SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 9, 1998
PULSE BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its Charter)
New Jersey 0-18764 22-3016360
- ---------------------------- -------------- ---------------------
(State or other jurisdiction (SEC File No.) (IRS Employer
of incorporation) Identification
Number)
6 Jackson Street, South River, New Jersey 08882
- ------------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(732) 257-2400
--------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last Report)
<PAGE>
PULSE BANCORP, INC.
Item 5. Other Events
- ---------------------
The registrant issued a press release on July 9, 1998, announcing that
it had signed a definitive merger agreement (the "Agreement") with First Source
Bancorp, Inc. ("First Source"), dated July 9, 1998, for the acquisition by First
Source of all of the outstanding common stock of the registrant. Among other
things, two directors of the registrant will become directors of First Source
upon completion of the acquisition. A stock option agreement was executed by
First Source and the registrant.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
- ---------------------------------------------------------------------------
Exhibit 99.1 -- Press Release Concerning Merger Agreement dated July 9, 1998.
- ------------
Exhibit 99.2 -- Agreement and Plan of Merger dated as of July 9, 1998.
- ------------
Exhibit 99.3 -- Stock Option Agreement dated as of July 9, 1998.
- ------------
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PULSE BANCORP, INC.
Date: July 13, 1998 By: /s/ George T. Hornyak, Jr.
---------------------------------------------
George T. Hornyak, Jr.
President, Chief Executive Officer
and Director (Principal Executive
Officer)
EXHIBIT 99.1
<PAGE>
FOR IMMEDIATE RELEASE
Contacts: Christopher Martin
Executive Vice President
Chief Operating & Financial Officer
First Source Bancorp, Inc.
(732) 726-9700 ext. 5124
George Hornyak, Jr.
President & Chief Executive Officer
Pulse Bancorp, Inc.
(732) 257-2400
First Source Bancorp, Inc. Announces Merger with
Pulse Bancorp,Inc.
Woodbridge, NJ, July 9, 1998/PRNewswire/ -- First Source Bancorp, Inc.
(Nasdaq: FSLA) ("First Source"), a Woodbridge, New Jersey based thrift holding
company and parent to First Savings Bank, SLA, announced today the execution of
a definitive agreement for Pulse Bancorp, Inc. (Nasdaq: PULS) ("Pulse"), South
River, New Jersey, parent company of Pulse Savings Bank, to merge with and into
First Source. Pulse is a thrift holding company whose subsidiary bank operates
five branch offices in Middlesex and Mercer counties with a sixth branch
expected to open in the fourth quarter of 1998.
Pulse has total assets of approximately $540.0 million, loans of $140.3
million, deposits of $428.1 million and stockholders' equity of $45.0 million.
First Source will issue approximately 10.0 million shares of its common stock
for all of the outstanding shares of Pulse in a tax-free exchange accounted for
as a pooling-of-interests. The definitive agreement provides for an exchange
ratio, whereby shareholders of Pulse will receive $32.00 of First Source stock,
or 3.2 shares of First Source stock if the market price of First Source stock
exceeds $10.00 per share, for each share of Pulse, subject to adjustment or
termination if the price of First Source is less than $8.50 per share or more
than $11.50 per share. Total transaction value is approximately $100 million.
In connection with the execution of the definitive agreement, Pulse has
granted to First Source an option to purchase 19.9% of Pulse's outstanding
common stock and agreed to compensate First Source for termination of the
contract under certain circumstances. The transaction is subject to approval by
shareholders of each company, the New Jersey Department of Banking and Insurance
and the Office of Thrift Supervision. The transaction is expected to close
during the fourth quarter of 1998. On a pro forma basis, as of March 31, 1998
(also pro forma for First Source's "second step"
<PAGE>
stock conversion, which was completed on April 8, 1998), First Source would have
had total assets of approximately $1.7 billion, total stockholders' equity of
$299.1 million and more than 41.7 million shares of common stock outstanding.
The holding company will do business through 23 branch offices in Middlesex,
Monmouth, Mercer and Union counties, New Jersey.
First Source's President and Chief Executive Officer, John P. Mulkerin,
said "This transaction will combine two strong, community oriented institutions
with similar operating strategies. It will yield immediate benefits for both
institutions' shareholders, employees and customers."
George Hornyak, President and Chief Executive Officer of Pulse, who
will be one of two Pulse board members joining the Board of First Source,
stated: "We are pleased to be joining with First Source to become part of the
largest Middlesex County based retail depository institution. We look forward to
involvement as directors and shareholders."
First Source had total assets of $1.2 billion, deposits of $819.5
million and stockholders' equity of $104.2 million at March 31, 1998, which does
not reflect the "second step" stock offering. As a result of the "second step",
First Source raised $165.6 million of gross proceeds. First Source Bancorp, Inc.
is the holding company for First Savings Bank, SLA, operating 17 full service
banking offices headquartered in Woodbridge, New Jersey.
Statements made in this release about management's intentions, hopes,
beliefs, expectations or predictions of the future are forward-looking
statements. It is important to note that actual results could differ materially
from those projected in such forward-looking statements. Factors that could
cause future results to vary materially from current expectations include, but
are not limited to, changes in interest rates, competition by larger financial
institutions, legislation and regulatory changes in the economy generally and in
business conditions in the New Jersey market and management's ability to timely
integrate the companies.
EXHIBIT 99.2
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 9, 1998, by and among
First Source Bancorp, Inc., a Delaware corporation ("Buyer") and Pulse Bancorp,
Inc., a New Jersey corporation (the "Company"). (Buyer and the Company are
herein sometimes collectively referred to herein as the "Constituent
Corporations".)
WHEREAS, the Boards of Directors of Buyer and the Company have
determined that it is in the best interests of their respective companies and
their shareholders to consummate the business combination transaction provided
for herein in which the Company will, subject to the terms and conditions set
forth herein, merge (the "Merger") with and into Buyer; and
WHEREAS, as soon as practicable after the execution and delivery of
this Agreement and Plan of Merger ("Agreement"), First Savings Bank, SLA, a New
Jersey chartered stock savings and loan association and a wholly owned
subsidiary of Buyer ("First Savings Bank", and sometimes referred to herein as
the "Surviving Bank"), and Pulse Savings Bank, a New Jersey chartered stock
savings bank and a wholly owned subsidiary of the Company (the "Company Bank"),
will enter into a Subsidiary Agreement and Plan of Merger (the "Bank Merger
Agreement") providing for the merger (the "Subsidiary Merger") of the Company
Bank with and into First Savings Bank, and it is intended that the Subsidiary
Merger be consummated immediately following the consummation of the Merger; and
WHEREAS, the parties desire to make certain representations, warranties
and agreements in connection with the Merger and also to prescribe certain
conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement,
-----------
in accordance with the Delaware General Corporation Law (the "DGCL") and the New
Jersey Business Corporations Act ("NJBCA"), at the Effective Time (as defined in
Section 1.2 hereof), the Company shall merge with and into Buyer. Buyer shall be
the surviving corporation (hereinafter sometimes called the "Surviving
Corporation") in the Merger, and shall continue its corporate existence under
the laws of the State of Delaware. The name of the Surviving Corporation shall
be First Source Bancorp, Inc., or such other name as may be determined by the
Buyer. Upon consummation of the Merger, the separate corporate existence of the
Company shall terminate.
<PAGE>
1.2. Effective Time. The Merger shall become effective as set forth in
---------------
the certificate of merger (the "Certificate of Merger") which shall be filed
with appropriate authorities in the States of New Jersey and Delaware (the
"Authorities") on the Closing Date (as defined in Section 9.1 hereof). The term
"Effective Time" shall be the date and time when the Merger becomes effective,
as set forth in the Certificate of Merger.
1.3 Effects of the Merger. At and after the Effective Time, the Merger
----------------------
shall have the effects set forth in Sections 259 and 261 of the DGCL and Section
14A:10-6 of NJBCA.
1.4 Conversion of Company Common Stock.
-----------------------------------
(a) At the Effective Time, subject to Section 2.2 (e) hereof, each
share of the common stock, par value $1.00 per share, of the Company (the
"Company Common Stock") issued and outstanding immediately prior to the
Effective Time (other than shares of Company Common Stock held (x) in the
Company's treasury or (y) directly or indirectly by Buyer or the Company or any
of their respective Subsidiaries (as defined below) (except for Trust Account
Shares and DPC shares, as such terms are defined in Section 1.4 (b) hereof))
shall, by virtue of this Agreement and without any action on the part of the
holder thereof, be converted into and exchangeable for the number of shares (the
"Exchange Ratio") of the common stock, par value $0.01 per share, of Buyer
("Buyer Common Stock"), determined as follows (I) subject to the provisions of
Section 8.1(h), if the Average Closing Price (as defined below) is equal to or
greater than $11.50, the Exchange Ratio shall be equal to 3.2 (the "Minimum
Exchange Ratio"); (II) if the Average Closing Price is $10.00 or greater but
less than $11.50, the Exchange Ratio shall be 3.2; (III) if the Average Closing
Price is greater than $8.50 but less than $10.00 the Exchange Ratio shall equal
$32.00 divided by the Average Closing Price; or (IV) subject to the provisions
of Section 8.1(g) hereof, if the Average Closing Price is equal to or less than
$8.50, the Exchange Ratio shall be 3.764 (the "Maximum Exchange Ratio"). As used
herein, the term "Average Closing Price" means the average of the last reported
daily sales price (or if no sale on such date, then the mean of the closing
bid/ask price) per share of Buyer Common Stock on the Nasdaq Stock Market
("Nasdaq"), for the 10 consecutive trading days (the "Valuation Period") ending
on the fifth business day prior to the later of approval of the Buyer's
stockholders, approval of the Company's stockholders or the date on which the
last of all regulatory approvals required to consummate the transactions
contemplated hereby (including the Merger and the Subsidiary Merger) are
obtained, without regard to any requisite waiting periods in respect thereof.
All of the shares of Company Common Stock converted into Buyer Common Stock
pursuant to this Article I shall no longer be outstanding and shall
automatically be cancelled and shall cease to exist, and each certificate (each
a "Certificate") previously representing any such shares of Company Common Stock
shall thereafter only represent the right to receive (i) the number of whole
shares of Buyer Common Stock and (ii) the cash in lieu of fractional shares into
which the shares of Company Common Stock represented by such Certificate have
been converted pursuant to this Section 1.4(a) and Section 2.2(e) hereof.
Certificates previously representing shares of Company Common Stock shall be
exchanged for certificates representing whole shares of Buyer Common Stock and
cash in lieu of fractional shares issued in
<PAGE>
consideration therefor upon the surrender of such Certificates in accordance
with Section 2.2 hereof, without any interest thereon. If prior to the Effective
Time Buyer should split or combine its common stock, or pay a dividend or other
distribution in such common stock, then the Exchange Ratio, Minimum Exchange
Ratio and Maximum Exchange Ratio shall be appropriately adjusted to reflect such
split, combination, dividend or distribution.
(b) At the Effective Time, all shares of Company Common Stock that are
owned by the Company as treasury stock and all shares of Company Common Stock
that are owned directly or indirectly by Buyer or the Company or any of their
respective Subsidiaries (other than shares of Company Common Stock (x) held
directly or indirectly in trust accounts, managed accounts and the like or
otherwise held in a fiduciary capacity that are beneficially owned by third
parties (any such shares, and shares of Buyer Common Stock which are similarly
held, whether held directly or indirectly by Buyer or the Company, as the case
may be, being referred to herein as "Trust Account Shares") and (y) shares of
Company Common Stock held by Buyer or the Company or any of their respective
Subsidiaries in respect of a debt previously contracted (any such shares of
Company Common Stock, and shares of Buyer Common Stock which are similarly held,
whether held directly or indirectly by Buyer or the Company being referred to
herein as "DPC Shares")) shall be cancelled and shall cease to exist and no
stock of Buyer or other consideration shall be delivered in exchange therefor.
All shares of Buyer Common Stock that are owned by the Company or any of its
Subsidiaries (other than Trust Account Shares and DPC Shares) shall become
treasury stock of Buyer.
1.5 Stock Options.
--------------
(a) At the Effective Time, all options granted by the Company ("Company
Options") to purchase shares of Company Common Stock which are outstanding and
unexercised immediately prior thereto shall, at the Company's election to be
made by written notice to the Buyer within 30 days of the date hereof, be
converted, in their entirety, automatically into either options to purchase
shares of Buyer Common Stock in an amount and at an exercise price determined as
provided below (and otherwise subject to the terms of the Company's 1986 and
1993 Stock Option and Incentive Plans and the Company's 1997 Directors Stock
Option Plan and 1997 Stock Compensation Plan (collectively, the "Company's Stock
Plans")) or shares of Buyer Common Stock in an amount and at an exercise price
determined as provided below, provided, however, that such conversion does not
impair the pooling of interests accounting treatment:
(1) The number of shares of Buyer Common Stock to be subject
to the new options or to the exchange for Company Options shall be
equal to the product of the number of shares of Company Common Stock
subject to the original options and the Exchange Ratio, provided that
any fractional shares of Buyer Common Stock resulting from such
multiplication shall be rounded down to the nearest share; and
(2) The exercise price per share of the Company Options if
exchanged for shares of Buyer Common Stock, or of Buyer Common Stock
under the new options if
- 3 -
<PAGE>
exchanged for options for Buyer Common Stock shall be equal to the
exercise price per share of Company Common Stock under the original
option divided by the Exchange Ratio, provided that such exercise price
shall be rounded up to the nearest cent.
The adjustment provided herein with respect to any options which are "incentive
stock options" (as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code")) shall be and is intended to be effected in a manner
which is consistent with Section 424(a) of the Code. The duration and other
terms of the new option shall be the same as the original option, except that
all references to the Company shall be deemed to be references to Buyer.
(b) Shares of Buyer Common Stock issuable upon exercise of Company
Stock Options shall be covered by an effective registration statement on Form
S-8, and Buyer shall file a registration statement on Form S-8 covering such
shares as soon as practicable after the Effective Time, but in no event later
than 30 days after the Effective Time.
(c) It is understood that the holders of a Company Option may
exercise such options, in accordance with the terms of the option, and
applicable regulations, prior to the Effective Time.
1.6 Buyer Common Stock. Except for shares of Buyer Common Stock owned
-------------------
by the Company or any of its Subsidiaries (other than Trust Account Shares and
DPC Shares), which shall be converted into treasury stock of Buyer as
contemplated by Section 1.4 hereof, the shares of Buyer Common Stock issued and
outstanding immediately prior to the Effective Time shall be unaffected by the
Merger and at the Effective Time, such shares shall remain issued and
outstanding.
1.7 Certificate of Incorporation. At the Effective Time, the
-------------------------------
Certificate of Incorporation of Buyer, as in effect at the Effective Time, shall
be the Certificate of Incorporation of the Surviving Corporation.
1.8 By-Laws. At the Effective Time, the By-Laws of Buyer, as in effect
-------
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with applicable law, subject
to amendment to increase the number of director seats by two.
1.9 Directors and Officers. Except as provided in Section 6.14 hereof,
----------------------
the directors and officers of Buyer immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and By-Laws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
1.10 Tax Consequences. It is intended that the Merger and the
-----------------
Subsidiary Merger each constitute a reorganization within the meaning of Section
368(a) of the Code, and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code.
- 4 -
<PAGE>
ARTICLE II
EXCHANGE OF SHARES
2.1 Buyer to Make Shares Available. At or prior to the Effective Time,
------------------------------
Buyer shall deposit, or shall cause to be deposited, with a bank or trust
company (which may be a Subsidiary of Buyer) (the "Exchange Agent"), selected by
Buyer and reasonably satisfactory to the Company, for the benefit of the holders
of Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Buyer Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Buyer Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and
paid pursuant to Section 2.2(a) in exchange for outstanding shares of Company
Common Stock.
2.2 Exchange of Shares.
-------------------
(a) As soon as practicable after the Effective Time, and in no event
more than three business days thereafter, the Exchange Agent shall mail to each
holder of record of a Certificate or Certificates a form letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing the shares of Buyer
Common Stock and the cash in lieu of fractional shares into which the shares of
Company Common Stock represented by such Certificate or Certificates shall have
been converted pursuant to this Agreement. The Company shall have the right to
review both the letter of transmittal and the instructions prior to the
Effective Time and provide reasonable comments thereon. Upon surrender of a
Certificate for exchange and cancellation to the Exchange Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor (x) a certificate representing that
number of whole shares of Buyer Common Stock to which such holder of Company
Common Stock shall have become entitled pursuant to the provisions of Article I
hereof and (y) a check representing the amount of cash in lieu of fractional
shares, if any, which such holder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions of this Article II, and the
Certificate so surrendered shall forthwith be cancelled. No interest will be
paid or accrued on the cash in lieu of fractional shares and unpaid dividends
and distributions, if any, payable to holders of Certificates.
(b) No dividends or other distributions declared after the Effective
Time with respect to Buyer Common Stock and payable to the holders of record
thereof shall be paid to the holder of any unsurrendered Certificate until the
holder thereof shall surrender such Certificate in accordance with this Article
II. After the surrender of a Certificate in accordance with this Article II, the
record holder thereof shall be entitled to receive any such dividends or other
distributions, without any interest thereon, which theretofore had become
payable with respect to shares of Buyer Common Stock represented by such
Certificate. No holder of an unsurrendered Certificate
- 5 -
<PAGE>
shall be entitled, until the surrender of such Certificate, to vote the shares
of Buyer Common Stock into which his Company Common Stock shall have been
converted.
(c) If any certificate representing shares of Buyer Common Stock is to
be issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Buyer Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or required
for any other reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
(d) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Buyer Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Buyer Common Stock shall
be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Buyer Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a shareholder of
Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to
each former stockholder of the Company who otherwise would be entitled to
receive a fractional share of Buyer Common Stock an amount in cash determined by
multiplying (i) the product of the Average Closing Price and the Exchange Ratio
by (ii) the fraction of a share of Buyer Common Stock to which such holder would
otherwise be entitled to receive pursuant to Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for six months after the Effective Time shall be
paid to Buyer. Any stockholders of the Company who have not theretofore complied
with this Article II shall thereafter look only to Buyer for payment of their
shares of Buyer Common Stock, cash in lieu of fractional shares and unpaid
dividends and distributions on the Buyer Common Stock deliverable in respect of
each share of Company Common Stock such stockholder holds as determined pursuant
to this Agreement, in each case, without any interest thereon. Notwithstanding
the foregoing, none of Buyer, the Company, the Exchange Agent or any other
person shall be liable to any former holder of shares of Company Common Stock
for any amount properly delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
- 6 -
<PAGE>
(g) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and the posting by such person
of a bond in such amount as Buyer may direct as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent will
issue in exchange for such lost, stolen or destroyed Certificate the shares of
Buyer Common Stock and cash in lieu of fractional shares deliverable in respect
thereof pursuant to this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
3.1 Corporate Organization.
-----------------------
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of New Jersey. The Company has the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted, and is duly licensed
or qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified would not have a
Material Adverse Effect (as defined below) on the Company. The Company is duly
registered as a unitary savings and loan holding company under the Home Owners'
Loan Act of 1933, as amended. The Certificate of Incorporation and By-laws of
the Company, copies of which have previously been delivered to Buyer, are true,
complete and correct copies of such documents as in effect as of the date of
this Agreement. As used in this Agreement, the term "Material Adverse Effect"
means, with respect to Buyer, the Company or the Surviving Corporation, as the
case may be, a material adverse effect on the business, properties, assets,
liabilities, results of operations or financial condition of such party and its
Subsidiaries taken as a whole, other than any such effect attributable to or
resulting from general economic conditions. As used in this Agreement, the word
"Subsidiary" when used with respect to any party means any corporation,
partnership or other organization, whether incorporated or unincorporated, which
is consolidated with such party for financial reporting purposes.
