summarized as follows:
Year Ended June 30,
--------------------------
1999 1998 1997
------ ------ ------
(In thousands)
Net Gain on Sale on Real Estate Owned.............. $ 84 $ 146 $ 56
Net Expenses of Holding Property................... (160) (271) (239)
Provision for Losses............................... (35) (93) (200)
----- ----- ------
$ (111) $ (218) $ (383)
======= ====== ======
Activity in the allowance for losses in real estate owned is summarized as
follows:
Year Ended June 30,
--------------------------
1999 1998 1997
----- ------ ------
(In thousands)
Balance at Beginning of the Year................... $ 123 $ 334 $ 768
Provision for Losses............................... 35 93 200
Charge-offs........................................ (87) (304) (634)
---- ----- -----
Balance at End of the Year......................... $ 71 $ 123 $ 334
== === ===
11. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable, net is summarized as follows:
June 30,
----------------
1999 1998
(In thousands)
Debt Securities.................................... $ 932 $ 1,708
Mortgage-Backed Securities......................... 6,533 7,137
Loans Receivable, Net of Reserves for Uncollectible
Interest of $1,078 and $1,293, respectively...... 5,630 6,113
------ ------
$13,095 $14,958
======= =======
12. OFFICE PROPERTIES AND EQUIPMENT
A summary of office properties and equipment, net is as follows:
June 30,
-------------------
1999 1998
---- ----
(In thousands)
Land............................................... $ 4,489 $ 4,489
Buildings.......................................... 10,943 10,477
Furniture, Fixtures and Equipment.................. 15,852 13,853
Leasehold Improvements............................. 4,649 4,407
Capital Lease...................................... 1,470 1,470
------ ------
Office Properties and Equipment, at Cost........... 34,403 34,696
Accumulated Depreciation and Amortization.......... (21,035) (19,260)
--------- --------
$ 16,368 $15,436
======== =======
In October 1989, the Bank sold a building used for a branch operation
located in Jamaica, New York for approximately $2.3 million, and
subsequently leased back a portion of the building to conduct the branch
operation. The Bank received approximately $2.0 million in cash from the
transaction, after expenses of the sale, which generated a gain of
approximately $1.1 million. The gain has been deferred and is being
amortized over the twelve-year lease period. Deferred gain on sale amounted
to approximately $217,000 and $311,000 at June 30, 1999 and 1998,
respectively, and is included in accrued expenses and other liabilities.
The leaseback is recorded as a capital lease in the amount of $1.5 million
at June 30, 1999 and 1998 (refer to the above table) and the related
obligation under capital leases of $387,000 and $535,000, respectively, at
June 30, 1999 and 1998 is reflected in accrued expenses and other
liabilities.
Depreciation and amortization of office properties and equipment, included
in occupancy and equipment expense, was approximately, $1.8 million, $1.6
million and $1.4 million for the fiscal years ended June 30, 1999, 1998 and
1997, respectively.
13. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------
1999 1998
---------------------------------------- -----------------------------------
Weighted Weighted
average average
rate Amount Percent rate Amount Percent
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
NOW.............................. 1.39% $ 102,473 7% 1.52% $ 104,955 7%
Passbook......................... 2.00 451,961 29 2.22 443,745 27
Money Market..................... 2.00 87,777 6 2.22 92,815 6
Certificates of Deposit.......... 5.56 842,778 54 5.56 934,558 57
Non-Interest Bearing Demand Deposit -- 64,430 4 -- 52,225 3
----------- --- ----------- --
$1,549,419 100% $ 1,628,298 100%
=========== ==== =========== ====
June 30,
----------------------------------------------
1999 1998
----- ----
Amount Percent Amount Percent
(Dollars in thousands)
Contractual Maturity of Certificates of
Deposit Accounts:
Under 12 months........................ $ 710,722 84% $ 797,860 85%
Over 12 months to 36 months............ 118,147 14 112,097 12
Over 36 months......................... 13,909 2 24,601 3
-------- --- --------- ---
$ 842,778 100% $ 934,558 100%
========= ==== ========= ===
The aggregate amount of certificates of deposit accounts with a minimum
denomination of $100,000 was approximately $81,181,000 and $78,052,000 at
June 30, 1999 and 1998, respectively.
Interest expense on deposits is summarized as follows:
Year Ended June 30,
------------------------------------
1999 1998 1997
---- ---- ----
(In thousands)
NOW............................................ $ 1,608 $ 1,257 $ 1,041
Passbook....................................... 9,175 10,439 10,937
Money Market................................... 1,879 2,249 2,493
Certificates of Deposit........................ 49,310 49,487 39,668
--------- --------- --------
$ 61,972 $ 63,432 $ 54,139
========= ========= ========
</TABLE>
On September 30, 1996, Congress passed, and the President signed,
legislation that recapitalized the Savings Association Insurance Fund (the
"SAIF"). Under the major provisions of the legislation, savings
institutions, such as the Bank, were assessed a one-time assessment of 65.7
basis points per $100 of insured SAIF deposits. The Company recorded a
one-time pre-tax charge of $8.25 million during the first quarter of fiscal
year 1997.
14. BORROWED FUNDS
The Bank was obligated for borrowings as follows:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
-------------------------------------------------
Weighted Weighted
average average
rate Amount rate Amount
--------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Advances from FHLB - NY............... 5.27% $ 338,718 5.49% $ 182,136
Reverse Repurchase Agreements......... 5.23 313,716 5.64 398,070
Company Obligated Mandatorily
Redeemable Capital Securities
of Reliance Capital Trust I........ 8.17 50,000 8.17 50,000
--------- --------
$ 702,434 $ 630,206
========= =========
</TABLE>
Information concerning borrowings under reverse repurchase agreements is
summarized as follows:
At or for the Year Ended
June 30, 1999 June 30, 1998
------------- -------------
(Dollars in thousands)
Average Balance during the Year........... $ 276,748 $ 309,618
Average Interest Rate during the Year..... 5.57% 5.79%
Maximum Month-end Balance during the Year.. $ 350,060 $ 398,070
Mortgage-Backed Securities Pledged
as Collateral under Reverse
Repurchase Agreements at Year End:
Carrying Value....................... $ 339,052 $ 418,883
Estimated Market Value............... $ 334,736 $ 421,931
FHLB advances and reverse repurchase agreements at June 30, 1999 have
contractual maturities as follows:
Reverse
Year Ended FHLB Repurchase
June 30, Advances Agreements
----------- -------- ----------
(In thousands)
2000 $ 72,000 $ 171,156
2001 20,000 --
2002 62,622 67,560
2003 -- 75,000
2004 -- --
Thereafter 184,096 --
------- --------
Total $338,718 $ 313,716
======= ========
As a member of the Federal Home Loan Bank System (FHLB), the Bank borrows
from the FHLB on a secured basis. Borrowings at June 30, 1999 and 1998 were
secured by a blanket lien over all assets equal to 110% of borrowings.
On April 29, 1998, Reliance Capital Trust I, a trust formed under the laws
of the State of Delaware (the "Capital Trust") issued $50 million of 8.17%
capital securities. The Holding Company is the owner of all the beneficial
interests represented by common securities of the Trust. The Trust exists
for the sole purpose of issuing the Trust securities (comprised of the
capital securities and the common securities) and investing the proceeds
thereof in the 8.17% junior subordinated deferrable interest debentures
issued by the Holding Company on April 23, 1998 which are scheduled to
mature on May 1, 2028. Interest on the capital securities is payable in
semiannual installments, commencing on November 1, 1998. The Trust
securities are subject to mandatory redemption (i) in whole, but not in
part upon repayment in full, at the stated maturity of the junior
subordinated debentures at a redemption price equal to the principal amount
of, plus accrued interest on, the junior subordinated debentures,(ii) in
whole, but not in part, at any time prior to May 1, 2008, contemporaneously
with the occurrence and continuation of a special event, defined as a tax
event or regulatory capital event, at a special event redemption price
equal to the greater of 100% of the principal amount of the junior
subordinated debentures or the sum of the present values of the principal
amount and premium payable with respect to an optional redemption of the
junior subordinated debentures on the initial optional repayment date to
and including the initial optional prepayment date, discounted to the
prepayment date plus accrued and unpaid interest thereon, and (iii) in
whole or in part, on or after May 1, 2008, contemporaneously with the
optional prepayment by the Corporation of the junior subordinated
debentures at a redemption price equal to the optional prepayment price.
Subject to prior required regulatory approval, the junior subordinated
debentures are redeemable during the 12-month periods beginning on or after
May 1, 2008 at 104.085% of the principal amounts outstanding, declining
ratably each year thereafter to 100%, plus accrued and unpaid interest
thereon to the date of redemption. Deferred issuance costs in the amount of
$1.0 million, are being amortized over ten years and are included in
Prepaid Expenses and Other Assets in the Company's Consolidated Statement
of Condition as of June 30, 1998.
15. INCOME TAXES
The Company files a consolidated Federal income tax return on a
calendar-year basis.
Under legislation enacted subsequent to June 30, 1996, the Bank is no
longer able to use the percentage of taxable income method previously
allowed for Federal tax purposes, but is permitted to deduct bad debts only
as they occur and is additionally required to recapture (that is, take into
taxable income) the excess balance of its bad debt reserves as of December
31, 1995 over the balance of such reserves as of December 31, 1987.
However, such recapture requirements would be suspended for each of two
successive taxable years beginning January 1, 1996 in which the Bank
originates a minimum amount of certain residential loans based upon the
average of the principal amounts of such loans made by the Bank during its
six taxable years preceding January 1, 1996. As a result of this
legislation, the Bank will incur additional Federal tax liability, but with
no impact on the Bank's results of operations. The New York State and New
York City tax laws have been amended to prevent a similar recapture of the
Bank's bad debt reserve, and to permit continued future use of the bad debt
reserve methods for purposes of determining the Bank's New York State and
New York City tax liabilities.
The Company files state and local tax returns on a calendar-year basis.
State and local taxes imposed on the Company consist of New York State
franchise tax, New York City Financial Corporation tax and Delaware
franchise tax. The Company's annual liability for New York State and New
York City purposes is the greater of a tax on income or an alternative tax
based on a specified formula. The Company's liability for Delaware
franchise tax is based on the lesser of a tax based on an authorized shares
method or an assumed par value capital method; however under either method,
the Company's total tax will not exceed $150,000. The Company provided for
New York State and New York City taxes based on alternative taxable income
for the year ended June 30, 1999 and 1998 and based on taxable income for
the years ended June 30, 1997.
In connection with the acquisitions of the Bank of Westbury, Sunrise
Bancorp, Inc and Continental Bank, a net deferred tax asset of $911,000, a
net deferred tax liability of $2,285,000 and a net deferred tax asset of
$1,050,000, respectively, were recognized for temporary differences between
the book basis and tax basis of assets and liabilities acquired.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June
30, 1999 and June 30, 1998 are presented below:
June 30, June 30,
1999 1998
------- -------
(In thousands)
Deferred Tax Assets:
Unrealized Loss on Available-for-Sale Securities.. $ 8,120$ --
Provisions for Losses on Loans and Real Estate Owned 2,603 1,833
Book Deferred Gain on Sale of Building............ 263 368
Deposits.......................................... 134 333
Deferred Fees..................................... -- 71
Other Assets...................................... -- 6
-------- ------
Total Deferred Tax Assets......................... 11,120 2,611
------ ------
Deferred Tax Liabilities:
Unrealized Gain on Available-for-Sale Securities.. -- 3,235
Mortgage Loans.................................... 297 483
Office Properties and Equipment................... 447 335
Benefit Plans..................................... 263 39
Mortgage Servicing Rights......................... 195 298
Intangible Assets................................. 108 94
Debt and Equity and Mortgage-Backed Securities.... 66 185
Other............................................. 656 614
-------- --------
Total Deferred Tax Liabilities..................... 2,032 5,283
------- -------
Net Deferred Tax Asset (Liability).................... $ 9,088 $ (2,672)
===== =======
The total income tax provision for the years ended June 30, 1999, 1998 and
1997 differs from the amount of tax provision that would result by applying
the statutory United States Federal income tax rate of 35.0% for fiscal
1999, 1998 and 1997 to income before income taxes:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------------------------
1999 1998 1997
----------------- ------------------ ------------
Amount % Amount % Amount %
------ - ------ - ------ -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax Provision Statutory Rate.......... $ 12,632 35.0% $ 11,739 35.0% $ 7,376 35.0%
Amortization of Excess of Cost Over
Fair Value of Net Assets Acquired.... 1,551 4.3 1,444 4.3 1,191 5.7
State and Local Income Tax, Net of
Federal Income Tax Benefit........... 982 2.7 924 2.8 1,228 5.8
Non-Deductible Expense of ESOP......... 462 1.3 643 1.9 302 1.4
Other, Net............................. 323 0.9 71 0.2 52 0.3
Tax Exempt Interest on Municipal
Investments.......................... (11) -- (11) -- (1) (0.1)
--------- ---- --------- ---- ------- -----
Income Tax Expense ................. $ 15,940 44.2% $ 14,810 44.2% $10,138 48.1%
======== ==== ========= ===== ======= =====
</TABLE>
The components of the provision for income taxes for the years ended June
30, 1999, 1998 and 1997 are as follows:
Year Ended June 30,
------------------------------------
1999 1998 1997
------- ------ -----
(In thousands)
Current:
Federal.............................. $ 14,856 $ 13,876 $ 8,193
State and Local...................... 1,489 1,459 1,861
-------- -------- --------
16,345 15,335 10,054
--------- -------- --------
Deferred:
Federal.............................. (426) (488) 56
State and Local...................... 21 (37) 28
-------- -------- --------
(405) (525) 84
--------- -------- --------
$ 15,940 $ 14,810 $ 10,138
======== ======== ========
16. COMMITMENTS
At June 30, 1999, the Company was obligated under a number of
non-cancellable operating leases on property used for banking purposes.
Rental expense under these leases for the fiscal years ended June 30, 1999,
1998 and 1997 was approximately $1.4 million, $1.3 million and $1.0
million, respectively. The projected minimum annual rentals under the terms
of these leases, exclusive of taxes and other charges, are summarized as
follows:
Amount
------
(In thousands)
Year ended June 30:
2000...................................... $ 1,286
2001...................................... 1,227
2002...................................... 1,156
2003...................................... 757
2004...................................... 570
Thereafter................................ 2,140
--------
$ 7,136
========
The Bank is a party to financial instruments with off-balance sheet risk in
order to meet the financing needs of its customers and to reduce its own
exposure to fluctuations in interest rates. Standby letters of credit are
conditional commitments issued by the Bank to guarantee the performance of
the purchaser to a third party. The Bank, in connection with its service
corporations, at June 30, 1999 and 1998, has outstanding balances on
letters of credits of $500,000 and $500,000, respectively. In addition, at
June 30, 1999, the Bank had $565,000 in commercial standby letters of
credit. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers (See note 8).
17. RETIREMENT PLANS
Pension Plan
The following table sets forth the Pension Plan's funded status and amounts
recognized in the Company's consolidated statements of condition:
June 30,
-----------------
1999 1998
------ ------
(In thousands)
Actuarial Present Value of Benefits Obligations:
Vested Benefit Obligation.......................... $5,692 $ 4,991
Accumulated Benefit Obligation..................... 5,692 4,991
===== =====
Plan Assets at Fair Value............................... 5,956 5,658
Projected Benefit Obligation for Service Rendered to Date 5,692 4,991
----- -----
Plan Assets Greater (Less) Than Projected Benefit Obligation 264 667
Unrecognized Prior Service Cost......................... 146 (40)
Unrecognized Net Loss Due to Past Experience
Different from Assumptions Made and Changes in Assumptions 487 169
--- ----
Prepaid Pension Cost.................................... $ 897 $ 796
==== ===
The components of net pension expense are as follows:
Year Ended June 30,
----------------------------
1999 1998 1997
------ ------ ------
(In thousands)
Service Cost-benefits Earned during the Year..........$ -- $ 627 $ 327
Interest Cost on Projected Benefit Obligation......... 358 710 627
Net Amortization and Deferral......................... (61) 20 (290)
Actual Return on Plan Assets.......................... (398) (710) (482)
Curtailment Gain Recognized........................... -- (739) --
Settlement Loss Recognized............................ -- 117 --
Net Pension Expense................................... $(101) $ 25 $ 182
Year Ended June 30,
-----------------------------
1999 1998 1997
------ ------ ------
Assumptions Used:
Weighted Average Discount Rate...................... 7.0% 7.0% 7.0%
Rate of Increase in Compensation Levels............. 5.0% 5.0% 5.0%
Expected Long-term Rate of Return on Assets......... 8.0% 8.0% 9.0%
Based on an evaluation of the pension plan in fiscal 1998, the Bank
concluded that future benefit accruals under the plan would cease, or
"freeze" on May 31, 1998. In connection with the freezing of the Plan, the
Bank recognized a curtailment gain of approximately $739,000 and a
settlement loss of approximately $117,000 as of May 31, 1998.
