<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ____________
Commission File Number: 0-18533
-------
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
New York 16-1168175
------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer incorporation or
organization) Identification No.)
50 North Main Street Box 129 Castile NY 14427
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(716) 493-2576
--------------
Registrant's telephone number, including area code)
____________________________________________________________
(Former name, address, fiscal year, if changed)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(b) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Y Yes No
-------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of August 5, 1999
-------------------------------------------------------------
Common Stock, $1.00 per share 3,468,974 shares
Transitional Small Business Disclosure Format (Check One):
Yes__ No X
-
1
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
<TABLE>
<CAPTION>
INDEX Page
<S> <C>
PART I Financial Information
Item 1. Financial Statements
Consolidated Statement of Condition (Unaudited)
June 30, 1999 and December 31, 1998 3
Consolidated Statement of Income (Unaudited)
Three and Six Months Ended June 30, 1999 and 1998 4
Consolidated Statement of Comprehensive Income
(Unaudited)Three and Six Months Ended June 30, 1999
and 1998 5
Consolidated Statement of Cash Flows (Unaudited)
Six Months Ended June 30,1999 and 1998 6
Notes to Consolidated Financial Information 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
PART II Other Information
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8K 24
Signatures 26
Exhibit 10(a) 52 Pages
Exhibit 10(b) 7 Pages
Exhibit 10(c) 12 Pages
Exhibit 11 1 Page
Exhibit 27 1 Page
Exhibit 99 3 Pages
</TABLE>
2
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
CONSOLIDATED STATEMENT OF CONDITION
-----------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 14,812,220 $ 10,647,917
Federal funds sold 13,350,000 9,250,000
Investment securities:
Available for sale 100,815,521 65,255,014
Held to maturity 2,330,514 -
Other securities 2,890,759 2,083,501
Loans, net of allowance for loan losses of
$4,061,202 and $2,377,300, respectively 283,600,691 184,459,034
Accrued interest receivable 2,590,877 1,731,499
Premises and equipment, net 13,380,742 6,344,049
Other Assets 8,581,635 1,891,872
------------ ------------
Total Assets $442,352,959 $281,662,886
------------ ------------
LIABILITIES AND SHAREHOLDERS EQUITY:
Deposits:
Noninterest bearing $ 74,034,601 $ 36,432,791
Interest bearing 318,701,899 204,419,241
------------ ------------
Total Deposits 392,736,500 240,852,032
Securities sold under agreement to repurchase 1,145,581 1,198,294
Accrued interest payable 887,514 1,158,630
Accrued taxes and other liabilities 1,301,286 856,636
Advances from Federal Home Loan Bank 7,752,741 3,968,283
------------ ------------
Total Liabilities 403,823,622 248,033,875
------------ ------------
Minority Interest in Subsidiary 4,535,140 -
Shareholders' equity
Common stock, $1.00 par value, 5,000,000
shares authorized, 3,391,650 and 3,390,650
shares issued, respectively 3,459,924 3,390,650
Capital surplus 12,625,011 12,347,915
Retained earnings 19,961,301 18,673,888
Unearned employee stock ownership plan shares (441,988) (490,654)
Accumulated other comprehensive income 160,098 1,261,145
Treasury stock at cost, 100,847 and 86,847
shares, respectively (1,770,149) (1,553,933)
------------ ------------
Total Shareholders' Equity 33,994,197 33,629,011
------------ ------------
Total Liabilities and Shareholders Equity $442,352,959 $281,662,886
------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Month Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $4,909,169 $4,070,471 $ 9,109,483 $ 7,920,593
Interest on investment securities
Taxable 562,788 703,582 1,040,201 1,502,107
Tax-exempt 443,691 383,790 844,229 779,048
Interest on federal funds sold 261,910 44,221 421,625 100,478
---------- ---------- ----------- -----------
Total interest income 6,177,558 5,202,064 11,415,538 10,302,226
Interest expense on deposits and advances 2,256,630 2,204,750 4,230,985 4,367,999
---------- ---------- ----------- -----------
Net interest income 3,920,928 2,997,314 7,184,553 5,934,227
Provision for loan losses 165,547 124,998 281,966 256,420
---------- ---------- ----------- -----------
Net interest income after
provision for loan losses 3,755,381 2,872,316 6,902,587 5,677,807
---------- ---------- ----------- -----------
Other operating income:
Service charges on deposit accounts 329,517 268,780 581,984 541,710
Other charges and fees 72,733 40,232 115,039 56,950
Net gain (loss) on sales of loans
and investment securities 500 (522) 1,992 20,905
Other operating income 94,289 62,903 189,608 111,650
---------- ---------- ----------- -----------
Total other operating income 497,039 371,393 888,623 731,215
---------- ---------- ----------- -----------
Other operating expenses:
Salaries and employee benefits 1,595,518 1,099,427 2,812,962 2,197,890
Equipment expense 256,541 129,538 480,048 264,488
Occupancy expense 109,480 74,364 247,933 140,553
Printing and supplies 71,402 234,738 138,116 467,589
FDIC assessment 11,354 9,758 21,771 19,752
Minority interest in Subsidiary net income 42,492 - 42,492 -
Other operating expenses 825,347 602,601 1,376,932 1,087,191
---------- ---------- ----------- -----------
Total other operating expense 2,912,134 2,150,426 5,120,254 4,177,463
Income before income taxes 1,340,286 1,093,283 2,670,956 2,231,559
Provision for income taxes 417,896 319,400 782,899 657,400
---------- ---------- ----------- -----------
Net Income $ 922,390 $ 773,883 $ 1,888,057 $ 1,574,159
========== ========== =========== ===========
Basic earnings per share $ 0.28 $ 0.24 $ 0.58 $ 0.48
Diluted earnings per share $ 0.28 $ 0.23 $ 0.57 $ 0.46
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $ 922,390 $773,883 $ 1,888,057 $1,574,159
Other comprehensive loss, net of tax:
Unrealized losses on securities:
Unrealized holding losses
arising during period (882,950) (26,683) (1,100,325) (23,461)
Less: reclassification adjustments
for losses included in net
income (722) 669 (722) (10,656)
--------- -------- ----------- ----------
Other comprehensive loss, net of tax (883,672) (26,014) (1,101,047) (34,117)
--------- -------- ----------- ----------
Comprehensive income $ 38,718 $747,869 $ 787,010 $1,540,042
========= ======== =========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statement
5
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,888,057 $ 1,574,159
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 601,997 429,890
Provision for possible loan losses 281,966 256,420
Minority interest expense 42,492
ESOP compensation expense 48,666 77,333
Gain on sale of investments (722) (17,334)
Gain on sale of loans (3,827) (3,571)
Decrease (Increase) in interest receivable 79,279 (130,229)
Decrease (Increase) in other assets (284,674) (130,246)
(Decrease) increase in interest payable (556,210) 166,010
(Decrease) increase in accrued taxes
and other liabilities (268,827) 214,919
------------ ------------
Net cash provided by operating activities $ 2,397,545 $ 2,437,351
------------ ------------
Cash flows from investing activities:
Proceeds from sales of securities-available
for sale $ 2,999,375 $ 1,670,119
Proceeds from calls and maturities of securities:
Held to Maturity - 7,914,119
Available for sale 5,304,452 5,626,450
Purchases of securities:
Held to maturity - (2,042,351)
Available for sale (8,960,455) (7,922,925)
Cash acquired, net of acquisition cost 4,126,017 -
Proceeds from sale of loans 948,553 478,392
Net increase in loans (11,425,690) (13,376,970)
Expenditures for capital assets (408,396) (470,729)
------------ ------------
Net cash used in investing activities $ (7,416,144) $ (8,123,895)
------------ ------------
Cash flows from financing activities:
Net increase in demand deposits, NOW
accounts and money market accounts $ 7,671,346 $ 36,619
Net increase in time deposits 2,350,302 6,467,736
Net (decrease) increase in securities sold under
agreements to repurchase (52,713) 49,002
Current FHLB borrowings 4,000,000 -
Repayment FHLB borrowings (215,543) (204,500)
Exercise of options and warrants 346,370 78,670
Purchase of treasury stock (216,216) (1,356,321)
Dividends paid (600,644) (537,147)
------------ ------------
Net cash (used in) provided by financing activities $ 13,282,902 $ 4,534,059
------------ ------------
Net increase (decrease) in cash and cash equivalents $ 8,264,303 $ (1,152,485)
Cash and cash equivalents, beginning of year 14,897,917 12,413,023
------------ ------------
Cash and cash equivalents, end of quarter $ 28,162,220 $ 11,260,538
------------ ------------
Interest paid $ 4,787,195 $ 4,201,989
Income taxes paid $ 1,503,000 $ 520,000
</TABLE>
The accompanying notes are an integral part of these financial statements
6
<PAGE>
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL INFORMATION
-------------------------------------------
June 30, 1999
-------------
Note 1 Basis of Presentation
- ----------------------------
The unaudited interim financial information includes the accounts of Letchworth
Independent Bancshares Corporation ("Letchworth", "the Company" or "Registrant")
and its subsidiaries, The Bank of Castile and The Mahopac National Bank
("Mahopac"). The financial information has been prepared in accordance with the
Summary of Significant Accounting Policies as outlined in Letchworth's Form 10-K
for the year ended December 31, 1998 and, in the opinion of management contains
all adjustments necessary to present fairly Letchworth's financial position as
of June 30, 1999 and December 31, 1998, the results of its operations for the
three and six month periods ended June 30, 1999 and 1998, respectively, and its
cash flows for the six month periods ended June 30, 1999 and 1998, respectively.
The accounting policies of Letchworth conform with generally accepted accounting
principles and prevailing practices within the banking industry. The
preparation of financial information in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial information and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
These notes should be read in conjunction with the notes to the consolidated
financial statements incorporated in the Letchworth 1998 Annual Report and Form
10-K.
Note 2 Merger Agreement with Tompkins TrustCo, Inc.
- ---------------------------------------------------
On July 30, 1999, the Registrant entered into an Agreement and Plan of
Reorganization (the "Agreement") with Tompkins TrustCo, Inc. ("Tompkins"),
pursuant to which, subject to regulatory and shareholder approval, the
Registrant will be merged with and into Tompkins. Pursuant to the terms and
conditions of the Agreement, each shareholder of the Registrant will receive
.685 shares of common stock of Tompkins for each share of common stock of the
Registrant owned by the shareholder. It is currently anticipated that the
transaction will be consummated in December, 1999, or during the first quarter
of 2000. In connection with the Agreement, the Registrant granted Tompkins an
option, exercisable under certain circumstances, to purchase an aggregate of
689,737 newly issued shares of common stock, par value $1.00 per share, of the
Registrant.
7
<PAGE>
The transaction is expected to be accounted for as a pooling of interest.
Note 3 Acquisition of The Mahopac National Bank
- -----------------------------------------------
On June 4, 1999, Letchworth consummated the acquisition of a controlling
interest in Mahopac, a national banking organization with its principal office
located in Mahopac, New York. As a result, Letchworth now owns 1,491 shares, or
70.165%, of the issued and outstanding shares of capital stock of Mahopac. The
total purchase price for the transaction was $14,634,524.
Acquired assets, loans and deposits of Mahopac on June 4, 1999 totaled
approximately $158.4 million, $90.5 million and $141.8 million, respectively.
The transaction has been accounted for as a purchase and, accordingly operations
acquired from Mahopac have been included in Letchworth's financial results since
the acquisition date. In connection with the acquisition, Letchworth recorded
approximately $2.5 million of goodwill and $3.5 million of core deposit
intangible. The goodwill is being amortized on a straight-line basis over twenty
years and the core deposit intangible is being amortized on an accelerated basis
over ten years.
Presented below is certain pro forma information as if Mahopac had been acquired
on January 1, 1998. These results combine the historical results of Mahopac into
Letchworth's Consolidated Statement of Income and, while certain adjustments
were made for the estimated impact of purchase accounting adjustments and other
acquisition-related activity, they are not necessarily indicative of what would
have occurred had the acquisition taken place at that time.
Pro forma
Six Months Ended June 30,
1999 1998
(in thousands, except per share)
Interest Income $15,424 $15,027
Other Income 1,463 1,283
Net income 2,115 1,692
Diluted earnings per common share $ .64 $ .50
8
<PAGE>
Note 4 Investment Securities
- ----------------------------
The amortized cost and approximate market value of investment securities are as
follows:
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Amortized Cost Market Value Amortized Cost Market Value
--------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Available for Sale
- ------------------
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies 24,916,873 24,952,088 $ 13,742,386 $ 14,087,865
State and political subdivision
obligations 45,764,935 46,022,795 32,486,465 33,876,508
Mortgage-Backed Securities 29,530,779 29,333,800 17,173,404 17,290,641
Corporate Securities 513,205 506,839 - -
----------- ----------- -------------- ------------
100,725,790 100,815,521 $ 63,402,255 $ 65,255,014
----------- ----------- -------------- ------------
</TABLE>
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
Amortized Cost Market Value Amortized Cost Market Value
-------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
Held to Maturity
- ----------------
State and political subdivision
obligations 2,330,514 2,330,077 - -
--------- --------- -------------- ------------
2,330,514 2,330,077 - -
--------- --------- -------------- ------------
</TABLE>
Note 5 Loans
- ------------
Loans consist of the following:
June-30 December-31
1999 1998
------------ ------------
Residential real estate $108,520,446 $ 53,638,439
Commercial real estate 70,703,676 39,948,496
Commercial and industrial loans 48,106,667 38,201,766
Agricultural loans 31,168,670 35,707,279
Consumer loans 29,162,434 19,340,354
------------ ------------
$287,661,893 $186,836,334
------------ ------------
9
<PAGE>
An analysis of changes in the
allowance for possible loan losses
is as follows:
June 30, June 30,
1999 1998
---------- ----------
Balance, beginning of year $2,377,300 $2,028,600
Allowance acquired from Mahopac 1,510,938 -
Provision Expense 281,966 256,420
Chargeoffs (146,157) (109,471)
Recoveries 37,155 19,023
---------- ----------
Balance, end of period $4,061,202 $2,194,572
The following table summarized the Company's non-performing loans at the dates
indicated.
June 30,
1999 1998
--------- -------
Non-accruing loans 1,028,000 753,823
Accruing loans past due 90 days or more 587,066 85,061
Renegotiated loans 0 0
The average balance of impaired loans during the first six months of 1999 was
approximately $151,221 as compared to $623,651 for the first six months of
1998. At June 30, 1999, the balance of impaired loans and related reserve
against that balance was $137,237 and $45,379, respectively. At June 30, 1998,
the balance of impaired loans and related reserve against the balance was
$591,003 and $114,512, respectively. Interest income recognized on impaired
loans and interest income recognized on a cash basis was not significant
Note 6 Earnings Per Share
- -------------------------
The calculations of basic and diluted earnings per share are as follows:
<TABLE>
<CAPTION>
Quarter ended Six Month Ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Income available to common shareholders $ 922,390 $ 773,883 $1,888,057 $1,574,159
Basic earnings per share
Weighted average shares outstanding 3,288,681 3,289,564 3,263,500 3,287,355
Basic earnings per share $ 0.28 $ 0.24 $ 0.58 $ 0.48
---------- ---------- ---------- ----------
Diluted earnings per share
Weighted average shares outstanding 3,288,681 3,289,564 3,263,500 3,287,355
Dilitive effect of:
Stock options 26,954 94,603 40,973 99,379
Adjusted weighted average shares
outstanding 3,315,635 3,384,167 3,304,473 3,386,832
Diluted earnings per share $ 0.28 $ 0.23 $ 0.57 $ 0.46
---------- ---------- ---------- ----------
</TABLE>
10
<PAGE>
Note 7 Comprehensive Income
- ---------------------------
Letchworth has chosen to disclose comprehensive income in a separate statement,
in which the components of comprehensive income are displayed net of income
taxes. The following table sets forth the related tax effects allocated to each
element of comprehensive income for the three and six months ended June 30, 1999
and 1998:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 Six Months Ended June 30, 1999
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains on
securities:
Unrealized holding gains
arising during period (1,489,903) 606,953 (882,950) (1,762,306) 661,981 (1,100,325)
Less: reclassification
adjustment for gains
realized in net income (722) - (722) (722) - (722)
---------------------------------------------------------------------------------------------
Net unrealized gain (1,490,625) 606,953 (883,672) (1,763,028) 661,981 (1,101,047)
---------------------------------------------------------------------------------------------
Other comprehensive income (1,490,625) 606,953 (883,672) (1,763,028) 661,981 (1,101,047)
---------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998 Six Months Ended June 30, 1998
Tax Tax
Before-tax (Expense) Net-of-Tax Before-tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
<S> <C> <C> <C> <C> <C> <C>
Unrealized losses
on securities:
Unrealized holding losses
arising during period (78,303) 51,620 (26,683) (38,163) 14,702 (23,461)
Less: reclassification
adjustment for losses
realized in net income 1,963 (1,294) 669 (17,334) 6,678 (10,656)
-------------------------------------------------------------------------------------------
Net unrealized loss (76,340) 50,326 (26,014) (55,497) 21,380 (34,117)
-------------------------------------------------------------------------------------------
Other comprehensive loss (76,340) 50,326 (26,014) (55,497) 21,380 (34,117)
-------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the components of accumulated other comprehensive
income for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---- ----
<S> <C> <C>
Beginning balance $ 1,261,145 $ 309,072
Unrealized losses on securities, net (1,101,047) (34,117)
----------- ---------
Ending balance $ 160,098 $ 274,955
----------- ---------
</TABLE>
11
<PAGE>
Note 8 "Disclosure about segments of an enterprise and related information"
- ---------------------------------------------------------------------------
With the Mahopac acquisition on June 4, 1999, Letchworth now has two reportable
segments as prescribed by Statement of Financial Accounting Standards ("SFAS")
No.131, "Disclosures About Segments of an Enterprise and Related Information".
In accordance with the provision of SFAS No.131, reportable segments have been
determined based upon Letchworth's two operating subsidiaries, The Bank of
Castile and Mahopac.
Up until June 4, 1999, substantially all the Company's revenue and net income
was derived from The Bank of Castile. Since the Company's acquisition of a
70.165% interest in Mahopac, this new segment has contributed $1,020,271 in
total revenue and $44,577 in net income. At June 30, 1999, total assets of The
Bank of Castile and Mahopac were $276.6 million and $161.3 million,
respectively. The Bank of Castile had $266.1 million in assets at June 30, 1998.
12
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS
June 30, 1999
Mahopac Transaction
On June 4, 1999, the Company consummated the acquisition of a controlling
interest in The Mahopac National Bank ("Mahopac"). A national banking
organization headquartered in Putnam County, New York. Mahopac currently
operates three offices and is scheduled to open a fourth in Brewster, New York.
As a result, Letchworth now owns 1,491 shares, or 70.165% of the issued and
outstanding shares of capital stock of Mahopac. The total purchase price paid by
Letchworth in connection with the acquisition was an amount equal to $14,462,700
based upon a sales price of $9,700 for each share of common stock purchased.
Mahopac was owned primarily by the members of two families, the Costello/Ryder
family and the Spain family. The Company entered into a written agreement (the
"Shareholder Agreement") with the members of the Spain family to unify the
ownership structure of Mahopac within two years. To unify the ownership
structure, the Shareholder Agreement allows for the Spain family to purchase all
the shares of Mahopac owned by the Company,(the "Spain Option") or in the event
that the Spain family fails to exercise the Spain Option, for the Company to
purchase all of the shares of Mahopac owned by the Spain family. In either case
the exercise price for each share of common stock is equal to 90 percent of the
"fair marker value" of each share of common stock of Mahopac, as determined in
accordance with the Shareholder Agreement. The intent of the Company, and also
the stated intent of the Spain family, is for the Company to acquire all of the
shares of common stock owned by the Spain Family at that time. If, for whatever
reason, neither party is able or willing to buy out the other, the terms of the
Shareholder Agreement require that Mahopac be sold in its entirety to a third
party.
Management believes that the Mahopac transaction gives the Company greater
opportunity for future growth than if Letchworth remained exclusively in Western
New York. Putnam County is the fastest growing county in New York and has the
highest median income in the state.
Financial Condition and Results of Operations
As result of the acquisition of Mahopac, Letchworth's total assets were $442.4
million as of June 30, 1999, an increase of $160.7 million, or 57.05%, above
total assets at December 31, 1998.
13
<PAGE>
The overall investment portfolio increased $38.7 million or 57.47% from December
31, 1998, levels to $106.0 million. The additional $45.0 million of Mahopac
investments, negated the $6.3 million decline in The Bank of Castile portfolio.
The Bank of Castile's portfolio declined due to cumulative maturities and sales
since year end to maintain adequate liquidity to fund the purchase of the
controlling interest in Mahopac. The change in other securities was negligible.
Net loans outstanding as of June 30, 1999 were $283.6 million, which represented
an increase of $99.1 million, or 53.75%, over total loans at December 31, 1998.
Net loans outstanding is net of loans sold and the allowance for loan losses.
The primary reason for higher loan balances was the $90.4 million of loans
obtained on June 4, 1999 in the Mahopac acquisition, including approximately
$48.2 million of residential mortgage loans, $24.2 million of commercial real
estate loans, $8.1 million of commercial loans, $5.9 million of construction
loans and $3.9 million of consumer loans.
Nonaccrual loans totaled $1,028,000 as of June 30, 1999, compared to $753,823 as
of June 30, 1998. Approximately $636 thousand of this increase was attributable
to the Mahopac transaction. While this represents an increase, the Company is
aggressive in identifying and dealing with problem loan situations. Further,
management believes that the loan loss allowance is adequate to cover any
expected losses. "Potential problem loans" consist of loans which are generally
secured and not currently considered nonperforming, but where information about
possible credit problems has caused management to have doubts as to the ability
of such borrowers to comply with present payment terms. As of June 30, 1999, the
Company considers $3,295,256 to be "potentially problem loans", which represents
an increase of $1,198,240 when compared to the $2,097,016 figure on June 30,
1998. Most of this increase, $1.2 million , is due to the Mahopac acquisition.
Net premises and equipment for the six month period ended June 30, 1999,
increased to $13.4 million. Virtually all of the $7.0 million increase was due
to the Mahopac acquisition. The purchase had a similar impact on the other
assets; $6.4 million of the $7.3 million increase for the six month period was
attributable to Mahopac, including goodwill of $2.5 million and core deposit
intangible of $3.5 million.
Total deposits as of June 30, 1999 were $392.7 million, which represented a
increase of $151.9 million, or 63.06%, from total deposits as of December 31,
1998. Of this amount, $145.4 million was attributable to the Mahopac
transaction. Interest-bearing deposits increased by $114.3 million since the end
of 1998, to $318.7 million at June 30, 1999. Approximately $107.8 million of
this increase was attributable to the Mahopac transaction. In addition,
noninterest
14
<PAGE>
bearing deposits increased to $74.0 million at June 30, 1999, a $37.6 million
increase from the amount at December 31, 1998. Virtually all of this increase
for noninterest bearing deposit balances came as a result of the Mahopac
acquisition.
At June 30,1999, Letchworth had advances, secured by residential mortgage loans,
from the Federal Home Loan Bank of New York of $7,752,741. The entire $3.8
million increase from December 31, 1998 was due entirely to The Bank of Castile
replacing $3.5 million in FHLB advances which had matured in December 31, 1998.
These proceeds were used to increase the investment portfolio's income and
reduce interest rate risk.
The Company's shareholders' equity increased to $34.0 million, an increase of
1.09%, or $.4 million, from December 31, 1998. The increase in shareholders
equity is primarily attributed to the year-to-date earnings less dividends paid
to shareholders.
Federal regulators generally require banking institutuions to maintain "core
capital", that is, "Tier 1" and "total capital" ratios of at least 4% and 8%
respectively, of risk adjusted total assets. In addition to the risk-based
measures, Federal bank regulators have also implemented a minimum "leverage"
ratio guideline of 4% of the quarterly average of total assets. Under regulatory
guidelines, unrealized gains or losses on investment securitites classified as
available for sale are not recognized in determining regulatory capital. The
Company has historically maintained capital ratios in excess of minimum
regulatory guidelines largely through a high rate of internal capital
generation.
June 30, 1999 June 30, 1998 Minimum
Tier 1 Capital Ratio 11.77% 18.57% 4.00%
Total Capital Ratio 13.02% 19.82% 8.00%
Tier 1 Leverage Ratio 7.44% 11.52% 4.00%
Results of Operations - Three Months Ended June 30, 1999 Compared to Three
Months Ended June 30, 1998
Net income of $922,390 for the three months ended June 30, 1999 represents an
increase of 148,507, or 19.19%, over the $773,883 earned during the same period
ended June 30, 1998. Diluted earnings per share was $.28 for the three months
ended June 30, 1999 (See Exhibit 11 of this Quarterly Report on Form 10-Q). This
was an increase from the $.23 per share for the same period in 1998.