(b) The Company Bank is a savings bank duly organized, validly existing
and in good standing under the laws of the State of New Jersey. The deposit
accounts of the Company Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") through the Savings Association Insurance Fund to the
fullest extent permitted by law, and all premiums and assessments required to be
paid in connection therewith have been paid when due by the Company Bank. Each
of the Company's other Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation or organization. Each of the Company's Subsidiaries has the
corporate power and authority to own
- 7 -
<PAGE>
or lease all of its properties and assets and to carry on its business as it is
now being conducted and is duly licensed or qualified to do business in each
jurisdiction in which the nature of the business conducted by it or the
character or the location of the properties and assets owned or leased by it
makes such licensing or qualification necessary, except where the failure to be
so licensed or qualified would not have a Material Adverse Effect on the
Company. The articles of incorporation, by-laws and similar governing documents
of each Subsidiary of the Company, copies of which have previously been
delivered to Buyer, are true, complete and correct copies of such documents as
in effect as of the date of this Agreement.
(c) The minute books of the Company and each of its Subsidiaries
contain true, complete and accurate records in all material respects of all
meetings and other corporate actions held or taken since December 31, 1993 of
their respective stockholders and Boards of Directors (including committees of
their respective Boards of Directors).
3.2 Capitalization.
---------------
(a) The authorized capital stock of the Company consists of 10,000,000
shares of Company Common Stock and 5,000,000 shares of preferred stock (the
"Company Preferred Stock"). As of the date of this Agreement, there are (x)
3,120,300 shares of Company Common Stock issued and outstanding and 1,062,080
shares of Company Common Stock held in the Company's treasury, (y) no shares of
Company Common Stock reserved for issuance upon exercise of outstanding stock
options or otherwise except for (i) 297,988 shares of Company Common Stock
reserved for issuance pursuant to the Company Option Plans and described in
Section 3.2(a) of the Disclosure Schedule which is being delivered to Buyer
concurrently herewith (the "Company Disclosure Schedule") and (ii) 620,940
shares of Company Common Stock reserved for issuance upon exercise of the option
issued to Buyer pursuant to the Stock Option Agreement, dated _______, 1998,
between Buyer and the Company (the "Option Agreement") and (z) no shares of
Company Preferred Stock issued or outstanding, held in the Company's treasury or
reserved for issuance upon exercise of outstanding stock options or otherwise.
All of the issued and outstanding shares of Company Common Stock have been duly
authorized and validly issued and are fully paid, nonassessable and free of
preemptive rights. Except as referred to above or reflected in Section 3.2(a) of
the Company Disclosure Schedule, and except for the Option Agreement, the
Company does not have and is not bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of Company Common Stock or Company
Preferred Stock or any other equity security of the Company or any securities
representing the right to purchase or otherwise receive any shares of Company
Common Stock or any other equity security of the Company. The names of the
optionees, the date of each option to purchase Company Common Stock granted, the
number of shares subject to each such option, the expiration date of each such
option, and the price at which each such option may be exercised under the
Option Plan, the Incentive Plan, as applicable, are set forth in Section 3.2(a)
of the Company Disclosure Schedule.
- 8 -
<PAGE>
(b) Section 3.2(b) of the Company Disclosure Schedule sets forth a true
and correct list of all of the Subsidiaries of the Company as of the date of
this Agreement. Except as set forth in Section 3.2(b) of the Company Disclosure
Schedule, the Company owns, directly or indirectly, all of the issued and
outstanding shares of the capital stock of each of such Subsidiaries, free and
clear of all liens, charges, encumbrances and security interests whatsoever, and
all of such shares are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. No Subsidiary of the Company has or
is bound by any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character calling for the purchase or issuance of any
shares of capital stock or any other equity security of such Subsidiary or any
securities representing the right to purchase or otherwise receive any shares of
capital stock or any other equity security of such Subsidiary. Assuming
compliance by Buyer with Section 1.5 hereof, at the Effective Time, there will
not be any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character by which the Company or any of its Subsidiaries will
be bound calling for the purchase or issuance of any shares of the capital stock
of the Company or any of its Subsidiaries.
3.3 Authority; No Violation.
-----------------------
(a) The Company has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of the Company. The Board of Directors of the Company has
directed that this Agreement and the transactions contemplated hereby be
submitted to the Company's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of the Company's stockholders, no other corporate proceedings (except for
regulatory approvals) on the part of the Company are necessary to approve this
Agreement and to consummate the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the Company and (assuming
due authorization, execution and delivery by Buyer) constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) The Company Bank has full corporate power and authority to execute
and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Company Bank. Upon the due and
valid approval of the Bank Merger Agreement by the Company as the sole
stockholder of the Company Bank and by the Board of Directors of the Company
Bank, no other corporate proceedings on the part of the Company Bank will be
necessary to consummate the transactions contemplated thereby. The Bank Merger
Agreement, upon execution and delivery by the Company Bank, will be duly and
validly executed and delivered by the Company
- 9 -
<PAGE>
Bank and will (assuming due authorization, execution and delivery by First
Savings Bank) constitute a valid and binding obligation of the Company Bank,
enforceable against the Company Bank in accordance with its terms, except as
enforcement may be limited by general principles of equity whether applied in a
court of law or a court of equity and by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally.
(c) Except as set forth in Section 3.3(c) of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement by the Company or
the Bank Merger Agreement by the Company Bank, nor the consummation by the
Company or the Company Bank, as the case may be, of the transactions
contemplated hereby or thereby, nor compliance by the Company or the Company
Bank, as the case may be, with any of the terms or provisions hereof or thereof,
will (i) violate any provision of the Certificate of Incorporation or By-Laws of
the Company or the certificate of incorporation, by-laws or similar governing
documents of any of its Subsidiaries, or (ii) assuming that the consents and
approvals referred to in Section 3.4 hereof are duly obtained, (x) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company or any of its Subsidiaries, or any of their
respective properties or assets, or (y) violate, conflict with, result in a
breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or assets of the Company or
any of its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
other instrument or obligation to which the Company or any of its Subsidiaries
is a party, or by which they or any of their respective properties or assets may
be bound or affected, except (in the case of clause (y) above) for such
violations, conflicts, breaches or defaults which, either individually or in the
aggregate, would not have or be reasonably likely to have a Material Adverse
Effect on the Company.
3.4 Consents and Approvals. Except for (a) the filing of applications with
--------------------------
the Office of Thrift Supervision (the "OTS") and, if necessary, the Federal
Deposit Insurance Corporation ("FDIC") and approval of such applications, (b)
the filing of an application with the New Jersey Department of Banking and
Insurance (the "Banking Department") and approval of such application, (c) the
filing with the Securities and Exchange Commission (the "SEC") of a joint proxy
statement in definitive form relating to the meetings of the Company's
stockholders and Buyer's stockholders to be held in connection with this
Agreement and the transactions contemplated hereby (collectively, the "Proxy
Statement"), (d) the approval of this Agreement by the requisite vote of the
stockholders of the Company, (e) the filing of the Certificate of Merger with
the Secretary of New Jersey pursuant to the NJBCA, (f) the filings required by
the Bank Merger Agreement, (g) the approval of the Bank Merger Agreement by the
Company as the sole stockholder of the Company Bank and (h) such filings,
authorizations or approvals as may be set forth in Section 3.4 of the Company
Disclosure Schedule, no consents or approvals of or filings or registrations
with any court, administrative agency or commission or other governmental
- 10 -
<PAGE>
authority or instrumentality (each a "Governmental Entity") or with any third
party are necessary in connection with (1) the execution and delivery by the
Company of this Agreement, (2) the consummation by the Company of the Merger and
the other transactions contemplated hereby, (3) the execution and delivery by
the Company Bank of the Bank Merger Agreement, and (4) the consummation by the
Company Bank of the Subsidiary Merger and the transactions contemplated thereby.
3.5 Reports. The Company and each of its Subsidiaries have timely filed
-------
all material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1994 with (i) the OTS, (ii) the FDIC, (iii) any state banking
commissions or any other state regulatory authority (each a "State Regulator")
and (iv) any other self-regulatory organization ("SRO") (collectively, the
"Regulatory Agencies"), and all other material reports and statements required
to be filed by them since December 31, 1994, including, without limitation, any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, the OTS, the FDIC, any State Regulator or any
SRO, and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of the Company and its Subsidiaries, except
as set forth in Section 3.5 of the Company Disclosure Schedule, no Regulatory
Agency has initiated any proceeding or, to the best knowledge of the Company,
investigation into the business or operations of the Company or any of its
Subsidiaries since December 31, 1994. There is no unresolved material violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of the Company or any of its
Subsidiaries.
3.6 Financial Statements. The Company has previously delivered to Buyer
-------------------------
copies of (a) the consolidated balance sheets of the Company and its
Subsidiaries as of September 30 for the fiscal years 1995, 1996 and 1997, and
the related consolidated statements of income, changes in stockholders' equity
and cash flows for the fiscal years 1994 through 1997, inclusive, as reported in
the Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1997 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of KPMG Peat
Marwick, independent public accountants with respect to the Company, and (b) the
unaudited consolidated balance sheets of the Company and its Subsidiaries as of
March 31, 1998 and March 31, 1997 and the related unaudited consolidated
statements of income, cash flows and changes in stockholders' equity for the six
month periods then ended as reported in the Company's Quarterly Report on Form
10-Q for the period ended March 31, 1998 filed with the SEC under the Exchange
Act. The September 30, 1997 consolidated balance sheet of the Company (including
the related notes, where applicable) fairly presents the consolidated financial
position of the Company and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 3.6 (including the
related notes, where applicable) fairly present, and the financial statements
referred to in Section 6.9 hereof will fairly present (subject, in the case of
the unaudited statements, to recurring audit adjustments normal in nature and
amount), the results of the consolidated operations and consolidated financial
position of the Company and its Subsidiaries for the respective fiscal
- 11 -
<PAGE>
periods or as of the respective dates therein set forth; each of such statements
(including the related notes, where applicable) comply, and the financial
statements referred to in Section 6.9 hereof will comply, in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements referred to in Section 6.9 hereof will be, prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, except as indicated in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q. The books and records
of the Company and its Subsidiaries have been, and are being, maintained in all
material respects in accordance with GAAP and any other applicable legal and
accounting requirements and reflect only actual transactions.
3.7 Broker's Fees. Neither the Company nor any Subsidiary of the
-------------------
Company nor any of their respective officers or directors has employed any
broker or finder or incurred any liability for any broker's fees, commissions or
finder's fees in connection with any of the transactions contemplated by this
Agreement, the Bank Merger Agreement or the Option Agreement, except that the
Company has engaged, and will pay a fee or commission to, Sandler O'Neill &
Partners, L.P. ("Sandler O'Neill") in accordance with the terms of a letter
agreement between Sandler O'Neill and the Company concerning the issuance of an
opinion regarding the fairness of the Exchange Ratio, a true, complete and
correct copy of which has been previously delivered by the Company to Buyer.
3.8 Absence of Certain Changes or Events.
-------------------------------------
(a) Except as may be set forth in Section 3.8(a) of the Company
Disclosure Schedule or as disclosed in the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998 (a true, complete and correct copy of
which has previously been delivered to Buyer), since September 30, 1997, (i)
neither the Company nor any of its Subsidiaries has incurred any material
liability, except in the ordinary course of their business consistent with their
past practices, and (ii) no event has occurred which has caused, or is
reasonably likely to cause, individually or in the aggregate, a Material Adverse
Effect on the Company.
(b) Except as set forth in Section 3.8(b) of the Company Disclosure
Schedule, since March 31, 1998, the Company and its Subsidiaries have carried on
their respective businesses in the ordinary course consistent with their past
practices.
(c) Except as set forth in Section 3.8(c) of the Company Disclosure
Schedule, since March 31, 1998, neither the Company nor any of its Subsidiaries
has (i) increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or director
from the amount thereof in effect as of March 31, 1998 (which amounts have been
previously disclosed to Buyer), granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonus
- 12 -
<PAGE>
other than year-end bonuses for fiscal 1998 as listed in Section 3.8 of the
Company Disclosure Schedule or (ii) suffered any strike, work stoppage,
slow-down, or other labor disturbance.
3.9 Legal Proceedings.
-----------------
(a) Except as set forth in Section 3.9 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any, and
there are no pending or, to the best of the Company's knowledge, threatened,
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against the Company or
any of its Subsidiaries or challenging the validity or propriety of the
transactions contemplated by this Agreement, the Bank Merger Agreement or the
Option Agreement as to which there is a reasonable probability of an adverse
determination and which, if adversely determined, would, individually or in the
aggregate, have or be reasonably likely to have a Material Adverse Effect on the
Company.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon the Company, any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries which has had, or could reasonably be
expected to have, a Material Adverse Effect on the Company.
3.10 Taxes. (a) Except as set forth in Section 3.10(a) of the Company
-----------
Disclosure Schedule, each of the Company and its Subsidiaries has (i) duly and
timely filed or will duly and timely file (including applicable extensions
granted without penalty) all Tax Returns (as hereinafter defined) required to be
filed at or prior to the Effective Time, and such Tax Returns which have
heretofore been filed are, and those to be hereinafter filed will be, true,
correct and complete and (ii) paid in full or have made adequate provision for
on the financial statements of the Company (in accordance with GAAP) all Taxes
(as hereinafter defined) and will pay in full or make adequate provision for all
Taxes. There are no material liens for Taxes upon the assets of either the
Company or its Subsidiaries except for statutory liens for current Taxes not yet
due. Except as set forth in Section 3.10(a) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries has requested any extension of
time within which to file any Tax Returns in respect of any fiscal year which
have not since been filed and no request for waivers of the time to assess any
Taxes are pending or outstanding. The federal and state income Tax Returns of
the Company and its Subsidiaries have been audited by the Internal Revenue
Service or appropriate state tax authorities with respect to those periods and
jurisdictions set forth on Section 3.10(a) of the Company Disclosure Schedule.
Except as set forth in Section 3.10(a) of the Company Disclosure Schedule,
neither the Company nor any of its Subsidiaries (i) is a party to any agreement
providing for the allocation or sharing of Taxes (other than the allocation of
federal income taxes as provided by Regulation 1.1552-l(a)(l) under the Code;
(ii) is required to include in income any adjustment pursuant to Section 481(a)
of the Code, by reason of the voluntary change in accounting method (nor has any
taxing authority proposed in writing any such
- 13 -
<PAGE>
adjustment or change of accounting method); or (iii) has filed a consent
pursuant to Section 341(f) of the Code.
For the purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto.
For purposes of this Agreement, "Tax Return" shall mean any return,
report, information return or other document (including any related or
supporting information) with respect to Taxes.
3.11 Employees.
---------
(a) Section 3.11(a) of the Company Disclosure Schedule sets forth a
true and complete list of each employee benefit plan, arrangement or agreement
that is maintained or contributed to or required to be contributed to as of the
date of this Agreement (the "Plans") by the Company, any of its Subsidiaries or
by any trade or business, whether or not incorporated (an "ERISA Affiliate"),
all of which together with the Company would be deemed a "single employer"
within the meaning of Section 4001 of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), for the benefit of any employee or former
employee of the Company, any Subsidiary or any ERISA Affiliate.
(b) The Company has heretofore delivered to Buyer true and complete
copies of each of the Plans and all related documents, including but not limited
to (i) the actuarial report for any Plan (if applicable) for each of the last
two years, and (ii) the most recent determination letter from the Internal
Revenue Service (if applicable) for any Plan.
(c) Except as set forth in Section 3.11(c) of the Company Disclosure
Schedule, (i) each of the Plans has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code, (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code either (1) has
received a favorable determination letter from the IRS, or (2) is or will be the
subject of an application for a favorable determination letter, and the Company
is not aware of any circumstances likely to result in the revocation or denial
of any such favorable determination letter, (iii) with respect to each Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Plan's actuary with respect
to such Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Plan allocable to such accrued benefits, (iv) no
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (w) coverage mandated by applicable
law, (x) death benefits or retirement
- 14 -
<PAGE>
benefits under any "employee pension plan," as that term is defined in Section
3(2) of ERISA, (y) deferred compensation benefits accrued as liabilities on the
books of the Company, its Subsidiaries or the ERISA Affiliates or (z) benefits
the full cost of which is borne by the current or former employee (or his
beneficiary), (v) no liability under Title IV of ERISA has been incurred by the
Company, its Subsidiaries or any ERISA Affiliate that has not been satisfied in
full, and no condition exists that presents a material risk to the Company, its
Subsidiaries or an ERISA Affiliate of incurring a material liability thereunder,
(vi) no Plan is a "multiemployer pension plan," as such term is defined in
Section 3(37) of ERISA, (vii) all contributions or other amounts payable by the
Company, its Subsidiaries or any ERISA Affiliates as of the Effective Time with
respect to each Plan in respect of current or prior plan years have been paid or
accrued in accordance with generally accepted accounting practices and Section
412 of the Code, (viii) neither the Company, its Subsidiaries nor any ERISA
Affiliate has engaged in a transaction in connection with which the Company, its
Subsidiaries or any ERISA Affiliate could be subject to either a civil penalty
assessed pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Section 4975 or 4976 of the Code, (ix) there are no pending, or, to the best
knowledge of the Company, threatened or anticipated claims (other than routine
claims for benefits) by, on behalf of or against any of the Plans or any trusts
related thereto and (x) the consummation of the transactions contemplated by
this Agreement will not (y) entitle any current or former employee or officer of
the Company or any ERISA Affiliate to severance pay, termination pay or any
other payment, except as expressly provided in this Agreement or (z) accelerate
the time of payment or vesting or increase the amount of compensation due any
such employee or officer.
3.12 SEC Reports. The Company has previously made available to Buyer an
-----------
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since September 30, 1994
by the Company with the SEC pursuant to the Securities Act of 1933, as amended
(the "Securities Act") or the Exchange Act (the "Company Reports") and (b)
communication mailed by the Company to its stockholders since September 30,
1994, and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. The Company has timely
filed all Company Reports and other documents required to be filed by it under
the Securities Act and the Exchange Act, and, as of their respective dates, all
Company Reports complied in all material respects with the published rules and
regulations of the SEC with respect thereto.
3.13 Company Information. The information relating to the Company and
--------------------
its Subsidiaries to be contained in the Proxy Statement and the Registration
Statement on Form S-4 (the "S-4") of which the Proxy Statement will be included
as a prospectus, or in any other document filed with any other regulatory agency
in connection herewith, will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of
- 15 -
<PAGE>
the circumstances in which they are made, not misleading. The sections of the
Proxy Statement relating to the Company will comply in all material respects
with the provisions of the Exchange Act and the rules and regulations
thereunder.
3.13A Ownership of Buyer Common Stock: Affiliates and Associates. Except
-------------------------------
for the Stock Option Agreement, neither Company nor any of its Subsidiaries, (i)
beneficially own, directly or indirectly, or (ii) is a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, any shares of capital stock of the Buyer (other than
Trust Account Shares and DPC Shares).
3.14 Compliance with Applicable Law. The Company and each of its
---------------------------------
Subsidiaries hold, and have at all times held, all material licenses,
franchises, permits and authorizations necessary for the lawful conduct of their
respective businesses under and pursuant to all, and have complied with and are
not, to its knowledge, in default in any respect under any applicable law,
statute, order, rule, regulation, policy and/or guideline of any Governmental
Entity relating to the Company or any of its Subsidiaries, except where the
failure to hold such license, franchise, permit or authorization or such
noncompliance or default would not, individually or in the aggregate, have or be
reasonably likely to have a Material Adverse Effect on the Company, and neither
the Company nor any of its Subsidiaries knows of, or has received notice of, any
material violations of any of the above.