In connection with the acquisitions of Bank of Westbury, Sunrise Bancorp,
Inc. and Continental Bank, their respective pension plans were terminated
and are not included in the above tables. All former employees of Bank of
Westbury and Sunrise Bancorp, Inc. remaining in the employment of the
Company were eligible to participate in the Company's pension plan
effective June 1, 1997. However, as a result of the pension plan's
eligibility requirements and the freezing of the pension plan on May 31,
1998, no Continental employees were eligible to participate in the plan.
Reliance Federal Savings Bank 401(k) Retirement Plan
Effective June 1, 1998, employees of the Bank who are at least 21 years of
age and have completed one year of service are eligible to participate in
the Reliance Federal Savings Bank 401(k) Retirement Plan (the "401(k)
Plan"). Eligible employees may make pre-tax contributions equal to the
lesser of ten percent of their annual compensation or the amount permitted
by law. As a base amount, the Bank will make contributions (on account for
eligible employees) equal to two percent of all eligible employees earnings
regardless of whether employees make contributions on their own behalf.
Additionally, the Bank will make matching contributions equal to 75% of
employee contributions that do not exceed four percent of their annual
earnings. Employees are immediately vested in their own contributions and
after five years of service they will be vested in the Bank's base and
matching contributions. During fiscal 1999 and 1998, the Bank incurred
$420,000 and $40,000, respectively, in 401(k) Plan costs.
18. STOCK BENEFIT PLANS
The following are the stock based benefit plans maintained by the Company:
STOCK OPTION PLAN
The Company maintains the Reliance Bancorp, Inc. 1994 Incentive Stock
Option Plan and the Reliance Bancorp, Inc. 1996 Incentive Stock Option
Plans Amended and Restated as of February 19, 1997 (the "Stock Option
Plans"). Under the Stock Option Plans, stock options (which expire ten
years from the date of grant) have been granted to the executive officers
and officers of the Company and its affiliate, the Bank. Each option
entitles the holder to purchase one share of the Company's common stock at
an exercise price equal to the fair market value of the stock at the date
of grant. Options will be exercisable in whole or in part over the vesting
period. However, all options become 100% exercisable in the event that the
employee terminates his employment due to death, disability, normal
retirement, or in the event of a change in control of the Bank or the
Company. Simultaneous with the grant of these options, the Personnel
Committee of the Board of Directors granted "Limited Rights" with respect
to the shares covered by the options. Limited Rights granted are subject to
terms and conditions and can be exercised only in the event of a change in
control of the Company. Upon exercise of a limited right, the holder shall
receive from the Company a cash payment equal to the difference between the
exercise price of the option and the fair market value of the underlying
shares of common stock.
STOCK OPTION PLAN FOR OUTSIDE DIRECTORS
The Company maintains the Amended and Restated Reliance Bancorp, Inc. 1994
and 1996 Stock Option Plans for Outside Directors (the "Directors' Option
Plans"). Each member of the Board of Directors who is not an officer or
employee of the Company or the Bank is granted non-statutory options to
purchase shares of the Company's common stock. Members of the Board of
Directors of the Company are granted options to purchase shares of the
common stock of the Company at an exercise price equal to the fair market
value of the stock at the date of grant. All of the options granted under
the Directors' Option Plan become exercisable over the vesting period and
expire upon the earlier of 10 years following the date of grant or one year
following the date the optionee ceases to be a director.
<TABLE>
<CAPTION>
Number of Shares of
--------------------------------------
Non- Non- Weighted
Incentive Statutory Qualified Average
Stock Stock Options to Exercise
Options Options Directors Price
--------- ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance Outstanding at June 30, 1995......$ 608,505 $ 216,390 $ 196,650 $ 10.00
Granted................................... -- -- 6,727 15.25
Forfeited................................. -- -- -- --
Exercised................................. -- -- -- --
----------- ---------- ---------- ---------
Balance Outstanding at June 30, 1996...... 608,505 216,390 203,377 $ 10.03
Granted................................... 70,398 213,402 40,500 18.22
Forfeited................................. -- -- -- --
Exercised................................. (48,780) (35,000) (6,000) 10.00
--------- ---------- ---------- ---------
Balance Outstanding at June 30, 1997...... 630,123 394,792 237,877 $ 11.96
Granted................................... 13,647 3,353 40,500 29.87
Forfeited................................. -- -- -- --
Exercised................................. (131,399) (102,816) (1,500) 11.33
---------- --------- ---------- --------
Balance Outstanding at June 30, 1998...... 512,371 295,329 276,877 $ 13.17
Granted................................... 631 13,569 60,728 38.00
Forfeited................................. -- -- -- --
-- -- -- --
Exercised................................. (53,959) (7,470) -- 11.79
-------- -------- --------- --------
Balance Outstanding at June 30, 1999...... 459,043 301,428 337,605 $ 14.94
======= ======= ======== ========
Shares Exercisable at June 30, 1999....... 452,881 299,590 337,605 $ 14.82
</TABLE>
Had compensation cost for the Company's three stock-based compensation
plans been determined consistent with SFAS No. 123 for awards made after
July 1, 1995, the Company's net income per common share would have been
reduced to the pro forma amounts indicated below for the years ended June
30:
1999 1998 1997
-------- -------- --------
(Dollars in thousands, except per share data)
Net Income As Reported $20,151 $ 18,729 $ 10,936
Pro forma 19,681 18,492 8,672
Net Income per Common Share:
Basic As Reported $ 2.38 $ 2.11 $ 1.32
Pro forma $ 2.32 $ 2.08 1.04
Diluted As Reported $ 2.26 $ 1.99 $ 1.25
Pro forma $ 2.21 $ 1.96 0.99
The fair values of the share grants were estimated on the date of grant
using the Black-Scholes option - pricing model using the following
assumptions in fiscal 1999, 1998 and 1997: dividend yield of 3.00% for all
years; expected volatility of 29.14% for fiscal 1999, 22.05% for fiscal
1998 and 16.64% for fiscal 1997; risk-free interest rates of 6.25% for all
years; and expected option lives of 6 years for all years.
EMPLOYEES STOCK OWNERSHIP PLAN ("ESOP")
The Bank has established an ESOP for eligible employees. Full-time
employees employed with the Bank as of January 1, 1993, and full-time
employees of the Company or the Bank employed after such date who have been
credited with at least 1,000 hours during a twelve-month period and who
have attained age 21 are eligible to participate.
The ESOP borrowed $8.3 million from the Company and used the funds to
purchase 828,000 shares of the Company's common stock issued in the
Conversion. The loan is repaid principally from the Bank's discretionary
contributions to the ESOP over a 10 year period. At June 30, 1999 and 1998,
the loan had an outstanding balance of $4.0 million and $4.8 million,
respectively, and an interest rate of 7.75% and 8.50%, respectively.
Interest expense for the obligation was $348,000, $441,000 and $502,000,
respectively, for the year ended June 30, 1999, 1998 and 1997. Shares
purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is paid. Contributions to the
ESOP and shares released from the loan collateral in an amount proportional
to the repayment of the ESOP loan is allocated among participants on the
basis of compensation, as described in the plan, in the year of allocation.
Benefits generally become 100% vested after five years of credited service.
However, in the event of a change in control, as defined in the plan, any
unvested portion of benefits shall vest immediately. Forfeitures are
reallocated among participating employees, in the same proportion as
contributions. Benefits are payable upon death, retirement, disability, or
separation from service based on vesting status and share allocations made.
As of June 30, 1999, 366,019 shares remaining in the ESOP were allocated to
participants and 41,400 shares were committed to be released. As shares are
released from collateral, the shares become outstanding for earnings per
share computations. As of June 30, 1999 and 1998, the fair market value of
the 372,600 and 455,400 unallocated shares, respectively, was $10.3 million
and $17.4 million, respectively.
RECOGNITION AND RETENTION PLANS AND TRUSTS ("RRPS") The Bank maintains the
Reliance Federal Savings Bank Recognition and Retention Plan for Officers
and Employees and the Amended and Restated Reliance Federal Savings Bank
1994 Recognition and Retention Plan for Outside Directors (the "RRPs"). The
purpose of the RRPs is to provide executive officers, officers, and
directors of the Bank with a proprietary interest in the Company in a
manner designed to encourage such persons to remain with the Bank. The RRPs
acquired an aggregate of 414,000 shares of the Company's common stock in
the Conversion of which 412,447 shares have been awarded to Officers and
Directors (327,715 at the time of the Conversion and 84,732 thereafter).
Such amounts represent deferred compensation and have been accounted for as
a reduction of stockholders' equity. Awards vest at a rate of 20% per year
for directors and officers, commencing one year from the date of award.
Awards become 100% vested upon termination of employment due to death,
disability, or following a change in control of the Bank or the Company.
The Company recorded compensation expenses for the ESOP and RRP of $3.1
million, $3.7 million and $2.5 million, respectively, for the years ended
June 30, 1999, 1998 and 1997.
19. EARNINGS PER SHARE
The Company follows SFAS No. 128, "Earnings Per Share", which establishes
new standards for computing and presenting earnings per share ("EPS"). All
earnings per share amounts have been restated to conform to the new
requirements.
Basis EPS is computed by dividing net income by the weighted average number
of common shares outstanding. The weighted average number of common shares
outstanding includes the average number of shares of common stock
outstanding adjusted for the weighted average number of unallocated shares
held by the ESOP.
Diluted EPS is computed by dividing net income by the weighted average
number of common shares and common equivalent shares outstanding during the
year. For the diluted EPS calculation, the weighted average number of
common shares and common equivalent shares outstanding include the average
number of shares of common stock outstanding adjusted for the weighted
average number of unallocated shares held by the ESOP and the dilutive
effect of unexercised stock options using the treasury stock method. When
applying the treasury stock method, the Company's average stock price is
utilized, and the Company adds to the proceeds the tax benefit that would
have been credited to additional paid-in capital assuming exercise of
non-qualified stock options.
The computation of basis and diluted EPS for the fiscal years ended June
30, 1999, 1998 and 1997 are presented in the following table:
Year Ended June 30,
------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
Net income.......................... $ 20,151 $ 18,729 $ 10,936
Weighted average common shares...... 8,467 8,890 8,299
--------- -------- --------
Basic earnings per share............ $ 2.38 $ 2.11 $ 1.32
========= ======== ========
Net income.......................... $ 20,151 $ 18,729 $ 10,936
Weighted average common shares - basic 8,467 8,890 8,299
Effect of dilutive stock options.... 447 535 425
-------- -------- --------
Weighted average common shares and
common equivalent shares.......... 8,914 9,425 8,724
-------- --------- --------
Diluted earnings per share.......... $ 2.26 $ 1.99 $ 1.25
========= ========= ========
20. REGULATORY MATTERS
Federal regulations require institutions to have a minimum regulatory
tangible capital equal to 1.5% of total assets, a 3% core capital ratio and
an 8% risk-based capital ratio. The OTS prompt corrective action standards
effectively establish a minimum 2% tangible capital ratio, a minimum 4%
leverage ratio (core) capital ratio and a minimum 4% Tier 1 risked based
capital ratio. As of June 30, 1999 and 1998, the Bank was in compliance
with the regulatory capital requirements.
Additionally, under prompt corrective action regulations, the regulators
have adopted rules, which require them to take action against
undercapitalized institutions, based upon five categories of
capitalization: "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized", and "critically
undercapitalized". The rules adopted generally provide that an insured
institution whose risk-based capital ratio is 10% or greater, Tier 1
risk-based capital is 6% or greater, and leverage ratio is 5% or greater is
considered a "well capitalized" institution. As of June 30, 1999, 1998 and
1997, the Bank was considered a "well capitalized" institution.
Dividend payments to the Company from the Bank are subject to the
profitability of the Bank and by applicable laws and regulations. During
fiscal 1999 and 1998, the Bank made dividend payments to the Company of
$13.0 million and $14.0 million, respectively.
During fiscal 1998, the Company invested $18.8 million of the proceeds from
the issuance of its Junior Subordinated debt in the Bank which increased
the Bank's capital and capital ratios.
The following table sets forth the required ratios and amounts and the
Bank's actual capital amounts and ratios at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30, 1999
--------------------------------------------------------
Capital Actual Excess
Requirement % Capital % Capital %
----------- -- -------- -- -------- -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Tangible.............. $ 36,113 1.5% $ 163,267 6.8% $ 127,154 5.3%
Leverage.............. 72,226 3.0 163,267 6.8 91,041 3.8
Risk-based............ 80,415 8.0 172,333 17.1 91,918 9.1
June 30, 1998
--------------------------------------------------------
Capital Actual Excess
Requirement % Capital % Capital %
----------- -- -------- -- -------- -
(Dollars in thousands)
Tangible.............. $ 35,825 1.5% $ 145,337 6.1% $ 109,512 4.6%
Leverage.............. 71,650 3.0 145,337 6.1 73,687 3.1
Risk-based............ 80,724 8.0 154,245 15.3 73,521 7.3
</TABLE>
21. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
("SFAS No. 107"), requires disclosure of estimated fair value information
for the Company's financial instruments. Fair values are most commonly
derived from quoted market prices available in the formal trading
marketplaces. In many cases, the Company's financial instruments are not
bought or sold in formal trading marketplaces. Accordingly, in cases where
quoted market prices are not available, fair values are derived or
estimated based on a variety of valuation techniques. These techniques are
sensitive to the various assumptions and estimates used and the resulting
fair value estimates may be materially affected by minor variations in
those assumption or estimates. In that regard, it is likely that amounts
different from the fair value estimates would be realized by the Company in
immediate settlement of the financial instruments.
SFAS No. 107 excludes certain financial instruments as well as all
nonfinancial instruments from fair value disclosure. Accordingly, the fair
values presented do not represent the Company's fair value as a going
concern. In addition, the differences between the carrying amounts and the
fair values presented may not be realized since the Company generally
intends to hold these financial instruments to maturity and realize their
recorded value.
SFAS No. 107 provides minimal guidance and no limitations with regard to
assumptions and estimates to be used. Therefore, while disclosure of
estimated fair values is required, the fair value amounts presented in the
financial statements do not represent the underlying value of the Company,
nor do they provide any basis for comparison of the value of this Company
with similar companies.
<TABLE>
<CAPTION>
June 30,
-------------------------------
1999 1998
----------------------------------------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(In thousands)
ON BALANCE SHEET:
Financial Assets:
<S> <C> <C> <C> <C>
Cash and Due from Banks............. $ 33,255 $ 33,255 $ 37,596 $ 37,596
Money Market Investments............ -- -- 9,500 9,500
Debt and Equity Securities
Available-for-Sale................ 122,168 122,168 134,907 134,907
Debt and Equity Securities
Held-to-Maturity................. 28,835 28,840 40,189 40,509
Mortgage-Backed Securities
Available-for-Sale............... 935,038 935,038 940,347 940,347
Mortgage-Backed Securities
Held-to-Maturity................ 255,917 252,233 249,259 252,332
Loans Receivable, Net............... 974,073 978,980 969,797 984,224
Mortgage Servicing Rights........... 1,514 1,612 2,317 2,632
Financial Liabilities:
Deposits............................ 1,549,419 1,469,360 1,628,298 1,630,087
Borrowed Funds...................... 702,434 693,564 630,206 631,407
OFF BALANCE SHEET:
Outstanding Commitments............. $115,324 115,324 116,425 116,425
Letters of Credit................... 1,065 1,065 1,382 1,382
Methods and assumptions used to produce fair value are stated below:
CASH AND DUE FROM BANKS
The carrying amounts reported in the consolidated statements of condition
approximate the assets' fair values.
