<PAGE> 1
BSB BANCORP, INC. SKANEATELES BANCORP, INC.
58-68 EXCHANGE STREET 33 EAST GENESEE STREET
BINGHAMTON, NY 13902 P.O. BOX 460
(607) 779-2492 SKANEATELES, NY 13152
(315) 685-2265
PROSPECTUS PROXY STATEMENT
1,523,794 SHARES OF COMMON STOCK
MAY 20, 1999
DEAR SKANEATELES BANCORP, INC. SHAREHOLDER:
Skaneateles Bancorp, Inc. and BSB Bancorp, Inc. have entered into an
agreement and plan of merger, dated as of January 25, 1999, which provides for
Skaneateles to merge into BSB Bancorp, subject to approval of Skaneateles'
stockholders and regulatory authorities. If the merger takes place, your
Skaneateles common stock will be converted to BSB Bancorp common stock as
described in this prospectus and proxy statement.
Skaneateles's board of directors has scheduled a special meeting of
shareholders to vote on the merger agreement on June 29, 1999 at 10:00 a.m.,
local time, at the Skaneateles Country Club, West Lake Road, Skaneateles, New
York. The merger agreement must be approved by at least two-thirds of
Skaneateles outstanding stock issued as of May 11, 1999. If the merger agreement
is approved, we expect the merger to take place during the summer of 1999.
BSB Bancorp's common stock is traded on the Nasdaq Stock Market's
National Market Tier under the symbol BSBN. On January 22, 1999, which was the
last trading day before the public announcement of the merger, the closing price
for a share of BSB Bancorp's common stock was $28.75.
This prospectus and proxy statement contains important information
concerning BSB Bancorp, Inc., Skaneateles Bancorp, Inc., the terms of the merger
and the conditions which must be satisfied before the merger can occur. YOU
SHOULD CAREFULLY CONSIDER THE RISK FACTORS RELATING TO THE MERGER AND TO
OWNERSHIP OF BSB BANCORP COMMON STOCK THAT ARE DESCRIBED STARTING ON PAGE 10.
The required vote to approve the merger agreement is based on the total
number of outstanding shares of Skaneateles common stock and not on the number
of shares which are actually voted. NOT VOTING AT THE MEETING, FAILING TO SUBMIT
A PROXY CARD, OR ABSTAINING FROM VOTING AT THE MEETING HAS THE SAME EFFECT AS
VOTING AGAINST THE MERGER. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY
CARD. THE SKANEATELES BOARD URGES YOU TO VOTE IN FAVOR OF THE MERGER.
BSB BANCORP'S COMMON STOCK HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, ANY STATE SECURITIES COMMISSION, OR THE
FEDERAL DEPOSIT INSURANCE CORPORATION, NOR HAS ANY OF THESE INSTITUTIONS PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. SHARES OF BSB BANCORP'S
COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
Sincerely,
John P. Driscoll
Chairman, President and Chief Executive
Officer
<PAGE> 2
SKANEATELES BANCORP, INC.
33 EAST GENESEE STREET
P.O. BOX 460
SKANEATELES, NEW YORK 13152
-------------------
NOTICE OF SPECIAL MEETING OF
SHAREHOLDERS TO BE HELD ON
JUNE 29, 1999
---------------------
A special meeting of shareholders of Skaneateles Bancorp, Inc. will be
held on June 29, 1999, at 10:00 a.m. at the Skaneateles Country Club, West Lake
Road, Skaneateles, New York for the following purposes:
1. To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of January 25, 1999,
between BSB Bancorp, Inc. and Skaneateles Bancorp, Inc.,
the merger of Skaneateles Bancorp into BSB Bancorp and the
other transactions contemplated by the merger agreement, as
described in the attached proxy statement/prospectus.
2. To transact any other business that properly comes before
the shareholder meeting, or any adjournments or
postponements of the meeting, including, without
limitation, a motion to adjourn the shareholder meeting to
another time and/or place for the purpose of soliciting
additional proxies in order to approve the merger agreement
and the merger or otherwise.
You are entitled to notice and to vote at the shareholder meeting or any
adjournments or postponements of the meeting only if you were a holder of record
of Skaneateles Bancorp common stock at the close of business on May 11, 1999.
SKANEATELES'S BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR
TO AND IN THE BEST INTERESTS OF SHAREHOLDERS, HAS UNANIMOUSLY APPROVED THE
MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE TO APPROVE THE MERGER AGREEMENT. The affirmative vote of two-thirds of the
shares of Skaneateles Bancorp common stock outstanding on May 11, 1999 is
required to approve the merger agreement.
The required vote of shareholders is based on the total number of
outstanding shares of Skaneateles Bancorp common stock and not on the number of
shares which are actually voted. IF YOU DO NOT SUBMIT A PROXY CARD OR VOTE IN
PERSON AT THE MEETING, OR IF YOU ABSTAIN FROM VOTING, YOU EFFECTIVELY ARE VOTING
AGAINST THE MERGER AGREEMENT AND THE MERGER.
IT IS VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE THE ENCLOSED
PROXY CARD AND RETURN IT AS SOON AS POSSIBLE. A shareholder who executes a proxy
may revoke it at any time before it is voted by giving written notice to the
Secretary of Skaneateles Bancorp, by filing another proxy or by attending the
meeting and voting in person.
By order of the Board of Directors
JOHN P. DRISCOLL
Chairman, President and Chief Executive Officer
Skaneateles, New York
May 20, 1999
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD.
2
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER.....................................................................4
SUMMARY ...................................................................................................5
Market Prices of Common Stock.....................................................................8
Comparative Per Share Data........................................................................9
RISK FACTORS .............................................................................................10
SHAREHOLDER MEETING.......................................................................................11
Matters to be Considered at the Shareholder Meeting..............................................11
Record Date and Voting...........................................................................11
Required Vote; Revocability of Proxies...........................................................12
Solicitation of Proxies..........................................................................13
THE MERGER ...............................................................................................13
The Parties......................................................................................13
Background of the Merger.........................................................................14
Recommendation of the Skaneateles Bancorp Board of Directors and Reasons for the Merger..........16
Opinion of Skaneateles Bancorp's Financial Advisor...............................................18
Purpose and Effects of the Merger................................................................27
Structure........................................................................................27
Exchange Ratio...................................................................................27
Exchange of Shares...............................................................................28
Options and Warrants.............................................................................29
Regulatory Approvals.............................................................................29
Conditions to the Merger.........................................................................30
Conduct of Business Pending the Merger...........................................................31
Third Party Proposals............................................................................32
Expenses ........................................................................................32
Representations and Warranties...................................................................32
Termination and Amendment of the Merger Agreement................................................33
Federal Income Tax Consequences..................................................................35
Accounting Treatment.............................................................................36
Resales of BSB Bancorp's Common Stock Received in the Merger.....................................37
Absence of Dissenters' Rights....................................................................37
Arrangements with and Payments to Skaneateles Bancorp Directors, Executive Officers
and Employees..................................................................................37
Indemnification..................................................................................38
Option Agreement.................................................................................38
SELECTED DATA ............................................................................................41
MARKET PRICES AND DIVIDENDS...............................................................................45
BSB Bancorp's Common Stock.......................................................................45
Skaneateles Bancorp's Common Stock...............................................................46
DESCRIPTION OF BSB BANCORP'S CAPITAL STOCK AND COMPARISON OF SHAREHOLDER RIGHTS...........................47
BSB Bancorp Common Stock.........................................................................47
BSB Bancorp's Preferred Stock....................................................................48
Certificate of Incorporation and Bylaw Provisions................................................48
Applicable Law...................................................................................52
WHERE YOU CAN FIND MORE INFORMATION.......................................................................53
BSB Bancorp Documents............................................................................54
Skaneateles Bancorp Documents....................................................................54
ADJOURNMENT OF SHAREHOLDER MEETING........................................................................54
SHAREHOLDER PROPOSALS.....................................................................................54
OTHER MATTERS ............................................................................................55
EXPERTS ..................................................................................................55
LEGAL MATTERS ............................................................................................55
Appendix A
Opinion of McConnell, Budd &
Downes, Inc.....................................................................................A-1
Appendix B
Skaneateles Bancorp, Inc.'s Annual
Report on Form 10-K.............................................................................B-1
</TABLE>
No person is authorized to give any information or to make any
representation not contained in this proxy statement/prospectus, and, if given
or made, that information or representation should not be relied upon as having
been authorized. This proxy statement/prospectus does not constitute an offer to
sell, or a solicitation of an offer to purchase, any of BSB Bancorp's common
stock offered by this proxy statement/prospectus, or the solicitation of a
proxy, in any jurisdiction in which it is unlawful to make that kind of offer or
solicitation. Neither the delivery of this proxy statement/prospectus nor any
distribution of BSB Bancorp's common stock offered pursuant to this proxy
statement/prospectus shall, under any circumstances, create an implication that
there has been no change in the affairs of Skaneateles Bancorp or BSB Bancorp or
the information in or accompanying this document or in the documents or reports
incorporated by reference into this document since the date of this proxy
statement/prospectus.
3
<PAGE> 4
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY IS SKANEATELES BANCORP PROPOSING TO MERGE WITH BSB BANCORP? HOW WILL
I BENEFIT?
A: In the opinion of the Skaneateles Bancorp board, the business potential
for the combination of BSB Bancorp and Skaneateles Bancorp exceeds what
Skaneateles Bancorp could accomplish individually. The Skaneateles
Bancorp board expects that the merger will enhance shareholder value for
all shareholders.
Q: WHAT DO I NEED TO DO NOW?
A: Read the enclosed materials, indicate on your proxy card how you want to
vote, and sign, date and return it as soon as possible. If you sign and
send in your proxy card and do not indicate how you want to vote, your
proxy will be voted for approval of the merger agreement. Not returning
your proxy card, not voting in person at the shareholder meeting, and
abstaining from voting has the same effect as voting against the merger
agreement.
You can attend the shareholder meeting and vote your shares in person
instead of returning your proxy card. If you do return a proxy card, you
may change your vote at any time up to the time of the vote at the
shareholder meeting by following the directions on page 11.
Q: IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions to
your broker on how you want your shares voted.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After the merger takes place, you will receive instructions on how to
exchange your Skaneateles Bancorp certificates for BSB Bancorp
certificates.
Q: WHAT WILL SKANEATELES BANCORP SHAREHOLDERS RECEIVE IN THE MERGER?
A: If the merger takes place, each share of Skaneateles Bancorp common stock
will be converted into .970 shares of BSB Bancorp common stock. BSB
Bancorp will pay cash instead of issuing fractional shares.
Q: WHAT HAPPENS TO MY FUTURE DIVIDENDS?
A: Before the merger takes place, Skaneateles Bancorp expects to continue to
pay regular quarterly cash dividends on its common stock, which currently
are $0.07 per share. After the merger, any dividends will be based on
what BSB Bancorp pays. BSB Bancorp presently pays dividends at a
quarterly dividend rate of $0.25 per share. At exchange ratio of .970,
therefore, the equivalent dividend is $0.2425 per share for Skaneateles
Bancorp common stock.
Q: WHO CAN HELP ANSWER MY QUESTIONS?
A: If you have more questions about the merger you should call or write to
J. Daniel Mohr, Vice President and Chief Financial Officer, Skaneateles
Bancorp, Inc., 33 East Genesee Street, P. O. Box 460, Skaneateles, New
York 13152-0460, telephone (315) 685-2153. A copy of the merger agreement
including each of its exhibits and the other documents described in this
proxy statement/prospectus will be provided to you promptly by U.S. mail
without charge if you call or write to Larry Denniston, Shareholder
Relations of BSB Bancorp, Inc., 58-68 Exchange Street, Binghamton, NY,
13902, telephone (607) 779-2406.
4
<PAGE> 5
SUMMARY
The following is a brief summary of the information located elsewhere in
this proxy statement/prospectus. BEFORE YOU VOTE, YOU SHOULD GIVE CAREFUL
CONSIDERATION TO ALL OF THE INFORMATION CONTAINED IN, ACCOMPANYING OR
INCORPORATED BY REFERENCE INTO THIS DOCUMENT.
THE PARTIES (PAGE 13)
BSB BANCORP, INC.
58-68 Exchange Street
Binghamton, New York 13902
(607) 779-2345
BSB Bancorp is a Delaware corporation and the holding company of BSB Bank &
Trust Company, a New York-chartered commercial bank and trust company. Both BSB
Bancorp and BSB Bank are headquartered in Binghamton, New York. Deposits at BSB
Bank & Trust Company are insured by the FDIC. At March 31, 1999, BSB Bancorp had
total consolidated assets of $1,949.1 million, total deposits of $1,521.6
million, and shareholders' equity of $137.4 million, or 7.06% of total assets.
SKANEATELES BANCORP, INC.
33 East Genesee Street
P. O. Box 460
Skaneateles, New York 13152-0460
(315) 685-2265
Skaneateles Bancorp is a Delaware corporation and the holding company of
Skaneateles Savings Bank, a New York-chartered savings bank. Both Skaneateles
Bancorp and Skaneateles Savings Bank are headquartered in Skaneateles, New York.
Deposits at Skaneateles Savings Bank are insured by the FDIC. At March 31, 1999,
Skaneateles Bancorp had total consolidated assets of $272.9 million, total
deposits of $234.8 million, and shareholders' equity of $19.3 million, or 7.07%
of total assets.
THE SHAREHOLDER MEETING (PAGE 11)
A special meeting of Skaneateles Bancorp shareholders will be held on June 29,
1999, at 10:00 a.m. at the Skaneateles Country Club, West Lake Road,
Skaneateles, New York for the following purposes:
- - to vote on the merger agreement, the merger and the other transactions
contemplated by the merger agreement; and
- - to address any other matters that properly come before the shareholder
meeting, or any adjournments or postponements of the meeting, including a
motion to adjourn the shareholder meeting to another time and/or place to
solicit additional proxies in favor of the merger agreement and the
merger or otherwise.
THE RECOMMENDATION OF THE SKANEATELES BANCORP BOARD TO SHAREHOLDERS (PAGE 16)
The Skaneateles Bancorp board of directors unanimously approved the merger
agreement and the merger and unanimously recommends that you vote FOR approval
of these matters.
RECORD DATE; VOTING POWER (PAGE 11)
You are entitled to vote at the shareholder meeting if you owned shares of
Skaneateles Bancorp's common stock on May 11, 1999. You will have one vote for
each share of Skaneateles Bancorp's common stock that you owned on that date.
VOTE REQUIRED (PAGE 12)
For the merger to happen, two-thirds of the shares of Skaneateles Bancorp common
stock that were issued and outstanding on May 11, 1999 must approve the merger
agreement, the merger and the other transactions contemplated by the merger
agreement. Please remember that, unlike routine matters presented to the
shareholders, the vote required to approve the merger agreement is based on the
total number of outstanding shares, and not on the number of shares which are
actually voted.
SHARE OWNERSHIP AND INTERESTS OF SKANEATELES BANCORP'S MANAGEMENT AND THEIR
AFFILIATES (PAGE 12)
At the close of business on May 11, 1999, excluding all options to purchase
Skaneateles Bancorp's common stock, the directors and executive officers of
Skaneateles Bancorp and
5
<PAGE> 6
their affiliates owned a total of 74,127 shares of Skaneateles Bancorp's common
stock, which was approximately 5.1% of the outstanding shares of Skaneateles
Bancorp's common stock on that date. The directors and executive officers have
agreed to vote their shares in favor of the merger agreement.
You should note that Skaneateles Bancorp's directors and executive officers have
interests in the merger as directors and/or employees that in some respects are
different from, or in addition to, yours as a Skaneateles Bancorp shareholder.
These interests are described at page 37.
REGULATORY APPROVALS (PAGE 29)
For the merger to take place, we need to receive the regulatory approvals of the
FDIC and the Superintendent of Banks and the Banking Board of New York State.
ABSENCE OF DISSENTERS' RIGHTS (PAGE 37)
The holders of Skaneateles Bancorp common stock have no dissenters' rights in
connection with the merger.
FEDERAL INCOME TAX CONSEQUENCES (PAGE 35)
You will not recognize gain or loss for federal income tax purposes if you
receive shares of BSB Bancorp common stock in exchange for shares of Skaneateles
Bancorp common stock in the merger, except to the extent you receive cash
instead of fractional shares. However, different tax consequences may apply to
you because of your individual circumstances or because special tax rules apply
to you. For example, different tax consequences may apply if you:
- are a tax-exempt organization;
- are a dealer in securities;
- are a financial institution;
- are an insurance company;
- are a non-United States person;
- acquired your shares of Skaneateles Bancorp common stock from the
exercise of options or otherwise as compensation or through a
qualified retirement plan; or
- hold shares of Skaneateles Bancorp common stock as part of a
straddle, hedge, or conversion transaction.
FAIRNESS OPINION OF SKANEATELES BANCORP'S FINANCIAL ADVISOR (PAGE 17)
In deciding to approve the merger, Skaneateles Bancorp's board of directors
considered an opinion of McConnell, Budd & Downes, Inc., Skaneateles Bancorp's
financial advisor. The opinion concluded that the proposed consideration to be
received by the holders of Skaneateles Bancorp's common stock in the merger is
fair to the shareholders from a financial point of view. An update of this
opinion is attached as Appendix A to this document. WE ENCOURAGE YOU TO READ
THIS OPINION CAREFULLY.
TERMINATION OF THE MERGER AGREEMENT (PAGE 33)
The merger agreement specifies a number of situations when the agreement may be
terminated by BSB Bancorp or Skaneateles Bancorp, which are described on page __
of this document. One of the instances when Skaneateles Bancorp can terminate
the merger agreement is if the 20 day average closing market price of BSB
Bancorp's common stock determined upon receipt of FDIC approval of the merger is
less than a price based on stock prices of 18 other bank holding companies.
OPTION AGREEMENT (PAGE 38)
Skaneateles Bancorp and BSB Bancorp also entered into an option agreement.
Skaneateles Bancorp granted BSB Bancorp an option to purchase 19.99% of
Skaneateles Bancorp's common stock if specified events occur. The option
agreement is intended to discourage third parties from making alternative
acquisition related proposals.
ACCOUNTING TREATMENT (PAGE 36)
The merger will be accounted for as a pooling of interests for accounting and
financial reporting purposes.
6
<PAGE> 7
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements in this document, and in documents that
we incorporate by reference. Skaneateles Bancorp has also made forward-looking
statements in its annual report on Form 10-K for the fiscal year ended December
31, 1998, a copy of which is attached to this proxy statement/prospectus as
Appendix B and is considered a part of this document. These kinds of statements
are subject to risks and uncertainties. Forward-looking statements include the
information concerning possible or assumed future results of operations of BSB
Bancorp, Skaneateles Bancorp, BSB Bank & Trust, Skaneateles Savings Bank, the
surviving corporation or the surviving bank. When we use words like believes,
expects, anticipates or similar expressions, we are making forward-looking
statements.
You should note that many factors, some of which are discussed elsewhere in this
document and the information that accompanies it and in the documents that we
incorporate by reference, could affect the future financial results of BSB
Bancorp, Skaneateles Bancorp, BSB Bank & Trust, Skaneateles Savings Bank, the
surviving corporation or the surviving bank and could cause those results to
differ materially from those expressed in our forward-looking statements. These
factors include the following:
- - the effect of economic conditions;
- - inability to realize expected cost savings in connection with business
combinations and other acquisitions;
- - higher than expected costs related to integration of combined or merged
businesses;
- - deposit attrition;
- - adverse changes in interest rates;
- - change in any applicable law, rule, regulation or practice with respect
to tax or accounting issues or otherwise; and
- - adverse changes or conditions in capital or financial markets.
7
<PAGE> 8
MARKET PRICES OF COMMON STOCK
BSB Bancorp's common stock is traded on the Nasdaq Stock Market's
National Market Tier under the trading symbol "BSBN." Skaneateles Bancorp's
common stock is traded on the Nasdaq Stock Market's National Market Tier under
the trading symbol "SKAN." The table below presents the per share closing prices
of BSB Bancorp's common stock and Skaneateles Bancorp's common stock on the
Nasdaq Stock Market noted above as of the dates specified and the pro forma
equivalent market value of BSB Bancorp's common stock to be issued for
Skaneateles Bancorp's common stock in the merger. January 22, 1999 was the last
trading date prior to announcement of the merger agreement. Skaneateles
Bancorp's pro forma equivalent market value was determined by multiplying the
exchange ratio by the respective closing prices of BSB Bancorp's common stock on
January 22, 1999, which is the last day before the date of the merger agreement
on which shares of BSB Bancorp's common stock were traded, and May 12, 1999,
which is the most recent practicable date prior to the date of this proxy
statement/prospectus. For more information about the exchange ratio, see "THE
MERGER -- Exchange Ratio," and for more information about the stock prices and
dividends of BSB Bancorp and Skaneateles Bancorp, see "MARKET PRICES AND
DIVIDENDS."
<TABLE>
<CAPTION>
Skaneateles Bancorp's
Last Reported Sale Price Common Stock
---------------------------------------- Pro Forma
Date BSB Bancorp's Skaneateles Bancorp's Equivalent Market
- ---- Common Stock Common Stock Value
------------ ------------ -----------------
<S> <C> <C> <C>
January 22, 1999........... $28.75 $19.00 $27.8875
May 12, 1999............... $25.92 $25.00 $25.1424
</TABLE>
- -------------------------
Skaneateles Bancorp's shareholders are advised to obtain current market
quotations for BSB Bancorp's common stock. It is expected that the market price
of BSB Bancorp's common stock will fluctuate between the date of this proxy
statement/prospectus and the date on which the merger takes place. No assurance
can be given as to the market price of BSB Bancorp's common stock at the time of
the merger.
