SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement / / Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e) (2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Bath National Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i) (1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, $0.01 par value per share
(2) Aggregate number of securities to which transaction applies: 1,303,757
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined): $48.00
per share for all of the outstanding shares of common stock (1,303,757
shares)
(4) Proposed maximum aggregate value of transaction: $62,580,336.00
(5) Total fee paid: $12,516.07
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:_________________________________
(2) Form, schedule or registration statement no.:___________
(3) Filing party:___________________________________________
(4) Date filed:_____________________________________________
[Bath National Corporation letterhead]
____________, 2000
Dear Fellow Shareholder:
We cordially invite you to attend a special meeting of the shareholders
of Bath National Corporation. The meeting will be held at [the Bath Country
Club, 330 May Street, Bath, New York, on _______, __________, 2001 at _____,
Eastern Time.]
At the special meeting, you will be asked to adopt a merger agreement
which provides for Bath National Corporation to be merged with a subsidiary of
Financial Institutions, Inc., with Bath continuing as the surviving
corporation and becoming a wholly owned subsidiary of Financial Institutions,
Inc. If the merger is completed, you will receive a cash payment of $48.00
for each share of Bath National Corporation stock that you own. Upon
completion of the merger, you will not own any stock or other interest in Bath
National Corporation nor will you receive, as a result of the merger, any
stock of Financial Institutions, Inc.
Your exchange of shares of Bath Corporation stock for cash generally
will cause you to recognize income for federal, and possibly state and local,
tax purposes. You should consult your personal tax advisor for a full
understanding of the tax consequences of the merger to you.
Completion of the merger is subject to certain conditions, including
receipt of various regulatory approvals and adoption of the merger agreement
by the affirmative vote of holders of at least two-thirds of our outstanding
shares of common stock.
We urge you to read the attached proxy statement carefully. It
describes the merger agreement in detail and includes a copy of the merger
agreement as Appendix A.
As of __________, 2000, the directors and executive officers of Bath
National Corporation beneficially owned [7.13%] of the shares of Bath stock.
We expect that all of the shares held by our directors and executive officers
will be voted in favor of the merger.
Your Board of Directors has unanimously approved the merger agreement
and unanimously recommends that you vote "FOR" the merger because the Board
believes it to be in the best interests of our shareholders.
It is very important that your shares be represented at the special
meeting. Whether or not you plan to attend the special meeting, please
complete, date and sign the enclosed proxy card and return it promptly in the
postage-paid envelope we have provided.
On behalf of the Board, I thank you for your prompt attention to this
important matter.
Sincerely,
Douglas L. McCabe
President and Chief Executive Officer
Bath National Corporation
44 Liberty Street
Bath, New York 14810
(607) 776-9661
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________, 2001
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of Bath
National Corporation will be held at [the Bath Country Club, 330 May Street,
Bath, New York, on ________, __________, 2001 at ________, Eastern Time.]
A proxy card and a proxy statement for the special meeting are enclosed.
The meeting is for the purpose of considering and acting upon:
1. The adoption of the Agreement and Plan of Merger, dated November 2,
2000, among Bath National Corporation, Financial Institutions, Inc. and FI
Subsidiary I, Inc., a wholly owned subsidiary of Financial Institutions formed
for the purpose of facilitating the merger. We will be merged with FI
Subsidiary I, Inc. Upon completion of the merger, you will receive $48.00 in
cash for each share of Bath National Corporation common stock that you own. A
copy of the merger agreement is included as Appendix A to the accompanying
proxy statement;
2. The potential adjournment of the special meeting of shareholders if
necessary to solicit additional proxies; and
3. Such other matters as may properly come before the special meeting
or any adjournments or postponements thereof. We are not aware of any other
business to come before the special meeting.
Our shareholders of record at the close of business on __________, 2000
are entitled to vote at the special meeting, and any adjournments or
postponements of the special meeting. You have a right to dissent from the
merger and obtain payment of the fair value of your shares by complying with
the New York law provisions contained in Appendix C.
You are cordially invited to attend the special meeting. However, to
ensure your representation at the special meeting, please complete, sign, date
and promptly mail your proxy card in the enclosed postage-paid envelope. If
you are a shareholder whose shares are not registered in your name, you will
need additional documentation from the holder of record of your shares to vote
in person at the meeting. The prompt return of your proxy will save us the
expense of further requests for proxies.
By Order of the Board of Directors,
Douglas L. McCabe
President and Chief Executive Officer
Bath, New York
____________, 2000
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
BATH CORPORATION
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS
TABLE OF CONTENTS
Page
----
Questions and Answers About Voting Procedures for the Special Meeting 1
Summary Term Sheet . . . . . . . . . . . . . . . . . . . . . . . . . 2
Selected Consolidated Financial and Other Information About Bath . . 5
Where You Can Find More Information. . . . . . . . . . . . . . . . . 6
The Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . 7
Place, Time and Date. . . . . . . . . . . . . . . . . . . . . . . 7
Matters to Be Considered. . . . . . . . . . . . . . . . . . . . . 7
Record Date; Vote Required. . . . . . . . . . . . . . . . . . . . 7
Beneficial Ownership of Bath Common Stock . . . . . . . . . . . . 7
Bath Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 8
Proxies. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background of the Merger. . . . . . . . . . . . . . . . . . . . . 10
Our Reasons for the Merger; Recommendation of Your
Board of Directors. . . . . . . . . . . . . . . . . . . . . . . 12
The Consideration is Fair According to CIBC World Markets,
Our Financial Advisor . . . . . . . . . . . . . . . . . . . . . 13
You Will Receive Cash for Your Shares of Bath Stock . . . . . . . 18
Procedure for Surrendering Your Certificates. . . . . . . . . . . 18
Representations and Warranties Made by Us and
Financial Institutions. . . . . . . . . . . . . . . . . . . . . 19
Conditions to the Merger. . . . . . . . . . . . . . . . . . . . . 19
Conduct of Business Prior to Completion of the Merger . . . . . . 20
Approvals Needed to Complete the Merger . . . . . . . . . . . . . 22
Waiver and Amendment of the Merger Agreement. . . . . . . . . . . 23
Termination of the Merger Agreement . . . . . . . . . . . . . . . 24
Interests of Directors and Officers in the Merger that are
Different from Your Interests . . . . . . . . . . . . . . . . . . 25
Employees and Benefit Plans . . . . . . . . . . . . . . . . . . . 27
You Have Dissenters' Rights of Appraisal. . . . . . . . . . . . . 27
Federal Income Tax Consequences of the Merger to You. . . . . . . 29
Accounting Treatment of the Merger. . . . . . . . . . . . . . . . 30
Who Pays for What . . . . . . . . . . . . . . . . . . . . . . . . 30
Certain Related Agreements . . . . . . . . . . . . . . . . . . . . . 30
Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . 30
Stock Option Agreement. . . . . . . . . . . . . . . . . . . . . . 31
Adjournment of the Special Meeting . . . . . . . . . . . . . . . . . 32
Beneficial Ownership of Bath Common Stock. . . . . . . . . . . . . . 33
Shareholder Proposals. . . . . . . . . . . . . . . . . . . . . . . . 34
Other Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
i
Appendix A -- Agreement and Plan of Merger (excluding the
exhibits thereto). . . . . . . . . . . . . . . . . . . A-1
Appendix B -- Opinion of Our Financial Advisor . . . . . . . . . . . B-1
Appendix C -- Section 623 of the New York Business Corporation Law . C-1
Appendix D -- Stock Option Agreement . . . . . . . . . . . . . . . . D-1
ii
QUESTIONS AND ANSWERS
ABOUT VOTING PROCEDURES
Q: What do I need to do now? Q: Can I change my vote?
A: After you have carefully read A: Yes. If you have not voted
this proxy statement, indicate on through your broker or other
your proxy card how you want your nominee, there are three ways
shares to be voted. Then sign, you can change your vote after
date and mail your proxy card in you have sent in your proxy
the enclosed prepaid return card.
envelope as soon as possible.
This will enable your shares to * First, you may send a
be represented and voted at the written notice to the person
special meeting. to whom you submitted your
proxy stating that you would
Q: Why is my vote important? like to revoke your proxy.
A: The merger must be approved by * Second, you may complete and
holders of at least two-thirds of submit a new proxy card.
the outstanding shares of Bath Any earlier proxies will be
common stock. If you do not revoked automatically.
return your proxy card or vote in
person at the special meeting, it * Third, you may attend the
will have the same effect as a special meeting and vote in
vote against the merger. person. Any earlier proxy
will be revoked. However,
Q: If my shares are held in street simply attending the special
name by my broker, will my broker meeting without voting will
automatically vote my shares for not revoke your proxy.
me?
If you have instructed a broker
A: No. Your broker will not be able or other nominee to vote your
to vote your shares without shares, you must follow
instructions from you. You directions you receive from your
should instruct your broker to broker or other nominee to
vote your shares, following the change your vote.
directions your broker provides.
Q: Should I send in my stock
Q: What if I fail to instruct my certificates now?
broker?
A: No. You should not send in your
A: If you fail to instruct your stock certificates at this time.
broker to vote your shares, it
will have the same effect as a Instructions for surrendering
vote against the merger your Bath stock certificates in
agreement. exchange for $48.00 per share in
cash will be sent to you after
Q: Can I attend the meeting and vote we complete the merger.
my shares in person?
Q: Who should I call with
A: Yes. All shareholders are questions?
invited to attend the special
meeting. Shareholders of record A: You should call our proxy
can vote in person at the special solicitor D.F. King & Co., Inc.
meeting. If your shares are held at [phone number].
in street name, then you are not
the shareholder of record and you
must ask your broker or other
nominee how you can vote at the
special meeting.
1
SUMMARY TERM SHEET
This summary term sheet highlights selected information from this proxy
statement. It does not contain all the information that may be important to
you. We urge you to read carefully the entire document and the other
documents to which we refer, including the merger agreement, to fully
understand the merger.
Bath Shareholders Will Receive * Bath National Bank, our
$48.00 in Cash Per Share of Bath subsidiary, will continue
Common Stock (see page 18). operating as a subsidiary of
Financial Institutions.
When the merger is completed,
each Bath shareholder will receive * The merger cannot occur unless
$48.00 in cash for each share of Bath shareholders approve the
Bath common stock held. For merger by the affirmative vote
example, if you own 50 shares of of holders of at least two-
Bath common stock, you will be thirds of the outstanding shares
entitled to receive $2,400.00 upon of Bath common stock and we
the surrender of your stock receive approvals from banking
certificate for those shares. regulators (see pages 7, 22-23).
Our Reasons for the Merger (see * If the merger is not completed
pages 12-13). on or before June 30, 2001, the
merger may be terminated by
Our Board of Directors believes either Bath or Financial
that the merger is in the best Institutions, unless the failure
interests of Bath and our of such occurrence is due to a
shareholders and recommends that breach of the party seeking to
shareholders vote "FOR" the proposal terminate (see pages 24-25).
to adopt the merger agreement. The
proposed merger will enable our * Seven current members of Bath
shareholders to realize significant National Bank's Board of
value on their investment in Bath. Directors will serve on the
In reaching its decision to approve Bank's Board after the merger
the merger agreement, our Board (see pages 9-10).
considered various factors which are
discussed in detail in this proxy * We have agreed not to solicit or
statement. encourage a competing transaction
to acquire us or Bath National
Some Material Terms of the Merger Bank, except where the failure to
Agreement. do so would cause our Board to
breach its fiduciary duties (see
* Bath will first merge with a page 22).
newly formed, wholly owned
subsidiary of Financial * In connection with the merger,
Institutions and will become a each of our directors entered
subsidiary of Financial into a shareholders' agreement
Institutions; then, Bath will with Financial Institutions.
merge up and into Financial Each of our directors agreed,
Institutions with Financial among other things, to cause all
Institutions being the surviving of their shares of Bath common
corporation (see page 9). stock to be voted in favor of the
merger (see pages 30-31).
2
* In connection with the merger, we Our Financial Advisor Says the
entered into a stock option Merger Consideration is Fair from a
agreement under which Financial Financial Point of View to Bath's
Institutions can purchase 196,000 Shareholders (see pages 13-18).
shares of our common stock at an
exercise price of $37.00 per Our financial advisor, CIBC
share if someone other than World Markets, has given us its
Financial Institutions acquires written opinion dated November 2,
20% of our common stock (see 2000 and updated as of _________,
pages 31-31). 2001 that states the cash
consideration to be paid to our
* Bath National Bank and we have shareholders is fair from a
agreed that prior to the merger financial point of view. A copy of
we will conduct our business the opinion is attached to
according to particular this proxy statement as Appendix B.
guidelines (see pages 20-22). You should read it completely to
understand the assumptions made,
* The completion of the merger matters considered and limitations
depends on a number of conditions on the review performed by CIBC in
being satisfied or waived (see issuing its opinion. We have
pages 19-20). agreed to pay CIBC a fee of 1% of
the total merger consideration;
The Merger Will be Taxable to Bath's the fee is estimated to be
Shareholders (see pages 29-30). $[630,000].
You will recognize income for You Have Dissenters' Rights (see
federal, and possibly state and pages 27-29).
local tax purposes, on the exchange
of your Bath shares for cash. You Under New York law, you have
will recognize gain or loss equal to dissenters' rights with respect to
the difference between the amount of your Bath shares. If you do not
cash you receive and your tax basis wish to accept the $48.00 per share
in the Bath common stock. You merger consideration, you can
should determine the actual tax dissent from the merger and instead
consequences of the merger to you. seek to have the fair value of your
Your tax consequences will depend on shares judicially determined and
your specific situation and factors paid to you in cash. However, in
not within our control. You should order to exercise your rights, you
consult your personal tax advisor must follow specific procedures.
for a full understanding of the You should carefully read Section
merger's specific tax consequences 623 of the New York Business
to you. Corporation Law which is included
as Appendix C.
Bath's Board of Directors Recommends
Shareholder Approval (see pages Merger Expected to Occur in the
12-13). Second Quarter of Year 2001 (see
page 20).
Our Board of Directors believes
that the merger is in the best This merger will only occur
interests of Bath and our after all the conditions to its
shareholders and has unanimously completion have been satisfied or
approved the merger. Our Board waived. Currently, we anticipate
unanimously recommends that Bath that the merger will occur in the
shareholders vote "FOR" adoption of second quarter of 2001.
the merger agreement.
3
Financial Interests of Bath's will receive directors' fees for
Officers and Directors in the Merger their service. Mr. McCabe also
(see pages 25-26). will become a member of the Board
of Directors of Financial
Our directors and executive Institutions and will receive the
officers have interests in the fees received by Financial
merger as individuals in addition Institutions board members.
to, or different from, their
interests as shareholders: * Financial Institutions has agreed
to indemnify Bath's, Bath
* Messrs. McCabe and Galpin will be National Bank's and their
entitled to receive payments subsidiaries' officers and
under their severance agreements directors for events that
with Bath National Bank. Because occurred before the merger and to
the full amount of these provide directors' and officers'
payments, together with other insurance coverage for a period
benefits they will receive in of three years.
connection with the merger, would
include excess parachute payments Our Board of Directors was aware
under the Internal Revenue Code, of these interests and considered
Messrs. McCabe and Galpin have them in its decision to approve the
agreed to accept reduced payments merger agreement.
of $465,578 to Mr. McCabe and
$359,440 to Mr. Galpin.
* Douglas L. McCabe, our President
and Chief Executive Officer, will
enter into an employment
agreement with Bath National
Bank.
* Mr. McCabe will receive options
to purchase 37,000 shares of
Financial Institutions's common
stock, which options will be
granted on terms consistent with
options granted to Financial
Institution's other bank
presidents and will have an
exercise price equal to the fair
market value of Financial
Institution's common stock on the
date of grant.
* Edward Galpin, our Chief
Financial Officer, will enter
into a one-year consulting and
non-competition agreement with
Financial Institutions and Bath
National Bank effective upon
completion of the merger. The
compensation to be paid under the
agreement is $50,000.
* Messrs. McCabe and Galpin and up
to five other current members of
our Board of Directors will
continue to serve as directors of
Bath National Bank after the
merger and
4
SELECTED CONSOLIDATED FINANCIAL AND OTHER
INFORMATION ABOUT BATH
The following tables set forth selected historical consolidated financial
and other data about Bath at the dates and for the periods shown. The
historical consolidated financial data for the nine months ended September 30,
2000 are derived from unaudited consolidated financial statements. However,
in the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation at such dates and for such periods
have been made. Operating results for the nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for
the entire year ended December 31, 2000. The financial information for the
four years ended December 31, 1999 is based on, and qualified in its entirety
by, our consolidated financial statements, including the notes thereto, which
have been filed previously with the Securities and Exchange Commission.
<TABLE>
At or for the nine At or for the year ended
months ended December 31,
September 30, ----------------------------------------------------
2000 1999 1998 1997 1996
------------------ ----------------------------------------------------
Condensed Statements of Income: (Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income . . . . . . . . . . . . $15,969 $22,381 $21,637 $21,478 $19,793
Interest Expense
Deposits. . . . . . . . . . . . . . . 5,294 6,850 7,485 7,447 6,891
Borrowings. . . . . . . . . . . . . . 1,643 2,013 1,681 1,436 952
------ ------ ------ ------ ------
Net Interest Income . . . . . . . . . 9,031 13,518 12,471 12,595 11,950
Loan Loss Provision . . . . . . . . . . 3,459 745 334 295 269
------ ------ ------ ------ ------
Net Interest Income
After Loan Loss Provision . . . . . . 5,572 12,773 12,137 12,300 11,681
Other Operating Income. . . . . . . . . 1,644 1,971 1,503 1,108 993
Other Operating Expenses. . . . . . . . 6,626 8,438 8,047 7,560 6,951
------ ------ ------ ------ ------
Income Before Income Tax. . . . . . . . 591 6,306 5,593 5,848 5,723
Tax Equivalent Adjustment . . . . . . . -- 1,186 1,029 930 779
Income Taxes. . . . . . . . . . . . . . 74 1,426 1,153 1,384 1,496
------ ------ ------ ------ ------
Net Income. . . . . . . . . . . . . . . $ 517 $ 3,694 $ 3,411 $ 3,534 $ 3,448
======= ======= ======= ======= =======
Per Share Data:
Book Value. . . . . . . . . . . . . . . $ 21.28 $ 21.95 $ 22.98 $ 23.12 $ 22.23
Cash Dividends. . . . . . . . . . . . . 0.90 2.60 2.55 2.00 1.05
Net Income. . . . . . . . . . . . . . . 0.39 2.78 2.56 2.61 2.52
Weighted Average Common Shares
Outstanding . . . . . . . . . . . . . . 1,322,857 1,327,848 1,331,567 1,354,869 1,365,832
Balance Sheet Data:
Assets. . . . . . . . . . . . . . . . $287,343 $295,295 $295,477 $271,734 $269,238
Securities (Book Value) . . . . . . . 74,064 78,717 84,799 89,198 91,022
Loans, Net. . . . . . . . . . . . . . 191,359 188,283 186,118 163,009 156,441
Deposits. . . . . . . . . . . . . . . 216,142 219,072 224,604 212,042 208,473
Borrowed Funds. . . . . . . . . . . . 40,649 30,000 5,000 -- --
Shareholders' Equity. . . . . . . . . 27,743 29,147 30,523 31,137 30,363
Common Shares Issued. . . . . . . . . 1,365,801 1,365,801 1,365,801 1,365,801 1,365,801
Treasury Stock. . . . . . . . . . . . 61,944 37,953 37,953 19,203 --
</TABLE>
5
WHERE YOU CAN FIND MORE INFORMATION
As a public company, Bath is obligated to file annual, quarterly and
current reports, proxy statements and other information with the Securities
and Exchange Commission. You may read and copy any reports, statements or
other information that we file at the SEC's public reference rooms in
Washington, D.C., New York, New York, and Chicago, Illinois. Please call the
SEC at 1-800-SEC-0330 for further information on the public reference rooms.
In addition, our public filings are available to the public from commercial
document retrieval services and on the Internet World Wide Website maintained
by the SEC at "http://www.sec.gov."
6
THE SPECIAL MEETING
Place, Time and Date
The special meeting is scheduled to be held at _____ a.m., Eastern Time,
on ________, ________ ____, 2001, at [the Bath Country Club, 330 May Street,
Bath, New York.]
Matters to Be Considered
At the special meeting, you will be asked to approve a proposal to adopt
the merger agreement, a proposal to adjourn the special meeting if necessary
to solicit additional proxies and such other matters as are properly brought
before the special meeting. As of __________, 2000, we do not know of any
business that will be presented for consideration at the special meeting other
than the approval of the merger agreement.
Record Date; Vote Required
Only our shareholders of record at the close of business on __________,
2000 are entitled to notice of and to vote at the special meeting. As of
__________, 2000, there were 1,303,757 shares of our common stock outstanding
and entitled to vote at the special meeting.
Holders of our outstanding shares of common stock will be entitled to
cast one vote per share at the special meeting. You may vote in person or by
submitting a properly executed proxy. The presence, in person or by properly
executed proxy, of the holders of a majority of our outstanding shares of
common stock entitled to vote will constitute a quorum. Abstentions and
broker non-votes will be treated as shares present at the special meeting for
purposes of determining the presence of a quorum. A broker non-vote is an
unvoted proxy submitted by a broker. Brokers or other nominees who hold
shares in street name for customers who are the beneficial owners of such
shares may not vote those shares with respect to the merger agreement unless
they have received specific instructions from their customers.
To adopt the merger agreement, the holders of two-thirds of the
outstanding shares of Bath common stock entitled to vote must vote in favor of
the merger agreement. Consequently, a failure to vote, an abstention or a
broker non-vote will have the same effect as voting against the merger
agreement. In addition, a majority of Bath's common stock cast must vote in
favor of the proposal to adjourn the special meeting.
Approval of the merger agreement by our shareholders is one of the
conditions that must be satisfied to complete the merger. See "The Merger -
Conditions to the Merger."
Beneficial Ownership of Bath Common Stock
As of __________, 2000, our directors and executive officers and their
affiliates beneficially owned in the aggregate [92,908] shares of our common
stock, or [7.13%] of our outstanding shares of common stock entitled to vote
at the special meeting. Based on the unanimous approval of the merger
agreement by our Board of Directors and each directors' execution of the
shareholders' agreement, we currently expect all of our directors and
executive officers will vote their shares of Bath common stock beneficially
owned by him or her for approval of the merger agreement.
7
Bath Common Stock
Our common stock is traded on the OTC Bulletin Board under the symbol
"BATH.OB." On October 31, 2000, the last day trading of our common stock
occurred prior to the joint announcement by Bath and Financial Institutions
that they had entered into the merger agreement, the closing price per share
of our common stock was $37.00. On __________, 2000, which is the last
practicable date prior to printing this proxy statement, the closing per share
sales price of our common stock was $______.
Proxies
Shares of our common stock represented by properly executed proxies
received prior to or at the special meeting will, unless they have been
revoked, be voted at the special meeting in accordance with the instructions
indicated in the proxies. If no instructions are indicated on a properly
executed proxy, the shares will be voted "FOR" the adoption of the merger
agreement and "FOR" the proposal to adjourn, if necessary.
You should complete and return the proxy card accompanying this proxy
statement to ensure that your vote is counted at the special meeting,
regardless of whether you plan to attend the special meeting. You can revoke
your proxy at any time before the vote is taken at the special meeting by:
* submitting written notice of revocation to the Secretary of Bath,
* submitting a properly executed proxy of a later date, or
* voting in person at the special meeting, but simply attending the
special meeting without voting will not revoke an earlier proxy.
Written notice of revocation and other communications about revoking
your proxy should be addressed to:
Bath National Corporation
44 Liberty Street
Bath, New York 14810
Attention: Lisle E. Hopkins
Secretary
If any other matters are properly presented at the special meeting for
consideration, the proxy holders will have discretion to vote on such matters
in accordance with their best judgment. As of ___________, 2000, we know of
no other matters to be presented at the meeting.
Certain material events or changes in circumstances including a material
amendment to the merger agreement or a material revision of the fairness
opinion issued by CIBC World Markets may result in a resolicitation of your
vote. Under those circumstances we will provide you with supplemental
information about the material event or change in circumstances and give you
an opportunity to recast your vote.
8
If your Bath common stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow to
have your shares voted. Your broker, bank or other nominee may allow you to
deliver your voting instructions via telephone or the Internet. Please see
your instruction form that accompanies this proxy statement.
In addition to solicitation by mail, our directors, officers and
employees, who will not receive additional compensation for such services, may
solicit proxies from our shareholders, personally or by telephone, telegram or
other forms of communication. Brokerage houses, nominees, fiduciaries and
other custodians will be requested to forward soliciting materials to
beneficial owners and will be reimbursed for their reasonable expenses
incurred in sending proxy material to beneficial owners. We will bear our own
expenses in connection with the solicitation of proxies for the special
meeting.
We have retained D.F. King & Co., a professional proxy solicitation
firm, to assist in the solicitation of proxies for a fee of $5,000. We
also will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in sending the proxy
materials to the beneficial owners of Bath common stock. In addition to
solicitations by mail, our directors, officers and employees may solicit
proxies personally or by telephone without additional compensation.
You are requested to complete, date and sign the accompanying proxy card
and to return it promptly in the enclosed postage-paid envelope.
You should not forward stock certificates with your proxy cards.
THE MERGER
The information in this proxy statement concerning the terms of the
merger is qualified in its entirety by reference to the full text of the
merger agreement, which is attached as Appendix A and incorporated by
reference herein. All shareholders are urged to read the merger agreement in
its entirety, as well as the opinion of our financial advisor and the stock
option agreement attached as Appendix B and Appendix D, respectively.
General
As soon as possible after the conditions to consummation of the merger
described below have been satisfied or waived, and unless the merger agreement
has been terminated as discussed below, Bath and a subsidiary of Financial
Institutions will merge in accordance with New York law. Under the terms of
the merger agreement, the subsidiary will be merged with and into us, with us
surviving as a subsidiary of Financial Institutions It is intended that after
the merger, we will be merged with and into Financial Institutions, with
Financial Institutions as the surviving entity. As a result of these
transactions, Bath National Bank will become a subsidiary of Financial
Institutions
Upon completion of the merger, our shareholders will be entitled to
receive $48.00 in cash in consideration for each of their shares of Bath
common stock they hold and will cease to be shareholders of Bath. Following
the merger, Messrs. McCabe and Galpin and up to five other current members of
Bath National Bank's board of directors will continue as directors of the
Bank. The Bank's Board of
9
Directors may consist of up to twelve directors. In addition, Mr. McCabe will
become a member of the Board of Directors of Financial Institutions following
completion of the merger.
The Companies
Bath National Corporation
44 Liberty Street
Bath, New York 14810
(607) 776-9661
Bath is a New York corporation and the parent holding company of Bath
National Bank. Bath National Bank is a national bank headquartered in Bath,
New York. Bath National Bank operates 11 branch offices located in Ontario,
Schuyler, Steuben and Yates counties.
Financial Institutions, Inc.
220 Liberty Street
Warsaw, New York 14569
(716) 786-1100
Financial Institutions is a New York corporation and a multi-bank
holding company. It is the parent holding company for Wyoming County Bank,
The National Bank of Geneva, The Pavilion State Bank and First Tier Bank and
Trust. Financial Institutions is headquartered in Warsaw, New York.
Background of the Merger
In June 2000, our Board of Directors engaged CIBC World Markets to
assist in the evaluation of our strategic alternatives. As part of this
process, CIBC reviewed with the Board Bath's future financial prospects as a
stand-alone entity and the prospects for mergers with likely merger partners.
In connection with this review, CIBC and our senior management identified
several institutions in upstate New York as possible merger candidates based
on their likely interest and ability to pursue a business combination with us
at an attractive premium. After analyzing the capacity of each potential
institution to finance a merger, we concluded that we should approach four
institutions in order to gauge their level of interest in a transaction. In
October 2000, our financial advisor contacted those four institutions on our
behalf.
Two banks expressed no interest in pursuing an acquisition at the time
and a third bank indicated reservations about a possible transaction with us
at the premium levels we had assumed were achievable. Financial Institutions
expressed its preference to proceed with a negotiated merger with Bath. Our
Board of Directors authorized management to pursue negotiations with Financial
Institutions.
On October 6, 2000, we entered into a confidentiality agreement with
Financial Institutions. The following week, we provided Financial
Institutions with certain information regarding our business and operations.
On October 17, 2000, Peter G. Humphrey, the President and Chief Executive
Officer of Financial Institutions, met with our President and Chief Executive
Officer, Douglas L. McCabe, to discuss a possible merger between us and
Financial Institutions. The respective financial advisors of Financial
Institutions and Bath also were present at the meeting. On October 19, 2000,
Financial Institutions indicated that it was interested in a merger and was
willing to pay $45.00 in cash for each
10
share of our common stock. After further negotiations, on October 23, 2000,
Financial Institutions indicated a willingness to increase its offer to $46.60
in cash for each of our shares.
In late October 2000, our financial advisor received a call from another
institution expressing interest in discussing the possible acquisition of
Bath. The institution submitted an unsolicited offer to acquire Bath in an
all stock or a combination of 75% stock, 25% cash transaction with a stated
value of $47.00 per share. The consideration offered by this institution
would not change due to changes in its stock price, that is, they were
offering a "fixed" exchange rate. This unsolicited offer was from an
institution which had been initially considered as a potential merger partner
but, due to CIBC's and Bath's assessment that this institution did not have
the financial resources to complete a transaction, had not been contacted by
CIBC on our behalf. On October 25, 2000, we entered into a confidentiality
agreement with this institution and delivered information regarding our
business and operations to them.
Also on October 25, 2000, Financial Institutions reaffirmed its interest
in a merger with Bath and increased its offer to $48.00 for each of our
shares.
On October 25, 2000, our Board of Directors, with CIBC's participation,
met and discussed both offers. While significant concerns were expressed by
several directors regarding the ability of the second institution to complete
a transaction with us and the potential adverse effects on the financial
condition, results of operations and stock price if we merged with this
institution, our Board determined to continue discussions with the second
institution in order to further assess their offer and their capabilities. On
October 27, 2000 members of our senior management, together with
representatives of CIBC, had a conference call with management of the second
institution and their financial advisors discussing their offer, the terms of
a possible merger and the prospects for a combined institution. Following
this conference call, the second institution reaffirmed its interest in a
merger with us on the same terms previously expressed. Concurrent with the
discussions with the second institution, Financial Institutions conducted a
due diligence review of our operations.