MONEY MARKET INVESTMENTS
The carrying amounts of federal funds sold and repurchase agreements
approximate their fair values because these investments all mature in three
months or less.
DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES
Fair values for debt, equity and mortgage-backed securities are based on
published market or securities dealers' estimated prices.
LOANS
Fair value estimates are calculated for pools of loans with similar
characteristics. The loans are first segregated by type, such as 1-4 family
residential, other residential, commercial, construction, and consumer, and
then further segregated into fixed and adjustable rate categories.
Fair value is estimated by discounting expected future cash flows. Expected
future cash flows are based on contractual cash flows, adjusted for
prepayments. Prepayment estimates are based on a variety of factors
including the Bank's experience with respect to each loan category, the
effect of current economic and lending conditions, and regional statistics
for each loan category, if available. The discount rates used are based on
market rates for new loans of similar type and purpose, adjusted, when
necessary, for factors such as servicing cost, credit risk, and term.
As mentioned previously, this technique of estimating fair value is
extremely sensitive to the assumptions and estimates used. While management
has attempted to use assumptions and estimates which are the most
reflective of the loan portfolio and the current market, a greater degree
of subjectivity is inherent in these values than those determined in formal
trading marketplaces. As such, readers are again cautioned in using this
information for purposes of evaluating the financial condition and/or value
of the Company in and of itself or in comparison with any other company.
MORTGAGE SERVICING RIGHTS
The fair value is estimated based upon a valuation which stratifies the
mortgage servicing portfolio based upon the predominate risk
characteristics of the underlying cash flows utilizing current market
assumptions regarding discount rates, prepayment speeds, delinquency rates,
etc.
OTHER RECEIVABLES AND PAYABLES
The carrying amounts of short-term receivables and payables, including
accrued interest approximate their fair values.
DEPOSITS
SFAS No. 107 stipulates that the fair values of deposits with no stated
maturity, such as demand deposits, savings, NOW accounts and money market
accounts, are equal to the amount payable on demand. The relative
insensitivity of the majority of these deposits to interest rate changes
creates a significant inherent value which is not reflected in the fair
value reported.
The fair value of certificates of deposit are based on discounted
contractual cash flows using rates which approximate the rates offered by
the Company for deposits of similar remaining maturities.
OTHER BORROWINGS
Fair value estimates are based on discounting contractual cash flows using
rates which approximate the rates offered for borrowings of similar
remaining maturities.
OUTSTANDING COMMITMENTS
Fair value of commitments outstanding are estimated based on the fees that
would be charged for similar agreements, considering the remaining term of
the agreement, the rate offered and the creditworthiness of the parties.
22. PARENT-ONLY FINANCIAL INFORMATION
The following condensed statements of condition at June 30, 1999 and 1998
and condensed statements of income and cash flows for the years ended June
30, 1999, 1998 and 1997 for Reliance Bancorp, Inc. (parent company only)
reflects the Company's investment in its wholly-owned subsidiary, the Bank,
using the equity method of accounting.
CONDENSED STATEMENTS OF CONDITION
June 30,
-----------------------
1999 1998
----- -------
(In thousands)
ASSETS
Cash.............................................. $ 1,961 $ 1,294
Money Market Investments.......................... -- 9,500
Debt Securities Available-for-Sale................ 10,076 24,374
ESOP Loan Receivable.............................. 3,979 4,799
Other Assets...................................... 2,046 2,210
Investment in Reliance Federal Savings Bank....... 205,096 205,355
Investment in Reliance Capital Trust I............ 1,547 1,547
--------- --------
Total Assets.............................. $224,705 $ 249,079
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses.................................. $ 1,491 $ 2,668
Junior Subordinated Debt Issued to Reliance
Capital Trust I................................ 51,547 51,547
Stockholders' Equity.............................. 171,667 194,864
------- -------
Total Liabilities and Stockholders' Equity $ 224,705 $ 249,079
======== =======
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME
Year Ended June 30,
----------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Interest Income - Securities and Repurchase Agreements $ 1,316 $ 615 $ 230
Interest Income - ESOP Loan Receivable...... 348 441 502
-------- ------- ------
Total Interest Income............... 1,664 1,056 732
Interest Expense............................ (4,086) (724) --
Cash Dividends from the Bank................ 13,000 14,000 6,700
Other Operating Income...................... 45 11 --
Other Operating Expense..................... (630) (418) (521)
-------- -------- --------
Income Before Income Taxes and Equity in Undistributed
Earnings of the Bank..................... 9,993 13,925 6,911
(Recovery) Provision for Income Taxes....... (1,214) (30) 90
-------- -------- --------
Income before Equity in Undistributed
Earnings of the Bank.................... 11,207 13,955 6,821
Equity in Undistributed Earnings of Reliance
Federal Savings Bank.................... 8,944 4,774 4,115
-------- -------- --------
Net Income.................. $ 20,151 $ 18,729 $ 10,936
======== ======== ========
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
Year Ended June 30,
---------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> >
(In thousands)
CASH FROM OPERATING ACTIVITIES:
Net Income.................................. $ 20,151 $ 18,729 $ 10,936
Equity in Undistributed Earnings of the Bank (8,944) (4,774) (4,115)
Accretion of Discounts...................... 44 (47) (70)
Net Gain on Sale of Securities.............. (44) (11) --
Decrease (Increase) in Other Assets......... 685 (1,655) 544
(Decrease) Increase in Accrued Expenses..... (1,165) 2,550 122
-------- -------- --------
Net Cash Provided by Operating Activities 10,727 14,792 7,417
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Debt Securities Available-for-Sale (2,000) (24,187) (4,715)
Proceeds from Sales of Debt Securities Available-for-Sale 15,229 4,870 --
Principal Payments on ESOP Loan Receivable.. 820 823 850
Payments for Investments in Reliance Capital Trust I -- (1,547) --
Payments for Investments in Bank............ -- (18,750) --
Net Cash Provided by (Used in) Investing Activities 14,049 (38,791) (3,865)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Issuance of Junior Subordinated Debt -- 51,547 --
Purchase of Treasury Stock.................. (27,936) (15,269) (8,113)
Net Proceeds from Issuance of Common Stock
Upon Exercise of Stock Options........... 725 2,670 898
Dividends Paid.............................. (6,398) (5,725) (4,578)
------- -------- ---------
Net Cash (Used in) Provided by Financing Activities (33,609) 33,223 (11,793)
Net (Decrease) Increase in Cash and Cash Equivalents (8,833) 9,224 (8,241)
Cash and Cash Equivalents at Beginning of Year 10,794 1,570 9,811
Cash and Cash Equivalents at the End of Year $ 1,961 $ 10,794 $ 1,570
======== ======== ==========
</TABLE>
RELIANCE BANCORP, INC. AND SUBSIDIARY
SELECTED CONSOLIDATED QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data)
Fiscal 1999 Quarter Ended
---------------------------------------------------
September 30, December 31, March 31, June 30,
---------- ----------- --------- --------
<S> <C> <C> <C> <C>
Interest Income.......................... $ 42,868 $ 42,374 $ 41,439 40,629
Interest Expense......................... 25,665 24,774 23,958 23,609
Net Interest Income...................... 17,203 17,600 17,481 17,020
Provision for Loan Losses................ 150 350 150 --
Net Interest Income after Provision for Loan Losses 17,053 17,250 17,331 17,020
Non-Interest Income...................... 1,871 1,937 2,117 2,475
General and Administrative Expense....... 9,127 8,790 9,192 9,180
Real Estate Operations, net.............. 87 (14) 17 21
Amortization of Excess of Cost Over Fair Value
of Net Assets Acquired................. 1,140 1,141 1,141 1,141
---------- --------- --------- -------
Income Before Provision for Income Taxes. 8,570 9,270 9,098 9,153
Income Tax Expense....................... 3,799 4,051 4,022 4,068
---------- --------- --------- -------
Net Income............................... $ 4,771 $ 5,219 $ 5,076 $ 5,085
========== ========= ========= =======
Basic Earnings Per Share................. $ 0.53 $ 0.63 $ 0.61 $ 0.62
========== ========= ========= =======
Diluted Earnings Per Share .............. $ 0.50 $ 0.60 $ 0.58 $ 0.59
========== ========= ========= =======
<CAPTION>
Fiscal 1998 Quarter Ended
---------------------------------------------------
September 30, December 31, March 31, June 30,
---------- ----------- --------- --------
<S> <C> <C> <C> <C>
Interest Income........................ $ 36,183 $ 39,266 $ 38,446 39,924
Interest Expense....................... 20,169 22,078 21,424 23,157
Net Interest Income.................... 16,014 17,188 17,022 16,767
Provision for Loan Losses.............. 900 300 300 150
Net Interest Income after Provision for Loan Losses 15,114 16,888 16,722 16,617
Non-Interest Income.................... 2,263 1,692 1,922 1,982
General and Administrative Expense..... 8,047 8,816 9,087 9,275
Real Estate Operations, net............ 225 (67) 12 48
Amortization of Excess of Cost Over Fair Value
of Net Assets Acquired............... 846 1,090 1,141 1,141
---------- ----------- --------- --------
Income Before Provision for Income Taxes 8,259 8,741 8,404 8,135
Income Tax Expense..................... 3,518 3,854 3,746 3,692
---------- ----------- --------- --------
Net Income............................. $ 4,741 $ 4,887 $ 4,658 $ 4,443
========== =========== ========= ========
Basic Earnings Per Share............... $ 0.58 $ 0.54 $ 0.51 $ 0.48
========== =========== ========= ========
Diluted Earnings Per Share ............ $ 0.54 $ 0.51 $ 0.48 $ 0.46
========== =========== ========= ========
</TABLE>
EXHIBIT 99.3
------------
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
- ------ ------------- -------------
<S> <C> <C>
Cash and due from banks $ 12,753 $ 13,849
Federal funds sold 32,500 99,000
------------- -------------
Cash and cash equivalents 45,253 112,849
Securities available-for-sale, at estimated fair value 79,173 83,592
Securities held-to-maturity, net (estimated fair
value of $192,781 and $208,906, respectively) 193,540 208,457
Other investments 10,833 8,922
Mortgage loans, net 1,207,177 1,146,915
Other loans, net 19,631 22,744
Premises and equipment, net 18,310 18,340
Interest due and accrued 8,840 8,773
Real estate held for sale and Other real estate ("ORE") 558 785
Other assets 12,455 10,272
------------- -------------
Total Assets $1,595,770 $1,621,649
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Deposits $1,092,044 $1,124,166
Federal Home Loan Bank of New York
("FHLB-NY") advances 50,000 50,000
Advance payments for real estate taxes and insurance 20,848 13,993
Official bank checks outstanding 17,784 11,604
Deferred tax liability, net 24,715 25,476
Accrued expenses and other liabilities 16,147 13,934
------------- --------------
Total Liabilities 1,221,538 1,239,173
-------------- --------------
Commitments and Contingencies
STOCKHOLDERS' EQUITY
- --------------------
Preferred stock ($.01 par value, 15,000,000 shares authorized;
none issued) -- --
Common stock ($.01 par value, 65,000,000 shares
authorized; 16,000,000 issued; 9,289,793 and
9,505,923 outstanding, respectively) 160 160
Additional paid-in capital 170,219 168,663
Retained income, substantially restricted 345,616 337,474
Common stock held by Benefit Restoration Plan
Trust, at cost (196,823 and 193,723 shares,
respectively) (4,758) (4,477)
Common stock held in treasury, at cost (6,710,207 and
6,494,077 shares, respectively) (175,393) (160,215)
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale,
net of tax 38,388 40,871
Total Stockholders' Equity 374,232 382,476
Total Liabilities and Stockholders' Equity $1,595,770 $1,621,649
============ ===============
See accompanying notes to the consolidated financial statements.
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------
1999 1998 1999 1998
------------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Interest Income
- ---------------
Mortgage loans, net $ 23,091 $ 22,157 $ 68,848 $ 64,518
Debt & equity securities, net ("CMOs") 1,449 2,514 5,244 9,195
Collateralized mortgage obligations
and mortgage-backed securities ("MBS"), net 1,704 1,711 4,999 4,956
Other loans, net 328 426 1,048 1,436
Federal funds sold 776 773 2,361 3,151
---------- ---------- ---------- ---------
27,348 27,581 82,500 83,256
---------- ---------- ---------- ---------
Interest Expense
Deposits 8,531 9,714 25,879 29,098
FHLB-NY advances 709 - 2,102 -
---------- ---------- ---------- ---------
Total Interest Expense 9,240 9,714 27,981 29,098
---------- ---------- ---------- ---------
Net Interest Income 18,108 17,867 54,519 54,158
Provision for Loan Losses 1 13 13 41
---------- ---------- ---------- ---------
Net Interest Income After Provision for
Loan Losses 18,107 17,854 54,506 54,117
---------- ---------- ---------- ---------
Non-Interest Income
Real estate operations, net 104 172 1,223 287
Loan fees and service charges 1,309 1,967 3,279 4,559
Recovery of prior period expenses & unaccrued
interest on troubled loans - - - 4,346
Miscellaneous (loss)/income (28) 1,359 (41) 1,766
---------- ---------- ---------- ---------
Total Non-Interest Income 1,385 3,498 4,461 10,958
---------- ---------- ---------- ---------
Non-Interest Expense
Compensation and benefits 3,894 4,167 11,932 11,941
Occupancy and equipment expenses, net 1,441 1,416 4,155 3,919
Federal deposit insurance premiums 34 36 104 108
Other general and administrative 1,494 1,532 4,984 4,850
---------- ---------- ---------- ---------
Total Non-Interest Expense 6,863 7,151 21,175 20,818
---------- ---------- ---------- ---------
Income Before Provision for Income Taxes 12,629 14,201 37,792 44,257
Provision for Income Taxes 5,427 2,824 16,218 10,030
---------- ---------- ---------- ---------
Net Income 7,202 11,377 21,574 34,227
========== ========== ========== =========
Earnings and Cash Dividends Per
Common Share:
Basic earnings per common share $ .78 $ 1.16 $ 2.32 $ 3.47
========== ========== ========== =========
Diluted earnings per common share $ .76 $ 1.13 $ 2.27 $ 3.37
========== ========== ========== =========
Basic weighted average common shares 9,284 9,830 9,319 9,864
========== ========== ========== =========
Diluted weighted average common
& dilutive potential shares 9,484 10,093 9,520 10,159
========== ========== ========== =========
Cash dividends per common share $ .45 $ .40 $ 1.35 $ 1.20
========== ========== ========== =========
Comprehensive Income:
Net Income $ 7,202 $ 11,377 $ 21,574 $ 34,227
Other comprehensive income, net of tax:
Net unrealized (depreciation)/appreciation on
securities available-for-sale, net of tax (4,229) (2,206) (2,483) 3,237
---------- ---------- --------- ---------
Comprehensive Income $ 2,973 $ 9,171 $ 19,091 $ 37,464
========== ========== ========== =========
See accompanying notes to the consolidated financial statements.