8
<PAGE> 9
COMPARATIVE PER SHARE DATA
The table below presents comparative selected historical per share data
of BSB Bancorp and Skaneateles Bancorp, pro forma combined per share data for
BSB Bancorp and Skaneateles Bancorp and equivalent pro forma per share data of
Skaneateles Bancorp. The financial data is based on, and should be read in
conjunction with, the historical consolidated financial statements and the notes
to those financial statements of BSB Bancorp and Skaneateles Bancorp. All per
share data of BSB Bancorp, Skaneateles Bancorp and pro forma are presented on a
diluted basis and have been adjusted retroactively to give effect to stock
dividends. The pro forma data is not necessarily indicative of results that will
be obtained on a combined basis. Skaneateles Bancorp equivalent pro forma per
share amounts are calculated by multiplying the pro forma combined amounts by
the exchange ratio. See "THE MERGER -- Exchange Ratio."
<TABLE>
<CAPTION>
At or for the Three At or for the Year
Months Ended March 31, 1999 Ended December 31, 1998
--------------------------- -----------------------
<S> <C> <C>
Net Income per diluted Common Share:
BSB Bancorp -- historical.................... $0.60 $2.24
Skaneateles Bancorp -- historical............ 0.17 1.11
Pro Forma Combined........................... 0.54 2.08
Skaneateles Bancorp Equivalent
Pro Forma ............................ $0.52 $2.02
Cash Dividends per Common Share:
BSB Bancorp-- historical.................... $0.25 $0.91
Skaneateles Bancorp-- historical............ 0.07 0.28
Pro Forma Combined.......................... 0.32 1.18
Skaneateles Bancorp Equivalent
Pro Forma ................................ 0.31 1.14
Book Value per Common Share:
BSB Bancorp-- historical.................... $15.85 $15.64
Skaneateles Bancorp -- historical........... 13.26 13.17
Pro Forma Combined.......................... 15.54 15.35
Skaneateles Bancorp Equivalent
Pro Forma ................................ $15.07 $14.89
</TABLE>
- ------------------
For more detailed information about the matters discussed in this summary, you
should review the table of contents of this document, which you can find at page
3.
9
<PAGE> 10
RISK FACTORS
You should carefully consider the following risk factors relating to the
merger and to ownership of BSB Bancorp common stock before you decide
whether to adopt the merger agreement and approve the merger. You should
also consider the other information in this proxy statement/prospectus
and additional information in the accompanying copy of Skaneateles
Bancorp's annual report on Form 10-K for the fiscal year ended December
31, 1998 and in the other documents considered a part of this proxy
statement/prospectus. See "Where You Can Find More Information" on page
53.
THE PRINCIPAL SOURCE OF BSB BANCORP'S CASH REVENUES IS DIVIDENDS FROM BSB BANK,
AND THOSE DIVIDENDS ARE SUBJECT TO RESTRICTIONS
BSB Bancorp has traditionally invested substantially all of its liquid assets in
BSB Bank. BSB Bancorp's liquidity and ability to pay obligations such as
principal and interest on debt and dividends to its shareholders is primarily
dependent on the ability of BSB Bank to pay dividends to BSB Bancorp. Payment of
dividends by BSB Bank is restricted by various legal and regulatory limitations.
At March 31, 1999, approximately $33.3 million was available for payment of
dividends to BSB Bancorp from BSB Bank without prior regulatory approval. The
requirement to maintain regulatory capital may further restrict the ability of
both BSB Bancorp and BSB Bank to pay dividends.
CREDIT LOSSES MAY REDUCE BSB BANCORP'S PROFITABILITY
Because BSB Bancorp is in the business of making loans, BSB Bancorp will
experience loan losses. BSB Bancorp's risk of loss will vary with, among other
things, general economic conditions, the type of loan being made, the
creditworthiness of the borrower over the term of the loan and, in the case of a
collateralized loan, the quality of the collateral for the loan. BSB Bank
maintains reserves to cover potential credit losses based on its estimate of
impaired loans and other factors. BSB Bank considers a loan in its portfolio to
be "impaired" if it is probable, based on current information and events, that
BSB Bank will be unable to collect the scheduled principal and interest payments
when due.
Although BSB Bancorp's management considers the current level of reserves
adequate to cover potential credit losses, there can be no assurance that such
reserves will in fact be sufficient to cover actual losses. At March 31, 1999,
BSB Bank's allowance for possible credit losses was $23.2 million, or 1.56% of
total loans and 151.41% of non-performing loans at that date. At March 31, 1999,
non-performing loans totaled $15.3 million, including $12.1 million of
commercial loans, $1.2 million of consumer loans, $1.8 million of residential
real estate loans and $277,000 of commercial real estate loans. BSB Bank's net
charge offs during 1998 were $9.3 million, of which $8.2 million was
attributable to commercial and consumer loans.
CHANGES IN INTEREST RATES MAY REDUCE
BSB BANCORP'S PROFITABILITY
BSB Bancorp's results of operations depend in large part upon the level of its
net interest income, that is, the difference between interest income from
interest-earning assets, such as loans and mortgage-backed securities, and
interest expense on interest-bearing liabilities, such as deposits and
borrowings. Many factors cause changes in interest rates, including governmental
monetary policies and domestic and international economic and political
conditions. If BSB Bancorp is unsuccessful in managing the effects of changes in
interest rates, its financial condition and results of operations could suffer.
Changes in market interest rates could reduce the value of BSB Bancorp's
financial assets. Fixed-rate investments, mortgage-backed and related securities
and mortgage loans generally decline in value as interest rates rise.
PROBLEMS RELATED TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR BUSINESS
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The failure to correct
any such programs or hardware could result in system failures or miscalculations
causing disruptions of our operations, including a temporary inability to
process transactions or engage in similar normal business activities.
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SHAREHOLDER MEETING
MATTERS TO BE CONSIDERED AT THE SHAREHOLDER MEETING
This proxy statement/prospectus is first being mailed to the holders of
Skaneateles Bancorp's common stock on or about May 25, 1999. It is accompanied
by a proxy card furnished in connection with the solicitation of proxies by the
Skaneateles Bancorp board of directors for use at the special meeting of
Skaneateles Bancorp's shareholders. The shareholder meeting is scheduled to be
held on June 29, 1999, at 10:00 a.m., at the Skaneateles Country Club, West Lake
Road, Skaneateles, New York. At the shareholder meeting, the holders of
Skaneateles Bancorp's common stock will consider and vote upon: (i) the proposal
to approve and adopt the merger agreement, the merger and the other transactions
contemplated by the merger agreement, and (ii) any other business that properly
comes before the shareholder meeting, or any adjournments or postponements of
the meeting, including, without limitation, a motion to adjourn the shareholder
meeting to another time and/or place for the purpose of soliciting additional
proxies in order to approve the merger agreement and the merger or otherwise.
RECORD DATE AND VOTING
The Skaneateles Bancorp board of directors has fixed the close of
business on May 11, 1999 as the record date for determining the Skaneateles
Bancorp shareholders entitled to receive notice of and to vote at the
shareholder meeting. Only holders of record of Skaneateles Bancorp's common
stock at the close of business on that day will be entitled to vote at the
shareholder meeting or at any adjournment or postponement of the meeting. At the
close of business on May 11, 1999, there were 1,454,247 shares of Skaneateles
Bancorp's common stock outstanding that are entitled to vote at the shareholder
meeting, held by approximately 589 shareholders of record. Although Skaneateles
Bancorp is authorized to issue 500,000 shares of serial preferred stock, none is
outstanding.
Each holder of Skaneateles Bancorp's common stock on the record date will
be entitled to one vote for each share held of record upon each matter properly
submitted at the shareholder meeting or at any adjournment or postponement of
the meeting. The presence, in person or by proxy, of the holders of one-third of
Skaneateles Bancorp's common stock entitled to vote at the shareholder meeting
is necessary to constitute a quorum. Abstentions and broker non-votes will be
included in the calculation of the number of shares represented at the
shareholder meeting in order to determine whether a quorum has been achieved.
Since approval of the merger agreement requires the affirmative vote of the
holders of at least two-thirds of the issued and outstanding shares of
Skaneateles Bancorp's common stock entitled to be voted at the shareholder
meeting, abstentions and broker non-votes will have the same effect as a vote
against the merger agreement.
If a quorum is not obtained, or if fewer shares of Skaneateles Bancorp's
common stock are voted in favor of the proposal for approval of the merger
agreement than the number required for approval, it is expected that the
shareholder meeting will be adjourned to allow additional time for obtaining
additional proxies. In that event, proxies will be voted to approve an
adjournment, except for proxies as to which instructions have been given to vote
against the merger agreement. The holders of a majority of the shares present at
the shareholder meeting would be required to approve any adjournment of the
shareholder meeting.
If your proxy card is properly executed and received by Skaneateles
Bancorp in time to be voted at the shareholder meeting, the shares represented
by the proxy card will be voted in accordance with the instructions marked on
the proxy card. EXECUTED PROXIES WITH NO INSTRUCTIONS INDICATED ON THE PROXY
CARD WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE MERGER AGREEMENT.
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The Skaneateles Bancorp board of directors is not aware of any matters
other than the proposal to approve the merger agreement and the merger or a
proposal to adjourn or postpone the shareholder meeting as necessary that may
properly come before the shareholder meeting. If any other matters properly come
before the shareholder meeting, the persons named in the accompanying proxy will
vote the shares represented by all properly executed proxies on those matters as
determined by a majority of the Skaneateles Bancorp board of directors.
To vote on the merger agreement, you need to properly complete the proxy
card or attend the shareholder meeting and vote in person. For information about
the election form, see "THE MERGER -- Election Form and Exchange of Shares."
YOU SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH YOUR PROXY CARD. IF
YOU COMPLETE AN ELECTION FORM, YOU SHOULD FORWARD YOUR SKANEATELES BANCORP STOCK
CERTIFICATES TO THE EXCHANGE AGENT. IF THE MERGER TAKES PLACE, SKANEATELES
BANCORP STOCK CERTIFICATES SHOULD BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS
THAT WILL BE SENT TO YOU BY BSB BANCORP'S EXCHANGE AGENT PROMPTLY AFTER THE
EFFECTIVE TIME OF THE MERGER.
REQUIRED VOTE; REVOCABILITY OF PROXIES
The affirmative vote of the holders of at least two-thirds of the issued
and outstanding shares of Skaneateles Bancorp's common stock entitled to be
voted at the shareholder meeting is required in order to approve and adopt the
merger agreement, the merger of Skaneateles Bancorp and BSB Bancorp and the
other transactions contemplated by the merger agreement.
THE REQUIRED VOTE OF SKANEATELES BANCORP'S SHAREHOLDERS IS BASED ON THE
TOTAL NUMBER OF OUTSTANDING SHARES OF SKANEATELES BANCORP'S COMMON STOCK AND NOT
ON THE NUMBER OF SHARES WHICH ARE ACTUALLY VOTED. IF YOU DO NOT SUBMIT A PROXY
CARD OR VOTE IN PERSON AT THE SHAREHOLDER MEETING, OR IF YOU ABSTAIN FROM
VOTING, YOU EFFECTIVELY ARE VOTING AGAINST THE MERGER AGREEMENT AND THE MERGER.
All of the directors and executive officers of Skaneateles Bancorp
beneficially owned as of May 12, 1999, excluding all options to purchase shares
of Skaneateles Bancorp common stock, a total of 74,127 shares of Skaneateles
Bancorp's common stock, which was approximately 5.1% of the outstanding shares
of Skaneateles Bancorp's common stock on that date. All of the directors and
executive officers of Skaneateles Bancorp have entered into a stockholder
agreement with BSB Bancorp, in which they each agreed, among other things, to
transfer restrictions and to vote all shares of Skaneateles Bancorp's common
stock that they have the right to vote, whether owned as of the date of the
stockholder agreement or acquired after that date, in favor of the merger
agreement, the merger and the other transactions contemplated by the merger
agreement and against any third party merger proposal. No separate consideration
was paid to any of the directors or executive officers for entering into the
stockholder agreement. BSB Bancorp required that the stockholder agreement be
executed as a condition to BSB Bancorp entering into the merger agreement.
If you submit a proxy card, attending the shareholder meeting will not
automatically revoke your proxy. However, you may revoke a proxy at any time
before it is voted by (i) delivering to J. David Hammond, Secretary of
Skaneateles Bancorp, Inc., 33 East Genesee Street, P.O. Box 460, Skaneateles,
New York 13152, a written notice of revocation before the shareholder meeting,
(ii) delivering to Skaneateles Bancorp a duly executed proxy bearing a later
date before the shareholder meeting, or (iii) attending the shareholder meeting
and voting in person.
Skaneateles Bancorp and BSB Bancorp are not obligated to complete the
merger unless, among other things, the merger agreement and the merger are
approved by the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of Skaneateles Bancorp's
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common stock entitled to vote. For a description of the conditions to the
merger, see "THE MERGER -- Conditions to the Merger."
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees of
Skaneateles Bancorp may solicit proxies for the shareholder meeting from
shareholders personally or by telephone or telegram without receiving additional
compensation for these activities. The cost of soliciting proxies will be paid
by Skaneateles Bancorp. In addition, Skaneateles Bancorp has retained a proxy
solicitation firm to assist in proxy solicitation for the shareholder meeting.
The fee to be paid to that firm is $3,000.00, plus reasonable out-of-pocket
expenses. Skaneateles Bancorp also will make arrangements with brokerage firms
and other custodians, nominees and fiduciaries to send proxy materials to their
principals and will reimburse those parties for their expenses in doing so.
THE MERGER
The information in this Section is qualified in its entirety by reference
to the full text of the merger agreement including each of its exhibits, the
option agreement and the stockholder agreement, all of which are incorporated by
reference into this document and the material features of which are described in
this proxy statement/prospectus. A copy of the merger agreement including each
of its exhibits and the other documents described in this proxy
statement/prospectus will be provided to you promptly by U.S. mail without
charge if you call or write to Larry Denniston, Shareholder Relations of BSB
Bancorp, Inc., 58-68 Exchange Street, Binghamton, New York 13902, telephone
(607) 779-2406.
THE PARTIES
BSB Bancorp and Skaneateles Bancorp have entered into the merger
agreement. Under the merger agreement, BSB Bancorp will acquire Skaneateles
Bancorp through the merger of Skaneateles Bancorp into BSB Bancorp. The merger
agreement also provides for Skaneateles Savings Bank, which is a wholly owned
subsidiary of Skaneateles Bancorp, to merge into BSB Bank & Trust, a wholly
owned subsidiary of BSB Bancorp.
BSB BANCORP. BSB Bancorp is a Delaware corporation and the holding
company of BSB Bank & Trust. Both BSB Bancorp and BSB Bank are headquartered in
Binghamton, New York. Deposits at BSB Bank are insured by the FDIC. BSB Bank
offers full service business and retail banking services throughout the New York
State Counties of Broome (Binghamton), Onondaga (Syracuse), Tioga, Chenango, and
Chemung. Through its wholly owned subsidiary, BSB Financial Services, Inc., BSB
Bank also offers trust and investment services and a complete range of
personalized investment services including securities brokerage, annuity and
mutual fund sales, and other traditional investment/broker activities.
At March 31, 1999, BSB Bancorp had total consolidated assets of $1.9
billion, total deposits of $1.5 billion, and shareholders' equity of $137.4
million. For additional information about BSB Bancorp that is incorporated by
reference into this document, see "WHERE YOU CAN FIND MORE INFORMATION."
BSB Bancorp, as a bank holding company, is regulated by the Board of
Governors of the Federal Reserve system. BSB Bank, as a New York-chartered
commercial bank and trust company, is regulated by the Superintendent of Banks
of New York State and the Federal Deposit Insurance Corporation.
SKANEATELES BANCORP. Skaneateles Bancorp is a Delaware-chartered bank
holding company registered under the Bank Holding Company Act of 1956, the
primary business of which is
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the ownership and operation of its sole subsidiary, Skaneateles Savings Bank.
Skaneateles Savings Bank is a New York-chartered stock savings bank
headquartered in the Village of Skaneateles, Onondaga County, New York. Deposit
accounts of Skaneateles Savings Bank are insured by the Bank Insurance Fund, as
administered by the FDIC. In continuous operation since 1866, Skaneateles
Savings Bank conducts business from nine full-service banking offices located in
Onondaga and Oswego counties of New York State.
At March 31, 1999, Skaneateles Bancorp had total consolidated assets of
$272.9 million, total deposits of $234.8 million, and shareholders' equity of
$19.3 million. For additional information about Skaneateles Bancorp that is
incorporated by reference into this document, see "WHERE YOU CAN FIND MORE
INFORMATION."
Skaneateles Bancorp, as a bank holding company, is regulated by the Board
of Governors of the Federal Reserve System. Skaneateles Savings Bank, as a New
York-chartered savings bank, is regulated by the Superintendent of Banks of New
York State and by the Federal Deposit Insurance Corporation.
BACKGROUND OF THE MERGER
In recent years, Skaneateles Savings Bank's primary market area, which
has grown to include greater Syracuse and Oswego, New York, has become
increasingly competitive, resulting in ever greater pressures on both profit
margins and asset growth. Despite actions taken by the Skaneateles Bancorp board
of directors to improve financial performance on the part of Skaneateles Savings
Bank and shareholder value, management and the board recognized that Skaneateles
Bancorp's returns on equity and average assets trailed those of peer
institutions, as did the price to earnings per share ratio of its common stock.
To address these concerns, the Board appointed a Strategic Planning
Committee in February 1998 to review Skaneateles Bancorp's historical financial
performance, forecast future financial performance scenarios and consider and
evaluate all strategic alternatives available to Skaneateles Bancorp. The
Strategic Planning Committee consisted of John P. Driscoll, Skaneateles
Bancorp's Chairman, President and Chief Executive Officer, and outside directors
Israel Berkman (who served as the Committee's chairman), Carl Gerst and Howard
J. Miller. Between February and December 1998, the Strategic Planning Committee
met seven times, including meetings with Skaneateles Bancorp's financial advisor
since 1993, McConnell, Budd & Downes, Inc. During this time period, the
Strategic Planning Committee also reported regularly to the full board of
directors on a range of alternatives, including internally generated growth
coupled with severe cuts in services and personnel, acquisition of an
independent bank, a public offering of Skaneateles Bancorp securities, and sale
of the company. On several occasions the full board and management also
considered various financial analyses and models prepared and presented by MB&D.
By November 1998, the Strategic Planning Committee had advised the full
board of directors that in its view, achieving the desired returns on equity and
assets (i.e., at or above the corresponding returns of peer institutions)
through internal growth would be very difficult in light of the competitive
environment in which Skaneateles Savings Bank operates and other factors, and
recommended that a possible sale be considered as a means to enhance shareholder
value. As part of its effort to ascertain the value that a sale might provide to
shareholders, the full board requested MB&D to analyze and present its estimate
of the values that might be realized by Skaneateles Bancorp shareholders in
various sale scenarios with parties that MB&D believed would be interested in
pursuing such a transaction.
Relying solely on publicly available information, and without having
conversations with any of the potentially interested parties it identified, MB&D
made such presentations on December 7, 1998 and December 15, 1998 to the
Strategic Planning Committee and the full board of directors,
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respectively. After hearing the presentation and discussing various sale
scenarios and stand-alone alternatives, the full board directed that MB&D be
engaged to solicit non-binding expressions of interest in a possible sale from
three specific entities as recommended by MB&D, one of which was BSB Bancorp.
Upon receiving their signed confidentiality agreements, Skaneateles Bancorp
exchanged certain due diligence information with each of the three entities.
Two of the entities, including BSB Bancorp, submitted expressions of
interest, which were analyzed in detail by MB&D, the Strategic Planning
Committee and the full board of directors. (MB&D's analysis is described below
under the caption "Opinion of Skaneateles Bancorp's Financial Advisor.") On
January 12, 1999, the full board of directors concurred with the Strategic
Planning Committee's recommendation that BSB Bancorp's indication of interest
provided superior value to shareholders than did the other indication of
interest that had been received. The board authorized Mr. Driscoll and J. Daniel
Mohr, Skaneateles Bancorp's chief financial officer, to enter into discussions
with BSB Bancorp concerning the terms of the proposed transaction, with the
advice and participation of MB&D and Skaneateles Bancorp's legal counsel.
After exchanging confidentiality agreements, the parties conducted
reciprocal, comprehensive due diligence investigations. Skaneateles Bancorp's
team for this purpose consisted of Mr. Berkman, a retired bank examiner; senior
management of, and independent loan review consultants regularly retained by,
Skaneateles Savings Bank; and representatives of MB&D, Skaneateles Bancorp's
independent accountants, KPMG LLP, and Skaneateles Bancorp's legal counsel.
Simultaneously, the parties, acting through their legal counsel, financial and
other advisors, conducted arm's-length negotiations with respect to the terms of
a definitive merger agreement for presentation to their respective boards of
directors.
The Strategic Planning Committee met on January 23, 1999 to evaluate the
results of the due diligence process, receive reports from MB&D, KPMG LLP and
Skaneateles Bancorp's legal counsel as to the status of the negotiations to that
point, and to review the proposed transaction documentation. The Strategic
Planning Committee met again on January 24, 1999 and voted unanimously to
recommend to the full board of directors, scheduled to meet later the same day,
that it approve the merger.