On October 30, 2000 our Board of Directors met again to continue its
evaluation of both offers to acquire Bath. At this meeting CIBC provided our
Board with an overview of the two bidders and the terms of their offers. CIBC
also provided the Board with a preliminary assessment of the relative
execution and other risks of the two offers, and indicated that in its
judgment there was a significant risk that the market value of the offer from
the second institution would be significantly less than its nominal value of
$47.00 per share, which was already lower than the cash offer from Financial
Institutions. Among other things, CIBC noted the following risks of the offer
from the second institution:
Low Valued Currency. CIBC noted that the second institution's stock was
relatively illiquid and traded at a substantial discount to its peer
group based on last-twelve-months' earnings multiples, and that the
second institution was undercapitalized compared to its peer group.
Highly Dilutive Transaction. CIBC noted that the transaction proposed
by the second institution would result in significant ongoing dilution
to earnings even using the second institution's aggressive revenue
enhancement and cost savings estimates. CIBC also noted that the
transaction would result in significant book value dilution if done as a
pooling transaction (100% stock) and if done as a purchase transaction
(75% stock/25% cash) would result in the second institution having one
of the highest levels of goodwill relative to its tangible capital of
any bank in the United States.
11
Significant Downside Risk. CIBC pointed out that the second
institution's offer specified a fixed exchange ratio in which Bath's
shareholders would have no protection against a post-announcement
decline in the second institution's stock price, which CIBC indicated
was, in its judgment, likely to occur.
In contrast, CIBC noted that the offer from Financial Institutions was
entirely in cash, which did not present any valuation risks, and was not
subject to any approval by Financial Institutions' shareholders or to any
external financing condition.
After further discussion, our Board concluded that the offer from
Financial Institutions was higher in both nominal and likely market value and
presented far fewer execution risks than the offer from the second
institution. Accordingly, our Board authorized management to continue its
negotiations with Financial Institutions.
Our Board met again on November 2, 2000 to review the terms of the draft
merger agreement and consider the offer from Financial Institutions. The
Board reviewed, with the assistance of counsel, the legal aspects of the
proposed merger agreement. The Board also reviewed, with the assistance of
CIBC, the financial terms of the proposed merger with Financial Institutions.
In this connection, the Board reviewed again the offer from the second
institution and reaffirmed its earlier conclusion that Financial Institutions'
offer was the superior proposal in terms of value and certainty of completion.
At our November 2nd Board meeting, CIBC provided our Board with their
opinion which stated that the merger consideration proposed by Financial
Institutions was fair, from a financial point of view, to our shareholders.
The Board considered the terms of Financial Institutions offer, the certainty
as to the value of the cash form of consideration, its ability to pay the
consideration without the need for approval from Financial Institutions'
shareholders, the absence of any condition as to external financing, its
likelihood of receiving regulatory approvals and the fairness opinion of CIBC.
The Board also considered the current and prospective competitive operating
environment facing the financial services industry generally, and Bath in
particular, including the continued pace of consolidation in the industry and
the perceived importance of operational scale in enhancing profitability and
remaining competitive over the long term. After conclusion of the review and
discussion, a vote was taken and the Board unanimously approved the merger
agreement with Financial Institutions and authorized Mr. McCabe to execute the
merger agreement and related documents. Following the Board meeting on
November 2, 2000, we and Financial Institutions signed a definitive merger
agreement.
Our Reasons for the Merger; Recommendation of Your Board of Directors
Our Board of Directors believes that the terms of the merger agreement,
which are the product of arm's length negotiations between representatives of
Financial Institutions and Bath, are in the best interests of our
shareholders. In the course of reaching its determination, our Board of
Directors considered the following factors:
* the merger consideration to be paid to our shareholders in
relation to the market value, book value and earnings per share of
our common stock,
* information concerning our financial condition, results of
operations, capital levels, asset quality and prospects,
12
* industry and economic conditions,
* the impact of the merger on the depositors, employees, customers
and communities served by us through expanded commercial, consumer
and retail banking products and services,
* the general structure of the transaction which maintains Bath
National Bank as a separately chartered and managed subsidiary of
Financial Institutions,
* the opinion of our financial advisor as to the fairness of the
merger consideration from a financial point of view to our
shareholders,
* the general compatibility of management and business philosophy,
* the greater resources and product offerings that Financial
Institutions will provide after the merger,
* our assessment of Financial Institutions' ability to pay the
aggregate merger consideration,
* the results of our due diligence investigation of Financial
Institutions, including the likelihood of receiving the requisite
regulatory approvals in a timely manner,
* the ability of Financial Institutions after the merger to compete
in relevant banking and non-banking markets, and
* our strategic alternatives to the merger, including the continued
operation of Bath National Bank as an independent financial
institution.
In making its determination, our Board of Directors did not ascribe any
relative or specific weights to the factors which it considered. The
foregoing discussion of the factors considered by our Board is not intended to
be exhaustive, but it does include the material factors considered by our
Board.
Our Board of Directors believes that the merger is in the best interests
of Bath and our shareholders. The Board of Directors unanimously recommends
that our shareholders vote for the adoption of the merger agreement.
The Consideration is Fair According to CIBC World Markets, Our Financial
Advisor
We retained CIBC World Markets Corp. as our financial advisor in
connection with the merger. CIBC is an investment banking firm that regularly
provides financial valuations and analyses of business enterprises and
securities in connection with mergers, acquisitions, mutual-to-stock
conversions, initial and secondary stock offerings and other corporate
transactions. We retained CIBC based upon its reputation and its substantial
experience in merger and acquisition matters.
At a meeting of our Board of Directors on November 2, 2000, CIBC
rendered its oral opinion to the Board that, as of that date and subject to
the assumptions and limitations set forth in the opinion, the
13
merger consideration of $48.00 per share was fair to our shareholders from a
financial point of view. CIBC subsequently confirmed its oral opinion by
delivering to the Bath Board a written opinion dated November 2, 2000.
In connection with the preparation of this proxy statement, CIBC
reconfirmed its November 2, 2000 opinion by delivering a written opinion dated
as of the date of this proxy statement. In delivering the opinion dated as of
the date of this proxy statement, CIBC updated selected analyses it performed
in connection with its November 2, 2000 opinion and reviewed the assumptions
on which those analyses were based and the factors considered in connection
with those analyses. We imposed no limitations on CIBC with respect to the
investigation made or procedures followed by it in rendering its opinions.
CIBC's opinion dated November 2, 2000 and the financial analyses that
CIBC presented to our Board of Directors were among the many factors that the
Bath Board considered in its evaluation of the merger. Shareholders should not
treat the opinion as the sole basis on which the Board made its decision
regarding the merger.
The full text of the CIBC opinion dated November 2, 2000, which sets
forth assumptions made, matters considered and limits on the review undertaken
by CIBC, is included as Appendix B to this proxy statement. We urge our
shareholders to read the opinion in its entirety before deciding how to vote
on the merger agreement. CIBC's opinions relate only to the fairness from a
financial point of view of the merger consideration which our shareholders
will receive. They do not address any other aspect of the merger or any
related transaction and do not constitute a recommendation to any Bath
shareholder as to how to vote at the meeting. The summary of the CIBC opinions
in this proxy statement is qualified in its entirety by reference to the full
text of the opinion attached as Appendix B.
In connection with its fairness opinions, CIBC reviewed:
1. the merger agreement, the option granted to Financial Institutions and
the director and officer voting agreements;
2. this proxy statement, in the case of its updated fairness opinion;
3. audited consolidated financial statements and management's discussions
and analysis of the financial condition and results of operations for
Bath and for Financial Institutions for the three fiscal years ended
December 31, 1999;
4. unaudited consolidated financial statements for Bath and for Financial
Institutions for the nine months ended September 30, 2000;
5. certain other publicly available business and financial information
relating to Bath and to Financial Institutions;
6. the views of senior management of Bath of the past and current business
operations, results thereof, financial condition and future prospects of
Bath;
7. a comparison of certain financial information for Bath with similar
information for certain other companies CIBC considered comparable to
Bath;
14
8. the financial terms of certain recent business combinations in the
banking industry;
9. the current market environment generally and the banking environment in
particular; and
10. such other information, financial studies, analyses and investigations
and financial, economic and market criteria as CIBC considered
appropriate in the circumstances.
The fairness opinions state that CIBC has relied on the accuracy and
completeness of the information provided by the parties to the merger
agreement and obtained by it from public sources and the representations and
warranties in the merger agreement, without independent verification. CIBC did
not make an independent evaluation or appraisal of the assets and liabilities
of Bath and neither Bath nor anyone else furnished CIBC with such appraisal.
In relying on the financial analyses and estimates provided to it by Bath, CIBC
assumed that those analyses and estimates had been reasonably prepared based on
assumptions reflecting the best currently available estimates and judgements by
management as to the expected future results of operations and financial
condition of Bath. CIBC also assumed that the merger will be consummated in
accordance with the terms of the merger agreement. CIBC's opinions were based
upon economic, market and other conditions as in effect on, and the information
made available to it as of, the respective dates of the fairness opinions.
CIBC believes that its analyses must be considered as a whole and that
selecting portions of its analyses, without considering the analyses taken as
a whole, would create an incomplete view of the process underlying the
analyses considered by CIBC in rendering in its opinions. In addition, CIBC
considered the results of all such analyses and did not assign relative
weights to any of the analyses, so that the ranges of valuations resulting
from any particular analysis described below should not be taken to be CIBC's
view of the actual value of Bath or the combined entity.
In performing its analyses, CIBC made numerous assumptions, primarily
with respect to industry performance and general business and economic
conditions, factors which are beyond the control of Bath. No company or
transaction used in these analyses is identical to Bath, Financial
Institutions or the merger. The analyses performed by CIBC are not necessarily
indicative of actual values, which may be significantly more or less favorable
than suggested by the analyses. The analyses were prepared solely in
connection with CIBC rendering its fairness opinions; the analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold. CIBC was not requested to, and did not, determine or
recommend the specific consideration payable in the merger, which
consideration was determined by arms'-length negotiations between Bath and
Financial Institutions.
The following is a summary of the material analyses performed,
procedures followed, findings and recommendations made, and the bases for and
methods of arriving at such findings and recommendations, and presented by
CIBC to the Bath Board at its meeting on November 2, 2000 in connection with
CIBC's opinion dated that date. We have presented some of these summaries in
table form. In order to understand the analyses used by CIBC, you must read
the tables together with the accompanying text. The tables alone do not
constitute a complete summary of CIBC's financial analyses.
For all of the analyses described below other than the discounted cash
flow analysis, CIBC performed the analysis using Bath's historical financial
results both as reported in accordance with GAAP and adjusted to exclude a
$2.75 million charge-off in the second quarter of 2000 of a single
15
loan. The latter is referred to in the descriptions of the analyses that
follow as the "adjusted" case.
Comparable Companies Analysis. CIBC analyzed selected operating and
stock market data for a group of peer companies that CIBC selected and deemed
to be relevant for this purpose. The peer group consisted of 28 publicly
traded banks located in the Northeast with assets of between $200 million and
$500 million. For each of these companies in the peer group CIBC calculated
the multiple of market price (based on the closing price on October 31, 2000)
to book value, tangible book value, latest twelve months (LTM) earnings,
estimated 2000 earnings, estimated 2001 earnings, and deposits. Estimated
earnings for peer group companies were based on consensus earnings per share
estimates published by First Call, Inc. as of October 31, 2000. First Call is
an industry service provider of global earnings information based on an
average of earnings estimates published by various investment banking firms.
Earnings estimates for Bath were based on internal management projections.
The results of this analysis for the peer group are summarized in the
following table:
Per Share: Low Median High
------------------------------------------------------------------------------
Book Value .49x 1.17x 1.98x
Tangible Book Value .49 1.20 1.98
LTM Earnings 8.31 10.44 21.10
2000 Est. Earnings 6.94 11.28 11.90
2001 Est. Earnings 6.52 9.98 11.76
Deposits 3.85% 13.73% 66.66%
CIBC then applied the range of median multiples derived from the peer
group analysis to corresponding data for Bath and derived an imputed valuation
range for Bath's common stock of $11.07 to $31.56 per share on a reported
basis and $22.77 to $31.56 per share on an adjusted basis. CIBC also applied a
control premium of 40.95% (median 5-day premium from the Northeast bank
acquisitions, as more fully described below in the Precedent Transaction
Analysis section) to the imputed valuation ranges. The imputed valuation
range for Bath's common stock including a five day premium on a reported basis
was $15.60 to $44.49 per share and $32.09 to $44.49 on an adjusted basis.
Precedent Transaction Analysis. CIBC compared the financial terms of
the merger to the financial terms, to the extent publicly available, of
acquisitions of other comparable companies during recent time periods. These
companies were divided into three categories for purposes of the analysis: (1)
five banks in New York State outside of the New York City metropolitan area
which were acquired in transactions announced or completed from January 1,
1999 to October 31, 2000; (2) the ten most recent (through October 31, 2000)
nationwide bank acquisitions with total assets from $100 to $500 million which
were acquired in transactions announced or completed from September 13, 2000
through October 31, 2000; and (3) seventeen banks located in the northeast
with total assets from $100 to $500 million which were acquired in
transactions announced or completed from January 1, 1999 through October 31,
2000. For each of the transactions, CIBC calculated, among other things, the
multiples of the transaction value to book value, tangible book value, last
twelve months net income, and deposits. CIBC also calculated the core deposit
premium (defined as the transaction value minus tangible book value divided
16
by core deposits, excluding certificates of deposit with balances equal to or
greater than $100,000). CIBC then compared these multiples to comparable data
for Bath as shown in the following table:
<TABLE>
Acquired non-metro NYC Banks Nationwide Bank Acquisitions Northeast Bank Acquisitions
Any Size $100-$500 million in assets $100-$500 million in assets
---------------------------- ---------------------------- ---------------------------
FI/Bath Low Median High Low Median High Low Median High
---------------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Price to Book 2.26x 1.43x 1.96x 2.47x 1.09x 1.87x 3.67x 1.00x 1.99x 2.69x
Price to Tangible
Book 2.27 1.43 1.93 2.51 1.13 1.90 3.67 1.00 1.89 3.37
Price to reported
LTM Earnings 44.61 11.83 16.96 23.14 12.77 20.64 47.39 11.83 20.83 57.91
Price to adjusted
LTM Earnings 18.50 11.83 16.96 23.14 12.77 20.64 47.39 11.83 20.83 57.91
Price to Deposits 28.96% 14.37% 21.36% 25.50% 8.80% 21.78% 36.87% 9.37% 22.90% 28.01%
Core Deposit Premium 17.25% 4.60% 11.52% 18.32% 2.04% 11.47% 27.27% 0.00% 11.95% 22.04%
</TABLE>
CIBC then applied the ranges of multiples derived from these analyses to
comparable data for Bath and derived the following imputed valuation ranges
for Bath's common stock:
Nationwide Bank Northeast Bank
Acquisitions Acquisitions
Acquired non-metro $100-$500 million $100-$500 million
NYC Banks Any Size in assets in assets
------------------ ----------------- -----------------
Per Share Imputed
Valuation Range
(Reported) $17.97 - $41.62 $21.87 - $40.04 $22.07 - $42.31
Per Share Imputed
Valuation Range
(Adjusted) $35.41 - $43.42 $36.10 - $52.83 $37.96 - $53.31
Discounted Cash Flow Analysis. CIBC performed a discounted cash flow
analysis of future income streams of Bath, based on management's internal
projections of net income for 2001 and 2002, followed by assumed annual
percentage increases in net income of 3% and 6%, in all cases adjusted for the
excess of the provision for loan losses over actual projected charge offs.
This analysis assumed Bath was not acquired but remained independent for five
years.
Based on these assumptions, CIBC determined the theoretical value of a
share of Bath common stock at the end of the five year period by applying
terminal multiples (ranging from 9x to 10x terminal year adjusted earnings)
and discount rates (ranging from 11-13%) that CIBC viewed as appropriate for a
company with Bath's particular risk characteristics. The following table sets
forth the imputed valuation ranges that CIBC calculated for Bath's common
stock using these discounted cash flow analyses:
Case Imputed Valuation Range
--------------------------------- -------------------------------
3.00% Estimated Growth $29.32 - $33.68
6.00% Estimated Growth $32.25 - $37.11
17
CIBC has from time to time in the past provided investment banking
services to Financial Institutions. In 1999, CIBC acted as lead manager in
the initial public offering of Financial Institutions. In the ordinary course
of its market making and other trading activities, CIBC may buy or sell
securities of Bath and Financial Institutions both for its own account and for
the accounts of customers and, accordingly, may at any time hold a long or
short position in these securities. CIBC has acted as financial advisor to
Bath in connection with the merger and will receive a fee of approximately
1.0% of the total merger consideration, a portion of which is contingent on
the consummation of the merger. We also agreed to indemnify CIBC against
certain liabilities which may arise in connection with its service as an
advisor to Bath.
You Will Receive Cash for Your Shares of Bath Stock
Upon completion of the merger, each outstanding share of Bath common
stock (other than shares as to which dissenters' rights have been asserted and
perfected in accordance with New York law and other than treasury shares)
shall be converted into and represent the right to receive $48.00 in cash
without any interest thereon. The aggregate amount of the cash payment
represents the merger consideration. The total merger consideration to be
paid in connection with the merger is expected to be approximately $63
million.
Procedure for Surrendering Your Certificates
Prior to the effective time of the merger, Financial Institutions will
deposit with another bank or trust company cash in an amount equal to the
merger consideration. The bank or trust company receiving the deposit will
act as paying agent for the benefit of the holders of certificates of Bath
common stock in exchange for the merger consideration.
Within three business days after the effective time of the merger, a
letter of transmittal will be mailed by the paying agent to Bath shareholders.
The letter of transmittal will contain instructions for surrendering your
certificates of Bath common stock.
You should not return your Bath common stock certificates with the
enclosed proxy, and you should not send your stock certificates to the paying
agent until you receive the letter of transmittal.
If a certificate for Bath common stock has been lost, stolen or
destroyed, the paying agent will issue the merger consideration following:
* receipt of an affidavit by the person claiming the loss, theft or
destruction of his or her certificate, and
* if required by Financial Institutions, the posting of a bond by
such person in an amount not to exceed the merger consideration to
be paid for such certificates.
Neither Bath nor Financial Institutions will be liable for funds that
are delivered to a public official due to any abandoned property, escheat or
similar laws.
18
Representations and Warranties Made by Us and Financial Institutions
The merger agreement contains representations and warranties made by us
and Financial Institutions which are customary in merger transactions,
including, among others, representations and warranties concerning:
* the organization of Bath and Financial Institutions, and their
subsidiaries,
* the due authorization, execution and delivery of the merger
agreement,
* the consents or approvals required under, and the lack of breaches
or violations of, applicable certificates of incorporation,
bylaws, instruments and laws, with respect to the transactions
contemplated by the merger agreement, and
* the absence of material adverse changes and legal claims.
We made certain additional representations and warranties (which are
also customary), among others, regarding our capitalization, reports filed
with the SEC, the accuracy of information contained in this proxy statement,
our employee benefit plans and their compliance with applicable regulations,
payment of taxes, compliance with applicable laws, our material contracts,
title to property and assets, including intellectual property, the absence of
interested party transactions, undisclosed liabilities, environmental matters,
the absence of restrictions on our business, the receipt of a fairness opinion
from our financial advisor, the status of our loan portfolio and our insurance
policies. Financial Institutions also has represented that it will have the
funds necessary to pay the merger consideration required of it under the
merger agreement.
These representations and warranties will not survive beyond the
completion of the merger, and, if the merger agreement is terminated without
consummation of the merger, other than the stock option granted to Financial
Institutions as discussed below, there will be no liability on the part of
either us or Financial Institutions, except that no party shall be relieved or
released from any liability arising out of a willful breach by it of any
covenant, undertaking, representation or warranty in the merger agreement.
Conditions to the Merger
The respective obligations of Financial Institutions and Bath to
consummate the merger are subject to the satisfaction or waiver of the
following conditions specified in the merger agreement:
* approval of the merger agreement by our shareholders,
* the receipt of all necessary regulatory approvals, consents or
waivers and the satisfaction of all consents,
* the absence of any order, judgment, decree, injunction or ruling
of a court of competent jurisdiction which enjoins or prohibits
the completion of the merger,
* the accuracy of the other party's representations and warranties
in all material respects,
19
* the performance by the other party of its obligations contained in
the merger agreement in all material respects, and
* the receipt of certain certificates and legal opinions.
Financial Institutions' obligation to effect the merger also is subject to the
following conditions:
* the absence of material adverse changes to our business,
* Financial Institutions' receipt of a satisfactory procedures
letter from our accountants regarding its review of our unaudited
financial statements,
* the resignation of certain directors and officers of Bath and Bath
National Bank, and
* Financial Institutions' receipt of certain executed related
agreements.
There can be no assurance that the conditions to consummation of the
merger will be satisfied or waived. The merger will become effective when the
certificate of merger is filed with the Secretary of State of the State of New
York. It is currently anticipated that the effective time of the merger will
occur during the second quarter of 2001.
Conduct of Business Prior to the Completion of the Merger
We agreed that during the period from the date of the merger agreement
to the completion of the merger, except as contemplated by the merger
agreement or unless Financial Institutions provides its written consent, we,
and our subsidiaries, will:
* conduct our business in the regular, ordinary and usual course
consistent with our past practice,
* maintain and preserve intact our business organization,
properties, leases, employees and business relationships,
* comply with the directives and corrective action contained in our
most recent bank examination conducted by the Office of the
Currency Comptroller, and
* provide to Financial Institutions copies of all of our filings
made with any governmental entity relating to this merger and
consult with Financial Institutions before settling or comprising
any income tax liability.
We also agreed, among other things, that prior to the effective time of
the merger, unless Financial Institutions provides its written consent, we,
and our subsidiaries, will not:
* take any action that would materially adversely affect or delay
our ability to obtain any necessary approvals of any governmental
entity required for the transactions contemplated by the merger
agreement or to perform our covenants and agreements under the
merger agreement,
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* allow any representation or warranty of Bath to become inaccurate,
* declare, set aside or pay any dividends or make any other
distributions to our shareholders in excess of the current regular
$.30 quarterly dividend, with certain exceptions, or redeem,
purchase or otherwise acquire any of our capital stock,
* except for the stock option granted to Financial Institutions,
encumber, split, combine or reclassify any of our capital stock,
* amend our certificate of incorporation or bylaws,
* acquire or agree to acquire any other entity, or the material
assets of another business or entity,
* subject to a lien or sell, lease or otherwise dispose of any of
our material properties or assets except in the ordinary course of
business,
* other than in the ordinary course of business, incur any
indebtedness or guarantee, maintain or become responsible for the
financial condition of another person or make any loans, capital
advances or investments to any other person or settle or
compromise any material claims or litigation,
* except for commitments prior to the merger agreement, make any new
loan or other credit commitment to any borrower or group of
affiliated borrowers in excess of $250,000 in the aggregate, or
increase, compromise, extend, renew or modify any existing loan or
commitment in excess of $500,000, and provide to Financial
Institutions in advance any proposed approvals by Bath National
Bank of any real estate secured loans in excess of $500,000 and
any unsecured loans in excess of $75,000,
* enter into, renew, extend or modify any other transaction with any
of our affiliates,
* enter into any futures contract, option, interest rate caps,
interest rate floors, interest rate exchange agreement or other
agreement or take any other action to hedge the exposure of our
interest-earning assets and interest-bearing liabilities to
changes in interest rates,
* materially change our policies regarding extensions of credit,
loan loss reserves, charge off of losses, investments,
asset/liability management or other material banking policies,
except as may be required by applicable law or regulation,
* enter into any new areas of lending, new loan categories or loan
types, or open new loan origination offices,
* sell any real estate owned properties or loans, other than loans
secured by one- to four-family real estate which generate no book
loss,
* authorize, commit or agree to take any of the actions noted above,
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* recruit, hire or contract new employees, except for non-officer
positions for which Financial Institutions will be provided a job
posting in advance of publication, or
* authorize or permit any employee salary or benefit increases in
excess of 10% of an employee's salary, except for agreed upon
bonuses to be paid to our senior executive officers.
We agreed to provide Financial Institutions monthly written lists of our
nonperforming assets and to establish additional accruals and reserves for
losses as needed to conform our accounting practices with the accounting
practices of Financial Institutions.
In addition, we, our agents, our subsidiaries and affiliates have agreed
not to solicit inquiries or proposals from, furnish information to, take any
other action to facilitate or participate in any discussions or negotiations
with, third parties who are trying to acquire a material interest in us.
Generally, an effort by us to encourage a merger, acquisition or similar
business combination with a third party or any other transaction which would
be likely to impede, prevent or materially delay our merger with Financial
Institutions, the sale of 15% or more of our assets, or any tender offer or
exchange offer for 15% or more of our stock would violate this provision.
However, we are permitted to furnish information to or engage in discussions
or negotiations, enter into an agreement with a third party or terminate our
merger agreement with Financial Institutions if, after having consulted with
and received the advice of our legal counsel, we determine that the failure
to do so may cause our Board of Directors to breach its fiduciary duties and
if we have received a proposal from a third party which our Board deems
superior to the offer by Financial Institutions. We are required to promptly
notify Financial Institutions if we receive any request for information about
us or any takeover proposal and provide information to Financial Institutions
about any proposal.
Approvals Needed to Complete the Merger
The Federal Reserve Board must approve our proposed merger with
Financial Institutions under the Bank Holding Company Act of 1956, as amended.
[The required applications for this approval has been filed and is currently
pending.] The Bank Holding Company Act requires the Federal Reserve Board,
when approving a transaction such as the merger, to take into consideration
the financial and managerial resources (including the competence, experience
and integrity of the officers, directors and principal shareholders) and
future prospects of the existing and proposed institutions and the convenience
and needs of the communities to be served. In considering financial resources
and future prospects, the Federal Reserve Board will, among other things,
evaluate the adequacy of the capital levels of the parties to a proposed
transaction.
The Bank Holding Company Act prohibits the Federal Reserve Board from
approving a merger if it would result in a monopoly or be in furtherance of
any combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, or if its effect in any
section of the country would be substantially to lessen competition or to tend
to create a monopoly, or if it would in any other manner result in a restraint
of trade, unless the Federal Reserve Board finds that the anti-competitive
effects of a merger clearly are outweighed in the public interest by the
probable effect of the transaction in meeting the convenience and needs of the
communities to be served. In addition, under the Community Reinvestment Act of
1977, as amended, the Federal Reserve Board must take into account the record
of performance of the existing depository institutions in meeting the credit
needs of the entire community, including low- and moderate-income
neighborhoods, served by such institutions.
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Bath National Bank received a "satisfactory" rating during its last Community
Reinvestment Act examination.
Under Section 4 of the Bank Holding Company Act and related regulations,
the Federal Reserve Board must consider whether the performance of Financial
Institutions' and Bath's nonbanking activities on a combined basis can
reasonably be expected to produce benefits to the public (such as greater
convenience, increased competition and gains in efficiency) that outweigh
possible adverse effects (such as undue concentration of resources, decreased
or unfair competition, conflicts of interest and unsound banking practices).
This consideration includes an evaluation of the financial and managerial
resources of Financial Institutions and Bath and the effect of the proposed
transaction on those resources.
The merger generally may not be consummated until 30 days (which may be
shortened to 15 days with the consent of the U.S. Department of Justice
following the date of Federal Reserve Board approval, during which time the
Justice Department may challenge the merger on antitrust grounds. The
commencement of an antitrust action by the Justice Department would stay the
effectiveness of the Federal Reserve Board's approval, unless a court
specifically ordered otherwise. Financial Institutions and Bath believe that
the merger does not raise substantial antitrust or other significant
regulatory concerns.
In addition, the New York State Banking Board must approve the merger
under its regulations. The application to the Banking Board will be
substantially the same as the application to the Federal Reserve Board.
We are not aware of any other regulatory approvals required for
completion of the merger, except as described above. Should any other
approvals be required, it is presently contemplated that such approvals would
be sought. There can be no assurance that any other approvals, if required,
will be obtained.
The approval of any application merely implies the satisfaction of
regulatory criteria for approval, which does not include review of the merger
from the standpoint of the adequacy of the consideration to be received by
Bath shareholders. Furthermore, regulatory approvals do not constitute an
endorsement or recommendation of the merger.
There can be no assurances that the requisite regulatory approvals will
be received in a timely manner, in which event the consummation of the merger
may be delayed. If the merger is not consummated on or before June 30, 2001,
the merger agreement may be terminated by either Financial Institutions or us.
We can give you no assurance as to the receipt or timing of such approvals.
Waiver and Amendment of the Merger Agreement
Prior to the completion of the merger, Financial Institutions and Bath
may extend the time for performance of any obligations under the merger
agreement, waive any inaccuracies in the representations and warranties
contained in the merger agreement and waive compliance with any covenant,
agreement or, to the extent permitted by law, any condition of the merger
agreement.
The merger agreement may be amended at any time by mutual agreement of
Financial Institutions and Bath. After our shareholders have adopted the
merger agreement, however, no amendment can reduce the amount or modify the
form of consideration to be provided to our
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shareholders or materially adversely affect the rights of our shareholders
without their approval.
Termination of the Merger Agreement
The merger agreement may be terminated prior to the time the merger is
completed, either before or after shareholder approval of the merger
agreement, by:
* the mutual written consent of Financial Institutions and us; or
* by Financial Institutions or us if:
* the other party has materially breached the merger agreement
and such breach would have a material adverse affect or
would materially impair the parties' abilities to consummate
the merger transactions, and in either case such failure or
breach has not been cured within 30 days of written notice
of such breach,
* any court of competent jurisdiction has issued, enacted,
entered, promulgated or enforced any order, judgment,
decree, injunction or ruling that permanently restrains,
enjoins or otherwise prohibits the merger and such ruling is
final and nonappealable, and if both of us have attempted to
resolve or lift such order,
* the merger is not completed by June 30, 2001, unless the
failure of such occurrence is due to a breach of the party
seeking to terminate,
* upon written notice to the other party 45 days after the
date on which any application for regulatory approval is
denied or withdrawn at the request or recommendation of the
regulatory authority, unless within the 45 day period
following denial or withdrawal a petition or rehearing or an
amended application is filed with the regulatory authority;
provided, however, that a party does not have the right to
terminate the merger agreement if the denial by the
regulatory authority is the fault of the party seeking to
terminate, or
* there has been no superior proposals to acquire us prior to
the special meeting of our shareholders and our shareholders
do not approve the merger agreement and the related merger
transactions.