3.15 Certain Contracts. (a) Except as set forth in Section 3.15(a) of the
------------------
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries; is
a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers, employees or consultants, (ii) which, upon the consummation of the
transactions contemplated by this Agreement or the Bank Merger Agreement will
(either alone or upon the occurrence of any additional acts or events) result in
any payment (whether of severance pay or otherwise) becoming due from Buyer, the
Company, the Surviving Corporation, the Surviving Bank or any of their
respective Subsidiaries to any officer or employee thereof, (iii) which is a
material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC)
to be performed after the date of this Agreement that has not been filed or
incorporated by reference in the Company Reports, (iv) which is a consulting
agreement (including data processing, software programming and licensing
contracts) not terminable on 60 days or less notice involving the payment of
more than $50,000 per annum, in the case of any such agreement with an
individual, or $100,000 per annum, in the case of any other such agreement, (v)
which materially restricts the conduct of any line of business by the Company or
any of its Subsidiaries, (vi) with or to a labor union or guild (including any
collective bargaining agreement) or (vii) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the Bank Merger Agreement, or the value of any
of the benefits of which will be calculated on the basis of any of
- 16 -
<PAGE>
the transactions contemplated by this Agreement or the Bank Merger Agreement.
Each contract, arrangement, commitment or understanding of the type described in
this Section 3.15(a), whether or not set forth in Section 3.15(a) of the Company
Disclosure Schedule, is referred to herein as a "Company Contract". The Company
has previously delivered to Buyer true and correct copies of each Company
Contract.
(b) Except as set forth in Section 3.15(b) of the Company Disclosure
Schedule, (i) each Company Contract is valid and binding and in full force and
effect, (ii) the Company and each of its Subsidiaries have in all material
respects performed all obligations required to be performed by it to date under
each Company Contract, except where such noncompliance, individually or in the
aggregate, would not have or be reasonably likely to have a Material Adverse
Effect on the Company, (iii) no event or condition exists which constitutes or,
after notice or lapse of time or both, would constitute, a material default on
the part of the Company or any of its Subsidiaries under any such Company
Contract, except where such default, individually or in the aggregate, would not
have or be reasonably likely to have a Material Adverse Effect on the Company
and (iv) no other party to such Company Contract is, to the best knowledge of
the Company, in default in any respect thereunder.
3.16 Agreements with Regulatory Agencies. Except as set forth in Section
-----------------------------------
3.16 of the Company Disclosure Schedule, neither the Company nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth on Section 3.16 of the Company
Disclosure Schedule, a "Regulatory Agreement"), any Regulatory Agency or other
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has the Company or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
3.17 Investment Securities. Section 3.17 of the Company Disclosure
----------------------
Schedule sets forth the book and market value as of March 31, 1998 of the
investment securities, mortgage backed securities and securities held for sale
of the Company and its Subsidiaries. Section 3.17 of the Company Disclosure
Schedule sets forth an investment securities report which includes, security
descriptions, CUSIP numbers, pool face values, book values, coupon rates and
current market values.
3.18 Intellectual Property. Except where there would be no Material
----------------------
Adverse Effect on the Company, the Company and each of its Subsidiaries owns or
possesses valid and binding licenses and other rights to use without payment all
material patents, copyrights, trade secrets, trade names, servicemarks,
trademarks and computer software used in its businesses; and neither the Company
nor any of its Subsidiaries has received any notice of conflict with respect
thereto
- 17 -
<PAGE>
that asserts the right of others. The Company and each of its Subsidiaries have
in all material respects performed all the obligations required to be performed
by them and are not in default in any material respect under any contract,
agreement, arrangement or commitment relating to any of the foregoing, except
where such non-performance or default would not, individually or in the
aggregate, have or be reasonably likely to have a Material Adverse Effect on the
Company.
3.19 Undisclosed Liabilities. Except (a) as set forth in Section 3.19 of
-----------------------
the Company Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of the Company
as of March 31, 1998 included in its Form 10-Q for the period ended March 31,
1998 and (c) for liabilities incurred in the ordinary course of business
consistent with past practice since March 31, 1998 that, either alone or when
combined with all similar liabilities, have not had, and could not reasonably be
expected to have, a Material Adverse Effect on the Company, neither the Company
nor any of its Subsidiaries has incurred any liability of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether due or to become
due).
3.20 State Takeover Laws. The provisions of Article XV of the Company's
--------------------
Certificate of Incorporation will not, assuming the accuracy of the
representations contained in Section 4.12 hereof, apply to the Agreement, the
Bank Merger Agreement or the Stock Option Agreement or any of the transactions
contemplated hereby or thereby.
3.21 Administration of Fiduciary Accounts. The Company and each of its
-------------------------------------
Subsidiaries has properly administered in all material respects all accounts for
which it acts as a fiduciary, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law.
Neither the Company nor any of its Subsidiaries nor any of their respective
directors, officers or employees has committed any breach of trust with respect
to any such fiduciary account which has had or could reasonably be expected to
have a Material Adverse Effect on the Company, and the accountings for each such
fiduciary account are true and correct in all material respects and accurately
reflect the assets of such fiduciary account.
3.22 Environmental Matters. Except as set forth in Section 3.22 of the
---------------------
Company Disclosure Schedule:
(a) Each of the Company, its Subsidiaries, the Participation Facilities
and the Loan Properties (each as hereinafter defined) are, and have been, in
compliance with all applicable federal, state and local laws including common
law, regulations and ordinances and with all applicable decrees, orders and
contractual obligations relating to pollution, the discharge of, or exposure to
materials in the environment or workplace ("Environmental Laws"), except for
violations which, either individually or in the aggregate, have not had and
cannot reasonably be expected to have a Material Adverse Effect on the Company;
- 18 -
<PAGE>
(b) There is no suit, claim, action or proceeding, pending or
threatened, before any Governmental Entity or other forum in which the Company,
any of its Subsidiaries, any Participation Facility or any Loan Property, has
been or, with respect to threatened proceedings, may be, named as a defendant
(x) for alleged noncompliance (including by any predecessor), with any
Environmental Laws, or (y) relating to the release, threatened release or
exposure to any material whether or not occurring at or on a site owned, leased
or operated by the Company or any of its Subsidiaries, any Participation
Facility or any Loan Property, except where such noncompliance or release has
not resulted, and cannot be reasonably expected to result, either individually
or in the aggregate, a Material Adverse Effect on the Company;
(c) During the period of (x) the Company's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y) the
Company's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) the Company's or any of its Subsidiaries' holding
of a security interest in a Loan Property, there has been no release of
materials in, on, under or affecting any such property, except where such
release has not had and cannot reasonably be expected to result in, either
individually or in the aggregate, a Material Adverse Effect on the Company.
Prior to the period of (x) the Company's or any of its Subsidiaries' ownership
or operation of any of their respective current properties, (y) the Company's or
any of its Subsidiaries' participation in the management of any Participation
Facility, or (z) the Company's or any of its Subsidiaries' holding of a security
interest in a Loan Property, there was no release or threatened release of
materials in, on, under or affecting any such property, Participation Facility
or Loan Property, except where such release has not had and cannot be reasonably
expected to have, either individually or in the aggregate, a Material Adverse
Effect on the Company;
(d) All property formerly owned or leased by the Company and its
Subsidiaries which was subject to the provisions of the Industrial Site Recovery
Act, N.J.S.A. 13:1K-6, et seq. as amended ("ISRA"), compiled with all applicable
provisions of ISRA at the time such property was sold or transferred; and
(e) The following definitions apply for purposes of this Section 3.22:
(x) "Loan Property" means any property in which the Company or any of its
Subsidiaries holds a security interest, and, where required by the context, said
term means the owner or operator of such property; and (y) "Participation
Facility" means any facility in which the Company or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
3.23 Derivative Transactions. Except as set forth in Section 3.23 of the
-----------------------
Company Disclosure Schedule, since September 30, 1997, neither Company nor any
of its Subsidiaries has engaged in transactions in or involving forwards,
futures, options on futures, swaps or other derivative instruments except (i) as
agent on the order and for the account of others, or (ii) as principal for
purposes of hedging interest rate risk on U.S. dollar denominated securities and
other financial instruments. None of the counterparts to any contract or
agreement with respect to any
- 19 -
<PAGE>
such instrument is in default with respect to such contract or agreement and no
such contract or agreement, were it to be a Loan (as defined below) held by the
Company or any of its Subsidiaries, would be classified as "Other Loans
Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss",
"Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or words of
similar import. The financial position of the Company and its Subsidiaries on a
consolidated basis under or with respect to each such instrument has been
reflected in the books and records of the Company and such Subsidiaries in
accordance with GAAP consistently applied, and no open exposure of the Company
or any of its Subsidiaries with respect to any such instrument (or with respect
to multiple instruments with respect to any single counterparty) exceeds
$500,000.
3.24 Opinion. The Company has received a written opinion, dated the date
-------
hereof, from Sandler O'Neill to the effect that, subject to the terms,
conditions and qualifications set forth therein, as of the date thereof the
Exchange Ratio is fair to such stockholders from a financial point of view. Such
opinion has not been amended or rescinded as of the date of this Agreement, and
will be updated at the time the Proxy Statement is mailed to stockholders of the
Company.
3.25 Assistance Agreements. Neither the Company nor any of its
----------------------
Subsidiaries is a party to any agreement or arrangement entered into in
connection with the consummation of a federally assisted acquisition of a
depository institution pursuant to which the Company or any of its Subsidiaries
is entitled to receive financial assistance or indemnification from any
governmental agency.
3.26 Approvals. As of the date of this Agreement, the Company knows of
---------
no reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained without the imposition of a
Burdensome Condition (as defined below).
3.27 Loan Portfolio.
--------------
(a) In the Company's reasonable judgment, the allowance for loan losses
reflected in the Company's audited statement of condition at September 30, 1997
was, and the allowance for loan losses shown on the balance sheets in its
Reports for periods ending after September 30, 1997 have been and will be,
adequate in all material respects, as of the dates thereof, under generally
accepted accounting principles, and no Regulatory Agencies have required or
requested Company to increase the allowance for loan losses for such periods.
(b) Except as set forth in Section 3.27 of the Company Disclosure
Schedule, neither the Company nor any of its Subsidiaries is a party to any
written or oral (i) loan agreement, note or borrowing arrangement (including,
without limitation, leases, credit enhancements, commitments, guarantees and
interest-bearing assets) (collectively, "Loans"), other than Loans the unpaid
principal balance of which does not exceed $50,000, under the terms of which the
obligor is, as of the date of this Agreement, over 90 days delinquent in payment
of principal or interest or in
- 20 -
<PAGE>
default of any other provision, or (ii) Loan with any director, executive
officer or ten percent stockholder of the Company or any of its Subsidiaries, or
to the best knowledge of the Company, any person, corporation or enterprise
controlling, controlled by or under common control with any of the foregoing.
Section 3.27 of the Company Disclosure Schedule sets forth (i) all of the Loans
in original principal amount in excess of $50,000 of the Company or any of its
Subsidiaries that as of the date of this Agreement are classified by any bank
examiner (whether regulatory or internal) as "Other Loans Specially Mentioned,"
"Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans," "Watch List" or words of
similar import, together with the principal amount of and accrued and unpaid
interest on each such Loan and the identity of the borrower thereunder, and (ii)
by category of Loan (i.e., commercial, consumer, etc.), all of the other Loans
of the Company and its Subsidiaries that as of the date of this Agreement are
classified as such, together with the aggregate principal amount of and accrued
and unpaid interest on such Loans by category. The Company shall promptly inform
Buyer in writing of any Loan that becomes classified in the manner described in
the previous sentence, or any Loan the classification of which is changed, at
any time after the date of this Agreement.
(c) To the best of its knowledge, each loan reflected as an asset in the
Company Disclosure Schedule (i) is evidenced by notes, agreements or other
evidences of indebtedness which are true, genuine and correct in all material
respects, (ii) to the extent secured, has been secured by valid liens and
security interests which have been perfected, and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles, in each case other than loans as to which the failure
to satisfy the foregoing standards would not have a Material Adverse Effect on
the Company.
3.28 Year 2000 Compliance. The Company and the Company's Subsidiaries
---------------------
have taken all reasonable steps necessary to address the software, accounting
and record keeping issues raised in order for the data processing systems used
in the business conducted by the Company and its Subsidiaries to be
substantially Year 2000 compliant on or before the end of 1999 and, except as
set forth in the Company Disclosure Schedule, the Company does not expect the
future cost of addressing such issues to be material. Neither the Company nor
any of its Subsidiaries has received a rating of less than satisfactory from any
bank regulatory agency with respect to Year 2000 compliance.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Company as follows:
- 21 -
<PAGE>
4.1 Corporate Organization.
----------------------
(a) Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has the corporate power
and authority to own or lease all of its properties and assets and to carry on
its business as it is now being conducted, and is duly licensed or qualified to
do business in each jurisdiction in which the nature of the business conducted
by it or the character or location of the properties and assets owned or leased
by it makes such licensing or qualification necessary, except where the failure
to be so licensed or qualified would not have a Material Adverse Effect on
Buyer. Buyer is duly registered as a bank holding company under the BHC Act. The
Certificate of Incorporation and By-laws of Buyer, copies of which have
previously been made available to the Company, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
(b) First Savings Bank is a savings and loan association duly organized,
validly existing and in good standing under the laws of the State of New Jersey.
The deposit accounts of First Savings Bank are insured by the FDIC through the
SAIF Insurance Fund to the fullest extent permitted by law, and all premiums and
assessments required in connection therewith have been paid by First Savings
Bank. Each of Buyer's other Subsidiaries is duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation. Each
Subsidiary of Buyer has the corporate power and authority to own or lease all of
its properties and assets and to carry on its business as it is now being
conducted, and is duly licensed or qualified to do business in each jurisdiction
in which the nature of the business conducted by it or the character or location
of the properties and assets owned or leased by it makes such licensing or
qualification necessary, except where the failure to be so licensed or qualified
would not have a Material Adverse Effect on Buyer. The Certificate of
Incorporation and Bylaws of each subsidiary of the Buyer, copies of which have
previously been made available to the Company, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
(c) The minute books of Buyer and each of its Subsidiaries contain true,
complete and accurate records in all material respects of all meetings and other
corporate actions held or taken since December 31, 1993 of their respective
stockholders and Boards of Directors (including committees of their respective
Boards of Directors).
4.2 Capitalization.
--------------
(a) As of the date of this Agreement, the authorized capital stock of
Buyer consists of 85,000,000 shares of Buyer Common Stock and 10,000,000 shares
of preferred stock, par value $.01 per share ("Buyer Preferred Stock"). As of
June 30, 1998, there were 31,740,000 shares of Buyer Common Stock and no shares
of Buyer Preferred Stock issued and outstanding, and no shares of Buyer Common
Stock held in Buyer's treasury. As of the date of this Agreement, no shares of
Buyer Common Stock or Buyer Preferred Stock were reserved for issuance, except
that 11,775 shares of Buyer Common Stock were reserved for issuance upon the
exercise of stock options pursuant to the First Savings Bank, SLA 1992 Incentive
Stock Option Plan and the 1992
- 22 -
<PAGE>
Stock Option Plan for Outside Directors and 261,924 shares of Buyer Common Stock
were reserved for issuance upon the exercise of stock options pursuant to the
Buyer 1996 Omnibus Incentive Plan (collectively, the "Buyer Stock Plans"). All
of the issued and outstanding shares of Buyer Common Stock and Buyer Preferred
Stock have been duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights, with no personal liability
attaching to the ownership thereof. As of the date of this Agreement, except as
referred to above or reflected in Section 4.2(a) of the Buyer Disclosure
Schedule and the Buyer Shareholder Rights Agreement, Buyer does not have and is
not bound by any outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for the purchase or issuance
of any shares of Buyer Common Stock or Buyer Preferred Stock or any other equity
securities of Buyer or any securities representing the right to purchase or
otherwise receive any shares of Buyer Common Stock or Buyer Preferred Stock. The
shares of Buyer Common Stock to be issued pursuant to the Merger will be duly
authorized and validly issued and, at the Effective Time, all such shares will
be fully paid, nonassessable and free of preemptive rights.
(b) Section 4.2(b) of the Buyer Disclosure Schedule sets forth a true
and correct list of all of the Buyer Subsidiaries as of the date of this
Agreement. Except as set forth in Section 4.2(b) of the Buyer Disclosure
Schedule, Buyer owns, directly or indirectly, all of the issued and outstanding
shares of capital stock of each of the Subsidiaries of the Buyer, free and clear
of all liens, charges, encumbrances and security interests whatsoever, and all
of such shares are duly authorized and validly issued and are fully paid,
nonassessable and free of preemptive rights. No Subsidiary of the Buyer has or
is bound by any outstanding subscriptions, options, warrants, calls, commitments
or agreements of any character with any party that is not a direct or indirect
Subsidiary of Buyer calling for the purchase or issuance of any shares of
capital stock or any other equity security of such Subsidiary or any securities
representing the right to purchase or otherwise receive any shares of capital
stock or any other equity security of such Subsidiary.
- 23 -
<PAGE>
4.3 Authority. No Violation.
------------------------
(a) Buyer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly approved by the
Board of Directors of Buyer. The Board of Directors of Buyer has directed that
this Agreement and the transactions contemplated hereby be submitted to Buyer's
stockholders for approval at a meeting of such stockholders and, except for the
adoption of this Agreement by the requisite vote of Buyer's stockholders, no
other corporate proceedings on the part of Buyer are necessary to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by Buyer and (assuming due authorization, execution and
delivery by the Company) constitutes a valid and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms, except as enforcement
may be limited by general principles of equity whether applied in a court of law
or a court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) First Savings Bank has full corporate power and authority to execute
and deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of First Savings Bank. Upon the due
and valid approval of the Bank Merger Agreement by Buyer as the sole stockholder
of First Savings Bank, and by the Board of Directors of First Savings Bank, no
other corporate proceedings on the part of First Savings Bank will be necessary
to consummate the transactions contemplated thereby. The Bank Merger Agreement,
upon execution and delivery by First Savings Bank, will be duly and validly
executed and delivered by First Savings Bank and will (assuming due
authorization, execution and delivery by the Company Bank) constitute a valid
and binding obligation of First Savings Bank, enforceable against First Savings
Bank in accordance with its terms, except as enforcement may be limited by
general principles of equity whether applied in a court of law or a court of
equity and by bankruptcy, insolvency and similar laws affecting creditors'
rights and remedies generally.
(c) Except as set forth in Section 4.3(c) of the Buyer Disclosure
Schedule, neither the execution and delivery of this Agreement by Buyer or the
Bank Merger Agreement by First Savings Bank, nor the consummation by Buyer or
First Savings Bank, as the case may be, of the transactions contemplated hereby
or thereby, nor compliance by Buyer or First Savings Bank, as the case may be,
with any of the terms or provisions hereof or thereof, will (i) violate any
provision of the Certificate of Incorporation or By-Laws of Buyer, or the
articles of incorporation or by-laws or similar governing documents of any of
its Subsidiaries or (ii) assuming that the consents and approvals referred to in
Section 4.4 are duly obtained, (x) violate any statute, code, ordinance, rule,
regulation, judgment, order, writ, decree or injunction applicable to Buyer or
any of its Subsidiaries or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the
- 24 -
<PAGE>
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the respective properties or
assets of Buyer or any of its Subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected, except (in the case of clause (y) above) for
such violations, conflicts, breaches or defaults which either individually or in
the aggregate will not have or be reasonably likely to have a Material Adverse
Effect on Buyer.