The full board of directors of Skaneateles Bancorp met on January 24,
1999 to hear and discuss the recommendations of the Strategic Planning
Committee. The due diligence process and the status of the negotiations were
discussed and considered at length by the full board. MB&D presented its
analysis of the economic terms and conditions of the proposed merger (including
the fixed exchange ratio), reviewed historical and projected financial
information with respect to BSB Bancorp, and delivered its oral opinion that the
proposed fixed exchange ratio was fair to Skaneateles Bancorp's shareholders
from a financial point of view. (See "Opinion of Skaneateles Bancorp's Financial
Advisor" below.) The board reviewed the proposed structure of the merger and the
terms of the merger and other agreements, including the stock option agreement
by which BSB Bancorp would be granted an option to purchase up to 19.99% of
Skaneateles Bancorp's outstanding common stock in certain circumstances, the
stockholders agreement by which individual officers and board members agree, in
their capacity as shareholders, to vote in favor of the merger, and the
employment agreement between Mr. Driscoll, BSB Bancorp and BSB Bank.
After consideration and discussion of the proposed transaction and
consultation with its management, financial advisors, accountants and legal
counsel, the board of directors adjourned until the next morning, January 25,
1999. At that time the board unanimously concluded, after further deliberation,
that the merger was in the best interests of Skaneateles Bancorp's shareholders,
and the employees, customers and depositors of, and the communities served by,
Skaneateles Savings Bank. Accordingly, the board unanimously approved the
merger, subject to receipt of approvals by appropriate regulators and the
shareholders of Skaneateles Bancorp. The board further approved the various
agreements to be entered into in connection therewith, and
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directed that such matters be submitted for approval by the shareholders at a
special meeting called for such purpose.
RECOMMENDATION OF THE SKANEATELES BANCORP BOARD OF DIRECTORS AND REASONS FOR THE
MERGER
The Skaneateles Bancorp board of directors has approved the merger
agreement and has determined that the merger of Skaneateles Bancorp and BSB
Bancorp is in the best interests of Skaneateles Bancorp and its shareholders.
THE SKANEATELES BANCORP BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE MERGER AGREEMENT, THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE
MERGER AGREEMENT. In reaching its decision to approve the merger agreement, the
Skaneateles Bancorp board consulted with its financial advisor, McConnell, Budd
& Downes, Inc., and considered a variety of factors, including the following:
- The Skaneateles Bancorp board's familiarity with, and review of,
the business, financial condition, results of operations and
prospects of Skaneateles Bancorp, including, but not limited to,
its potential growth, overhead considerations, profitability, and
returns on assets and equity that Skaneateles Bancorp is likely to
achieve on a stand-alone basis from continuing operations, and the
business risks associated with these considerations;
- The Skaneateles Bancorp board's familiarity with and review of a
range of strategic alternatives designed to enhance shareholder
value, such as growth by acquisition, a public offering of
securities, and sale;
- Skaneateles Bancorp's current and prospective operating
environment, including national and local economic conditions, the
highly competitive environment for financial institutions
generally and in Central New York particularly, the changing
regulatory environment, and the trend toward consolidation in the
financial services industry;
- Recent performance and the potential for appreciation in market
and book value of Skaneateles Bancorp's common stock on both a
short- and long-term basis, as a stand-alone entity;
- The process Skaneateles Bancorp and McConnell, Budd & Downes used
to obtain acquisition proposals and preliminary bids, and the
conclusion that BSB Bancorp's bid was more favorable than any
other indication of interest received from the other companies;
- Information concerning BSB Bancorp's business, financial
condition, results of operations, asset quality and prospects,
including the long-term growth potential of BSB Bancorp common
stock, the future growth prospects of BSB Bancorp combined with
Skaneateles Bancorp following the merger, the potential synergies
expected from the merger and the business risks associated with
the merger;
- The terms of the merger agreement, the option agreement and the
transactions and agreements contemplated by these agreements,
including without limitation, that BSB Bancorp's offer of BSB
Bancorp's common stock in exchange for Skaneateles Bancorp's
common stock can be effected on a tax-free basis for Skaneateles
Bancorp's shareholders and the fact that the provisions of the
merger agreement that allow an adjustment in the exchange ratio
provide substantial protection to Skaneateles Bancorp's
shareholders under certain circumstances if the price of BSB
Bancorp's common stock significantly declines before the merger
takes place;
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- The Skaneateles Bancorp board's assessment of the potential for
appreciation and growth in the market and book value of BSB
Bancorp's common stock following the proposed merger;
- McConnell, Budd & Downes, Inc.'s several presentations to the
Skaneateles Bancorp board during 1998, and in particular
presentations on January 24 and 25, 1999 and the opinion of
McConnell, Budd & Downes that the merger consideration to be paid
pursuant to the merger agreement is fair to Skaneateles Bancorp's
shareholders from a financial point of view;
- The advantages and disadvantages to its shareholders, customers
and employees of Skaneateles Bancorp remaining an independent
institution or affiliating with a larger institution;
- The option agreement, including the possibility that the existence
of the option agreement could discourage third parties from
offering to acquire Skaneateles Bancorp by increasing the
financial cost of an acquisition by a third party, and the
recognition that Skaneateles Bancorp's entering into the option
agreement was a condition to BSB Bancorp's willingness to enter
into the merger agreement;
- The likelihood of receiving all of the regulatory approvals
required for the merger to take place;
- The short- and long-term interests of Skaneateles Bancorp and its
shareholders, the interests of Skaneateles Savings Bank's
employees, customers, creditors and suppliers, and the interests
of the communities served by Skaneateles Savings Bank that may
benefit from an appropriate affiliation with a larger institution
with increased economies of scale and with a greater capacity to
serve all of the banking needs of the community;
- The compatibility of businesses and management philosophies of
Skaneateles Bancorp and BSB Bancorp, and BSB Bancorp's strong
commitment to the communities it serves; and
- After a full evaluation and consultation with McConnell, Budd &
Downes, Inc., the Skaneateles Bancorp board determined that the
likelihood of being able to develop a better offer from another
interested buyer was extremely low and that the offer from BSB
Bancorp represented a greater enhancement to the shareholders than
could reasonably be expected from continuing independent
operation.
The discussion in this section of the information and factors considered
by the Skaneateles Bancorp board is not intended to be exhaustive but includes
all material factors considered by the board. In reaching its determination to
approve and recommend the merger, the Skaneateles Bancorp board did not assign
any relative or specific weights to the factors considered. Individual directors
may have given differing weights to different factors. After deliberating on the
merger and the other transactions contemplated by the merger agreement, and
considering, among other things, the matters discussed above and the fairness
opinion of McConnell, Budd & Downes referred to above, the Skaneateles Bancorp
board unanimously approved the merger agreement, the merger, the other
transactions contemplated by the merger agreement, and the option agreement, as
being in the best interests of Skaneateles Bancorp and its shareholders.
OPINION OF SKANEATELES BANCORP'S FINANCIAL ADVISOR
On December 17, 1998, Skaneateles Bancorp retained the services of
McConnell, Budd & Downes, Inc. as its financial advisor in connection with a
possible merger transaction and requested that MB&D
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render an opinion with respect to the fairness, from a financial point of view,
of the consideration to be received by the shareholders in any such transaction.
MB&D is a recognized investment banking firm which specializes in banks and
other financial institutions. MB&D is regularly engaged in the valuation of
banks and financial institutions and their securities. As the financial advisor
to Skaneateles Bancorp, MB&D was involved in every stage of the discussions with
various financial institutions that culminated in the offer by BSB Bancorp, as
well as the negotiation with BSB Bancorp that resulted in the merger agreement
and the option agreement. Skaneateles Bancorp did not impose any requirements,
limitations or restrictions on MB&D in connection with the fairness opinion.
On January 25, 1999, MB&D delivered its opinion to the board of directors
of Skaneateles Bancorp to the effect that as of that date, the exchange ratio
was fair, from a financial point of view to Skaneateles Bancorp and its
shareholders. The basis for the opinion, which is unchanged, has been updated
for the purposes of this document and appears in written form in Appendix A. The
fixed exchange ratio of 0.97 shares of BSB Bancorp, Inc. common stock in
exchange for each share of Skaneateles Bancorp common stock was negotiated based
on consideration of a number of factors, including but not limited to the
following:
- - An analysis of the historical and projected future contributions of
recurring earnings by the parties.
- - An analysis of the possible future earnings per share results for the
parties on both a combined and a stand-alone basis.
- - An analysis of the potential for the parties to this transaction to
realize significant reductions of recurring operating expenses.
- - Consideration of the anticipated dilutive or accretive effects of the
prospective transaction to the earnings per share of BSB Bancorp and by
extension, through the exchange ratio, to the earnings per share
equivalent of Skaneateles Bancorp.
- - Consideration of the probable impact on dividends per share to be
received by Skaneateles Bancorp shareholders as a result of the
contemplated transaction.
- - Consideration of the parties' relative contributions of earning assets.
- - Consideration of the loan portfolios and relative asset quality as
disclosed by the parties.
- - Consideration of the apparent adequacy of reserves for loan and lease
losses of the parties.
- - Analysis and comparison of the composition of the deposit bases of each
of the parties.
- - Analysis of the historical trading range, trading pattern and relative
liquidity of the common shares of each of the parties.
- - Consideration of the accounting equity capitalization, the tangible
equity capitalization and the market capitalization of each of the
parties.
- - Contemplation of other factors, including certain intangible factors.
MB&D has acted as financial advisor to Skaneateles Bancorp on a
contractual basis since July 26, 1993 in connection with Skaneateles Bancorp's
development and implementation of its strategic plan and has assisted
Skaneateles Bancorp in the evaluation of numerous hypothetical affiliation
opportunities with banks and thrifts. During 1994 and 1996, for example, MB&D
advised Skaneateles Bancorp in connection with its acquisitions of branch
offices from FNB Rochester
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Corporation (First National Bank of Rochester) and Cicero Bank. With respect to
the pending transaction involving BSB Bancorp, MB&D advised Skaneateles Bancorp
during the evaluation and negotiation process leading up to the execution of the
merger agreement and provided Skaneateles Bancorp with a number of analyses as
to a range of financially feasible exchange ratios that might be achieved in a
hypothetical transaction. Representatives of MB&D met with the executive
management and board of directors of Skaneateles Bancorp or designated
committees thereof on thirteen separate occasions during the period from May 19,
1998 to January 25, 1999, in connection with the analysis of Skaneateles
Bancorp's strategic alternatives and the negotiation process, and on other
occasions prior to May 19, 1998 in connection with analysis of Skaneateles
Bancorp's relative position compared to like institutions and trends affecting
the financial services industries. The determination of the applicable fixed
exchange ratio was arrived at in an arm's-length negotiation between BSB Bancorp
and Skaneateles Bancorp in a process in which MB&D participated directly in the
negotiations.
MB&D was retained based on its qualifications and experience in the
financial analysis of banking and thrift institutions generally, its knowledge
of the Eastern United States banking markets in general and the New York banking
markets in particular, as well as its experience with merger and acquisition
transactions involving banking institutions. As a part of its investment banking
business, which is focused exclusively on financial services industry
participants, MB&D is continually engaged in the valuation of financial
institutions and their securities in connection with its equity brokerage
business generally and mergers and acquisitions in particular. Members of the
Corporate Finance Advisory Group of MB&D have extensive experience in advising
financial institution clients on mergers and acquisitions. In the ordinary
course of its business as a NASD broker-dealer, MB&D may from time to time
purchase securities from or sell securities to Skaneateles Bancorp or BSB
Bancorp, and as a market maker in securities, MB&D may from time to time have a
long or short position in, and buy or sell, debt or equity securities of
Skaneateles Bancorp or BSB Bancorp for its own account or for the accounts of
its customers. In addition, in the ordinary course of business, the employees of
MB&D may have direct or indirect investments in the debt or equity securities of
either or both of Skaneateles Bancorp or BSB Bancorp.
The full text of the opinion of MB&D, which sets forth assumptions made,
matters considered and limits on the review undertaken, is attached hereto in
Appendix A. All Skaneateles Bancorp shareholders should read the opinion in its
entirety. The opinion of MB&D is directed only to the fixed exchange ratio at
which shares of Skaneateles Bancorp common stock may be exchanged for shares of
BSB Bancorp common stock. The opinion of MB&D does not constitute a
recommendation to any holder of Skaneateles Bancorp common stock as to how such
holder should vote at the Skaneateles Bancorp special meeting. The summary of
the opinion of MB&D and the matters considered in its analysis set forth in this
proxy statement/prospectus is qualified in its entirety by reference to the text
of the opinion itself. The opinion of MB&D is necessarily based upon conditions
as of the date of the opinion and upon information made available to MB&D
through the date thereof. No limitations were imposed by the Skaneateles Bancorp
board upon MB&D with respect to the investigations made, matters considered or
procedures followed in the course of rendering its opinions.
MATERIALS REVIEWED AND ANALYSES PERFORMED BY MB&D: In connection with the
rendering and updating of its opinion, MB&D reviewed the following documents and
considered the following subjects:
- - The merger agreement detailing the pending transaction;
- - This proxy statement/prospectus in substantially the form to be mailed to
Skaneateles Bancorp shareholders;
- - Skaneateles Bancorp Annual Reports to stockholders for 1994, 1995, 1996
and 1997;
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<PAGE> 20
- - Skaneateles Bancorp Annual Reports on Form 10-K for 1994, 1995, 1996 and
1997;
- - Related financial information for the four calendar years ended December
31, 1994, 1995, 1996, and 1997 for Skaneateles Bancorp;
- - Skaneateles Bancorp Quarterly Reports on Form 10-Q and related unaudited
financial information for the first, second and third quarters of 1998;
- - Skaneateles Bancorp management estimates of financial information for the
fourth quarter of 1998;
- - BSB Bancorp Annual Reports to Stockholders for 1995, 1996 and 1997;
- - BSB Bancorp Annual Reports on Form 10-K and related financial information
for the three calendar years ended December 31, 1995, 1996 and 1997;
- - BSB Bancorp Quarterly Reports on Form 10-Q and related unaudited
financial information for the first, second and third quarters of 1998;
- - BSB Bancorp management estimates of financial information for the fourth
quarter of 1998;
- - Internal financial information and financial forecasts, relating to the
business, earnings, cash flows, assets and prospects of the respective
companies furnished to MB&D by Skaneateles Bancorp and BSB Bancorp
respectively;
- - Discussions with members of the senior management and board of
Skaneateles Bancorp concerning the past and current results of operations
of Skaneateles Bancorp, its current financial condition and management's
opinion of its future prospects;
- - Discussions with members of the senior management of BSB Bancorp
concerning the past and current results of operations of BSB Bancorp, its
current financial condition and management's opinion of its future
prospects;
- - The historical record of reported prices, trading volume and dividend
payments for both Skaneateles Bancorp and BSB Bancorp common stock;
- - MB&D employed specific proprietary merger analysis models developed by
MB&D to evaluate potential business combinations of financial
institutions using both historical reported information and projected
information for both Skaneateles Bancorp and BSB Bancorp and reviewed the
results;
- - The reported financial terms of selected recent business combinations of
financial institutions for purposes of comparison to the pending
transaction;
- - Based primarily on anecdotal information, MB&D gave consideration to the
current state of and future prospects for the economy of Central New York
generally and the relevant market areas for Skaneateles Bancorp and BSB
Bancorp in particular;
- - Such other studies and analyses as MB&D considered appropriate under the
circumstances associated with this particular transaction.
The opinion of MB&D takes into account its assessment of general
economic, market and financial conditions and its experience in other
transactions involving participants in the financial services industry, as well
as its experience in securities valuation and its knowledge of the banking
20
<PAGE> 21
industry generally. For purposes of reaching its opinion, MB&D has assumed and
relied upon the accuracy and completeness of the information provided to it or
made available by Skaneateles Bancorp and BSB Bancorp and does not assume any
responsibility for the independent verification of such information. MB&D has
assumed that financial data and estimates made available to it were prepared on
a reasonable basis and reflect the best currently available estimates and good
faith judgments of the management of Skaneateles Bancorp and BSB Bancorp,
respectively, as to the future performance of Skaneateles Bancorp and BSB
Bancorp. MB&D also relied upon assurances of the management of Skaneateles
Bancorp and BSB Bancorp that they were not aware of any facts or of the omission
of any facts that would make the information or financial forecasts provided to
MB&D incomplete or misleading. In the course of rendering its opinion, MB&D has
not completed any independent valuation or appraisal of any of the assets or
liabilities of either Skaneateles Bancorp or BSB Bancorp and has not been
provided with such valuations or appraisals from any other source.
The following is a summary of the material analyses employed by MB&D in
connection with rendering its written opinion. Given that it is a summary, it
does not purport to be a complete and comprehensive description of all the
analyses performed, or an enumeration of every matter considered, by MB&D in
arriving at its opinion. The preparation of a fairness opinion is a complicated
process, involving a judgment as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, such an opinion is not readily susceptible to a
summary description. In arriving at its fairness opinion, MB&D did not attribute
any particular weight to any one specific analysis or factor considered by it
and made qualitative as well as quantitative judgments as to the significance of
each analysis and factor. Therefore, MB&D believes that its analyses must be
considered as a whole and that attributing undue weight to any single analysis
or factor considered could create a misleading or incomplete view of the process
leading to the formation of its opinion. In its analyses, MB&D has made certain
assumptions with respect to banking industry performance, general business and
economic conditions and other factors, many of which are beyond the control of
management of either Skaneateles Bancorp or BSB Bancorp. Estimates referred to
in MB&D's analyses are not necessarily indicative of actual values or predictive
of future results or values, which may vary significantly from those set forth.
In addition, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses might actually be sold.
Accordingly, such analyses and estimates are inherently subject to uncertainty
and MB&D does not assume responsibility for the accuracy of such analyses or
estimates. In reading the material which follows, unless the context otherwise
requires, references throughout this section to Skaneateles Bancorp common stock
and related per share amounts include shares of Skaneateles Bancorp common stock
issuable upon the exchange of outstanding options and warrants.
ANALYSIS OF THE ANTICIPATED TRANSACTION AND THE APPLICABLE EXCHANGE RATIO
IN RELATION TO SKANEATELES BANCORP: Pursuant to the terms of the merger
agreement, the anticipated consideration in the transaction is a fixed exchange
of 0.97 shares of BSB Bancorp common stock for each outstanding share of
Skaneateles Bancorp common stock. It is further anticipated that the transaction
will be tax-free to those shareholders of Skaneateles Bancorp who hold their
shares as a capital asset and that the transaction will be accounted for as a
pooling of interests.
PRO FORMA CONTRIBUTION ANALYSIS: Based on reported unaudited financial
data for Skaneateles Bancorp and BSB Bancorp as of September 30, 1998 and as of
December 31, 1998, the relative contributions of the parties to the pro forma
BSB Bancorp on a pooling basis as of those dates would have been approximately
as follows:
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<PAGE> 22
PRO FORMA CONTRIBUTION TABLE
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998 AS OF DECEMBER 31, 1998
- ---------------------------------------------------------------------------------------------
ITEM BSB SKANEATELES BSB SKANEATELES
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets 87.0% 13.0% 87.1% 12.9%
- ---------------------------------------------------------------------------------------------
Loans 86.1% 13.9% 86.4% 13.6%
- ---------------------------------------------------------------------------------------------
Deposits 86.6% 13.4% 86.2% 13.8%
- ---------------------------------------------------------------------------------------------
Equity 87.7% 12.3% 87.6% 12.4%
- ---------------------------------------------------------------------------------------------
Tangible Equity 87.7% 12.3% 87.6% 12.4%
- ---------------------------------------------------------------------------------------------
Pro-forma combined earnings 91.8% 8.2% 91.9% 8.1%
- ---------------------------------------------------------------------------------------------
Ownership interests 85.2% 14.8% 85.2% 14.8%
- ---------------------------------------------------------------------------------------------
</TABLE>
Based on adjusted fully converted shares and share equivalents
outstanding for the two companies as of September 30, 1998 and as of December
31, 1998 and the negotiated fixed exchange ratio of 0.97 to 1, current
Skaneateles Bancorp shareholders would have owned approximately the percentage
amounts of the pro forma shares outstanding of BSB Bancorp indicated on the last
line of the foregoing table under the columns captioned "Skaneateles."
PROJECTED TRANSACTION VALUE: Based upon the fixed exchange ratio of 0.97
shares of BSB Bancorp common stock for each share of Skaneateles Bancorp common
stock exchanged and the last trade value of BSB Bancorp common stock reported by
NASDAQ on January 22, 1999 (the last trading day prior to the date on which the
pending transaction was announced), which was $28.75, the theoretical market
value of the anticipated transaction was approximately $43.8 million as of that
date, based on an estimated 1,523,216 (including options and warrants) or
1,408,223 (excluding options and warrants) shares of BSB Bancorp common stock to
be issued to Skaneateles Bancorp shareholders. On a per share basis this is
equivalent to approximately $27.89 per share ($28.75 multiplied by 0.97). Given
that the applicable exchange ratio in this case is fixed, the market value of
the exchange will fluctuate as the market value of BSB Bancorp common stock
fluctuates. Based on the last trade value for BSB Bancorp common stock reported
by NASDAQ as of May 12, 1999 (the last trading day prior to the printing and
mailing of this proxy statement/prospectus), which was $25.92, the theoretical
market value of the anticipated transaction was $39.5 million as of such date,
based on an updated estimate of 1,523,794 (including options and warrants) or
1,410,620 (excluding options and warrants) shares of BSB Bancorp common stock to
be issued to Skaneateles Bancorp shareholders. Skaneateles Bancorp shareholders
should take note of and understand that this value will continue to fluctuate as
the value of a share of BSB Bancorp common stock fluctuates in the market.
MULTIPLE OF HISTORICAL AND PROJECTED EARNINGS FOR SKANEATELES BANCORP
COMMON STOCK: The cited theoretical per share value of $27.89 as of January 22,
1999 represents a multiple of 22.86 times Skaneateles Bancorp's reported diluted
earnings per share for 1998 of $1.11, and is the equivalent of 22.83 times
budgeted fully diluted stand-alone earnings per share for 1999 of $1.22.