* by Bath if:
* we receive a proposal to acquire us that is superior to
Financial Institutions' proposal and our Board of Directors
determines, based upon advice from legal counsel, that it
would be in accordance with its fiduciary duty to accept the
other offer; provided, however, that we can not terminate
the merger agreement prior to the special meeting of our
shareholders or after the special meeting unless we have
complied with the terms of the merger agreement regarding
offers by third-parties.
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In the event that the merger agreement is terminated, the merger
agreement shall become void and there will be no liability of either Financial
Institutions or us or either party's officers and directors, except that:
* all costs and expenses incurred in connection with the merger will
be paid by the party incurring the expenses, except in the event
of a willful breach, the breaching party is liable for expenses
incurred by the non-breaching party,
* the governing law of the merger agreement is New York law and New
York is the venue for the adjudication of any disputes or
proceeding resulting from the merger transactions,
* certain provisions regarding confidential information will survive
and remain in full force and effect, and
* The stock option agreement that we entered into with Financial
Institutions at the same time of the merger agreement (see
Appendix D) may continue to survive in accordance with its terms.
Interests of Directors and Officers in the Merger that are Different from Your
Interests
Some members of our management and Board of Directors may have interests
in the merger that are in addition to or different from the interests of our
shareholders. Our Board was aware of these interests and considered them in
approving the merger agreement.
Severance Agreements. Bath National Bank has entered into severance
agreements with Messrs. McCabe and Galpin. Under the severance agreements,
each executive is entitled to receive a severance payment upon our proposed
merger with Financial Institutions. Messrs. McCabe and Galpin are entitled to
payments of $514,000 and $418,000, respectively, as a result of our merger
with Financial Institutions.
If the present value of all payments exceeds three times the executive's
average compensation for the preceding five years, then Sections 280G and 4999
of the Internal Revenue Code impose a 20% excise tax on the amount of such
payments in excess of one times the five-year average compensation, and such
excess cannot be deducted by either Financial Institutions or the Bank.
Because the severance payments to which Messrs. McCabe and Galpin are entitled
to receive are deemed to be parachute payments, they have agreed to reduce
their severance payments under their severance agreements in order to avoid
the 20% excise tax. As reduced, the severance payments are estimated to be
$465,578 to Mr. McCabe and $359,440 to Mr. Galpin.
Employment Agreement. In connection with closing of the merger
agreement, Mr. McCabe will enter into a new employment agreement with Bath
National Bank which will then be a subsidiary of Financial Institutions. The
employment agreement is for a three-year term and provides for a base salary
of $150,000, participation in Financial Institution's fringe benefit plans and
discretionary cash bonuses and stock options. The employment agreement
requires that Mr. McCabe devote his entire business time, attention and
efforts to the interests and business of Financial Institutions, its
subsidiaries and their affiliates. The employment agreement also includes
change of control and change of authority provisions. If Mr. McCabe's
employment is terminated within twelve months after a change in control and a
change of authority (as those terms are defined in the employment agreement),
he will receive an
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amount equal to the sum of 200% of his base salary plus his average annual
incentive compensation for the most recent two tax years ending before the
date on which the change of control and change of authority occurred. In the
event of termination without cause (as defined in the employment agreement),
he will receive an amount equal to the sum of one year of his base salary plus
his annual incentive compensation for the most recent tax year ending before
the date termination occurred.
Stock Options. As of the effective time of the merger, Mr. McCabe will
be awarded options to purchase 37,000 shares of Financial Institutions's
common stock pursuant to the terms of its stock option plan.
Consulting and Non-Competition Agreement. In connection with the
closing of the merger agreement, Mr. Galpin will enter into a consulting and
non-competition agreement with Financial Institutions and Bath National Bank.
The consulting portion of the agreement has a term of one year from the
effective time of the merger. The agreement requires Mr. Galpin to perform
reasonable consulting services as may be requested by Financial Institutions
or the Bank, but not in excess of 50 hours in any one month. Such services
include providing advice and information on the business of Financial
Institutions and Bath National Bank.
Mr. Galpin also has agreed to certain restrictions regarding his
employment and business activities. For example, he has agreed not to provide
any services for any insured depository institution or trust company within
certain counties in the state of New York. Mr. Galpin also agrees not to
disclose or use any confidential or proprietary information of Financial
Institutions or any of its subsidiaries. The non-competition portion of the
agreement has a term of two years from the effective time of the merger.
As compensation for Mr. Galpin's consulting services and for agreeing to
the non-competition and confidentiality restrictions, he will be paid $50,000,
payable in equal quarterly installments.
Bonus Payments. The merger agreement provides that Messrs. McCabe and
Galpin may receive bonuses for 2000 of approximately $64,000 and $66,000,
respectively.
Board of Directors. Upon completion of the merger, Messrs. McCabe and
Galpin and up to five other current directors of Bath National Bank will
remain on the Board of Directors of Bath National Bank. Such persons will
receive board fees from Bath National Bank. Bath National Bank's Board of
Directors will not consist of more than 12 members and Financial Institutions
will be able to appoint up to five additional bank directors. Mr. McCabe also
will become a member of the Board of Directors of Financial Institutions.
Protection of Directors, Officers and Employees Against Claims. In the
merger agreement, Financial Institutions has agreed to indemnify our and our
subsidiaries' directors and officers for a period of three years after the
completion of the merger to the extent covered by our directors and officers
insurance and to the fullest extent which such persons would be entitled under
New York law and our and Bath National Bank's respective certificate or
articles of incorporation and bylaws. Financial Institutions also has agreed
to provide, for a period of not less than three years after the completion of
the merger, an insurance policy that provides our directors and officers with
liability coverage at premiums no greater than 150% of our current annual
premium cost.
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Employees and Benefit Plans
After the effective time of the merger, Financial Institutions or Bath
National Bank may take whatever action they deem appropriate with respect to
our or the Bank's employee benefits plans; provided, however, that continuing
employees of the Bank will be eligible for benefits similar to (i) benefits
they currently are eligible for or (ii) benefits offered to employees of
Financial Institutions generally. Continuing employees will be credited for
their years of service to the Bank prior to the merger for purposes of
eligibility to participate under Financial Institutions' sick leave policies,
paid vacation policies and insurance plans if the continuing employee
participates in such plans. Any pre-existing condition, limitation or
exclusion in Financial Institutions's insurance plans will not apply to
continuing employees of the Bank or their covered dependents who are covered
under the Bank's medical plan at the effective time of the merger and who then
change coverage to Financial Institutions's medical plan when first given the
option to enroll.
Under the Bank's employee severance policy, employees (i) with at least
one year of service to Bath National Bank or BNC Financial Services, Inc. and
(ii) who have not otherwise entered into employment or severance agreements
with the Bank, will receive two weeks salary for each year, or portion of a
year, of employment with the Bank or BNC Financial Services upon termination.
The maximum payout to a terminated employee under this severance policy is 26
weeks of the employee's annual salary. Employees are not eligible for payment
if they are terminated for cause or good reason as determined by the Bank's
Board of Directors.
You Have Dissenters' Rights of Appraisal
The New York Business Corporation Law (the "BCL") provides our
shareholders with the right to dissent from the merger and to obtain payment
of the fair value of their shares if the merger is consummated. "Fair value"
means the value of the shares immediately before the effective time of the
merger, excluding any appreciation or depreciation in anticipation of the
merger unless exclusion is inequitable. You must follow certain procedures
required by Section 623 of the BCL to dissent from the merger. A copy of
Section 623 of the BCL, which governs the procedures for the exercise of such
dissenters' rights under New York law, is attached as Appendix C. We provide a
summary description of the dissenters' rights of appraisal requirements below.
Our description is only a summary and is qualified in its entirety by
reference to the text of Section 623 of the BCL in Appendix C. We urge you to
read these requirements and follow the procedures precisely because failure to
follow all of the steps required by Section 623 may result in the loss of your
dissenters' rights.
Any Bath shareholder who votes against the merger may dissent and elect
to exercise appraisal rights under Section 623 of the BCL. A dissenting
shareholder must exercise appraisal rights with respect to all shares of Bath
common stock that are owned of record and beneficially by the shareholder. A
nominee or fiduciary who holds shares of record for a beneficial owner may not
dissent on behalf of the beneficial owner with respect to less than all shares
held on behalf of the beneficial owner.
To dissent and to receive the fair value in a cash payment, if the
merger is effected, a dissenting shareholder must take each of the following
actions:
* file with Bath, prior to or at the special meeting and before the
vote, a written objection to the merger (and not withdraw the
objection before the vote) that sets forth the following: the
dissenting shareholder's election to dissent, the dissenting
shareholder's
27
name and residence address and the number and classes of shares
owned by the dissenting shareholder, and a demand for payment of
fair value of the dissenting shareholder's shares if the merger is
consummated; and
* not vote in favor of the merger.
Written objections should be addressed to: Lisle E. Hopkins, Secretary,
Bath National Corporation, 44 Liberty Street, Bath, New York 14810. It is
recommended that any written objection which is mailed be sent registered or
certified mail "return receipt requested." The written objection is not
required from any shareholder to whom we did not give notice of the special
meeting.
Within 10 days after the vote of shareholders approving the merger, we
must give written notice of such authorization to each dissenting shareholder
who filed written objection or from whom written objection was not required
and who did not vote in favor of the merger. Within 20 days after the giving
of such notice, any shareholder from whom written objection was not required
and who elects to dissent from the proposed merger must file with us a written
notice of such election, stating the dissenting shareholder's name and
residence address, the number of Bath shares as to which the notice applies
and a demand for payment of the fair value of such shares.
Upon consummation of the merger, each dissenting shareholder who
dissents in the manner set forth above will cease to have any rights as a
shareholder, except the right to be paid the fair value of their shares of
Bath common stock and any other rights under Section 623 of the BCL.
The written notice of election of dissent may be withdrawn by a
dissenting shareholder at any time prior to accepting in writing an offer by
us for shares of Bath common stock held by the dissenting shareholder, but in
no case later than 60 days after the later of the consummation of the merger
and the date we make our written offer. Thereafter, withdrawal will require
our written consent. To be effective, withdrawal of a notice of election must
be accompanied by the return to us of any advance payment made to the
shareholder. If a written notice of election is withdrawn, the dissenting
shareholder will lose his or her dissenter's rights.
At the time of filing the written notice of election to dissent or
within 30 days thereafter, a dissenting shareholder must submit all of the
certificates representing his or her shares to us or our transfer agent. We
will then note thereon that a written notice of election to dissent has been
filed in respect of such shares and will then return them to the dissenting
shareholder. Any dissenting shareholder who fails to submit certificates
representing shares of Bath common stock for such notation will lose his or
her dissenter's rights, if we, at our option, notify such dissenting
shareholder in writing within 45 days after the date that the written notice
of election to dissent was filed (unless a court, for good cause shown, shall
otherwise direct).
Within 15 days after the expiration of the period for filing notices of
election to dissent, or within 15 days after consummation of the merger,
whichever is later (but not later than 90 days after the shareholders' vote
authorizing the merger), we must make a written offer (which, if the merger
has not been consummated within the 90 day period after the shareholders' vote
authorizing the merger, may be conditioned upon such consummation) to each
shareholder who has filed a notice of election to dissent to pay for the
shares at a specified price which we consider to be fair based on the fair
value of the shares as of the close of business on the day prior to the
shareholders' vote authorizing the merger. The dissenting shareholder will
have 30 days to accept this written offer. If the dissenting shareholder and
we are
28
unable to agree to a value for the shares, Section 623 provides for
judicial determination of fair value based on the fair value of the shares as
of the close of business on the day prior to the shareholders' vote
authorizing the merger. We will institute such a judicial proceeding, or if
we fail to commence the proceeding within the time period required by Section
623 of the NYBCL, the dissenting shareholder may institute the judicial
proceeding.
Merely voting against the merger will not satisfy the requirements for a
written demand for the payment of fair value of a shareholder's shares or the
other actions specified in Section 623 of the BCL to perfect such appraisal
rights, and the written demand for the payment of the fair value of a
dissenting shareholder's shares must be in addition to and separate from any
proxy or vote against the merger.
Any Bath shareholder who does not deliver to Bath before the vote is
taken written notice of his or her intent to demand fair value payment for his
or her Bath shares, who votes in favor of the merger, who does not demand
payment or who does not deposit the shareholder's certificates by the date set
forth in the dissenters' notice is not entitled to fair value payment for his
or her Bath shares of common stock under Section 623 of the BCL.
Federal Income Tax Consequences of the Merger to You
The exchange of our common stock for cash pursuant to the terms of the
merger agreement will be a taxable transaction for federal income tax purposes
under the Internal Revenue Code, and may also be a taxable transaction under
state, local and other tax laws. Similarly, any Bath shareholders who
exercise their dissenters' appraisal rights and receive cash in exchange for
their shares of Bath common stock will recognize income for federal tax
purposes and may recognize income under state, local and other tax laws. A
shareholder of Bath will recognize gain or loss equal to the difference
between the amount of cash received by the shareholder pursuant to the merger
and the tax basis in the Bath common stock exchanged by such shareholder
pursuant to the merger. Gain or loss must be determined separately for each
block of Bath common stock surrendered pursuant to the merger. For purposes
of federal tax law, a block consists of shares of Bath common stock acquired
by the shareholder at the same time and price.
Gain or loss recognized by the shareholder exchanging his or her Bath
common stock pursuant to the merger or pursuant to the exercise of dissenters'
rights will be capital gain or loss if such Bath common stock is a capital
asset in the hands of the shareholder. If the Bath common stock has been held
for more than one year, the gain or loss will be long-term. Capital gains
recognized by an exchanging individual shareholder generally will be subject
to tax at capital gain rates applicable to the shareholder (up to a maximum of
39.6% for short-term capital gains and 20% for long-term capital gains), and
capital gains recognized by an exchanging corporate shareholder generally will
be subject to tax at a maximum rate of 35%.
Neither Financial Institutions nor Bath has requested or will request a
ruling from the Internal Revenue Service as to any of the tax effects to
Bath's shareholders of the transactions discussed in this proxy statement, and
no opinion of counsel has been or will be rendered to Bath's shareholders with
respect to any of the tax effects of the merger to shareholders.
The federal income tax discussion set forth above is based upon current
law and is intended for general information only. You are urged to consult
your tax advisor concerning the specific tax consequences of the merger to
you, including the applicability and effect of state, local or other tax
29
laws and of any proposed changes in those tax laws and the Internal Revenue
Code.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of
accounting. Under this method of accounting, Financial Institutions and Bath
will be treated as one company as of the date of the merger, and Financial
Institutions will record the fair market value of Bath's assets less
liabilities on its financial statements. Acquisition costs in excess of the
fair values of the net assets acquired, if any, will be recorded as an
intangible asset and amortized for financial accounting purposes. The
reported income of Financial Institutions will include our operations after
the completion of the merger.
Who Pays for What
All out-of-pocket costs and expenses incurred in connection with the
merger (including, but not limited to, counsel fees) shall be paid by the
party incurring such costs and expenses.
CERTAIN RELATED AGREEMENTS
Shareholders' Agreement
In connection with the execution of the merger agreement, each of the
members of our Board of Directors entered into a shareholders' agreement with
Financial Institutions and its acquisition subsidiary. The following summary
of the shareholders' agreement is qualified in its entirety by reference to
the shareholders' agreement. Execution of the shareholders' agreement is a
condition to the parties effecting the merger agreement.
Under the terms of the shareholders' agreement, each director agrees,
with respect to all shares of Bath common stock that he or she beneficially
owns (except shares with respect to which the director exercises control in a
fiduciary capacity), to:
* vote in favor of the merger at any meeting of our shareholders
called to vote on the merger,
* vote against any other merger agreement, merger (other than with
Financial Institutions), consolidation, combination, share
exchange, sale of substantial assets, reorganization,
recapitalization, dissolution, liquidation or winding up of Bath
at any meeting of our shareholders called to vote on such matters,
or agree to take any action inconsistent with the foregoing,
* vote against any amendment to our certificate of incorporation or
by-laws or any other proposal that may impede, frustrate, prevent,
hinder, delay or nullify the merger, or agree to take any action
inconsistent with the foregoing,
* not give, offer, sell, transfer, assign, pledge or otherwise
dispose of such shares of Bath common stock prior to the effective
time of the merger, or enter into any arrangement for such
purposes, or enter into any other voting arrangement, and
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* grant an irrevocable proxy to the chief executive office of
Financial Institutions
Under the terms of the shareholders' agreement, each director waives his
appraisal rights under New York law.
Stock Option Agreement
The following is a summary of the material provisions of the stock
option agreement between Financial Institutions and Bath, which is included as
Appendix D to this proxy statement. The following summary is qualified in its
entirety by reference to the stock option agreement. Execution of the stock
option agreement was a condition to the parties effecting the merger
agreement.
Concurrently with the execution of the merger agreement, Financial
Institutions and Bath entered into a stock option agreement that permits
Financial Institutions, under certain circumstances, to purchase 196,000
shares of Bath's common stock, which represents approximately 15% of our
outstanding shares of common stock before giving effect to the exercise of the
entire option. The exercise price of the option is $37.00 per share. If the
stock option is exercised, the stock option agreement provides that the total
value of the option will be equal to $3.0 million. In the event that the
value determined for the stock option is less than $3.0 million upon its
exercise, we would have to make an additional cash payment to Financial
Institutions. If the determined value of the stock option would exceed $3.0
million, Financial Institutions or its successor would not be able to fully
exercise the option. We may be required under certain circumstances to
repurchase the option or the shares acquired upon exercise of the option. The
stock option agreement is designed to enhance the likelihood that the merger
will be successfully consummated in accordance with the terms contemplated by
the merger agreement and Financial Institutions insisted on such agreement for
that reason.
Financial Institutions may only exercise the option (assuming it is not
in material breach of its representations, warranties or agreements contained
in the merger agreement) upon the occurrence of a "triggering event," which
means a person, other than Financial Institutions or any subsidiary, acquires
beneficial ownership of 20% or more of Bath's outstanding common stock.
If the triggering event has not yet occurred, the stock option agreement
will terminate:
* immediately prior to the effective time of the merger,
* 12 months after the first occurrence of the triggering event
discussed above,
* upon termination of the merger agreement according to its terms,
unless the merger agreement is terminated by Financial
Institutions due to a willful breach of the merger agreement by
Bath, or
* 18 months after the termination of the merger agreement if it is
terminated by Financial Institutions due to a willful breach of
the merger agreement by Bath.
The existence of the stock option agreement could significantly increase
the cost to a potential acquiror of acquiring Bath compared to its cost had
the stock option agreement not been entered into. Consequently, certain
aspects of the stock option agreement may have the effect of discouraging
persons who might be interested in acquiring all of or a significant interest
in Bath from considering or proposing
31
such an acquisition. Moreover, Bath's management believes that the exercise of
the option granted under the stock option agreement is likely to prohibit any
acquiror from accounting for an acquisition of Bath using the pooling-of-
interests accounting method (assuming pooling treatment is still available)
for a period of two years following such exercise. Consequently, the existence
of the stock option agreement may deter significantly, or completely prevent an
acquisition of Bath by certain other companies. The Bath Board took this factor
into account before approving the stock option agreement.
ADJOURNMENT OF THE SPECIAL MEETING
Each proxy solicited requests authority to vote for an adjournment of
the special meeting, if an adjournment is deemed to be necessary. We may seek
an adjournment of the special meeting so that we can solicit additional votes
in favor of the merger agreement if the merger proposal has not received the
requisite vote of shareholders at the special meeting and has not received the
negative votes of the holders of a majority of our stock. If we desire to
adjourn the meeting, we will request a motion that the meeting be adjourned
with respect to the merger proposal (and solely with respect to the merger
proposal, provided that a quorum is present at the special meeting), and no
vote will be taken on the merger proposal at the originally scheduled special
meeting. The time and place to which the special meeting is adjourned will be
announced at the special meeting. Each proxy solicited, if properly signed
and returned to us and not revoked prior to its use, will be voted on any
motion for adjournment in accordance with the instructions contained therein.
If no contrary instructions are given, each proxy received will be voted in
favor of any motion to adjourn the meeting. Unless revoked prior to its use,
any proxy solicited for the special meeting will continue to be valid for any
adjourned meeting, and will be voted in accordance with instructions contained
therein, and if no contrary instructions are given, for the proposal in
question.
Any adjournment will permit us to solicit additional proxies and will
permit a greater expression of the shareholders' views with respect to the
merger proposal. The adjournment would be disadvantageous to shareholders who
are against the merger agreement because an adjournment will give us
additional time to solicit favorable votes and thus increase the chances of
passing the merger proposal.
If a quorum is not present at the special meeting, no proposal will be
acted upon and our Board of Directors will adjourn the special meeting to a
later date to solicit additional proxies on each of the proposals being
submitted to shareholders.
If the time and place to which the special meeting is adjourned are
announced at the special meeting, the adjournment will not require either the
setting of a new record date or notice of the adjourned meeting as in the case
of an original meeting. We have no reason to believe that an adjournment of
the special meeting will be necessary at this time.
Because the Board of Directors recommends that shareholders vote "FOR"
the proposed merger agreement, the Board of Directors also recommends that
shareholders vote "FOR" the possible adjournment of the special meeting on the
merger proposal. Approval of the proposal to adjourn the special meeting on
the merger proposal requires the approval of a majority of the votes cast on
the adjournment proposal.
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BENEFICIAL OWNERSHIP OF BATH COMMON STOCK
Shareholders of record as of the close of business on __________, 2000
will be entitled to one vote for each share of our common stock then held. As
of that date, we had 1,303,757 shares of common stock issued and outstanding.
The following table sets forth information regarding the share ownership of:
* each member of our Board of Directors, and
* all of our and Bath National Bank's directors and executive
officers as a group.
[We do not know of any persons who beneficially own more than 5% of our
outstanding common stock.]
Shares Beneficially Percent of
Name of Beneficial Owner Owned(1) Class
-------------------------------------------------------------------------------
Directors:
Laverne H. Billings 7,070 *
Theodore P. Capron 2,400 *
Robert H. Cole 15,653 1.20
Herbert Fort 842 *
Edward C. Galpin 7,909 *
Lisle E. Hopkins 10,969 *
Lawrence C. Howell 2,955 *
Constance Manikas 1,020 *
Douglas L. McCabe 2,423 *
Joseph F. Meade, Jr. 12,000 *
Freeman H. Smith, III 12,000 *
Patrick Sullivan 10,314 *
Alan J. Wilcox 700 *
All directors and executive officers of
Bath and Bath National Bank as a group
(15 persons) 92,908 7.13
_______________________
* Amount beneficially owned is less than 1% of the common stock issued and
outstanding.
(1) Based upon filings made pursuant to the Securities Exchange Act of 1934,
as amended, and information furnished by the respective individuals.
Under regulations promulgated pursuant to the Exchange Act, shares of
common stock are deemed to be beneficially owned by a person if he or
she directly or indirectly has or shares (a) voting power, which
includes the power to vote or to direct the voting of the shares, or (b)
investment power, which includes the power to dispose or to direct the
disposition of the shares. Unless otherwise indicated, the named
beneficial owner has sole (or shares with spouse or other immediate
family members) voting and dispositive power with respect to the shares.
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SHAREHOLDER PROPOSALS
If the merger is not consummated prior to the next regularly scheduled
annual meeting of our shareholders, any proposal which a shareholder wishes to
have included in our proxy materials for the next annual meeting of
shareholders must have been received at our main office located at 44 Liberty
Street, Bath, New York 14810, attention: Lisle E. Hopkins, Secretary, no later
than December 20, 2000. [No proposals were received by such date.] If a
notice of a shareholder proposal intended to be presented at the annual
meeting is received by us after December 20, 2000, the persons authorized
under our management proxies may exercise discretionary authority to vote or
act on such proposal if the proposal is raised at the annual meeting. Nothing
in this paragraph shall be deemed to require us to include in our proxy
statement or the proxy relating to any annual meeting any shareholder proposal
which does not meet all of the requirements for inclusion established by the
SEC in effect at the time such proposal is received. In addition, all
shareholder proposals must also comply with our bylaws and New York law.
OTHER MATTERS
Each proxy solicited also confers discretionary authority on our Board
of Directors to vote the proxy with respect to the approval of the minutes of
the last meeting of shareholders, matters incident to the conduct of the
meeting, and upon such other matters as may properly come before the special
meeting. Our Board of Directors is not aware of any business to come before
the special meeting other than those matters described above in this proxy
statement. However, if any other matter should properly come before the
special meeting, it is intended that proxy holders will act in accordance with
their best judgment.
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 2, 2000
AMONG
FINANCIAL INSTITUTIONS, INC.,
FI SUBSIDIARY I, INC.
AND
BATH NATIONAL CORPORATION
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of
November 2, 2000, by and among FINANCIAL INSTITUTIONS, INC.
("Parent"), a New York corporation, FI SUBSIDIARY I, INC.
("Merger Subsidiary"), a New York corporation and a wholly-owned
subsidiary of Parent, and BATH NATIONAL CORPORATION (the
"Company"), a New York corporation.
WHEREAS, the respective Boards of Directors of Parent,
Merger Subsidiary and the Company have approved the merger of the
Merger Subsidiary with and into the Company (the "Merger"), upon
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises
and the representations, warranties and agreements contained
herein the parties hereto agree as follows:
ARTICLE I
The Merger
Section 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement, at the Effective Time (as defined
in Section 1.3), Merger Subsidiary shall be merged with and into
the Company and the separate existence of Merger Subsidiary shall
thereupon cease, and the Company shall continue as the surviving
corporation in the Merger (the "Surviving Corporation") under the
name Bath National Corporation, as a subsidiary of Parent.
Following the consummation of the Merger, it is anticipated that
the Surviving Corporation will be merged into the Parent, leaving
Bath National Bank as a direct subsidiary of the Parent.
Section 1.2 Closing. Subject to the satisfaction or waiver
of the conditions set forth in Article VIII, the closing of the
Merger will take place as promptly as practicable (and in any
event within ten business days) after satisfaction or waiver of
the conditions set forth in Sections 8.1(a), 8.1(b) and 8.3(d),
at the offices of Nixon Peabody LLP, Rochester, New York, unless
another date, time or place is agreed to in writing by the
parties hereto (the "Closing Date") unless this Agreement shall
have been terminated and the transactions herein contemplated
shall have been abandoned pursuant to Section 9.1. It is
anticipated that the Closing Date will occur prior to April 30,
2001.
Section 1.3 Effective Time of the Merger. The Merger shall
become effective upon the filing of a certificate of merger
("Certificate of Merger") pursuant to and in compliance with this
Agreement and Section 907 of Business Corporation Law of the
State of New York (the "New York Law") with the Secretary of
State of the State of New York. When used in this Agreement, the
term "Effective Time" shall mean the time at which the
Certificate of Merger has been filed and become effective in
accordance with New York Law.
Section 1.4 Effect of the Merger. The Merger shall, from
and after the Effective Time, have all the effects provided by
applicable New York Law. If at any time after the Effective Time
the Surviving Corporation shall consider or be advised that any
further deeds, conveyances, assignments or assurances in law or
any other acts are necessary, desirable or
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proper to vest, perfect or confirm, of record or otherwise, in
the Surviving Corporation, the title to any property or rights of
Merger Subsidiary or the Company to be vested in the Surviving
Corporation, by reason of, or as a result of, the Merger, or
otherwise to carry out the purposes of this Agreement, the
Company and the Merger Subsidiary agree that the Surviving
Corporation and its proper officers and directors shall execute
and deliver all such deeds, conveyances, assignments and
assurances in law and do all things necessary, desirable or
proper to vest, perfect or confirm title to such property or
rights in the Surviving Corporation and otherwise to carry out
the purposes of this Agreement, and that the proper officers and
directors of the Surviving Corporation are fully authorized in
the name of each of the Company and the Merger Subsidiary or
otherwise to take any and all such action.
Section 1.5 Modifications of Structure. Notwithstanding
any provision of this Agreement to the contrary, Parent, with the
prior written consent of the Company, which consent shall not be
unreasonably withheld, may elect, subject to the filing of all
necessary applications and the receipt of all required regulatory
approvals, to modify the structure of the transactions
contemplated hereby so long as (i) there are no material adverse
federal income tax consequences to the shareholders of the
Company as a result of such modification, (ii) the consideration
to be paid to holders of Company Common Stock (as defined below)
under this Agreement is not thereby changed in kind or reduced in
amount solely because of such modification and (iii) such
modification will not be likely to materially delay or jeopardize
receipt of any required regulatory approvals or impair or prevent
the satisfaction of any conditions to the Effective Time.
Section 1.6 Dissenters' Rights. Notwithstanding any other
provision of this Agreement to the contrary, shares of the
Company Common Stock (as defined below) that are outstanding
immediately prior to the Effective Time and that are held by
shareholders who shall have not voted in favor of the Merger or
consented thereto in writing and who properly shall have
delivered to the Company written demand for appraisal of the fair
value of such shares in accordance with New York Law
(collectively, the "Dissenters' Shares") shall not be converted
into or represent the right to receive the Merger Consideration.
Such shareholders instead shall be entitled to receive payment of
the fair value of such shares held by them in accordance with the
provisions of New York Law, except that all Dissenters' Shares
held by shareholders who shall have failed to perfect or who
effectively shall have withdrawn or otherwise lost their
Dissenters' Rights under New York Law shall thereupon be deemed
to have been converted into and to have become exchangeable, as
of the Effective Time, for the right to receive, without any
interest thereon, the Merger Consideration in the manner provided
in Section 3.1 below. The Company shall give Parent (i) prompt
notice of any written demands for appraisal of the fair value of
any shares of Common Stock, attempted withdrawals of such demands
and any other instruments served pursuant to New York Law and
received by the Company relating to shareholders' rights of
appraisal, and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under New
York Law. The Company shall not, except with the prior written
consent of Parent, voluntarily make any payment with respect to,
or settle or offer to settle, any such demand for appraisal.
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ARTICLE II
The Surviving Corporation
Section 2.1 Certificate of Incorporation. At the Effective
Time, the Certificate of Incorporation of the Company shall be
amended and restated to read substantially in the form of the
Certificate of Incorporation of the Merger Subsidiary as in
effect immediately prior to the Effective Time and shall be the
Certificate of Incorporation of the Surviving Corporation after
the Effective Time, until thereafter changed or amended as
provided therein or by applicable law.
Section 2.2 By-laws. At the Effective Time, the By-laws of
the Surviving Corporation shall be amended and restated to read
substantially in the form of the By-laws of the Merger Subsidiary
as in effect immediately prior to the Effective Time until
thereafter changed or amended as provided therein or by
applicable law.