Net interest income was $3.9 million for the three months ended June 30, 1999,
up 30.81% from the $3.0 million earned during the three months ended June 30,
1998. The addition of Mahopac contributed approximately $670.3 thousand of the
increase in net interest income during the second quarter of 1999. Reduced
interest expense on deposits and advances at The Bank of Castile contributed
most of the remaining increase in net interest income.
The provision for possible loan losses, the charge to earnings for potential
credit losses associated with lending activities, was $165,547 for the three
months ended June 30, 1999, up 32.44% from the $124,998 provision recorded
during the three months ended June 30, 1998. This increase in the provision for
loan losses in 1999 was due to increased loan volume and an increase in charge-
offs compared with
15
<PAGE>
1998. Gross charge-offs were $99,115 in the second quarter of 1999, compared to
$109,471 for the same period last year. Management conducts a periodic
evaluation which assigns risk weights for individual loans and different classes
of loan groups in determining the adequacy of the reserve. Regulatory
examination, historical gross loans, an assessment of economic conditions and
other relevant factors are used in this analysis. Management of the Company
believes this analysis indicates that the level of the loan loss reserve is
adequate to absorb any potential losses inherent in the loan portfolio at June
30, 1999. The allowance for possible loan losses of the Company at June 30, 1999
was $4,061,202 or 1.41% of total loans, and is up 70.84%, or $1,683,952, from
the allowance at December 31, 1998 the increase is due primarily to the $1.5
million allowance acquired from Mahopac.
Other operating income for the three month period ended June 30, 1999 was
$497,038, compared to $371,393 for the same period in 1998. This increase is
partially attributed to revisions made in deposit fees and service charges, as
well as $101.8 thousand in other income attributable to the acquisition of a
controlling interest in Mahopac.
Other operating expense for the three month period ended June 30, 1999 was
$2,869,641, an increase of $719,215, or 35.45%, over the $2,150,426 recorded for
the same period in the prior year. Mahopac's other operating expense accounted
for $532.0 thousand, or 69.8%, of the increase. Goodwill and core deposit
amortization, as well as minority interest, in Mahopac, further increased other
operating expenses by approximately $106.7 thousand. Several new staff positions
at The Bank of Castile , as well as an increase in the ESOP and pension
expenses, also contributed to the increase.
The provision for income taxes increased from $319,400 to $417,896 for the three
months ended June 30, 1998 and 1999, respectively. Letchworth's effective tax
rate increased slightly from 29.2% to 30.2% due mainly to the impact of the
Mahopac transaction.
Results of Operations - Six Months Ended June 30, 1999 Compared to Six Months
Ended June 30, 1998
Net income of $1,888,057 for the six months ended June 30, 1999 represents an
increase of $313,898, or 19.94%, over the $1,574,159 earned during the same
period ended June 30, 1998. Diluted earnings per share was $.57 for the six
months ended June 30, 1999. (See Exhibit 11 of this Quarterly Report on Form 10-
Q). This represents an increase from the $.46 per share figure for the same
period in 1998.
Net interest income was $7.2 million for the six months ended June 30, 1999, up
21.07% from the $5.9 million earned during the six
16
<PAGE>
months ended June 30, 1998. Mahopac contributed $670.3 thousand of this
increase. Increased income on loans and reduced interest expense on deposits at
the Bank of Castile contributed most of the remaining increase in net interest
income.
The provision for loan losses, the charge to earnings for potential credit
losses associated with lending activities, was $281,966 for the six months ended
June 30, 1999, up 9.96% from the $256,420 provision recorded during the six
months ended June 30, 1998. This increase in the provision for loan losses in
1999 was due to increased loan volume and an increase in charge-offs compared
with 1998. Gross charge-offs were $146,157 in the first six month period of
1999, as compared to $109,471 for the same period last year.
Other operating income for the six month period ended June 30, 1999, was
$888,623 compared to $731,215 for the same period in 1998. Of the $157.4
thousand increase, Mahopac contributed $101.8 thousand. Increases in ATM
surcharges and other interchange income fees contributed most of the growth to
this area.
Other operating expense for the six month period ended June 30, 1999, was
$5,120,254, which respresented an increase of $940.3 thousand or 22.5% over the
$4,177,463 recorded for the same period in the prior year. While Mahopac
contributed $574.6 thousand of this increase, The Bank of Castile accounted for
the other $368.2 thousand. Additional new staffing, normal annual salary
adjustments and bonus accruals accounted for approximatley $170.3 thousand of
its increase. Increased pension, health insurance and other benefits costs
contributed another $53.1 thousand. Approximately $109.8 thousand of additional
expense was concentrated in debit card expense, NYCE charges, consulting fees
and incentive fees for new indirect loan program.
The provision for income taxes was $782,899 for the six months ended June 30,
1999, up 19.09% from the $657,400 for the six months ended June 30, 1998.
Letchworth's effective tax rate dropped slightly from 29.5% for the six months
ended June 30, 1998, to 28.9% for the six months ended June 30, 1999. This
decrease was primarily due to increased tax exempt interest income.
Interest Rate Sensitivity
The Company realizes income principally from the differential or spread between
the interest earned on loans, investments and other interest-earning assets and
the interest paid on deposits and borrowings. Loan volumes and yields, as well
as the volume of and rates on investments, deposits and borrowings, are affected
by market interest rates. Additionally, because of the terms and conditions of
many of our loan documents and deposit accounts, a change in interest rates
could also affect the duration of the loan portfolio and/or the deposit base,
which could alter our sensitivity to future changes in interest rates. As a
result, significant shifts in interest rates could affect the accuracy of
previous made forward-looking statements. Based on model simulations, a rising
interest rate environment results in higher net income for the company.
Conversely, decreasing rates result in declined earnings.
17
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Impact Of The Year 2000
The Year 2000 issue concerns the potential impact of historic computer software
code that only utilizes two digits to represent the calendar year (e.g. "99" for
"1999"). Software so developed, and not corrected, could produce inaccurate or
unpredictable results commencing upon January 1, 2000, when current and future
dates present a lower two digit year number than dates in the prior century. The
Company, similar to most financial services providers, is significantly subject
to the potential impact of the Year 2000 issue due to the nature of financial
information. Potential impacts to the Company may arise from software, computer
hardware, and other equipment both within the Company's direct control and
outside of the Company's ownership, yet with which the Company electronically or
operationally interfaces. Financial institution regulators have intensively
focused upon Year 2000 exposures, issuing guidance concerning the
responsibilities of senior management and directors. Year 2000 testing and
certification is being addressed as a key safety and soundness issue in
conjunction with regulatory exams.
In May 1997, the Federal Financial Institutions Examination Council ("FFIEC")
issued an interagency statement to the chief executive officers of all federally
supervised financial institutions regarding Year 2000 project management
awareness. The FFIEC has highly prioritized Year 2000 compliance in order to
avoid major disruptions to the operations of financial institutions and the
country's financial systems. The FFIEC statement provides guidance to financial
institutions, providers of data services, and all examining personnel of the
federal banking agencies regarding the Year 2000 issue. The federal banking
agencies have been conducting Year 2000 compliance examinations, and the failure
to implement an adequate Year 2000 program can be identified as an unsafe and
unsound banking practice.
The Board of Directors of The Bank of Castile assigned responsibility for the
Year 2000 project to the standing Risk Committee with the Vice President,
Manager of Information Services as coordinator. At Mahopac, project
responsibility was assigned to a year 2000 Committee which is made up of The
Chief Financial Officer, Vice President of Deposit Operations and The MIS
Technology Department Manager. Furthermore, the five-step approach recommended
by the FFIEC was adopted as the project guideline: 1. Awareness; 2. Assessment;
3. Renovation; 4. Validation; and 5. Implementation.
The awareness and assessment first two stages were substantially completed
during the third and fourth quarter of 1997 by The Bank of Castile and Mahopac,
respectively. The second phase included the identification of all processes,
hardware and software, as well as interdependencies impacting operations. An
inventory of these items was assembled, priorities established and resources
allocated to
18
<PAGE>
complete the necessary modifications to minimize the Company's exposure.
Because the Company does not have any "in house" programming, but instead uses
the services of outside software packages, the renovation stage became more of a
monitoring project to ensure that the systems used are compliant. In the view of
management, all identified mission critical processes are currently Year 2000
ready at both The Bank of Castile and Mahopac.
During the validation stage, each system is being tested to determine if it
correctly processes data for the thirteen dates that have been identified by the
regulators as crucial. The core processing system and item processing systems
have been successfully tested for all test dates. The test dates for all mission
critical items was completed by March 31, 1999. Validations for the non-critical
processes were substantially completed, except for minor items, by June 30,
1999.
The validation and the implementation stages overlapped for the Company, since
it uses the services of outside software packages. All of the mission critical
software has been installed and is operating in the Bank's systems. During the
validation stage each system was tested to determine if it correctly processed
data for up to fifteen different future dates. If any new systems or upgrades
are installed, manufacturer's guarantees of Year 2000 compatibility are
mandatory and additional testing will be performed.
The Company, The Bank of Castile and Mahopac have initiated formal
communications with all of its significant suppliers, utility providers, and
customers to determine the extent to which the Company, The Bank of Castile or
Mahopac are vulnerable to those third parties' failure to remediate their own
Year 2000 issues. The Company and its subsidiaries is requesting that third
party vendors represent their products and services to be Year 2000 compliant
and that they have a program to test for that compliance. However, the response
of certain third parties is beyond the control of the Company.
The Company has developed a business continuation contingency plan to address
anticipated worst case scenarios which are beyond our control that may disrupt
normal operations. A walk through test of various scenarios, as well as, outside
party validation were used to evaluate the contingency plans for both The Bank
of Castile and Mahopac, respectively, without necessitating change. The
contingency plan and related cost estimates will be continually refined as
additional information becomes available. At this time, however the Company
cannot estimate the additional cost, if any, that might develop from such
refinements. The Company is prepared to curtail credit availability to customers
identified as having material exposure to
19
<PAGE>
the Year 2000 issue. However, the Company's ability to exercise such curtailment
may be limited by various factors, including existing legal agreements and
potential concerns regarding lender liability.
There can be no assurance, however, that the hardware, software, and systems of
third parties will not cause Year 2000 issues nor that if any such issues arise
that they will not have a material adverse impact upon the Company.
Year 2000 compliance costs incurred during the first half of 1999 totaled
approximately $129,200, the majority of which was related to equipment and
software. This figure does not include the implicit costs associated with the
reallocation of internal staff hours to Year 2000 project-related efforts. At
this time, management estimates additional Year 2000 cash compliance costs, at
approximately $98,900 for upgrades already implemented. This estimate does not
include normal ongoing costs for computer hardware (including ATM's) and
software that would be replaced in the next year in conjunction with the
Company's ongoing programs for updating its delivery infrastructure. The Year
2000 project cost estimate may change as the Company progresses in its Year 2000
program and conducts further testing concerning third parties. At this time, no
significant projects have been delayed as a result of the Company's Year 2000
effort. Mahopac has not incurred any costs related to Year 2000 since its
affiliation this June and, furthermore, expects any further costs would be
minimal.
Despite the Company's activities in regard to the Year 2000 issue at all its
operating units, there can be no assurance that partial or total systems
interruptions or the costs necessary to update hardware and software would not
have a material adverse effect upon the Company's business, financial condition,
results of operations, and business prospects.
Recovery under existing insurance policies may be available depending upon the
circumstances of a Year 2000 related event and the type of facility involved.
Generally, no recovery would be available in the event of an orderly shutdown
that does not result in damage to the facility, and any potential recoveries in
the event of facility damage, including business interruption, would be subject
to deductibles and location.
Since all systems have been successfully tested for compliance, the Company
presently believes that the Year 2000 issue will not pose significant
operational problems or have significant impact on its financial condition,
results of operations or cash flows for either Letchworth, The Bank of Castile,
or Mahopac.
The Company has assumed a proactive approach to increase Year 2000 awareness and
compliance. In addition to multiple statements
20
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forwarded to all customers, the Company has also have trained its loan officers
to discuss Year 2000 issues with its borrowers. The information is used in loan
review process to evaluate risk ratings and loan loss reserves. Major depositors
are also being contacted directly to determine their readiness. On going
customer awareness programs are planned throughout the balance of 1999 at both
The Bank of Castile and Mahopac.
21
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OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders of the Company which was held on May 6,
1999, James H. Van Arsdale III was re-elected as a director of the Company for a
term of three (3) years, and William D. Spain, Jr. was elected as a director of
the Company for a term of three (3) years. In addition, the shareholders of the
Company elected PricewaterhouseCoopers LLP as independent accountants of the
Company for the year ending December 31, 1999. Of the total 3,391,650 shares of
common stock outstanding and eligible to vote at the Annual Meeting, 2,592,363
shares of common stock were voted as follows:
1. Election of Directors:
----------------------
Nominee For Withheld Authority
------- --- ------------------
William H. Van Arsdale III 2,583,608 8,755
William D. Spain, Jr. 2,583,608 8,755
2. Proposal to Approve Selection of PricewaterhouseCoopers LLP,
------------------------------------------------------------
For Against Abstain
--- ------- -------
2,576,913 7,526 7,925
22
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Item 5. Other Information
On July 30, 1999, the Registrant entered into an Agreement and Plan of
Reorganization (the "Agreement") with Tompkins TrustCo, Inc. ("Tompkins"),
pursuant to which, subject to regulatory and shareholder approval, the
Registrant will be merged with and into Tompkins. Pursuant to the terms and
conditions of the Agreement, each shareholder of the Registrant will receive
.685 shares of common stock of Tompkins for each share of common stock of the
Registrant owned by the shareholder. It is currently anticipated that the
transaction will be consummated in December, 1999, or during the first quarter
of 2000. In connection with the Agreement, the Registrant granted Tompkins an
option, exercisable under certain circumstances, to purchase an aggregate of
689,737 newly issued shares of common stock, par value $1.00 per share, of the
Registrant. The terms and conditions of the Agreement, the Agreement and Plan of
Merger, and Stock Option Agreement are annexed to this Form 10-Q as Exhibits
10(a), 10(b), and 10(c), respectively, and the terms and conditions thereof are
hereby incorporated herein by reference. In addition, Tompkins and the
Registrant issued a joint Press Release on August 2, 1999, describing the
execution of the Agreement and the transaction contemplated thereby. A copy of
the Press Release is annexed to this Form 10-Q as Exhibit 99 and incorporated
herein by reference.
Regulatory approval was obtained from the New York State Banking Department on
May 24, 1999 to open a new branch office in the Town of Chili, New York at 3262
Chili Avenue. A mobile banking unit opened during July 1999 to service this
market while construction a permanent building structure which is anticipated to
be completed during the fourth quarter 1999. This will be the Company's 12th
branch and is existing contiguous to our existing LeRoy and Avon branch market
areas.
On July 12, 1999, Castile Funding Corporation, a wholly owned subsidiary of The
Bank of Castile, was incorporated in New York State under Section 402 of the
Business Corporation Law. Castile Funding Corporation ("CFC") was formed to
qualify as a real estate investment trust as defined in Section 856 of the
Internal Revenue Service Code of 1986, as amended from time to time (the
"Code"), that is "domestically controlled" for purposes of Section 897(h) of the
Code (a "REIT"). In connection therewith, The Bank of Castile capitalized CFC
with selected assets held in its portfolio, including $44.3 million of one to
four family fixed rate and adjustable rate mortgage loans, and $10.1 million of
commercial loans.
On July 12, 1999, Mahopac Funding Corporation, a wholly owned subsidiary of The
Mahopac National Bank, was incorporated in New York State under Section 402 of
the Business Corporation Law. Mahopac Funding Corporation ("MFC") was formed to
qualify as a real estate investment trust as defined in Section 856 of the
Internal Revenue Service Code of 1986, as amended from time to time (the
"Code"), that is "domestically controlled" for purposes of Section 897(h) of the
Code (a "REIT"). In connection therewith, The Mahopac National Bank capitalized
MFC with selected assets held in its portfolio, including $44.29 million of one
to four family fixed rate and adjustable rate mortgage loans.
23
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Index to Exhibits
3(a) Certificate of Incorporation of Registrant filed by the New York
Department of State on July 17, 1981, incorporated by reference to the
Registrant's Registration Statement on Form S-18 (Reg. No. 33-31149-NY), filed
with the commission on September 2, 1989 and wherein such Exhibit is designed
Exhibit 3(a).
3(b) Certificate of Amendment of Certificate of Incorporation of Registrant
filed by the New York Department of State on July 26, 1989, incorporated by
reference to the Registrant's Registration Statement on Form S-18 (Reg. No. 33-
31149-NY), filed with the Commission on September 2, 1989, and wherein such
Exhibit is designated Exhibit 3(b).
3(c) Certificate of Amendment of Certificate of Incorporation of Registrant
filed by the New York Department of State on May 2, 1990, incorporated by
reference to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1990 and filed with the Commission on August 9, 1990, and wherein
such Exhibit is designed Exhibit (4)b.
3(d) Certificate of Amendment of Certificate of Incorporation of Registrant
filed by the New York Department of State on May 15,1998, incorporated by
reference to the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1998, and filed with the commission on August 13, 1998, and
wherein such exhibit is designated Exhibit 3(d).
3(e) Bylaws of Registrant, as amended by the stockholders of the Registrant at
a special meeting of stockholders on July 11, 1989, incorporated by reference to
the Registrant's Registration Statement on From S-18 (Reg. No. 33-31149-NY),
filed with the Commission on September 2, 1989 and wherein such Exhibit is
designated Exhibit 3(c).
4(a) Form of Common Stock Certificate of Registrant, incorporated by reference
to the Registrant's Amendment No. 1 to Form s-18 Registration Statement (Reg.
No. 33-31149-NY), filed with the Commission on October 31, 1989, and wherein
such Exhibit is designated Exhibit 4.
4(b) Letchworth Independent Bancshares Corporation Stock Option Plan of 1990
and form of Stock Option Agreement, incorporated by reference to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1990
and filed with the Commission on August 9, 1990, and wherein such Exhibit is
designated Exhibit 4.
24
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4(c) Letchworth Independent Bancshares Corporation Stock Option Plan of 1998,
and form of Stock option Agreement, incorporated by reference to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended September 30,
1998 and filed with the Commission on November 11, 1998, and wherein such
Exhibit is designated Exhibit 4(c).
10(a) Agreement and Plan of Reorganization, dated as of July 30,1999, by and
between Registrant and Tompkins TrustCo, Inc.
10(b) Agreement and Plan of Merger of Registrant with and into Tompkins
TrustCo, Inc., dated as of July 30, 1999, by and between Registrant and Tompkins
TrustCo, Inc.
10(c) Stock Option Agreement, dated as of July 30, 1999, by and between
Registrant and Tompkins TrustCo, Inc.
11 Computation of Basic and Diluted Earnings Per Share for the quarter and
six months ended June 30, 1999 is presented on Exhibit 11 of this Report on Form
10-Q.
(b). The Registrant filed a Current Report on Form 8-K on June 17, 1999, in
connection with its acquisition of a controlling interest in The Mahopac
National Bank. The requisite financial statements and pro forma financial
information required on the Form 8-K was filed on August 13, 1999,
by an amendment to the Form 8-K.
27 Financial Data Schedule.
99 Press Release regarding Agreement and Plan of Reorganization, dated as of
July 30, 1999, by and between Registrant and Tompkins TrustCo, Inc.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
Date 8/16/99 /s/ James W. Fulmer
------- -----------------------------------
James W. Fulmer
President & Chief Executive Officer
Date 8/16/99 /s/ Thomas J. Sykes
------- -----------------------------------
Thomas J. Sykes
Treasurer & Chief Financial Officer
26
<PAGE>
EXHIBIT 10(A)
AGREEMENT AND PLAN OF REORGANIZATION
------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION ("Reorganization Agreement" or
-------------------------------------------------------------------
"Agreement") dated as of July 30, 1999, by and between Letchworth Independent
- -----------------------------------------------------------------------------
Bancshares Corporation ("Letchworth"), a New York corporation having its
- ------------------------------------------------------------------------
principal executive offices at 50 North Main Street, Castile, New York and
- --------------------------------------------------------------------------
Tompkins Trustco, Inc. ("Trustco"), a New York corporation having its principal
- -------------------------------------------------------------------------------
executive offices at 110 North Tioga Street, Ithaca, New York.
- --------------------------------------------------------------
WITNESSETH
----------
WHEREAS, the parties hereto desire that Letchworth shall be acquired by
-----------------------------------------------------------------------
Trustco through the merger ("Merger") of Letchworth with and into Trustco, with
- -------------------------------------------------------------------------------
Trustco as the surviving corporation ("Surviving Corporation") pursuant to an
- -----------------------------------------------------------------------------
Agreement and Plan of Merger substantially in the form attached hereto as Annex
- -------------------------------------------------------------------------------
A ("Plan of Merger"); and
- -
WHEREAS, Trustco desires to operate three separate banking subsidiaries;
and
WHEREAS, upon consummation of the Merger, Trustco presently intends to
operate Tompkins County Trust Company ("TCTC Bank"), a New York-chartered trust
company and a wholly owned subsidiary of Trustco, The Bank of Castile ("The Bank
of Castile"), a New York-chartered bank and a wholly owned subsidiary of
Letchworth, and The Mahopac National Bank ("Mahopac Bank"), a national banking
association and a subsidiary of Letchworth, as three separate banking
subsidiaries; and
WHEREAS, the parties hereto desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties and covenants herein contained and intending to be
legally bound hereby, the parties hereto do hereby agree as follows:
ARTICLE 1. DEFINITIONS
1.1. "Affiliate" shall mean with respect to a specified person, a person
that directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified.
1.2 "AMEX" shall mean the American Stock Exchange.
1.3 "Bank Holding Company Act" shall mean the Bank Holding Company Act of
1956, as amended.
1.4 "Banking Board" shall mean the New York State Banking Board.
1
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1.5 "The Bank of Castile" is defined in the recitals hereto.
1.6 "Claim" is defined in Section 4.13(a) hereof.
1.7 "Closing Date" shall mean the date specified pursuant to Section 4.9
hereof as the date on which the parties hereto shall close the transactions
contemplated herein.
1.8 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.9 "Commission" or "SEC" shall mean the Securities and Exchange
Commission.
1.10 "Confidentiality Agreement" is defined in Section 4.5 hereof.
1.11 "Danielson" is defined in Section 3.19 hereof.
1.12 "Effective Date" shall mean the date specified pursuant to Section 4.9
hereof as the effective date of the Merger.
1.13 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
1.14 "ERISA Affiliate" is defined in Section 2.14 and Section 3.13 hereof.
1.15 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.16 "FDIA" shall mean the Federal Deposit Insurance Act.
1.17 "FDIC" shall mean the Federal Deposit Insurance Corporation.
1.18 "Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System.
1.19 "Indemnified Parties" is defined in Section 4.13(a) hereof.
1.20 "Insurance Amount" is defined in Section 4.13(c) hereof.
1.21 "Intellectual Property" means domestic and foreign letters patent,
patents, patent applications, patent licenses, software licensed or owned, know-
how licenses, trade names, common law and other trademarks, service marks,
licenses of trademarks, trade names and/or service marks, trademark
registrations and applications, service mark registrations and applications and
copyright registrations and applications.
1.22 "Letchworth" is defined in the preamble of this Agreement.
1.23 "Letchworth Common Stock" is defined in Section 2.1 hereof.
2
<PAGE>
1.24 "Letchworth Employees" is defined in Section 4.11(a) hereof.
1.25 "Letchworth Financial Statements" shall mean (i) the consolidated
balance sheets of Letchworth as of March 31, 1999 and as of December 31, 1998
and 1997 and the related consolidated statements of income, cash flows and
changes in stockholders' equity (including related notes, if any) for the three
months ended March 31, 1999 and each of the three years ended December 31, 1998,
1997 and 1996, respectively, as filed by Letchworth in SEC Documents and (ii)
the consolidated balance sheets of Letchworth and related consolidated
statements of income, cash flows and changes in stockholders' equity (including
related notes, if any) as filed by Letchworth in SEC Documents with respect to
periods ended subsequent to March 31, 1999.
1.26 "Letchworth Plan" is defined in Section 2.14(a) hereof.
1.27 "Mahopac Bank" is defined in the recitals hereto.
1.28 "Mahopac Shareholders" means, collectively, W.D. Spain and Sons
Limited Partnership, William D. Spain, Jr., C. Compton Spain, Michael H. Spain
and William D. Spain.
1.29 "Material Adverse Effect" shall mean, with respect to Letchworth or
Trustco, as the case may be, a material adverse effect on the business, results
of operations or financial condition of such party and any Subsidiary of the
party taken as a whole or a material adverse effect on such party's ability to
consummate the transactions contemplated hereby; provided, however, that in
determining whether a Material Adverse Effect has occurred there shall be
excluded any effect on the referenced party the cause of which is (i) any change
in banking or similar laws, rules or regulations of general applicability or
interpretations thereof by courts or governmental authorities, (ii) any change
in generally accepted accounting principles or regulatory accounting
requirements applicable to banks, thrifts or their holding companies generally
and (iii) any action or omission of Letchworth or Trustco or any Subsidiary of
either of them taken with the prior written consent of Trustco or Letchworth, as
applicable, in contemplation of the Merger.