MULTIPLE OF STATED BOOK VALUE OF SKANEATELES BANCORP COMMON STOCK: The
cited theoretical value of $27.89 represents a multiple of 2.15 times
Skaneateles Bancorp's reported $12.96 book value per share as of September 30,
1998 and 2.12 times Skaneateles Bancorp's subsequently reported book value per
share as of December 31, 1998, which was $13.17.
MULTIPLE OF TANGIBLE BOOK VALUE OF SKANEATELES BANCORP COMMON STOCK: The
cited theoretical value of $27.89 represents a multiple of 2.21 times
Skaneateles Bancorp's reported $12.61 tangible book value per share as of
September 30, 1998 and 2.18 times Skaneateles Bancorp's subsequently reported
tangible book value per share of $12.81 as of December 31, 1998.
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<PAGE> 23
PERCENTAGE OF MARKET VALUE OF SKANEATELES BANCORP COMMON STOCK: Based
upon the theoretical values of $27.89 and $25.14 for the two cited valuation
dates, the theoretical values represent 147% (a 47% premium) and 132% (a 32%
premium) of the closing price for Skaneateles Bancorp common stock of $19.00 on
January 22, 1999.
SPECIFIC ACQUISITION ANALYSIS: MB&D employs a proprietary analytical
model to examine hypothetical transactions involving banking companies. The
model uses forecast earnings data, selected current period balance sheet and
income statement data, current market and trading information and a number of
assumptions as to interest rates for borrowed funds, the opportunity costs of
funds, discount rates, dividend streams, effective tax rates and transaction
structures (the alternative or combined uses of common equity, cash, debt or
other securities, to fund a transaction). The model distinguishes between
purchase and pooling accounting treatments and inquires into the likely economic
feasibility of a hypothetical transaction at a given price level or specified
exchange rate while employing a specified transaction structure. The model also
permits evaluation of various levels of potential non-interest expense savings
which might be achieved, along with various potential implementation time tables
for such savings, as well as the possibility of revenue enhancement
opportunities which may arise in a given hypothetical transaction.
For the purposes of rendering its opinion with respect to this
transaction, MB&D evaluated a fixed exchange ratio of 0.97 shares of common
stock of BSB Bancorp in exchange for each share of Skaneateles Bancorp in a tax
deferred transaction conditioned on the receipt of pooling accounting treatment.
MB&D believes that the nominal earnings per share dilution on a pro forma basis
(before consideration of cost savings or potential revenue enhancements and
excluding non-recurring expenses) for BSB Bancorp would approximate 7.24% or
$0.18 per share. MB&D's calculations suggest that this transaction would be
dilutive (2.95%) to tangible book value per share on a pro forma basis to BSB
Bancorp. The transaction would equate to a comparable deposit premium of 11.48%
and would result in an increase of dividend payments to Skaneateles Bancorp
shareholders (based on an annualization of the most recent regular quarterly
dividend payment to shareholders by BSB Bancorp) of 246.43%. The pro forma
entity would continue to be more than adequately capitalized with a ratio of
tangible common equity to tangible assets in excess of 7.20% and an estimated
tier one capital ratio in excess of 11.00%. MB&D believes that, in order for the
transaction to become neutral to earnings per share from a dilution perspective,
it would be necessary to achieve a reduction in pre-tax non-interest-expense of
approximately $2.8 million, which represents 28.4% of Skaneateles Bancorp's
$10.2 million of budgeted 1999 non-interest expenses. Because the estimation of
incremental amounts of recurring cost savings and the exact timing of their
realization is not possible for outside observers, MB&D does not attempt to
forecast the future quarter in which the pending transaction will become either
earnings neutral or accretive. Nevertheless, MB&D concludes that reductions in
recurring non-interest expense in excess of $2.8 million should be feasible for
the parties involved and that this transaction can be expected to become
meaningfully accretive to pro forma earnings per share with the passage of time.
MB&D anticipates that with a reasonably aggressive implementation of cost
savings initiatives, this transaction will become accretive to earnings per
share of BSB Bancorp in the year 2000.
EARNINGS PASS-THROUGH ANALYSIS: Earnings pass-through analysis is based
on a comparison of anticipated pro forma values to stand-alone values as of a
given point in time. Skaneateles Bancorp budgeted fully diluted stand-alone
earnings of $1.22 per share for 1999. MB&D calculates that with zero cost
savings or revenue enhancements and factoring out non-recurring and transaction
expenses, the pro forma earnings associated with 0.97 shares of BSB Bancorp
common stock would represent a 81.28% increase over the earnings associated with
one share of Skaneateles Bancorp, or approximately $2.21 per share. If it is
assumed that exactly enough cost savings can be achieved to render the
transaction earnings per share neutral, from a BSB Bancorp perspective, the pro
forma earnings associated with 0.97 shares of BSB Bancorp would represent a
95.6% increase over the earnings associated with a single share of Skaneateles
Bancorp, or approximately $2.46 per share. To the extent that more cost savings
and/or revenue
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<PAGE> 24
enhancements are achievable, such earnings pass-through enhancement could be
greater. As stated above, MB&D believes that cost savings such that the
transaction will be meaningfully accretive to BSB Bancorp's earnings per share
are reasonably achievable.
The primary conclusion of this analysis is that a Skaneateles Bancorp
shareholder who exchanges his or her shares for BSB Bancorp common shares at the
fixed exchange ratio of 0.97:1 will then hold a security which, MB&D believes,
will generate more earnings per share per future period than the single share of
Skaneateles Bancorp common stock exchanged. The implication is that as long as
BSB Bancorp trades at a price to earnings ratio which is similar to the price to
earnings ratio at which shares of Skaneateles Bancorp historically traded, or
higher, the market value of the 0.97 shares of BSB Bancorp will exceed the
market value of the Skaneateles Bancorp share exchanged.
UPSTREAM ACQUISITION ANALYSIS: MB&D also completed an analysis of the
relative capacity of other financial services entities doing business in New
York to acquire Skaneateles Bancorp on economic terms equal to or better than
those proposed by BSB Bancorp. MB&D further examined the theoretical ability of
such entities to employ a transaction structure with similar tax and accounting
implications as the structure proposed by BSB Bancorp, (i.e., a "tax-free"
stock-for-stock exchange accounted for as a pooling of interests). This analysis
was based solely on publicly available information concerning such other
entities and no conversations were held with management or representatives of
such entities. From a non-exhaustive universe of eleven entities (including BSB
Bancorp) which, in MB&D's opinion, could theoretically have been interested in a
possible acquisition of Skaneateles Bancorp, four entities deemed suitable for a
variety of reasons were subjected to detailed analysis. In examining the four
companies, the data employed was derived from publicly available information as
of September 30, 1998 and consensus estimates for future period earnings per
share obtained from Bloomberg Financial Markets (if available). A range of
hypothetical transaction values, both above and below the expected nominal value
for the potential transaction with BSB Bancorp, were assumed. Among the factors
considered were:
- - Pro forma earnings per share dilution.
- - Pro forma tangible book value dilution.
- - A calculation of additional after-tax earnings necessary to render a
given transaction earnings per share neutral to the acquiring entity.
- - A calculation of the equivalent pre-tax reduction in non-interest-expense
which would be necessary to render a given transaction earnings per share
neutral to the acquirer.
- - A value pass through analysis with respect to earnings, book value and
pro forma dividends per share.
- - The likely impact on trading liquidity versus existing liquidity for
Skaneateles Bancorp common stock.
MB&D presented its findings to the Skaneateles Bancorp board of directors
for consideration, and recommended that Skaneateles Bancorp approach three of
the four institutions which were the subject of this analysis, including BSB
Bancorp. All of the institutions that were contacted signed confidentiality
agreements and were provided with due diligence materials. Each institution,
including BSB Bancorp, was instructed to render a non-binding indication of
interest. This process resulted in Skaneateles Bancorp's board receiving two
indications of interest, including one from BSB Bancorp. Skaneateles Bancorp's
board, after consulting with MB&D, determined that the BSB Bancorp indication
was superior to the other indication received by Skaneateles Bancorp.
24
<PAGE> 25
DISCOUNTED CASH FLOW ANALYSIS: MB&D reviewed a discounted cash flow model
which it prepared based on projections provided by the management of Skaneateles
Bancorp. The model employed a projection of hypothetical point estimate earnings
for Skaneateles Bancorp on an independent stand-alone basis for calendar years
1999 and 2000. A similar exercise was completed for BSB Bancorp for the same
periods employing projections provided by BSB Bancorp. As part of each exercise,
a hypothetical dividend payout ratio assumption, which depicted average annual
payouts as a percentage of earnings, was used to project dividend streams that
would be available to shareholders. MB&D employed a range of possible future
market trading price/earnings ratios ranging from a minimum of 12 times earnings
to a maximum of 18 times earnings in order to project possible future trading
values for a share of either Skaneateles Bancorp common stock on an independent
basis or an equivalent amount of BSB Bancorp common stock reflecting the
negotiated exchange ratio. Given the model time horizon and a range of discount
rates from 10% to 14%, these assumptions resulted in a range of present
discounted values for a share of Skaneateles Bancorp common stock on an
independent basis. Such values ranged from $16.74 to $26.54 and include
consideration of the present discounted value of the projected stream of cash
dividends that might be received by a shareholder during the cited period. The
same exercise completed for BSB Bancorp generated a range of present discounted
values (also using a range of discount rates from 10% to 14%) which ranged from
$26.32 to $41.37. These values represent the discounted present values of the
sum of the future possible trading values of the equivalent of one share of
Skaneateles Bancorp common stock plus the discounted value of the stream of cash
dividends that are projected to have been received between the present and the
future valuation date at the end of 2000. The discount rates employed represent
the sum of a factor of 5% for the time value of money and the remainder as a
pure risk premium. In the event that there is no difference between the
discounted cash flow analyses represented by two alternatives, one could be said
to be financially indifferent between alternatives.
The point of such a discounted cash flow exercise is not to make a
precise estimate of where Skaneateles Bancorp or BSB Bancorp will be trading on
a stand-alone basis at a precise point in the future. With the large number of
variables involved, including many beyond the control of management, making such
predictions with any degree of precision is well beyond the capability of the
parties or MB&D. Rather, the point of the exercise is to test a hypothesis that
the result of one given course of action is likely to be better over time than
another. In MB&D's opinion, the results of the present discounted cash flow
analysis provide comfort that the shareholders of Skaneateles Bancorp are likely
to be better off as a result of completing the pending transaction with BSB
Bancorp than they would likely be by remaining an independent financial
institution.
It is important to note that the discount factors employed embody both
the concept of a time value of money and risk factors that reflect the
uncertainty of the estimated cash flows and terminal price/earnings multiples.
Use of higher discount rates would result in lower discounted present values.
Conversely, use of lower discount rates would result in higher discounted
present values. MB&D advised the Skaneateles Bancorp board of directors that
although discounted cash flow analysis is a frequently used valuation
methodology, it relies on numerous assumptions, including discount rates,
terminal values, future earnings performance and asset growth rates, as well as
dividend payout ratios. The accuracy of such assumptions for time periods more
than one year in the future is necessarily questionable despite MB&D's best
efforts. Consequently, present conclusions may demonstrate little resemblance to
actual events.
ANALYSIS OF OTHER COMPARABLE TRANSACTIONS: MB&D also prepared an analysis
of comparable transactions. However, MB&D is reluctant to place emphasis on the
analysis of comparable transactions as a valuation methodology due to what it
considers to be inherent limitations of the application of the results to
specific cases. MB&D believes that such analysis fails to adequately take into
consideration such factors as:
- - material differences in the underlying capitalization of the comparable
institutions which are being acquired;
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<PAGE> 26
- - differences in the historic earnings (or loss) patterns recorded by the
compared institutions which can depict a very different trend than might
be implied by examining only recent financial results;
- - failure to exclude non-recurring profit or loss items from the last
twelve months' earnings streams of target companies which can distort
apparent earnings multiples;
- - material differences in the form or forms of consideration used to
complete the transaction;
- - differences between the planned method of accounting for the completed
transaction;
- - such less accessible factors as the relative population, business and
economic demographics of the acquired entities markets as compared or
contrasted to such factors for the markets in which comparable companies
are doing business.
Of equal significance, the analysis of comparable transactions rarely
seems to take into consideration the degree of facilities overlap between the
acquirer's market and that of the target or the absence of such overlap and the
resulting cost savings differentials between otherwise apparently comparable
transactions. MB&D consequently believes that comparable analysis has serious
inherent limitations and should not be relied upon to any material extent by
members of management, the board of directors or shareholders in considering the
presumed merits of a pending transaction. We nonetheless examined statistics
associated with 27 transactions (excluding the subject transaction) involving
thrift institutions located in New York State announced between January 1994 and
January 1999. The table which follows permits a comparison of the mean and
median values for four selected statistics arising from the evaluated
transactions with the "comparable" statistics calculated for the transaction
which is described in this proxy statement/prospectus.
"Comparable" statistics as of the announcement date:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Announced Announced Announced
transaction transaction transaction price/
Compared Comparable price/stated book price/tangible trailing 12 months
statistics deposit premium value book value earnings
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Comparable mean 13.03% 186.82% 199.87% 20.45X
- ------------------------------------------------------------------------------------------------------------------------------------
Comparable median 9.19% 164.85% 167.44% 17.06X
- ------------------------------------------------------------------------------------------------------------------------------------
SKANEATELES/BSB 11.48% 215.20% 219.95% 25.35X
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Given the enumerated reservations concerning the problematic nature of
such superficial comparisons, MB&D is willing to supply the information, but
reluctant to draw conclusions based on such comparisons alone. MB&D is inclined
to place more weight on the other methods of analysis summarized in this section
than on comparable analysis regardless of whether or not the apparent
comparisons appear to be in favor of, or not in favor of, a given pending
transaction.
COMPENSATION OF MB&D: Pursuant to a letter agreement with Skaneateles
Bancorp dated December 17, 1998, MB&D will receive a fee equivalent to one
percent (1%) of the market value of consideration to be received by Skaneateles
Bancorp's shareholders (including in-the-money options). This fee will be
divided into several payments, which correspond with the successful completion
of specific events. MB&D was paid $25,000.00 upon execution of the above
mentioned letter agreement of December 17, 1998. MB&D was paid $100,000.00 after
the execution of the merger agreement for the pending transaction with BSB
Bancorp and will be paid a further $75,000.00 upon issuance of its opinion to be
included as an exhibit to this proxy statement/prospectus. Payment of the
balance of the fee will be conditioned on the closing of the pending
transaction.
26
<PAGE> 27
The fee which will be payable to MB&D can be affected by reference to the
trading value of BSB Bancorp common stock and would increase if BSB Bancorp is
trading at a value in excess of $28.75 and would decrease if BSB Bancorp is
trading at a value which is less than $28.75.
The fee payable to MB&D represents compensation for services rendered in
connection with the analysis of the hypothetical transaction, support of the
negotiations, and participation in the drafting of documentation, and for the
rendering of the opinion. In addition, Skaneateles Bancorp has agreed to
reimburse MB&D for its reasonable out-of-pocket expenses incurred in connection
with the transaction. Skaneateles Bancorp also has agreed to indemnify MB&D and
its directors, officers and employees against certain losses, claims, damages
and liabilities relating to or arising out of its engagement, including
liabilities under the federal securities laws.
MB&D has filed a written consent with the SEC relating to the inclusion
of its fairness opinion and the reference to such opinion and to MB&D in the
registration statement in which this proxy statement/prospectus is included. In
giving such consent, MB&D did not admit that it comes within the category of
persons whose consent is required under Section 7 of the Securities Act of 1933
or the rules and regulations of the SEC thereunder, nor did MB&D thereby admit
that it is an expert with respect to any part of such Registration Statement
within the meaning of the term "expert" as used in the Securities Act of 1933 or
the rules and regulations of the SEC thereunder.
PURPOSE AND EFFECTS OF THE MERGER
The purpose of the merger is to enable BSB Bancorp to acquire the assets
and business of Skaneateles Bancorp. After the merger, Skaneateles Savings
Bank's nine branch banking offices will remain open and will be operated as
banking offices of BSB Bank.
STRUCTURE
Skaneateles Bancorp will merge into BSB Bancorp, with BSB Bancorp being
the surviving corporation. When the merger takes place, the issued and
outstanding shares of Skaneateles Bancorp's common stock will be converted into
the right to receive BSB Bancorp's common stock based on the exchange ratio.
Skaneateles Bancorp shares held as treasury stock or held directly or indirectly
by Skaneateles Bancorp, BSB Bancorp or any of their subsidiaries, other than
trust account shares and shares related to a previously contracted debt, will be
canceled. All shares of BSB Bancorp common stock that are owned by Skaneateles
Bancorp or any of its subsidiaries (except trust account shares and shares
related to a previously contracted debt) shall become treasury stock of BSB
Bancorp.
We expect that the merger will take place in the summer of 1999, or as
soon as possible after we receive all required regulatory and shareholder
approvals and all regulatory waiting periods expire.
EXCHANGE RATIO
The merger agreement provides that at the effective time of the merger,
except as discussed below, each outstanding share of Skaneateles Bancorp's
common stock automatically will be converted into the equivalent of .970 shares
of BSB Bancorp's common stock. Skaneateles Bancorp shares held as treasury stock
and shares held directly or indirectly by Skaneateles Bancorp, BSB Bancorp or
any of their subsidiaries, other than trust account shares and shares related to
a previously contracted debt, will be canceled.
Certificates for fractions of shares of BSB Bancorp's common stock will
not be issued. Under the merger agreement, instead of a fractional share of BSB
Bancorp's common stock, a Skaneateles Bancorp shareholder will be entitled to
receive an amount of cash equal to (i) the fraction of a share
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of BSB Bancorp's common stock to which the shareholder would otherwise be
entitled multiplied by (ii) the average of the daily closing prices per share
for BSB Bancorp's common stock for the 20 consecutive trading days on which
shares of BSB Bancorp's common stock are actually traded as reported on the
Nasdaq Stock Market's National Market Tier ending on the third trading day
preceding the closing date of the merger. After the merger takes place, no
holder of Skaneateles Bancorp's common stock will be entitled to any dividends
or any other rights in respect of any fraction. In this document, the term
"purchase price" refers to the shares of BSB Bancorp's common stock and any cash
to be paid instead of a fraction of a share of BSB Bancorp's common stock
payable to each holder of Skaneateles Bancorp's common stock.
The conversion of Skaneateles Bancorp's common stock into shares of BSB
Bancorp's common stock at the exchange ratio will occur automatically upon the
merger. Pursuant to the merger agreement, after the effective time of the
merger, BSB Bancorp will cause its exchange agent to pay the purchase price to
each Skaneateles Bancorp shareholder who surrenders the appropriate documents to
the exchange agent.
EXCHANGE OF SHARES
BSB Bancorp will deposit with the exchange agent the certificates
representing the shares of BSB Bancorp common stock to be issued to Skaneateles
Bancorp shareholders in exchange for Skaneateles Bancorp's common stock, along
with cash to be paid instead of fractional shares. As soon as practicable after
the effective time of the merger, the exchange agent will mail a letter of
transmittal and instructions for use in surrendering certificates to each
shareholder who held Skaneateles Bancorp's common stock immediately before the
effective time. Upon surrendering his certificate(s) representing shares of
Skaneateles Bancorp's common stock, together with the signed letter of
transmittal, the shareholder shall be entitled to receive promptly
certificate(s) representing a number of shares of BSB Bancorp common stock
determined in accordance with the Exchange Ratio and a check representing the
amount of cash in lieu of fractional shares, if any. No dividends or
distributions on BSB Bancorp's common stock will be paid to a Skaneateles
Bancorp shareholder until the shareholder surrenders the certificate(s)
representing his shares of Skaneateles Bancorp's common stock for exchange. No
interest will be paid or accrued to Skaneateles Bancorp shareholders on the cash
in lieu of fractional shares and unpaid dividends and distributions, if any.
If any certificate representing shares of BSB Bancorp's common stock is
to be issued in a name other than that in which the certificate for the shares
surrendered in exchange is registered or if cash is to be paid to a person other
than the registered holder, it will be a condition of issuance or payment that
the certificate surrendered be properly endorsed or otherwise be in proper form
for transfer and that the person requesting the exchange either (i) pay to the
exchange agent in advance any transfer or other taxes required by reason of the
issuance of a certificate or payment to a person other than the registered
holder of the certificate surrendered or (ii) establish to the satisfaction of
the exchange agent that the tax has been paid or is not payable. After the time
that the merger takes place, there will be no transfers on Skaneateles Bancorp's
stock transfer books of shares of Skaneateles Bancorp's common stock, and any
shares of this kind that are presented to the exchange agent after the merger
takes place will be canceled and exchanged for certificates for shares of BSB
Bancorp's common stock.
Any portion of the purchase price made available to the exchange agent
that remains unclaimed by Skaneateles Bancorp shareholders for one year after
the effective time of the merger will be returned to BSB Bancorp. Any
Skaneateles Bancorp shareholder who has not exchanged shares of Skaneateles
Bancorp's common stock for the purchase price in accordance with the merger
agreement before that time may look only to BSB Bancorp for payment of the
purchase price for these shares and any unpaid dividends or distributions after
that time. Nonetheless, BSB Bancorp, Skaneateles Bancorp, the exchange agent or
any other person will not be liable to any Skaneateles
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Bancorp shareholder for any amount properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
STOCK CERTIFICATES FOR SHARES OF SKANEATELES BANCORP'S COMMON STOCK
SHOULD NOT BE RETURNED TO SKANEATELES BANCORP WITH THE ENCLOSED PROXY CARD. IF
THE MERGER TAKES PLACE, YOU WILL RECEIVE INSTRUCTIONS ON HOW TO EXCHANGE YOUR
SKANEATELES BANCORP CERTIFICATES FOR BSB BANCORP CERTIFICATES.