Section 2.3 Board of Directors; Officers. The persons
and/or categories of persons listed on Schedule 2.3 as directors
and officers shall be the directors and officers of the Surviving
Corporation immediately after the Effective Time and the persons
listed on Schedule 2.3 shall hold the offices set forth after
their respective names in the Surviving Corporation immediately
after the Effective Time, in each case, until the earlier of
their respective resignations or the time that their respective
successors are duly elected or appointed and qualified.
ARTICLE III
Conversion of Shares
Section 3.1 Merger Consideration. As of the Effective
Time, by virtue of the Merger and without any action on the part
of any shareholder of the Company or Merger Subsidiary:
(a) Subject to the provisions of this Agreement, each
of the 1,303,857 issued and outstanding shares of Common Stock,
par value $5.00, of the Company (the "Company Common Stock") as
of the Effective Time shall be cancelled and by operation of law
be converted into and represent the right to receive from the
Parent, $48.00 in cash (the "Merger Consideration"). As of the
Effective Time, each share of Company Common Stock held by the
Company as treasury stock shall be cancelled and retired without
any consideration being paid or exchanged therefor.
(b) Subject to the provisions of this Agreement, at
the Effective Time the shares of the common stock of Merger
Subsidiary outstanding immediately prior to the Merger shall be
converted, by virtue of the Merger and without any action on the
part of the holder thereof, into one hundred shares of the common
stock of the Surviving Corporation, par value of $.01 per share,
which one hundred shares of the Surviving Corporation Common
Stock shall constitute all of the issued and outstanding capital
stock of the Surviving Corporation and shall be owned by Parent.
3.2 Shareholders' Rights at the Effective Time. On and
after the Effective Time, the certificates that immediately prior
to the Effective Time represented shares of the Company Common
Stock (the "Certificates") shall cease to represent any rights
with respect to the
A-3
Company and shall only represent the right to receive the Merger
Consideration provided in Section 3.1(a) and Holders of
certificates theretofore evidencing shares of Company
Common Stock shall cease to have any rights as shareholders of
the Company, except as provided herein or by law.
3.3 Surrender and Exchange of Share Certificates.
(a) Prior to the Effective Time, the Parent shall
deposit, or shall cause to be deposited, in a segregated account
with a bank or trust company selected by the Parent and
reasonably acceptable to the Company for the benefit of the
Holders of shares of Company Common Stock, for payment in
accordance with this Section 3.3, an amount of cash sufficient to
pay the aggregate Merger Consideration to be paid pursuant to
Section 3.1.
(b) On the Closing Date, or within three Business Days
thereafter, Parent or its agent shall cause to be mailed to each
person who was a Holder of record of shares of the Company Common
Stock immediately prior to the Effective Time: (i) a letter of
transmittal (the "Letter of Transmittal"), and (ii) instructions
for use in effecting the surrender of the Certificates nominally
representing the Company Common Stock in exchange for cash
payable pursuant to Section 3.2.
(c) After the Effective Time, each Holder of a
Certificate ("Holder") shall surrender and deliver such
Certificate to Parent or its agent together with a duly completed
and executed Letter of Transmittal. Letters of Transmittal shall
be mailed no later than three (3) Business Days after the Closing
Date, and blank form Letters of Transmittal will be made
available for pickup at the main office of the Company. Within
three business days after receipt of a duly completed and
executed Letter of Transmittal, together with the related
Certificate or an affidavit and indemnity bond as provided in
Section 3.3(e) hereof, Parent shall pay or cause to be paid to
the Holder of such Certificate the Merger Consideration for each
share of Company Common Stock previously evidenced by such
certificate. Payment shall be made by good bank check mailed by
first class mail to the Holder at the address specified in the
transmittal letter. Upon such surrender and delivery, the Holder
shall receive a check representing the Merger Consideration
payable in respect of Company Common Stock pursuant to Section
3.2. Until so surrendered and exchanged, each Certificate
formerly representing outstanding shares of Company Common Stock
shall after the Effective Time be deemed for all purposes to
evidence only the right to receive the Merger Consideration as
provided in Section 3.2.
(d) At the Effective Time, the stock transfer books of
the Company shall be closed and no transfer of shares of Company
Common Stock shall be made thereafter, other than transfers of
shares of Company Common Stock that have occurred prior to the
Effective Time. In the event that, after the Effective Time,
certificates are presented for transfer to the transfer agent for
the Company, the Merger Subsidiary or Parent, they shall be
delivered to Parent or its agent and exchanged for the Merger
Consideration payable pursuant to Section 3.2. Upon proper
surrender of a Certificate for exchange and cancellation to the
Parent or its agent, together with such properly completed Letter
of Transmittal, duly executed, the Holder of such Certificate
shall be entitled to receive in exchange therefor, the Merger
Consideration, and the Certificate so surrendered shall forthwith
be cancelled. No interest shall accrue or be paid on the Merger
A-4
Consideration payable upon the surrender of any Certificate for
the benefit of the Holder of such Certificate.
(e) Neither the Company, Merger Subsidiary or Parent
shall be liable to any Holder of shares of Company Common Stock
with respect to any funds delivered to a public official pursuant
to any applicable abandoned property, escheat or similar law,
rule, regulation, statute, order, judgment or decree.
(f) In the event any Certificates shall have been
lost, stolen or destroyed, Parent shall pay the amount specified
in Section 3.1(a) to which the person claiming that his or her
Certificates have been lost, stolen or destroyed is entitled in
exchange for such lost, stolen or destroyed Certificates upon the
making of an affidavit of that fact by such person and the
delivery of a bond or other security, in an amount not to exceed
the applicable Merger Consideration, as Parent may reasonably
require.
Section 3.4 Proxy Statement.
(a) For purposes of holding the meeting of the Company
shareholders to approve the Merger (the "Company Proposal"), the
Company will prepare a proxy statement satisfying in all material
respects all requirements of applicable Law, including without
limitation the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Securities and Exchange
Commission (the "SEC") thereunder (the "Exchange Act"). Such
proxy statement in the form mailed by the Company to its
shareholders, together with any and all amendments or supplements
thereto, is herein referred to as the "Proxy Statement."
(b) The Company agrees that none of the information
relating to the Company and its Subsidiaries to be included in
the Proxy Statement, as of the date(s) such Proxy Statement is
mailed to shareholders of the Company and up to and including the
date(s) of the meeting of shareholders to which such Proxy
Statement relates, will 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 under which
they were made, not misleading, provided that information as of a
later date shall be deemed to modify information as of an earlier
date. The Proxy Statement mailed by the Company to its
shareholders in connection with the meetings of shareholders at
which this Agreement will be considered by such shareholders will
comply as to form in all material respects with the Exchange Act
and the rules and regulations promulgated thereunder. The
Company agrees promptly to advise Parent if, at any time prior to
the meeting of the shareholders of the Company referenced herein,
any information provided by it in the Proxy Statement is or
becomes incorrect or incomplete in any material respect and to
provide Parent with the information needed to correct such
inaccuracy or omission. Company concurrently will furnish its
shareholders with such supplemental information as may be
necessary in order to cause the Proxy Statement to comply with
applicable law after the mailing thereof to the shareholders of
the Company. The Company will provide Parent the opportunity to
review and comment on the draft Proxy Statement, but Parent will
assume no responsibility for its adequacy or compliance with
applicable laws and regulations, other than with respect to
material provided by the Parent or its representatives to the
Company in writing specifically for inclusion in the Proxy
Statement.
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(c) The Company will make any preliminary filings of
the Proxy Statement with the SEC as promptly as reasonably
practicable, pursuant to Rule 14a-6 under the Securities Exchange
Act, and shall, with the Parent's cooperation, respond to any
comments with respect thereto received from the SEC.
(d) The Company shall mail the Proxy Statement to its
shareholders and hold the Company's shareholder meeting to vote
on the Merger proposal as promptly as reasonably practicable.
ARTICLE IV
Representations and Warranties of the Company
The Company represents and warrants to Parent and Merger
Subsidiary that, except as disclosed in the Disclosure Schedule
which has been delivered to Parent prior to the execution of this
Agreement (the "Disclosure Schedule"):
Section 4.1 Organization and Qualification.
(a) The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New York. Each of the Company and its Subsidiaries has the
requisite corporate power and authority to carry on its business
as it is now being conducted and is duly qualified or licensed to
do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the
nature of its activities makes such qualification necessary. The
Company has heretofore made available to Parent and Merger
Subsidiary a complete and correct copy of the Certificate of
Incorporation and By-laws or comparable organizational documents,
each as amended to the date hereof, of the Company and each of
its Subsidiaries. The Company is a bank holding company
registered with the Federal Reserve Board under the BHCA.
Neither the Company nor any of its Subsidiaries are in violation
of any provision of its Certificate of Incorporation or By-Laws.
(b) Bath National Bank (the "Bank") is a national bank
organized, validly existing and in good standing under the laws
of the United States. The deposits of the Bank are insured by
the FDIC through the BIF to the fullest extent permitted by law,
and all premiums and assessments required to be paid in
connection therewith have been paid when due by the Company.
Each other Company Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization. BNC Financial
Services and its employees have all licenses required in order to
conduct the business as presently conducted.
(c) The Bank is a member in good standing of the FHLB
of New York and owns the requisite amount of stock therein.
(d) Except as disclosed in the Disclosure Schedule,
the respective minute books of the Company and each Subsidiary
accurately records in all material respects, all material
corporate actions of their respective shareholders and boards of
directors (including committees) through the date of this
Agreement.
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Section 4.2 Capitalization.
(a) The authorized capital stock of the Company
consists of 1,500,000 shares of Common Stock $5.00 par value per
share and 300,000 shares of Preferred Stock, $10.00 par value per
share. 1,303,857 shares of Company Common Stock are validly
issued and outstanding, fully paid and non-assessable and 61,944
shares of common stock are held by the Company as treasury
shares. No shares of Company's Preferred Stock have been issued
or are outstanding. There are no bonds, debentures, notes or
other indebtedness issued or outstanding having general voting
rights with respect to the Company. Except as contemplated by
this Agreement, there are no options, warrants, calls or other
rights, agreements or commitments presently outstanding
obligating the Company to issue, deliver or sell shares of its
capital stock, or obligating the Company to grant, extend or
enter into any such option, warrant, call or other such right,
agreement or commitment other than the Stock Option Agreement
dated even date herewith and attached as Exhibit A hereto (the
"Lockup Option").
(b) All the outstanding shares of capital stock of
each Subsidiary of the Company are validly issued, fully paid and
non-assessable and, except for shares of preferred stock of Bath
United Home, Inc., are owned by the Company or by a wholly-owned
Subsidiary of the Company, free and clear of any Liens. There
are no existing options, warrants, calls or other rights,
agreements or commitments of any character relating to the sale,
issuance or voting of any shares of the issued or unissued
capital stock of any of the Subsidiaries of the Company which
have been issued, granted or entered into by the Company or any
of its Subsidiaries. The Subsidiaries of the Company are listed
in Section 4.2 of the Disclosure Schedule.
(c) Except as set forth on the Disclosure Schedule,
other than its Subsidiaries, the Company does not own or control,
directly or indirectly, a greater than 10% equity interest in any
corporation, company, association, partnership, joint venture or
other entity. The Company has no obligation to acquire any
additional equity interests in any entity.
(d) The authorized capital stock of the Bank consists
of 100,000 shares of Common Stock, par value $10.00 per share
("Bank Common Stock") and no shares of preferred stock. As of
the date hereof, (i) 100,000 shares of Bank Common Stock are
issued and outstanding, all of which are owned directly or
indirectly by the Company, all of which are duly authorized,
validly issued, fully paid, non-assessable and free of preemptive
rights, with no personal liability attaching to the ownership
thereof, (ii) no shares of Bank Common Stock are held in the
treasury of the Bank, and (iii) no shares of Bank Common Stock
are held by any of the Company's Subsidiaries. Each share of
Bank Common Stock owned by the Company or any of its Subsidiaries
is free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal, agreements,
limitations on the Company's or any of its Subsidiaries' voting
rights, charges and other encumbrances of any nature whatsoever.
Section 4.3 Authority Relative to this Agreement. The
Company has the necessary corporate power and authority to
execute and deliver this Agreement and, subject to approval of
this Agreement and the transactions contemplated hereby by the
Holders of the Company Common Stock, to consummate the
transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions
contemplated hereby by the Company have been duly and validly
authorized and approved by the Company's Board of
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Directors and no other corporate proceedings on the part of the Company
are necessary to authorize or approve this Agreement or to consummate
the transactions contemplated hereby (other than, with respect to
the Merger, the approval of this Agreement by the necessary vote
of the shareholders of the Company). This Agreement has been
duly executed and delivered by the Company, and assuming the due
authorization, execution and delivery by Parent and Merger
Subsidiary, and subject to the stockholder approval referred to
in the preceding sentence, constitutes the valid and binding
obligation of the Company enforceable against the Company in
accordance with its terms except as such enforceability may be
limited by general principles of equity or principles applicable
to creditors' rights generally.
Section 4.4 No Conflicts, Required Filings and Consents.
(a) None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or compliance by the Company
with any of the provisions hereof will (i) subject to approval by
the Company's shareholders referred to in Section 4.3, conflict
with or violate the Certificate of Incorporation or By-laws of
the Company or the comparable organizational documents of any of
the Company's Subsidiaries, (ii) subject to receipt or filing of
the required Consents referred to in Section 5.4(b), result in a
Violation of any statute, ordinance, rule, regulation, order,
judgment or decree applicable to the Company or any of the
Company's Subsidiaries (a "Violation"), or by which any of them
or any of their respective properties or assets may be bound or
affected, or (iii) subject to receipt or filing of the required
Consents referred to in Section 5.4(b), result in a Violation
pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument
or obligation to which the Company or any of the Company's
Subsidiaries is a party or by which the Company or any of the
Company's Subsidiaries or any of their respective properties may
be bound or affected.
(b) None of the execution and delivery of this
Agreement by the Company, the consummation by the Company of the
transactions contemplated hereby or compliance by the Company
with any of the provisions hereof will require any Consent of any
Regulatory Authority to be received by the Company, except for
(i) compliance with any applicable requirements of the Exchange
Act, (ii) the filing of the Certificate of Merger pursuant to New
York Law, (iii) certain state takeover and securities statutes,
and (iv) bank regulatory approvals. The Company has no reason
to believe that (i) any required Consents or approvals will not
be received, or that (ii) any public body or authority, including
the United States Environmental Protection Agency or the New York
State Department of Environmental Conservation the consent or
approval of which is not required or any filing which is not
required, will object to the completion of the transactions
contemplated by this Agreement.
Section 4.5 Reports and Financial Statements.
(a) Since January 1, 1996, the Company has filed with
the SEC all forms, reports, schedules, registration statements
and definitive proxy statements (the "Company SEC Reports")
required to be filed by it with the SEC. As of their respective
dates, the Company SEC Reports complied as to form with the
requirements of the Exchange Act or the Securities Act, as the
case may be, and in all material respects with the rules and
regulations of the SEC thereunder applicable to such Company SEC
Reports. As of their respective dates and as of the date any
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information from such Company SEC Reports has been incorporated
by reference, the Company SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading. The Company has filed all contracts,
agreements and other documents or instruments required to be
filed as exhibits to the Company SEC Reports.
(b) The consolidated statements of financial condition
of the Company as of December 31, 1999 and 1998 and the related
consolidated statements of income, shareholders' equity and cash
flows for each of the three years in the period ended
December 31, 1999 (including the related notes and schedules
thereto) contained in the Company's Form 10-K for the year ended
December 31, 1999 present fairly the consolidated financial
position and the consolidated results of operations and cash
flows of the Company and its consolidated Subsidiaries as of the
dates or for the periods presented therein in conformity with
United States generally accepted accounting principles ("GAAP")
applied on a consistent basis during the periods involved except
as otherwise noted therein, including in the related notes.
(c) The consolidated condensed statements of financial
condition and the related statements of income and cash flows
(including, in each case, the related notes thereto) of the
Company contained in the Form 10-Q for the quarterly periods
ended March 31, 2000, June 30, 2000 and September 30, 2000 (the
"Quarterly Financial Statements") have been prepared in
accordance with the requirements for interim financial statements
contained in Regulation S-X. The Quarterly Financial Statements
reflect all adjustments necessary to present fairly in accordance
with GAAP, the consolidated financial position, results of
operations and cash flows of the Company for all periods
presented therein, except as otherwise noted thereon including in
the related notes.
Section 4.6 Information. None of the information supplied
or to be supplied by the Company for inclusion or incorporation
by reference in the definitive Proxy Statement will, at the time
of filing with the SEC, at the time of the mailing of the Proxy
Statement or any amendments or supplements thereto to the
Company's shareholders or at the time of the Company's
stockholder meeting to approve this Agreement, 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. The Proxy Statement will comply
as to form with the applicable provisions of the Exchange Act and
the rules and regulations thereunder.
Section 4.7 Litigation. Except as set forth on the
Disclosure Schedule, there is no suit, action or proceeding
pending or, to the Knowledge of the Company, threatened against
or affecting the Company or any of its Subsidiaries, nor is there
any judgment, decree, injunction or order of any Governmental
Entity or arbitrator outstanding against the Company or any of
its Subsidiaries. The Company has furnished to the Parent copies
of all attorney responses to the request of the independent
auditors for the Company and its Subsidiaries in so far as they
relate to loss contingencies of the Company and its Subsidiaries
for the period from December 31, 1995 to September 30, 2000 and a
written list of, and documents relating to, all claims, suits,
actions, proceedings or investigations pending against the
Company or any of its Subsidiaries.
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Section 4.8 Absence of Certain Changes or Events. Except
as disclosed on the Disclosure Schedule, or as contemplated by
this Agreement, since September 30, 2000, the Company has
conducted its business only in the ordinary course, and there has
not been (i) any change that could have a Material Adverse
Effect, (ii) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock, or,
any redemption, purchase or other acquisition of any of its
capital stock, (iii) any split, combination or reclassification
of any of the Company's capital stock or, except with respect to
the Lockup Option, any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in
substitution for shares of the Company's capital stock, any
granting by the Company or any of its Subsidiaries to any officer
of the Company of any increase in compensation, except in the
ordinary course of business consistent with prior practice or as
required under employment or severance agreements in effect as of
December 31, 1999, any granting by the Company or any of its
Subsidiaries to any officer of the Company of any increase in
severance or termination pay, except as required under
employment, severance or termination agreements or plans in
effect as of December 31, 1999 or (z) any entry by the Company or
any of its Subsidiaries into any employment, severance or
termination agreement with any officer of the Company, or any
increase in benefits available under or establishment of any
Company Benefit Plan (as defined below) except in the ordinary
course of business consistent with past practice, (v) any damage,
destruction or loss, whether or not covered by insurance, or
(vi) any material change in accounting methods, principles or
practices by the Company.
Section 4.9 Employee Benefit Plans.
(a) The Disclosure Schedule sets forth a complete and
correct list of all employee benefit or compensation plans,
agreements or arrangements, including "employee benefit plans,"
as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and including, but
not limited to, plans, agreements or arrangements relating to
former employees, including, but not limited to, retiree medical
plans or life insurance, sponsored, maintained or contributed to
by the Company or any entity which is considered one employer
with the Company under Section 4001 of ERISA or Section 414 of
the Code (an "ERISA Affiliate") (together such plans, agreements
or arrangements are referred to as the "Company Benefit Plans").
The Company and its ERISA Affiliates have complied with the terms
of all Company Benefit Plans, and no default exists with respect
to the obligations of the Company or any of its ERISA Affiliates
under such Company Benefit Plans.
(b) Each Company Benefit Plan is in writing and the
Company has previously furnished Parent with a true and complete
copy of each Company Benefit Plan document, including all
amendments thereto, and a true and complete copy of each material
document prepared in connection with each such Company Benefit
Plan, including, without limitation, (i) a copy of each trust or
other funding arrangement, (ii) each summary plan description and
summary of material modifications, (iii) the most recently filed
Internal Revenue Service ("IRS") Form 5500, including all
attachments thereto, (iv) the most recently received IRS
determination letter for each such Company Benefit Plan, and (v)
the most recently prepared actuarial report and financial
statement in connection with each such Company Benefit Plan.
Neither the Company nor any ERISA Affiliate has any express or
implied commitment (i) to create or incur liability with respect
to or cause to exist any other employee benefit plan,
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program or arrangement, (ii) to enter into any contract or agreement
to provide compensation or benefits to any individual or (iii) to
modify, change or terminate any Company Benefit Plan, other than
with respect to a modification, change or termination required by
ERISA or the Code.
Section 4.10 ERISA.
(a) Each of the Company Benefit Plans which is
intended to meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), has been
determined by the Internal Revenue Service to be "qualified,"
within the meaning of such Section of the Code and the Company
has no Knowledge of any circumstances which could result in
revocation of such determination. No Company Benefit Plan is
subject to Title IV of ERISA and the Company and its current and
former ERISA Affiliates have never sponsored, maintained or
contributed to an employee benefit plan that is subject to Title
IV of ERISA. There have not been any non-exempt "prohibited
transactions," as such term is defined in Section 4975 of the
Code or Section 406 of ERISA, involving the Company Benefit Plans
which could subject the Company, its ERISA Affiliates or Parent
to the penalty or tax imposed under Section 502(i) of ERISA or
Section 4975 of the Code. Except as disclosed in the Disclosure
Schedule, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
(i) result in any payment (including, without limitation,
severance, unemployment compensation or golden parachute)
becoming due to any director or employee of the Company, (ii)
increase any benefits otherwise payable under any Company Benefit
Plan or (iii) result in the acceleration of the time of payment
or vesting of any such benefits.
(b) No notice of a "reportable event," within the
meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed
for any Company Benefit Plan which is an "employee pension
benefit plan" within the meaning of Section 3(2) of ERISA and
which is intended to meet the requirements of Section 401(a) of
the Code (a "Pension Plan"), or by the Company or any ERISA
Affiliate within the 60-month period ending on the date hereof.
(c) As of the date hereof, neither any Pension Plan
nor any single-employer plan of an ERISA Affiliate has an
"accumulated funding deficiency" (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA.
Neither the Company nor its ERISA Affiliates has provided, or is
required to provide, security to any Pension Plan or to any
single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code. Neither the Company nor any ERISA
Affiliate has incurred any liability under, arising out of or by
operation of Title IV of ERISA), including, without limitation,
any material liability in connection with the termination or
reorganization of any employee pension benefit plan subject to
Title IV of ERISA, and no fact or event exists which could give
rise to any such material liability.
(d) The Company and its ERISA Affiliates are not and
have never been a sponsor or liable with respect to any multi-
employer plan within the meaning of Section 3(37) of ERISA.
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(e) All contributions and premiums required by law or
by the terms of any Company Benefit Plan in which employees of
the Company and its ERISA Affiliates participate or any agreement
relating thereto have been timely made (without regard to any
waivers granted with respect thereto).
(f) Each of the Company Benefit Plans has been
maintained in accordance with its terms, applicable collective
bargaining agreements and all provisions of applicable laws and
regulations. All amendments and actions required to bring each
of such Benefit Plans into conformity in all material respects
with all of the applicable provisions of ERISA and other
applicable laws and regulations have been made or taken except to
the extent that such amendments or actions are not required by
law to be make or taken until a date after the Closing Date.
(g) The liabilities of each Company Benefit Plan or
Pension Plan that has been terminated or otherwise wound up, have
been fully discharged in compliance with applicable law.
(h) Except as set forth on the Disclosure Schedule,
neither the Company nor any ERISA Affiliate maintains a welfare
benefit plan providing continuing benefits after the termination
of employment (other than as required by Section 4980B of the
Code and at the former employee's own expense), and the Company
and each of the ERISA Affiliates have complied in all material
respects with the notice and continuation requirements of
Section 4980B of the Code and the regulations thereunder.
(i) Except as set forth on the Disclosure Schedule, no
payments or benefits under any Company Benefit Plan or other
agreement of the Company will be considered an excess parachute
payments under Section 280G of the Code or trigger a limitation
on the ability of the Company to take a deduction under Section
162(m) of the Code.
(j) There has been no violation of ERISA with respect
to the filing of applicable returns, reports, documents and
notices regarding any of the Company Benefit Plans with the
Secretary of Labor or the Secretary of the Treasury or the
furnishing of such notices or documents to the participants or
beneficiaries of the Company Benefit Plans which, either
individually or in the aggregate, could result in a Material
Adverse Effect on the Company.
(k) There are no pending legal proceedings, claims or
administrative actions which have been asserted or instituted
against any of the Company Benefit Plans, the assets of any such
Plans or the Company or any ERISA Affiliate or the plan
administrator or any fiduciary of the Company Benefit Plans with
respect to the operation of such plans.
Section 4.11 Taxes. The Company and its Subsidiaries have
duly filed all material, federal, state and local income,
franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those filed
on a consolidated, combined or unitary basis) required to have
been filed by the Company and its Subsidiaries prior to the date
hereof. All of the foregoing returns and reports are true and
correct in all material respects, and the Company and its
Subsidiaries have paid or, prior to the Effective Time will pay,
all taxes, interest and penalties shown on such returns or
reports as being due or (except to the extent the
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same are contested in good faith) claimed to be due to any federal,
state, local or other taxing authority. The Company has paid and
will pay all installments of estimated taxes due on or before the
Effective Time. All taxes and state assessments and levies which
the Company and its Subsidiaries are required by law to withhold
or collect have been withheld or collected and have been paid to
the proper governmental authorities or are held by the Company
for such payment. The Company and its Subsidiaries have paid or
made adequate provision in accordance with GAAP in the financial
statements of the Company for all taxes payable in respect of all
periods ending on or prior to the date of this Agreement and will
have made or provided for all taxes payable in respect of all
periods ending on or prior to the Closing Date. As of the date
hereof, all deficiencies proposed as a result of any audits have
been paid or settled.
Section 4.12 Compliance with Applicable Laws.
Except as disclosed in the Disclosure Schedule;
(a) The Company and its Subsidiaries hold all
licenses, franchises, permits and authorizations necessary for
the lawful conduct of their respective businesses under, and have
complied in all material respects with, applicable laws,
statutes, orders, rules or regulations of any federal, state or
local governmental authority relating to them.
(b) Neither the Company nor any of its Subsidiaries
has received any notification or communication from any
Regulatory Authority (i) asserting that the Company or any of its
Subsidiaries is not in material compliance with any of the
statutes, regulations or ordinances which such Regulatory
Authority enforces; (ii) threatening to revoke any license,
franchise, permit or governmental authorization; (iii) requiring
or threatening to require the Company or any of its Subsidiaries,
or indicating that the Company or any of its Subsidiaries may be
required to enter into a cease and desist order, agreement or
memorandum of understanding or any other agreement with any
federal or state governmental agency or authority which is
charged with the supervision or regulation of banks, engages in
the insurance of bank deposits restricting or limiting, or
purporting to restrict or limit, in any material respect the
operations of the Company or any of its Subsidiaries, including
without limitation any restriction on the payment of dividends;
or (iv) directing, restricting or limiting, or purporting to
direct, restrict or limit, in any manner the operations of the
Company or any of its Subsidiaries, including without limitation
any restriction on the payment of dividends or in any manner
relates to its capital adequacy, credit policies, management or
overall safety and soundness or such entity's ability to perform
its obligations hereunder, and neither the Company nor any of its
Subsidiaries has received written notification from any such
federal or state governmental entity that any such Person may be
requested to enter into, or otherwise be subject to, any such
commitment, letter, written agreement, memorandum of
understanding or cease and desist order (any such notice,
communication, memorandum, agreement or order described in this
sentence is hereinafter referred to as a "Regulatory Agreement").
Neither the Company nor any of its Subsidiaries is a party to any
commitment, letter (other than letters addressed to regulated
depository institutions generally), written agreement, memorandum
of understanding or order to cease and desist with any federal or
state governmental entity charged with the supervision or
regulation of banks or bank holding companies or engaged in the
insurance of bank deposits which restricts materially the conduct
of its business. The Bank was rated "Satisfactory" or better
following its most recent Community Reinvestment Act examination
by the regulatory
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agency responsible for its supervision. Neither the Bank nor any
of its Subsidiaries has received any notice of and none of such
Persons has any Knowledge of any planned or threatened objection
by any community group to the transactions contemplated hereby.
Section 4.13 Voting Requirements. The affirmative vote of
the Holders of at least two-thirds of the total number of votes
entitled to be cast by the Holders of the Company Common Stock
outstanding as of the record date for the Company's shareholder
meeting to approve this Agreement is the only vote of the Holders
of any class or series of the Company's capital stock or other
securities necessary to be received by the Company in order to
approve this Agreement and the transactions contemplated by this
Agreement.
Section 4.14 Material Contracts.
(a) Except as set forth in any of the Disclosure Schedule
or the index of exhibits in the Company's Annual Report on Form
10-K for the years ended December 31, 1999, 1998 and 1997, except
for this Agreement and the other Related Agreements, neither the
Company nor any of its Subsidiaries is a party to or is bound by
(a) any agreement, arrangement, or commitment that is material to
the financial condition, results of operations or business of the
Company, except those entered into in the ordinary course of
business; (b) any written (or oral, if material) agreement,
arrangement, or commitment relating to the employment, including
without limitation, employment as a consultant of any person or
the election or retention in office or severance of any present
or former director or officer of the Company or any of its
Subsidiaries; (c) any contract, agreement, or understanding with
any labor union; (d) any agreement by and among the Company or
any Subsidiary of the Company; (e) any contract or agreement or
amendment thereto that would be required to be filed as an
exhibit to a Form 10-K filed by the Company prior to the date
hereof that has not been filed as an Exhibit to the Form 10-K
filed by it for 1999; (f) any agreement, arrangement, or
commitment (whether written or oral) which, upon the consummation
of the transactions contemplated by this Agreement, will result
in any payment (whether of severance pay or otherwise) becoming
due from the Company or any of its Subsidiaries to any officer or
employee thereof, (g) any agreement, arrangement or commitment
(whether written or oral) which materially restricts the conduct
of any line of business by the Company or any of its
Subsidiaries, or (h) any agreement, arrangement or commitment
(whether written or oral) (including any stock option plan, stock
appreciation rights plan, restricted stock plan or stock purchase
plan) any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this
Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated
by this Agreement. The Company has previously delivered to the
Parent true and complete copies of all employment, severance,
consulting and deferred compensation agreements which are in
writing and to which the Company or any of its Subsidiaries is a
party. Each contract, arrangement, commitment or understanding
of the type described in this Section, whether or not set forth
in Section 4.14 of the Disclosure Schedule, is referred to herein
as a "Company Contract."