1.30 "McConnell, Budd & Downes, Inc." is defined in Section 2.19 hereof.
1.31 "Merger" is defined in the recitals hereto.
1.32 "OCC" shall mean the Office of the Comptroller of Currency.
1.33 "Option Agreement" shall mean the Stock Option Agreement dated of even
date herewith between Letchworth and Trustco pursuant to which Letchworth will
grant Trustco the right to purchase certain shares of Letchworth Common Stock.
1.34 "Plan of Merger" is defined in the recitals hereto.
1.35 "Previously Disclosed" shall mean disclosed in a writing by either
party in (i) an SEC Document filed with the SEC after December 31, 1997 and
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before the date hereof or (ii) a disclosure schedule (the "Disclosure Schedule")
dated of even date herewith from the party making such disclosure and delivered
to the other party prior to the execution of this Agreement. Any information
disclosed by one party to the other for any purpose hereunder shall be deemed to
be disclosed for all purposes hereunder. The inclusion of any matter in
information Previously Disclosed shall not be deemed an admission or otherwise
to imply that any such matter is material for purposes of this Agreement.
1.36 "Proxy Statement" shall mean the proxy statement/prospectus (or
similar documents) together with any supplements thereto sent to the
stockholders of Letchworth and Trustco to solicit their votes in connection with
this Agreement and the Plan of Merger.
1.37 "Registration Statement" shall mean the registration statement to be
filed by Trustco with respect to the Trustco Common Stock to be issued in
connection with the Merger as declared effective by the Commission under the
Securities Act.
1.38 "Reorganization Agreement" is defined in the recitals hereto.
1.39 "Rights" shall mean warrants, options, rights, convertible securities
and other arrangements or commitments which obligate an entity to issue or
dispose of any of its capital stock, and stock appreciation rights, performance
units and other similar stock-based rights whether they obligate the issuer
thereof to issue stock or other securities or to pay cash.
1.40 "SEC Documents" shall mean all reports and registration statements
filed, or required to be filed, by a party hereto pursuant to the Securities
Laws.
1.41 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.42 "Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended; and the rules and
regulations of the Commission promulgated thereunder.
1.43 "Subsidiary" or "Subsidiaries" shall mean with respect to any party,
any bank, corporation, partnership or other organization, whether incorporated
or unincorporated, which is consolidated with such party for financial reporting
purposes.
1.44 "Surviving Corporation" is defined in the recitals hereto.
1.45 "takeover proposal" is defined in Section 4.7(b)(13) hereof.
1.46 "Trustco" is defined in the preamble of this Agreement.
1.47 "TCTC Bank" is defined in the preamble of this Agreement.
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1.48 "Trustco Common Stock" is defined in Section 3.1 hereof.
1.49 "Trustco Financial Statements" shall mean (i) the consolidated balance
sheets of Trustco as of March 31, 1999 and as of December 31, 1998 and 1997 and
the related consolidated statements of income, cash flows and changes in
stockholders' equity (including related notes, if any) for the three months
ended March 31, 1999 and each of the three years ended December 31, 1998, 1997
and 1996, respectively, as filed by Trustco in SEC Documents and (ii) the
consolidated balance sheets of Trustco and related consolidated statements of
income, cash flows and changes in stockholders' equity (including related notes,
if any) as filed by Trustco in SEC Documents as of dates or with respect to
periods ended subsequent to March 31, 1999.
1.50 "Trustco Plan" is defined in Section 3.13 hereof.
1.51 "Voting Agreements" shall mean the Voting Agreements dated of even
date herewith between Trustco and the director/stockholders of Letchworth
pursuant to which such director/stockholders agree to vote their shares of
Letchworth Common Stock in favor of this Reorganization Agreement, the Plan of
Merger and the Option Agreement.
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ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF LETCHWORTH
Letchworth hereby represents and warrants to Trustco as follows:
2.1. CAPITAL STRUCTURE OF LETCHWORTH
The authorized capital stock of Letchworth consists of 5,000,000 shares of
common stock, par value $1.00 per share ("Letchworth Common Stock"), of which,
as of the date hereof, 3,466,016 shares are issued and outstanding and 86,847
shares are held in treasury. As of the date hereof, no shares of Letchworth
Common Stock are reserved for issuance, except that (i) 300,000 shares of
Letchworth Common Stock are reserved for issuance upon the exercise of stock
options heretofore granted pursuant to Letchworth's 1990 Stock Option Plan (the
"Letchworth 1990 Stock Option Plan"), (ii) 500,000 shares of Letchworth Common
Stock are reserved for issuance upon the exercise of stock options heretofore
granted pursuant to Letchworth's 1998 Stock Option Plan (the "Letchworth 1998
Stock Option Plan") and (iii) 689,737 shares of Letchworth Common Stock are
reserved for issuance pursuant to the Option Agreement. Schedule 2.1 hereto sets
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forth all currently outstanding options for the purchase of Letchworth Common
Stock, the number of shares of Letchworth Common Stock subject to such options,
whether such options are vested or unvested, the vesting schedule for unvested
options and the vesting or other treatment of all unvested options in the event
of a change of control of Letchworth. All outstanding shares of Letchworth
Common Stock have been duly authorized and validly issued and are fully paid and
nonassessable. Letchworth does not have and is not bound by any Rights which are
authorized, issued or outstanding with respect to the capital stock of
Letchworth except (i) for the Option Agreement, (ii) as Previously Disclosed,
(iii) the Shareholder Agreement defined in Section 2.3 below and (iv) as set
forth above. None of the shares of Letchworth's capital stock has been issued in
violation of the preemptive rights of any person.
2.2. ORGANIZATION, STANDING AND AUTHORITY OF LETCHWORTH
Letchworth is a duly organized corporation, validly existing and in good
standing under the laws of New York with full corporate power and authority to
carry on its business as now conducted and is duly licensed or qualified to do
business in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on Letchworth. Letchworth is registered as a bank
holding company under the Bank Holding Company Act.
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2.3. OWNERSHIP OF LETCHWORTH SUBSIDIARIES; CAPITAL STRUCTURE OF LETCHWORTH
SUBSIDIARIES
Except as Previously Disclosed, as of the date hereof, Letchworth does not
own, directly or indirectly, 5% or more of the outstanding capital stock or
other voting securities of any corporation, bank or other organization except
the Letchworth Subsidiaries as Previously Disclosed; and, with respect to
Mahopac Bank, Letchworth owns 1,491 shares of common stock of Mahopac Bank,
constituting 70.16% of all of the outstanding capital stock of Mahopac Bank,
and, subject to the terms of a Shareholder Agreement dated as of October 16,
1998 (the "Shareholder Agreement"), Letchworth has the right to acquire all of
the outstanding capital stock of Mahopac Bank owned by the Mahopac Shareholders
(currently 628 shares of common stock of Mahopac Bank). The Shareholder
Agreement has not been modified, amended or otherwise altered, and is in full
force and is enforceable by Letchworth against the parties thereto and nothing
in this Agreement, the Plan of Merger or Option Agreement, or the execution
hereof, or the performance by Letchworth or any Letchworth Subsidiary of their
respective obligations hereunder or under the Plan of Merger and/or Option
Agreement, shall in any way violate, conflict with or otherwise breach any of
the terms or provisions of the Shareholder Agreement or otherwise cause such
agreement to become unenforceable or in any way modified or amended. Except as
Previously Disclosed, the outstanding shares of capital stock or other equity
interests of each Letchworth Subsidiary have been duly authorized and validly
issued and are fully paid and (except as provided by applicable law)
nonassessable and all such shares or equity interests are directly or indirectly
owned by Letchworth free and clear of all liens, claims and encumbrances. No
Letchworth Subsidiary has or is bound by any Rights which are authorized, issued
or outstanding with respect to the capital stock or other equity interests of
any Letchworth Subsidiary and, except as Previously Disclosed, there are no
agreements, understandings or commitments relating to the right of Letchworth to
vote or to dispose of said shares. None of the shares of capital stock or other
equity interests of any Letchworth Subsidiary has been issued in violation of
the preemptive rights of any person.
2.4. ORGANIZATION, STANDING AND AUTHORITY OF LETCHWORTH SUBSIDIARIES
Each Letchworth Subsidiary is a duly organized corporation, banking
association or other organization, validly existing and in good standing under
applicable laws. Each Letchworth Subsidiary (i) has full power and authority to
carry on its business as now conducted, and (ii) is duly licensed or qualified
to do business in the states of the United States and foreign jurisdictions
where its ownership or leasing of property or the conduct of its business
requires such licensing or qualification, except where failure to be so licensed
or qualified would not have a Material Adverse Effect on Letchworth. Each
Letchworth Subsidiary has all federal, state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to
carry on its business as it is now being conducted, except where the failure to
be so authorized would not have a Material Adverse Effect on Letchworth. The
Bank of Castile and Mahopac Bank are each members in good standing of the
Federal Home Loan Bank of New York and each owns the requisite amount of shares
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therein. Except as Previously Disclosed, all eligible deposits issued by The
Bank of Castile and Mahopac Bank are insured by the FDIC through the Bank
Insurance Fund to the full extent permitted under applicable law.
2.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Letchworth has all requisite corporate power and authority to enter
into and perform all of its obligations under this Reorganization Agreement, the
Plan of Merger and the Option Agreement. The execution and delivery of this
Reorganization Agreement, the Plan of Merger and the Option Agreement and the
consummation of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action in respect thereof on
the part of Letchworth, except that the affirmative vote of the holders of 66
2/3% of the outstanding shares of Letchworth Common Stock entitled to vote
thereon is required to adopt the Plan of Merger pursuant to the New York
Business Corporation Law and Letchworth's certificate of incorporation, as
amended, and Letchworth's by-laws, each as in effect on the date of this
Reorganization Agreement. The Board of Directors of Letchworth has directed that
this Reorganization Agreement and the Plan of Merger be submitted to
Letchworth's stockholders for approval at a special meeting to be held as soon
as practicable.
(b) Assuming the accuracy of the representation contained in Section
3.5(b) hereof, this Reorganization Agreement and the Plan of Merger constitute
legal, valid and binding obligations of Letchworth, enforceable against it in
accordance with their respective terms, subject as to enforceability, to
bankruptcy, insolvency and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(c) Except as Previously Disclosed, neither the execution and delivery of
this Reorganization Agreement, the Plan of Merger or the Option Agreement, nor
consummation of the transactions contemplated hereby or thereby, nor compliance
by Letchworth with any of the provisions hereof or thereof shall (i) conflict
with or result in a breach of any provision of the articles or certificate of
incorporation or association, charter or bylaws of Letchworth or any Letchworth
Subsidiary, (ii) assuming the consents and approvals contemplated by Section 4.3
hereof and the consents and approvals which are Previously Disclosed are duly
obtained, constitute or result in a breach of any term, condition or provision
of, or constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of Letchworth or any
Letchworth Subsidiary pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation, or (iii) assuming the consents and
approvals contemplated by Section 4.3 hereof and the consents and approvals
which are Previously Disclosed are duly obtained, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Letchworth or any
Letchworth Subsidiary, except (in the case of clauses (ii) and (iii) above) for
such violations, rights, conflicts, breaches, creations or defaults which,
either individually or in the aggregate, would not have a Material Adverse
Effect on Letchworth.
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(d) Other than as contemplated by Section 4.3 hereof and except as
Previously Disclosed, no consent, approval or authorization of, or declaration,
notice, filing or registration with, any governmental or regulatory authority,
or any other person, is required to be made or obtained by Letchworth or any
Letchworth Subsidiary on or prior to the Closing Date in connection with the
execution, delivery and performance of this Agreement and the Plan of Merger or
the consummation of the transactions contemplated hereby or thereby. Neither
Letchworth nor any Letchworth Subsidiary is aware of any reason why the
conditions set forth in Section 5.1(b) of this Reorganization Agreement will not
be satisfied without undue delay and without the imposition of any condition or
requirement of the type referred to in the provisions thereof.
2.6. SEC DOCUMENTS; REGULATORY FILINGS
Letchworth has timely filed all SEC Documents required by the Securities
Laws and all reports and notices with The Nasdaq Stock Market ("Nasdaq")
required to be filed by the Nasdaq Marketplace Rules and the Exchange Act
(collectively, the "Nasdaq Reports"). The SEC Documents and the Nasdaq Reports
are true, complete and correct as of their respective dates, in all material
respects, and neither any SEC Documents nor any Nasdaq Reports contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading. Letchworth and
each Letchworth Subsidiary has filed all reports required by statute or
regulation to be filed with any federal or state bank regulatory agency, except
where the failure to so file would not have a Material Adverse Effect on
Letchworth, and such reports were prepared in accordance with the applicable
statutes, regulations and instructions in existence as of the date of filing of
such reports in all material respects, and none of the reports contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained therein not misleading.
2.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The Letchworth Financial Statements filed by Letchworth in SEC Documents
prior to the date of this Agreement fairly present in all material respects, and
the Letchworth Financial Statements filed by Letchworth after the date of this
Agreement will fairly present in all material respects the consolidated
financial position of Letchworth and its consolidated Subsidiaries as of the
dates indicated and the consolidated results of operations, changes in
stockholders' equity and cash flows of Letchworth and its consolidated
Subsidiaries for the periods then ended and each such financial statement has
been or will be, as the case may be, prepared in conformity with generally
accepted accounting principles applied on a consistent basis. The books and
records of Letchworth and each Letchworth Subsidiary fairly reflect in all
material respects the transactions to which it is a party or by which its
properties are subject or bound. Such books and records have been properly kept
and maintained and are in compliance with all applicable legal and accounting
requirements in all material respects. The minute books of Letchworth and each
Letchworth Subsidiary contain records which are accurate in all material
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respects of all corporate actions of each of their respective stockholders and
board of directors (including committees of their respective board of
directors).
2.8. MATERIAL ADVERSE CHANGE
Except as Previously Disclosed, Letchworth has not, on a consolidated basis,
suffered any change in its financial condition, results of operations or
business since December 31, 1998 which individually or in the aggregate with any
other such changes would constitute a Material Adverse Effect with respect to
Letchworth.
2.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither Letchworth nor any Letchworth Subsidiary has any liability (contingent
or otherwise), excluding contractually assumed contingencies, that is material
to Letchworth on a consolidated basis, or that, when combined with all similar
liabilities, would be material to Letchworth on a consolidated basis, except as
Previously Disclosed, as disclosed in the Letchworth Financial Statements filed
with the SEC prior to the date hereof and except for liabilities incurred in the
ordinary course of business subsequent to March 31, 1999.
2.10. PROPERTIES
Except as Previously Disclosed, Letchworth and the Letchworth Subsidiaries
have good and marketable title free and clear of all liens, encumbrances,
charges, defaults or equitable interests to all of the properties and assets,
real and personal, which, individually or in the aggregate, are material to the
business of Letchworth and its Subsidiaries taken as a whole, and which are
reflected on the Letchworth Financial Statements as of March 31, 1999 or
acquired after such date, except (i) liens for taxes not yet due and payable,
(ii) pledges to secure deposits and other liens incurred in the ordinary course
of banking business, (iii) such imperfections of title, easements and
encumbrances, if any, as are not material in character, amount or extent and
(iv) dispositions and encumbrances for adequate consideration in the ordinary
course of business. All leases pursuant to which Letchworth or any Letchworth
Subsidiary, as lessee, leases real and personal property which, individually or
in the aggregate, are material to the business of Letchworth and its
Subsidiaries taken as a whole are valid and enforceable in accordance with their
respective terms except where the failure of such lease or leases to be valid
and enforceable would not, individually or in the aggregate, have a Material
Adverse Effect on Letchworth.
2.11. LOANS
Each loan reflected as an asset in the Letchworth Financial Statements (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
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secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on Letchworth.
2.12. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the Letchworth Financial
Statements, as of their respective dates, is, to the best of Letchworth's
knowledge, adequate in all material respects to provide for possible or specific
losses, net of recoveries relating to loans previously charged off and on loans
outstanding, and (b) is, to the best of Letchworth's knowledge, in all material
respects consistent with the requirements of generally accepted accounting
principles to provide for the reasonably anticipated losses with respect to
Letchworth's loan portfolio based upon information reasonably available at the
time.
2.13. TAX MATTERS
(a) Except as Previously Disclosed, Letchworth and each Letchworth Subsidiary
have timely filed federal income tax returns for each year through December 31,
1998 and have timely filed, or caused to be filed, all other federal, state,
local and foreign tax returns (including, without limitation, estimated tax
returns, returns required under Sections 1441-1446 and 6031-6060 of the Code and
the regulations thereunder and any comparable state, foreign and local laws, any
other information returns, withholding tax returns, FICA and FUTA returns and
back up withholding returns required under Section 3406 of the Code and any
comparable state, foreign and local laws) required to be filed with respect to
Letchworth or any Letchworth Subsidiary, except where the failure to file timely
such federal income and other tax returns would not, in the aggregate, have a
Material Adverse Effect on Letchworth. All taxes due in respect of the periods
covered by such tax returns have been paid or adequate reserves have been
established for the payment of such taxes and such reserves are reflected on the
Letchworth Financial Statements, except where any such failure to pay or
establish adequate reserves would not, in the aggregate, have a Material Adverse
Effect on Letchworth and, as of the Closing Date, all taxes due in respect of
any subsequent periods (or portions thereof) ending on or prior to the Closing
Date will have been paid or adequate reserves will have been established for the
payment thereof, except where any such failure to pay or establish adequate
reserves would not, in the aggregate, have a Material Adverse Effect on
Letchworth. Except as Previously Disclosed, no material (i) audit examination,
(ii) deficiency, or (iii) refund litigation with respect to such returns or
periods has been proposed, asserted or assessed or is pending. Neither
Letchworth nor any Letchworth Subsidiary will have any liability for any such
taxes in excess of the amounts so paid or reserves or accruals so established
except where such liability would not have a Material Adverse Effect on
Letchworth.
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(b) All federal, state and local (and, if applicable, foreign) tax returns
filed by Letchworth and each Letchworth Subsidiary are complete and accurate in
all material respects. Neither Letchworth nor any Letchworth Subsidiary is
delinquent in the payment of any material tax, assessment or governmental
charge, and, except as Previously Disclosed, none of them has requested any
extension of time within which to file any tax returns in respect of any fiscal
year or portion thereof which have not since been filed. Except as Previously
Disclosed, no material deficiencies for any tax, assessment or governmental
charge have been proposed, asserted or assessed (tentatively or otherwise)
against Letchworth or any Letchworth Subsidiary which have not been settled and
paid. Except as Previously Disclosed, there are currently no agreements in
effect with respect to Letchworth or any Letchworth Subsidiary to extend the
period of limitations for the assessment or collection of any tax.
(c) Except as Previously Disclosed, neither the transactions contemplated
hereby nor the termination of the employment of any employees of Letchworth or
any Letchworth Subsidiary prior to or following consummation of the transactions
contemplated hereby could result in Letchworth or any Letchworth Subsidiary
making or being required to make any "excess parachute payment" as that term is
defined in Section 280G of the Code.
(d) Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary is a party to any agreement providing for the allocation or sharing
of, or indemnification for, taxes.
(e) Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary is required to include in income any adjustment in any taxable period
ending after the date hereof pursuant to Section 481(a) of the Code.
(f) Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary has entered into any agreement with any taxing authority that will
bind Trustco or an affiliate thereof after the Closing Date.
(g) For purposes of this Section 2.13, references to Letchworth and any
Letchworth Subsidiary shall include predecessors thereof.
2.14. EMPLOYEE BENEFIT PLANS
(a) Schedule 2.14(a) hereto sets forth a true and complete list of (a) each
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employment agreement or change in control agreement (whether written or oral)
Letchworth or any Letchworth Subsidiary has entered into with any employee,
director or officer of Letchworth or a Letchworth Subsidiary and (b) each
Letchworth Plan. For purposes of this Reorganization Agreement, the term
"Letchworth Plan" means each bonus, deferred compensation, incentive
compensation, stock purchase, stock option, severance pay, medical, life or
other insurance, profit-sharing, or pension plan, program, agreement or
arrangement, and each other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to or required to be
contributed to by Letchworth or by any trade or business, whether or not
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incorporated, that together with Letchworth or any of the Letchworth
Subsidiaries would be deemed a "single employer" under Section 414 of the Code
(an "ERISA Affiliate") for the benefit of any employee or director or former
employee or former director of Letchworth or any ERISA Affiliate of Letchworth.
(b) With respect to each of the Letchworth Plans, Letchworth has made
available to Trustco true and complete copies of each of the following
documents: (a) the Letchworth Plan and related documents (including all
amendments thereto); (b) the most recent annual reports, financial statements,
and actuarial reports, if any; (c) the most recent summary plan description,
together with each summary of material modifications, required under ERISA with
respect to such Letchworth Plan; and (d) the most recent determination letter
received from the IRS with respect to each Letchworth Plan that is intended to
be qualified under the Code.
(c) No liability under Title IV of ERISA has been incurred by Letchworth or
any ERISA Affiliate of Letchworth since the effective date of ERISA that has not
been satisfied in full, and no condition exists that presents a material risk to
Letchworth or any ERISA Affiliate of Letchworth of incurring a liability under
such Title, other than liability for premium payments to the Pension Benefit
Guaranty Corporation, which premiums have been or will be paid when due.
(d) Neither Letchworth nor any ERISA Affiliate of Letchworth, nor any of the
Letchworth Plans, nor any trust created thereunder, nor any trustee or
administrator thereof has engaged in a prohibited transaction (within the
meaning of Section 406 of ERISA and Section 4975 of the Code) in connection with
which Letchworth or any ERISA Affiliate of Letchworth could, either directly or
indirectly, incur a material liability or cost.
(e) Full payment has been made, or will be made in accordance with Section
404(a)(6) of the Code, of all amounts that Letchworth or any ERISA Affiliate of
Letchworth is required to pay under Section 412 of the Code or under the terms
of the Letchworth Plans.
(f) Except as Previously Disclosed, there has been no material adverse change
in the funded status of any Letchworth Plan that is subject to Title IV of ERISA
since the date of the information relating to such funded status contained in
the most recent Letchworth Form 10-K filed with the SEC. No reportable event
under Section 4043 of ERISA has occurred or will occur with respect to any
Letchworth Plan on or before the Closing Date other than any reportable event
occurring by reason of the transactions contemplated by this Agreement or a
reportable event for which the requirement of notice to the PBGC has been
waived.
(g) Except as Previously Disclosed, none of the Letchworth Plans is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
a "multiple employer welfare arrangement," as such term is defined in Section
3(40) of ERISA, or a single employer plan that has two or more contributing
sponsors, at least two of whom are not under common control, within the meaning
of Section 4063(a) of ERISA.
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(h) A favorable determination letter has been issued by the Internal Revenue
Service with respect to the each of the Letchworth Plans that is intended to be
"qualified" within the meaning of Section 401(a) of the Code to the effect that
such plan is so qualified and each such Letchworth Plan satisfies the
requirements of Section 401(a) of the Code in all material respects. Each of the
Letchworth Plans that is intended to satisfy the requirements of Section 125 or
501(c)(9) of the Code satisfies such requirements in all material respects. Each
of the Letchworth Plans has been operated and administered in all material
respects in accordance with its terms and applicable laws, including but not
limited to ERISA and the Code.
(i) There are no actions, suits or claims pending, or, to the knowledge of
Letchworth, threatened or anticipated (other than routine claims for benefits)
against any Letchworth Plan, the assets of any Letchworth Plan or against
Letchworth or any ERISA Affiliate of Letchworth with respect to any Letchworth
Plan. There is no judgment, decree, injunction, rule or order of any court,
governmental body, commission, agency or arbitrator outstanding against or in
favor of any Letchworth Plan or any fiduciary thereof (other than rules of
general applicability). There are no pending or threatened audits, examinations
or investigations by any governmental body, commission or agency involving any
Letchworth Plan.
(j) Except as Previously Disclosed, the consummation of the transactions
contemplated by this Agreement will not (i) entitle any current or former
employee or director of Letchworth or any ERISA Affiliate of Letchworth to
severance pay, unemployment compensation or any similar payment, (ii) accelerate
the time of payment or vesting, or increase the amount, of any compensation due
to any such current or former employee or director, (iii) renew or extend the
term of any agreement regarding compensation for any such current or former
employee or director, or (iv) result in a "change in control" or the occurrence
of any other event specified in the agreements identified on Schedule 2.14(a)
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which would entitle any party to such agreements to any payment thereunder.