OPTIONS AND WARRANTS
As of the record date, May 11, 1999, there were outstanding options and
warrants to purchase 116,675 shares of Skaneateles Bancorp's common stock at an
average exercise price of $10.74 per share. Under the merger agreement, each
Skaneateles Bancorp option and warrant that is outstanding and unexercised
immediately prior to the effective time of the merger automatically will be
converted into an option or warrant to purchase shares of BSB Bancorp's common
stock, with adjustment in the number of shares and exercise price to reflect the
exchange ratio. The adjustment will be made in a manner consistent with Section
424(a) of the Internal Revenue Code of 1986. The duration and other terms of the
Skaneateles Bancorp options and warrants will otherwise be unchanged except that
reference to Skaneateles Bancorp and related terms shall be deemed to be
references to BSB Bancorp.
REGULATORY APPROVALS
For the merger of BSB Bancorp and Skaneateles Bancorp and the merger of
BSB Bank and Skaneateles Savings Bank to take place, we must receive approvals
of the FDIC and the Superintendent of Banks and the Banking Board of New York
State. In this section, we refer to these approvals as the required regulatory
approvals. BSB Bancorp and Skaneateles Bancorp have agreed to use their best
efforts to obtain the required regulatory approvals.
BSB Bank has filed with the FDIC an application for approval of the
merger of BSB Bank and Skaneateles Savings Bank. We refer to that merger in this
section as the "bank merger." The bank merger is subject to the approval of the
FDIC under the federal Bank Merger Act and related FDIC regulations. The FDIC
will consider several factors when reviewing the bank merger, including the
competitive effects of the transaction, the managerial and financial resources
and future prospects of the existing and resulting institutions, and the effect
of the transaction on the convenience and needs of the communities to be served.
The Community Reinvestment Act of 1977, referred to in this section as the CRA,
also requires that the FDIC, in deciding whether to approve the bank merger,
assess the records of performance of BSB Bank and Skaneateles Savings Bank in
meeting the credit needs of the communities they serve, including low and
moderate income neighborhoods. BSB Bank and Skaneateles Savings Bank each
currently have a satisfactory CRA rating from the FDIC. The FDIC regulations
provide for publication of notice and an opportunity for public comment on the
bank merger application, and authorize the FDIC to hold an informal meeting or
grant a request for a hearing on an application if the FDIC determines that such
a meeting or hearing is warranted. The regulations provide that the FDIC
generally will grant a hearing request only if it determines that written
submissions would be insufficient or that a hearing otherwise would be in the
public interest. As part of the review process, it is not unusual for the FDIC
to receive protests and adverse comments from community groups and others. The
receipt by the FDIC of comments on the application, or a decision to hold a
meeting or hearing, could prolong the period during which the bank merger is
subject to review by the FDIC. As of the date of this proxy
statement/prospectus, BSB Bancorp is not aware of any protests, adverse comments
or requests for a meeting or hearing filed with the FDIC concerning the bank
merger. The bank merger may not take place for a period of 15 to 30 days
following FDIC approval, during which time the Department of Justice has
authority to challenge the bank merger on antitrust grounds. The precise length
of the period will be determined by the FDIC in consultation with the Department
of Justice. The
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commencement of an antitrust action would stay the effectiveness of any approval
granted by the FDIC unless a court specifically orders otherwise. If the
Department of Justice does not start a legal action during the waiting period,
it may not challenge the transaction afterward, except in an action under
Section 2 of the Sherman Antitrust Act.
Applications have been filed with the New York State Banking Department
in connection with the bank merger and with BSB Bancorp's merger with
Skaneateles Bancorp. In reviewing these applications, the New York
Superintendent and the Banking Board will review and consider, among other
things, the competitive effects of the transactions, the managerial and
financial resources of the resulting institutions, and the public interest and
the needs and convenience of the public. The New York Superintendent and the
Banking Board also will review the records of BSB Bank and Skaneateles Savings
Bank under the CRA.
BSB Bancorp has received from the Board of Governors of the Federal
Reserve System a waiver of any application filing requirement under the Bank
Holding Company Act of 1956 that would otherwise apply to the merger.
BSB Bancorp and Skaneateles Bancorp are not aware of any other material
governmental approvals that are required for the merger and the bank merger to
take place that are not described above. If any other approval or action is
required, we presently expect that we would seek the approval or take the
necessary action.
THE MERGER AND THE BANK MERGER CANNOT TAKE PLACE WITHOUT THE REQUIRED
REGULATORY APPROVALS, WHICH WE HAVE NOT RECEIVED YET. THERE IS NO ASSURANCE THAT
WE WILL RECEIVE THESE APPROVALS, AND IF WE DO, WHEN WE WILL RECEIVE THEM. ALSO,
THERE IS NO ASSURANCE THAT THE DEPARTMENT OF JUSTICE WILL NOT CHALLENGE THE
MERGER, OR, IF A CHALLENGE IS MADE, WHAT THE RESULT OF A CHALLENGE WOULD BE.
CONDITIONS TO THE MERGER
Under the merger agreement, BSB Bancorp and Skaneateles Bancorp are not
required to complete the merger unless the following conditions are satisfied:
(i) the merger agreement, including the certificate of merger, and the merger
are approved by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of Skaneateles Bancorp's common stock entitled to vote at
the shareholder meeting; (ii) the BSB Bancorp common stock to be issued in the
merger (including stock which may be issued upon the exercise of stock options
and warrants) is authorized for quotation on the Nasdaq Stock Market National
Market System (or such other exchange on which the stock may become listed);
(iii) all required regulatory approvals are obtained and remain in full force
and effect, all statutory waiting periods related to these approvals expire, and
none of the regulatory approvals or statutory waiting periods impose
non-customary conditions that BSB Bancorp reasonably considers to be burdensome
or which alters the benefits for which BSB Bancorp bargained in the merger
agreement; (iv) the registration statement filed with the SEC is effective and
is not subject to a stop order or any threatened stop order; (v) no order,
injunction or decree preventing the merger from taking place is in effect and
the completion of the merger continues to be legal; (vi) BSB Bancorp and
Skaneateles Bancorp receive a favorable tax opinion from BSB Bancorp's counsel
which is reasonably satisfactory to BSB Bancorp; and (vii) BSB Bancorp receives
written letters of PricewaterhouseCoopers LLP, BSB Bancorp's independent public
accountant, and KPMG LLP, Skaneateles Bancorp's independent public accountant,
advising that, as of the effective time, the merger will be accounted for as a
pooling of interests.
BSB Bancorp is not required to complete the merger unless the following
additional conditions are satisfied or waived: (i) the representations and
warranties of Skaneateles Bancorp contained in the merger agreement are true and
correct as of the date of the merger agreement and as of the closing date of the
merger, except where the failure to be true and correct would not have a
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material adverse effect on Skaneateles Bancorp; (ii) Skaneateles Bancorp
performs in all material respects all covenants and agreements contained in the
merger agreement to be performed by Skaneateles Bancorp by the closing date of
the merger; (iii) Skaneateles Bancorp and Skaneateles Savings Bank obtain the
consents, approvals or waivers of other persons that are required to permit BSB
Bancorp and BSB Bank to succeed to any obligations, rights or interests of
Skaneateles Bancorp and Skaneateles Savings Bank respectively under any
agreement, except where the failure to obtain consents, approvals or waivers
would not have a material adverse effect on the surviving corporation or the
surviving bank; (iv) no proceeding initiated by any governmental entity seeking
an injunction preventing the merger from taking place is pending; (v) no
changes, other than changes contemplated by the merger agreement, in the
business, operations, condition, assets or liabilities of Skaneateles Bancorp or
any of its subsidiaries occur that have or would have a material adverse effect
on Skaneateles Bancorp; (vi) BSB Bancorp receives the opinion of the counsel to
Skaneateles Bancorp as to such matters as BSB Bancorp reasonably requests; and
(vii) BSB Bancorp receives comfort letters of Skaneateles Bancorp's independent
public accountants with respect to Skaneateles Bancorp's financial data.
Skaneateles Bancorp is not required to complete the merger unless the
following additional conditions are satisfied or waived: (i) the representations
and warranties of BSB Bancorp contained in the merger agreement are true and
correct as of the date of the merger agreement and as of the closing date of the
merger, except where the failure to be true and correct would not have a
material adverse effect on BSB Bancorp; (ii) BSB Bancorp performs in all
material respects all covenants and agreements contained in the merger agreement
required to be performed by it by the closing date of the merger; (iii) BSB
Bancorp and BSB Bank obtain the consents, approvals or waivers of other persons
that are required in connection with the merger agreement under any agreement to
which BSB Bancorp or BSB Bank is a party or is otherwise bound; (iv) no
proceeding initiated by any governmental entity seeking an injunction preventing
the merger from taking place is pending; (v) Skaneateles Bancorp receives a
legal opinion from BSB Bancorp's counsel as to the authorization, validity, and
non-accessibility of the BSB Bancorp common stock to be issued pursuant to the
merger agreement; and (vi) no changes, other than changes contemplated by the
merger agreement in the business, operations, condition, assets or liabilities
of BSB Bancorp or any of its subsidiaries occur that have or would have a
material adverse effect on BSB Bancorp.
CONDUCT OF BUSINESS PENDING THE MERGER
The merger agreement contains various restrictions on the operations of
Skaneateles Bancorp (including Skaneateles Savings Bank and any other
Skaneateles Bancorp subsidiary) prior to the effective time of the merger.
Except as permitted by the merger agreement and related agreements, or with the
prior consent of BSB Bancorp, the merger agreement obligates Skaneateles Bancorp
to continue to carry on its businesses in the ordinary course consistent with
past practices and with prudent banking practices, with specific limitations on
the lending activities and other operations of Skaneateles Bancorp. The merger
agreement prohibits Skaneateles Bancorp from declaring any dividends or other
distributions on its capital stock other than regular quarterly cash dividends
on Skaneateles Bancorp's common stock (with certain monetary limitations).
Skaneateles Bancorp may not split, combine or reclassify any shares of its
capital stock nor issue or authorize or propose the issuance of any securities,
other than the issuance of additional shares of Skaneateles Bancorp's common
stock upon the exercise or fulfillment of rights or options issued or existing
under Skaneateles Bancorp's stock option and warrant plans in accordance with
their present terms or the option for shares of Skaneateles Bancorp's common
stock held by BSB Bancorp pursuant to the Option Agreement and the issuance of
10% Cumulative Preferred Stock in accordance with the subscriptions accepted by
Skaneateles Savings Bank's real estate investment trust subsidiary. Also, under
the terms of the merger agreement, Skaneateles Bancorp may not amend its
certificate of incorporation or bylaws, or change its methods of accounting in
effect at December 31, 1997, except as required by changes in regulatory or
generally accepted accounting principles. The merger
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agreement also restricts Skaneateles Bancorp from increasing employee or
director compensation or paying any benefit not required under a current plan or
agreement or any bonuses.
THIRD PARTY PROPOSALS
Under the merger agreement, Skaneateles Bancorp may enter into
discussions or negotiations or provide information in connection with a possible
acquisition transaction only if the Skaneateles Bancorp board of directors,
relying upon a written opinion of counsel, reasonably determines in the exercise
of its fiduciary duty that such discussions or negotiations must be commenced or
such information must be furnished. Skaneateles Bancorp may not, however,
authorize or permit any of its officers, directors, employees or agents to,
directly or indirectly, solicit, initiate or encourage any inquiries relating to
or make any proposal concerning an acquisition transaction. If the merger
agreement is terminated by BSB Bancorp by reason of Skaneateles Bancorp having
agreed to enter into an acquisition transaction with a third party, Skaneateles
Bancorp shall pay all documented, reasonable costs and expenses up to $250,000
incurred by BSB Bancorp in connection with the merger agreement and the
transactions contemplated in the merger agreement. As used in this paragraph,
the term "acquisition transaction" means any offer, proposal or expression of
interest relating to a tender or exchange offer, a merger, consolidation or
other business combination involving Skaneateles Bancorp or any of its
subsidiaries, or the acquisition of a substantial equity interest in, or a
substantial portion of the assets out of the ordinary course of business of,
Skaneateles Bancorp or Skaneateles Savings Bank (other than the transactions
contemplated or permitted by the merger agreement and related agreements).
EXPENSES
The merger agreement generally provides for BSB Bancorp and Skaneateles
Bancorp to pay their own expenses relating to the merger agreement, with BSB
Bancorp paying the filing and other fees paid to the SEC and the Superintendent
of Banks and the Banking Board of New York State. However, if the merger
agreement is terminated by BSB Bancorp or Skaneateles Bancorp as a result of a
material breach by the other party of a representation, warranty, covenant or
other agreement contained in the merger agreement, then the non-terminating
party must pay all documented, reasonable costs and expenses of the terminating
party up to $250,000. Also, if the merger agreement is terminated by BSB Bancorp
because either the Skaneateles Bancorp shareholders fail to approve the merger
or Skaneateles Bancorp agrees to enter into an acquisition transaction (other
than as contemplated by the merger agreement), then Skaneateles Bancorp must pay
all documented, reasonable costs and expenses of BSB Bancorp up to $250,000.
REPRESENTATIONS AND WARRANTIES
In the merger agreement, Skaneateles Bancorp made representations and
warranties to BSB Bancorp. The material representations and warranties of
Skaneateles Bancorp are the following: (i) the organization and good standing of
Skaneateles Bancorp and Skaneateles Savings Bank; (ii) insurance of Skaneateles
Savings Bank's deposit accounts by the FDIC; (iii) capitalization and
subsidiaries; (iv) corporate power and authority; (v) the execution and delivery
of the merger agreement, the bank merger agreement and the option agreement;
(vi) consents and approvals required for the agreements and the merger; (vii)
loan portfolio and reports; (viii) financial statements, exchange act filings
and books and records; (ix) broker's fees; (x) absence of any material adverse
change in Skaneateles Bancorp; (xi) legal proceedings; (xii) tax matters; (xiii)
employee benefit plans; (xiv) particular types of contracts; (xv) regulatory
matters; (xvi) state takeover laws and articles of incorporation takeover
provisions; (xvii) environmental matters; (xviii) loss reserves; (xix)
properties and assets; (xx) insurance matters; (xxi) compliance with applicable
laws; (xxii) loan information; (xxiii) affiliates and the stockholder agreement;
(xxiv) ownership of BSB Bancorp's common stock; (xxv) receipt of the fairness
opinion of McConnell, Budd & Downes, Inc.; (xxvi) the
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status of the Skaneateles Bancorp dividend reinvestment and employee stock
purchase plans; (xvii) accounting matters; and (xviii) accuracy of information.
In the merger agreement, BSB Bancorp made representations and warranties
to Skaneateles Bancorp. The material representations and warranties of BSB
Bancorp are the following: (i) the organization and good standing of BSB Bancorp
and the chartering of BSB Bank; (ii) capitalization; (iii) corporate power and
authority; (iv) the execution and delivery of the merger agreement, the bank
merger agreement and the option agreement; (v) regulatory consents and approvals
required for the agreements and the merger; (vi) financial statements, exchange
act filings and books and records; (vii) agreements with regulatory agencies;
(viii) legal proceedings; (ix) compliance with applicable laws; (x) accounting
matters; (xi) ownership of Skaneateles Bancorp common stock; and (xii) insurance
of deposits.
TERMINATION AND AMENDMENT OF THE MERGER AGREEMENT
The merger agreement may be terminated by BSB Bancorp or Skaneateles
Bancorp as long as the terminating party is not in violation of the merger
agreement as summarized below:
- by mutual written consent of BSB Bancorp and Skaneateles
Bancorp;
- by BSB Bancorp or Skaneateles Bancorp if (i) 30 days pass
after any required regulatory approval is denied or
regulatory application is withdrawn at a regulator's
request unless action is taken during the 30 day period for
a rehearing or to file an amended application; (ii) the
merger has not taken place on or before December 31, 1999;
or (iii) Skaneateles Bancorp's shareholders do not approve
the merger agreement;
- by either BSB Bancorp or Skaneateles Bancorp, if there is a
breach of any representation, warranty, covenant or
agreement in the merger agreement by Skaneateles Bancorp,
if the breach or breaches would have a material adverse
effect on Skaneateles Bancorp and the breach is not cured
within 30 days after receiving notice of the breach;
- by either BSB Bancorp or Skaneateles Bancorp, if there is a
breach of any representation, warranty, covenant or
agreement in the merger agreement by BSB Bancorp, if the
breach or breaches would have a material adverse effect on
BSB Bancorp and the breach is not cured within 30 days
after receiving notice of the breach; or
- by BSB Bancorp, if Skaneateles Bancorp or its board of
directors (i) fails to hold the shareholder meeting on a
timely basis; (ii) fails to recommend to Skaneateles
Bancorp's shareholders approval of the merger agreement and
the merger; (iii) fails to oppose any third party proposal
that is inconsistent with the merger agreement; or (iv)
violates the merger agreement's restriction on inquiries,
discussions, negotiations and providing information to
third parties regarding acquisition transactions.
Skaneateles Bancorp may also terminate the merger agreement if (either
before or after its approval by the shareholders of Skaneateles Bancorp) both
(i) its Board of Directors so determines by a vote of at least two-thirds of the
members of its entire Board, at any time during the ten-day period commencing
with the Determination Date (defined below), and (ii) the BSB Bancorp Common
Stock Average Price (defined below) on the Determination Date (defined below)
shall be less than the lesser of $23.00, or $23.50 multiplied by the Index Ratio
(defined below).
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If Skaneateles Bancorp elects to exercise the termination right discussed
above, it shall give prompt written notice to BSB Bancorp (provided that such
notice of election to terminate may be withdrawn at any time within the
aforementioned ten-day period). During the seven-day period commencing with its
receipt of such notice, BSB Bancorp shall have the option of increasing the
consideration to be received by the holders of Skaneateles Bancorp Common Stock
hereunder by increasing the exchange ratio to equal the lesser of (i) a number
(rounded to four decimals) equal to a quotient, the numerator of which is $28.75
multiplied by the exchange ratio (as then in effect) and the denominator of
which is the BSB Bancorp Common Stock Average Price (defined below), and (ii) a
number equal to a quotient, the numerator of which is the Index Ratio,
multiplied by 28.75 and the denominator of which is the BSB Bancorp Average
Stock Price (defined below). If BSB Bancorp makes an election contemplated by
the preceding sentence, within such seven-day period, it shall give prompt
written notice to Skaneateles Bancorp of such election and the revised exchange
ratio, whereupon no termination shall have occurred and the merger agreement
shall remain in effect in accordance with its terms (except as the exchange
ratio shall have been so modified), and any references to "exchange ratio" shall
thereafter be deemed to refer to the exchange ratio as adjusted.
The following terms have the meanings indicated:
"BSB Bancorp Common Stock Average Price" means the average of the
daily closing sales prices of BSB Bancorp Common Stock as reported on the Nasdaq
Stock Market's National Market Tier for the 20 consecutive full trading days
ending at the close of trading on the Determination Date.
"Determination Date" means the date on which the approval of the
FDIC required for consummation of the merger shall be received or, if no FDIC
approval is required, then the date of the last federal or state bank regulatory
approval required of BSB Bancorp is received.
"Index Price" on a given date means the sum of the weighted
average closing sales prices on such date of the companies comprising the Index
Group (as defined below) for the 15 trading days ending on such date. If any
company belonging to the Index Group or BSB Bancorp declares or effects a stock
dividend, reclassification, recapitalization, split-up, combination, exchange of
share or similar transaction between the Starting Date and the Determination
Date, the prices for the common stock of such company or BSB Bancorp will be
appropriately adjusted for use in the Index.
"Starting Date" means the first Nasdaq Stock Market trading day
preceding the date of the merger agreement.
"Index Ratio" means the number obtained by dividing the Index
Price at the close of business on the Determination Date by the Index Price at
close of business on the Starting Date.
"Index Group" refers to 18 bank holding companies selected by BSB
Bancorp and Skaneateles as a peer group, the common stock of all of which will
be publicly traded and as to which there will not have been, since the Starting
Date and before the Determination Date, any public announcement of a proposal
for such company to be acquired or for such company to acquire another company
or companies in transactions with a value exceeding 25% of the acquirer's market
capitalization as of the Starting Date. In the event that the common stock of
any such company ceases to be publicly traded or such an announcement is made,
such company will be removed from the Index Group, and the weights (which were
determined based on the number of outstanding shares of common stock)
redistributed proportionately for the purposes of determining the Index Price.
The merger agreement also permits, subject to applicable law, the boards
of directors of BSB Bancorp and Skaneateles Bancorp to: (i) amend the merger
agreement except as provided below; (ii) extend the time for performance of any
of the obligations or other acts of the other party; (iii) waive any
inaccuracies in the representations and warranties contained in the merger
agreement or in any document delivered under the merger agreement; or (iv) waive
compliance with
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any of the agreements or conditions contained in the merger agreement. After
approval of the merger agreement by Skaneateles Bancorp's shareholders, no
amendment of the merger agreement may be made without further shareholder
approval if the amendment would reduce the amount or change the form of the
consideration to be delivered to Skaneateles Bancorp's shareholders under the
merger agreement.
FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses the material federal income tax
consequences of the merger. The summary is based on the Internal Revenue Code of
1986, as amended, referred to in this section as the Code, applicable U.S.