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999
----------------------
<S> <C>
Common Stock (Par value: $.01)
- ------------------------------
Balance at beginning and end of period $ 160
---------
Additional Paid-in Capital
- --------------------------
Balance at beginning of period 168,663
Net allocation of common stock for Benefit Restoration Plan 281
Tax benefit for stock plans 1,226
Issuance of common stock for Director's compensation 49
Balance at end of period 170,219
Retained Income, Substantially Restricted
- -----------------------------------------
Balance at beginning of period 337,474
Net income 21,574
Loss on reissuance of treasury stock (790)
Cash dividends on common stock ($1.35) (12,642)
----------
Balance at end of period 345,616
Common Stock Held by Benefit Restoration Plan Trust, at Cost
- ------------------------------------------------------------
Balance at beginning of period (4,477)
Common stock acquired (359)
Common stock distributed 78
Balance at end of period (4,758)
Common Stock Held in Treasury, at Cost
- --------------------------------------
Balance at beginning of period (160,215)
Common stock reacquired (17,995)
Common stock reissued for options exercised 2,775
Common stock reissued for Director's compensation 42
----------
Balance at end of period (175,393)
Accumulated Other Comprehensive Income:
- --------------------------------------
Balance at beginning of period 40,871
Net unrealized depreciation in securities
available-for-sale, net of tax benefit of $1,935 (2,483)
----------
Balance at end of period 38,388
----------
Total Stockholders' Equity $ 374,232
==========
See accompanying notes to the consolidated financial statements.
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Cash flows from operating activities
- ------------------------------------
Net income $ 21,574 $ 34,227
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 13 41
Decrease in deferred loan fees and discounts, net (468) (576)
Accretion of discount less than (in excess of) amortization of
premium on MBS and CMOs 109 (47)
Accretion of discount in excess of amortization of (4) (90)
premium on debt securities
Depreciation and amortization on premises and equipment 1,894 1,544
Mortgage loans originated for sale (274) (4,249)
Proceeds from sale of mortgage loans originated for sale 370 4,229
Gains on sale of mortgage and other loans (3) (45)
Tax benefit for stock plans credited to capital 1,226 2,430
(Increase) decrease in interest due and accrued (67) 223
Increase (decrease) in official bank checks outstanding 6,180 (2,780)
Other, net 1,675 3,685
---------- -----------
Net cash provided by operating activities 32,225 38,592
---------- -----------
Net cash flow from investing activities
- ---------------------------------------
Loans originated:
Mortgage loans (115,180) (208,769)
Other loans (7,497) (12,282)
Purchases of CMOs held-to-maturity (50,244) (46,701)
Purchases of debt securities held-to-maturity and (305,000) (279,000)
securities available-for-sale
Principal payments on:
Mortgage loans 55,087 68,849
Other loans 10,461 12,469
CMOs 34,282 47,686
MBS 774 1,111
Proceeds from maturities of U.S. Government and 335,000 389,000
federal agency securities
Proceeds from sale of other loans 138 5,133
Purchases of FHLB-NY stock (1,911) (1,277)
Purchases of premises and equipment, net of disposals (1,864) (2,779)
Net decrease in investment in real estate held-for-sale 52 2,128
---------- -----------
Net cash used by investing activities (45,902) (24,432)
---------- -----------
Net cash flow from financing activities
- ---------------------------------------
Net decrease in deposits (32,122) (11,590)
Increase in advance payments for real estate taxes and insurance 6,855 11,406
Proceeds from common stock option exercises 1,985 1,531
Cash dividend paid to common stockholders (12,642) (11,862)
Payments to repurchase common stock (17,995) (16,034)
---------- -----------
Net cash used by financing activities (53,919) (26,549)
---------- -----------
Decrease in cash and cash equivalents (67,596) (12,389)
Cash and cash equivalents at beginning of year 112,849 74,924
---------- -----------
Cash and cash equivalents at end of quarter $ 45,253 $ 62,535
========== ===========
See accompanying notes to the consolidated financial statements.
</TABLE>
GE>
JSB FINANCIAL, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The financial information for JSB Financial, Inc. (the "Company" or "JSB
Financial") as consolidated with its wholly owned subsidiary Jamaica
Savings Bank FSB (the "Bank") is prepared in conformity with generally
accepted accounting principles for interim financial statements and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Such principles
are applied on a basis consistent with those reflected in the 1998 Annual
Report filed with the Securities and Exchange Commission ("SEC"). The
financial information included herein, other than the consolidated
statement of financial condition as of December 31, 1998, has been prepared
by management without an audit by independent certified public accountants
who do not express an opinion thereon. The consolidated statement of
financial condition as of December 31, 1998, has been derived from, but
does not include all the disclosures contained in, the audited consolidated
financial statements for the year ended December 31, 1998. The information
furnished includes all adjustments and accruals consisting only of normal
recurring accrual adjustments which are in the opinion of management,
necessary for a fair presentation of results for the interim periods. The
foregoing interim results are not necessarily indicative of the results of
operations for the full year ending December 31, 1999.
These consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto, included
in the Annual Report to Stockholders for JSB Financial, Inc. for the year
ended December 31, 1998 and the Form's 10-Q for the periods ended March 31,
1999 and June 30, 1999.
2. Impact of New Accounting Standard Not Yet Adopted
-------------------------------------------------
In June of 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("Statement 133").
Statement 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging
activities. Statement 133 requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The accounting for changes in the
fair value of a derivative depends on the intended use of the derivative
and the resulting designation. If certain conditions are met, a derivative
may be specifically designed as (a) a hedge of the exposure to changes in
the fair value of a recognized asset or liability or an unrecognized firm
commitment, (b) a hedge of the exposure to variable cash flows of a
forecasted transaction, or (c) a hedge of the foreign currency exposure of
a net investment in a foreign operation, an unrecognized firm commitment,
an available-for-sale security, or a foreign-currency-denominated
forecasted transaction.
The issuance of Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133," delayed the effective date of Statement 133 to all fiscal quarters
beginning after June 15, 2000. Earlier application of all provisions of
Statement 133 is encouraged, but it is permitted only as of the beginning
of a fiscal quarter that begins after the issuance of this Statement.
Statement 133 should not be applied retroactively to financial statements
of prior periods. Upon implementation of Statement 133, hedging
relationships must be designated anew and documented pursuant to the
provisions of Statement 133. The Company does not expect the adoption of
Statement 133 to have a material affect on its financial condition or
results of operations.
3. Debt and Equity Securities
--------------------------
The following tables set forth information regarding the Company's debt and
equity securities as of:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
---------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
Held-to-Maturity (In Thousands)
- ----------------
<S> <C> <C> <C> <C>
U.S. Government and federal
agency securities $ 80,000 $ 79,973 $ 109,996 $ 110,026
CMOs, net 111,641 110,795 95,790 95,997
MBS, net 1,899 2,013 2,671 2,883
--------- ---------- --------- ----------
Total Securities held-to-maturity $193,540 $ 192,781 $ 208,457 $ 208,906
========= ========== ========= ==========
<CAPTION>
September 30, 1999 December 31, 1998
---------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
Available-for-Sale (In Thousands)
- ------------------
<S> <C> <C> <C> <C>
Marketable equity securities $ 10,869 $ 79,173 $ 10,869 $ 83,592
========== ========== ========== ==========
</TABLE>
4. Recent Developments
-------------------
On August 16, 1999, the Company announced that, on that day, it had entered
into an Agreement and Plan of Merger ("Merger Agreement") in which the
Company will merge with and into North Fork Bancorporation, Inc. ("North
Fork"). Under the terms of the Merger Agreement, stockholders of JSB
Financial will receive 3.0 shares of North Fork common stock for each share
of the Company's common stock. The transaction, which is subject to
regulatory and stockholder approvals, is expected to be accounted for as a
pooling-of-interests and is expected to close during the first quarter of
2000.
On September 14, 1999, in connection with the pending merger with North
Fork, the Company's Board of Directors terminated the Company's eleventh
stock repurchase program, which was approved by the Board of Directors on
October 13, 1998. Prior to the termination, the Company repurchased 326,600
shares of its common stock during the nine months ended September 30, 1999.
Under the eleventh program, 461,700 shares of the 900,000 shares targeted
for repurchase had been acquired at an aggregate cost of $25.1 million, or
an average price of $54.33 per share through September 14, 1999.
5. Subsequent Events
-----------------
On October 12, 1999, the Board of Directors declared a $.45 per share cash
dividend on the Company's common stock. The dividend is to be paid on
November 17, 1999, to stockholders of record on November 3, 1999, and will
total approximately $4.2 million.
EXHIBIT 99.4
------------
REPORT OF INDEPENDENT AUDITORS
KPMG LLP LOGO
INDEPENDENT AUDITORS' REPORT
To The Stockholders
and The Board of Directors of JSB Financial, Inc.
We have audited the accompanying consolidated statements of financial
condition of JSB Financial, Inc. and subsidiary as of December 31, 1998 and
1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of JSB
Financial, Inc. and subsidiary at December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in
the three year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
KPMG LLP
Melville, New York
January 28, 1999
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
(In Thousands, Except Share and Per Share Amounts)
ASSETS 1998 1997
- ------ ------------ -----------
Cash and due from banks $ 13,849 $ 12,924
Federal funds sold 99,000 62,000
------------ -----------
Cash and cash equivalents 112,849 74,924
Securities available-for-sale, at estimated fair value 83,592 62,243
Securities held-to-maturity, net (estimated fair 208,457 352,967
value of $208,906 and
$353,996, respectively)
Other investments 8,922 7,645
Mortgage loans, net 1,146,915 970,737
Other loans, net 22,744 29,008
Premises and equipment, net 18,340 17,029
Interest due and accrued 8,773 9,278
Real estate held-for-sale and Other real estate 785 3,450
Other assets 10,272 7,750
------------ -----------
Total Assets $ 1,621,649 $1,535,031
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $1,124,166 $1,121,203
Federal Home Loan Bank of New York ("FHLB-NY") advances 50,000 -
Advance payments for real estate taxes and insurance 13,993 10,322
Official bank checks outstanding 11,604 10,405
Deferred tax liability, net 25,476 15,628
Accrued expenses and other liabilities 13,934 9,959
------------ -----------
Total Liabilities 1,239,173 1,167,517
============ ===========
Commitments and Contingencies
STOCKHOLDERS' EQUITY
Preferred stock ($.01 par value, 15,000,000 shares
authorized; none
issued) - -
Common stock ($.01 par value, 65,000,000 shares authorized; 160 160
16,000,000 issued; 9,505,923 and 9,919,927 outstanding,
respectively)
Additional paid-in capital 168,663 165,112
Retained income, substantially restricted 337,474 311,436
Accumulated other comprehensive income:
Net unrealized gain on securities available-for-sale,
net of tax 40,871 28,469
Common stock held by Benefit Restoration Plan Trust, (4,477) (4,199)
at cost (193,723
and 188,323 shares, respectively)
Common stock held in treasury, at cost (6,494,077 and
6,080,073 shares, respectively) (160,215) (133,464)
Total Stockholders' Equity 382,476 367,514
------------ -----------
Total Liabilities and Stockholders' Equity $ 1,621,649 $ 1,535,031
============ ===========
See accompanying Notes to Consolidated Financial Statements.
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1998, 1997 and 1996
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997 1996
------- -------- -------
<S> <C> <C> <C>
Interest Income:
Mortgage loans, net $87,149 $ 74,149 $69,113
Debt & equity securities, net 11,179 19,584 21,695
Collateralized mortgage obligations("CMOs"), net 6,218 7,937 10,063
Other loans, net 1,838 2,070 2,138
Mortgage-backed securities("MBS"), net 319 499 739
Federal funds sold 4,057 3,503 3,863
Total Interest Income 110,760 107,742 107,611
------- -------- -------
Interest Expense:
Deposits 38,291 39,874 40,217
FHLB advances 185 - -
Total Interest Expense 38,476 39,874 40,217
------- -------- -------
Net Interest Income 72,284 67,868 67,394
Provision for Possible Loan Losses 51 648 640
Recovery of Provision for Possible Other Credit Losses - - (2,040)
Net Interest Income After Provision for Possible Credit
Losses 72,233 67,220 68,794
------- -------- -------
Non-Interest Income:
Real estate operations, net 714 10,442 1,767
Loan fees and service charges 5,859 3,969 2,833
Recovery of prior period expenses and
unaccrued interest on troubled loans 4,346 - -
Gain on sale of investments, net - 6,991 2
Miscellaneous income, net 1,982 527 479
Total Non-Interest Income 12,901 21,929 5,081
------- -------- -------
Non-Interest Expense:
Compensation and benefits 15,843 15,921 16,412
Occupancy and equipment expenses (net of rental income of
$1,283, $1,287 and $1,126, respectively) 5,181 5,094 5,599
Federal deposit insurance premiums 142 149 2
Advertising 881 1,005 1,340
Other real estate expense (income), net 33 (59) (772)
Other general and administrative 5,378 5,324 5,017
Total Non-Interest Expense 27,458 27,434 27,598
------- -------- -------
Income Before Provision for Income Taxes 57,676 61,715 46,277
Provision for Income Taxes 13,288 24,625 19,552
------- -------- -------
Net Income $44,388 $ 37,090 $26,725
======= ======== =======
Basic earnings per common share $ 4.53 $ 3.76 $ 2.66
Diluted earnings per common share $ 4.41 $ 3.64 $ 2.56
Cash dividends per common share $ 1.60 $ 1.40 $ 1.20
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity Years
ended December 31, 1998, 1997 and 1996
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Common Stock (Par value: $.01)
Balance at beginning and end of year $ 160 $ 160 $ 160
--------- --------- ---------
Additional Paid-in Capital
Balance at beginning of year 165,112 163,500 162,566
Net allocation of common stock for Benefit 278 924 5
Restoration Plan
Tax benefit for stock plans 3,222 688 599
Issuance of common stock for Directors' 51 - -
compensation
Compensation expense for 1996 stock option plan - - 330
Balance at end of year 168,663 165,112 163,500
--------- --------- ---------
Retained Income, Substantially Restricted
Balance at beginning of year 311,436 289,588 276,317
Net income 44,388 37,090 26,725
Loss on reissuance of treasury stock (2,634) (1,437) (1,364)
Cash dividends on common stock ($1.60, $1.40,
$1.20, respectively) (15,716) (13,805) (12,090)
--------- --------- ---------
Balance at end of year 337,474 311,436 289,588
--------- --------- ---------
Accumulated Other Comprehensive Income:
Net Unrealized Gain on Securities
Available-For-Sale, Net of Tax
Balance at beginning of year 28,469 21,795 15,750
Net unrealized holding gains on securities
arising during period
(net of realized gains included in
income of $0, $6,991 and
$2, respectively, and tax effect of
$8,947, $5,371 and
$4,863, respectively) 12,402 6,674 6,045
Balance at end of year 40,871 28,469 21,795
--------- --------- ---------
Common Stock Held by Benefit Restoration Plan Trust, at Cost
Balance at beginning of year (4,199) (3,275) (3,270)
Common stock acquired (285) (934) (11)
Common stock distributed 7 10 6
Balance at end of year (4,477) (4,199) (3,275)
--------- --------- ---------
Common Stock Held in Treasury, at Cost
Balance at beginning of year (133,464) (136,469) (111,416)
Common stock reacquired (31,466) - (27,650)
Common stock reissued for options exercised 4,675 3,005 2,597
Common stock reissued for Directors' 40 - -
compensation
Balance at end of year (160,215) (133,464) (136,469)
--------- --------- ---------
Total Stockholders' Equity $ 382,476 $ 367,514 $ 335,299
========= ========= =========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING ACTIVITIES: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income $ 44,388 $ 37,090 $ 26,725
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible loan losses 51 648 640
(Recovery of) provision for possible other credit losses - - (2,040)
Net gain on sale/redemption of equity securities - (6,991) (2)
Decrease in deferred loan fees and discounts, net (630) (418) (593)
Accretion of discount in excess of amortization of premium on
MBS and CMOs (46) (300) (578)
Accretion of discount in excess of amortization of premium on
debt securities (94) (337) (249)
Depreciation and amortization of premises and equipment 2,213 1,891 1,826
Mortgage loans originated for sale (4,839) (1,612) (1,621)
Proceeds from sale of mortgage loans originated for sale 4,821 1,636 1,737
Gain on sales of mortgage and other loans, net (47) (35) (53)
Tax benefit for stock plans credited to capital 3,222 688 599
Gain on sale of real estate held-for-sale (691) (9,992) (571)
Decrease in interest due and accrued 505 32 3,597
Payments received against Nationar claim - - 10,205
Net gain on sale of ORE - (144) (688)
Increase (decrease) in official bank checks outstanding 1,199 761 (14,748)
Other 2,445 137 1,547
--------- ---------- ----------
Net cash provided by operating activities 52,497 23,054 25,733
--------- ---------- ----------
Cash flows from investing activities:
Loans originated:
Mortgage loans (261,201) (205,174) (136,218)
Other loans (15,143) (21,010) (19,032)
Purchases of CMOs held-to-maturity (57,084) (55,035) (124,275)
Purchases of debt securities
held-to-maturity and securities (379,000) (499,920) (534,569)
available-for-sale
Principal payments on:
Mortgage loans 85,652 60,833 46,506
Other loans 16,278 19,025 19,656
CMOs 65,381 106,545 114,105
MBS 1,353 1,590 2,047
Proceeds from maturities of U.S. Government
and federal agency securities 514,000 555,000 675,000
Proceeds from sale of other loans 5,144 681 934
Purchases of FHLB-NY stock (1,277) (786) (557)
Proceeds from sale/redemption of equity - 7,813 30
securities
Purchases of premises and equipment, net of disposals (3,524) (2,091) (3,498)
Proceeds from sales of real estate
held-for-sale and ORE, net of
change in real estate holdings 3,356 18,375 5,165
--------- ---------- ----------
Net cash (used) provided by investing activities (26,065) (14,154) 45,294
--------- ---------- ----------
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows - Continued
Years ended December 31, 1998, 1997 and 1996 (In Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in deposits 2,963 (23,190) (19,053)
Increase in advance payments for real estate
taxes and insurance 3,671 2,057 34
Proceeds upon exercise of common stock options 2,041 1,568 1,233
Cash dividends paid to common stockholders (15,716) (13,805) (12,090)
Payments to repurchase common stock (31,466) - (27,650)
FHLB-NY advances 50,000 - -
--------- ---------- ----------
Net cash provided (used) by financing activities 11,493 (33,370) (57,526)
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 37,925 (24,470) 13,501
Cash and cash equivalents at beginning of year 74,924 99,394 85,893
--------- ---------- ----------
Cash and cash equivalents at end of year $112,849 $ 74,924 $ 99,394
========= ========== ==========
Supplemental Disclosures of Cash Flow Information
Cash paid for:
Interest on deposits $ 38,333 $ 39,881 $ 40,215
========= ========== ==========
Income taxes $ 5,825 $ 32,036 $ 22,370
========= ========== ==========
Supplemental Disclosures of Noncash Investing and
Financing Activities
Real estate acquired through foreclosure $ - $ 540 $ 8,190
========= ========== ==========
Transfer of real estate held-for-investment
to held-for-sale $ - $ 6,145 $ -
========= ========== ==========
Mortgage originated upon sale of real estate
from the held-for-sale
portfolio and other real estate $ - $ 33 $ 6,675
========= ========== ==========
Deferred tax liability on securities
available-for-sale $ 31,852 $ 22,905 $ 17,534
========= ========== ==========
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
JSB FINANCIAL, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
Note (1) Summary of Significant Accounting Policies and Related Matters
JSB Financial, Inc.(the "Company" or the "Parent") is a unitary
savings and loan holding company. The Company holds all of the outstanding
common stock of its subsidiary, Jamaica Savings Bank FSB (the "Bank" or the
"Subsidiary"). The Company is subject to the financial reporting
requirements of the Securities Exchange Act of 1934.