2.15. CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary is a party to, or is bound by, (i) any material contract as defined
in Item 601(b)(10) of Regulation S-K of the SEC or any other material contract
or similar arrangement whether or not made in the ordinary course of business
(other than loans or loan commitments and funding transactions in the ordinary
course of business of any Letchworth Subsidiary) or any agreement restricting
the nature or geographic scope of its business activities in any material
respect, (ii) any agreement, indenture or other instrument relating to the
borrowing of money by Letchworth or any Letchworth Subsidiary or the guarantee
by Letchworth or any Letchworth Subsidiary of any such obligation, other than
instruments relating to transactions entered into in the customary course, (iii)
any agreement, arrangement or commitment relating to the employment of a
consultant who was formerly a director or executive officer or the employment,
election, retention in office or severance of any present or former director or
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officer, or (iv) any contract, agreement or understanding with a labor union, in
each case whether written or oral.
(b) Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary is in default under any material agreement, commitment, arrangement,
lease, insurance policy or other instrument whether entered into in the ordinary
course of business or otherwise and whether written or oral, and there has not
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default, except for such defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on Letchworth.
2.16. LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of Letchworth or any Letchworth
Subsidiary, threatened (or unasserted but considered probable of assertion and
which if asserted would have at least a reasonable probability of an unfavorable
outcome) against Letchworth or any Letchworth Subsidiary or against any asset,
interest or right of Letchworth or any Letchworth Subsidiary as to which there
is a reasonable probability of an unfavorable outcome and which, if such an
unfavorable outcome was rendered, would, individually or in the aggregate, have
a Material Adverse Effect on Letchworth. To the knowledge of Letchworth or any
Letchworth Subsidiary, there are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or to impose any material liability in connection therewith
as to which there is a reasonable probability of an unfavorable outcome and
which, if such an unfavorable outcome was rendered, would, individually or in
the aggregate, have a Material Adverse Effect on Letchworth. There are no
actions, suits or proceedings instituted, pending or, to the knowledge of
Letchworth or any Letchworth Subsidiary, threatened (or unasserted but
considered probable of assertion and which if asserted would be reasonably
expected to have an unfavorable outcome) against any present or former director
or officer of Letchworth or any Letchworth Subsidiary, that might give rise to a
claim for indemnification and that (i) has a reasonable probability of an
unfavorable outcome and (ii) in the event of an unfavorable outcome, would,
individually or in the aggregate, have a Material Adverse Effect on Letchworth.
2.17. COMPLIANCE WITH LAWS
Except as Previously Disclosed, Letchworth and each Letchworth Subsidiary is
in compliance in all material respects with all statutes and regulations
applicable to the conduct of its business, and neither Letchworth nor any
Letchworth Subsidiary has received notification from any agency or department of
federal, state or local government (i) asserting a material violation of any
such statute or regulation, (ii) threatening to revoke any license, franchise,
permit or government authorization or (iii) restricting or in any way limiting
its operations, except for such noncompliance, violations, revocations and
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restrictions which would not, individually or in the aggregate, have a Material
Adverse Effect on Letchworth. Neither Letchworth nor any Letchworth Subsidiary
is subject to any regulatory or supervisory cease and desist order, agreement,
directive, memorandum of understanding or commitment which could be reasonably
anticipated to have a Material Adverse Effect on Letchworth, and none of them
has received any communication requesting that they enter into any of the
foregoing.
2.18. LABOR MATTERS
With respect to their employees, neither Letchworth nor any Letchworth
Subsidiary is a party to any labor agreement with any labor organization, group
or association and has not engaged in any unfair labor practice. Since January
1, 1999 and prior to the date hereof, Letchworth and the Letchworth Subsidiaries
have not experienced any attempt by organized labor or its representatives to
make Letchworth or any Letchworth Subsidiary conform to demands of organized
labor relating to their employees or to enter into a binding agreement with
organized labor that would cover the employees of Letchworth or any Letchworth
Subsidiary. There is no unfair labor practice charge or other complaint by any
employee or former employee of Letchworth or any Letchworth Subsidiary against
any of them pending before any governmental agency arising out of Letchworth's
or such Letchworth Subsidiary's activities, which charge or complaint (i) has a
reasonable probability of an unfavorable outcome and (ii) in the event of an
unfavorable outcome would, individually or in the aggregate, have a Material
Adverse Effect on Letchworth; there is no labor strike or labor disturbance
pending or threatened against any of them; and neither Letchworth nor any
Letchworth Subsidiary has experienced a work stoppage or other labor difficulty
since January 1, 1999.
2.19. BROKERS AND FINDERS
Neither Letchworth nor any Letchworth Subsidiary, nor any of their respective
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated herein or the Plan of Merger, except for
Letchworth's retention of McConnell, Budd & Downes, Inc. to perform certain
financial advisory services as Previously Disclosed. Prior to the execution and
delivery of this Agreement, McConnell, Budd & Downes, Inc. has delivered to the
Board of Directors of Letchworth an opinion that the Exchange Ratio is fair from
a financial point of view to the stockholders of Letchworth.
2.20. INSURANCE
Letchworth and the Letchworth Subsidiaries each currently maintains insurance
in amounts considered by Letchworth and any Letchworth Subsidiary as applicable,
to be reasonably necessary for their operations. Neither Letchworth nor any
Letchworth Subsidiary has received any notice of a material premium increase or
cancellation with respect to any of its insurance policies or bonds, and within
the last three years, neither Letchworth nor any Letchworth Subsidiary has been
refused any insurance coverage sought or applied for, and
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Letchworth has no reason to believe that existing insurance coverage cannot be
renewed as and when the same shall expire, upon terms and conditions as
favorable as those presently in effect, other than possible increases in
premiums or unavailability in coverage that have not resulted from any
extraordinary loss experience of Letchworth or any Letchworth Subsidiary.
Schedule 2.20 hereto sets forth all currently outstanding claims against
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Letchworth or any Letchworth Subsidiary under any insurance policy. Except as
Previously Disclosed, the deposits of The Bank of Castile and Mahopac Bank are
insured by the FDIC in accordance with the FDIA, and The Bank of Castile and
Mahopac Bank have paid all assessments and filed all reports required by the
FDIA.
2.21. ENVIRONMENTAL LIABILITY
Except as Previously Disclosed, neither Letchworth nor any Letchworth
Subsidiary has received any written notice of any legal, administrative,
arbitral or other proceeding, claim or action and, to the knowledge of
Letchworth and the Letchworth Subsidiaries, there is no governmental
investigation of any nature ongoing, in each case that could reasonably be
expected to result in the imposition, on Letchworth or any Letchworth Subsidiary
of any liability arising under any local, state or federal environmental
statute, regulation or ordinance including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, which liability would have a Material Adverse Effect on Letchworth;
except as Previously Disclosed, there are no facts or circumstances which could
reasonably be expected to form the basis for any such proceeding, claim, action
or governmental investigation that would impose any such liability; and neither
Letchworth nor any Letchworth Subsidiary is subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
2.22. ADMINISTRATION OF TRUST ACCOUNTS
To the best of Letchworth's knowledge, each Letchworth Subsidiary has properly
administered all common trust funds and collective investment funds and all
accounts for which it acts as a fiduciary or agent, 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 state and federal law and
regulation and common law, except where the failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect on Letchworth.
Neither Letchworth, any Letchworth Subsidiary, nor any director, officer or
employee of Letchworth or any Letchworth Subsidiary acting on behalf of
Letchworth or a Letchworth Subsidiary, has committed any breach of trust with
respect to any such common trust fund or collective investment fund or fiduciary
or agency account, and the accountings for each such common trust fund or
collective investment fund or fiduciary or agency account are true and correct
in all material respects and accurately reflect the assets of such common trust
fund or collective investment fund or fiduciary or agency account, except for
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such breaches and failures to be true, correct and accurate which would not,
individually or in the aggregate, have a Material Adverse Effect on Letchworth.
2.23. INTELLECTUAL PROPERTY
Except as Previously Disclosed, Letchworth or a Letchworth Subsidiary owns the
entire right, title and interest in and to, or has valid licenses or otherwise
has the required legal rights with respect to, all of the Intellectual Property
necessary in all material respects to conduct the business and operations of
Letchworth and the Letchworth Subsidiaries as presently conducted, except where
the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Letchworth. None of such Intellectual Property is
subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment, which order, decree, judgment,
stipulation, settlement, lien, charge, encumbrance or attachment would have a
Material Adverse Effect on Letchworth. Except as Previously Disclosed, upon
consummation of the transactions contemplated by this Reorganization Agreement
Trustco and the Trustco Subsidiaries will be entitled to continue to use all
such Intellectual Property without the payment of any fees, licenses or other
payments (other than ongoing payments required under license agreements for
software used by Letchworth or the Letchworth Subsidiaries in Previously
Disclosed amounts consistent with past practice).
2.24. ANTI-TAKEOVER PROVISIONS
No "Business Combination," "Moratorium," "Control Share" or other state anti-
takeover statute or regulation, (i) applies to the Merger, the Voting Agreements
or the Option Agreement, (ii) prohibits or restricts the ability of Letchworth
or any Letchworth Subsidiary to perform their respective obligations under this
Reorganization Agreement, or their respective ability to consummate the
transactions contemplated hereby, (iii) would have the effect of invalidating or
voiding this Reorganization Agreement, any of the Voting Agreements, or the
Option Agreement, or any provision hereof or thereof, or (iv) would subject
Trustco or any Trustco Subsidiary to any material impediment or condition in
connection with the exercise of any of its rights under this Reorganization
Agreement, any of the Voting Agreements or the Option Agreement.
2.25. INSIDER INTERESTS
All outstanding loans and other contractual arrangements (including deposit
relationships) between Letchworth or any Letchworth Subsidiary and any officer,
director or employee of Letchworth or any Letchworth Subsidiary conform to the
applicable rules and regulations and requirements of all applicable regulatory
agencies which were in effect when such loans and other contractual arrangements
were entered into. Except as set forth in Schedule 2.25, no officer, director
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or employee of Letchworth or any Letchworth Subsidiary has any material interest
in any property, real or personal, tangible or intangible, used in or pertaining
to the business of Letchworth or any Letchworth Subsidiary.
2.26. REGISTRATION OBLIGATIONS
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Except as set forth in Schedule 2.26, neither Letchworth nor any Letchworth
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Subsidiaries are under any obligation, contingent or otherwise, which will
survive the Merger by reason of any agreement to register any of its securities
under any of the Securities Laws.
2.27. CERTAIN INFORMATION
When the Registration Statement or any post-effective amendment thereto shall
become effective, and at all times subsequent to such effectiveness up to and
including the time of the Letchworth stockholders' meeting and the Trustco
stockholders' meeting to vote upon the Merger, such Registration Statement and
all amendments or supplements thereto, with respect to all information set forth
therein furnished by Letchworth relating to Letchworth and the Letchworth
Subsidiaries, (i) shall comply in all material respects with the applicable
provisions of the Securities Laws, and (ii) shall 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 contained therein not
misleading. All information concerning Letchworth and its directors, officers,
stockholders and any Subsidiaries included (or submitted for inclusion) in any
application and furnished by it pursuant to Section 4.3 of this Agreement shall
be true, correct and complete in all material respects.
2.28. YEAR 2000
The computer software operated by Letchworth and any Letchworth Subsidiary
which is material to the conduct of the business of Letchworth and any
Letchworth Subsidiary is capable of providing or is being adapted to provide
uninterrupted millennium functionality to record, store, process and present
calendar dates falling on or after January 1, 2000 in substantially the same
manner and with the same functionality as such software records, stores,
processes and presents such calendar dates falling on or before December 31,
1999, and such software and Letchworth and any Letchworth Subsidiary are
otherwise in compliance with all relevant Regulatory Authority guidance and
requirements relating to the Year 2000 computer issues including the statements
of the Federal Financial Institutions Examination Council, dated May 5, 1997,
entitled "Year 2000 Project Management Awareness," and December 1997, entitled
"Safety and Soundness Guidelines Concerning the Year 2000 Business Risk." The
costs of the adaptations referred to in this clause will not have a Material
Adverse Effect on Letchworth.
2.29. TAX TREATMENT
As of the date of this Reorganization Agreement, Letchworth knows of no reason
relating to it or any of the Letchworth Subsidiaries which would reasonably
cause it to believe that the Merger will not qualify as tax free reorganization
under Section 368(a) of the Code.
2.30. POOLING OF INTERESTS
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Neither Letchworth nor any Letchworth Subsidiary knows of any reason (after
consultation with its independent accountants) which would reasonably cause it
to believe that the Merger will not qualify as a pooling of interests for
financial accounting purposes.
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ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF TRUSTCO
Trustco hereby represents and warrants to Letchworth as follows:
3.1. CAPITAL STRUCTURE OF TRUSTCO
The authorized capital stock of Trustco consists of 15,000,000 shares of
common stock, par value $0.10 per share ("Trustco Common Stock"), of which, as
of the date hereof, 4,807,774 shares were issued and outstanding and 27,996
shares were held in treasury. As of the date hereof, no shares of Trustco
Common Stock are reserved for issuance, except that 254,100 shares of Trustco
Common Stock and 240,000 shares of Trustco Common Stock are reserved for
issuance upon the exercise of stock options heretofore or to be hereafter
granted pursuant to Trustco's 1992 Stock Option Plan and 1998 Stock Option Plan,
respectively. All outstanding shares of Trustco capital stock have been duly
authorized and validly issued and are fully paid and (except as provided by
applicable law) nonassessable. None of the shares of Trustco's capital stock has
been issued in violation of the preemptive rights of any person. The shares of
Trustco Common Stock to be issued in connection with the Merger have been duly
authorized and, when issued in accordance with the terms of this Reorganization
Agreement and the Plan of Merger, will be validly issued, fully paid, (except as
provided by applicable law) nonassessable and free and clear of any preemptive
rights. Except as Previously Disclosed and as set forth above, Trustco does not
have and is not bound by any Rights which are authorized, issued or outstanding
with respect to the capital stock of Trustco.
3.2. ORGANIZATION, STANDING AND AUTHORITY OF TRUSTCO
Trustco is a duly organized corporation, validly existing and in good standing
under the laws of New York, with full corporate power and authority to carry on
its business as now conducted and is duly licensed or qualified to do business
in the states of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on Trustco. Trustco is registered as a bank
holding company under the Bank Holding Company Act.
3.3. OWNERSHIP OF TRUSTCO SUBSIDIARIES; CAPITAL STRUCTURE OF TRUSTCO
SUBSIDIARIES
Trustco has no Subsidiary other than those disclosed in its Annual Report on
Form 10-K for the year ended December 31, 1998 or any Subsidiary that is not a
significant subsidiary under the SEC's Regulation S-X. Except as Previously
Disclosed, the outstanding shares of capital stock of the Trustco Subsidiaries
have been duly authorized and validly issued and are fully paid and (except as
provided in 12 U.S.C. Section 55 or Section 114 of the New York Banking Law)
nonassessable and all such shares are directly or indirectly owned by Trustco
free and clear of all liens, claims and encumbrances. No Trustco Subsidiary has
or is bound by any Rights which are authorized, issued or outstanding with
respect to the capital stock of any Trustco Subsidiary and, except as Previously
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Disclosed, there are no agreements, understandings or commitments relating to
the right of Trustco to vote or to dispose of said shares. None of the shares of
capital stock of any Trustco Subsidiary has been issued in violation of the
preemptive rights of any person.
3.4. ORGANIZATION, STANDING AND AUTHORITY OF TRUSTCO SUBSIDIARIES
Each Trustco Subsidiary is a duly organized corporation or banking
corporation, validly existing and in good standing under applicable laws. Each
Trustco Subsidiary (i) has full power and authority to carry on its business as
now conducted, and (ii) is duly licensed or qualified to do business in the
states of the United States and foreign jurisdictions where its ownership or
leasing of property or the conduct of its business requires such licensing or
qualification and where failure to be licensed or qualified would have a
Material Adverse Effect on Trustco. Each Trustco Subsidiary has all federal,
state, local and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, except where the failure to be so authorized would not have a
Material Adverse Effect on Trustco. TCTC Bank is a member in good standing of
the Federal Home Loan Bank of New York and owns the requisite amount of shares
therein. Except as Previously Disclosed, all eligible deposits issued by TCTC
Bank are insured by the FDIC through the Bank Insurance Fund to the full extent
permitted under applicable law.
3.5. AUTHORIZED AND EFFECTIVE AGREEMENT
(a) Trustco has all requisite corporate power and authority to enter into and
perform all of its obligations under this Reorganization Agreement and the Plan
of Merger. The execution and delivery of this Reorganization Agreement and the
Plan of Merger and the consummation of the transactions contemplated hereby and
thereby have been duly and validly authorized by all necessary corporate action
in respect thereof on the part of Trustco, except that the affirmative vote of
the holders of 66 2/3% of the outstanding shares of Trustco Common Stock
entitled to vote thereon is required to approve the Plan of Merger pursuant to
the New York Business Corporation Law and Trustco's certificate of
incorporation, as amended, and Trustco's by-laws, each as in effect on the date
of this Reorganization Agreement. The Board of Directors of Trustco has
directed that this Reorganization Agreement and Plan of Merger be submitted to
Trustco's stockholders for approval at a special meeting to be held as soon as
practicable.
(b) Assuming the accuracy of the representation contained in Section 2.5(b)
hereof, this Reorganization Agreement and the Plan of Merger constitute legal,
valid and binding obligations of Trustco enforceable against it in accordance
with their respective terms subject, as to enforceability, to bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(c) Except as Previously Disclosed, neither the execution and delivery of this
Reorganization Agreement or the Plan of Merger, nor consummation of the
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transactions contemplated hereby or thereby, nor compliance by Trustco with any
of the provisions hereof or thereof shall (i) conflict with or result in a
breach of any provision of the articles or certificate of incorporation or
association, charter or bylaws of Trustco or any Trustco Subsidiary, (ii)
assuming the consents and approvals contemplated by Section 4.3 hereof and the
consents and approvals which are Previously Disclosed are duly obtained,
constitute or result in a breach of any term, condition or provision of, or
constitute a default under, or give rise to any right of termination,
cancellation or acceleration with respect to, or result in the creation of any
lien, charge or encumbrance upon any property or asset of Trustco or any Trustco
Subsidiary pursuant to, any note, bond, mortgage, indenture, license, agreement
or other instrument or obligation, or (iii) assuming the consents and approvals
contemplated by Section 4.3 hereof and the consents and approvals which are
Previously Disclosed are duly obtained, violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Trustco or any Trustco
Subsidiary, except (in the case of clauses (ii) and (iii) above) for such
violations, rights, conflicts, breaches, creations or defaults which, either
individually or in the aggregate, will not have a Material Adverse Effect on
Trustco.
(d) Except for approvals specified in Section 4.3 hereof, except as Previously
Disclosed and except as expressly referred to in this Reorganization Agreement,
no consent, approval or authorization of, or declaration, notice, filing or
registration with, any governmental or regulatory authority, or any other
person, is required to be made or obtained by Trustco or any Trustco Subsidiary
on or prior to the Closing Date in connection with the execution, delivery and
performance of this Reorganization Agreement and the Plan of Merger or the
consummation of the transactions contemplated hereby or thereby. Neither Trustco
nor any of the Trustco Subsidiaries is aware of any reason why the conditions
set forth in Section 5.1(b) of this Reorganization Agreement will not be
satisfied without undue delay and without the imposition of any condition or
requirement of the type referred to in the provisions thereof.
3.6. SEC DOCUMENTS; REGULATORY FILINGS
Trustco has timely filed all SEC Documents required by the Securities Laws and
all reports and notices with AMEX required to be filed by the AMEX rules and
regulations and the Exchange Act (collectively, the "AMEX Reports"). The SEC
Documents and the AMEX Reports are true, complete and correct as of their
respective dates, in all material respects, and neither any SEC Documents nor
any AMEX Reports contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements contained
therein not misleading. Trustco and each of the Trustco Subsidiaries has filed
all reports required by statute or regulation to be filed with any federal or
state bank regulatory agency, except where the failure to so file would not have
a Material Adverse Effect on Trustco, and such reports were prepared in
accordance with the applicable statutes, regulations and instructions in
existence as of the date of filing of such reports in all material respects, and
none of the reports contain any untrue statement of a material fact or omit to
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state a material fact necessary in order to make the statements contained
therein not misleading.
3.7. FINANCIAL STATEMENTS; BOOKS AND RECORDS; MINUTE BOOKS
The Trustco Financial Statements filed by Trustco in SEC Documents prior to
the date of this Agreement fairly present in all material respects, and the
Trustco Financial Statements filed by Trustco in SEC Documents after the date of
the Agreement will fairly present in all material respects the consolidated
financial position of Trustco and its consolidated Subsidiaries as of the dates
indicated and the consolidated results of operations, changes in stockholders'
equity and cash flows of Trustco and its consolidated Subsidiaries for the
periods then ended and each such financial statement has been or will be, as the
case may be, prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The books and records of Trustco and
each Trustco Subsidiary fairly reflect in all material respects the transactions
to which it is a party or by which its properties are subject or bound. Such
books and records have been properly kept and maintained and are in compliance
in all material respects with all applicable legal and accounting requirements.
The minute books of Trustco and the Trustco Subsidiaries contain records which
are accurate in all material respects of all corporate actions of each of their
respective stockholders and board of directors (including committees of each of
their respective board of directors).
3.8. MATERIAL ADVERSE CHANGE
Except as Previously Disclosed, Trustco has not, on a consolidated basis,
suffered any change in its financial condition, results of operations or
business since December 31, 1998 which individually or in the aggregate with any
other such changes would constitute a Material Adverse Effect with respect to
Trustco.
3.9. ABSENCE OF UNDISCLOSED LIABILITIES
Neither Trustco nor any Trustco Subsidiary has any liability (contingent or
otherwise), excluding contractually assumed contingencies, that is material to
Trustco on a consolidated basis, or that, when combined with all similar
liabilities, would be material to Trustco on a consolidated basis, except as
Previously Disclosed, as disclosed in the Trustco Financial Statements filed
with the SEC prior to the date hereof and except for liabilities incurred in the
ordinary course of business subsequent to March 31, 1999.
3.10. PROPERTIES
Except as Previously Disclosed, Trustco and the Trustco Subsidiaries have good
and marketable title free and clear of all liens, encumbrances, charges,
defaults or equitable interests to all of the properties and assets, real and
personal, which, individually or in the aggregate, are material to the business
of Trustco and its Subsidiaries taken as a whole, and which are reflected on the
Trustco Financial Statements as of March 31, 1999 or acquired after such date,
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except (i) liens for taxes not yet due and payable, (ii) pledges to secure
deposits and other liens incurred in the ordinary course of banking business,
(iii) such imperfections of title, easements and encumbrances, if any, as are
not material in character, amount or extent and (iv) dispositions and
encumbrances for adequate consideration in the ordinary course of business. All
leases pursuant to which Trustco or any Trustco Subsidiary, as lessee, leases
real and personal property which, individually or in the aggregate, are material
to the business of Trustco and its Subsidiaries taken as a whole are valid and
enforceable in accordance with their respective terms except where the failure
of such lease or leases to be valid and enforceable would not, individually or
in the aggregate, have a Material Adverse Effect on Trustco.
3.11. LOANS
Each loan reflected as an asset in the Trustco Financial Statements (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, in each case other
than loans as to which the failure to satisfy the foregoing standards would not
have a Material Adverse Effect on Trustco.
3.12. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses reflected on the Trustco Financial Statements,
as of their respective dates, is, to the best of Trustco's knowledge, adequate
in all material respects to provide for possible or specific losses, net of
recoveries relating to loans previously charged off and on loans outstanding,
and (b) is, to the best of Trustco's knowledge, in all material respects
consistent with the requirements of generally accepted accounting principles to
provide for the reasonably anticipated losses with respect to Trustco's loan
portfolio based upon information reasonably available at the time.
3.13. EMPLOYEE BENEFIT PLANS
Each of the Trustco Plans complies in all material respects with the
requirements of applicable law, including ERISA and the Code. For purposes of
this Reorganization Agreement, the term "Trustco Plan" means each bonus,
incentive compensation, severance pay, medical or other insurance program,
retirement plan, or other employee benefit plan, program, agreement or
arrangement, sponsored, maintained or contributed to by Trustco or any trade or
business, whether or not incorporated, that together with Trustco or any of the
Trustco Subsidiaries would be deemed a "single employer" under Section 414 of
the Code (an "ERISA Affiliate") or under which Trustco or any ERISA Affiliate of
Trustco has any liability or obligation. No liability under Title IV of ERISA
has been incurred by Trustco or any ERISA Affiliate of Trustco that has not been
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satisfied in full, and no condition exists that presents a material risk to
Trustco or any ERISA Affiliate of Trustco incurring any liability under such
Title, other than liability for premium payments to the Pension Benefit Guaranty
Corporation, which premiums have been or will be paid when due. Full payment has
been made, or will be made in accordance with Section 404(a)(6) of the Code of
all amounts that Trustco or any ERISA Affiliate is required to pay under Section
412 of the Code or under the terms of the Trustco Plans, and no accumulated
funding deficiency (within the meaning of Section 412 of the Code) exists with
respect to any Trustco Plan. There has been no material adverse change in the
funded status of any Trustco Plan that is subject to Title IV of ERISA since the
date of the information relating to such funded status contained in the most
recent Trustco Form 10-K filed with the SEC.