Treasury regulations under the Code, administrative rulings and judicial
authority, all as of the date of this proxy statement/prospectus. All of the
foregoing authorities are subject to change, and any change could affect the
continuing validity of this summary. The summary assumes that the holders of
shares of Skaneateles Bancorp common stock hold their shares as a capital asset.
The summary does not address the tax consequences that may be applicable to
particular Skaneateles Bancorp shareholders in light of their individual
circumstances or to Skaneateles Bancorp shareholders who are subject to special
tax rules, like tax-exempt organizations, dealers in securities, financial
institutions, insurance companies, non-United States persons, shareholders who
acquired shares of Skaneateles Bancorp common stock from the exercise of options
or otherwise as compensation or through a qualified retirement plan and
shareholders who hold shares of Skaneateles Bancorp common stock as part of a
straddle, hedge, or conversion transaction. This summary also does not address
any consequences arising under the tax laws of any state, locality, or foreign
jurisdiction.
One of the conditions for the merger to take place is that BSB Bancorp
and Skaneateles Bancorp must receive an opinion from Hogan & Hartson L.L.P., BSB
Bancorp's special counsel, that the merger will be treated for federal income
tax purposes as a tax-free reorganization within the meaning of Section 368(a)
of the Code. The opinion must be reasonably satisfactory to BSB Bancorp. The
opinion of Hogan & Hartson L.L.P. will be based on the Code, the U.S. Treasury
regulations promulgated under the Code and related administrative
interpretations and judicial decisions, all as in effect as of the effective
time of the merger, on the assumption that the merger takes place as described
in the merger agreement, and on representations to be provided to Hogan &
Hartson L.L.P. by BSB Bancorp and Skaneateles Bancorp that relate to the
satisfaction of specific requirements to a reorganization within the meaning of
Section 368(a) of the Code, including limitations on repurchases by BSB Bancorp
of shares of BSB Bancorp common stock to be issued upon the merger. Unlike a
ruling from the Internal Revenue Service, an opinion of counsel is not binding
on the Internal Revenue Service and there can be no assurance that the Internal
Revenue Service will not take a position contrary to one or more of the
positions reflected in the opinion or that these positions will be upheld by the
courts if challenged by the Internal Revenue Service. If this opinion is not
received, or if the material tax consequences described in the opinion
materially differ from the consequences stated below, the merger will not occur
unless Skaneateles Bancorp resolicits its shareholders.
If, as concluded in the opinion of counsel, the merger qualifies as a
tax-free reorganization within the meaning of Section 368(a) of the Code, then:
(1) Except as discussed in (4) below regarding cash received
instead of a fractional share of BSB Bancorp common stock,
a Skaneateles Bancorp shareholder will recognize no gain or
loss upon the exchange of Skaneateles Bancorp common stock
for BSB Bancorp common stock in the merger.
(2) The tax basis of BSB Bancorp common stock received by a
Skaneateles Bancorp shareholder in the merger will be the
same as the shareholder's
35
<PAGE> 36
aggregate tax basis in Skaneateles Bancorp common stock
surrendered in exchange therefor.
(3) The holding period of BSB Bancorp common stock received by
a Skaneateles Bancorp shareholder in the merger will
include the holding period of Skaneateles Bancorp common
stock surrendered in exchange therefor, assuming
Skaneateles Bancorp common stock was held as a capital
asset.
(4) The receipt by a Skaneateles Bancorp shareholder of cash
instead of fractional shares of BSB Bancorp common stock
will be treated as if the fractional shares were
distributed as part of the merger and then were redeemed by
BSB Bancorp. These cash payments will be treated as
distributions in full payment in exchange for the stock
redeemed, subject to the conditions and limitations of
Section 302(a) of the Code.
(5) Neither BSB Bancorp nor Skaneateles Bancorp will recognize
any gain or loss as a result of the merger.
The shareholders of Skaneateles Bancorp are urged to consult their own
tax advisors as to the specific tax consequences to them of the merger,
including tax return reporting requirements, the applicability and effect of
federal, state, local and other applicable tax laws, and the effect of any
proposed changes in the tax laws.
As described above in the section titled "-- Options," holders of options
to purchase Skaneateles Bancorp common stock that are outstanding at the
effective time of the merger will have their Skaneateles Bancorp options
converted into options to purchase shares of BSB Bancorp common stock. The
assumption of the options by BSB Bancorp should not be a taxable event and
former holders of Skaneateles Bancorp options who hold options to purchase BSB
Bancorp common stock after the merger should be subject to the same federal
income tax treatment upon exercise of those options as would have applied if
they had exercised their Skaneateles Bancorp options.
Holders of Skaneateles Bancorp options are urged to consult their own tax
advisors as to the specific tax consequences to them of the merger, including
tax return reporting requirements, available elections, the applicability and
effect of federal, state, local and other applicable tax laws, and the effect of
any proposed changes in the tax laws.
ACCOUNTING TREATMENT
It is a condition precedent to BSB Bancorp's and Skaneateles Bancorp's
obligations to consummate the merger that BSB Bancorp receives written letters
of PricewaterhouseCoopers LLP, BSB Bancorp's independent public accountant, and
KPMG LLP, Skaneateles Bancorp's independent public accountant, advising that, as
of the effective time, the merger will be accounted for as a pooling of
interests. See "--Conditions to the Merger." Under the pooling of interests
method of accounting, the historical basis of the assets and liabilities of BSB
Bancorp and Skaneateles Bancorp will be combined and carried forward at their
historically recorded amounts.
RESALES OF BSB BANCORP'S COMMON STOCK RECEIVED IN THE MERGER
BSB Bancorp is registering the sale of the shares of its common stock to
be issued in the merger under the Securities Act of 1933. The shares will be
freely transferable under the Securities Act, except for shares received by
Skaneateles Bancorp shareholders who are deemed to be affiliates of Skaneateles
Bancorp before the merger or affiliates of BSB Bancorp. These affiliates may
only resell their shares pursuant to an effective registration statement under
the Securities Act covering the shares, in compliance with Securities Act Rule
145 or under another exemption from the
36
<PAGE> 37
Securities Act's registration requirements. This proxy statement/prospectus does
not cover any resales of BSB Bancorp's common stock by BSB Bancorp or
Skaneateles Bancorp affiliates. Affiliates will generally include individuals or
entities who control, are controlled by or are under common control with
Skaneateles Bancorp or BSB Bancorp, and may include officers or directors, as
well as principal shareholders of Skaneateles Bancorp or BSB Bancorp.
ABSENCE OF DISSENTERS' RIGHTS
Under the Delaware General Corporation Law, holders of Skaneateles
Bancorp common stock are not entitled to assert dissenters' rights in the
merger.
ARRANGEMENTS WITH AND PAYMENTS TO SKANEATELES BANCORP DIRECTORS, EXECUTIVE
OFFICERS AND EMPLOYEES
BSB Bancorp has agreed to honor existing written deferred compensation,
employment, change of control and severance contracts with directors and
employees of Skaneateles Bancorp and Skaneateles Savings Bank to the extent that
these contracts do not provide for any payments that are not deductible or that
constitute parachute payments under the Internal Revenue Code of 1986, as
amended, referred to in this section as the Code. The non-employee directors of
Skaneateles Savings Bank serving immediately prior to the effective time of the
merger will be invited to serve on an advisory board to BSB Bank after the
merger for a period of at least twelve months. These advisory directors each
will be paid an annual retainer for their service of $2,000 per year.
Skaneateles Savings Bank has entered into agreements with five executives
providing for payments following a termination of employment or specified other
events, after a change in control occurs. The five executives who are covered by
these agreements are Skaneateles Savings Bank's Chairman, President and Chief
Executive Officer, John P. Driscoll, its Executive Vice President and Secretary,
J. David Hammond, its Vice President and Chief Financial Officer, J. Daniel
Mohr, its Vice President, Karen E. Lockwood and its Vice President, William J.
Welch.
Under the agreement with Mr. Driscoll dated January 1, 1998, in the event
of a change of control Mr. Driscoll has the option of voluntary termination, in
which event Skaneateles Savings Bank would be obligated to pay to him (i) his
full base salary, bonus and benefits as were in effect immediately preceding the
change in control until the earlier of: (a) a three-year period, or (b) he
reaches the age of 65, and (ii) lump sum payments in respect of the annuity and
the supplemental benefit for his account, such payments to be in amounts equal
to the respective present values of annual installments of $10,345 (calculated
on an after-tax basis using his effective tax rate for the prior year) and
$14,200 each for the number of years (including partial years) from the date of
the change of control until he reaches age 63. Mr. Driscoll has entered into an
employment agreement with BSB Bancorp and BSB Bank pursuant to which he will be
employed by BSB Bancorp and BSB Bank as Executive Vice President from the
effective time of the merger through December 31, 2001, and his term of
employment may be extended if mutually agreed to by the parties. Under the
employment agreement, Mr. Driscoll's annual salary will be $147,660, and he will
be reimbursed for certain expenses, including membership dues for three country
clubs and the use of a car. Mr. Driscoll will be eligible to participate in all
benefit plans generally available to executive employees of BSB Bancorp and BSB
Bank. Also, Mr. Driscoll will be entitled to the payments and benefits that he
would receive under his agreement with Skaneateles Savings Bank if he were to
exercise his option of voluntary termination in the event of a change of
control, which equal a total of $435,089, as well as any vested retirement
benefits payable to him under any benefit plan sponsored by or agreement with
Skaneateles Bancorp or Skaneateles Savings Bank. During his term of employment,
if Mr. Driscoll terminates his employment with "good reason" or he is terminated
without "cause" (as these terms are defined in the agreement), then he is
entitled to receive his full salary for the remainder of his term unless he
leaves during the first twelve months of his term, in which case, his salary
will be reduced by the amount of his earned income (as defined by Section
911(d)(2)(A) of the
37
<PAGE> 38
Internal Revenue Code of 1986) from other sources during the period that he
receives his salary from BSB Bancorp and BSB Bank.
Under the agreements with J. David Hammond, Karen E. Lockwood, J. Daniel
Mohr and William J. Welch, all dated March 25, 1998, in the event that the
employees are terminated pursuant to a change of control, then the successor
bank shall be obligated to pay and continue the employee's full salary, bonus
and benefits as were in effect immediately preceding the change of control, for
a specified period. The specified period in Mr. Hammond's agreement is
twenty-four months and in the agreements of Ms. Lockwood, Mr. Mohr and Mr. Welch
is eighteen months.
The merger of Skaneateles Savings Bank and BSB Bank will constitute a
change in control for purposes of the agreements described above.
INDEMNIFICATION
In the merger agreement, BSB Bancorp agrees to indemnify, defend and hold
harmless each person who is, has been, or before the effective time of the
merger becomes, a director, officer or employee of Skaneateles Bancorp to the
fullest extent permitted under applicable law and BSB Bancorp's restated
certificate of incorporation and bylaws (or Skaneateles Bancorp's restated
certificate of incorporation and bylaws, if before the effective time of the
merger) or the federal stock charter and bylaws of BSB Bank, with respect to any
claims made against the person because he or she is or was a director, officer
or employee of Skaneateles Bancorp or in connection with the merger agreement.
BSB Bancorp also agreed to use commercially reasonable efforts to cover the
officers and directors of Skaneateles Bancorp under a directors' and officers'
liability insurance policy of substantially the same coverage and amounts than
Skaneateles Bancorp's current policy for a period not less than one year.
OPTION AGREEMENT
As a condition of and inducement to BSB Bancorp's entering into the
merger agreement, BSB Bancorp and Skaneateles Bancorp entered into the option
agreement immediately after the execution of the merger agreement. Pursuant to
the option agreement, Skaneateles Bancorp granted BSB Bancorp an option,
referred to in this section as the "Skaneateles Bancorp option," which entitles
BSB Bancorp to purchase, subject to the terms of the option agreement, up to
290,142 fully paid and nonassessable shares of Skaneateles Bancorp's common
stock, or approximately 19.99% of the shares of Skaneateles Bancorp's common
stock then outstanding, under the circumstances described below, at a price per
share of $15.00, which price is subject to adjustment. The Skaneateles Bancorp
option is intended to discourage the making of alternative acquisition-related
proposals and, under specified circumstances, to significantly increase the cost
to a potential third party of acquiring Skaneateles Bancorp compared to its cost
had Skaneateles Bancorp not entered into the option agreement. Therefore, the
Skaneateles Bancorp option is likely to discourage third parties from proposing
a competing offer to acquire Skaneateles Bancorp even if the offer involves a
higher price per share for Skaneateles Bancorp's common stock than the per share
consideration to be paid pursuant to the merger agreement.
The following brief summary of the option agreement is qualified in its
entirety by reference to the option agreement. A copy of the option agreement,
as well as the other documents described in this proxy statement/prospectus,
will be provided to you by U.S. mail without charge if you call or write to
Larry Denniston, Investor Relations of BSB Bancorp, Inc., 58-68 Exchange Street,
Binghamton, New York 13902, telephone (607) 779-2406.
Subject to applicable law and regulatory restrictions, BSB Bancorp may
exercise the Skaneateles Bancorp option, in whole or in part, following the
occurrence of a purchase event as defined below, provided that the Skaneateles
Bancorp option is not terminated first upon the
38
<PAGE> 39
occurrence of an exercise termination event, as defined below. "Purchase event"
means, in substance, either (a) the acquisition by any third party of beneficial
ownership of 25% or more of the outstanding Skaneateles Bancorp common stock, or
(b) the termination of the merger agreement by BSB Bancorp because of breach by
Skaneateles Bancorp, failure to take necessary action by the board of directors
of Skaneateles Bancorp, or notification by Skaneateles Bancorp that it has
agreed to an acquisition transaction with a third party.
For purposes of the option agreement, the term "acquisition transaction"
means (i) a merger, consolidation or other business combination involving
Skaneateles Bancorp, (ii) a purchase, lease or other acquisition of all or
substantially all of the assets of Skaneateles Bancorp, or (iii) a purchase or
other acquisition, including through merger, consolidation, share exchange or
otherwise, of beneficial ownership of securities representing 10% or more of the
voting power of Skaneateles Bancorp.
The option agreement defines an "exercise termination event" to mean the
earliest to occur of the following events: (i) the time immediately prior to the
effective time of the merger; (ii) 12 months after the first occurrence of a
purchase event; (iii) 12 months after the termination of the merger agreement
following the occurrence of a preliminary purchase event as defined below,
unless clause (vii) of this paragraph is applicable; (iv) upon the termination
of the merger agreement, prior to the occurrence of a purchase event or
preliminary purchase event, (A) by both parties, if the merger agreement is
terminated by mutual written consent; (B) by either BSB Bancorp or Skaneateles
Bancorp, if the merger agreement has been terminated as a result of regulatory
denial or requested withdrawal of a regulatory application, or if the merger has
not occurred by December 31, 1999; or (C) by Skaneateles Bancorp, if the merger
agreement is terminated as a result of a material breach of any representation,
warranty, covenant or other agreement by BSB Bancorp or the stockholders of
Skaneateles Bancorp fail to approve the merger agreement; (v) 12 months after
the termination of the merger agreement, if the Skaneateles Bancorp shareholders
have failed to approve the merger agreement; (vi) 12 months after the
termination of the merger agreement by BSB Bancorp as a result of a material
breach of any representation, warranty, covenant or other agreement by
Skaneateles Bancorp, if the breach was not willful or intentional by Skaneateles
Bancorp; or (vii) 24 months after the termination of the merger agreement by BSB
Bancorp as a result of a willful or intentional material breach of any
representation, warranty, covenant or agreement by Skaneateles Bancorp, or if
the Skaneateles Bancorp board of directors fails to take some necessary action
or Skaneateles Bancorp enters into an acquisition transaction with a third
party.
The option agreement defines "preliminary purchase event" to include (i)
Skaneateles Bancorp's entry, without the prior written consent of BSB Bancorp,
into a letter of intent or definitive agreement to engage in an acquisition
transaction with any third party, or the recommendation by Skaneateles Bancorp's
board of directors that its shareholders approve or accept any acquisition
transaction with any third party; (ii) an acquisition by any third party of
beneficial ownership of 10% or more of the outstanding shares of Skaneateles
Bancorp's common stock; (iii) the making of a bona fide proposal for an
acquisition transaction by any third party to Skaneateles Bancorp, or a public
announcement or written communication that is publicly disclosed to Skaneateles
Bancorp's shareholders as to any third party proposing to engage in an
acquisition transaction and Skaneateles Bancorp's shareholders do not approve
the merger; (iv) a willful or intentional breach by Skaneateles Bancorp of any
representation, warranty, covenant or agreement that would entitle BSB Bancorp
to terminate the merger agreement; (v) the failure to hold or the cancellation
of the shareholder meeting for the purpose of voting on the merger agreement
before the merger agreement is terminated; (vi) for any reason whatsoever, the
failure of Skaneateles Bancorp's board of directors to recommend, or the
withdrawal or modification in a manner adverse to BSB Bancorp of a
recommendation that Skaneateles Bancorp's shareholders approve the merger
agreement, or if Skaneateles Bancorp or its board of directors fails to oppose
any proposal by any person other than BSB Bancorp or any subsidiary of BSB
Bancorp; or (vii) a filing by any third party of an application or notice with
any regulatory authority for approval to engage in an acquisition transaction.
39
<PAGE> 40
The Skaneateles Bancorp option may not be assigned by BSB Bancorp to any
other person without the express written consent of Skaneateles Bancorp, except
that BSB Bancorp may assign its rights under the option agreement to a wholly
owned subsidiary or may assign its rights in whole or in part after the
occurrence of a preliminary purchase event. Upon the occurrence of a purchase
event prior to an exercise termination event, at the request of BSB Bancorp,
Skaneateles Bancorp will be obligated (i) to prepare and keep current an
offering circular which meets the standards of a shelf registration statement
filed with the SEC with respect to the shares to be issued upon exercise of the
Skaneateles Bancorp option under applicable federal and state securities laws,
and (ii) to repurchase the Skaneateles Bancorp option, and any shares of
Skaneateles Bancorp's common stock thus far purchased pursuant to the
Skaneateles Bancorp option, at prices determined as set forth in the option
agreement, except to the extent prohibited by applicable law, regulation or
administrative policy.
In the event that prior to an exercise termination event, Skaneateles
Bancorp enters into a letter of intent or definitive agreement (i) to
consolidate or merge with any third party, and Skaneateles Bancorp is not the
continuing or surviving corporation in the consolidation or merger; (ii) to
permit any third party to merge into Skaneateles Bancorp, and Skaneateles
Bancorp is the continuing or surviving corporation, but, in connection with the
merger, the then outstanding shares of Skaneateles Bancorp's common stock will
be changed into or exchanged for stock or other securities of any third party or
cash or any other property or the then outstanding shares of Skaneateles
Bancorp's common stock will represent after the merger less than 50% of the
outstanding shares and share equivalents of the merged company; or (iii) to sell
or otherwise transfer all or substantially all of its assets to any third party,
then, the letter of intent or agreement governing the transaction must make
proper provision so that the Skaneateles Bancorp option will, upon the
completion of that transaction, be converted into, or exchanged for, a
substitute option, at the election of BSB Bancorp, of either (x) the acquiring
corporation or (y) any person that controls the acquiring corporation. The
substitute option will be exercisable for shares of the issuer's common stock in
a number and at a exercise price as is set forth in the option agreement and
will otherwise have the same terms as the Skaneateles Bancorp option, except
that the number of shares subject to the substitute option may not exceed 19.99%
of the issuer's outstanding shares of common stock.