(1) Basis of Presentation and
Accounting Standards Adopted During 1998.
The accompanying consolidated financial statements have been prepared
in conformity with generally accepted accounting principles. The
consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, the Bank, as consolidated with the Bank's
wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Reclassifications have
been made to prior year financial statements to conform with the 1998
presentation.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported amounts
of assets, liabilities and disclosures of contingent assets and liabilities
as of the dates of the consolidated statements of financial condition and
revenues and expenses for the periods presented. Actual results could
differ significantly from those estimates. Material estimates that are
particularly susceptible to significant change relate to the determination
of the allowances for credit losses.
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income"("Statement 130"). Comprehensive income represents the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. It includes all changes in
equity during a period except those resulting from investments by owners
and distributions to owners. Statement 130 requires that all items that are
required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. In applying
Statement 130, such items are reported in the Consolidated Statements of
Changes in Stockholders' Equity.
Effective January 1, 1998, the Company addressed SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information"
("Statement 131"). The Company determined that it has no reportable
segments pursuant to the criteria presented in Statement 131, however if
such reportable segments should exist in the future, the disclosure as
required by Statement 131 would be provided.
Effective January 1, 1998, the Company adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
("Statement 132"). Statement 132 revises employers' disclosures about
pension and other postretirement benefit plans, it does not change the
accounting for such plans. The adoption of Statement 132 had no impact on
the Company's financial condition or results of operations. (See Note 20.)
(2) Consolidated Statements of Cash Flows
For the purposes of reporting cash flows, the Company considers
all short-term investments with a maturity of less than three months from
the date of purchase to be cash equivalents.
(3) Securities
The Company is required to report debt, readily-marketable
equity, and mortgage-backed securities in one of the following categories:
(i) "held-to-maturity" (when management has a positive intent and ability
to hold to maturity) which are reported at amortized cost; (ii) "trading"
(when held for current resale) which are to be reported at estimated fair
value, with unrealized gains and losses included in earnings; and (iii)
"available-for-sale" (all other debt and equity securities not designated
as held-to-maturity or trading) which are reported at estimated fair value,
with unrealized gains and losses excluded from earnings and reported, net
of tax, as other comprehensive income, a separate component of
stockholders' equity. The designation of a security as held-to-maturity or
available-for-sale is made at the time of acquisition.
Discounts on debt securities are accreted to income and premiums are
amortized against income over the life of the security using a method which
approximates the level yield method.
Gains and losses on the sales of securities,
if any, are recognized upon realization, using the specific identification
method.
(4) Mortgage and Other Loans
Loans are carried at unpaid principal balances net of any deferred
loan fees and unearned discounts. Discounts are accreted to income using a
method which approximates the level yield method, over the composite
average life of the loans. Loan fees received for commitments to make or
purchase loans are deferred and accreted into income over the life of the
loan using the level yield method.
Interest is accrued monthly on the outstanding balances of loans.
Mortgages 90 days in arrears and/or loans where full collection of
principal and interest is questionable are placed on non-accrual status, at
which time loan interest due and accrued is reversed against interest
income of the current period. A non-accrual loan is restored to accrual
status when principal and interest payments are current and full payment of
principal and interest is expected. Cash receipts on an impaired loan are
applied to principal and interest in accordance with the contractual terms
of the loan unless full payment of principal is not expected, in which case
both principal and interest payments received are netted against the loan
balance. The Bank continues to accrue interest income on non-insured other
loans up to 120 days delinquent, beyond which time the loan balance is
written off.
In accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" ("Statement 114"), and the amendment thereof, SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan-Income
Recognition Disclosures" ("Statement 118"), the Company considers a loan
impaired if it is probable that, based upon current information, the
Company will be unable to collect all amounts due according to the
contractual terms of a loan agreement. Statement 114 does not apply to
large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment including the Company's one-to four-family
mortgage loans and consumer loans other than those modified in a troubled
debt restructure ("TDR"). The Company generally does not consider a loan
impaired when the delay in the timing of payments is three months or less
or the shortfall in the amount of payments is the lower of $10,000 or 1.0%
of the loan amount.
Loans individually reviewed for impairment by the Company are limited
to loans secured by multi-family, underlying cooperative, commercial and
construction properties, loans modified in TDRs and selected large one-to
four-family loans. Examples of measurement techniques utilized by the
Company include present value of expected future cash flows, the loan's
market price (if one exists) and the estimated fair value of the
collateral. Reserves are established against impaired loans in amounts
equal to the difference between the recorded investment in the asset and
either the present value of the cash flows expected to be received, or the
fair value of the underlying collateral if foreclosure is deemed probable
or if the loan is considered collateral dependent. The Company's impaired
loan identification and measurement process is conducted in conjunction
with the Company's review of the adequacy of its allowance for loan losses.
A loan is deemed a TDR by the Company when concessionary
modifications to the original contractual terms are made for economic or
legal reasons related to the debtor's financial difficulties. Loans
modified in a TDR subsequent to the January 1, 1995 adoption of Statement
114 are considered impaired, unless in periods subsequent to restructuring,
the loan is performing in accordance with the new terms of the agreement
and such terms reflect those that would be offered by the Bank for a new
credit. Valuation allowances associated with such impaired loans are
measured in accordance with Statement 114 throughout the loan term.
Modifications made to loans in TDRs prior to the adoption of Statement 114
that are not considered impaired based on the terms of the restructuring
agreement continue to be accounted for under Statement 15, "Accounting by
Debtors and Creditors for Troubled Debt Restructurings", and are not
included in the Company's impaired loan statistics.
Loans originated for sale are carried at the lower of unpaid
principal balance, net of any discounts and deferred fees or estimated fair
value, in the aggregate.
(5) Allowances for Losses
Allowances for losses are estimates which are primarily reactive to
actual and anticipated changes in the real estate market, the economy in
the Bank's market area and debtors' financial condition. In connection with
the determination of allowances, management reviews: loan performance;
historical trends; appraisals of real estate held-for-sale, ORE and
properties securing significant mortgages; investment ratings for debt and
equity securities; and capital and liquidity levels for correspondent
banks, on an ongoing basis.
The allowance for possible loan losses is available for future
charge-offs of loans. The allowance is increased by the provision for
possible loan losses made and recoveries of loans previously charged off.
The allowance is reduced by charge-offs, in whole or in part, of problem
loans. The allowance for possible loan losses is based on continuous
analysis of the loan portfolio and reflects an amount which, in
management's judgment, is adequate to provide for possible loan losses in
the existing portfolio. In evaluating the portfolio, management considers
numerous factors, such as the Bank's loan growth, prior loss experience,
present and potential risks of the loan portfolio and current economic
conditions and entails management's review of delinquency reports, loan to
value ratios, collateral condition and debt coverage ratios.
The ultimate collection of the Bank's loan portfolio is affected by
economic conditions in the Bank's market area and changes thereto. The
Bank's mortgage loans are secured primarily by properties located in the
New York-metropolitan area.
Management believes that the allowances for loan losses as presented
in these consolidated financial statements are adequate. Future additions
to the allowances could be necessary based on changes in debtors' financial
condition, economic conditions or if economic conditions differ from
management's previous assessments. Various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowances for losses. Such agencies may require the Bank to recognize
additions to the allowances based on their judgment using information
available to them at the time of their examination.
(6) Premises and Equipment
Depreciation is computed on the straight-line method over the
estimated useful life of the related assets. Estimated lives are 15 to 60
years for buildings and 5 to 8 years for furniture and fixtures.
Amortization for leasehold improvements is computed on the straight-line
method over the lesser of the term of the lease or the asset's estimated
useful life. Premises and equipment are carried at cost, net of accumulated
depreciation.
(7) Real Estate Held-for-Sale and ORE
Real estate held-for-sale is carried at the lower of cost or net fair
value. Gains on the sale, if any, are accounted for using the cost recovery
method. Revenues and expenses from the operations are reflected, as
incurred, in the Company's operating results.
Real estate properties acquired through foreclosure, known as ORE,
are recorded at the lower of the net unpaid loan balance at the foreclosure
date plus related costs, or net fair value. Subsequent valuation
adjustments are made if the net fair value decreases below the carrying
amount. Gains, if any, on the sale of ORE are accounted for using the cost
recovery method. (See Notes 11, 12 and 13.)
(8) Income Taxes
The Company, the Bank and certain of its subsidiary corporations file
consolidated tax returns with the federal, state and local taxing
authorities. Other subsidiaries file separate domestic tax returns as
required.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases (temporary differences). Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which temporary differences are expected to
be recovered or settled. A valuation allowance is provided for deferred tax
assets where realization is not considered "more likely than not". The
effect of changes in tax laws or rates on deferred tax assets and
liabilities is recognized in the period that includes the enactment date.
(See Note 14.)
(9) Stock Based Compensation
SFAS No. 123 "Accounting for Stock-Based Compensation" ("Statement
123") permits either the recognition of compensation cost for the estimated
fair value of employee stock-based compensation arrangements on the date of
grant, or the disclosure in the notes to the financial statements of the
pro forma effects on net income and earnings per share, determined as if
the fair value-based method had been applied in measuring compensation
cost. The Company has adopted the disclosure option and continues to apply
Accounting Principles Bulletin Opinion No. 25, "Accounting for Stock Issued
to Employees" in accounting for its plans. Accordingly, no compensation
cost has been recognized for the Company's stock option plans. (See Note
22.)
(10) Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted average number of common shares outstanding, with no
consideration given to potential outstanding shares. Diluted EPS is
calculated using the same method as basic EPS, but reflects the potential
dilution that would occur if stock options outstanding were exercised and
converted into common stock. Common stock equivalents are computed using
the treasury stock method. (See Note 15.)
(11) Treasury Stock
Repurchases of common stock are accounted for under the cost method,
whereby shares repurchased are recorded in a contra-equity account. (See
Note 2.)
Note (2) Repurchases of Common Stock.
For the year ended December 31, 1998 the Company repurchased 620,100
shares of its outstanding common stock at an average price of $50.74. The
Company did not repurchase any shares during 1997 and repurchased 845,000
shares during 1996 at an average price of $32.72 per share. The Company
issued 204,296, 136,896 and 123,256 shares of treasury stock for options
exercised during 1998, 1997 and 1996, respectively. In addition, during
1998, the Company issued 1,800 shares of treasury stock pursuant to the
Directors' Stock Program. (See Note 23.) There were 6,494,077 and 6,080,073
shares of common stock in the treasury at December 31, 1998 and 1997,
respectively.
Note (3) Securities
The following tables set forth information regarding the Company's
securities portfolios as of December 31:
<TABLE>
<CAPTION>
1998
----
Estimated Gross Unrealized
Cost Fair Value Gains Losses
----------- --------- ---------- ----------
Securities Available-For-Sale: (In Thousands)
<S> <C> <C> <C> <C>
Marketable equity securities $ 10,869 $ 83,592 $ 72,746 $ 23
=========== ========= ========== ==========
<CAPTION>
Securities Held-to-Maturity:
Amortized Estimated Gross Unrealized
Cost Fair Value Gains Losses
----------- --------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and federal
agency securities $ 109,996 $ 110,026 $ 38 $ 8
CMOs, net 95,790 95,997 310 103
MBS:
GNMA* 2,464 2,659 195 -
FNMA* 53 57 4 -
Freddie Mac* 154 167 13 -
----------- --------- ---------- ---------
Total MBS, net $ 2,671 $ 2,883 $ 212 -
----------- --------- ---------- ---------
Total $ 208,457 $ 208,906 $ 560 $ 111
=========== ========= ========== ==========
<CAPTION>
1997
----
Securities Available-for-Sale:
Estimated
Fair Gross Unrealized
Cost Value Gains Losses
----------- --------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Marketable equity securities $ 10,869 $ 62,243 $ 51,462 $ 88
=========== ========= ========== ==========
<CAPTION>
Securities Held-to-Maturity:
Amortized Estimated Gross Unrealized
Cost Fair Gains Losses
Value
----------- --------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
U.S. Government and federal
agency securities $ 244,903 $ 245,367 $ 464 $ -
CMOs, net 104,040 104,270 295 65
MBS:
GNMA 3,640 3,944 304 -
FNMA 106 115 9 -
Freddie Mac 278 300 22 -
----------- --------- ---------- ----------
Total MBS, net 4,024 4,359 335 -
----------- --------- ---------- ----------
Total $ 352,967 $ 353,996 $ 1,094 $ 65
=========== ========= ========== ==========
</TABLE>
*Definitions: GNMA - Government National Mortgage Association; FNMA -
Federal National Mortgage Association; Freddie Mac - Federal Home Loan
Mortgage Corporation
CMOs represent participating interests in pools of long-term first
mortgage loans originated and serviced by the issuers of the securities.