3.14. CERTAIN CONTRACTS
(a) Except as Previously Disclosed, neither Trustco nor any Trustco
Subsidiary is a party to, or is bound by, (i) any material contract as defined
in Item 601(b)(10) of Regulation S-K of the SEC or any other material contract
or similar arrangement whether or not made in the ordinary course of business
(other than loans or loan commitments and funding transactions in the ordinary
course of business of any Trustco Subsidiary) or any agreement restricting the
nature or geographic scope of its business activities in any material respect,
or (ii) any agreement, indenture or other instrument relating to the borrowing
of money by Trustco or any Trustco Subsidiary or the guarantee by Trustco or any
Trustco Subsidiary of any such obligation, other than instruments relating to
transactions entered into in the customary course.
(b) Except as Previously Disclosed, neither Trustco nor any Trustco
Subsidiary is in default under any material agreement, commitment, arrangement,
lease, insurance policy or other instrument whether entered into in the ordinary
course of business or otherwise and whether written or oral, and there has not
occurred any event that, with the lapse of time or giving of notice or both,
would constitute such a default, except for such defaults which would not,
individually or in the aggregate, have a Material Adverse Effect on Trustco.
3.15. LEGAL PROCEEDINGS
Except as Previously Disclosed, there are no actions, suits or proceedings
instituted, pending or, to the knowledge of Trustco, threatened (or unasserted
but considered probable of assertion and which if asserted would have at least a
reasonable probability of an unfavorable outcome) against Trustco or any Trustco
Subsidiary or against any asset, interest or right of Trustco or any Trustco
Subsidiary as to which there is a reasonable probability of an unfavorable
outcome and which, if such an unfavorable outcome was rendered, would,
individually or in the aggregate, have a Material Adverse Effect on Trustco. To
the knowledge of Trustco, there are no actual or threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or to impose any material liability in connection therewith
as to which there is a reasonable probability of an unfavorable outcome and
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which, if such an unfavorable outcome was rendered, would, individually or inthe
aggregate, have a Material Adverse Effect on Trustco.
3.16. COMPLIANCE WITH LAWS
Except as Previously Disclosed, each of Trustco and the Trustco
Subsidiaries is in compliance in all material respects with all statutes and
regulations applicable to the conduct of its business, and none of them has
received notification from any agency or department of federal, state or local
government (i) asserting a material violation of any such statute or regulation,
(ii) threatening to revoke any license, franchise, permit or government
authorization or (iii) restricting or in any way limiting its operations, except
for such noncompliance, violations, revocations and restrictions which would
not, individually or in the aggregate, have a Material Adverse Effect on
Trustco. None of Trustco or any Trustco Subsidiary is subject to any regulatory
or supervisory cease and desist order, agreement, directive, memorandum of
understanding or commitment which could be reasonably anticipated to have a
Material Adverse Effect on Trustco, and none of them has received any
communication requesting that they enter into any of the foregoing.
3.17. LABOR MATTERS
With respect to their employees, neither Trustco nor any Trustco Subsidiary
is a party to any labor agreement with any labor organization, group or
association and has not engaged in any unfair labor practice. Since January 1,
1999 and prior to the date hereof, Trustco and the Trustco Subsidiaries have not
experienced any attempt by organized labor or its representatives to make
Trustco or any Trustco Subsidiary conform to demands of organized labor relating
to their employees or to enter into a binding agreement with organized labor
that would cover the employees of Trustco or any Trustco Subsidiary. There is no
unfair labor practice charge or other complaint by any employee or former
employee of Trustco or any Trustco Subsidiary against any of them pending before
any governmental agency arising out of Trustco's or such Trustco Subsidiary's
activities, which charge or complaint (i) has a reasonable probability of an
unfavorable outcome and (ii) in the event of an unfavorable outcome would,
individually or in the aggregate, have a Material Adverse Effect on Trustco;
there is no labor strike or labor disturbance pending or threatened against any
of them; and neither Trustco nor any Trustco Subsidiary has experienced a work
stoppage or other labor difficulty since January 1, 1999.
3.18. TAX MATTERS
(a) Trustco and each Trustco Subsidiary have timely filed federal income
tax returns for each year through December 31, 1998 and have timely filed, or
caused to be filed, all other federal, state, local and foreign tax returns
(including, without limitation, estimated tax returns, returns required under
Sections 1441-1446 and 6031-6060 of the Code and the regulations thereunder and
any comparable state, foreign and local laws, any other information returns,
withholding tax returns, FICA and FUTA returns and back up withholding returns
required under Section 3406 of the Code and any comparable state, foreign and
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local laws) required to be filed with respect to Trustco or any Trustco
Subsidiary, except where the failure to file timely such federal income and
other tax returns would not, in the aggregate, have a Material Adverse Effect on
Trustco. All taxes due in respect of the periods covered by such tax returns
have been paid or adequate reserves have been established for the payment of
such taxes, except where any such failure to pay or establish adequate reserves
would not, in the aggregate, have a Material Adverse Effect on Trustco and, as
of the Closing Date, all taxes due in respect of any subsequent periods (or
portions thereof) ending on or prior to the Closing Date will have been paid or
adequate reserves will have been established for the payment thereof, except
where any such failure to pay or establish adequate reserves would not, in the
aggregate, have a Material Adverse Effect on Trustco. Except as Previously
Disclosed, no material (i) audit examination, (ii) deficiency, or (iii) refund
litigation with respect to such returns or periods has been proposed or asserted
or is pending. Neither Trustco nor any Trustco Subsidiary will have any material
liability for any such taxes in excess of the amounts so paid or reserves or
accruals so established.
(b) All federal, state and local (and, if applicable, foreign) tax returns
filed by Trustco and each Trustco Subsidiary are complete and accurate in all
material respects. Neither Trustco nor any Trustco Subsidiary is delinquent in
the payment of any material tax, assessment or governmental charge, and, except
as Previously Disclosed, none of them has requested any extension of time within
which to file any tax returns in respect of any fiscal year or portion thereof
which have not since been filed. Except as Previously Disclosed, no material
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed (tentatively or otherwise) against Trustco or any Trustco
Subsidiary which have not been settled, paid or accrued.
(c) Except as Previously Disclosed, neither Trustco nor any Trustco
Subsidiary is required to include in income any adjustment in any taxable period
ending after the date hereof pursuant to Section 481(a) of the Code other than
any adjustment for which it already has made an accrual.
(d) For purposes of this Section 3.18, references to Trustco and any
Trustco Subsidiary shall include predecessors thereof.
3.19. BROKERS AND FINDERS
Neither Trustco nor any Trustco Subsidiary, nor any of their respective
officers, directors or employees, has employed any broker, finder or financial
advisor or incurred any liability for any fees or commissions in connection with
the transactions contemplated herein or the Plan of Merger, except for Trustco's
retention of Danielson & Company to perform certain financial advisory services
as Previously Disclosed. Prior to the execution and delivery of this
Reorganization Agreement, Danielson & Company has delivered to the Board of
Directors of Trustco an opinion that the Merger Consideration is fair to the
stockholders of Trustco from a financial point of view.
3.20. INSURANCE
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Trustco and the Trustco Subsidiaries each currently maintains insurance in
amounts considered by Trustco and any Trustco Subsidiary as applicable, to be
reasonably necessary for their operations. Neither Trustco nor any Trustco
Subsidiary has received any notice of a material premium increase or
cancellation with respect to any of its insurance policies or bonds, and within
the last three years, neither Trustco nor any Trustco Subsidiary has been
refused any insurance coverage sought or applied for, and Trustco has no reason
to believe that existing insurance coverage cannot be renewed as and when the
same shall expire, upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums or unavailability in coverage
that have not resulted from any extraordinary loss experience of Trustco or any
Trustco Subsidiary. Except as Previously Disclosed, the deposits of TCTC Bank
are insured by the FDIC in accordance with the FDIA, and TCTC Bank have paid all
assessments and filed all reports required by the FDIA.
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3.21. ENVIRONMENTAL LIABILITY
Neither Trustco nor any Trustco Subsidiary has received any written notice
of any legal, administrative, arbitral or other proceeding, claim or action and,
to the knowledge of Trustco and the Trustco Subsidiaries, there is no
governmental investigation of any nature ongoing, in each case that could
reasonably be expected to result in the imposition, on Trustco or any Trustco
Subsidiary of any liability arising under any local, state or federal
environmental statute, regulation or ordinance including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, which liability would have a Material Adverse Effect on
Trustco; except as Previously Disclosed, there are no facts or circumstances
which could reasonably be expected to form the basis for any such proceeding,
claim, action or governmental investigation that would impose any such
liability; and neither Trustco nor any Trustco Subsidiary is subject to any
agreement, order, judgment, decree or memorandum by or with any court,
governmental authority, regulatory agency or third party imposing any such
liability.
3.22. ADMINISTRATION OF TRUST ACCOUNTS
To the best of Trustco's knowledge, each Trustco Subsidiary has properly
administered all common trust funds and collective investment funds and all
accounts for which it acts as a fiduciary or agent, 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 state and federal law and
regulation and common law, except where the failure to do so would not,
individually or in the aggregate, have a Material Adverse Effect on Trustco.
Neither Trustco, any Trustco Subsidiary, nor any director, officer or employee
of Trustco or any Trustco Subsidiary acting on behalf of Trustco or a Trustco
Subsidiary, has committed any breach of trust with respect to any such common
trust fund or collective investment fund or fiduciary or agency account, and the
accountings for each such common trust fund or collective investment fund or
fiduciary or agency account are true and correct in all material respects and
accurately reflect the assets of such common trust fund or collective investment
fund or fiduciary or agency account, except for such breaches and failures to be
true, correct and accurate which would not, individually or in the aggregate,
have a Material Adverse Effect on Trustco.
3.23. INTELLECTUAL PROPERTY
Except as Previously Disclosed, Trustco or a Trustco Subsidiary owns the
entire right, title and interest in and to, or has valid licenses or otherwise
has the required legal rights with respect to, all of the Intellectual Property
necessary in all material respects to conduct the business and operations of
Trustco and the Trustco Subsidiaries as presently conducted, except where the
failure to do so would not, individually or in the aggregate, have a Material
Adverse Effect on Trustco. None of such Intellectual Property is subject to any
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outstanding order, decree, judgment, stipulation, settlement, lien, charge,
encumbrance or attachment, which order, decree, judgment, stipulation,
settlement, lien, charge, encumbrance or attachment would have a Material
Adverse Effect on Trustco.
3.24. INSIDER INTERESTS
All outstanding loans and other contractual arrangements (including deposit
relationships) between Trustco or any Trustco Subsidiary and any officer,
director or employee of Trustco or any Trustco Subsidiary conform to the
applicable rules and regulations and requirements of all applicable regulatory
agencies which were in effect when such loans and other contractual arrangements
were entered into. Except as set forth in Schedule 3.24, no officer, director
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or employee of Trustco or any Trustco Subsidiary has any material interest in
any property, real or personal, tangible or intangible, used in or pertaining to
the business of Trustco or any Trustco Subsidiary.
3.25. CERTAIN INFORMATION
When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up to
and including the time of the Letchworth Stockholders' Meeting and the Trustco
Stockholders' Meeting (each as defined in Section 4.1 hereof) to vote upon the
Merger, such Registration Statement and all amendments or supplements thereto,
with respect to all information set forth therein furnished by Trustco relating
to Trustco and the Trustco Subsidiaries, (i) shall comply in all material
respects with the applicable provisions of the Securities Laws, and (ii) shall
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 contained
therein not misleading. All information concerning Trustco and its directors,
officers, stockholders and any Subsidiaries included (or submitted for
inclusion) in any application and furnished by it pursuant to Section 4.3 of
this Agreement shall be true, correct and complete in all material respects.
3.26. YEAR 2000
The computer software operated by Trustco or any Trustco Subsidiary which
is material to the conduct of Trustco's or any Trustco Subsidiary's business is
capable of providing or is being adapted to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 in substantially the same manner and with the same
functionality as such software records, stores, processes and presents such
calendar dates falling on or before December 31, 1999, and such software and
Trustco or any Trustco Subsidiary is otherwise in compliance with all relevant
Regulatory Authority guidance and requirements relating to the Year 2000
computer issues including the statements of the Federal Financial Institutions
Examination Council, dated May 5, 1997, entitled "Year 2000 Project Management
Awareness," and December 1997, entitled "Safety and Soundness Guidelines
Concerning the Year 2000 Business Risk." The costs of the adaptations referred
to in this clause will not have a Material Adverse Effect on Trustco.
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3.27. TAX TREATMENT
As of the date of this Agreement, Trustco knows of no reason relating to it
or any of the Trustco Subsidiaries which would reasonably cause it to believe
that the Merger will not qualify as a tax-free reorganization under Section
368(a) of the Code.
3.28. MERGER CONSIDERATION
Trustco has unissued shares of Trustco Common Stock and shares of Trustco
Common Stock held in its treasury that are not reserved for any other purpose
sufficient to provide the Stock Consideration, as such term is defined in the
Plan of Merger.
3.29 POOLING OF INTERESTS
Neither Trustco nor any Trustco Subsidiary knows of any reason (after
consultation with its independent accounts) which would reasonably cause it to
believe that the Merger will not qualify as a pooling of interests for financial
accounting purposes.
ARTICLE 4. COVENANTS
4.1. STOCKHOLDERS' MEETING
4.1.1 Letchworth shall call a meeting of its stockholders (the
"Letchworth Stockholders' Meeting") as soon as practicable after the
Registration Statement is declared effective by the SEC for the purposes of
voting upon this Reorganization Agreement, Plan of Merger, the Option Agreement
and taking such other actions as may be necessary so as to consummate the
transactions contemplated hereby and thereby and shall schedule such meeting
based on consultation with Trustco. Except to the extent legally required for
the discharge by Letchworth's Board of Directors of their fiduciary duties, as
determined by such board of directors after having received the advise of legal
counsel to Letchworth and the advice of Letchworth's financial advisor, after
the receipt by Letchworth of a takeover proposal (as defined in Section
4.7(13)), Letchworth's Board of Directors shall recommend to its stockholders'
that at the Letchworth Stockholders' Meeting its stockholders approve this
Reorganization Agreement and the Option Agreement and vote in favor of and
approve the Merger and adopt the Plan of Merger.
4.1.2 Trustco shall call a meeting of its stockholders (the "Trustco
Stockholders' Meeting") as soon as practicable after the Registration Statement
is declared effective by the SEC for the purposes of voting upon this
Reorganization Agreement and Plan of Merger and taking such other actions as may
be necessary so as to consummate the transactions contemplated hereby and
thereby. Trustco shall schedule the Trustco Stockholders' Meeting based on
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consultation with Letchworth. Except to the extent legally required for the
discharge by Trustco's Board of Directors of their fiduciary duties as
determined by such board of directors after consultation with Trustco's legal
counsel, Trustco's Board of Directors shall recommend to its stockholders' that
at the Trustco Stockholders' Meeting its stockholders approve this
Reorganization Agreement and vote in favor of and approve the Merger and adopt
the Plan of Merger.
4.2. PROXY STATEMENT; REGISTRATION STATEMENT
As promptly as practicable after the date hereof, Trustco and Letchworth
shall cooperate in the preparation of the Proxy Statement to be mailed to the
stockholders of Letchworth and Trustco in connection with this Reorganization
Agreement and the transactions contemplated hereby and to be filed by Trustco as
part of the Registration Statement. Trustco will advise Letchworth, promptly
after it receives notice thereof, of the time when the Registration Statement or
any post-effective amendment thereto has become effective or any supplement or
amendment has been filed, of the issuance of any stop order, of the suspension
of qualification of the Trustco Common Stock issuable in connection with the
Merger for offering or sale in any jurisdiction, or the initiation or threat of
any proceeding for any such purpose, or of any request by the SEC for the
amendment or supplement of the Registration Statement or for additional
information. Trustco shall take all actions necessary to register or qualify the
shares of Trustco Common Stock to be issued in the Merger pursuant to all
applicable state "blue sky" or securities laws and shall maintain such
registrations or qualifications in effect for all purposes hereof. Trustco shall
apply for approval to list the shares of Trustco Common Stock to be issued in
the Merger on the AMEX, subject to official notice of issuance, prior to the
Effective Date.
4.3. APPLICATIONS
As promptly as practicable after the date hereof, and after a reasonable
opportunity for review by counsel to Letchworth, Trustco shall submit any
requisite applications for prior approval of, and notices with respect to, the
transactions contemplated herein and in the Plan of Merger (i) to the Federal
Reserve Board pursuant to Section 3 of the Bank Holding Company Act and the Bank
Merger Act, (ii) to the OCC pursuant to 12 C.F.R. Section 5.33(g)(3), and (iii)
to the New York Banking Board pursuant to Section 142 of the New York Banking
Law, and the regulations promulgated thereunder, and each of the parties hereto
shall, and they shall cause their respective subsidiaries to, submit any
applications, notices or other filings to any other state or federal government
agency, department or body the approval of which is required for consummation of
the Merger.
4.4. BEST EFFORTS
(a) Subject to the terms and conditions of this Reorganization Agreement,
Trustco and Letchworth shall each use its reasonable best efforts in good faith,
and each of them shall cause its Subsidiaries to use their reasonable best
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efforts in good faith, to (i) furnish such information as may be required in
connection with the preparation of the documents referred to in Sections 4.2 and
4.3 above, and (ii) take or cause to be taken all action necessary or desirable
on its part so as to permit consummation of the Merger at the earliest possible
date, including, without limitation, (1) obtaining the consent or approval of
each individual, partnership, corporation, association or other business or
professional entity whose consent or approval is required for consummation of
the transactions contemplated hereby, provided that neither Letchworth nor any
Letchworth Subsidiary shall agree to make any payments or modifications to
agreements in connection therewith without the prior written consent of Trustco,
which consent shall not be unreasonably withheld and (2) requesting the delivery
of appropriate opinions, consents and letters from its counsel, investment
advisors and independent auditors. Subject to the terms and conditions of this
Reorganization Agreement, no party hereto shall take or fail to take, or cause
or permit its Subsidiaries to take or fail to take, or to the best of its
ability permit to be taken or omitted to be taken by any third persons, any
action that would substantially impair the prospects of completing the Merger
pursuant to this Reorganization Agreement and the Plan of Merger, that would
materially delay such completion, that would adversely affect the qualification
of the Merger as a reorganization within the meaning of Section 368(a) of the
Code or that would adversely affect the qualification of the Merger for pooling
of interests accounting treatment under generally accepted accounting
principles; provided that nothing herein contained shall preclude Trustco from
exercising its rights under the Option Agreement. In the event that either party
has taken any action, whether before, on or after the date hereof, that would
adversely affect such qualification, each party shall take such action as the
other party my reasonably request to cure such effect to the extent curable
without a Material Adverse Effect on either of the parties.
(b) Letchworth shall give prompt notice to Trustco, and Trustco shall give
prompt notice to Letchworth, of (i) the occurrence, or failure to occur, of any
event which occurrence or failure would be likely to cause any representation or
warranty contained in this Agreement to be untrue or inaccurate in any material
respect at any time from the date hereof to the Closing Date and (ii) any
material failure of Letchworth or Trustco, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder, and each party shall use all reasonable efforts to remedy such
failure.
(c) From the date of this Agreement through the Effective Date, Letchworth
shall, and shall cause the Letchworth Subsidiaries to, provide such assistance
to Trustco as shall be reasonably necessary to assist Trustco in converting and
transferring as soon as practicable after the Effective Date all information
concerning the loans, deposits and other assets and liabilities of Letchworth
and the Letchworth Subsidiaries into Trustco's own data processing system. After
execution of this Agreement, Letchworth shall provide Trustco with computer file
instructions with respect to the information in its data processing system
regarding the loans, deposits and the other assets and liabilities of Letchworth
and the Letchworth Subsidiaries, together with operational procedures designed
to implement the transfer of such information to Trustco. After execution of
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this Reorganization Agreement, Letchworth and Trustco shall each designate an
individual to serve as liaison concerning the transfer of data processing
information and other similar operational matters and to consult as to whether
and when Letchworth will proceed with its pending data processing conversion.
(d) Each party shall provide and shall request its auditors to provide the
other party with such historical financial information regarding it (and related
audit reports and consents) as the other party may reasonably request for
securities disclosure purposes.
4.5. INVESTIGATION AND CONFIDENTIALITY
(a) Letchworth and Trustco each will keep the other advised of all
material developments relevant to its business and to the consummation of the
transactions contemplated herein and in the Plan of Merger. Trustco and
Letchworth each may make or cause to be made such investigation of the financial
and legal condition of the other as such party reasonably deems necessary or
advisable in connection with the transactions contemplated herein and in the
Plan of Merger, provided, however, that such investigation shall be reasonably
related to such transactions and shall not interfere unnecessarily with normal
operations. Trustco and Letchworth agree to furnish the other and the other's
advisors with such financial data and other information with respect to its
business and properties as such other party shall from time to time reasonably
request. No investigation pursuant to this Section 4.5 shall affect or be deemed
to modify any representation or warranty made by, or the conditions to the
obligations to consummate the Merger of, any party hereto.
(b) Letchworth and Trustco shall, and shall cause their respective
Subsidiaries and each of their respective directors, officers, attorneys and
advisors to, maintain the confidentiality of all information obtained in such
investigation which is not otherwise publicly disclosed by the other parties,
said undertaking with respect to confidentiality to survive any termination of
this Reorganization Agreement pursuant to Section 6.1 hereof. Letchworth and
Trustco shall hold all information furnished by the other party or any of such
party's Subsidiaries or representatives pursuant to this Section 4.5 in
confidence to the extent required by, and in accordance with, the provisions of
the confidentiality agreement executed between Letchworth and Trustco in January
1999 (the "Confidentiality Agreement"). In the event of termination of this
Agreement each party shall return to the furnishing party or destroy and certify
the destruction of all information previously furnished in connection with the
transactions contemplated by this Agreement.
4.6. PRESS RELEASES
Letchworth and Trustco shall agree with each other as to the form and
substance of any press release related to this Reorganization Agreement and the
Plan of Merger or the transactions contemplated hereby or thereby, and shall
consult each other as to the form and substance of other public disclosures
related thereto, provided, however, that nothing contained herein shall prohibit
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any party, following notification to the other parties, from making any
disclosure which is required by applicable law or AMEX or NASDAQ rules.
4.7. ACTIONS PENDING THE MERGER
(a) Prior to the Closing Date, and except as otherwise provided for by
this Reorganization Agreement, the Plan of Merger, the Option Agreement, or
consented to or approved by Trustco, Letchworth shall, and shall cause each of
the Letchworth Subsidiaries to, use its reasonable best efforts to preserve its
properties, business and relationships with customers, employees and other
persons.
(b) Prior to the Closing Date, Letchworth shall not, and shall not permit
any of the Letchworth Subsidiaries to, except with the prior written consent of
Trustco or except as Previously Disclosed or expressly contemplated or permitted
by this Agreement, the Plan of Merger, or the Option Agreement:
(1) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted;
(2) in the case of Letchworth only, declare, set aside, make or pay
any dividend or other distribution in respect of its capital stock other than
its regular quarterly cash dividends on Letchworth Common Stock in amounts not
in excess of $.09 per share;
(3) issue any shares of its capital stock or permit any treasury
shares to become outstanding other than pursuant to the Option Agreement or
Rights outstanding at the date hereof;
(4) incur any additional debt obligation or other obligation for
borrowed money other than in the ordinary course of business consistent with
past practice;
(5) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like change
in capitalization, or redeem, repurchase or otherwise acquire any shares of its
capital stock except for Trust Account Shares and debt previously contracted
shares ("DPC Shares"); provided however, that in order to fulfill such
obligations, Letchworth shall acquire the necessary shares of Letchworth Common
Stock solely through open market purchases or the use of treasury shares
previously acquired by Letchworth in open market purchases;
(6) amend its articles or certificate of incorporation or association
or bylaws; impose, or suffer the imposition, on any share of stock of any
Letchworth Subsidiary held by Letchworth of any lien, charge or encumbrance, or
permit any such lien, charge or encumbrance to exist;
(7) merge with any other corporation, savings association or bank or
permit any other corporation, savings association or bank to merge into it or
consolidate with any other corporation, savings association or bank; acquire
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control over any other firm, bank, corporation, savings association or
organization or create any Subsidiary;
(8) except in the ordinary course of business, waive or release any
material right or cancel or compromise any material debt or claim;
(9) liquidate or sell or dispose of any material assets or acquire
any material assets; make any material capital expenditure (for purposes of this
subsection (b)(9) of Section 4.7 "material capital expenditure" shall mean
expenditures in excess of $50,000 in any instance or $150,000 in the aggregate);
or establish new branches or other similar facilities, close existing branches
or similar facilities or enter into or modify any leases or other contracts
relating thereto;
(10) increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees except in a manner consistent with past
practice; enter into, modify or extend, or permit to be renewed, any employment
or severance contracts with any of its present or former directors, officers or
employees (except as may be required by applicable law and except with respect
to the executive supplemental income agreements to be entered into by and
between Letchworth and the individuals identified in Schedule 4.7(b)(10);
-------------------
provided however, that Trustco shall have the right to approve the terms and
conditions of the executive supplemental income agreements prior to their
execution, which approval shall not be unreasonably withheld);
(11) change its lending, investment, asset/liability management or
other material banking policies in any material respect except as may be
required by changes in applicable law; make any loans or extend any credit,
except in the ordinary course of business consistent with its lending policies
and past practice;
(12) change its methods of accounting in effect at December 31, 1998,
except as required by changes in generally accepted accounting principles
concurred in by its independent certified public accountants, or change any of
its methods of reporting income and deductions for federal income tax purposes
from those employed in the preparation of its federal income tax returns for the
year ended December 31, 1998, except as required by changes in law;
(13) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or, except to the extent legally required for the
discharge of the fiduciary duties of its Board of Directors, recommend or
endorse any takeover proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic information, relating
to any such inquiry or proposal or otherwise facilitate any effort or attempt to
make or implement a takeover proposal; provided, however, that Letchworth may
communicate information about any such takeover proposal to its stockholders if,
in the judgment of Letchworth's Board of Directors, after consultation with
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outside legal counsel and financial advisor, such communication is necessary in
order to comply with its fiduciary duties to Letchworth's stockholders required
under applicable law. Letchworth will take all actions necessary or advisable to
inform the appropriate individuals or entities referred to in the first sentence
hereof of the obligations undertaken herein. Letchworth will notify Trustco
immediately if any such inquiries or takeover proposals are received by, any
such information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with, Letchworth, and Letchworth will
promptly inform Trustco in writing of all of the relevant details with respect
to the foregoing. As used in this Agreement, "takeover proposal" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving Letchworth or any Letchworth Subsidiary or any proposal or
offer to acquire in any manner 25% or more of the voting power of Letchworth, or
25% or more of the assets of, Letchworth or any Letchworth Subsidiary other than
the transactions contemplated or permitted by this Reorganization Agreement, the
Plan of Merger and the Option Agreement; or
(14) agree to do any of the foregoing.