40
<PAGE> 41
SELECTED DATA
The tables below present summary historical financial and other data for
BSB Bancorp and Skaneateles Bancorp as of the dates and for the periods
indicated. This summary data is based upon historical financial information
included in BSB Bancorp's and Skaneateles Bancorp's prior SEC filings, including
Skaneateles Bancorp's annual report on Form 10-K for the fiscal year ended
December 31, 1998, a copy of which is attached as Appendix B and is considered a
part of this proxy statement/prospectus, and other filings that are incorporated
by reference into this document. The following summary historical financial and
other data should be read in conjunction with this historical financial
information and the related notes which accompany such information. For
historical information, see "WHERE YOU CAN FIND MORE INFORMATION." All per share
data of BSB Bancorp and Skaneateles Bancorp have been adjusted retroactively to
give effect to stock dividends or stock splits.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA - BSB BANCORP
FINANCIAL CONDITION
AND OTHER DATA - BSB BANCORP
(DOLLARS IN THOUSANDS) AT MARCH 31, AT DECEMBER 31,
------------ ---------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Total assets.............................. $1,949,054 $1,859,079 $1,560,571 $1,363,120 $1,239,036 $1,161,901
Total loans............................... 1,485,364 1,362,885 1,205,797 1,008,540 927,016 865,082
Investment securities..................... 385,072 407,165 284,988 287,665 247,092 229,863
Deposits.................................. 1,521,588 1,472,746 1,239,508 1,118,052 1,006,465 962,780
Borrowings................................ 246,781 213,759 178,644 120,502 98,949 79,028
Shareholders' equity...................... 137,397 134,991 120,866 108,729 116,774 106,870
Allowance for possible credit losses...... 23,185 22,168 19,207 17,054 14,065 13,354
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA - BSB BANCORP
(DOLLARS IN THOUSANDS) AT MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------ ---------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Total interest income..................... $37,512 $146,005 $122,380 $106,252 $99,034 $84,924
Total interest expense.................... 19,247 75,267 62,016 52,471 50,421 39,201
Net interest income....................... 18,265 70,738 60,364 53,781 48,613 45,723
Provision for credit losses............... 3,236 12,257 10,314 9,971 7,333 3,717
Net interest income after provision
for credit losses..................... 15,029 58,481 50,050 43,810 41,280 42,006
Gains (losses) on sale of securities...... -396 -821 380 1,208 97 355
Gains (losses) on sale of loans........... -44 -779 -377 -34 -41 -952
Non-interest income....................... 2,208 7,701 6,298 8,140 6,672 5,501
Non-interest expense...................... 8,295 31,989 28,631 28,045 27,239 25,752
Income before income taxes................ 8,502 32,593 27,720 25,079 20,769 21,158
Income tax expense........................ 3,226 12,723 10,734 9,875 8,175 8,287
------- -------- -------- -------- ------- -------
Net income................................ $ 5,276 $ 19,870 $ 16,986 $ 15,204 $12,594 $12,871
======= ======== ======== ========= ======= =======
</TABLE>
41
<PAGE> 42
SIGNIFICANT STATISTICAL DATA - BSB BANCORP
<TABLE>
<CAPTION>
AT MARCH 31, AT OR FOR THE YEAR DECEMBER 31,
------------ ---------------------------------------------------------------------
FOR THE PERIOD: 1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share
Basic................................... $0.61 $2.31 $2.00 $1.72 $1.32 $1.30
Diluted................................. $0.60 $2.24 $1.93 $1.67 $1.27 $1.26
Dividends declared per common
share................................ $0.25 $0.91 $0.76 $0.59 $0.43 $0.36
Return on average shareholders' equity.... 15.53% 15.61% 14.65% 13.49% 10.89% 11.59%
Interest rate spread...................... 3.92% 4.12% 4.19% 4.22% 4.02% 4.04%
Interest rate margin...................... 4.06% 4.29% 4.39% 4.46% 4.30% 4.30%
Noninterest expenses to average assets.... 1.75% 1.84% 1.97% 2.20% 2.29% 2.31%
Diluted weighted average shares .......... 8,864,806 8,889,236 8,796,052 9,088,868 9,927,504 10,187,995
AT END OF PERIOD:
Book value per common share............... $15.85 $15.64 $14.12 $12.92 $12.47 $11.07
Tangible book value per common share...... $15.67 $15.45 $13.90 $12.66 $12.20 $10.78
Shareholders' equity to total
assets............................... 7.05% 7.26% 7.74% 7.98% 9.42% 9.20%
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA - SKANEATELES BANCORP
FINANCIAL CONDITION
AND OTHER DATA - SKANEATELES BANCORP
(DOLLARS IN THOUSANDS) AT MARCH 31, AT DECEMBER 31,
------------ -------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total assets.............................. $272,878 $276,148 $256,101 $242,182 $210,647 $201,841
Total loans............................... 215,332 214,745 214,555 206,645 171,565 167,009
Investment securities..................... 18,377 18,814 16,121 16,902 21,457 21,871
Deposits.................................. 234,846 237,333 218,018 205,029 179,119 170,696
Borrowings................................ 10,997 15,979 18,057 18,181 14,386 13,984
Shareholders' equity...................... 19,260 19,101 17,671 16,230 14,939 13,791
Allowance for possible credit losses...... 2,964 2,862 2,560 2,114 2,667 3,040
</TABLE>
<TABLE>
<CAPTION>
OPERATING DATA - SKANEATELES BANCORP
(DOLLARS IN THOUSANDS) AT MARCH 31, FOR THE YEAR ENDED DECEMBER 31,
------------ ----------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Total interest income..................... $4,963 $20,055 $18,965 $17,162 $15,871 $12,940
Total interest expense.................... 2,146 9,519 9,435 9,111 8,608 6,349
Net interest income....................... 2,817 10,536 9,530 8,051 7,263 6,591
Provision for credit losses............... 225 675 500 175 235 360
Net interest income after provision
for credit losses..................... 2,592 9,861 9,030 7,876 7,028 6,231
Gains (losses) on sale of securities...... 0 0 0 77 -99 7
Gains (losses) on sale of loans........... 50 206 81 34 14 -8
Non-interest income....................... 540 2,132 1,768 1,005 672 510
Non-interest expense...................... 2,791 9,676 8,308 7,418 6,211 5,580
Income before income taxes................ 391 2,523 2,571 1,574 1,404 1,160
Income tax expense........................ 130 874 909 93 352 177
------ ------ ------ ------ ------ -----
Net income................................ $ 261 $1,649 $1,662 $1,481 $1,052 $ 983
====== ====== ====== ====== ====== =====
</TABLE>
43
<PAGE> 44
SIGNIFICANT STATISTICAL DATA - SKANEATELES BANCORP
<TABLE>
<CAPTION>
AT MARCH 31, AT OR FOR THE YEAR DECEMBER 31,
------------ --------------------------------------------------------------------
FOR THE PERIOD: 1999 1998 1997 1996 1995 1994
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net income per common share
Basic................................... $0.18 $1.14 $1.16 $1.05 $0.76 $0.71
Diluted................................. $0.17 $1.11 $1.13 $1.03 $0.74 $0.70
Dividends declared per common
share................................ $0.07 $0.28 $0.27 $0.19 $0.13 $0.08
Return on average shareholders' equity.... 5.48% 8.92% 9.66% 9.43% 7.24% 7.27%
Interest rate spread...................... 3.87% 3.73% 3.66% 3.38% 3.36% 3.41%
Interest rate margin...................... 4.41% 4.23% 4.11% 3.76% 3.69% 3.72%
Noninterest expenses to average assets.... 4.13% 3.66% 3.38% 3.26% 3.00% 3.05%
Diluted weighted average shares .......... 1,512,765 1,492,172 1,475,824 1,444,887 1,421,202 1,400,142
AT END OF PERIOD:
Book value per common share............... $13.26 $13.17 $12.31 $11.41 $10.70 $9.93
Tangible book value per common share...... $12.90 $12.81 $11.97 $11.01 $10.61 $9.83
Shareholders' equity to total assets...... 7.06% 6.92% 6.90% 6.70% 7.09% 6.83%
</TABLE>
44
<PAGE> 45
MARKET PRICES AND DIVIDENDS
BSB BANCORP'S COMMON STOCK
The table below sets forth the range of high and low sale prices of BSB
Bancorp's common stock as reported on the Nasdaq Stock Market's National Market
Tier, as well as cash dividends paid during the periods indicated:
<TABLE>
<CAPTION>
Market Price
------------ Cash
High Low Dividends Paid
---- --- --------------
<S> <C> <C> <C>
Quarter Ended:
March 31, 1997............... 21.33 17.17 0.17
June 30, 1997................ 26.00 19.50 0.17
September 30, 1997........... 29.00 23.83 0.20
December 31, 1997............ 37.25 25.75 0.22
March 31, 1998............... 36.00 28.00 0.22
June 30, 1998................ 35.25 27.50 0.22
September 30, 1998........... 32.75 25.63 0.22
December 31, 1998............ 33.00 22.00 0.25
March 31, 1999............... 32.63 24.25 0.25
Period ended May 12, 1999............. 27.00 24.25 N/A
</TABLE>
On January 22, 1999, the last trading day prior to the public
announcement of the merger, the closing price of BSB Bancorp's common stock on
the Nasdaq Stock Market's National Market Tier was $28.75. On May 12, 1999, the
most recent practicable date prior to the printing of this proxy
statement/prospectus, the closing price of BSB Bancorp's common stock on the
Nasdaq Stock Market's National Market Tier was $25.92.
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<PAGE> 46
SKANEATELES BANCORP'S COMMON STOCK
The table below sets forth the range of high and low sale prices of
Skaneateles Bancorp's common stock as reported on the Nasdaq Stock Market's
National Market Tier, as well as cash dividends paid during the periods
indicated:
<TABLE>
<CAPTION>
Market Price
------------ Cash
High Low Dividends Paid
---- --- --------------
<S> <C> <C> <C>
Quarter Ended:
March 31, 1997............... 13.33 10.67 0.067
June 30, 1997................ 14.00 12.25 0.067
September 30, 1997........... 19.67 13.59 0.067
December 31, 1997............ 22.13 18.00 0.067
March 31, 1998............... 22.38 18.75 0.070
June 30, 1998................ 20.75 17.19 0.070
September 30, 1998........... 18.50 11.19 0.070
December 31, 1998............ 16.00 12.50 0.070
March 31, 1999............... 25.50 14.00 0.070
Period ended May 12, 1999............. 25.13 21.81 N/A
</TABLE>
On January 22, 1999, the last trading day prior to the public
announcement of the merger, the closing price of Skaneateles Bancorp's common
stock on the Nasdaq Stock Market's National Market Tier was $19.00. On May 12,
1999, the most recent practicable date prior to the printing of this proxy
statement/prospectus, the closing price of Skaneateles Bancorp's common stock on
the Nasdaq Stock Market's National Market Tier was $25.00.
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<PAGE> 47
DESCRIPTION OF BSB BANCORP'S CAPITAL STOCK AND
COMPARISON OF SHAREHOLDER RIGHTS
Set forth below is a description of BSB Bancorp's capital stock. If the
merger agreement is approved and adopted and the merger is consummated, the
holders of Skaneateles Bancorp's common stock will become holders of BSB
Bancorp's common stock. As a result, BSB Bancorp's certificate of incorporation
and bylaws, and the applicable provisions of the Delaware General Corporation
Law, will govern the rights of current holders of Skaneateles Bancorp's common
stock. The certificate of incorporation and bylaws of Skaneateles Bancorp and
the same applicable provisions of the Delaware General Corporation Law currently
govern the rights of Skaneateles Bancorp shareholders.
The following comparison is based on the current terms of the governing
documents of BSB Bancorp and Skaneateles Bancorp. The discussion is intended to
highlight important similarities and differences between the rights of holders
of BSB Bancorp's common stock and Skaneateles Bancorp's common stock.
BSB BANCORP COMMON STOCK
BSB Bancorp is authorized to issue 30,000,000 shares of common stock, par
value $0.01 per share. As of May 12, 1999, 8,673,184 shares of BSB Bancorp's
common stock were issued and outstanding and BSB Bancorp had outstanding stock
options granted to directors and officers for 837,211 shares of BSB Bancorp's
common stock. Each share of BSB Bancorp's common stock has the same relative
rights and is identical in all respects to each other share of BSB Bancorp's
common stock. BSB Bancorp's common stock is non-withdrawable capital, is not of
an insurable type and is not insured by the Federal Deposit Insurance
Corporation or any other governmental entity.
Holders of BSB Bancorp's common stock are entitled to one vote per share
on each matter properly submitted to shareholders for their vote, including the
election of directors. Holders of BSB Bancorp's common stock do not have the
right to cumulate their votes for the election of directors, and they have no
preemptive or conversion rights with respect to any shares that may be issued.
BSB Bancorp's common stock is not subject to additional calls or assessments by
BSB Bancorp, and all shares of BSB Bancorp's common stock currently outstanding
are fully paid and nonassessable. For a discussion of the voting rights of BSB
Bancorp's common stock, classification of BSB Bancorp's board of directors and
provisions of BSB Bancorp's certificate of incorporation and bylaws that may
prevent a change in control of BSB Bancorp or that would operate only with
respect to an extraordinary corporate transaction involving BSB Bancorp or its
subsidiaries, see "-- Certificate of Incorporation and Bylaw Provisions."
Holders of BSB Bancorp's common stock and any class or series of stock
entitled to participate with it are entitled to receive dividends declared by
the board of directors of BSB Bancorp out of any assets legally available for
distribution. In the unlikely event of any liquidation, dissolution or winding
up of BSB Bancorp, the holders of BSB Bancorp's common stock and any class or
series of stock entitled to participate with it would be entitled to receive all
remaining assets of BSB Bancorp available for distribution, in cash or in kind,
after payment or provision for payment of all debts and liabilities of BSB
Bancorp and after the liquidation preferences of all outstanding shares of any
class of stock having preference over BSB Bancorp's common stock have been fully
paid or set aside.
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<PAGE> 48
BSB BANCORP'S PREFERRED STOCK
BSB Bancorp's certificate of incorporation, as amended, authorizes its
board of directors, without further shareholder approval, to issue up to
2,500,000 shares of serial preferred stock, par value $0.01 per share, for any
proper corporate purpose. In approving any issuance of serial preferred stock,
the board of directors has broad authority to determine the rights and
preferences of the serial preferred stock, which may be issued in one or more
series. These rights and preferences may include voting, dividend, conversion
and liquidation rights that may be senior to BSB Bancorp's common stock. As of
the date of this proxy statement/prospectus, no shares of BSB Bancorp's
preferred stock have been issued.
The BSB Bancorp board of directors has authorized a class of preferred
stock designated "Series A Junior Participating Preferred Stock," consisting of
50,000 shares. Though none of these shares have been issued, shares of this
class of preferred securities have certain preferential rights and privileges
over shares of BSB Bancorp's common stock as to dividends, distributions and
voting rights and also have preferential rights and privileges in a liquidation,
dissolution or winding up of BSB Bancorp. If BSB Bancorp enters into any
consolidation, merger, combination or other transaction in which the shares of
BSB Bancorp's common stock are exchanged for securities, cash and/or any other
property, then shares of Series A Junior Participating Preferred Stock shall be
similarly exchanged in an amount per share equal to 100 times the aggregate
amount of securities, cash and/or any other property for which each share of BSB
Bancorp's common stock is changed or exchanged. The issuance of shares of Series
A Junior Participating Preferred Stock or other preferred shares having special
rights or preferences could have the effect of delaying or preventing a change
in control of BSB Bancorp even if such a change in control would be in the best
interest of the BSB Bancorp shareholders.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
The following discussion is a general summary of the material provisions
of BSB Bancorp's certificate of incorporation and bylaws, and a comparison of
those provisions to similar types of provisions in the restated certificate of
incorporation and bylaws of Skaneateles Bancorp. The discussion is necessarily
general and, with respect to provisions contained in BSB Bancorp's certificate
of incorporation and bylaws, reference should be made to the document in
question. Some of the provisions included in BSB Bancorp's certificate of
incorporation and bylaws may serve to entrench current management and to prevent
a change in control of BSB Bancorp even if desired by a majority of
shareholders. These provisions are designed to encourage potential acquirers to
negotiate directly with the board of directors of BSB Bancorp and to discourage
other takeover attempts.
DIRECTORS. The certificate of incorporation provides that the board of
directors will be divided into three classes, with directors in each class
elected for three-year staggered terms. The bylaws provide that no person shall
be eligible for election, reelection, appointment or reappointment to the board
of directors if such person is more than 70 years of age.
BSB Bancorp's certificate of incorporation provides that a vacancy
occurring in the board of directors, including a vacancy created by any increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. BSB Bancorp's
certificate of incorporation provides that a director may be removed only for
cause, and then only by the affirmative vote of a majority of the total votes
eligible to be voted at a duly constituted meeting of shareholders called
expressly for that purpose. BSB Bancorp's certificate of incorporation also
provides that 30 days' written notice must be provided to any director or
directors whose removal is to be considered at a shareholders' meeting. Cause
for removal exists only in two situations: (i) the director whose removal is
proposed has been convicted of a felony by a court of competent jurisdiction or
(ii) the director whose removal is proposed has been adjudged by a court of
competent jurisdiction
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<PAGE> 49
to be liable for gross negligence or misconduct in the performance of such
director's duty to BSB Bancorp and such adjudication is no longer subject to
direct appeal.
BSB Bancorp's certificate of incorporation and Skaneateles Bancorp's
bylaws each impose restrictions on the nomination by shareholders of candidates
for election to the board of directors and the proposal by shareholders of
business to be acted upon at an annual meeting of shareholders.
CALL OF SPECIAL MEETINGS. BSB Bancorp's certificate of incorporation
provides that a special meeting of shareholders may be called only by an
affirmative vote of the board of directors. Shareholders are not authorized to
call a special meeting. On the other hand, Skaneateles Bancorp's restated
certificate of incorporation provides that a special meeting of shareholders may
be called at any time by the Chairman of the board of directors, the President
of the company, the board of directors or the holders of not less than
two-thirds of the outstanding shares of capital stock entitled to vote in the
election of directors.
SHAREHOLDER ACTION WITHOUT A MEETING. BSB Bancorp's certificate of
incorporation and Skaneateles Bancorp's restated certificate of incorporation
each provide that shareholders may act without a meeting by unanimous written
consent.
LIMITATION ON LIABILITY OF DIRECTORS AND INDEMNIFICATION. BSB Bancorp's
certificate of incorporation and Skaneateles Bancorp's restated certificate of
incorporation each provide that no director shall be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director other than liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) for any payment of a dividend or approval of a stock
repurchase that is illegal under Section 174 of the Delaware corporation law, or
(iv) for any transaction from which a director derived an improper personal
benefit.
BSB Bancorp's certificate of incorporation provides for indemnification
of directors, officers, employees and agents of BSB Bancorp, and for those
serving in those roles with other business organizations or entities in the
event that the person was or is made a party to or is threatened to be made a
party to any civil, criminal, administrative or investigative action, suit, or
proceeding by reason of the fact that the person is or was serving in that
capacity for or on behalf of BSB Bancorp. The certificate of incorporation also
provides that BSB Bancorp will indemnify any such person against expenses,
including attorneys' fees, judgments, fines, excise taxes and amounts paid in
settlement, unless such person's acts or omissions were in breach of his or her
duty of loyalty to BSB Bancorp or its shareholders, were not in good faith,
involved a knowing violation of law or resulted in the receipt of an improper
personal benefit. In addition, BSB Bancorp's certificate of incorporation
permits the corporation to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of BSB Bancorp or
is acting in this capacity for another business organization or entity at BSB
Bancorp's request, against any liability asserted against the person and
incurred in that capacity, or arising out of that status, whether or not BSB
Bancorp would have the power or obligation to indemnify him against liability
under the indemnification provisions of its certificate of incorporation. The
bylaws of Skaneateles Bancorp contains provisions that are similar in most
respects.
CUMULATIVE VOTING. BSB Bancorp's certificate of incorporation denies
cumulative voting rights in the election of directors. Skaneateles Bancorp's
restated certificate of incorporation denies cumulative voting rights in respect
of its common stock in the election of directors.
PREEMPTIVE RIGHTS. BSB Bancorp's certificate of incorporation and
Skaneateles Bancorp's restated certificate of incorporation each provide that
shareholders have no preemptive rights in relation to the corporation's
securities.
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<PAGE> 50
NOTICE OF SHAREHOLDER MEETINGS. BSB Bancorp's bylaws require that notice
be given not less than 10 nor more than 60 days prior to each annual or special
meeting of shareholders. Skaneateles Bancorp's bylaws require that notice of an
annual or special shareholder meeting be given not less than 20 nor more than 50
days prior to such a meeting.
QUORUM. BSB Bancorp's bylaws provide that the holders of a majority of
the capital stock issued and outstanding and entitled to vote at a meeting
constitutes a quorum. The bylaws of Skaneateles Bancorp provide that the holders
of one-third of the stock entitled to vote at a meeting constitutes a quorum.
GENERAL VOTE. BSB Bancorp's bylaws provide that any matter brought before
a meeting of shareholders shall be decided by the affirmative vote of a majority
of the votes cast on the matter. Skaneateles Bancorp's bylaws provide that at
all shareholders meetings, all questions shall be determined by the affirmative
vote of a majority of the votes cast on the matter unless otherwise required by
statute, the restated certificate of incorporation or the bylaws.
RECORD DATE. BSB Bancorp's bylaws provide that the record date for
determination of shareholders entitled to notice of or to vote at a meeting and
for other specified purposes shall not be less than 10 nor more than 60 days
before the date of the meeting or other action.
AUTHORIZED AND OUTSTANDING COMMON STOCK. See "-- BSB Bancorp's Common
Stock" as to authorized and currently outstanding shares of BSB Bancorp's common
stock. The restated certificate of incorporation of Skaneateles Bancorp
authorizes 4,000,000 shares of Skaneateles Bancorp's common stock, par value
$.01 per share, of which 1,454,247 shares were outstanding as of May 12, 1999.
In addition, as of May 12, 1999, there were outstanding options and warrants to
purchase Skaneateles Bancorp's common stock granted to officers, directors and
other employees of Skaneateles Bancorp for 116,675 shares of Skaneateles
Bancorp's common stock, plus the option for 290,142 shares of Skaneateles
Bancorp's common stock granted to BSB Bancorp in connection with the merger.
AUTHORIZED SERIAL PREFERRED STOCK. See "-- BSB Bancorp Preferred Stock"
as to the authorized shares of serial preferred stock of BSB Bancorp. The
restated certificate of incorporation of Skaneateles Bancorp authorizes 500,000
shares of Skaneateles Bancorp's preferred stock, par value $0.01 per share. As
of the date of this proxy statement/prospectus, no shares of Skaneateles
Bancorp's preferred stock have been issued or are outstanding.
DIVIDEND AND LIQUIDATION RIGHTS. For a description of the provisions of
BSB Bancorp's certificate of incorporation with respect to dividends and
liquidation rights, see "-- BSB Bancorp's Common Stock." Holders of Skaneateles
Bancorp's common stock and any class or series of stock entitled to participate
with it are entitled to receive dividends declared by the board of directors of
Skaneateles Bancorp out of any assets legally available for distribution. In the
event of any liquidation, dissolution or winding up of Skaneateles Bancorp, the
holders of Skaneateles Bancorp's common stock and any class or series of stock
entitled to participate with it would be entitled to receive all remaining
assets of Skaneateles Bancorp available for distribution, in cash or in kind,
after payment or provision for payment of all debts and liabilities of
Skaneateles Bancorp and after the liquidation preferences of all outstanding
shares of any class of stock having preference over Skaneateles Bancorp's common
stock have been fully paid or set aside.