All of the CMOs held by the Company consist of First Tranche-Planned
Amortization Class Bonds collateralized by FNMA, Freddie Mac and GNMA
mortgage-backed securities, which in turn are collateralized by whole
loans. MBS represent securities issued by governmental mortgage agencies
and collateralized by mortgage loans.
There were no sales of securities during 1998. During 1997, the Bank
sold or redeemed marketable equity securities with a cost of $823,000,
realizing gross gains of $6,991,000 and no losses. During 1996, the Bank
sold or redeemed marketable equity securities totaling $30,000, realizing
gross gains of $4,000 and gross losses of $2,000.
Presented in the table below is the contractual maturity distribution
for debt securities held-to-maturity at December 31, 1998:
Amortized Estimated
Cost Fair Value
(In Thousands)
Within 1 year $110,013 $110,044
After 1 year through 5 years 4,864 4,913
After 5 years through 10 years 81,730 82,046
After 10 years 11,850 11,903
------ ------
Total $208,457 $208,906
======== ========
Actual maturities of CMOs and MBS may differ substantially from the
presentation, due to prepayment activity. The table reflects the balance of
the entire security in the category in which the final contractual payment
is due.
The Company loans securities to specified brokerage houses. These
loaned securities are collateralized at a minimum of 102% of their fair
value with government securities and/or cash. To protect the Company's
investment, the agreements contain provisions to increase the collateral
obtained, should the fair value of the collateral decline or the fair value
of the security loaned increase. Upon termination of the agreement,
securities loaned are returned to the Company. The following table reflects
the carrying value of securities loaned and their estimated fair value and
the estimated fair value of the collateral at December 31:
1998 1997
---- ----
(In Thousands)
Amortized cost - Securities loaned $ 9,996 $79,970
= ===== =======
Estimated fair value - Securities loaned $10,034 $80,188
======= =======
Estimated fair value - Collateral $10,422 $82,069
======= =======
Note (4) Other Investments
Other investments at December 31, 1998 and 1997 were as follows:
1998 1997
---- ----
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
(In Thousands)
Investment required by law* $8,892 $8,892 $7,615 $7,615
Other stock 30 30 30 30
-- -- -- --
Total other investments $8,922 $8,922 $7,645 $7,645
====== ====== ====== ======
* The Bank is required to hold shares of the FHLB-NY.
Note (5) Loans
Loans are summarized as follows:
December 31,
1998 1997
---- ----
(In Thousands)
Mortgage loans:
Multi-family $ 702,914 $563,205
Underlying cooperative* 302,494 267,942
One-to four-family 75,773 73,757
Commercial 69,001 71,839
Construction 5,176 3,067
----- -----
Total mortgage loans 1,155,358 979,810
--------- -------
Deferred loan fees and unearned discounts (2,702) (3,332)
Allowance for possible loan losses (5,741) (5,741)
------ ------
Total mortgage loans, net $1,146,915 $970,737
========== ========
Other loans:
Property improvement $ 10,652 $10,744
--------- -------
Loans secured by deposit accounts 8,166 8,189
Consumer 3,754 4,775
Overdraft loans 202 227
Student 153 5,213
--------- -----
Total other loans 22,927 29,148
--------- ------
Unearned discounts - (1)
Allowance for possible loan losses (183) (139)
--------- ------
Total other loans, net $ 22,744 $29,008
========= =======
* Underlying cooperative loans are first liens on cooperative apartment
buildings and are senior to loans on the individual units commonly
called cooperative share loans.
Note (6) Loan Delinquencies
Information regarding loans delinquent 90 days or more at December 31,
1998 and 1997 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------- --------------------
Number Principal Number Principal
of balance of balance
loans of loans loans of loans
-------- --------- ------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Delinquent loans: $ $
Guaranteed* 10 233 82 500
Non-guaranteed 5 216 5 12,769
-------- --------- ------- --------
Total delinquencies $
over 90 days 15 449 87 $ 13,269
======== ========= ======= ========
Ratio of loans 90 days .04% 1.32%
or more past due to
total gross loans
* These loans are guaranteed by the Federal Housing Administration, the
Veterans Administration or the New York State Higher Education Services
Corporation.
Impaired and Non-accrual loans
At December 31, 1998, the Bank had one impaired mortgage loan with a
$213,000 balance and a $27,000 specific valuation allowance. The Bank had a
net investment in this loan of $186,000, which comprised total non-accrual
loans at December 31, 1998. At December 31, 1997, the Bank had one impaired
mortgage loan, secured by a cooperative apartment building, with a balance
of $12,754,000 and no related valuation allowance. This loan comprised the
total balance of non-accrual loans at December 31, 1997.
If all non-accrual loans had been performing in accordance with their
original terms, the Company would have recorded interest income, with
respect to such loans, of $509,000, $1,180,000 and $1,180,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. This compares to
$397,000 of actual payments recorded for 1998, no interest income was
recognized with respect to such loans for 1997 and 1996.
On May 28, 1998, the $12,754,000 underlying cooperative mortgage loan,
discussed above, was satisfied. Upon satisfaction, $4,346,000 of previously
unrecorded prior years' interest and legal fees, as well as late charges,
were recovered and included in non-interest income. The average balance of
impaired loans for calendar 1998, 1997 and 1996 was $5,491,000, $12,754,000
and $12,754,000, respectively.
At December 31, 1998 and 1997, loans restructured in a TDR, all of
which are performing in accordance with their contractual terms and
therefore not considered impaired, were $1,842,000 and $1,840,000,
respectively. Interest forfeited attributable to these loans was $73,000,
$62,000 and $62,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Note (7) Allowance for Possible Loan Losses
Activity in the allowance for possible loan losses for the years
ended December 31, 1998, 1997 and 1996 is summarized as follows:
Mortgage loans
-----------------------------
1998 1997 1996
-------- ------- --------
(In Thousands)
Balance at beginning of period $ 5,741 $ 5,176 $ 4,575
Provision for possible loan losses - 600 600
Loans charged off - (35) -
Recoveries of loans previously
charged off - - 1
-------- ------- --------
Balance at end of period $ 5,741 $ 5,741 $ 5,176
======== ======= ========
Other loans
-------------------------
1998 1997 1996
------- ------- -------
(In Thousands)
Balance at beginning of period $ 139 $ 151 $ 122
Provisions for possible loan losses 51 48 40
Loans charged off (25) (72) (33)
Recoveries of loans previously
charged off 18 12 22
------- ------- -------
Balance at end of period $ 183 $ 139 $ 151
======= ======= =======
Note (8) Mortgage Loan Servicing
A summary of principal balances, servicing income and the number of
loans serviced for others by the Bank at and for the years ended December
31, 1998, 1997 and 1996 were as follows:
1998 1997 1996
------- ------- -------
(Dollars in Thousands)
Principal balance $16,509 $14,467 $16,016
======= ======= =======
Servicing income $ 40 $ 46 $ 59
======= ======= =======
Number of loans 534 906 1,494
======= ======= =======
The balance of loans sold with full recourse was $4,414,000 and
$5,441,000 at December 31, 1998 and 1997, respectively. The Bank has not
sold any loans with recourse since 1985. The Bank sold mortgage loans
without recourse during 1998 and 1997, receiving proceeds of $4,821,000 and
$1,636,000, respectively. The Bank retained servicing for these loans,
which did not result in the recording of any servicing assets.
Note (9) Premises and Equipment
Premises and equipment at December 31, 1998 and 1997 consisted of
the following:
1998 1997
---------- ----------
(In Thousands)
Banking houses and land $ 22,253 $ 21,709
Furniture, fixtures and equipment 19,813 16,911
Safe deposit vaults 1,016 1,016
---------- ----------
43,082 39,636
Less accumulated depreciation and
amortization 24,742 22,607
---------- ----------
Premises and equipment, net $ 18,340 $ 17,029
========== ==========
Depreciation and amortization expense for the years ended December
31, 1998, 1997 and 1996 was $2,213,000, $1,891,000 and $1,826,000,
respectively.
Note (10) Interest Due and Accrued
Interest due and accrued at December 31, 1998 and 1997 consisted of
the following:
1998 1997
---------- ----------
(In Thousands)
U.S. Government and federal agencies $ 1,042 $ 2,354
CMOs 489 540
MBS 23 36
Mortgage and other loans 7,219 6,348
---------- ----------
Total interest due and accrued $ 8,773 $ 9,278
========== ==========
Note (11) Real Estate Held-for-Investment
On June 30, 1997, management reclassified all real estate
held-for-investment to held-for-sale. There has been no real estate
held-for-investment subsequent to this reclassification and accordingly, no
results of operations for 1998 are presented. A commercial office tower
located at 1995 Broadway, New York, was sold in October 1997, subsequent to
its reclassification to held-for-sale, resulting in a pre-tax gain of
$9,163,000. (See Note 12.)
The summarized statements of operations for the Bank's wholly-owned
subsidiaries that comprised real estate held-for-investment, for the years
ended December 31, 1997 and 1996 were as follows:
1997 1996
---------- ----------
(In Thousands)
Rental income $ 1,478 $ 4,020
Net interest income 2 4
Other income 17 652
---------- ----------
Total income 1,497 4,676
---------- ----------
Real estate taxes 246 566
Operating and other expenses 647 3,087
---------- ----------
Total expenses 893 3,653
---------- ----------
Income from real estate $ 604 $ 1,023
held-for-investment
========== ==========
Note (12) Real Estate Held-for-Sale and ORE
The following summarizes real estate properties owned by the Bank
through its real estate subsidiaries at December 31:
1998 1997
---------- ----------
(In Thousands)
Real Estate Held-for-Sale:1 - 2,752
Condominium property 2 $ $
Land 130 130
Buildings 50 140
Accrued interest and other assets 641 372
Liabilities (313) (417)
---------- ----------
Net Assets 508 2,977
---------- ----------
ORE:
Cooperative apartments 277 473
---------- ----------
Total Real Estate Held-for-Sale and ORE $ 785 $ 3,450
========== ==========
1 On June 30, 1997, all real estate held-for-investment was reclassified to
held-for-sale. (See Note 11.) In addition to the cooperative apartments
that comprised ORE, several of the Bank's wholly-owned subsidiaries own
cooperative apartments in various buildings, which are carried at zero
cost and are included in Real Estate Held-for-Sale. At December 31, 1998
and 1997, 126 and 138 such cooperative apartments remained held-for-sale,
respectively.
2 The condominium property resulted from a joint venture formed in the
1980's to construct and subsequently sell an 84 unit condominium complex.
The property became troubled and the Bank ultimately attained 100%
ownership of the unsold units. Sales of the units were accounted for
under the full cost recovery method. During 1998, 28 units were sold,
which resulted in the full recovery of amounts invested and $299,000 of
realized gains. At December 31, 1998, the 6 units held-for-sale were
carried at zero cost, compared to 34 units at December 31, 1997.
NOTE (13) Real Estate Operations, Net
Results of real estate operations for the years ended December 31, 1998,
1997 and 1996 were as follows:
1998 1997 1996
-------- ------- --------
(In Thousands)
Income from real estate
held-for-investment, net
(See Note 11.) $ - $ 604 $ 1,023
-------- ------- --------
Real estate held-for-sale:
Rental income, net of expenses 23 (154) 173
Gain on sale1 691 9,992 571
-------- ------- --------
714 9,838 744
-------- ------- --------
Real estate operations, net $ 714 $ 10,442 $ 1,767
======== ======= ========
1 Includes gains on the sale of cooperative apartments, owned by various of
the Bank's wholly-owned subsidiaries, which are carried at zero cost. The
1997 gains include a $9,163,000 pre-tax gain on the sale of an office
tower. (See Note 11.)
NOTE (14) Income Taxes
The 1998, 1997 and 1996 provisions for income tax were comprised of the
following amounts:
1998 1997 1996
------- ------- -------
(In Thousands)
Current:
Federal $ 8,791 $18,877 $12,870
State and local 3,597 5,652 5,630
------- ------- -------
12,388 24,529 18,500
------- ------- -------
Deferred:
Federal 465 66 703
State and local 435 30 349
------- ------- -------
900 96 1,052
------- ------- -------
Provision for income taxes $13,288 $24,625 $19,552
======= ======= =======
For the years ended December 31, 1998, 1997 and 1996, the Company
recognized tax benefits relating to its stock option and other stock
benefit plans of $3,222,000, $688,000 and $599,000, respectively, which
were credited directly to stockholders' equity.
A reconciliation of the statutory U.S. federal income tax provision
and rate, to the actual tax provision and effective rate for the years
ended December 31, 1998, 1997 and 1996 were as follows:
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ------------------ -----------------
% of % of % of
Pre Tax Pre Tax Pre Tax
Amount Earnings Amount Earnings Amount Earnings
----------------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory Federal rate $20,187 35.00% $ 21,600 35.00% $ 16,197 35.00%
Dividends received
exclusion (247) (.43) (246) (.40) (235) (.51)
State and local income taxes,
net of Federal
income tax benefit 2,621 4.54 3,693 5.98 3,886 8.40
Benefits realized from
realignment of operating
subsidiary (10,667) .49) - - - -
Other, net 1,394 2.42 (422) (.68) (296) (.64)
------------------- -------- -------- -------- --------
Provision for income taxes $ 13,288 23.04 $24,625 39.90% $ 19,552 42.25%
=================== ======== ======== ======== ========
</TABLE>
At December 31, 1998 and 1997, deferred tax assets and liabilities
were comprised of the following:
1998 1997
---------- ----------
(In Thousands)
Deferred Tax Assets:
Deferred profits on unsold cooperative shares $ 1,582 $ 1,955
Allowance for possible loan losses 2,594 2,621
Benefit plan costs 4,684 4,400
Loan fees and mortgage discounts 294 415
Other 657 561
---------- ---------
Deferred tax assets 9,811 9,952
---------- ---------
Deferred Tax Liabilities:
Securities available-for-sale (31,852) (22,905)
Benefit plan costs (3,435) (2,570)
Other - (105)
---------- ----------
Deferred tax liabilities (35,287) (25,580)
---------- ----------
Deferred tax liability, net $ (25,476) $ (15,628)
========== ==========
Pursuant to SFAS No. 109 "Accounting for Income Taxes", the Bank is
generally not required to provide deferred taxes for the difference between
book and tax bad debt expense taken in years prior to, or ending at
December 31, 1987, referred to as base year reserves. The Bank did not have
any post 1987 tax reserves. The base year reserves of $85,107,000 and
supplemental reserve are frozen, not forgiven. These reserves continue to
be segregated as they are subject to recapture penalty if one of the
following occurs: (a) the Bank's retained earnings represented by this
reserve are used for purposes other than to absorb losses on loans,
including excess dividends or distributions in liquidation; (b) the Bank
redeems its stock; (c) the Bank fails to meet the definition provided by
the Code for a Bank. Future changes in the Federal tax law, could of course
further affect the status of the base year reserve. (See Note 18.)
New York State and the City of New York adopted legislation to reform
the franchise taxation of thrift reserves for loan losses. The legislation
applies to taxable years beginning after December 31, 1995. The
legislation, among other things, retained the reserve method for bad debt
deductions. The New York State and the City of New York bad debt deduction
is no longer predicated on the Federal deduction which is now computed on
the direct charge-off method.
NOTE (15) Earnings Per Share
The following is a reconciliation of the denominators of basic and
diluted EPS computations for net income. The numerator for calculating both
basic and diluted earnings per share for the Company is net income.