4.4 Consents and Approvals. Except for (a) the filing of applications
-----------------------
with the OTS and approval of such applications, (b) the state banking approvals,
(c) the filing with the SEC of the Proxy Statement and the S-4, (d) the approval
of this Agreement by the requisite vote of the stockholders of Buyer, (e) the
filing of the Certificate of Merger with the Secretary, (f) such filings and
approvals as are required to be made or obtained under the securities or "Blue
Sky" laws of various states in connection with the issuance of the shares of
Buyer Common Stock pursuant to this Agreement, (g) filings required by the Bank
Merger Agreement, (h) the approval of the Bank Merger Agreement by the
stockholder of First Savings Bank, and (i) such filings, authorizations or
approvals as may be set forth in Section 4.4 of the Buyer Disclosure Schedule,
no consents or approvals of or filings or registrations with any Governmental
Entity or with any third party are necessary in connection with (1) the
execution and delivery by Buyer of this Agreement, (2) the consummation by Buyer
of the Merger and the other transactions contemplated hereby, (3) the execution
and delivery by First Savings Bank of the Bank Merger Agreement, and (4) the
consummation of First Savings Bank of the transactions contemplated by the Bank
Merger Agreement.
4.5 Financial Statements. Buyer has previously delivered to the Company
--------------------
copies of (a) the consolidated balance sheets of Buyer and its Subsidiaries as
of December 31 for the years 1997 and 1996 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1995 through 1997, inclusive, as reported in Buyer's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of KPMG
Peat Marwick LLP, independent public accountants with respect to Buyer, and (b)
the unaudited consolidated balance sheet of Buyer and its Subsidiaries as of
March 31, 1998 and March 31, 1997 and the related unaudited consolidated
statements of income, changes in shareholders' equity and cash flows for the
three-month periods then ended as reported in Buyer's Quarterly Report on Form
10-Q for the period ended March 31, 1998 filed with the SEC under the Exchange
Act. The December 31, 1997 consolidated balance sheet of Buyer (including the
related notes, where applicable) fairly presents the consolidated financial
position of Buyer and its Subsidiaries as of the date thereof, and the other
financial statements referred to in this Section 4.5 (including the related
notes, where applicable) fairly present and the financial statements referred to
in Section 6.9 hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and changes in
- 25 -
<PAGE>
shareholders' equity and consolidated financial position of Buyer and its
Subsidiaries for the respective fiscal periods or as of the respective dates
therein set forth; each of such statements (including the related notes, where
applicable) comply, and the financial statements referred to in Section 6.9
hereof will comply, in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements referred to in Section 6.9
hereof will be, prepared in accordance with GAAP consistently applied during the
periods involved, except as indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q. The books and records of Buyer
and its Subsidiaries have been, and are being, maintained in all material
respects in accordance with GAAP and any other applicable legal and accounting
requirements and reflect only actual transactions.
4.6 Broker's Fees. Neither Buyer nor any Subsidiary of Buyer, nor any of
-------------
their respective officers or directors, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, the Bank
Merger Agreement or the Option Agreement, except that Buyer has engaged, and
will pay a fee or commission to Ryan, Beck & Co. A copy of the Agreement with
Ryan, Beck & Co. has been provided to the Company.
4.7 Absence of Certain Changes or Events.
------------------------------------
(a) Except as may be set forth in Section 4.7 of the Buyer Disclosure
Schedule, or as disclosed in Buyer's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (a true, complete and correct copy of which has
previously been delivered to the Company), since December 31, 1997, (i) neither
Buyer nor any of its Subsidiaries has incurred any material liability, except in
the ordinary course of their business consistent with their past practices, and
(ii) no event has occurred which has caused, or is reasonably likely to cause,
individually or in the aggregate, a Material Adverse Effect on Buyer.
(b) Except as set forth in Section 4.7(b) of the Buyer Disclosure
Schedule, since March 31, 1998, the Buyer and its Subsidiaries have carried on
their respective businesses in the ordinary course consistent with their past
practices.
4.8 Legal Proceedings.
-----------------
(a) Except as set forth in Section 4.8 of the Buyer Disclosure Schedule
or in Buyer's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, neither Buyer nor any of its Subsidiaries is a party to any and there are
no pending or to the best of Buyer's knowledge, threatened, material legal,
administrative, arbitral or other proceedings, claims, actions or governmental
or regulatory investigations of any nature against Buyer or any of its
Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement, the Bank Merger Agreement or the Option
Agreement as to which there is a reasonable probability of an
- 26 -
<PAGE>
adverse determination and which, if adversely determined, would have or be
reasonably likely to have a Material Adverse Effect on Buyer.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Buyer, any of its Subsidiaries or the assets of Buyer
or any of its Subsidiaries which has had, or could reasonably be expected to
have, a Material Adverse Effect on Buyer.
4.9 Compliance with Applicable Law. Buyer and each of its Subsidiaries
-------------------------------
holds, and has at all times held, all material licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Buyer or any of its
Subsidiaries, except where the failure to hold such license, franchise, permit
or authorization or such non-compliance or default would not, individually or in
the aggregate, have, or be reasonably likely to have, a Material Adverse Effect
on Buyer, and neither Buyer nor any of its Subsidiaries knows of, or has
received notice of violation of, any material violations of any of the above.
4.10 SEC Reports. Buyer has previously made available to the Company an
-----------
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1995 by
Buyer with the SEC pursuant to the Securities Act or the Exchange Act (the
"Buyer Reports") and (b) communication mailed by Buyer to its shareholders since
January 1, 1995, and no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
Buyer has timely filed all Buyer Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Buyer Reports complied in all material respects with the
published rules and regulations of the SEC with respect thereto.
4.11 Buyer Information. The information relating to Buyer and its
------------------
Subsidiaries to be contained in the Proxy Statement and the S-4, or in any other
document filed with any other regulatory agency in connection herewith, will not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in light of the circumstances in which
they are made, not misleading. The S-4 (except for such portions thereof that
relate only to the Company or any of its Subsidiaries) will comply in all
material respects with the provisions of the Securities Act of 1933 and the
rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
4.12 Ownership of Company Common Stock: Affiliates and Associates.
------------------------------------------------------------
(a) Except for the Stock Option Agreement, neither Buyer nor any of its
affiliates or associates (as such terms are defined under the Exchange Act), (i)
beneficially own, directly or
- 27 -
<PAGE>
indirectly, or (ii) is a party to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of, in each case, any
shares of capital stock of the Company (other than Trust Account Shares and DPC
Shares); and
(b) Neither Buyer nor any of its Subsidiaries is an "affiliate" (as such
term is defined in DGCL 203(c)(1)), an "associate" (as such term is defined in
DGCL 203(c)(2)) of the Company or an "Interested Stockholder" (as such term is
defined in Section 8 of the Company's Certificate of Incorporation).
4.13 Taxes. Except as set forth in Section 4.13 of the Buyer Disclosure
-----
Schedule, each of Buyer and its Subsidiaries has (i) duly and timely filed or
will duly and timely file (including applicable extensions granted without
penalty) all Tax Returns required to be filed at or prior to the Effective Time,
and such Tax Returns which have heretofore been filed are, and those to be
hereinafter filed will be, true, correct and complete, and (ii) paid in full or
have made adequate provision for on the financial statements of Buyer (in
accordance with GAAP) all Taxes and will pay in full or make adequate provision
for all Taxes. There are no material liens for Taxes upon the assets of either
Buyer or its Subsidiaries except for statutory liens for current Taxes not yet
due. Except as set forth in Section 4.13 of the Buyer Disclosure Schedule,
neither Buyer nor any of its Subsidiaries has requested any extension of time
within which to file any Tax Returns in respect of any fiscal year which have
not since been filed and no request for waivers of the time to assess any Taxes
are pending or outstanding. The federal and state income Tax Returns of Buyer
and its Subsidiaries have been audited by the Internal Revenue Service or
appropriate state tax authorities with respect to those periods and
jurisdictions set forth on Section 4.13 of the Buyer Disclosure Schedule. Except
as set forth in Section 4.13 of the Buyer Disclosure Schedule, neither Buyer nor
any of its Subsidiaries (i) is a party to any agreement providing for the
allocation or sharing of Taxes (other than the allocation of federal income
taxes as provided by Regulation 1.1552 l(a)(1) under the Code); (ii) is required
to include in income any adjustment pursuant to Section 481(a) of the Code, by
reason of the voluntary change in accounting method (nor has any taxing
authority proposed in writing any such adjustment or change of accounting
method); or (iii) has filed a consent pursuant to Section 341(f) of the Code.
4.14 Employees.
---------
(a) Section 4.14(a) of the Buyer Disclosure Schedule sets forth a true
and complete list of each employee benefit plan, arrangement or agreement that
is maintained or contributed to or required to be contributed to as of the date
of this Agreement (the "Buyer Plans") by Buyer, any of its Subsidiaries or by
any trade or business, whether or not incorporated (a "Buyer ERISA Affiliate"),
all of which together with Buyer would be deemed a "single employer" within the
meaning of Section 4001 of ERISA, for the benefit of any employee or former
employee of Buyer, any Subsidiary or any ERISA Affiliate.
(b) Except as set forth in Section 4.14(b) of the Buyer Disclosure
Schedule, (i) each of the Buyer Plans has been operated and administered in all
material respects in accordance with its
- 28 -
<PAGE>
terms and applicable law, including but not limited to ERISA and the Code, (ii)
each of the Buyer Plans intended to be "qualified" within the meaning of Section
401(a) of the Code has either (1) received a favorable determination letter from
the IRS, or (2) is or will be the subject of an application for a favorable
determination letter, and Buyer is not aware of any circumstances likely to
result in the revocation or denial of any such favorable determination letter,
(iii) with respect to each Buyer Plan which is subject to Title IV of ERISA, the
present value of accrued benefits under such Buyer Plan, based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Buyer Plan's actuary with respect to such Buyer Plan,
did not, as of its latest valuation date, exceed the then current value of the
assets of such Buyer Plan allocable to such accrued benefits, (iv) no Plan
provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of Buyer,
its Subsidiaries or any ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits
accrued as liabilities on the books of Buyer, its Subsidiaries or the ERISA
Affiliates or (z) benefits the full cost of which is borne by the current or
former employee (or his beneficiary), (v) no liability under Title IV of ERISA
has been incurred by Buyer, its Subsidiaries or any Buyer ERISA Affiliate that
has not been satisfied in full, (vi) no Buyer Plan is a "multiemployer pension
plan," as such term is defined in Section 3(37) of ERISA, (vii) all
contributions or other amounts payable by Buyer, its Subsidiaries or any ERISA
Affiliate as of the Effective Time with respect to each Plan in respect of
current or prior plan years have been paid or accrued in accordance with
generally accepted accounting practices and Section 412 of the Code, (viii)
neither Buyer, its Subsidiaries nor any ERISA Affiliate has engaged in a
transaction in connection with which Buyer, its Subsidiaries or any ERISA
Affiliate could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976
of the Code, (ix) there are no pending, or, to the best knowledge of Buyer,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Buyer Plans or any trusts related thereto and
(x) the consummation of the transactions contemplated by this Agreement will not
(y) entitle any current or former employee or officer of Buyer or any ERISA
Affiliate to severance pay, termination pay or any other payment, except as
expressly provided in this Agreement or (z) accelerate the time of payment or
vesting or increase in the amount of compensation due any such employee or
officer.
4.15 Agreements with Regulatory Agencies. Except as set forth in Section
-------------------------------------
4.15 of the Buyer Disclosure Schedule or as disclosed in Buyer's Annual Report
on Form 10-K for the year ended December 31, 1997, neither Buyer nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section 4.15 of the Buyer
Disclosure Schedule, a "Buyer Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that restricts the conduct of its business or that in
any manner relates to its capital adequacy, its credit policies, its
- 29 -
<PAGE>
management or its business, nor has Buyer or any of its Subsidiaries been
advised by any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
4.15A Investments Securities. Section 4.15A of the Buyer Disclosure
-----------------------
Schedule sets forth the book and market value as of March 31, 1998 of the
investment securities, mortgage backed securities and securities held for sale
of the Buyer and its Subsidiaries. Section 4.15A of the Buyer Disclosure
Schedule sets forth an investment securities report which includes, security
descriptions, CUSIP numbers, pool face values, book values, coupon rates and
current market values.
4.16 Undisclosed Liabilities. Except (a) as set forth in Section 4.16
------------------------
of the Buyer Disclosure Schedule, (b) for those liabilities that are fully
reflected or reserved against on the consolidated balance sheet of Buyer
included in its Form 10-Q for the period ended March 31, 1998 and (c) for
liabilities incurred in the ordinary course of business consistent with past
practice since March 31, 1998 that, either alone or when combined with all
similar liabilities, have not had, and could not reasonably be expected to have,
a Material Adverse Effect on Buyer, neither Buyer nor any of its Subsidiaries
has incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due).
4.17 Administration of Fiduciary Accounts. Buyer and each of its
---------------------------------------
Subsidiaries has properly administered in all material respects all accounts for
which it acts as a fiduciary, including but not limited to accounts for which it
serves as a trustee, agent, custodian, personal representative, guardian,
conservator or investment advisor, in accordance with the terms of the governing
documents and applicable state and federal law and regulation and common law.
Neither Buyer nor any of its Subsidiaries nor any of their respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary account which has or could reasonably be expected to have a Material
Adverse Effect on Buyer, and the accountings for each such fiduciary account are
true and correct in all material respects and accurately reflect the assets of
such fiduciary account.
4.18 Approvals. As of the date of this Agreement, Buyer knows of no
---------
reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained without the imposition of a
Burdensome Condition.
4.19 Reports. Buyer and each of its Subsidiaries have timely filed all
-------
material reports, registrations and statements, together with any amendments
required to be made with respect thereto, that they were required to file since
December 31, 1994 with any Regulatory Agency, and all other material reports and
statements required to be filed by them since December 31, 1994, including,
without limitation, any report or statement required to be filed pursuant to the
laws, rules or regulations of the United States, the Federal Reserve Board, the
FDIC, any State Regulator or any SRO, and have paid all fees and assessments due
and payable in connection
- 30 -
<PAGE>
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of Buyer and its Subsidiaries; except as set
forth in Section 4.19 of Buyer Disclosure Schedule, no Regulatory Agency has
initiated any proceeding or, to the best knowledge of Buyer, investigation into
the business or operations of Buyer or any of its Subsidiaries since December
31, 1994. There is no unresolved material violation, criticism, or exception by
any Regulatory Agency with respect to any report or statement relating to any
examinations of Buyer or any of its Subsidiaries.
4.19A State Takeover Laws. The provisions of Article VIII of Buyer's
---------------------
Certificate of Incorporation will not, assuming the accuracy of the
representations contained in Section 3.13A hereof, apply to the Agreement, the
Bank Merger Agreement or the Stock Option Agreement or any of the transactions
contemplated hereby or thereby.
4.20 Environmental Matters. Except as set forth in Section 4.20 of the
---------------------
Buyer Disclosure Schedule:
(a) Each of Buyer, its Subsidiaries, the Participation Facilities and
the Loan Properties (each as hereinafter defined) are, and have been, in
compliance with Environmental Laws, except for violations which, either
individually or in the aggregate, have not had and cannot reasonably be expected
to have a Material Adverse Effect on Buyer;
(b) There is no suit, claim, action or proceeding, pending or
threatened, before any Governmental Entity or other forum in which Buyer, any of
its Subsidiaries, any Participation Facility or any Loan Property, has been or,
with respect to threatened proceedings, may be, named as a defendant (x) for
alleged noncompliance (including by any predecessor), with any Environmental
Laws, or (y) relating to the release, threatened release or exposure to any
material whether or not occurring at or on a site owned, leased or operated by
Buyer or any of its Subsidiaries, any Participation Facility or any Loan
Property, except where such noncompliance or release has not resulted, and
cannot be reasonably expected to result, either individually or in the
aggregate, a Material Adverse Effect on Buyer;
(c) During the period of (x) Buyer's or any of its Subsidiaries'
ownership or operation of any of their respective current properties, (y)
Buyer's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Buyer's or any of its Subsidiaries' holding of a
security interest in a Loan Property, there has been no release of materials in,
on, under or affecting any such property, except where such release has not had
and cannot reasonably be expected to result in, either individually or in the
aggregate, a Material Adverse Effect on Buyer. Prior to the period of (x)
Buyer's or any of its Subsidiaries' ownership or operation of any of their
respective current properties, (y) Buyer's or any of its Subsidiaries'
participation in the management of any Participation Facility, or (z) Buyer's or
any of its Subsidiaries' holding of a security interest in a Loan Property,
there was no release or threatened release of materials in, on, under or
affecting any such property, Participation Facility or Loan Property, except
where such
- 31 -
<PAGE>
release has not had and cannot be reasonably expected to have, either
individually or in the aggregate, a Material Adverse Effect on Buyer; and
(d) The following definitions apply for purposes of this Section 4.20:
(x) "Loan Property" means any property in which Buyer or any of its Subsidiaries
holds a security interest, and, where required by the context, said term means
the owner or operator of such property; and (y) "Participation Facility" means
any facility in which Buyer or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such property.
4.21 Derivative Transactions. Except as set forth in Section 4.21 of
------------------------
the Buyer Disclosure Schedule, since December 31, 1997, neither Buyer nor any of
its Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments except (i) as agent on
the order and for the account of others, or (ii) as principal for purposes of
hedging interest rate risk on U.S. dollar denominated securities and other
financial instruments. None of the counterparts to any contract or agreement
with respect to any such instrument is in default with respect to such contract
or agreement and no such contract or agreement, were it to be a Loan held by
Buyer or any of its Subsidiaries, would be classified as "Other Loans Specially
Mentioned," "Special Mention," "Substandard," "Doubtful," "Loss," "Classified,"
"Criticized," "Credit Risk Assets," "Concerned Loans" or words of similar
import. The financial position of Buyer and its Subsidiaries on a consolidated
basis under or with respect to each such instrument has been reflected in the
books and records of Buyer and such Subsidiaries in accordance with GAAP
consistently applied, and no open exposure of Buyer or any of its Subsidiaries
with respect to any such instrument (or with respect to multiple instruments
with respect to any single counterparty) exceeds $500,000.
4.22 Loan Portfolio.
--------------
(a) Except as set forth in Section 4.22 of the Buyer Disclosure
Schedule, neither Buyer nor any of its Subsidiaries is a party to any written or
oral (i) Loan, other than Loans the unpaid principal balance of which does not
exceed $50,000, under the terms of which the obligor is, as of the date of this
Agreement, over 90 days delinquent in payment of principal or interest or in
default of any other provision, or (ii) Loan as of the date of this Agreement
with any director, executive officer or ten percent stockholder of Buyer or any
of its Subsidiaries, or to the best knowledge of Buyer, any person, corporation
or enterprise controlling, controlled by or under common control with any of the
foregoing. Section 4.22 of the Buyer Disclosure Schedule sets forth (i) all of
the Loans in original principal amount in excess of $50,000 of Buyer or any of
its Subsidiaries that as of the date of this Agreement are classified by any
bank examiner (whether regulatory or internal) as "Other Loans Specially
Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss", "Classified",
"Criticized", "Credit Risk Assets", "Concerned Loans", "Watch List" or words of
similar import, together with the principal amount of and accrued and unpaid
interest on each such Loan and the identity of the borrower thereunder, and (ii)
by category of Loan (i.e., commercial, consumer, etc.), all of the other Loans
of Buyer and its Subsidiaries that
- 32 -
<PAGE>
as of the date of this Agreement are classified as such, together with the
aggregate principal amount of and accrued and unpaid interest on such Loans by
category. Buyer shall promptly inform the Company in writing of any loan that
becomes classified in the manner described in the previous sentence, or any Loan
the classification of which is changed, at any time after the date of this
Agreement.