(b) (i) Each Company Contract listed on the Disclosure
Schedule is legal, valid and binding upon the Company or Company
Subsidiary, as the case may be, and in full force and effect,
(ii) the Company and each Company Subsidiary has in all material
respects performed all obligations required to be performed by it
to date under each such Company
A-14
Contract, and (iii) no event or condition exists which constitutes
or, after notice or lapse of time or both, would constitute, a
material default on the part of the Company or any Company Subsidiary
under any such Company Contract other than any such default which
would not have a Material Adverse Effect upon the Company.
Section 4.15 Title to Property. The Company and each of its
Subsidiaries has good and defensible title to all of its real
properties and material assets, free and clear of all Liens,
except liens for taxes not yet due and payable and except for
properties leased or rented by the Company or any of its
Subsidiaries. All leases, easements, licenses, rights of way,
and other rights pursuant to which the Company or any of its
Subsidiaries lease from others or otherwise have the right to use
real or personal property (the "Company Real Property Rights"),
are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, easements,
licenses, and other rights, any existing default or event of
default (or event which with notice or lapse of time, or both,
would constitute a default), other than a default which would not
have a Material Adverse Effect upon the Company. Neither the
Company nor any Subsidiary is a party or is subject to any
Company Real Property Rights that is required to be described in
or filed as an exhibit to any Company SEC Report that is not so
described in or filed as required by the Securities Act or the
Exchange Act, as the case may be. The Company has made available
to Parent true and accurate copies of the Company Real Property
Rights. All such Company Real Property Rights are valid and
binding and are in full force and effect and enforceable against
the Company or its Subsidiaries in accordance with their
respective terms. No Consent of any person is needed in order
that each such Company Real Property Rights shall continue in
full force and effect in accordance with its terms without
penalty, acceleration or rights of early termination by reason of
the consummation of the transactions contemplated by this
Agreement, and neither the Company nor any of its Subsidiaries is
in violation or breach of or default under any such Company Real
Property Rights; nor to the Company's knowledge is any other
party to any such Company Real Property Rights in violation or
breach of or default under any such Company Real Property Rights.
Section 4.16 Intellectual Property.
(a) The Company and its Subsidiaries, directly or
indirectly, own, or are licensed or otherwise possess legally
enforceable rights to use, all patents, trademarks, trade names,
service marks, copyrights and any applications therefor,
technology, know-how and tangible or intangible proprietary
information or material that are material to the business of the
Company and its Subsidiaries (the "Company Intellectual Property
Rights").
(b) Either the Company or one of its Subsidiaries is
the sole and exclusive owner of, or the exclusive or non-
exclusive licensee of, with all right, title and interest in and
to (free and clear of any liens or encumbrances), the Company
Intellectual Property Rights, and, in the case of the Company
Intellectual Property Rights owned by the Company or one of its
Subsidiaries, has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third
party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in
respect of which the Company Intellectual Property Rights are
being used. Except as described in the Disclosure Schedule, no
claims with respect to the Company Intellectual Property Rights
have been asserted or, to the Knowledge of the Company, are
threatened by any person: (i) to the effect that the
manufacture, sale, licensing,
A-15
or use of any of the services or products of the Company or any of
its Subsidiaries as now manufactured, sold or licensed or used or
proposed for manufacture, use, sale or licensing by the Company or
any of its Subsidiaries infringes on any copyright, patent, trade mark,
service mark or trade secret of a third party, (ii) against the
use by the Company or any of its Subsidiaries of any trademarks,
service marks, trade names, trade secrets, copyrights, patents,
technology or know-how and applications used in the business of
the Company and any of its Subsidiaries as currently conducted or
as proposed to be conducted, or (iii) challenging the ownership
by the Company or any of its Subsidiaries or the validity of any
of the Company Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by the Company and
the Subsidiaries are valid and subsisting, except to the extent
any failure does not constitute a Company Material Adverse
Effect. To the Knowledge of the Company, there is no unauthorized
use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any
employee or former employee of the Company or any of its
Subsidiaries. No Intellectual Property Right is subject to any
outstanding decree, order, judgment, or stipulation restricting
in any manner the licensing thereof by the Company or any
Subsidiary. Neither the Company nor any of the Subsidiaries has
entered into any agreement (other than exclusive distribution
agreements) under which the Company or any of the Subsidiaries is
restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic
area, during any period of time or in any segment of the market.
(c) Each of the Company and its Subsidiaries is in
compliance with all material requirements and guidelines
applicable to it as a provider of services using Information
Technology and imposed by any Bank Regulator or the Federal
Financial Institutions Examination Council ("FFIEC"), that
require such Information Technology to be Year 2000 Compliant
(such deadlines, material requirements and guidelines, as they
may be in effect from time to time, being referred to in this
Agreement as the "Year 2000 Regulatory Requirements") and it has
not received any written notice or oral notice from a Regulatory
Authority to one of its officers or senior executive employees
with respect to any adverse action against it relating to Year
2000 Compliance. The Company and its Subsidiaries have
previously made available to Parent copies of all Year 2000
Readiness Statements and other statements that the Company or any
of its Subsidiaries has provided, and currently provides, to
customers, vendors and Regulatory Authorities. As used in this
Agreement, "Year 2000 Ready" shall mean that Information
Technology is designed to be used prior to, during and after the
calendar year 2000 A.D. and such Information Technology will
accurately receive, provide and process date/time data
(including, without limitation, calculating, comparing and
sequencing) from, into and between the twentieth and twenty-first
centuries A.D., and leap year calculations and will not
malfunction, cease to function or provide invalid or incorrect
results as a result of date/time data (including, without
limitation, to the extent that other Information Technology used
in combination with such Information Technology properly
exchanges date/time data with it).
Section 4.17 Interested Party Transactions. Since
December 31, 1999, no event has occurred that would be required
to be reported by the Company pursuant to Item 404 of Regulation
S-K promulgated by the SEC. Except as set forth in Schedule 4.17
of the Disclosure Schedule, neither the Company nor any of its
Subsidiaries is a party to any transaction (including any loan or
other credit accommodation) with any Affiliate of the Company or
any Company Affiliate. All such transactions (a) were made in
the ordinary course of business, (b) were made
A-16
on substantially the same terms, including interest rates andc ollateral,
as those prevailing at the time for comparable transactions with other
Persons, and (c) did not involve more than the normal risk of
collectability or present other unfavorable features. No loan or
credit accommodation to any Affiliate of the Company or any
Company Subsidiary is presently in default or, during the three
year period prior to the date of this Agreement, has been in
default or has been restructured, modified or extended. Neither
the Company nor any Company Subsidiary has been notified that
principal and interest with respect to any such loan or other
credit accommodation will not be paid when due or that the loan
grade classification accorded such loan or credit accommodation
by the Company is inappropriate.
Section 4.18 Undisclosed Liabilities. Except (i) as
disclosed in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (or in any subsequently filed
Company SEC Reports), and (ii) liabilities incurred subsequent to
September 30, 2000 in the ordinary course of business or in
connection with this Agreement, neither the Company nor any of
its Subsidiaries has any liabilities or any obligations of any
nature whether or not accrued, contingent or otherwise, that
would be required by generally accepted accounting principles to
be reflected on the consolidated statement of financial condition
of the Company and its Subsidiaries (including the notes
thereto). No investigation or review by any Governmental Entity
with respect to the Company or any of its Subsidiaries is pending
or, to the Company's best Knowledge, threatened, nor has any such
Governmental Entity indicated an intention to conduct any such
investigation or review.
Section 4.19 Environmental Matters.
(a) Except as set forth in the Disclosure Schedule,
each of the Company and its Subsidiaries and, to the best
Knowledge of the Company, the Loan Properties (each as
hereinafter defined), are, and have been, in compliance with all
applicable environmental laws and with all rules, regulations,
standards and requirements of the United States Environmental
Protection Agency (the "EPA") and of state and local agencies
with jurisdiction over pollution or protection of the
environment, except in each case as have not been or would not be
material.
(b) There is no suit, claim, action or proceeding
pending or, to the best Knowledge of the Company threatened,
before any Governmental Authority or other forum in which the
Company or any of its Subsidiaries has been or, with respect to
threatened proceedings, may be, named as a defendant, responsible
party or potentially responsible party (i) for alleged
noncompliance )including by any predecessor), with any
environmental law, rule, regulation, standard or requirement or
(ii) relating to the release into or presence in the Environment
(as hereinafter defined) or any Hazardous Materials (as
hereinafter defined) or Oil (as hereinafter defined) occurring at
or on a site owned, leased or operated by the Company or any of
its Subsidiaries except in each case as has not been or would not
be material.
(c) To the best Knowledge of the Company, there is no
suit, claim, action or proceeding pending or threatened, before
any Governmental Authority or other forum in which any Loan
Property has been or, with respect to threatened proceedings, may
be, named as a defendant, responsible party or potentially
responsible party (i) for alleged noncompliance (including by any
predecessor) with any environmental law, rule, regulation,
standard or requirement of (ii) relating to the release into or
presence in the Environment of any Hazardous
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Material or Oil whether or not occurring at or on a site owned, leased
or operated as a Loan Property, except in each case as have not been
or would not be material.
(d) Except as set forth in Section 4.19 of the
Disclosure Schedule, neither the Company nor any of its
Subsidiaries, nor to their best Knowledge, any Loan Property, has
received any written notice indicating that there is a
possibility that a suit, claim, action or proceeding as described
in subsection (b) or (c) of this Section 4.19 could be initiated
except in each case as has not been or would not be material. No
facts or circumstances have come to the Company's attention which
have caused it to believe that a material suit claim action or
proceeding as described in subsection (b) or (c) of this Section
4.19 could reasonably be expected to occur.
(e) During the period of (i) the Company's or any of
its Subsidiaries' ownership or operation of any of their
respective current properties or (ii) the Company's or any of its
Subsidiaries' holding of a security interest in a Loan Property,
to the best Knowledge of the Company, there has been no release
or presence of Hazardous Material or Oil in, on, under or
affecting such property or Loan Property, except where such
release or presence is not or would not, either individually or
in the aggregate, be material. To the best 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 properties or any previously owned or operated
properties, or (y) the Company's or any of its Subsidiaries'
holding of a security interest in a Loan Property, there was no
release or presence of Hazardous Material or Oil in, on, under or
affecting any such property or Loan Property, except where such
release or presence is not or would not, either individually or
in the aggregate, be material.
(f) Neither the Company nor any of its Subsidiaries is
an owner or operator of any Loan Property and there are no
Participation Facilities.
(g) The following definitions apply for purposes of
this Section 4.19: (i) "Loan Property" means any property in
which the Company or any of its Subsidiaries holds a security
interest, and, where required by the context (as a result of
foreclosure), said term means the owner or operator of such
property; (ii) "Participation Facility" means any facility in
which the Company or any of its Subsidiaries participates or has
participated in the management and, where required by the
context, said term means the owner or operator of such property;
(iii) "Hazardous Material" means any pollutant, contaminant, or
hazardous substance or hazardous material as defined in or
pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. 9601 et seq., or any
other federal, state, or local environmental law, regulation, or
requirement; (iv) "Oil" means oil or petroleum of any kind or
origin or in any form, as defined in or pursuant to the Federal
Clean Water Act, 33 U.S.C. 1251 et seq., or any other federal,
state, or local environmental law, regulation, or requirement;
and (v) "Environment" means any soil, surface waters,
groundwaters, stream sediments, surface or subsurface strata, and
ambient air, and any other environmental medium.
Section 4.20 Restrictions on Business Activities. There is
no material agreement, judgment, injunction, order or decree
binding upon the Company or any of its Subsidiaries or any of
their properties which has had or could reasonably be expected to
have the effect of prohibiting or materially impairing any
business practice of the Company or any of its
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Subsidiaries or the conduct of business by the Company or any of
its Subsidiaries as currently conducted or as proposed to be conducted
by the Company.
Section 4.21 Certain Business Practices. Neither the
Company nor any of its Subsidiaries nor, to the Knowledge of the
Company, any director, officer, or employee of the Company or any
of its Subsidiaries, has in any material respect (i) used any
funds for unlawful contributions, gifts, entertainment or other
unlawful payments relating to political activity, (ii) made any
unlawful payment to any foreign or domestic government official
or employee or to any foreign or domestic political party or
campaign or violated any provision of the Foreign Corrupt
Practices Act of 1977, as amended, (iii) consummated any
transaction, made any payment, entered into any agreement or
arrangement or taken any other action in violation of
Section 1128B(b) of the Social Security Act, as amended, or
(iv) made any other similar unlawful payment.
Section 4.22 Brokers. Except for CIBC World Markets, no
broker or finder is entitled to any broker's or finder's fee in
connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
Section 4.23 Board Approval. The Board of Directors of the
Company by resolutions duly adopted by required vote of those
voting at a meeting duly called and held and not subsequently
rescinded or modified in any way (the "Company Board Approval"),
has duly (i) subject to Section 7.7 hereof, determined that this
Agreement and the Merger are fair to and in the best interests of
the Company and its shareholders, (ii) approved this Agreement
and the Merger and (iii) subject to Section 7.7 hereof,
recommended that the shareholders of the Company adopt this
Agreement and approve the Merger and directed that this Agreement
and the transactions contemplated hereby be submitted for
consideration by the Company's shareholders at the Shareholders
Meeting. The Company Board Approval constitutes approval of this
Agreement and the Merger for purposes of Section 907 of the New
York Business Corporation Law and no state takeover statute is
applicable to the Merger or the other transactions contemplated
hereby.
Section 4.24 Opinions of the Company's Financial Advisor
and Attorneys, and Accountant's Comfort Letter. The Company has
received the opinion of the Company's Financial Advisor, dated
the date of this Agreement, to the effect that, as of such date,
the Merger Consideration is fair from a financial point of view
to the Company and its shareholders, a copy of which opinion has
been made available to Parent.
Section 4.25 Deposits. None of the deposits of the Company
or any Company Subsidiary is a "brokered" deposit as defined in
12 U.S. Code Section 1831f(g).
Section 4.26 Regulation O. Except as otherwise disclosed
in writing to the Parent on or prior to the date hereof, the
Company and its Subsidiaries have made no loan which is subject
to Regulation O promulgated by the Board of Governors of the
Federal Reserve System.
Section 4.27 Loan Portfolio.
(a) With respect to each loan owned by the Company or
the Bank in whole or in part (each, a "Loan"), to the best
Knowledge of the Company and the Bank:
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(i) 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;
(ii) neither the Company nor the Bank, nor any prior
Holder of a Loan, has modified the note or any of the
related security documents in any material respect or
satisfied, cancelled or subordinated the note or any of
the related security documents except as otherwise
disclosed by documents in the applicable Loan file;
(iii) the Company, the Bank or another Company
Subsidiary is the sole Holder of legal and beneficial
title to each Loan (or the Company's applicable
participation interest, as applicable), except as
otherwise referenced on the books and records of the
Company;
(iv) 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,
cancelled or otherwise changed except as otherwise
disclosed by documents in the applicable Loan file;
(v) 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 the Company and
its Subsidiaries;
(vi) there is no litigation or proceeding pending or
threatened relating to the property that serves as
security for a Loan that would reasonably be expected
to have a Material Adverse Effect upon the borrower or
guarantor of the related Loan, or upon the loan itself,
except as otherwise disclosed by documents in the
applicable Loan file; and
(vii) with respect to a Loan held in the form of a
participation, the participation documentation is
legal, valid, binding and enforceable, except as
otherwise disclosed by documents in the applicable Loan
file.
(b) The allowance for possible loan and lease losses
reflected in the Company's audited statement of condition at
December 31, 1999 and unaudited September 30, 2000 financial
statements was, and the allowance for possible losses shown on
the balance sheets in the Company's Securities Documents for
periods ending after September 30, 2000 have been and will be,
adequate, as of the dates thereof, under GAAP.
(c) The Disclosure Schedule 4.27 sets forth by
category the amounts of all loans, leases, advances, credit
enhancements, other extensions of credit, commitments and
interest-bearing assets of the Company and the Company
Subsidiaries that have been classified (whether regulatory or
internal) as "Special Mention," "Substandard," "Doubtful," "Loss"
or words of similar import as of September 30, 2000. The other
real estate owned ("OREO") included in any non-performing assets
of the Company or any of the Company Subsidiaries is carried net
of reserves at the lower of cost or fair value, less estimated
selling costs, based on
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current independent appraisals or evaluations or current management
appraisals or evaluations; provided, however, that "current" shall
mean within the past 12 months.
Section 4.28 Administration of Fiduciary Accounts. Each of
the Company and its Subsidiaries has properly administered in all
material respects all accounts for which it acts as a fiduciary,
including, but not limited to, accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms
of the governing documents and applicable law. The accountings
for each such fiduciary account are true and correct in all
material respects and accurately reflects the assets of such
fiduciary account.
Section 4.29 Insurance. Section 4.29 of the Disclosure
Schedule sets forth a summary of all material policies of
insurance of the Company and its Subsidiaries currently in
effect, which summary is accurate and complete in all material
respects. All of the policies relating to insurance maintained
by the Company or any of its Subsidiaries with respect to its
material properties and the conduct of its business in any
material respect (or any comparable policies entered into as a
replacement therefor) are in full force and effect and, neither
the Company nor any of its Subsidiaries has received any notice
of cancellation with respect thereto and there have been no
lapses of coverage. All property and casualty insurance policies
are written on an occurrence basis. Except as set forth in
Section 4.29 of the Disclosure Schedule, all life insurance
policies on the lives of any of the current and former officers
and directors of the Company or any of its Subsidiaries which are
maintained by the Company or any such Subsidiary which are
otherwise included as assets on the books of the Company or such
Subsidiary (i) are, or will at the Effective Time be, owned by
the Company or such Subsidiary, as the case may be, free and
clear of any claims thereon by the officers or members of their
families, except with respect to the death benefits thereunder,
as to which the Company or such Subsidiary agree that there will
not be an amendment prior to the Effective Time without the
consent of the Parent, and (ii) are accounted for properly as
assets on the books of the Company or such Subsidiary in
accordance with GAAP in all material respects.
Section 4.30 Disclosure. No representation or warranty by
the Company in this Agreement and no statement contained in any
exhibit, list, certificate, document or schedule delivered or to
be delivered pursuant to this Agreement contains or will contain
any untrue statement of a material fact or omits or will omit any
material fact necessary in order to make the statement contained
therein in light of the circumstances under which they were made
not misleading.
ARTICLE V
Representations and Warranties of Parent and Merger Subsidiary
Parent and Merger Subsidiary jointly and severally represent
and warrant to the Company that, except as disclosed in the
Parent Disclosure Schedule which has been delivered to the
Company prior to the execution of this Agreement (the "Parent
Disclosure Schedule"):
Section 5.1 Organization and Qualification. Parent is a
corporation duly organized, validly existing and in good standing
under the laws of the State of New York. Merger
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Subsidiary is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York.
Section 5.2 Ownership of Merger Subsidiary. Merger
Subsidiary is a direct wholly-owned subsidiary of Parent.
Section 5.3 Authority Relative to Agreement. Each of
Parent and Merger Subsidiary has the necessary 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 by Parent and Merger Subsidiary
have been duly and validly authorized and approved by the
respective Boards of Directors of Parent and Merger Subsidiary
and by Parent as the sole stockholder of Merger Subsidiary and no
other corporate proceedings on the part of Parent or Merger
Subsidiary are necessary to authorize and approve this Agreement
or to consummate the transactions contemplated hereby. The
Parent has no reason to believe that (i) any required Consents or
approvals will not be received, or that (ii) any public body or
authority, including the United States Environmental Protection
Agency or the New York State Department of Environmental
Conservation the consent or approval of which is not required or
any filing which is not required, will object to the completion
of the transactions contemplated by this Agreement. This
Agreement has been duly executed and delivered by each of Parent
and Merger Subsidiary, and assuming the due authorization,
execution and delivery by the Company, constitutes the valid and
binding obligation of Parent and Merger Subsidiary enforceable
against each of them in accordance with its terms except as such
enforceability may be limited by general principles of equity or
principles applicable to creditors' rights generally.
Section 5.4 No Conflicts; Required Filings and Consents.
(a) None of the execution and delivery of this
Agreement by Parent or Merger Subsidiary, the consummation by
Parent or Merger Subsidiary of the transactions contemplated
hereby or compliance by Parent or Merger Subsidiary with any of
the provisions hereof will (i) conflict with or violate the
Certificate of Incorporation or By-laws of Parent or Merger
Subsidiary, (ii) subject to receipt or filing of the required
Consents (as defined herein) referred to in Section 5.4(b),
conflict with or violate any statute, ordinance, rule,
regulation, order, judgment or decree applicable to Parent or
Merger Subsidiary, or by which either of them or any of their
respective properties or assets may be bound or affected, or
(iii) result in a violation or breach of or constitute a default
(or an event which with notice or lapse of time or both would
become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or
result in the creation of any lien, charge, security interest,
pledge, or encumbrance of any kind or nature (any of the
foregoing being a "Lien") on any of the property or assets of
Parent or Merger Subsidiary (any of the foregoing referred to in
clause (ii) or this clause (iii) being a "Violation") pursuant
to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or
obligation to which Parent or Merger Subsidiary is a party or by
which Parent or Merger Subsidiary or any of their respective
properties may be bound or affected.
(b) None of the execution and delivery of this
Agreement by Parent or Merger Subsidiary, the consummation by
Parent or Merger Subsidiary of the transactions contemplated
A-22
hereby or compliance by Parent or Merger Subsidiary with any of
the provisions hereof will require any consent, waiver, license,
approval, authorization, order or permit of, or registration or
filing with or notification to any government or subdivision
thereof, domestic, foreign, multinational or supranational or any
administrative, governmental or regulatory authority, agency,
commission, court, tribunal or body, domestic, foreign,
multinational or supranational (a "Governmental Entity"), except
for (i) compliance with any applicable requirements of the
Exchange Act, (ii) the filing of the certificate of merger under
New York Law, (iii) certain state takeover, securities and "blue
sky" statutes, and (iv) the obtaining of regulatory approvals as
set forth in Disclosure Schedule 5.4 (any of the foregoing being
a "Consent").
Section 5.5 Brokers. Other than Keefe, Bruyette & Woods,
Inc. no broker or finder is entitled to any broker's or finder's
fee in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Parent
or Merger Subsidiary.
Section 5.6 Ability to Pay Merger Consideration. Parent
will have available to it as of the Effective Time sufficient
cash to pay the aggregate Merger Consideration to shareholders of
the Company as set forth in Section 3.1.
Section 5.7 Absence of Certain Changes or Events. There
has not been any material adverse change in the business,
operations, prospects, assets or financial condition of Parent
since June 30, 2000 and to the best Knowledge of the Parent, no
fact or condition exists which Parent believes will cause such a
material adverse change in the future.
Section 5.8 Legal Proceedings. Neither Parent nor the
Merger Subsidiary is a party to any, and there are no pending, or
to the best Knowledge of Parent and the Merger Subsidiary,
threatened legal, administrative, arbitration or other
proceedings, claims, actions or governmental investigations of
any nature against Parent or Merger Subsidiary, except such
proceedings, claims actions or governmental investigations which
in the good faith judgment of Parent and Merger Subsidiary will
not have a Material Adverse Effect on the business, operations,
assets or financial condition of Parent and Merger Subsidiary.
Neither Parent nor the Merger Subsidiary is a party to any order,
judgment or decree which materially adversely affects the
business, operations, assets or financial condition of Parent and
Merger Subsidiary.
Section 5.9 Disclosure. No representation or warranty by
the Parent or Merger Subsidiary in this Agreement, no information
provided by Parent in writing for inclusion in the Company Proxy
Statement and no statement contained in any exhibit, list,
certificate, document or schedule delivered or to be delivered
pursuant to this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit any material
fact necessary in order to make the statement contained therein
in light of the circumstances under which they were made not
misleading.
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ARTICLE VI
Conduct of Business Pending the Merger
Section 6.1 Conduct of the Business Pending the Merger
(a) From and after the date hereof, prior to the
Effective Time, except as contemplated by this Agreement or
unless Parent shall otherwise agree in writing, the Company
shall, and shall cause its Subsidiaries to, carry on their
respective businesses in the usual, regular and ordinary course
in substantially the same manner as heretofore conducted and to
use reasonable efforts to conduct their business in a manner
consistent with the budgets and plans heretofore made available
to Parent, and shall, and shall cause its Subsidiaries to, use
best efforts to preserve intact their present business
organizations, keep available the services of their employees and
preserve their relationships with customers, suppliers,
licensors, licensees, distributors and others having business
dealings with them to the end that their goodwill and on-going
businesses shall not be impaired in any material respect at the
Effective Time and shall take no action which would materially
adversely affect or materially delay the ability of the Company
to obtain any necessary approvals of any Governmental Authority
required for the transactions contemplated hereby or to perform
its covenants and agreements under this Agreement or the Parent
Option. Unless Parent shall otherwise agree in writing, prior to
the Effective Time, the Company shall not and shall not permit
its Subsidiaries to allow any representation or warranty of the
Company to become inaccurate or:
(i) declare, set aside, or pay any dividends on, or
make any other distributions in respect of, any of its
capital stock in excess of current regular $.30
quarterly dividend amounts declared and payable per
past practice, other than dividends and distributions
by any Subsidiary to its parent(s) [or the dividend on
REIT preferred stock] required to be paid by its terms,
split, combine or reclassify any of its capital stock
or, issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution
for shares of its capital stock, or except as permitted
by clause (ii) below, purchase, redeem or otherwise
acquire any shares of capital stock of the Company or
any of its Subsidiaries or any other equity securities
thereof or any rights, warrants, or options to acquire
any such shares or other securities other than
purchases, redemptions or acquisitions of equity
securities of Subsidiaries of the Company or rights,
warrants or options to acquire such securities;
(ii) other than in connection with the Lockup Option,
issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting
securities of the Company or any securities convertible
into, or any rights, warrants or options to acquire,
any such shares or voting securities;
(iii) amend its Certificate of Incorporation, By-
laws or other comparable organizational documents of
any of its Subsidiaries;
(iv) acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial
portion of the assets of, or by any other manner, any
A-24
business or any corporation, partnership, joint
venture, association or other business organization or
division thereof, or any assets that are material,
individually or in the aggregate, to the Company and
its Subsidiaries;
(v) subject to a Lien or sell, lease or otherwise
dispose of any of its material properties or assets
except in the ordinary course of business;
(vi) incur any indebtedness for borrowed money or any
non-deposit liability or guarantee any such
indebtedness of another person, issue or sell any debt
securities of the Company or any of its Subsidiaries,
guarantee any debt securities of another person or
enter into any "keep well" or other agreement to
maintain any financial condition of another person,
except, in any such case, for borrowings or other
transactions incurred in the ordinary course of
business including to repay existing indebtedness
pursuant to the terms thereof, or except in the
ordinary course of business, make any loans, advances
or capital contributions to, or investments in, any
other person, other than to the Company or any direct
or indirect Subsidiary of the Company or settle or
compromise any material claims or litigation;
(vii) except for commitments issued prior to the
date of this Agreement, make any new loan or other
credit facility commitment (including without
limitation, lines of credit and letters of credit) to
any borrower or group of affiliated borrowers in excess
of $250,000 in the aggregate, or increase, compromise,
extend, renew or modify (for not more than one year)
any existing loan or commitment outstanding in excess
of $500,000, and provide to Parent for its review in
advance of any proposed approvals by the Bank any real
estate secured loans in excess of $500,000 and any
unsecured loans in excess of $75,000.
(viii) enter into, renew, extend or modify any other
transaction with any Affiliate;
(ix) enter into any futures contract, option, interest
rate caps, interest rate floors, interest rate exchange
agreement or other agreement or take any other action
for purposes of hedging the exposure of its interest-
earning assets and interest-bearing liabilities to
changes in market rates of interest;
(x) make any change in policies with regard to the
extension of credit, the establishment of reserves with
respect to the possible loss thereon or the charge off
of losses incurred thereon, investment, asset/liability
management or other material banking policies in any
material respect except as may be required by changes
in applicable law or regulations or in GAAP or by
applicable regulatory authorities or enter into any new
areas of lending, new loan categories or loan types, or
open new loan origination offices;
(xi) sell any OREO or loan (other than loans secured by
one- to four-family real estate) and OREO properties
which generate no book loss);
(xii) authorize any of, or commit or agree to take
any of, the foregoing actions;
A-25
(xiii) recruit, hire or contract with any new
personnel, at either the Company or the Bank level,
except with respect to non-officer positions, in which
case Parent will be provided a copy of the job posting
in advance of internal posting or publication; or
(xiv) authorize or permit any employee salary or
benefit increases in excess of 10% of an employee's
level of salary or benefits existing at September 30,
2000, provided, however, that the Bank may pay bonuses
to its senior executive officers in 2000 as provided in
Schedule 6.1(a)(xiv).
For purposes of this Section 6.1, it shall not be considered in
the ordinary course of business for the Company or any of its
Subsidiaries to do any of the following: (i) make any sale,
assignment, transfer, pledge, hypothecation or other disposition
of any assets having a book or market value, whichever is
greater, in the aggregate in excess of $100,000, other than
pledges of assets to secure government deposits, to exercise
trust powers, sales of assets received in satisfaction of debts
previously contracted in the normal course of business, issuance
of loans, sales of previously purchased government guaranteed
loans, or transactions in the investment securities portfolio by
the Company or any of its Subsidiaries or repurchase agreements
made, in each case, in the ordinary course of business; or
(ii) undertake or enter any lease, contract, capital expenditure
or other commitment for its account, other than in the normal
course of providing credit to customers as part of its banking
business, involving a payment by the Company or any of its
Subsidiaries of more than $50,000 annually, or containing a
material financial commitment and extending beyond 12 months from
the date hereof.
(b) Compliance with Regulatory Directives. The
Company and its Board shall comply in all respects with the
directives and corrective action set forth in the Matters
Requiring Board Attention ("MRBA") section of the most recent OCC
Report of Examination presented to the Board.
(c) Advice of Changes. The Company shall promptly
provide the Parent copies of all filings made by the Company with
any Governmental Entity in connection with this Agreement and the
transactions contemplated hereby. The Company shall, before
settling or compromising any income tax liability of the Company
or any of its Subsidiaries, consult with Parent and its advisors
as to the positions and elections that will be taken or made with
respect to such matter.