APPROVALS FOR ACQUISITIONS OF CONTROL AND OFFERS TO ACQUIRE CONTROL. BSB
Bancorp's certificate of incorporation and bylaws do not contain any provisions
requiring shareholder or director approval for acquisitions of control or offers
to acquire control, except in connection with certain business combinations; see
"-- Procedure for Business Combinations." The restated certificate of
incorporation of Skaneateles Bancorp provides that no person may acquire ten
percent or more of the "voting stock," which means all of the outstanding shares
of capital stock entitled to
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<PAGE> 51
vote generally in the election of directors, of the corporation unless such
acquisition is approved by the affirmative vote of the holders of at least
two-thirds of the voting stock and the necessary federal and state regulatory
approvals are first obtained. Furthermore, the person proposing the acquisition
must also either obtain the consent of certain additional regulatory agencies or
at least two-thirds of the members of the board of directors.
PROCEDURES FOR BUSINESS COMBINATIONS. BSB Bancorp's certificate of
incorporation requires that certain significant business combinations between
BSB Bancorp or any majority-owned subsidiary of BSB Bancorp and a 10% or more
shareholder or its affiliates or associates, referred to as a "related person,"
be approved by holders of a majority of all of the outstanding shares of common
or preferred stock that are entitled to vote generally in the election of
directors as well as holders of a majority of such shares not including the
shares held by the related person. There is, however, an exception: such
business combinations shall only require the affirmative vote of shareholders as
generally required by law or the certificate of incorporation if the business
combination is approved by a majority of BSB Bancorp's directors and, unless the
related person was not a related person at the time of such vote of the
directors, a majority of the "continuing directors," who are directors that are
unaffiliated with the related person and were members of the board of directors
immediately prior to the time that the related person became a related person (a
director also qualifies as a continuing director if he or she succeeded a
continuing director, was recommended to succeed the continuing director by a
majority of the then-existing continuing directors and is unaffiliated with the
related person), and the business combination meets specified price and
procedural requirements. Skaneateles Bancorp's restated certificate of
incorporation contains an almost identical provision, except that the equivalent
of the "related person" applies to a five percent shareholder of the corporation
or an affiliate of the corporation that was a five percent shareholder within
the previous two years of the time of determination.
ANTI-GREENMAIL. BSB Bancorp's certificate of incorporation and bylaws do
not contain any provisions restricting the acquisition of significant
percentages of the stock of the corporation, except in the context of certain
business combinations; see "-- Procedures for Business Combinations." The
Skaneateles Bancorp restated certificate of incorporation provides that any
acquisition of voting stock by any person that has been a five percent or more
shareholder during the past two years from the date of determination requires
approval of a majority of the shares of voting stock, not including those shares
owned by the person proposing the acquisition, except as part of a tender offer
to all holders of the same class of voting stock on the same terms or if the
purchase price does not exceed the fair market value of the voting stock as
determined by the board of directors on the basis of the average of the closing
prices of the voting stock on the previous 20 trading days.
CRITERIA FOR EVALUATING CERTAIN OFFERS. BSB Bancorp's certificate of
incorporation and bylaws do not contain any criteria for evaluating offers. The
Skaneateles Bancorp restated certificate of incorporation provides that the
board of directors, when evaluating any acquisition offers, shall give due
consideration to all relevant factors, including, without limitation, the
economic effects of acceptance of the offer on depositors, borrowers and
employees of its insured institution subsidiaries and on the communities in
which such subsidiaries operate or are located, as well as on the ability of
such subsidiaries to fulfill the objectives of insured institutions under
applicable federal statutes and regulations.
AMENDMENTS TO CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to BSB
Bancorp's certificate of incorporation must be approved by holders of at least
two-thirds of the shares eligible to be cast at a legal meeting, except that if
an amendment is proposed or ratified by 75% or more of the board of directors,
then such amendment shall only require the affirmative vote of the holders of a
majority of the shares eligible to be cast at a legal meeting. BSB Bancorp's
bylaws may be amended by the affirmative vote of a majority of the board of
directors or by the shareholders by a majority of the total votes eligible to be
voted at a regular or special meeting of the shareholders.
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<PAGE> 52
Amendments to Skaneateles Bancorp's restated certificate of incorporation
must be approved by at least two-thirds of Skaneateles Bancorp's board of
directors at a duly constituted meeting called for such purpose and also by the
shareholders by the affirmative vote of at least a majority of the shares
entitled to vote thereon at a duly called annual or special meeting; provided,
however, that approval by the affirmative vote of at least two-thirds of the
shares entitled to vote thereon is generally required for certain provisions. In
addition, the provisions regarding certain business combinations and amendments
to the certificate of incorporation may be amended only by the affirmative vote
of at least 80% of the shares entitled to vote thereon. Skaneateles Bancorp's
bylaws may be amended by the affirmative vote of at least two-thirds of the
board of directors or by the shareholders by a vote of at least two-thirds of
the total votes eligible to be voted, at a duly constituted meeting called for
such purpose.
APPLICABLE LAW
The following discussion is a general summary of particular Delaware and
New York statutory provisions and federal statutory and regulatory provisions
that may be deemed to have an anti-takeover effect.
DELAWARE TAKEOVER STATUTE. Section 203 of the Delaware General
Corporation Law applies to Delaware corporations with a class of voting stock
listed on a national securities exchange, authorized for quotation on The Nasdaq
Stock Market, or held of record by 2,000 or more persons, and restricts
transactions which may be entered into by such a corporation and certain of its
shareholders. Section 203 provides, in essence, that an "interested
stockholder," defined as a stockholder acquiring more than 15%, but less than
85%, of the outstanding voting stock of a corporation subject to the statute and
such person's affiliates and associates, may not engage in certain "business
combinations" (as defined therein and discussed below) with the corporation for
a period of three years subsequent to the date on which the shareholder became
an interested stockholder unless (i) prior to such date the corporation's board
of directors approved either the business combination or the transaction in
which the shareholder became an interested person or (ii) the business
combination is approved by the corporation's board of directors and authorized
by a vote of at least two-thirds of the outstanding voting stock of the
corporation not owned by the interested person.
Section 203 defines the term "business combination" to include a wide
variety of transactions with or caused by an interested person in which the
interested person receives or could receive a benefit on other than a pro rata
basis with other shareholders, including mergers, certain asset sales, certain
issuances of additional shares to the interested person, transactions with the
corporation which increase the proportionate interest of the interested person
or transactions in which the interested person receives certain other benefits.
The BSB Bancorp certificate of incorporation provides that BSB Bancorp
has elected not to be governed by the terms of Section 203. There is no similar
provision in the Skaneateles Bancorp restated certificate of incorporation or
bylaws.
FEDERAL LAW. Federal law provides that, subject to some exemptions, no
person acting directly or indirectly or through or in concert with one or more
other persons may acquire control of an insured institution or holding company
thereof, without giving at least 60 days prior written notice providing
specified information to the appropriate federal banking agency. In the case of
BSB Bancorp and BSB Bank, the appropriate federal banking agency is the Federal
Reserve Board and the Federal Deposit Insurance Corporation, respectively.
Control is defined for this purpose as the power, directly or indirectly, to
direct the management or policies of an insured institution or to vote 25% or
more of any class of voting securities of an insured institution. Control is
presumed to exist where the acquiring party has voting control of at least 10%
of any class of the institution's voting securities and other conditions are
present. The Federal Reserve Board or the FDIC may prohibit
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<PAGE> 53
the acquisition of control if the agency finds, among other things, that (i) the
acquisition would result in a monopoly or substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the institution; or (iii) the competence, experience or integrity
of any acquiring person or any of the proposed management personnel indicates
that it would not be in the interest of the depositors or the public to permit
the acquisition of control by that person.
NEW YORK LAW. The New York Banking Law generally requires prior approval
of the New York Banking Board before any action is taken that causes any company
to acquire direct or indirect control of a banking institution that is organized
in the State of New York. For this purpose, the term "company" is defined to
include corporations, partnerships and other types of business entities,
chartered or doing business in New York, and an individual or combination of
individuals acting in concert and residing or doing business in New York, and
the term "control" is defined generally to mean the power to direct or cause the
direction of the management and policies of the banking institution and is
presumed to exist if the company owns, controls or holds with power to vote 10%
or more of the voting stock of the banking institution.
WHERE YOU CAN FIND MORE INFORMATION
BSB Bancorp and Skaneateles Bancorp file annual, quarterly and special
reports, proxy statements and other information with the Securities and Exchange
Commission. A copy of Skaneateles Bancorp's annual report on Form 10-K for the
fiscal year ended December 31, 1998 is attached as Appendix B and is considered
a part of this proxy statement/prospectus. You may read and copy any other
reports, statements or information that BSB Bancorp or Skaneateles Bancorp files
with the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. You may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an
Internet site that contains reports, proxy and information statements and other
information about issuers that file electronically with the SEC. The address of
the SEC's Internet site is "http://www.sec.gov". BSB Bancorp can be found on the
Internet at "http://www.bsbbank.com". Skaneateles Bancorp can be found on the
Internet at "http://www.skaneatelesbank.com". BSB Bancorp's common stock is
traded on the Nasdaq Stock Market's National Market Tier under the trading
symbol BSBN. Skaneateles Bancorp's common stock is traded on the Nasdaq Stock
Market's National Market Tier under the trading symbol SKAN.
BSB Bancorp has filed with the SEC a registration statement on Form S-4
under the Securities Act of 1933 relating to BSB Bancorp's common stock to be
issued to Skaneateles Bancorp's shareholders in the merger. As permitted by the
rules and regulations of the SEC, this proxy statement/prospectus does not
contain all the information set forth in the registration statement. You can
obtain that additional information from the SEC's principal office in
Washington, D.C. or the SEC's Internet site as described above. Statements
contained in or accompanying this proxy statement/prospectus or in any document
incorporated by reference into this proxy statement/prospectus about the
contents of any contract or other document are not necessarily complete and, in
each instance where the contract or document is filed as an exhibit to the
registration statement, reference is made to the copy of that contract or
document filed as an exhibit to the registration statement, with each statement
of that kind in this proxy statement/prospectus being qualified in all respects
by reference to the document.
The SEC allows BSB Bancorp and Skaneateles Bancorp to incorporate by
reference information into this proxy statement/prospectus, which means that BSB
Bancorp and Skaneateles Bancorp can disclose important information to you by
referring you to another document filed separately with the SEC. The information
that BSB Bancorp and Skaneateles Bancorp incorporate by reference is considered
a part of this proxy statement/prospectus, except for any information superseded
by information presented in this proxy statement/prospectus. This proxy
statement/prospectus incorporates important business and financial information
about BSB Bancorp
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and its subsidiaries that is not included in or delivered with this document.
All documents subsequently filed by BSB Bancorp and Skaneateles Bancorp pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
prior to the date of the special meeting are deemed to be incorporated by
reference into this proxy statement/prospectus, effective upon the date such
documents are filed.
BSB BANCORP DOCUMENTS
This proxy statement/prospectus incorporates by reference the documents
listed below that BSB Bancorp has filed with the SEC:
<TABLE>
<CAPTION>
FILINGS PERIOD OF REPORT OR DATE FILED
- ------- ------------------------------
<S> <C>
- - Current Report on Form 8-K Filed February 3, 1999
- - Annual Report on Form 10-K Year ended December 31, 1998
- - Quarterly Report on Form 10-Q Quarter ended March 31, 1999
</TABLE>
THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO YOU IF YOU CALL OR WRITE
TO: LARRY DENNISTON, BSB BANCORP, INC., 58-68 EXCHANGE STREET, BINGHAMTON, NEW
YORK 13902, TELEPHONE (607) 779-2406. IN ORDER TO OBTAIN TIMELY DELIVERY OF
DOCUMENTS, YOU SHOULD REQUEST INFORMATION AS SOON AS POSSIBLE, BUT NO LATER THAN
JUNE 21, 1999.
SKANEATELES BANCORP DOCUMENTS
This proxy statement/prospectus incorporates by reference the documents
listed below that Skaneateles Bancorp has filed with the SEC:
<TABLE>
<CAPTION>
FILINGS PERIOD OF REPORT OR DATE FILED
- ------- ------------------------------
<S> <C>
- - Current Report on Form 8-K Filed January 27, 1999
- - Quarterly Report on Form 10-Q Quarter ended March 31, 1999
</TABLE>
THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE TO YOU IF YOU CALL OR WRITE
TO: J. DANIEL MOHR, TREASURER OF SKANEATELES BANCORP, INC., 33 EAST GENESEE
STREET, P .O. BOX 460, SKANEATELES, NEW YORK 13152, TELEPHONE (315) 685-2265. IN
ORDER TO OBTAIN TIMELY DELIVERY OF DOCUMENTS, YOU SHOULD REQUEST INFORMATION AS
SOON AS POSSIBLE, BUT NO LATER THAN JUNE 21, 1999.
ADJOURNMENT OF SHAREHOLDER MEETING
The holders of Skaneateles Bancorp's common stock will be asked to
approve, if necessary, the adjournment of the shareholder meeting to solicit
further votes in favor of the merger agreement. If you vote against the merger
agreement, your proxy may not be used by management to vote in favor of an
adjournment pursuant to its discretionary authority.
SHAREHOLDER PROPOSALS
If the merger agreement is approved and the merger takes place,
Skaneateles Bancorp will not have an annual meeting of shareholders in 1999. If
the merger does not take place, Skaneateles Bancorp anticipates that its 1999
annual meeting will be held in September 1999. Any proposal intended to be
presented by a Skaneateles Bancorp shareholder for inclusion in Skaneateles
Bancorp's proxy statement for its 1999 annual meeting (if held) must have been
received by Skaneateles Bancorp at its principal executive offices at 33 East
Genesee Street, P.O. Box 460, Skaneateles, New York 13152 not less than 20 days
before the date of the meeting. Skaneateles Bancorp has received one shareholder
proposal that requested that the board of directors pursue a sale of the company
on terms
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which were beneficial to the stockholders. Given the fact that the board has
already done so, the company applied to the SEC for authorization to exclude
this proposal from any proxy statement it may issue in relation to any annual
meeting it may hold. This application was subsequently granted on procedural
grounds.
OTHER MATTERS
It is not expected that any matters other than those described in this
proxy statement/ prospectus will be brought before the shareholder meeting. If
any other matters are presented, however, it is the intention of the persons
named in the Skaneateles Bancorp proxy to vote proxies in accordance with the
determination of a majority of Skaneateles Bancorp's board of directors,
including, without limitation, a motion to adjourn or postpone the shareholder
meeting to another time and/or place for the purpose of soliciting additional
proxies in order to approve the merger agreement or otherwise.
EXPERTS
The consolidated financial statements of BSB Bancorp, at December 31,
1998 and 1997, and for each of the years in the three-year period ended December
31, 1998, have been incorporated by reference into this proxy
statement/prospectus and in the registration statement in reliance on the report
of PricewaterhouseCoopers LLP, independent certified public accountants, which
is incorporated by reference into this proxy statement/prospectus and in the
registration statement and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Skaneateles Bancorp, Inc. and
subsidiary as of December 31, 1998 and 1997, and for each of the years in the
three-year period ended December 31, 1998 included in Skaneateles Bancorp Inc.'s
annual report on Form 10-K for the fiscal year ended December 31, 1998, which is
attached to this proxy statement/prospectus as Appendix B, have been audited by
KPMG LLP, independent certified public accounts, and are included with and
considered a part of this registration statement in reliance upon the authority
of said firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of BSB Bancorp's common stock to be issued in the merger is
being passed upon by Hogan & Hartson L.L.P., Washington, D.C. Additionally,
Hogan & Hartson L.L.P. will be passing upon tax matters in connection with the
merger.
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APPENDIX A
The Board of Directors
Skaneateles Bancorp, Inc.
33 East Genesee Street
Skaneateles, New York 13152
The Board of Directors:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Skaneateles Bancorp, Inc. ("SKAN") of the
exchange ratio governing the exchange of shares of common stock of SKAN for
shares of common stock of BSB Bancorp, Inc. ("BSBN") in connection with the
proposed acquisition of SKAN by BSBN pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") dated January 25, 1999 by and between SKAN and BSBN.
Pursuant to the Merger Agreement, SKAN will merge with and into BSBN, with BSBN
being the surviving corporation.
As is more specifically set forth in the Merger Agreement, upon
consummation of the merger, each outstanding share of SKAN common stock, except
for shares held by BSBN and its subsidiaries or by SKAN and its subsidiaries (in
both cases, other than shares held in a fiduciary capacity or as a result of
debts previously contracted), will be converted into and exchangeable for 0.97
shares of BSBN common stock (subject to adjustment under certain defined
circumstances). The exchange ratio referenced is a fixed exchange ratio and
consequently the market value of the consideration to be received by SKAN
stockholders will fluctuate with changes in BSBN's stock price. The Merger
Agreement may be terminated under certain conditions prior to the effective time
of the merger by the Board of Directors of either party based on defined
criteria.
McConnell, Budd & Downes, Inc., as part of its investment banking
business, is regularly engaged in the valuation of bank holding companies and
banks, thrift holding companies and thrifts and their securities in connection
with mergers and acquisitions, negotiated underwritings, private placements,
competitive bidding processes, market making as a NASD market maker, secondary
distributions of listed securities and valuations for corporate, estate and
other purposes. Our experience and familiarity with SKAN includes having worked
as a financial advisor to SKAN since July of 1993 on a contractual basis and
specifically includes our participation in the process and negotiations leading
up to the proposed merger with BSBN. In the course of our role as financial
advisor to SKAN in connection with the merger, we have received fees for our
services and will receive additional fees contingent on the occurrence of
certain defined events. While the payment of all or a significant portion of
fees related to financial advisory services provided in connection with
arm's-length mergers and other business combination transactions upon
consummation of such transactions, as is the case with this transaction, might
be viewed as giving such financial advisors a financial interest in the
successful completion of such transactions, such compensation arrangements are
standard and customary for transactions of the size and type of this
transaction.
In arriving at our opinion, we have reviewed the Merger Agreement. We
have also reviewed publicly available business, financial and shareholder
information relating to SKAN and its subsidiaries and certain publicly available
financial and shareholder information relating to BSBN.
In connection with the foregoing, we have (i) reviewed SKAN's Annual
Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the four calendar years ended December 31, 1998 and SKAN's
Quarterly Report on Form 10-Q and related unaudited financial information for
the first, second and third quarters of 1998; (ii) reviewed BSBN's Annual
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Reports to Stockholders, Annual Reports on Form 10-K and related financial
information for the four calendar years ended December 31, 1998 and BSBN's
Quarterly Report on Form 10-Q and related unaudited financial information for
the first, second and third quarters of 1998; (iii) reviewed certain internal
financial information and financial forecasts, relating to the business,
earnings, cash flows, assets and prospects of the respective companies furnished
to McConnell, Budd & Downes, Inc. by SKAN and BSBN, respectively; (iv) held
discussions with members of the senior management and board of SKAN concerning
the past and current results of operations of SKAN, its current financial
condition and management's opinion of its future prospects; (v) held discussions
with members of senior management of BSBN concerning the past and current
results of operations of BSBN, its current financial condition and management's
opinion of its future prospects; (vi) reviewed the historical record of reported
prices, trading volume and dividend payments for both SKAN and BSBN common
stock; (vii) considered the current state of and future prospects for the
economy of Central New York generally and the relevant market areas for SKAN and
BSBN in particular; (viii) reviewed specific merger analysis models employed by
McConnell, Budd & Downes, Inc. to evaluate potential business combinations of
financial institutions; (ix) reviewed the reported financial terms of selected
recent business combinations in the banking industry; and (x) performed such
other studies and analyses as McConnell, Budd & Downes, Inc. considered
appropriate under the circumstances associated with this particular transaction.
In the course of our review and analysis we considered, among other
things, such topics as the historical and projected future contributions of
recurring earnings by the parties, the anticipated future earnings per share
results for the parties on both a combined and stand-alone basis, the potential
to realize significant recurring operating expense reductions and the impact
thereof on projected future earning per share, the relative capitalization and
capital adequacy of each of the parties, the availability of non-interest income
to each of the parties, the relative asset quality and apparent adequacy of the
reserve for loan losses for each of the parties. We also considered the
composition of deposits and the composition of the loan portfolio of each of
SKAN and BSBN. In addition, we considered the historical trading range, trading
pattern and relative market liquidity of the common shares of each of the
parties. In the conduct of our review and analysis we have relied upon and
assumed, without independent verification, the accuracy and completeness of the
financial information provided to us by SKAN and BSBN and or otherwise publicly
obtainable. In reaching our opinion we have not assumed any responsibility for
the independent verification of such information or any independent valuation or
appraisal of any of the assets or the liabilities of either SKAN or BSBN, nor
have we obtained from any other source, any current appraisals of the assets or
liabilities of either SKAN or BSBN. We have also relied on the management of
SKAN and BSBN as to the reasonableness of various financial and operating
forecasts and of the assumptions on which they are based, which were provided to
us for use in our analyses.
In the course of rendering this opinion, which is being rendered prior to
the receipt of certain required regulatory approvals necessary before
consummation of the merger, we assume that no conditions will be imposed by any
regulatory agency in connection with its approval of the merger that will have a
material adverse effect on the results of operations, the financial condition or
the prospects of BSBN following consummation of the merger.
Based upon and subject to the foregoing, it is our opinion, that as of
the date of this letter, the exchange ratio is fair to the stockholders of SKAN
from a financial point of view.
Very truly yours,
McConnell, Budd & Downes, Inc.
A-2
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APPENDIX B
Appendix B is omitted. See Skaneateles Bancorp, Inc.'s Annual Report on Form
10-K, filed with the SEC on March 26, 1999.
B-1