(b) To the best of its knowledge, each loan reflected as an asset in
the Buyer Disclosure Schedule (i) is evidenced by notes, agreements or other
evidences of indebtedness which are true, genuine and correct in all material
respects, (ii) to the extent secured, has been secured by valid liens and
security interests which have been perfected, and (iii) is the legal, valid and
binding obligation of the obligor named therein, enforceable in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent conveyance and other
laws of general applicability relating to or affecting creditors' rights and to
general equity principles, in each case other than loans as to which the failure
to satisfy the foregoing standards would not have a Material Adverse Effect on
the Buyer.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
------------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Option Agreement or with the prior written consent of Buyer, the Company and its
Subsidiaries shall carry on their respective businesses in the ordinary course
consistent with past practice and consistent with prudent banking practice. The
Company will use its best efforts to (x) preserve its business organization and
that of its Subsidiaries intact, (y) keep available to itself and Buyer the
present services of the employees of the Company and its Subsidiaries and (z)
preserve for itself and Buyer the goodwill of the customers of the Company and
its Subsidiaries and others with whom business relationships exist. Without
limiting the generality of the foregoing, and except as set forth on Section 5.1
of the Company Disclosure Schedule or as otherwise contemplated by this
Agreement or consented to in writing by Buyer, the Company shall not, and shall
not permit any of its Subsidiaries to:
(a) solely in the case of the Company, declare or pay any dividends on,
or make other distributions in respect of, any of its capital stock, other than
normal quarterly dividends in an amount of no more than $0.20 per share of
Company Common Stock, provided, however, that on or after January 1, 1999, the
Company may increase its quarterly dividend to no more than $0.225 per share if
such increase will not prevent the Merger from being accounted for as a pooling
of interests;
(b) (i) split, combine or reclassify any shares of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock except upon
the exercise or fulfillment of rights or options issued or existing
- 33 -
<PAGE>
pursuant to employee benefit plans, programs or arrangements, all to the extent
outstanding and in existence on the date of this Agreement and in accordance
with their present terms, and except pursuant to the Option Agreement, or (ii)
repurchase, redeem or otherwise acquire (except for the acquisition of Trust
Account Shares and DPC Shares, as such terms are defined in Section 1.4(b)
hereof) any shares of the capital stock of the Company or any Subsidiary of the
Company, or any securities convertible into or exercisable for any shares of the
capital stock of the Company or any Subsidiary of the Company;
(c) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or any securities
convertible into or exercisable for, or any rights, warrants or options to
acquire, any such shares, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of Company Common Stock pursuant to stock
options or similar rights to acquire Company Common Stock granted pursuant to
the Company Stock Plans and outstanding prior to the date of this Agreement, in
each case in accordance with their present terms and (ii) pursuant to the Option
Agreement;
(d) amend its Certificate of Incorporation, By-laws or other similar
governing documents;
(e) authorize or permit any of its officers, directors, employees or
agents to directly or indirectly solicit, initiate or encourage any inquiries
relating to, or the making of any proposal which constitutes, a "takeover
proposal" (as defined below), or, except to the extent legally required for the
discharge of the fiduciary duties of the Board of Directors of the Company,
recommend or endorse any takeover proposal, or participate in any discussions or
negotiations, or provide third parties with any nonpublic information, relating
to any such inquiry or proposal or otherwise facilitate any effort or attempt to
make or implement a take over proposal; provided, however, that the Company may
communicate information about any such takeover proposal to its stockholders if,
in the judgment of the Company's Board of Directors, based upon the written
opinion of outside counsel, such communication is required under applicable law.
The Company will immediately cease and cause to be terminated any existing
activities, discussions or negotiations previously conducted with any parties
other than Buyer with respect to any of the foregoing. The Company will take all
actions necessary or advisable to inform the appropriate individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 5.1(e). The Company will notify Buyer immediately if any such inquiries
or takeover proposals are received by, any such information is requested from,
or any such negotiations or discussions are sought to be initiated or continued
with, the Company, and the Company will promptly inform Buyer in writing of all
of the relevant details with respect to the foregoing. As used in this
Agreement, "takeover proposal" shall mean any tender or exchange offer, proposal
for a merger, consolidation or other business combination involving the Company
or any Subsidiary of the Company or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the assets
of the Company or any Subsidiary of the Company other than the transactions
contemplated or permitted by this Agreement, the Bank Merger Agreement and the
Option Agreement;
- 34 -
<PAGE>
(f) make any capital expenditures other than the expenses which are set
forth in Section 5.1(f) of the Company Disclosure Schedule and expenses which
(i) are made in the ordinary course of business or are necessary to maintain
existing assets in good repair, or (ii) in an amount of no more than $50,000
individually and $75,000 in the aggregate;
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating with, or
by purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, which would be material, individually or in the aggregate,
to the Company, other than in connection with foreclosures, settlements in lieu
of foreclosure or troubled loan or debt restructurings in the ordinary course of
business consistent with prudent banking practices;
(i) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Merger set forth in Article VII not being satisfied, or in a violation of
any provision of this Agreement or the Bank Merger Agreement, except, in every
case, as may be required by applicable law;
(j) change its methods of accounting in effect at September 30, 1997,
except as required by changes in GAAP or regulatory accounting principles as
concurred to by the Company's independent auditors;
(k) (i) except as required by applicable law or to maintain
qualification pursuant to the Code, adopt, amend, renew or terminate any Plan or
any agreement, arrangement, plan or policy between the Company or any Subsidiary
of the Company and one or more of its current or former directors, officers or
employees or (ii) except for normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
in any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan or agreement as in effect
as of the date hereof (including, without limitation, the granting of stock
options, stock appreciation rights, restricted stock, restricted stock units or
performance units or shares), except for continuation of contributions to the
Company's retirement plan in accordance with past practice, such contributions
not to exceed $45,000 per calendar quarter;
(l) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, provided, however, that nothing
-------- -------
contained herein shall limit the ability of Buyer to exercise its rights under
the Stock Option Agreement;
- 35 -
<PAGE>
(m) except as set forth in Section 5.1(m) of the Company Disclosure
Schedule, other than activities in the ordinary course of business consistent
with prior practice, sell, lease, encumber, assign or otherwise dispose of, or
agree to sell, lease, encumber, assign or otherwise dispose of, any of its
material assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money, assume, guarantee, endorse
or otherwise as an accommodation become responsible for the obligations of any
other individual, corporation or other entity;
(o) file any application to relocate or terminate the operations of any
banking office of it or any of its Subsidiaries;
(p) commit any act or omission which constitutes a material breach or
default by the Company or any of its Subsidiaries under any Regulatory Agreement
or under any material contract or material license to which the Company or any
of its Subsidiaries is a party or by which any of them or their respective
properties is bound;
(q) except as set forth in Disclosure Schedule 3.27, compromise, extend
or restructure any real estate loan, construction loan or commercial loan with
an unpaid principal balance except in the ordinary course of business consistent
with past practices;
(r) make or commit to any commercial business loan (including, without
limitation, lines of credit and letters of credit) or any commercial real estate
or construction loan (including, without limitation, lines of credit and letters
of credit) secured by any non-1-4 family residential properties, except in the
ordinary course of business consistent with past practices;
(s) purchase or commit to purchase any bulk loan portfolio;
(t) engage in or enter into any structured transactions, derivative
securities, arbitrage or hedging activity;
(u) make any equity investment or commitment to make such an investment
in real estate or in any real estate development project, other than in
connection with foreclosures, settlements in lieu of foreclosure or troubled
loan or debt restructurings in the ordinary course of business consistent with
prudent banking practices, or for goods, services or other items necessary in
the ordinary course of business relating to foreclosures, settlements in lieu of
foreclosure or troubled loan or debt restructurings;
(v) create, renew, amend or terminate or give notice of a proposed
renewal, amendment or termination of, any material contract, agreement or lease
for goods, services or office space to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries or
their respective properties is bound;
- 36 -
<PAGE>
(w) take any action which would cause the termination or cancellation
by the FDIC of insurance in respect of the Company Bank's deposits; or
(x) agree to do any of the foregoing.
5.2 Covenants of Buyer. During the period from the date of this
--------------------
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Option Agreement or with the prior written consent of the Company, Buyer and its
Subsidiaries shall carry on their respective businesses in the ordinary course
consistent with past practice and consistent with prudent banking practice.
Buyer will use its best efforts to (x) preserve its business organization and
that of its Subsidiaries intact and (y) preserve for itself and the Company the
goodwill of the customers of Buyer and its Subsidiaries and others with whom
business relationships exist. Without limiting the generality of the foregoing
and except as set forth on Section 5.2 of the Buyer Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by the
Company, Buyer shall not, and shall not permit any of its Subsidiaries to:
(a) declare or pay any extraordinary or special dividends on or make
any other extraordinary or special distributions in respect of any of its
capital stock; provided, however, that nothing contained herein shall prohibit
Buyer from increasing the quarterly cash dividend on the Buyer Common Stock;
(b) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect, or in any of the conditions to
the Merger set forth in Article VII not being satisfied or in a violation of any
provision of this Agreement or the Bank Merger Agreement, except, in every case,
as may be required by applicable law;
(c) change its methods of accounting in effect at December 31, 1997,
except in accordance with changes in GAAP or regulatory accounting principles as
concurred to by Buyer's independent auditors;
(d) take or cause to be taken any action which would disqualify the
Merger as a "pooling of interests" for accounting purposes or a tax free
reorganization under Section 368 of the Code, provided, however, that nothing
contained herein shall limit the ability of Buyer to exercise its rights under
the Option Agreement;
(e) take any action which would cause the termination or cancellation
by the FDIC of insurance in respect of First Savings Bank's deposits; or
(f) agree to do any of the foregoing.
ARTICLE VI
- 37 -
<PAGE>
ADDITIONAL AGREEMENTS
6.1 Regulatory Matters.
------------------
(a) The Company and Buyer shall promptly prepare and file with the SEC
Proxy Statements (the "Joint Proxy Statement") and Buyer shall promptly prepare
and file with the SEC the S-4, in which the Joint Proxy Statement will be
included as a prospectus. Each of the Company and Buyer shall use all reasonable
efforts to have the S-4 declared effective under the Securities Act as promptly
as practicable after such filing, and each of the Company and Buyer shall
thereafter mail the Joint Proxy Statement to each of its respective
stockholders. Buyer shall also use all reasonable efforts to obtain all
necessary state securities law or "Blue Sky" permits and approvals required to
carry out the transactions contemplated by this Agreement and the Bank Merger
Agreement, and the Company shall furnish all information concerning the Company
and the holders of Company Common Stock as may be reasonably requested in
connection with any such action.
(b) The parties hereto shall cooperate with each other and use their
best efforts to promptly prepare and file all necessary documentation, to effect
all applications, notices, petitions and filings, and to obtain as promptly as
practicable all permits, consents, approvals and authorizations of all third
parties and Governmental Entities which are necessary or advisable to consummate
the transactions contemplated by this Agreement (including without limitation
the Merger and the Subsidiary Merger) (it being understood that any amendments
to the S-4 or a resolicitation of proxies as consequence of a subsequent
proposed merger, stock purchase or similar acquisition by Buyer or any of its
Subsidiaries shall not violate this covenant). The Company and Buyer shall have
the right to review in advance, and to the extent practicable each will consult
the other on, in each case subject to applicable laws relating to the exchange
of information, all the information relating to the Company or Buyer, as the
case may be, and any of their respective Subsidiaries, which appear in any
filing made with, or written materials submitted to, any third party or any
Governmental Entity in connection with the transactions contemplated by this
Agreement. In exercising the foregoing right, each of the parties hereto shall
act reasonably and as promptly as practicable. The parties hereto agree that
they will consult with each other with respect to the obtaining of all permits,
consents, approvals and authorizations of all third parties and Governmental
Entities necessary or advisable to consummate the transactions contemplated by
this Agreement and each party will keep the other apprised of the status of
matters relating to completion of the transactions contemplated herein.
(c) Buyer and the Company shall, upon request, furnish each other with
all information concerning themselves, their Subsidiaries, directors, officers
and stockholders and such other matters as may be reasonably necessary or
advisable in connection with the Proxy Statement, the S-4 or any other
statement, filing, notice or application made by or on behalf of Buyer, the
Company or any of their respective Subsidiaries to any Governmental Entity in
connection with the Merger and the other transactions contemplated by this
Agreement.
- 38 -
<PAGE>
(d) Buyer and the Company shall promptly furnish each other with copies
of written communications received by Buyer or the Company, as the case may be,
or any of their respective Subsidiaries, Affiliates or Associates (as such terms
are defined in Rule 12b-2 under the Exchange Act as in effect on the date of
this Agreement) from, or delivered by any of the foregoing to, any Governmental
Entity in respect of the transactions contemplated hereby.
6.2 Access to Information.
---------------------
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, the Company shall, and shall cause each of its
Subsidiaries to, afford to the officers, employees, accountants, counsel and
other representatives of Buyer, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments, records, officers, employees, accountants, counsel and other
representatives and, during such period, the Company shall, and shall cause its
Subsidiaries to, make available to Buyer (i) a copy of each report, schedule,
registration statement and other document filed or received by it during such
period pursuant to the requirements of Federal securities laws or Federal or
state banking laws (other than reports or documents which the Company is not
permitted to disclose under applicable law) and (ii) all other information
concerning its business, properties and personnel as Buyer may reasonably
request. Neither the Company nor any of its Subsidiaries shall be required to
provide access to or to disclose information where such access or disclosure
would violate or prejudice the rights of the Company's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply. Buyer will hold all such information in confidence to
the extent required by, and in accordance with, the provisions of the
confidentiality agreement, dated July 9, 1998, between Buyer and the Company
(the "Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, Buyer shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the Company, access, during normal business hours during the
period prior to the Effective Time, to such information regarding Buyer and its
Subsidiaries as shall be reasonably necessary for the Company to fulfill its
obligations pursuant to this Agreement to prepare the Proxy Statement or which
may be reasonably necessary for the Company to confirm that the representations
and warranties of Buyer contained herein are true and correct and that the
covenants of Buyer contained herein have been performed in all material
respects. Neither Buyer nor any of its Subsidiaries shall be required to provide
access to or to disclose information where such access or disclosure would
violate or prejudice the rights of Buyer's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
- 39 -
<PAGE>
(c) All information furnished by Buyer to the Company or its
representatives pursuant hereto shall be treated as the sole property of Buyer
and, if the Merger shall not occur, the Company and its representatives shall
return to Buyer all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. The Company shall, and shall use its best efforts to
cause its representatives to, keep confidential all such information, and shall
not directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for two years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in the Company's
possession prior to the disclosure thereof by Buyer; (y) was then generally
known to the public; or (z) was disclosed to the Company by a third party not
bound by an obligation of confidentiality or (ii) disclosures made as required
by law. It is further agreed that, if in the absence of a protective order or
the receipt of a waiver hereunder the Company is nonetheless, in the opinion of
its counsel, compelled to disclose information concerning Buyer to any tribunal
or governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, the Company may disclose such information to such tribunal
or governmental body or agency without liability hereunder.
(d) All information furnished by Company to the Buyer or its
representatives pursuant hereto shall be treated as the sole property of Company
and, if the Merger shall not occur, the Buyer and its representatives shall
return to Company all of such written information and all documents, notes,
summaries or other materials containing, reflecting or referring to, or derived
from, such information. The Buyer shall, and shall use its best efforts to cause
its representatives to, keep confidential all such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. The obligation to keep such information confidential shall
continue for two years from the date the proposed Merger is abandoned and shall
not apply to (i) any information which (x) was already in the Buyer's possession
prior to the disclosure thereof by Company; (y) was then generally known to the
public; or (z) was disclosed to the Buyer by a third party not bound by an
obligation of confidentiality or (ii) disclosures made as required by law. It is
further agreed that, if in the absence of a protective order or the receipt of a
waiver hereunder the Buyer is nonetheless, in the opinion of its counsel,
compelled to disclose information concerning Company to any tribunal or
governmental body or agency or else stand liable for contempt or suffer other
censure or penalty, the Buyer may disclose such information to such tribunal or
governmental body or agency without liability hereunder.
(e) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
(f) Company shall respond reasonably and in good faith to any timely
request of Buyer to permit a representative of Buyer to attend any meeting of
Company's Board of Directors or the Executive Committee thereof, except to the
extent that such meeting, or portion thereof, relates to the Merger.
- 40 -
<PAGE>
6.3 (a) Stockholder Meetings. The Company and Buyer each shall take all
--------------------
steps necessary to duly call, give notice of, convene and hold a special or
annual meeting of its respective stockholders to be held as soon as is
reasonably practicable after the date on which the S-4 becomes effective for the
purpose of voting upon the approval of this Agreement and the consummation of
the transactions contemplated hereby. The Company and Buyer each will, through
its respective Board of Directors, except to the extent legally required for the
discharge of the fiduciary duties of such board, recommend to its respective
stockholders approval of this Agreement and the transactions contemplated hereby
and such other matters as may be submitted to its stockholders in connection
with this Agreement. The Company and Buyer shall coordinate and cooperate with
respect to the foregoing matters, with a view towards, among other things,
holding the respective meetings of each party's stockholders on the same day.
(b) Voting Agreements. Each of the Company's directors have entered
into a Voting Agreement, a form of which is attached as Exhibit 6.3(b), hereto.
6.4 Legal Conditions to Merger. Each of Buyer and the Company shall,
---------------------------
and shall cause its Subsidiaries to, use their best efforts (a) to take, or
cause to be taken, all actions necessary, proper or advisable to comply promptly
with all legal requirements which may be imposed on such party or its
Subsidiaries with respect to the Merger or the Subsidiary Merger and, subject to
the conditions set forth in Article VII hereof, to consummate the transactions
contemplated by this Agreement and (b) to obtain (and to cooperate with the
other party to obtain) any consent, authorization, order or approval of, or any
exemption by, any Governmental Entity and any other third party which is
required to be obtained by the Company or Buyer or any of their respective
Subsidiaries in connection with the Merger and the Subsidiary Merger and the
other transactions contemplated by this Agreement, and to comply with the terms
and conditions of such consent, authorization, order or approval; provided,
however, that neither Buyer nor the Company shall be obligated to take any
action pursuant to the foregoing if the taking of such action or such compliance
or the obtaining of such consent, authorization, order or approval is likely, in
the good faith reasonable opinion of Buyer, to result in the imposition of a
Burdensome Condition.
6.5 Affiliates. Each of Buyer and the Company shall use its best
----------
efforts to cause each director, executive officer and other person who is an
"affiliate" (for purposes of Rule 145 under the Securities Act and for purposes
of qualifying the Merger for "pooling-of- interests" accounting treatment) of
such party to deliver to the other party hereto, as soon as practicable after
the date of this Agreement, and in any event prior to the earlier of the date of
the stockholders meeting called by the Company to approve this Agreement and the
date of the stockholders meeting called by Buyer to approve this Agreement, a
written agreement, in the form of Exhibit 6.5(a) hereto (in the case of
affiliates of Buyer) or 6.5(b) hereto (in the case of affiliates of the
Company), providing that such person will not sell, pledge, transfer or
otherwise dispose of any shares of Buyer Common Stock or Company Common Stock
held by such "affiliate" and, in the case of the "affiliates" of the Company,
the shares of Buyer Common Stock to be received by such "affiliate" in the
Merger: (1) in the case of shares of Buyer Common Stock to be received by
"affiliates" of the Company in the Merger, except in compliance with the
- 41 -
<PAGE>
applicable provisions of the Securities Act and the rules and regulations
thereunder; and (2) during the period commencing 30 days prior to the Merger and
ending at the time of the publication of financial results covering at least 30
days of combined operations of Buyer and the Company.
6.6 Stock Exchange Listing. Buyer shall cause the shares of Buyer
------------------------
Common Stock to be issued in the Merger to be approved for listing on the
Nasdaq, subject to official notice of issuance, as of the Effective Time.