6.2 System Conversions. From and after the date hereof,
the Parent and the Company shall meet on a regular basis to
discuss and plan for the conversion of the Company's and its
Subsidiaries' data processing and related electronic
informational systems to those used by the Parent and its
Subsidiaries, which planning shall include, but not be limited
to, discussion of the possible termination by the Company of
third-party service provider arrangements effective at the
Effective Time or at a date thereafter, non-renewal of personal
property leases and software licenses used by the Company or any
of its Subsidiaries in connection with its systems operations,
retention of outside consultants and additional employees to
assist with the conversion, and outsourcing, as appropriate, of
proprietary or self-provided system services, it being understood
that the Company shall not be obligated to take any such action
prior to the Effective Time and provided further that no
conversion shall take place prior to the Effective
A-26
Time. In the event that the Company or any of its Subsidiaries
takes, at the request of the Parent, any action relative to third
parties to facilitate the conversion that results in the imposition
of any termination fees, expenses or charges, the Parent shall indemnify
the Company and its Subsidiaries for any such fees, expenses and
charges, and the costs of reversing the conversion process, if
for any reason the Merger is not consummated in accordance with
the terms of this Agreement.
ARTICLE VII
Additional Agreements
Section 7.1 Access to Information. From the date hereof
through the Effective Time, the Company and its Subsidiaries
shall afford to Parent and Parent's accountants, counsel and
other representatives full and reasonable access during normal
business hours (and at such other times as the parties may
mutually agree) to its properties, books, contracts, commitments,
records and personnel and, during such period, shall furnish
promptly to Parent (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirements of
federal securities laws, and (ii) all other information
concerning its business, properties and personnel as Parent may
reasonably request. Neither the Company or 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 its 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 advise each other in writing if, and make
approximate substitute disclosure arrangement under circumstances
in which, the restrictions of the preceding sentence apply.
Furthermore, notwithstanding anything to the contrary herein, the
Company shall not be required to provide Parent with any
information regarding a Takeover Proposal (as hereinafter
defined) except as required by Section 7.7 hereof. Parent shall
hold, and shall cause its employees, agents and representatives
to hold, in confidence all "Confidential Information" in
accordance with the terms of the Confidentiality Agreement dated
October 6, 2000 between Parent and the Company, which shall
remain in full force and effect in accordance with the terms
thereof, including, without limitation, in the event of
termination of this Agreement. No investigation pursuant to this
Section 7.1 shall limit any representation or warranty of the
Company.
Section 7.2 Shareholders' Meeting. The Company shall take
all action necessary, in accordance with applicable law and its
Certificate of Incorporation and By-laws, to convene the Company
Special Meeting as promptly as reasonably practicable after the
date on which the SEC clears the definitive Proxy Statement for
the purpose of considering and taking action upon the Merger and
this Agreement.
Section 7.3 Public Announcements. On or before the Closing
Date, Parent and the Company shall not (nor shall they permit any
of their respective Affiliates to), without prior consultation
with the other party and such other party's review of and consent
to any public announcement concerning the transactions
contemplated by this Agreement, issue any press release or make
any public announcement with respect to such Transactions except
such disclosures as may be required by law. During such period,
Parent and the Company shall, to the extent practicable, allow
the other party reasonable time to review and comment on such
release
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or announcement in advance of its issuance and use reasonable
efforts in good faith to reflect the reasonable and good faith
comments of such other party, provided, however, no party shall be
prevented from making any disclosure required by law at the time so
required. The parties intend that the initial announcement of the
terms of the Merger shall be made by joint press release of Parent
and the Company.
Section 7.4 Undertakings by the Company
(a) The Company shall provide Parent, within ten (10)
days of the end of each calendar month, a written list of
nonperforming assets (the term "nonperforming assets," for
purposes of this subsection, means (i) loans that are "troubled
debt restructuring" as defined in Statement of Financial
Accounting Standards No. 15, "Accounting by Debtors and Creditors
for Troubled Debt Restructuring," (ii) loans on nonaccrual,
(iii) real estate owned, (iv) all loans ninety (90) days or more
past due as of the end of such month and (v) impaired loans);
(b) On or before the Effective Time, and at the
request of Parent, the Company shall establish, consistent with
GAAP, such additional accruals and reserves as may be necessary
to conform the accounting reserve practices and methods
(including credit loss practices and methods) of the Company to
those of Parent (as such practices and methods are to be applied
to the Company from and after the Closing Date) and Parent's
plans with respect to the conduct of the business of the Company
following the Merger and otherwise to reflect Merger-related
expenses and costs incurred by the Company, provided, however,
that the Company shall not be required to take such action (i)
more than two (2) business days prior to the Closing Date and
(ii) unless Parent agrees in writing that all conditions to
closing set forth in Section 8.3 have been satisfied or waived
(except for the expiration of any applicable waiting periods);
prior to the delivery by Parent of the writing referred to in the
preceding clause, the Company shall provide Parent a written
statement, certified without personal liability by the chief
executive officer of the Company and dated the date of such
writing, that the representation made in Sections 4.27(a) and (b)
hereof is true as of such date or, alternatively, setting forth
in detail the circumstances that prevent such representation from
being true as of such date; and no accrual or reserve made by the
Company or any of its Subsidiaries pursuant to this subsection,
or any litigation or regulatory proceeding arising out of any
such accrual or reserve, shall constitute or be deemed to be a
breach or violation of any representation, warranty, covenant,
condition or other provision of this Agreement or to constitute a
termination event within the meaning of Section 9.1 hereof. No
action shall be required to be taken by the Company pursuant to
this Section 7.4 if, in the opinion of the Company's independent
auditors, such action would contravene GAAP.
Section 7.5 Efforts; Consents.
(a) Subject to the terms and conditions of this
Agreement, each of the parties hereto agrees to take, or cause to
be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective
as promptly as practicable the transactions contemplated by this
Agreement and the Merger and to cooperate with each other in
connection with the foregoing. Without limiting the generality
of the foregoing, each of the Company, Merger Subsidiary and
Parent shall make or cause to be made all required filings with
or applications to Regulatory Authorities (including under the
Exchange Act, the Federal
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Reserve Act, and the National Bank Act, and, with respect to
BNC Financial Services (if required), the New York Insurance
Law, and use its best efforts to (i) obtain all necessary
consents of all Regulatory Authorities and other third parties,
necessary for the parties to consummate the transactions
contemplated hereby, (ii) oppose, lift or rescind any injunction
or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby,
and (iii) fulfill all conditions to this Agreement.
(b) Without limiting the foregoing, the Company and
Parent shall cooperate in promptly preparing and filing as soon
as practicable, all necessary documentation, to effect all
applications, notices, petitions and filings, to obtain as
promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental and
Regulatory Authorities which are necessary or advisable to
consummate the transactions contemplated by this Agreement
(including, without limitation, the Merger), and to comply with
the terms and conditions of all such permits, consents, approvals
and authorizations of all such Governmental Authorities. The
Parent and the Company 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 Parent or the
Company, as the case may be, and any of their respective
Subsidiaries, which appear in any filing made with, or written
materials submitted to, any third party or any Governmental or
Regulatory Authority 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 or Regulatory Authorities 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) The Parent and the Company shall, upon request,
furnish each other with all information concerning themselves,
their Subsidiaries, directors, officers and shareholders and such
other matters as may be reasonably necessary or advisable in
connection with the Company Proxy Statement or any other
statement, filing, notice or application made by or on behalf of
the Parent or the Company or any of their respective Subsidiaries
to any Governmental Entity or Regulatory Authority in connection
with the Merger and the other transactions contemplated by this
Agreement.
(d) The Parent and the Company shall promptly advise
and inform each other upon receiving (and the Parent shall so
advise with respect to communications received by any Affiliate
of the Parent) any communication, written or oral, from any
Governmental or Regulatory Authority whose consent or approval is
required for consummation of the transactions contemplated by
this Agreement. To the extent that any such communication is in
writing, the receiving party shall furnish a copy to the other
party.
Section 7.6 Notice of Breaches. The Company shall give
prompt notice to Parent, and Parent or Merger Subsidiary shall
give prompt notice to the Company, of (i) any representation or
warranty made by it contained in this Agreement which has become
untrue or inaccurate in any material respect, or (ii) the failure
by it to comply with or satisfy in any material respect any
covenant, condition, or agreement to be complied with or
satisfied by it under this Agreement;
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provided, however, that such notification shall not excuse or
otherwise affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
Section 7.7 Acquisition Proposals.
(a) The Company shall, and shall direct and cause its
officers, directors, employees, representatives and agents to,
immediately cease any discussions or negotiations with any
parties that may be ongoing with respect to a Takeover Proposal
(as hereinafter defined). The Company shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or
permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or
other representative retained by it or any of its Subsidiaries
to, directly or indirectly: (i) solicit, initiate or encourage,
including by way of furnishing information, or take any other
action designed or reasonably likely to facilitate, including,
without limitation, any adoption of any rights or similar plan,
the grant of any option or proxy or otherwise except to Parent,
any inquiries or the making of any proposal which constitutes, or
may reasonably be expected to lead to, any Takeover Proposal or
(ii) subject to paragraph (b) of this Section 7.7, provide any
information or data to any third party in connection with any
Takeover Proposal or participate in any discussions or
negotiations regarding any Takeover Proposal. Without limiting
the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any officer
or director of the Company or any of its Subsidiaries or any
investment banker, financial advisor, attorney, accountant, or
other representative of the Company or any of its Subsidiaries,
whether or not acting on behalf of the Company or any of its
Subsidiaries, shall be deemed to be a breach of this Section 7.7
by the Company. "Takeover Proposal" means any inquiry, proposal
or offer from any person relating to any direct or indirect
acquisition or purchase of 15% or more of the assets of the
Company and its Subsidiaries or 15% or more of any class of
equity securities of the Company or any of its Subsidiaries, any
tender offer or exchange offer that if consummated would result
in any person beneficially owning 15% or more of any class of
equity securities of the Company or any of its Subsidiaries, any
merger, consolidation, share exchange, business combination,
recapitalization, liquidation, dissolution or similar transaction
involving the Company or any of its Subsidiaries (other than the
transactions contemplated by this Agreement) or any other
transaction the consummation of which could reasonably be
expected to impede, interfere with, prevent or materially delay
the Merger or which would reasonably be expected to diminish
materially the benefits to Parent of the transactions
contemplated by this Agreement.
(b) Except as set forth in this Section 7.7, neither
the Board of Directors of the Company nor any committee thereof
shall: (i) withdraw or modify, or propose publicly to withdraw or
modify, in a manner adverse to Parent, or take any action not
explicitly permitted by this Agreement that would be inconsistent
with, the approval or recommendation by such Board of Directors
or such committee of the Company Proposal, (ii) approve or
recommend, or propose publicly to approve or recommend, any
Takeover Proposal, (iii) provide any information or data to any
third party in connection with a Takeover Proposal or participate
in any discussions or negotiations regarding any Takeover
Proposal or (iv) cause the Company to enter into any letter of
intent, agreement in principle, acquisition agreement or other
similar agreement (each, an "Acquisition Agreement") related to
any Takeover Proposal. Notwithstanding the foregoing, in the
event that prior to the Effective Time the Board of Directors of
the Company determines in
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good faith, upon advice from outside counsel, that it is necessary
to do so in order to comply with their fiduciary duties under applicable
law, the Board of Directors of the Company may (subject to this and the
following sentences): (x) withdraw or modify its approval or
recommendation of the Company Proposal, or (y) approve or recommend a
Superior Proposal (as defined below) or terminate this Agreement (and
concurrently with or after such termination, if it so chooses,
cause the Company to enter into any Acquisition Agreement with
respect to any Superior Proposal), but in each of the cases set
forth in this clause (y), only at a time that is after the fifth
(5th) day following Parent's receipt of written notice advising
Parent that the Board of Directors of the Company has received a
Superior Proposal, specifying the material terms and conditions
of such Superior Proposal and identifying the person making such
Superior Proposal. For purposes of this Agreement, a "Superior
Proposal" means any bona fide proposal made by a third party to
acquire, directly or indirectly, for consideration consisting of
cash and/or securities, more than 50% of the voting power of the
shares of the Company Common Stock then outstanding or all or
substantially all the assets of the Company and otherwise on
terms which the Board of Directors of the Company determines in
its good faith judgment (based on the advice of CIBC World
Markets, or another financial advisor mutually acceptable to the
Company and Parent) to be materially more favorable to the
Company's shareholders than the Merger and for which third-party
financing, to the extent required, is then firmly committed.
(c) In addition to the obligations of the Company set
forth in paragraphs (a) and (b) of this Section 7.7, the Company
shall promptly (but in any event within forty-eight hours of
receipt) advise Parent orally and in writing of any request by
any person for information about the Company or of any Takeover
Proposal, the material terms and conditions of such request or
the Takeover Proposal and the identity of the person making such
request or the Takeover Proposal. The Company shall keep Parent
fully and promptly informed of the status and details (including
amendments or proposed amendments) of any request by any person
for information about the Company or of any Takeover Proposal.
(d) Nothing contained in this Section 7.7 shall
prohibit the Company from taking and disclosing to its
shareholders a position contemplated by Rule 14e-2(a) promulgated
under the Securities Exchange Act or from making any disclosure
to the Company's shareholders if, in the good faith judgment of
the Board of Directors of the Company, after consultation with
outside counsel, failure so to disclose would be inconsistent
with applicable law; provided, however, neither the Company nor
its Board of Directors nor any committee thereof shall, except as
permitted by Section 7.7(b), withdraw or modify, or propose
publicly to withdraw or modify, its position with respect to the
Company Proposal or approve or recommend, or propose publicly to
approve or recommend, a Takeover Proposal.
Section 7.8 Related Agreements. Simultaneously with the
execution and delivery of this Agreement, or as otherwise
provided below, and as material consideration for the execution
and delivery of this Agreement by Parent and Merger Subsidiary,
the following Persons are executing and delivering the agreements
(collectively, the "Related Agreements"):
(a) Each of the executive officers and the other
Persons listed on Schedule 7.8(a) to this Agreement is entering
into a shareholders' voting and proxy agreement (the
"Shareholders' Agreement") pursuant to which such Persons agree
to vote the shares of the Company Common Stock owned by them in
favor of the Merger and this Agreement at the
A-31
Company Special Meeting and provide the proxies named therein with
such Person's irrevocable proxy with respect to such vote.
(b) As of the date hereof, the Company is entering
into the Lockup Option, in the form of Exhibit A, with the Parent
pursuant to which the Company grants to Parent the option to
purchase 196,000 shares of Company Common Stock for an exercise
price per share of $37.00, exercisable on the terms and
conditions described therein.
Section 7.9 Advice of Changes. The Parent and the Company
shall each 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; provided, however, that the delivery of any
notice pursuant to this Section shall not limit or otherwise
affect the remedies available hereunder to the party receiving
such notice.
Section 7.10 Update of Disclosure Schedules. From time to
time prior to the Effective Time, the Company will promptly
supplement or amend the Disclosure Schedule 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 the Disclosure Schedule or which is necessary to correct any
information on the Disclosure Schedule which has been rendered
inaccurate thereby. No supplement or amendment to the Disclosure
Schedule nor any investigation by the Parent, before or after
execution of this Agreement, shall have any effect for the
purpose of determining satisfaction of the conditions set forth
in Section 8.3 hereof or compliance by the Company with the
covenants set forth in Articles VI and VII hereof.
Section 7.11 Indemnification. (a) From and after the
Effective Time through the third anniversary of the Effective
Time, Parent shall indemnify and hold harmless each present and
former director, officer and employee of the Company and Bath and
its Subsidiaries determined as of the Effective Time (the
"Indemnified Parties") 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, whether asserted or claimed prior
to, at or after the Effective Time to the extent covered by
directors and officers insurance maintained by the Company
(collectively, "Claims"), to the fullest extent to which such
Indemnified Parties would be entitled under New York law, the
Certificate of Incorporation and By-laws of the Company or Bath
as in effect on the date hereof.
Any Indemnified Party wishing to claim indemnification under
this Section 7.11(a), upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent,
but the failure to so notify shall not relieve Parent of any
liability it may have to such Indemnified Party if such failure
does not materially prejudice Parent. In the event of any such
claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) Parent shall have the
right to assume the defense thereof and Parent shall not be
liable to such Indemnified Parties for any legal expenses of
other counsel or any other expenses subsequently incurred by such
Indemnified Parties in connection with the defense thereof,
except that if the Parent elects not to assume such defense or
counsel for the Indemnified Parties advises
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that there are issues which raise conflicts of interest between
Parent and the Indemnified Parties, the Indemnified Parties may
retain counsel which is reasonably satisfactory to Parent and Parent
shall pay, promptly as statements therefore are received, the
reasonable fees and expenses of such counsel for the Indemnified
Parties (which may not exceed one firm in any jurisdiction unless
the use of one counsel of such Indemnified Parties would present
such counsel with a conflict of interest), (ii) the Indemnified
Parties will cooperate in the defense of any such matter, and
(iii) Parent shall not be liable for any settlement effected
without its prior written consent, which consent shall not be
unreasonably withheld.
In the event that Parent or any of its respective 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 all or
substantially all of its properties and assets to any person,
then, and in each such case, the successors and assigns of such
entity shall assume the obligations set forth in this
Section 7.11, which obligations are expressly intended to be for
the irrevocable benefit of, and shall be enforceable by, each of
the Indemnified Parties.
(b) From and after the Effective Time, Parent shall
maintain a directors' and officers' liability insurance policy
covering the Indemnified Parties Costs in connection with any
Claims for a period of not less than three (3) years after the
Effective Time at annual premiums no greater than 150% of the
annual premium of the directors' and officers' liability
insurance maintained by the Company and Bath as of the date
hereof.
Section 7.12 Certain Post-Merger Agreements.
The parties hereto agree to the following arrangements
following the Effective Time:
(a) Directors and Officers of the Bank. Immediately
following the Effective Time, Douglas L. McCabe shall serve as
President of the Bank. As of the Effective Time, Mr. McCabe
shall enter into an employment agreement with the Bank
substantially in the form of Schedule 7.12(a)(i) hereto. As of
the Effective Time, the Bank and Edward C. Galpin shall enter
into a Consulting and Non-Compete Agreement substantially in the
form of Schedule 7.12(a)(ii) hereto. As of the Effective Time,
Parent and the Bank shall take all necessary and appropriate
steps so that the Board of Directors of the Bank shall consist of
not more than 12 persons and shall include as members Edward C.
Galpin, Douglas L. McCabe and five other current directors of the
Bank as shall be mutually agreed upon by Parent and the Company.
(b) Severance and Change in Control Agreements. Any
officer of the Bank who has a severance or change in control
agreement with The Bank (each a "Contract Officer") which is
disclosed on Schedule 7.12(b)(i) shall receive as of the
Effective Time, the severance or termination payments provided
for in their respective agreements ("Contract Payments") and as
described and quantified in reasonable detail on Schedule 7.12(b)(i),
provided that in the case of Mr. McCabe and Mr. Galpin, the severance
payment shall be reduced as described in Schedule 7.12(b)(i) and
Exhibits 1 and 2 to Schedule 7.12(b)(ii). As a condition to
receiving their Contract Payments, each Contract Officer shall sign
and deliver to Parent a release agreement in the form set forth in
the Exhibits to Schedule 7.12(b)(ii).
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(c) Employee Benefit Plans. After the Effective Time, Parent or
the Bank may take whatever action they deem appropriate with
respect to the Company Benefit Plans provided that benefits
provided to current employees of the Bank or any of its
Subsidiaries who continue to be employees after the Effective
Time ("Continuing Employees") shall, in the aggregate be
substantially similar to those offered under the current Company
Benefit Plans or to benefits offered to employees of Parent
generally. Service to the Bank by a Continuing Employee prior to
the Effective Time shall be recognized as service to Parent for
purposes of eligibility to participate under the sick leave
policies, paid vacation policies, and medical, long-term
disability and life insurance plans of Parent if Continuing
Employees participate in such plans of Parent. Parent agrees
that any pre-existing condition, limitation or exclusion in its
medical, long-term disability and life insurance plans shall not
apply to Continuing Employees or their covered dependents who are
covered under a medical or hospitalization indemnity plan
maintained by the Bank on the Effective Time and who then change
coverage to the medical or hospitalization indemnity health plan
of Parent at the time such Continuing Employees are first given
the option to enroll. The parties agree that, as of the
Effective Time, Mr. McCabe shall be awarded options to acquire
37,000 shares of Parent Common Stock pursuant to the terms and
conditions of Parent's Stock Option Plan. Parent and the Company
agree that on or prior to the Effective time, the Bank may amend
its Medical Benefits Retirement Plan as described in
Schedule 7.12(c).
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 fulfillment at or prior to the
Effective Time of the following conditions:
(a) This Agreement and the transactions contemplated
hereby shall have been approved and adopted by the requisite vote
of the Holders of the Company Common Stock;
(b) All necessary regulatory, governmental or third-
party approvals, waivers, clearances, authorizations and Consents
(including, without limitation, from the OCC) required to
consummate the transactions contemplated hereby shall have been
obtained, all conditions required to be satisfied prior to the
Effective Time by the term of such approvals and consents shall
have been satisfied, any applicable waiting periods shall have
expired or been terminated and any other Consents from Regulatory
Authorities and other third parties which in any case are
required to be received prior to the Effective Time with respect
to the transactions contemplated hereby shall have been received;
and
(c) The consummation of the Merger shall not be
restrained, enjoined or prohibited by any order, judgment,
decree, injunction or ruling of a court of competent
jurisdiction; provided, however, that the parties shall use their
best efforts to cause any such order, judgment, decree,
injunction or ruling to be vacated or lifted.
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Section 8.2 Conditions to Obligation of the Company to
Effect the Merger. The obligation of the Company to effect the
Merger shall be subject to the fulfillment at or prior to the
Effective Time of the additional conditions, unless waived by the
Company, that:
(a) The representations and warranties of Parent and
Merger Subsidiary contained in this Agreement shall be true in
all material respects when made and at and as of the Effective
Time as if made at and as of such time, and the Company shall
have received a certificate of an authorized officer of Parent
and Merger Subsidiary to that effect.
(b) Parent and Merger Subsidiary shall have performed
or complied in all material respects with all agreements and
covenants required to be performed by each of them under this
Agreement at or prior to the Effective Time and the Company shall
have received a certificate of the President of Parent and Merger
Subsidiary, without personal liability to that officer, to that
effect.
(c) The Company shall be in receipt of an opinion of
counsel from Nixon Peabody LLP, in the form of Exhibit B hereto.
Section 8.3 Conditions to Obligations of Parent and Merger
Subsidiary to Effect the Merger. The obligations of Parent and
Merger Subsidiary to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the additional
following conditions, unless waived by Parent:
(a) The representations and warranties of the Company
contained in this Agreement shall be true in all material
respects when made and at and as of the Effective Time as if made
at and as of such time, and Parent and Merger Subsidiary shall
have received a certificate of an authorized officer of the
Company, without personal liability to that officer, to that
effect.
(b) The Company shall have performed or complied in
all material respects with all agreements and covenants required
to be performed by it under this Agreement at or prior to the
Effective Time and Parent and Merger Subsidiary shall have
received a certificate of the President of the Company, without
personal liability to that officer, to such effect.
(c) Absence of Material Adverse Changes. There shall
not have occurred any change in the business, assets, financial
condition or results of operations of the Company or any of its
Subsidiaries which has had, or is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on
the Company and its Subsidiaries taken as a whole.
(d) Parent shall be in receipt of an agreed upon
procedures letter from Urbach, Kahn & Werlin, P.C., in a form
reasonably satisfactory to the Parent and its counsel providing
its review in accordance with Statements on Auditing Standards
("SAS") No. 71, on the Company's unaudited financial statements
for the first three quarters of 2000 and the first and (provided
that the Closing Date is a date subsequent to June 30, 2001)
second quarters of 2001.
(e) Parent shall be in receipt of an opinion of
counsel from Elias, Matz, Tiernan and Herrick, L.L.P. in the form
of Exhibit C hereto.
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(f) At or prior to the Effective Time, Company and
Bank shall deliver to Parent evidence satisfactory to Parent of
the resignations of those directors and officers of Company and
Bank that are requested by Parent, such resignations to be
effective at the Effective Time. Such resignations shall not
affect any rights of those directors and officers to receive
contracted-for severance benefits to which they would otherwise
be entitled.
(g) The Related Agreements have been executed and
delivered by the respective parties thereto and continue in full
force and effect.
(h) Parent and Merger Subsidiary shall have performed
or complied in all material respects with all agreements and
covenants required to be performed by each of them under this
Agreement at or prior to the Effective Time and the Company shall
have received a certificate of the President of Parent and Merger
Subsidiary to that effect.
ARTICLE IX
Termination, Amendment and Waiver
Section 9.1 Termination. This Agreement may be terminated
at any time prior to the Effective Time, whether before or after
approval by the shareholders of the Company:
(a) by mutual written consent of Parent and the
Company;
(b) by the Company, upon a material breach of this
Agreement on the part of Parent or Merger Subsidiary which has
not been cured within 30 days of written notice of such breach
and which would have a Material Adverse Effect on the Company or
would materially impair the parties' abilities to consummate the
transactions contemplated hereby;
(c) by Parent, upon a material breach of this
Agreement on the part of the Company which has not been cured
within 30 days of written notice of such breach and which would
have a Material Adverse Effect on the Parent or would materially
impair the parties' abilities to consummate the transaction
contemplated hereby;
(d) by Parent or the Company if any court of competent
jurisdiction shall have issued, enacted, entered, promulgated or
enforced any order, judgment, decree, injunction or ruling, after
reasonable efforts on the part of Parent and the Company to
resist, resolve or lift, which permanently restrains, enjoins or
otherwise prohibits the Merger and such order, judgment, decree,
injunction or ruling shall have become final and nonappealable;
(e) by either Parent or the Company if the Merger
shall not have been consummated on or before June 30, 2001 (the
"Upset Date") provided the terminating party is not otherwise in
material breach of its representations, warranties or obligations
under this Agreement;
(f) by either Parent or the Company upon written
notice to the other party 45 days after the date on which any
Application for regulatory approval shall have been denied or
withdrawn at the request or recommendation of the Regulatory
Authority which must grant such regulatory approval, unless
within the 45-day period following such denial or withdrawal a
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petition for rehearing or an amended Application has been filed
with the applicable Regulatory Authority, provided, however, that
no party shall have the right to terminate this Agreement
pursuant to this Section 9.1(f) if such denial or request or
recommendation for withdrawal shall be due to the failure of the
party seeking to terminate this 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;
(g) by either Parent or the Company if there has been
no Superior Proposal prior to the Company Special Meeting and the
Company Special Meeting (including as it may be adjourned from
time to time) shall have concluded without the Company having
obtained the required shareholder approval of this Agreement and
the transactions contemplated hereby; or
(h) by the Company if it receives a Superior Proposal
and the Company's Board of Directors determines that it would be
in accordance with their fiduciary duties, based upon the advice
of its outside legal counsel, to accept the third party proposal;
provided, however, that in such event the Company shall not be
permitted to terminate this Agreement pursuant to this Section
9.1(h), (i) prior to the Special Meeting and (ii) after the
Company Special Meeting unless it has complied with the
provisions of Section 7.7. Notwithstanding any termination of
this Agreement, the exercise by Parent of its rights under the
Lockup Option shall be governed by the terms of such Lockup
Option.
Section 9.2 Effect of Termination. In the event of
termination of this Agreement by either Parent or the Company, as
provided in Section 9.1, this Agreement shall forthwith become
void and there shall be no liability hereunder on the part of any
of the Company, Parent or Merger Subsidiary or their respective
officers or directors; provided that Sections 9.2, 9.3 and 10.6
and the second to last sentence of Section 7.1 shall survive the
termination.
Section 9.3 Fees and Expenses.
(a) Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and
the transactions contemplated by this Agreement shall be paid by
the party incurring such expenses.
(b) In the event of a willful breach of any
representation, warranty, covenant or agreement contained in this
Agreement, the breaching party shall remain liable for any and
all damages, costs and expenses, including all reasonable
attorneys' fees, sustained or incurred by the non-breaching party
as a result thereof or in connection therewith or with the
enforcement of its rights hereunder.
Section 9.4 Amendment. This Agreement may be amended by
the parties hereto at any time before or after approval hereof by
the shareholders of the Company, but, after such approval, no
amendment shall be made which (i) changes the form or decreases
the amount of the Merger Consideration, (ii) in any way
materially adversely affects the rights of the Company's
shareholders or (iii) under applicable law would require approval
of the Company's shareholders in any such case referred to in
clauses (i) and (ii), without the further approval of such
shareholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties
hereto.
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Section 9.5 Waiver. At any time prior to the Effective
Time, the parties hereto may, to the extent permitted by
applicable law, (i) extend the time for the performance of any of
the obligations or other acts of any other party hereto, (ii)
waive any inaccuracies in the representations and warranties by
any other party contained herein or in any documents delivered by
any other party pursuant hereto and (iii) waive compliance with
any of the agreements of any other party or with any conditions
to its own obligations contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
Section 10.1 Notices. All notices or other communications
under this Agreement shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery
in person, by telecopy (with confirmation of receipt), or by
registered or certified mail, postage prepaid, return receipt
requested, addressed as follows:
If to the Company:
Bath National Corporation
44 Liberty Street
Bath, New York 14810
Attention: Douglas McCabe, President and Chief
Executive Officer
Telecopy No.: 607-776-4510
With copies to:
Raymond A. Tiernan, Esq.
Elias, Matz, Tiernan & Herrick, L.L.P.
12th Floor, The Walker Building
734 15th Street
Washington, D.C. 20005
Telecopy: 202-347-2172
If to Parent or Merger Subsidiary:
Financial Institutions, Inc.
220 Liberty Street
Warsaw, New York 14569-0227
Attention: Peter G. Humphrey, President and Chief
Executive Officer
Telecopy: 716-786-1108
With a copy to:
Bruce J. Baker, Esq.
Nixon Peabody LLP
Clinton Square
Rochester, New York 14603
Telecopy: 716-263-1600
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or to such other address as any party may have furnished to the
other parties in writing in accordance with this Section.
Section 10.2 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 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, including, but not limited to, the provisions of
Sections 7.11 and 7.12 hereof.
Section 10.3 Specific Performance. The Company
acknowledges that the Company's Common Stock and the Company's
business and assets are unique, and that if the Company shall
refuse to consummate the transaction contemplated by this
Agreement without cause and in breach of its obligations
hereunder, such failure by the Company will cause irreparable
harm to Parent for which there will be no adequate remedy at law,
in which event Parent shall be entitled, in addition to its other
remedies at law, to specific performance of this Agreement.