4.8. CERTAIN POLICIES
Prior to the Effective Date, Letchworth shall, consistent with generally
accepted accounting principles and on a basis mutually satisfactory to it and
Trustco, modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications and levels of reserves)
so as to be applied on a basis that is consistent with that of Trustco;
provided, however, that Letchworth shall not be obligated to take any such
action pursuant to this Section 4.8 unless and until (i) Trustco irrevocably
acknowledges to Letchworth in writing that all conditions to its obligation to
consummate the Merger have been satisfied and (ii) Trustco irrevocably waives in
writing any and all rights that it may have to terminate this Reorganization
Agreement and Plan of Merger.
4.9. CLOSING; ARTICLES OF MERGER
The transactions contemplated by this Reorganization Agreement and the Plan
of Merger shall be consummated at a closing to be held at the offices of the law
firm of Harris Beach & Wilcox, LLP, 130 East Main Street, Rochester, New York on
the first business day following satisfaction of the conditions to consummation
of the Merger set forth in Article 5 hereof (other than such conditions relating
to the actions to be taken at the Closing) or such later date as may be agreed
upon by the parties hereto. In connection with such Closing Trustco and
Letchworth shall execute the Certificate of Merger substantially in the form
attached hereto as Annex B ("Certificate of Merger") and shall cause the
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Certificate of Merger to be delivered to the New York Department of State in
accordance with Section 904(a) of the New York Business Corporation Law. The
Merger shall be effective at the time and on the date the Certificate of Merger
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is filed by the New York Department of State (the "Effective Date").
4.10. AFFILIATES
Letchworth and Trustco shall cooperate and use their best efforts to
identify those persons who may be deemed to be "affiliates" of Letchworth within
the meaning of Rule 145 promulgated by the Commission under the Securities Act.
Letchworth shall use its best efforts to cause each person so identified to
deliver to Trustco, no later than 30 days prior to the Effective Date, a written
Affiliate Agreement substantially in the form attached hereto as Annex C.
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4.11. LETCHWORTH EMPLOYEES; DIRECTORS AND MANAGEMENT
(a) On or after the Effective Date, to the extent permitted by applicable
law, all persons who are employed by Letchworth and/or any of the Letchworth
Subsidiaries on such date (collectively "Letchworth Employees") shall continue
to participate in the Letchworth Plans. This Section 4.11(a) shall not be
construed (i) to limit Letchworth's ability to terminate any Letchworth Plan at
the request of Trustco prior to or on the Effective Date, (ii) to limit
Trustco's ability to terminate or amend any Letchworth Plan after the Effective
Date or (iii) to limit Trustco's ability to merge any Letchworth Plan with and
into a Trustco Plan. All Letchworth Employees who become participants in a
Trustco Plan shall, for purposes of determining eligibility for and vesting of
such employee benefits only (and not for pension benefit accrual purposes) and,
if applicable and permitted under the Trustco Plan(s), for purposes of
satisfying any waiting periods concerning "preexisting conditions" and the
satisfaction of any "copayment" or deductible requirements, be given credit for
service with Letchworth or a Letchworth Subsidiary or any predecessor thereto
prior to the Effective Date. Trustco presently intends that the employee
benefits made available after the Effective Date to Letchworth Employees who
participate in the Letchworth Plans will, when taken as a whole, remain
comparable to those available under the Letchworth Plans in affect as of the
date of this Agreement. This Section 4.11(a) shall not be construed (i) to limit
the ability of Trustco and its Affiliates to terminate the employment of any
employee or to review employee benefit programs (including any employee benefit
programs included in a Letchworth Plan or a Trustco Plan) from time to time and
to make such changes as they deem appropriate or (ii) to require Trustco or its
affiliates to provide employees or former employees of Letchworth or any of its
Subsidiaries with post-retirement medical benefits more favorable than those
provided under the Letchworth Plan or, in the case of a terminated or merged
Letchworth Plan, more favorable than those provided to new hires at Trustco. No
provision of this Section 4.11(a) shall create any third party beneficiary
rights to any employee or former employee of Letchworth or a Letchworth
Subsidiary (including any beneficiary or dependent thereof) in respect of
continued employment (or resumed employment) or any other matter.
(b) Trustco agrees to honor the employee agreements identified on Schedule
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4.11(b) (the "Continuing Employment Agreements"), such that James W. Fulmer
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shall remain chairman of the board of directors of The Bank of Castile and Ms.
Brenda L. Copeland shall remain president and chief executive officer of The
Bank of Castile. With respect to the Continuing Employment Agreements, the
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provisions of this Section 4.11(b) are intended to be for the benefit of and
shall be enforceable by, those individuals who are parties to such agreements
and their respective heirs and representatives. Notwithstanding anything to
contrary herein, Trustco agrees that the Continuing Employment Agreement of Mr.
James W. Fulmer may be amended by Trustco for the sole and limited purposes of
permitting the assignment of such agreement from The Bank of Castile to Trustco,
identifying Mr. Fulmer as the President of Trustco, and describing the duties
associated with such position.
(c) From and after the Effective Date, the Letchworth Employees shall be
eligible to participate in the Trustco 1998 Stock Option Plan subject to the
terms and conditions of such plan, including but not limited to requirements of
eligibility thereunder.
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4.12 BOARD OF DIRECTORS OF TRUSTCO
From and after the Effective Date, Trustco's Board of Directors shall take
all requisite action to elect as directors of Trustco as of the Effective Date
James W. Fulmer, William D. Spain Jr. and Craig Yunker.
4.13 INDEMNIFICATION
(a) From and after the Effective Date, Trustco shall indemnify, defend and
hold harmless each person who is now, or who has been at any time prior to the
date of this Agreement or who becomes prior to the Effective Date, a director or
officer of Letchworth (the "Indemnified Parties") against all losses, claims,
damages, costs, expenses (including attorneys' fees), liabilities or judgments
or amounts that are paid in settlement (which settlement shall require the prior
written consent of Trustco, which consent shall not be unreasonably withheld) of
or in connection with any claim, action, suit, proceeding or investigation,
whether civil, criminal or administrative (each, a "Claim"), in which an
Indemnified Party is, or is threatened to be made, a party or witness in whole
or in part on or arising in whole or in part out of, or pertaining to (i) the
fact that such person is or was a director or officer of Letchworth or any
Letchworth Subsidiary or (ii) this Agreement, the Plan of Merger, the Option
Agreement or any of the transactions contemplated hereby, regardless of whether
such Claim is asserted or claimed before, or at or after, the Effective Date, to
the fullest extent permitted under applicable state or federal law in effect as
of the date hereof. Any Indemnified Party wishing to claim indemnification
under this Section 4.13(a), upon learning of any Claim, shall promptly notify
Trustco (but the failure to so notify Trustco shall not relieve it from any
liability which it may have under this Section 4.13(a), except to the extent
such failure materially prejudices Trustco). In the event of any such Claim
(whether arising before or after the Effective Date), (1) Trustco shall have the
right to assume the defense thereof (in which event the Indemnified Parties will
cooperate in the defense of any such matter) and upon such assumption Trustco
shall not be liable to any Indemnified Party for any legal expenses of other
counsel or any other expenses subsequently incurred by any Indemnified Party in
connection with the defense thereof, except that if Trustco elects not to assume
such defense, or counsel for the Indemnified Parties reasonably advises the
Indemnified Parties that there are issues which raise conflicts of interest
between Trustco and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them, and Trustco shall pay the reasonable
fees and expenses of such counsel for the Indemnified Parties, (2) Trustco shall
be obligated pursuant to this paragraph to pay for only one firm of counsel for
all Indemnified Parties, (3) Trustco shall not be liable for any settlement
effected without its prior written consent (which consent shall not be
unreasonably withheld) and (4) Trustco shall have no obligation hereunder to any
Indemnified Party when and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and nonappealable,
that indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable law. Trustco's obligations under this Section
4.13(a) continue in full force and effect for a period of six years from the
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Effective Date, provided, however, that all rights to indemnification in respect
of any Claim asserted or made within such period shall continue until the final
disposition of the Claim.
(b) Trustco agrees that all rights to indemnification and all limitations
on liability existing in favor of the directors, officers and employees of
Letchworth and any Letchworth Subsidiary (the "Covered Parties") as provided in
their respective certificates of incorporation, by-laws or similar governing
documents as in effect as of the date of this Reorganization Agreement with
respect to matters occurring prior to the Effective Date shall survive the
Merger and shall continue in full force and effect, and shall be honored by such
entities or their respective successors as if they were the indemnifying party
hereunder, without any amendment thereto, for a period of six years from the
Effective Date; provided, however, that all rights to indemnification in respect
of any Claim asserted or made within such period shall continue until the final
disposition of the Claim; provided, further, however, that nothing contained in
this Section 4.13(b) shall be deemed to preclude the liquidation, consolidation
or merger of Letchworth or any Letchworth Subsidiary, in which case all of such
rights to indemnification and limitations on liability shall be deemed to so
survive and continue notwithstanding any such liquidation, consolidation or
merger.
(c) Trustco, from and after the Effective Date will use its best efforts
directly or indirectly to cause the persons who served as directors or officers
of Letchworth on or before the Effective Date to be covered by Letchworth's
existing directors' and officers' liability insurance policy (provided that
Trustco may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not less advantageous than
such policy) but in no event shall any insured person be entitled under this
Section 4.13(c) to insurance coverage more favorable than that provided to him
or her in such capacities at the date hereof with respect to acts or omissions
resulting from their service as such on or prior to the Effective Date. Such
insurance coverage, if reasonably available at a reasonable cost relative to the
coverage obtained, shall commence on the Effective Date and will be provided for
a period of no less than six years after the Effective Date; provided, however,
that in no event shall Trustco be required to expend more than the current
amount expended by Letchworth (the "Insurance Amount") to maintain or procure
insurance coverage pursuant hereto and further provided that the Insurance
Amount shall be deemed reasonable for purposes of this Section 4.13(c).
Letchworth agrees to renew any such existing insurance or to purchase any
"discovery period" insurance provided for thereunder at Trustco's request.
(d) In the event Trustco or any of its successors or assigns (i)
consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Trustco
assume the obligations set forth in this section.
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(e) The provisions of Section 4.13(a), (b) and (c) are intended to be for
the benefit of, and shall be enforceable by, each Indemnified Party and their
respective heirs and representatives.
4.14. INTENTIONALLY OMITTED
4.15. DIVIDENDS
After the date of this Agreement, each of Trustco and Letchworth shall
coordinate with the other for the declaration of any dividends in respect of
Trustco Common Stock and Letchworth Common Stock and the record dates and
payment dates relating thereto, it being the intention of the parties hereto
that holders of Trustco Common Stock or Letchworth Common Stock shall not
receive two dividends, or fail to receive one dividend, for any single calendar
quarter with respect to their shares of Trustco Common Stock and/or Letchworth
Common Stock and any shares of Trustco Common Stock any such holder receives in
exchange therefor in the Merger.
4.16. ADVISORS TO THE BOARD
Unless prohibited by applicable law, promptly following the Effective Date,
Trustco shall cause C.L. Van Arsdale and Michael Spain to be appointed as
advisors to Trustco's Board of Directors to serve in such capacity until such
time as Trustco's Board of Directors shall determine. It is anticipated that the
advisors' function will be to, among other things, advise Trustco's Board of
Directors on deposit and lending activities in The Bank of Castile's and Mahopac
Bank's market areas. Each advisor shall be paid meeting attendance fees of $250;
provided, however, that notwithstanding anything else in this Section 4.16, no
attendance fees shall be paid for meetings not actually attended.
ARTICLE 5. CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT - TRUSTCO AND LETCHWORTH
The respective obligations of the parties to effect the Merger shall be
subject to satisfaction or waiver of the following conditions at or prior to the
Closing Date:
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Reorganization Agreement and the Plan of Merger and
consummation of the transactions contemplated hereby and thereby shall have been
duly and validly taken, and the stockholders of Letchworth and Trustco shall
have approved this Reorganization Agreement and voted in favor of the Merger and
shall have adopted the Plan of Merger;
(b) The parties hereto shall have received all regulatory approvals
required or mutually deemed necessary in connection with the transactions
contemplated by this Reorganization Agreement and the Plan of Merger, all notice
periods and waiting periods required after the granting of any such approvals
shall have passed and all conditions contained in any such approval required to
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have been satisfied prior to consummation of such transactions shall have been
satisfied, provided, however, that no such approval shall have imposed any
condition or requirement which, in the reasonable opinion of the Board of
Directors of Trustco or Letchworth so materially and adversely affects the
anticipated economic and business benefits to Trustco or Letchworth,
respectively, of the transactions contemplated by this Agreement as to render
consummation of such transactions inadvisable;
(c) The Registration Statement (including any post-effective amendment
thereto) shall be effective under the Securities Act, and no proceeding shall be
pending, or to the knowledge of Trustco, threatened by the Commission to suspend
the effectiveness of such Registration Statement, and Trustco shall have
received all state securities or "Blue Sky" permits or other authorizations, or
confirmations as to the availability of an exemption from registration
requirements as may be necessary;
(d) To the extent that any lease, license, loan, financing agreement or
other contract or agreement to which Letchworth or any Letchworth Subsidiary is
a party requires the consent of or waiver from the other party thereto as a
result of the transactions contemplated by this Agreement, such consent or
waiver shall have been obtained, unless the failure to obtain such consents or
waivers, individually or in the aggregate, would not have a Material Adverse
Effect on Letchworth;
(e) None of the parties hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the consummation of the transactions contemplated by this
Reorganization Agreement and the Plan of Merger and there shall be no action or
proceeding by or before any such court or agency that, in the judgment of
Letchworth or Trustco, with the advice of their respective counsel, shall
present a bona fide claim to restrain, prohibit or invalidate the transactions
contemplated hereby;
(f) The shares of Trustco Common Stock that may be issued in the Merger
shall have been approved for listing on AMEX, subject to official notice of
issuance; and
(g) Trustco and Letchworth shall have received an opinion of Harris Beach
& Wilcox, LLP, in form and substance which is customary in transactions of the
nature contemplated by this Agreement, dated as of the Effective Date,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing on the Effective Date, the Merger shall be treated for federal
income tax purposes as a reorganization or part of a reorganization within the
meaning of Section 368(a) of the Code, and that, provided the Merger is such a
reorganization, the exchange of Letchworth Common Stock to the extent exchanged
for Trustco Common Stock will not give rise to recognition of gain or loss for
federal income tax purposes to the stockholders of Letchworth, except to the
extent that cash is received in lieu of fractional share interests of Trustco
Common Stock, and the Merger will not give rise to recognition of gain or loss
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for federal income tax purposes to Trusto. In rendering the opinion described in
this subsection (g), Harris Beach & Wilcox, LLP will rely on representations and
facts as provided by Trustco and Letchworth, including without limitation the
standard representations set forth in Revenue Procedure 86-42, 1986-2 C.B. 722.
5.2. CONDITIONS PRECEDENT - LETCHWORTH
The obligations of Letchworth to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by Letchworth pursuant to Section 6.4 hereof:
(a) The representations and warranties of Trustco set forth in Article 3
hereof shall be true and correct in all material respects as of the date of this
Reorganization Agreement and as of the Closing Date as though made on and as of
the Closing Date (or on the date when made in the case of any representation and
warranty which specifically relates to an earlier date), except as otherwise
contemplated by this Reorganization Agreement or consented to in writing by
Letchworth; provided, however, that (i) in determining whether or not the
condition contained in this paragraph (a) shall be satisfied, no effect shall be
given to any exceptions in such representations and warranties relating to
materiality or Material Adverse Effect and (ii) the condition contained in this
paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on Trustco;
(b) Trustco shall have in all material respects performed all obligations
and complied with all covenants required by this Reorganization Agreement and
the Plan of Merger to be performed or complied with at or prior to the Closing
Date;
(c) Trustco shall have delivered to Letchworth a certificate, dated the
Closing Da te and signed by its Chairman, CEO, Executive Vice President or
Senior Vice President to the effect that the conditions set forth in paragraphs
(a) and (b) of this section have been satisfied;
(d) Letchworth shall have received from PricewaterhouseCoopers, L.L.P.
letters dated not more than five days prior to (i) the effective date of the
Registration Statement and (ii) the Closing Date, with respect to certain
financial information regarding Trustco, each in form and substance which is
customary in transactions of the nature contemplated by this Agreement;
(e) Within five days of mailing the Prospectus/Proxy Statement, Letchworth
shall have received, if requested by Letchworth, an opinion from McConnell, Budd
& Downes, Inc. to the effect that the Exchange Ratio is fair from a financial
point of view to the stockholders of Letchworth; and
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(f) Letchworth shall have received an opinion of Harris Beach & Wilcox,
LLP counsel to Trustco, dated as of the Closing Date, in a form mutually
acceptable to the parties related to the representations in Section 3.5(a).
5.3. CONDITIONS PRECEDENT - TRUSTCO
The obligations of Trustco to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date unless waived by Trustco pursuant to Section 6.4 hereof:
(a) The representations and warranties of Letchworth set forth in Article
2 hereof shall be true and correct in all material respects as of the date of
this Reorganization Agreement and as of the Closing Date as though made on and
as of the Closing Date (or on the date when made in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Reorganization Agreement or consented
to in writing by Trustco; provided, however, that (i) in determining whether or
not the condition contained in this paragraph (a) shall be satisfied, no effect
shall be given to any exceptions in such representations and warranties relating
to materiality or Material Adverse Effect and (ii) the condition contained in
this paragraph (a) shall be deemed to be satisfied unless the failure of such
representations and warranties to be so true and correct constitute,
individually or in the aggregate, a Material Adverse Effect on Letchworth;
(b) Letchworth shall have in all material respects performed all
obligations and complied with all covenants required by this Reorganization
Agreement and the Plan of Merger to be performed or complied with at or prior to
the Closing Date;
(c) Letchworth shall have delivered to Trustco a certificate, dated the
Closing Date and signed by its Chairman, President and Chief Executive Officer
or any Executive Vice President to the effect that the conditions set forth in
paragraphs (a) and (b) of this section have been satisfied;
(d) Trustco shall have received from KPMG, L.L.P. letters dated not more
than five days prior to (i) the effective date of the Registration Statement and
(ii) the Closing Date, with respect to certain financial information regarding
Letchworth, each in form and substance which is customary in transactions of the
nature contemplated by this Agreement;
(e) Trustco shall have received from KPMG, L.L.P. a letter, in the form
then customarily issued by such accountants in transactions of this type, to the
effect that the Merger will qualify for pooling of interests accounting
treatment;
(f) Simultaneous with the execution and delivery of this Agreement, (i)
the directors of Letchworth who are stockholders of Letchworth shall have
executed and delivered to Trustco Voting Agreements substantially in the form
attached as Annex D and (ii) the Option Agreement shall be executed and
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delivered by Letchworth to Trustco; and
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(g) Trustco shall have received an opinion of Mackenzie, Smith, Lewis,
Michell & Hughes, LLP counsel to Letchworth, dated as of the Closing Date, in a
form mutually acceptable to the parties related to the representations in
Section 2.5(a).
ARTICLE 6. TERMINATION, WAIVER AND AMENDMENT
6.1. TERMINATION
This Reorganization Agreement and the Plan of Merger may be terminated,
either before or after approval by the stockholders of Letchworth and Trustco:
(a) At any time on or prior to the Effective Date, by the mutual consent
in writing of the parties hereto;
(b) At any time on or prior to the Closing Date, by Trustco in writing, if
Letchworth has, or by Letchworth in writing, if Trustco has, in any material
respect, breached (i) any covenant or agreement contained herein or in the Plan
of Merger or (ii) any representation or warranty contained herein, and in either
case if (x) such breach has not been cured by the earlier of 30 days after the
date on which written notice of such breach is given to the party committing
such breach or the Closing Date and (y) such breach would entitle the non-
breaching party not to consummate the transactions contemplated hereby under
Article V hereof;
(c) At any time, by any party hereto in writing, if the applications for
prior approval referred to in Section 4.3 hereof have been denied, and the time
period for appeals and requests for reconsideration has run, or if any
governmental entity of competent jurisdiction shall have issued a final
nonappealable order enjoining or otherwise prohibiting the Merger;
(d) At any time, by any party hereto in writing, if the stockholders of
Letchworth or the stockholders of Trustco do not approve the transactions
contemplated herein at the special meetings duly called for that purpose;
(e) By any party hereto in writing, if the Closing Date has not occurred
by the close of business on June 30, 2000 unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements set forth
herein; or
(f) By Letchworth, upon the execution by Letchworth of a definitive
agreement relating to a takeover proposal (as defined in Section 4.7(b)(13)),
provided that (i) Letchworth shall have complied with its obligations under
Section 4.7(b)(13) hereof, (ii) the Board of Directors of Letchworth shall have
determined, after having received the advice of legal counsel to Letchworth and
the advice of Letchworth's financial advisor, that such action is necessary for
the Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law and (iii) concurrent with its notification of termination,
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Letchworth will wire to an account designated by Trustco $3.0 million in
immediately available funds.
(g) Subject to Trustco's rights hereunder, by Letchworth, in writing, if
(i) the Average Trustco Stock Price (as hereinafter defined) is less than $29.22
and (ii) the Average Trustco Stock Price has declined as a percentage from the
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Base Trustco Stock Price (as hereinafter defined) by more than 15% in excess of
the total Percentage Decline in the Value component of the SNL Bank Stock Index
(All Publicly Traded Commercial Banks). The "Average Trustco Stock Price" means
the average (rounded down to the nearest whole cent) of the closing sale price
of one share of Trustco Common Stock on AMEX for 10 consecutive full trading
days (after the date of this Reorganization Agreement and prior to the Effective
Date). The "Base Trustco Stock Price" means $34.38. The "Percentage Decline in
the SNL Bank Stock Index" means the difference, expressed as a percentage, of
the SNL Bank Stock Index, between the day prior to the execution of this
Reorganization Agreement and the last full trading day included in that
computation of the Average Trustco Stock Price which reflected an Average
Trustco Stock Price of less than $29.22. The foregoing right of termination
notwithstanding, in the event Letchworth exercises its right to terminate
pursuant to this Section 6.1(g), Trustco shall have the option to proceed with
the Merger and the transactions contemplated in this Agreement by agreeing to
the "amended Exchange Ratio". The "amended Exchange Ratio" shall be the quotient
obtained by dividing $23.00 by the Average Trustco Stock Price, determined based
on the 10 consecutive full trading days immediately preceding the date Trustco
shall have exercised its option; provided, however, that in no event shall
Trustco have the right to exercise its option if the amended Exchange Ratio is
greater than .85. Trustco's option to accept the amended Exchange Ratio and
proceed with the Merger and the transactions contemplated by this Agreement
shall be exercised by written notice to Letchworth within 5 business days of
receipt by Trustco of written notice of Letchworth's intent to terminate
pursuant to this subsection (g).