6.7 Employee Benefit Plans; Existing Agreements.
-------------------------------------------
(a) The employees of the Company (the "Company Employees") shall be
entitled to participate in Buyer's employee benefit plans in which similarly
situated employees of Buyer participate, to the same extent as comparable
employees of Buyer. As of the Effective Time, Buyer shall permit the Company
Employees to participate in Buyer's group hospitalization, medical, life and
disability insurance plans on the same terms and conditions as applicable to
comparable employees of Buyer and its Subsidiaries; provided, however, that all
Company employees and dependents will be eligible to participate in medical
insurance plans of First Savings Bank upon the merger without regard to any
pre-existing conditions or exclusions and with no uninsured waiting periods, and
the carry over of all current plan year deductibles and annual out-of-pocket
contribution, to the extent permitted by the Buyer's medical insurance plans. As
of the next entry date immediately following the Effective Time, Buyer shall
permit the Company Employees to participate in Buyer's defined benefit pension
plan, 401(k) savings plan, employee stock ownership plan ("ESOP") and similar
plans on the same terms and conditions as employees of Buyer and its
Subsidiaries, giving effect to years of service with the Company and its
Subsidiaries (to the extent the Company gave effect) as if such service were
with Buyer, for purposes of eligibility and vesting, but not for benefit accrual
purposes, provided, however, in no event shall said Company employees be
credited with more than three (3) years of service for vesting purposes under
the ESOP as of the Effective Time. Buyer shall as of the Effective Time enter
into a Consulting Agreement as contained at Disclosure Schedule 6.7(b) (2)
including the provisions detailed at 6.7(b)(2)(ii) of said Disclosure Schedule
with respect to Mr. George Hornyak. As of the merger date, Company Employees
retain accrual or payout for short-term disability, unused sick leave benefits
and vacation pay, provided such amounts have been fully accrued for by Company
as of the Effective Time and are in accordance with such amounts provided in
past practice by the Company. As of the Effective Time, all participants under
the Company's defined contribution plan shall become 100% vested in all
participant accounts. With respect to Buyer's welfare benefit plans, (including
by example, vacation, sick leave, severance), Company employees shall have prior
service with the Company recognized for purposes of eligibility to participate,
vesting and benefits accrual purposes.
(b) Following the Effective Time, Buyer shall honor and shall cause the
Surviving Bank to honor in accordance with their terms all employment, severance
and other compensation agreements and arrangements, including, but not limited
to, severance benefit plans listed in
- 42 -
<PAGE>
Section 6.7(b)(1) of the Company Disclosure Schedule, existing prior to the
execution of this Agreement and the agreements and arrangement, as set forth in
Section 6.7(b)(2) of the Company Disclosure Schedule which are between the
Company and any director, officer or employee thereof and which have been
disclosed in the Company Disclosure Schedule and previously have been delivered
to Buyer and agrees to make the payments and provide the benefits pursuant
thereto described in Section 6.7(b) of the Company Disclosure Schedule.
(c) As of the Effective Time, Buyer will assume, or will cause First
Savings Bank to assume, the tax qualified plans of the Company Bank as listed in
Section 3.11(a) of the Company Disclosure Schedule. Neither Buyer nor First
Savings Bank shall be required to make further contributions to such plans. As
of the Effective Time, all accrued benefits under the plans shall be fully
vested and nonforfeitable. As soon as practicable after the Effective Time,
Buyer shall terminate or shall cause First Savings Bank to terminate the tax
qualified plans of the Company Bank assumed by Buyer, or First Savings Bank,
pursuant to this Section 6.7(c), and distribution of the accounts of active
participants immediately prior to the Effective Time under the plans shall be
made to the participants and beneficiaries in accordance with the terms of such
plans.
(d) Buyer and Surviving Bank shall implement the programs detailed at
items (i), (ii), (iii), (iv), (v) and (vii) of Disclosure Schedule 6.7(b)(2).
6.8 Indemnification.
---------------
(a) In the event of any threatened or actual claim, action, suit,
proceeding or investigation, whether civil or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any person who is now, or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer or
employee of the Company or any of its Subsidiaries (the "Indemnified Parties")
is, or is threatened to be, made a party based in whole or in part on, or
arising in whole or in part out of, or pertaining to (i) the fact that he is or
was a director, officer or employee of the Company, any of the Subsidiaries of
the Company or any of their respective predecessors or (ii) this Agreement or
any of the transactions contemplated hereby, whether in any case asserted or
arising before or after the Effective Time, the parties hereto agree to
cooperate and use their best efforts to defend against and respond thereto. It
is understood and agreed that after the Effective Time, Buyer shall indemnify
and hold harmless, as and to the extent permitted by Delaware law, each such
Indemnified Party against any losses, claims, damages, liabilities, costs,
expenses (including reasonable attorney's fees and expenses in advance of the
final disposition of any claim, suit, proceeding or investigation to each
Indemnified Party to the fullest extent permitted by law upon receipt of any
undertaking required by applicable law), judgments, fines and amounts paid in
settlement in connection with any such threatened or actual claim, action, suit,
proceeding or investigation, and in the event of any such threatened or actual
claim, action, suit, proceeding or investigation (whether asserted or arising
before or after the Effective Time), the Indemnified Parties may retain counsel
reasonably satisfactory to them after consultation with Buyer; provided,
however, that (1) Buyer shall have the right to assume the defense thereof and
upon
- 43 -
<PAGE>
such assumption Buyer shall not be liable to any Indemnified Party for any legal
expenses of other counsel or any other expenses subsequently incurred by any
Indemnified Party in connection with the defense thereof, except that if Buyer
elects not to assume such defense or counsel for the Indemnified Parties
reasonably advises that there are issues which raise conflicts of interest
between Buyer and the Indemnified Parties, the Indemnified Parties may retain
counsel reasonably satisfactory to them after consultation with Buyer, and Buyer
shall pay the reasonable fees and expenses of such counsel for the Indemnified
Parties, (2) Buyer shall in all cases be obligated pursuant to this paragraph to
pay for only one firm of counsel for all Indemnified Parties, (3) Buyer shall
not be liable for any settlement effected without its prior written consent
(which consent shall not be unreasonably withheld) and (4) Buyer shall have no
obligation hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall ultimately determine, and such determination shall have
become final and nonappealable, that indemnification of such Indemnified Party
in the manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim Indemnification under this Section 6.8, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify promptly Buyer thereof, provided that the failure to so notify shall not
affect the obligations of Buyer under this Section 6.8 except to the extent such
failure to notify prejudices Buyer. Buyer's obligations under this Section 6.8
continue in full force and effect for a period of six (6) years from the
Effective Time; provided, however, that all rights to indemnification in respect
of any claim (a "Claim") asserted or made within such period shall continue
until the final disposition of such Claim. Notwithstanding anything to the
contrary contained in this Section 6.8(a), in no event shall Buyer's obligations
under this Section 6.8(a) with respect to indemnification or the advancement of
expenses be greater than the obligations of the Company and its Subsidiaries
with respect thereto set forth as of the date of this Agreement in the
Certificate of Incorporation, By-laws or similar governing documents of the
Company and its Subsidiaries.
(b) Buyer shall cause the persons serving as officers and directors of
the Company immediately prior to the Effective Time to be covered for a period
of six years from the Effective Time by the directors' and officers' liability
insurance policy maintained by the Company (provided that Buyer may substitute
therefor policies of at least the same coverage and amounts containing terms and
conditions which are not less advantageous than such policy) with respect to
acts or omissions occurring prior to the Effective Time which were committed by
such officers and directors in their capacity as such.
(c) In the event Buyer or the Surviving Corporation or any of its
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger, or (ii) transfers or conveys all or substantially all
of its properties and assets to any person, then, and in each such case, to the
extent necessary, proper provision shall be made so that the successors and
assigns of Buyer or the Surviving Corporation, as the case may be, assume the
obligations set forth in this section.
- 44 -
<PAGE>
(d) The provisions of this Section 6.8 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party and his or her
heirs and representatives; and the provisions of this Section 6.8 will survive
the Effective Time.
6.9 Subsequent Interim and Annual Financial Statements. As soon as
-----------------------------------------------------
reasonably available, but in no event later than April 1, 1999 or, in the case
of the Company, December 31, 1998, Buyer will deliver to the Company and the
Company will deliver to Buyer their respective Annual Reports on Form 10-K for,
year ending December 31, 1998 and, in the case of the Company, the fiscal year
ending September 30, 1998, as filed with the SEC under the Exchange Act. As soon
as reasonably available, but in no event more than 45 days after the end of each
fiscal quarter ending after the date of this Agreement, Buyer will deliver to
the Company and the Company will deliver to Buyer their respective Quarterly
Reports on Form 10-Q, as filed with the SEC under the Exchange Act.
6.10 Additional Agreements. In case at any time after the Effective
----------------------
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, or the Bank Merger Agreement, or to vest the Surviving
Corporation or the Surviving Bank with full title to all properties, assets,
rights, approvals, immunities and franchises of any of the parties to the Merger
or the Subsidiary Merger, the proper officers and directors of each party to
this Agreement and their respective Subsidiaries shall take all such necessary
action as may be reasonably requested by Buyer.
6.11 Advice of Changes. Buyer and the Company shall promptly advise the
-----------------
other party of any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein. From time to time prior to the Effective Time (and on the date prior to
the Closing Date), each party will promptly supplement or amend the Disclosure
Schedules delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 7.2(a) or
7.3(a) hereof, as the case may be, or the compliance by the Company or Buyer, as
the case may be, with the respective covenants and agreements of such parties
contained herein.
6.12 Current Information. During the period from the date of this
--------------------
Agreement to the Effective Time, the Company will cause one or more of its
designated representatives to notify on a regular and frequent basis (not less
than monthly) representatives of Buyer and to report (i) the general status of
the ongoing operations of the Company and its Subsidiaries; (ii) the status of,
and the action proposed to be taken with respect to, those Loans held by the
Company or any Subsidiary of the Company which, individually or in combination
with one or more other Loans to the same borrower thereunder, have an original
principal amount of $250,000 or more and are
- 45 -
<PAGE>
non-performing assets; (iii) the origination of all loans other than 1-4 family
residential mortgage loans and consumer loans; and (iv) any material changes in
the Company's pricing of deposits. The Company will promptly notify Buyer of any
material change in the normal course of business or in the operation of the
properties of the Company or any of its Subsidiaries and of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of significant
litigation involving the Company or any of its Subsidiaries, and will keep Buyer
fully informed of such events.
6.13 Execution and Authorization of Bank Merger Agreement. As soon as
-----------------------------------------------------
reasonably practicable after the date of this Agreement, (a) Buyer shall (i)
cause the Board of Directors of First Savings Bank to approve the Bank Merger
Agreement, (ii) cause First Savings Bank to execute and deliver the Bank Merger
Agreement, and (iii) approve the Bank Merger Agreement as the sole stockholder
of First Savings Bank, and (b) the Company shall (i) cause the Board of
Directors of the Company Bank to approve the Bank Merger Agreement, (ii) cause
the Company Bank to execute and deliver the Bank Merger Agreement, and (iii)
approve the Bank Merger Agreement as the sole stockholder of the Company Bank.
The Bank Merger Agreement shall contain terms that are normal and customary in
light of the transactions contemplated hereby and such additional terms as are
necessary to carry out the purposes of this Agreement.
6.14 Directorships. Buyer and Surviving Bank shall cause its Board of
-------------
Directors to be expanded by two members and shall appoint two of the current
directors of the Company George T. Hornyak, Jr. and Joseph Chadwick as nominees
to fill the vacancies on Buyer's Board of Directors created by such increase as
of the Effective Time. The initial term for Mr. Hornyak on the Buyer's Board
shall expire in 2001 and for Mr. Chadwick in 1999. The initial term for both
Messrs. Hornyak and Chadwick on the Surviving Bank's Board shall expire in 1999.
Upon expiration of the initial terms, Messrs. Hornyak and Chadwick will be
considered by the respective Board Nominating Committees to stand for election
for a new three-year term.
ARTICLES VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation To Effect the Merger. The
------------------------------------------------------------
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
---------------------
adopted by the affirmative vote of the holders of at least a majority of the
outstanding shares of Company
- 46 -
<PAGE>
Common Stock entitled to vote thereon and by the affirmative vote of the holders
of at least a majority of the outstanding shares of Buyer Common Stock entitled
to vote thereon.
(b) Nasdaq Stock Market Listing. The shares of Buyer Common Stock which
---------------------------
shall be issued to the stockholders of the Company upon consummation of the
Merger shall have been authorized for listing on the Nasdaq Stock Market,
subject to official notice of issuance.
(c) Other Approvals. All regulatory approvals required to consummate
---------------
the transactions contemplated hereby (including the Merger, the Subsidiary
Merger and, if necessary to consummate the Subsidiary Merger) shall have been
obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired (all such approvals and the
expiration of all such waiting periods being referred to herein as the
"Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
---
and no stop order suspending the effectiveness of the S-4 shall have been issued
and no proceedings for that purpose shall have been initiated or threatened by
the SEC.
(e) No Injunctions or Restraints; Illegality. No order, injunction or
-----------------------------------------
decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") preventing the consummation of the
Merger, the Subsidiary Merger or any of the other transactions contemplated by
this Agreement or the Bank Merger Agreement shall be in effect. No statute,
rule, regulation, order, injunction or decree shall have been enacted, entered,
promulgated or enforced by any Governmental Entity which prohibits, restricts or
makes illegal consummation of the Merger or the Subsidiary Merger.
7.2 Conditions to Obligations of Buyer. The obligation of Buyer to
------------------------------------
effect the Merger is also subject to the satisfaction or waiver by Buyer at or
prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
--------------------------------
warranties of the Company set forth in this Agreement shall be true and correct
in all material respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an earlier date) as of
the Closing Date as though made on and as of the Closing Date; and (II) the
representations and warranties of the Company set forth in this Agreement shall
be true and correct in all material respects as of the date of this Agreement
and (except to the extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and as of the Closing
Date; provided, however, that, for purposes of this clause (II), such
representations and warranties shall be deemed to be true and correct in all
material respects unless the failure or failures of such representations and
warranties to be so true and correct, individually or in the aggregate,
represent a material adverse change from the business, assets, financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole as represented herein. Buyer shall have received a certificate signed on
behalf of the Company by
- 47 -
<PAGE>
the Chief Executive Officer and the Chief Financial Officer of the Company to
the foregoing effect.
(b) Performance of Obligations of the Company. The Company shall have
-----------------------------------------
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Buyer shall have
received a certificate signed on behalf of the Company by the Chief Executive
Officer and the Chief Financial Officer of the Company to such effect.
(c) No Burdensome Condition. None of the Requisite Regulatory Approvals
-----------------------
shall impose any term, condition or restriction upon Buyer, the Company, the
Company Bank, the Surviving Corporation, the Surviving Bank or any of their
respective Subsidiaries that Buyer, or the Company, in good faith, reasonably
determines would so materially adversely affect the economic or business
benefits of the transactions contemplated by this Agreement to Buyer or the
Company as to render inadvisable in the reasonable good faith judgment of Buyer
or the Company, the consummation of the Merger (a "Burdensome Condition").
(d) Consents Under Agreements. The consent, approval or waiver of each
-------------------------
person (other than the Governmental Entities) whose consent or approval shall be
required in order to permit the succession by the Surviving Corporation or the
Surviving Bank pursuant to the Merger or the Subsidiary Merger, as the case may
be, to any obligation, right or interest of the Company or any Subsidiary of the
Company under any loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument shall have been obtained, except where
the failure to obtain such consent, approval or waiver would not so materially
adversely affect the economic or business benefits of the transactions
contemplated by this Agreement to Buyer as to render inadvisable, in the
reasonable good faith judgment of Buyer, the consummation of the Merger.
(e) No Pending Governmental Actions. No proceeding initiated by any
---------------------------------
Governmental Entity seeking an Injunction shall be pending.
(f) Federal Tax Opinion. Buyer and Company shall have received an
--------------------
opinion of Patton Boggs, LLP, counsel to Buyer ("Buyer's Counsel"), in form and
substance reasonably satisfactory to Buyer, substantially to the effect that, on
the basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts existing at the Effective Time, the
Merger and Subsidiary Merger will be treated as reorganizations within the
meaning of Section 368(a) of the Code and that, accordingly, for federal income
tax purposes:
(i) No gain or loss will be recognized by the Buyer as a result of the
Merger;
(ii) No gain or loss will be recognized by First Savings Bank as a
result of the Subsidiary Merger;
- 48 -
<PAGE>
(iii)No gain or loss will be recognized by the Company as a result of
the Merger;
(iv) No gain or loss will be recognized by the Company Bank as a result
of the Subsidiary Merger;
(v) No gain or loss will be recognized by the shareholders of the
Company who exchange all of their Company Common Stock solely for Buyer Common
Stock pursuant to the Merger (except with respect to cash received in lieu of a
fractional share interest in Buyer Common Stock;
(vi) The aggregate tax basis of the Buyer Common Stock received by
shareholders who exchange all of their Company Common Stock solely for Common
Stock pursuant to the Merger will be the same as the aggregate tax basis of the
Company Common Stock surrendered in exchange therefor (reduced by any amount
allocable to a fractional share interest for which cash is received).
In rendering such opinion, the Buyer's Counsel may require and rely
upon representations and covenants contained in certificates of officers of
Buyer, the Company, the Company Bank and others, including certain shareholders
of the Company.
(g) Legal Opinion. Buyer shall have received the opinion of Malizia,
--------------
Spidi, Sloane & Fisch, P.C., counsel to the Company (the "Company's Counsel"),
dated the Closing Date, substantially in the form attached hereto as Exhibit
7.2(g). As to any matter in such opinion which involves matters of fact or
matters relating to laws other than Federal securities or New Jersey corporate
law, such counsel may rely upon the certificates of officers and directors of
the Company and of public officials and opinions of local counsel, reasonably
acceptable to Buyer, provided a copy of such reliance opinion shall be attached
as an exhibit to the opinion of such counsel.
(h) Pooling of Interests. Buyer shall have received a letter from its
---------------------
accountants (at the expense of the Buyer) addressed to Buyer, to the effect that
the Merger will qualify for "pooling of interests" accounting treatment, unless
such firm advises Buyer that it is unable to issue a letter to such effect
solely by reason of Buyer having exercised its right to purchase Company Common
Stock pursuant to the Option Agreement.
(i) Accountant's Letter. The Company shall have caused to be delivered
--------------------
to Buyer (at Buyer's expense) letters from KPMG Peat Marwick, independent public
accountants with respect to the Company, dated the date on which the
Registration Statement or last amendment thereto shall become effective, and
dated the date of the Closing, and addressed to Buyer, with respect to the
Company's consolidated financial position and results of operations, which
letters shall be based upon agreed upon procedures to be specified by Buyer,
which procedures shall be consistent with applicable professional standards for
letters delivered by independent accountants
- 49 -
<PAGE>
in connection with comparable transactions; provided, however, that if the
Merger is terminated, all costs incurred in connection with the preparation of
such letters shall be borne equally by the Buyer and the Company.
(j) Subsidiary Merger. Nothing shall have come to the attention of
------------------
Buyer which would preclude consummation of the Subsidiary Merger immediately
following consummation of the Merger.