Section 10.4 Entire Agreement. This Agreement (including
the documents and instruments referred to herein), together with
the Confidentiality Agreement and the Lockup Option, constitutes
the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, among the parties, or
any of them, with respect to the subject matter hereof.
Section 10.5 Assignments; Parties in Interest. Neither
this Agreement nor any of the rights, interests or obligations
hereunder may be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written
consent of the other parties. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and
nothing in this Agreement, express or implied, is intended to or
shall confer upon any person not a party hereto any right,
benefit or remedy of any nature whatsoever under or by reason of
this Agreement, including to confer third party beneficiary
rights, except for the provisions of Article III and
Sections 7.4, 7.6, 7.9, 7.11 and 7.12.
Section 10.6 Governing Law. This Agreement, shall be
governed in all respects by the laws of the State of New York
(without giving effect to the provisions thereof relating to
conflicts of law). The exclusive venue for the adjudication of
any dispute or proceeding arising out of this Agreement or the
performance thereof shall be the courts located in the County of
Monroe, State of New York and the parties hereto and their
affiliates each consents to and hereby submits to the
jurisdiction of any court located in the County of Monroe, State
of New York or Federal courts in the Western District of New
York.
Section 10.7 Headings; Disclosure. The descriptive
headings herein are inserted for convenience of reference only
and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. Any disclosure by the Company
or Parent in any portion of its respective Disclosure Schedule
shall be deemed disclosure in each other portion of such
Disclosure Schedule.
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Section 10.8 Certain Definitions and Rules of Construction.
(a) As used in this Agreement:
"Affiliate," as applied to any person, shall mean any
other person directly or indirectly controlling, controlled by,
or under common control with, that person; for purposes of this
definition, "control" (including, with correlative meanings, the
terms "controlling," "controlled by" and "under common control
with"), as applied to any person, means the possession, directly
or indirectly, of the power to direct or cause the direction of
the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise.
"Agreement" means this Agreement and Plan of Merger.
"Applications" means the applications for regulatory
approval which are required by the transactions contemplated
hereby.
"BHCA" means the Bank Holding Company Act of 1956, as
amended.
"BIF" means the Bank Insurance Fund administered by the
FDIC.
"Bank" means Bath National Bank, a wholly owned
subsidiary of the Company.
"Bank Regulatory Reports" means the Call Reports of the
Bank and accompanying schedules, as filed with the Federal
Deposit Insurance Corporation, for each calendar quarter
beginning with the quarter ended September 30, 1999, through the
Closing Date, and all Annual, Quarterly and Current Reports filed
on Form Y-2 with the FRB by the Company from September 30, 1999
through the Closing Date.
"Business Day" shall mean any day, Monday-Friday, on
which national banks may legally be open for business in New
York.
"Certificate of Merger" has the meaning set forth in
Section 1.3.
"Certificates" has the meaning set forth in
Section 3.2.
"Closing Date" has the meaning set forth in
Section 1.2.
"Code" has the meaning set forth in Section 4.10(a).
"Company Benefit Plans" has the meaning set forth in
Section 4.9.
"Company Common Stock" has the meaning set forth in
Section 3.1(a).
"Company Intellectual Property Rights" has the meaning
set forth in Section 4.16(a).
"Company Contract" has the meaning set forth in
Section 4.14.
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"Company Permits" has the meaning set forth in
Section 4.12.
"Company SEC Reports" shall have the meaning set forth
in Section 4.5(a).
"Consent" shall have the meaning set forth in
Section 5.4(b).
"Disclosure Schedule" has the meaning set forth in
Article IV, Introduction.
"Effective Time" shall have the meaning set forth in
Section 1.3.
"Environmental Law" has the meaning set forth in
Section 4.19.
"ERISA" shall have the meaning set forth in
Section 4.9(a).
"ERISA Affiliate" has the meaning set forth in
Section 4.9(a).
"Exchange Act" has the meaning set forth in
Section 3.4(a).
"FDIA" means the Federal Deposit Insurance Act, as
amended.
"FDIC" means the Federal Deposit Insurance Corporation.
"FHLB" means the Federal Home Loan Bank.
"FRB" means the Board of Governors of the Federal
Reserve System.
"GAAP" has the meaning set forth in Section 4.5(b).
"Hazardous Material" has the meaning set forth in
Section 4.19(g).
"Information Technology" has the meaning set forth in
Section 4.16(c).
"Knowledge" or any other formulation of "knowledge"
shall mean, the Knowledge of the Company's or the Bank's senior
executive officers with respect to the Company, and with respect
to Parent and Merger Subsidiary, the knowledge of Parent's senior
executive officers;
"Law" means any constitution, statute, order,
regulation, directive, opinion, interpretive letter or embodiment
of official action taken at the federal or state law by an entity
having jurisdiction over one or more parties to this Agreement.
"Lien" shall have the meaning set forth in
Section 5.4(a).
"Loan Property" shall have the meaning given to such
term in Section 4.19(g) of this Agreement.
"Lockup Option" shall have the meaning set forth in
Section 4.2(a) and 7.9(b) of this Agreement.
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"Material Adverse Effect" shall mean, with respect to
the Company and its Subsidiaries taken as a whole, Parent and its
Subsidiaries taken as a whole, and any other Person (including a
Person who is a borrower or guarantor of a Loan), a change or
effect that is or is reasonably likely to be materially adverse
to the business, results of operations or financial condition of
such Person taken as a whole; provided, however, that "Material
Adverse Effect" shall not be deemed to include the impact of
(a) any change in GAAP or in banking or similar laws, rules or
regulations of general applicability to depository institutions
and their holding companies (including changes in insurance
deposit assessment rates applicable to financial institutions and
their holding companies) or interpretations thereof by courts and
governmental authorities, (b) actions and omissions of the
Company or the Parent or any Subsidiaries taken with the prior
written consent of the other parties hereto, (c) changes in
economic conditions affecting financial institutions generally,
including, but not limited to, changes in the general level of
market interest rates, and (d) the direct effects of compliance
with this Agreement on the operating performance of the parties
including expenses incurred by the parties hereto in consummating
the transactions contemplated by this Agreement.
"Merger Consideration" has the meaning set forth in
Section 3.1(a).
"Merger Subsidiary" has the meaning set forth in the
preamble to this Agreement.
"OCC" means the Office of the Comptroller of the
Currency.
"OREO" means other real estate owned as described in
Section 4.27(c).
"Other Investments shall have the meaning set forth in
Section 4.2(c).
"PGBC" means the Pension Benefit Guarantee Corporation
as described in 4.10(c).
"Parent Disclosure Schedule" has the meaning set forth
in Article IV, Introduction.
"Participation Facility" shall have the meaning given
to such term in Section 4.19(g) of this Agreement.
"Person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall
include a "group" as such term is defined in Section 13(d)(3) of
the Exchange Act);
"Proxy Statement" has the meaning set forth in
Section 3.5(a).
"Quarterly Financial Statements" has the meaning set
forth in Section 4.5(c).
"Regulatory Agreement" has the meaning given to that
term in Section 4.12(b) of this Agreement.
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"Regulatory Authority" means any agency or department
of any Federal or state government, including without limitation,
the FDIC, the FRB, the FHLBB, the OCC, the SEC or the respective
staffs thereof.
"SEC" has meaning set forth in Section 3.5(a).
"Subsidiary" or "Subsidiaries" means, with respect to
Parent, the Company or any other person, any corporation,
partnership, joint venture or other legal entity of which Parent,
the Company or such other person, as the case may be (either
alone or through or together with any other subsidiary), owns,
directly or indirectly, stock or other equity interests the
Holders of which are generally entitled to more than 50% of the
vote for the election of the board of directors or other
governing body of such corporation or other legal entity;
"Violation" has the meaning set forth in
Section 4.4(a).
"Year 2000 Ready" as the meaning set forth in Section
4.16(c).
(b) Other Rules of Construction.
(i) References in this Agreement to any gender shall
include references to all genders. Unless the context
otherwise requires, references in the singular include
references in the plural and vice versa. References to
a party to this Agreement or to other agreements
described herein means those Persons executing such
agreements.
(ii) The words "include", "including" or "includes"
shall be deemed to be followed by the phrase "without
limitation" or the phrase "but not limited to" in all
places where such words appear in this Agreement.
(iii) This Agreement is the joint drafting product
of Parent and the Company and each provision has been
subject to negotiation and agreement and shall not be
construed for or against either party as drafter
thereof.
(iv) Each case in this Agreement where a contract or
agreement, including this Agreement, is represented or
warranted to be enforceable will be deemed to include
as a limitation to the extent that enforceability may
be subject to applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or
similar Laws affecting the enforcement of creditors'
rights generally and to general equitable principles,
whether applied in equity or at law.
(v) All references in the Agreement to financial terms
shall be deemed to refer to such terms as they are
defined under GAAP, consistently applied.
Section 10.8 Counterparts. This Agreement may be executed
in two or more counterparts which together shall constitute a
single agreement.
Section 10.9 Severability. If any term or other provision
of this Agreement is invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other
conditions and
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provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economics or legal substance of
the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon determination
that any term or other provision hereof is invalid, illegal
or incapable of being enforced, the parties hereto shall negotiate
in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
Section 10.10 Negotiated Agreement. This Agreement has
been fully negotiated by counsel representing each party to this
Agreement. Thus, where there is ambiguity regarding the meaning
of particular language or terms of this Agreement, the language
shall not be construed against the drafting party.
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IN WITNESS WHEREOF, Parent, Merger Subsidiary and the
Company have caused this Agreement to be signed by their
respective officers thereunder duly authorized all as of the date
first written above.
PARENT
FINANCIAL INSTITUTIONS, INC.
By /s/Peter G. Humphrey
-------------------------------
Name: Peter G. Humphrey
Title: President and Chief
Executive Officer
MERGER SUBSIDIARY
FI SUBSIDIARY I, INC.
By /s/Peter G. Humphrey
-------------------------------
Name: Peter G. Humphrey
Title: President and Chief
Executive Officer
COMPANY
BATH NATIONAL CORPORATION
By /s/Douglas McCabe
-------------------------------
Name: Douglas McCabe
Title: President
A-45
APPENDIX B
November 2, 2000
Board of Directors
Bath National Corporation
44 Liberty Street
Bath, NY 14810
Directors:
You have requested our opinion as to the fairness, from a financial
point of view, to the holders of the outstanding shares of common stock of
Bath National Corporation (the "Company") of the consideration to be received
by such shareholders from Financial Institutions, Inc. ("FII") pursuant to
the Agreement and Plan of Merger to be dated as of November 2, 2000 by and
among the Company, FII and its wholly owned subsidiary, FI Subsidiary I, Inc.
("FISI"). (the "Agreement"). Pursuant to the Agreement FISI will be merged
with and into the Company and surviving corporation of such merger will be
merged with and into FII, as a result of which, the Company's sole bank
subsidiary will become a wholly owned subsidiary of FII (the "Merger") and
each outstanding share of the Company's common stock will be converted into
the right to receive $48.00 in cash (the "Consideration").
In connection with this opinion we have reviewed, among other things:
(a) the Agreement; (b) the Shareholders' Voting Agreement and Irrevocable
Proxy and the Stock Option Agreement; (c) audited consolidated financial
statements and management's discussions and analysis of the financial
condition and results of operations for the Company and for FII for the three
fiscal years ended December 31, 1999; (d) unaudited consolidated financial
statements for the Company and for FII for the nine months ended September 30,
2000; (e) historical market prices and trading volume for the Company's common
stock and certain other publicly available business and financial information
relating to the Company and to FII; (f) financial projections of the Company
prepared by the Company's management; (g) the views of senior management of
the Company of the past and current business operations, results thereof,
financial condition and future prospects and growth of the Company; (h) a
comparison of certain financial information for the Company with similar
information for certain other companies we considered comparable to the
Company; (i) the financial terms of certain recent business combinations in
the banking industry; (j) the current market environment generally and the
banking environment in particular; and (k) such other information, financial
studies, analyses and investigations and financial, economic and market
criteria as we considered appropriate under the circumstances.
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We have relied, without independent verification or investigation, on
all of the financial information, analyses and other information furnished to
us for purposes of this opinion, including information relating to assets and
liabilities, contingent or otherwise, as being complete and accurate. We have
also relied upon the management of the Company as to the reasonableness and
achievability of the financial and operating forecasts and projections
provided to us. In that regard, we have assumed, with your consent, that such
forecasts, projections and estimates have been reasonably prepared and reflect
the best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company. We have not
made an independent evaluation or appraisal of the assets and liabilities of
the Company or any of its subsidiaries and we have not been furnished with any
such evaluation or appraisal. Furthermore, this opinion shall not constitute
any such evaluation or appraisal. Our opinion is necessarily based on the
information available to us and general economic, financial and stock market
conditions and circumstances as they exist and can be evaluated by us on the
date hereof.
We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a portion of which is
contingent on the consummation of the Merger. In the ordinary course of our
business, we may actively trade the equity securities of the Company and of
FII for our own account and for the accounts of customers, and accordingly may
at any time hold a long or short position in such securities. In June of 1999
we acted as lead manager in FII's initial public offering of its common stock.
It is understood that this opinion is for the information of the Board
of Directors in connection with its consideration of the Merger and does not
constitute a recommendation to any stockholder as to how such stockholder
should vote on the Merger.
Based upon and subject to the foregoing and based upon such other
matters as we consider relevant, it is our opinion that, as of the date
hereof, the Consideration to be received by the common shareholders of the
Company in the Merger is fair, from a financial point of view, to such
shareholders.
Very truly yours,
CIBC World Markets
B-2
APPENDIX C
NEW YORK BUSINESS CORPORATION LAW
SECTION 623 -- PROCEDURE TO ENFORCE SHAREHOLDER'S RIGHT TO RECEIVE
PAYMENT FOR SHARES.
(a) A shareholder intending to enforce his right under a section of
this chapter to receive payment for his shares if the proposed corporate
action referred to therein is taken shall file with the corporation, before
the meeting of shareholders at which the action is submitted to a vote, or at
such meeting but before the vote, written objection to the action. The
objection shall include a notice of his election to dissent, his name and
residence address, the number and classes of shares as to which he dissents
and a demand for payment of the fair value of his shares if the action is
taken. Such objection is not required from any shareholder to whom the
corporation did not give notice of such meeting in accordance with this
chapter or where the proposed action is authorized by written consent of
shareholders without a meeting.
(b) Within ten days after the shareholders' authorization date, which
term as used in this section means the date on which the shareholders' vote
authorizing such action was taken, or the date on which such consent without a
meeting was obtained from the requisite shareholders, the corporation shall
give written notice of such authorization or consent by registered mail to
each shareholder who filed written objection or from whom written objection
was not required, excepting any shareholder who voted for or consented in
writing to the proposed action and who there by is deemed to have elected not
to enforce his right to receive payment for his shares.
(c) Within twenty days after the giving of notice to him, any
shareholder from whom written objection was not required and who elects to
dissent shall file with the corporation a written notice of such election,
stating his name and residence address, the number and classes of shares as to
which he dissents and a demand for payment of the fair value of his shares.
Any shareholder who elects to dissent from a merger under section 905 (Merger
of subsidiary corporation) or paragraph (c) of section 907 (Merger or
consolidation of domestic and foreign corporations) or from a share exchange
under paragraph (g) of section 913 (Share exchanges) shall file a written
notice of such election to dissent within twenty days after the giving to him
of a copy of the plan of merger or exchange or an outline of the material
features thereof under section 905 or 913.
(d) A shareholder may not dissent as to less than all of the shares,
as to which he has a right to dissent, held by him of record, that he owns
beneficially. A nominee or fiduciary may not dissent on behalf of any
beneficial owner as to less than all of the shares of such owner, as to which
such nominee or fiduciary has a right to dissent, held of record by such
nominee or fiduciary.
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(e) Upon consummation of the corporate action, the shareholder shall
cease to have any of the rights of a shareholder except the right to be paid
the fair value of his shares and any other rights under this section. A notice
of election may be withdrawn by the shareholder at any time prior to his
acceptance in writing of an offer made by the corporation, as provided in
paragraph (g), but in no case later than sixty days from the date of
consummation of the corporate action except that if the corporation fails to
make a timely offer, as provided in paragraph (g), the time for withdrawing a
notice of election shall be extended until sixty days from the date an offer
is made. Upon expiration of such time, withdrawal of a notice of election
shall require the written consent of the corporation. In order to be
effective, withdrawal of a notice of election must be accompanied by the
return to the corporation of any advance payment made to the shareholder as
provided in paragraph (g). If a notice of election is withdrawn, or the
corporate action is rescinded, or a court shall determine that the shareholder
is not entitled to receive payment for his shares, or the shareholder shall
otherwise lose his dissenter's rights, he shall not have the right to receive
payment for his shares and he shall be reinstated to all his rights as a
shareholder as of the consummation of the corporate action, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceedings that may have been
taken in the interim.
(f) At the time of filing the notice of election to dissent or within
one month thereafter the shareholder of shares represented by certificates
shall submit the certificates representing his shares to the corporation, or
to its transfer agent, which shall forthwith note conspicuously thereon that a
notice of election has been filed and shall return the certificates to the
shareholder or other person who submitted them on his behalf. Any shareholder
of shares represented by certificates who fails to submit his certificates for
such notation as herein specified shall, at the option of the corporation
exercised by written notice to him within forty-five days from the date of
filing of such notice of election to dissent, lose his dissenter's rights
unless a court, for good cause shown, shall otherwise direct. Upon transfer of
a certificate bearing such notation, each new certificate issued therefor
shall bear a similar notation together with the name of the original
dissenting holder of the shares and a transferee shall acquire no rights in
the corporation except those which the original dissenting shareholder had at
the time of the transfer.
(g) Within fifteen days after the expiration of the period within
which shareholders may file their notices of election to dissent, or within
fifteen days after the proposed corporate action is consummated, whichever is
later (but in no case later than ninety days from the shareholders'
authorization date), the corporation or, in the case of a merger or
consolidation, the surviving or new corporation, shall make a written offer by
registered mail to each shareholder who has filed such notice of election to
pay for his shares at a specified price which the corporation considers to be
their fair value. Such offer shall be accompanied by a statement setting forth
the aggregate number of shares with respect to which notices of election to
dissent
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have been received and the aggregate number of holders of such shares.
If the corporate action has been consummated, such offer shall also be
accompanied by (1) advance payment to each such shareholder who has submitted
the certificates representing his shares to the corporation, as provided in
paragraph (f), of an amount equal to eighty percent of the amount of such
offer, or (2) as to each shareholder who has not yet submitted his
certificates a statement that advance payment to him of an amount equal to
eighty percent of the amount of such offer will be made by the corporation
promptly upon submission of his certificates. If the corporate action has not
been consummated at the time of the making of the offer, such advance payment
or statement as to advance payment shall be sent to each shareholder entitled
thereto forthwith upon consummation of the corporate action. Every advance
payment or statement as to advance payment shall include advice to the
shareholder to the effect that acceptance of such payment does not constitute
a waiver of any dissenters' rights. If the corporate action has not been
consummated upon the expiration of the ninety day period after the
shareholders' authorization date, the offer may be conditioned upon the
consummation of such action. Such offer shall be made at the same price per
share to all dissenting shareholders of the same class, or if divided into
series, of the same series and shall be accompanied by a balance sheet of the
corporation whose shares the dissenting shareholder holds as of the latest
available date, which shall not be earlier than twelve months before the
making of such offer, and a profit and loss statement or statements for not
less than a twelve month period ended on the date of such balance sheet or, if
the corporation was not in existence throughout such twelve month period, for
the portion thereof during which it was in existence. Notwithstanding the
foregoing, the corporation shall not be required to furnish a balance sheet or
profit and loss statement or statements to any shareholder to whom such
balance sheet or profit and loss statement or statements were previously
furnished, nor if an connection with obtaining the shareholders' authorization
for or consent to the proposed corporate action the shareholders were
furnished with a proxy or information statement, which included financial
statements, pursuant to Regulation 14A or Regulation 14C of the United States
Securities and Exchange Commission. If within thirty days after the making of
such offer, the corporation making the offer and any shareholder agree upon
the price to be paid for his shares, payment therefor shall be made within
sixty days after the making of such offer or the consummation of the proposed
corporate action, whichever is later, upon the surrender of the certificates
for any such shares represented by certificates.
(h) The following procedure shall apply if the corporation fails to
make such offer within such period of fifteen days, or if it makes the offer
and any dissenting shareholder or shareholders fail to agree with it within
the period of thirty days thereafter upon the price to be paid for their
shares:
(1) The corporation shall, within twenty days after the expiration of
whichever is applicable of the two periods last mentioned, institute a
special proceeding in the supreme court in the judicial district in which the
office of the corporation is located to determine the rights of dissenting
shareholders and to fix the fair value of their shares. If, in the case of
merger or consolidation, the surviving or new corporation is a foreign
corporation without an office in this
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state, such proceeding shall be brought in the county where the office of the
domestic corporation, whose shares are to be valued, was located.
(2) If the corporation fails to institute such proceeding within such
period of twenty days, and dissenting shareholder may institute such
proceeding for the same purpose not later than thirty days after the
expiration of such twenty day period. If such proceeding is not instituted
within such thirty day period, all dissenter's rights shall be lost unless the
supreme court, for good cause shown, shall otherwise direct.
(3) All dissenting shareholders, excepting those who, as provided in
paragraph (g), have agreed with the corporation upon the price to be paid for
their shares, shall be made parties to such proceeding, which shall have the
effect of an action quasi in rem against their shares. The corporation shall
serve a copy of the petition in such proceeding upon each dissenting
shareholder who is a resident of this state in the manner provided by law for
the service of a summons, and upon each nonresident dissenting shareholder
either by registered mail and publication, or in such other manner as is
permitted by law. The jurisdiction of the court shall be plenary and
exclusive.
(4) The court shall determine whether each dissenting shareholder, as
to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation does not
request any such determination or if the court finds that any dissenting
shareholder is so entitled, it shall proceed to fix the value of the shares,
which, for the purposes of this section, shall be the fair value as of the
close of business on the day prior to the shareholders' authorization date. In
fixing the fair value of the shares, the court shall consider the nature of
the transaction giving rise to the shareholder's right to receive payment for
shares and its effects on the corporation and its shareholders, the concepts
and methods then customary in the relevant securities and financial markets
for determining fair value of shares of a corporation engaging in a similar
transaction under comparable circumstances and all other relevant factors. The
court shall determine the fair value of the shares without a jury and without
referral to an appraiser or referee. Upon application by the corporation or
by any shareholder who is a party to the proceeding, the court may, in its
discretion, permit pretrial disclosure, including, but not limited to,
disclosure of any expert's reports relating to the fair value of the shares
whether or not intended for use at the trial in the proceeding and
notwithstanding subdivision (d) of section 3101 of the civil practice law and
rules.
(5) The final order in the proceeding shall be entered against the
corporation in favor of each dissenting shareholder who is a party to the
proceeding and is entitled thereto for the value of his shares so determined.
(6) The final order shall include an allowance for interest at such
rate as the court finds to be equitable, from the date the corporate action
was consummated to the date of payment. In determining the rate of interest,
the court shall consider all relevant factors, including the rate of interest
which the corporation would have had to pay to borrow money
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during the pendency of the proceeding. If the court finds that the refusal of
any shareholder to accept the corporate offer of payment for his shares was
arbitrary, vexatious or otherwise not in good faith, no interest shall be
allowed to him.
(7) Each party to such proceeding shall bear its own costs and
expenses, including the fees and expenses of its counsel and of any experts
employed by it. Notwithstanding the foregoing, the court may, in its
discretion, apportion and assess all or any part of the costs, expenses and
fees incurred by the corporation against any or all of the dissenting
shareholders who are parties to the proceeding, including any who have
withdrawn their notices of election as provided in paragraph (e), if the court
finds that their refusal to accept the corporate offer was arbitrary,
vexatious or otherwise not in good faith. The court may, in its discretion,
apportion and assess all or any part of the costs, expenses and fees incurred
by any or all of the dissenting shareholders who are parties to the proceeding
against the corporation if the court finds any of the following: (A) that the
fair value of the shares as determined materially exceeds the amount which the
corporation offered to pay; (B) that no offer or required advance payment was
made by the corporation; (C) that the corporation failed to institute the
special proceeding within the period specified therefor; or (D) that the
action of the corporation in complying with its obligations as provided in
this section was arbitrary, vexatious or otherwise not in good faith. In
making any determination as provided in clause (A), the court may consider the
dollar amount or the percentage, or both, by which the fair value of the
shares as determined exceeds the corporate offer.
(8) Within sixty days after final determination of the proceeding, the
corporation shall pay to each dissenting shareholder the amount found to be
due him, upon surrender of the certificate for any such shares represented by
certificates.
(i) Shares acquired by the corporation upon the payment of the agreed
value therefor or of the amount due under the final order, as provided in this
section, shall become treasury shares or be cancelled as provided in section
515 (Reacquired shares), except that, in the case of a merger or
consolidation, they may be held and disposed of as the plan of merger or
consolidation may otherwise provide.
(j) No payment shall be made to a dissenting shareholder under this
section at a time when the corporation is insolvent or when such payment would
make it insolvent. In such event, the dissenting shareholder shall, at his
option:
(1) Withdraw his notice of election, which shall in such event be
deemed withdrawn with the written consent of the corporation; or
(2) Retain his status as a claimant against the corporation and, if it
is liquidated, be subordinated to the rights of creditors of the corporation,
but have rights superior to the non-dissenting shareholders, and if it is not
liquidated, retain his right to be paid for his shares, which
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right the corporation shall be obliged to satisfy when the restrictions of
this paragraph do not apply.
(3) The dissenting shareholder shall exercise such option under
subparagraph (1) or (2) by written notice filed with the corporation within
thirty days after the corporation has given him written notice that payment
for his shares cannot be made because of the restrictions of this paragraph.
If the dissenting shareholder fails to exercise such option as provided, the
corporation shall exercise the option by written notice given to him within
twenty days after the expiration of such period of thirty days.
(k) The enforcement by a shareholder of his right to receive payment
for his shares in the manner provided herein shall exclude the enforcement by
such shareholder of any other right to which he might otherwise be entitled by
virtue of share ownership, except as provided in paragraph (e), and except
that this section shall not exclude the right of such shareholder to bring or
maintain an appropriate action to obtain relief on the ground that such
corporate action will be or is unlawful or fraudulent as to him.
(l) Except as otherwise expressly provided in this section, any notice
to be given by a corporation to a shareholder under this section shall be
given in the manner provided in section 605 (Notice of meetings of
shareholders).
(m) This section shall not apply to foreign corporations except as
provided in subparagraph (e)(2) of section 907 (Merger or consolidation of
domestic and foreign corporations).
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APPENDIX D
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Agreement") is made as of the 2nd day
of November, 2000, between Financial Institutions, Inc., a New York
corporation ("Grantee"), and Bath National Corporation, a New York corporation
("Issuer").
RECITALS
Grantee, FI Subsidiary I, Inc. and Issuer are entering into an Agreement
and Plan of Merger, dated as of the date hereof (the "Plan"), which is being
executed by the parties hereto simultaneously with the execution of this
Agreement.
As a condition and inducement to Grantee's entering into the Plan and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below).
In consideration of the foregoing and the mutual covenants and
agreements set forth herein and in the Plan, the parties hereto agree as
follows:
Section 1. Grant of Option.
(a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, One hundred
ninety six thousand (196,000) fully paid and nonassessable shares (the "Option
Shares") of Common Stock, par value $5.00 per share (the "Common Stock"), of
Issuer at a price per share equal to $37 per share (the "Initial Price");
provided, however, that in the event Issuer issues or agrees to issue (other
than pursuant to options and warrants to issue Common Stock or shares of
convertible stock convertible into shares of Common Stock in effect or
outstanding as of the date hereof) any shares of Common Stock at a price less
than the Initial Price (as adjusted pursuant to Section 3(b) hereof), such
price shall be equal to such lesser price (such price, as adjusted as
hereinafter provided, the "Option Price"). The number of shares of Common
Stock that may be received upon the exercise of the Option and the Option
Price are subject to adjustment as herein set forth.
Section 2. Exercise of Option.
(a) Timing of Exercise, Termination. Grantee may exercise the Option,
in whole or part, at any time and from time to time subsequent to the
occurrence of a Purchase Event (as defined below); provided that the Option
shall terminate and be of no further force and effect upon the earliest to
occur of (i) the time immediately prior to the Effective Time, (ii) 12 months
after the first occurrence of a Purchase Event, (iii) termination of the Plan
in accordance with the terms thereof prior to the occurrence of a Purchase
Event (other than a termination of the Plan by Grantee pursuant to
Section 9.1(c) thereof due to a willful breach by Issuer of any
representation, warranty or agreement contained therein or by Grantee and
Issuer pursuant to Section 9.1(a) thereof if Grantee shall at that time have
been entitled to terminate the Plan pursuant to Section 9.1(c) thereof due to
a willful breach by Issuer of any representation, warranty or agreement
contained therein) or (iv) 18 months after the termination of the Plan by
Grantee pursuant to Section 9.1(c) thereof due to a willful breach by Issuer
of any representation,
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warranty or agreement contained therein or by Grantee and Issuer
pursuant to Section 9.1(a) thereof if Grantee shall at that time have been
entitled to terminate the Plan pursuant to Section 9.1(c) thereof due to a
willful breach by Issuer of any representation, warranty or agreement
contained therein. The events described in clauses (i) - (iv) in the
preceding sentence are hereinafter collectively referred to as an "Exercise
Termination Event." Notwithstanding anything to the contrary contained
herein, the Option may not be exercised at any time when Grantee is in
material breach of any of its representations, warranties or agreements
contained in the Plan such that Issuer would be entitled to terminate the Plan
pursuant to Section 9.1(b) thereof.
(b) Purchase Event. The term "Purchase Event" shall mean the
acquisition by any Person (other than Grantee or any Grantee Subsidiary or any
Issuer Subsidiary acting in a fiduciary capacity in the ordinary course of
business (provided that the foregoing exception shall not apply to any Person
for whom or which such Issuer Subsidiary is acting in such fiduciary
capacity)) of Beneficial Ownership of shares of Common Stock, such that, upon
the consummation of such acquisition, such Person has Beneficial Ownership, in
the aggregate, of 20% or more of the then outstanding shares of Common Stock
(c) Notice by Issuer. Issuer shall notify Grantee promptly in writing
of the occurrence of any Purchase Event; provided, however, that the giving of
such notice by Issuer shall not be a condition to the right of Grantee to
exercise the Option.