(h) By Letchworth in writing, upon the execution by Trustco of a
definitive agreement relating to a takeover proposal (as herein defined); and,
in the event of a termination by Letchworth pursuant to this subsection (h) of
Section 6.1, immediately after receipt of notification of termination, Trustco
will pay Letchworth $1.0 million in immediately available funds. For purposes of
this subsection (h) of Section 6.1, the term "takeover proposal" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving Trustco or any Trustco Subsidiary or any proposal or offer
to acquire in any manner 25% or more of the voting power of Trustco or 25% or
more of the assets of Trustco or any Trustco Subsidiary.
6.2. EFFECT OF TERMINATION
In the event this Reorganization Agreement and the Plan of Merger is
terminated pursuant to Section 6.1 hereof, this Reorganization Agreement and the
Plan of Merger shall become void and have no effect, except that (i) the
provisions relating to confidentiality and expenses set forth in Sections 4.5
and 7.1 hereof, respectively, shall survive any such termination and (ii) a
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termination pursuant to Section 6.1(b)(i) or (b)(ii) shall not relieve the
breaching party from liability for an uncured willful breach of such covenant or
agreement or representation or warranty giving rise to such termination.
6.3. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants in this Reorganization
Agreement and the Plan of Merger or in any instrument delivered pursuant hereto
or thereto shall expire on, and be terminated and extinguished at, the Effective
Date other than covenants that by their terms are to survive or be performed
after the Effective Date, provided that no such representations, warranties or
covenants shall be deemed to be terminated or extinguished so as to deprive
Trustco or Letchworth (or any director, officer or controlling person thereof)
of any defense in law or equity which otherwise would be available against the
claims of any person, including, without limitation, any stockholder or former
stockholder of either Trustco or Letchworth, the aforesaid representations,
warranties and covenants being material inducements to the consummation by
Trustco and Letchworth of the transactions contemplated herein.
6.4. WAIVER
Except with respect to any required stockholder or regulatory approval,
Trustco and Letchworth, respectively, by written instrument signed by an
executive officer of such party, may at any time (whether before or after
approval of this Reorganization Agreement and the Plan of Merger by the
stockholders of Trustco and Letchworth) extend the time for the performance of
any of the obligations or other acts of Letchworth, on the one hand, or Trustco,
on the other hand, and may waive (i) any inaccuracies of such parties in the
representations or warranties contained in this Agreement, the Plan of Merger or
any document delivered pursuant hereto or thereto, (ii) compliance with any of
the covenants, undertakings or agreements of such parties, or satisfaction of
any of the conditions precedent to its obligations, contained herein or in the
Plan of Merger or (iii) the performance by such parties of any of its
obligations set out herein or therein; provided, however, that no such waiver
executed after approval of this Reorganization Agreement and the Plan of Merger
by the stockholders of Trustco or Letchworth shall change the number of shares
of Trustco Common Stock into which each share of Letchworth Common Stock shall
be converted pursuant to the Merger.
6.5. AMENDMENT OR SUPPLEMENT
This Reorganization Agreement and the Plan of Merger may be amended or
supplemented at any time only by mutual agreement of the parties hereto or
thereto. Any such amendment or supplement must be in writing and approved by
their respective boards of directors and/or officers authorized thereby and
shall be subject to the proviso in Section 6.4 hereto.
ARTICLE 7. MISCELLANEOUS
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7.1. EXPENSES
Each party hereto shall bear and pay all costs and expenses incurred by it
in connection with the transactions contemplated in this Reorganization
Agreement, including fees and expenses of its own financial consultants,
accountants and counsel, except that Trustco shall pay 60% and Letchworth shall
pay 40% of all printing and mailing costs and filing fees associated with the
Registration Statement and the Proxy Statement.
7.2. AGREEMENT
This Reorganization Agreement, the Plan of Merger and the Option Agreement
contain the entire agreement between the parties with respect to the
transactions contemplated hereunder and thereunder and supersede all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein or therein and the Confidentiality Agreements.
Notwithstanding any provision of any of the aforementioned agreements, the
parties agree that, subject to the limitations set forth in Section 4.4(a)
relating to acts or omissions that would adversely affect the qualification of
the Merger for pooling of interests, Trustco may purchase Letchworth Common
Stock in open market or negotiated transactions prior to the Effective Date, not
to exceed 5% of the outstanding Letchworth Common Stock and subject to any
applicable legal restrictions. The terms and conditions of this Reorganization
Agreement and the Plan of Merger shall inure to the benefit of and be binding
upon the parties hereto and thereto and their respective successors. Except as
specifically set forth herein, or in the Plan of Merger, nothing in this
Reorganization Agreement or the Plan of Merger, expressed or implied, is
intended to confer upon any party, other than the parties hereto and thereto,
and their respective successors, any rights, remedies, obligations or
liabilities. This Reorganization Agreement and the Plan of Merger, taken
together, shall constitute a plan of reorganization within the meaning of
Section 368 of the Code.
7.3. NO ASSIGNMENT
No party hereto may assign any of its rights or obligations under this
Reorganization Agreement to any other person.
7.4. NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
facsimile transmission or overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to Letchworth:
Letchworth Independent Bancshares Corporation, 50 North Main Street,
Castile, New York 14427, Attention: Mr. James W. Fulmer, President and Chief
Executive Officer, Facsimile No: (716) 493-5792.
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With a required copy to:
Mackenzie, Smith, Lewis, Michell & Hughes, LLP, 101 South Salina Street,
Suite 600, Syracuse, New York 13202, Attention: Edward Moses, Esquire, Facsimile
No. (315) 474-4216.
If to Trustco:
Tompkins Trustco, Inc., 110 North Tioga Street, Ithaca, New York 14850,
Attention: James J. Byrnes, President and Chief Executive Officer, Facsimile No.
(607) 257-6177.
With a required copy to:
Harris Beach & Wilcox, LLP, 130 East Main Street, Rochester, New York
14604, Attention: Thomas E. Willett, Esquire, Facsimile No. (716) 232-6925.
7.5. CAPTIONS
The captions contained in this Reorganization Agreement are for reference
purposes only and are not part of this Reorganization Agreement.
7.6. COUNTERPARTS
This Reorganization Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
7.7. GOVERNING LAW
This Reorganization Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and entirely to be performed within such jurisdiction, except to the extent
federal law may be applicable.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Reorganization Agreement to be executed in counterparts
by their duly authorized officers and their corporate seal to be hereunto
affixed and attested by their officers thereunto duly authorized, all as of the
day and year first above written.
TOMPKINS TRUSTCO, INC.
Attest:___________________ By:____________________________
James J. Byrnes, President and
Chief Executive Officer
(SEAL)
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
Attest:___________________ By:____________________________
James W. Fulmer, President and
Chief Executive Officer
(SEAL)
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Exhibit 10(b)
ANNEX A
AGREEMENT AND PLAN OF MERGER OF LETCHWORTH INDEPENDENT BANCSHARES
CORPORATION WITH AND INTO TOMPKINS TRUSTCO, INC.
AGREEMENT AND PLAN OF MERGER ("Plan of Merger") dated as of July 30, 1999
by and between Letchworth Independent Bancshares Corporation, a New York
corporation having its principal executive offices at 50 North Main Street,
Castile, New York ("Letchworth") and Tompkins Trustco, Inc., a New York
corporation having its principal executive offices at 110 North Tioga Street,
Ithaca, New York ("Trustco").
WITNESSETH
WHEREAS, the respective Boards of Directors of Letchworth and Trustco deem
the merger of Letchworth with and into Trustco, under and pursuant to the terms
and conditions herein set forth or referred to, desirable and in the best
interests of the respective corporations and their respective shareholders, and
the respective Boards of Directors of Letchworth and Trustco have adopted
resolutions approving this Plan of Merger and an Agreement and Plan of
Reorganization dated of even date herewith ("Reorganization Agreement"); and
WHEREAS, the parties hereto desire that Letchworth shall be acquired by
Trustco through the merger of Letchworth with and into Trustco, with Trustco as
the surviving corporation, subject to the terms and conditions of this Plan of
Merger and the Reorganization Agreement; and
WHEREAS, the parties hereto intend that the Merger shall qualify as a tax-
free reorganization under Section 368(a) of the Internal Revenue Code of 1986,
as amended ("Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto do hereby agree as follows:
ARTICLE I. MERGER
Subject to the terms and conditions of this Plan of Merger, at the
Effective Time (as hereinafter defined), Letchworth shall be merged with and
into Trustco, pursuant to the provisions of, and with the effect provided in the
New York Business Corporation Law ("BCL") (said transaction being hereinafter
referred to as the "Merger"). At the Effective Time, the separate existence of
Letchworth shall cease and Trustco, as the surviving entity, shall continue
unaffected and unimpaired by the Merger (Trustco as existing at and after the
Effective Time being hereinafter sometimes referred to as the "Surviving
Corporation").
ARTICLE II. CERTIFICATE OF INCORPORATION AND BY-LAWS
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The Certificate of Incorporation and the Bylaws of Trustco in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation and the Bylaws of the Surviving Corporation, in each case until
amended in accordance with applicable law.
ARTICLE III. BOARD OF DIRECTORS
Subject to the provisions of Section 4.12 of the Reorganization Agreement,
the directors and officers of Trustco immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
ARTICLE IV. CAPITAL
At the Effective Time, all of the shares of Trustco Common Stock issued and
outstanding immediately prior to the Effective Time shall remain outstanding and
unchanged by virtue of the Merger and, together with the Trustco Common Stock
comprising the Stock Consideration (as defined in Section 1 of Article V below)
shall constitute all of the issued and outstanding shares of capital stock of
the Surviving Corporation.
ARTICLE V. CONVERSION AND EXCHANGE OF LETCHWORTH SHARES;
FRACTIONAL SHARE INTERESTS
1. At the Effective Time, each share of the common stock of
Letchworth, par value $1.00 per share ("Letchworth Common Stock"), issued and
outstanding immediately prior to the Effective Time (except as provided in
Section 2 of this Article V, and subject to Sections 5 and 7 of this Article V),
shall, by virtue of the Merger, automatically and without any action on the part
of the holder thereof, become and be converted into 0.685 shares (the "Exchange
Ratio") of common stock, par value $0.10 per share, of Trustco ("Trustco Common
Stock") (the "Stock Consideration"). The Stock Consideration is sometimes
referred to herein as the "Merger Consideration."
2. (a) At the Effective Time, all shares of Letchworth Common Stock held
in the treasury of Letchworth or owned beneficially by any Subsidiary of
Letchworth other than in a fiduciary capacity ("Trust Account Shares") or in
connection with a debt previously contracted ("DPC Shares") and all shares of
Letchworth Common Stock owned by Trustco or owned beneficially by any subsidiary
of Trustco other than Trust Account Shares and DPC Shares shall be canceled and
no cash, stock or other property shall be delivered in exchange therefor.
(b) Notwithstanding any other provision contained in this Plan of
Merger, no shares of Letchworth Common Stock that are issued and outstanding as
of the Effective Time and that are held by a stockholder who has properly
exercised his or her appraisal rights (any such shares being referred to herein
as "Dissenting Shares") under applicable law shall be converted into the right
to receive the Merger Consideration as provided in Section 1 of this Article V
unless and until the holder shall have failed to perfect, or shall have
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effectively withdrawn or lost, his or her right to dissent from the Merger under
applicable law and to receive such consideration as may be determined to be due
with respect to such Dissenting Shares pursuant to and subject to the
requirements of applicable law. If any holder of Dissenting Shares shall have
so failed to perfect or effectively withdrawn or lost such holder's right to
dissent from the Merger, each of such holder's shares of Letchworth Common Stock
shall thereupon be deemed to have been converted into and to have become, as of
the Effective Time, the right to receive the Stock Consideration.
3. (a) The holders of certificates representing shares of Letchworth
Common Stock ("Certificates") shall cease to have any rights as stockholders of
Letchworth, except such rights, if any, as they may have pursuant to the BCL.
Except as provided above, until Certificates representing shares of Letchworth
Common Stock are surrendered for exchange, the Certificates shall, after the
Effective Time, represent for all purposes only the right to receive the number
of whole shares of Trustco Common Stock into which such shares of Letchworth
Common Stock shall have been converted by the Merger as provided above and the
right to receive the cash value of any fraction of a share of Trustco Common
Stock as provided below.
(b) Prior to the Effective Time, the Board of Directors of Trustco
shall reserve for issuance a sufficient number of shares of Trustco Common Stock
for the purpose of issuing its shares to the stockholders of Letchworth in
accordance herewith.
(c) As soon as is reasonably practicable after the Effective Time,
holders of record of Certificates formerly representing shares of Letchworth
Common Stock shall be instructed to tender such Certificates to Trustco, or at
the election of Trustco, to an independent exchange agent to be selected by
Trustco (the "Exchange Agent") pursuant to a letter of transmittal that Trustco
shall deliver or cause to be delivered to such holders. Such letter of
transmittal shall specify that delivery shall be effected, and risk of loss and
title to Certificates shall pass, only upon acceptance of such Certificates by
Trustco or the Exchange Agent. After the Effective Time, each holder of a
Certificate that properly surrendered such Certificate to Trustco or the
Exchange Agent, together with a properly completed letter of transmittal, duly
executed, will, upon acceptance thereof by Trustco or the Exchange Agent, be
entitled to the Merger Consideration payable in respect of the shares
represented thereby, and the Certificates so surrendered shall forthwith be
canceled.
(d) Trustco or the Exchange Agent shall accept Certificates upon
compliance with such reasonable terms and conditions as Trustco or the Exchange
Agent may impose to effect an orderly exchange thereof in accordance with
customary exchange practices. Certificates shall be appropriately endorsed or
accompanied by such instruments of transfer as Trustco or the Exchange Agent may
reasonably require. Each outstanding Certificate shall until duly surrendered
to Trustco or the Exchange Agent be deemed to evidence the right to receive the
Merger Consideration.
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(e) Trustco shall not be obligated to deliver the Merger
Consideration to any holder of Letchworth Common Stock until such holder
surrenders the Certificates as provided herein. No dividends declared will be
remitted to any person entitled to receive Trustco Common Stock under this
Agreement until such person surrenders the Certificate representing the right to
receive such Trustco Common Stock, at which time such dividends on whole shares
of Trustco Common Stock with a record date on or after the Effective Time shall
be remitted to such person, without interest and less any taxes that may have
been imposed thereon. Certificates surrendered for exchange by any person
constituting an "affiliate" of Letchworth for purposes of Rule 145 under the
Securities Act of 1933 and the rules and regulations thereunder (the "Securities
Act") shall not be exchanged for Certificates representing Trustco common stock
until Trustco has received a written agreement from such person as specified in
Section 4.10 of the Reorganization Agreement. Neither the Exchange Agent nor any
party to this Agreement nor any Affiliate thereof shall be liable to any holder
of Letchworth Common Stock represented by any Certificate for any consideration
paid to a public official pursuant to applicable abandoned property, escheat or
similar laws. Trustco and the Exchange Agent shall be entitled to rely upon the
stock transfer books of Letchworth to establish the identity of those persons
entitled to receive consideration specified in this Plan of Merger, which books
shall be conclusive with respect thereto. In the event of a dispute with respect
to ownership of stock represented by any Certificate, Trustco or the Exchange
Agent shall be entitled to deposit any consideration in respect thereof in
escrow with an independent third party and thereafter be relieved with respect
to any claims thereto.
(f) If the Merger Consideration is to be issued to a person other
than a person in whose name a surrendered Certificate is registered, it shall be
a condition of issuance that the surrendered Certificate shall be properly
endorsed or otherwise in proper form for transfer and that the person requesting
such issuance shall pay to Trustco or the Exchange Agent in advance any required
transfer or other taxes or establish to the satisfaction of Trustco or the
Exchange Agent that such tax has been paid or is not applicable.
4. At the Effective Time, the stock transfer books of Letchworth shall be
closed and no transfer of Letchworth Common Stock shall thereafter be made or
recognized. If, after the Effective Time, Certificates representing such shares
are presented for transfer to the Exchange Agent, they shall be canceled and
exchanged for the Merger Consideration as provided in this Article V.
5. In the event that prior to the Effective Time, the outstanding shares
of Trustco Common Stock shall have been increased, decreased or changed into or
exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split
or other like changes in Trustco's capitalization, then an appropriate and
proportionate adjustment shall be made to the Stock Consideration (including the
Exchange Ratio) and the formulas contained in Section 6 of this Article V.
6. At the Effective Time, each option granted by Letchworth to purchase
shares of Letchworth Common Stock which is outstanding and unexercised
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immediately prior to the Effective Time shall be assumed by Trustco and each
such option shall continue to be outstanding, but shall represent an option to
purchase shares of Trustco Common Stock in an amount and at an exercise price
determined as provided below (and otherwise subject to the terms of the 1990 and
1998 Stock Option Plans of Letchworth):
(i) the number of shares of Trustco Common Stock to be subject to the
continuing option shall be equal to the product of the number of shares of
Letchworth Common Stock subject to the original option and the Exchange Ratio,
provided that any fractional share of Trustco Common Stock resulting from such
multiplication shall be rounded down to the nearest share; and
(ii) the exercise price per share of Trustco Common Stock under the
continuing options shall be equal to the exercise price per share of Letchworth
Common Stock under the original option divided by the Exchange Ratio, provided
that such exercise price shall be rounded to the nearest cent.
It is intended that the foregoing assumption shall be undertaken consistent
with and in a manner that will not constitute a "modification" under Section 424
of the Code as to any option which is an "incentive stock option."
7. Notwithstanding any other provision hereof, each holder of shares of
Letchworth Common Stock who would otherwise have been entitled to receive
pursuant to this Article V a fraction of a share of Trustco Common Stock (after
taking into account all Certificates delivered by such holder) shall receive, in
lieu thereof, cash in an amount equal to such fraction of a share of Trustco
Common Stock multiplied by the market value (as defined below) of Trustco Common
Stock. The "market value" of Trustco Common Stock shall be the closing price of
the Trustco Common Stock on the American Stock Exchange -- Composite
Transactions List (as reported by THE WALL STREET JOURNAL or, if not reported
therein, another comparable authoritative source) for the trading day
immediately preceding the date on which the Effective Time occurs. No such
holder shall be entitled to dividends, voting rights or any other shareholder
right in respect of such fractional share.
8. In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by Trustco,
the posting by such person of a bond in such amount as Trustco may reasonably
direct as indemnity against any claim that may be made against it with respect
to such Certificate, the Exchange Agent will issue in exchange for such lost,
stolen or destroyed Certificate the shares of Trustco Common Stock constituting
the Stock Consideration and cash in lieu of fractional shares deliverable in
respect thereof pursuant to this Plan of Merger.
ARTICLE VI. EFFECTIVE TIME OF THE MERGER
A certificate of merger evidencing the transactions contemplated herein
shall be delivered to the New York Department of State for filing as provided in
the Reorganization Agreement. The Merger shall be effective at the time the
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Certificate of Merger is filed by the New York Department of State (such date
and time being herein referred to as the "Effective Time").
ARTICLE VII. CONDITIONS PRECEDENT
The obligations of Letchworth and Trustco to effect the Merger as herein
provided shall be subject to satisfaction, unless duly waived, of the conditions
set forth in Article V of the Reorganization Agreement.
ARTICLE VIII. TERMINATION
Anything contained in the Plan of Merger to the contrary notwithstanding,
and notwithstanding adoption hereof by the shareholders of Letchworth and
Trustco, this Plan of Merger may be terminated and the Merger abandoned as
provided in the Reorganization Agreement.
ARTICLE IX. MISCELLANEOUS
1. This Plan of Merger may be amended or supplemented at
any time prior to the Effective Time by mutual agreement of Letchworth and
Trustco. Any such amendment or supplement must be in writing and approved by
their respective Boards of Directors and/or by officers authorized thereby and
shall be subject to the proviso in Section 6.4 of the Reorganization Agreement.
2. Any notice or other communication required or permitted under this
Plan of Merger shall be given, and shall be effective, in accordance with the
provisions of the Reorganization Agreement.
3. The headings of the several Articles herein are inserted for
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Plan of Merger.
4. This Plan of Merger shall be governed by and construed in accordance
with the laws of New York applicable to the internal affairs of Trustco and
Letchworth.
5. This Plan of Merger, taken together with the Reorganization Agreement,
shall constitute a plan of reorganization within the meaning of Section 368 of
the Code.
6. Capitalized terms used in this Plan of Merger and not defined herein
shall have the meanings assigned thereto in the Reorganization Agreement.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Plan of Merger to be executed in counterparts by their
duly authorized officers and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
Attest: __________________________ By: _______________________________
James W. Fulmer, President &
Chief Executive Officer
TOMPKINS TRUSTCO, INC.
By: ________________________________
James J. Byrnes, President &
Chief Executive Officer
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Exhibit 10(c)
STOCK OPTION AGREEMENT
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of July 30, 1999, between Letchworth
Independent Bancshares Corporation ("Letchworth"), a New York corporation, and
Tompkins Trustco, Inc. ("Trustco"), a New York corporation.
WITNESSETH:
WHEREAS, Letchworth and Trustco have entered into an Agreement and Plan of
Reorganization of even date herewith (the "Reorganization Agreement"), which
agreement has been executed by the parties hereto immediately prior to this
Stock Option Agreement (the "Agreement"), and will enter into an Agreement and
Plan of Merger to be dated as of the date of this Agreement (the "Plan of
Merger," and, together with the Reorganization Agreement, the "Merger
Agreements"); and
WHEREAS, as a condition to Trustco's entering into the Merger Agreements
and in consideration therefor, Letchworth has agreed to grant Trustco the Option
(as hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreements, the parties hereto
agree as follows:
1. Grant.
-----
(a) Letchworth hereby grants to Trustco an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 689,737
fully paid and nonassessable shares of Letchworth's Common Stock, par value
$1.00 per share ("Common Stock" or "Letchworth Common Stock"), at a price of
$14.00 per share (the "Option Price"); provided, however, that in no event shall
the number of shares of Common Stock for which this Option is exercisable exceed
19.9% of the Letchworth's issued and outstanding shares of Common Stock without
giving effect to any shares subject to or issued pursuant to the Option. The
number of shares of Common Stock that may be received upon the exercise of the
Option and the Option Price are subject to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are
either (i) issued or otherwise become outstanding after the date of this
Agreement (other than pursuant to this Agreement or as permitted under the terms
of the Merger Agreements) or (ii) redeemed, repurchased, retired or otherwise
cease to be outstanding after the date of this Agreement, the number of shares
of Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that, after such issuance, such number equals 19.9% of the
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number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Letchworth or Trustco to breach any provision of the Merger Agreements.
2. Exercise of Option
------------------
The Holder (as herein defined) may exercise the Option, in whole
or part, at any time or from time to time if a Purchase Event (as defined below)
shall have occurred prior to the occurrence of an Exercise Termination Event (as
hereinafter defined); provided, that the Holder shall have sent the written
notice of such exercise (as provided in subsection (d) of this Section 2), and
further provided, that, (i) if the Option cannot be exercised on such day
because of any injunction, order or similar restraint issued by a court of
competent jurisdiction, the period during which the Option may be exercised
shall be extended so that the Option shall expire no earlier than on the 30th
business day after such injunction, order or restraint shall have been dissolved
or when such injunction, order or restraint shall have become permanent and no
longer subject to appeal, as the case may be, and (ii) any such exercise shall
be subject to compliance with applicable provisions of law. Each of the
following shall be an "Exercise Termination Event": (i) the Effective Time (as
defined in the Plan of Merger) of the Merger; (ii) the termination of the Merger
Agreements pursuant to Section 6.1(b)(h) of the Reorganization Agreement; (iii)
the passage of 12 months after the termination of the Merger Agreements in
accordance with the provisions thereof if such termination occurs prior to the
occurrence of a Purchase Event, except a termination by Trustco pursuant to
Section 6.1(b)(i) of the Reorganization Agreement (unless the breach by
Letchworth giving rise to such right of termination is non-volitional) or a
termination by Letchworth pursuant to Section 6.1(f) of the Reorganization
Agreement; or (iv) the passage of 18 months after termination of the Merger
Agreements if such termination follows the occurrence of a Purchase Event, or is
a termination by Trustco pursuant to Section 6.1(b)(i) of the Reorganization
Agreement (unless the breach by Letchworth giving rise to such right of
termination is non-volitional) or is a termination by Letchworth pursuant to
Section 6.1(f) of the Reorganization Agreement. The term "Holder" shall mean the
holder or holders of the Option as provided in Section 9 hereof. Notwithstanding
anything to the contrary contained in this Agreement, the Option may not be
exercised (nor may Trustco's rights under Section 9 hereof be exercised) at any
time when Trustco shall be in willful breach of any of its covenants or
agreements contained in the Reorganization Agreement under circumstances that
would entitle Letchworth to terminate the Merger Agreements and such breach has
not been cured.