7.3 Conditions to Obligations of the Company. The obligation of the
------------------------------------------
Company to effect the Merger is also subject to the satisfaction or waiver by
the Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. (I) The representations and
--------------------------------
warranties of Buyer set forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date; and (II) the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct in all material respects as of the date of this Agreement and
(except to the extent such representations and warranties speak as of an earlier
date) as of the Closing Date as though made on and as of the Closing Date;
provided, however, that, for purposes of this clause (II), such representations
and warranties shall be deemed to be true and correct in all material respects
unless the failure or failures of such representations and warranties to be so
true and correct, individually or in the aggregate, represent a material adverse
change from the business, assets, financial condition or results of operations
of Buyer and its Subsidiaries taken as a whole as represented herein. The
Company shall have received a certificate signed on behalf of Buyer by the Chief
Executive Officer and the Chief Financial Officer of Buyer to the foregoing
effect.
(b) Performance of Obligations of Buyer. Buyer shall have performed in
-----------------------------------
all material respects all obligations required to be performed by it under this
Agreement at or prior to the Closing Date, and the Company shall have received a
certificate signed on behalf of Buyer by the Chief Executive Officer and the
Chief Financial Officer of Buyer to such effect.
(c) Consents Under Agreements. The consent, approval or waiver of each
-------------------------
person (other than the Governmental Entities) whose consent or approval shall be
required in order to permit the succession by the Surviving Corporation or the
Surviving Bank pursuant to the Merger or the Subsidiary Merger, as the case may
be, to any obligation, right or interest of the Buyer or any Subsidiary of the
Buyer under any loan or credit agreement, note, mortgage, indenture, lease,
license or other agreement or instrument shall have been obtained, except those
for which failure to obtain such consent, approval or waiver would not so
materially adversely affect the economic or business benefits of the
transactions contemplated by this Agreement to Buyer as to render inadvisable,
in the reasonable good faith judgment of the Buyer, the consummation of the
Merger.
- 50 -
<PAGE>
(d) No Pending Governmental Actions. No proceeding initiated by any
---------------------------------
Governmental Entity seeking an injunction shall be pending.
(e) Pooling of Interests. Buyer shall have received a letter from its
---------------------
accountants (at the expense of the Buyer) addressed to Buyer, to the effect that
the Merger will qualify for "pooling of interests" accounting treatment, unless
such firm advises Buyer that it is unable to issue a letter to such effect
solely by reason of Buyer having exercised its right to purchase Company Common
Stock pursuant to the Stock Option Agreement.
(f) Federal Tax Opinion. The Company shall have received an opinion of
-------------------
the Buyer's Counsel, in form and substance satisfactory to the Company, dated as
of the Effective Time, substantially to the effect as set forth in Section
7.2(f) hereof.
(g) Legal Opinion. The Company shall have received the opinion of
--------------
Buyer's Counsel, dated the Closing Date, substantially in the form attached
hereto as Exhibit 7.3(f). As to any matter in such opinion. which involves
matters of fact or matters relating to laws other than Federal securities law or
Delaware corporate law, such counsel may rely upon the certificates of officers
and directors of Buyer and of public officials and opinions of local counsel,
reasonably acceptable to the Company, provided a copy of such reliance opinions
shall be attached as an exhibit to the opinion of such counsel.
VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of both the Company and Buyer:
(a) by mutual consent of the Company and Buyer in a written instrument,
if the Board of Directors of each so determines by a vote of a majority of the
members of its entire Board;
(b) by either Buyer or the Company upon written notice to the other
party (i) 60 days after the date on which any request or application for a
Requisite Regulatory Approval shall have been denied or withdrawn at the request
or recommendation of the Governmental Entity which must grant such Requisite
Regulatory Approval, unless within the 60-day period following such denial or
withdrawal a petition for rehearing or an amended application has been filed
with the applicable Governmental Entity, provided, however, that no party shall
have the right to terminate this Agreement pursuant to this Section 8.1(b)(i) if
such denial or request or recommendation for withdrawal shall be due to the
failure of the party seeking to terminate this Agreement to perform or observe
the covenants and agreements of such party set forth herein or (ii) if any
Governmental Entity of competent jurisdiction shall have issued a final
nonappealable
- 51 -
<PAGE>
order enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement;
(c) by either Buyer or the Company if the Merger shall not have been
consummated on or before March 31, 1999, unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to terminate
this Agreement to perform or observe the covenants and agreements of such party
set forth herein;
(d) by either Buyer or the Company (provided that the terminating party
shall not be in material breach of any of its obligations under Section 6.3) if
any approval of the stockholders of either of the Company or Buyer required for
the consummation of the Merger shall not have been obtained by reason of the
failure to obtain the required vote at a duly held meeting of such stockholders
or at any adjournment or postponement thereof;
(e) by either Buyer or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material breach of
any of the representations or warranties set forth in this Agreement on the part
of the other party, which breach is not cured within thirty days following
written notice to the party committing such breach, or which breach, by its
nature, cannot be cured prior to the Closing; provided, however, that neither
party shall have the right to terminate this Agreement pursuant to this Section
8.1(e) unless the breach of representation or warranty, together with all other
such breaches, would entitle the party receiving such representation not to
consummate the transactions contemplated hereby under Section 7.2(a) (in the
case of a breach of representation or warranty by the Company) or Section 7.3(a)
(in the case of a breach of representation or warranty by Buyer);
(f) by either Buyer or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material breach of
any of the covenants or agreements set forth in this Agreement on the part of
the other party, which breach shall not have been cured within thirty days
following receipt by the breaching party of written notice of such breach from
the other party hereto;
(g) by the Company, by giving written notice of such election to Buyer
within two trading days after the Valuation Period in the event the Average
Closing Price is less than $8.50 per share; provided, however, that no right of
termination shall arise under this Section 8.1(g) if Buyer, within 5 business
days of receipt of such written notice, notifies the Company in writing that it
has waived its right to utilize the Maximum Exchange Ratio and has increased the
Exchange Ratio such that the value of the consideration (valued at the Average
Closing Price) to be paid in respect of each share of Company Common Stock to be
converted into Buyer Common Stock and cash in lieu of fractional shares upon
consummation of the Merger is $32.00 per share;
- 52 -
<PAGE>
(h) by Buyer, by given written notice of such election to Company
within two trading days after the Valuation Period in the event the Average
Closing Price is greater than $11.50 per share; provided, however, that no right
of termination shall arise under this Section 8.1(h) if the Company, within 5
business days of receipt of such written notice, notifies the Buyer in writing
that it has waived its right to utilize the Minimum Exchange Ratio and has
decreased the Exchange Ratio such that the value of the consideration (valued at
the Average Closing Price) to be paid in respect of each share of Company Common
Stock to be converted into Buyer Common Stock and cash in lieu of fractional
shares upon consummation of the Merger is $36.80 per share; or
(i) by Buyer, if the Board of Directors of the Company does not
publicly recommend in the Proxy Statement that the Company's stockholders
approve and adopt this Agreement or if, after recommending in the Proxy
Statement that stockholders approve and adopt this Agreement, the Board of
Directors of the Company shall have withdrawn, modified or amended such
recommendation in any respect materially adverse to Buyer.
8.2 Effect of Termination; Expenses. In the event of termination of
---------------------------------
this Agreement by either Buyer or the Company as provided in Section 8.1, this
Agreement shall forthwith become void and have no effect except (i) the last
sentence of Section 6.2(a), and Sections 6.2(c), 6.2(d), 8.2 and 9.4, shall
survive any termination of this Agreement, (ii) that notwithstanding anything to
the contrary contained in this Agreement, no party shall be relieved or released
from any liabilities or damages arising out of its willful breach of any
provision of this Agreement, and (iii) in the event this Agreement (x) is
terminated subsequent to the occurrence of a Purchase Event (as such term is
defined in the Option Agreement) or (y) is terminated by Buyer pursuant to
Section 8.1(e) and (f) hereof, and within 12 months after such termination by
Buyer pursuant to Section 8.1(e) and (f) hereof a Purchase Event shall occur,
then in addition to any other amounts payable or stock issuable by the Company
pursuant to this Agreement or the Option Agreement, as the case may be, the
Company shall pay to Buyer a termination fee of $3.2 million.
8.3 Amendment. Subject to compliance with applicable law, this
---------
Agreement may be amended by the parties hereto, by action taken or authorized by
their respective Boards of Directors, at any time before or after approval of
the matters presented in connection with the Merger by the stockholders of
either the Company or Buyer; provided, however, that after any approval of the
transactions contemplated by this Agreement by the Company's stockholders, there
may not be, without further approval of such stockholders, any amendment of this
Agreement which reduces the amount or changes the form of the consideration to
be delivered to the Company stockholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, the
------------------
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the
- 53 -
<PAGE>
other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and (c)
waive compliance with any of the agreements or conditions contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in a written instrument signed on behalf of such party,
but such extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
ARTICLE IX
GENERAL PROVISIONS
9.1 Closing. Subject to the terms and conditions of this Agreement and
-------
the Bank Merger Agreement, the closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by the parties, which shall be the
first day which is (a) the last business day of a month and (b) at least two
business days after the satisfaction or waiver (subject to applicable law) of
the latest to occur of the conditions set forth in Article VII hereof (the
"Closing Date"), at the offices of Buyer's counsel unless another time, date or
place is agreed to in writing by the parties hereto.
9.2 Alternative Structure. Notwithstanding anything to the contrary
----------------------
contained in this Agreement, subject to the Company's consent, which consent
shall not be unreasonably withheld, prior to the Effective Time, Buyer shall be
entitled to revise the structure of the Merger and/or the Subsidiary Merger and
related transactions provided that each of the transactions comprising such
revised structure shall (i) fully qualify as, or fully be treated as part of,
one or more tax-free reorganizations within the meaning of Section 368(a) of the
Code, and not subject any of the stockholders of the Company to adverse tax
consequences or change the amount of consideration to be received by such
stockholders, (ii) be properly treated for financial reporting purposes as a
pooling of interests, (iii) be capable of consummation in as timely a manner as
the structure contemplated herein and (iv) not otherwise be prejudicial to the
interests of the stockholders of the Company. This Agreement and any related
documents shall be appropriately amended in order to reflect any such revised
structure.
9.3 Nonsurvival of Representations, Warranties and Agreements. None of
----------------------------------------------------------
the representations, warranties, covenants and agreements in this Agreement or
in any instrument delivered pursuant to this Agreement (other than pursuant to
the Option Agreement, which shall terminate in accordance with its terms) shall
survive the Effective Time, except for those covenants and agreements contained
herein and therein which by their terms apply in whole or in part after the
Effective Time.
9.4 Expenses. All costs and expenses incurred in connection with this
--------
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Proxy Statement to the stockholders of the Company and
Buyer shall be borne equally by Buyer and the Company,
- 54 -
<PAGE>
provided, however, that all filing and other fees paid to the SEC or any other
Governmental Entity in connection with the Merger, the Subsidiary Merger and
other transactions contemplated thereby shall be borne by the Buyer; provided,
further, however, that nothing contained herein shall limit either party's
rights to recover any liabilities or damages arising out of the other party's
willful breach of any provision of this Agreement.
9.5 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
(a)
if to Buyer, to:
Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey
Attention: George T. Hornyak, Jr.
President and Chief Executive Officer
- 55 -
<PAGE>
with a copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Attention: Samuel J. Malizia
and
(b)
First Source Bancorp, Inc.
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Attention: John P. Mulkerin
President and Chief Executive Officer
with a copy to:
Patton Boggs LLP
2550 M Street, N.W.
Washington, D.C. 20037
Attention: Joseph G. Passaic, Jr.
9.6 Interpretation. When a reference is made in this Agreement to
--------------
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". The phrases "the date
of this Agreement", "the date hereof" and terms of similar import, unless the
context otherwise requires, shall be deemed to refer to July 9, 1998.
9.7 Counterparts. This Agreement may be executed in counterparts, all
------------
of which shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all parties need not
sign the same counterpart.
- 56 -
<PAGE>
9.8 Entire Agreement. This Agreement (including the documents and the
----------------
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof, other than the
Confidentiality Agreement, the Bank Merger Agreement and the Option Agreement.
9.9 Governing Law. This Agreement shall be governed and construed in
--------------
accordance with the laws of the States of Delaware and New Jersey, as
applicable, without regard to any applicable conflicts of law.
9.10 Enforcement of Agreement. The parties hereto agree that
---------------------------
irreparable damage would occur in the event that the provisions contained in the
last sentence of Section 6.2(a) and in Section. 6.2(c) of this Agreement were
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 6.2(a) and
Section 6.2(c) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
9.11 Severability. Any term or provision of this Agreement which is
------------
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
9.12 Publicity. Except as otherwise required by law or the rules of the
---------
Nasdaq Stock Market, so long as this Agreement is in effect, neither Buyer nor
the Company shall, or shall permit any of its Subsidiaries to, issue or cause
the publication of any press release or other public announcement with respect
to, or otherwise make any public statement concerning, the transactions
contemplated by this Agreement without the consent of the other party, which
consent shall not be unreasonably withheld.
9.13 Assignment; No Third Party Beneficiaries. Neither this Agreement
-----------------------------------------
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
- 57 -
<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
FIRST SOURCE BANCORP, INC.
/s/ John P. Mulkerin
By: ------------------------------------------------------
Name: John P. Mulkerin
Title: President and Chief Executive Officer
Attest:
/s/Christopher Martin
-------------------------------
Name: Christopher Martin
PULSE BANCORP, INC.
/s/ George T. Hornyak, Jr.
By: ------------------------------------------------------
Name: George T. Hornyak, Jr.
Title: President and Chief Executive Officer
Attest:
/s/ Nancy M. Janosko
---------------------------------
Name: Nancy M. Janosko
Secretary
- 58 -
EXHIBIT 99.3
<PAGE>
ANNEX B
THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS CONTAINED
HEREIN AND TO RESALE RESTRICTIONS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of July 9, 1998 (the "Agreement"), by
and between Pulse Bancorp, Inc., a New Jersey corporation ("Issuer"), and First
Source Bancorp, Inc., a Delaware corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger (the "Merger Agreement"), dated July 9, 1998 herewith, providing for,
among other things, the merger of Issuer with and into Grantee; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has requested that Issuer agree, and Issuer has
agreed, to grant Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Merger Agreement, and intending to be legally bound hereby, Issuer and
Grantee agree as follows:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to purchase
620,940 shares (subject to adjustment as set forth herein) (the "Option Shares")
of common stock, par value $1.00 per share, of Issuer ("Issuer Common Stock") at
a purchase price (subject to adjustment as set forth herein) of $30.30 per
Option Share (the "Purchase Price").
3. Exercise of Option. (a) Grantee may exercise the Option, in whole or in
part, at any time and from time to time following the occurrence of a Purchase
Event (as defined below); provided, however, that the Option, to the extent not
previously exercised, shall terminate and be of no further force and effect upon
the earliest to occur of (i) the Effective Time, (ii) 12 months after the first
occurrence of a Purchase Event (as defined below), (iii) termination of the
Merger Agreement in accordance with the terms thereof prior to the occurrence of
a Purchase Event
<PAGE>
ANNEX B
(other than a termination of the Merger Agreement by Grantee pursuant to Section
8.1 (f) thereof) or (iv) 12 months after the termination of the Merger Agreement
by Grantee pursuant to Section 8.1 (f) thereof, provided, however, that if
within 12 months after a termination of the Merger Agreement by Grantee pursuant
to Section 8.1 (f) thereof a Purchase Event shall occur, then notwithstanding
anything to the contrary contained herein, this Option shall terminate 12 months
after the first occurrence of such Purchase Event; and provided further,
however, that any purchase of shares upon exercise of the Option shall be
subject to compliance with applicable law, including, without limitation, the
Bank Holding Company Act of 1956, as amended (the "Act"); and provided further,
however, that if the Option cannot be exercised on any day because of any
injunction, order or similar restraint issued by a court of competent
jurisdiction, the period during which the Option may be exercised shall be
extended so that the Option shall expire no earlier than on the 10th business
day after such injunction, order or restraint shall have been dissolved or when
such injunction, order or restraint shall have become permanent and no longer
subject to appeal, as the case may be. Notwithstanding anything to the contrary
contained herein, (i) the Option may not be exercised at any time when Grantee
shall be in material breach of any of its covenants or agreements contained in
the Merger Agreement such that Issuer shall be entitled to terminate the Merger
Agreement pursuant to Section 8.1(f) thereof and (ii) this Agreement shall
automatically terminate upon the proper termination of the Merger Agreement by
Issuer pursuant to Section 8.1(f) thereof as a result of the material breach by
Grantee of its covenants or agreements contained in the Merger Agreement.
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) Issuer shall have authorized, recommended, publicly
proposed or entered into an agreement with any person (other than
Grantee or any affiliate of Grantee or any person acting in concert in
any respect with Grantee) to effect an Acquisition Transaction (as
defined below). As used herein, the term Acquisition Transaction shall
mean (A) a merger, consolidation or similar transaction involving
Issuer or any of its Subsidiaries (other than internal mergers,
reorganizations, consolidations or dissolutions involving only existing
Subsidiaries), (B) the disposition, by sale, lease, exchange or
otherwise, of assets of Issuer or any of its Subsidiaries representing
25% or more of the consolidated assets of Issuer and its Subsidiaries
or (C) the issuance, sale or other disposition of (including by way of
merger, consolidation, share exchange or any similar transaction)
securities representing 25% or more of the voting power of Issuer or
any of its Subsidiaries;
(ii) any person (other than Grantee or any affiliate of
Grantee or any person acting in concert in any respect with Grantee)
shall have acquired Beneficial Ownership (as such term is defined in
Rule l3d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of, or the right to acquire Beneficial
Ownership of, or any Group (as such term is defined under the Exchange
Act) shall have been formed which
B-2
<PAGE>
ANNEX B
shall have acquired Beneficial Ownership of, or the right to acquire
Beneficial Ownership of, 25% or more of the then outstanding shares of
Issuer Common stock,
(iii) any person (other than Grantee or any affiliate of
Grantee or any person acting in concert in any respect with Grantee)
shall have commenced (as such term is defined in Rule l4d-2 under the
Exchange Act) or shall have filed a registration statement under the
Securities Act of 1933, as amended (the "Securities Act") with respect
to, a tender offer or exchange offer to purchase any shares of Issuer
Common Stock and, upon consummation of such offer, such person owns or
controls 25% or more of the then outstanding shares of Issuer Common
Stock (such an offer being referred to herein as a "Tender Offer" or an
"Exchange Offer," respectively);
(iv) the holders of Issuer Common Stock shall not have
approved the Merger Agreement and the transactions contemplated
thereby, at the meeting of such stockholders held for the purpose of
voting on such agreement, or such meeting shall not have been held or
shall have been cancelled prior to termination of the Merger Agreement,
in each case after it shall have been publicly announced that any
person (other than Grantee or any affiliate of Grantee or any person
acting in concert in any respect with Grantee) shall have made, or
disclosed an intention to make, a proposal to engage in an Acquisition
Transaction; or
(v) Issuer's Board of Directors shall not have
recommended to the stockholders of Issuer that such stockholders vote
in favor of the approval of the Merger Agreement and the transactions
contemplated thereby or shall have withdrawn or modified such
recommendation in a manner adverse to Grantee.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3 (a) (9) and 13 (d) (3) of the Exchange Act.
(c) In the event Grantee wishes to exercise the Option, it shall send
to Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends to
purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 30 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval of the Office of Thrift Supervision (the "OTS") or
any other regulatory authority is required in connection with such purchase,
Issuer shall cooperate in good faith with Grantee in the filing of the required
notice or application for approval and the obtaining of any such approval and
the period of time that otherwise would run pursuant to the preceding sentence
shall run instead from the date on which, as the case may be (i) any required
notification period has expired or been terminated or (ii) such approval has
been obtained, and in either event, any requisite waiting period shall have
passed.