(d) Notice of Exercise. In the event that Grantee is entitled to and
wishes to exercise the Option, it shall send to Issuer a written notice (the
"Option Notice" and the date of which being hereinafter referred to as the
"Notice Date") specifying (i) the total number of shares of Common Stock it
will purchase pursuant to such exercise, (ii) the aggregate purchase price as
provided herein, and (iii) a period of time (that shall not be less than three
business days nor more than twenty (20) business days) running from the Notice
Date (the "Closing Date") and a place at which the closing of such purchase
shall take place; provided, that, if prior notification to or approval of the
Federal Reserve Board or any other Regulatory Authority is required in
connection with such purchase (each, a "Notification" or an "Approval," as the
case may be), (a) Grantee shall promptly file, or cause to be filed, the
required notice or application for approval ("Notice/Application"),
(b) Grantee shall expeditiously process, or cause to be expeditiously
processed, the Notice/Application, and (c) for the purpose of determining the
Closing Date pursuant to clause (iii) of this sentence, the period of time
that otherwise would run from the Notice Date shall instead run from the later
of (x) in connection with any Notification, the date on which any required
notification periods have expired or been terminated, and (y) in connection
with any Approval, the date on which such approval has been obtained and any
requisite waiting period or periods shall have expired. For purposes of
Section 2(a) hereof, any exercise of the Option shall be deemed to occur on
the Notice Date relating thereto.
(e) Payments. At the closing referred to in Section 2(e) hereof,
Grantee shall pay to Issuer the aggregate Option Price for the shares of
Common Stock specified in the Option Notice in immediately available funds by
wire transfer to a bank account designated by Issuer; provided, however, that
failure or refusal of Issuer to designate such a bank account shall not
preclude Grantee from exercising the Option.
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(f) At the initial closing referred to in Section 2(e) hereof, Issuer
shall pay Grantee an amount in cash equal to three million dollars
($3,000,000) less the difference between (A) the market/offer price (as
defined in Section 7(a)) of the Common Stock and (B) $37.00; multiplied by
196,000.
(g) Delivery of Common Stock. At such closing, subject to any
requisite Notification and/or Approval having been made or given and being in
full force and effect, and only following payment as set forth in Section 2(e)
hereof, Issuer shall deliver to Grantee a certificate or certificates
representing the number of shares of Common Stock specified in the Option
Notice and, if the Option should be exercised in part only, a new Option
evidencing the rights of Grantee thereof to purchase the balance of the shares
of Common Stock purchasable hereunder. Grantee shall deliver to Issuer a
letter at such closing that Grantee will not offer to sell or otherwise
dispose of any Option Shares in violation of applicable law or the terms of
this Agreement.
(h) Common Stock Certificates. Certificates for Common Stock
delivered at a closing hereunder shall be endorsed with a restrictive legend
substantially as follows:
The transfer of the shares represented by this
certificate is subject to resale restrictions arising
under the Securities Act of 1933, as amended, and the
certain provisions of an agreement between Financial
Institutions Inc. and Bath National Corporation
("Issuer") dated as of the 2nd day of November, 2000.
A copy of such agreement is on file at the principal
office of Issuer and will be provided to the holder
hereof without charge upon receipt by Issuer of a
written request therefor.
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if Grantee shall
have delivered to Issuer a copy of a letter from the staff of the Securities
and Exchange Commission, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by delivery
of substitute certificate(s) without such reference if the shares have been
sold or transferred in compliance with the provisions of this Agreement and
under circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in the
preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(i) Holder of Record. Upon the giving by Grantee to Issuer of an
Option Notice and the tender of the applicable purchase price in immediately
available funds on the Closing Date, subject to any requisite Notification
and/or Approval having been made or given and being in full force and effect,
Grantee shall be deemed to be the holder of record of the number of shares of
Common Stock specified in the Option Notice, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall
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not then actually be delivered to Grantee. Issuer shall pay all
expenses and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of
Grantee.
Section 3. Issuer's Covenants.
(a) Available Shares. Issuer agrees that it shall at all times until
the termination of this Agreement have reserved for issuance upon the exercise
of the Option that number of authorized and reserved shares of Common Stock
equal to the maximum number of shares of Common Stock at any time and from
time to time issuable hereunder, all of which shares shall, upon issuance
pursuant hereto, be duly authorized, validly issued, fully paid,
nonassessable, and delivered free and clear of all claims, liens, encumbrances
and security interests and not subject to any preemptive rights.
(b) Compliance. Issuer agrees that it shall not, by amendment of its
articles of incorporation or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek to
avoid the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by Issuer.
(c) Certain Actions, Applications and Arrangements. Issuer shall
promptly take all action as may from time to time be required (including (i)
complying with all premerger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder, and (ii) in the event, under the Bank Holding Company Act of 1956,
as amended (the "B.H.C. Act"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the Federa1
Reserve Board or to any other Regulatory Authority is necessary before the
option may be exercised, cooperating with Grantee in preparing such
applications or notices and providing such information to each such Regulatory
Authority as it may require) in order to permit Grantee to exercise the Option
and Issuer duly and effectively to issue shares of Common Stock pursuant
hereto, and to protect the rights of Grantee against dilution.
Section 4. Exchange of Option. This Agreement and the Option granted
hereby are exchangeable, without expense, at the option of Grantee, upon
presentation and surrender of this Agreement at the principal office of
Issuer, for other agreements providing for Options of different denominations
entitling the holder thereof to purchase, on the same terms and subject to the
same conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used in this Section 4 include any agreements and related options
for which this Agreement and the Option granted hereby may be exchanged. Upon
receipt by Issuer of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of this Agreement, and (in the case of loss,
theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Agreement, if mutilated, Issuer shall
execute and deliver a new Agreement of like tenor and date. Any such new
Agreement executed and delivered shall constitute an additional contractual
obligation on the part of Issuer, whether or not the Agreement so lost,
stolen, destroyed or mutilated shall at any time be enforceable by anyone.
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Section 5. Adjustments. The number of shares of Common Stock
purchasable upon the exercise of the Option shall be subject to adjustment
from time to time as follows:
(a) In the event of any change in the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type and number of shares of
Common Stock purchasable upon exercise hereof shall be appropriately adjusted
and proper provision shall be made so that, in the event that any additional
shares of Common Stock are to be issued or otherwise to become outstanding as
a result of any such change (other than pursuant to an exercise of the
Option), the number of shares of Common Stock that remain subject to the
Option shall be increased so that, after such issuance and together with
shares of Common Stock previously issued pursuant to the exercise of the
Option (as adjusted on account of any of the foregoing changes in the Common
Stock), it represents the same proportion of the number of shares of Common
Stock then issued and outstanding as such proportion before the applicable
event described in this Section 5(a).
(b) Whenever the number of Option Shares purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of Option Shares purchasable prior to the
adjustment and the denominator of which shall be equal to the number of Option
Shares purchasable after the adjustment.
Section 6. Registration Rights.
(a) Upon the occurrence of a Purchase Event that occurs prior to an
Exercise Termination Event, Issuer shall, at the request of Grantee (whether
on its own behalf or on behalf of any subsequent holder of the Option (or part
thereof) or any holder of the shares of Common Stock issued pursuant hereto),
promptly prepare, file and keep current a registration statement under the
Securities Act covering any shares issued and issuable pursuant to the Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition
of any shares of Common Stock issued upon total or partial exercise of the
Option in accordance with any plan of disposition requested by Grantee. Issuer
shall use its best efforts to cause such registration statement first to
become effective and then to remain effective for such period not in excess of
180 days from the day such registration statement first becomes effective.
Grantee shall have the right to demand two such registrations at Issuer's
expense. Grantee shall provide all information reasonably requested by Issuer
for inclusion in any registration statement to be filed hereunder. In
connection with any such registration, Issuer and Grantee shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. If requested by
Grantee in connection with such registration, Issuer and Grantee shall become
a party to any underwriting agreement relating to the sale of such shares, but
only to the extent of obligating themselves in respect of representations,
warranties, indemnities and other agreements customarily included in such
underwriting agreements.
(b) In the event that Grantee requests Issuer to file a registration
statement following the failure to obtain any approval required to exercise
the Option as described in Section 9 hereof, the closing of the sale or other
disposition of the Common Stock or other securities
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pursuant to such registration statement shall occur substantially
simultaneously with the exercise of the Option.
(c) Except where applicable state law prohibits such payments, Issuer
shall pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), legal expenses, including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are being
registered, printing expenses and the costs of special audits or "cold
comfort" letters, expenses of underwriters, excluding discounts and
commissions but including liability insurance if Issuer so desires or the
underwriters so require, and the reasonable fees and expenses of any necessary
special experts) in connection with each registration pursuant to this Section
6 (including the related offerings and sales by holders of option Shares) and
all other qualifications, notification or exemptions pursuant to this Section
6.
(d) In connection with any registration under this Section 6, Issuer
hereby indemnifies Grantee, and each officer, director and controlling person
of Grantee, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement contained in any
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary
prospectus, or caused by any omission, or alleged omission, to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such expenses, losses,
claims, damages or liabilities of such indemnified party are caused by any
untrue statement or alleged untrue statement that was included by Issuer in
any such registration statement or prospectus or notification or offering
circular (including any amendments or supplements thereto) in reliance upon
and in conformity with, information furnished in writing to Issuer by such
indemnified party expressly for use therein, and Issuer and each officer,
director and controlling person of Issuer shall be indemnified by such
Grantee, or by such underwriter, as the case may be, for all such expenses,
losses, claims, damages and liabilities caused by any untrue, or alleged
untrue, statement, that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon, and in conformity with,,
information furnished in writing to Issuer by such holder or such underwriter,
as the case may be, expressly for such use.
Promptly upon receipt by a party indemnified under this Section 6(d) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 6(d), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action,
but the failure so to notify the indemnifying party shall not relieve it of
any liability which it may otherwise have to any indemnified party under this
Section 6(d). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party
shall be entitled to participate in and, to the extent it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense of
such action at its own expense, with counsel chosen by it and reasonably
satisfactory to such indemnified party. The indemnified party shall have the
right to employ separate counsel in any such action and participate in the
defense thereof, but the fees and expenses of such counsel (other than
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reasonable costs of investigation) shall be paid by the indemnified party
unless (i) the indemnifying party either agrees to pay the same, (ii) the
indemnifying party fails to assume the defense of such action with counsel
reasonably satisfactory to the indemnified party, or (iii) the indemnified
party has been advised by counsel that one or more legal defenses may be
available to the indemnifying party that may be contrary to the interests of
the indemnified party. No indemnifying party shall be liable for the fees and
expenses of more than one separate counsel for all indemnified parties or for
any settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this Section 6(d) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to
be indemnified, shall contribute to the amount paid or payable by such party
to be indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of Issuer, Grantee and the underwriters in connection with the statements or
omissions which resulted in such expenses, losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
amount paid or payable by a party as a result of the expenses, losses, claims,
damages and liabilities referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim; provided, however, that in no
case shall Grantee be responsible, in the aggregate, for any amount in excess
of the net offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Any obligation by any Grantee to indemnify shall be
several and not joint with other holders of Option Shares.
Section 7. Option Repurchase.
(a) Upon the occurrence of a Purchase Event that occurs prior to an
Exercise Termination Event, (i) at the request (the date of such request being
the "Request Date") of Grantee, delivered within 30 days of the Purchase Event
(or such later period as may be provided pursuant to Section 9 hereof), Issuer
shall repurchase the Option from Grantee at a price (the "Option Repurchase
Price") equal to the amount by which (A) the market/offer price (as defined
below) exceeds (B) the Option Price:, multiplied by the number of shares for
which the Option may then be exercised, and (ii) at the request (the date of
such request being the "Request Date") of the owner of Option Shares from time
to time (the "Owner"), delivered within 30 days of a Purchase Event, Issuer
shall repurchase such number of the Option Shares from the Owner as the Owner
shall designate at a price (the "Option Share Repurchase Price") equal to the
market/offer price multiplied by the number of Option Shares so designated.
The term "market/offer price" shall mean the highest of (i) the price per
share of Common Stock at which a tender offer or exchange offer therefor has
been made after the date hereof and on or prior to the Request Date, (ii) the
price per share of Common Stock paid or to be paid by any third party pursuant
to an agreement with Issuer (whether by way of a merger, consolidation or
otherwise), (iii)-the highest closing price for shares of Common Stock within
the 90-day period ending on the Request Date as reported on The Nasdaq Stock
Market's National Market (as reported in The Wall Street Journal or, if not
reported therein, in another mutually agreed upon authoritative source), or
(iv)
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in the event of a sale of all or substantially all of Issuer's assets, the
sum of the price paid in such sale for such assets and the current market
value of the remaining assets of Issuer as determined by a nationally-
recognized independent investment banking firm mutually selected by Grantee or
the Owner, as the case may be, on the one hand, and Issuer, on the other hand,
divided by the number of shares of Common Stock of Issuer outstanding at the
time of such sale. In determining the market/offer price, the value of
consideration other than cash shall be determined by a nationally-recognized
independent investment banking firm mutually selected by Grantee or Owner, as
the case may be, on the one hand, and Issuer, on the other hand, whose
determination shall be conclusive and binding on all parties.
(b) Grantee or the Owner, as the case may be, may exercise its right
to require Issuer to repurchase the Option and/or any Option Shares pursuant
to this Section 7 by surrendering for such purpose to Issuer, at its principal
office, a copy of this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Grantee or
the Owner, as the case may be, elects to require Issuer to repurchase the
Option and/or the Option Shares in accordance with the provisions of this
Section 7. As immediately as practicable, and in any event within five
business days after the surrender of the Option and/or certificates
representing Option Shares and the receipt of such notice or notices relating
thereto, Issuer shall deliver or cause to be delivered to Grantee the Option
Repurchase Price or to the Owner the Option Share Repurchase Price or the
portion thereof that Issuer is not then prohibited from so delivering under
applicable law and regulation or as a consequence of administrative policy.
(c) Issuer hereby undertakes to use its best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish any repurchase contemplated by
this Section 7. Nonetheless, to the extent that Issuer is prohibited under
applicable law or regulation, or as a consequence of administrative policy,
from repurchasing the option and/or the Option Shares in full, Issuer shall
immediately so notify Grantee and/or the Owner and thereafter deliver or cause
to be delivered, from time to time, to Grantee and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from
delivering, within five business days after the date on which Issuer is no
longer so prohibited; provided, however, that if Issuer at any time after
delivery of a notice of repurchase pursuant to Section 7(b) is prohibited
under applicable law or regulation, or as a consequence of administrative
policy, from delivering to Grantee and/or the Owner, as appropriate, the
Option Repurchase Price and the Option Share Repurchase Price, respectively,
in full, Grantee or Owner may revoke its notice of repurchase of the Option or
the Option Shares either in whole or in part whereupon, in the case of a
revocation in part, Issuer shall promptly (i) deliver to Grantee and/or the
Owner, as appropriate, that portion of the Option Purchase Price or the Option
Share Repurchase Price that Issuer is not prohibited from delivering after
taking into account any such revocation, and (ii) deliver, as appropriate,
either (A) to Grantee, a new Agreement evidencing the right of Grantee to
purchase that number of shares of Common Stock equal to the number of shares
of Common Stock purchasable immediately prior to the delivery of the notice of
repurchase less the number of shares of Common Stock covered by the portion of
the Option repurchased, or (B) to the Owner, a certificate for the number of
Option Shares covered by the revocation.
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(d) Issuer shall not enter into any agreement with any party (other
than Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless
the other party thereto assumes all the obligations of Issuer pursuant to this
Section 7 in the event that Grantee or Owner elects, in its sole discretion,
to require such other party to perform such obligations.
Section 8. Substitute Option.
(a) Grant of Substitute Option. In the event that prior to an
Exercise Termination Event, Issuer shall enter into an agreement (i) to
consolidate or merge with any Person, other than Grantee or a Grantee
Subsidiary, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any Person, other than Grantee or a
Grantee Subsidiary, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then
outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property or
the then outstanding shares of Common Stock shall after such merger represent
less than 50% of the outstanding shares and, share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of
its or any significant Issuer Subsidiary's assets to any Person, other than
Grantee or a Grantee Subsidiary, then, and in each such case, the agreement
governing such transaction shall make proper provision so that the Option
shall, upon the consummation of such transaction and upon the terms and
conditions set forth herein, be converted into, or exchanged for, an option
(the "Substitute Option"), at the election of Grantee, of either (x) the
Acquiring Corporation (as defined below), or (y) any Person that controls the
Acquiring Corporation (the Acquiring Corporation and any such controlling
Person being hereinafter referred to as the "Substitute Option Issuer").
(b) Exercise of Substitute Option. The Substitute Option shall be
exercisable for such number of shares of the Substitute Common Stock (as is
hereinafter defined) as is equal to the market/offer price (as defined in
Section 7 hereof), multiplied by the number of shares of the Common Stock for
which the Option was theretofore exercisable immediately prior to the event
described in Section 8(a), divided by the Average Price (as is hereinafter
defined). The exercise price of the Substitute Option per share of the
Substitute Common Stock (the "Substitute Purchase Price") shall then be equal
to the product of the Option Price multiplied by a fraction in which the
numerator is the number of shares of Common Stock for which the Option was
theretofore exercisable immediately prior to the event described in Section
8(a) and the denominator is the number of shares for which the Substitute
Option is exercisable.
(c) Terms of Substitute Option. The Substitute Option shall otherwise
have the same terms as the Option, provided, however, that if the terms of the
Substitute Option cannot, for legal reasons, be the same as the Option, such
terms shall be as similar as possible and in no event less advantageous to
Grantee.
(d) Substitute Option Definitions. The following terms have the
meanings indicated:
(i) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with
Issuer (if other than Issuer), (ii) Issuer in a merger in
which Issuer is the continuing or surviving
D-9
Person, and (iii) the transferee of all or any substantial
part of Issuer's assets (or the assets of any significant
Issuer Subsidiary);
(ii) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the
Substitute Option; and
(iii) "Average Price" shall mean the average bid and asked price
of a share of the Substitute Common Stock for the one year
immediately preceding the consolidation, merger or sale in
question, but in no event higher than the average of the bid
and asked price of the shares of the Substitute Common Stock
on the day preceding such consolidation, merger or sale,
provided, however, that if such closing price is not
ascertainable due to an absence of a public market for the
Substitute Common Stock, "Average Price" shall mean the
higher of (i) the price per share of Substitute Common Stock
paid or to be paid by any third party pursuant to an
agreement with the issuer of the Substitute Common Stock and
(ii) the book value per share, calculated in accordance with
generally accepted accounting principles, of the Substitute
Common Stock immediately prior to exercise of the Substitute
Option; provided, further, that if Issuer is the issuer of
the Substitute Option, the Average Price shall be computed
with respect to a share of common stock issued by the Person
merging into Issuer or by any company which controls or is
controlled by such merging Person, as Grantee may elect.
(e) Cap on Substitute Option. In no event, pursuant to any of the
foregoing paragraphs, shall the Substitute Option be exercisable for more than
that proportion of the outstanding Substitute Common Stock equal to the
proportion of the outstanding Common Stock of Issuer which Grantee had the
right to acquire immediately prior to the issuance of the Substitute Option.
In the event that the Substitute Option would be exercisable for more than a
proportion of the outstanding Substitute Common Stock referred to in the
immediately preceding paragraph but for this clause (e), the Substitute Option
Issuer shall make a cash payment to Grantee equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in this
clause (e) over (ii) the value of the Substitute Option after giving effect to
the limitation in this clause (e). This difference in value shall be
determined by a nationally recognized investment banking firm mutually
selected by Grantee, on the one hand, and Issuer, on the other hand.
Section 9. Extension of Exercise Right. Notwithstanding Section 2,
Section 6, Section 7 and Section 11 hereof, if Grantee has given the notice
referred to in one or more of such Sections, the exercise of the rights
specified in any such Section shall be extended (a) if the exercise of such
rights requires obtaining regulatory approvals (including any required waiting
periods) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and (b) to the extent necessary to avoid liability
under Section 16(b) of the Exchange Act by reason of such exercise; provided,
however, that in no event shall any closing date occur more than 6 months
after the related Notice Date, and, if the closing date shall not have
occurred within such period due to the failure to obtain any required approval
by the Federal Reserve Board or any other Regulatory Authority despite the
best efforts of Issuer or the Substitute
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Option Issuer, as the case may be, to obtain such approvals, the exercise of
the Option shall be deemed to have been rescinded as of the related Notice
Date. In the event (a) Grantee receives official notice that an approval of
the Federal Reserve Board or any other Regulatory Authority required for the
purchase and sale of the Option Shares shall not be issued or granted, or (b)
a closing date has not occurred within 6 months after the related Notice Date
due to the failure to obtain any such required approval, Grantee shall be
entitled to exercise the Option in connection with the resale of the Option
Shares pursuant to a registration statement as provided in Section 6.
Section 10. Issuer's Representations and Warranties. Issuer hereby
represents and warrants to Grantee as follows:
(a) Corporate Authority. Issuer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of Issuer and no other
corporate proceedings on the part of Issuer are necessary to authorize this
Agreement or to consummate the transactions so contemplated. This Agreement
has been duly executed and delivered by Issuer.
(b) Availability of Shares. Issuer has taken all necessary corporate
action to authorize and reserve and to permit it to issue, and at all times
from the date hereof through the termination of this Agreement in accordance
with its terms shall have reserved for issuance upon the exercise of the
Option, that number of shares of Common Stock equal to the maximum number of
shares of Common Stock at any time and from time to time issuable hereunder,
and all such shares, upon issuance pursuant hereto, shall be duly authorized,
validly issued, fully paid, non-assessable, and shall be delivered free and
clear of all claims, liens, encumbrances and security interests and not
subject to any preemptive rights.
(c) No Violations. The execution, delivery and performance of this
Agreement does not or shall not, and the consummation by Issuer of any of the
transactions contemplated hereby shall not, constitute or result in (A) a
breach or violation of, or a default under, its articles of incorporation or
by-laws, or the comparable governing instruments of any of the Issuer
Subsidiaries, or (B) a breach or violation of, or a default under, any
agreement, lease, contract, note, mortgage, indenture, arrangement or other
obligation of it or any of the Issuer Subsidiaries (with or without the giving
of notice, the lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or non-
governmental permit or license to which it or any of the Issuer Subsidiaries
is subject, that would, in any case give any other person the ability to
prevent or enjoin Issuer's performance under this Agreement in any material
respect.
Section 11. Assignment. Neither of the parties hereto may assign any
of its rights or delegate any of its obligations under this Agreement or the
Option created hereunder to any other Person without the express written
consent of the other party; provided, however, that until the date at which
the Federal Reserve Board has approved an application by Grantee under the
B.H.C. Act to acquire the shares of Common Stock subject to the Option, other
than to a wholly owned subsidiary of Grantee, Grantee may not assign its
rights under the Option except in (i) a widely dispersed public distribution,
(ii) a private placement in which no one party acquires the right to purchase
in excess of 2% of the voting shares of Issuer, (iii) an assignment to a
single
D-11
party (e.g., a broker or investment banker) for the purpose of conducting
a widely dispersed public distribution on Grantee's behalf, or (iv)
any other manner approved by the Federal Reserve Board. The term "Grantee,"
as used in this Agreement, shall also be deemed to refer to Grantee's
permitted assigns. Any attempted assignment prohibited by this Section 11 is
void and without effect.
Section 12. Filings and Consents. Each of Grantee and Issuer shall use
its reasonable efforts to make all filings with, and to obtain consents of,
all third parties and Regulatory Authorities necessary to the consummation of
the transactions contemplated by this Agreement, including, without
limitation, making application if necessary, for listing of the shares of
Common Stock issuable hereunder on any exchange or quotation system and
applying to the Federal Reserve Board under the B.H.C. Act and to state
banking authorities for approval to acquire the shares issuable hereunder.
Section 13. Remedies. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties shall hereto be enforceable by
either party hereto through injunctive or other equitable relief. Both
parties further agree to waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such equitable relief and
that this provision is without prejudice to any other rights that the parties
hereto may have for any failure to perform this Agreement.
Section 14. Severability. If any term, provision, covenant or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired or invalidated.
Section 15. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when
delivered in Person, by cable, telegram, telecopy or telex, or by registered
or certified mail (postage prepaid, return receipt requested) at the
respective addresses of the parties set forth in the Plan.
Section 16. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement and shall be effective at
the time of execution.
Section 17. Expenses. Except as otherwise expressly provided herein,
each of the parties hereto shall bear and pay all costs and expenses incurred
by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
Section 18. Limitation of Value.
(a) Notwithstanding any other provision of this Agreement, in no event
shall the Grantee's Total Benefit (as hereinafter defined) exceed $3.0 million
and, if it otherwise would exceed such amount, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Common Stock subject
to this Option, (ii) deliver to Issuer for cancellation Option Shares
D-12
previously purchased by Grantee, (iii) pay cash to Issuer, or (iv) any
combination thereof, so that Grantee's actually realized Total Benefit shall
not exceed $3.0 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option
may not be exercised for a number of shares as would, as of the date of
exercise, result in a Notional Total Benefit (as defined below) of more than
three million dollars ($3,000,000); provided that nothing in this sentence
shall restrict any exercise of the Option permitted hereby on any subsequent
date.
(c) As used herein, the term "Total Benefit" shall mean the aggregate
amount (before taxes) of the following: (i) the amount received by Grantee
pursuant to Issuers' repurchase of the Option (or any portion thereof)
pursuant to Section 7, (ii) (x) the amount received by Grantee pursuant to
Issuer's repurchase of Option Shares pursuant to Section 7, less (y) Grantee's
purchase price for such Option Shares, (iii) (x) the net cash amounts received
by Grantee pursuant to the sale of Option Shares (or any other securities into
which such Option Shares are converted or exchanged) to any unaffiliated
party, less (y) the Grantee's purchase price of such Option Shares, (iv) any
cash payments made by Issuer pursuant to Section 2(e)(2), (v) any amounts
received by Grantee on the transfer of the Option (or any portion thereof) to
any unaffiliated party, and (vi) any amount equivalent to the foregoing with
respect to the Substitute Option.
(d) As used herein, the term "Notional Total Benefit" with respect to
any number of shares as to which Grantee may propose to exercise this Option
shall be the Total Benefit determined as of the date of such proposed exercise
assuming that this Option were exercised on such date for such number of
shares and assuming that such shares, together with all other Option Shares
held by Grantee and its affiliates as of such date, were sold for cash at the
average of the bid and asked prices for the Common Stock on the preceding
trading day (less customary brokerage commissions) and Grantee also received
the cash payment called for by Section 2(f).
(e) If Grantee transfers the Option, either in whole or in part, the
Total Benefit shall apply to Grantee and to all subsequent holders of the
Option in the aggregate such that the Total Benefit realized by such persons
may not exceed three million dollars ($3,000,000) in the aggregate. All
references to Grantee in this Section 18 shall include any and all subsequent
holders of the Option.
(f) The provisions of this Section 18 shall survive the occurrence of
an Exercise Termination Event.
Section 19. Entire Agreement. Except as otherwise expressly provided
herein or in the Plan and the Confidentiality Agreement, this Agreement
contains the entire agreement between the parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
Nothing in this Agreement, expressed or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors
except as assigns, any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided herein.
D-13
Section 20. Definitions. Capitalized terms used in- this Agreement and
not defined herein but defined in the Plan shall have the meanings assigned
thereto in the Plan.
Section 21. Effect on Plan. Nothing contained in this Agreement shall
be deemed to authorize Issuer or Grantee to breach any provision of the Plan.
Section 22. Selections. In the event that any selection or
determination is to be made by Grantee hereunder and at the time of such
selection or determination there is more than one Grantee, such selection
shall be made by a majority in interest of such Grantees.
Section 23. Further Assurances. In the event of any exercise of the
option by Grantee, Issuer and such Grantee shall execute and deliver all other
documents and, instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such
exercise.
Section 24. Voting. Except to the extent Grantee exercises the Option,
Grantee shall have no rights to vote or receive dividends or have any other
rights as a shareholder with respect to shares of Common Stock covered hereby.
Section 25. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York.
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IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
BATH NATIONAL CORPORATION
By: /s/Douglas McCabe
------------------------------------
Douglas McCabe
President
FINANCIAL INSTITUTIONS, INC.
By: /s/Peter G. Humphrey
------------------------------------
Peter G. Humphrey
President and Chief Executive Officer
D-15
BATH NATIONAL CORPORATION REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF BATH
NATIONAL CORPORATION(THE "COMPANY") FOR THE SPECIAL MEETING OF STOCKHOLDERS TO
BE HELD ON____________, 2001, OR AT ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
The undersigned stockholder of the Company hereby appoints the Board of
Directors of the Company or any successors thereto as proxies, with full
powers of substitution, to represent and to vote as proxy, as designated, all
shares of common stock of the Company held of record by the undersigned at the
close of business on __________, 2000 at the special meeting of stockholders
to be held at the Bath Country Club, 330 May Street, Bath, New York, or at any
adjournment or postponement thereof, upon the matters described in the
accompanying Notice of Special Meeting and Proxy Statement and upon such other
matters as may properly come before the special meeting.
This proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. If no direction is given, this proxy
will be voted "FOR" Proposal 1 and "FOR" Proposal 2.
The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Proxy Statement for the special meeting.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ENCLOSED ENVELOPE.
1. Approval of the Agreement and Plan of Merger, dated as of November 2,
2000, among Financial Institutions, Inc., FI Subsidiary I, Inc. and
Bath National Corporation.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" Proposal 1.
2. Approval of motion to adjourn the special meeting, if necessary, to
solicit additional proxies with respect to approval of the Agreement and
Plan of Merger.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The Board of Directors unanimously recommends a vote "FOR" Proposal 2.
In their discretion, the proxies are authorized to vote with respect to
approval of the minutes of the last meeting of stockholders, matters incident
to the conduct of the meeting, and upon such other matters as may properly
come before the meeting. At this time, the Board of Directors knows of no
other business to be presented at the special meeting.
Dated:______________________, 2001
__________________________________
__________________________________
Signature(s)
Please sign exactly as your name
appears hereon. When shares are
held jointly, only one holder need
sign. If signing as attorney,
executor, administrator, trustee or
guardian, please include your full
title. Corporate or partnership
proxies should be signed by an
authorized officer.