For the Year Ended December 31,
---------------------------------
1998 1997 1996
---------- -------- --------
(In Thousands, Except EPS Amounts)
Net Income - (Numerator) $ 44,388 $ 37,090 $ 26,725
Basic EPS: (Denominator)
Weighted Average Shares 9,793 9,858 10,062
Basic EPS $ 4.53 $ 3.76 $ 2.66
========== ======== ========
Diluted EPS: (Denominator)
Weighted Average Shares 9,793 9,858 10,062
Incremental shares-options 281 332 374
---------- -------- --------
Weighted Average and Incremental 10,074 10,190 10,436
Shares
Diluted EPS $ 4.41 $ 3.64 $ 2.56
========== ======== ========
NOTE (16) Deposits
Deposits at December 31, 1998 and 1997 are summarized as follows:
1998 1997
--------------------------- --------------------------
Stated Stated
rate Amount Percent rate Amount Percent
--------------------------- -------- -------- -------
(Dollars in Thousands)
Balance by interest rate:
Demand - % $ 47,152 4.20% - % $ 33,662 3.00%
Negotiable order of
withdrawal ("NOW") 1.24 37,005 3.29 2.47 35,401 3.16
Money market 2.32 62,747 5.58 2.96 77,477 6.92
Passbook 2.22 522,671 46.49 2.71 546,447 48.74
Lease security 2.22 21,031 1.87 2.71 18,683 1.66
Certificates: 4.07 - 5.00 200,635 17.85 4.67 - 5.00 44,646 3.98
5.01 - 6.00 213,121 18.96 5.01 - 6.00 343,864 30.67
6.01 - 6.82 19,804 1.76 6.01 - 6.82 21,023 1.87
--------------- -------- ------
433,560 38.57 409,533 36.52
----------------- -------- ------
Total deposits 1,124,166 100.00% $1,121,203 100.00%
================= ==================
At December 31, 1998 and 1997, the scheduled maturities of certificate
accounts were as follows:
1998 1997
----------------------- ---------------------
Amount Percent Amount Percent
----------- ----------- ---------- ---------
(Dollars in Thousands)
12 months or less $ 367,226 84.70% $ 344,893 84.22%
13 to 24 months 37,388 8.62 35,437 8.65
25 to 36 months 10,832 2.50 14,573 3.56
37 to 48 months 9,134 2.11 14,630 3.57
49 to 60 months 8,980 2.07 -- --
----------- ----------- ---------- ---------
$ 433,560 100.00% $ 409,533 100.00%
=========== =========== ========== =========
At December 31, 1998 and 1997, certificate accounts in excess of
$100,000, were $48,517,000 and $41,551,000, respectively. The Federal
Deposit Insurance Corporation, an agency of the U.S. Government, generally
insures each depositor's savings up to $100,000 through the Bank Insurance
Fund.
Interest expense on deposit balances is summarized as follows for the
years ended December 31, 1998, 1997 and 1996:
1998 1997 1996
---------- -------- --------
(In Thousands)
NOW $ 733 $ 880 $ 899
Money market 2,092 2,549 2,819
Passbook 13,011 15,186 16,267
Lease security 482 491 455
Certificates 21,973 20,768 19,777
---------- -------- --------
Total interest expense $ 38,291 $ 39,874 $ 40,217
========== ======== ========
NOTE (17) FHLB-NY Advances
On December 8, 1998, the Bank borrowed $50.0 million from the FHLB-NY
at a fixed rate of 5.62% for ten years. Interest expense on FHLB-NY
advances for the year ended December 31, 1998 was $185,000. Prior to 1998,
the Bank had not borrowed funds for its direct activities since 1984.
Pursuant to a blanket collateral agreement with the FHLB-NY, advances are
secured by qualifying mortgage loans owned by the Bank in an amount at
least equal to 110% of the advances outstanding.
NOTE (18) Retained Income, Substantially Restricted
In the unlikely event of a complete liquidation of the Bank (and only
in such an event) eligible depositors who continue to maintain accounts
shall be entitled to receive a distribution from the liquidation account,
which was established in connection with the Company's initial public stock
offering. The total amount of the liquidation account is decreased if the
balances of eligible deposits decrease on the annual determination dates.
The balance of the liquidation account was $57,358,000 at December 31, 1998
and $63,709,000 at December 31, 1997.
The Bank is not permitted to declare or pay a cash dividend on, or
repurchase any of its stock if the effect thereof would cause its net worth
to be reduced below either (i) the amount required for the liquidation
account or (ii) the amount of applicable regulatory capital requirements.
Retained income at December 31, 1998 and 1997 includes $85,107,000,
which has been segregated for federal income tax purposes as a bad debt
reserve. Any use of this amount for purposes other than to absorb losses on
loans may result in taxable income, under federal regulations, at current
rates. The Bank did not recognize any tax bad debt deductions during the
years ended December 31, 1998 or 1997, and recognized $661,000 for the year
ended December 31, 1996. (See Note 14.)
Note (19) Commitments and Contingencies
Lease Commitments
The Bank occupies premises covered by noncancellable leases with
expiration dates through October 31, 2002 (exclusive of renewal options).
Rental expense under these leases for the years ended December 31, 1998,
1997 and 1996 was $270,000, $272,000 and $267,000, respectively. At
December 31, 1998 the projected minimum rental payments (exclusive of
possible rent escalation charges and normal recurring charges for
maintenance, insurance and taxes) were as follows for the years ended
December 31:
Amount
(In Thousands)
1999 $ 191
2000 166
2001 100
2002 50
Thereafter -
Total $ 507
Loan Commitments
At December 31, 1998, commitments to originate mortgage loans, all of
which were at fixed rates, were $40,915,000 with stated rates ranging from
6.125% to 7.25%. At December 31, 1998, deposit account overdraft lines
available were $832,000, with stated rates ranging from 10.00% to 12.00%
and unused business lines of credit were $16,000, with a stated rate of
15.00%. At December 31, 1998, there were $175,000 of mortgage loans
held-for-sale.
Security Purchase Commitments
At December 31, 1998, there were commitments to purchase $40,000,000
of federal agency securities at par with a three month term to maturity and
a stated yield of 4.87%. There was a commitment to purchase $10,000,000 of
CMOs at 101.07 of par. This security had a stated rate of 6.00% and a
contractual maturity of approximately eight years. The anticipated maturity
of this CMO is approximately forty-eight months and the anticipated yield
is approximately 5.50%.
Litigation
The Bank is a defendant in several lawsuits arising out of the normal
conduct of business. In the opinion of management and after consultation
with legal counsel, the ultimate outcome of these matters is not expected
to have a material adverse effect on the Company's results of operations,
business operations or the consolidated financial condition of the Company.
NOTE (20) Pension Plans and Other Postretirement Benefit Plans
The Bank sponsors a trusteed non-contributory defined benefit pension
plan (the "Pension Plan") covering substantially all of its full-time
employees. It is the policy of the Bank to fund current and past service
pension costs accrued. In addition, the Bank sponsors a pension benefit
restoration plan ("Pension Restore Plan") to provide retirement benefits
which would have been provided under the Pension Plan except for
limitations imposed by Section 415 and 401(a)(17) of the Internal Revenue
Code. Payments under the Pension Restore Plan will be paid out of the
general assets of the Bank.
The Bank's life insurance benefit plan provides for continued
coverage for retirees with fifteen years of credited service. The coverage
at the time of retirement, or age 65, whichever comes first, is reduced by
20% per year over a five year period to a minimum coverage of $5,000, which
remains in force until death. The retiree has the option each time the
coverage is reduced to convert all or part of the reduction to whole-life
coverage at the retiree's cost. In accordance with SFAS No. 106, costs of
postretirement benefits are accrued during an employee's active working
career.
In accordance with Statement 132, the following tables set forth the
Bank's benefit obligations, fair values of plan assets and funded status
recognized in the Company's consolidated financial statements for the
Pension Plan and Pension Restore Plan, as combined, and other
postretirement benefit plans at December 31:
Pension Benefits Other Benefits
------------------ ------------------
1998 1997 1998 1997
-------- -------- --------- --------
(In Thousands)
Change in benefit obligation
Balance at beginning of year $ 47,133 $ 41,308 $ 1,596 $ 1,527
Service cost 1,239 998 24 24
Interest cost 2,624 2,568 96 96
Actuarial (gain)/loss (1,150) 3,930 - -
Benefits paid (1,745) (1,671) (53) (51)
-------- -------- --------- --------
Balance at the end of year $ 48,101 $ 47,133 $ 1,663 $ 1,596
======== ======== ========= ========
Change in plan assets
Balance at beginning of year $ 63,711 $ 52,873 $ - $ -
Actual return on plan assets,
net of expenses 9,020 12,475 - -
Employer contribution 34 34 53 51
Benefits paid (1,745) (1,671) (53) (51)
-------- -------- --------- --------
Balance at end of year $ 71,020 $ 63,711 $ - $ -
======== ======== ========= ========
Funded status 22,919 16,578 (1,663) (1,596)
Unrecognized net asset (2,885) (3,340) - -
Unrecognized prior service cost 1,428 1,572 - -
Unrecognized actuarial (gain)/loss) (17,658) (12,948) - -
-------- -------- --------- --------
Net amount recognized $ 3,804 $ 1,862 $ (1,663)$ (1,596)
Amounts recognized in the statement of
Financial position consist of:
Prepaid benefit cost $ 7,917 $ 5,763 - -
Accrued benefit liability (4,113) (4,036) (1,663) (1,596)
Accumulated other comprehensive income - 135 - -
-------- -------- --------- --------
Net amount recognized $ 3,804 $ 1,862 (1,663) (1,596)
======== ======== ========= ========
Weighted-average assumptions were as follows as of December 31:
Pension Benefits Other Benefits
---------------------------- -------------------------
1998 1997 1996 1998 1997 1996
-------- ------- ------ ------- ------- ------
Discount rate 5.75% 5.75% 6.50% 8.00% 8.00% 8.00%
Expected return on 8.00% 8.00% 8.00% N/A N/A N/A
plan assets
Rate of compensation 6.50% 6.50% 6.50% 6.50% 6.50% 6.50%
increase
The components of net periodic benefit cost were as follows for the
years ended December 31:
Pension Benefits Other Benefits
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
------- ------ ------- ------- ------- ------
(In Thousands)
Service cost $ 1,239 $ 998 $ 1,078 $ 24 $ 24 $24
Interest cost 2,624 2,568 2,513 96 96 97
Expected return on plan
assets (5,032) (4,167) (3,719) - - -
Amortization of unrecognized
net asset (454) (454) (454) - - -
Amortization of prior
service cost 145 145 145 - - -
Recognized actuarial
(gain)/loss (429) (228) 253 - - -
------- ------ ------- ------- ------- ------
Net periodic benefit cost $(1,907) $(1,138)$ (184) $ 120 $ 120 $ 121
======= ====== ======= ======= ======= ======
The projected benefit obligation, accumulated benefit obligation and
fair value of plan assets for the pension plan with accumulated benefit
obligations (i.e. the Pension Restore Plan) in excess of plan assets were
$4,043,000, $3,544,000 and $0, respectively, as of December 31, 1998, and
$4,728,000, $4,036,000 and $0, respectively, as of December 31, 1997.
Note (21) Incentive Savings Plan
The Incentive Savings Plan (the "Savings Plan") is a defined
contribution and thrift savings plan subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA"), as amended.
Prior to the suspension of the Savings Plan during 1990, all full-time
employees were eligible for voluntary participation after one year of
continuous service. The Savings Plan continues to earn income on the
Savings Plan's investments. The Bank bears the costs of administering the
Savings Plan.
In connection with the Bank's adoption of an Employee Stock Ownership
Plan ("ESOP") during 1990, in order to comply with the limitations set
forth by the Internal Revenue Code regarding qualified plans, no further
contributions have been made to the Savings Plan. Management has determined
to continue the ESOP and that contributions to the Savings Plan will remain
suspended indefinitely.
Note (22) Stock Option Plans
Effective upon the conversion of the Bank, in 1990, from mutual to
stock form of ownership, the Company adopted the Incentive Stock Option
Plan (the "Stock Option Plan") and the Option Plan for Outside Directors
(the "Directors' Option Plan").
Stock Option Plan. Pursuant to the Stock Option Plan, 1,430,000
common stock options (which expire ten years from the date of grant, June
27, 1990) were granted to the executive officers and employees of the
Company and its subsidiary, the Bank. Each option entitles the holder to
purchase one share of the Company's common stock at an exercise price equal
to $10.00 per share (the initial public offering price). Options became
exercisable on a cumulative basis in equal installments at a rate of 20%
per year commencing one year from the date of grant. Simultaneously with
the grant of these options, "limited rights" with respect to the shares
covered by the options were granted. Limited rights granted are subject to
terms and conditions and can be exercised only in the event of a change in
control of the Company. Upon exercise of a limited right, the holder shall
receive from the Company a cash payment equal to the difference between the
exercise price of the option ($10.00) and the fair market value of the
underlying shares of common stock. During the years ended December 31,
1998, 1997 and 1996, 98,046, 122,646 and 121,256 options granted under the
Stock Option Plan were exercised, respectively. At December 31, 1998, the
remaining 226,094 options granted under the Stock Option Plan were
exercisable.
Directors' Option Plan. Each member of the Board of Directors, who is
neither an officer nor an employee of the Company or the Bank, was granted
nonstatutory common stock options to purchase 25,000 shares of the common
stock. In addition, active Directors Emeritus were each granted
nonstatutory common stock options to purchase 10,000 shares of the common
stock. In the aggregate, members of the Board of Directors and active
Directors Emeritus of the Company were granted options, with limited
rights, to purchase 170,000 shares of the common stock of the Company at an
exercise price equal to $10.00 per share, the initial public offering
price. All options granted, including limited rights attached thereto,
under the Directors' Option Plan expire upon the earlier of 10 years
following the date of grant or one year following the date the optionee
ceases to be a Director. During the years ended December 31, 1998, 1997 and
1996, 106,250, 6,250, and 2,000 options granted under the Directors' Option
Plan were exercised. At December 31, 1998, 40,500 options granted under the
Directors' Option Plan were exercisable.
The 1996 Stock Option Plan. The JSB Financial, Inc. 1996 Stock Option
Plan (the "1996 Option Plan"), became effective January 1, 1996, subject to
stockholder approval, which was obtained on May 14, 1996. The Company
reserved 800,000 shares of common stock of the Company for issuance upon
the exercise of options. The 1996 Option Plan provides for: (1) the grant
of stock options to directors on an annual basis pursuant to a specified
formula; (2) the grant of stock options to officers at the discretion of
the Employee Benefits Committee of the Bank; (3) if certain events, which
are likely to lead to a change in control of the Company or the Bank,
should occur, stock options relating to any shares of the Company reserved
for issuance that were not previously made subject to options, will be
granted to all current directors and officers who were previously granted
stock options under the 1996 Option Plan; (4) the grant of limited rights
relating to all of the foregoing options, which shall be exercisable only
upon a change of control; and (5) the grant of dividend equivalent rights
("DER") relating to all of the foregoing options, which may provide for a
cash payment to the optionee upon exercise of the option, based on the
difference between the percentage of earnings per share paid by the Company
as cash dividends compared to the percentage of earnings per share paid as
cash dividends by the twenty-five largest stock owned thrift institutions
in the United States, calculated on an annual basis.
Pursuant to the 1996 Option Plan, each of the Company's Directors,
who is neither an officer nor an employee of the Company or the Bank, is
granted annually, nonstatutory common stock options to purchase 4,000
shares of the common stock, each active Director Emeritus is granted 2,000
options and individuals who become directors are granted 5,000 options.
Options granted under the 1996 Option Plan are granted at an exercise price
equal to the market closing price of the Company's common stock on the
business day prior to grant. The option period during which an individual
granted options may exercise such option will commence six months after the
date of grant and will expire no later than ten years from the date of the
grant. There were no options exercised from the 1996 Option Plan during
1998. During 1997, 8,000 options granted from the 1996 Option Plan were
exercised. At December 31, 1998, all of the 496,000 options outstanding
under the 1996 Option Plan were exercisable. Effective January 1, 1999, an
additional 154,000 options were granted at an exercise of $54.375 per
share.
The following table presents option transactions summarized for all
of the Company's stock option plans for the years ended December 31, 1996,
1997 and 1998.