As used herein, a "Purchase Event" shall mean any of the
following events or transactions occurring after the date hereof:
Letchworth or any of the Letchworth Subsidiaries, without
having received Trustco's prior written consent, shall have entered into,
authorized, recommended, proposed or publicly announced its intention to enter
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into, authorize, recommend, or propose an agreement, arrangement or
understanding with any person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the rules and
regulations thereunder), other than Trustco or any Trustco Subsidiaries, to (x)
effect a merger or consolidation, or similar transaction involving Letchworth or
any of the Letchworth Subsidiaries (other than internal mergers, reorganizing
actions, consolidations or dissolutions involving only existing Letchworth
Subsidiaries), (y) purchase, lease or otherwise acquire or assume all or a
substantial portion of the assets or deposits of Letchworth or any Letchworth
Subsidiary, or (z) purchase or otherwise acquire (including by way of merger,
consolidation, share exchange or any similar transaction) beneficial ownership
(as herein defined) of securities representing 10% or more of the voting power
of Letchworth or any of the Letchworth Subsidiaries (any one of the transactions
described in subsections (x), (y) and (z) above being referred to herein as an
"Acquisition Transaction");
Any person (other than Trustco or a Trustco Subsidiary)
shall have acquired beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the voting power of Letchworth (the term "beneficial
ownership" for purposes of this Agreement having the meaning assigned thereto in
Section 13(d) of the 1934 Act, and the rules and regulations thereunder);
Any person (other than Trustco or a Trustco Subsidiary)
shall have commenced (as such term is defined under the rules and regulations of
the SEC), or shall have filed or publicly disseminated a registration statement
or similar disclosure statement with respect to, a tender offer or exchange
offer to purchase any shares of Letchworth Common Stock such that, upon
consummation of such offer, such person would own or control 10% or more of the
voting power of Letchworth (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer," respectively);
(iv) (A) the holders of Letchworth Common Stock shall not have
approved the Merger Agreements and the transactions contemplated thereby, at the
meeting of such stockholders held for the purpose of voting on such agreement,
(B) such meeting shall not have been held or shall have been canceled prior to
termination of the Merger Agreements, or (C) the Board of Directors of
Letchworth shall have publicly withdrawn or modified, or publicly announced its
intent to withdraw or modify, in any manner adverse to Trustco, its
recommendation that the stockholders of Letchworth approve the transactions
contemplated by the Merger Agreements, in each case after it shall have been
publicly announced that any person other than Trustco or any Trustco Subsidiary
shall have (x) made, or disclosed an intention to make, a proposal to engage in
an Acquisition Transaction, (y) commenced a Tender Offer, or filed or publicly
disseminated a registration statement or similar disclosure statement with
respect to an Exchange Offer, or (z) filed an application (or given a notice),
whether in draft or final form, under any federal or state banking laws seeking
regulatory approval to engage in an Acquisition Transaction; or
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(v) After an overture is made by a third party to Letchworth or its stockholders
to engage in an Acquisition Transaction, Letchworth shall have breached any
covenant or obligation contained in the Reorganization Agreement and such breach
(x) would entitle Trustco to terminate the Merger Agreements and (y) shall not
have been cured prior to the Notice Date (as defined below).
If more than one of the transactions giving rise to a Purchase Event under
this Section 2(b) is undertaken or effected, then all such transactions shall
give rise only to one Purchase Event, which Purchase Event shall be deemed
continuing for all purposes hereunder until all such transactions are abandoned.
(c) Letchworth shall notify Trustco promptly in writing of the
occurrence of any Purchase Event, it being understood that the giving of such
notice by Letchworth shall not be a condition to the right of the Holder to
exercise the Option.
(d) In the event the Holder is entitled to and wishes to exercise the
Option, it shall deliver to Letchworth a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares of Letchworth Common Stock it will purchase pursuant to such exercise and
(ii) a place and date not earlier than three business days nor later than 60
business days from the Notice Date for the closing of such purchase (the
"Closing Date"); provided, that if prior notification to or approval of the
Federal Reserve Board or any other regulatory agency is required in connection
with such purchase, the Holder shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification periods have expired or been
terminated or such approvals have been obtained and any requisite waiting period
or periods shall have passed. Any exercise of the Option shall be deemed to
occur on the Notice Date relating thereto.
(e) At the closing referred to in subsection (d) of this Section 2,
the Holder shall pay to Letchworth the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by wire transfer to a bank account designated by Letchworth,
provided that failure or refusal of Letchworth to designate such a bank account
shall not preclude the Holder from exercising the Option.
(f) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Letchworth
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the Option
should be exercised in part only, a new Option evidencing the rights of the
Holder thereof to purchase the balance of the shares purchasable hereunder, and
the Holder shall deliver to Letchworth a copy of this Agreement and a letter
agreeing that the Holder will not offer to sell or otherwise dispose of such
shares in violation of applicable law or the provisions of this Agreement.
4
<PAGE>
(g) Certificates for Letchworth Common Stock delivered at a closing
hereunder may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof and
Letchworth and to resale restrictions arising under the Securities Act of 1933,
as amended. A copy of such agreement is on file at the principal office of
Letchworth and will be provided to the holder hereof without charge upon receipt
by Letchworth of a written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "1933 Act"), in the above legend
shall be removed by delivery of substitute certificate(s) without such reference
if the Holder shall have delivered to Letchworth a copy of a letter from the
staff of the SEC, or an opinion of counsel, in form and substance reasonably
satisfactory to Letchworth, to the effect that such legend is not required for
purposes of the 1933 Act; (ii) the reference to the provisions to 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.
(h) Upon the giving by the Holder to Letchworth of the written notice
of exercise of the Option provided for under subsection (d) of this Section 2
and the tender of the applicable purchase price in immediately available funds,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of Letchworth shall then be closed or that certificates representing such shares
of Common Stock shall not then be actually delivered to the Holder. Letchworth
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 the
Holder or its assignee, transferee or designee.
3. Letchworth's Undertakings.
-------------------------
Letchworth agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights to purchase Common Stock; (ii)
that it will not, by charter amendment or through reorganization, consolidation,
merger, dissolution or sale of assets, or by any other voluntary act, avoid or
seek to avoid the observance or performance of any of the covenants,
stipulations or conditions to be observed or performed hereunder by Letchworth;
(iii) promptly to take all action as may from time to time be required
(including (x) complying with all premerger notification, reporting and waiting
5
<PAGE>
period requirements specified in 15 U.S.C. (S)18a and regulations promulgated
thereunder and (y) in the event, under federal or state banking law, prior
approval of or notice to the Federal Reserve Board or any other federal or state
regulatory authority is necessary before the Option may be exercised,
cooperating fully with Trustco in preparing such applications or notices and
providing such information to the Federal Reserve Board or such other federal or
state regulatory authority as they may require) in order to permit the Holder to
exercise the Option and Letchworth duly and effectively to issue shares of
Common Stock pursuant hereto; and (iv) promptly to take all action provided
herein to protect the rights of the Holder against dilution.
4. Adjustment/Anti-Dilution.
------------------------
In addition to the adjustment in the number of shares of Common Stock that
are purchasable upon exercise of the Option pursuant to Section 1 of this
Agreement, the number of shares of Common Stock purchasable upon the exercise of
the Option and the Option Price shall be subject to adjustment from time to time
as provided in this Section 4. In the event of any change in, or distributions
in respect of, the Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares, distributions on or in respect of the Common Stock that would be
prohibited under the terms of the Merger Agreements, or the like, the type and
number of shares of Common Stock purchasable upon exercise hereof and the Option
Price shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits provided hereunder and proper provision shall be made in any
agreement governing any such transaction to provide for such proper adjustment
and the full satisfaction of the Letchworth's obligations hereunder.
5. Registration Rights
-------------------
Upon the occurrence of a Purchase Event that occurs prior to an Exercise
Termination Event, Letchworth shall, at the request of Trustco (whether on its
own behalf or on behalf of any subsequent Holder of this Option (or part
thereof) or any of the shares of Common Stock issued pursuant hereto), promptly
prepare, file and keep current a registration statement under the 1933 Act
covering this Option and any shares issued and issuable pursuant to this Option
and shall use its best efforts to cause such registration statement to become
effective and remain current in order to permit the sale or other disposition of
this Option and any shares of Common Stock issued upon total or partial exercise
of this Option ("Option Shares") in accordance with any plan of disposition
requested by Trustco. Letchworth will use its best efforts to cause such
registration statement first to become effective and then to remain effective
for such period not in excess of 180 days from the day such registration
statement first becomes effective or such shorter time as may be reasonably
necessary to effect such sales or other dispositions. The registrations effected
under this Section 5 shall be at Letchworth's expense except for underwriting
commissions and the fees and disbursements of Trustco's counsel attributable to
the registration of such Letchworth Common Stock. In no event shall Trustco have
the right to demand more than two registrations. The filing of any registration
statement hereunder may be delayed for such period of time
6
<PAGE>
as may reasonably be required to facilitate any public distribution by
Letchworth of Letchworth Common Stock. Each such Holder shall provide all
information reasonably requested by Letchworth for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in connection
with such registration, Letchworth shall become a party to any underwriting
agreement relating to the sale of such shares, but only to the extent of
obligating itself in respect of representations, warranties, indemnities and
other agreements customarily included in underwriting agreements for parties
similarly situated. Upon receiving any request under this Section 5, Letchworth
agrees to send a copy thereof to any other person known to Letchworth to be
entitled to registration rights under this Section 5, in each case by promptly
mailing the same, postage prepaid, to the address of record of the persons
entitled to receive such copies.
6. Survival
--------
The periods for exercise of certain rights under Sections 2, 5, 9 and 11
shall be extended: (i) to the extent necessary to obtain all regulatory
approvals for the exercise of such rights, and for the expiration of all
statutory waiting periods; and (ii) to the extent necessary to avoid liability
under Section 16(b) of the 1934 Act by reason of such exercise.
7. Representations and Warranties of Letchworth
--------------------------------------------
Letchworth hereby represents and warrants to Trustco as follows:
(a) Letchworth has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Letchworth and no other corporate proceedings on the part
of Letchworth are necessary to authorize this Agreement or to consummate the
transactions so contemplated. This Agreement has been duly and validly executed
and delivered by Letchworth.
(b) Letchworth has taken all necessary corporate action to authorize
and reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will have
reserved for issuance upon the exercise of the Option, that number of shares of
Common Stock equal to the maximum number of shares of Common Stock at any time
and from time to time issuable hereunder, and all such shares, upon issuance
pursuant hereto, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims, liens,
encumbrance and security interests and not subject to any preemptive rights.
7
<PAGE>
8. Representations and Warranties of Trustco
-----------------------------------------
Trustco hereby represents and warrants to Letchworth that:
(a) Trustco has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Trustco. This Agreement has been duly executed and delivered by Trustco.
(b) The Option is not being, and any shares of Common Stock or other
securities acquired by Trustco upon exercise of the Option will not be, acquired
with a view to the public distribution thereof and will not be transferred or
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
9. Assignment.
----------
Neither of the parties hereto may assign any of its rights or obligations
under this Option Agreement or the Option created hereunder to any other person,
without the express written consent of the other party, except that, in the
event a Purchase Event shall have occurred and be continuing, Trustco may
assign, in whole or in part, its rights and obligations hereunder; provided,
however, that to the extent required by applicable regulatory authorities,
Trustco 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 2% or more of the voting shares of Letchworth,
(iii) an assignment to a single party (e.g., a broker or investment banker) for
the purpose of conducting a widely dispersed public distribution on Trustco's
behalf, or (iv) any other manner approved by applicable regulatory authorities.
10. Approvals and Consents.
----------------------
Each of Trustco and Letchworth will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated by
this Agreement, including without limitation making application to list the
shares of Common Stock issuable hereunder on the Nasdaq National Market upon
official notice of issuance and applying to the Federal Reserve Board, for
approval to acquire the shares issuable hereunder, but Trustco shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it deems
appropriate to do so.
8
<PAGE>
11. Repurchase Right.
----------------
(a) Upon the occurrence of a Repurchase Event (as herein defined)
that occurs prior to an Exercise Termination Event, (i) at the request of any
Holder, Letchworth (or any successor entity thereof) shall repurchase the Option
from the Holder at a price (the "Option Repurchase Price") equal to the amount
by which (A) the market/offer price (as defined below) exceeds (B) the Option
Price, multiplied by the number of shares for which this Option may then be
exercised, and (ii) at the request of any owner of Option Shares from time to
time (the "Owner"), Letchworth shall repurchase such number of the Option Shares
from such Owner as the Owner shall designate at a price per share ("Option Share
Repurchase Price") equal to the greater of (A) the market/offer price and (B)
the average option price per share paid by the Owner for the Option Shares so
designated. The term "market/offer price" shall mean the highest of (w) the
price per share of the Common Stock at which a tender offer or exchange offer
therefor has been made, (x) the price per share of the Common Stock to be paid
by any person, other than Trustco or a Trustco Subsidiary, pursuant to an
agreement with Letchworth, (y) the highest closing mean of the "bid" and the
"ask" price per share of Letchworth Common Stock reported by the Nasdaq, the
automated quotation system of the National Association of Securities Dealers,
Inc., within the six month period immediately preceding the required repurchase
of Options or Option Shares, as the case may be, or (z) in the event of a sale
of all or substantially all of Letchworth's assets, the sum of the price paid in
such sale for such assets and the current market value of the remaining assets
of Letchworth as determined by a nationally recognized investment banking firm
selected by a majority in the interest of the Holders or the Owners, as the case
may be, and reasonably acceptable to Letchworth, 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 investment banking firm selected by a
majority in interest of the Holders or the Owners, as the case may be, and
reasonably acceptable to Letchworth. As used in this Section 11, a "Repurchase
Event" shall mean a Purchase Event, except for this purpose the percentage in,
clause (z) of subsection 2(b)(i), subsection 2(b)(ii) and 2(b)(iii) shall be
25%, and the payment required by this Section 11 shall be due and payable only
upon consummation of the events described in subsections (i), (ii) or (iii) of
Section 2(b) of this Agreement.
(b) Each Holder and Owner, as the case may be, may exercise its right
to require Letchworth to repurchase the Option and any Option Shares pursuant to
this Section 11 by surrendering for such purpose to Letchworth, 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 such Holder
or Owner elects to require Letchworth to repurchase this Option and/or Option
Shares in accordance with the provisions of this Section 11. As promptly as
practicable, and in any event within ten (10) business days after the surrender
of the Option and/or certificates representing Option Shares and the receipt of
such notice or notices relating thereto, Letchworth shall deliver or cause to be
delivered to each Holder the Option Repurchase Price and/or to each Owner the
9
<PAGE>
Option Share Repurchase Price therefor or the portion thereof that Letchworth
is not then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Letchworth is prohibited under applicable law
or regulation, or as a consequence of administrative policy, or as a result of a
written agreement or other binding obligation with a governmental or regulatory
body or agency, from repurchasing the Option and/or the Option Shares in full,
Letchworth shall immediately so notify each Holder and/or each Owner and
thereafter deliver or cause to be delivered, from time to time, to such Holder
and/or 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 ten (10) business days after the date on which
Letchworth is no longer so prohibited; provided, however, that if Letchworth at
any time after delivery of a notice of repurchase pursuant to paragraph (b) of
this Section 11 is prohibited under applicable law or regulation, or as a
consequence of administrative policy, from delivering to any Holder and/or
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in part or in full (and Letchworth hereby
undertakes to use its best efforts to receive any required regulatory and legal
approvals and to file any required notices as promptly as practicable in order
to accomplish such repurchase), such Holder or Owner may revoke its notice of
repurchase of the Option or the Option Shares either in whole or to the extent
of the prohibition, whereupon Letchworth shall promptly (i) deliver to such
Holder and/or Owner, as appropriate, that portion of the Option Purchase Price
or the Option Share Repurchase Price that Letchworth is not prohibited from
delivering; and (ii) deliver, as appropriate, either (A) to such Holder, a new
Stock Option Agreement evidencing the right of such Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Stock Option Agreement was exercisable at
the time of delivery of the notice of repurchase by a fraction, the numerator of
which is the Option Repurchase Price less the portion thereof theretofore
delivered to the Holder and the denominator of which is the Option Repurchase
Price, or (B) to such Owner, a certificate for the Option Shares it is then so
prohibited from repurchasing.
12. 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 hereto shall be enforceable by either party hereto through
injunctive or other equitable relief. This provision is without prejudice to any
other rights that either party hereto may have against the other party for any
failure to performs its obligations under this Agreement.
13. 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
10
<PAGE>
remain in full force and effect, and shall in no way be affected, impaired or
invalidated. If for any reason such court or regulatory agency determines that
the Holder is not permitted to acquire the full number of shares of Common Stock
provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or 4
hereof), it is the express intention of Letchworth to allow the Holder to
acquire such lesser number of shares as may be permissible, without any
amendment or modification hereof.
14. Notice.
------
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 (confirmed receipt obtained), or by registered or
certified mail (postage prepaid, return receipt requested) at the respective
addresses of the parties set forth in the Reorganization Agreement.
15. Applicable Law.
--------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
16. Counterpart Signatures.
----------------------
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.
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.
18. Entire Agreement.
----------------
Except as otherwise expressly provided herein or in the Merger Agreements,
this Agreement contains the entire agreement between the parties with respect to
the transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereof, written or oral. The terms and conditions
of this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties hereto, and their respective successors and permitted assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
11
<PAGE>
19. Definitions.
-----------
Capitalized terms used in this Agreement and not defined herein shall have
the meanings assigned thereto in the Merger Agreements.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
LETCHWORTH INDEPENDENT
BANCSHARES CORPORATION
By: ___________________________________
James W. Fulmer, President and
Chief Executive Officer
TOMPKINS TRUSTCO, INC.
By: ____________________________________
James J. Byrnes, President and
Chief Executive Officer
12
<PAGE>
EXHIBIT 11
LETCHWORTH INDEPENDENT BANCSHARES CORPORATION
---------------------------------------------
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
June 30, 1999
-------------
<TABLE>
<CAPTION>
Three Months Ended Six Month Ended
June 30, 1999 June 30, 1999
------------------ ------------------
<S> <C> <C>
Income available to common shareholders $ 922,390 $1,888,057
Basic earnings per share
Weighted average shares outstanding 3,288,681 3,263,500
Basic earnings per share $ 0.28 $ 0.58
---------- ----------
Diluted earnings per share
Weighted average shares outstanding 3,288,681 3,263,500
Dilitive effect of:
Stock options 26,954 40,973
Adjusted weighted average shares
outstanding 3,315,635 3,304,473
Diluted earnings per share $ 0.28 $ 0.57
---------- ----------
</TABLE>
1
<PAGE>
EXHIBIT 99
Letchworth Independent Bancshares Corporation
50 North Main St.
Castile, NY 14427
Press Release
FOR IMMEDIATE RELEASE:
AUGUST 2, 1999
FOR MORE INFORMATION, CONTACT:
JAMES W. FULMER, President & CEO
Letchworth Independent Bancshares Corporation
(716) 493-2570, ext. 246
JAMES J. BYRNES, Chairman & CEO
Tompkins Trustco, Inc.
(607) 273-3210
CASTILE & ITHACA, NY - Aug. 2, 1999
Letchworth Independent Bancshares Corporation (NASDAQ "LEBC") and Tompkins
Trustco, Inc., (Amex "TMP") announced today that they have entered into a
definitive merger agreement for Tompkins Trustco, Inc. (Tompkins) to acquire
Letchworth in a tax-free, stock-for-stock exchange. Letchworth is the holding
company for The Bank of Castile and owns 70% of The Mahopac National Bank.
Tompkins is the holding company for Tompkins County Trust Company in Ithaca and
upon completion of the merger will become a multibank holding company with
assets of approximately $1.1 billion operating three separately chartered
banks. It is planned that each bank will continue to operate under its own
board of directors as a community bank. The combined organization will have 28
branches, covering market areas that will include the Genesee Valley region of
Western New York, Tompkins County and surrounding areas in Central New York, and
Putnam County.
Under the terms of the agreement, which was unanimously approved by both boards
of directors, Letchworth shareholders will receive 0.685 shares of Tompkins
shares for each share of Letchworth common stock. The value of the transaction
is approximately $81.5 million, which represents an exchange value of $23.80 per
Letchworth share, based upon the $34.75 closing stock price of Tompkins on July
30, 1999. The merger will be accounted for as a pooling of interests.
Subject to approval by shareholders of Tompkins and Letchworth, and to
regulatory approvals, the merger is expected to be completed in the fourth
quarter of 1999 or the first quarter of 2000, and will result in the issuance of
approximately 2.3 million shares of Tompkins stock. Letchworth also granted to
Tompkins an option to purchase 19.9% of its outstanding stock under certain
circumstances.
1
<PAGE>
It is planned that James W. Fulmer, president and CEO of Letchworth Independent
Bancshares Corporation, William Spain, chairman of The Mahopac National Bank,
and Craig Yunker, director of The Bank of Castile, will join the Tompkins Board
of Directors. It is proposed to reconstitute the Tompkins board as an 11-member
board, with eight present directors joined by these three.
The current board members of The Bank of Castile, Tompkins County Trust Company,
and The Mahopac National Bank will continue to serve on their respective boards.
Under the planned merger, James J. Byrnes will continue his role as Chairman and
CEO of Tompkins Trustco, Inc., with Fulmer serving as President.
Fulmer said, "Forming successful partnerships is essential for long-term
survival in business. This is an opportunity to align three community banks that
fit well together in terms of service, business philosophy and culture. As we
evaluated the potential of this merger, it became clear that it would serve our
shareholders, customers and employees very, very well. We are especially
pleased to affiliate with Tompkins, which is a financial organization of the
highest caliber."
Byrnes added, "We believe this represents a great enhancement of the long-term
prospects for profitable growth at Tompkins Trustco and for all three banks. We
share a strong commitment to community banking. By working together, we will
provide a higher level of service capability in three diverse markets within New
York State. The financial services industry is changing rapidly. Successful
companies will need to continually improve and, with this merger, we will be
much better positioned to make the necessary investment in people and
technology."
Tompkins is the fifth-ranked mid-sized bank in the nation, according to a survey
released by U.S. Banker magazine in June. It has served customers in Tompkins
County for more than 160 years with a full range of financial services,
including deposits, trust and investment services, commercial banking services,
residential mortgage lending, consumer lending and electronic banking.
Letchworth is based in Castile, NY, and had assets of $443 million as of June
30, 1999. The Bank of Castile was founded in 1869 and has 12 full-service
banking offices in Wyoming, Genesee, Livingston and Monroe counties. Brenda L.
Copeland will continue as President and CEO of The Bank of Castile.
The Mahopac National Bank is headquartered in Mahopac, Putnam County, the
fastest growing county in New York State, where it operates three banking
offices. The 70-year-old bank recently received approval for a fourth branch.
Letchworth purchased a majority interest in The Mahopac National Bank on June 4.
Stephen E. Garner will continue as President and CEO at Mahopac.
The transaction is expected to be slightly dilutive to Tompkins' earnings per
share initially, and accretive thereafter. These expectations are based upon
2
<PAGE>
estimated cost savings and revenue enhancements the company expects to realize,
beginning in the year 2000.
In conjunction with the announcement of the merger, both companies
simultaneously announced the termination of previously announced stock
repurchase programs.
CAUTIONARY STATEMENT CONCERNING FORWARD LOOKING STATEMENTS
This press release contains forward-looking statements with respect to
management expectations, assumptions, financial condition, results of operations
and, assuming the consummation of the merger between Tompkins and Letchworth,
certain cost savings and revenue enhancements. Although management believes any
such statements are based upon reasonable assumptions, there is no assurance
that actual outcomes will not be materially different. The company assumes no
duty to update forward-looking statements, and cautions that these statements
are subject to numerous assumptions, risks, and uncertainties, all of which
could change over time.
3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,812
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 100,815
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 287,662
<ALLOWANCE> 4,061
<TOTAL-ASSETS> 442,353
<DEPOSITS> 392,737
<SHORT-TERM> 886
<LIABILITIES-OTHER> 1,301
<LONG-TERM> 7,753
0
0
<COMMON> 3,460
<OTHER-SE> 12,625
<TOTAL-LIABILITIES-AND-EQUITY> 442,353
<INTEREST-LOAN> 9,110
<INTEREST-INVEST> 1,884
<INTEREST-OTHER> 422
<INTEREST-TOTAL> 11,416
<INTEREST-DEPOSIT> 4,231
<INTEREST-EXPENSE> 4,231
<INTEREST-INCOME-NET> 7,185
<LOAN-LOSSES> 282
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 5,078
<INCOME-PRETAX> 2,671
<INCOME-PRE-EXTRAORDINARY> 2,671
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,888
<EPS-BASIC> 0.58
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 0
<LOANS-NON> 1,028
<LOANS-PAST> 1,747
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,295
<ALLOWANCE-OPEN> 3,888
<CHARGE-OFFS> 146
<RECOVERIES> 37
<ALLOWANCE-CLOSE> 4,061
<ALLOWANCE-DOMESTIC> 4,061
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