B-3
<PAGE>
ANNEX B
4. Payment and Delivery of Certificates. (a) On each Closing Date,
Grantee shall (i) pay to Issuer, in immediately available funds by wire transfer
to a bank account designated by Issuer, an amount equal to the Purchase Price
multiplied by the number of Option Shares to be purchased on such Closing Date
and (ii) present and surrender this Agreement to the Issuer at the address of
the Issuer specified in Section 12(f) hereof. In addition to any other amounts
payable pursuant to this Section 4(a), upon the first exercise of the Option,
Grantee shall pay an amount, if any, by which (i) $1,055,600 plus the product of
(A) the total number of Option Shares and (B) the difference between the
Market/Tender Offer Price (as defined below) and the Purchase Price exceeds (ii)
$32.00 provided, however, that in no event shall the amount payable pursuant to
this sentence exceed $3,780,000. As used herein, the "Market/Tender Offer Price"
shall mean the higher of the highest price per share at which a Tender Offer or
Exchange Offer has been made by any person other than Grantee or any affiliate
of Grantee or person acting in concert in any respect with Grantee for at least
25% of the shares of Issuer Common Stock then outstanding or the highest closing
sales price per share of Issuer Common Stock quoted on the Nasdaq Stock Market
("Nasdaq") (or if Issuer Common Stock is not quoted on the Nasdaq, the highest
bid price per share as quoted on the principal trading market or securities
exchange on which such shares are traded as reported by a recognized source)
within the six-month period immediately preceding this Agreement.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
hereof, Issuer shall deliver to Grantee (A) a certificate or certificates
representing the Option Shares to be purchased at such Closing, which Option
Shares shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever, other than any such lien or encumbrance created by Grantee
and (B) if the Option is exercised in part only, an executed new agreement with
the same terms as this Agreement evidencing the right to purchase the balance of
the shares of Issuer Common Stock purchasable hereunder. If Issuer shall have
issued rights or any similar securities ("Rights") pursuant to any shareholder
rights, poison pill or similar plan (a "Shareholder Rights Plan") prior or
subsequent to the date of this Agreement and such Rights remain outstanding and
attached to shares of Issuer Common Stock at the time of the issuance of any
Option Shares pursuant to an exercise of all or part of the Option hereunder,
then each Option Share issued pursuant to such exercise shall also represent the
number of Rights issued per share of Issuer Common Stock with terms
substantially the same as and at least as favorable to Grantee as are provided
under the Shareholder Rights Plan as then in effect.
(c) Certificates for the Option Shares delivered at each Closing shall
be endorsed with a restrictive legend which shall read substantially as follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE MAY
BE SUBJECT TO RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND PURSUANT TO THE TERMS OF A STOCK OPTION
B-4
<PAGE>
ANNEX B
AGREEMENT DATED AS OF July 9, 1998. A COPY OF SUCH AGREEMENT WILL BE
PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON RECEIPT BY THE ISSUER
OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that: (i) the reference to the
resale restrictions of the Securities Act in the above legend shall be
removed by delivery of substitute certificate (s) without such legend
if Grantee shall have delivered to Issuer a copy of a letter from the
staff of the Securities and Exchange Commission (the "SEC"), or an
opinion of outside counsel reasonably satisfactory to Issuer in form
and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities
Act; (ii) the reference to the provisions of this Agreement in the
above legend shall be removed by delivery of substitute certificate(s)
without such reference if the shares have been sold or transferred in
compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and
(iii) the legend shall be removed in its entirety if the conditions in
the preceding clauses (i) and (ii) are both satisfied. In addition,
such certificates shall bear any other legend as may be required by
law.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Due Authorization. Issuer has full corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly and validly
executed and delivered by Issuer.
(b) No Violation. Neither the execution and delivery of this Agreement, nor
the consummation of the transactions contemplated hereby, nor compliance by
Issuer with any of the terms or provisions hereof, will (i) violate any
provision of the Certificate of Incorporation (the "Certificate of
Incorporation") or By-Laws of Issuer or the certificates of incorporation,
by-laws or similar governing documents of any of its Subsidiaries or (ii) (x)
assuming that all of the consents and approvals required under applicable law
for the purchase of shares upon the exercise of the Option are duly obtained,
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Issuer or any of its Subsidiaries, or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provisions of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, result in the termination of or a right of
termination or cancellation under, accelerate the performance required by, or
result in the creation of any lien, pledge, security interest, charge or other
encumbrance upon any of the respective properties or
B-5
<PAGE>
ANNEX B
assets of Issuer or any of its Subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Issuer or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected.
(c) Authorized Stock. Issuer has taken all necessary corporate and other
action to authorize and reserve and to permit it to issue, and, at all times
from the date of this Agreement until the obligation to deliver Issuer Common
Stock upon the exercise of the Option, will have reserved for issuance, upon
exercise of the Option, shares of Issuer Common Stock necessary for Grantee to
exercise the Option, and Issuer will take all necessary corporate action to
authorize and reserve for issuance all additional shares of Issuer Common Stock
(together with any Rights which may have been issued with respect thereto) or
other securities which may be issued pursuant to Section 7 upon exercise of the
Option. The shares of Issuer Common Stock to be issued upon due exercise of the
Option, including all additional shares of Issuer Common Stock (together with
any Rights which may have been issued with respect thereto) or other securities
which may be issuable pursuant to Section 7, upon issuance pursuant hereto,
shall be duly and validly issued, fully paid and nonassessable, and shall be
delivered free and clear of all liens, claims, charges and encumbrances of any
kind or nature whatsoever (except any such lien or encumbrance created by
Grantee), including any preemptive rights of any stockholder of Issuer.
(d) Board Action. By action of the Board of Directors of Issuer prior to the
execution of this Agreement, resolutions were duly adopted approving the
execution, delivery and performance of this Agreement, any purchase or other
transaction respecting Issuer Common Stock provided for herein, and the other
transactions contemplated hereby. Accordingly, the provisions of the New Jersey
Business Corporations Act as they relate to Issuer and Article XV of Issuer's
Certificate of Incorporation do not and will not apply to this Agreement or any
of the other transactions contemplated hereby.
6. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
(a) Due Authorization. Grantee has corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of Grantee. This Agreement has been duly executed and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being acquired with a
view to the public distribution thereof and neither this Option nor any Option
Shares will be transferred or
B-6
<PAGE>
ANNEX B
otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act.
7. Adjustment upon Changes in Capitalization, etc. (a) In the event (i)
of any change in Issuer Common Stock by reason of a stock dividend, stock split,
split-up, recapitalization, combination, exchange of shares or similar
transaction or (ii) that any Rights issued by Issuer shall become exercisable,
the type and number of shares or securities subject to the Option, and the
Purchase Price therefor, shall be adjusted appropriately, and, in the case of
any of the transactions described in clause (i) above, proper provision shall be
made in the agreements governing such transaction so that Grantee shall receive,
upon exercise of the Option, the number and class of shares or other securities
or property that Grantee would have received in respect of Issuer Common Stock
if the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7 (a), the number of shares of
Issuer Common Stock subject to the option shall be adjusted so that, after such
issuance, the Option, together with any shares of Issuer Common Stock previously
issued pursuant hereto, equals 19.9% of the number of shares of Issuer Common
Stock then issued and outstanding, without giving effect to any shares subject
to or Previously issued pursuant to the option.
(b) In the event that Issuer shall enter into an agreement (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its Subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its Subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that the Option shall, upon the
consummation of any such transaction and upon the terms and conditions set forth
herein, be converted into, or exchanged for, an option (the "Substitute
Option"), at the election of Grantee, of either (I) the Acquiring Corporation
(as defined below), (II) any person that controls the Acquiring Corporation, or
(III) in the case of a merger described in clause (ii), the Issuer (such person
being referred to as the "Substitute Option Issuer").
(c) The Substitute Option shall have the same terms as the Option, provided,
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible and in no event
less advantageous to Grantee. The Substitute Option Issuer
B-7
<PAGE>
ANNEX B
shall also enter into an agreement with the then holder or holders of the
Substitute Option in substantially the same form as this Agreement, which shall
be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as hereinafter defined) as is equal to the Assigned
Value (as hereinafter defined) multiplied by the number of shares of Issuer
Common Stock for which the Option was theretofore exercisable, divided by the
Average Price (as hereinafter defined). The exercise price of the Substitute
Option per share of the Substitute Common Stock (the "Substitute Purchase
Price") shall then be equal to the Purchase Price multiplied by a fraction in
which the numerator is the number of shares of the Issuer Common Stock for which
the Option was theretofore exercisable and the denominator is the number of
shares of the Substitute Common Stock for which the Substitute Option is
exercisable.
(e) The following terms have the meanings indicated:
(I) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of the Issuer's assets (or the assets of its
Subsidiaries).
(II) "Substitute Common Stock" shall mean the common stock
issued by the Substitute Option Issuer upon exercise of the Substitute
Option.
(III) "Assigned Value" shall mean the highest of (i) the price
per share of Issuer Common Stock at which a tender offer or exchange
offer therefor has been made by any person (other than Grantee), (ii)
the price per share of Issuer Common Stock to be paid by any person
(other than the Grantee) pursuant to an agreement with Issuer, and
(iii) the highest closing sales price per share of Issuer Common Stock
quoted on the Nasdaq (or if Issuer Common Stock is not quoted on the
Nasdaq, the highest bid price per share as quoted on the principal
trading market or securities exchange on which such shares are traded
as reported by a recognized source) within the six-month period
immediately preceding the agreement; provided, however, that in the
event of a sale of less than all of Issuer's assets, the Assigned Value
shall be the sum of the price paid in such sale for such assets and the
current market value of the remaining assets of Issuer as determined by
a nationally recognized investment banking firm selected by Grantee or
by a Grantee Majority, divided by the number of shares of Issuer Common
Stock outstanding at the time of such sale. In the event that an
exchange offer is made for the Issuer Common Stock or an agreement is
entered into for a merger or consolidation involving consideration
other than cash, the value of the securities or other property issuable
or deliverable in exchange for the Issuer Common Stock shall be
determined by a nationally recognized investment banking firm mutually
selected by Grantee and Issuer (or if
B-8
<PAGE>
ANNEX B
applicable, Acquiring Corporation), provided that if a mutual
selection cannot be made as to such investment banking firm, it shall
be selected by Grantee (or a majority of interest of the Grantees if
there shall be more than one Grantee (a "Grantee Majority").
(IV) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question; but in no
event higher than the closing price of the shares of the Substitute
Common Stock on the day preceding such consolidation, merger or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by Issuer, the person merging into Issuer or by any company
which controls or is controlled by such merging person, as Grantee may
elect.
(f) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding prior to exercise of the
Substitute Option. In the event that the Substitute Option would be exercisable
for more than 19.9% of the aggregate of the shares of Substitute Common Stock
but for this clause (f), the Substitute Option Issuer shall make a cash payment
to Grantee equal to the excess of (i) the value of the Substitute Option without
giving effect to the limitation in this clause (f) over (ii) the value of the
Substitute Option after giving effect to the limitation in this clause (f). This
difference in value shall be determined by a nationally recognized investment
banking firm selected by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in subsection (b)
of this Section 7 unless the Acquiring Corporation and any person that controls
the Acquiring Corporation assume in writing all the obligations of Issuer
hereunder and take all other actions that may be necessary so that the
provisions of this Section 7 are given full force and effect (including, without
limitation, any action that may be necessary so that the shares of Substitute
Common Stock are in no way distinguishable from or have lesser economic value
than other shares of common stock issued by the Substitute Option Issuer).
(h) The provisions of Sections 8 and 9 shall apply to any securities for
which the Option becomes exercisable pursuant to this Section 7 and as
applicable, references in such sections to "Issuer", "Option", "Purchase Price"
and "Issuer Common Stock" shall be deemed to be references to "Substitute Option
Issuer", "Substitute Option", "Substitute Purchase Price" and "Substitute Common
Stock", respectively.
8. Registration Rights. Issuer shall, if requested by Grantee (or if
applicable, a Grantee Majority) at any time and from time to time within three
years of the date on which the Option first becomes exercisable, as
expeditiously as possible prepare and file up to two registration statements
under the Securities Act if such registration is necessary in order to permit
the sale or
B-9
<PAGE>
ANNEX B
other disposition of any or all shares of Issuer Common Stock or other
securities that have been acquired by or are issuable to Grantee upon exercise
of the Option in accordance with the intended method of sale or other
disposition stated by Grantee, including a "shelf" registration statement under
Rule 415 under the Securities Act or any successor provision, and Issuer shall
use its best efforts to qualify such shares or other securities under any
applicable state securities laws. Issuer shall use its best efforts to cause
each such registration statement to become effective, to obtain all consents or
waivers of other parties which are required therefor and to keep such
registration statement effective for such period not in excess of 180 days from
the day such registration statement first becomes effective as may be reasonably
necessary to effect such sale or other disposition. Any registration statement
prepared and filed under this Section 8, and any sale covered thereby, shall be
at Issuer's expense except for underwriting discounts or commissions, brokers'
fees and the fees and disbursements of Grantee's counsel related thereto.
Grantee shall provide all information reasonably requested by Issuer for
inclusion in any registration statement to be filed hereunder. If during the
time periods referred to in the first sentence of this Section 8 Issuer effects
a registration under the Securities Act of Issuer Common Stock for its own
account or for any other stockholders of Issuer (other than on Form S-4 or Form
S-8, or any successor forms or any form with respect to a dividend reinvestment
or similar plan), it shall allow Grantee the right to participate in such
registration, and such participation shall not affect the obligation of Issuer
to effect two registration statements for Grantee under this Section 8;
provided, however, that, if the managing underwriters of such offering advise
Issuer in writing that in their opinion the number of shares of Issuer Common
Stock requested by Grantee to be included in such registration, together with
the shares of Issuer Common Stock proposed to be included in such registration,
exceeds the number which can be sold in such offering, Issuer shall include the
shares requested to be included therein by Grantee pro rata with the shares
intended to be included therein by Issuer. In connection with any registration
pursuant to this Section 8, Issuer and Grantee shall provide each other and any
underwriter of the offering with customary representations, warranties,
covenants, indemnification and contribution in connection with such
registration. Notwithstanding anything to the contrary contained herein, in no
event shall Issuer be obligated to effect more than two registrations pursuant
to the first sentence of this Section 8 by reason of the fact that there shall
be more than one Grantee as a result of any assignment of this Agreement or
division of this Agreement pursuant to Section 10 hereof.
9. Listing. If Issuer Common Stock or any other securities to be
acquired upon exercise of the Option are then authorized for quotation on the
Nasdaq or any securities exchange, Issuer, upon the request of Grantee, will
promptly file an application to authorize for quotation the shares of Issuer
Common Stock or other securities to be acquired upon exercise of the Option on
the Nasdaq or such other securities exchange and will use its best efforts to
obtain approval of such listing as soon as practicable.
10. Division of Option. This Agreement (and the Option granted hereby) are
exchangeable, without expense, at the option of Grantee, upon presentation and
surrender of this Agreement at
B-10
<PAGE>
ANNEX B
the principal office of Issuer for other Agreements providing for Options of
different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Issuer Common Stock purchasable
hereunder. The terms "Agreement" and "Option" as used herein include any other
Agreements and related Options for which this Agreement (and the Option granted
hereby) may be exchanged. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
11. Rights Agreement. Issuer shall not approve or adopt, or propose the
approval and adoption of, any Shareholder Rights Plan unless such Shareholder
Rights Plan contains terms which provide, to the reasonable satisfaction of
Grantee, that (a) the Rights issued pursuant thereto will not become exercisable
by virtue of the fact that (i) Grantee is the Beneficial Owner of shares of
Issuer Common Stock (x) acquired or acquirable pursuant to the grant or exercise
of this Option and (y) held by Grantee or any of its Subsidiaries as Trust
Account Shares or DPC Shares or (ii) while Grantee is the Beneficial Owner of
the shares of Issuer Common Stock described in clause (a) (i), an Acquisition
Transaction involving Issuer or any of its Subsidiaries, on the one hand, and
Grantee, any of its Subsidiaries, on the other hand, is proposed, agreed to or
consummated and (b) no restrictions or limitations with respect to the exercise
of any Rights acquired or acquirable by Grantee will result or be imposed by
virtue of the fact that Grantee is the Beneficial Owner of the shares of Issuer
Common Stock described in clause (a) (i) of this Section 11.
12. Miscellaneous. (a) Expenses. Except as otherwise provided in Section 8
hereof, each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions contemplated
hereunder, including fees and expenses of its own financial consultants,
investment bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived
at any time by the party that is entitled to the benefits of such provision.
This Agreement may not be modified, amended, altered or supplemented except upon
the execution and delivery of a written agreement executed by the parties
hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other agreements and
instruments referred to herein and therein, (a) constitutes the entire agreement
and supersedes all prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (b) is not
intended to confer upon any person other than the parties hereto any rights
B-11
<PAGE>
ANNEX B
or remedies hereunder. Notwithstanding anything to the contrary contained in
this Agreement or the Merger Agreement, this Agreement shall be deemed to amend
the confidentiality agreement between Issuer and Grantee so as to permit Grantee
to enter into this Agreement and exercise all of its rights hereunder, including
its right to acquire Issuer Common Stock upon exercise of the Option. If any
term, provision, covenant or restriction of this Agreement is held by a court of
competent jurisdiction or a federal or state regulatory agency to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Option does not permit Grantee to acquire
the full number of shares of Issuer Common Stock as provided in Section 3 hereof
(as adjusted pursuant to Section 7 hereof), it is the express intention of
Issuer to allow Grantee to acquire such lesser number of shares as may be
permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New Jersey without regard to any
applicable conflicts of law rules.
(e) Descriptive Headings. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
If to Issuer to:
Pulse Bancorp, Inc.
6 Jackson Street
P.O. Box 193
South River, New Jersey
Attention: George T. Hornyak, Jr.
President and Chief Executive Officer
with a copy to:
Malizia, Spidi, Sloane & Fisch, P.C.
One Franklin Square
1301 K Street, N.W.
Suite 700 East
Washington, D.C. 20005
Attention: Samuel J. Malizia, Esq.
B-12
<PAGE>
ANNEX B
If to Grantee to:
First Source Bancorp, Inc.
1000 Woodbridge Center Drive
Woodbridge, New Jersey 07095
Attention: John P. Mulkerin
President and Chief Executive Officer
with a copy to:
Patton Boggs LLP
2550 M Street, NW
Washington, D.C. 20037
Attention: Joseph G. Passaic, Jr., Esq.
(g) Counterparts. This Agreement and any amendments hereto may be executed
in two counterparts, each of which shall be considered one and the same
agreement and shall become effective when both counterparts have been signed, it
being understood that both parties need not sign the same counterpart.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and after the occurrence of a
Purchase Event Grantee may assign its rights under this Agreement to one or more
third parties, provided, however, that Grantee may not assign this Agreement,
without the written consent of Issuer, to any third party who, to Grantee's
knowledge, would, upon exercise of the Option, own in excess of 6% of Issuer's
then issued and outstanding common stock. Subject to the preceding sentence,
this Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. As used in this
Agreement, Grantee shall include any person to whom this Agreement or the Option
shall be assigned by a previous Grantee in accordance with the terms hereof.
(i) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in order
to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement may
be enforced by either party through specific performance, injunctive relief and
other equitable relief. Both parties
B-13
<PAGE>
ANNEX B
further agree to waive any requirement for the securing or posting of any bond
in connection with the obtaining of any such equitable relief and that this
provision is without prejudice to any other rights that the parties hereto may
have for any failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
PULSE BANCORP, INC.
BY: /s/ George T. Hornyak, Jr.
----------------------------
Name: George T. Hornyak, Jr.
Title: President and Chief Executive Officer
FIRST SOURCE BANCORP, INC.
BY: /s/ John P. Mulkerin
----------------------------
Name: John P. Mulkerin
Title: President and Chief Executive Officer
B-14