Weighted
Number Average
of Exercise
Shares Price
--------- ----------
Options outstanding at December 31, 1995 727,971 $10.00
1996 Grants 165,000 31.63
1996 Forfeitures (4,929) 10.00
1996 Exercises (123,256) 10.00
---------
Options outstanding at December 31, 1996 764,786 14.67
1997 Grants 175,000 38.48
1997 Forfeitures -- --
1997 Exercises (136,896) 11.45
Options outstanding at December 31, 1997 802,890 20.40
1998 Grants 164,000 50.06
1998 Forfeitures -- --
1998 Exercises (204,296) 10.00
--------- --------
Options outstanding at December 31, 1998 762,594 $29.57
========= =======
Options exercisable at December 31, 1998 762,594 $29.57
========= =======
The range of exercise prices on options outstanding were $10.00 to
$50.06, $10.00 to $47.88, and $10.00 to $31.63, for the years ended
December 31, 1998, 1997 and 1996, respectively. The weighted average
remaining contractual life for all stock options outstanding at December
31, 1998 was 5.4 years.
In accordance with Statement 123, the Company used the
Black-Scholes option-pricing model to determine the fair value of the 1998,
1997 and 1996 option grants, using the following weighted average
assumptions:
1998 1997 1996
----------- ------------ -----------
Dividend yield 3.07% 3.63% 3.63%
Expected volatility 20.75 20.93 21.92
Risk-free interest rate 5.74 6.28 5.44
Expected option lives 5.7 Years 6 Years 6 Years
On a pro forma basis, had compensation expense for the Company's 1996
Stock Option Plan been determined based on the fair value at the grant
dates for awards made under that plan, in accordance with the expense
method of Statement 123, the Company's net income and earnings per share
would have been reduced as follows for the years ended December 31:
1998 1997 1996
----------- ------------ -----------
Net income (as reported) $44,388 $37,090 $26,725
Pro forma net income $43,378 $36,288 26,188
Basic EPS (as reported) $4.53 $3.76 $2.66
Pro forma Basic EPS $4.43 $3.68 $2.60
Diluted EPS (as reported) $4.41 $3.64 $2.56
Pro forma Diluted EPS $4.31 $3.56 $2.51
The pro forma results presented above may not be representative of
the effects reported in pro forma net income for future years, because
Statement 123 was not applied to all outstanding, non-vested awards, as
Statement 123 does not apply to awards prior to January 1, 1996.
The Company modified the 1996 Stock Option Plan, as originally
adopted, to allow for the cash payment for the DER to option holders;
rather than have the DER reduce the exercise price of the option. This
change separated the cost of the DER from the cost of the option, and is
expected to result in less expense volatility. The Company recognized
$270,000, $73,000 and $99,000 of expense related to the DER for the years
ended December 31, 1998, 1997 and 1996, respectively. For 1996 the Company
recognized $330,000 in expense for the difference in market closing price
between the option grant date and date of stockholder approval.
Note (23) Stock Plans
Employee Stock Ownership Plan. Since 1990 the Bank has maintained an
ESOP. For 1996, 1997 and 1998, the Board of Directors authorized
contributions to the ESOP, to purchase shares, based on approximately 6.0%
of employees' base salary.
ESOP benefits generally become 20% vested after each year of credited
service, becoming 100% vested after five years of service with the Bank.
Forfeited shares are reallocated among participating employees in the same
proportion as contributions. Benefits are payable upon death, retirement,
early retirement, disability or separation from service and may be payable
in cash or stock. The Bank recorded a net expense of $574,000, $566,000 and
$550,000 related to the ESOP for the years ended December 31, 1998, 1997
and 1996, respectively. There were eight and three unallocated shares in
the ESOP Plan at December 31, 1998 and 1997, respectively, and none at
December 31, 1996.
The trustee for the ESOP must vote all allocated stock held in the
ESOP trust in accordance with the instructions of the participants. Common
stock allocated to participants was 12,451, 15,342 and 17,633 for the years
ended December 31, 1998, 1997 and 1996, respectively. The Bank bears the
cost of administering the ESOP.
Directors' Stock Program. To further align the outside Directors'
interest with those of the Company's stockholders, on December 9, 1997, the
Board of Directors of the Company authorized the issuance of up to 20,000
shares of the Company's common stock to the Company's non-employee
directors, pursuant to the Jamaica Savings Bank FSB Directors' Stock
Program (the "Directors' Stock Program"). Pursuant to the Directors' Stock
Program, each year, non-employee Directors of the Bank will receive shares
of the Company's common stock having a fair market value equal to
approximately one-third of the annual directorship fees during such year.
The stock will be issued in lieu of a cash payment of such fees. Shares
distributed thereunder will be from the Company's treasury stock. The
operation of the Directors' Stock Program is automatic, with the
determination of the appropriate number of shares to be issued to each
director based on the fair market value of the common stock at the close of
business prior to the date of issuance. Directors do not have the option to
receive cash rather than stock in payment of the portion of their fees
subject to the Directors' Stock Program. During 1998, the Company issued
1,800 shares pursuant to this program.
Note (24) Benefit Restoration Plan
The Bank maintains a non-qualified Benefit Restoration Plan (the
"Restore Plan"), to compensate participants in the Bank's benefit plans
that are limited by Section 415 of the Internal Revenue Code. With certain
exceptions, the Restore Plan is unfunded. However, in connection with the
ESOP, which entitles participants to shares of the Company's common stock
and the Savings Plan, which entitles participants to direct amounts, if
any, invested in the Company's stock, the Bank established a trust. The
purpose of this trust is to purchase, on an ongoing basis, shares of the
Company's common stock to which participants of the Restore Plan are
entitled. By establishing this trust, the Bank fixed the amount of cash
expended for benefits payable in shares of common stock of the Company or
its equivalent cash value at the time of payout. The shares of common stock
held by the trust are reflected as contra-equity and additional paid-in
capital on the Consolidated Statements of Financial Condition of the
Company. At December 31, 1998 and 1997, the trust held 193,723 and 188,323
shares of common stock, respectively, at an aggregate cost of $4,477,000
and $4,199,000, respectively. The expense recognized for the Restore Plan
in connection with the ESOP for 1998, 1997 and 1996 was $7,000, $113,000
and $105,000, respectively.
Note (25) Fair Value of Financial Instruments
SFAS No. 107 "Disclosures about Fair Value of Financial Instruments"
("Statement 107") defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties. Statement 107 provides limited guidance for
calculating fair value estimates when quoted prices are not available,
therefore the Company has disclosed the valuation approach and the material
assumptions which have been made. The relevance and reliability of the
estimates of fair values presented are limited, given the dynamic nature of
market conditions, including changes in interest rates, the real estate
market, existing borrowers' financial condition and numerous other factors
over time.
The following methods and assumptions were utilized by management to
estimate the fair value of each class of financial instruments at December
31, 1 98 and 1997:
Cash and cash equivalents, interest due and accrued: The carrying
values approximate fair value because of the short-term nature of these
instruments.
Securities available-for-sale, securities held-to-maturity and other
investments: The estimated fair values are based on quoted market prices at
the reporting date for those or similar investments, except for FHLB-NY
stock, which is reflected at cost.
Mortgage and other loans: For certain homogeneous categories of
loans, such as some residential mortgages and student loans, fair value is
estimated using the quoted market prices for securities backed by similar
loans, adjusted for differences in loan characteristics. In addition, it is
assumed that one-to four-family fixed rate mortgage loans are FNMA
qualifying, and could therefore be packaged into a MBS. The estimated fair
value for the remainder of the mortgage and other loan portfolios was
computed by discounting the contractual future cash flows at rates offered
by the Bank, which approximate market rates, at December 31, 1998 and 1997
on loans with terms similar to the remaining term to maturity and to
borrowers with similar credit quality. The estimated fair value of
non-performing loans, if material, are calculated on an individual basis,
applying a discount commensurate with the credit risk.
Techniques for estimating fair value are extremely sensitive to the
assumptions and estimates used. While management has attempted to use
assumptions and estimates which it believes are most reflective of the loan
portfolio and the current market, a greater degree of subjectivity is
inherent in these values than those determined in formal trading
marketplaces. As such, readers are cautioned in using this information for
purposes of evaluating the financial condition and/or value of the Company
in and of itself or in comparison with any other company.
Deposits: All deposits, except certificates, are subject to rate
changes at any time, and therefore are considered to be carried at fair
value. The estimates of fair value for certificates reflect the present
value of the contractual future cash flow for each certificate. The present
value rates utilized were the rates offered by the Bank (which approximate
market rates) at December 31, 1998 and 1997, respectively, on a certificate
with an initial term to maturity equal to the remaining term to maturity of
the existing certificates.
FHLB-NY Advances: Fair value estimates are based on discounted
contractual cash flows using rates which approximate the rates offered for
borrowings of similar remaining maturities.
Commitments: Commitments to originate loans and purchase securities
are derived by applying the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements and
the present credit worthiness of the counterparties. For fixed-rate loan
commitments, estimated fair value also considers the difference between
interest rates on the reporting date and the committed rates. The estimated
fair value of lines of credit is based on the fees charged for similar
agreements or on the estimated cost to terminate them or otherwise settle
the obligations with the counterparties at the reporting dates. The
commitments existing at December 31, 1998 and 1997, would have been offered
at substantially the same rates and under substantially the same terms that
would have been offered at December 31, 1998 and 1997 to the
counterparties; therefore the estimated fair value of the commitments was
zero at those dates.
The following table presents carrying values and estimated fair
values of financial instruments at December 31:
<TABLE>
<CAPTION>
1998 1997
------------------------ --------------------------
Estimated
Carrying Estimated Carrying Fair
Value Fair Value Value Value
----------- ----------- ------------ -------------
(In Thousands)
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 112,849 $ 112,849 $ 74,924 $ 74,924
Securities available-for-sale 83,592 83,592 62,243 62,243
Securities
held-to-maturity 208,457 208,906 352,967 353,996
Other investments 8,922 8,922 7,645 7,645
Mortgage loans, gross 1,155,358 1,197,873 979,810 1,031,586
Other loans, gross 22,927 22,915 29,148 29,256
Interest due and accrued 8,773 8,773 9,278 9,278
Financial liabilities
Deposits $ 1,124,166 $ 1,126,151 $ 1,121,203 $ 1,121,903
FHLB-NY advances 50,000 50,249 - -
</TABLE>
NOTE (26) Regulatory Capital
The Bank is subject to various regulatory capital requirements
established 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. (See also Note 18.)
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum capital amounts and ratios.
The most recent notification from the Office of Thrift Supervision ("OTS"),
as of March 31, 1998, categorized the Bank as "well capitalized" under the
regulatory framework for prompt corrective action. There are no conditions
or events since that notification that management believes have changed the
institution's "well capitalized" status. The following table sets forth the
required ratios and amounts and the Bank's actual capital ratios and
amounts at December 31:
<TABLE>
<CAPTION>
To be Well
Capitalized
Under Prompt
For Capital Corrective
Adequacy Action Provisions
Actual Purposes
----------------- ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
-------- -------- -------- -------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
1998
Total risk-based capital (to risk
weighted assets) $ 302,663 98,362 122,953 24.62% $ 8.00% $ 10.00%
Tangible capital (to tangible
assets) 276,364 18.25 22,717 1.50 N/A N/A
Tier I leverage (core) capital
(to adjusted tangible assets) 276,364 18.25 45,434 3.00 75,723 5.00
1997
Total risk-based capital (to risk
weighted assets) $ 224,444 21.66% 82,889 8.00% 103,612 10.00%
Tangible capital (to tangible
assets) 229,168 16.35 21,020 1.50 N/A N/A
Tier I leverage (core) capital
(to adjusted tangible assets) 229,168 16.35 42,040 3.00 51,806 5.00
</TABLE>
The OTS regulatory capital requirements incorporate an interest rate
risk ("IRR") component. Savings institutions with "above normal" IRR
exposure are subject to a deduction from regulatory capital for purposes of
calculating their risk-based capital requirements. Implementation of the
IRR component has been delayed by the OTS.
OTS regulations generally require that institutions deduct from
capital their investment in and advances to subsidiaries engaged, as
principal, in activities not permissible for national banks, such as real
estate development. OTS regulations also require that all equity and direct
investments including all loans and advances in which a legally binding
commitment existed at April 12, 1989 be deducted from capital for the
purposes of computing regulatory capital ratios. As a result of this
regulation, the Bank excluded from its regulatory capital $4,588,000 and
$6,827,000 at December 31, 1998 and 1997, respectively.
Distributions charged against an institution's capital accounts, such
as, the upstreaming of funds to holding companies are subject to certain
limitations under OTS regulations. An institution, such as the Bank, which
meets its fully phased-in capital requirements is able to pay dividends to
the Company, upon 30 days notice to the OTS, in an amount that would reduce
its surplus capital ratio by one-half at the beginning of the year, plus
all of its net income determined on the basis of generally accepted
accounting principles for that calendar year. The institution must continue
to meet all fully phased-in capital requirements after the proposed capital
distribution.
Note (27) Parent Only Financial Information
The following condensed statements of financial condition at December
31, 1998 and 1997 and the condensed statements of operations and cash flows
for the years ended December 31, 1998, 1997 and 1996, for JSB Financial,
Inc. (parent company-only) present the Company's investment in its
wholly-owned subsidiary, the Bank, using the equity method of accounting.
Condensed Statements of Financial Condition
December 31, 1998 and 1997
(In Thousands)
1998 1997
---------- -----------
ASSETS
Cash and cash equivalents $ 21,102 $ 17,164
Securities held-to-maturity, net (estimated 40,000 70,000
fair value of $39,995 and
$70,000, respectively)
Mortgage loans, net -- 15,195
Other assets, net 410 726
Investment in subsidiary 321,155 264,464
---------- -----------
Total Assets $ 382,667 $ 367,549
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities, net $ 30 $ 35
Stockholders' equity 382,637 367,514
---------- -----------
Total Liabilities and Stockholders' Equity $ 382,667 $ 367,549
========== ===========
Condensed Statements of Operations
For the Years Ended December 31,
(In Thousands)
1998 1997 1996
--------- --------- ---------
Dividends from subsidiary $ -- $ -- $ 20,000
Interest income 4,596 6,080 6,589
Other income 1,087 13 18
--------- --------- ---------
Total income 5,683 6,093 26,607
--------- --------- ---------
Expenses 661 531 451
--------- --------- ---------
Income Before Income Taxes and Equity
in
Undistributed Earnings of the Bank 5,022 5,562 26,156
Provision for Income Taxes 1,542 1,781 2,100
--------- --------- ---------
Income Before Equity in Undistributed
Earnings of the
Bank 3,480 3,781 24,056
Equity in Undistributed Earnings of the
Bank, Net of
Provision for Income Taxes 40,908 33,309 2,669
--------- --------- ---------
Net Income $ 44,388 $ 37,090 $ 26,725
========= ========= =========
Condensed Statements of Cash Flows
For the Years Ended December 31,
(In Thousands)
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Net income $ 44,388 $ 37,090 $ 26,725
Adjustments to reconcile net income to cash
provided by operating activities:
Equity in undistributed earnings of the Bank (40,908) (33,309) (2,669)
Decrease (increase) in other assets 316 (11) 697
Other 88 (2) --
--------- --------- ---------
Net cash provided by operating activities 3,884 3,768 24,753
--------- --------- ---------
Cash flows from investing activities:
Purchases of securities held-to-maturity (205,000) (260,000) $(205,021)
Proceeds from maturities of securities
held-to-maturity 235,000 270,000 $ 215,000
Principal payments on mortgage loans 15,195 44 $ 40
Accretion of discount in excess of
amortization of premium on debt securities -- 7 $ 14
--------- --------- ---------
Net cash provided by investing
activities 45,195 10,051 $ 10,033
--------- --------- ---------
Cash flows from financing activities:
Cash dividends paid to common
stockholders (15,716) (13,805) $ (12,090)
Payments to repurchase common stock (31,466) -- $ (27,650)
Proceeds upon exercise of common stock
options 2,041 1,568 $ 1,233
--------- --------- ---------
Net cash used by financing activities (45,141) (12,237) $ (38,507)
--------- --------- ---------
Net increase (decrease) in cash and
cash equivalents 3,938 1,582 $ 19,303
Cash and cash equivalents at beginning
of year 17,164 15,582 $ (3,721)
--------- --------- ---------
Cash and cash equivalents at end of year $ 21,102 $ 17,164 $ 15,582
========= ========= =========
